SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Registrant, State of
Incorporation, Address
Commission of Principal Executive I.R.S. Employer
File Number Offices and Telephone Number Identification No.
- ------------ ----------------------------- -------------------
1-11327 ILLINOVA CORPORATION 37-1319890
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525-1805
(217) 424-6600
1-3004 ILLINOIS POWER COMPANY 37-0344645
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525-1805
(217) 424-6600
Securities registered pursuant to Section 12(b) of the Act:
Each of the following securities registered pursuant to Section 12(b) of the
Act are listed on the New York Stock Exchange.
Title of each class Registrant
- ------------------- ----------
Common Stock (a) Illinova Corporation
Preferred stock, cumulative, Illinois Power Company
$50 par value
4.08% Series 4.26% Series 4.70% Series
4.20% Series 4.42% Series
Preferred stock, cumulative,
no par value
Adjustable Rate Series A
Mandatorily redeemable preferred securities of subsidiary
(Illinois Power Capital, L.P.)
9.45% Series
Trust originated preferred securities of subsidiary
(Illinois Power Financing 1)
8.00% Series
First mortgage bonds
6 1/2% Series due 1999 8 3/4% Series due 2021
7.95% Series due 2004
New mortgage bonds
6 1/8% Series due 2000 6 3/4% Series due 2005
5 5/8% Series due 2000 8% Series due 2023
6 1/2% Series due 2003 7 1/2% Series due 2025
(a) Illinova Common Stock is also listed on the Chicago
Stock Exchange.
Indicate by check mark whether the registrants (1) have
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2)
have been subject to such filing requirements for the past
90 days.
Illinova Corporation Yes [X] No
Illinois Power Company Yes [X] No
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Illinova Corporation [X]
Illinois Power Company [X]
The aggregate market value of the voting common stock
held by non-affiliates of Illinova Corporation at February
28, 1997 was approximately $1.9 billion. Illinova
Corporation is the sole holder of the common stock of
Illinois Power Company. The aggregate market value of the
voting preferred stock held by non-affiliates of Illinois
Power Company at February 28, 1997, was approximately $75
million. The determination of stock ownership by non-
affiliates was made solely for the purpose of responding to
this requirement and the registrants are not bound by this
determination for any other purpose.
The number of shares of Illinova Corporation Common
Stock, without par value, outstanding on February 28, 1997
was 75,681,937.
The number of shares of Illinois Power Company Common
Stock, without par value, outstanding on February 28, 1997
was 72,233,040, all of which is owned by Illinova
Corporation.
Documents Incorporated by Reference
1. Portions of the 1996 Annual Report to Shareholders of
Illinova Corporation in the appendix to the Illinova
Corporation Proxy Statement.
(Parts I, II, III and IV of Form 10-K)
2. Portions of the 1996 Annual Report to Shareholders of
Illinois Power Company in the appendix to the Illinois
Power Company Information Statement.
(Parts I, II, III and IV of Form 10-K)
3. Portions of the Illinova 1996 Proxy Statement.
(Part III of Form 10-K)
4. Portions of the Illinois Power 1996 Information
Statement.
(Part III of Form 10-K)
ILLINOVA CORPORATION
ILLINOIS POWER COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 1996
This combined Form 10-K is separately filed by Illinova
Corporation and Illinois Power Company. Information contained
herein relating to Illinois Power Company is filed by Illinova
Corporation and separately by Illinois Power Company on its own
behalf. Illinois Power Company makes no representation as to
information relating to Illinova Corporation or its subsidiaries,
except as it may relate to Illinois Power Company.
TABLE OF CONTENTS
Part I Page
Item 1. Business 6
General 6
Competition 7
Customer and Revenue Data 9
Electric Business 9
Overview 9
Soyland 10
Fuel Supply 10
Construction Program 13
Clinton Power Station 13
General 13
Decommissioning Costs 14
Accounting Matters 14
Dividends 15
Gas Business 15
Gas Supply 15
Environmental Matters 15
Air Quality 15
Clean Air Act 16
Manufactured-Gas Plant(MGP) Sites 16
Water Quality 16
Other Issues 17
Electric and Magnetic Fields 17
Environmental Expenditures 18
Research and Development 18
Regulation 18
Executive Officers of Illinova Corporation 19
Executive Officers of Illinois Power Company 19
Operating Statistics 20
Item 2. Properties 20
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Part II
Item 5. Market for Registrants' Common Equity
and Related Stockholder Matters 22
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 22
Item 8. Financial Statements and Supplementary
Data 22
TABLE OF CONTENTS (Continued)
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 23
Part III
Item 10. Directors and Executive Officers of
the Registrants 24
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain
Beneficial Owners and Management 24
Item 13. Certain Relationships and Related
Transactions 24
Part IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 25-26
Signatures 27-28
Exhibit Index 29
PART I
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ITEM 1. Business
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General
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Illinois Power Company (IP) was incorporated under the laws
of the State of Illinois on May 25, 1923.
Illinova Corporation (Illinova) was incorporated under the
laws of the State of Illinois on May 27, 1994 and currently
serves as the parent holding company of four principal operating
subsidiaries: IP, Illinova Generating Company (IGC), Illinova
Energy Partners, Inc. (IEPI), and Illinova Insurance Company
(IIC). In May, 1996, the services group of Illinova Power
Marketing (IPMI) consolidated with Illinova Energy Services (IES)
and the non-regulated marketing activities of Illinova to form a
new venture known as IEPI. On February 12, 1997, the Illinova
Board of Directors approved a merger of IEPI and IPMI. In the
merger, IPMI will be the surviving corporation and will change
its name to IEPI.
IP, the primary business of Illinova, is engaged in the
generation, transmission, distribution and sale of electric
energy and the distribution, transportation and sale of natural
gas in the State of Illinois. IP is affected by changes in the
electric utility industry driven by regulatory and legislative
initiatives to introduce competition and end monopoly franchises
in at least the generation side of the business. One aspect of
this change is "direct access," meaning giving customers the
freedom to purchase electricity from suppliers they choose. In
1995, IP was a participant in the development of Energy Choice
2000, a basis for formal review of utility regulation in
Illinois. From this framework, IP continued its efforts to
ensure a managed transition to direct access with the
introduction of a legislative proposal in November 1996. For a
more detailed discussion of these developments, refer to the
"Competition" section of this item.
IP provides funds to Illinova for operations and
investments. Illinova accrues interest due to IP on any borrowed
funds at a rate equal to the higher of the rate that Illinova
would have to pay if it used a currently outstanding line of
credit, or IP's actual cost of the funds provided. At the end of
each quarter, if needed, IP effects a common stock repurchase
from Illinova by accepting shares equal in market value to the
amount of the funds provided to Illinova during the quarter plus
the accrued interest for the quarter. During 1996, IP provided
approximately $81 million in funds to Illinova. IP also provides
funds to Illinova in the form of cash dividends payable on the
Common Stock of IP. In 1996, approximately $85 million in such
dividends was declared and paid. Since Illinova's inception in
1994, IP has provided approximately $135 million to Illinova.
For further information on IP common stock repurchases, see Item
7 "Management's Discussion and Analysis of Financial Condition
and Results of Operation" of this report.
IP's financial position and results of operations are
currently the principal factors affecting Illinova's consolidated
financial position and results of operations.
IGC is Illinova's wholly-owned independent power subsidiary
that invests in energy-related projects throughout the world.
IGC is an equity partner with Tenaska, Inc. in four natural gas-
fired generation plants, of which three plants totaling
approximately 700 megawatts (MW) are in operation and one 240 MW
plant has had construction suspended. Tenaska, Inc. is an Omaha,
Nebraska-based developer of independent power projects throughout
the United States. IGC also owns 50 percent of the North
American Energy Services Company (NAES). NAES supplies a broad
range of operations, maintenance and support services to the
world-wide independent power generation industry and operates the
Tenaska generation plants in which IGC has an equity interest.
IGC is an equity partner in the Indeck North American Power Fund
(Fund). The Fund has generation projects in Long Beach,
California, and Pepperell, Massachusetts. In addition to these
ventures, IGC is involved in generation projects in Teesside,
England; Puerto Cortez, Honduras; Zhejiang Province, People's
Republic of China; Aguaytia, Peru; Old Harbour, Jamaica;
Barranquilla, Columbia; and Balochistan, Pakistan. In August,
1996, Illinova's interest in the 1000 MW coal-fired plant in
Joppa, Illinois was transferred to IGC.
IEPI is Illinova's wholly-owned subsidiary that engages in
the brokering and marketing of electric power and gas and the
development and sales of energy related services. In May 1995,
IPMI obtained approval from the Federal Energy Regulatory
Commission (FERC) to conduct business as a marketer of electric
power and gas to various customers outside of IP's present
service territory. In September 1995, IPMI began buying and
selling wholesale electricity in the western United States. IPMI
owns 50 percent of Tenaska Marketing Ventures (TMV). IPMI and
TMV have formed Tenaska Marketing Canada to market natural gas in
Canada. In May 1996, IPMI expanded operations to include the
midwestern United States. In July 1996, IP received FERC
approval to sell electricity to IPMI without prior transaction
approval from FERC.
IIC was licensed in August 1996 by the State of Vermont as a
captive insurance company. The primary business of IIC is to
insure the risks of the subsidiaries of Illinova and risks
related to or associated with their business enterprises.
Competition
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Competition has become a dominant issue for the electric
utility industry. It has been promoted by federal legislation,
starting with the Public Utility Regulatory Policies Act of 1978,
which facilitated the development of co-generators and
independent power producers. Federal promotion of competition
continued with enactment of the Energy Policy Act of 1992, which
authorized the FERC to mandate wholesale wheeling of electricity
by utilities at the request of certain authorized generating
entities and electric service providers. Wheeling is the
transport of electricity generated by one entity over
transmission and distribution lines belonging to another entity.
Competition arises not only from co-generation or
independent power production, but also from municipalities
seeking to extend their service boundaries to include customers
being served by utilities. The right of municipalities to have
power wheeled to them by utilities was established in 1973. IP
has been obligated to wheel power for municipalities and
cooperatives in its territory since 1976. The Illinois Commerce
Commission (ICC) has been supportive of IP's attempts to maintain
its customer base through approval of special contracts and
flexible pricing that help IP to compete with existing municipal
providers.
Further competition may be introduced by state action or by
federal regulatory action. While the Energy Policy Act precludes
the FERC from mandating retail wheeling, state regulators and
legislators could open utility franchise territories to full
competition at the retail level. Legislative action at the state
level would be required for retail wheeling to occur in Illinois.
Retail wheeling involves the transport of electricity to end-use
residential, commercial or industrial customers. Such a change
would be a significant departure from existing regulation in
which public utilities have an universal obligation to serve the
public in return for relatively protected service territories and
regulated pricing which is designed to allow a reasonable return
on prudent investment and recovery of operating costs.
On November 21, 1996, IP and its partners in the Illinois
Coalition for Responsible Electricity Choice announced a
legislative proposal which would begin transformation of the
Illinois electric industry from a highly regulated monopoly to a
competitive, customer-choice environment. The proposal, which
was introduced in the Illinois House of Representatives on
January 29, 1997, would allow for a managed transition to direct
access for all consumers by the year 2005. The plan balances the
need to ensure the financial stability of current utility
providers with the timing of customer choice. Other parties have
introduced plans that allow for full competition by as early as
1998. On February 18, 1997, the Citizen's Utility Board (CUB)
outlined its regulatory reform proposal which would require
utilities to separate their generation assets, shop for the
cheapest available power in the wholesale market, and sell that
power to consumers, by January 1999. In addition, CUB's plan
calls for direct access for all customers by April 2000. On
March 11, 1997, a new restructuring bill was introduced in the
Illinois House. This bill, supported by a broad-based alliance
representing residential, commercial and industrial consumers,
would allow all customers served by investor-owned utilities to
have equal access to a competitive electric market by May 1,
1998. The plan also calls for a 10 percent rate reduction in the
first year, with further reductions possible in the second and
third years. Utilities needing additional revenues to ensure
financial viability and reliability would be able to participate
in a trust fund by charging a surcharge to all consumers on their
system.
A Joint Committee on Electric Utility Regulatory Reform of
the Illinois General Assembly deliberated the issue of regulatory
reform for 18 months. Their report, issued December 4, 1996,
stated that the Committee was unable to reach consensus on a
legislative proposal. It is reasonable to assume that
significant change will be made to the state laws governing IP's
electric operations, but impossible at this time to predict what
these changes will be.
If there is significant change in the laws governing
electric utility operations, IP may be required to discontinue
reporting under Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation"
(FAS 71). According to disclosures made by utilities in states
that have enacted such legislation, the Securities and Exchange
Commission (SEC) is raising the issue of continued qualification
to report under FAS 71, even where the legislation provides for a
transition to full competition and for stranded cost recovery.
Reporting under FAS 71 allows companies whose service obligations
and prices are regulated, to maintain assets on their balance
sheets representing costs they reasonably expect to recover from
customers in the future, through inclusion of such costs in their
rates. If IP ceased to qualify for reporting under FAS 71, it
could be required to write off its regulatory assets, and this
could have a material, adverse impact on IP and its operations.
IP received approval from the ICC on March 13, 1996, and
from FERC on April 24, 1996, to conduct an open access experiment
beginning in 1996 and ending on December 31, 1999. The
experiment allows certain industrial customers to purchase
electricity and related services from other sources. On April
25, 1996, the first of the 21 eligible customers began buying a
portion of their electricity from a supplier other than IP.
Currently, 16 customers are participating in the experiment. The
experiment has demonstrated immediate advantages competition
brings to customers, such as lower prices and innovative service
offerings. It has also provided evidence of challenges the
industry faces as it moves toward customer choice. Challenges
include dispatching small amounts of electricity such as one or
two megawatt hours (MWHs), and the absence of requisite
technology to dispatch fractional MWHs. In 1996, the experiment
cost IP approximately $3.2 million in lost revenue net of avoided
fuel cost and variable operating expenses. This loss was
partially offset by selling the surplus energy and capacity on
the open market and by $.9 million in transmission service
charges.
The issue of competition is one that raises both risks and
opportunities. At this time, the ultimate effect of competition
on Illinova's consolidated financial position and results of
operations is uncertain.
Customer and Revenue Data
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Approximately 79 percent and 21 percent of Illinova's and
its subsidiaries' operating revenues are derived from the sale of
electricity and the sale and transportation of natural gas,
respectively. The territory served by IP comprises substantial
areas in northern, central and southern Illinois, including ten
cities with populations greater than 30,000 (1990 Federal Census
data). IP supplies electric service at retail to an estimated
aggregate population of 1,265,000 in 310 incorporated
municipalities, adjacent suburban and rural areas, and numerous
unincorporated communities and retail natural gas service to an
estimated population of 920,000 in 257 incorporated
municipalities and adjacent areas. IP holds franchises in all of
the 310 incorporated municipalities in which it furnishes retail
electric service and in all of the 257 incorporated
municipalities in which it furnishes retail gas service. At
February 28, 1997, IP served 577,862 active electric customers
and 404,838 active gas customers. These numbers do not include
non-metered customers such as street lights. Sales of
electricity and gas sales and transportation are affected by
seasonal weather patterns, and, therefore, operating revenues and
associated operating expenses are not distributed evenly during
the year.
For more information, see "Note 13 - Segments of Business"
on page A-30 of the 1996 Annual Report to Shareholders in the
appendix to the Illinova Proxy Statement which is incorporated
herein by reference. To the extent that information incorporated
by reference herein appears identically in both the 1996 Annual
Report to Shareholders of Illinova Corporation and the 1996
Annual Report to Shareholders of Illinois Power Company,
reference will be made herein only to the 1996 Annual Report to
Shareholders of Illinova Corporation, and such reference will be
deemed to include a reference to the 1996 Annual Report of
Illinois Power Company.
Electric Business
-----------------
Overview
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IP supplies electric service at retail to residential,
commercial and industrial consumers in substantial portions of
northern, central and southern Illinois. Electric service at
wholesale is supplied for resale to one electric utility and to
the Illinois Municipal Electric Agency (IMEA) as agent for 11
municipalities. IP also has a power coordination agreement with
Soyland Power Cooperative, Inc. (Soyland). See the sub-caption
"Soyland" hereunder for additional information. In 1996, IP
provided interchange power to 44 entities, including 27 power
marketers.
IP's highest system peak hourly demand (native load) in 1996
was 3,444,651 kilowatts on July 18, 1996. IP's record for peak
load is 3,666,738 kilowatts, set on July 13, 1995.
IP owns and operates generating facilities with a total net
summer capability of 4,571,250 kilowatts. The generating
capability comes from six major steam generating plants and three
peaking service combustion turbine plants. See Item 2
"Properties" for further information.
IP is a participant, together with Union Electric Company
(UE) and Central Illinois Public Service Company (CIPS), in the
Illinois-Missouri Power Pool which was formed in 1952. The Pool
operates under an interconnection agreement which provides for
the interconnection of transmission lines. This agreement has no
expiration date, but any party may withdraw from the agreement by
giving 36 months notice to the other parties.
IP, CIPS and UE have a contract with the Tennessee Valley
Authority (TVA) providing for the interconnection of the TVA
system with those of the three companies to exchange economy and
emergency power and for other working arrangements. This
contract has no expiration date, but any party may withdraw from
the agreement by giving 5 years written notice to the other
parties.
IP also has interconnections with Indiana-Michigan Power
Company, Commonwealth Edison Company, Central Illinois Light
Company, Mid-American Energy Corporation, Kentucky Utilities
Company, Southern Illinois Power Cooperative, EEI, Soyland and
the City of Springfield, Illinois.
IP is a member of the Mid-America Interconnected Network,
one of ten regional reliability councils established to
coordinate plans and operations of member companies regionally
and nationally.
In August 1996, IP transferred through a dividend its 20%
ownership of the capital stock of Electric Energy, Inc. (EEI) to
Illinova. EEI was organized to own and operate a steam electric
generating station and related transmission facilities near
Joppa, Illinois to supply electric energy to the U.S. Department
of Energy (DOE) for its project near Paducah, Kentucky.
Soyland
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IP has entered into an agreement with Soyland which will,
subject to receipt of regulatory approvals, terminate the
IP/Soyland Clinton Ownership Participation Agreement (OPA) and
amend the IP/Soyland Power Coordination Agreement (PCA). Under
terms of the agreement, IP will acquire Soyland's 13.2% ownership
share of Clinton with no capital outlay. On March 13, 1997,
approval to transfer Soyland's license to IP was granted from the
Nuclear Regulatory Commission (NRC). Soyland's nuclear
decommissioning trust also will be transferred to IP, which will
assume all of Soyland's ownership obligations, including those
related to decommissioning.
As part of the agreement, IP will be responsible for
providing Soyland's capacity and energy needs for a period of at
least ten and potentially twenty years charging fixed fees
designed to compensate IP for Clinton costs currently recovered
from Soyland under the OPA. This agreement, and the amended PCA,
are subject to approval by FERC, and petitions seeking such
approvals have been filed.
For more information on the PCA, see "Note 6 - Facilities
Agreements" on page A-23 of the 1996 Annual Report to
Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference.
Fuel Supply
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Coal was used to generate approximately 76% of the
electricity produced by IP during 1996, with nuclear contributing
22% and other fuels accounting for 2%. Based on current
forecasts, the percentages of generation attributable to nuclear
fuel is projected to increase to as much as 32% while projected
generation from coal will decline to about 68% during those years
in which there is not a scheduled refueling outage for the
Clinton Power Station (Clinton).
IP's rate schedules contain provisions for passing along to
its electric customers increases or decreases in the cost of
fuels used in its generating stations. For additional
information see the information under the sub-captions "Revenue
and Energy Cost" of "Note 1 - Summary of Significant Accounting
Policies" on page A-15 of the 1996 Annual Report to Shareholders
in the appendix to the Illinova Proxy Statement which is
incorporated herein by reference.
COAL - Coal is expected to be a major source of fuel for future
generation. Through both long-term and short-term contracts, IP
has obtained commitments for the major portion of future coal
requirements. IP has short-term contracts with four suppliers
which last through 1997 and long-term contracts with two
suppliers which last through 1999 and 2010. Negotiations are
under way to address the contracts expiring at the end of 1997.
Contracts renegotiated in 1993 and 1994 have provided for the
continued economic use of high sulfur Illinois coal while IP
complies with Phase I of the Clean Air Act Amendments that became
effective January 1, 1995.
Spot purchases of coal in 1996 represented 2.3% of IP's
total coal purchases. IP believes that it will be able to obtain
sufficient coal to meet its future generating requirements.
However, IP is unable to predict the extent to which coal
availability and price may fluctuate in the future. Coal
inventories on hand at December 31, 1996 represented a 22-day
supply based on IP's average daily burn projections for 1997.
IP continues to evaluate and obtain alternate fuel delivery
and unloading facilities for greater flexibility of fuel
supplies. New rail unloading facilities at the Havana Station
(Havana) became operational in the spring of 1996.
NUCLEAR - IP leases nuclear fuel from Illinois Power Fuel Company
(Fuel Company). The Fuel Company, which is 50% owned by IP, was
formed in 1981 for the purpose of leasing nuclear fuel to IP for
Clinton. Lease payments are equal to the Fuel Company's cost of
fuel as consumed (including related financing and administrative
costs). As of December 31, 1996, the Fuel Company had an invest
ment in nuclear fuel of approximately $96 million. IP is
obligated to make subordinated loans to the Fuel Company at any
time the obligations of the Fuel Company which are due and
payable exceed the funds available to the Fuel Company. At
December 31, 1996, IP had no outstanding loans to the Fuel
Company.
At December 31, 1996, IP's net investment in nuclear fuel
consisted of $42 million of Uranium 308. This inventory
represents fuel used in connection with the sixth reload of
Clinton which began in October 1996. At December 31, 1996, the
unamortized investment of the nuclear fuel assemblies in the
reactor was $55 million.
IP has two long-term contracts for the supply of uranium
concentrates. One contract is with Cameco, a Canadian
corporation. The Cameco contract was renegotiated in 1994 to
lower the price and provide 55% to 65% of Clinton's estimated
fuel requirements through 2000. The decision to utilize Cameco
for the additional 10% of Clinton's fuel requirements is made the
year before each delivery and depends on the estimated price and
availability from the spot market versus the estimated contract
prices. The contract with Cameco is stated in terms of U. S.
Dollars.
The second uranium contract is with U.S. Energy/Crested
Corporation. Originally, it was for 1,179,240 pounds of uranium
concentrates with deliveries through 1998. IP purchased
approximately one half of the uranium concentrates supply under
this contract before it was terminated in September 1993. In
October 1993, IP filed suit in U.S. District Court, Central
District of Illinois, Danville, seeking a declaration that IP's
termination of the U.S. Energy contract was permitted by the
terms of the contract as they relate to rights of termination in
the event of certain receivership proceedings. On September 1,
1994, the Court granted defendants' motions for summary judgment
and ruled that the termination constituted a breach of contract.
On June 15, 1995, IP concluded a negotiated settlement with U.S.
Energy/Crested Corporation. That settlement reduced the quantity
to be purchased and shortened the contract term by one year,
while increasing the price per pound. The final delivery under
this settlement will be made in May 1997.
Conversion services for the period 1991-2001 are contracted
with Sequoyah Fuels. Sequoyah Fuels closed its Oklahoma
conversion plant in 1992 and joined with Allied Chemical Company
to form a marketing company named CoverDyn. All conversion
services will be performed at Allied's Metropolis, Illinois
facility, but Sequoyah Fuels retains the contract with IP.
IP has a utility Services contract for uranium enrichment
requirements with the Department of Energy (DOE) which provides
70% of the enrichment requirements of Clinton through September
1999. The remaining 30% has been contracted with the DOE through
an amendment to its incentive pricing plan through 1999. This
amendment allows IP to either purchase the enrichment services at
the DOE's incentive price or provide electricity at DOE's
Paducah, Kentucky enrichment plant at an agreed exchange rate.
Legislation was passed in October 1992 to create a new
private government corporation, the United States Enrichment
Corporation (USEC), for enrichment services. All of the DOE's
assets including all contracts, were transferred to the USEC as
of July 1993.
A contract with General Electric Company provides fuel
fabrication requirements for the initial core and approximately
19 reloads, or through 2016.
Beyond the stated commitments, IP may enter into additional
contracts for uranium concentrates, conversion to uranium
hexafluoride, enrichment and fabrication.
Currently, commercial reprocessing of spent nuclear fuel is
not allowed in the U.S. The Nuclear Waste Policy Act of 1982
(NWPA) was enacted to establish a government policy with respect
to disposal of spent nuclear fuel and high-level radioactive
waste. On July 6, 1984, IP signed a contract with the DOE for
disposal of spent nuclear fuel and/or high-level radioactive
waste. Under the contract, IP is required to pay the DOE one
mill (one-tenth of a cent) per net kilowatt-hour (one dollar per
MWH) of electricity generated and sold. IP is recovering this
amount through rates charged to customers.
On June 20, 1994, IP and 13 other utilities filed an action
in the D.C. Circuit Court of Appeals asking the Court to rule
that the DOE is obligated to take responsibility for spent
nuclear fuel by January 31, 1998 under the NWPA. The utilities
asked the Court to confirm the DOE's commitment and to order the
DOE to develop a compliance program with appropriate deadlines.
The utilities also asked for relief from the ongoing funding
requirements or to have an escrow account established for future
funds paid to DOE.
A three-judge panel ruled in July 1996 that the DOE's
obligation to take spent fuel by the 1998 date specified in the
NWPA is binding. The DOE notified utilities in December 1996
that it may not be able to meet the 1998 deadline, and solicited
utility suggestions on how to accommodate the potential delay.
In January 1997, petitions were filed in the D.C. Circuit Court
of Appeals by several utilities and state utility commissions,
seeking further enforcement of DOE's obligation, and seeking
authority to make further Nuclear Waste Fund payments into
escrow.
IP has on-site storage capacity that will accommodate its
spent fuel storage needs until the year 2004, based on current
operating levels. If by that date the U.S. Government has not
complied with its statutory obligation to dispose of spent fuel,
and IP has continued to operate the plant at current levels, IP
will have to use alternative means of disposal, such as dry
storage in casks on site or transportation of the fuel rods to
private or collectively-owned utility repositories. IP is
currently an equity partner with 10 other utilities in an effort
to develop a private temporary repository. Attempts to reach
agreement with the Mescalaro Apache Tribe of New Mexico ended in
early 1996; however, the group signed a lease in December 1996
with the Goshute Tribe to use land on its Utah reservation. A
spent fuel storage application is expected to be submitted to the
NRC in 1997. Continued participation in the partnership will
depend on the technological and economic viability of the
project. Current technology allows safe, dry, on-site storage,
subject to licensing and local permitting requirements.
Under the Energy Policy Act of 1992, IP is responsible for a
portion of the cost to decontaminate and decommission the DOE's
uranium enrichment facilities. Each utility is assessed an
annual fee for a period of fifteen years based on quantities
purchased from the DOE facilities prior to passage of the Act.
At December 31, 1996, IP has a remaining liability of $5.0
million representing future assessments. IP is recovering these
costs, as amortized, through its fuel adjustment clause.
OIL and GAS - IP used natural gas and oil to generate 0.6% of the
electricity produced in 1996. IP has not experienced difficulty
in obtaining adequate supplies of these resources. However, IP
is unable to predict the extent to which oil and gas availability
and price may fluctuate in the future.
Reference is made to the sub-caption "Environmental Matters"
hereunder for information regarding pollution control matters
relating to IP's fuel supply.
Construction Program
- --------------------
To meet anticipated needs, Illinova and IP have used
internally generated funds and external financings. The timing
and amount of external financings depend primarily on economic
and financial market conditions, cash needs and capitalization
ratio objectives.
For more information on Illinova's construction program and
liquidity, see "Note 4 - Commitments and Contingencies" on page A-
18 of the 1996 Annual Report to Shareholders in the appendix to
the Illinova Proxy Statement which is incorporated herein by
reference; "Note 5 - Lines of Credit and Short-Term Loans" on
pages A-22 and A-23 of the 1996 Annual Report to Shareholders in
the appendix to the Illinova Proxy Statement which is
incorporated herein by reference; and "Capital Resources and
Requirements" in "Management's Discussion and Analysis" on page A-
7 of the 1996 Annual Report to Shareholders in the appendix to
the Illinova Proxy Statement which is incorporated herein by
reference.
For more information on IP's construction program and
liquidity, see "Note 3 - Commitments and Contingencies" on page A-
17 of the 1996 Annual Report to Shareholders in the appendix to
the Illinois Power Information Statement which is incorporated
herein by reference; "Note 4 - Lines of Credit and Short-Term
Loans" on page A-21 of the 1996 Annual Report to Shareholders in
the appendix to the Illinois Power Information Statement which is
incorporated herein by reference; and "Capital Resources and
Requirements" in "Management's Discussion and Analysis" on page A-
7 of the 1996 Annual Report to Shareholders in the appendix to
the Illinois Power Information Statement which is incorporated
herein by reference.
Clinton Power Station
- ---------------------
General
-------
IP and Soyland share ownership of Clinton, with IP owning
86.8% and Soyland 13.2%. On February 21, 1997, IP filed with
FERC for approval to transfer Soyland's ownership of Clinton to
IP. IP has entered into an agreement with Soyland which will,
subject to receipt of regulatory approvals, terminate the
IP/Soyland Clinton Ownership Participation Agreement (OPA) and
amend the IP/Soyland PCA. Under terms of the agreement, IP will
acquire Soyland's 13.2% ownership share of IP's Clinton Power
Station with no capital outlay. On March 13, 1997, approval to
transfer Soyland's license to IP was granted from the NRC.
Soyland's nuclear decommissioning trust also will be transferred
to IP, which is assuming all of Soyland's ownership obligations,
including those related to decommissioning.
Clinton was placed in service in 1987 and represents
approximately 20% of IP's installed generation capacity. For
more information on the Clinton Power Station, see "Note 3 -
Clinton Power Station" on page A-18 of the 1996 Annual Report to
Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference.
On September 6, 1996, leakage at a recirculation pump seal
caused IP operations personnel to shut down Clinton. IP decided
not to restart Clinton prior to the start of the scheduled
refueling outage on October 13, 1996. During the current
refueling outage, Clinton has attempted to modify the first of
three divisions of its electrical power system. Because of
deficiencies in the implementation of the new transformer design,
the decision was made to return to the old transformers until the
newer design is modified and fully tested. This unanticipated
delay, along with necessary NRC approval of the action, will
delay start up of Clinton. It is anticipated that Clinton will
return to service before the summer cooling season, when demand
is greatest. For more information on the shutdown and results of
the NRC findings, see "Management's Discussion and Analysis -
Regulatory Matters" on page A-3 of the 1996 Annual Report to
Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference.
Decommissioning Costs
---------------------
IP is responsible for its ownership share of the costs of
decommissioning Clinton and for spent nuclear fuel disposal
costs. IP is collecting future decommissioning costs through its
electric rates based on an ICC-approved formula that allows IP to
adjust rates annually for changes in decommissioning cost
estimates. For more information on the decommissioning costs
related to the Clinton Power Station, see "Note 4 - Commitments
and Contingencies" on page A-19 of the 1996 Annual Report to
Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference.
Accounting Matters
- ------------------
The Illinova consolidated financial statements include the
accounts of Illinova Corporation, a holding company; IP, a
combination electric and gas utility; IGC, a wholly-owned
subsidiary that invests in energy-related projects and competes
in the independent power market; IPMI, a wholly-owned subsidiary
that markets energy and energy-related services; IEPI, a wholly-
owned subsidiary that develops and markets energy-related
services to the unregulated energy market; and IIC, a wholly-
owned subsidiary whose primary business is to insure certain
risks of Illinova and its subsidiaries.
IP's consolidated financial position and results of
operations are currently the principal factors affecting
Illinova's consolidated financial position and results of
operations. All significant intercompany balances and
transactions have been eliminated from the consolidated financial
statements. All non-utility operating transactions are included
in the section titled Other Income and Deductions, "Miscellaneous-
net" in the Consolidated Statements of Income.
The IP consolidated financial statements include the
accounts of Illinois Power Capital, L.P., a limited partnership
in which IP serves as the general partner and Illinois Power
Financing I, a statutory business trust in which IP serves as
sponsor.
IP currently prepares its financial statements in accordance
with FAS 71. Accordingly, IP records various regulatory assets
and liabilities to reflect the actions of regulators. It is
reasonable to assume that significant changes will be made to
state laws governing IP's electric operations, but impossible to
predict what those changes will be. Management believes that IP
currently meets the criteria for continued application of FAS 71
but will continue to evaluate significant changes in the
regulatory and competitive environment to assess IP's overall
compliance with such criteria. These criteria include: 1)
whether rates set by regulators are designed to recover the
specific costs of providing regulated services and products to
customers and 2) whether regulators continue to establish rates
based on cost. In the event that management determines that IP,
or significant portions of its business, no longer meet the
criteria for application of FAS 71, an extraordinary non-cash
charge to income would be recorded in order to remove the effects
of the actions of regulators from the consolidated financial
statements. The discontinuation of application of FAS 71 would
likely have a material adverse effect on Illinova's and IP's
consolidated financial position and results of operations.
Dividends
- ---------
On December 11, 1996, Illinova increased the quarterly
common stock dividend 11%, to $.31 per share from $.28 per share,
effective with the common stock dividend for the first quarter of
1997.
Gas Business
------------
IP supplies retail natural gas service to an estimated
aggregate population of 920,000 in 257 incorporated municipali
ties, adjacent suburban areas and numerous unincorporated
communities. IP does not sell gas for resale.
IP's rate schedules contain provisions for passing through
to its gas customers increases or decreases in the cost of
purchased gas. For information on revenue and energy costs, see
the sub-caption "Revenue and Energy Cost" of "Note 1 - Summary of
Significant Accounting Policies" on page A-15 of the 1996 Annual
Report to Shareholders in the appendix to the Illinova Proxy
Statement that is incorporated herein by reference.
IP has eight underground gas storage fields having a total
capacity of approximately 15.2 million MMBtu and a total
deliverability on a peak day of about 347,000 MMBtu. In addition
to the capacity of the eight underground storage fields, IP has
contracts with various natural gas suppliers and producers for
10.2 million MMBtu of underground storage capacity and a total
deliverability on a peak day of 160,000 MMBtu. Operation of un
derground storage permits IP to increase deliverability to its
customers during peak load periods by taking gas into storage
during the off-peak months.
IP owns two active liquefied petroleum gas plants having an
aggregate peak-day deliverability of about 20,000 MMBtu for peak-
shaving purposes. Gas properties include approximately 8,000
miles of mains.
IP experienced its 1996 peak-day send out of 758,927 MMBtu
of natural gas on February 2, 1996. This compares with IP's
record peak-day send out of 857,324 MMBtu of natural gas on
January 10, 1982.
Gas Supply
- ----------
IP has contracts with six interstate pipeline companies for
firm transportation and storage services. These contracts have
varying expiration dates ranging from 1998 to 2002. IP also
enters into contracts for the acquisition of natural gas supply.
Those contracts range in duration from one month to five months.
Environmental Matters
---------------------
IP is subject to regulation by certain federal and Illinois
authorities with respect to environmental matters and may in the
future become subject to additional regulation by such
authorities or by other federal, state and local governmental
bodies. Existing regulations affecting IP are principally
related to air and water quality, hazardous wastes and toxic
substances.
Air Quality
- -----------
Pursuant to the Federal Clean Air Act (Act), the United
States Environmental Protection Agency (USEPA) has established
ambient air quality standards for air pollutants which, in its
judgment, have an adverse effect on public health or welfare.
The Act requires each state to adopt laws and regulations,
subject to USEPA approval, designed to achieve such standards.
Pursuant to the Illinois Environmental Protection Act, the
Illinois Pollution Control Board (Board) adopted and, along with
the Illinois Environmental Protection Agency (IEPA), is enforcing
a comprehensive set of air pollution control regulations which
include emission limitations and permitting and monitoring and
reporting requirements.
The air pollution regulations of the Board impose
limitations on emissions of particulate, sulfur dioxide, carbon
monoxide, nitrogen oxides and various other pollutants.
Enforcement of emission limitations is accomplished in part
through the regulatory permitting process. IP's practice is to
obtain an operating permit for each source of regulated
emissions. Presently, it has a total of approximately 100
permits for emission sources at its power stations and other
facilities, expiring at various times. In addition to having the
requisite operating permits, each source of regulated emissions
must be operated within the regulatory limitations on emissions.
Verification of such compliance is usually accomplished by
reports to regulatory authorities and inspections by such
authorities.
In accordance with the requirements of the Illinois Clean
Air Act Permit Program (CAAPP), IP submitted new air permit
applications for each of its generating facilities in 1995. The
IEPA will review these applications and is expected to issue
CAAPP permits beginning in 1997.
In addition to the sulfur dioxide emission limitations for
existing facilities, both the USEPA and the State of Illinois
adopted New Source Performance Standards (NSPS) applicable to
coal-fired generating units limiting emissions to 1.2 pounds of
sulfur dioxide per million Btu of heat input. This standard is
applicable to IP's Unit 6 at the Havana power station. The
federal NSPS also limit nitrogen oxides, opacity and particulate
emissions and imposes certain monitoring requirements. In 1977
and 1990 the Act was amended and, as a result, USEPA has adopted
more stringent emission standards for new sources. These
standards would apply to any new plant constructed by IP.
Clean Air Act
- -------------
For information on the impacts of the Clean Air Act
Amendments of 1990, see "Note 4 - Commitments and Contingencies"
on pages A-20 and A-21 of the 1996 Annual Report to Shareholders
in the appendix to the Illinova Proxy Statement which is
incorporated herein by reference.
Manufactured-Gas Plant (MGP) Sites
- ----------------------------------
For information on MGP sites, see "Note 4 - Commitments and
Contingencies" on page A-21 of the 1996 Annual Report to
Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference.
Water Quality
- -------------
The Federal Water Pollution Control Act Amendments of 1972
require that National Pollutant Discharge Elimination System
(NPDES) permits be obtained from USEPA (or, when delegated, from
individual state pollution control agencies) for any discharge
into navigable waters. Such discharges are required to conform
with the standards, including thermal, established by USEPA and
also with applicable state standards.
Enforcement of discharge limitations is accomplished in part
through the regulatory permitting process similar to that
described previously under "Air Quality". Presently, IP has
approximately two dozen permits for discharges at its power
stations and other facilities, which must be periodically
renewed.
In addition to obtaining such permits, each source of
regulated discharges must be operated within the limitations
prescribed by applicable regulations. Verification of such
compliance is usually accomplished by monitoring results reported
to regulatory authorities and inspections by such authorities.
The Clinton permit was reissued in the third quarter of
1995. The Havana Power Station permit was reissued in the first
quarter of 1996. The Hennepin Power Station permit application
for reissuance was submitted in the fourth quarter of 1996 and is
not expected until late 1997. The Vermilion Power Station permit
was reissued in the fourth quarter of 1996. The Wood River Power
Station permit was reissued in the first quarter of 1996.
The Baldwin power station permit will expire in the fourth
quarter of 1997. An application to renew the permit will be
submitted in the second quarter of 1997. On May 2, 1996, the
Illinois Pollution Control Board granted IP's request for an
Adjusted Water Quality Standard for boron, which satisfies the
compliance requirement in the permit. The adjusted standard will
be incorporated into the reissued permit.
Other Issues
- ------------
Hazardous and non-hazardous wastes generated by IP must be
managed in accordance with federal regulations under the Toxic
Substances Control Act (TSCA), the Comprehensive Environmental
Response, Compensation and Liability Act and the Resource
Conservation and Recovery Act (RCRA) and additional state
regulations promulgated under both RCRA and state law.
Regulations promulgated in 1988 under RCRA govern IP's use of
underground storage tanks. The use, storage, and disposal of
certain toxic substances, such as polychlorinated biphenyls
(PCBs) in electrical equipment, are regulated under the TSCA.
Hazardous substances used by IP are subject to reporting
requirements under the Emergency Planning and Community-Right-To-
Know Act. The State of Illinois has been delegated authority for
enforcement of these regulations under the Illinois Environmental
Protection Act and state statutes. These requirements impose
certain monitoring, recordkeeping, reporting and operational
requirements which IP has implemented or is implementing to
assure compliance. IP does not anticipate that compliance will
have a material adverse effect on its financial position or
results of operations.
Between June 1983 and January 1985, IP shipped various
materials containing PCBs to the Martha C. Rose Chemicals, Inc.
(Rose) facility in Holden, Missouri for proper treatment and
disposal. Rose, pursuant to permits issued by USEPA, had
undertaken to dispose of PCB materials for IP and others, but
failed in part to do so. As a result of such failure, PCB
materials were being stored at the facility. In 1986, IP joined
with a number of other generators to clean up the facility. The
Steering Committee, consisting of IP and 15 other entities, has
successfully implemented the Remedial Design Work Plan. The
Steering Committee is required to monitor ground water at the
site from a minimum of five years to a maximum of ten years after
completion of the plan. Based upon the first and second years of
ground water monitoring data, the Steering Committee has
petitioned the USEPA to amend the record of decision to negate
additional ground water monitoring. This will allow the USEPA to
end the Committee's liability at the Rose site. At the present
time, management does not believe its ratable share of potential
liability related to the cost of future activities at the Rose
site will have a material adverse effect on Illinova's or IP's
consolidated financial position or results of operations.
Electric and Magnetic Fields
- ----------------------------
For information on Electric and Magnetic Fields, see "Note 4
- - Commitments and Contingencies" on page A-21 of the 1996 Annual
Report to Shareholders in the appendix to the Illinova Proxy
Statement which is incorporated herein by reference.
Environmental Expenditures
- --------------------------
Operating expenses for environmentally-related activities
were $45 million and $46 million in 1995 and 1996, respectively
(including the incremental costs of alternative fuels to meet
environmental requirements). IP's capital expenditures
(including AFUDC) for environmental protection programs were
approximately $1 million in 1996. Accumulated capital
expenditures since 1969 have reached approximately $800 million.
Research and Development
------------------------
Illinova's research and development expenditures, consisting
entirely of IP's research and development expenditures, during
1996, 1995 and 1994 were approximately $5.4 million, $5.5 million
and $5.5 million, respectively.
Regulation
----------
Under the Illinois Public Utilities Act, the ICC has broad
powers of supervision and regulation with respect to the rates
and charges of IP, its services and facilities, extensions or
abandonment of service, classification of accounts, valuation and
depreciation of property, issuance of securities and various
other matters. Before a new electric generating plant or a
significant addition to an existing facility may be included in
IP's rate base, the ICC must determine that the plant or addition
is reasonable in cost, prudent and used and useful in providing
utility service to customers.
Illinova and IP are exempt from all the provisions of the
Public Utility Holding Company Act of 1935 except Section 9(a)(2)
thereof. That section requires approval of the Securities and Ex
change Commission prior to certain acquisitions of any securities
of other public utility companies or public utility holding
companies.
IP is subject to regulation under the Federal Power Act by
the FERC as to rates and charges in connection with the
transmission of electric energy in interstate commerce and the
sale of such energy at wholesale in interstate commerce, the
issuance of debt securities maturing in not more than 12 months,
accounting and depreciation policies, interaction with
affiliates, and certain other matters. The FERC has declared IP
exempt from the Natural Gas Act and the orders, rules and
regulations of the Commission thereunder.
IP is subject to the jurisdiction of the NRC with respect to
Clinton. NRC regulations control the granting of permits and
licenses for the construction and operation of nuclear power
stations and subject such stations to continuing review and
regulation. Additionally, the NRC review and regulatory process
covers decommissioning, radioactive waste, environmental and
radiological aspects of such stations.
IP is subject to the jurisdiction of the Illinois Department
of Nuclear Safety (IDNS) with respect to Clinton. IDNS and the
NRC entered a memorandum of understanding which allows IDNS to
review and regulate nuclear safety matters at state nuclear
facilities. The IDNS review and regulatory process covers
radiation safety, environmental safety, non-nuclear pressure
vessels, emergency preparedness and emergency response.
Executive Officers of Illinova Corporation
------------------------------------------
Name of Officer Age Position
- --------------- --- --------
Larry D. Haab 59 Chairman, President and
Chief Executive Officer
Larry F. Altenbaumer 48 Chief Financial Officer,
Treasurer and Controller
Leah Manning Stetzner 48 General Counsel and
Corporate Secretary
Mr. Haab was elected Chairman, President and Chief Executive
Officer in December 1993.
Mr. Altenbaumer was elected Chief Financial Officer,
Treasurer and Controller in June 1994.
Ms. Stetzner was elected General Counsel and Corporate
Secretary in June 1994.
The executive officers are elected annually by the Board of
Directors at the first meeting of the Board held after the annual
meeting of shareholders, and hold office until their successors
are duly elected or until their death, resignation or removal by
the Board.
Executive Officers of Illinois Power Company
--------------------------------------------
Name of Officer Age Position
- --------------- --- --------
Larry D. Haab 59 Chairman, President and
Chief Executive Officer
Larry F. Altenbaumer 48 Senior Vice President and
Chief Financial Officer
David W. Butts 42 Senior Vice President
John G. Cook 49 Senior Vice President
Paul L. Lang 56 Senior Vice President
Wilfred Connell 59 Vice President
Richard W. Eimer, Jr. 48 Vice President
Robert D. Reynolds 40 Vice President
Leah Manning Stetzner 48 Vice President, General
Counsel and Corporate
Secretary
Cynthia G. Steward 39 Controller
Eric B. Weekes 45 Treasurer
Each of the IP executive officers, except for Mr. Weekes, has
been employed by IP or another subsidiary of Illinova for more
than five years in executive or management positions. Prior to
election to the positions shown above, the following executive
officers held the following positions since January 1, 1992.
Mr. Altenbaumer was elected Senior Vice President, Chief
Financial Officer and Treasurer in September 1995. Prior to
being elected Senior Vice President and Chief Financial Officer
in June 1992, Mr. Altenbaumer was Vice President, Chief Financial
Officer and Controller.
Mr. Butts was elected Senior Vice President in September
1995. Prior to being elected President of IGC in 1993, Mr. Butts
was a Division Vice President of IP.
Mr. Cook was elected Senior Vice President in December 1995.
Prior to being elected Vice President in 1992, Mr. Cook was
Manager of Clinton Power Station.
Mr. Lang was elected Senior Vice President in June 1992. He
joined IP as Vice President in July 1986.
Mr. Eimer was elected Vice President in December 1995. He
previously held the positions of Assistant to the Vice President
and Manager of Marketing.
Mr. Reynolds was elected Vice President in May 1996. Prior
to his election to Vice President, Mr. Reynolds served as
Director of Pricing and Manager of Electric Supply.
Ms. Stetzner was elected Vice President, General Counsel and
Corporate Secretary in February 1993. She joined IP as General
Counsel and Corporate Secretary in October 1989.
Ms. Steward was elected Controller in September 1995. She
previously held the positions of Manager of Employee Services and
Director of Accounting.
Mr. Weekes joined IP as Treasurer in January 1997. He
previously served as Director of Financial Analysis, Budgets and
Controls with Kraft Foods.
The present term of office of each of the above executive
officers extends to the first meeting of Illinova's and IP's
Board of Directors after the Annual Election of Directors. There
are no family relationships among any of the executive officers
and directors of Illinova and IP.
Operating Statistics
---------------------
For Illinova the information under the caption "Selected
Illinois Power Company Statistics" on page A-33 of the 1996
Annual Report to Shareholders in the appendix to the Illinova
Proxy Statement is incorporated herein by reference.
For IP the information under the caption "Selected
Statistics" on page A-33 of the 1996 Annual Report to
Shareholders in the appendix to the IP Information Statement is
incorporated herein by reference.
Item 2. Properties
- -------
IP owns and operates six steam generating stations with
composite net summer capacity of 4,424,250 kilowatts. In
addition, IP owns nine quick start combustion turbine peaking
units at three locations with a combined net summer capacity of
147,000 kilowatts. All of IP's generating stations are in the
State of Illinois, including IP's only nuclear generating
station, Clinton. IP owns 50% of three combustion turbine units,
located in Bloomington, Illinois, with combined net capacity of
5,250 kilowatts. State Farm Insurance Company owns the other 50%
of these units. The total IP available net summer capability is
4,571,250 kilowatts.
The major coal fired units at Baldwin, Havana, Hennepin and
Wood River make up 2,936,000 kilowatts of summer capacity. Units
comprising 377,000 kilowatts of summer capacity at the Wood River
and Havana stations currently are not staffed but are available
to meet reserve requirements with a maximum of four months
notice.
On December 18, 1996, the control and computer rooms for Wood
River units 4 and 5 were damaged by an in-plant fire. The extent
of the damage is currently being evaluated and repairs have been
started to return these two units to service as soon as possible.
Preliminary expectations are to return Unit 4 to service in the
second quarter of 1997, and Unit 5 later in the year.
During 1995, natural gas firing capability was added to the
Vermilion station. Vermilion now has the capability for either
coal or natural gas firing to achieve its summer capacity of
176,000 kilowatts. Vermilion is operated as a peaking plant,
mainly during the summer season.
IP owns an interconnected electric transmission system of
approximately 2,800 circuit miles, operating from 69,000 to
345,000 volts and a distribution system which includes about
37,400 circuit miles of overhead and underground lines.
All outstanding first mortgage bonds issued under the
Mortgage and Deed of Trust dated November 1, 1943 are secured by
a first mortgage lien on substantially all of the fixed property,
franchises and rights of IP with certain exceptions expressly
provided in the mortgage securing the bonds. All outstanding New
Mortgage Bonds issued under the General Mortgage and Deed of
Trust dated November 1, 1992, are secured by a lien on IP's
properties used in the generation, purchase, transmission,
distribution and sale of electricity and gas, which lien is
junior to the lien of the Mortgage and Deed of Trust dated
November 1, 1943. IP anticipates that during 1997 the 1943
mortgage will be amended to be consistent with the 1992 mortgage.
Item 3. Legal Proceedings
- -------
See discussion of legal proceedings under Item 1
"Competition" of this report and in "Manufactured-Gas Plant
(MGP)" in "Note 4 - Commitments and Contingencies" on page A-21
of the 1996 Annual Report to Shareholders in the appendix to the
Illinova Proxy Statement which is incorporated herein by
reference.
See "Environmental Matters" reported under Item 1 of this
report for information regarding legal proceedings concerning
environmental matters.
Item 4. Submission of Matters to a Vote of Security Holders
- -------
Neither Illinova nor IP submitted any matter to a vote of
security holders during the fourth quarter of the fiscal year
ended December 31, 1996.
PART II
- -------------------------------------------------------------------------------
Item 5. Market for Registrants' Common Equity and Related
- ------- Stockholder Matters
For Illinova the information under the caption "Quarterly
Consolidated Financial Information and Common Stock Data (Unaudit
ed)" on page A-31 of the 1996 Annual Report to Shareholders in
the appendix to the Illinova Proxy Statement is incorporated
herein by reference.
For IP the information under the caption "Quarterly
Consolidated Financial Information and Common Stock Data
(Unaudited)" on page A-31 of the 1996 Annual Report to
Shareholders in the appendix to the IP Information Statement is
incorporated herein by reference.
Item 6. Selected Financial Data
- -------
For Illinova the information under the caption "Selected
Consolidated Financial Data" on page A-32 of the 1996 Annual
Report to Shareholders in the appendix to the Illinova Proxy
Statement is incorporated herein by reference.
For IP the information under the caption "Selected
Consolidated Financial Data" on page A-32 of the 1996 Annual
Report to Shareholders in the appendix to the IP Information
Statement is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations
For Illinova the information under the caption "Management's
Discussion and Analysis" on pages A-2 through A-9 of the 1996
Annual Report to Shareholders in the appendix to the Illinova
Proxy Statement is incorporated herein by reference.
For IP the information under the caption "Management's
Discussion and Analysis" on pages A-2 through A-9 of the 1996
Annual Report to Shareholders in the appendix to the IP
Information Statement is incorporated herein by reference.
In March 1995, the ICC approved a program whereby IP will
reacquire shares of its common stock from Illinova, from time to
time, at prices determined to be equivalent to current market
value. The reacquired stock will be retained as treasury stock
or canceled. The ICC did not set a limit on the number of shares
of common stock that can be repurchased, subject to meeting
certain financial tests. During 1996, IP repurchased 714,811
shares for a total of $18.9 million, averaging about $26 per
share.
For information regarding the redemption of IP preferred
stock, see "Note 10 - Preferred Stock of Subsidiary" in the
"Notes to Consolidated Financial Statements" in the 1996 Annual
Report to Shareholders in the appendix to the Illinova Proxy
Statement or "Note 9 - Preferred Stock" in the "Notes to
Consolidated Financial Statements" in the 1996 Annual Report to
Shareholders in the appendix to the IP Information Statement.
Item 8. Financial Statements and Supplementary Data
- -------
For Illinova the consolidated financial statements and
related notes on pages A-11 through A-31 and Report of Inde
pendent Accountants on page A-10 of the 1996 Annual Report to
Shareholders in the appendix to the Illinova Proxy Statement are
incorporated herein by reference. With the exception of the
aforementioned information and the information incorporated in
Items 1, 3, 5, 6 and 7, the 1996 Annual Report to Shareholders in
the appendix to the Illinova Proxy Statement is not to be deemed
filed as part of this Form 10-K Annual Report.
For IP the consolidated financial statements and related
notes on pages A-11 through A-31 and Report of Independent
Accountants on page A-10 of the 1996 Annual Report to
Shareholders in the appendix to the IP Information Statement are
incorporated herein by reference. With the exception of the
aforementioned information and the information incorporated in
Items 1, 3, 5, 6 and 7, the 1996 Annual Report to Shareholders in
the appendix to the IP Information Statement is not to be deemed
filed as part of this form 10-K Annual Report.
Item 9. Changes in and Disagreements With Accountants on
- ------- Accounting and Financial Disclosure
None.
PART III
- -------------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrants
- --------
For Illinova the information under the caption "Board of
Directors" on pages 3 through 7 of Illinova's Proxy Statement for
its 1997 Annual Meeting of Stockholders is incorporated herein by
reference. The information relating to Illinova's executive
officers is set forth in Part I of this Annual Report on Form 10-K.
For IP the information under the caption "Board of Directors"
on pages 4 through 7 of IP's Information Statement for its 1997
Annual Meeting of Stockholders is incorporated herein by
reference. The information relating to Illinois Power Company's
executive officers is set forth in Part I of this Annual Report
on Form 10-K.
Item 11. Executive Compensation
- --------
For Illinova the information under the caption "Executive
Compensation" on pages 8 through 12 of Illinova's Proxy Statement
for its 1997 Annual Meeting of Stockholders is incorporated
herein by reference.
For IP the information under the caption "Executive
Compensation" on pages 8 through 13 of IP's Information Statement
for its 1997 Annual Meeting of Stockholders is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- --------
For Illinova the information under the caption "Security
Ownership of Management and Certain Beneficial Owners" on page 7
and the information regarding securities owned by certain
officers and directors under the caption "Board of Directors" on
pages 3 through 7 of Illinova's Proxy Statement for its 1997
Annual Meeting of Stockholders is incorporated herein by
reference.
For IP the information under the caption "Security Ownership
of Management and Certain Beneficial Owners" on page 7 and the
information regarding securities owned by certain officers and
directors under the caption "Board of Directors" on pages 4
through 7 of IP's Information Statement for its 1997 Annual
Meeting of Stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- --------
None.
PART IV
- ------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- Form 8-K
(a) Documents filed as part of this report.
(1a) Financial Statements:
Page in 1996
Annual Report
to Shareholders
in the appendix
to the Illinova
Proxy Statement*
----------------
Report of Independent Accountants A-10
Consolidated Statements of Income for the
three years ended December 31, 1996 A-11
Consolidated Balance Sheets at
December 31, 1996 and 1995 A-12
Consolidated Statements of Cash Flows for
the three years ended December 31, 1996 A-13
Consolidated Statements of Retained
Earnings for the three years
ended December 31, 1996 A-13
Notes to Consolidated Financial Statements A-14 - A-31
* Incorporated by reference from the indicated pages of
the 1996 Annual Report to Shareholders in the appendix to
the Illinova Proxy Statement.
(1b) Financial Statements:
Page in 1996
Annual Report
to Shareholders
in the appendix
to the IP
Information
Statement**
---------------
Report of Independent Accountants A-10
Consolidated Statements of Income for the
three years ended December 31, 1996 A-11
Consolidated Balance Sheets at
December 31, 1996 and 1995 A-12
Consolidated Statements of Cash Flows for
the three years ended December 31, 1996 A-13
Consolidated Statements of Retained
Earnings for the three years
ended December 31, 1996 A-13
Notes to Consolidated Financial Statements A-14 - A-31
** Incorporated by reference from the indicated pages of
the 1996 Annual Report to Shareholders in the appendix to
the IP Information Statement (See page 22 of this Form 10-K).
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- Form 8-K (Continued)
(2) Financial Statement Schedules:
All Financial Statement Schedules are omitted because
they are not applicable or the required information is shown
in the financial statements or notes thereto.
(3) Exhibits
The exhibits filed with this Form 10-K are listed
in the Exhibit Index located elsewhere herein. All
management contracts and compensatory plans or
arrangements set forth in such list are marked with
a ~.
(b) Reports on Form 8-K since September 30, 1996:
Report filed on Form 8-K on January 29, 1997
Other Events: NRC informed IP via letter that it
viewed Clinton as having a declining
safety performance trend, but did not
place Clinton on its semiannual "watch
list".
Report filed on Form 8-K on March 6, 1997
Other Events: Communication to the Financial
Community regarding the status of
Clinton outage.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ILLINOIS POWER COMPANY
(REGISTRANT)
By Larry D. Haab
-------------------------------------
Larry D. Haab, Chairman, President
and Chief Executive Officer
Date: March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities on the dates
indicated.
Signature Title Date
Larry D. Haab Chairman, President, Chief
- ------------------------- Executive Officer and Director
Larry D. Haab
(Principal Executive Officer)
Larry F. Altenbaumer Senior Vice President and
- --------------------------- Chief Financial Officer
Larry F. Altenbaumer
(Principal Financial Officer)
Cynthia G. Steward Controller
- ----------------------------
Cynthia G. Steward
(Principal Accounting Officer)
Richard R. Berry
- -----------------------------
Richard R. Berry
C. Steven McMillan
- -----------------------------
C. Steven McMillan
-March 25, 1997
Donald S. Perkins
- -----------------------------
Donald S. Perkins
Robert M. Powers
- ----------------------------
Robert M. Powers
Walter D. Scott
- ----------------------------
Walter D. Scott Director
Ronald L. Thompson
- ---------------------------
Ronald L. Thompson
Walter M. Vannoy
- ---------------------------
Walter M. Vannoy
Marilou von Ferstel
- ---------------------------
Marilou von Ferstel
John D. Zeglis
- ---------------------------
John D. Zeglis
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ILLINOVA CORPORATION
(REGISTRANT)
By Larry D. Haab
--------------------------------------
Larry D. Haab, Chairman, President
and Chief Executive Officer
Date: March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities on the dates
indicated.
Signature Title Date
Larry D. Haab Chairman, President, Chief
- ------------------------ Executive Officer and Director
Larry D. Haab
(Principal Executive Officer)
Larry F. Altenbaumer Chief Financial Officer,
- ------------------------- Treasurer and Controller
Larry F. Altenbaumer
(Principal Financial
and Accounting Officer)
Richard R. Berry
- ---------------------------
Richard R. Berry
C. Steven McMillan
- ---------------------------
C. Steven McMillan
Donald S. Perkins
- --------------------------- March 25, 1997
Donald S. Perkins
Robert M. Powers
- ---------------------------
Robert M. Powers
Walter D. Scott
- ---------------------------
Walter D. Scott Director
Ronald L. Thompson
- ---------------------------
Ronald L. Thompson
Walter M. Vannoy
- ---------------------------
Walter M. Vannoy
Marilou von Ferstel
- ---------------------------
Marilou von Ferstel
John D. Zeglis
- ---------------------------
John D. Zeglis
Exhibit Index (Continued)
Exhibit Description Page Number
- ------- ----------- -----------
Exhibit Index
Exhibit Page Number
- ------- -----------
(3)(i) Articles of Incorporation
Illinova Corporation
(a)(1) Articles of Amendment to the Articles of
Incorporation of Illinova Corporation, filed as
of October 31, 1994. Filed as Exhibit 3(a) to
the Quarterly Report on Form 10-Q under the
Securities Exchange Act of 1934 for the quarter
ended September 30, 1994 (File No. 1-3004). *
(a)(2) Statement of Correction to the Articles of
Incorporation of Illinova Corporation, filed as
of October 31, 1994. Filed as Exhibit 3(b) to
the Quarterly Report on Form 10-Q under the
Securities Exchange Act of 1934 for the quarter
ended September 30, 1994 (File No. 1-3004). *
Illinois Power Company
(b)(1) Amended and Restated Articles of Incorporation
of Illinois Power Company, dated September 7, 1994.
Filed as Exhibit 3(a) to the Current Report on
Form 8-K dated September 7, 1994 (File No. 1-3004). *
(3)(ii) By-Laws
(a) By-laws of Illinova Corporation, as amended
December 14, 1994. Filed as Exhibit 3(b)(2)
to the Annual Report on Form 10-K under
the Securities Exchange Act of 1934 for the
year ended December 31, 1994 (File No. 1-3004). *
(b) By-laws of Illinois Power Company, as amended
December 14, 1994. Filed as Exhibit 3(b)(1)
to the Annual Report on Form 10-K under
the Securities Exchange Act of 1934 for the
year ended December 31, 1994 (File No. 1-3004). *
(4) Instruments Defining Rights of Security Holders,
Including Indentures
Illinova Corporation
(a)(1) See (4)(b) below for instruments defining the rights
of holders of long-term debt of Illinois Power
Company
(a)(2) Indenture dated February 1, 1997, between Illinova
Corporation and The First National Bank of Chicago,
as trustee. 37
Illinois Power Company
(b)(1) Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 2(b) Registration No. 2-14066. *
(b)(2) Supplemental Indenture dated October 1, 1966.
Filed as Exhibit 2(i) Registration No. 2-27783. *
(b)(3) Supplemental Indenture dated May 1, 1974.
Filed as Exhibit 2(v) Registration No. 2-51674. *
(b)(4) Supplemental Indenture dated May 1, 1977.
Filed as Exhibit 2(w) Registration No. 2-59465. *
(b)(5) Supplemental Indenture dated July 1, 1979. Filed
as Exhibit 2 to the Quarterly Report on Form 10-Q
under the Securities Exchange Act of 1934 for the
quarter ended June 30, 1979. *
(b)(6) Supplemental Indenture dated March 1, 1985. Filed
as exhibit 4(a) to the Quarterly Report on Form
10-Q under the Securities Exchange Act of 1934 for
the quarter ended March 31, 1985 (File No. 1-3004). *
(b)(7) Supplemental Indenture No. 1 dated February 1, 1987,
providing for $25,000,000 principal amount of 7 5/8%
First Mortgage Bonds, Pollution Control Series F,
due December 1, 2016. Filed as Exhibit 4(ii) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1986 (File No. 1-3004). *
(b)(8) Supplemental Indenture No. 2 dated February 1, 1987,
providing for $50,000,000 principal amount of 7 5/8%
First Mortgage Bonds, Pollution Control Series G,
due December 1, 2016. Filed as Exhibit 4(jj) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1986 (File No. 1-3004). *
(b)(9) Supplemental Indenture No. 3 dated February 1, 1987,
providing for $75,000,000 principal amount of 7 5/8%
First Mortgage Bonds, Pollution Control Series H,
due December 1, 2016. Filed as Exhibit 4(kk) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1986 (File No. 1-3004). *
(b)(10) Supplemental Indenture dated July 1, 1987, providing
for $33,755,000 principal amount of 8.30% First
Mortgage Bonds, Pollution Control Series I, due
April 1, 2017. Filed as Exhibit 4(ll) to the Annual
Report on Form 10-K under the Securities Exchange
Act of 1934 for the year ended December 31, 1987
(File No. 1-3004). *
(b)(11) Supplemental Indenture dated December 13, 1989,
providing for $300,000,000 principal amount of
Medium-Term Notes, Series A. Filed as Exhibit 4(nn)
to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended
December 31, 1989 (File No. 1-3004). *
(b)(12) Supplemental Indenture dated July 1, 1991, providing
for $84,710,000 principal amount of 7 3/8% First
Mortgage Bonds due July 1, 2021. Filed as Exhibit
4(mm) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended
December 31, 1991 (File No. 1-3004). *
(b)(13) Supplemental Indenture No. 1 dated June 1, 1992.
Filed as Exhibit 4(nn) to the Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992
(File No. 1-3004). *
(b)(14) Supplemental Indenture No. 2 dated June 1, 1992.
Filed as Exhibit 4(oo) to the Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992
(File No. 1-3004). *
(b)(15) Supplemental Indenture No. 1 dated July 1, 1992.
Filed as Exhibit 4(pp) to the Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992
(File No. 1-3004). *
(b)(16) Supplemental Indenture No. 2 dated July 1, 1992.
Filed as Exhibit 4(qq) to the Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992
(File No. 1-3004). *
(b)(17) Supplemental Indenture dated September 1, 1992,
providing for $72,000,000 principal amount of 6 1/2%
First Mortgage Bonds due September 1, 1999. Filed
as Exhibit 4(rr) to the Quarterly Report on Form
10-Q for the quarter ended September 30, 1992
(File No. 1-3004). *
(b)(18) General Mortgage Indenture and Deed of Trust dated
as of November 1, 1992. Filed as Exhibit 4(cc) to
the Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December
31, 1992 (File No. 1-3004). *
(b)(19) Supplemental Indenture dated February 15, 1993, to
Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(dd) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1992 (File No. 1-3004). *
(b)(20) Supplemental Indenture dated February 15, 1993, to
General Mortgage Indenture and Deed of Trust dated as
of November 1, 1992. Filed as Exhibit 4(ee) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1992 (File No. 1-3004). *
(b)(21) Supplemental Indenture No. 1 dated March 15, 1993,
to Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(ff) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1992 (File No. 1-3004). *
(b)(22) Supplemental Indenture No. 1 dated March 15, 1993,
to General Mortgage Indenture and Deed of Trust
dated as of November 1, 1992. Filed as Exhibit
4(gg) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended
December 31, 1992 (File No. 1-3004). *
(b)(23) Supplemental Indenture No. 2 dated March 15, 1993,
to Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(hh) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1992 (File No. 1-3004). *
(b)(24) Supplemental Indenture No. 2 dated March 15, 1993,
to General Mortgage Indenture and Deed of Trust
dated as of November 1, 1992. Filed as Exhibit
4(ii) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended
December 31, 1992 (File No. 1-3004). *
(b)(25) Supplemental Indenture dated July 15, 1993, to
Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(jj) to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993
(File No. 1-3004). *
(b)(26) Supplemental Indenture dated July 15, 1993, to
General Mortgage Indenture and Deed of Trust
dated as of November 1, 1992. Filed as Exhibit
4(kk)to the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993 (File No. 1-3004). *
(b)(27) Supplemental Indenture dated August 1, 1993, to
Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(ll) to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993
(File No. 1-3004). *
(b)(28) Supplemental Indenture dated August 1, 1993, to
General Mortgage Indenture and Deed of Trust
dated as of November 1, 1992. Filed as Exhibit
4(mm) to the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993 (File No. 1-3004). *
(b)(29) Supplemental Indenture dated October 15, 1993, to
Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(nn) to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993
(File No. 1-3004). *
(b)(30) Supplemental Indenture dated October 15, 1993, to
General Mortgage Indenture and Deed of Trust dated
as of November 1, 1992. Filed as Exhibit 4(oo) to
the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 (File No. 1-3004). *
(b)(31) Supplemental Indenture dated November 1, 1993, to
Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(pp) to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993
(File No. 1-3004). *
(b)(32) Supplemental Indenture dated November 1, 1993, to
General Mortgage Indenture and Deed of Trust dated
as of November 1, 1992. Filed as Exhibit 4(qq) to
the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 (File No. 1-3004). *
(b)(33) Supplemental Indenture dated February 1, 1994, to
Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(hh) to the Annual Report on
Form 10-K under the Securities Exchange Act of 1934
for the year ended December 31, 1993
(File No. 1-3004). *
(b)(34) Indenture dated October 1, 1994 between Illinois
Power Company and the First National Bank of
Chicago. Filed as Exhibit 4(a) to the Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1994 (File No. 1-3004). *
(b)(35) Supplemental Indenture dated October 1, 1994, to
Indenture dated as of October 1, 1994. Filed as
Exhibit 4(b) to the Quarterly Report on Form
10-Q for the quarter ended September 30, 1994
(File No. 1-3004). *
(b)(36) Indenture dated January 1, 1996 between Illinois
Power Company and Wilmington Trust Company. Filed
as Exhibit 4(b)(36) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1995 (File No. 1-3004). *
(b)(37) First Supplemental Indenture dated January 1, 1996,
between Illinois Power Company and Wilmington Trust
Company. Filed as Exhibit 4(b)(37) to the Annual
Report on Form 10-K under the Securities Exchange
Act of 1934 for the year ended December 31, 1995
(File No. 1-3004). *
(10) Material Contracts
Illinova Corporation
(a)(1) Illinova Corporation Deferred Compensation Plan
for Certain Directors, as amended April 10, 1991.
Filed as Exhibit 10(b) to the Annual Report on
Form 10-K under the Securities Exchange Act of
1934 for the year ended December 31, 1991
(File No. 1-3004).~ *
(a)(2) Illinova Corporation Director Emeritus Plan for
Outside Directors. Filed as Exhibit 10(e) to
the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year
ended December 31, 1989 (File No. 1-3004).~ *
(a)(3) Illinova Corporation Stock Plan for Outside
Directors as amended and restated by the Board of
Directors on April 9, 1992 and as further amended
April 14, 1993. Filed as Exhibit 10(h) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December
31, 1993 (File No. 1-3004).~ *
(a)(4) Illinova Corporation Retirement Plan for Outside
Directors, as amended through December 11, 1991.
Filed as Exhibit 10(j) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1991 (File No. 1-3004).~ *
(a)(5) Illinova Corporation 1992 Long-Term Incentive
Compensation Plan. Filed as Exhibit 10(k) to the
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992 (File No. 1-3004).~ *
(a)(6) Illinova Corporation Comprehensive Deferred Stock
Plan for Outside Directors, as approved by the Board
of Directors on February 7, 1996. Filed as Exhibit 10
(a)(6) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended
December 31, 1995 (File No. 1-3004).~ *
(a)(7) Form of Employee Retention Agreement in place between
Illinova Corporation and its elected officers,
Illinois Power Company's elected officers, and the
Presidents of Illinova Corporation's subsidiaries.
Filed as Exhibit 10(g) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1989 (File no. 1-3004). *
Illinois Power Company
(b)(1) Group Insurance Benefits for Managerial Employees
of Illinois Power Company as amended January 1, 1983.
Filed as Exhibit 10(a) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1983 (File No. 1-3004).~ *
(b)(2) Illinois Power Company Incentive Savings Trust and
Illinois Power Company Incentive Savings Plan and
Amendment I thereto. Filed as Exhibit 10(d) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1984 (File No. 1-3004).~ *
(b)(3) Illinois Power Company's Executive Incentive
Compensation Plan. Filed as Exhibit 10(f) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1989 (File No. 1-3004).~ *
(b)(4) Illinois Power Company Incentive Savings Plan, as
amended and restated effective January 1, 1991.
Filed as Exhibit 10(h) to the Annual Report on
Form 10-K under the Securities Exchange Act of
1934 for the year ended December 31, 1990
(File No. 1-3004).~ *
(b)(5) Retirement and Consulting Agreement entered into
as of June 1, 1991 between Illinois Power Company
and Wendell J. Kelley. Filed as Exhibit 10(I) to
the Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1991 (File No. 1-3004).~ *
(b)(6) Illinois Power Company Executive Deferred
Compensation Plan. Filed as Exhibit 10(l) to
the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year
ended December 31, 1993. (File No. 1-3004)~ *
(b)(7) Illinois Power Company Retirement Income Plan for
salaried employees as amended and restated effective
January 1, 1989, as further amended through January
1, 1994. Filed as Exhibit 10(m) to the Annual Report
on Form 10-K under the Securities Exchange Act of
1934 for the year ended December 31, 1994
(File No. 1-3004).~ *
(b)(8) Illinois Power Company Retirement Income Plan for
employees covered under a collective bargaining
agreement as amended and restated effective as of
January 1, 1994. Filed as Exhibit 10(n)to the Annual
Report on Form 10-K under the Securities Exchange Act
of 1934 for the year ended December 31, 1994
(File No. 1-3004).~ *
(b)(9) Illinois Power Company Incentive Savings Plan as
amended and restated effective January 1, 1991 and
as further amended through amendments adopted
December 28, 1994. Filed as Exhibit 10(o)to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December
31, 1994 (File No. 1-3004).~ *
(b)(10) Illinois Power Company Incentive Savings Plan for
employees covered under a collective bargaining
agreement as amended and restated effective January
1, 1991 and as further amended through amendments
adopted December 28, 1994. Filed as Exhibit 10(p)
to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended
December 31, 1994 (File No. 1-3004).~ *
(12) Statement Re Computation of Ratios
(a) Computation of ratio of earnings to fixed
charges for Illinova Corporation. 107
(b) Computation of ratio of earnings to fixed
charges for Illinois Power Company. 108
(13) Annual Reports to Shareholders
(a) Illinova Corporation Proxy Statement and 1996
Annual Report to Shareholders. 109
(b) Illinois Power Company Information Statement
and 1996 Annual Report to Shareholders. 157
(21) Subsidiaries of Registrants
(a) Subsidiaries of Illinova Corporation and Illinois
Power Company. 205
(23) Consents of Experts
Consent of Independent Accountants for Illinova
Corporation. 207
(27) Financial Data Schedules
(a) Illinova Corporation
(b) Illinois Power Company
______________________________________
* Incorporated herein by reference.
~ Management contract and compensatory plans or arrangements.
INDENTURE
ILLINOVA CORPORATION
AND
THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE
Dated as of February 1, 1997
__________
ILLINOVA CORPORATION
Reconciliation and Tie between Trust Indenture Act of 1939
and Indenture, dated as of
February 1, 1997
Trust Indenture
Act Section Indenture Section
- ---------------- -----------------
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . 5.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . 5.8
(a)(3) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . 5.9; 5.12
311(a) . . . . . . . . . . . . . . . . . . . . . 5.13
(b) . . . . . . . . . . . . . . . . . . . . . 5.13
(c) . . . . . . . . . . . . . . . . . . . . . Not Applicable
312(a) . . . . . . . . . . . . . . . . . . . . . 3.8(a)
(b) . . . . . . . . . . . . . . . . . . . . . 3.8(b)
(c) . . . . . . . . . . . . . . . . . . . . . 3.8(c)
313(a) . . . . . . . . . . . . . . . . . . . . . 3.10
(b) . . . . . . . . . . . . . . . . . . . . . 3.10
(c) . . . . . . . . . . . . . . . . . . . . . 3.10
(d) . . . . . . . . . . . . . . . . . . . . . 3.10
314(a) . . . . . . . . . . . . . . . . . . . . . 3.9; 3.11
(b) . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . . . . 10.5
(c)(2) . . . . . . . . . . . . . . . . . . . . . . 10.5
(c)(3) . . . . . . . . . . . . . . . . . . . . . . 10.5; 9.1
(d) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . . . 10.5
315(a) . . . . . . . . . . . . . . . . . . . . . 5.1
(b) . . . . . . . . . . . . . . . . . . . . . 4.11; 3.10
(c) . . . . . . . . . . . . . . . . . . . . . 5.1
(d) . . . . . . . . . . . . . . . . . . . . . 5.1
(d)(1) . . . . . . . . . . . . . . . . . . . . . . 5.1(a)
(d)(2) . . . . . . . . . . . . . . . . . . . . . . 5.1(b)
(d)(3) . . . . . . . . . . . . . . . . . . . . . . 5.1(c)
(e) . . . . . . . . . . . . . . . . . . . . . 4.12
316(a)(1)(A) . . . . . . . . . . . . . . . . . . . . 4.1; 4.9
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . 4.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . 4.6; 4.7
(c) . . . . . . . . . . . . . . . . . . . . . Not Applicable
317(a)(1) . . . . . . . . . . . . . . . . . . . . . 4.2
(a)(2) . . . . . . . . . . . . . . . . . . . . . 4.2
(b) . . . . . . . . . . . . . . . . . . . . . 5.5
318(a) . . . . . . . . . . . . . . . . . . . . . 10.7
_____________
NOTE: This reconciliation and tie shall not, for any purpose,
be deemed to be a part of the Indenture and shall not
have any bearing on the interpretation of its terms or
provisions.
TABLE OF CONTENTS
__________
Page
ARTICLE ONE
DEFINITIONS
SECTION 1.1 Certain Terms Defined 1
"Assets" 1
"Authenticating Agent" 1
"Authorized Newspaper" 1
"Bearer Security" 2
"Board of Directors" 2
"Board Resolution" 2
"Business Day" 2
"Commission" 2
"Consolidated Capitalization" 2
"Consolidated Indebtedness" 2
"Consolidated Shareholders' Equity" 2
"Consolidated Subsidiary" 2
"Corporate Trust Office" 2
"Coupon" 2
"Covenant Defeasance" 2
"Depositary" 2
"Dollar" 3
"ECU" 3
"Event of Default" 3
"Foreign Currency" 3
"Holder" 3
"Holder of Securities" 3
"Securityholder" 3
"Illinois Power" 3
"Indebtedness" 3
"Indenture" 3
"Interest" 3
"Issuer" 3
"Issuer Order" 3
"Judgment Currency" 3
"Non-Recourse Indebtedness" 3
"Officers' Certificate" 4
"Opinion of Counsel" 4
"Original Issue Date" 4
"Original Issue Discount Security" 4
"Outstanding" 4
"Periodic Offering" 5
"Person" 5
"Principal" 5
"Record Date" 5
"Registered Global Security" 5
"Registered Security" 5
"Required Currency" 5
"Responsible Officer" 5
"Security" 5
"Securities" 5
"Stated Maturity" 5
"Subsidiary" 5
"Trust Indenture Act of 1939" 6
"Trustee" 6
"Unregistered Security" 6
"United States Government Obligations" 6
"Yield to Maturity" 6
ARTICLE TWO
SECURITIES
SECTION 2.1 Forms Generally 6
SECTION 2.2 Form of Trustee's Certificate of Authentication 6
SECTION 2.3 Amount Unlimited; Issuable in Series 7
SECTION 2.4 Authentication and Delivery of Securities 9
SECTION 2.5 Execution of Securities 11
SECTION 2.6 Certificate of Authentication 11
SECTION 2.7 Denomination and Date of Securities;
Payments of Interest 12
SECTION 2.8 Registration, Transfer and Exchange 12
SECTION 2.9 Mutilated, Defaced, Destroyed, Lost and
Stolen Securities 15
SECTION 2.10 Cancellation of Securities; Disposition Thereof 16
SECTION 2.11 Temporary Securities 16
ARTICLE THREE
COVENANTS OF THE ISSUER
SECTION 3.1 Payment of Principal and Interest 17
SECTION 3.2 Offices for Payments, etc. 17
SECTION 3.3 Appointment to Fill a Vacancy in
Office of Trustee 18
SECTION 3.4 Paying Agents 18
SECTION 3.5 Written Statement to Trustee 19
SECTION 3.6 Limitations upon Liens 19
SECTION 3.7 Luxembourg Publications 21
SECTION 3.8 Securityholders Lists 21
SECTION 3.9 Reports by the Issuer 22
SECTION 3.10 Reports by the Trustee 22
SECTION 3.11 Waiver of Certain Covenants 22
ARTICLE FOUR
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 4.1 Event of Default Defined; Acceleration of
Maturity; Waiver of Default 23
SECTION 4.2 Collection of Indebtedness by Trustee;
Trustee May Prove Debt 25
SECTION 4.3 Application of Proceeds 27
SECTION 4.4 Suits for Enforcement 28
SECTION 4.5 Restoration of Rights on Abandonment of
Proceedings 28
SECTION 4.6 Limitations on Suits by Securityholders 28
SECTION 4.7 Unconditional Right of Securityholders to
Institute Certain Suits 29
SECTION 4.8 Powers and Remedies Cumulative; Delay or
Omission Not Waiver of Default 29
SECTION 4.9 Control by Holders of Securities 29
SECTION 4.10 Waiver of Past Defaults 29
SECTION 4.11 Trustee to Give Notice of Default, But May
Withhold in Certain Circumstances 30
SECTION 4.12 Right of Court to Require Filing of
Undertaking to Pay Costs 30
ARTICLE FIVE
CONCERNING THE TRUSTEE
SECTION 5.1 Duties and Responsibilities of the Trustee;
During Default; Prior to Default 31
SECTION 5.2 Certain Rights of the Trustee 32
SECTION 5.3 Trustee Not Responsible for Recitals,
Disposition of Securities or Application of
Proceeds Thereof 33
SECTION 5.4 Trustee and Agents May Hold Securities or
Coupons; Collections, etc. 33
SECTION 5.5 Moneys Held by Trustee 33
SECTION 5.6 Compensation and Indemnification of Trustee
and Its Prior Claim 33
SECTION 5.7 Right of Trustee to Rely on Officers'
Certificate, etc. 33
SECTION 5.8 Persons Eligible for Appointment as Trustee 34
SECTION 5.9 Resignation and Removal; Appointment of
Successor Trustee 34
SECTION 5.10 Acceptance of Appointment by Successor Trustee 35
SECTION 5.11 Merger, Conversion, Consolidation or Succession
to Business of Trustee 36
SECTION 5.12 Disqualification; Conflicting Interests 36
SECTION 5.13 Preferential Collection of Claims Against
the Issuer 37
SECTION 5.14 Appointment of Authenticating Agent 37
ARTICLE SIX
CONCERNING THE SECURITYHOLDERS
SECTION 6.1 Evidence of Action Taken by Securityholders 38
SECTION 6.2 Proof of Execution of Instruments and of
Holding of Securities 38
SECTION 6.3 Holders to be Treated as Owners 39
SECTION 6.4 Securities Owned by Issuer Deemed Not
Outstanding 39
SECTION 6.5 Right of Revocation of Action Taken 39
ARTICLE SEVEN
SUPPLEMENTAL INDENTURES
SECTION 7.1 Supplemental Indentures Without Consent
of Securityholders 40
SECTION 7.2 Supplemental Indentures With Consent of
Securityholders 41
SECTION 7.3 Effect of Supplemental Indenture 42
SECTION 7.4 Documents to Be Given to Trustee 42
SECTION 7.5 Notation on Securities in Respect of
Supplemental Indentures 42
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 8.1 Issuer May Consolidate, etc. 43
SECTION 8.2 Successor Corporation Substituted 43
ARTICLE NINE
SATISFACTION AND DISCHARGE OF INDENTURE;UNCLAIMED MONEYS
SECTION 9.1 Satisfaction and Discharge of Indenture 44
SECTION 9.2 Application by Trustee of Funds Deposited for
Payment of Securities 47
SECTION 9.3 Repayment of Moneys Held by Paying Agent 47
SECTION 9.4 Return of Moneys Held by Trustee and Paying
Agent Unclaimed for Two Years 48
SECTION 9.5 Indemnity for United States Government
Obligations 48
SECTION 9.6 Excess Funds 48
ARTICLE TEN
MISCELLANEOUS PROVISIONS
SECTION 10.1 Incorporators, Stockholders, Officers and
Directors of Issuer Exempt from Individual
Liability 48
SECTION 10.2 Provisions of Indenture for the Sole Benefit
of Parties and Holders of Securities and Coupons49
SECTION 10.3 Successors and Assigns of Issuer Bound by
Indenture 49
SECTION 10.4 Notices and Demands on Issuer, Trustee and
Holders of Securities and Coupons 49
SECTION 10.5 Officers' Certificates and Opinions of
Counsel; Statements to Be Contained Therein 49
SECTION 10.6 Payments Due on Saturdays, Sundays and Holidays 50
SECTION 10.7 Conflict of Any Provision of Indenture with
Trust Indenture Act of 1939 50
SECTION 10.8 New York Law to Govern 51
SECTION 10.9 Counterparts 51
SECTION 10.10 Effect of Headings 51
SECTION 10.12 Judgment Currency 51
ARTICLE ELEVEN
REDEMPTION OF SECURITIES AND SINKING FUNDS
SECTION 11.1 Applicability of Article 52
SECTION 11.2 Notice of Redemption; Partial Redemptions 52
SECTION 11.3 Payment of Securities Called for Redemption 53
SECTION 11.4 Exclusion of Certain Securities from
Eligibility for Selection for Redemption 54
SECTION 11.5 Mandatory and Optional Sinking Funds 54
ARTICLE TWELVE
MEETINGS OF HOLDERS OF SECURITIES
SECTION 12.1 Purposes for Which Meetings May Be Called 56
SECTION 12.2 Call, Notice and Place of Meetings 56
SECTION 12.3 Persons Entitled to Vote at Meetings 57
SECTION 12.4 Quorum; Action 57
SECTION 12.5 Determination of Voting; Conduct and
Adjournment of Meetings 58
SECTION 12.6 Counting Votes and Recording Action of
Meetings 58
THIS INDENTURE, dated as of February 1, 1997 between
ILLINOVA CORPORATION, an Illinois corporation (the "Issuer"), and
THE FIRST NATIONAL BANK OF CHICAGO, as trustee (the "Trustee"),
W I T N E S S E T H :
WHEREAS, the Issuer has duly authorized the issue from
time to time of its unsecured debentures, notes or other
evidences of indebtedness to be issued in one or more series (the
"Securities") up to such principal amount or amounts as may from
time to time be authorized in accordance with the terms of this
Indenture;
WHEREAS, the Issuer has duly authorized the execution
and delivery of this Indenture to provide, among other things,
for the authentication, delivery and administration of the
Securities; and
WHEREAS, all things necessary to make this Indenture a
valid indenture and agreement according to its terms have been
done.
NOW, THEREFORE, in consideration of the premises and
the purchases of the Securities by the holders thereof, the
Issuer and the Trustee mutually covenant and agree for the equal
and proportionate benefit of the respective holders from time to
time of the Securities and of the Coupons, if any, appertaining
thereto as follows:
ARTICLE ONE
DEFINITIONS
SECTION 1.1 Certain Terms Defined. The following
terms (except as otherwise expressly provided or unless the
context otherwise clearly requires) for all purposes of this
Indenture and of any indenture supplemental hereto shall have the
respective meanings specified in this Article. All other terms
used in this Indenture that are defined in the Trust Indenture
Act of 1939 or the definitions of which in the Securities Act of
1933 are referred to in the Trust Indenture Act of 1939,
including terms defined therein by reference to the Securities
Act of 1933 (except as herein otherwise expressly provided or
unless the context otherwise requires), shall have the meanings
assigned to such terms in said Trust Indenture Act and in said
Securities Act as in force at the date of this Indenture. All
accounting terms used herein and not expressly defined shall have
the meanings assigned to such terms in accordance with generally
accepted accounting principles, and the term "generally accepted
accounting principles" means such accounting principles as are
generally accepted at the time of any computation. The words
"herein", "hereof" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision. The terms
defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular.
"Assets" shall have the meaning set forth in Section
3.6(b)(4).
"Authenticating Agent" shall have the meaning set forth
in Section 5.14.
"Authorized Newspaper" means a newspaper (which, in the
case of The City of New York, will, if practicable, be The Wall
Street Journal (Eastern Edition), in the case of the United
Kingdom, will, if practicable, be the Financial Times (London
Edition) and, in the case of Luxembourg, will, if practicable, be
the Luxemburger Wort) published in an official language of the
country of publication customarily published at least once a day
for at least five days in each calendar week and of general
circulation in The City of New York, the United Kingdom or in
Luxembourg, as applicable. If it shall be impractical in the
opinion of the Trustee to make any publication of any notice
required hereby in an Authorized Newspaper, any publication or
other notice in lieu thereof which is made or given with the
approval of the Trustee shall constitute a sufficient publication
of such notice.
"Bearer Security" means any Security established
pursuant to Section 2.1 which is payable to bearer, including,
without limitation, unless the context otherwise indicates, a
Security in temporary or permanent global bearer form.
"Board of Directors" means either the Board of
Directors of the Issuer or any committee of such Board or other
individuals duly authorized to act on its behalf.
"Board Resolution" means a copy of one or more
resolutions, certified by the secretary or an assistant secretary
of the Issuer to have been duly adopted or consented to by the
Board of Directors and to be in full force and effect, and
delivered to the Trustee.
"Business Day" means, with respect to any Security, a
day that in the city (or in any of the cities, if more than one)
in which amounts are payable, as specified in the form of such
Security, is not a day on which banking institutions are
authorized or required by law or regulation to close.
"Commission" means the Securities and Exchange
Commission, as from time to time constituted, created under the
Securities Exchange Act of 1934, or if at any time after the
execution and delivery of this Indenture such Commission is not
existing and performing the duties now assigned to it under the
Trust Indenture Act, then the body performing such duties on such
date.
"Consolidated Capitalization" shall have the meaning
set forth in Section 3.6(b)(1).
"Consolidated Indebtedness" shall have the meaning set
forth in Section 3.6(b)(5).
"Consolidated Shareholders' Equity" shall have the
meaning set forth in Section 3.6(b)(2).
"Consolidated Subsidiary" shall have the meaning set
forth in Section 3.6(b)(3).
"Corporate Trust Office" means the office of the
Trustee at which the corporate trust business of the Trustee
shall, at any particular time, be principally administered, which
office is, at the date as of which this Indenture is dated,
located in the City of New York, New York.
"Coupon" means any interest coupon appertaining to a
Security.
"Covenant Defeasance" shall have the meaning set forth
in Section 9.1(C).
"Depositary" means, with respect to the Securities of
any series issuable or issued in the form of one or more
Registered Global Securities, the Person designated as Depositary
by the Issuer pursuant to Section 2.3 until a successor
Depositary shall have become such pursuant to the applicable
provisions of this Indenture, and thereafter "Depositary" shall
mean or include each Person who is then a Depositary hereunder,
and if at any time there is more than one such Person,
"Depositary" as used with respect to the Securities of any such
series shall mean the Depositary with respect to the Registered
Global Securities of that series.
"Dollar" means the coin or currency of the United
States of America as at the time of payment is legal tender for
the payment of public and private debts.
"ECU" means the European Currency Unit as defined and
revised from time to time by the Council of European Communities.
"Event of Default" means any event or condition
specified as such in Section 4.1.
"Foreign Currency" means a currency issued by the
government of a country other than the United States.
"Holder", "Holder of Securities", "Securityholder" or
other similar terms mean (a) in the case of any Registered
Security, the Person in whose name such Security is registered in
the security register kept by the Issuer for that purpose in
accordance with the terms hereof, and (b) in the case of any
Unregistered Security, the bearer of such Security, or any Coupon
appertaining thereto, as the case may be.
"Illinois Power" means Illinois Power Company, a
subsidiary of the Issuer.
"Indebtedness" means indebtedness which is for money
borrowed from others. For purposes of Section 3.6 only,
"Indebtedness" shall have the meaning set forth in Section 3.6.
"Indenture" means this instrument as originally
executed and delivered or, if amended or supplemented as herein
provided, as so amended or supplemented or both, and shall
include the forms and terms of particular series of Securities
established as contemplated hereunder.
"Interest" means, when used with respect to
non-interest bearing Securities, interest payable after maturity.
"Issuer" means Illinova Corporation, an Illinois
corporation, and, subject to Article Eight, its successors and
assigns.
"Issuer Order" means a written statement, request or
order of the Issuer signed in its name by the Chairman of the
Board, the President, a Vice President, a Secretary or a
Treasurer of the Issuer.
"Judgment Currency" shall have the meaning set forth in
Section 10.12.
"Non-Recourse Indebtedness" means indebtedness of the
Issuer or Illinois Power in respect of which the recourse of the
holder of such indebtedness, whether direct or indirect and
whether contingent or otherwise, is effectively limited to
specified assets, and with respect to which (i) neither the
Issuer or Illinois Power provides any credit support, and (ii) a
default thereunder will not result in a default under any
Indebtedness or other obligations of the Issuer or Illinois
Power.
"Officers' Certificate" means a certificate signed by
the Chairman of the Board, the President or a Vice President, and
by the Controller, Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Issuer and delivered
to the Trustee. Each such certificate shall comply with Section
314 of the Trust Indenture Act of 1939 and include the statements
provided for in Section 10.5, if applicable.
"Opinion of Counsel" means an opinion in writing signed
by legal counsel who may be an employee of or counsel to the
Issuer and who shall be satisfactory to the Trustee. Each such
opinion shall comply with Section 314 of the Trust Indenture Act
of 1939 and include the statements provided for in Section 10.5,
if applicable.
"Original Issue Date" of any Security (or portion
thereof) means the earlier of (a) the date of such Security or
(b) the date of any Security (or portion thereof) for which such
Security was issued (directly or indirectly) on registration of
transfer, exchange or substitution.
"Original Issue Discount Security" means any Security
which is issued at a price lower than the principal amount
payable upon the Stated Maturity thereof and that provides for an
amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the maturity
thereof pursuant to Section 4.1.
"Outstanding" when used with reference to Securities,
shall, subject to the provisions of Section 6.4, mean, as of any
particular time, all Securities authenticated and delivered by
the Trustee under this Indenture, except:
(a) securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) securities, or portions thereof, for the payment
or redemption of which moneys or United States Government
Obligations (as provided for in Section 9.1) in the necessary
amount shall have been deposited in trust with the Trustee or
with any paying agent (other than the Issuer), provided that if
such Securities, or portions thereof, are to be redeemed prior to
the maturity thereof, notice of such redemption shall have been
given as herein provided, or provision satisfactory to the
Trustee shall have been made for giving such notice; and
(c) securities which shall have been paid or in
substitution for which other Securities shall have been
authenticated and delivered pursuant to the terms of Section 2.9
(except with respect to any such Security as to which proof
satisfactory to the Trustee is presented that such Security is
held by a Person in whose hands such Security is a legal, valid
and binding obligation of the Issuer).
In determining whether the Holders of the requisite
principal amount of Outstanding Securities of any or all series
have given any request, demand, authorization, direction, notice,
consent or waiver hereunder or whether a quorum is present at a
meeting of Holders of Securities, (1) the principal amount of an
Original Issue Discount Security that shall be deemed to be
Outstanding for such purposes shall be the amount of the
principal thereof that would be due and payable as of the date of
such determination upon a declaration of acceleration of the
maturity thereof pursuant to Section 4.1, and (2) the principal
amount of a Security denominated in a foreign currency or
currencies, including composite currencies, shall be the Dollar
equivalent, determined on the date of original issuance of such
Security in the manner provided as contemplated by Section 2.3,
of the principal amount (or, in the case of an Original Issue
Discount Security, the Dollar equivalent on the date of original
issuance of such Security of the amount determined as provided in
clause (1) above) of such Security.
"Periodic Offering" means an offering of Securities of
a series from time to time, the specific terms of which
Securities, including, without limitation, the rate or rates of
interest, if any, thereon, the stated maturity or maturities
thereof and the redemption provisions, if any, with respect
thereto, are to be determined by the Issuer or its agents upon
the issuance of such Securities.
"Person" means any individual, corporation,
partnership, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Principal" whenever used with reference to the
Securities or any Security or any portion thereof, shall be
deemed to include "and premium, if any".
"Record Date" shall have the meaning set forth in
Section 2.7.
"Registered Global Security", means a Security
evidencing all or a part of a series of Registered Securities,
issued to the Depositary for such series in accordance with
Section 2.4, and bearing the legend prescribed in Section 2.4.
"Registered Security" means any Security registered on
the Security register of the Issuer.
"Required Currency" shall have the meaning set forth in
Section 10.12.
"Responsible Officer" when used with respect to the
Trustee means the chairman of the board of directors, any vice
chairman of the board of directors, the chairman of the trust
committee, the chairman of the executive committee, any vice
chairman of the executive committee, the president, any vice
president, (whether or not designated by numbers or words added
before or after the title "vice president") the cashier, the
secretary, the treasurer, any trust officer, any senior trust
officer, any assistant trust officer, any assistant vice
president, any assistant cashier, any assistant secretary, any
assistant treasurer, or any other officer or assistant officer of
the Trustee customarily performing functions similar to those
performed by the persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred
because of his knowledge of and familiarity with the particular
subject.
"Security" or "Securities" has the meaning stated in
the first recital of this Indenture, or, as the case may be,
Securities that have been authenticated and delivered under this
Indenture.
"Stated Maturity", when used with respect to any
Security or any installment of principal thereof or interest
thereon, means the date specified in such Security or a coupon
representing such installment of interest as the fixed date on
which the principal of such Security or such installment of
principal or interest is due and payable.
"Subsidiary" means any Person at least a majority of
the outstanding securities of which having ordinary voting power
shall be owned by the Issuer and/or another Subsidiary or
Subsidiaries.
"Trust Indenture Act of 1939" (except as otherwise
provided in Sections 7.1 and 7.2) means the Trust Indenture Act
of 1939, as amended by the Trust Indenture Reform Act of 1990, as
in force at the date as of which this Indenture was originally
executed.
"Trustee" means the Person identified as "Trustee" in
the first paragraph hereof and, subject to the provisions of
Article Five, shall also include any successor trustee.
"Trustee" shall also mean or include each Person who is then a
trustee hereunder and if at any time there is more than one such
Person, "Trustee" as used with respect to the Securities of any
series shall mean the trustee with respect to the Securities of
such series.
"Unregistered Security" means any Security other than a
Registered Security.
"United States Government Obligations" shall have the
meaning set forth in Section 9.1(A).
"Yield to Maturity" means the yield to maturity on a
series of Securities, calculated at the time of issuance of such
series, or, if applicable, at the most recent redetermination of
interest on such series, and calculated in accordance with
accepted financial practice.
ARTICLE TWO
SECURITIES
SECTION 2.1 Forms Generally. The Securities of each
series and the Coupons, if any, to be attached thereto shall be
substantially in such form (not inconsistent with this Indenture)
as shall be established by or pursuant to one or more Board
Resolutions (as set forth in a Board Resolution or, to the extent
established pursuant to rather than set forth in a Board
Resolution, an Officers' Certificate detailing such
establishment) or in one or more indentures supplemental hereto,
in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted
by this Indenture and may have imprinted or otherwise reproduced
thereon such legend or legends or endorsements, not inconsistent
with the provisions of this Indenture, as may be required to
comply with any law or with any rules or regulations pursuant
thereto, or with any rules of any securities exchange or to
conform to general usage, all as may be determined by the
officers executing such Securities and Coupons, if any, as
evidenced by their execution of such Securities and Coupons.
The definitive Securities and Coupons, if any, shall be
printed, lithographed or engraved on steel engraved borders or
may be produced in any other manner, all as determined by the
officers executing such Securities and Coupons, if any, as
evidenced by their execution of such Securities and Coupons, if
any.
SECTION 2.2 Form of Trustee's Certificate of
Authentication. The Trustee's certificate of authentication on
all Securities shall be in substantially the following form:
"This is one of the Securities referred to in the
within-mentioned Indenture.
---------------------------------
as Trustee
By ------------------------------
Authorized Signatory"
If at any time there shall be an Authenticating Agent
appointed with respect to any series of Securities, then the
Securities of such series may have endorsed thereon, in addition
to or in lieu of the Trustee's certificate of authentication to
be borne by the Securities of each such series, an alternative
Certificate of Authentication substantially as follows:
"This is one of the Securities referred to in the
within-mentioned Indenture.
------------------------------,
as Trustee
By ---------------------------,
as Authenticating Agent
By ---------------------------
Authorized Officer"
SECTION 2.3 Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series, and each such
series shall rank equally and pari passu with all other unsecured
and unsubordinated debt of the Issuer, unless the Issuer is
required to secure the Securities pursuant to the debt provisions
described under Article III. There shall be established in or
pursuant to one or more Board Resolutions (and, to the extent
established pursuant to rather than set forth in a Board
Resolution, in an Officers' Certificate detailing such
establishment) or established in one or more indentures
supplemental hereto, prior to the initial issuance of Securities
of any series:
(1) the designation of the Securities of the series,
which shall distinguish the Securities of the series from
the Securities of all other series;
(2) any limit upon the aggregate principal amount of
the Securities of the series that may be authenticated and
delivered under this Indenture (except for Securities
authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities of
the series pursuant to Section 2.8, 2.9, 2.11, 7.5 or 11.3);
(3) if other than Dollars, the coin or currency in
which the Securities of that series are denominated
(including, but not limited to, any Foreign Currency or
ECU);
(4) the date or dates on which the principal of the
Securities of the series is payable;
(5) the rate or rates at which the Securities of the
series shall bear interest, if any, the date or dates from
which such interest shall accrue, on which such interest
shall be payable and (in the case of Registered Securities)
on which a record shall be taken for the determination of
Holders to whom interest is payable and/or the method by
which such rate or rates or date or dates shall be
determined and (if different) the rate or rates payable
following a default thereunder;
(6) the place or places where the principal of and any
interest on Securities of the series shall be payable (if
other than as provided in Section 3.2);
(7) the right, if any, of the Issuer to redeem
Securities, in whole or in part, at its option and the
period or periods within which, the price or prices at which
and any terms and conditions upon which Securities of the
series may be so redeemed, pursuant to any sinking fund or
otherwise;
(8) the obligation, if any, of the Issuer to redeem,
repurchase or repay Securities of the series pursuant to any
mandatory redemption, sinking fund or analogous provisions
or at the option of a Holder thereof and the price or prices
at which and the period or periods within which and any
terms and conditions upon which Securities of the series
shall be redeemed, repurchased or repaid, in whole or in
part, pursuant to such obligation;
(9) if other than denominations of $1,000 and any
integral multiple thereof in the case of Registered
Securities, or $1,000 and $5,000 in the case of Unregistered
Securities, the denominations in which Securities of the
series shall be issuable;
(10) if an Original Issue Discount Security, the method
of calculation of the amount of the principal of the
Securities of the series which shall be payable upon
declaration of acceleration of the maturity thereof;
(11) if other than the coin or currency in which the
Securities of that series are denominated, the coin or
currency in which payment of the principal of or interest on
the Securities of such series shall be payable;
(12) if the principal of or interest on the Securities
of such series are to be payable, at the election of the
Issuer or a Holder thereof, in a coin or currency other than
that in which the Securities are denominated, the period or
periods within which, and the terms and conditions upon
which, such election may be made;
(13) if the amount of payments of principal of and
interest on the Securities of the series may be determined
with reference to an index based on a coin or currency other
than that in which the Securities of the series are
denominated, the manner in which such amounts shall be
determined;
(14) whether the Securities of the series will be
issuable as Registered Securities (and if so, whether such
Securities will be issuable as Registered Global Securities)
or Unregistered Securities (with or without Coupons), or any
combination of the foregoing, any restrictions applicable to
the offer, sale or delivery of Unregistered Securities or
the payment of interest thereon and, if other than as
provided in Section 2.8, the terms upon which Unregistered
Securities of any series may be exchanged for Registered
Securities of such series and vice versa;
(15) whether and under what circumstances the Issuer
will pay additional amounts on the Securities of the series
held by a Person who is not a United States Person in
respect of any tax, assessment or governmental charge
withheld or deducted and, if so, whether the Issuer will
have the option to redeem such Securities rather than pay
such additional amounts;
(16) if the Securities of such series are to be
issuable in definitive form (whether upon original issue or
upon exchange of a temporary Security of such series) only
upon receipt of certain certificates or other documents or
satisfaction of other conditions, the form and terms of such
certificates, documents or conditions;
(17) any trustees, depositaries, authenticating or
paying agents, transfer agents or registrars or any other
agents with respect to the Securities of such series;
(18) any other Events of Default or covenants with
respect to the Securities of such series; and
(19) any other terms of the series (which terms shall
not be inconsistent with the provisions of this Indenture).
All Securities of any one series and Coupons, if any,
appertaining thereto, shall be substantially identical, except in
the case of Registered Securities as to denomination and
securities issued in a periodic offering and except as may
otherwise be provided by or pursuant to the Board Resolution or
Officers' Certificate referred to above or as set forth in any
such indenture supplemental hereto. All Securities of any one
series need not be issued at the same time and may be issued from
time to time, consistent with the terms of this Indenture, if so
provided by or pursuant to such Board Resolution, such Officers'
Certificate or in any such indenture supplemental hereto.
SECTION 2.4 Authentication and Delivery of
Securities. The Issuer may deliver Securities of any series
having attached thereto appropriate Coupons, if any, executed by
the Issuer to the Trustee for authentication together with the
applicable documents referred to below in this Section, and the
Trustee shall thereupon authenticate and deliver such Securities
to or upon the order of the Issuer (contained in the Issuer Order
referred to below in this Section) or pursuant to such procedures
acceptable to the Trustee and to such recipients as may be
specified from time to time by an Issuer Order. The maturity
date, original issue date, interest rate and any other terms of
the Securities of such series and Coupons, if any, appertaining
thereto shall be specified in or pursuant to such Issuer Order
and procedures. If provided for in such procedures, such Issuer
Order may authorize authentication and delivery pursuant to oral
instructions from the Issuer or its duly authorized agent, which
instructions shall be promptly confirmed in writing. In
authenticating such Securities and accepting the additional
responsibilities under this Indenture in relation to such
Securities, the Trustee shall be entitled to receive (in the case
of subparagraphs 2 and 3 below only at or before the time of the
first request of the Issuer to the Trustee to authenticate
Securities of such series) and (subject to Section 5.1) shall be
fully protected in relying upon, unless and until such documents
have been superceded or revoked:
(1) an Issuer Order requesting such authentication and
setting forth delivery instructions if the Securities and
Coupons, if any, are not to be delivered to the Issuer,
provided that, with respect to Securities of a series
subject to a Periodic Offering, (a) such Issuer Order may be
delivered by the Issuer to the Trustee prior to the delivery
to the Trustee of such Securities for authentication and
delivery, (b) the Trustee shall authenticate and deliver
Securities of such series for original issue from time to
time, in an aggregate principal amount not exceeding the
aggregate principal amount established for such series,
pursuant to an Issuer Order or pursuant to procedures
acceptable to the Trustee as may be specified from time to
time by an Issuer Order, (c) the maturity date or dates,
original issue date or dates, interest rate or rates and any
other terms of Securities of such series shall be determined
by an Issuer Order or pursuant to such procedures and (d) if
provided for in such procedures, such Issuer Order may
authorize authentication and delivery pursuant to oral or
electronic instructions from the Issuer or its duly
authorized agent or agents, which instructions shall be
promptly confirmed in writing;
(2) the Board Resolution, Officers' Certificate and/or
executed supplemental indenture referred to in Sections 2.1
and 2.3 authorizing the issuance of the Securities and by or
pursuant to which the forms and terms of the Securities and
Coupons, if any, were established; and
(3) at the option of the Issuer, either an Opinion of
Counsel, or a letter addressed to the Trustee permitting to
it to rely on an enclosed Opinion of Counsel, substantially
to the effect that:
(a) the forms of the Securities and Coupons, if
any, have been duly authorized and established in
conformity with the provisions of this Indenture;
(b) the terms of the Securities have been duly
authorized and established in conformity with the
provisions of this Indenture;
(c) when the Securities and Coupons, if any, have
been executed by the Issuer and authenticated by the
Trustee in accordance with the provisions of this
Indenture and delivered to and duly paid for by the
purchasers thereof, they will have been duly issued
under this Indenture and will be valid and legally
binding obligations of the Issuer, enforceable in
accordance with their respective terms, and will be
entitled to the benefits of this Indenture; and
(d) the execution and delivery by the Issuer of,
and the performance by the Issuer of its obligations
under, the Securities and Coupons, if any, will not
contravene any provision of applicable law or the
articles of incorporation or by-laws of the Issuer or
any agreement or other instrument binding upon the
Issuer or any of its Subsidiaries that is material to
the Issuer and its Subsidiaries, considered as one
enterprise, or, to the best of such counsel's
knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction
over the Issuer or any Subsidiary, and no consent,
approval or authorization of any governmental body or
agency is required for the performance by the Issuer of
its obligations under the Securities and Coupons, if
any, except such as are specified and have been
obtained and such as may be required by the securities
or blue sky laws of the various states in connection
with the offer and sale of the Securities.
In rendering such opinions, such counsel may qualify
any opinions as to enforceability by stating that such
enforceability may be limited by bankruptcy, insolvency,
reorganization, liquidation, moratorium and other similar laws
affecting the rights and remedies of creditors and is subject to
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law). Such counsel may rely, as to all matters governed by the
laws of jurisdictions and the federal law of the United States,
upon opinions of other counsel (copies of which shall be
delivered to the Trustee), in which case the opinion shall state
that such counsel believes he and the Trustee are entitled so to
rely. As to matters governed by the Laws of the State of New
York, such counsel may assume that the laws of the State of New
York are identical to the laws of the State of Illinois. Such
counsel may also state that, insofar as such opinion involves
factual matters, he has relied, to the extent he deems proper,
upon certificates of officers of the Issuer and its subsidiaries
and certificates of public officials.
The Trustee shall have the right to decline to
authenticate and deliver any Securities under this Section if the
Trustee, being advised by counsel, determines that such action
may not lawfully be taken by the Issuer or if the Trustee in good
faith by its board of directors or board of trustees, executive
committee, or a trust committee of directors or trustees or
Responsible Officers shall determine that such action would
expose the Trustee to personal liability to existing Holders or
would affect the Trustee's own rights, duties or immunities under
the Securities, this Indenture or otherwise.
If the Issuer shall establish pursuant to Section 2.3
that the Securities of a series are to be issued in the form of
one or more Registered Global Securities, then the Issuer shall
execute and the Trustee shall, in accordance with this Section
and the Issuer Order with respect to such series, authenticate
and deliver one or more Registered Global Securities that (i)
shall represent and shall be denominated in an amount equal to
all or part of the aggregate principal amount of the Securities
of such series issued and not yet canceled, (ii) shall be
registered in the name of the Depositary for such Registered
Global Security or Securities or the nominee of such Depositary,
(iii) shall be delivered by the Trustee to such Depositary or
pursuant to such Depositary's instructions and (iv) shall bear a
legend substantially to the following effect: "Unless and until
it is exchanged in whole or in part for Securities in definitive
registered form, this Security may not be transferred except as a
whole by the Depositary to the nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of
the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary."
Each Depositary must, at the time of its designation
and at all times while it serves as Depositary, be a clearing
agency registered under the Securities Exchange Act of 1934 and
any other applicable statute or regulation.
SECTION 2.5 Execution of Securities. The Securities
and, if applicable, each Coupon appertaining thereto shall be
signed on behalf of the Issuer by its Chairman of the Board, its
President, one of its Vice Presidents, or its Treasurer under
its corporate seal (except in the case of Coupons) which may, but
need not, be attested. Such signatures may be the manual or
facsimile signatures of the present or any future such officers.
The seal of the Issuer may be in the form of a facsimile thereof
and may be impressed, affixed, imprinted or otherwise reproduced
on the Securities. Typographical and other minor errors or
defects in any such reproduction of the seal or any such
signature shall not affect the validity or enforceability of any
Security that has been duly authenticated and delivered by the
Trustee.
In case any officer of the Issuer who shall have signed
any of the Securities or Coupons, if any, shall cease to be such
officer before the Security or Coupon so signed (or the Security
to which the Coupon so signed appertains) shall be authenticated
and delivered by the Trustee or disposed of by the Issuer, such
Security or Coupon nevertheless may be authenticated and
delivered or disposed of as though the person who signed such
Security or Coupon had not ceased to be such officer of the
Issuer; and any Security or Coupon may be signed on behalf of the
Issuer by such persons as, at the actual date of the execution of
such Security or Coupon, shall be the proper officers of the
Issuer, although at the date of the execution and delivery of
this Indenture any such person was not such an officer.
SECTION 2.6 Certificate of Authentication. Only
such Securities as shall bear thereon a certificate of
authentication substantially in the form hereinbefore recited,
executed by the Trustee by the manual signature of one of its
authorized officers, shall be entitled to the benefits of this
Indenture or be valid or obligatory for any purpose. No Coupon
shall be entitled to the benefits of this Indenture or shall be
valid and obligatory for any purpose until the certificate of
authentication on the Security to which such Coupon appertains
shall have been duly executed by the Trustee. The execution of
such certificate by the Trustee upon any Security executed by the
Issuer shall be conclusive evidence that the Security so
authenticated has been duly authenticated and delivered hereunder
and that the Holder is entitled to the benefits of this
Indenture.
SECTION 2.7 Denomination and Date of Securities;
Payments of Interest. The Securities of each series shall be
issuable as Registered Securities or Unregistered Securities in
denominations established as contemplated by Section 2.3 or, with
respect to the Registered Securities of any series, if not so
established, in denominations of $1,000 and any integral multiple
thereof. If denominations of Unregistered Securities of any
series are not so established, such Securities shall be issuable
in denominations of $1,000 and $5,000. The Securities of each
series shall be numbered, lettered or otherwise distinguished in
such manner or in accordance with such plan as the officers of
the Issuer executing the same may determine with the approval of
the Trustee, as evidenced by the execution and authentication
thereof.
Each Registered Security shall be dated the date of its
authentication. Each Unregistered Security shall be dated as
provided in or pursuant to the resolution or resolutions of the
Board of Directors of the Issuer referred to in Section 2.3. The
Securities of each series shall bear interest, if any, from the
date, and such interest shall be payable on the dates,
established as contemplated by Section 2.3.
Unless specifically otherwise provided in a Board
Resolution, Officers' Certificate or indenture supplemental
hereto provided pursuant to Section 2.3, the Person in whose name
any Registered Security of any series is registered at the close
of business on any record date applicable to a particular series
with respect to any interest payment date for such series shall
be entitled to receive the interest, if any, payable on such
interest payment date notwithstanding any transfer or exchange of
such Registered Security subsequent to the record date and prior
to such interest payment date, except if and to the extent the
Issuer shall default in the payment of the interest due on such
interest payment date for such series, in which case such
defaulted interest shall be paid to the Persons in whose names
Outstanding Registered Securities for such series are registered
at the close of business on a subsequent record date (which shall
be not less than five Business Days prior to the date of payment
of such defaulted interest) established by notice given by mail
by or on behalf of the Issuer to the Holders of Registered
Securities not less than 15 days preceding such subsequent record
date. The term "record date" as used with respect to any
interest payment date (except a date for payment of defaulted
interest) for the Securities of any series shall mean the date
specified as such in the terms of the Registered Securities of
such series established as contemplated by Section 2.3, or, if no
such date is so established, if such interest payment date is the
first day of a calendar month, the fifteenth day of the next
preceding calendar month or, if such interest payment date is the
fifteenth day of a calendar month, the first day of such calendar
month, whether or not such record date is a Business Day.
SECTION 2.8 Registration, Transfer and Exchange.
The Issuer will keep or cause to be kept at each office or agency
to be maintained for the purpose as provided in Section 3.2 for
each series of Securities a register in which, subject to such
reasonable regulations as it may prescribe, it will provide for
the registration of Registered Securities of such series and the
registration of transfer of Registered Securities of such series.
Such register shall be in written form in the English language or
in any other form capable of being converted into such form
within a reasonable time. At all reasonable times such register
or registers shall be open for inspection by the Trustee.
Upon due presentation for registration of transfer of
any Registered Security of any series at any such office or
agency to be maintained for the purpose as provided in Section
3.2, the Issuer shall execute and the Trustee shall authenticate
and deliver in the name of the transferee or transferees a new
Registered Security or Registered Securities of the same series,
maturity date, interest rate and original issue date in
authorized denominations for a like aggregate principal amount.
Unregistered Securities (except for any temporary
global Unregistered Securities) and Coupons (except for Coupons
attached to any temporary global Unregistered Securities) shall
be transferable by delivery.
At the option of the Holder thereof, Registered
Securities of any series (other than a Registered Global
Security, except as set forth below) may be exchanged for a
Registered Security or Registered Securities of such series
having authorized denominations and an equal aggregate principal
amount, upon surrender of such Registered Securities to be
exchanged at the agency of the Issuer that shall be maintained
for such purpose in accordance with Section 3.2 and upon payment,
if the Issuer shall so require, of the charges hereinafter
provided. If the Securities of any series are issued in both
registered and unregistered form, except as otherwise specified
pursuant to Section 2.3, at the option of the Holder thereof,
Unregistered Securities of any series may be exchanged for
Registered Securities of such series having authorized
denominations and an equal aggregate principal amount, upon
surrender of such Unregistered Securities to be exchanged at the
agency of the Issuer that shall be maintained for such purpose in
accordance with Section 3.2, with, in the case of Unregistered
Securities that have Coupons attached, all unmatured Coupons and
all matured Coupons in default thereto appertaining, and upon
payment, if the Issuer shall so require, of the charges
hereinafter provided. At the option of the Holder thereof, if
Unregistered Securities of any series, maturity date, interest
rate and original issue date are issued in more than one
authorized denomination, except as otherwise specified pursuant
to Section 2.3, such Unregistered Securities may be exchanged for
Unregistered Securities of such series, maturity date, interest
rate and original issue date having authorized denominations and
an equal aggregate principal amount, upon surrender of such
Unregistered Securities to be exchanged at the agency of the
Issuer that shall be maintained for such purpose in accordance
with Section 3.2 or as specified pursuant to Section 2.3, with,
in the case of Unregistered Securities that have Coupons
attached, all unmatured Coupons and all matured Coupons in
default thereto appertaining, and upon payment, if the Issuer
shall so require, of the charges hereinafter provided. Unless
otherwise specified pursuant to Section 2.3, Registered
Securities of any series may not be exchanged for Unregistered
Securities of such series. Whenever any Securities are so
surrendered for exchange, the Issuer shall execute, and the
Trustee shall authenticate and deliver, the Securities which the
Holder making the exchange is entitled to receive. All
Securities and Coupons surrendered upon any exchange or transfer
provided for in this Indenture shall be promptly canceled and
disposed of by the Trustee and the Trustee will deliver a
certificate of disposition thereof to the Issuer.
All Registered Securities presented for registration of
transfer, exchange, redemption or payment shall (if so required
by the Issuer or the Trustee) be duly endorsed by, or be
accompanied by a written instrument or instruments of transfer in
form satisfactory to the Issuer and the Trustee duly executed by
the Holder or his attorney duly authorized in writing.
The Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in
connection with any exchange or registration of transfer of
Securities. No service charge shall be made for any such
transaction.
The Issuer shall not be required to exchange or
register a transfer of (a) any Securities of any series for a
period of 15 days next preceding the first mailing of notice of
redemption of Securities of such series to be redeemed or (b) any
Securities selected, called or being called for redemption, in
whole or in part, except, in the case of any Security to be
redeemed in part, the portion thereof not so to be redeemed.
Notwithstanding any other provision of this Section
2.8, unless and until it is exchanged in whole or in part for
Securities in definitive registered form, a Registered Global
Security representing all or a portion of the Securities of a
series may not be transferred except as a whole by the Depositary
for such series to a nominee of such Depositary or by a nominee
of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a
successor Depositary for such series or a nominee of such
successor Depositary.
If at any time the Depositary for any Registered
Securities of a series represented by one or more Registered
Global Securities notifies the Issuer that it is unwilling or
unable to continue as Depositary for such Registered Securities
or if at any time the Depositary for such Registered Securities
shall no longer be eligible under Section 2.4, the Issuer shall
appoint a successor Depositary with respect to such Registered
Securities. If a successor Depositary for such Registered
Securities is not appointed by the Issuer within 90 days after
the Issuer receives such notice or becomes aware of such
ineligibility, the Issuer's election pursuant to Section 2.3 that
such Registered Securities be represented by one or more
Registered Global Securities shall no longer be effective and the
Issuer will execute, and the Trustee, upon receipt of an
Officers' Certificate for the authentication and delivery of
definitive Securities of such series, will authenticate and
deliver, Securities of such series in definitive registered form
without Coupons, in any authorized denominations, in an aggregate
principal amount equal to the principal amount of the Registered
Global Security or Securities representing such Registered
Securities in exchange for such Registered Global Security or
Securities.
The Issuer may at any time and in its sole discretion
determine that the Registered Securities of any series issued in
the form of one or more Registered Global Securities shall no
longer be represented by a Registered Global Security or
Securities. In such event the Issuer will execute, and the
Trustee, upon receipt of an Officers' Certificate for the
authentication and delivery of definitive Securities of such
series, will authenticate and deliver, Securities of such series
in definitive registered form without Coupons, in any authorized
denominations, in an aggregate principal amount equal to the
principal amount of the Registered Global Security or Securities
representing such Registered Securities, in exchange for such
Registered Global Security or Securities.
If specified by the Issuer pursuant to Section 2.3 with
respect to Securities represented by a Registered Global
Security, the Depositary for such Registered Global Security may
surrender such Registered Global Security in exchange in whole or
in part for Securities of the same series in definitive
registered form on such terms as are acceptable to the Issuer and
such Depositary. Thereupon, the Issuer shall execute, and the
Trustee shall authenticate and deliver, without service charge,
(i) to the Person specified by such Depositary a new
Registered Security or Securities of the same series, of any
authorized denominations as requested by such Person, in an
aggregate principal amount equal to and in exchange for such
Person's beneficial interest in the Registered Global
Security; and
(ii) to such Depositary a new Registered Global
Security in a denomination equal to the difference, if any,
between the principal amount of the surrendered Registered
Global Security and the aggregate principal amount of
Registered Securities authenticated and delivered pursuant
to clause (i) above.
Upon the exchange of a Registered Global Security for
Securities in definitive registered form without Coupons, in
authorized denominations, such Registered Global Security shall
be canceled by the Trustee or its agent. Securities in
definitive registered form without Coupons issued in exchange for
a Registered Global Security pursuant to this Section 2.8 shall
be registered in such names and in such authorized denominations
as the Depositary for such Registered Global Security, pursuant
to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee or an agent of the Issuer
or the Trustee. The Trustee or such agent shall deliver such
Securities to or as directed by the Persons in whose names such
Securities are so registered.
All Securities issued upon any transfer or exchange of
Securities shall be valid obligations of the Issuer, evidencing
the same debt, and entitled to the same benefits under this
Indenture, as the Securities surrendered upon such transfer or
exchange.
Notwithstanding anything herein or in the terms of any
series of Securities to the contrary, none of the Issuer, the
Trustee or any agent of the Issuer or the Trustee (any of which,
other than the Issuer, shall rely on an Officers' Certificate and
an Opinion of Counsel) shall be required to exchange any
Unregistered Security for a Registered Security if such exchange
would result in adverse Federal income tax consequences to the
Issuer (such as, for example, the inability of the Issuer to
deduct from its income, as computed for Federal income tax
purposes, the interest payable on the Unregistered Securities)
under then applicable United States Federal income tax laws.
SECTION 2.9 Mutilated, Defaced, Destroyed, Lost and
Stolen Securities. In case any temporary or definitive Security
or any Coupon appertaining to any Security shall become
mutilated, defaced or be destroyed, lost or stolen, the Issuer in
its discretion may execute, and upon the written request of any
officer of the Issuer, the Trustee shall authenticate and deliver
a new Security of the same series, maturity date, interest rate
and original issue date, bearing a number or other distinguishing
symbol not contemporaneously outstanding, in exchange and
substitution for the mutilated or defaced Security, or in lieu of
and in substitution for the Security so destroyed, lost or stolen
with Coupons corresponding to the Coupons appertaining to the
Securities so mutilated, defaced, destroyed, lost or stolen, or
in exchange or substitution for the Security to which such
mutilated, defaced, destroyed, lost or stolen Coupon appertained,
with Coupons appertaining thereto corresponding to the Coupons so
mutilated, defaced, destroyed, lost or stolen. In every case the
applicant for a substitute Security or Coupon shall furnish to
the Issuer and to the Trustee and any agent of the Issuer or the
Trustee such security or indemnity as may be required by them to
indemnify and defend and to save each of them harmless and, in
every case of destruction, loss or theft, evidence to their
satisfaction of the destruction, loss or theft of such Security
or Coupon and of the ownership thereof and in the case of
mutilation or defacement shall surrender the Security and related
Coupons to the Trustee or such agent.
Upon the issuance of any substitute Security or Coupon,
the Issuer may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and
expenses of the Trustee or its agent) connected therewith. In
case any Security or Coupon which has matured or is about to
mature or has been called for redemption in full shall become
mutilated or defaced or be destroyed, lost or stolen, the Issuer
may instead of issuing a substitute Security, pay or authorize
the payment of the same or the relevant Coupon (without surrender
thereof except in the case of a mutilated or defaced Security or
Coupon), if the applicant for such payment shall furnish to the
Issuer and to the Trustee and any agent of the Issuer or the
Trustee such security or indemnity as any of them may require to
save each of them harmless, and, in every case of destruction,
loss or theft, the applicant shall also furnish to the Issuer and
the Trustee and any agent of the Issuer or the Trustee evidence
to their satisfaction of the destruction, loss or theft of such
Security or Coupon and of the ownership thereof.
Every substitute Security or Coupon of any series
issued pursuant to the provisions of this Section by virtue of
the fact that any such Security or Coupon is destroyed, lost or
stolen shall constitute an additional contractual obligation of
the Issuer, whether or not the destroyed, lost or stolen Security
or Coupon shall be at any time enforceable by anyone and shall be
entitled to all the benefits of (but shall be subject to all the
limitations of rights set forth in) this Indenture equally and
proportionately with any and all other Securities or Coupons of
such series duly authenticated and delivered hereunder. All
Securities and Coupons shall be held and owned upon the express
condition that, to the extent permitted by law, the foregoing
provisions are exclusive with respect to the replacement or
payment of mutilated, defaced or destroyed, lost or stolen
Securities and Coupons and shall preclude any and all other
rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement
or payment of negotiable instruments or other securities without
their surrender.
SECTION 2.10 Cancellation of Securities; Disposition
Thereof. All Securities and Coupons surrendered for payment,
redemption, registration of transfer or exchange, or for credit
against any payment in respect of a sinking or analogous fund, if
surrendered to the Issuer or any agent of the Issuer or the
Trustee or any agent of the Trustee, shall be delivered to the
Trustee or its agent for cancellation or, if surrendered to the
Trustee, shall be canceled by it; and no Securities or Coupons
shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Indenture. The Trustee or its
agent shall dispose of canceled Securities and Coupons held by it
and deliver a certificate of disposition to the Issuer. If the
Issuer or its agent shall acquire any of the Securities or
Coupons, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Securities
or Coupons unless and until the same are delivered to the Trustee
or its agent for cancellation.
SECTION 2.11 Temporary Securities. Pending the
preparation of definitive Securities for any series, the Issuer
may execute and the Trustee shall authenticate and deliver
temporary Securities for such series (printed, lithographed,
typewritten or otherwise reproduced, in each case in form
satisfactory to the Trustee). Temporary Securities of any series
shall be issuable as Registered Securities without Coupons, or as
Unregistered Securities with or without Coupons attached thereto,
of any authorized denomination, and substantially in the form of
the definitive Securities of such series but with such omissions,
insertions and variations as may be appropriate for temporary
Securities, all as may be determined by the Issuer with the
concurrence of the Trustee as evidenced by the execution and
authentication thereof. Temporary Securities may contain such
references to any provisions of this Indenture as may be
appropriate. Every temporary Security shall be executed by the
Issuer and be authenticated by the Trustee upon the same
conditions and in substantially the same manner, and with like
effect, as the definitive Securities. Without unreasonable delay
the Issuer shall execute and shall furnish definitive Securities
of such series and thereupon temporary Registered Securities of
such series may be surrendered in exchange therefor without
charge at each office or agency to be maintained by the Issuer
for that purpose pursuant to Section 3.2 and, in the case of
Unregistered Securities, at any agency maintained by the Issuer
for such purpose as specified pursuant to Section 3.2, and the
Trustee shall authenticate and deliver in exchange for such
temporary Securities of such series an equal aggregate principal
amount of definitive Securities of the same series having
authorized denominations and, in the case of Unregistered
Securities, having attached thereto any appropriate Coupons.
Until so exchanged, the temporary Securities of any series shall
be entitled to the same benefits under this Indenture as
definitive Securities of such series, unless otherwise
established pursuant to Section 2.3. The provisions of this
Section are subject to any restrictions or limitations on the
issue and delivery of temporary Unregistered Securities of any
series that may be established pursuant to Section 2.3 (including
any provision that Unregistered Securities of such series
initially be issued in the form of a single global Unregistered
Security to be delivered to a depositary or agency located
outside the United States and the procedures pursuant to which
definitive or global Unregistered Securities of such series would
be issued in exchange for such temporary global Unregistered
Security).
ARTICLE THREE
COVENANTS OF THE ISSUER
SECTION 3.1 Payment of Principal and Interest. The
Issuer covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay or cause to be
paid the principal of, and interest on, each of the Securities of
such series (together with any additional amounts payable
pursuant to the terms of such Securities) at the place or places,
at the respective times and in the manner provided in such
Securities and in the Coupons, if any, appertaining thereto and
in this Indenture. The interest on Securities with Coupons
attached (together with any additional amounts payable pursuant
to the terms of such Securities) shall be payable only upon
presentation and surrender of the several Coupons for such
interest installments as are evidenced thereby as they severally
mature. If any temporary Unregistered Security provides that
interest thereon may be paid while such Security is in temporary
form, the interest on any such temporary Unregistered Security
(together with any additional amounts payable pursuant to the
terms of such Security) shall be paid, as to the installments of
interest evidenced by Coupons attached thereto, if any, only upon
presentation and surrender thereof, and, as to the other
installments of interest, if any, only upon presentation of such
Securities for notation thereon of the payment of such interest,
in each case subject to any restrictions that may be established
pursuant to Section 2.3. The interest on Registered Securities
(together with any additional amounts payable pursuant to the
terms of such Securities) shall be payable only to or upon the
written order of the Holders thereof entitled thereto and, at the
option of the Issuer, may be paid by wire transfer or by mailing
checks for such interest payable to or upon the written order of
such Holders at their last addresses as they appear on the
registry books of the Issuer.
SECTION 3.2 Offices for Payments, etc. So long as
any Registered Securities are authorized for issuance pursuant to
this Indenture or are outstanding hereunder, the Issuer will
maintain in the Borough of Manhattan, The City of New York, an
office or agency where the Registered Securities of each series
may be presented for payment, where the Securities of each series
may be presented for exchange as is provided in this Indenture
and, if applicable, pursuant to Section 2.3 and where the
Registered Securities of each series may be presented for
registration of transfer as in this Indenture provided.
The Issuer will maintain one or more offices or
agencies in a city or cities located outside the United States
(including any city in which such an agency is required to be
maintained under the rules of any stock exchange on which the
Securities of such series are listed) where the Unregistered
Securities, if any, of each series and Coupons, if any,
appertaining thereto may be presented for payment. No payment on
any Unregistered Security or Coupon will be made upon
presentation of such Unregistered Security or Coupon at an agency
of the Issuer within the United States nor will any payment be
made by transfer to an account in, or by mail to an address in,
the United States unless pursuant to applicable United States
laws and regulations then in effect such payment can be made
without adverse tax consequences to the Issuer. Notwithstanding
the foregoing, payments in Dollars of Unregistered Securities of
any series and Coupons appertaining thereto which are payable in
Dollars may be made at an agency of the Issuer maintained in the
Borough of Manhattan, The City of New York if such payment in
Dollars at each agency maintained by the Issuer outside the
United States for payment on such Unregistered Securities is
illegal or effectively precluded by exchange controls or other
similar restrictions.
The Issuer will maintain in the Borough of Manhattan,
The City of New York, an office or agency where notices and
demands to or upon the Issuer in respect of the Securities of any
series, the Coupons appertaining thereto or this Indenture may be
served.
The Issuer will give to the Trustee written notice of
the location of each such office or agency and of any change of
location thereof. In case the Issuer shall fail to maintain any
agency required by this Section to be located in the Borough of
Manhattan, The City of New York, or shall fail to give such
notice of the location or of any change in the location of any of
the above agencies, presentations and demands may be made and
notices may be served at the Corporate Trust Office of the
Trustee.
The Issuer may from time to time designate one or more
additional offices or agencies where the Securities of a series
and any Coupons appertaining thereto may be presented for
payment, where the Securities of that series may be presented for
exchange as provided in this Indenture and pursuant to Section
2.3 and where the Registered Securities of that series may be
presented for registration of transfer as in this Indenture
provided, and the Issuer may from time to time rescind any such
designation, as the Issuer may deem desirable or expedient;
provided, however, that no such designation or rescission shall
in any manner relieve the Issuer of its obligation to maintain
the agencies provided for in this Section. The Issuer will give
to the Trustee prompt written notice of any such designation or
rescission thereof.
SECTION 3.3 Appointment to Fill a Vacancy in Office
of Trustee. The Issuer, whenever necessary to avoid or fill a
vacancy in the office of Trustee, will appoint, in the manner
provided in Section 5.9, a Trustee, so that there shall at all
times be a Trustee with respect to each series of Securities
hereunder.
SECTION 3.4 Paying Agents. Whenever the Issuer
shall appoint a paying agent other than the Trustee with respect
to the Securities of any series, it will cause such paying agent
to execute and deliver to the Trustee an instrument in which such
agent shall agree with the Trustee, subject to the provisions of
this Section:
(a) that it will hold all sums received by it as such
agent for the payment of the principal of or interest on the
Securities of such series (whether such sums have been paid
to it by the Issuer or by any other obligor on the
Securities of such series) in trust for the benefit of the
Holders of the Securities of such series, or Coupons
appertaining thereto, if any, or of the Trustee,
(b) that it will give the Trustee notice of any
failure by the Issuer (or by any other obligor on the
Securities of such series) to make any payment of the
principal of or interest on the Securities of such series
when the same shall be due and payable, and
(c) that it will at any time during the continuance of
any such failure, upon the written request of the Trustee,
forthwith pay to the Trustee all sums so held in trust by
such paying agent.
The Issuer will, on or prior to each due date of the
principal of or interest on the Securities of such series,
deposit with the paying agent a sum sufficient to pay such
principal or interest so becoming due, and (unless such paying
agent is the Trustee) the Issuer will promptly notify the Trustee
of any failure to take such action.
If the Issuer shall act as its own paying agent with
respect to the Securities of any series, it will, on or before
each due date of the principal of or interest on the Securities
of such series, set aside, segregate and hold in trust for the
benefit of the Holders of the Securities of such series or the
Coupons appertaining thereto a sum sufficient to pay such
principal or interest so becoming due. The Issuer will promptly
notify the Trustee of any failure to take such action.
Anything in this Section to the contrary
notwithstanding, but subject to Section 9.1, the Issuer may at
any time, for the purpose of obtaining a satisfaction and
discharge with respect to one or more or all series of Securities
hereunder, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust for any such series by the
Issuer or any paying agent hereunder, as required by this
Section, such sums to be held by the Trustee upon the trusts
herein contained.
Anything in this Section to the contrary
notwithstanding, the agreement to hold sums in trust as provided
in this Section is subject to the provisions of Sections 9.3 and
9.4.
SECTION 3.5 Written Statement to Trustee. The
Issuer will furnish to the Trustee on or before May 31 in each
year (beginning with May 31, 1997) a brief certificate (which
need not comply with Section 10.5) from the principal executive,
financial or accounting officer of the Issuer as to his or her
knowledge of the Issuer's compliance with all conditions and
covenants under the Indenture (such compliance to be determined
without regard to any period of grace or requirement of notice
provided under the Indenture).
SECTION 3.6 Limitations upon Liens. (a) After the
date hereof and so long as any Securities are Outstanding, the
Issuer will not pledge, mortgage, hypothecate or grant a security
interest in, or permit any mortgage, pledge, security interest or
other lien upon, any capital stock of any Subsidiary now or
hereafter owned by the Issuer to secure any Indebtedness
(hereinafter defined), without making effective provisions
whereby the Outstanding Securities shall (so long as such other
Indebtedness shall be so secured) be equally and ratably secured
with any and all such other Indebtedness and any other
indebtedness similarly entitled to be equally and ratably
secured; provided, however, that this restriction shall not apply
to nor prevent the creation or existence of (i) any mortgage,
pledge, security interest, lien or encumbrance upon any such
capital stock created at the time of the acquisition of such
capital stock by the Issuer or within one year after such time to
secure all or a portion of the purchase price for such capital
stock or existing thereon at the time of the acquisition thereof
by the Issuer (whether or not the obligations secured thereby are
assumed by the Issuer), or (ii) any extension, renewal or
refunding of any mortgage, pledge, security interest, lien or
encumbrance described in clause (i) above on capital stock of any
Subsidiary theretofore subject thereto (or substantially the same
capital stock) or any portion thereof.
For purposes of this Section 3.6, "Indebtedness" means
all indebtedness, whether or not represented by bonds,
debentures, notes or other securities, created or assumed by the
Issuer for the repayment of money borrowed. All indebtedness for
money borrowed secured by a lien upon property owned by the
Issuer and upon which indebtedness for money borrowed the Issuer
customarily pays interest, although the Issuer has not assumed or
become liable for the payment of such indebtedness for money
borrowed, shall for purposes of this Section 3.6 be deemed to be
indebtedness of the Issuer. All indebtedness for money borrowed
of others guaranteed as to payment of principal by the Issuer or
in effect guaranteed by the Issuer through a contingent agreement
to purchase such indebtedness for money borrowed shall for
purposes of this Section 3.6 be deemed to be Indebtedness of the
Issuer, but no other contingent obligation of the Issuer in
respect of indebtedness for money borrowed or other obligations
incurred by others shall for purposes of this Section 3.6 be
deemed to be Indebtedness of the Issuer.
In case the Issuer or any Subsidiary shall propose to
pledge, mortgage, hypothecate or grant a security interest in any
capital stock of any Subsidiary owned by the Issuer to secure any
Indebtedness, other than as permitted by clauses (i) and (ii) in
the second preceding paragraph, the Issuer will prior thereto
give written notice thereof to the Trustee, and the Issuer will
prior to or simultaneously with such pledge, mortgage,
hypothecation or grant of security interest, by supplemental
indenture executed to the Trustee (or to the extent legally
necessary to another trustee or an additional or separate
trustee), in form satisfactory to the Trustee, effectively secure
(for so long as other Indebtedness shall be so secured) all the
Securities equally and ratably with such Indebtedness and with
any other indebtedness for money borrowed similarly entitled to
be equally and ratably secured.
(b) Except as otherwise specified as contemplated by
Section 2.3 for Securities of any series, the provisions of
subsection (a) of this Section 3.6 shall not apply in the event
that the Issuer or any Subsidiary shall pledge, mortgage,
hypothecate or grant a security interest in, or permit any
mortgage pledge, security interest or other lien upon, any
capital stock of any Subsidiary now or hereafter owned by the
Issuer to secure any Indebtedness (which would otherwise be
subject to the foregoing restriction) in an aggregate amount
which, together with all other Indebtedness (other than
mortgages, pledges, security interests, liens or encumbrances
permitted by Subsection (a) of this Section 3.6), which would
otherwise be subject to the foregoing restriction, does not at
the time exceed 5% of Consolidated Capitalization.
For purposes of this Section 3.6:
(1) The term "Consolidated Capitalization" means
the sum obtained by adding (i) Consolidated
Shareholders' Equity, (ii) Consolidated Indebtedness
(exclusive of any thereof which is due and payable
within one year of the date such sum is determined)
and, without duplication, (iii) any preference or
preferred stock of the Issuer or any Consolidated
Subsidiary which is subject to mandatory redemption or
sinking fund provisions.
(2) The term "Consolidated Shareholders' Equity"
means the total Assets of the Issuer and its
Consolidated Subsidiaries less all liabilities of the
Issuer and its Consolidated Subsidiaries. As used in
this definition, "liabilities" means all obligations
which would, in accordance with generally accepted
accounting principles, be classified on a balance sheet
as liabilities, including without limitation, (i)
indebtedness secured by property of the Issuer or any
of its Consolidated Subsidiaries whether or not the
Issuer or such Consolidated Subsidiary is liable for
the payment thereof unless, in the case that the Issuer
or such Consolidated Subsidiary is not so liable, such
property has not been included among the Assets of the
Issuer or such Consolidated Subsidiary on such balance
sheet, (ii) deferred liabilities, and (iii)
indebtedness of the Issuer or any of its Consolidated
Subsidiaries that is expressly subordinated in right
and priority of payment to other liabilities of the
Issuer or such Consolidated Subsidiary. As used in
this definition, "liabilities" includes preference or
preferred stock of the Issuer or any Consolidated
Subsidiary only to the extent of any such preference or
preferred stock that is subject to mandatory redemption
or sinking fund provisions.
(3) The term "Consolidated Subsidiary" means at
any date any Subsidiary the financial statements of
which under generally accepted accounting principles
would be consolidated with those of the Issuer in its
consolidated financial statements as of such date.
(4) The "Assets" of any Person means the whole or
any part of its business, property, assets, cash and
receivables.
(5) The term "Consolidated Indebtedness" means
total indebtedness as shown on the consolidated balance
sheet of the Issuer and its Consolidated Subsidiaries.
SECTION 3.7 Luxembourg Publications. In the event
of the publication of any notice pursuant to Section 4.11,
5.9(a), 5.10, 7.2, 9.4, 11.2 or 11.5, the party making such
publication in the Borough of Manhattan, The City of New York and
London shall also, to the extent that notice is required to be
given to Holders of Securities of any series by applicable
Luxembourg law or stock exchange regulation, as evidenced by an
Officers' Certificate delivered to such party, make a similar
publication in Luxembourg.
SECTION 3.8 Securityholders Lists.
(a) If and so long as the Trustee shall not be the
Security registrar for the Securities of any series, the Issuer
will furnish or cause to be furnished to the Trustee a list in
such form as the Trustee may reasonably require of the names and
addresses of the holders of the Securities of such series
pursuant to Section 312 of the Trust Indenture Act of 1939 (i)
semi-annually not more than 15 days after each record date for
the payment of interest on such Securities, as hereinabove
specified, as of such record date and on dates to be determined
pursuant to Section 2.3 for non-interest bearing securities in
each year, and (ii) at such other times as the Trustee may
request in writing, within thirty days after receipt by the
Issuer of any such request as of a date not more than 15 days
prior to the time such information is furnished.
(b) If three or more Holders of Securities (herein
after referred to as "applicants") apply in writing to the
Trustee, and furnish to the Trustee reasonable proof that each
such applicant has owned a Security for a period of at least six
months preceding the date of such application, and such
application states that the applicants desire to communicate with
other Holders of Securities with respect to their rights under
this Indenture or under the Securities and is accompanied by a
copy of the form of proxy or other communication that such
applicants propose to transmit to such other Holders, then the
Trustee shall, within five business days after the receipt of
such application, at its election, either
(i) afford such applicants access to the
information preserved at the time by the Trustee
in accordance with Section 3.8(a), or
(ii) inform such applicants as to the approximate
number of Holders of Securities whose names and
addresses appear in the information preserved at
the time by the Trustee in accordance with Section
3.8(a), and as to the approximate cost of mailing
to such Holders the form of proxy or other
communication, if any, specified in such
application.
If the Trustee shall elect not to afford such
applicants access to such information, the Trustee shall, upon
the written request of such applicants, mail to each Holder of
Securities whose name and address appear in the information
preserved at the time by the Trustee in accordance with Section
3.8(a) a copy of the form of proxy or other communication that is
specified in such request, with reasonable promptness after a
tender to the Trustee of the material to be mailed and of
payment, or provision for the payment, of the reasonable expenses
of mailing, unless within five days after such tender the Trustee
shall mail to such applicants and file with the Commission,
together with a copy of the material to be mailed, a written
statement to the effect that, in the opinion of the Trustee, such
mailing would be contrary to the best interest of the Holders of
Securities or would be in violation of applicable law. Such
written statement shall specify the basis of such opinion. If
the Commission, after opportunity for a hearing upon the
objections specified in the written statement so filed, shall
enter an order refusing to sustain any of such objections or if,
after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and
opportunity for hearing, that all objections so sustained have
been met and shall enter an order so declaring, the Trustee shall
mail copies of such material to all such Holders of Securities
with reasonable promptness after the entry of such order and the
renewal of such tender; otherwise, the Trustee shall be relieved
of any obligation or duty to such applicants respecting their
application.
(c) Every Holder of Securities or coupons, by
receiving and holding the same, agrees with the Issuer and the
Trustee that neither the Issuer nor the Trustee nor any agent of
either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses
of the Holders of Securities in accordance with Section 3.8(b),
regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of
mailing any material pursuant to a request made under Section
3.8(b).
SECTION 3.9 Reports by the Issuer. The Issuer
covenants to file with the Trustee, within 15 days after the
Issuer is required to file the same with the Commission, copies
of the annual reports and of the information, documents, and
other reports which the Issuer may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934.
SECTION 3.10 Reports by the Trustee. Any Trustee's
report required under Section 313(a) of the Trust Indenture Act
of 1939 shall be transmitted on or before July 15 in each year
following the date hereof, so long as any Securities are
outstanding hereunder, and shall be dated as of a date convenient
to the Trustee no more than 60 nor less than 45 days prior
thereto.
SECTION 3.11 Waiver of Certain Covenants. The Issuer
may omit in any particular instance to comply with any term,
provision or condition set forth in Section 3.6 with respect to
the Securities of any series if before the time for such
compliance the Holders of a majority in principal amount of the
Outstanding Securities of such series shall either waive such
compliance in such instance or generally waive compliance with
such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to
the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Issuer and the duties of
the Trustee in respect of any such term, provision or condition
shall remain in full force and effect.
ARTICLE FOUR
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 4.1 Event of Default Defined; Acceleration
of Maturity; Waiver of Default. "Event of Default" with respect
to Securities of any series wherever used herein, means each one
of the following events which shall have occurred and be
continuing (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative
or governmental body):
(a) default in the payment of all or any part of the
principal on any of the Securities of such series as and
when the same shall become due and payable either at
maturity, upon any redemption, by declaration of
acceleration or otherwise;
(b) default in the payment of any instalment of
interest upon any of the Securities of such series as and
when the same shall become due and payable, and continuance
of such default for a period of 30 days;
(c) default in the performance, or breach, of any
covenant or warranty of the Issuer in the Securities of such
series (other than a covenant or warranty in respect of the
Securities of such series a default in whose performance or
whose breach is elsewhere in this Section specifically dealt
with) and continuance of such default or breach for a period
of 90 days after there has been given, by registered or
certified mail, to the Issuer by the Trustee or to the
Issuer and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Securities of
all series affected thereby, a written notice specifying
such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder;
(d) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Issuer a bankrupt
or insolvent, or approving as properly filed a petition
seeking reorganization arrangement, adjustment or
composition of or in respect of the Issuer under the Federal
bankruptcy law or any other applicable Federal or state law,
or appointing a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Issuer or of
any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days;
(e) the institution by the Issuer of proceedings to be
adjudicated a bankrupt or insolvent or the consent by it to
the institution of bankruptcy or insolvency proceedings
against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under the Federal
bankruptcy law or any other applicable Federal or state law,
or the consent by it to the filing of any such petition or
to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the
Issuer or of any substantial part of its property, or the
making by it of a general assignment for the benefit of
creditors;
(f) the acceleration of the maturity of any
indebtedness for borrowed money of the Issuer or Illinois
Power or the failure to pay any portion of such indebtedness
when due and payable after the expiration of any applicable
grace period (in each case, other than the Securities of
such series or Non-Recourse Indebtedness) having an
aggregate principal amount outstanding in excess of
$25,000,000, if such acceleration is not rescinded or
annulled, such failure to pay is not cured, or such
indebtedness shall not have been discharged, within 15 days
after written notice thereof to the Issuer by either the
Trustee or the Holders of not less than 25% in aggregate
principal amount of the Securities of such series; or
(g) any other Event of Default provided in the
supplemental indenture under which such series of Securities
is issued or in the form of Security for such series;
provided, however, that, except as otherwise may be established
for a series of Senior Debt Securities, the occurrence of any of
the events described in the foregoing clause (c) or (g) shall not
constitute an Event of Default if such occurrence is the result
of changes in generally accepted accounting principles as
recognized by the American Institute of Certified Public
Accountants at the date as of which this Indenture is executed
and a certificate to such effect is delivered to the Trustee by
the Issuer's independent public accountants.
If an Event of Default described in clauses (a), (b),
(c) or (g) (if the Event of Default under clause (c) or (g), as
the case may be, is with respect to less than all series of
Securities then Outstanding) occurs and is continuing, then, and
in each and every such case, except for any series of Securities
the principal of which shall have already become due and payable,
either the Trustee or the Holders of not less than 25% in
aggregate principal amount of the Securities of each such
affected series then Outstanding hereunder (voting as a single
class) by notice in writing to the Issuer (and to the Trustee if
given by Securityholders), may declare the entire principal (or,
if the Securities of any such affected series are Original Issue
Discount Securities, such portion of the principal amount as may
be specified in the terms of such series) of all Securities of
all such affected series, and the interest accrued thereon, if
any, to be due and payable immediately, and upon any such
declaration, the same shall become immediately due and payable.
If an Event of Default described in clause (c) or (g) (if the
Event of Default under clause (c) or (g), as the case may be, is
with respect to all series of Securities then Outstanding), (d)
or (e) occurs and is continuing, then and in each and every such
case, unless the principal of all the Securities shall have
already become due and payable, either the Trustee or the Holders
of not less than 25% in aggregate principal amount of all the
Securities then Outstanding hereunder (treated as one class), by
notice in writing to the Issuer (and to the Trustee if given by
Securityholders), may declare the entire principal (or, if any
Securities are Original Issue Discount Securities, such portion
of the principal as may be specified in the terms thereof) of all
the Securities then Outstanding, and interest accrued thereon, if
any, to be due and payable immediately, and upon any such
declaration the same shall become immediately due and payable.
The foregoing provisions, however, are subject to the
condition that if, at any time after the principal (or, if the
Securities are Original Issue Discount Securities, such portion
of the principal as may be specified in the terms thereof) of the
Securities of any series (or of all the Securities, as the case
may be) shall have been so declared due and payable, and before
any judgment or decree for the payment of the moneys due shall
have been obtained or entered as hereinafter provided, the Issuer
shall pay or shall deposit with the Trustee a sum sufficient to
pay all matured installments of interest upon all the Securities
of such series (or of all the Securities, as the case may be) and
the principal of any and all Securities of each such series (or
of all the Securities, as the case may be) which shall have
become due otherwise than by acceleration (with interest upon
such principal and, to the extent that payment of such interest
is enforceable under applicable law, on overdue installments of
interest, at the same rate as the rate of interest or Yield to
Maturity (in the case of Original Issue Discount Securities)
specified in the Securities of each such series (or at the
respective rates of interest or Yields to Maturity of all the
Securities, as the case may be) to the date of such payment or
deposit) and such amount as shall be sufficient to cover
reasonable compensation to the Trustee and each predecessor
Trustee, its agents, attorneys and counsel, and all other
expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a result of
negligence or bad faith, and if any and all Events of Default
under the Indenture, other than the non-payment of the principal
of Securities which shall have become due by acceleration, shall
have been cured, waived or otherwise remedied as provided
herein--then and in every such case the Holders of a majority in
aggregate principal amount of all the Securities of each such
series, or of all the Securities, in each case voting as a single
class, then Outstanding, by written notice to the Issuer and to
the Trustee, may waive all defaults with respect to each such
series (or with respect to all the Securities, as the case may
be) and rescind and annul such declaration and its consequences,
but no such waiver or rescission and annulment shall extend to or
shall affect any subsequent default or shall impair any right
consequent thereon.
For all purposes under this Indenture, if a portion of
the principal of any Original Issue Discount Securities shall
have been accelerated and declared due and payable pursuant to
the provisions hereof, then, from and after such declaration,
unless such declaration has been rescinded and annulled, the
principal amount of such Original Issue Discount Securities shall
be deemed, for all purposes hereunder, to be such portion of the
principal thereof as shall be due and payable as a result of such
acceleration, and payment of such portion of the principal
thereof as shall be due and payable as a result of such
acceleration, together with interest, if any, thereon and all
other amounts owing thereunder, shall constitute payment in full
of such Original Issue Discount Securities.
SECTION 4.2 Collection of Indebtedness by Trustee;
Trustee May Prove Debt. The Issuer covenants that (a) in case
default shall be made in the payment of any instalment of
interest on any of the Securities of any series when such
interest shall have become due and payable, and such default
shall have continued for a period of 30 days or (b) in case
default shall be made in the payment of all or any part of the
principal of any of the Securities of any series when the same
shall have become due and payable, whether upon maturity of the
Securities of such series or upon any redemption or by
declaration or otherwise - then upon demand of the Trustee, the
Issuer will pay to the Trustee for the benefit of the Holders of
the Securities of such series the whole amount that then shall
have become due and payable on all Securities of such series, and
such Coupons, for principal or interest, as the case may be (with
interest to the date of such payment upon the overdue principal
and, to the extent that payment of such interest is enforceable
under applicable law, on overdue installments of interest at the
same rate as the rate of interest or Yield to Maturity (in the
case of Original Issue Discount Securities) specified in the
Securities of such series); and in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of
collection, including reasonable compensation to the Trustee and
each predecessor Trustee, their respective agents, attorneys and
counsel, and any expenses and liabilities incurred, and all
advances made, by the Trustee and each predecessor Trustee except
as a result of its negligence or bad faith.
Until such demand is made by the Trustee, the Issuer
may pay the principal of and interest on the Securities of any
series to the registered Holders, whether or not the Securities
of such series be overdue.
In case the Issuer shall fail forthwith to pay such
amounts upon such demand, the Trustee, in its own name and as
trustee of an express trust, shall be entitled and empowered to
institute any action or proceedings at law or in equity for the
collection of the sums so due and unpaid, and may prosecute any
such action or proceedings to judgment or final decree, and may
enforce any such judgment or final decree against the Issuer or
other obligor upon the Securities and collect in the manner
provided by law out of the property of the Issuer or other
obligor upon the Securities, wherever situated the moneys
adjudged or decreed to be payable.
In case there shall be pending proceedings relative to
the Issuer or any other obligor upon the Securities under Title
11 of the United States Code or any other applicable Federal or
state bankruptcy, insolvency or other similar law, or in case a
receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer or its property
or such other obligor, or in case of any other comparable
judicial proceedings relative to the Issuer or other obligor upon
the Securities, or to the creditors or property of the Issuer or
such other obligor, the Trustee, irrespective of whether the
principal of the Securities shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand pursuant to the
provisions of this Section, shall be entitled and empowered, by
intervention in such proceedings or otherwise:
(a) to file and prove a claim or claims for the whole
amount of principal and interest (or, if the Securities of
any series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the
terms of such series) owing and unpaid in respect of the
Securities of any series, and to file such other papers or
documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for
reasonable compensation to the Trustee and each predecessor
Trustee, and their respective agents, attorneys and counsel,
and for reimbursement of all expenses and liabilities
incurred, and all advances made, by the Trustee and each
predecessor Trustee, except as a result of negligence or bad
faith) and of the Securityholders allowed in any judicial
proceedings relative to the Issuer or other obligor upon the
Securities, or to the creditors or property of the Issuer or
such other obligor,
(b) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of the
Securities of any series in any election of a trustee or a
standby trustee in arrangement, reorganization, liquidation
or other bankruptcy or insolvency proceedings or Person
performing similar functions in comparable proceedings, and
(c) to collect and receive any moneys or other
property payable or deliverable on any such claims, and to
distribute all amounts received with respect to the claims
of the Securityholders and of the Trustee on their behalf;
and any trustee, receiver, or liquidator, custodian or
other similar official is hereby authorized by each of the
Securityholders to make payments to the Trustee, and, in the
event that the Trustee shall consent to the making of
payments directly to the Securityholders, to pay to the
Trustee such amounts as shall be sufficient to cover
reasonable compensation to the Trustee, each predecessor
Trustee and their respective agents, attorneys and counsel,
and all other expenses and liabilities incurred, and all
advances made, by the Trustee and each predecessor Trustee
except as a result of negligence or bad faith.
Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or vote for or accept or
adopt on behalf of any Securityholder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities
of any series or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding except, as aforesaid, to
vote for the election of a trustee in bankruptcy or similar
Person.
All rights of action and of asserting claims under this
Indenture, or under any of the Securities of any series or
Coupons appertaining to such Securities, may be enforced by the
Trustee without the possession of any of the Securities of such
series or Coupons appertaining to such Securities or the
production thereof on any trial or other proceedings relative
thereto, and any such action or proceedings instituted by the
Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of
the expenses, disbursements and compensation of the Trustee, each
predecessor Trustee and their respective agents and attorneys,
shall be for the ratable benefit of the Holders of the Securities
or Coupons appertaining to such Securities in respect of which
such action was taken.
In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this
Indenture to which the Trustee shall be a party) the Trustee
shall be held to represent all the Holders of the Securities or
Coupons appertaining to such Securities in respect to which such
action was taken, and it shall not be necessary to make any
Holders of such Securities or Coupons appertaining to such
Securities parties to any such proceedings.
SECTION 4.3 Application of Proceeds. Any moneys
collected by the Trustee pursuant to this Article in respect of
any series shall be applied in the following order at the date or
dates fixed by the Trustee and, in case of the distribution of
such moneys on account of principal or interest, upon
presentation of the several Securities and Coupons appertaining
to such Securities in respect of which monies have been collected
and stamping (or otherwise noting) thereon the payment, or
issuing Securities of such series in reduced principal amounts in
exchange for the presented Securities of like series if only
partially paid, or upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses applicable
to such series in respect of which monies have been collected,
including reasonable compensation to the Trustee and each
predecessor Trustee and their respective agents and attorneys and
of all expenses and liabilities incurred, and all advances made,
by the Trustee and each predecessor Trustee except as a result of
negligence or bad faith;
SECOND: In case the principal of the Securities of
such series in respect of which moneys have been collected shall
not have become and be then due and payable, to the payment of
interest on the Securities of such series in default in the order
of the maturity of the installments of such interest, with
interest (to the extent that such interest has been collected by
the Trustee) upon the overdue installments of interest at the
same rate as the rate of interest or Yield to Maturity (in the
case of Original Issue Discount Securities) specified in such
Securities, such payments to be made ratably to the Persons
entitled thereto, without discrimination or preference;
THIRD: In case the principal of the Securities of such
series in respect of which moneys have been collected shall have
become and shall be then due and payable, to the payment of the
whole amount then owing and unpaid upon all the Securities of
such series for principal and interest, with interest upon the
overdue principal, and (to the extent that such interest has been
collected by the Trustee) upon overdue installments of interest
at the same rate as the rate of interest or Yield to Maturity (in
the case of Original Issue Discount Securities) specified in the
Securities of such series; and in case such moneys shall be
insufficient to pay in full the whole amount so due and unpaid
upon the Securities of such series, then to the payment of such
principal and interest or Yield to Maturity, without preference
or priority of principal over interest or Yield to Maturity, or
of interest or Yield to Maturity over principal, or of any
instalment of interest over any other instalment of interest, or
of any Security of such series over any other Security of such
series, ratably to the aggregate of such principal and accrued
and unpaid interest or Yield to Maturity; and
FOURTH: To the payment of the remainder, if any, to
the Issuer or any other Person lawfully entitled thereto.
SECTION 4.4 Suits for Enforcement. In case an Event
of Default has occurred, has not been waived and is continuing,
the Trustee may in its discretion proceed to protect and enforce
the rights vested in it by this Indenture by such appropriate
judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific
enforcement of any covenant or agreement contained in this
Indenture or in aid of the exercise of any power granted in this
Indenture or to enforce any other legal or equitable right vested
in the Trustee by this Indenture or by law.
SECTION 4.5 Restoration of Rights on Abandonment of
Proceedings. In case the Trustee shall have proceeded to enforce
any right under this Indenture and such proceedings shall have
been discontinued or abandoned for any reason, or shall have been
determined adversely to the Trustee, then and in every such case
the Issuer and the Trustee shall be restored respectively to
their former positions and rights hereunder, and all rights,
remedies and powers of the Issuer, the Trustee and the
Securityholders shall continue as though no such proceedings had
been taken.
SECTION 4.6 Limitations on Suits by Securityholders.
No Holder of any Security of any series or of any Coupon
appertaining thereto shall have any right by virtue or by
availing of any provision of this Indenture to institute any
action or proceeding at law or in equity or in bankruptcy or
otherwise upon or under or with respect to this Indenture, or for
the appointment of a trustee, receiver, liquidator, custodian or
other similar official or for any other remedy hereunder, unless
such Holder previously shall have given to the Trustee written
notice of default and of the continuance thereof, as hereinbefore
provided, and unless also the Holders of not less than 25% in
aggregate principal amount of the Securities of each affected
series then Outstanding (treated as a single class) shall have
made written request upon the Trustee to institute such action or
proceedings in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be
incurred therein or thereby and the Trustee for 60 days after its
receipt of such notice, request and offer of indemnity shall have
failed to institute any such action or proceeding and no
direction inconsistent with such written request shall have been
given to the Trustee pursuant to Section 4.9; it being understood
and intended, and being expressly covenanted by the taker and
Holder of every Security or Coupon with every other taker and
Holder and the Trustee, that no one or more Holders of Securities
of any series or Coupons appertaining to such Securities shall
have any right in any manner whatever by virtue or by availing of
any provision of this Indenture to affect, disturb or prejudice
the rights of any other such Holder of Securities or Coupons
appertaining to such Securities, or to obtain or seek to obtain
priority over or preference to any other such Holder or to
enforce any right under this Indenture, except in the manner
herein provided and for the equal, ratable and common benefit of
all Holders of Securities of the applicable series and Coupons
appertaining to such Securities. For the protection and
enforcement of the provisions of this Section, each and every
Securityholder and the Trustee shall be entitled to such relief
as can be given either at law or in equity.
SECTION 4.7 Unconditional Right of Securityholders
to Institute Certain Suits. Notwithstanding any other provision
in this Indenture and any provision of any Security, the right of
any Holder of any Security or Coupon to receive payment of the
principal of and interest on such Security or Coupon on or after
the respective due dates expressed or provided for in such
Security or Coupon, or to institute suit for the enforcement of
any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 4.8 Powers and Remedies Cumulative; Delay or
Omission Not Waiver of Default. Except as provided in Section
4.6 and the last paragraph of Section 2.9, no right or remedy
herein conferred upon or reserved to the Trustee or to the
Holders of Securities or Coupons is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
No delay or omission of the Trustee or of any Holder of
Securities or Coupons to exercise any right or power accruing
upon any Event of Default occurring and continuing as aforesaid
shall impair any such right or power or shall be construed to be
a waiver of any such Event of Default or an acquiescence therein;
and, subject to Section 4.6, every power and remedy given by this
Indenture or by law to the Trustee or to the Holders of
Securities or Coupons may be exercised from time to time, and as
often as shall be deemed expedient, by the Trustee or by the
Holders of Securities or Coupons.
SECTION 4.9 Control by Holders of Securities. The
Holders of a majority in aggregate principal amount of the
Securities of each series affected (with all such series voting
as a single class) at the time Outstanding shall have the right
to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee with respect to the
Securities of such series by this Indenture; provided that such
direction shall not be otherwise than in accordance with law and
the provisions of this Indenture and provided further that
(subject to the provisions of Section 5.1) the Trustee shall have
the right to decline to follow any such direction if the Trustee,
being advised by counsel, shall determine that the action or
proceeding so directed may not lawfully be taken or if the
Trustee in good faith by its board of directors, the executive
committee, or a trust committee of directors or Responsible
Officers of the Trustee shall determine that the action or
proceedings so directed would involve the Trustee in personal
liability or if the Trustee in good faith shall so determine that
the actions or forebearances specified in or pursuant to such
direction would be unduly prejudicial to the interests of Holders
of the Securities of all series so affected not joining in the
giving of said direction, it being understood that (subject to
Section 5.1) the Trustee shall have no duty to ascertain whether
or not such actions or forebearances are unduly prejudicial to
such Holders.
Nothing in this Indenture shall impair the right of the
Trustee in its discretion to take any action deemed proper by the
Trustee and which is not inconsistent with such direction or
directions by Securityholders.
SECTION 4.10 Waiver of Past Defaults. Prior to the
acceleration of the maturity of any Securities as provided in
Section 4.1, the Holders of a majority in aggregate principal
amount of the Securities of all series at the time Outstanding
with respect to which an Event of Default shall have occurred and
be continuing (voting as a single class) may on behalf of the
Holders of all such Securities waive any past default or Event of
Default described in Section 4.1 and its consequences, except a
default (1) in the payment of the principal of or any premium or
interest on any Security of such series, or (2) in respect of a
covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Security affected. In
the case of any such waiver, the Issuer, the Trustee and the
Holders of all such Securities shall be restored to their former
positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other default or impair any
right consequent thereon.
Upon any such waiver, such default shall cease to exist
and be deemed to have been cured and not to have occurred, and
any Event of Default arising therefrom shall be deemed to have
been cured, and not to have occurred for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent
thereon.
SECTION 4.11 Trustee to Give Notice of Default, But
May Withhold in Certain Circumstances. The Trustee shall, within
30 days after the occurrence of a default with respect to the
Securities of any series of which the Trustee has actual notice,
give notice in compliance with Section 10.4 of all defaults with
respect to that series known to the Trustee (i) if any
Unregistered Securities of that series are then Outstanding, to
the Holders thereof, by publication at least once in an
Authorized Newspaper in the Borough of Manhattan, The City of New
York and at least once in an Authorized Newspaper in London (and,
if required by Section 3.7, at least once in an Authorized
Newspaper in Luxembourg) and (ii) to all Holders of Securities of
such series in the manner and to the extent provided in Section
313(c) of the Trust Indenture Act of 1939, unless in each case
such defaults shall have been cured before the mailing or
publication of such notice (the term "defaults" for the purpose
of this Section being hereby defined to mean any event or
condition which is, or with notice or lapse of time or both would
become, an Event of Default); provided that, except in the case
of default in the payment of the principal of or interest on any
of the Securities of such series, or in the payment of any
sinking fund instalment on such series, the Trustee shall be
protected in withholding such notice if and so long as the board
of directors, the executive committee, or a trust committee of
directors or trustees and/or Responsible Officers of the Trustee
in good faith determines that the withholding of such notice is
in the interests of the Securityholders of such series.
SECTION 4.12 Right of Court to Require Filing of
Undertaking to Pay Costs. All parties to this Indenture agree,
and each Holder of any Security or Coupon by his acceptance
thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right
or remedy under this Indenture or in any suit against the Trustee
for any action taken, suffered or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to
pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses
made by such party litigant; but the provisions of this Section
shall not apply to any suit instituted by the Trustee, to any
suit instituted by any Securityholder or group of Securityholders
of any series holding in the aggregate more than 10% in aggregate
principal amount of the Securities of such series, or, in the
case of any suit relating to or arising under clause (c) or (g)
of Section 4.1 (if the suit relates to Securities of more than
one but less than all series), l0% in aggregate principal amount
of Securities then Outstanding and affected thereby, or in the
case of any suit relating to or arising under clause (c) or (g)
(if the suit under clause (c) or (g) relates to all the
Securities then Outstanding), (d) or (e) of Section 4.1, 10% in
aggregate principal amount of all Securities then Outstanding, or
to any suit instituted by any Securityholder for the enforcement
of the payment of the principal of or interest on any Security on
or after the due date expressed in such Security or any date
fixed for redemption.
ARTICLE FIVE
CONCERNING THE TRUSTEE
SECTION 5.1 Duties and Responsibilities of the
Trustee; During Default; Prior to Default. With respect to the
Holders of any series of Securities issued hereunder, the
Trustee, prior to the occurrence of an Event of Default with
respect to the Securities of a particular series and after the
curing or waiving of all Events of Default which may have
occurred with respect to such series, undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture. In case an Event of Default with respect to the
Securities of a series has occurred (which has not been cured or
waived) the Trustee shall exercise with respect to such series of
Securities such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action,
its own negligent failure to act or its own wilful misconduct,
except that
(a) prior to the occurrence of an Event of Default
with respect to the Securities of any series and after the
curing or waiving of all such Events of Default with respect
to such series which may have occurred:
(i) the duties and obligations of the Trustee
with respect to the Securities of any series shall be
determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable except
for the performance of such duties and obligations as
are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of
the Trustee, the Trustee may conclusively rely, as to
the truth of the statements and the correctness of the
opinions expressed therein, upon any statements,
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but
in the case of any such statements, certificates or
opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee
shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this
Indenture;
(b) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be
proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(c) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders pursuant to
Section 4.9 relating to the time, method and place of
conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture.
None of the provisions contained in this Indenture
shall require the Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the performance
of any of its duties or in the exercise of any of its rights or
powers, if there shall be reasonable ground for believing that
the repayment of such funds or adequate indemnity against such
liability is not reasonably assured to it.
The provisions of this Section 5.1 are in furtherance
of and subject to Sections 315 and 316 of the Trust Indenture Act
of 1939.
SECTION 5.2 Certain Rights of the Trustee. In
furtherance of and subject to the Trust Indenture Act of 1939,
subject to Section 5.1:
(a) the Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution,
Officers' Certificate or any other certificate, statement,
instrument, opinion, report, notice, request, consent,
order, bond, debenture, note, Coupon, Security or other
paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the
Issuer mentioned herein shall be sufficiently evidenced by
an Officers' Certificate (unless other evidence in respect
thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the
Trustee by a copy thereof certified by the secretary or an
assistant secretary of the Issuer;
(c) the Trustee may consult with counsel and any
written advice or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any
action taken, suffered or omitted to be taken by it
hereunder in good faith and in reliance thereon in
accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this
Indenture at the request, order or direction of any of the
Securityholders pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to
the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred
therein or thereby;
(e) the Trustee shall not be liable for any action
taken or omitted by it in good faith and believed by it to
be authorized or within the discretion, rights or powers
conferred upon it by this Indenture;
(f) prior to the occurrence of an Event of Default
hereunder and after the curing or waiving of all Events of
Default, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval,
appraisal, bond, debenture, note, Coupon, Security, or other
paper or document unless requested in writing so to do by
the Holders of not less than a majority in aggregate
principal amount of the Securities of all series affected
then Outstanding; provided that, if the payment within a
reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded
to it by the terms of this Indenture, the Trustee may
require reasonable indemnity against such expenses or
liabilities as a condition to proceeding; the reasonable
expenses of every such investigation shall be paid by the
Issuer or, if paid by the Trustee or any predecessor
Trustee, shall be repaid by the Issuer upon demand; and
(g) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys not regularly
in its employ and the Trustee shall not be responsible for
any misconduct or negligence on the part of any such agent
or attorney appointed with due care by it hereunder.
SECTION 5.3 Trustee Not Responsible for Recitals,
Disposition of Securities or Application of Proceeds Thereof.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the
statements of the Issuer, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee
makes no representation as to the validity or sufficiency of this
Indenture or of the Securities or Coupons. The Trustee shall not
be accountable for the use or application by the Issuer of any of
the Securities or of the proceeds thereof.
SECTION 5.4 Trustee and Agents May Hold Securities
or Coupons; Collections, etc. The Trustee or any agent of the
Issuer or the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Securities or Coupons with the
same rights it would have if it were not the Trustee or such
agent and may otherwise deal with the Issuer and receive,
collect, hold and retain collections from the Issuer with the
same rights it would have if it were not the Trustee or such
agent.
SECTION 5.5 Moneys Held by Trustee. Subject to the
provisions of Section 9.4 hereof, all moneys received by the
Trustee shall, until used or applied as herein provided, be held
in trust for the purposes for which they were received, but need
not be segregated from other funds except to the extent required
by mandatory provisions of law. Neither the Trustee nor any
agent of the Issuer or the Trustee shall be under any liability
for interest on any moneys received by it hereunder.
SECTION 5.6 Compensation and Indemnification of
Trustee and Its Prior Claim. The Issuer covenants and agrees to
pay to the Trustee from time to time, and the Trustee shall be
entitled to, reasonable compensation (which shall not be limited
by any provision of law in regard to the compensation of a
trustee of an express trust) and the Issuer covenants and agrees
to pay or reimburse the Trustee and each predecessor Trustee upon
its request for all reasonable expenses, disbursements and
advances incurred or made by or on behalf of it in accordance
with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
counsel and of all agents and other persons not regularly in its
employ) except any such expense, disbursement or advance as may
result from its negligence or bad faith. The Issuer also
covenants to indemnify the Trustee and each predecessor Trustee
for, and to hold it harmless against, any loss, liability or
expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or
administration of this Indenture or the trusts hereunder and its
duties hereunder, including the costs and expenses of defending
itself against or investigating any claim of liability in the
premises. The obligations of the Issuer under this Section to
compensate and indemnify the Trustee and each predecessor Trustee
and to pay or reimburse the Trustee and each predecessor Trustee
for expenses, disbursements and advances shall constitute
additional indebtedness hereunder and shall survive the
satisfaction and discharge of this Indenture. Such additional
indebtedness shall be a senior claim to that of the Securities
upon all property and funds held or collected by the Trustee as
such, except funds held in trust for the benefit of the Holders
of particular Securities or Coupons, and the Securities are
hereby subordinated to such senior claim.
SECTION 5.7 Right of Trustee to Rely on Officers'
Certificate, etc. Subject to Sections 5.1 and 5.2, whenever in
the administration of the trusts of this Indenture the Trustee
shall deem it necessary or desirable that a matter be proved or
established prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof
be herein specifically prescribed) may, in the absence of
negligence or bad faith on the part of the Trustee, be deemed to
be conclusively proved and established by an Officers'
Certificate delivered to the Trustee, and such certificate, in
the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action
taken, suffered or omitted by it under the provisions of this
Indenture upon the faith thereof.
SECTION 5.8 Persons Eligible for Appointment as
Trustee. The Trustee for each series of Securities hereunder
shall at all times be a corporation organized and doing business
under the laws of the United States of America or of any State or
the District of Columbia having a combined capital and surplus of
at least $5,000,000, and which is eligible in accordance with the
provisions of Section 310(a) of the Trust Indenture Act of 1939.
If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of a Federal,
State or District of Columbia supervising or examining authority,
then for the purposes of this Section, 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.
SECTION 5.9 Resignation and Removal; Appointment of
Successor Trustee. (a) The Trustee, or any trustee or trustees
hereafter appointed, may at any time resign with respect to one
or more or all series of Securities by giving written notice of
resignation to the Issuer and (i) if any Unregistered Securities
of a series affected are then Outstanding, by giving notice of
such resignation to the Holders thereof, by publication at least
once in an Authorized Newspaper in the Borough of Manhattan, The
City of New York, and at least once in an Authorized Newspaper in
London (and, if required by Section 3.7, at least once in an
Authorized Newspaper in Luxembourg), (ii) if any Unregistered
Securities of a series affected are then Outstanding, by mailing
notice of such resignation to the Holders thereof who have filed
their names and addresses with the Trustee pursuant to Section
313(c)(2) of the Trust Indenture Act of 1939 at such addresses as
were so furnished to the Trustee and (iii) by mailing notice of
such resignation to the Holders of then Outstanding Registered
Securities of each series affected at their addresses as they
shall appear on the registry books. Upon receiving such notice
of resignation, the Issuer shall promptly appoint a successor
trustee or trustees with respect to the applicable series by
written instrument in duplicate, executed by authority of the
Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor
trustee or trustees. If no successor trustee shall have been so
appointed with respect to any series and have accepted
appointment within 30 days after the mailing of such notice of
resignation, the resigning trustee may petition any court of
competent jurisdiction for the appointment of a successor
trustee, or any Securityholder who has been a bona fide Holder of
a Security or Securities of the applicable series for at least
six months may, subject to the provisions of Section 4.12, on
behalf of himself and all others similarly situated, petition any
such court for the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall
occur:
(i) the Trustee shall fail to comply with the
provisions of Section 310(b) of the Trust Indenture Act
of 1939 with respect to any series of Securities after
written request therefor by the Issuer or by any
Securityholder who has been a bona fide Holder of a
Security or Securities of such series for at least six
months; or
(ii) the Trustee shall cease to be eligible in
accordance with the provisions of Section 310(a) of the
Trust Indenture Act of 1939 and shall fail to resign
after written request therefor by the Issuer or by any
Securityholder; or
(iii) the Trustee shall become incapable of
acting with respect to any series of Securities, or
shall be adjudged a bankrupt or insolvent, or a
receiver or liquidator of the Trustee or of its
property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation;
then, in any such case, the Issuer may remove the Trustee with
respect to the applicable series of Securities and appoint a
successor trustee for such series by written instrument, in
duplicate, executed by order of the Board of Directors, one copy
of which instrument shall be delivered to the Trustee so removed
and one copy to the successor trustee, or, subject to Section
315(e) of the Trust Indenture Act of 1939, any Securityholder who
has been a bona fide Holder of a Security or Securities of such
series for at least six months may on behalf of himself and all
others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment
of a successor trustee with respect to such series. Such court
may thereupon, after such notice, if any, as it may deem proper
and prescribe, remove the Trustee and appoint a successor
trustee.
(c) The Holders of a majority in aggregate principal
amount of the Securities of each series at the time
Outstanding may at any time remove the Trustee with respect
to Securities of such series and appoint a successor trustee
with respect to the Securities of such series by delivering
to the Trustee so removed, to the successor trustee so
appointed and to the Issuer the evidence provided for in
Section 6.1 of the action in that regard taken by the
Securityholders.
(d) Any resignation or removal of the Trustee with
respect to any series and any appointment of a successor
trustee with respect to such series pursuant to any of the
provisions of this Section 5.9 shall become effective upon
acceptance of appointment by the successor trustee as
provided in Section 5.10.
SECTION 5.10 Acceptance of Appointment by Successor
Trustee. Any successor trustee appointed as provided in Section
5.9 shall execute and deliver to the Issuer and to its
predecessor trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the
predecessor trustee with respect to all or any applicable series
shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all
rights, powers, duties and obligations with respect to such
series of its predecessor hereunder, with like effect as if
originally named as trustee for such series hereunder; but,
nevertheless, on the written request of the Issuer or of the
successor trustee, upon payment of its charges then unpaid, the
trustee ceasing to act shall, subject to Section 9.4, pay over to
the successor trustee all moneys at the time held by it hereunder
and shall execute and deliver an instrument transferring to such
successor trustee all such rights, powers, duties and
obligations. Upon request of any such successor trustee, the
Issuer shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor
trustee all such rights and powers. Any trustee ceasing to act
shall, nevertheless, retain a prior claim upon all property or
funds held or collected by such trustee to secure any amounts
then due it pursuant to the provisions of Section 5.6.
If a successor trustee is appointed with respect to the
Securities of one or more (but not all) series, the Issuer, the
predecessor trustee and each successor trustee with respect to
the Securities of any applicable series shall execute and deliver
an indenture supplemental hereto which shall contain such
provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the predecessor
trustee with respect to the Securities of any series as to which
the predecessor trustee is not retiring shall continue to be
vested in the predecessor trustee, and shall add to or change any
of the provisions of this Indenture as shall be necessary to
provide for or facilitate the administration of the trusts
hereunder by more than one trustee, it being understood that
nothing herein or in such supplemental indenture shall constitute
such trustees co-trustees of the same trust and that each such
trustee shall be trustee of a trust or trusts under separate
indentures.
Upon acceptance of appointment by any successor trustee
as provided in this Section 5.10, the Issuer shall give notice
thereof (a) if any Unregistered Securities of a series affected
are then Outstanding, to the Holders thereof, by publication of
such notice at least once in an Authorized Newspaper in the
Borough of Manhattan, The City of New York and at least once in
an Authorized Newspaper in London (and, if required by Section
3.7, at least once in an Authorized Newspaper in Luxembourg), (b)
if any Unregistered Securities of a series affected are then
Outstanding, to the Holders thereof who have filed their names
and addresses with the Trustee pursuant to Section 313(c)(2) of
the Trust Indenture Act of 1939, by mailing such notice to such
Holders at such addresses as were so furnished to the Trustee
(and the Trustee shall make such information available to the
Issuer for such purpose) and (c) to the Holders of Registered
Securities of each series affected, by mailing such notice to
such Holders at their addresses as they shall appear on the
registry books. If the acceptance of appointment is
substantially contemporaneous with the resignation, then the
notice called for by the preceding sentence may be combined with
the notice called for by Section 5.9. If the Issuer fails to give
such notice within ten days after acceptance of appointment by
the successor trustee, the successor trustee shall cause such
notice to be given at the expense of the Issuer.
SECTION 5.11 Merger, Conversion, Consolidation or
Succession to Business of Trustee. Any corporation into which
the 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 Trustee shall be a
party, or any corporation succeeding to all or substantially all
the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided that such
corporation shall be eligible under the provisions of Section
5.8, without the execution or filing of any paper or any further
act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the
Securities of any series shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee and
deliver such Securities so authenticated; and, in case at that
time any of the Securities of any series shall not have been
authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in
the name of the successor Trustee; and in all such cases such
certificate shall have the full force which it is anywhere in the
Securities of such series or in this Indenture provided that the
certificate of the Trustee shall have; provided, that the right
to adopt the certificate of authentication of any predecessor
trustee or to authenticate Securities of any series in the name
of any predecessor trustee shall apply only to its successor or
successors by merger, conversion or consolidation.
SECTION 5.12 Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within
the meaning of the Trust Indenture Act of 1939, the Trustee shall
either eliminate such interest or resign, to the extent and in
the manner provided by, and subject to the provisions of, the
Trust Indenture Act of 1939 and this Indenture.
SECTION 5.13 Preferential Collection of Claims
Against the Issuer. The Trustee shall comply with Section 311(a)
of the Trust Indenture Act of 1939, excluding any creditor
relationship described in Section 311(b) of the Trust Indenture
Act of 1939. A Trustee who has resigned or been removed shall be
subject to Section 311(a) of the Trust Indenture Act of 1939 to
the extent included therein.
SECTION 5.14 Appointment of Authenticating Agent. As
long as any Securities of a series remain Outstanding, the
Trustee may, by an instrument in writing, appoint with the
approval of the Issuer an authenticating agent (the
"Authenticating Agent") which shall be authorized to act on
behalf of the Trustee to authenticate Securities, including
Securities issued upon exchange, registration of transfer,
partial redemption or pursuant to Section 2.9. Securities of
each such series authenticated by such Authenticating Agent shall
be entitled to the benefits of this Indenture and shall be valid
and obligatory for all purposes as if authenticated by the
Trustee. Whenever reference is made in this Indenture to the
authentication and delivery of Securities of any series by the
Trustee or to the Trustee's certificate of authentication, such
reference shall be deemed to include authentication and delivery
on behalf of the Trustee by an Authenticating Agent for such
series and a certificate of authentication executed on behalf of
the Trustee by such Authenticating Agent. Such Authenticating
Agent shall at all times be a corporation organized and doing
business under the laws of the United States of America or of any
State, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least
$5,000,000 (determined as provided in Section 5.8 with respect to
the Trustee) and subject to supervision or examination by Federal
or State authority.
Any corporation into which any Authenticating Agent may
be merged or converted, or with which it may be consolidated, or
any corporation resulting from any merger, conversion or
consolidation to which any Authenticating Agent shall be a party,
or any corporation succeeding to the corporate agency business of
any Authenticating Agent, shall continue to be the Authenticating
Agent with respect to all series of Securities for which it
served as Authenticating Agent without the execution or filing of
any paper or any further act on the part of the Trustee or such
Authenticating Agent.
4 Any Authenticating Agent may at any time, and if it
shall cease to be eligible shall, resign by giving written notice
of resignation to the Trustee and to the Issuer. The Trustee may
at any time terminate the Agency of any Authenticating Agent by
giving written notice of termination to such Authenticating Agent
and to the Issuer. Upon receiving such a notice of resignation
or upon such a termination, or in case at any time any
Authenticating Agent shall cease to be eligible in accordance
with the provisions of this Section 5.12 with respect to one or
more series of Securities, the Trustee may upon receipt of an
Issuer Order appoint a successor Authenticating Agent and the
Issuer shall provide notice of such appointment to all Holders of
Securities of such series in the manner and to the extent
provided in Section 5.10. Any successor Authenticating Agent
upon acceptance of its appointment hereunder shall become vested
with all rights, powers, duties and responsibilities of its
predecessor hereunder, with like effect as if originally named as
Authenticating Agent. The Issuer agrees to pay to the
Authenticating Agent for such series from time to time reasonable
compensation. The Authenticating Agent for the Securities of any
series shall have no responsibility or liability for any action
taken by it as such at the direction of the Trustee.
Sections 5.2, 5.3, 5.4, 5.6, 5.8, 5.12 and 6.3 shall be
applicable to any Authenticating Agent.
ARTICLE SIX
CONCERNING THE SECURITYHOLDERS
SECTION 6.1 Evidence of Action Taken by
Securityholders. Any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this
Indenture to be given or taken by a specified percentage in
principal amount of the Securityholders of any or all series may
be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such specified percentage
of Securityholders in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments
are delivered to the Trustee. Proof of execution of any
instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and (subject to
Sections 5.1 and 5.2) conclusive in favor of the Trustee and the
Issuer, if made in the manner provided in this Article.
SECTION 6.2 Proof of Execution of Instruments and of
Holding of Securities. Subject to Sections 5.1 and 5.2, the
execution of any instrument by a Securityholder or his agent or
proxy may be proved in the following manner:
(a) The fact and date of the execution by any Holder
of any instrument may be proved by the certificate of any
notary public or other officer of any jurisdiction
authorized to take acknowledgments of deeds or administer
oaths that the Person executing such instruments
acknowledged to him the execution thereof, or by an
affidavit of a witness to such execution sworn to before any
such notary or other such officer. Where such execution is
by or on behalf of any legal entity other than an
individual, such certificate or affidavit shall also
constitute sufficient proof of the authority of the Person
executing the same. The fact of the holding by any Holder
of an Unregistered Security of any series, and the
identifying number of such Security and the date of his
holding the same, may be proved by the production of such
Security or by a certificate executed by any trust company,
bank, banker or recognized securities dealer wherever
situated satisfactory to the Trustee, if such certificate
shall be deemed by the Trustee to be satisfactory. Each
such certificate shall be dated and shall state that on the
date thereof a Security of such series bearing a specified
identifying number was deposited with or exhibited to such
trust company, bank, banker or recognized securities dealer
by the Person named in such certificate. Any such
certificate may be issued in respect of one or more
Unregistered Securities of one or more series specified
therein. The holding by the Person named in any such
certificate of any Unregistered Securities of any series
specified therein shall be presumed to continue for a period
of one year from the date of such certificate unless at the
time of any determination of such holding (1) another
certificate bearing a later date issued in respect of the
same Securities shall be produced, or (2) the Security of
such series specified in such certificate shall be produced
by some other Person, or (3) the Security of such series
specified in such certificate shall have ceased to be
Outstanding. The fact and date of the execution of any such
instrument and the amount and numbers of Securities of any
series held by the Person so executing such instrument and
the amount and numbers of any Security or Securities for
such series may also be proven in accordance with such
reasonable rules and regulations as may be prescribed by the
Trustee for such series or in any other manner which the
Trustee for such series may deem sufficient.
(b) In the case of Registered Securities, the
ownership of such Securities shall be proved by the Security
register or by a certificate of the Security registrar.
SECTION 6.3 Holders to be Treated as Owners. The
Issuer, the Trustee and any agent of the Issuer or the Trustee
may deem and treat the Person in whose name any Security shall be
registered upon the Security register for such series as the
absolute owner of such Security (whether or not such Security
shall be overdue and notwithstanding any notation of ownership or
other writing thereon) for the purpose of receiving payment of or
on account of the principal of and, subject to the provisions of
this Indenture, interest on such Security and for all other
purposes; and neither the Issuer nor the Trustee nor any agent of
the Issuer or the Trustee shall be affected by any notice to the
contrary. The Issuer, the Trustee and any agent of the Issuer or
the Trustee may treat the Holder of any Unregistered Security and
the Holder of any Coupon as the absolute owner of such
Unregistered Security or Coupon (whether or not such Unregistered
Security or Coupon shall be overdue) for the purpose of receiving
payment thereof or on account thereof and for all other purposes
and neither the Issuer, the Trustee, nor any agent of the Issuer
or the Trustee shall be affected by any notice to the contrary.
All such payments so made to any such Person, or upon his order,
shall be valid, and, to the extent of the sum or sums so paid,
effectual to satisfy and discharge the liability for moneys
payable upon any such Unregistered Security or Coupon.
SECTION 6.4 Securities Owned by Issuer Deemed Not
Outstanding. In determining whether the Holders of the requisite
aggregate principal amount of Outstanding Securities of any or
all series have concurred in any direction, consent or waiver
under this Indenture, Securities which are owned by the Issuer or
any other obligor on the Securities with respect to which such
determination is being made or by any Person directly or
indirectly controlling or controlled by or under direct or
indirect common control with the Issuer or any other obligor on
the Securities with respect to which such determination is being
made shall be disregarded and deemed not to be Outstanding for
the purpose of any such determination, except that for the
purpose of determining whether the Trustee shall be protected in
relying on any such direction, consent or waiver only Securities
which the Trustee knows are so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with
respect to such Securities and that the pledgee is not the Issuer
or any other obligor upon the Securities or any Person directly
or indirectly controlling or controlled by or under direct or
indirect common control with the Issuer or any other obligor on
the Securities. In case of a dispute as to such right, the advice
of counsel shall be full protection in respect of any decision
made by the Trustee in accordance with such advice. Upon request
of the Trustee, the Issuer shall furnish to the Trustee promptly
an Officers' Certificate listing and identifying all Securities,
if any, known by the Issuer to be owned or held by or for the
account of any of the above-described Persons; and, subject to
Sections 5.1 and 5.2, the Trustee shall be entitled to accept
such Officers' Certificate as conclusive evidence of the facts
therein set forth and of the fact that all Securities not listed
therein are Outstanding for the purpose of any such
determination.
SECTION 6.5 Right of Revocation of Action Taken. At
any time prior to (but not after) the evidencing to the Trustee,
as provided in Section 6.1, of the taking of any action by the
Holders of the percentage in aggregate principal amount of the
Securities of any or all series, as the case may be, specified in
this Indenture in connection with such action, any Holder of a
Security the serial number of which is shown by the evidence to
be included among the serial numbers of the Securities the
Holders of which have consented to such action may, by filing
written notice at the Corporate Trust Office and upon proof of
holding as provided in this Article, revoke such action so far as
concerns such Security. Except as aforesaid any such action
taken by the Holder of any Security shall be conclusive and
binding upon such Holder and upon all future Holders and owners
of such Security and of any Securities issued in exchange or
substitution therefor or on registration of transfer thereof,
irrespective of whether or not any notation in regard thereto is
made upon any such Security. Any action taken by the Holders of
the percentage in aggregate principal amount of the Securities of
any or all series, as the case may be, specified in this
Indenture in connection with such action shall be conclusively
binding upon the Issuer, the Trustee and the Holders of all the
Securities affected by such action.
ARTICLE SEVEN
SUPPLEMENTAL INDENTURES
SECTION 7.1 Supplemental Indentures Without Consent
of Securityholders. The Issuer, when authorized by a resolution
of its Board of Directors (which resolution may provide general
terms or parameters for such action and may provide that the
specific terms of such action may be determined in accordance
with or pursuant to an Officers' Certificate), and the Trustee
may from time to time and at any time enter into an indenture or
indentures supplemental hereto for one or more of the following
purposes:
(a) to convey, transfer, assign, mortgage or pledge to
the Trustee as security for the Securities of one or more
series any property or assets;
(b) to evidence the succession of another corporation
to the Issuer, or successive successions, and the assumption
by the successor corporation of the covenants, agreements
and obligations of the Issuer pursuant to Article Eight;
(c) to add to the covenants of the Issuer such further
covenants, restrictions, conditions or provisions as the
Issuer and the Trustee shall consider to be for the
protection of the Holders of Securities or Coupons, and to
make the occurrence, or the occurrence and continuance, of a
default in any such additional covenants, restrictions,
conditions or provisions an Event of Default permitting the
enforcement of all or any of the several remedies provided
in this Indenture as herein set forth; provided, that in
respect of any such additional covenant, restriction,
condition or provision such supplemental indenture may
provide for a particular period of grace after default
(which period may be shorter or longer than that allowed in
the case of other defaults) or may provide for an immediate
enforcement upon such an Event of Default or may limit the
remedies available to the Trustee upon such an Event of
Default or may limit the right of the Holders of a majority
in aggregate principal amount of the Securities of such
series to waive such an Event of Default;
(d) to cure any ambiguity or to correct or supplement
any provision contained herein or in any supplemental
indenture which may be defective or inconsistent with any
other provision contained herein or in any supplemental
indenture, or to make any other provisions as the Issuer may
deem necessary or desirable, provided that no such action
shall adversely affect the interests of the Holders of the
Securities or Coupons;
(e) to establish the form or terms of Securities of
any series or of the Coupons appertaining to such Securities
as permitted by Sections 2.1 and 2.3; and
(f) to evidence and provide for the acceptance of
appointment hereunder by a successor trustee with respect to
the Securities of one or more series and to add to or change
any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of
the trusts hereunder by more than one trustee, pursuant to
the requirements of Section 5.10.
The Trustee is hereby authorized to join with the
Issuer in the execution of any such supplemental indenture, to
make any further appropriate agreements and stipulations which
may be therein contained and to accept the conveyance, transfer,
assignment, mortgage or pledge of any property thereunder, but
the Trustee shall not be obligated to enter into any such
supplemental indenture which affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions
of this Section may be executed without the consent of the
Holders of any of the Securities at the time Outstanding,
notwithstanding any of the provisions of Section 7.2.
SECTION 7.2 Supplemental Indentures With Consent of
Securityholders. With the consent (evidenced as provided in
Article Six) of the Holders of not less than a majority in
aggregate principal amount of the Securities at the time
Outstanding of all series affected by such supplemental indenture
(voting as one class), the Issuer, when authorized by a
resolution of its Board of Directors (which resolution may
provide general terms or parameters for such action and may
provide that the specific terms of such action may be determined
in accordance with or pursuant to an Issuer Order), and the
Trustee may, from time to time and at any time, enter into an
indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of any supplemental
indenture or of modifying in any manner the rights of the Holders
of the Securities of each such series or of the Coupons
appertaining to such Securities; provided, that no such
supplemental indenture shall (a) extend the final maturity of any
Security, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, or reduce
any amount payable on redemption thereof, or make the principal
thereof (including any amount in respect of original issue
discount) or interest thereon payable in any coin or currency
other than that provided in the Securities and Coupons or in
accordance with the terms thereof, or reduce the amount of the
principal of an Original Issue Discount Security that would be
due and payable upon an acceleration of the maturity thereof
pursuant to Section 4.1 or the amount thereof provable in
bankruptcy pursuant to Section 4.2, or alter the provisions of
Section 10.11 or 10.12 or impair or affect the right of any
Securityholder to institute suit for the payment thereof or, if
the Securities provide therefor, any right of repayment at the
option of the Securityholder, in each case without the consent of
the Holders of each Security so affected, or (b) reduce the
aforesaid percentage of Securities of any series, the consent of
the Holders of which is required for any such supplemental
indenture, without the consent of the Holders of each Security so
affected.
A supplemental indenture which changes or eliminates
any covenant or other provision of this Indenture which has
expressly been included solely for the benefit of one or more
particular series of Securities, or which modifies the rights of
Holders of Securities of such series, or of Coupons appertaining
to such Securities, with respect to such covenant or provision,
shall be deemed not to affect the rights under this Indenture of
the Holders of Securities of any other series or of the Coupons
appertaining to such Securities.
Upon the request of the Issuer, accompanied by a copy
of a resolution of the Board of Directors (which resolution may
provide general terms or parameters for such action and may
provide that the specific terms of such action may be determined
in accordance with or pursuant to an Issuer Order) certified by
the secretary or an assistant secretary of the Issuer authorizing
the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of the Holders
of the Securities as aforesaid and other documents, if any,
required by Section 6.1, the Trustee shall join with the Issuer
in the execution of such supplemental indenture unless such
supplemental indenture affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to,
enter into such supplemental indenture.
It shall not be necessary for the consent of the
Securityholders under this Section to approve the particular form
of any proposed supplemental indenture, but it shall be
sufficient if such consent shall approve the substance thereof.
Promptly after the execution by the Issuer and the
Trustee of any supplemental indenture pursuant to the provisions
of this Section, the Trustee shall give notice thereof (i) to the
Holders of then Outstanding Registered Securities of each series
affected thereby, by mailing a notice thereof by first-class mail
to such Holders at their addresses as they shall appear on the
Security register, (ii) if any Unregistered Securities of a
series affected thereby are then Outstanding, to the Holders
thereof who have filed their names and addresses with the Trustee
pursuant to Section 313(c)(2) of the Trust Indenture Act of 1939,
by mailing a notice thereof by first-class mail to such Holders
at such addresses as were so furnished to the Trustee and (iii)
if any Unregistered Securities of a series affected thereby are
then Outstanding, to all Holders thereof, by publication of a
notice thereof at least once in an Authorized Newspaper in the
Borough of Manhattan, The City of New York and at least once in
an Authorized Newspaper in London (and, if required by Section
3.7, at least once in an Authorized Newspaper in Luxembourg), and
in each case such notice shall set forth in general terms the
substance of such supplemental indenture. Any failure of the
Issuer to give such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such
supplemental indenture.
SECTION 7.3 Effect of Supplemental Indenture. Upon
the execution of any supplemental indenture pursuant to the
provisions hereof, this Indenture shall be and be deemed to be
modified and amended in accordance therewith and the respective
rights, limitations of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Issuer and the Holders
of Securities of each series affected thereby shall thereafter be
determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms
and conditions of any such supplemental indenture shall be and be
deemed to be part of the terms and conditions of this Indenture
for any and all purposes.
SECTION 7.4 Documents to Be Given to Trustee. The
Trustee, subject to the provisions of Sections 5.1 and 5.2, may
receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed
pursuant to this Article Seven complies with the applicable
provisions of this Indenture.
SECTION 7.5 Notation on Securities in Respect of
Supplemental Indentures. Securities of any series authenticated
and delivered after the execution of any supplemental indenture
pursuant to the provisions of this Article may bear a notation in
form approved by the Trustee for such series as to any matter
provided for by such supplemental indenture or as to any action
taken by Securityholders. If the Issuer or the Trustee shall so
determine, new Securities of any series so modified as to
conform, in the opinion of the Trustee and the Board of
Directors, to any modification of this Indenture contained in any
such supplemental indenture may be prepared by the Issuer,
authenticated by the Trustee and delivered in exchange for the
Securities of such series then Outstanding.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 8.1 Issuer May Consolidate, etc., Only on
Certain Terms. The Issuer shall not consolidate with or merge
into any other corporation or convey, transfer or lease its
properties and assets substantially as an entirety to any Person,
unless:
(a) the corporation formed by such consolidation or
into which the Issuer is merged or the Person which acquires
by conveyance, transfer or lease the properties and assets
of the Issuer substantially as an entirety shall expressly
assume, by a supplemental indenture hereto, executed and
delivered to the Trustee, in form satisfactory to the
Trustee, the due and punctual payment of the principal of
and interest on all the Securities and Coupons, if any,
according to their tenor, and the performance of every
covenant of this Indenture on the part of the Issuer to be
performed or observed;
(b) immediately after giving effect to such
transaction, no Event of Default, and no event which, after
notice or lapse of time, or both, would become an Event of
Default, shall have happened and be continuing;
(c) the Issuer has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating
that such consolidation, merger, conveyance, transfer or
lease and such supplemental indenture comply with this
Article and that all conditions precedent herein provided
for relating to such transaction have been complied with;
and
(d) the Issuer has delivered to the Trustee such other
documents as the Trustee may, in its discretion, reasonably
require.
SECTION 8.2 Successor Corporation Substituted. In
case of any such consolidation, merger, sale, lease or
conveyance, and following such an assumption by the successor
Person, such successor Person shall succeed to and be substituted
for the Issuer, with the same effect as if it had been named
herein. Such successor Person may cause to be signed, and may
issue either in its own name or in the name of the Issuer prior
to such succession any or all of the Securities issuable
hereunder which together with any Coupons appertaining thereto
theretofore shall not have been signed by the Issuer and
delivered to the Trustee; and, upon the order of such successor
Person, instead of the Issuer, and subject to all the terms,
conditions and limitations in this Indenture prescribed, the
Trustee shall authenticate and shall deliver any Securities
together with any Coupons appertaining thereto which previously
shall have been signed and delivered by the officers of the
Issuer to the Trustee for authentication, and any Securities
which such successor Person thereafter shall cause to be signed
and delivered to the Trustee for that purpose. All of the
Securities so issued together with any Coupons appertaining
thereto shall in all respects have the same legal rank and
benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture
as though all of such Securities had been issued at the date of
the execution hereof.
In case of any such consolidation, merger, sale, lease
or conveyance, such changes in phrasing and form (but not in
substance) may be made in the Securities and Coupons thereafter
to be issued as may be appropriate.
In the event of any such sale or conveyance (other than
a conveyance by way of lease) the Issuer or any successor Person
which shall theretofore have become such in the manner described
in this Article shall be discharged from all obligations and
covenants under this Indenture and the Securities and may be
liquidated and dissolved.
ARTICLE NINE
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
SECTION 9.1 Satisfaction and Discharge of Indenture.
(A) If at any time (a) the Issuer shall have paid or caused to
be paid the principal of and interest on all the Securities of
any series Outstanding hereunder and all unmatured Coupons
appertaining thereto (other than Securities of such series and
Coupons appertaining thereto which have been destroyed, lost or
stolen and which have been replaced or paid as provided in
Section 2.9) as and when the same shall have become due and
payable, or (b) the Issuer shall have delivered to the Trustee
for cancellation all Securities of any series theretofore
authenticated and all unmatured Coupons appertaining thereto
(other than any Securities of such series and Coupons
appertaining thereto which shall have been destroyed, lost or
stolen and which shall have been replaced or paid as provided in
Section 2.9) or (c) in the case of any series of Securities where
the exact or maximum amount (including the currency of payment)
of principal of and interest due on which can be determined at
the time of making the deposit referred to in clause (ii) below,
(i) all the Securities of such series and all unmatured Coupons
appertaining thereto not theretofore delivered to the Trustee for
cancellation shall have become due and payable, or are by their
terms to become due and payable within one year or are to be
called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of
redemption, and (ii) the Issuer shall have irrevocably deposited
or caused to be deposited with the Trustee as trust funds the
entire amount in cash (other than moneys repaid by the Trustee or
any paying agent to the Issuer in accordance with Section 9.4)
or, in the case of any series of Securities the payments on which
may only be made in Dollars, direct obligations of the United
States of America, backed by its full faith and credit (and not
subject to redemption or prepayment at the option of the holders
thereof) ("United States Government Obligations"), maturing as to
principal and interest at such times and in such amounts as will
insure the availability of cash, or a combination thereof,
sufficient in the opinion of a nationally recognized firm of
independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay (A) the
principal and interest on all Securities of such series and
Coupons appertaining thereto on each date that such principal or
interest is due and payable and (B) any mandatory sinking fund
payments on the dates on which such payments are due and payable
in accordance with the terms of the Indenture and the Securities
of such series; and if, in any such case, the Issuer shall also
pay or cause to be paid all other sums payable hereunder by the
Issuer with respect to the Securities of such series, then this
Indenture with respect to the Securities of such series shall
cease to be of further effect (except as to (i) rights of
registration of transfer and exchange of Securities of such
series and of Coupons appertaining thereto and the Issuer's right
of optional redemption, if any, (ii) substitution of mutilated,
defaced, destroyed, lost or stolen Securities or Coupons, (iii)
rights of Holders of Securities and Coupons appertaining thereto
to receive payments of principal thereof and interest thereon,
upon the original stated due dates therefor (but not upon
acceleration), and remaining rights of the Holders to receive
mandatory sinking fund payments, if any, (iv) the rights,
obligations, duties and immunities of the Trustee hereunder, (v)
the rights of the Holders of Securities of such series and
Coupons appertaining thereto as beneficiaries hereof with respect
to the property so deposited with the Trustee payable to all or
any of them, and (vi) the obligations of the Issuer under Section
3.2) and the Trustee, on demand of the Issuer accompanied by an
Officers' Certificate and an Opinion of Counsel and at the cost
and expense of the Issuer, shall execute proper instruments
acknowledging such satisfaction of and discharging this Indenture
with respect to the Securities of such series; provided, that the
rights of Holders of the Securities and Coupons to receive
amounts in respect of principal of and interest on the Securities
and Coupons held by them shall not be delayed longer than
required by then-applicable mandatory rules or policies of any
securities exchange upon which the Securities are listed. The
Issuer agrees to reimburse the Trustee for any costs or expenses
thereafter reasonably and properly incurred and to compensate the
Trustee for any services thereafter reasonably and properly
rendered by the Trustee in connection with this Indenture or the
Securities of such series.
(B) The following provisions shall apply to the
Securities of each series unless specifically otherwise provided
in a Board Resolution, Officers' Certificate or indenture
supplemental hereto provided pursuant to Section 2.3. In
addition to discharge of the Indenture pursuant to the next
preceding paragraph, in the case of any series of Securities the
exact or maximum amounts (including the currency of payment) of
principal of and interest due on which can be determined at the
time of making the deposit referred to in clause (a) below, the
Issuer shall be deemed to have paid and discharged the entire
indebtedness on all the Securities of such a series and the
Coupons appertaining thereto on the 91st day after the date of
the deposit referred to in subparagraph (a) below, and the
provisions of this Indenture with respect to the Securities of
such series and Coupons appertaining thereto shall no longer be
in effect (except as to (i) rights of registration of transfer
and exchange of Securities of such series and of Coupons
appertaining thereto and the Issuer's right of optional
redemption, if any, (ii) substitution of mutilated, defaced,
destroyed, lost or stolen Securities or Coupons, (iii) rights of
Holders of Securities and Coupons appertaining thereto to receive
payments of principal thereof and interest thereon, upon the
original stated due dates therefor (but not upon acceleration),
and remaining rights of the Holders to receive mandatory sinking
fund payments, if any, (iv) the rights, obligations, duties and
immunities of the Trustee hereunder, (v) the rights of the
Holders of Securities of such series and Coupons appertaining
thereto as beneficiaries hereof with respect to the property so
deposited with the Trustee payable to all or any of them and (vi)
the obligations of the Issuer under Section 3.2) and the Trustee,
at the expense of the Issuer, shall at the Issuer's request,
execute proper instruments acknowledging the same, if
(a) with reference to this provision the Issuer has
irrevocably deposited or caused to be irrevocably deposited
with the Trustee as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the
benefit of the Holders of the Securities of such series and
Coupons appertaining thereto (i) cash in an amount, or (ii)
in the case of any series of Securities the payments on
which may only be made in Dollars, United States Government
Obligations, maturing as to principal and interest at such
times and in such amounts as will insure the availability of
cash or (iii) a combination thereof, sufficient, in the
opinion of a nationally recognized firm of independent
public accountants expressed in a written certification
thereof delivered to the Trustee, to pay (A) the principal
and interest on all Securities of such series and Coupons
appertaining thereto on each date that such principal or
interest is due and payable and (B) any mandatory sinking
fund payments on the dates on which such payments are due
and payable in accordance with the terms of the Indenture
and the Securities of such series;
(b) such deposit will not result in a breach or
violation of, or constitute a default under, any agreement
or instrument to which the Issuer is a party or by which it
is bound;
(c) the Issuer has delivered to the Trustee an Opinion
of Counsel (from an expert in matters relating to Federal
income tax law who is not an employee of the Issuer) based
on the fact that (x) the Issuer has received from, or there
has been published by, the Internal Revenue Service a ruling
or (y) since the date hereof, there has been a change in the
applicable Federal income tax law, in either case to the
effect that, and such opinion shall confirm that, the
Holders of the Securities of such series and Coupons
appertaining thereto will not recognize income, gain or loss
for Federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to Federal
income tax on the same amounts, in the same manner and at
the same times, as would have been the case if such deposit,
defeasance and discharge had not occurred;
(d) the Issuer has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each
stating that all conditions precedent provided for relating
to the defeasance contemplated by this provision have been
complied with;
(e) no Event of Default or event which with notice or
lapse of time or both would become an Event of Default with
respect to the Securities shall have occurred and be
continuing on the date of such deposit or, insofar as
subsections 4.1(d) and (e) are concerned, at any time during
the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not
be deemed satisfied until the expiration of such period);
(f) such covenant defeasance contemplated by this
provision shall not cause any Securities then listed on any
registered national securities exchange under the Securities
Exchange Act of 1934, as amended, to be delisted; and
(g) such covenant defeasance shall not cause the
Trustee to have a conflicting interest as described in
Section 310 of the Trust Indenture Act of 1939 with respect
to any securities of the Issuer.
(C) The following provisions shall apply to the
Securities of each series unless specifically otherwise provided
in a Board Resolution, Officers' Certificate or indenture
supplemental hereto provided pursuant to Section 2.3. In the
case of any series of Securities the exact or maximum amounts
(including the currency of payment) of principal of and interest
due on which can be determined at the time of making the deposit
referred to in clause (a) below, the Issuer shall be released
from its obligations under Sections 3.6 and 8.1 with respect to
the Securities of any such series, and any Coupons appertaining
thereto, Outstanding on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant defeasance").
For this purpose, such covenant defeasance means that, with
respect to the Outstanding Securities of any series, the Issuer
may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in such Sections,
whether directly or indirectly by reason of any reference
elsewhere herein to such Sections or by reason of any reference
in such Sections to any other provision herein or in any other
document and such omission to comply shall not constitute an
Event of Default under Section 4.1, but the remainder of this
Indenture and such Securities and Coupons shall be unaffected
thereby. The following shall be the conditions to application of
this subsection C of this Section 9.1:
(a) the Issuer has irrevocably deposited or caused to
be deposited with the Trustee as trust funds in trust for
the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the
benefit of the Holders of the Securities of such series and
Coupons appertaining thereto, (i) cash in an amount, or (ii)
in the case of any series of Securities the payments on
which may only be made in Dollars, United States Government
Obligations maturing as to principal and interest at such
times and in such amounts as will insure the availability of
cash or (iii) a combination thereof, sufficient, in the
opinion of a nationally recognized firm of independent
public accountants expressed in a written certification
thereof delivered to the Trustee, to pay (A) the principal
and interest on all Securities of such series and Coupons
appertaining thereto on each date that such principal and
interest is due and payable and (B) any mandatory sinking
fund payments on the day on which such payments are due and
payable in accordance with the terms of the Indenture and
the Securities of such series;
(b) no Event of Default or event which with notice or
lapse of time or both would become an Event of Default with
respect to the Securities shall have occurred and be
continuing on the date of such deposit or, insofar as
subsections 4.1(d) and (e) are concerned, at any time during
the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not
be deemed satisfied until the expiration of such period);
(c) such covenant defeasance shall not cause the
Trustee to have a conflicting interest as described in
Section 310 of the Trust Indenture Act of 1939 with respect
to any securities of the Issuer;
(d) such covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this
Indenture or any other agreement or instrument to which the
Issuer is a party or by which it is bound;
(e) such covenant defeasance shall not cause any
Securities then listed on any registered national securities
exchange under the Securities Exchange Act of 1934, as
amended, to be delisted.;
(f) the Issuer shall have delivered to the Trustee an
Officers' Certificate and Opinion of Counsel (from an expert
in matters relating to Federal income tax law who is not an
employee of the Issuer) to the effect that the Holders of
the Securities of such series and Coupons appertaining
thereto will not recognize income, gain or loss for Federal
income tax purposes as a result of such covenant defeasance
and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not
occurred; and
(g) The Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each
stating that all conditions precedent provided for relating
to the covenant defeasance contemplated by this provision
have been complied with.
SECTION 9.2 Application by Trustee of Funds
Deposited for Payment of Securities. Subject to Section 9.4, all
moneys deposited with the Trustee (or other trustee) pursuant to
Section 9.1 shall be held in trust and applied by it to the
payment, either directly or through any paying agent (including
the Issuer acting as its own paying agent), to the Holders of the
particular Securities of such series and of Coupons appertaining
thereto for the payment or redemption of which such moneys have
been deposited with the Trustee, of all sums due and to become
due thereon for principal and interest; but such money need not
be segregated from other funds except to the extent required by
law.
SECTION 9.3 Repayment of Moneys Held by Paying
Agent. In connection with the satisfaction and discharge of this
Indenture with respect to Securities of any series, all moneys
then held by any paying agent under the provisions of this
Indenture with respect to such series of Securities shall, upon
demand of the Issuer, be repaid to it or paid to the Trustee and
thereupon such paying agent shall be released from all further
liability with respect to such moneys.
SECTION 9.4 Return of Moneys Held by Trustee and
Paying Agent Unclaimed for Two Years. Any moneys deposited with
or paid to the Trustee or any paying agent for the payment of the
principal of or interest on any Security of any series or Coupons
attached thereto and not applied but remaining unclaimed for two
years after the date upon which such principal or interest shall
have become due and payable, shall, upon the written request of
the Issuer and unless otherwise required by mandatory provisions
of applicable escheat or abandoned or unclaimed property law, be
repaid to the Issuer by the Trustee for such series or such
paying agent, and the Holder of the Securities of such series and
of any Coupons appertaining thereto shall, unless otherwise
required by mandatory provisions of applicable escheat or
abandoned or unclaimed property laws, thereafter look only to the
Issuer for any payment which such Holder may be entitled to
collect, and all liability of the Trustee or any paying agent
with respect to such moneys shall thereupon cease; provided,
however, that the Trustee or such paying agent, before being
required to make any such repayment with respect to moneys
deposited with it for any payment (a) in respect of Registered
Securities of any series, shall at the expense of the Issuer,
mail by first-class mail to Holders of such Securities at their
addresses as they shall appear on the Security register, and (b)
in respect of Unregistered Securities of any series, shall at the
expense of the Issuer cause to be published once, in an
Authorized Newspaper in the Borough of Manhattan, The City of New
York and once in an Authorized Newspaper in London (and if
required by Section 3.7, once in an Authorized Newspaper in
Luxembourg), notice, that such moneys remain and that, after a
date specified therein, which shall not be less than 30 days from
the date of such mailing or publication, any unclaimed balance of
such money then remaining will be repaid to the Issuer.
SECTION 9.5 Indemnity for United States Government
Obligations. The Issuer shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed
against the United States Government Obligations deposited
pursuant to Section 9.1 or the principal or interest received in
respect of such obligations.
SECTION 9.6 Excess Funds. The Trustee shall deliver
to the Issuer from time to time upon Issuer Order any United
States Government Obligations or money held by it as provided in
Section 9.1 which, as expressed in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee (which may
include the applicable such opinion delivered to the Trustee
pursuant to Section 9.1), are then in excess of the amount
thereof which then would have been required to be deposited for
the purpose for which such obligations or money were deposited or
received.
ARTICLE TEN
MISCELLANEOUS PROVISIONS
SECTION 10.1 Incorporators, Stockholders, Officers
and Directors of Issuer Exempt from Individual Liability. No
recourse under or upon any obligation, covenant or agreement
contained in this Indenture, or in any Security, or because of
any indebtedness evidenced thereby, shall be had against any
incorporator, as such or against any past, present or future
stockholder, officer or director, as such, of the Issuer or of
any successor, either directly or through the Issuer or any
successor, under any rule of law, statute or constitutional
provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise, all such liability being
expressly waived and released by the acceptance of the Securities
and the Coupons appertaining thereto by the Holders thereof and
as part of the consideration for the issue of the Securities and
the Coupons appertaining thereto.
SECTION 10.2 Provisions of Indenture for the Sole
Benefit of Parties and Holders of Securities and Coupons.
Nothing in this Indenture, in the Securities or in the Coupons
appertaining thereto, expressed or implied, shall give or be
construed to give to any Person, other than the parties hereto
and their successors and the Holders of the Securities or
Coupons, if any, any legal or equitable right, remedy or claim
under this Indenture or under any covenant or provision herein
contained, all such covenants and provisions being for the sole
benefit of the parties hereto and their successors and of the
Holders of the Securities or Coupons, if any.
SECTION 10.3 Successors and Assigns of Issuer Bound
by Indenture. All the covenants, stipulations, promises and
agreements in this Indenture contained by or in behalf of the
Issuer shall bind its successors and assigns, whether so
expressed or not.
SECTION 10.4 Notices and Demands on Issuer, Trustee
and Holders of Securities and Coupons. Any notice or demand
which by any provision of this Indenture is required or permitted
to be given or served by the Trustee or by the Holders of
Securities or Coupons to or on the Issuer may be given or served
by being deposited postage prepaid, first-class mail (except as
otherwise specifically provided herein) addressed (until another
address of the Issuer is filed by the Issuer with the Trustee) to
Illinova Corporation, 500 South 27th Street, Decatur, Illinois
62525, Attention: Treasurer. Any notice, direction, request or
demand by the Issuer or any Holder of Securities or Coupons to or
upon the Trustee shall be deemed to have been sufficiently given
or served by being deposited postage prepaid, first-class mail
(except as otherwise specifically provided herein) addressed
(until another address of the Trustee is filed by the Trustee
with the Issuer) to The First National Bank of Chicago, c/o First
Chicago Trust Company of New York, 14 Wall Street, 8th Floor,
Window 2, New York, NY 10005, Attn: Corporate Trust
Administration.
Where this Indenture provides for notice to Holders of
Registered Securities, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and
mailed, first-class postage prepaid, to each Holder entitled
thereto, at his last address as it appears in the Security
register. In any case where notice to such Holders is given by
mail, neither the failure to mail such notice, nor any defect in
any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where
this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall
be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in
reliance upon such waiver.
In case, by reason of the suspension of or
irregularities in regular mail service, it shall be impracticable
to mail notice to the Issuer when such notice is required to be
given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be reasonably satisfactory
to the Trustee shall be deemed to be a sufficient giving of such
notice.
SECTION 10.5 Officers' Certificates and Opinions of
Counsel; Statements to Be Contained Therein. Upon any
application or demand by the Issuer to the Trustee to take any
action under any of the provisions of this Indenture, the Issuer
shall furnish to the Trustee an Officers' Certificate stating
that all conditions precedent provided for in this Indenture
relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel
all such conditions precedent have been complied with, except
that in the case of any such application or demand as to which
the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular
application or demand, no additional certificate or opinion need
be furnished.
Each certificate or opinion provided for in this
Indenture and delivered to the Trustee with respect to compliance
with a condition or covenant provided for in this Indenture shall
include (a) a statement that the person making such certificate
or opinion has read such covenant or condition, (b) a brief
statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in
such certificate or opinion are based, (c) a statement that, in
the opinion of such person, he has made such examination or
investigation as is necessary to enable him to express an opinion
as to whether or not such covenant or condition has been complied
with and (d) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of
the Issuer may be based, insofar as it relates to legal matters,
upon a certificate or opinion of or representations by counsel,
unless such officer knows that the certificate or opinion or
representations with respect to the matters upon which his
certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that
the same are erroneous. Any certificate, statement or opinion of
counsel may be based, insofar as it relates to factual matters,
information with respect to which is in the possession of the
Issuer, upon the certificate, statement or opinion of or
representations by an officer or officers of the Issuer, unless
such counsel knows that the certificate, statement or opinion or
representations with respect to the matters upon which his
certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that
the same are erroneous.
Any certificate, statement or opinion of an officer of
the Issuer or of counsel may be based, insofar as it relates to
accounting matters, upon a certificate or opinion of or
representations by an accountant or firm of accountants in the
employ of the Issuer, unless such officer or counsel, as the case
may be, knows that the certificate or opinion or representations
with respect to the accounting matters upon which his
certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that
the same are erroneous.
Any certificate or opinion of any independent firm of
public accountants filed with and directed to the Trustee shall
contain a statement that such firm is independent.
SECTION 10.6 Payments Due on Saturdays, Sundays and
Holidays. If the date of maturity of interest on or principal of
the Securities of any series or any Coupons appertaining thereto
or the date fixed for redemption or repayment of any such
Security or Coupon shall not be a Business Day, then payment of
interest or principal need not be made on such date, but may be
made on the next succeeding Business Day with the same force and
effect as if made on the date of maturity or the date fixed for
redemption or repayment, and no interest shall accrue for the
period after such date.
SECTION 10.7 Conflict of Any Provision of Indenture
with Trust Indenture Act of 1939. If and to the extent that any
provision of this Indenture limits, qualifies or conflicts with
another provision included in this Indenture by operation of
Sections 310 to 317, inclusive, of the Trust Indenture Act of
1939 (an "incorporated provision"), such incorporated provision
shall control.
SECTION 10.8 New York Law to Govern. This Indenture
and each Security and Coupon shall be deemed to be a contract
under the laws of the State of New York, and for all purposes
shall be construed in accordance with the laws of such State,
except as may otherwise be required by mandatory provisions of
law.
SECTION 10.9 Counterparts. This Indenture may be
executed in any number of counterparts, each of which shall be an
original; but such counterparts shall together constitute but one
and the same instrument.
SECTION 10.10 Effect of Headings. The Article and
Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 10.11 Securities in a Foreign Currency or in
ECU. Unless otherwise specified in an Officers' Certificate
delivered pursuant to Section 2.3 of this Indenture with respect
to a particular series of Securities, whenever for purposes of
this Indenture any action may be taken by the Holders of a
specified percentage in aggregate principal amount of Securities
of all series or all series affected by a particular action at
the time Outstanding and, at such time, there are Outstanding
Securities of any series which are denominated in a coin or
currency other than Dollars (including ECUs), then the principal
amount of Securities of such series which shall be deemed to be
Outstanding for the purpose of taking such action shall be that
amount of Dollars that could be obtained for such amount at the
Market Exchange Rate as of the date of initial issuance of such
Securities. For purposes of this Section 10.11, Market Exchange
Rate as of any date shall mean the noon Dollar buying rate in New
York City for cable transfers of that currency on such date as
published by the Federal Reserve Bank of New York; provided,
however, in the case of ECUs, Market Exchange Rate shall mean the
rate of exchange determined by the Commission of the European
Communities (or any successor thereto) as published in the
Official Journal of the European Communities (such publication or
any successor publication, the "Journal"). If such Market
Exchange Rate is not available for any reason with respect to
such currency, the Trustee shall use, in its sole discretion and
without liability on its part, such quotation of the Federal
Reserve Bank of New York or, in the case of ECUs, the rate of
exchange as published in the Journal, as of the most recent
available date, or quotations or, in the case of ECUs, rates of
exchange from one or more major banks in The City of New York or
in the country of issue of the currency in question, which for
purposes of the ECU shall be Brussels, Belgium, or such other
quotations or, in the case of ECU, rates of exchange as the
Trustee shall deem appropriate. The provisions of this paragraph
shall apply in determining the equivalent principal amount in
respect of Securities of a series denominated in a currency other
than Dollars in connection with any action taken by Holders of
Securities pursuant to the terms of this Indenture.
All decisions and determinations of the Trustee
regarding the Market Exchange Rate alternative determination
provided for in the preceding paragraph shall be in its sole
discretion and shall, in the absence of manifest error, be
conclusive to the extent permitted by law for all purposes and
irrevocably binding upon the Issuer and all Holders.
SECTION 10.12 Judgment Currency. The Issuer agrees,
to the fullest extent that it may effectively do so under
applicable law, that (a) if for the purpose of obtaining judgment
in any court it is necessary to convert the sum due in respect of
the principal of or interest on the Securities of any series (the
"Required Currency") into a currency in which a judgment will be
rendered (the "Judgment Currency"), the rate of exchange used
shall be the rate at which in accordance with normal banking
procedures the Trustee could purchase in The City of New York the
Required Currency with the Judgment Currency on the day on which
a final unappealable judgment is entered, unless such day is not
a New York Banking Day, then, to the extent permitted by
applicable law, the rate of exchange used shall be the rate at
which in accordance with normal banking procedures the Trustee
could purchase in The City of New York the Required Currency with
the Judgment Currency on the New York Banking Day preceding the
day on which a final unappealable judgment is entered, and (b)
its obligations under this Indenture to make payments in the
Required Currency (i) shall not be discharged or satisfied by any
tender, or any recovery pursuant to any judgment (whether or not
entered in accordance with subsection (a)), in any currency other
than the Required Currency, except to the extent that such tender
or recovery shall result in the actual receipt, by the payee, of
the full amount of the Required Currency expressed to be payable
in respect of such payments, (ii) shall be enforceable as an
alternative or additional cause of action for the purpose of
recovering in the Required Currency the amount, if any, by which
such actual receipt shall fall short of the full amount of the
Required Currency so expressed to be payable and (iii) shall not
be affected by judgment being obtained for any other sum due
under this Indenture. For purposes of the foregoing, "New York
Banking Day" means any day except a Saturday, Sunday or a legal
holiday in The City of New York or a day on which banking
institutions in The City of New York are authorized or required
by law or executive order to close.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES AND SINKING FUNDS
SECTION 11.1 Applicability of Article. The
provisions of this Article shall be applicable to the Securities
of any series which are redeemable before their maturity or to
any sinking fund for the retirement of Securities of a series
except as otherwise specified as contemplated by Section 2.3 for
Securities of such series.
SECTION 11.2 Notice of Redemption; Partial
Redemptions. Notice of redemption to the Holders of Registered
Securities of any series to be redeemed as a whole or in part at
the option of the Issuer shall be given by mailing notice of such
redemption by first class mail, postage prepaid, at least 30 days
and not more than 60 days prior to the date fixed for redemption
to such Holders of Securities of such series at their last
addresses as they shall appear upon the registry books. Notice
of redemption to the Holders of Unregistered Securities to be
redeemed as a whole or in part, who have filed their names and
addresses with the Trustee pursuant to Section 313(c)(2) of the
Trust Indenture Act of 1939, shall be given by mailing notice of
such redemption, by first class mail, postage prepaid, at least
30 days and not more than 60 prior to the date fixed for
redemption, to such Holders at such addresses as were so
furnished to the Trustee (and, in the case of any such notice
given by the Issuer, the Trustee shall make such information
available to the Issuer for such purpose). Notice of redemption
to all other Holders of Unregistered Securities shall be
published in an Authorized Newspaper in the Borough of Manhattan,
The City of New York and in an Authorized Newspaper in London
(and, if required by Section 3.7, in an Authorized Newspaper in
Luxembourg), in each case, once in each of three successive
calendar weeks, the first publication to be not less than 30 nor
more than 60 days prior to the date fixed for redemption. Any
notice which is mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the
Holder receives the notice. Failure to give notice by mail, or
any defect in the notice to the Holder of any Security of a
series designated for redemption as a whole or in part shall not
affect the validity of the proceedings for the redemption of any
other Security of such series.
The notice of redemption to each such Holder shall
specify the principal amount of each Security of such series held
by such Holder to be redeemed, the date fixed for redemption, the
redemption price, the numbers of the certificate for such
Security being redeemed, the place or places of payment, that
payment will be made upon presentation and surrender of such
Securities and, in the case of Securities with Coupons attached
thereto, of all Coupons appertaining thereto maturing after the
date fixed for redemption, that such redemption is pursuant to
the mandatory or optional sinking fund, or both, if such be the
case, that interest accrued to the date fixed for redemption will
be paid as specified in such notice and that on and after said
date interest thereon or on the portions thereof to be redeemed
will cease to accrue. In case any Security of a series is to be
redeemed in part only the notice of redemption shall state the
portion of the principal amount thereof to be redeemed and shall
state that on and after the date fixed for redemption, upon
surrender of such Security, a new Security or Securities of such
series in principal amount equal to the unredeemed portion
thereof will be issued.
The notice of redemption of Securities of any series to
be redeemed at the option of the Issuer shall be given by the
Issuer or, at the Issuer's request, by the Trustee in the name
and at the expense of the Issuer.
On or before the redemption date specified in the
notice of redemption given as provided in this Section, the
Issuer will deposit with the Trustee or with one or more paying
agents (or, if the Issuer is acting as its own paying agent, set
aside, segregate and hold in trust as provided in Section 3.4) an
amount of money sufficient to redeem on the redemption date all
the Securities of such series so called for redemption at the
appropriate redemption price, together with accrued interest to
the date fixed for redemption. The Issuer will deliver to the
Trustee at least 70 days prior to the date fixed for redemption
an Officers' Certificate stating the aggregate principal amount
of Securities to be redeemed. In case of a redemption at the
election of the Issuer prior to the expiration of any restriction
on such redemption or subject to compliance with a condition
precedent, the Issuer shall deliver to the Trustee, prior to the
giving of any notice of redemption to Holders pursuant to this
Section, an Officers' Certificate stating that such restriction
or condition precedent has been complied with.
If less than all the Securities of a series are to be
redeemed, the Trustee shall select, in such manner as it shall
deem appropriate and fair, Securities of such series to be
redeemed in whole or in part. Securities may be redeemed in part
in multiples equal to the minimum authorized denomination for
Securities of such series or any multiple thereof. The Trustee
shall promptly notify the Issuer in writing of the Securities of
such series selected for redemption and, in the case of any
Securities of such series selected for partial redemption, the
principal amount thereof to be redeemed. For all purposes of
this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities of any series
shall relate, in the case of any Security redeemed or to be
redeemed only in part, to the portion of the principal amount of
such Security which has been or is to be redeemed.
SECTION 11.3 Payment of Securities Called for
Redemption. If notice of redemption has been given as above
provided, the Securities or portions of Securities specified in
such notice shall become due and payable on the date and at the
place stated in such notice at the applicable redemption price,
together with interest accrued to the date fixed for redemption,
and on and after said date (unless the Issuer shall default in
the payment of such Securities at the redemption price, together
with interest accrued to said date) interest on the Securities or
portions of Securities so called for redemption shall cease to
accrue, and the unmatured Coupons, if any, appertaining thereto
shall be void, and, except as provided in Sections 5.5 and 9.4,
such Securities shall cease from and after the date fixed for
redemption to be entitled to any benefit or security under this
Indenture, and the Holders thereof shall have no right in respect
of such Securities except the right to receive the redemption
price thereof and unpaid interest to the date fixed for
redemption. On presentation and surrender of such Securities at
a place of payment specified in said notice, together with all
Coupons, if any, appertaining thereto maturing after the date
fixed for redemption, said Securities or the specified portions
thereof shall be paid and redeemed by the Issuer at the
applicable redemption price, together with interest accrued
thereon to the date fixed for redemption; provided that payment
of interest becoming due on or prior to the date fixed for
redemption shall be payable in the case of Securities with
Coupons attached thereto, to the Holders of the Coupons for such
interest upon surrender thereof, and in the case of Registered
Securities, to the Holders of such Registered Securities
registered as such on the relevant record date subject to the
terms and provisions of Sections 2.3 and 2.7 hereof.
If any Security with Coupons attached thereto is
surrendered for redemption and is not accompanied by all
appurtenant Coupons maturing after the date fixed for redemption,
the surrender of such missing Coupon or Coupons may be waived by
the Issuer and the Trustee, if there be furnished to each of them
such security or indemnity as they may require to save each of
them harmless.
Upon presentation of any Security redeemed in part
only, the Issuer shall execute and the Trustee shall authenticate
and deliver to or on the order of the Holder thereof, at the
expense of the Issuer, a new Security or Securities of such
series, of authorized denominations, in principal amount equal to
the unredeemed portion of the Security so presented.
SECTION 11.4 Exclusion of Certain Securities from
Eligibility for Selection for Redemption. Securities shall be
excluded from eligibility for selection for redemption if they
are identified by registration and certificate number in an
Officers' Certificate delivered to the Trustee at least 40 days
prior to the last date on which notice of redemption may be given
as being owned of record and beneficially by, and not pledged or
hypothecated by either (a) the Issuer or (b) an entity
specifically identified in such written statement as directly or
indirectly controlling or controlled by or under direct or
indirect common control with the Issuer.
SECTION 11.5 Mandatory and Optional Sinking Funds.
The minimum amount of any sinking fund payment provided for by
the terms of the Securities of any series is herein referred to
as a "mandatory sinking fund payment", and any payment in excess
of such minimum amount provided for by the terms of the
Securities of any series is herein referred to as an "optional
sinking fund payment". The date on which a sinking fund payment
is to be made is herein referred to as the "sinking fund payment
date".
To the extent specifically provided in the terms of any
Security established pursuant to this Indenture, in lieu of
making all or any part of any mandatory sinking fund payment with
respect to any series of Securities in cash, the Issuer may at
its option (a) deliver to the Trustee Securities of such series
theretofore purchased or otherwise acquired (except upon
redemption pursuant to the mandatory sinking fund) by the Issuer
or receive credit for Securities of such series (not previously
so credited) theretofore purchased or otherwise acquired (except
as aforesaid) by the Issuer and delivered to the Trustee for
cancellation pursuant to Section 2.10, (b) receive credit for
optional sinking fund payments (not previously so credited) made
pursuant to this Section, or (c) receive credit for Securities of
such series (not previously so credited) redeemed by the Issuer
through any optional redemption provision contained in the terms
of such series. Securities so delivered or credited shall be
received or credited by the Trustee at the sinking fund
redemption price specified in such Securities.
On or before the 60th day next preceding each sinking
fund payment date for any series, the Issuer will deliver to the
Trustee an Officers' Certificate (which need not contain the
statements required by Section 10.5) (a) specifying the portion
of the mandatory sinking fund payment to be satisfied by payment
of cash and the portion to be satisfied by credit of Securities
of such series and the basis for such credit, (b) stating that
none of the Securities of such series has theretofore been so
credited, (c) stating that no defaults in the payment of interest
or Events of Default with respect to such series have occurred
(which have not been waived or cured) and are continuing and (d)
stating whether or not the Issuer intends to exercise its right
to make an optional sinking fund payment with respect to such
series and, if so, specifying the amount of such optional sinking
fund payment which the Issuer intends to pay on or before the
next succeeding sinking fund payment date. Any Securities of
such series to be credited and required to be delivered to the
Trustee in order for the Issuer to be entitled to credit therefor
as aforesaid which have not theretofore been delivered to the
Trustee shall be delivered for cancellation pursuant to Section
2.10 to the Trustee with such Officers' Certificate (or
reasonably promptly thereafter if acceptable to the Trustee).
Such Officers' Certificate shall be irrevocable and upon its
receipt by the Trustee the Issuer shall become unconditionally
obligated to make all the cash payments or payments therein
referred to, if any, on or before the next succeeding sinking
fund payment date. Failure of the Issuer, on or before any such
60th day, to deliver such Officers' Certificate and Securities
specified in this paragraph, if any, shall not constitute a
default but shall constitute, on and as of such date, the
irrevocable election of the Issuer (i) that the mandatory sinking
fund payment for such series due on the next succeeding sinking
fund payment date shall be paid entirely in cash without the
option to deliver or credit Securities of such series in respect
thereof and (ii) that the Issuer will make no optional sinking
fund payment with respect to such series as provided in this
Section.
If the sinking fund payment or payments (mandatory or
optional or both) to be made in cash on the next succeeding
sinking fund payment date plus any unused balance of any
preceding sinking fund payments made in cash shall exceed $50,000
(or the equivalent thereof in any Foreign Currency or ECU) or a
lesser sum in Dollars (or the equivalent thereof in any Foreign
Currency or ECU) if the Issuer shall so request with respect to
the Securities of any particular series, such cash shall be
applied on the next succeeding sinking fund payment date to the
redemption of Securities of such series at the sinking fund
redemption price together with accrued interest to the date fixed
for redemption. If such amount shall be $50,000 (or the
equivalent thereof in any Foreign Currency or ECU) or less and
the Issuer makes no such request then it shall be carried over
until a sum in excess of $50,000 (or the equivalent thereof in
any Foreign Currency or ECU) is available. The Trustee shall
select, in the manner provided in Section 11.2, for redemption on
such sinking fund payment date a sufficient principal amount of
Securities of such series to absorb said cash, as nearly as may
be, and shall (if requested in writing by the Issuer) inform the
Issuer of the serial numbers of the Securities of such series (or
portions thereof) so selected. Securities shall be excluded from
eligibility for redemption under this Section if they are
identified by registration and certificate number in an Officers'
Certificate delivered to the Trustee at least 60 days prior to
the sinking fund payment date as being owned of record and
beneficially by, and not pledged or hypothecated by either (a)
the Issuer or (b) an entity specifically identified in such
Officers' Certificate as directly or indirectly controlling or
controlled by or under direct or indirect common control with the
Issuer. The Trustee, in the name and at the expense of the
Issuer (or the Issuer, if it shall so request the Trustee in
writing) shall cause notice of redemption of the Securities of
such series to be given in substantially the manner provided in
Section 11.2 (and with the effect provided in Section 11.3) for
the redemption of Securities of such series in part at the option
of the Issuer. The amount of any sinking fund payments not so
applied or allocated to the redemption of Securities of such
series shall be added to the next cash sinking fund payment for
such series and, together with such payment, shall be applied in
accordance with the provisions of this Section. Any and all
sinking fund moneys held on the stated maturity date of the
Securities of any particular series (or earlier, if such maturity
is accelerated), which are not held for the payment or redemption
of particular Securities of such series shall be applied,
together with other moneys, if necessary, sufficient for the
purpose, to the payment of the principal of, and interest on, the
Securities of such series at maturity.
On or before each sinking fund payment date, the Issuer
shall pay to the Trustee in cash or shall otherwise provide for
the payment of all interest accrued to the date fixed for
redemption on Securities to be redeemed on such sinking fund
payment date.
The Trustee shall not redeem or cause to be redeemed
any Securities of a series with sinking fund moneys or give any
notice of redemption of Securities for such series by operation
of the sinking fund during the continuance of a default in
payment of interest on such Securities or of any Event of Default
with respect to such series, except that, where the giving of
notice of redemption of any Securities shall theretofore have
been made, the Trustee shall redeem or cause to be redeemed such
Securities, provided that it shall have received from the Issuer
a sum sufficient for such redemption. Except as aforesaid, any
moneys in the sinking fund for such series at the time when any
such default or Event of Default shall occur, and any moneys
thereafter paid into the sinking fund, shall, during the
continuance of such default or Event of Default, be deemed to
have been collected under Article Four and held for the payment
of all such Securities. In case such Event of Default shall have
been waived as provided in Section 4.10 or the default cured on
or before the sixtieth day preceding the sinking fund payment
date in any year, such moneys shall thereafter be applied on the
next succeeding sinking fund payment date in accordance with this
Section to the redemption of such Securities.
ARTICLE TWELVE
MEETINGS OF HOLDERS OF SECURITIES
SECTION 12.1 Purposes for Which Meetings May Be
Called. A meeting of Holders of Securities of any or all series
may be called at any time and from time to time pursuant to this
Article to make, give or take any request, demand, authorization,
direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders or
Securities of such series.
SECTION 12.2 Call, Notice and Place of Meetings.
(a) The Trustee may at any time call a meeting of
Holders of Securities of any series for any purpose
specified in Section 12.1, to be held at such time and at
such place as the Trustee shall determine. Notice of every
meeting of Holders of Securities of any series, setting
forth the time and the place of such meeting and in general
terms the action proposed to be taken at such meeting, shall
be given, in the manner provided in Section 10.4, not less
than 20 nor more than 180 days prior to the date fixed for
the meeting.
(b) In case at any time the Issuer, pursuant to a
Board Resolution, or the Holders of at least 10 percent in
aggregate principal amount of the Outstanding Securities of
any series shall have requested the Trustee to call a
meeting of the Holders of Securities of such series for any
purpose specified in Section 12.1, by written request
setting forth in reasonable detail the action proposed to be
taken at the meeting and if the Trustee shall not have made
the first publication of the notice of such meeting within
20 days after receipt of such request or shall not
thereafter proceed to cause the meeting to be held as
provided herein, then the Issuer or the Holders of
Securities of such series in the amount above specified, as
the case may be, may determine the time and the place for
such meeting and may call such meeting for such purposes by
giving notice thereof as provided in Subsection (a) of this
Section.
SECTION 12.3 Persons Entitled to Vote at Meetings. To
be entitled to vote at any meeting of Holders of Securities of
any series, a Person shall be (1) a Holder of one or more
Outstanding Securities of such series, or (2) a Person appointed
by an instrument in writing as proxy for a Holder or Holders of
one or more Outstanding Securities of such series by such Holder
or Holders. The only Persons who shall be entitled to be present
or to speak at any meeting of Holders of Securities of any series
shall be the Persons entitled to vote at such meeting and their
counsel, any representatives of the Trustee and its counsel and
any representatives of the Issuer and its counsel.
SECTION 12.4 Quorum; Action. The Persons entitled to
vote a majority in aggregate principal amount of the Outstanding
Securities of a series shall constitute a quorum for a meeting of
Holders of Securities of such series; provided, however, that if
any action is to be taken at such meeting with respect to a
consent or waiver which this Indenture expressly provides may be
given by the Holders of a specified percentage, which is greater
than a majority in aggregate principal amount of the Outstanding
Securities of a series, the Persons entitled to vote such
specified percentage in aggregate principal amount of the
Outstanding Securities of such series shall constitute a quorum.
In the absence of a quorum within 30 minutes of the time
appointed for any such meeting, the meeting shall, if convened at
the request of the Holders of Securities of such series, be
dissolved. In any other case, the meeting may be adjourned for a
period of not less than 10 days as determined by the chairman of
the meeting prior to the adjournment of such meeting. In the
absence of a quorum at any such adjourned meeting, such adjourned
meeting may be further adjourned for a period of not less than 10
days as determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting. Notice of the reconvening
of any adjourned meeting shall be given as provided in Section
12.2(a), except that such notice need be given only once not less
than five days prior to the date on which the meeting is
scheduled to be reconvened. Notice of the reconvening of an
adjourned meeting shall state expressly the percentage, as
provided above, of the aggregate principal amount of the
Outstanding Securities of such series which shall constitute a
quorum.
Except as limited by the proviso to Section 7.2, any
resolution presented to a meeting or adjourned meeting duly
reconvened at which a quorum is present as aforesaid may be
adopted by the affirmative vote of the Holders of a majority in
aggregate principal amount of the Outstanding Securities of that
series; provided, however, that, except as limited by the proviso
to Section 7.2, any resolution with respect to any consent or
waiver which this Indenture expressly provides may be given by
the Holders of a specified percentage, which is greater than a
majority in aggregate principal amount of the Outstanding
Securities of the series may be adopted at a meeting or an
adjourned meeting duly convened and at which a quorum is present
as aforesaid only by the affirmative vote of the Holders of such
specified percentage in aggregate principal amount of the
Outstanding Securities of that series; and provided, further,
that, except as limited by the proviso to Section 7.2, any
resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action which this
Indenture expressly provides may be made, given or taken by the
Holders of a specified percentage, which is less than a majority,
in aggregate principal amount of the Outstanding Securities of a
series may be adopted at a meeting or an adjourned meeting duly
reconvened and at which a quorum is present as aforesaid by the
affirmative vote of the Holders of such specified percentage in
aggregate principal amount of the Outstanding Securities of that
series.
Any resolution passed or decision taken at any meeting
of Holder of Securities of any series duly held in accordance
with this Section shall be binding on all of the Holders of
Securities of a series and the related coupons, whether or not
present or represented at the meeting.
SECTION 12.5 Determination of Voting; Conduct and
Adjournment of Meetings.
(a) Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations
as it may deem advisable for any meeting of Holders of
Securities of a series in regard to proof of the holding of
Securities of such series and of the appointment of proxies
and in regard to the appointment and duties of inspectors of
votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and
such other matters concerning the conduct of the meeting as
it shall deem appropriate. Except as otherwise permitted or
required by any such regulations, the holding of Securities
shall be proved in the manner specified in Section 6.1 and
the appointment of any proxy shall be proved in the manner
specified in Section 6.1 or by having the signature of the
person executing the proxy witnessed or guaranteed by any
trust company, bank or banker authorized by Section 6.1 to
certify to the holding of Bearer Securities. Such
regulations may provide that written instruments appointing
proxies, regular on their face, may be presumed valid and
genuine without the proof specified in Section 6.1 or other
proof.
(b) Trustee shall, by an instrument in writing,
appoint a temporary chairman of the meeting, unless the
meeting shall have been called by the Issuer or by Holders
of Securities as provided in Section 12.2(b), in which case
the Issuer or the Holders of Securities of the series
calling the meeting, as the case may be, shall appoint a
temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the
Persons entitled to vote a majority in aggregate principal
amount of the Outstanding Securities of such series
represented at the meeting.
(c) At any meeting each Holder of a Security of such
series and each proxy shall be entitled to one vote for each
$1,000 principal of the Outstanding Securities of such
series held or represented by him; provided, however, that
no vote shall be cast or counted at any meeting in respect
of any Security challenged as not Outstanding and ruled by
the chairman of the meeting to be not Outstanding. The
chairman of the meeting shall have no right to vote, except
as a Holder of a Security of such series or as a proxy.
(d) Any meeting of Holders of Securities of any series
duly called pursuant to Section 12.2 at which a quorum is
present may be adjourned from time to time by Persons
entitled to vote a majority in aggregate principal amount of
the Outstanding Securities of such series represented at the
meeting; and the meeting may be held as so adjourned without
further notice.
SECTION 12.6 Counting Votes and Recording Action of
Meetings. The vote upon any resolution submitted to any meeting
of Holders of Securities of any series shall by written ballots
on which shall be subscribed the signatures of the Holders of
Securities of such series or of their representatives by proxy
and the principal amounts and serial numbers of the Outstanding
Securities of such series held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of
votes who shall count all votes cast at the meeting for or
against any resolution and who shall make the file with the
secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record, at least
in duplicate of the proceedings of each meeting of Holders of
Securities of any series shall be prepared by the secretary of
the meeting and there shall be attached to such record the
original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more persons having
knowledge of the facts setting forth a copy of the notice of the
meeting and showing that such notice was given as provided in
Section 12.2 and, if applicable, Section 12.4. Each copy shall
be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one such copy shall be
delivered to the Issuer, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the
ballots voted at the meeting. Any record so signed and verified
shall be conclusive evidence of the matters therein stated.
________________________________
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, all as of February 1,
1997.
ILLINOVA CORPORATION
By: /s/ Larry F. Altenbaumer
------------------------
Larry F. Altenbaumer
Chief Financial Officer, Treasurer
and Controller
[CORPORATE SEAL]
Attest:
By /s/ Leah Manning Stetzner
-------------------------
Leah Manning Stetzner
General Counsel and Corporate Secretary
THE FIRST NATIONAL BANK OF CHICAGO,
AS TRUSTEE
By:/s/ Joseph J. Morand
-----------------------------
Name: Joseph J. Morand
Title: Vice President
[CORPORATE SEAL]
Attest:
By : /s/ Amy Movitz
- ---------------------
Name: Amy Movitz
Title: Trust Officer
STATE OF ILLINOIS )
) ss.:
COUNTY OF,_______ )
On this ____ of _________, 1997 before me personally came
___________, to me personally known, who, being by me duly sworn,
did depose and say that he is __________ of Illinova Corporation,
one of the corporations described in and which executed the above
instrument; that he knows the corporate seal of said corporation;
that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of
said corporation, and that he signed his name thereto by like
authority.
[NOTARIAL SEAL]
--------------------------
Notary Public
STATE OF )
) ss.:
COUNTY OF,_______)
On this ____ of ______, 1997 before me personally came
___________, to me personally known, who, being by me duly sworn,
did depose and say that he is a __________ of _____________, one
of the corporations described in and which executed the above
instrument; that he knows the corporate seal of said corporation;
that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of
said corporation, and that he signed his name thereto by like
authority.
[NOTARIAL SEAL]
----------------------------
Notary Public
CHI3:77747.7 02.06.97 17.08
<TABLE>
ILLINOVA CORPORATION
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(Thousands of Dollars)
Year Ended December 31, Supplemental**
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1992 1993 1993 1994 1995 1996
Earnings Available for Fixed
Charges:
Net Income (Loss) $93,234 ($81,874) ($81,874) $151,786 $151,601 $191,021
Add:
Income Taxes:
Current 22,930 25,260 25,260 58,354 98,578 163,873
Deferred-Net 63,739 82,057 82,057 71,177 34,137 (16,028)
Allocated income taxes (6,632) (12,599) (8,285) (11,851) (12,641)
Investment tax credit-deferred (519) (782) (782) (11,331) (6,894) (7,278)
Income tax effect of
disallowed costs - (70,638) (70,638) - - -
Interest on long-term debt 160,795 154,110 154,110 135,115 125,581 118,438
Amortization of debt
expense and premium-net,
and other interest charges 12,195 17,007 17,007 15,826 29,558 22,325
One-third of all rentals
(Estimated to be represen-
tative of the interest
component) 5,117 5,992 5,992 5,847 5,221 4,346
Interest on in-core fuel 8,278 6,174 6,174 7,185 6,716 4,757
Disallowed Clinton plant costs - - 270,956 - - -
------- ------- ------- ------- ------- --------
Earnings (loss) available for
fixed charges $359,137 $124,707 $395,663 $425,674 $432,647 $468,813
========= ======== ======== ======== ======== ========
Fixed charges:
Interest on long-term debt 160,795 154,110 154,110 135,115 125,581 118,438
Amortization of debt expense
and premium-net, and other
interest charges 25,785 27,619 27,619 25,381 38,147 28,957
One-third of all rentals
(Estimated to be representative
of the interest component) 5,117 5,992 5,992 5,847 5,221 4,346
-------- -------- --------- -------- -------- --------
Total Fixed Charges $191,697 $187,721 $187,721 $166,343 $168,949 $151,741
========= ========= ========== ========== ========= ========
Ratio of earnings to fixed
charges 1.87 0.66* 2.11 2.56 2.56 3.09
========= ========== ========== ========== ========= =========
* Earnings are inadequate to cover fixed charges. Additional earnings
(thousands) of $63,014 for 1993 are required to attain a one-to-one ratio of
Earnings to Fixed Charges.
**Supplemental ratio of earnings to fixed charges presented to exclude
nonrecurring item - Disallowed Clinton plant costs.
</TABLE>
<TABLE>
ILLINOIS POWER COMPANY
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(Thousands of Dollars)
Year Ended December 31, Supplemental**
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1992 1993 1993 1994 1995 1996
Earnings Available for Fixed Charges:
Net Income (Loss) $122,088 ($56,038) ($56,038) $180,242 $182,713 $228,618
Add:
Income Taxes:
Current 22,930 25,260 25,260 58,354 98,578 163,873
Deferred-Net 63,739 82,057 82,057 71,177 34,137 (16,028)
Allocated income taxes (6,632) (12,599) (12,599) (8,285) (8,417) (2,642)
Investment tax credit-deferred (519) (782) (782) (11,331) (6,894) (7,278)
Income tax effect of disallowed costs - (70,638) (70,638) - - -
Interest on long-term debt 160,795 154,110 154,110 135,115 125,581 118,438
Amortization of debt expense and
premium-net, and other interest charges 12,195 17,007 17,007 15,826 29,558 22,325
One-third of all rentals (Estimated to
be representative of the interest
component) 5,117 5,992 5,992 5,847 5,221 4,346
Interest on in-core fuel 8,278 6,174 6,174 7,185 6,716 4,757
Disallowed Clinton plant costs - - 270,956 - - -
-------- -------- -------- -------- -------- ---------
Earnings (loss) available for fixed
charges $387,991 $150,543 $421,499 $454,130 $467,193 $516,409
========== ========== ========== ========== ========== ==========
Fixed charges:
Interest on long-term debt 160,795 154,110 154,110 135,115 125,581 118,438
Amortization of debt expense and
premium-net, and other interest charges 25,785 27,619 27,619 25,381 38,147 28,957
One-third of all rentals (Estimated to
be representative of the interest
component) 5,117 5,992 5,992 5,847 5,221 4,346
---------- -------- --------- --------- --------- ---------
Total Fixed Charges $191,697 $187,721 $187,721 $166,343 $168,949 $151,741
========== ========= ========== ========= ========= =========
Ratio of earnings to fixed charges 2.02 0.81* 2.25 2.73 2.77 3.40
========== ========= ========= ========= ========= =========
* Earnings are inadequate to cover fixed charges. Additional earnings
(thousands) of $37,178 for 1993, are required to attain a one-to-one ratio
of Earnings to Fixed Charges.
** Supplemental ratio of earnings to fixed charges presented to exclude
nonrecurring item - Disallowed Clinton plant costs.
</TABLE>
1996 Proxy Statement and Annual Report to Shareholders
First
Notice of Annual Meeting of Shareholders
Proxy Statement
Table of Contents
Notice of Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . 2
Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Appendix: 1996 Annual Report to Shareholders . . . . . . . . . . . . . . A-1
-----------------------------------
/ /
/ /
/ /
/ /
/ Map to Location of Annual /
/ Shareholders Meeting /
/ /
/ /
/ /
------------------------------------
To the Shareholders
of Illinova Corporation:
Notice is Hereby Given that the Annual Meeting of Shareholders of Illinova
Corporation ("Illinova") will be held at 10 a.m. Wednesday, April 9, 1997, at
Shilling Community Education Center, Richland Community College, One College
Park, Decatur, Illinois 62521, for the following purposes:
(1) To elect the Board of Directors for the ensuing year.
(2) To transact any other business which may properly come before the meeting
or any adjournment.
Shareholders of record at the close of business on February 10, 1997, will be
entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors,
Leah Manning Stetzner,
General Counsel and Corporate Secretary
Decatur, Illinois
March 3, 1997
IMPORTANT
Illinova invites each of its approximately 38,000 shareholders to attend the
Annual Meeting. Shareholders will be admitted upon verification of record
share ownership at the admission desk. Shareholders who own shares through
banks, brokerage firms, nominees or other account custodians must present
proof of beneficial share ownership (such as a brokerage account statement)
at the admission desk. If you are unable to be present at the meeting, it is
important that you, whether the owner of one or many shares, sign and return
the enclosed proxy. An envelope on which postage will be paid by Illinova
is enclosed for that purpose.
Return of your executed proxy will ensure that you are represented at the
Annual Meeting. Your cooperation is appreciated.
Proxy Statement
Solicitation and Revocation of Proxies
This Proxy Statement is furnished in connection with a solicitation of proxies
by the Board of Directors of Illinova, for use at the Annual Meeting of
Shareholders to be held at Shilling Community Education Center, Richland
Community College, One College Park, Decatur, Illinois 62521, at 10 a.m.
Wednesday, April 9, 1997, and at any adjournment thereof (the "Annual
Meeting"). Any shareholder giving a proxy may revoke it at any time by giving
a later proxy or by giving written notice of revocation to the Corporate
Secretary of Illinoise prior to the Annual Meeting. All duly executed
proxies received prior to the Annual Meeting will be voted.
Shares credited to the accounts of participants in Illinova's Investment Plus
Plan and Illinois Power Company's ("Illinois Power") Incentive Savings Plans
will be voted in accordance with the instructions of the participants or
otherwise in accordance with the terms of such plans.
Voting Rights
Shareholders of record at the close of business on Monday, February 10, 1997
(the "Record Date"), will be entitled to receive notice of and to vote at the
Annual Meeting. As of such date, Illinova had outstanding 75,681,937 shares
of Common Stock. Shareholders who are present at the Annual Meeting in person
or by proxy will be entitled to one vote for each share of Illinova's Common
Stock which they held of record at the close of business on the Record Date.
When voting for candidates nominated to serve as directors, all shareholders
will be entitled to 10 votes (the number of directors to be elected) for each
of their shares and may cast all of their votes for any one candidate whose
name has been placed in nomination prior to the voting or distribute their
votes among two or more such candidates in such proportions as they may
determine. In voting on other matters presented for consideration at the
Annual Meeting, each shareholder will be entitled to one vote for each share
of Common Stock held of record at the close of business on the Record Date.
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy and entitled to vote at the
Annual Meeting is required for the election of directors.
Annual Report, Proxy and Proxy Statement
Accompanying this Proxy Statement, which includes Consolidated Financial
Statements, is a Notice of Annual Meeting of Shareholders, a form of Proxy
and the Summary Annual Report to Shareholders covering operations of Illinova
for the year 1996. This Proxy Statement and accompanying documents are first
being mailed to shareholders on or about March 3, 1997.
Board of Directors
Information Regarding the Board of Directors
The Board of Directors held eight Board meetings during 1996. All directors
attended at least 75 percent of the aggregate meetings of the Board and
Committees of which they were members during 1996. The Board has three
standing committees: the Audit Committee, the Finance Committee, and the
Compensation and Nominating Committee.
The duties and members of the standing committees are:
Audit Committee
(1) Review with the Chairman, President and Chief Executive Officer and the
independent accountants the scope and adequacy of Illinova's system of
internal controls; (2) review the scope and results of the annual examination
performed by the independent accountants; (3) review the activities of
Illinova's internal auditors; (4) report its findings to the Board and
provide a line of communication between the Board and both the internal
auditors and the independent accountants; and (5) recommend to the Board the
appointment of the independent accountants and approval of the services
performed by the independent accountants, considering their independence with
regard thereto.
The Audit Committee met three times during 1996.
This Committee consists of the following non-employee directors ("Outside
Directors"): Robert M. Powers, Chairman, Richard R. Berry, C. Steven McMillan,
Walter M. Vannoy, and Marilou von Ferstel.
Finance Committee
(1) Review management's capital and operations and maintenance expenditure
budgets, financial forecasts and financing program, and make recommendations
to the Board regarding the approval of such budgets and plans; (2) review
Illinova's banking relationships, short-term borrowing arrangements, dividend
policies, arrangements with the transfer agent and registrar, investment
objectives and the performance of Illinois Power's pension and other trust
funds, evaluate fund managers, and make recommendations to the Board
concerning such matters; (3) review Illinova's risk management programs,
including insurance coverage, and make recommendations to the Board; and
(4) act in an advisory capacity to management, the Board of Directors, and
the Chairman, President and Chief Executive Officer on other financial
matters as they may arise.
The Finance Committee met three times during 1996.
This Committee consists of the following members of the Board: Walter D. Scott,
Chairman, Richard R. Berry, Larry D. Haab, C. Steven McMillan,
Robert M. Powers, and Marilou von Ferstel.
Compensation and Nominating Committee
(1) Review performance and recommend salaries plus other forms of compensation
of elected Illinova officers and the Board of Directors; (2) review Illinova's
benefit plans for elected Illinova officers and make recommendations to the
Board regarding any changes deemed necessary; (3) review with the Chairman,
President and Chief Executive Officer any organizational or other personnel
matters; and (4) recommend to the Board nominees to stand for election as
director to fill vacancies in the Board of Directors as they occur.
The Compensation and Nominating Committee will consider shareholders'
recommendations for nominees for director made pursuant to timely notice in
writing addressed to the Chairman of the Committee at the executive offices
of Illinova, together with a full description of the qualifications and
business and professional experience of the proposed nominees and a statement
of the nominees' willingness to serve. To be timely, the notice shall be
delivered to or mailed and received at the executive offices of Illinova
not less than 90 nor more than 120 days prior to the Annual Meeting.
The Compensation and Nominating Committee met four times during 1996.
This Committee consists of the following Outside Directors: Donald S. Perkins,
Chairman, Robert M. Powers, Walter D. Scott, Ronald L. Thompson, Marilou
von Ferstel, and John D. Zeglis.
Board Compensation
The Outside Directors of Illinova receive a retainer fee of $18,000 per year.
Outside Directors who also chair Board Committees receive an additional
$2,000 per year retainer. Outside Directors receive a grant of 650 shares of
Common Stock on the date of each Annual Shareholders Meeting, representing
payment in lieu of attendance-based fees for all Board and Committee meetings
to be held during the subsequent one-year period. Outside Directors elected
to the Board between Annual Shareholders Meetings are paid $850 for each
Board and Committee meeting attended prior to the first Annual Shareholders
Meeting after their election to the Board.
Illinova had a Retirement Plan for Outside Directors. Under this plan, each
Outside Director who attained age 65 and served on the Board for a period of
60 or more consecutive months was eligible for annual retirement benefits at
the rate of the annual retainer fee in effect when the director retired. In
1996, the Board of Directors adopted a Comprehensive Deferred Stock Plan for
Outside Directors, replacing the Retirement Plan. Each former Outside
Director whose right to receive the retirement benefit had vested continues
to receive such benefits in accordance with the term of the Retirement Plan.
All Outside Directors serving at the time this new plan was adopted were
granted a lump sum amount based on the net present value of these benefits
to them, were they to have retired under the Retirement Plan, based on the
number of years they have served on the Board but not to exceed 10. This
dollar amount was converted into stock units, based on the then market value
of Illinova Common Stock, and placed into an account. The value of these
stock units is to be paid out to the director in cash on termination of
service, based on the then market value of Illinova Common Stock, plus
dividend equivalents, in a lump sum or installments. In addition, each
Outside Director receives an annual award of stock units having a value of
$6,000, to be paid to the Outside Directorin cash on retirement, at once
or in installments as the Director may elect, with the amount of such
payment determined by multiplying the number of stock units in the account
times the then market value of Illinova Common Stock, and adding the dividend
equivalents attributable to such stock units.
Pursuant to Illinova's Deferred Compensation Plan for Certain Directors, the
Outside Directors may elect to defer all or any portion of their fees and
stock grants until termination of their services as directors. Such deferred
amounts are converted into stock units representing shares of Illinova's
Common Stock with the value of each stock unit based on the last reported
sales price of such stock. Additional credits are made to the participating
director's account in dollar amounts equal to the dividends paid on Common
Stock which the director would have received if the director had been the
record owner of the shares represented by stock units, and are converted
into additional stock units. On termination of the participating directors'
services as directors, payment of their deferred fees and stock grants is
made in shares of Common Stock in an amount equal to the aggregate number
of stock units credited to their accounts. Such payment is made in such
number of annual installments as Illinova may determine beginning in the
year following the year of termination.
Election of Directors
Illinova's entire Board of Directors is elected at each Annual Meeting of
Shareholders. Directors hold office until the next Annual Meeting of
Shareholders or until their successors are elected and qualified. At the
Annual Meeting a vote will be taken on a proposal to elect the 10 directors
nominated by Illinova's Board of Directors. The names and certain additional
information concerning each of the director nominees is set forth on the
following pages. The dates shown for service as a director include service
as a director of Illinois Power prior to the May 1994 restructuring in which
Illinois Power became a wholly owned subsidiary of Illinova. If any nominee
should become unable to serve as a director, another nominee may be selected
by the current Board of Directors.
Name of Director Nominee, Age, Year in Which First
Business Experience and Elected a Director
Other Information of Illinova
Richard R. Berry, 65 1988
- ----------
/ / From June 1983 until retirement in February 1990, Mr. Berry was
/ / Executive Vice President and director of Olin Corporation, Stamford,
/ Picture/ Conn., a diversified manufacturer concentrated in chemicals, metals
/ / and aerospace/defense products.
- ----------
Larry D. Haab, 59 1986
- -----------
/ / Chairman, President and Chief Executive Officer of Illinova since
/ / December 1993, and of Illinois Power since June 1991, and an
/ Picture / employee of Illinois Power since 1965. He is a director of First
/ / Decatur Bancshares, Inc.; The First National Bank of Decatur; and
- ----------- Firstech, Incorporated.
C. Steven McMillan, 51 1996
- -----------
/ / Executive Vice President and Director of Sara Lee Corporation,
/ / Chicago, Ill., a global packaged food and consumer products
/ Picture / company, since 1993. He was Senior Vice President-Strategy
/ / Development from 1986 to 1993. He is Chairman of the Board of
- ----------- Electrolux Corporation.
Robert M. Powers, 65 1984
- -----------
/ / From 1980 until retirement in December 1988, Mr. Powers was
/ / President and Chief Executive Officer of A. E. Staley
/ Picture / Manufacturing Company, Decatur, Ill., a processor of grain and
/ / oil seeds. He is a director of A. E. Staley Manufacturing Company.
- -----------
Sheli Z. Rosenberg, 55
- ------------
/ / President and Chief Executive Officer since 1994 and General
/ / Counsel 1980 to 1994 of Equity Group Investments, Inc.,
/ Picture / Chicago, Ill., a privately held business conglomerate holding
/ / controlling interests in 10 publicly traded corporations involved
- ------------ in basic manufacturing, radio stations, retail, insurance, and
real estate. She is a director of American Classic Voyages Company; REVCO D.S.,
Inc.; Quality Food Centers, Inc.; Jacor Communications, Inc.; Anixter
Corporation; Capsure Holdings Corporation; Falcon Building Products; and
Equity Residential Properties Trust.
Walter D. Scott, 65 1990
- -------------
/ / Professor of Management and Senior Austin Fellow, J. L. Kellogg
/ / Graduate School of Management, Northwestern University,
/ Picture / Evanston, Ill., since 1988. He was Chairman of GrandMet USA
/ / from 1984 to 1986 and President and Chief Executive Officer of
- ------------- IDS Financial Services from 1980 to 1984. He is a director
of Chicago Title and Trust Company, Chicago Title Insurance Company, and
Intermatic Incorporated.
Ronald L. Thompson, 47 1991
- -------------
/ / Chairman and Chief Executive Officer of Midwest Stamping
/ / and Manufacturing Co., Bowling Green, Ohio, a manufacturer
/ Picture / of automotive parts, since 1993. He was President and
/ / Chief Executive Officer and a director of The GR Group, Inc.,
- ------------- St. Louis, Mo., from 1980 to 1993. He is a director of McDonnell
Douglas Corporation, Teachers Insurance and Annuity Association, and Ryerson
Tull.
Walter M. Vannoy, 69 1990
- --------------
/ / Chairman until retirement in May 1995 and Chief Executive
/ / Officer from May 1994 until January 1995 of Figgie
/ Picture / International, Inc., Willoughby, Ohio, a diversified
/ / operating company serving consumer, industrial, technical,
- -------------- and service markets world-wide. From 1980 to 1988 he was
President and Chief Operating Officer, Babcock and Wilcox, and Vice Chairman
of McDermott International. He is a director of Figgie International, Inc.
Marilou von Ferstel, 59 1990
- --------------
/ / Executive Vice President and General Manager of Ogilvy
/ / Adams & Rinehart, Inc., a public relations firm in Chicago,
/ Picture / Ill., since June 1990. She was Managing Director and Senior
/ / Vice President of Hill and Knowlton, Chicago, Ill., from 1981
- -------------- to 1990. She is a director of Walgreen Company.
John D. Zeglis, 49 1993
- --------------
/ / Senior Executive Vice President and General Counsel of
/ / AT&T, Basking Ridge, N.J., a diversified communications
/ Picture / company, since 1995. He was Senior Vice President-General
/ / Counsel and Government Affairs from 1989 to 1995. He is a
- -------------- director of the Helmerich & Payne Corporation.
Security Ownership of Management and
Certain Beneficial Owners
The following table shows shares of stock beneficially owned as of January 31,
1997, by each director nominee and the executive officers named in the
Summary Compensation Table. To the best of Illinova's knowledge, no owner
holds more than 5 percent of Illinova Common Stock.
<TABLE>
<C> <C> <C> <C>
Number
of Shares
Name of Class Beneficially Percent
Beneficial Owner of Stock Owned (1) of Class
- ------------------------------------------------------------------------------
Richard R. Berry Common 4,390 (2)
Larry D. Haab Common 10,725 (2)
C. Steven McMillan Common 650 (2)
Robert M. Powers Common 7,900 (2)
Sheli Z. Rosenberg Common 0 (2)
Walter D. Scott Common 4,500 (2)
Ronald L. Thompson Common 4,338 (2)
Walter M. Vannoy Common 4,000 (2)
Marilou von Ferstel Common 4,907 (2)
John D. Zeglis Common 3,154 (2)
Paul L. Lang Common 3,162 (2)
Larry F. Altenbaumer Common 4,644 (2)
John G. Cook Common 1,862 (2)
Wilfred Connell Common 1,630 (2)
</TABLE>
(1) The nature of beneficial ownership for shares shown is sole voting and/or
investment power.
(2) No director or executive officer owns any other equity securities of
Illinova. No director or executive officer owns as much as 1% of the Common
Stock. All directors and executive officers of both Illinova and Illinois
Power Company as a group own 64,658 shares of Common Stock (less than 1%).
(3) This number includes 1105 stock units under the Directors' Deferred
Compensation Plan.
(4) This number includes 664 stock units under the Directors' Deferred
Compensation Plan.
Executive Compensation
The following table sets forth a summary of the compensation of the Chief
Executive Officer and the four other most highly compensated executive
officers of Illinova and Illinois Power Company, its principal subsidiary,
for the years indicated. The compensation shown includes all compensation
paid for service to Illinova and its subsidiaries, including Illinois Power.
<TABLE>
Summary Compensation Table
<C>
Long-Term Compensation
<C> <C>
Annual Compensation Awards
--------------------------------- -----------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
Other Restricted Securities All Other
Bonus Annual Stock Awards Underlying Compensation
Name and Principal Position Year Salary (1) Compensation (2) Options (3)
- ------------------------------------------------------------------------------------------------------------------------------
Larry D. Haab 1996 $ 493,709 $ 69,267 $ 15,973 $ 69,267 22,000 shs. $ 2,615
Chairman, President and 1995 472,250 91,144 19,088 91,144 20,000 shs. 2,550
Chief Executive Officer of 1994 451,375 42,881 15,783 42,881 20,900 shs. 360
Illinova and Illinois Power
Paul L. Lang 1996 $ 233,450 $ 19,747 $ 8,863 $ 19,747 6,500 shs. $ 2,595
Senior Vice President 1995 222,812 23,841 8,265 23,841 6,500 shs. 2,510
of Illinois Power 1994 213,562 20,289 8,672 20,289 6,800 shs. 440
Larry F. Altenbaumer 1996 $ 222,374 $ 19,832 $ 8,459 $ 19,832 7,500 shs. $ 1,976
Chief Financial Officer, 1995 204,937 20,391 7,686 20,391 6,500 shs. 2,378
Treasurer and Controller 1994 196,562 18,674 8,975 18,674 6,800 shs. 400
of Illinova, and Senior
Vice President and Chief
Financial Officer of
Illinois Power
John G. Cook 1996 $ 196,474 $ 16,293 $ 7,409 $ 16,293 6,500 shs. $ 2,575
Senior Vice President 1995 179,069 16,620 6,930 16,620 4,500 shs. 2,530
of Illinois Power 1994 163,708 15,553 7,068 15,553 4,400 shs. 400
Wilfred Connell 1996 $ 185,950 $ 9,832 $ 7,373 $ 9,832 4,500 shs. $ 2,559
Vice President 1995 172,975 16,087 7,230 16,087 3,900 shs. 2,402
of Illinois Power 1994 165,562 15,729 7,705 15,729 4,400 shs. 480
</TABLE>
(1) The amounts shown in this column are the cash award portion of grants
made to these individuals under the Executive Incentive Compensation Plan
("Compensation Plan") for 1996, including amounts deferred under the
Executive Deferred Compensation Plan. See the Compensation Plan description
in footnote (2) below.
(2) This table sets forth stock unit awards for 1996 under the Compensation
Plan. One-half of each year's award under this plan is converted into stock
units representing shares of Illinova Common Stock based on the closing price
of Common Stock on the last trading day of the award year. The other one-half
of the award is cash and is included under Bonus in the Summary Compensation
Table. Stock units awarded in a given year, together with cash representing
the accumulated dividend equivalents on those stock units, become fully vested
after a three-year holding period. Stock units are converted into cash based
on the closing price of Common Stock on the first trading day of the
distribution year. Participants (or beneficiaries of deceased participants)
whose employment is terminated by retirement on or after age 55, disability,
or death receive the present value of all unpaid awards on the date of such
termination. Participants whose employment is terminated for reasons other
than retirement, disability, or death forfeit all unvested awards. In the
event of a termination of employment within two years after a change in control
of Illinova, without good cause or by any participant with good reason, all
awards of the participant become fully vested and payable. As of December 31,
1996, named executive officers were credited with the following total aggregate
number of unvested stock units under the Compensation Plan since its inception,
valued on the basis of the closing proce of Common Stock on December 31, 1996:
Mr. Haab, 7,085 units valued at $214,633; Mr. Lang, 2,550 units valued at
$70,123; Mr. Altenbaumer, 2,353 units valued at $64,718; Mr. Cook, 1,939 units
valued at $53,330; Mr. Connell, 1,695 units valued at $46,600. Although
stock units have been rounded, valuation is based on total stock units,
including partial shares.
(3) The amounts shown in this column are Illinois Power's contributions
under the Incentive Savings Plan (including the market value of shares of
Illinova Common Stock at the time of allocation).
The following tables summarize grants during 1996 of stock options under
Illinova's 1992 Long-Term Incentive Compensation Plan ("LTIC") and awards
outstanding at year end for the individuals named in the Summary Compensation
Table.
<TABLE>
Option Grants In 1996
<C>
Individual Grants
--------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Number of Securities % of Total Options
Underlying Options Granted to Employees Exercise or Base Grant Date
Granted (1) in 1996 Price Per Share (1) Expiration Date Present Value (2)
----------------------------------------------------------------------------------------------------------
Larry D. Haab 22,000 27% $29.75 2/7/2006 $ 125,400
Paul L. Lang 6,500 8% 29.75 2/7/2006 37,050
Larry F. Altenbaumer 7,500 9% 29.75 2/7/2006 42,750
John G. Cook 6,500 8% 29.75 2/7/2006 37,050
Wilfred Connell 4,500 6% 29.75 2/7/2006 26,650
</TABLE>
(1) Each option becomes exercisable on February 7, 1999. In addition to the
specified expiration date, the grant expires on the first anniversary of the
recipient's death and/or the 90th day following retirement, and is not
exercisable in the event a recipient's employment terminates. In the event of
certain change-in-control circumstances, the Compensation and Nominating
Committee may declare the option immediately exercisable. The exercise price
of each option is equal to the fair market value of the Common Stock on the
date of the grant. Recipients shall also receive, on or shortly after
February 7, 1999, a target performance award, determined by calculating the
difference between the return earned by Illinova on its invested capital and
its cost of capital (the "spread"), then comparing this spread to that of a
peer group and reducing or increasing the target award depending on Illinova's
relative performance, but not reducing the payment below zero. The target
award is equal to one-half of the mid-point of compensation for each officer's
salary grade (a market-based number) times a percentage, determined by the
Compensation and Nominating Committee. In 1996 those percentages ranged
between 15 and 35 percent. At the discretion of the Board of Directors, the
foregoing payment may be made in the form of Illinova Common Stock of
equivalent value based on the average New York Stock Exchange price of the
stock during February, 1999, or in cash.
(2) The Grant Date Present Value has been calculated using the Black-Scholes
option pricing model. Disclosure of the Grant Date Present Value, or the
potential realizable value of option grants assuming 5% and 10% annualized
growth rates, is mandated by regulation; however, Illinova does not
necessarily view the Black-Scholes pricing methodology, or any other present
methodology, as a valid or accurate means of valuing stock option grants. The
calculation was based on the following assumptions: (i) As of the grant date,
Illinova's calculated Black-Scholes ratio was .2036. After discounting for
risk of forfeiture at three percent per year over Illinova's three-year
vesting schedule, the ratio is reduced to .1914; (ii) An annual dividend
yield on Illinova Common Stock of 3.84%; (iii) A risk-free interest rate of
5.87%, based on the yield of a zero-coupon government bond maturing at the
end of the option term; and (iv) Stock volatility of 17.34%.
<TABLE>
Aggregated Option and Fiscal Year-End Option Value Table
<C> <C> <C>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year-End Options at Fiscal Year-End
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------------------------------------------------
Larry D. Haab 16,000 shs./82,900 shs. $66,000/$255,963
Paul L. Lang 5,000 shs./25,800 shs. $20,625/$81,613
Larry F. Altenbaumer 5,000 shs./26,800 shs. $20,625/$81,613
John G. Cook 2,500 shs./18,400 shs. $10,313/$50,713
Wilfred Connell 3,000 shs./17,300 shs. $12,375/$54,013
</TABLE>
Pension Benefits
Illinois Power maintains a Retirement Income Plan for Salaried Employees (the
"Retirement Plan") providing pension benefits for all eligible salaried
employees. In addition to the Retirement Plan, Illinois Power also maintains
a nonqualified Supplemental Retirement Income Plan for Salaried Employees (the
"Supplemental Plan") that covers all elected officers eligible to participate
in the Retirement Plan and provides for payments from general funds of
Illinois Power of any monthly retirement income not payable under the
Retirement Plan because of benefit limits imposed by law or because of certain
Retirement Plan rules limiting the amount of credited service accrued by a
participant.
The following table shows the estimated annual pension benefits on a straight
life annuity basis payable upon retirement based on specified annual average
earnings and years of credited service classifications, assuming continuation
of the Retirement Plan and Supplemental Plan and employment until age 65.
This table does not show, but any actual pension benefit payments would be
subject to, the Social Security offset.
<TABLE>
Estimated Annual Benefits (rounded)
------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Annual
Average 15 Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs.
Earnings Service Service Service Service Service
- -----------------------------------------------------------------------------
$ 125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 87,500
150,000 45,000 60,000 75,000 90,000 105,000
175,000 52,500 70,000 87,500 105,000 122,500
200,000 60,000 80,000 100,000 120,000 140,000
250,000 75,000 100,000 125,000 150,000 175,000
300,000 90,000 120,000 150,000 180,000 210,000
350,000 105,000 140,000 175,000 210,000 245,000
400,000 120,000 160,000 200,000 240,000 280,000
450,000 135,000 180,000 225,000 270,000 315,000
500,000 150,000 200,000 250,000 300,000 350,000
550,000 165,000 220,000 275,000 330,000 385,000
600,000 180,000 240,000 300,000 360,000 420,000
650,000 195,000 260,000 325,000 390,000 455,000
</TABLE>
The earnings used in determining pension benefits under the Retirement Plan
are the participants' regular base compensation, as set forth under Salary
in the Summary Compensation Table.
At December 31, 1996, for purposes of both the Retirement Plan and the
Supplemental Plan, Messrs. Haab, Lang, Altenbaumer, Cook and Connell had
completed 31, 10, 24, 21 and 13 years of credited service, respectively.
Employee Retention Agreements
Illinova has entered into Employee Retention Agreements with each of its
executive officers and officers of its subsidiaries. Under each agreement,
the officer would be entitled to receive a lump sum cash payment if his or
her employment were terminated without good cause or voluntarily by the
officer for good reason within two years following a change in control of
Illinova (as defined in the Agreement). The amount of the lump sum payment
would be equal to (1) 36 months' salary at the greater of the officer's
salary rate in effect on the date the change in control occurred or the
salary rate in effect on the date the officer's employment with Illinova
terminated; plus (2) three times the latest bonus earned by the officer
during the three calendar years preceding termination of employment. Under
the agreement, the officer would continue, after any such termination of
employment, to participate in and receive benefits under other benefit plans
of Illinova. Such coverage would continue for 36 months following termination
of employment, or, if earlier, until the officer reached age 65 or was
employed by another employer; provided that, if the officer was 50 years of
age or older at the time of such termination, then coverage under health,
life insurance and similar welfare plans would continue until the officer
became 55 years of age, at which time he or she would be eligible to receive
the benefits extended to the employees of Illinova who elect early retirement.
Compensation and Nominating Committee
Report on Officer Compensation
The six-member Compensation and Nominating Committee of the Board of Directors
(the "Committee") is composed entirely of Outside Directors. The Committee's
role includes a review of the performance of the elected officers and the
establishment of specific officer salaries subject to Board approval. The
Committee establishes performance goals for the officers under the
Compensation Plan, approves payments made pursuant to the Compensation Plan
and recommends grants under the Long-Term Incentive Compensation Plan approved
by the shareholders in 1992. The Committee also reviews other forms of
compensation and benefits making recommendations to the Board on changes
whenever appropriate. The Committee carries out these responsibilities with
assistance from an executive compensation consulting firm and with input from
the Chief Executive Officer and management as it deems appropriate.
Officer Compensation Philosophy
Illinova's compensation philosophy reflects a commitment to compensate
officers competitively with other companies in the electric and gas utility
industry while rewarding executives for achieving levels of operational and
financial excellence consistent with continuous improvement in customer
satisfaction and shareholder value. Illinova's compensation policy is to
provide a total compensation opportunity targeted to all utilities in the
Edison Electric Institute (EEI) database. Eighty-four percent of the companies
in the S & P Utilities Index are also in the EEI database. The S&P Utilities
Index is used to relate Illinova's shareholder value in the following
performance graphs. The S&P index covers the utility indsutry broadly
including electric, gas, and telecommunication utilities. After careful
consideration, the Committe has decided to maintain a separate compensation
peer group limited to electric or combination electric and gas companies
for reference purposes. As an additional point of reference, Illinova also
looks at the pay practices of general industry (non-utility) companies. While
such pay practices have not traditionally been a major driver of Illinova's
compensation philosophy, this reference point may be regarded more closely in
the future as the utility indsutry migrates toward deregulation and
diversification.
The compensation program for officers consists of base salary, annual
incentive and long-term incentive components. The combination of these three
elements balances short- and long-term business performance goals and aligns
officer financial rewards with those of Illinova's shareholders. The
compensation program is structured so that, depending on the salary level,
between 25 and 45 percent of an officer's total compensation target is
composed of incentive compensation.
Base Salary Plan
The Committee determines base salary ranges for executive officers based on
competitive pay practices of similar utilities. Officer salaries correspond
to approximately the average of the companies in the compensation peer group.
Individual increases are based on several factors, including the officer's
performance during the year, the relationship of the officer's salary to the
market salary level for the position and competitive industry salary increase
practices.
Annual Incentive Compensation Plan
Annual incentive awards are earned based on the achievement of specific annual
financial and operational goals by the Illinois Power officer group as a whole
and consideration of the officer's individual contribution. If payment is
earned under this Plan, one-half of the bonus is payable in cash during the
year following the award year, and one-half is credited to the participant in
the form of Common Stock units, the number of which is determined by dividing
half of the earned bonus amount by the closing price of the Common Stock on
the last trading day of the award year. The officer's interest in the stock
units vests at the end of the three-year period which begins the year after
the award year. The officer receives this award in cash equal to (1) the
closing stock price on the first trading day of the distribution year times
the number of units held plus (2) dividend equivalents that would have been
received if the stock had actually been issued.
For Illinois Power officers, 1996 awards under the Compensation Plan are based
on achievement in the performance areas: earnings per share, customer
satisfaction, safety and employee teamwork, cost management and shareholder
value added. Up to 25 percent of the awarded amount is based on an assessment
of the individual officer's performance during the year.
Awards shown under Bonus in the Summary Compensation Table for performance
during 1996 were based on the following results. Earnings per share, customer
satisfaction and shareholder value added were at or better than the threshold
level for the award. Safety performance and cost management performance were
not at threshold for the award.
For the unregulated subsidiaries, Illinova Generating and Illinova Energy
Partners, 1996 officer awards were based on achievement of specific marketing
and earnings objectives. Up to 50 percent of the awarded amount is based on
an assessment of the individual officer's performance during the year.
Long-Term Incentive Compensation Plan
Awards under the LTIC Plan are based on corporate performance as well as
individual officers' contribution to corporate performance subject to the
review of this Committee. The Committee may grant awards in the form of stock
options, stock appreciation rights, dividend equivalents, restricted stock
grants or performance-based cash awards. In 1996, it was determined that
awards under the LTIC plan be delivered in two components. One-half of each
officer's LTIC plan award is delivered in the form of stock options granted
at fair market value. The stock options granted to the officers for 1996
represent an award based on Illinova and individual performance as evaluated
by the Chairman and reviewed by the Committee. The other half of the LTIC
plan award is distributed to officers in cash based upon Illinova's Share-
holder Value-Added (SVA) performance relative to a peer group of other
utility companies, as measured in overlapping three-year periods. Since 1996
represented the first year of SVA plan's first measurement cycle, no awards
are due to be paid out under the plan until 1999.
CEO Compensation
Larry Haab became Chairman, President, and Chief Executive Officer ("CEO") of
Illinois Power on June 12, 1991, and Chairman, President and Chief Executive
Officer of Illinova in December 1993. Illinova based Mr. Haab's 1996
compensation on the policies and plans described above.
The Committee invokes the active participation of all non-management directors
in reviewing Mr. Haab's performance before it makes recommendations regarding
his compensation. The Committee is responsible for administering the processes
for completing this review. The process starts early in the year when the
Board of Directors works with Mr. Haab to establish his personal goals and
short- and long-term strategic goals for Illinova. At the conclusion of the
year Mr. Haab reviews his performance with the non-management directors. The
Committee oversees this review and recommends to the Board appropriate
adjustments to compensation. In setting the CEO's salary for 1996, the
Committee, with the participation of all Outside Directors, determined that
important goals were achieved and the results for Illinova for the year were
strong. Mr. Haab's vision of the industry's evolution has led, and is
continuing to lead, to appropriate redeployment of Illinova resources. The
Committee concluded that in 1996 Mr. Haab's performance continued to advance
Illinova toward the accomplishment of its strategic objectives.
The 1996 Annual Incentive Compensation Plan award for the Chief Executive
Officer was calculated consistent with the determination of awards for all
other Illinois Power officers. Under the terms of the plan, one-half of the
award was paid in cash and one-half was converted to 2,519 stock units which
vest over a three-year period as described above.
The 22,000 option shares granted to the CEO reflect the Committee's
recognition of his work in directing Illinova towards its long-term objectives
of outstanding customer satisfaction and sustained growth in shareholder
return.
Compensation and Nominating Committee
Donald S. Perkins, Chairman
Robert M. Powers
Walter D. Scott
Ronald L. Thompson
Marilou von Ferstel
John D. Zeglis
Stock Performance Graphs
The following performance graphs compare the cumulative total shareholder
return on Illinova's Common Stock to the cumulative total return on the S&P
500 Index, S&P MidCap 400 Index and S&P Utilities Index from (i) December 31,
1991, through December 31, 1996, and (ii) December 31, 1993, through December
31, 1996.
<TABLE>
Comparison of Five-Year Cumulative Total Return
Among Illinova, S&P 500, S&P Midcap 400, and S&P Utilities
<C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996
Illinova 100 98 101 104 148 141
S&P 500 100 108 118 120 165 203
S&P Midcap 400 100 112 128 123 161 192
S&P Utilities 100 108 124 114 161 165
</TABLE>
Assumes $100 invested on December 31, 1991, in Illinova Common Stock, S&P 500
Index, S&P MidCap 400 Index, and S&P Utilities Index.
<TABLE>
Comparison of Three-Year Cumulative Total Return
Among Illinova, S&P 500, S&P Midcap 400, and S&P Utilities
<C> <C> <C> <C> <C>
1993 1994 1995 1996
Illinova 100 103 147 140
S&P 500 100 101 139 171
S&P Midcap 400 100 96 126 151
S&P Utilities 100 92 130 134
</TABLE>
Assumes $100 invested on December 31, 1993, in Illinova Common Stock, S&P 500
Index, S&P MidCap 400 Index, and S&P Utilities Index.
Independent Auditors
The Board of Directors of Illinova has selected Price Waterhouse LLP as
independent auditors for Illinova for 1997. A representative of that firm will
be present at the Annual Meeting and available to make a statement and to
respond to questions.
Other Matters
Illinova's 1996 Summary Annual Report to Shareholders was mailed to
shareholders commencing on March 3, 1997. Copies of Illinova's Annual Report
on Form 10-K will be available to shareholders, after its filing with the
Securities and Exchange Commission on or before March 31, 1997. Requests
should be addressed to Investor Relations, G-21, Illinova Corporation, 500
South 27th Street, Decatur, Illinois 62525-1805.
Any proposal by a shareholder to be presented at the next Annual Meeting must
be received at Illinova's executive offices not later than November 3, 1997.
Other Business
Management does not know of any matter which will be presented for
consideration at the Annual Meeting other than the matters described in the
accompanying Notice of Annual Meeting.
By Order of the Board of Directors,
Leah Manning Stetzner,
General Counsel and Corporate Secretary
Decatur, Illinois
March 3, 1997
Appendix: 1996 Annual Report to Shareholders
Table of Contents
Management's Discussion and Analysis . . . . . . . . . . . . . . . . . . A-2
Responsibility for Information . . . . . . . . . . . . . . . . . . . . . A-10
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . A-10
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . A-11
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . A-12
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . A-13
Consolidated Statements of Retained Earnings . . . . . . . . . . . . . . A-13
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . A-14
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . A-32
Selected Illinois Power Company Statistics . . . . . . . . . . . . . . . A-33
Management's Discussion and Analysis
In this report, we refer to the Consolidated Financial Statements, related
Notes to Consolidated Financial Statements, Selected Consolidated Financial
Data and Selected Illinois Power Company Statistics for information concerning
consolidated financial position and results of operations. A discussion of the
factors having significant impact upon consolidated financial position and
results of operations since January 1, 1994, is below.
Illinova Subsidiaries
The Consolidated Financial Statements include the accounts of Illinova
Corporation (Illinova), a holding company, and its wholly owned subsidiaries:
Illinois Power Company (IP), a combination electric and gas utility; Illinova
Generating Company (IGC), which invests in energy-related projects throughout
the world; Illinova Power Marketing, Inc. (IPMI), which brokers and markets
electric power and natural gas in the United States; Illinova Energy Partners,
Inc. (IEPI), which develops and markets energy-related services to the
unregulated energy market throughout the United States, Canada, and through a
distributor in the United Kingdom; and Illinova Insurance Company (IIC), whose
purpose is to ensure the risks of the subsidiaries of Illinova and risks
related to or associated with their business perspectives.
IEPI was formed in May 1996. It has its headquarters in Oak Brook, Illinois,
with offices in several Western states and in the St. Louis, Missouri, area.
In August 1996, IIC was licensed by the State of Vermont as a captive
insurance company.
On February 12, 1997, the Illinova Board of Directors approved a merger of
IEPI and IPMI. In the merger, IPMI will be dissolved, and IEPI will assume
responsibility for the business functions previously handled by IPMI.
See "Note 2 - Illinova Subsidiaries" of the "Notes to Consolidated Financial
Statements" for additional information. IP's consolidated financial position
and results of operations are currently the principal factors affecting
Illinova's consolidated financial position and results of operations.
Open Access and Wheeling
On March 29, 1995, the Federal Energy Regulatory Commission (FERC) issued a
Notice of Proposed Rulemaking (NOPR) initiating the process of mandating
non-discriminatory open access to public utility transmission services at
cost-based rates. Transmission of electricity for a reseller or redistributor
of energy is called wholesale wheeling. Transmission of electricity for end-
use customers is known as retail wheeling.
On April 24, 1996, FERC issued Orders 888 and 889 which established the Final
Rule resulting from the NOPR. The Orders became effective July 9, 1996. The
Rule requires that all public utilities under FERC jurisdiction that own
transmission facilities file Open Access Transmission Tariffs (OATTs) in
compliance with Pro Forma Tariffs attached to the Order. FERC also requires
that all wholesale sales made by a utility provide for transmission of the
power under the terms and conditions of the OATTs. Public utilities serving
customers at retail are not required, at this time, to use the OATTs to serve
retail customers. The Orders do not require that retail customers be given
access to alternate energy suppliers or be found eligible as customers under
the OATTs. IP made a compliance filing as required on July 9, 1996, which has
been accepted by FERC.
While the move to open-access transmission service will likely increase the
level of competition in the wholesale energy market, it is not expected to
have a significant financial impact.
Competition
On November 21, 1996, IP and its partners in the Illinois Coalition for
Responsible Electricity Choice announced a legislative proposal which would
begin transformation of the Illinois electric industry from a highly regulated
monopoly to a competitive, customer-choice environment. The proposal, which
was introduced in the Illinois House of Representatives on January 29, 1997,
would allow for a managed transition to direct access for all consumers by
the year 2005. The plan would balance the need to ensure the financial
stability of current utility providers with the timing of customer choice.
Other parties have introduced plans that would not provide for this balance,
and would allow full competition by as early as 1998.
The Joint Committee on Electric Utility Regulatory Reform of the Illinois
General Assembly deliberated the issue of regulatory reform for 18 months.
Their report, issued December 4, 1996, stated that the Committee was unable
to reach consensus on a legislative proposal. It is reasonable to assume that
significant change will be made to the state laws governing IP's electric
operations, but impossible to predict what these changes will be.
IP received approval from the Illinois Commerce Commission (ICC) on March 13,
1996, and from FERC on April 24, 1996, to conduct an open access experiment
beginning in 1996 and ending on December 31, 1999.
The experiment allows certain industrial customers to purchase electricity
and related services from other sources. On April 25, 1996, the first of the
21 eligible customers began buying part of their electricity from a supplier
other than IP. Currently, 16 customers are participating in the experiment.
The experiment has demonstrated some of the immediate advantages competition
brings to customers, such as lower prices and innovative service offerings.
It has also provided evidence of some of the challenges the industry faces as
it moves toward customer choice. Challenges include dispatching small
amounts of electricity such as one or two megawatt hours (MWHs), and the
absence of requisite technology to dispatch fractional MWHs.
In 1996, the experiment cost IP approximately $3.2 million in lost revenue net
of avoided fuel cost and variable operating expenses. This loss was partially
offset by selling the surplus energy and capacity on the open market and by
$.9 million in transmission service charges.
The issue of competition is one that raises both risks and opportunities. At
this time, the ultimate effect of competition on Illinova's consolidated
financial position and results of operations is uncertain. See "Note 1 -
Summary of Significant Accounting Policies" of the "Notes to Consolidated
Financial Statements" for additional discussion of the effects of regulation.
Regulatory Matters
On September 6, 1996, a leaking seal in one of two reactor recirculation pumps
caused IP to shut down Clinton Power Station (Clinton). While a plant shutdown
to correct this problem would not be a major concern in itself, the event was
significant because of broader issues which surfaced during subsequent
internal investigations, involving operating philosophies, procedure
compliance issues, degree of management oversight, and tolerance of equipment
problems.
This event prompted two special team inspections by the Nuclear Regulatory
Commission (NRC). The first inspection covered the events associated with the
leaking pump seal and the shutdown, while the second focused more broadly on
operations at Clinton. In a public meeting held on October 4, 1996, the NRC
discussed its findings, expressing concern over both the handling of the pump
seal problem and general plant operating philosophies. It also commended
subsequent actions taken by IP to address the issues raised.
IP decided not to restart Clinton prior to the start of the scheduled
refueling outage on October 13, 1996. An action plan was developed to address
the operational weaknesses identified by IP. Work began to correct the items
in the action plan while the refueling outage progressed.
On November 19, 1996, the NRC issued a formal report of its two teams'
inspections. IP agreed with the majority of the report's findings. The concerns
of the NRC that had not already been addressed were incorporated into IP's
action plan. On January 29, 1997, the NRC informed IP that it viewed Clinton
as having a declining safety performance trend. The NRC did not, however,
place Clinton on its "watch list." The NRC acknowledged that IP has allocated
additional resources to correct deficiencies and noted recent conservative
decisions made by management that have impacted the length of the refueling
outage schedule. The NRC held an enforcement conference with IP on February 4,
1997, to discuss the event and other issues identified during assessments and
inspections. The plant will remain shut down until IP management is satisfied
that all safety concerns have been addressed.
The operation and maintenance expense of the outage, including the scheduled
refueling outage, is estimated at $30 million. The refueling outage was
budgeted at $18 million.
Enhanced Retirement
In December 1994, IP announced plans for voluntary enhanced retirement and
severance programs. During the fourth quarter of 1995, 727 employees accepted
enhanced retirement or severance under these programs. The combined enhanced
retirement and severance programs generated a pretax charge of $38 million
against fourth quarter 1995 earnings.
Consolidated Results of Operations
Overview
Earnings applicable to common stock were $190 million for 1996, $148 million
for 1995 and $158 million for 1994. Earnings per common share were $ 2.51 for
1996, $1.96 for 1995 ($2.26 before the one-time charge of $38 million for
enhanced retirement and severance), and $2.09 for 1994. The increase in 1996
earnings per share over 1995 was due primarily to the one-time charge in 1995
for the enhanced retirement and severance programs, lower operations expense
due to the employment decrease, and lower financing costs. The 1995 earnings
per share include $(.30) net-of-tax for the enhanced retirement and severance
program and $(.05) for the carrying amount under consideration paid for IP
preferred stock redeemed in December 1995. The 1995 earnings as compared to
1994 also reflect increased electric sales due to unseasonably warm summer
weather, partially offset by increased operating and maintenance expenses due
to the Clinton refueling and maintenance outage. The 1994 earnings per share
include $.08 for the carrying amount over consideration paid for IP preferred
stock redeemed in December 1994 and reflect an increase in gas rates as a
result of IP's 1994 gas rate order. The 1994 earnings also reflect increased
electric sales, lower operating and maintenance expenses due to ongoing cost
management efforts, no Clinton refueling and maintenance outage, and lower
financing costs as compared to 1993.
The ICC and FERC determine IP's rates for electric service at the retail and
wholesale levels, respectively, and the ICC determines IP's rates for gas
service. These rates are designed to recover the cost of service and allow
shareholders the opportunity to earn a fair rate of return. Future electric
and natural gas sales, including interchange sales, will continue to be
affected by an increasingly competitive marketplace, changes in the regulatory
environment, increased transmission access, weather conditions, competing
fuel sources, interchange market conditions, plant availability, fuel cost
recoveries, customer conservation efforts and the overall economy.
<TABLE>
Operating Revenues
(Millions of dollars)
<C> <C>
1996 $1,688.7
1995 $1,641.4
1994 $1,589.5
1993 $1,581.2
1992 $1,479.5
</TABLE>
Illinois Power - Results of Operations
Electric Operations For the years 1994 through 1996, electric revenues
including interchange increased 4.1% and the gross electric margin increased
6.1% as follows:
<TABLE>
<C> <C> <C> <C>
- ---------------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- ---------------------------------------------------------------------
Electric revenues $ 1,202.9 $ 1,252.6 $ 1,177.5
Interchange revenues 137.6 116.3 110.0
Fuel cost & power purchased (313.3) (333.4) (319.2)
- ----------------------------------------------------------------------
Electric margin $ 1,027.2 $ 1,035.5 $ 968.3
</TABLE>
The components of annual changes in electric revenues were:
<TABLE>
<C> <C> <C> <C>
- ----------------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- ----------------------------------------------------------------------
Price $ (7.2) $ 13.3 $ (23.2)
Volume and other 6.4 42.7 44.1
Fuel cost recoveries (48.9) 19.1 21.0
- ----------------------------------------------------------------------
Revenue increase (decrease) $ (49.7) $ 75.1 $ 41.9
</TABLE>
1996 Electric revenues excluding interchange sales decreased 4.0%, primarily
due to reduction in revenues under the Uniform Fuel Adjustment Clause (UFAC).
Volume changes by customer class were insignificant, as kilowatt-hour sales
<TABLE>
Major Sources of Electric Energy
(Millions of megawatt-hours)
<C> <C> <C> <C>
1996 1995 1994
Fossil 16.3 14.5 13.2
Nuclear 4.6 5.3 6.4
Purchases 3.4 3.2 3.1
</TABLE>
to ultimate consumers (excluding interchange sales and wheeling) decreased .3%.
Interchange revenues increased 18.3% as a result of higher plant availability
in the first half of the year.
1995 The 6.4% increase in electric revenues was primarily due to a 1.9%
increase in kilowatt-hour sales to ultimate consumers (excluding interchange
sales and wheeling). Volume increases resulted from higher residential sales
(4.8%) and higher commercial sales (8.2%) due to an improving economy and
warmer summer temperatures compared to 1994. Industrial sales remained
essentially unchanged from 1994. Interchange revenues increased $6.3 million
(5.8%) as a result of increased sales opportunities.
1994 The 3.7% increase in electric revenues was primarily due to a 6.3%
increase in kilowatt-hour sales to ultimate consumers (excluding interchange
sales and wheeling). Volume increases resulted from higher commercial sales
(8.3%) and higher industrial sales (7.0%) due to an improving economy.
Residential sales remained essentially unchanged from 1993 primarily due to
milder temperatures in 1994 as compared to 1993. Interchange sales decreased
19.6% from 1993 levels primarily due to unusually large sales opportunities
in 1993.
The cost of meeting IP's system requirements was reflected in fuel costs for
electric plants and power purchased. Changes in these costs are detailed
below:
<TABLE>
<C> <C> <C> <C>
- ----------------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
Fuel for electric plants
Volume and other $ 15.4 $ 9.8 $ 13.8
Price (12.0) (35.5) (14.3)
Emission allowances .8 18.5 -
Fuel cost recoveries (30.0) 14.5 32.0
- -----------------------------------------------------------------------
(25.8) 7.3 31.5
Power purchased 5.7 6.9 (25.9)
- -----------------------------------------------------------------------
Total increase (decrease) $ (20.1) $ 14.2 $ 5.6
- -----------------------------------------------------------------------
Weighted average system
generating fuel cost ($/MWH) $ 11.01 $ 11.41 $ 12.72
- ------------------------------------------------------------------------
</TABLE>
System load requirements, generating unit availability, fuel prices, purchased
power prices, resale of energy to other utilities, emission allowance
purchases and fuel cost recovery through UFAC caused changes in these costs.
Changes in factors affecting the cost of fuel for electric generation are
below:
<TABLE>
<C> <C> <C> <C>
- -----------------------------------------------------
1996 1995 1994
- -----------------------------------------------------
Increase in generation 5.4% .7% 8.2%
Generation mix
Coal and other 78% 73% 67%
Nuclear 22% 27% 33%
- -----------------------------------------------------
</TABLE>
1996 The cost of fuel decreased 9.4% and electric generation increased 5.4%.
The decrease in fuel cost was primarily attributable to the effects of the
UFAC, as well as a favorable price variance. These factors were partially
offset by an increase in fuel cost due to the increase in generation. Power
purchased increased $5.7 million primarily due to the extended Clinton outage.
Clinton's equivalent availability and generation were lower than in 1995 due
to that outage.
<TABLE>
Fuel Cost Per Million Btu
(Percent of generation)
<C> <C> <C>
Coal $1.28 76%
Nuclear $ .81 22%
Other $1.68 2%
</TABLE>
1995 The cost of fuel increased 2.8% and electric generation increased .7%.
The increase in fuel cost was attributable to the effects of the UFAC, the
increase in higher-cost fossil generation and the cost of emission allowances.
Clinton's equivalent availability and generation were lower in 1995 as
compared to 1994 due to the scheduled refueling and maintenance outage.
Clinton returned to service April 29, 1995, after completing its fifth
refueling and maintenance outage, which began March 12, 1995. Power purchased
increased $6.9 million.
1994 The cost of fuel increased 13.4% and electric generation increased 8.2%.
The increase in fuel cost was attributable to the effects of the UFAC,
partially offset by a decrease in fossil generation and an increase in lower-
cost nuclear generation. Clinton's equivalent availability and generation were
higher in 1994 as compared to 1993 due to no refueling and maintenance outage.
Power purchased for the period decreased $25.9 million. Unusually large
interchange sales opportunities during 1993, which did not recur in 1994,
were the primary cause of the decrease in purchased power.
Gas Operations For the years 1994 through 1996, gas revenues including
transportation increased 15.3%, while the gross margin on gas revenues
increased 12.4% as follows:
<TABLE>
- --------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars) 1996 1995 1994
- --------------------------------------------------------
Gas revenues $ 341.4 $ 264.5 $ 293.2
Gas cost (202.6) (138.8) (172.4)
Transportation revenues 6.8 8.0 8.8
- ---------------------------------------------------------
Gas margin $ 145.6 $ 133.7 $ 129.6
- ---------------------------------------------------------
(Millions of therms)
Therms sold 703 588 584
Therms transported 251 273 262
- ----------------------------------------------------------
Total consumption 954 861 846
- ----------------------------------------------------------
</TABLE>
Changes in the cost of gas purchased for resale were:
<TABLE>
- ------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars) 1996 1995 1994
Gas purchased for resale
Cost (excluding take-or-pay) $ 48.6 $ (43.1) $ (6.4)
Take-or-pay costs .4 (.4) 2.8
Volume 8.5 25.3 (13.6)
Gas cost recoveries 6.3 (15.4) 2.3
- --------------------------------------------------------------------------
Total increase (decrease) $ 63.8 $ (33.6) $ (14.9)
- --------------------------------------------------------------------------
Average cost per therm delivered 26.7 cents 20.1 cents 26.1 cents
- ---------------------------------------------------------------------------
</TABLE>
The 1996 increase in gas costs was primarily due to higher prices from
suppliers and the effects of the Uniform Gas Adjustment Clause (UGAC). The
1995 decrease in the cost of gas purchased was due to lower gas prices caused
by unusually warm winter weather nationwide. The 1994 decrease in the cost of
gas purchased was primarily due to lower gas prices, the expanded use of
additional gas storage and a decrease in therms purchased. Also contributing
to the higher gas margins in 1995 and 1994 was the 6.1% increase in gas base
rates approved by the ICC in April 1994.
Other Expenses A comparison of significant increases (decreases) in other
operating expenses, maintenance and depreciation for the last three years is
presented in the following table:
<TABLE>
- ----------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars) 1996 1995 1994
Other operating expenses $ (9.8) $ (.3) $ (9.2)
Maintenance (.3) 10.4 (11.2)
Depreciation and amortization 3.5 7.2 6.4
- -----------------------------------------------------------
</TABLE>
The decrease in operating expenses for 1996 is due primarily to the savings
from the enhanced retirement and severance program, partially offset by the
costs of the extended Clinton outage and increased amortization of
Manufactured Gas Plant (MGP) site expenses. The ICC approved tariff riders in
March 1996 that resulted in the current recognition of MGP site remediation
costs in operating expenses. The 1996 increase amounted to $5.5 million. This
increase is offset by increased revenues collected under the riders.
The increase in maintenance expense for 1995 is primarily due to the refueling
and maintenance outage at Clinton. The decrease in operating and maintenance
expenses for 1994 is due to re-engineering efforts, improved operating
efficiencies at IP's fossil plants and at Clinton, and no refueling and
maintenance outage at Clinton. The increases in depreciation for each of the
three years were due to increases in utility plant balances. The 1994 increase
in depreciation expense is partially offset by the decrease in deferred
Clinton costs as a result of a September 1993 write-off of disallowed Clinton
post-construction costs.
<TABLE>
Operating and Maintenance Expenses
(Millions of Dollars)
<C> <C>
1996 $349.6
1995 $359.7
1994 $349.6
1993 $370.0
1992 $373.4
</TABLE>
Other Income and Deductions The 1996 increase in Miscellaneous-net
deductions was due primarily to increased losses for the subsidiary companies
other than IP, partially offset by an increase in the credit for allocated
income taxes. The 1995 change in Miscellaneous-net deductions was negligible.
The 1994 increase in deductions was primarily due to the change in allocated
taxes.
Interest Charges Total interest charges, including Allowance for Funds
Used During Construction (AFUDC) and preferred dividend requirements,
decreased $16.9 million in 1996, increased $2.4 million in 1995, and decreased
$23.2 million in 1994. The 1996 decrease was due to lower short-term interest
rates and the impact of refinancing efforts and capitalization reduction
during 1996. The 1995 increase was due to increased short-term borrowings at
higher interest rates. The 1994 decrease was primarily due to refinancing
with lower cost debt and the retirement of debt in 1994 and 1993.
Inflation Inflation, as measured by the Consumer Price Index, was 3.3%,
2.5% and 2.5% in 1996, 1995 and 1994, respectively. IP recovers historical
rather than current plant costs in rates.
Liquidity and Capital Resources
Soyland Power Cooperative Negotiations
IP and Soyland Power Cooperative (Soyland) have entered into an agreement to
transfer Soyland's 13.2% ownership of Clinton to IP, contingent on approval
by the NRC. The NRC is expected to act on IP's request during the first
quarter of 1997.
IP and Soyland have renegotiated the existing Power Coordination Agreement.
This agreement is expected to result in a reduction of rates for Soyland while
IP will be assured a long-term sales agreement for 10 to 20 years. IP is
expected to file a request for approval of this agreement with FERC by the
end of February 1997.
1994 Gas Rate Order
On April 6, 1994, the ICC approved an increase of $18.9 million, or 6.1%, in
IP's gas base rates. For customers, the increase is partially offset by
savings from lower gas costs resulting from the expansion of the Hillsboro
gas storage field. The approved authorized rate of return on rate base is
9.29%, with a rate of return on common equity of 11.24%. Concurrent with the
gas rate increase, IP's gas utility plant composite depreciation rate
decreased to 3.4%.
Dividends
On December 11, 1996, Illinova increased the quarterly common stock dividend
by 11%. The $.31 per share dividend was payable February 1, 1997 to
stockholders of record as of January 10, 1997. On December 13, 1995, Illinova
increased the quarterly common stock dividend 12%, declaring the common stock
dividend for the first quarter of 1996 at $.28 per share. On October 12, 1994,
Illinova increased the quarterly common stock dividend 25%, declaring the
common stock dividend for the first quarter of 1995 at $.25 per share.
Capital Resources and Requirements
Illinova and IP need cash for operating expenses, interest and dividend
payments, debt and certain IP preferred stock retirements and construction
programs. To meet these needs, Illinova and IP have used internally generated
funds and external financings, including the issuance of IP preferred stock,
debt and revolving lines of credit. The timing and amount of external
financings depend primarily on economic and financial market conditions, cash
needs and capitalization ratio objectives.
Cash flows from operations during 1996 provided sufficient working capital to
meet ongoing operating requirements, to service existing common and IP
preferred stock dividends and debt requirements, and to meet all of IP's
construction requirements. Additionally, Illinova expects that future cash
flows will enable it to meet future operating requirements and continue to
service IP's existing debt, IP's preferred and Illinova's common stock
dividends, IP's sinking fund requirements and all of IP's anticipated
construction requirements.
To a significant degree, the availability and cost of external financing
depend on the financial health of the company seeking those funds. Security
ratings are an indication of a company's financial position and may affect
the cost of securities, as well as the willingness of investors to invest in
these securities. The current ratings of IP's securities by three principal
securities rating agencies are as follows:
<TABLE>
- -------------------------------------------------------------------------
<C> <C> <C> <C>
Standard Duff &
Moody's & Poor's Phelps
- -------------------------------------------------------------------------
IP first/new mortgage bonds Baa1 BBB BBB+
IP preferred stock baa2 BBB- BBB-
IP commercial paper P-2 A-2 D-2
- -------------------------------------------------------------------------
</TABLE>
Under current market conditions, these ratings would afford IP the ability to
issue additional securities through external financing. Illinova and IP have
adequate short-term and intermediate-term bank borrowing capacity.
Based on its 1993 revised standards for review of utility business and
financial risks, Standard & Poor's (S&P) placed IP, along with approximately
one-third of the industry, in a "somewhat below average" category. In April
1994, S&P lowered IP's mortgage bond rating to BBB from BBB+. In August 1995,
S&P revised its ratings outlook from stable to positive. In February 1996,
Moody's also revised its ratings outlook from stable to positive.
Moody's upgraded IP's securities on July 1, 1996. The rating for mortgage
bonds was raised from Baa2 to Baa1, while preferred stock ratings went from
baa3 to baa2. In March 1996, the Duff & Phelps credit rating company
established credit ratings for IP's fixed income securities, as shown on the
preceding page. The agency has indicated that it expects IP's ratings to
remain stable, reflecting a modestly strengthening financial profile
characterized by good cash flow and an average business risk profile.
For the years 1996, 1995 and 1994, changes in long-term debt and IP preferred
stock outstanding, including normal maturities and elective redemptions, were
as follows:
<TABLE>
- --------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars) 1996 1995 1994
- ---------------------------------------------------------
Bonds $ (132) $ (5) $ (10)
Other long-term debt (22) - (100)
Preferred stock 71 (135) 6
- ---------------------------------------------------------
Total decrease $ (83) $ (140) $ (104)
- ---------------------------------------------------------
</TABLE>
The amounts shown in the preceding table for debt retirements do not include
all mortgage sinking fund requirements. IP has generally met these
requirements by pledging property additions as permitted under IP's 1943
Mortgage and Deed of Trust. For additional information, see "Note 9 - Long-
Term Debt of Subsidiary" and "Note 10 - Preferred Stock of Subsidiary" of the
"Notes to Consolidated Financial Statements."
During 1996, IP redeemed $2.2 million of Adjustable Rate Series A serial
preferred stock, $20.5 million (all of the remaining) Adjustable Rate Series
B serial preferred stock and $6.7 million of 7.75% serial preferred stock.
During the year, IP also retired $62.9 million of 8.75% First Mortgage Bonds
due 2021, $6.0 million of 8% New Mortgage Bonds due 2023 and $23 million of
7.5% New Mortgage Bonds due 2025. The $40 million of 5.85% First Mortgage
Bonds matured and were retired. In addition, $21.5 million of medium-term notes
matured and were retired.
In February 1995, IP redeemed $12 million of 8.00% mandatorily redeemable
serial preferred stock. In May 1995, IP redeemed the remaining $24 million of
8.00% mandatorily redeemable serial preferred stock. In March 1995, IP redeemed
$.2 million of 7.56% serial preferred stock and $3 million of 8.24% serial
preferred stock. In August 1995, IP purchased $5 million of 8.75% First
Mortgage Bonds. In December 1995, IP redeemed $34.7 million of 8.00% serial
preferred stock, $33.6 million of 7.56% serial preferred stock and $27
million of 8.24% serial preferred stock.
In February 1994, IP redeemed $12 million of 8.00% mandatorily redeemable
serial preferred stock and issued $35.6 million of First Mortgage Bonds, 5.7%
Series due 2024 (Pollution Control Series K). In May 1994, IP retired $35.6
million of First Mortgage Bonds, 11 5/8% Series due 2014 (Pollution Control
Series D) with the proceeds of the debt issuance. In August 1994, IP retired
$100 million of 8 1/2% debt securities.
Illinois Power Financing I (IPFI) is a statutory business trust in which IP
serves as sponsor. IPFI issued $100 million of trust originated preferred
securities (TOPrS) at 8% (4.8% after-tax rate) in January 1996. The TOPrS
were issued by IPFI, which invested the proceeds in an equivalent amount of
IP subordinated debentures due in 2045. The proceeds were used by IP to repay
short-term indebtedness on varying dates on or before March 1, 1996. IP
incurred the indebtedness in December 1995 to redeem $95.3 million (principal
value) of higher-cost outstanding preferred stock of IP.
Illinois Power Capital, L.P. (IP Capital) is a limited partnership in which
IP serves as a general partner. IP Capital issued $97 million of tax-
advantaged monthly income preferred securities (MIPS) at 9.45% (5.67% after-
tax rate) in October 1994. The proceeds were loaned to IP and were used to
redeem $97 million (principal value) of higher-cost outstanding preferred
stock of IP.
In December 1994, IP issued $84.1 million of First Mortgage Bonds, 7.4% Series
due 2024 (Pollution Control Series L). In March 1995, the proceeds of the debt
issuance were used to retire $84.1 million of First Mortgage Bonds, 103/4%
Series due 2015 (Pollution Control Series E).
In 1992, IP executed a new general obligation mortgage (New Mortgage) to
replace, over time, IP's 1943 Mortgage and Deed of Trust (First Mortgage).
Both mortgages are secured by liens on substantially all of IP's properties.
A corresponding issue of First Mortgage bonds, under the First Mortgage,
secures any bonds issued under the New Mortgage. IP anticipates that during
1997 the 1943 mortgage will be amended to be consistent with the 1992 mortgage.
At December 31, 1996, based on the most restrictive earnings test contained
in the First Mortgage, IP could issue approximately $1.3 billion of additional
First Mortgage bonds for other than refunding purposes. Also at December 31,
1996, the unused portion of Illinova and IP total bank lines of credit was
$427 million. The amount of available unsecured borrowing capacity totaled
$222 million at December 31, 1996.
On February 12, 1997, the IP Board of Directors approved a change to the IP
Articles of Incorporation to remove the limitation on the amount of unsecured
debt that IP can issue. The purpose of the change is to give IP more financial
flexibility in the changing environment of a competitive marketplace. The
change will be voted on by the IP preferred stockholders at a special meeting
planned to be held in 1997.
In January 1997, a $300 million shelf registration statement for Illinova debt
securities became effective. On February 5, 1997, Illinova issued $100 million
of 71/8% Senior Notes with a seven year maturity under this registration
statement. The proceeds will be used to redeem $77 million of short-term
borrowings, and to invest in Illinova's unregulated subsidiaries.
Construction expenditures for the years 1994 through 1996 were approximately
$590.3 million, including $21.8 million of AFUDC. Illinova estimates that it
will spend $200 million for construction expenditures for IP in 1997, as
detailed at right. IP construction expenditures for the period 1997 through
2001 are expected to total no more than $1 billion, including $100 million
for expenditures related to Phase II Clean Air Act compliance requirements.
Illinova's capital expenditures for the years 1997 through 2001, in addition
to the IP construction expenditures, are expected to include $140 million for
nuclear fuel, $300 million for mandatory debt retirement and $425 million for
investments in the unregulated subsidiaries.
<TABLE>
- ---------------------------------------------------------------
<C> <C>
(Millions of dollars) 1997
- ----------------------------------------------------------------
IP construction requirements
Electric generating facilities $ 77
Electric transmission and distribution facilities 65
General plant 33
Gas facilities 25
- ----------------------------------------------------------------
Total construction requirements 200
Nuclear fuel 38
Debt retirements 11
Investments in subsidiaries 81
- -----------------------------------------------------------------
Total $ 330
- -----------------------------------------------------------------
</TABLE>
See "Note 4 - Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for additional information. Internal cash generation
will meet substantially all construction and capital requirements.
Environmental Matters
See "Note 4 - Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for a discussion of environmental matters that impact
or could potentially impact Illinova and IP.
Tax Matters
See "Note 7 - Income Taxes" of the "Notes to Consolidated Financial
Statements" for a discussion of effective tax rates and other tax issues.
Accounting Matters
The FASB continues to review the accounting for liabilities related to closure
and removal of long-lived assets, including decommissioning. See "Note 4 -
Commitments and Contingencies" of the "Notes to Consolidated Financial
Statements" for a discussion of decommissioning.
ILLINOVA CORPORATION
RESPONSIBILITY FOR INFORMATION
The consolidated financial statements and all information in this annual
report are the responsibility of management. The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis and include amounts that are based
on management's best estimates and judgments. Management also prepared the
other information in the annual report and is responsible for its accuracy
and consistency with the consolidated financial statements. In the opinion of
management, the consolidated financial statements fairly reflect Illinova's
financial position, results of operations and cash flow.
Illinova believes that its accounting and internal accounting control systems
are maintained so that these systems provide reasonable assurance that assets
are safeguarded against loss from unauthorized use or disposition and that
the financial records are reliable for preparing the consolidated financial
statements.
The consolidated financial statements have been audited by Illinova's
independent accountants, Price Waterhouse LLP, in accordance with generally
accepted auditing standards. Such standards include the evaluation of internal
accounting controls to establish a basis for developing the scope of the
examination of the consolidated financial statements. In addition to the use
of independent accountants, Illinova maintains a professional staff of
internal auditors who conduct financial, procedural and special audits. To
assure their independence, both Price Waterhouse LLP and the internal auditors
have direct access to the Audit Committee of the Board of Directors.
The Audit Committee is composed of members of the Board of Directors who are
not active or retired employees of Illinova. The Audit Committee meets with
Price Waterhouse LLP and the internal auditors and makes recommendations to
the Board of Directors concerning the appointment of the independent
accountants and services to be performed. Additionally, the Audit Committee
meets with Price Waterhouse LLP to discuss the results of their annual audit,
Illinova's internal accounting controls and financial reporting matters. The
Audit Committee meets with the internal auditors to assess the internal audit
work performed, including tests of internal accounting controls.
/s/ Larry D. Haab
Larry D. Haab
Chairman, President
and Chief Executive Officer
/s/ Larry F. Altenbaumer
Larry F. Altenbaumer
Chief Financial Officer,
Treasurer and Controller
ILLINOVA CORPORATION
REPORT TO INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
To the Board of Directors of Illinova Corporation
In our opinion, the consolidated financial statements of Illinova Corporation
and its subsidiaries appearing on pages A-11 through A- 31 of this report
present fairly, in all material respects, the financial position of Illinova
Corporation and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits 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, 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 audits provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
St. Louis, Missouri
February 7, 1997
<TABLE>
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars except per share amounts)
- -----------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1996 1995 1994
Operating Revenues
Electric $ 1,202.9 $ 1,252.6 $ 1,177.5
Electric interchange 137.6 116.3 110.0
Gas 348.2 272.5 302.0
- ----------------------------------------------------------------------------------------------------------
Total 1,688.7 1,641.4 1,589.5
- ----------------------------------------------------------------------------------------------------------
Operating Expenses and Taxes
Fuel for electric plants 248.1 273.9 266.6
Power purchased 65.2 59.5 52.6
Gas purchased for resale 202.6 138.8 172.4
Other operating expenses 249.9 259.7 260.0
Maintenance 99.7 100.0 89.6
Enhanced retirement and severance - 37.8 -
Depreciation and amortization 190.0 186.5 179.3
General taxes 131.3 135.0 130.3
Income taxes 140.5 125.8 118.3
- ----------------------------------------------------------------------------------------------------------
Total 1,327.3 1,317.0 1,269.1
- ----------------------------------------------------------------------------------------------------------
Operating income 361.4 324.4 320.4
- ----------------------------------------------------------------------------------------------------------
Other Income and Deductions
Allowance for equity funds used during construction - - 3.8
Miscellaneous-net (21.6) (7.1) (9.1)
- -----------------------------------------------------------------------------------------------------------
Total (21.6) (7.1) (5.3)
- -----------------------------------------------------------------------------------------------------------
Income before interest charges 339.8 317.3 315.1
- -----------------------------------------------------------------------------------------------------------
Interest Charges
Interest expense 133.0 148.0 143.9
Allowance for borrowed funds used during construction (6.5) (6.0) (5.5)
Preferred dividend requirements of subsidiary 22.3 23.7 24.9
- -----------------------------------------------------------------------------------------------------------
Total 148.8 165.7 163.3
- -----------------------------------------------------------------------------------------------------------
Net income 191.0 151.6 151.8
Carrying amount over (under) consideration paid for
redeemed preferred stock of subsidiary (.7) (3.5) 6.4
- -----------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 190.3 $ 148.1 $ 158.2
===========================================================================================================
Earnings per common share $ 2.51 $ 1.96 $ 2.09
Cash dividends declared per common share $ 1.15 $ 1.03 $ .65
Cash dividends paid per common share $ 1.12 $ 1.00 $ .80
Weighted average common shares 75,681,937 75,643,937 75,643,937
</TABLE>
See notes to consolidated financial statements which are an integral part of
these statements.
<TABLE>
ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS
<C> <C> <C>
- ---------------------------------------------------------------------------------------------------
(Millions of dollars)
- ----------------------------------------------------------------------------------------------------
December 31, 1996 1995
Assets
Utility Plant, At Original Cost
Electric (includes construction work in progress of
$212.5 million and $199.8 million, respectively) $ 6,335.4 $ 6,189.0
Gas (includes construction work in progress of $21.2 million
and $10.2 million, respectively) 646.1 625.9
- -----------------------------------------------------------------------------------------------------
6,981.5 6,814.9
Less - accumulated depreciation 2,419.7 2,251.7
- ------------------------------------------------------------------------------------------------------
4,561.8 4,563.2
Nuclear fuel in process 5.3 5.7
Nuclear fuel under capital lease 96.4 95.2
- ------------------------------------------------------------------------------------------------------
4,663.5 4,664.1
- ------------------------------------------------------------------------------------------------------
Investments and Other Assets 146.2 65.8
- ------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 24.6 11.3
Notes receivable - 6.1
Accounts receivable (less allowance for doubtful accounts of $3 million)
Service 138.8 129.4
Other 62.0 13.2
Accrued unbilled revenue 106.0 89.1
Materials and supplies, at average cost
Fossil fuel 7.9 9.9
Gas in underground storage 27.2 18.5
Operating materials 78.1 82.7
Prepaid and refundable income taxes - 19.6
Prepayments and other 24.1 20.8
- -------------------------------------------------------------------------------------------------------
468.7 400.6
- -------------------------------------------------------------------------------------------------------
Deferred Charges
Deferred Clinton costs 103.9 107.3
Recoverable income taxes 101.3 128.7
Other 229.2 243.3
- -------------------------------------------------------------------------------------------------------
434.4 479.3
- --------------------------------------------------------------------------------------------------------
$ 5,712.8 $ 5,609.8
========================================================================================================
Capital and Liabilities
Capitalization
Common stock - No par value, 200,000,000 shares authorized; 75,681,937 and
75,643,937 shares outstanding, respectively, stated at $ 1,425.7 $ 1,424.6
Less - Deferred compensation - ESOP 14.3 18.4
Retained earnings 233.0 129.6
Less - Capital stock expense 8.2 8.8
- --------------------------------------------------------------------------------------------------------
Total common stock equity 1,636.2 1,527.0
Preferred stock of subsidiary 96.2 125.6
Mandatorily redeemable preferred stock of subsidiary 197.0 97.0
Long-term debt of subsidiary 1,636.4 1,739.3
- -------------------------------------------------------------------------------------------------------
Total capitalization 3,565.8 3,488.9
- -------------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable 166.7 119.9
Notes payable 387.0 359.6
Long-term debt and lease obligations of subsidiary maturing within one year 47.7 95.0
Dividends declared 24.7 23.0
Taxes accrued 43.9 44.8
Interest accrued 34.3 39.0
Other 43.7 66.2
- --------------------------------------------------------------------------------------------------------
748.0 747.5
- --------------------------------------------------------------------------------------------------------
Deferred Credits
Accumulated deferred income taxes 1,034.9 1,012.8
Accumulated deferred investment tax credits 215.5 222.8
Other 148.6 137.8
- --------------------------------------------------------------------------------------------------------
1,399.0 1,373.4
- -------------------------------------------------------------------------------------------------------
$ 5,712.8 $ 5,609.8
(Commitments and Contingencies Note 4)
See notes to consolidated financial statements which are an integral part of
these statements.
</TABLE>
<TABLE>
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars)
- ----------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1996 1995 1994
Cash Flows from Operating Activities
Net income $ 191.0 $ 151.6 $ 151.8
Items not requiring (providing) cash -
Depreciation and amortization 195.3 190.0 182.3
Allowance for funds used during construction (6.5) (6.0) (9.3)
Deferred income taxes 57.4 39.1 36.4
Enhanced retirement and severance - 37.8 -
Changes in assets and liabilities -
Accounts and notes receivable (52.2) (7.8) (18.2)
Accrued unbilled revenue (16.9) (10.2) (29.9)
Materials and supplies (2.1) 22.8 (2.3)
Accounts payable 46.8 (13.6) (20.6)
Interest accrued and other, net (5.4) 9.5 (21.6)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 407.4 413.2 268.6
- -----------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Construction expenditures (187.3) (209.3) (193.7)
Allowance for funds used during construction 6.5 6.0 9.3
Other investing activities (75.0) (34.9) (19.7)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (255.8) (238.2) (204.1)
- -----------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Dividends on common stock (84.7) (75.6) (60.5)
Redemptions -
Short-term debt (355.8) (213.6) (259.3)
Long-term debt of subsidiary (153.7) (5.2) (230.0)
Preferred stock of subsidiary (29.5) (134.5) (91.0)
Issuances -
Short-term debt 383.2 209.5 405.8
Long-term debt of subsidiary - - 119.8
Preferred stock of subsidiary 100.0 - 97.0
Common stock 1.1 - -
Premium paid on redemption of long-term debt of subsidiary - - (2.8)
Other financing activities 1.1 5.0 (2.7)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (138.3) (214.4) (23.7)
- ------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 13.3 (39.4) 40.8
Cash and cash equivalents at beginning of year 11.3 50.7 9.9
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 24.6 $ 11.3 $ 50.7
===================================================================================================================
</TABLE>
<TABLE>
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
- --------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars)
- ---------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1996 1995 1994
Balance (deficit) at beginning of year $ 129.6 $ 58.8 $ (64.6)
Net income before dividends 213.3 175.3 176.7
- ----------------------------------------------------------------------------------------------------------------------------
342.9 234.1 112.1
- ----------------------------------------------------------------------------------------------------------------------------
Less -
Dividends -
Preferred stock of subsidiary 22.6 23.6 11.1
Common stock 86.6 77.4 48.6
Plus -
Carrying amount over (under) consideration paid for redeemed preferred stock of subsidiary (.7) (3.5) 6.4
- ------------------------------------------------------------------------------------------------------------------------------
(109.9) (104.5) (53.3)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 233.0 $ 129.6 $ 58.8
==============================================================================================================================
</TABLE>
See notes to consolidated financial statements which are an integral part of
these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation The consolidated financial statements include
the accounts of Illinova Corporation (Illinova), a holding company, and its
wholly owned subsidiaries: Illinois Power Company (IP), Illinova Generating
Company (IGC), Illinova Insurance Company (IIC), Illinova Power Marketing,
Inc. (IPMI), and Illinova Energy Partners, Inc. (IEPI). IP is a combination
electric and gas utility. IGC invests in energy-related projects and competes
in the independent power market. IIC's purpose is to insure the risks of the
subsidiaries of Illinova and risks related to or associated with their
business enterprises. IPMI is in the business of marketing energy and
energy-related services to various customers. IEPI develops and markets
energy-related services to the unregulated energy market. On February 12,
1997, the Illinova Board of Directors approved a merger of IEPI and IPMI.
In the merger, IPMI will be dissolved, and IEPI will assume responsibility
for the business functions previously handled by IPMI. See "Note 2 - Illinova
Subsidiaries" of the "Notes to Consolidated Financial Statements" for
additional information.
IP's consolidated financial position and results of operations are currently
the principal factors affecting Illinova's consolidated financial position and
results of operations. All significant intercompany balances and transactions
have been eliminated from the consolidated financial statements. All
nonutility operating transactions are included in the section titled Other
Income and Deductions, "Miscellaneous-net" in the Consolidated Statements of
Income. Preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates.
Actual results could differ from those estimates.
Regulation IP is subject to regulation by the Illinois Commerce
Commission (ICC) and the Federal Energy Regulatory Commission (FERC) and,
accordingly, prepares its consolidated financial statements based on the
concepts of Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation" (FAS 71), which requires that
the effects of the ratemaking process be recorded. Such effects primarily
concern the time at which various items enter the determination of net income
in order to follow the principle of matching costs and revenues. Accordingly,
IP records various regulatory assets and liabilities to reflect the actions
of regulators. It is reasonable to assume that significant changes will be
made to state laws governing IP's electric operations, but impossible to
predict what those changes will be. Management believes that IP currently
meets the criteria for continued application of FAS 71, but will continue to
evaluate significant changes in the regulatory and competitive environment to
assess IP's overall compliance with such criteria. These criteria include:
1) whether rates set by regulators are designed to cover the specific costs of
providing regulated services and products to customers and 2) whether
regulators continue to establish rates based on cost. In the event that
management determines that IP, or significant portions of its business, no
longer meet the criteria for application of FAS71, an extraordinary non-cash
charge to income would be recorded in order to remove the effects of the
actions of regulators from the consolidated financial statements. The
discontinuation of application of FAS71 would likely have a material adverse
effect on Illinova's and IP's consolidated financial position and results of
operation. Illinova's principal accounting policies are:
Regulatory Assets Regulatory assets represent probable future revenues to
IP associated with certain costs that are expected to be recovered from
customers through the ratemaking process. Significant regulatory assets are
as follows:
<TABLE>
- -------------------------------------------------------------------
<C> <C>
(Millions of dollars) 1996
- -------------------------------------------------------------------
Deferred Clinton Power Station (Clinton)
post-construction costs $ 103.9
Recoverable income taxes $ 101.3
Unamortized losses on reacquired debt $ 87.7
Manufactured-gas plant site cleanup costs $ 69.1
- -------------------------------------------------------------------
</TABLE>
Utility Plant The cost of additions to utility plant and replacements
for retired property units is capitalized. Cost includes labor, materials,
and an allocation of general and administrative costs, plus an allowance for
funds used during construction (AFUDC) as described below. Maintenance and
repairs, including replacement of minor items of property, are charged to
maintenance expense as incurred. When depreciable property units are retired,
the original cost and dismantling charges, less salvage value, are charged to
accumulated depreciation.
Allowance for Funds Used During Construction The FERC Uniform System
of Accounts defines AFUDC as the net costs for the period of construction of
borrowed funds used for construction purposes and a reasonable rate on other
funds when so used. In 1996, 1995 and 1994, the pre-tax rate used for all
construction projects was 5.8%, 6.5% and 7.0%, respectively. Although cash is
not currently realized from the allowance, it is realized under the
ratemaking process over the service life of the related property through
increased revenues resulting from a higher rate base and higher depreciation
expense.
Depreciation For financial statement purposes, IP depreciates the
various classes of depreciable property over their estimated useful lives by
applying composite rates on a straight-line basis. In 1996, 1995 and 1994,
provisions for depreciation were 2.8% of the average depreciable cost for
Clinton. Provisions for depreciation for all other electric plant were 2.6%
in 1996, 1995 and 1994. Provisions for depreciation of gas utility plant, as
a percentage of the average depreciable cost, were 3.9% in 1996, 1995 and
1994.
Amortization of Nuclear Fuel IP leases nuclear fuel from Illinois Power
Fuel Company (Fuel Company) under a capital lease. Amortization of nuclear
fuel (including related financing costs) is determined on a unit of production
basis. A provision for spent fuel disposal costs is charged to fuel expense
based on kilowatt-hours generated. See "Note 4 - Commitments and
Contingencies" of the "Notes to Consolidated Financial Statements" for
discussion of decommissioning and nuclear fuel disposal costs.
Deferred Clinton Costs In accordance with an ICC order in April 1987,
IP began deferring certain Clinton post-construction operating and financing
costs until rates to reflect such costs became effective (April 1989). After
issuance of the March 1989 ICC rate order, deferral of Clinton post-
construction costs ceased and amortization of the previously deferred post-
construction costs over a 37.5-year period began. Although cash is not
currently realized from these deferrals, it is realized under the ratemaking
process over the service life of Clinton through increased revenues,
resulting from a higher rate base and higher amortization expense.
Unamortized Debt Discount, Premium and Expense Discount, premium and
expense associated with long-term debt are amortized over the lives of the
related issues. Costs related to refunded debt are amortized over the lives
of the related new debt issues or the remaining life of the old debt if no
new debt is issued.
Revenue and Energy Cost IP records revenue for services provided but
not yet billed to more closely match revenues with expenses. Unbilled
revenues represent the estimated amount customers will be billed for service
delivered from the time meters were last read to the end of the accounting
period. Operating revenues include related taxes that have been billed to
customers in the amount of $68 million in 1996 and $66 million in each of the
years 1995 and 1994. The cost of fuel for the generation of electricity,
purchased power and gas purchased for resale is recovered from customers
pursuant to the electric fuel and purchased gas adjustment clauses.
Accordingly, allowable energy costs that are to be passed on to customers in
a subsequent accounting period are deferred. The recovery of costs deferred
under these clauses is subject to review and approval by the ICC.
On April 6, 1994, the ICC approved an increase of $18.9 million, or 6.1%, in
IP's gas base rates. The increase to customers is partially offset by savings
from lower gas costs resulting from the expansion of the Hillsboro gas storage
field. The approved authorized rate of return on rate base is 9.29%, with a
rate of return on common equity of 11.24%.
Income Taxes Under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109), deferred tax assets and liabilities
are recognized for the tax consequences of transactions that have been treated
differently for financial reporting and tax return purposes, measured on the
basis of the statutory tax rates. In accordance with FAS 71, a regulatory
asset (recoverable income taxes) has been recorded representing the probable
recovery from customers of additional deferred income taxes established under
FA109.
Investment tax credits used to reduce federal income taxes have been deferred
and are being amortized to income over the "service life" of the property that
gave rise to the credits. Illinova and its subsidiaries file a consolidated
federal income tax return. Income taxes are allocated to the individual
companies based on their respective taxable income or loss. See "Note 7 -
Income Taxes" of the "Notes to the Consolidated Financial Statements" for
additional discussion.
Preferred Dividend Requirements of Subsidiary Preferred dividend
requirements of IP reflected in the Consolidated Statements of Income are
recorded on the accrual basis.
Consolidated Statements of Cash Flows Cash and cash equivalents include
cash on hand and temporary investments purchased with an initial maturity of
three months or less. Capital lease obligations not affecting cash flows
increased by $31 million, $19 million and $28 million during 1996, 1995 and
1994, respectively. Income taxes and interest paid are as follows:
<TABLE>
Years ended December 31,
<C> <C> <C> <C>
- ------------------------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
Income taxes $ 65.9 $ 64.7 $ 71.1
Interest $ 148.5 $ 152.4 $ 165.9
- ------------------------------------------------------------------------------
</TABLE>
Interest Rate Cap Generally, premiums paid for purchased interest rate
cap agreements are being amortized to interest expense over the terms of the
caps. Unamortized premiums are included in Current Assets, "Prepayments and
other," in the Consolidated Balance Sheets. Amounts to be received under the
cap agreements are recognized as a reduction in interest expense.
Forward Contracts of Subsidiary In the normal course of business IPMI
enters into contracts for the purchase and sale (physical delivery) of
electricity. When markets allow, IPMI will hedge price exposure through the
use of electricity futures contracts and through swaps. Since IPMI's futures
contracts qualify and have been designated as hedges, any gains and losses
resulting from market changes are deferred until, and generally offset by,
the related physical transaction.
Note 2 - Illinova Subsidiaries
Illinova, a holding company, is the parent of wholly owned subsidiaries IP,
IGC, IPMI, IEPI and IIC. IP, Illinois Power Company, the primary business and
subsidiary of Illinova, is engaged in the generation, transmission,
distribution and sale of electric energy and the distribution, transportation
and sale of natural gas in the state of Illinois. IGC, Illinova Generating
Company, invests in energy-related projects throughout the world and competes
in the independent power market. IPMI, Illinova Power Marketing, Inc.,
engages in the brokering and marketing of electric power and gas. IEPI,
Illinova Energy Partners, Inc., develops and markets energy-related services
to the unregulated energy market throughout the United States. On February 12,
1997, the Illinova Board of Directors approved a merger of IEPI and IPMI. In
the merger, IPMI will be dissolved, and IEPI will assume responsibility for
the business functions previously handled by IPMI. IIC, Illinova Insurance
Company, was licensed in August 1996 by the State of Vermont as a captive
insurance company. The primary business of IIC is to insure the risks of
the subsidiaries of Illinova and risks related to or associated with their
business enterprises.
In 1994, IGC became an equity partner with Tenaska, Inc., in four natural gas-
fired generation plants, of which three plants totaling approximately 700 MW
are in operation and one 240 MW plant has had construction suspended. Tenaska,
Inc. is an Omaha, Nebraska-based developer of independent power projects
throughout the United States. In August 1994, IGC purchased 50 percent of the
North American Energy Services Company (NAES). NAES supplies a broad range of
operations, maintenance and support services to the world-wide independent
power generation indsutry and operates the Tenaska generation plants in which
IGC purchased an equity interest. In November 1994, IGC became an equity
partner in an 80 MW operating diesel engine-powered generating plant in
Puerto Cortez, Honduras.
In May 1995, IGC became an equity partner in the Indeck North American Power
Fund (Fund). The Fund's first project, in June 1995, a 70-MW plant, was the
Harbor Cogeneration Project in Long Beach, California. In August 1995, the
Fund acquired the Pepperell Cogeneration Project, a 38-MW gas-fired combined
cycle facility located in Pepperell, Massachusetts. In the fourth quarter of
1995, IGC completed its first investment in the People's Republic of China by
investing in the Xinchang Project, a 24-MW coal-fired plant located in the
Zhejiang Province. In December 1995, IGC signed a limited liability company
agreement to complete an initial investment in a 155-MW power project located
near Aguaytia, Peru. Also in December 1995, IGC invested in the Jamaica
Energy Partners Project, a 74-MW barge-mounted facility located in Old
Harbour, Jamaica. In June 1996, IGC finalized an investment in the Flores
Power Plant located in Barranquilla, Columbia. Flores currently operates
two units totaling 250-MW. A third unit, with capacity of 150-MW, is
scheduled to begin operating in the second quarter of 1997. In August 1996,
Illinova's interest in the 1,000-MW coal-fired plant in Joppa, Illinois, was
transferred to IGC. In September 1996, IGC achieved financial close as an
investor in a 586-MW coal-fired plant in Balochistan, Pakistan, which is
currently under construction and is expected to begin operating in 1998. As
of December 31, 1996, IGC had ownership in power plants in operation or under
construction representing approximately 730 MW.
IGC's investments are primarily accounted for under the equity method. At
December 31, 1996, Illinova's net investment in IGC was $122 million. See
"Note 4 - Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for information about IGC contingencies.
On May 16, 1995, IPMI obtained approval from FERC to conduct business as a
marketer of electric power and gas to various customers outside IP's present
service territory. In September 1995, IPMI began buying and selling wholesale
electricity in the western United States. IPMI acquired 50 percent ownership
in Tenaska Marketing Ventures (TMV) on April 17, 1995, with the ownership
interest retroactive to January 1, 1995. In October 1995, IPMI and TMV formed
a natural gas company, Tenaska Marketing Canada, to market gas in Canada. In
May 1996, IPMI expanded operations to include the midwestern United States.
In July 1996, IP received FERC approval to sell electricity to IPMI on an
ongoing basis. Previously, IP was required to obtain FERC approval for each
transaction with IPMI. The new ruling greatly increases IP's ability to sell
electricity to IPMI.
In December 1995, Illinova established Illinova Energy Services (IES) to
provide energy-related services to customers inside and outside IP's service
territory. These services range from the management of energy demand
procurement usage to the development, installation and operation of the energy
infrastructure of its customers.
In May 1996, the services group of IPMI merged with IES and the unregulated
marketing activities of Illinova to form a new venture known as Illinova
Energy Partners, Inc. IEPI focuses on the development and sales of energy-
related services in North America.
At December 31, 1996, Illinova's total net investment in IEPI and IPMI was
$9 million.
Note 3 - Clinton Power Station
IP and Soyland Power Cooperative, Inc. (Soyland) share ownership of Clinton,
with IP owning 86.8% and Soyland owning 13.2%. IP and Soyland have entered
into an agreement to transfer Soyland's 13.2% ownership of Clinton to IP
contingent upon approval by the NRC. (See sub-caption "Soyland" of "Note 4 -
Commitments and Contingencies" of the "Notes to Consolidated Financial
Statements"). Clinton was placed in service in 1987 and represents
approximately 18% of IP's installed generation capacity. The investment in
Clinton and its related deferred costs representedapproximately 50% of
Illinova's total assets at December 31, 1996. IP's 86.8% share of Clinton-
related costs represented 35% of Illinova's total 1996 other operating,
maintenance and depreciation expenses. Clinton's equivalent availability was
66%, 76%, and 92% for 1996, 1995, and 1994, respectively. Clinton's
equivalent availability was higher in 1994 due to no refueling outage.
Ownership of an operating nuclear generating unit exposes IP to significant
risks, including increased and changing regulatory, safety and environmental
requirements and the uncertain future cost of closing and dismantling the
unit. IP expects to be allowed to continue to operate Clinton; however, if
any unforeseen or unexpected developments prevent IP from doing so, Illinova
and IP would be materially adversely affected. See "Note 4 - Commitments and
Contingencies" of the "Notes to Consolidated Financial Statements" for
additional information.
Note 4 - Commitments and Contingencies
Commitments
Estimated capital requirements in 1997 are $330 million, which includes $249
million for capital expenditures by IP and $81 million for unregulated
subsidiary activities. The 1997 capital expenditures for IP include $142
million for electric facilities, $25 million for gas facilities, $38 million
for nuclear fuel, $33 million for general plant and $11 million for mandatory
debt retirement. Construction expenditures for IP for the 1997 through 2001
period are expected to be no more than $1 billion, including $100 million of
expenditures to meet Phase II Clean Air Act Compliance requirements.
Illinova's capital expenditures for the years 1997 through 2001, in addition
to the IP construction expenditures, are expected to include $140 million
for nuclear fuel, $300 million for mandatory debt retirement and $425 million
for investments in the unregulated subsidiaries. These expenditures reflect
IP's share of Clinton (ownership share under negotiation -- see sub-caption
"Soyland" under Contingencies below).
In addition, IP has substantial commitments for the purchase of coal under
long-term contracts. Estimated coal contract commitments for 1997 through
2001 are $560 million (excluding price escalation provisions). Total coal
purchases for 1996, 1995 and 1994 were $184 million, $168 million and $191
million, respectively. IP has contracts with various natural gas suppliers
and interstate pipelines to provide natural gas supply, transportation and
leased storage. Estimated committed natural gas, transportation and leased
storage costs (including pipeline transition costs) for 1997 through 2001
total $92 million. Total natural gas purchased for 1996, 1995 and 1994 was
$207 million, $150 million and $168 million, respectively. IP's share
(ownership share under negotiation -- see sub-caption "Soyland" under
Contingencies below) of estimated nuclear fuel commitments for Clinton is
approximately $19 million for uranium concentrates through 2001, $5 million
for conversion services through 1999 and $198 million for fabrication services
through 2016. IP is committed to purchase approximately $52 million of
emission allowances through 1999. IP anticipates that all of these costs
will be recoverable under IP's electric fuel and purchased gas adjustment
clauses.
Insurance IP maintains insurance on behalf of IP and Soyland for certain
losses involving the operation of Clinton. For physical damage to the plant,
IP's insurance program has two layers: 1) a primary layer of $500 million
provided by nuclear insurance pools; and 2) an excess coverage layer of $1.1
billion provided by an industry-owned mutual insurance company for a total
coverage of $1.6 billion. In the event of an accident with an estimated cost
of reactor stabilization and site decontamination exceeding $100 million, NRC
regulations require that insurance proceeds be dedicated and used first to
return the reactor to, and maintain it in, a safe and stable condition, and
second, to decontaminate the reactor station site. The insurers also provide
coverage for the shortfall in the Decommissioning Trust Fund caused by the
premature decommissioning of the reactor due to an accident. In the event
insurance limits are not exhausted by the above, the remaining coverage will
be applied to property damage and a portion of the value of the undamaged
property. In addition, while IP has no reason to anticipate a serious nuclear
accident at Clinton, if such an accident should occur, the claims for property
damage and other costs could materially exceed the limits of current or
available insurance coverage. In the event of an extended shutdown of
Clinton due to accidental property damage, IP also purchases approximately
$.9 million per week of business interruption insurance coverage for its
ownership share of Clinton through an industry-owned mutual insurance
company. This insurance does not provide coverage until Clinton has been
out of service for 21 weeks. (Ownership share under negotiation -- see
sub-caption "Soyland" under Contingencies below.)
All United States nuclear power station operators are subject to the Price-
Anderson Act. This act currently limits public liability for a nuclear
incident to $8.9 billion. Private insurance covers the first $200 million.
Retrospective premium assessments against each licensed nuclear reactor in
the United States provide excess coverage. Currently, the liability to these
reactor operators/owners for such an assessment would be up to $79.3 million
per incident, not including premium taxes which may be applicable, payable
in annual installments of not more than $10 million.
A Master Worker Policy covers worker tort claims alleging bodily injury,
sickness or disease for workers whose initial radiation exposure occurred on
or after January 1, 1988. The policy has an aggregate limit of $200 million
that applies to the commercial nuclear industry as a whole. A provision
provides for automatic reinstatement of policy limits up to an additional
$200 million.
IP may be subject to other risks that may not be insurable, or the amount of
insurance carried to offset the various risks may not be sufficient to meet
potential liabilities and losses. There is also no assurance that IP will be
able to maintain insurance coverage at its present level. Under those
circumstances, such losses or liabilities may have a substantial adverse
effect on Illinova's and IP's financial position.
Decommissioning and Nuclear Fuel Disposal Costs IP is responsible for
its ownership share (ownership share under negotiation - see sub-caption
"Soyland" under Contingencies below) of the costs of decommissioning Clinton
and for spent nuclear fuel disposal costs. IP is collecting future
decommissioning costs through its electric rates based on an ICC-approved
formula that allows IP to adjust rates annually for changes in decommissioning
cost estimates.
Based on NRC regulations that establish a minimum funding level, IP estimates
its 86.8% share (ownership share under negotiation - see sub-caption "Soyland"
under Contingencies below) of Clinton decommissioning costs to be approximately
$381 million (1996 dollars) or $687 million (2026 dollars, assuming a 2%
inflation factor). The NRC bases the minimum only on the cost of removing
radioactive plant structures. IP concluded a site-specific study in 1996 to
estimate the costs of dismantlement, removal and disposal of Clinton. This
study resulted in projected decommissioning costs of $473 million (1996
dollars) or $853 million (2026 dollars, assuming a 2% inflation factor) for
IP. Regulatory approval for funding of this increased decommissioning cost
is expected during the third quarter of 1997.
External decommissioning trusts, as prescribed under Illinois law and
authorized by the ICC, accumulate funds for the future decommissioning of
Clinton based on the expected service life of the plant. For the years 1996,
1995 and 1994, IP contributed $3.9 million, $5.0 million and $5.5 million,
respectively, to its external nuclear decommissioning trust funds. The
balances in these nuclear decommissioning funds at December 31, 1996, and
1995 were $41.4 million and $32.7 million, respectively. Decommissioning funds
are recorded as assets on the balance sheet. A decommissioning liability
approximately equivalent to trust assets was also recorded. IP recognizes
earnings and expenses from the trust fund as changes in its assets and
liabilities relating to these funds.
The Financial Accounting Standards Board (FASB) is reviewing the accounting
for closure and removal costs of long-lived assets. Changes to current
electric utility industry accounting practices for decommissioning may result
in recording the estimated total cost for decommissioning as a liability and
an increase to plant balances, depreciating the increased plant balances, and
reporting trust fund income from the external decommissioning trusts as
investment income rather than as a reduction to decommissioning expense.
Based on current information, IP believes that these changes will not have an
adverse effect on results of operations due to existing and anticipated future
ability to recover decommissioning costs through rates.
In 1992, the ICC entered an order in which it expressed concern that IP take
all reasonable action to ensure that Soyland contributes its ownership share
of the current or any revised estimate of decommissioning costs. The order
also states that if IP becomes liable for decommissioning expenses
attributable to Soyland, the ICC will then decide whether that expense should
be the responsibility of IP stockholders or its customers. If Soyland were to
fail to meet these or other obligations related to its ownership of Clinton,
then IP could become liable for such payments. (See sub-caption "Soyland"
under Contingencies below.)
Under the Nuclear Waste Policy Act of 1982, the Department of Energy (DOE) is
responsible for the permanent storage and disposal of spent nuclear fuel. The
DOE currently charges one mill ($0.001) per net kilowatt-hour (one dollar per
MWH) generated and sold for future disposal of spent fuel. IP is recovering
these charges through rates. In 1996, the D.C. Circuit Court of Appeals
issued an order, at the behest of nuclear-owning utilities and state
regulatory agencies, confirming DOE's unconditional obligation to take
responsibility for spent nuclear fuel commencing in 1998, even if it has no
permanent repository at that time. Notwithstanding this decision, which the
DOE did not appeal, the DOE has indicated to all nuclear utilities that it
may experience delay in performance. The impact of any such delay on IP
will depend on many factors, including the duration of such delay and the
cost and feasibility of interim, on-site storage.
Environmental Matters
Clean Air Act In August 1992, IP announced that it had suspended
construction of two scrubbers at the Baldwin Power Station (Baldwin). At
December 31, 1996, approximately $24 million in costs for the suspended
Baldwin program continue to be carried by IP as plant held for future use.
To comply with the sulfur dioxide (SO2) emission reduction requirements of
Phase I (1995-1999) of the 1990 Clean Air Act Amendments, IP continues to
purchase emission allowances. An emission allowance is the authorization by
the United States Environmental Protection Agency (U.S. EPA) to emit one ton
of SO2. The ICC approved IP's Phase I Clean Air Act compliance plan in
September 1993, and IP is continuing to implement that plan. IP has acquired
sufficient emission allowances to meet most of its anticipated needs for
1997 and will purchase the remainder on the spot market. In 1993, the
Illinois General Assembly passed and the governor signed legislation
authorizing, but not requiring, the ICC to permit expenditures and revenues
from emission allowance purchases and sales to be included in rates charged
to customers as a cost of fuel. In December 1994, the ICC approved the
recovery of emission allowance costs through the Uniform Fuel Adjustment
Clause. IP's compliance plan will defer, until at least 2000, any need for
scrubbers or other capital projects associated with SO2 emission reductions.
Phase II (2000 and beyond) SO2 emission requirements of the Clean Air Act
could require additional actions and may result in capital expenditures and
the purchase of emission allowances.
To comply with the Phase I nitrogen-oxide (NOx) emission reduction
requirements of the acid rain provisions of the Clean Air Act, IP installed
low-NOx burners at Baldwin Unit 3 and Vermilion Unit 2. On November 29, 1994,
the Phase I NOx rules were remanded to the U.S. EPA. On April 13, 1995, the
U.S. EPA reinstated, with some modifications, the Phase I NOx rules effective
January 1, 1996. IP was positioned to comply with these revised rules without
additional modifications to any of its generating plants.
The U.S. EPA issued revised Phase II NOx emission limits on December 10, 1996.
IP has prepared a Phase II Compliance Plan. Litigation over the scope and
legality of these Phase II NOx limits precludes a precise quantification of
anticipated capital cost for compliance; however, capital expenditures for
IP's NOx program, which includes upgrading two air heaters at Baldwin, are
expected to be $100 million prior to the year 2000.
IP is monitoring the development of several emerging clean air compliance
issues which could have a significant impact on its fossil-fueled generating
plants. These issues include global climate change (theorized to result from
emissions of "greenhouse gases" such as carbon dioxide), controls on
"hazardous air pollutants," potential requirements to further reduce NOx
emissions from IP plants to help achieve compliance with the air quality
standards in the St. Louis and Chicago metropolitan areas and new standards
for fine particulates, ozone and SO2. Compliance with potential new
regulations in these areas may require significant additional expenditures
after 2000.
Manufactured-Gas Plant (MGP) IP's estimated liability for MGP site
remediation is $69 million. This amount represents IP's current best estimate
of the costs that it will incur in remediation of the 24 MGP sites for which
it is responsible. Because of the unknown and unique characteristics at each
site, IP cannot presently determine its ultimate liability for remediation of
the sites.
IP is currently recovering MGP site remediation through tariff riders approved
by the ICC. Accordingly, IP has recorded a regulatory asset on its balance
sheet totaling $69 million as of December 31, 1996. Management expects that
cleanup costs will be fully recovered from IP's customers.
To offset the burden imposed on its customers, IP has initiated litigation
against a number of insurance carriers. Any settlement proceeds or damages
recovered from the carriers will be credited to IP's customers through the
tariff rider mechanism which the ICC previously approved.
Electric and Magnetic Fields (EMF) The possibility that exposure to EMF
emanating from power lines, household appliances and other electric sources
may result in adverse health effects continues to be the subject of litigation
and governmental, medical and media attention. Litigants have also claimed
that EMF concerns justify recovery from utilities for the loss in value of
real property exposed to power lines, substations and other such sources of
EMF. The National Research Council (Council) of the National Academy of
Sciences released a report in 1996 which concluded there is "no conclusive
and consistent evidence" that exposure to residential EMF presents a health
hazard. The Council's conclusion is based on a review of more than 500
studies conducted worldwide over the last 17 years. Additional research is
being conducted to attempt to resolve continuing scientific uncertainties.
It is too soon to tell what, if any, impact these actions may have on
Illinova's and IP's consolidated financial position.
Other
Legal Proceedings Illinova and IP are involved in legal or administrative
proceedings before various courts and agencies with respect to matters
occurring in the ordinary course of business, some of which involve
substantial amounts of money. Management believes that the final disposition
of these proceedings will not have a material adverse effect on the
consolidated financial position or the results of operations.
Accounts Receivable IP sells electric energy and natural gas to residential,
commercial and industrial customers throughout Illinois. At December 31,
1996, 68%, 20% and 12% of Accounts receivable - Service were from residential,
commercial and industrial customers, respectively. IP maintains reserves for
potential credit losses and such losses have been within management's
expectations.
Contingencies
Soyland IP and Soyland have entered into an agreement to transfer Soyland's
13.2% ownership of Clinton to IP contingent on approval by the NRC. The NRC
is expected to act on IP's request during the first quarter of 1997.
IP and Soyland have renegotiated the existing Power Coordination Agreement.
This agreement is expected to result in a reduction of rates for Soyland
while IP will be assured a long-term sales agreement for 10 to 20 years. IP
is expected to file with FERC a request for approval of this agreement in
February 1997.
FERC Audit In 1996 FERC conducted an audit of IP's financial books and
records for the years 1992 through 1995 and preliminarily identified a number
of issues. IP responded to the issues raised. FERC has taken no action
regarding disposition of these matters. At this time, the outcome of the
audit cannot be determined; however, management does not expect that
resolution of the audit will have a material adverse effect on IP's
consolidated financial position or results of operations.
IRS Audit The Internal Revenue Service is currently auditing IP's federal
income tax returns for the years 1991 through 1993. At this time, the outcome
of the audit cannot be determined; however, management does not expect that
the results will have a material adverse effect on IP's consolidated financial
position or results of operations. For a detailed discussion of income taxes,
see "Note 7 - Income Taxes" of the "Notes to Consolidated Financial
Statements."
IPMI IPMI buys and sells electricity in the West and Midwest regions of the
United States. In the normal course of doing business, IPMI is required to
incur price exposure on the electricity bought or sold. Where the markets
allow, IPMI will hedge such exposure through the use of electricity futures
contracts or through swaps with qualified counterparties. The aggregate
notional value, fair value, and unrealized gain related to futures contracts
outstanding at December 31, 1996 are immaterial. In addition, IPMI considers
the risk of counterparty non-performance to be remote.
During 1996, IPMI entered into electricity sale contracts with delivery
commencing in 1997 which exposed the company to risk as a result of price
volatility in the western United States electricity market. At December 31,
1996, IPMI recorded a $3.2 million reserve relating to these transactions in
anticipation of such amount becoming a realized loss.
Illinova guarantees the performance of Tenaska Marketing Ventures (TMV) up to
an aggregate of $50 million for net accounts payable or delivery obligations
incurred during the ordinary course of purchasing and reselling natural gas.
The level of payable guarantees in place during December 1996 peaked at just
under $25 million. Illinova also guarantees performances by TMV of all
obligations to parties providing price-hedging services. The guarantee to the
parties providing hedging services is a function of the market price of gas.
Management believes that its exposure under these guarantees is insignificant.
See "Note 2 -- Illinova Subsidiaries" of the "Notes to Consolidated Financial
Statements" for additional information about IPMI.
IGC In connection with IGC, as of December 31, 1996, Illinova guarantees the
payment of $27 million to creditors for the construction of independent power
projects. IGC has net investment in projects of $98 million. See "Note 2 -
Illinova Subsidiaries" of the "Notes to Consolidated Financial Statements"
for additional information about IGC.
Note 5 - Lines of Credit and Short-Term Loans
IP has total lines of credit represented by bank commitments amounting to
$354 million, all of which were unused at December 31, 1996. These lines of
credit are renewable in May 1997, August 1997 and May 2001. These bank
commitments support the amount of commercial paper outstanding at any time,
limited only by the amount of unused bank commitments, and are available to
support other IP activities. In addition, Illinova's total lines of credit
represented by bank commitments amount to $150 million, of which $73 million
was unused at December 31, 1996. Illinova's letters of credit total $30.6
million.
IP pays facility fees up to .15% per annum on $350 million of the total lines
of credit, regardless of usage. The interest rate on borrowings under these
agreements is, at IP's option, based upon the lending banks' reference rate,
their Certificate of Deposit rate, the borrowing rate of key banks in the
London interbank market or competitive bid.
IP has letters of credit totaling $206 million and pays fees up to .45% per
annum on the unused amount of credit.
In addition, IP and IP Fuel Company have a short-term financing option to
obtain funds not to exceed $30 million. IP and IP Fuel Company pay no fees
for this uncommitted facility and funding is subject to availability upon
request.
Illinova had $77 million of borrowings against its lines of credit at December
31, 1996. For the years 1996, 1995 and 1994, IP had short-term borrowings
consisting of bank loans, commercial paper, extendible floating rate notes
and other short-term debt outstanding at various times as follows:
<TABLE>
- ------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars, except rates) 1996 1995 1994
- ------------------------------------------------------------------------------
Short-term borrowings
at December 31, $ 387.0 $ 359.6 $ 238.8
Weighted average interest
rate at December 31, 5.8% 6.0% 6.2%
Maximum amount outstanding
at any month end $ 387.0 $ 359.6 $ 238.8
Average daily borrowings
outstanding during
the year $ 261.9 $ 306.5 $ 165.4
Weighted average interest
rate during the year 5.7% 6.2% 4.6%
- ------------------------------------------------------------------------------
</TABLE>
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on floating-rate debt. IP's three variable rate
interest rate cap agreements cover up to $289 million of commercial paper.
These agreements entitle IP to receive from a counterparty on a monthly basis
the amount, if any, by which IP's interest payments on a nominal amount of
commercial paper exceed the interest rate set by the cap. On December 31,
1996, the cap rates were set at 6.0%, 6.25% and 7.0% while the current market
rate available to IP was 5.7%.
Note 6 - Facilities Agreements
IP and Soyland share ownership of Clinton, with IP owning 86.8% (ownership
share under negotiation - see sub-caption "Soyland" of "Note 4 - Commitments
and Contingencies" of the "Notes to Consolidated Financial Statements" for
additional information) and Soyland owning 13.2%. Agreements between IP and
Soyland provide that IP has control over construction and operation of the
generating station, that the parties share electricity generated in proportion
to their ownership interests and that IP will have certain obligations to
provide replacement power to Soyland if IP ceases to operate or reduces
output from Clinton.
Under the provisions of a Power Coordination Agreement (PCA) between Soyland
and IP dated October 5, 1984, as amended, IP is required to provide Soyland
with 12.0% (436 megawatts) of the electrical capacity from its fossil-fueled
generating plants until the agreement expires or is terminated. This is in
addition to the capacity Soyland receives as an owner of Clinton. IP is
compensated with capacity charges and for energy costs and variable operating
expenses. IP transmits energy for Soyland through IP's transmission and
subtransmission systems. Under provisions of the PCA, Soyland has the
option of participating financially in major capital expenditures at the
fossil-fueledplants, such as those needed for Phase II Clean Air Act
compliance, to the extent of its capacity entitlement with each party bearing
its own direct capital costs, or by having the costs treated as plant
additions and billed to Soyland in accordance with other billing provisions
of the PCA. At any time after December 31, 2004, either IP or Soyland may
terminate the PCA by giving not less than seven years prior written notice
to the other party. The party to whom termination notice has been given may
designate an earlier effective date of termination which shall be not less
than 12 months after receiving notice. See "Note 4 -- Commitments and
Contingencies" of the "Notes to Consolidated Financial Statements" for
discussion of the Clean Air Act.
Note 7 - Income Taxes
Deferred tax assets and liabilities were comprised of the following:
<TABLE>
Balances as of December 31,
- ------------------------------------------------------------------------------
<C> <C> <C>
(Millions of dollars) 1996 1995
- ------------------------------------------------------------------------------
Deferred tax assets:
- ------------------------------------------------------------------------------
Current:
Misc. book/tax recognition differences $ 7.7 $ 26.1
- ------------------------------------------------------------------------------
Noncurrent:
Depreciation and other property related 42.0 45.5
Alternative minimum tax 198.5 183.1
Tax credit and net operating loss
carryforward 32.8 32.4
Unamortized investment tax credit 120.9 126.1
Misc. book/tax recognition differences 78.9 66.7
- ------------------------------------------------------------------------------
473.1 453.8
- ------------------------------------------------------------------------------
Total deferred tax assets $ 480.8 $ 479.9
==============================================================================
Deferred tax liabilities:
- ------------------------------------------------------------------------------
Current:
Misc. book/tax recognition differences $ 11.3 $ 6.5
- ------------------------------------------------------------------------------
Noncurrent:
Depreciation and other property related 1,350.1 1,303.5
Deferred Clinton costs 58.2 60.1
Misc. book/tax recognition differences 99.7 103.0
- ------------------------------------------------------------------------------
1,508.0 1,466.6
- ------------------------------------------------------------------------------
Total deferred tax liabilities $ 1,519.3 $ 1,473.1
==============================================================================
</TABLE>
Income taxes included in the Consolidated Statements of Income consist of the
following components:
<TABLE>
Years Ended December 31,
- ------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
Current taxes-
Included in operating
expenses and taxes $ 79.2 $ 98.6 $ 58.3
Included in other income
and deductions (14.5) (20.3) -
- ------------------------------------------------------------------------------
Total current taxes 64.7 78.3 58.3
- ------------------------------------------------------------------------------
Deferred taxes-
Included in operating
expenses and taxes
Property related differences 60.4 62.2 60.0
Alternative minimum tax 1.1 2.9 (50.4)
Gain/loss on reacquired debt (1.6) (1.9) -
Net operating loss
carryforward - (.2) 62.0
Enhanced retirement
and severance 2.6 (15.0) -
Misc. book/tax recognition
differences 6.1 (13.9) (7.8)
Internal Revenue Service
interest on tax issues - - 7.5
Included in other income
and deductions
Property related differences 10.2 9.7 10.0
Net operating loss
carryforward - - (17.4)
Misc. book/tax recognition
differences (8.3) (1.2) (.7)
- ------------------------------------------------------------------------------
Total deferred taxes 70.5 42.6 63.2
- -------------------------------------------------------------------------------
Deferred investment
tax credit-net
Included in operating
expenses and taxes (7.3) (6.9) (11.3)
Included in other income
and deductions - - (.3)
- ------------------------------------------------------------------------------
Total investment tax credit (7.3) (6.9) (11.6)
- ------------------------------------------------------------------------------
Total income taxes $ 127.9 $ 114.0 $ 109.9
==============================================================================
</TABLE>
The reconciliations of income tax expense to amounts computed by applying the
statutory tax rate to reported pretax results for the period are set below:
<TABLE>
Years Ended December 31,
- ------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
Income tax expense at the
federal statutory tax rate $ 111.4 $ 92.9 $ 91.6
Increases/(decreases) in taxes
resulting from-
State taxes,
net of federal effect 11.4 12.4 13.8
Investment tax credit
amortization (7.3) (6.9) (7.8)
Depreciation not normalized 9.4 7.4 4.3
Preferred dividend requirement
of subsidiary 2.5 5.8 8.7
Other-net .5 2.4 (.7)
- ------------------------------------------------------------------------------
Total income taxes $ 127.9 $ 114.0 $ 109.9
==============================================================================
</TABLE>
Combined federal and state effective income tax rates were 40.2%, 42.9% and
42.0% for the years 1996, 1995 and 1994, respectively.
Illinova is subject to the provisions of the Alternative Minimum Tax System
(AMT). As a result, Illinova has an AMT credit carryforward at December 31,
1996, of approximately $198.5 million. This credit can be carried forward
indefinitely to offset future regular income tax liabilities in excess of the
tentative minimum tax.
The Internal Revenue Service is currently auditing IP's consolidated federal
income tax returns for the years 1991 through 1993. At this time, the outcome
of the audit cannot be determined. However, the results of the audit are not
expected to have a material adverse effect on Illinova's consolidated
financial position or results of operations.
Note 8 - Capital Leases
Illinois Power Fuel Company (Fuel Company), which is 50% owned by IP, was
formed in 1981 for the purpose of leasing nuclear fuel to IP for Clinton.
Lease payments are equal to the Fuel Company's cost of fuel as consumed
(including related financing and administrative costs). Billings under the
lease agreement during 1996, 1995 and 1994 were $35 million, $41 million and
$52 million, respectively, including financing costs of $5 million, $7 million
and $7 million, respectively. IP is obligated to make subordinated loans to
the Fuel Company at any time the obligations of the Fuel Company that are
due and payable exceed the funds available to the Fuel Company. IP has an
obligation for nuclear fuel disposal costs of leased nuclear fuel. See
"Note 4 -- Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for discussion of decommissioning and nuclear fuel
disposal costs. Nuclear fuel lease payments are included with Fuel for
electric plants on Illinova's Consolidated Statements of Income.
At December 31, 1996 and 1995, current obligations under capital lease for
nuclear fuel are $36.9 million and $33.3 million, respectively.
Over the next five years estimated payments under capital leases are as
follows:
<TABLE>
- --------------------------------------------------
(Millions of dollars)
<C> <C>
- --------------------------------------------------
1997 $ 39.7
1998 28.5
1999 18.6
2000 11.6
2001 5.1
Thereafter 2.6
- -------------------------------------------------
106.1
Less: Interest 9.7
- -------------------------------------------------
Total $ 96.4
=================================================
</TABLE>
Note 9 - Long-Term Debt of Subsidiary
<TABLE>
(Millions of dollars)
- -------------------------------------------------------------------------------
<C> <C> <C>
December 31, 1996 1995
First mortgage bonds-
5.85% series due 1996 $ - $ 40.0
61/2 %series due 1999 72.0 72.0
6.60% series due 2004 (Pollution Control Series A) 6.5 6.8
7.95% series due 2004 72.0 72.0
6% series due 2007 (Pollution Control Series B) 18.7 18.7
75/8% series due 2016 (Pollution Control Series F, G and H) 150.0 150.0
8.30% series due 2017 (Pollution Control Series I) 33.8 33.8
73/8% series due 2021 (Pollution Control Series J) 84.7 84.7
83/4% series due 2021 57.1 120.0
5.70% series due 2024 (Pollution Control Series K) 35.6 35.6
7.40% series due 2024 (Pollution Control Series L) 84.1 84.1
- ------------------------------------------------------------------------------
Total first mortgage bonds 614.5 717.7
- ------------------------------------------------------------------------------
New mortgage bonds-
61/8% series due 2000 40.0 40.0
5.625%series due 2000 110.0 110.0
61/2% series due 2003 100.0 100.0
63/4% series due 2005 70.0 70.0
8% series due 2023 229.0 235.0
71/2% series due 2025 177.0 200.0
Adjustable rate series due 2028 (Pollution Control
Series M, N and O) 111.8 111.8
- ------------------------------------------------------------------------------
Total new mortgage bonds 837.8 866.8
- ------------------------------------------------------------------------------
Total mortgage bonds 1,452.3 1,584.5
- ------------------------------------------------------------------------------
Medium-term notes, series A 78.5 100.0
Variable rate long-term debt due 2017 75.0 75.0
- ------------------------------------------------------------------------------
Total other long-term debt 153.5 175.0
- ------------------------------------------------------------------------------
1,605.8 1,759.5
Unamortized discount on debt (18.1) (20.3)
- ------------------------------------------------------------------------------
Total long-term debt excluding capital lease obligations 1,587.7 1,739.2
Obligations under capital leases 96.4 95.1
- ------------------------------------------------------------------------------
1,684.1 1,834.3
Long-term debt and lease obligations maturing within
one year (47.7) (95.0)
- -------------------------------------------------------------------------------
Total long-term debt $ 1,636.4 $ 1,739.3
===============================================================================
</TABLE>
In 1996, a total of $62.9 million of 83/4% First Mortgage Bonds due 2021 was
purchased at various times on the open market. In April 1996, $23.0 million
of 71/2% New Mortgage Bonds due 2025 was purchased on the open market. In
June 1996, $6.0 million of 8% New Mortgage Bonds due 2023 was purchased on
the open market.
In 1989 and 1991, IP issued a series of fixed rate medium-term notes. At
December 31, 1996, the maturity dates on these notes ranged from 1997 to 1998
with interest rates ranging from 9% to 9.31%. Interest rates on variable rate
long-term debt due 2017 are adjusted weekly and ranged from 3.0% to 3.3% at
December 31, 1996.
For the years 1997, 1998, 1999, 2000 and 2001, IP has long-term debt
maturities and cash sinking fund requirements in the aggregate of (in
millions) $10.8, $68.8, $72.8, $150.8 and $.8, respectively. These amounts
exclude capital lease requirements. See "Note 8 - Capital Leases" of the
"Notes to Consolidated Financial Statements." Certain supplemental indentures
to the First Mortgage require that IP make annual deposits, as a sinking and
property fund, in amounts not to exceed $1.8 million in each of the years
1997 through 2001. These amounts are subject to reduction and historically
have been met by pleding property additions, as permitted by the First
Mortgage.
At December 31, 1996, the aggregate total of unamortized debt expense and
unamortized loss on reacquired debt was approximately $105.3 million.
IP's First Mortgage Bonds are secured by a first mortgage lien on
substantially all of the fixed property, franchises and rights of IP with
certain minor exceptions expressly provided in the First Mortgage. In 1992,
the Board authorized a new general obligation mortgage, which is intended to
replace the First Mortgage. IP anticipates that during 1997 the 1943 mortgage
will be amended to be consistent with the 1992 mortgage. Bonds issued under
the New Mortgage were secured by a corresponding issue of First Mortgage
Bonds under the First Mortgage. The remaining balance of net bondable
additions at December 31, 1996, was approximately $1.5 billion.
Note 10 - Preferred Stock of Subsidiary
<TABLE>
(Millions of dollars)
- ------------------------------------------------------------------------------
<C> <C> <C>
December 31, 1996 1995
Serial Preferred Stock of Subsidiary, cumulative,
$50 par value-
Authorized 5,000,000 shares; 1,221,700 and 1,356,800
shares outstanding, respectively
Series Shares Redemption Prices
4.08% 300,000 $ 51.50 $ 15.0 $ 15.0
4.26% 150,000 51.50 7.5 7.5
4.70% 200,000 51.50 10.0 10.0
4.42% 150,000 51.50 7.5 7.5
4.20% 180,000 52.00 9.0 9.0
7.75% 241,700 50.00 after July 1, 2003 12.1 18.8
Net premium on preferred stock .2 .2
- -----------------------------------------------------------------------------
Total Preferred Stock of Subsidiary, $50 par value $ 61.3 $ 68.0
- -----------------------------------------------------------------------------
Serial Preferred Stock of Subsidiary, cumulative,
without par value-
Authorized 5,000,000 shares; 698,200 and 1,152,550
shares outstanding, respectively
Series Shares Redemption Prices
A 698,200 $ 50.00 $ 34.9 $ 37.1
B - - - 20.5
- -----------------------------------------------------------------------------
Total Preferred Stock of Subsidiary, without par value $ 34.9 $ 57.6
- -----------------------------------------------------------------------------
Preference Stock of Subsidiary, cumulative,
without par value-
Authorized 5,000,000 shares; none outstanding - -
- ------------------------------------------------------------------------------
Total Serial Preferred Stock, Preference Stock and
Preferred Securities of Subsidiary $ 96.2 $ 125.6
==============================================================================
Company Obligated Mandatorily Redeemable Preferred
Securities of:
Illinois Power Capital, L.P.
Monthly Income Preferred Securities, cumulative,
$25 liquidation preference-
3,880,000 shares authorized and outstanding $ 97.0 $ 97.0
Illinois Power Financing I
Trust Originated Preferred Securities, cumulative,
$25 liquidation preference-
4,000,000 shares authorized and outstanding 100.0 -
- -----------------------------------------------------------------------------
Total Mandatorily Redeemable Preferred
Stock of Subsidiary $ 197.0 $ 97.0
=============================================================================
Serial Preferred Stock ($50 par value) is redeemable at the option of IP in
whole or in part at any time with not less than 30 days and not more than 60
days notice by publication.
Quarterly dividend rates for Serial Preferred Stock, Series A, are determined
based on market interest rates of certain U.S. Treasury securities. Dividends
paid in 1996 and 1995 were $.75 per quarter. The dividend rate for any
dividend period will not be less than 6% per annum or greater than 12% per
annum applied to the liquidation preference value of $50 per share.
Illinois Power Capital, L.P. is a limited partnership in which IP serves as a
general partner. Illinois Power Capital issued (1994) $97 million of tax-
advantaged monthly income preferred securities (MIPS) at 9.45% (5.67% after-
tax rate) with a liquidation preference of $25 per share. IP consolidates the
accounts of Illinois Power Capital.
Illinois Power Financing I (IPFI) is a statutory business trust in which IP
serves as sponsor. IPFI issued $100 million of trust originated preferred
securities (TOPrS) at 8% (4.8% after-tax rate) in January 1996. IPFI issued
the TOPrS and invested the proceeds in an equivalent amount of IP subordinated
debentures due in 2045. IP used the proceeds to repay short-term indebtedness
on varying dates on or before March 1, 1996. IP incurred the indebtedness in
December 1995, to redeem $95.3 million (principal value) of higher-cost
outstanding preferred stock of IP.
On April 15, 1996, IP issued a notice of redemption to all holders of its
Adjustable Rate Series B Preferred Stock. All 410,250 shares outstanding were
redeemed on May 15, 1996, at the redemption price of $50 per share.
In 1996, IP redeemed $6.7 million of the 7.75% Serial Preferred Stock, $2.2
million of its Series A Serial Preferred Stock and the remaining $20.5 million
of its Series B Serial Preferred Stock. The carrying amount was $.7 million
under consideration paid and was recorded in equity and included in Net
income applicable to common stock.
Note 11 - Common Stock and Retained Earnings
IP has an Incentive Savings Plan (Plan) for salaried employees. IP's matching
contribution is used to purchase Illinova common stock. Under this Plan,
27,545 shares of common stock were designated for issuance at December 31,
1996.
IP has an Incentive Savings Plan for Employees Covered Under a Collective
Bargaining Agreement. IP's matching contribution is used to purchase Illinova
common stock. Under this plan, 69,167 shares of common stock were designated
for issuance at December 31, 1996.
Illinova has an Employees' Stock Ownership Plan (ESOP) that includes an
incentive compensation feature which is tied to employee achievement of
specified corporate performance goals. This arrangement began in 1991 when IP
loaned $35 million to the Trustee of the Plans, which used the loan proceeds
to purchase 2,031,445 shares of IP's common stock on the open market. The
loan and common shares were converted to Illinova instruments with the
formation of Illinova in May 1994. These shares are held in a suspense account
under the Plans and are being distributed to the accounts of participating
employees as the loan is repaid by the Trustee with funds contributed by IP,
together with dividends on the shares acquired with the loan proceeds. IP
financed the loan with funds borrowed under its bank credit agreements.
For the year ended December 31, 1996, 69,367 common shares were allocated to
salaried employees and 62,975 shares to employees covered under the Collective
Bargaining Agreement through the matching contribution feature of the ESOP
arrangement. Under the incentive compensation feature, 83,300 common shares
were allocated to employees for the year ended December 31, 1996. During 1996,
IP contributed $5.2 million to the ESOP and using the shares allocated method,
recognized $1.6 million of expense. Interest paid on the ESOP debt was
approximately $1.6 million in 1996 and dividends used for debt services were
approximately $2.2 million.
As of July 1, 1996 Illinova amended the Automatic Reinvestment and Stock
Purchase Plan and the Employees' Stock Ownership Plan. These plans were
replaced with the Illinova Investment Plus Plan for which 5,000,000 shares of
common stock were designated for issuance. Illinova is responsible for
administering the Illinova Investment Plus Plan. The purpose of the Illinova
Investment Plus Plan is to provide investors in Illinova with a convenient
way to purchase shares of common stock and reinvest all or a portion of the
cash dividends paid on eligible securities in additional shares of common
stock. The Illinova Investment Plus Plan allows purchases of common stock
on the open market, as well as purchases of new issue shares directly from
Illinova. All accounts and all elections, notices, instructions and
authorizations under the Automatic Reinvestment and Stock Purchase Plan and
the Employees' Stock Ownership Plan automatically will continue under the
Illinova Investment Plus Plan, and participants in the Automatic Reinvestment
and Stock Purchase Plan and the Employees' Stock Ownership Plan will continue
as participants in the Illinova Investment Plus Plan.
In 1992, the Board of Directors adopted and the shareholders approved a Long-
Term Incentive Compensation Plan (the Plan) for officers or employee members
of the Board, but excluding directors who are not officers or employees.
Restricted stock, incentive stock options, non-qualified stock options, stock
appreciation rights, dividend equivalents and other stock-based awards may be
granted under the plan, for up to 1,500,000 sha90.3 $ 148.1 $ 158.2
Other information -
Depreciation $ 164.0 $ 22.5 $ 186.5 $ 161.4 $ 21.6 $
</TABLE>
<TABLE>
- --------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Year Options Grant Year Expiration Options
Granted Granted Price Exercisable Date Exercised
- ---------------------------------------------------------------------------
1992 62,000 $ 233/8 1996 6/10/01 38,000
1993 73,500 $ 241/4 1997 6/9/02 -
1994 82,650 $ 207/8 1997 6/8/03 -
1995 69,300 $ 247/8 1998 6/14/04 -
1996 80,500 $ 293/4 1999 2/7/05 -
============================================================================
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), effective for fiscal years beginning after December
15, 1995. If the accounting provisions of FAS 123 had been adopted as of the
beginning of 1996, the effect on 1996 net earnings would have been immaterial.
Further, based on current and anticipated use of stock options, it is not
envisioned that the impact of FAS 123 accounting provisions would be material
in any future period. Illinova continues to account for its stock options in
accordance with Accounting Principle Board Opinion No. 25.
The provisions of Supplemental Indentures to IP's General Mortgage Indenture
and Deed of Trust contain certain restrictions with respect to the declaration
and payment of dividends. IP was not limited by any of these restrictions at
December 31, 1996. Under the Restated Articles of Incorporation, common
stock dividends are subject to the preferential rights of the holders of
preferred and preference stock.
Note 12 - Pension and Other Benefit Costs
IP has defined-benefit pension plans covering all officers and employees.
Benefits are based on years of service and compensation. IP's funding policy
is to contribute annually at least the minimum amount required by government
funding standards, but not more than can be deducted for federal income tax
purposes.
Pension costs, a portion of which have been capitalized for 1996, 1995 and
1994, include the following components:
<TABLE>
Years Ended December 31,
- ------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of Dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
Service cost on benefits
earned during the year $ 10.2 $ 10.4 $ 11.9
Interest cost on projected
benefit obligation 26.8 23.6 21.8
Return on plan assets (42.2) (58.3) (7.9)
Net amortization and deferral 9.4 29.6 (19.2)
Effect of enhanced retirement
program - 15.7 -
- --------------------------------------------------------------------------------
Net periodic pension cost $ 4.2 $ 21.0 $ 6.6
================================================================================
</TABLE>
The estimated funded status of the plans at December 31, 1996 and 1995, using
discount rates of 8.0% and 7.75%, respectively, and future compensation
increases of 4.5% was as follows:
<TABLE>
Balances as of December 31,
- -----------------------------------------------------------------------------
<C> <C> <C>
(Millions of Dollars) 1996 1995
- -----------------------------------------------------------------------------
Acturial present value of:
Vested benefit obligation $ (291.7) $ (276.8)
- -----------------------------------------------------------------------------
Accumulated benefit obligation (312.5) (297.5)
- -----------------------------------------------------------------------------
Projected benefit obligation (361.5) (343.6)
Plan assets at fair value 357.2 331.5
- -----------------------------------------------------------------------------
Funded Status (4.3) (12.1)
Unrecognized net (gain)/loss (13.8) (5.1)
Unrecognized net asset at transition (30.3) (34.6)
Unrecognized prior service cost 19.3 21.2
- -----------------------------------------------------------------------------
Accrued pension cost included in
accounts payable $ (29.1) $ (30.6)
=============================================================================
</TABLE>
The plan's assets consist primarily of common stocks, fixed income securities,
cash equivalents and real estate. The acturial present value of accumulated
plan benefits at January 1, 1996 and 1995, were $361 million and $258 million,
respectively, including vested benefits of $337 million and $239 million,
respectively. The pension cost for 1996, 1995 and 1994 was calculated using
a discount rate of 7.75%, 8.75% and 7.75%, respectively; future compensation
increases of 4.5% for 1996, 1995 and 1994; and a return on assets of 9.5% for
1996, 9.0% for 1995 and 1994. The unrecognized net asset at transition and
unrecognized prior service cost are amortized on a straight-line basis over
the average remaining service period of employees who are expected to receive
benefits under the plan. IP made cash contributions of $6 million in 1996,
$2 million and $10 million in 1994.
IP provides health care and life insurance benefits to certain retired
employees, including their eligible dependents, who attain specified ages
and years of service under the terms of the defined-benefit plans. Post-
retirement benefits, a portion of which have been capitalized, for 1996 and
1995 included the following components:
<TABLE>
Years Ended December 31,
- ----------------------------------------------------------------------------
<C> <C> <C>
(Millions of Dollars) 1996 1995
- ----------------------------------------------------------------------------
Service cost on benefits earned
during the year $ 2.2 $ 2.1
Interest cost on projected
benefit obligation 6.1 5.5
Return on plan assets (5.9) (4.7)
Amortization of unrecognized
transition obligation 6.4 6.3
Effect of enhanced retirement program - 9.5
- ---------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 8.8 $ 18.7
===========================================================================
</TABLE>
The net periodic postretirement benefit cost in the preceding table includes
amortization of the previously unrecognized accumulated postretirement benefit
plan obligation, which was $44.2 million and $52.3 million as of January 1,
1996 and 1995, respectively, over 20 years on a straight-line basis.
IP has established two separate trusts for those retirees who were subject to
a collectively bargained agreement and all other retirees to fund retiree
health care and life insurance benefits. IP's funding policy is to contribute
annually an amount at least equal to the revenues collected for the amount of
postretirement benefit costs allowed in rates. The plan assets consist of
common stocks and fixed income securities at December 31, 1996 and 1995. The
estimated funded status of the plans at December 31, 1996 and 1995, using
weighted average discount rates of 8.0% and 7.75%, respectively, and a return
on assets of 9.0% was as follows:
<TABLE>
Balances as of December 31,
- ----------------------------------------------------------------------------
<C> <C> <C>
(Millions of Dollars) 1996 1995
- -----------------------------------------------------------------------------
Accumulated postretirement benefit obligation
Retirees $ (49.6) $ (54.5)
Other fully eligible participants (3.5) (3.0)
Other active plan participants (28.6) (27.5)
- -----------------------------------------------------------------------------
Total benefit obligation (81.7) (85.0)
Plan assets at fair value 34.4 25.6
- -----------------------------------------------------------------------------
Funded status (47.3) (59.4)
Unrecognized transition obligation 41.5 44.2
Unrecognized net (gain)/loss (9.2) -
- -----------------------------------------------------------------------------
Accrued postretirement benefit cost
included in accounts payable $ (15.0) $ (15.2)
=============================================================================
</TABLE>
Note 13 - Segments of Business
<TABLE>
(Millions of dollars)
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C>
1996 1995 1994
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Total Total
Electric Gas Corporation Electric Gas Corporation Electric Gas Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Operation information -
Operating revenues $ 1,340.5 $ 348.2 $ 1,688.7 $ 1,368.9 $ 272.5 1,641.4 $ 1,287.5 $ 302.0 $ 1,589.5
Operating expenses,
excluding provision for
income taxes 886.2 300.5 1,186.7 946.2 245.0 1,191.2 876.1 274.7 1,150.8
- -------------------------------------------------------------------------------------------------------------------------------
Pre-tax operating income 454.3 47.7 502.0 422.7 27.5 450.2 411.4 27.3 438.7
Allowance for funds used
during construction (AFUDC) 6.3 .2 6.5 5.5 .5 6.0 8.9 .4 9.3
- -------------------------------------------------------------------------------------------------------------------------------
Pre-tax operating income,
including AFUDC $ 460.6 $ 47.9 $ 508.5 $ 428.2 $28.0 $ 456.2 $ 420.3 $ 27.7 $ 448.0
- ----------------------------------------------- ------------------ -------------------
Other deductions, net 34.2 18.9 17.5
Interest charges 133.0 148.0 143.9
Provision for income taxes 128.0 114.0 109.9
Preferred dividend require-
ments of subsidiary 22.3 23.7 24.9
- ------------------------------------------------------------------------------------------------------------------------------
Net income 191.0 151.6 151.8
Carrying value over (under)
consideration paid for redeemed
preferred stock of subsidiary (.7) (3.5) 6.4
- -------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock 190.3 $ 148.1 $ 158.2
===============================================================================================================================
Other information -
Depreciation $ 164.0 $ 22.5 $ 186.5 $ 161.4 $ 21.6 $ 183.0 $ 156.1 $ 21.1 $ 177.2
- -------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 164.0 $ 23.3 $ 187.3 $ 185.7 $ 23.6 $ 209.3 $ 173.1 $ 20.6 $ 193.7
- -------------------------------------------------------------------------------------------------------------------------------
Investment information -
Identifiable assets* $ 4,578.1 $ 481.9 $ 5,060.0 $4,580.4 $ 446.3 $ 5,026.7 $ 4,589.0 $ 442.6 5,031.6
------------------------------------------ --------------------- --------------------
Nonutility plant and
other investments 132.4 65.5 37.2
Assets utilized for
overall operations 520.4 517.6 507.9
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 5,712.8 $ 5,609.8 $ 5,576.7
===============================================================================================================================
*Utility plant, nuclear fuel, materials and supplies, deferred Clinton costs
and prepaid and deferred energy costs.
Note 14 - Fair Value of Financial Instruments
</TABLE>
<TABLE>
<C> <C>
1996 1995
- ---------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Carrying Fair Carrying Fair
(Millions of dollars) Value Value Value Value
- ----------------------------------------------------------------------------
Nuclear decommissioning
trust funds $ 41.4 $ 41.4 $ 32.7 $ 32.7
Cash and cash equivalents 24.6 24.6 11.3 11.3
Mandatorily redeemable
preferred stock of subsidiary 197.0 199.3 97.0 108.2
Long-term debt of subsidiary 1,587.7 1,629.3 1,739.2 1,855.8
Notes payable 387.0 387.0 359.6 359.6
============================================================================
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments listed in the table above:
Nuclear Decommissioning Trust Funds The fair values of available-for-
sale marketable debt securities and equity investments held by the Nuclear
Decommissioning Trust are based on quoted market prices at the reporting date
for those or similar investments.
Cash and Cash Equivalents The carrying amount of cash and cash equivalents
approximates fair value due to the short maturity of these instruments.
Mandatorily Redeemable Serial Preferred Stock of Subsidiary and Long-Term Debt
of Subsidiary The fair value of IP mandatorily redeemable preferred stock
and IP long-term debt is estimated based on the quoted market prices for
similar issues or by discounting expected cash flows at the rates currently
offered to IP for debt of the same remaining maturities, as advised by IP's
bankers.
Notes Payable The carrying amount of notes payable approximates fair value
due to the short maturity of these instruments.
Note 15 - Quarterly Consolidated Financial Information and Common Stock Data
(unaudited)
<TABLE>
(Millions of dollars except per common share amounts)
- -----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
First Quarter Second Quarter Third Quarter Fourth Quarter
1996 1996 1996 1996
- -----------------------------------------------------------------------------------------------------------------
Operating revenues $ 446.7 $ 365.7 $ 458.4 $ 417.9
Operating income 88.1 74.9 133.3 65.1
Net income 43.3 36.7 91.0 20.0
Net income applicable to common stock 43.3 36.2 90.7 20.1
Earnings per common share $ .57 $ .48 $ 1.20 $ .26
Common stock prices and dividends
High $ 30 3/8 $ 29 $ 29 1/4 $ 28 5/8
Low $ 27 $ 24 5/8 $ 25 1/4 $ 26 1/4
Dividends declared $ .28 $ .28 $ .28 $ .31
First Quarter Second Quarter Third Quarter Fourth Quarter
1995 1995 1995 1995
- ----------------------------------------------------------------------------------------------------------------
Operating revenues $ 425.5 $ 344.3 $ 486.1 $ 385.5
Operating income 78.3 67.1 137.2 41.8
Net income 32.4 26.3 89.9 3.0
Net income (loss) applicable to common stock 32.4 26.3 89.9 (.5)
Earnings per common share $ .43 $ .35 $ 1.18 $ .00
Common stock prices and dividends
High $ 23 5/8 $ 26 $ 27 1/4 $ 30
Low $ 21 1/4 $ 22 3/4 $ 24 1/4 $ 27
Dividends declared $ .25 $ .25 $ .25 $ .28
The 1995 fourth quarter earnings include $23 million net of tax, $(.30) per
share, for the enhanced retirement and severance program and $3.5 million,
$(.05) per share, for the carrying amount under consideration paid for
redeemed preferred stock of IP.
The common stock is listed on the New York Stock Exchange and the Chicago
Stock Exchange. The stock prices above are the prices reported on the
Composite Tape. There were 38,251 registered holders of common stock at
January 10, 1997.
</TABLE>
<TABLE>
ILLINOVA CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA*
- ---------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
(Millions of dollars)
1996 1995 1994 1993 1992 1986
- ---------------------------------------------------------------------------------------------------------------------------
Operating revenues
Electric $ 1,202.9 $ 1,252.6 $ 1,177.5 $ 1,135.6 $ 1,117.9 $ 814.1
Electric interchange 137.6 116.3 110.0 130.8 73.0 76.6
Gas 348.2 272.5 302.0 314.8 288.6 369.7
- ---------------------------------------------------------------------------------------------------------------------------
Total operating revenues $ 1,688.7 $ 1,641.4 $ 1,589.5 $ 1,581.2 $ 1,479.5 $ 1,260.4
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 191.0 $ 151.6 $ 151.8 $ (81.9) $ 93.2 $ 256.5
Effective income tax rate 40.2% 42.9% 42.0% (39.8)% 46.0% 22.7%
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ 190.3 $ 148.1 $ 158.2 $ (81.9) $ 93.2 $ 256.5
Earnings (loss) per common share $ 2.51 $ 1.96 $ 2.09 $ (1.08) $ 1.23 $ 3.98
Cash dividends declared per common share $ 1.15 $ 1.03 $ .65 $ .40 $ 1.40 $ 2.64
Dividend payout ratio (declared) 45.5% 52.3% 30.7% N/A 112.9% 66.7%
Book value per common share $ 21.62 $ 20.19 $ 19.17 $ 17.46 $ 18.81 $ 25.79
Price range of common shares
High $ 30 3/8 $ 30 $ 22 5/8 $ 25 7/8 $ 25 1/8 $ 32
Low $ 24 5/8 21 1/4 $ 18 1/8 $ 20 1/8 $ 19 1/4 $ 23 1/8
Weighted average number of common shares outstanding
during the period (thousands) 75,682 75,644 75,644 75,644 75,644 64,503
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 5,712.8 $ 5,609.8 $ 5,576.7 $ 5,423.5 $ 5,331.7 $ 5,622.8
- -----------------------------------------------------------------------------------------------------------------------------
Capitalization
Common stock equity $ 1,636.2 $ 1,527.0 $ 1,450.2 $ 1,321.0 $ 1,422.7 $ 1,691.9
Preferred stock of subsidiary 96.2 125.6 224.7 303.7 303.1 315.2
Mandatorily redeemable preferred stock of subsidiary 197.0 97.0 133.0 48.0 100.0 196.0
Long-term debt of subsidiary 1,636.4 1,739.3 1,946.1 1,926.3 2,017.4 2,241.0
- -----------------------------------------------------------------------------------------------------------------------------
Total capitalization $ 3,565.8 $ 3,488.9 $ 3,754.0 $ 3,599.0 $ 3,843.2 $ 4,444.1
- -----------------------------------------------------------------------------------------------------------------------------
Embedded cost of long-term debt 8.0% 7.9% 7.6% 7.5% 8.3% 9.1%
- ------------------------------------------------------------------------------------------------------------------------------
Retained earnings (deficit) $ 233.0 $ 129.6 $ 58.8 $ (64.6) $ 41.0 $ 481.2
- ------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 187.3 $ 209.3 $ 193.7 $ 277.7 $ 244.4 $ 710.1
Cash flows from operations $ 407.4 $ 413.2 $ 268.6 $ 369.7 $ 344.8 $ 212.3
AFUDC as a percent of earnings applicable to common stock 3.4% 4.1% 5.9% N/A 5.6% 85.5%
Return on average common equity 12.0% 9.9% 11.4% (6.0)% 6.5% 15.9%
Ratio of earnings to fixed charges 3.09 2.56 2.56 .66 1.87 2.57
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Millions of dollars except earnings (loss) per common share, cash dividends
declared per common share, book value per common share and price range of
common shares.
** Restated for the effect of capitalized nuclear fuel lease.
<TABLE>
ILLINOVA CORPORATION
SELECTED ILLINOIS POWER COMPANY STATISTICS
<C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1986
- ------------------------------------------------------------------------------------------------------------
Electric Sales in KWH (Millions)
Residential 4,782 4,754 4,537 4,546 4,138 4,198
Commercial 3,894 3,804 3,517 3,246 3,055 2,821
Industrial 8,493 8,670 8,685 8,120 8,083 7,341
Other 367 367 536 337 466 875
- -------------------------------------------------------------------------------------------------------------
Sales to ultimate consumers 17,536 17,595 17,275 16,249 15,742 15,235
Interchange 5,454 4,444 4,837 6,015 2,807 2,726
Wheeling 928 642 622 569 402 -
- -------------------------------------------------------------------------------------------------------------
Total electric sales 23,918 22,681 22,734 22,833 18,951 17,961
- -------------------------------------------------------------------------------------------------------------
Electric Revenues (Millions)
Residential $ 483 $ 500 $ 471 $ 463 $ 435 $ 293
Commercial 318 321 295 269 263 187
Industrial 360 392 378 360 381 290
Other 38 37 30 40 38 44
- ------------------------------------------------------------------------------------------------------------
Revenues from ultimate consumers 1,199 1,250 1,174 1,132 1,117 814
Interchange 138 116 110 131 73 77
Wheeling 4 3 3 3 1 -
- ------------------------------------------------------------------------------------------------------------
Total electric revenues $ 1,341 $ 1,369 $ 1,287 $ 1,266 $ 1,191 891
- ------------------------------------------------------------------------------------------------------------
Gas Sales in Therms (Millions)
Residential 427 356 359 371 339 357
Commercial 177 144 144 148 138 161
Industrial 99 88 81 78 136 198
- ------------------------------------------------------------------------------------------------------------
Sales to ultimate consumers 703 588 584 597 613 716
Transportation of customer-owned gas 251 273 262 229 204 253
- ------------------------------------------------------------------------------------------------------------
Total gas sold and transported 954 861 846 826 817 969
Interdepartmental sales 9 21 5 7 12 1
- -------------------------------------------------------------------------------------------------------------
Total gas delivered 963 882 851 833 829 970
- -------------------------------------------------------------------------------------------------------------
Gas Revenues (Millions)
Residential $ 216 $ 173 $ 192 $ 200 $ 181 $ 206
Commercial 79 60 66 68 61 78
Industrial 40 24 31 34 37 73
- -------------------------------------------------------------------------------------------------------------
Revenues from ultimate consumers 335 257 289 302 279 357
Transportation of customer-owned gas 7 8 9 8 7 11
Miscellaneous 6 7 4 5 3 2
- ------------------------------------------------------------------------------------------------------------
Total gas revenues $ 348 $ 272 $ 302 $ 315 $ 289 $ 370
- ------------------------------------------------------------------------------------------------------------
System peak demand (native load) in kw (thousands) 3,492 3,667 3,395 3,415 3,109 3,176
Firm peak demand (native load) in kw (thousands) 3,381 3,576 3,232 3,254 2,925 2,949
Net generating capability in kw (thousands) 4,148 3,862 4,121 4,045 4,052 3,397
- -------------------------------------------------------------------------------------------------------------
Electric customers (end of year) 549,957 529,966 553,869 554,270 549,391 540,595
Gas customers (end of year) 389,223 374,299 388,170 394,379 386,261 383,201
Employees (end of year) 3,635 3,559 4,350 4,540 4,624 4,593
- ------------------------------------------------------------------------------------------------------------
Illinova 500 South 27th Street, Decatur, Illinois 62525
http://www.illinova.com
</TABLE>
1996 Information Statement and Annual Report to Shareholders
First
Notice of Annual Meeting of Shareholders
Information Statement
Table of Contents
Notice of Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . 2
Information Statement . . . . . . . . . . . . . . . . . . . . . . . . . 3
Appendix: 1996 Annual Report to Shareholders . . . . . . . . . . . . . . A-1
-----------------------------------
/ /
/ /
/ /
/ /
/ Map to Location of Annual /
/ Shareholders Meeting /
/ /
/ /
/ /
------------------------------------
To the Shareholders
of Illinois Power:
Notice is Hereby Given that the Annual Meeting of Shareholders of Illinois
Power Company ("Illinois Power") will be held at 10 a.m. Wednesday, April 9,
1997, at Shilling Community Education Center, Richland Community College,
One College Park, Decatur, Illinois 62521, for the following purposes:
(1) To elect the Board of Directors for the ensuing year.
(2) To transact any other business which may properly come before the meeting
or any adjournment.
Shareholders of record at the close of business on February 10, 1997, will be
entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors,
Leah Manning Stetzner,
Vice Presiden, General Counsel and Corporate Secretary
Decatur, Illinois
March 3, 1997
IMPORTANT
Only shareholders of Illinois Power are entitled to attend the Annual Meeting.
Shareholders will be admitted on verification of record share ownership at
the admission desk. Shareholders who own shares through banks, brokerage firms,
nominees or other account custodians must present proof of beneficial share
ownership (such as a brokerage account statement) at the admission desk.
Information Statement (pursuanat to Section 14(C) of the Securities Exchange
Act of 1934)
March 3, 1997
(Date first sent or given to security holders)
We are not asking you for a proxy and you are requested not to send us a proxy.
This Information Statement is furnished in connection with the Annual Meeting
of Shareholders of Illinois Power. Annual Meeting will be held at 10:00 a.m.
Wednesday, April 9, 1997, at Shilling Community Education Center, Richland
Community College, One College Park, Decatur, Illinois 62521, for the purposes
set forth in the accompanying Notice of Annual Meeting of Shareholders.
On February 10, 1997 ("Record Date"). Illinova Corporation ("Illinova")
beneficially owned all of the 72,233,040 shares of Illinois Power Common Stock
then outstanding and there were 1,919,900 shares of Illinois Power Preferred
Stock then outstanding, none of which was held by Illinova.
Voting Rights
Shareholders of record at the close of business on the Record Date will be
entitled to receive notice of and to vote at the Annual Meeting. Shareholders
who are present at the Annual Meeting will be entitled to one vote for each
share of Illinois Power Stock which they held of record at the close of
business on the Record Date.
When voting for candidates nominated to serve as directors, all shareholders
will be entitled to 10 votes (the number of directors to be elected) for each
of their shares and may cast all of their votes for any one candidate whose
name has been placed in nomination prior to the voting or distribute their
votes among two or more such candidates in such proportions as they may
determine. In voting on other matters presented for consideration at the
Annual Meeting, each shareholder will be entitled to one vote for each share
of Stock held of record at the close of business on the Record Date.
Annual Report
and Information Statement
Accompanying this Information Statement, which includes Consolidated Financial
Statements, is a Notice of Annual Meeting of Shareholders and the Summary
Annual Report to Shareholders covering operations of Illinova for the year
1996. This Information Statement and accompanying documents are first
being mailed to shareholders on or about March 3, 1997.
Board of Directors
Information Regarding
the Board of Directors
The Board of Directors held six Board meetings in 1996. All directors
attended at least 75 percent of the aggregate meetings of the Board and
Committees of which they were members during 1996. The Board has four
standing committees: the Audit Committee, the Finance Committee, the
Compensation and Nominating Committee and the Nuclear Operations Committee.
The duties and members of the standing committees are:
Audit Committee
(1) Review with the Chairman, President and Chief Executive Officer and the
independent accountants the scope and adequacy of Illinois Power's system of
internal controls; (2) review the scope and results of the annual examination
performed by the independent accountants; (3) review the activities of
Illinois Power's internal auditors; (4) report its findings to the Board and
provide a line of communication between the Board and both the internal
auditors and the independent accountants; and (5) recommend to the Board the
appointment of the independent accountants and approval of the services
performed by the independent accountants, considering their independence with
regard thereto.
The Audit Committee met three times during 1996.
This Committee consists of the following non-employee directors ("Outside
Directors"): Robert M. Powers, Chairman, Richard R. Berry, C. Steven McMillan,
Walter M. Vannoy, and Marilou von Ferstel.
Finance Committee
(1) Review management's capital and operations and maintenance expenditure
budgets, financial forecasts and financing program, and make recommendations
to the Board regarding the approval of such budgets and plans; (2) review
Illinois Power's banking relationships, short-term borrowing arrangements,
dividend policies, arrangements with the transfer agent and registrar,
investment objectives and the performance of Illinois Power's pension and
other trust funds, evaluate fund managers, and make recommendations to the
Board concerning such matters; (3) review Illinois Power's risk management
programs, including insurance coverage, and make recommendations to the Board;
and (4) act in an advisory capacity to management, the Board of Directors, and
the Chairman, President and Chief Executive Officer on other financial
matters as they may arise.
The Finance Committee met three times during 1996.
This Committee consists of the following members of the Board: Walter D. Scott,
Chairman, Richard R. Berry, Larry D. Haab, C. Steven McMillan,
Robert M. Powers, and Marilou von Ferstel.
Compensation and Nominating Committee
(1) Review performance and recommend salaries plus other forms of compensation
of elected Illinois Power officers and the Board of Directors; (2) review
Illinois Power's benefit plans for elected Illinova officers and make
recommendations to the Board regarding any changes deemed necessary;
(3) review with the Chairman, President and Chief Executive Officer any
organizational or other personnel matters; and (4) recommend to the Board
nominees to stand for election as director to fill vacancies in the Board of
Directors as they occur.
The Compensation and Nominating Committee will consider shareholders'
recommendations for nominees for director made pursuant to timely notice in
writing addressed to the Chairman of the Committee at the executive offices
of Illinois Power, together with a full description of the qualifications and
business and professional experience of the proposed nominees and a statement
of the nominees' willingness to serve. To be timely, the notice shall be
delivered to or mailed and received at the executive offices of Illinois
Power not less than 90 nor more than 120 days prior to the Annual Meeting.
The Compensation and Nominating Committee met four times during 1996.
This Committee consists of the following Outside Directors: Donald S. Perkins,
Chairman, Robert M. Powers, Walter D. Scott, Ronald L. Thompson, Marilou
von Ferstel, and John D. Zeglis.
Nuclear Operations Committee
(1) Review the safety, reliability and quality of nuclear operations; (2)
review the effectiveness of the management of nuclear operations; (3) review
the strategic plan of nuclear operations; (4) review various nuclear reports;
and (5) report its findings to the Board.
The Nuclear Operations Committee met three times during 1996.
This Committee consists of the following members of the Board: Walter M.
Vannoy, Chairman, Richard R. Berry, Larry D. Haab, and Robert M. Powers.
Board Compensation
The Outside Directors of Illinois Power, all of whom also serve on the Board of
Illinova, receive a total retainer fee of $18,000 per year for their service
on these boards. Outside Directors who also chair Board Committees receive
an additional $2,000 per year retainer. Outside Directors receive a grant of
650 shares of Illinova Common Stock on the date of each Annual Shareholders
Meeting, representing payment in lieu of attendance-based fees for all Board
and Committee meetings to be held during the subsequent one-year period.
Outside Directors elected to the Board between Annual Shareholders Meetings
are paid $850 for each Board and Committee meeting attended prior to the first
Annual Shareholders Meeting after their election to the Board.
Illinova had a Retirement Plan for Outside Directors. Under this plan, each
Outside Director who attained age 65 and served on the Board for a period of
60 or more consecutive months was eligible for annual retirement benefits at
the rate of the annual retainer fee in effect when the director retired. In
1996, the Board of Directors adopted a Comprehensive Deferred Stock Plan for
Outside Directors, replacing the Retirement Plan. Each former Outside
Director whose right to receive the retirement benefit had vested continues
to receive such benefits in accordance with the term of the Retirement Plan.
All Outside Directors serving at the time this new plan was adopted were
granted a lump sum amount based on the net present value of these benefits
to them, were they to have retired under the Retirement Plan, based on the
number of years they have served on the Board but not to exceed 10. This
dollar amount was converted into stock units, based on the then market value
of Illinova Common Stock, and placed into an account. The value of these
stock units is to be paid out to the director in cash on termination of
service, based on the then market value of Illinova Common Stock, plus
dividend equivalents, in a lump sum or installments. In addition, each
Outside Director receives an annual award of stock units having a value of
$6,000, to be paid to the Outside Director in cash on retirement, at once
or in installments as the Director may elect, with the amount of such
payment determined by multiplying the number of stock units in the account
times the then market value of Illinova Common Stock, and adding the dividend
equivalents attributable to such stock units.
Pursuant to Illinova's Deferred Compensation Plan for Certain Directors,
Outside Directors may elect to defer all or any portion of their fees and
stock grants until termination of their services as directors. Such deferred
amounts are converted into stock units representing shares of Illinova
Common Stock with the value of each stock unit based on the last reported
sales price of such stock. Additional credits are made to the participating
director's account in dollar amounts equal to the dividends paid on the Common
Stock which the director would have received if the director had been the
record owner of the shares represented by stock units, and are converted
into additional stock units. On termination of the participating directors'
services as directors, payment of their deferred fees and stock grants is
made in shares of Illinova Common Stock in an amount equal to the aggregate
number of stock units credited to their accounts. Such payment is made in
such number of annual installments as Illinova may determine beginning in the
year following the year of termination.
Election of Directors
Illinois Power's entire Board of Directors is elected at each Annual Meeting of
Shareholders. Directors hold office until the next Annual Meeting of
Shareholders or until their successors are elected and qualified. At the
Annual Meeting a vote will be taken on a proposal to elect the 10 directors
nominated by Illinois Power's Board of Directors. The names and certain
additional information concerning each of the director nominees is set forth
on the following pages. If any nominee should become unable to serve as a
director, another nominee may be selected by the current Board of Directors.
Name of Director Nominee, Age, Year in Which First
Business Experience and Elected a Director
Other Information of Illinova
Richard R. Berry, 65 1988
- ----------
/ / From June 1983 until retirement in February 1990, Mr. Berry was
/ / Executive Vice President and director of Olin Corporation, Stamford,
/ Picture/ Conn., a diversified manufacturer concentrated in chemicals, metals
/ / and aerospace/defense products.
- ----------
Larry D. Haab, 59 1986
- -----------
/ / Chairman, President and Chief Executive Officer of Illinova since
/ / December 1993, and of Illinois Power since June 1991, and an
/ Picture / employee of Illinois Power since 1965. He is a director of First
/ / Decatur Bancshares, Inc.; The First National Bank of Decatur; and
- ----------- Firstech, Incorporated.
C. Steven McMillan, 51 1996
- -----------
/ / Executive Vice President and Director of Sara Lee Corporation,
/ / Chicago, Ill., a global packaged food and consumer products
/ Picture / company, since 1993. He was Senior Vice President-Strategy
/ / Development from 1986 to 1993. He is Chairman of the Board of
- ----------- Electrolux Corporation.
Robert M. Powers, 65 1984
- -----------
/ / From 1980 until retirement in December 1988, Mr. Powers was
/ / President and Chief Executive Officer of A. E. Staley
/ Picture / Manufacturing Company, Decatur, Ill., a processor of grain and
/ / oil seeds. He is a director of A. E. Staley Manufacturing Company.
- -----------
Sheli Z. Rosenberg, 55
- ------------
/ / President and Chief Executive Officer since 1994 and General
/ / Counsel 1980 to 1994 of Equity Group Investments, Inc.,
/ Picture / Chicago, Ill., a privately held business conglomerate holding
/ / controlling interests in 10 publicly traded corporations involved
- ------------ in basic manufacturing, radio stations, retail, insurance, and
real estate. She is a director of American Classic Voyages Company; REVCO D.S.,
Inc.; Quality Food Centers, Inc.; Jacor Communications, Inc.; Anixter
Corporation; Capsure Holdings Corporation; Falcon Building Products; and
Equity Residential Properties Trust.
Walter D. Scott, 65 1990
- -------------
/ / Professor of Management and Senior Austin Fellow, J. L. Kellogg
/ / Graduate School of Management, Northwestern University,
/ Picture / Evanston, Ill., since 1988. He was Chairman of GrandMet USA
/ / from 1984 to 1986 and President and Chief Executive Officer of
- ------------- IDS Financial Services from 1980 to 1984. He is a director
of Chicago Title and Trust Company, Chicago Title Insurance Company, and
Intermatic Incorporated.
Ronald L. Thompson, 47 1991
- -------------
/ / Chairman and Chief Executive Officer of Midwest Stamping
/ / and Manufacturing Co., Bowling Green, Ohio, a manufacturer
/ Picture / of automotive parts, since 1993. He was President and
/ / Chief Executive Officer and a director of The GR Group, Inc.,
- ------------- St. Louis, Mo., from 1980 to 1993. He is a director of McDonnell
Douglas Corporation, Teachers Insurance and Annuity Association, and Ryerson
Tull.
Walter M. Vannoy, 69 1990
- --------------
/ / Chairman until retirement in May 1995 and Chief Executive
/ / Officer from May 1994 until January 1995 of Figgie
/ Picture / International, Inc., Willoughby, Ohio, a diversified
/ / operating company serving consumer, industrial, technical,
- -------------- and service markets world-wide. From 1980 to 1988 he was
President and Chief Operating Officer, Babcock and Wilcox, and Vice Chairman
of McDermott International. He is a director of Figgie International, Inc.
Marilou von Ferstel, 59 1990
- --------------
/ / Executive Vice President and General Manager of Ogilvy
/ / Adams & Rinehart, Inc., a public relations firm in Chicago,
/ Picture / Ill., since June 1990. She was Managing Director and Senior
/ / Vice President of Hill and Knowlton, Chicago, Ill., from 1981
- -------------- to 1990. She is a director of Walgreen Company.
John D. Zeglis, 49 1993
- --------------
/ / Senior Executive Vice President and General Counsel of
/ / AT&T, Basking Ridge, N.J., a diversified communications
/ Picture / company, since 1995. He was Senior Vice President-General
/ / Counsel and Government Affairs from 1989 to 1995. He is a
- -------------- director of the Helmerich & Payne Corporation.
Security Ownership of Management and
Certain Beneficial Owners
The following table shows shares of stock beneficially owned as of January 31,
1997, by each director nominee and the executive officers named in the
Summary Compensation Table. To the best of Illinova's knowledge, no owner
holds more than 5 percent of Illinova Common Stock.
<TABLE>
<C> <C> <C> <C>
Number
of Shares
Name of Class Beneficially Percent
Beneficial Owner of Stock Owned (1) of Class
- ------------------------------------------------------------------------------
Richard R. Berry Common 4,390 (2)
Larry D. Haab Common 10,725 (2)
C. Steven McMillan Common 650 (2)
Robert M. Powers Common 7,900 (2)
Sheli Z. Rosenberg Common 0 (2)
Walter D. Scott Common 4,500 (2)
Ronald L. Thompson Common 4,338 (2)
Walter M. Vannoy Common 4,000 (2)
Marilou von Ferstel Common 4,907 (2)
John D. Zeglis Common 3,154 (2)
Paul L. Lang Common 3,162 (2)
Larry F. Altenbaumer Common 4,644 (2)
John G. Cook Common 1,862 (2)
Wilfred Connell Common 1,630 (2)
</TABLE>
(1) The nature of beneficial ownership for shares shown is sole voting and/or
investment power.
(2) No director or executive officer owns any other equity securities of
Illinova. No director or executive officer owns as much as 1% of the Common
Stock. All directors and executive officers of both Illinova and Illinois
Power Company as a group own 64,658 shares of Common Stock (less than 1%).
(3) This number includes 1105 stock units under the Directors' Deferred
Compensation Plan.
(4) This number includes 664 stock units under the Directors' Deferred
Compensation Plan.
Executive Compensation
The following table sets forth a summary of the compensation of the Chief
Executive Officer and the four other most highly compensated executive
officers of Illinois Power Company for the years indicated. The compensation
shown includes all compensation paid for service to Illinois Power, its
parent and subsidiaries.
<TABLE>
Summary Compensation Table
<C>
Long-Term Compensation
<C> <C>
Annual Compensation Awards
--------------------------------- -----------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
Other Restricted Securities All Other
Bonus Annual Stock Awards Underlying Compensation
Name and Principal Position Year Salary (1) Compensation (2) Options (3)
- ------------------------------------------------------------------------------------------------------------------------------
Larry D. Haab 1996 $ 493,709 $ 69,267 $ 15,973 $ 69,267 22,000 shs. $ 2,615
Chairman, President and 1995 472,250 91,144 19,088 91,144 20,000 shs. 2,550
Chief Executive Officer of 1994 451,375 42,881 15,783 42,881 20,900 shs. 360
Illinova and Illinois Power
Paul L. Lang 1996 $ 233,450 $ 19,747 $ 8,863 $ 19,747 6,500 shs. $ 2,595
Senior Vice President 1995 222,812 23,841 8,265 23,841 6,500 shs. 2,510
of Illinois Power 1994 213,562 20,289 8,672 20,289 6,800 shs. 440
Larry F. Altenbaumer 1996 $ 222,374 $ 19,832 $ 8,459 $ 19,832 7,500 shs. $ 1,976
Chief Financial Officer, 1995 204,937 20,391 7,686 20,391 6,500 shs. 2,378
Treasurer and Controller 1994 196,562 18,674 8,975 18,674 6,800 shs. 400
of Illinova, and Senior
Vice President and Chief
Financial Officer of
Illinois Power
John G. Cook 1996 $ 196,474 $ 16,293 $ 7,409 $ 16,293 6,500 shs. $ 2,575
Senior Vice President 1995 179,069 16,620 6,930 16,620 4,500 shs. 2,530
of Illinois Power 1994 163,708 15,553 7,068 15,553 4,400 shs. 400
Wilfred Connell 1996 $ 185,950 $ 9,832 $ 7,373 $ 9,832 4,500 shs. $ 2,559
Vice President 1995 172,975 16,087 7,230 16,087 3,900 shs. 2,402
of Illinois Power 1994 165,562 15,729 7,705 15,729 4,400 shs. 480
</TABLE>
(1) The amounts shown in this column are the cash award portion of grants
made to these individuals under the Executive Incentive Compensation Plan
("Compensation Plan") for 1996, including amounts deferred under the
Executive Deferred Compensation Plan. See the Compensation Plan description
in footnote (2) below.
(2) This table sets forth stock unit awards for 1996 under the Compensation
Plan. One-half of each year's award under this plan is converted into stock
units representing shares of Illinova Common Stock based on the closing price
of Common Stock on the last trading day of the award year. The other one-half
of the award is cash and is included under Bonus in the Summary Compensation
Table. Stock units awarded in a given year, together with cash representing
the accumulated dividend equivalents on those stock units, become fully vested
after a three-year holding period. Stock units are converted into cash based
on the closing price of Common Stock on the first trading day of the
distribution year. Participants (or beneficiaries of deceased participants)
whose employment is terminated by retirement on or after age 55, disability,
or death receive the present value of all unpaid awards on the date of such
termination. Participants whose employment is terminated for reasons other
than retirement, disability, or death forfeit all unvested awards. In the
event of a termination of employment within two years after a change in control
of Illinova, without good cause or by any participant with good reason, all
awards of the participant become fully vested and payable. As of December 31,
1996, named executive officers were credited with the following total aggregate
number of unvested stock units under the Compensation Plan since its inception,
valued on the basis of the closing proce of Common Stock on December 31, 1996:
Mr. Haab, 7,085 units valued at $214,633; Mr. Lang, 2,550 units valued at
$70,123; Mr. Altenbaumer, 2,353 units valued at $64,718; Mr. Cook, 1,939 units
valued at $53,330; Mr. Connell, 1,695 units valued at $46,600. Although
stock units have been rounded, valuation is based on total stock units,
including partial shares.
(3) The amounts shown in this column are Illinois Power's contributions
under the Incentive Savings Plan (including the market value of shares of
Illinova Common Stock at the time of allocation).
The following tables summarize grants during 1996 of stock options under
Illinova's 1992 Long-Term Incentive Compensation Plan ("LTIC") and awards
outstanding at year end for the individuals named in the Summary Compensation
Table.
<TABLE>
Option Grants In 1996
<C>
Individual Grants
--------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Number of Securities % of Total Options
Underlying Options Granted to Employees Exercise or Base Grant Date
Granted (1) in 1996 Price Per Share (1) Expiration Date Present Value (2)
----------------------------------------------------------------------------------------------------------
Larry D. Haab 22,000 27% $29.75 2/7/2006 $ 125,400
Paul L. Lang 6,500 8% 29.75 2/7/2006 37,050
Larry F. Altenbaumer 7,500 9% 29.75 2/7/2006 42,750
John G. Cook 6,500 8% 29.75 2/7/2006 37,050
Wilfred Connell 4,500 6% 29.75 2/7/2006 26,650
</TABLE>
(1) Each option becomes exercisable on February 7, 1999. In addition to the
specified expiration date, the grant expires on the first anniversary of the
recipient's death and/or the 90th day following retirement, and is not
exercisable in the event a recipient's employment terminates. In the event of
certain change-in-control circumstances, the Compensation and Nominating
Committee may declare the option immediately exercisable. The exercise price
of each option is equal to the fair market value of the Common Stock on the
date of the grant. Recipients shall also receive, on or shortly after
February 7, 1999, a target performance award, determined by calculating the
difference between the return earned by Illinova on its invested capital and
its cost of capital (the "spread"), then comparing this spread to that of a
peer group and reducing or increasing the target award depending on Illinova's
relative performance, but not reducing the payment below zero. The target
award is equal to one-half of the mid-point of compensation for each officer's
salary grade (a market-based number) times a percentage, determined by the
Compensation and Nominating Committee. In 1996 those percentages ranged
between 15 and 35 percent. At the discretion of the Board of Directors, the
foregoing payment may be made in the form of Illinova Common Stock of
equivalent value based on the average New York Stock Exchange price of the
stock during February, 1999, or in cash.
(2) The Grant Date Present Value has been calculated using the Black-Scholes
option pricing model. Disclosure of the Grant Date Present Value, or the
potential realizable value of option grants assuming 5% and 10% annualized
growth rates, is mandated by regulation; however, Illinova does not
necessarily view the Black-Scholes pricing methodology, or any other present
methodology, as a valid or accurate means of valuing stock option grants. The
calculation was based on the following assumptions: (i) As of the grant date,
Illinova's calculated Black-Scholes ratio was .2036. After discounting for
risk of forfeiture at three percent per year over Illinova's three-year
vesting schedule, the ratio is reduced to .1914; (ii) An annual dividend
yield on Illinova Common Stock of 3.84%; (iii) A risk-free interest rate of
5.87%, based on the yield of a zero-coupon government bond maturing at the
end of the option term; and (iv) Stock volatility of 17.34%.
<TABLE>
Aggregated Option and Fiscal Year-End Option Value Table
<C> <C> <C>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year-End Options at Fiscal Year-End
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------------------------------------------------
Larry D. Haab 16,000 shs./82,900 shs. $66,000/$255,963
Paul L. Lang 5,000 shs./25,800 shs. $20,625/$81,613
Larry F. Altenbaumer 5,000 shs./26,800 shs. $20,625/$81,613
John G. Cook 2,500 shs./18,400 shs. $10,313/$50,713
Wilfred Connell 3,000 shs./17,300 shs. $12,375/$54,013
</TABLE>
Pension Benefits
Illinois Power maintains a Retirement Income Plan for Salaried Employees (the
"Retirement Plan") providing pension benefits for all eligible salaried
employees. In addition to the Retirement Plan, Illinois Power also maintains
a nonqualified Supplemental Retirement Income Plan for Salaried Employees (the
"Supplemental Plan") that covers all elected officers eligible to participate
in the Retirement Plan and provides for payments from general funds of
Illinois Power of any monthly retirement income not payable under the
Retirement Plan because of benefit limits imposed by law or because of certain
Retirement Plan rules limiting the amount of credited service accrued by a
participant.
The following table shows the estimated annual pension benefits on a straight
life annuity basis payable upon retirement based on specified annual average
earnings and years of credited service classifications, assuming continuation
of the Retirement Plan and Supplemental Plan and employment until age 65.
This table does not show, but any actual pension benefit payments would be
subject to, the Social Security offset.
<TABLE>
Estimated Annual Benefits (rounded)
------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Annual
Average 15 Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs.
Earnings Service Service Service Service Service
- -----------------------------------------------------------------------------
$ 125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 87,500
150,000 45,000 60,000 75,000 90,000 105,000
175,000 52,500 70,000 87,500 105,000 122,500
200,000 60,000 80,000 100,000 120,000 140,000
250,000 75,000 100,000 125,000 150,000 175,000
300,000 90,000 120,000 150,000 180,000 210,000
350,000 105,000 140,000 175,000 210,000 245,000
400,000 120,000 160,000 200,000 240,000 280,000
450,000 135,000 180,000 225,000 270,000 315,000
500,000 150,000 200,000 250,000 300,000 350,000
550,000 165,000 220,000 275,000 330,000 385,000
600,000 180,000 240,000 300,000 360,000 420,000
650,000 195,000 260,000 325,000 390,000 455,000
</TABLE>
The earnings used in determining pension benefits under the Retirement Plan
are the participants' regular base compensation, as set forth under Salary
in the Summary Compensation Table.
At December 31, 1996, for purposes of both the Retirement Plan and the
Supplemental Plan, Messrs. Haab, Lang, Altenbaumer, Cook and Connell had
completed 31, 10, 24, 21 and 13 years of credited service, respectively.
Employee Retention Agreements
Illinova has entered into Employee Retention Agreements with each of its
executive officers and officers of its subsidiaries. Under each agreement,
the officer would be entitled to receive a lump sum cash payment if his or
her employment were terminated by Illinova without good cause or voluntarily
by the officer for good reason within two years following a change in control
of Illinova (as defined in the Agreement). The amount of the lump sum payment
would be equal to (1) 36 months' salary at the greater of the officer's
salary rate in effect on the date the change in control occurred or the
salary rate in effect on the date the officer's employment with Illinova
terminated; plus (2) three times the latest bonus earned by the officer
during the three calendar years preceding termination of employment. Under
the agreement, the officer would continue, after any such termination of
employment, to participate in and receive benefits under other benefit plans
of Illinova. Such coverage would continue for 36 months following termination
of employment, or, if earlier, until the officer reached age 65 or was
employed by another employer; provided that, if the officer was 50 years of
age or older at the time of such termination, then coverage under health,
life insurance and similar welfare plans would continue until the officer
became 55 years of age, at which time he or she would be eligible to receive
the benefits extended to the employees of Illinova who elect early retirement.
Compensation and Nominating Committee
Report on Officer Compensation
The six-member Compensation and Nominating Committee of the Board of Directors
(the "Committee") is composed entirely of Outside Directors. The Committee's
role includes a review of the performance of the elected officers and the
establishment of specific officer salaries subject to Board approval. The
Committee establishes performance goals for the officers under the
Compensation Plan, approves payments made pursuant to the Compensation Plan
and recommends grants under the Long-Term Incentive Compensation Plan approved
by the shareholders in 1992. The Committee also reviews other forms of
compensation and benefits making recommendations to the Board on changes
whenever appropriate. The Committee carries out these responsibilities with
assistance from an executive compensation consulting firm and with input from
the Chief Executive Officer and management as it deems appropriate.
Officer Compensation Philosophy
Illinova's compensation philosophy reflects a commitment to compensate
officers competitively with other companies in the electric and gas utility
industry while rewarding executives for achieving levels of operational and
financial excellence consistent with continuous improvement in customer
satisfaction and shareholder value. Illinova's compensation policy is to
provide a total compensation opportunity targeted to all utilities in the
Edison Electric Institute (EEI) database. Eighty-four percent of the companies
in the S & P Utilities Index are also in the EEI database. The S&P Utilities
Index is used to relate Illinova's shareholder value in the following
performance graphs. The S&P index covers the utility indsutry broadly
including electric, gas, and telecommunication utilities. After careful
consideration, the Committe has decided to maintain a separate compensation
peer group limited to electric or combination electric and gas companies
for reference purposes. As an additional point of reference, Illinova also
looks at the pay practices of general industry (non-utility) companies. While
such pay practices have not traditionally been a major driver of Illinova's
compensation philosophy, this reference point may be regarded more closely in
the future as the utility indsutry migrates toward deregulation and
diversification.
The compensation program for officers consists of base salary, annual
incentive and long-term incentive components. The combination of these three
elements balances short- and long-term business performance goals and aligns
officer financial rewards with those of Illinova's shareholders. The
compensation program is structured so that, depending on the salary level,
between 25 and 45 percent of an officer's total compensation target is
composed of incentive compensation.
Base Salary Plan
The Committee determines base salary ranges for executive officers based on
competitive pay practices of similar utilities. Officer salaries correspond
to approximately the average of the companies in the compensation peer group.
Individual increases are based on several factors, including the officer's
performance during the year, the relationship of the officer's salary to the
market salary level for the position and competitive industry salary increase
practices.
Annual Incentive Compensation Plan
Annual incentive awards are earned based on the achievement of specific annual
financial and operational goals by the Illinois Power officer group as a whole
and consideration of the officer's individual contribution. If payment is
earned under this Plan, one-half of the bonus is payable in cash during the
year following the award year, and one-half is credited to the participant in
the form of Common Stock units, the number of which is determined by dividing
half of the earned bonus amount by the closing price of the Common Stock on
the last trading day of the award year. The officer's interest in the stock
units vests at the end of the three-year period which begins the year after
the award year. The officer receives this award in cash equal to (1) the
closing stock price on the first trading day of the distribution year times
the number of units held plus (2) dividend equivalents that would have been
received if the stock had actually been issued.
For Illinois Power officers, 1996 awards under the Compensation Plan are based
on achievement in the performance areas: earnings per share, customer
satisfaction, safety and employee teamwork, cost management and shareholder
value added. Up to 25 percent of the awarded amount is based on an assessment
of the individual officer's performance during the year.
Awards shown under Bonus in the Summary Compensation Table for performance
during 1996 were based on the following results. Earnings per share, customer
satisfaction and shareholder value added were at or better than the threshold
level for the award. Safety performance and cost management performance were
not at threshold for the award.
Long-Term Incentive Compensation Plan
Awards under the LTIC Plan are based on corporate performance as well as
individual officers' contribution to corporate performance subject to the
review of this Committee. The Committee may grant awards in the form of stock
options, stock appreciation rights, dividend equivalents, restricted stock
grants or performance-based cash awards. In 1996, it was determined that
awards under the LTIC plan be delivered in two components. One-half of each
officer's LTIC plan award is delivered in the form of stock options granted
at fair market value. The stock options granted to the officers for 1996
represent an award based on Illinova and individual performance as evaluated
by the Chairman and reviewed by the Committee. The other half of the LTIC
plan award is distributed to officers in cash based upon Illinova's Share-
holder Value-Added (SVA) performance relative to a peer group of other
utility companies, as measured in overlapping three-year periods. Since 1996
represented the first year of SVA plan's first measurement cycle, no awards
are due to be paid out under the plan until 1999.
CEO Compensation
Larry Haab became Chairman, President, and Chief Executive Officer ("CEO") of
Illinois Power on June 12, 1991, and Chairman, President and Chief Executive
Officer of Illinova in December 1993. Illinova based Mr. Haab's 1996
compensation on the policies and plans described above.
The Committee invokes the active participation of all non-management directors
in reviewing Mr. Haab's performance before it makes recommendations regarding
his compensation. The Committee is responsible for administering the processes
for completing this review. The process starts early in the year when the
Board of Directors works with Mr. Haab to establish his personal goals and
short- and long-term strategic goals for Illinova. At the conclusion of the
year Mr. Haab reviews his performance with the non-management directors. The
Committee oversees this review and recommends to the Board appropriate
adjustments to compensation. In setting the CEO's salary for 1996, the
Committee, with the participation of all Outside Directors, determined that
important goals were achieved and the results for Illinova for the year were
strong. Mr. Haab's vision of the industry's evolution has led, and is
continuing to lead, to appropriate redeployment of Illinova resources. The
Committee concluded that in 1996 Mr. Haab's performance continued to advance
Illinova toward the accomplishment of its strategic objectives.
The 1996 Annual Incentive Compensation Plan award for the Chief Executive
Officer was calculated consistent with the determination of awards for all
other Illinois Power officers. Under the terms of the plan, one-half of the
award was paid in cash and one-half was converted to 2,519 stock units which
vest over a three-year period as described above.
The 22,000 option shares granted to the CEO reflect the Committee's
recognition of his work in directing Illinova towards its long-term objectives
of outstanding customer satisfaction and sustained growth in shareholder
return.
Compensation and Nominating Committee
Donald S. Perkins, Chairman
Robert M. Powers
Walter D. Scott
Ronald L. Thompson
Marilou von Ferstel
John D. Zeglis
Independent Auditors
The Board of Directors of Illinois Power has selected Price Waterhouse LLP as
independent auditors for the Company for 1997. A representative of that firm
will be present at the Annual Meeting and available to make a statement and to
respond to questions.
Other Matters
Illinova's 1996 Summary Annual Report to Shareholders was mailed to Illinois
Power's shareholders commencing on March 3, 1997. Copies of Illinois Power's
Annual Report on Form 10-K will be available to shareholders, after its filing
with the Securities and Exchange Commission on or before March 31, 1997.
Requests should be addressed to Investor Relations, G-21, Illinois Power
Company, 500 South 27th Street, Decatur, Illinois 62525-1805.
Any proposal by a shareholder to be presented at the next Annual Meeting must
be received at Illinois Power's executive offices not later than November 3,
1997.
Other Business
Management does not know of any matter which will be presented for
consideration at the Annual Meeting other than the matters described in the
accompanying Notice of Annual Meeting.
By Order of the Board of Directors,
Leah Manning Stetzner,
Vice President, General Counsel and Corporate Secretary
Decatur, Illinois
March 3, 1997
Appendix: 1996 Annual Report to Shareholders
Table of Contents
Management's Discussion and Analysis . . . . . . . . . . . . . . . . . . A-2
Responsibility for Information . . . . . . . . . . . . . . . . . . . . . A-10
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . A-10
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . A-11
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . A-12
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . A-13
Consolidated Statements of Retained Earnings . . . . . . . . . . . . . . A-13
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . A-14
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . A-32
Selected Statistics . . . . . . . . . . . . .. . . . . . . . . . . . . . A-33
Management's Discussion and Analysis
In this report, we refer to the Consolidated Financial Statements, related
Notes to Consolidated Financial Statements, Selected Consolidated Financial
Data and Selected Statistics for information concerning
consolidated financial position and results of operations. A discussion of the
factors having significant impact upon consolidated financial position and
results of operations since January 1, 1994, is below.
Illinois Power Company (IP) is a subsidiary of Illinova Corporation (Illinova),
a holding company. Illinova was officially formed on May 27, 1994, with the
filing of documents with the Illinois Secreatry of State. Illinova became
the parent of IP through a merger pursuant to a share-for-share conversion of
IP common stock into Illinova common stock. Illinova Generating Company,
Illinova Power Marketing, Inc., Illinova Energy Partners, Inc. and Illinova
Insurance Company are also wholly owned subsidiaries of Illinova. IP is the
primary business and subsidiary of Illinova, and is engaged in the generation,
transmission, distribution and sale of electric energy and the distribution,
transportation and sale of natural gas in the State of Illinois.
Open Access and Wheeling
On March 29, 1995, the Federal Energy Regulatory Commission (FERC) issued a
Notice of Proposed Rulemaking (NOPR) initiating the process of mandating
non-discriminatory open access to public utility transmission services at
cost-based rates. Transmission of electricity for a reseller or redistributor
of energy is called wholesale wheeling. Transmission of electricity for end-
use customers is known as retail wheeling.
On April 24, 1996, FERC issued Orders 888 and 889 which established the Final
Rule resulting from the NOPR. The Orders became effective July 9, 1996. The
Rule requires that all public utilities under FERC jurisdiction that own
transmission facilities file Open Access Transmission Tariffs (OATTs) in
compliance with Pro Forma Tariffs attached to the Order. FERC also requires
that all wholesale sales made by a utility provide for transmission of the
power under the terms and conditions of the OATTs. Public utilities serving
customers at retail are not required, at this time, to use the OATTs to serve
retail customers. The Orders do not require that retail customers be given
access to alternate energy suppliers or be found eligible as customers under
the OATTs. IP made a compliance filing as required on July 9, 1996, which has
been accepted by FERC.
While the move to open-access transmission service will likely increase the
level of competition in the wholesale energy market, it is not expected to
have a significant financial impact.
Competition
On November 21, 1996, IP and its partners in the Illinois Coalition for
Responsible Electricity Choice announced a legislative proposal which would
begin transformation of the Illinois electric industry from a highly regulated
monopoly to a competitive, customer-choice environment. The proposal, which
was introduced in the Illinois House of Representatives on January 29, 1997,
would allow for a managed transition to direct access for all consumers by
the year 2005. The plan would balance the need to ensure the financial
stability of current utility providers with the timing of customer choice.
Other parties have introduced plans that would not provide for this balance,
and would allow full competition by as early as 1998.
The Joint Committee on Electric Utility Regulatory Reform of the Illinois
General Assembly deliberated the issue of regulatory reform for 18 months.
Their report, issued December 4, 1996, stated that the Committee was unable
to reach consensus on a legislative proposal. It is reasonable to assume that
significant change will be made to the state laws governing IP's electric
operations, but impossible to predict what these changes will be.
IP received approval from the Illinois Commerce Commission (ICC) on March 13,
1996, and from FERC on April 24, 1996, to conduct an open access experiment
beginning in 1996 and ending on December 31, 1999.
The experiment allows certain industrial customers to purchase electricity
and related services from other sources. On April 25, 1996, the first of the
21 eligible customers began buying part of their electricity from a supplier
other than IP. Currently, 16 customers are participating in the experiment.
The experiment has demonstrated some of the immediate advantages competition
brings to customers, such as lower prices and innovative service offerings.
It has also provided evidence of some of the challenges the industry faces as
it moves toward customer choice. Challenges include dispatching small
amounts of electricity such as one or two megawatt hours (MWHs), and the
absence of requisite technology to dispatch fractional MWHs.
In 1996, the experiment cost IP approximately $3.2 million in lost revenue net
of avoided fuel cost and variable operating expenses. This loss was partially
offset by selling the surplus energy and capacity on the open market and by
$.9 million in transmission service charges.
The issue of competition is one that raises both risks and opportunities. At
this time, the ultimate effect of competition on Illinova's consolidated
financial position and results of operations is uncertain. See "Note 1 -
Summary of Significant Accounting Policies" of the "Notes to Consolidated
Financial Statements" for additional discussion of the effects of regulation.
Regulatory Matters
On September 6, 1996, a leaking seal in one of two reactor recirculation pumps
caused IP to shut down Clinton Power Station (Clinton). While a plant shutdown
to correct this problem would not be a major concern in itself, the event was
significant because of broader issues which surfaced during subsequent
internal investigations, involving operating philosophies, procedure
compliance issues, degree of management oversight, and tolerance of equipment
problems.
This event prompted two special team inspections by the Nuclear Regulatory
Commission (NRC). The first inspection covered the events associated with the
leaking pump seal and the shutdown, while the second focused more broadly on
operations at Clinton. In a public meeting held on October 4, 1996, the NRC
discussed its findings, expressing concern over both the handling of the pump
seal problem and general plant operating philosophies. It also commended
subsequent actions taken by IP to address the issues raised.
IP decided not to restart Clinton prior to the start of the scheduled
refueling outage on October 13, 1996. An action plan was developed to address
the operational weaknesses identified by IP. Work began to correct the items
in the action plan while the refueling outage progressed.
On November 19, 1996, the NRC issued a formal report of its two teams'
inspections. IP agreed with the majority of the report's findings. The concerns
of the NRC that had not already been addressed were incorporated into IP's
action plan. On January 29, 1997, the NRC informed IP that it viewed Clinton
as having a declining safety performance trend. The NRC did not, however,
place Clinton on its "watch list." The NRC acknowledged that IP has allocated
additional resources to correct deficiencies and noted recent conservative
decisions made by management that have impacted the length of the refueling
outage schedule. The NRC held an enforcement conference with IP on February 4,
1997, to discuss the event and other issues identified during assessments and
inspections. The plant will remain shut down until IP management is satisfied
that all safety concerns have been addressed.
The operation and maintenance expense of the outage, including the scheduled
refueling outage, is estimated at $30 million. The refueling outage was
budgeted at $18 million.
Enhanced Retirement
In December 1994, IP announced plans for voluntary enhanced retirement and
severance programs. During the fourth quarter of 1995, 727 employees accepted
enhanced retirement or severance under these programs. The combined enhanced
retirement and severance programs generated a pretax charge of $38 million
against fourth quarter 1995 earnings.
Consolidated Results of Operations
Overview
Earnings applicable to common stock were $206 million for 1996, $156 million
for 1995 and $162 million for 1994. The increase in 1996 net income over 1995
was due primarily to the one-time charge in 1995 for the enhanced retirement
and severance programs, lower operations expense due to the employment
decrease, and lower financing costs. The 1995 results include $(22.8)
million net-of-tax for the enhanced retirement and severance programs and
$(3.5) million for the carrying amount under consideration paid for
preferred stock redeemed in December 1995. The 1995 earnings as compared
to 1994 also reflect increased electric sales due to unseasonably warm
summer weather; partially offset by increased operating and maintenance
expenses due to the Clinton refueling and maintenance outage. The 1994
results include $6.4 million for the carrying amount over consideration paid
for preferred stock redeemed in December 1994 and reflect an increase in
gas rates as a result of IP's 1994 gas rate order. The 1994 earnings also
reflect increased electric sales, lower operating and maintenance expenses
due to cost management efforts, no Clinton refueling and maintenance outage,
and lower financing costs as compared to 1993.
The ICC and FERC determine IP's rates for electric service at the retail and
wholesale levels, respectively, and the ICC determines IP's rates for gas
service. These rates are designed to recover the cost of service and allow
shareholders the opportunity to earn a fair rate of return. Future electric
and natural gas sales, including interchange sales, will continue to be
affected by an increasingly competitive marketplace, changes in the regulatory
environment, increased transmission access, weather conditions, competing
fuel sources, interchange market conditions, plant availability, fuel cost
recoveries, customer conservation efforts and the overall economy.
<TABLE>
Operating Revenues
(Millions of dollars)
<C> <C>
1996 $1,688.7
1995 $1,641.4
1994 $1,589.5
1993 $1,581.2
1992 $1,479.5
</TABLE>
Electric Operations For the years 1994 through 1996, electric revenues
including interchange increased 4.1% and the gross electric margin increased
6.1% as follows:
<TABLE>
<C> <C> <C> <C>
- ---------------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- ---------------------------------------------------------------------
Electric revenues $ 1,202.9 $ 1,252.6 $ 1,177.5
Interchange revenues 137.6 116.3 110.0
Fuel cost & power purchased (313.3) (333.4) (319.2)
- ----------------------------------------------------------------------
Electric margin $ 1,027.2 $ 1,035.5 $ 968.3
</TABLE>
The components of annual changes in electric revenues were:
<TABLE>
<C> <C> <C> <C>
- ----------------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
- ----------------------------------------------------------------------
Price $ (7.2) $ 13.3 $ (23.2)
Volume and other 6.4 42.7 44.1
Fuel cost recoveries (48.9) 19.1 21.0
- ----------------------------------------------------------------------
Revenue increase (decrease) $ (49.7) $ 75.1 $ 41.9
</TABLE>
1996 Electric revenues excluding interchange sales decreased 4.0%, primarily
due to reduction in revenues under the Uniform Fuel Adjustment Clause (UFAC).
Volume changes by customer class were insignificant, as kilowatt-hour sales
<TABLE>
Major Sources of Electric Energy
(Millions of megawatt-hours)
<C> <C> <C> <C>
1996 1995 1994
Fossil 16.3 14.5 13.2
Nuclear 4.6 5.3 6.4
Purchases 3.4 3.2 3.1
</TABLE>
to ultimate consumers (excluding interchange sales and wheeling) decreased .3%.
Interchange revenues increased 18.3% as a result of higher plant availability
in the first half of the year.
1995 The 6.4% increase in electric revenues was primarily due to a 1.9%
increase in kilowatt-hour sales to ultimate consumers (excluding interchange
sales and wheeling). Volume increases resulted from higher residential sales
(4.8%) and higher commercial sales (8.2%) due to an improving economy and
warmer summer temperatures compared to 1994. Industrial sales remained
essentially unchanged from 1994. Interchange revenues increased $6.3 million
(5.8%) as a result of increased sales opportunities.
1994 The 3.7% increase in electric revenues was primarily due to a 6.3%
increase in kilowatt-hour sales to ultimate consumers (excluding interchange
sales and wheeling). Volume increases resulted from higher commercial sales
(8.3%) and higher industrial sales (7.0%) due to an improving economy.
Residential sales remained essentially unchanged from 1993 primarily due to
milder temperatures in 1994 as compared to 1993. Interchange sales decreased
19.6% from 1993 levels primarily due to unusually large sales opportunities
in 1993.
The cost of meeting IP's system requirements was reflected in fuel costs for
electric plants and power purchased. Changes in these costs are detailed
below:
<TABLE>
<C> <C> <C> <C>
- ----------------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
Fuel for electric plants
Volume and other $ 15.4 $ 9.8 $ 13.8
Price (12.0) (35.5) (14.3)
Emission allowances .8 18.5 -
Fuel cost recoveries (30.0) 14.5 32.0
- -----------------------------------------------------------------------
(25.8) 7.3 31.5
Power purchased 5.7 6.9 (25.9)
- -----------------------------------------------------------------------
Total increase (decrease) $ (20.1) $ 14.2 $ 5.6
- -----------------------------------------------------------------------
Weighted average system
generating fuel cost ($/MWH) $ 11.01 $ 11.41 $ 12.72
- ------------------------------------------------------------------------
</TABLE>
System load requirements, generating unit availability, fuel prices, purchased
power prices, resale of energy to other utilities, emission allowance
purchases and fuel cost recovery through UFAC caused changes in these costs.
Changes in factors affecting the cost of fuel for electric generation are
below:
<TABLE>
<C> <C> <C> <C>
- -----------------------------------------------------
1996 1995 1994
- -----------------------------------------------------
Increase in generation 5.4% .7% 8.2%
Generation mix
Coal and other 78% 73% 67%
Nuclear 22% 27% 33%
- -----------------------------------------------------
</TABLE>
1996 The cost of fuel decreased 9.4% and electric generation increased 5.4%.
The decrease in fuel cost was primarily attributable to the effects of the
UFAC, as well as a favorable price variance. These factors were partially
offset by an increase in fuel cost due to the increase in generation. Power
purchased increased $5.7 million primarily due to the extended Clinton outage.
Clinton's equivalent availability and generation were lower than in 1995 due
to that outage.
<TABLE>
Fuel Cost Per Million Btu
(Percent of generation)
<C> <C> <C>
Coal $1.28 76%
Nuclear $ .81 22%
Other $1.68 2%
</TABLE>
1995 The cost of fuel increased 2.8% and electric generation increased .7%.
The increase in fuel cost was attributable to the effects of the UFAC, the
increase in higher-cost fossil generation and the cost of emission allowances.
Clinton's equivalent availability and generation were lower in 1995 as
compared to 1994 due to the scheduled refueling and maintenance outage.
Clinton returned to service April 29, 1995, after completing its fifth
refueling and maintenance outage, which began March 12, 1995. Power purchased
increased $6.9 million.
1994 The cost of fuel increased 13.4% and electric generation increased 8.2%.
The increase in fuel cost was attributable to the effects of the UFAC,
partially offset by a decrease in fossil generation and an increase in lower-
cost nuclear generation. Clinton's equivalent availability and generation were
higher in 1994 as compared to 1993 due to no refueling and maintenance outage.
Power purchased for the period decreased $25.9 million. Unusually large
interchange sales opportunities during 1993, which did not recur in 1994,
were the primary cause of the decrease in purchased power.
Gas Operations For the years 1994 through 1996, gas revenues including
transportation increased 15.3%, while the gross margin on gas revenues
increased 12.4% as follows:
<TABLE>
- --------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars) 1996 1995 1994
- --------------------------------------------------------
Gas revenues $ 341.4 $ 264.5 $ 293.2
Gas cost (202.6) (138.8) (172.4)
Transportation revenues 6.8 8.0 8.8
- ---------------------------------------------------------
Gas margin $ 145.6 $ 133.7 $ 129.6
- ---------------------------------------------------------
(Millions of therms)
Therms sold 703 588 584
Therms transported 251 273 262
- ----------------------------------------------------------
Total consumption 954 861 846
- ----------------------------------------------------------
</TABLE>
Changes in the cost of gas purchased for resale were:
<TABLE>
- ------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars) 1996 1995 1994
Gas purchased for resale
Cost (excluding take-or-pay) $ 48.6 $ (43.1) $ (6.4)
Take-or-pay costs .4 (.4) 2.8
Volume 8.5 25.3 (13.6)
Gas cost recoveries 6.3 (15.4) 2.3
- --------------------------------------------------------------------------
Total increase (decrease) $ 63.8 $ (33.6) $ (14.9)
- --------------------------------------------------------------------------
Average cost per therm delivered 26.7 cents 20.1 cents 26.1 cents
- ---------------------------------------------------------------------------
</TABLE>
The 1996 increase in gas costs was primarily due to higher prices from
suppliers and the effects of the Uniform Gas Adjustment Clause (UGAC). The
1995 decrease in the cost of gas purchased was due to lower gas prices caused
by unusually warm winter weather nationwide. The 1994 decrease in the cost of
gas purchased was primarily due to lower gas prices, the expanded use of
additional gas storage and a decrease in therms purchased. Also contributing
to the higher gas margins in 1995 and 1994 was the 6.1% increase in gas base
rates approved by the ICC in April 1994.
Other Expenses A comparison of significant increases (decreases) in other
operating expenses, maintenance and depreciation for the last three years is
presented in the following table:
<TABLE>
- ----------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars) 1996 1995 1994
Other operating expenses $ (9.8) $ (.3) $ (9.2)
Maintenance (.3) 10.4 (11.2)
Depreciation and amortization 3.5 7.2 6.4
- -----------------------------------------------------------
</TABLE>
The decrease in operating expenses for 1996 is due primarily to the savings
from the enhanced retirement and severance program, partially offset by the
costs of the extended Clinton outage and increased amortization of
Manufactured Gas Plant (MGP) site expenses. The ICC approved tariff riders in
March 1996 that resulted in the current recognition of MGP site remediation
costs in operating expenses. The 1996 increase amounted to $5.5 million. This
increase is offset by increased revenues collected under the riders.
The increase in maintenance expense for 1995 is primarily due to the refueling
and maintenance outage at Clinton. The decrease in operating and maintenance
expenses for 1994 is due to re-engineering efforts, improved operating
efficiencies at IP's fossil plants and at Clinton, and no refueling and
maintenance outage at Clinton. The increases in depreciation for each of the
three years were due to increases in utility plant balances. The 1994 increase
in depreciation expense is partially offset by the decrease in deferred
Clinton costs as a result of a September 1993 write-off of disallowed Clinton
post-construction costs.
<TABLE>
Operating and Maintenance Expenses
(Millions of Dollars)
<C> <C>
1996 $349.6
1995 $359.7
1994 $349.6
1993 $370.0
1992 $373.4
</TABLE>
Other Income and Deductions The 1996 increase in Miscellaneous-net
deductions was due primarily to increased losses for the subsidiary companies
other than IP, partially offset by an increase in the credit for allocated
income taxes. The 1995 change in Miscellaneous-net deductions was negligible.
The 1994 increase in deductions was primarily due to the change in allocated
taxes.
Interest Charges Interest charges decreased $15.0 million in 1996, $4.1
million in 1995 and decreased $21.0 million in 1994. The 1996 decrease was
due to lower short-term interest rates and the impact of refinancing efforts
and capitalization reduction during 1996. The 1995 increase was due to
increased short-term borrowings at higher interest rates. The 1994 decrease
was primarily due to refinancing with lower cost debt and the retirement of
debt in 1994 and 1993.
Inflation Inflation, as measured by the Consumer Price Index, was 3.3%,
2.5% and 2.5% in 1996, 1995 and 1994, respectively. IP recovers historical
rather than current plant costs in rates.
Liquidity and Capital Resources
Soyland Power Cooperative Negotiations
IP and Soyland Power Cooperative (Soyland) have entered into an agreement to
transfer Soyland's 13.2% ownership of Clinton to IP, contingent on approval
by the NRC. The NRC is expected to act on IP's request during the first
quarter of 1997.
IP and Soyland have renegotiated the existing Power Coordination Agreement.
This agreement is expected to result in a reduction of rates for Soyland while
IP will be assured a long-term sales agreement for 10 to 20 years. IP is
expected to file a request for approval of this agreement with FERC by the
end of February 1997.
1994 Gas Rate Order
On April 6, 1994, the ICC approved an increase of $18.9 million, or 6.1%, in
IP's gas base rates. For customers, the increase is partially offset by
savings from lower gas costs resulting from the expansion of the Hillsboro
gas storage field. The approved authorized rate of return on rate base is
9.29%, with a rate of return on common equity of 11.24%. Concurrent with the
gas rate increase, IP's gas utility plant composite depreciation rate
decreased to 3.4%.
Dividends
On December 11, 1996, Illinova increased the quarterly common stock dividend
by 11%, declaring the common stock dividend for the first quarter of 1997,
payable February 1, 1997 to shareholders of record as of January 10, 1997.
On December 13, 1995, IP increased the quarterly common stock dividend 12%,
declaring the common stock dividend for the first quarter of 1996. On
October 12, 1994, IP increased the quarterly common stock dividend 25%,
declaring the common stock dividend for the first quarter of 1995.
Capital Resources and Requirements
IP needs cash for operating expenses, interest and dividend
payments, debt and certain preferred stock retirements and construction
programs. To meet these needs, IP has used internally generated
funds and external financings, including the issuance of preferred stock,
debt and revolving lines of credit. The timing and amount of external
financings depend primarily on economic and financial market conditions, cash
needs and capitalization ratio objectives.
Cash flows from operations during 1996 provided sufficient working capital to
meet ongoing operating requirements, to service existing common and
preferred stock dividends and debt requirements, and to meet all of IP's
construction requirements. Additionally, IP expects that future cash
flows will enable it to meet future operating requirements and continue to
service its existing debt, preferred and common stock dividends, sinking
fund requirements and all of its anticipated construction requirements.
To a significant degree, the availability and cost of external financing
depend on the financial health of the company seeking those funds. Security
ratings are an indication of a company's financial position and may affect
the cost of securities, as well as the willingness of investors to invest in
these securities. The current ratings of IP's securities by three principal
securities rating agencies are as follows:
<TABLE>
- -------------------------------------------------------------------------
<C> <C> <C> <C>
Standard Duff &
Moody's & Poor's Phelps
- -------------------------------------------------------------------------
IP first/new mortgage bonds Baa1 BBB BBB+
IP preferred stock baa2 BBB- BBB-
IP commercial paper P-2 A-2 D-2
- -------------------------------------------------------------------------
</TABLE>
Under current market conditions, these ratings would afford IP the ability to
issue additional securities through external financing. IP has
adequate short-term and intermediate-term bank borrowing capacity.
Based on its 1993 revised standards for review of utility business and
financial risks, Standard & Poor's (S&P) placed IP, along with approximately
one-third of the industry, in a "somewhat below average" category. In April
1994, S&P lowered IP's mortgage bond rating to BBB from BBB+. In August 1995,
S&P revised its ratings outlook from stable to positive. In February 1996,
Moody's also revised its ratings outlook from stable to positive.
Moody's upgraded IP's securities on July 1, 1996. The rating for mortgage
bonds was raised from Baa2 to Baa1, while preferred stock ratings went from
baa3 to baa2. In March 1996, the Duff & Phelps credit rating company
established credit ratings for IP's fixed income securities, as shown on the
preceding page. The agency has indicated that it expects IP's ratings to
remain stable, reflecting a modestly strengthening financial profile
characterized by good cash flow and an average business risk profile.
In 1996, IP repurchased 714,811 shares of its common stock from Illinova.
Under Illinois law, such shares may be held as treasury stock and treated as
authorized but unissued, or may be cancelled by resolution of the Board of
Directors. IP holds 3,410,897 shares of common stock as treasury stock and
deducts it from common equity at the cost of the shares.
For the years 1996, 1995 and 1994, changes in long-term debt and preferred
stock outstanding, including normal maturities and elective redemptions, were
as follows:
<TABLE>
- --------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars) 1996 1995 1994
- ---------------------------------------------------------
Bonds $ (132) $ (5) $ (10)
Other long-term debt (22) - (100)
Preferred stock 71 (135) 6
- ---------------------------------------------------------
Total decrease $ (83) $ (140) $ (104)
- ---------------------------------------------------------
</TABLE>
The amounts shown in the preceding table for debt retirements do not include
all mortgage sinking fund requirements. IP has generally met these
requirements by pledging property additions as permitted under IP's 1943
Mortgage and Deed of Trust. For additional information, see "Note 8 - Long-
Term Debt of Subsidiary" and "Note 9 - Preferred Stock of Subsidiary" of the
"Notes to Consolidated Financial Statements."
During 1996, IP redeemed $2.2 million of Adjustable Rate Series A serial
preferred stock, $20.5 million (all of the remaining) Adjustable Rate Series
B serial preferred stock and $6.7 million of 7.75% serial preferred stock.
During the year, IP also retired $62.9 million of 8.75% First Mortgage Bonds
due 2021, $6.0 million of 8% New Mortgage Bonds due 2023 and $23 million of
7.5% New Mortgage Bonds due 2025. The $40 million of 5.85% First Mortgage
Bonds matured and were retired. In addition, $21.5 million of medium-term notes
matured and were retired.
In February 1995, IP redeemed $12 million of 8.00% mandatorily redeemable
serial preferred stock. In May 1995, IP redeemed the remaining $24 million of
8.00% mandatorily redeemable serial preferred stock. In March 1995, IP redeemed
$.2 million of 7.56% serial preferred stock and $3 million of 8.24% serial
preferred stock. In August 1995, IP purchased $5 million of 8.75% First
Mortgage Bonds. In December 1995, IP redeemed $34.7 million of 8.00% serial
preferred stock, $33.6 million of 7.56% serial preferred stock and $27
million of 8.24% serial preferred stock.
In February 1994, IP redeemed $12 million of 8.00% mandatorily redeemable
serial preferred stock and issued $35.6 million of First Mortgage Bonds, 5.7%
Series due 2024 (Pollution Control Series K). In May 1994, IP retired $35.6
million of First Mortgage Bonds, 11 5/8% Series due 2014 (Pollution Control
Series D) with the proceeds of the debt issuance. In August 1994, IP retired
$100 million of 8 1/2% debt securities.
Illinois Power Financing I (IPFI) is a statutory business trust in which IP
serves as sponsor. IPFI issued $100 million of trust originated preferred
securities (TOPrS) at 8% (4.8% after-tax rate) in January 1996. The TOPrS
were issued by IPFI, which invested the proceeds in an equivalent amount of
IP subordinated debentures due in 2045. The proceeds were used by IP to repay
short-term indebtedness on varying dates on or before March 1, 1996. IP
incurred the indebtedness in December 1995 to redeem $95.3 million (principal
value) of higher-cost outstanding preferred stock of IP.
Illinois Power Capital, L.P. (IP Capital) is a limited partnership in which
IP serves as a general partner. IP Capital issued $97 million of tax-
advantaged monthly income preferred securities (MIPS) at 9.45% (5.67% after-
tax rate) in October 1994. The proceeds were loaned to IP and were used to
redeem $97 million (principal value) of higher-cost outstanding preferred
stock of IP.
In December 1994, IP issued $84.1 million of First Mortgage Bonds, 7.4% Series
due 2024 (Pollution Control Series L). In March 1995, the proceeds of the debt
issuance were used to retire $84.1 million of First Mortgage Bonds, 103/4%
Series due 2015 (Pollution Control Series E).
In 1992, IP executed a new general obligation mortgage (New Mortgage) to
replace, over time, IP's 1943 Mortgage and Deed of Trust (First Mortgage).
Both mortgages are secured by liens on substantially all of IP's properties.
A corresponding issue of First Mortgage bonds, under the First Mortgage,
secures any bonds issued under the New Mortgage. IP anticipates that during
1997 the 1943 mortgage will be amended to be consistent with the 1992 mortgage.
At December 31, 1996, based on the most restrictive earnings test contained
in the First Mortgage, IP could issue approximately $1.3 billion of additional
First Mortgage bonds for other than refunding purposes. Also at December 31,
1996, the unused portion of bank lines of credit was
$354 million. The amount of available unsecured borrowing capacity totaled
$222 million at December 31, 1996.
On February 12, 1997, the Board of Directors approved a change to the
Articles of Incorporation to remove the limitation on the amount of unsecured
debt that IP can issue. The purpose of the change is to give IP more financial
flexibility in the changing environment of a competitive marketplace. The
change will be voted on by the preferred stockholders at a special meeting
planned to be held in 1997.
Construction expenditures for the years 1994 through 1996 were approximately
$590.3 million, including $21.8 million of AFUDC. IP estimates that it
will spend $200 million for construction expenditures in 1997, as
detailed at right. Construction expenditures for the period 1997 through
2001 are expected to total no more than $1 billion, including $100 million
for expenditures related to Phase II Clean Air Act compliance requirements.
IP's capital expenditures for the years 1997 through 2001, in addition
to construction expenditures, are expected to include $140 million for
nuclear fuel and $300 million for mandatory debt retirement.
<TABLE>
- ---------------------------------------------------------------
<C> <C>
(Millions of dollars) 1997
- ----------------------------------------------------------------
IP construction requirements
Electric generating facilities $ 77
Electric transmission and distribution facilities 65
General plant 33
Gas facilities 25
- ----------------------------------------------------------------
Total construction requirements 200
Nuclear fuel 38
Debt retirements 11
- -----------------------------------------------------------------
Total $ 249
- -----------------------------------------------------------------
</TABLE>
See "Note 3 - Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for additional information. Internal cash generation
will meet substantially all construction and capital requirements.
Environmental Matters
See "Note 3 - Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for a discussion of environmental matters that impact
or could potentially impact IP.
Tax Matters
See "Note 6 - Income Taxes" of the "Notes to Consolidated Financial
Statements" for a discussion of effective tax rates and other tax issues.
Accounting Matters
The FASB continues to review the accounting for liabilities related to closure
and removal of long-lived assets, including decommissioning. See "Note 3 -
Commitments and Contingencies" of the "Notes to Consolidated Financial
Statements" for a discussion of decommissioning.
ILLINOIS POWER COMPANY
RESPONSIBILITY FOR INFORMATION
The consolidated financial statements and all information in this annual
report are the responsibility of management. The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis and include amounts that are based
on management's best estimates and judgments. Management also prepared the
other information in the annual report and is responsible for its accuracy
and consistency with the consolidated financial statements. In the opinion of
management, the consolidated financial statements fairly reflect Illinois
Power's financial position, results of operations and cash flows.
Illinois Power believes that its accounting and internal accounting control
systems are maintained so that these systems provide reasonable assurance
that assets are safeguarded against loss from unauthorized use or disposition
and that the financial records are reliable for preparing the consolidated
financial statements.
The consolidated financial statements have been audited by Illinois Power's
independent accountants, Price Waterhouse LLP, in accordance with generally
accepted auditing standards. Such standards include the evaluation of internal
accounting controls to establish a basis for developing the scope of the
examination of the consolidated financial statements. In addition to the use
of independent accountants, Illinois Power maintains a professional staff of
internal auditors who conduct financial, procedural and special audits. To
assure their independence, both Price Waterhouse LLP and the internal auditors
have direct access to the Audit Committee of the Board of Directors.
The Audit Committee is composed of members of the Board of Directors who are
not active or retired employees of Illinois Power. The Audit Committee meets
with Price Waterhouse LLP and the internal auditors and makes recommendations
to the Board of Directors concerning the appointment of the independent
accountants and services to be performed. Additionally, the Audit Committee
meets with Price Waterhouse LLP to discuss the results of their annual audit,
Illinois Power's internal accounting controls and financial reporting matters.
The Audit Committee meets with the internal auditors to assess the internal
audit work performed, including tests of internal accounting controls.
/s/ Larry D. Haab
Larry D. Haab
Chairman, President
and Chief Executive Officer
/s/ Larry F. Altenbaumer
Larry F. Altenbaumer
Senior Vice President
and Chief Financial Officer
ILLINOIS POWER COMPANY
REPORT OF INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
To the Board of Directors of Illinois Power Company
In our opinion, the consolidated financial statements of Illinois Power Company
and its subsidiaries appearing on pages A-11 through A- 31 of this report
present fairly, in all material respects, the financial position of Illinois
Power Company and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Illinois Power's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
St. Louis, Missouri
February 7, 1997
<TABLE>
ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars except per share amounts)
- -----------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1996 1995 1994
Operating Revenues
Electric $ 1,202.9 $ 1,252.6 $ 1,177.5
Electric interchange 137.6 116.3 110.0
Gas 348.2 272.5 302.0
- ----------------------------------------------------------------------------------------------------------
Total 1,688.7 1,641.4 1,589.5
- ----------------------------------------------------------------------------------------------------------
Operating Expenses and Taxes
Fuel for electric plants 248.1 273.9 266.6
Power purchased 65.2 59.5 52.6
Gas purchased for resale 202.6 138.8 172.4
Other operating expenses 249.9 259.7 260.0
Maintenance 99.7 100.0 89.6
Enhanced retirement and severance - 37.8 -
Depreciation and amortization 190.0 186.5 179.3
General taxes 131.3 135.0 130.3
Income taxes 140.5 125.8 118.3
- ----------------------------------------------------------------------------------------------------------
Total 1,327.3 1,317.0 1,269.1
- ----------------------------------------------------------------------------------------------------------
Operating income 361.4 324.4 320.4
- ----------------------------------------------------------------------------------------------------------
Other Income and Deductions
Allowance for equity funds used during construction - - 3.8
Miscellaneous-net ( 6.3) .3 (5.5)
- -----------------------------------------------------------------------------------------------------------
Total ( 6.3) .3 (1.7)
- -----------------------------------------------------------------------------------------------------------
Income before interest charges 355.1 324.7 318.7
- -----------------------------------------------------------------------------------------------------------
Interest Charges
Interest expense 133.0 148.0 143.9
Allowance for borrowed funds used during construction (6.5) (6.0) (5.5)
- -----------------------------------------------------------------------------------------------------------
Total 126.5 142.0 138.4
- -----------------------------------------------------------------------------------------------------------
Net income 228.6 182.7 180.3
Less - Preferred dividend requirements 22.3 23.7 24.9
Plus - Carrying amount over (under) consideration
paid for redeemed preferred stock (.7) (3.5) 6.4
- -----------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 205.6 $ 155.5 $ 161.8
===========================================================================================================
</TABLE>
See notes to consolidated financial statements which are an integral part of
these statements.
<TABLE>
ILLINOIS POWER COMPANY
CONSOLIDATED BALANCE SHEETS
<C> <C> <C>
- ---------------------------------------------------------------------------------------------------
(Millions of dollars)
- ----------------------------------------------------------------------------------------------------
December 31, 1996 1995
Assets
Utility Plant, At Original Cost
Electric (includes construction work in progress of
$212.5 million and $199.8 million, respectively) $ 6,335.4 $ 6,189.0
Gas (includes construction work in progress of $21.2 million
and $10.2 million, respectively) 646.1 625.9
- -----------------------------------------------------------------------------------------------------
6,981.5 6,814.9
Less - accumulated depreciation 2,419.7 2,251.7
- ------------------------------------------------------------------------------------------------------
4,561.8 4,563.2
Nuclear fuel in process 5.3 5.7
Nuclear fuel under capital lease 96.4 95.2
- ------------------------------------------------------------------------------------------------------
4,663.5 4,664.1
- ------------------------------------------------------------------------------------------------------
Investments and Other Assets 14.5 16.4
- ------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 12.5 4.3
Accounts receivable (less allowance for doubtful accounts of $3 million)
Service 138.8 129.4
Other 51.1 18.2
Accrued unbilled revenue 106.0 89.1
Materials and supplies, at average cost
Fossil fuel 7.9 9.9
Gas in underground storage 27.2 18.5
Operating materials 77.1 82.7
Prepaid and refundable income taxes - 19.6
Prepayments and other 23.7 20.8
- -------------------------------------------------------------------------------------------------------
444.3 392.5
- -------------------------------------------------------------------------------------------------------
Deferred Charges
Deferred Clinton costs 103.9 107.3
Recoverable income taxes 101.3 128.7
Other 241.0 258.2
- -------------------------------------------------------------------------------------------------------
446.2 494.2
- --------------------------------------------------------------------------------------------------------
$ 5,568.5 $5,567.2
========================================================================================================
Capital and Liabilities
Capitalization
Common stock - No par value, 200,000,000 shares authorized; 75,681,937 and
75,643,937 shares outstanding, respectively, stated at $ 1,424.6 $1,424.6
Retained Earnings 245.9 129.6
Less - Capital stock expense 8.2 8.8
Less - 3,410,897 and 2,696,086 shares of common stock in treasury,
respectively, at cost 86.2 67.3
- --------------------------------------------------------------------------------------------------------
Total common stock equity 1,576.1 1,478.1
Preferred stock 96.2 125.6
Mandatorily redeemable preferred stock 197.0 97.0
Long-term debt 1,636.4 1,739.3
- -------------------------------------------------------------------------------------------------------
Total capitalization 3,505.7 3,440.0
- -------------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable 149.7 119.9
Notes payable 310.0 359.6
Long-term debt and lease obligations maturing within one year 47.7 95.0
Dividends declared 24.7 23.0
Taxes accrued 46.0 44.8
Interest accrued 34.3 39.0
Other 43.1 66.2
- --------------------------------------------------------------------------------------------------------
655.5 747.5
- --------------------------------------------------------------------------------------------------------
Deferred Credits
Accumulated deferred income taxes 1,048.0 1,019.1
Accumulated deferred investment tax credits 215.5 222.8
Other 143.8 137.8
- --------------------------------------------------------------------------------------------------------
1,407.3 1,379.7
- -------------------------------------------------------------------------------------------------------
$ 5,568.5 $5,567.2
(Commitments and Contingencies Note 3)
See notes to consolidated financial statements which are an integral part of
these statements.
</TABLE>
<TABLE>
ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars)
- ----------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1996 1995 1994
Cash Flows from Operating Activities
Net income $ 228.6 $ 182.7 $ 180.3
Items not requiring (providing) cash -
Depreciation and amortization 195.3 190.0 182.3
Allowance for funds used during construction (6.5) (6.0) (9.3)
Deferred income taxes 64.2 42.0 38.9
Enhanced retirement and severance - 37.8 -
Changes in assets and liabilities -
Accounts and notes receivable (35.2) 38.7 (40.2)
Accrued unbilled revenue (16.9) (10.2) (29.9)
Materials and supplies (1.2) 22.8 ( 2.3)
Accounts payable 29.8 (14.0) (19.7)
Interest accrued and other, net (14.8) (10.1) (19.9)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 443.3 473.7 280.2
- -----------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Construction expenditures (187.3) (209.3) (193.7)
Allowance for funds used during construction 6.5 6.0 9.3
Other investing activities 5.0 (7.5) (2.4)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (175.8) (210.8) (186.8)
- -----------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Dividends on common stock and preferred stock (107.9) (100.5) ( 86.6)
Redemptions -
Short-term debt (355.8) (213.6) (258.2)
Long-term debt (153.7) (5.2) (230.0)
Preferred stock (29.5) (134.5) (91.0)
Common Stock (18.9) (67.3) -
Issuances -
Short-term debt 306.2 209.5 404.7
Long-term debt - - 119.8
Preferred stock 100.0 - 97.0
Premium paid on redemption of long-term debt - - (2.8)
Other financing activities .3 5.1 (7.7)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (259.3) (306.5) ( 54.8)
- ------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 8.2 (43.6) 38.6
Cash and cash equivalents at beginning of year 4.3 47.9 9.3
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 12.5 $ 4.3 $ 47.9
===================================================================================================================
</TABLE>
<TABLE>
ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
- --------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars)
- ---------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1996 1995 1994
Balance (deficit) at beginning of year $ 129.6 $ 51.5 $(71.0)
Net income before dividends 228.6 182.7 180.3
- ----------------------------------------------------------------------------------------------------------------------------
358.2 233.8 109.3
- ----------------------------------------------------------------------------------------------------------------------------
Less -
Dividends -
Preferred stock 22.6 23.6 11.1
Common stock 86.6 77.1 53.5
Investment transfer to Illinova 2.4 - -
Plus -
Carrying amount over (under) consideration paid for redeemed preferred stock (.7) (3.5) 6.4
- ------------------------------------------------------------------------------------------------------------------------------
(112.3) (104.2) (58.2)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 245.9 $129.6 $ 51.1
==============================================================================================================================
</TABLE>
See notes to consolidated financial statements which are an integral part of
these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation Illinois Power Company (IP) is a subsidiary of
Illinova Corporation (Illinova), a holding company. Illinova was officially
formed on May 27, 1994, with the filing of documents with the Illinois
Secretary of State. Illinova became the parent of IP through a merger
pursuant to a share-for-share conversion of IP common stock into Illinova
common stock. On June 8, 1994, Illinova Generating Company (formerly, IP
Group, Inc.), originally a subsidiary of IP, was transferred to Illinova,
establishing Illinova Generating Company as a wholly owned subsidiary of
Illinova. The transfer of Illinova Generating Company and other equity to
Illinova is reflected in the 1994 Consolidated Statement of Retained Earnings
as a component of common stock dividend. IP is the primary business and
subsidiary of Illinova, and is engaged in the generation, transmission,
distribution and sale of electric energy and the distribution, transportation
and sale of natural gas in the state of Illinois. The consolidated financial
statements include the accounts of IP, a combination electric and gas utility,
Illinois Power Capital, L.P. and Illinois Power Financing I. See "Note 9 -
Preferred Stock" of the "Notes to Consolidated Financial Statements" for
additional information. All significant intercompany balances and
transactions have been eliminated from the consolidated financial statements.
Regulation IP is subject to regulation by the Illinois Commerce Commission
(ICC) and the Federal Energy Regulatory Commission (FERC) and,
accordingly, prepares its consolidated financial statements based on the
concepts of Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation" (FAS 71), which requires that
the effects of the ratemaking process be recorded. Such effects primarily
concern the time at which various items enter the determination of net income
in order to follow the principle of matching costs and revenues. Accordingly,
IP records various regulatory assets and liabilities to reflect the actions
of regulators. It is reasonable to assume that significant changes will be
made to state laws governing IP's electric operations, but impossible to
predict what those changes will be. Management believes that IP currently
meets the criteria for continued application of FAS 71, but will continue to
evaluate significant changes in the regulatory and competitive environment to
assess IP's overall compliance with such criteria. These criteria include:
1) whether rates set by regulators are designed to cover the specific costs of
providing regulated services and products to customers and 2) whether
regulators continue to establish rates based on cost. In the event that
management determines that IP no longer meets the criteria for application of
FAS71, an extraordinary non-cash charge to income would be recorded in order
to remove the effects of the actions of regulators from the consolidated
financial statements. The discontinuation of application of FAS71 would
likely have a material adverse effect on IP's consolidated financial position
and results of operations. IP's principal accounting policies are:
Regulatory Assets Regulatory assets represent probable future revenues to
IP associated with certain costs that are expected to be recovered from
customers through the ratemaking process. Significant regulatory assets are
as follows:
<TABLE>
- -------------------------------------------------------------------
<C> <C>
(Millions of dollars) 1996
- -------------------------------------------------------------------
Deferred Clinton Power Station (Clinton)
post-construction costs $ 103.9
Recoverable income taxes $ 101.3
Unamortized losses on reacquired debt $ 87.7
Manufactured-gas plant site cleanup costs $ 69.1
- -------------------------------------------------------------------
</TABLE>
Utility Plant The cost of additions to utility plant and replacements
for retired property units is capitalized. Cost includes labor, materials,
and an allocation of general and administrative costs, plus an allowance for
funds used during construction (AFUDC) as described below. Maintenance and
repairs, including replacement of minor items of property, are charged to
maintenance expense as incurred. When depreciable property units are retired,
the original cost and dismantling charges, less salvage value, are charged to
accumulated depreciation.
Allowance for Funds Used During Construction The FERC Uniform System
of Accounts defines AFUDC as the net costs for the period of construction of
borrowed funds used for construction purposes and a reasonable rate on other
funds when so used. In 1996, 1995 and 1994, the pre-tax rate used for all
construction projects was 5.8%, 6.5% and 7.0%, respectively. Although cash is
not currently realized from the allowance, it is realized under the
ratemaking process over the service life of the related property through
increased revenues resulting from a higher rate base and higher depreciation
expense.
Depreciation For financial statement purposes, IP depreciates the
various classes of depreciable property over their estimated useful lives by
applying composite rates on a straight-line basis. In 1996, 1995 and 1994,
provisions for depreciation were 2.8% of the average depreciable cost for
Clinton. Provisions for depreciation for all other electric plant were 2.6%
in 1996, 1995 and 1994. Provisions for depreciation of gas utility plant, as
a percentage of the average depreciable cost, were 3.9% in 1996, 1995 and
1994.
Amortization of Nuclear Fuel IP leases nuclear fuel from Illinois Power
Fuel Company (Fuel Company) under a capital lease. Amortization of nuclear
fuel (including related financing costs) is determined on a unit of production
basis. A provision for spent fuel disposal costs is charged to fuel expense
based on kilowatt-hours generated. See "Note 3 - Commitments and
Contingencies" of the "Notes to Consolidated Financial Statements" for
discussion of decommissioning and nuclear fuel disposal costs.
Deferred Clinton Costs In accordance with an ICC order in April 1987,
IP began deferring certain Clinton post-construction operating and financing
costs until rates to reflect such costs became effective (April 1989). After
issuance of the March 1989 ICC rate order, deferral of Clinton post-
construction costs ceased and amortization of the previously deferred post-
construction costs over a 37.5-year period began. Although cash is not
currently realized from these deferrals, it is realized under the ratemaking
process over the service life of Clinton through increased revenues,
resulting from a higher rate base and higher amortization expense.
Unamortized Debt Discount, Premium and Expense Discount, premium and
expense associated with long-term debt are amortized over the lives of the
related issues. Costs related to refunded debt are amortized over the lives
of the related new debt issues or the remaining life of the old debt if no
new debt is issued.
Revenue and Energy Cost IP records revenue for services provided but
not yet billed to more closely match revenues with expenses. Unbilled
revenues represent the estimated amount customers will be billed for service
delivered from the time meters were last read to the end of the accounting
period. Operating revenues include related taxes that have been billed to
customers in the amount of $68 million in 1996 and $66 million in each of the
years 1995 and 1994. The cost of fuel for the generation of electricity,
purchased power and gas purchased for resale is recovered from customers
pursuant to the electric fuel and purchased gas adjustment clauses.
Accordingly, allowable energy costs that are to be passed on to customers in
a subsequent accounting period are deferred. The recovery of costs deferred
under these clauses is subject to review and approval by the ICC.
On April 6, 1994, the ICC approved an increase of $18.9 million, or 6.1%, in
IP's gas base rates. The increase to customers is partially offset by savings
from lower gas costs resulting from the expansion of the Hillsboro gas storage
field. The approved authorized rate of return on rate base is 9.29%, with a
rate of return on common equity of 11.24%.
Income Taxes Under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109), deferred tax assets and liabilities
are recognized for the tax consequences of transactions that have been treated
differently for financial reporting and tax return purposes, measured on the
basis of the statutory tax rates. In accordance with FAS 71, a regulatory
asset (recoverable income taxes) has been recorded representing the probable
recovery from customers of additional deferred income taxes established under
FA109.
Investment tax credits used to reduce federal income taxes have been deferred
and are being amortized to income over the "service life" of the property that
gave rise to the credits. IP is included in Illinova's consolidated
federal income tax return. Income taxes are allocated to the individual
companies based on their respective taxable income or loss. See "Note 6 -
Income Taxes" of the "Notes to the Consolidated Financial Statements" for
additional discussion.
Preferred Dividend Requirements of Subsidiary Preferred dividend
requirements reflected in the Consolidated Statements of Income are
recorded on the accrual basis.
Consolidated Statements of Cash Flows Cash and cash equivalents include
cash on hand and temporary investments purchased with an initial maturity of
three months or less. Capital lease obligations not affecting cash flows
increased by $31 million, $19 million and $28 million during 1996, 1995 and
1994, respectively. Income taxes and interest paid are as follows:
<TABLE>
Years ended December 31,
<C> <C> <C> <C>
- ------------------------------------------------------------------------------
(Millions of dollars) 1996 1995 1994
Income taxes $ 65.9 $ 65.7 $ 72.1
Interest $ 147.4 $ 152.4 $ 165.9
- ------------------------------------------------------------------------------
</TABLE>
Interest Rate Cap Generally, premiums paid for purchased interest rate
cap agreements are being amortized to interest expense over the terms of the
caps. Unamortized premiums are included in Current Assets, "Prepayments and
other," in the Consolidated Balance Sheets. Amounts to be received under the
cap agreements are recognized as a reduction in interest expense.
Transactions with Illinova In addition to transfers of capital reflected
in the Consolidated Statements of Retained Earnings, IP provided approximately
$81 million, $34 million and $20 million in funds to Illinova for operations
and investments during 1996, 1995, and 1994, respectively. Illinova is
paying IP interest on these funds at a rate equal to that which Illinova
would have paid had it used a currently outstanding line of credit. In
addition, Illinova and IP have recorded an intercompany payable and
receivable, respectively, for approximately $14.3 million, $18.4 million, and
$23.5 million in 1996, 1995, and 1994, respectively, in order to recognize
the effect on the Employees' Stock Ownership Plan of the conversion of IP
common stock to Illinova common stock concurrent with the formation of
Illinova. This was a noncash transaction. See "Note 10 - Common Stock and
Retained Earnings" of the "Notes to Consolidated Financial Statements" for
additional information.
Note 2 - Clinton Power Station
IP and Soyland Power Cooperative, Inc. (Soyland) share ownership of Clinton,
with IP owning 86.8% and Soyland owning 13.2%. IP and Soyland have entered
into an agreement to transfer Soyland's 13.2% ownership of Clinton to IP
contingent upon approval by the NRC. (See sub-caption "Soyland" of "Note 3 -
Commitments and Contingencies" of the "Notes to Consolidated Financial
Statements"). Clinton was placed in service in 1987 and represents
approximately 18% of IP's installed generation capacity. The investment in
Clinton and its related deferred costs represented approximately 50% of
Illinova's total assets at December 31, 1996. IP's 86.8% share of Clinton-
related costs represented 35% of Illinova's total 1996 other operating,
maintenance and depreciation expenses. Clinton's equivalent availability was
66%, 76%, and 92% for 1996, 1995, and 1994, respectively. Clinton's
equivalent availability was higher in 1994 due to no refueling outage.
Ownership of an operating nuclear generating unit exposes IP to significant
risks, including increased and changing regulatory, safety and environmental
requirements and the uncertain future cost of closing and dismantling the
unit. IP expects to be allowed to continue to operate Clinton; however, if
any unforeseen or unexpected developments prevent IP from doing so, Illinova
and IP would be materially adversely affected. See "Note 3 - Commitments and
Contingencies" of the "Notes to Consolidated Financial Statements" for
additional information.
Note 3 - Commitments and Contingencies
Commitments
Estimated capital requirements for IP in 1997 are $249 million.
The 1997 capital expenditures for IP include $142 million for electric
facilities, $25 million for gas facilities, $38 million
for nuclear fuel, $33 million for general plant and $11 million for mandatory
debt retirement. Construction expenditures for IP for the 1997 through 2001
period are expected to be no more than $1 billion, including $100 million of
expenditures to meet Phase II Clean Air Act Compliance requirements.
IP's capital expenditures for the years 1997 through 2001, in addition
to the IP construction expenditures, are expected to include $140 million
for nuclear fuel, $300 million for mandatory debt retirement. These
expenditures reflect IP's share of Clinton (ownership share under negotiation
- -- see sub-caption "Soyland" under Contingencies below).
In addition, IP has substantial commitments for the purchase of coal under
long-term contracts. Estimated coal contract commitments for 1997 through
2001 are $560 million (excluding price escalation provisions). Total coal
purchases for 1996, 1995 and 1994 were $184 million, $168 million and $191
million, respectively. IP has contracts with various natural gas suppliers
and interstate pipelines to provide natural gas supply, transportation and
leased storage. Estimated committed natural gas, transportation and leased
storage costs (including pipeline transition costs) for 1997 through 2001
total $92 million. Total natural gas purchased for 1996, 1995 and 1994 was
$207 million, $150 million and $168 million, respectively. IP's share
(ownership share under negotiation -- see sub-caption "Soyland" under
Contingencies below) of estimated nuclear fuel commitments for Clinton is
approximately $19 million for uranium concentrates through 2001, $5 million
for conversion services through 1999 and $198 million for fabrication services
through 2016. IP is committed to purchase approximately $52 million of
emission allowances through 1999. IP anticipates that all of these costs
will be recoverable under IP's electric fuel and purchased gas adjustment
clauses.
Insurance IP maintains insurance on behalf of IP and Soyland for certain
losses involving the operation of Clinton. For physical damage to the plant,
IP's insurance program has two layers: 1) a primary layer of $500 million
provided by nuclear insurance pools; and 2) an excess coverage layer of $1.1
billion provided by an industry-owned mutual insurance company for a total
coverage of $1.6 billion. In the event of an accident with an estimated cost
of reactor stabilization and site decontamination exceeding $100 million, NRC
regulations require that insurance proceeds be dedicated and used first to
return the reactor to, and maintain it in, a safe and stable condition, and
second, to decontaminate the reactor station site. The insurers also provide
coverage for the shortfall in the Decommissioning Trust Fund caused by the
premature decommissioning of the reactor due to an accident. In the event
insurance limits are not exhausted by the above, the remaining coverage will
be applied to property damage and a portion of the value of the undamaged
property. In addition, while IP has no reason to anticipate a serious nuclear
accident at Clinton, if such an accident should occur, the claims for property
damage and other costs could materially exceed the limits of current or
available insurance coverage. In the event of an extended shutdown of
Clinton due to accidental property damage, IP also purchases approximately
$.9 million per week of business interruption insurance coverage for its
ownership share of Clinton through an industry-owned mutual insurance
company. This insurance does not provide coverage until Clinton has been
out of service for 21 weeks. (Ownership share under negotiation -- see
sub-caption "Soyland" under Contingencies below.)
All United States nuclear power station operators are subject to the Price-
Anderson Act. This act currently limits public liability for a nuclear
incident to $8.9 billion. Private insurance covers the first $200 million.
Retrospective premium assessments against each licensed nuclear reactor in
the United States provide excess coverage. Currently, the liability to these
reactor operators/owners for such an assessment would be up to $79.3 million
per incident, not including premium taxes which may be applicable, payable
in annual installments of not more than $10 million.
A Master Worker Policy covers worker tort claims alleging bodily injury,
sickness or disease for workers whose initial radiation exposure occurred on
or after January 1, 1988. The policy has an aggregate limit of $200 million
that applies to the commercial nuclear industry as a whole. A provision
provides for automatic reinstatement of policy limits up to an additional
$200 million.
IP may be subject to other risks that may not be insurable, or the amount of
insurance carried to offset the various risks may not be sufficient to meet
potential liabilities and losses. There is also no assurance that IP will be
able to maintain insurance coverage at its present level. Under those
circumstances, such losses or liabilities may have a substantial adverse
effect on IP's financial position.
Decommissioning and Nuclear Fuel Disposal Costs IP is responsible for
its ownership share (ownership share under negotiation - see sub-caption
"Soyland" under Contingencies below) of the costs of decommissioning Clinton
and for spent nuclear fuel disposal costs. IP is collecting future
decommissioning costs through its electric rates based on an ICC-approved
formula that allows IP to adjust rates annually for changes in decommissioning
cost estimates.
Based on NRC regulations that establish a minimum funding level, IP estimates
its 86.8% share (ownership share under negotiation - see sub-caption "Soyland"
under Contingencies below) of Clinton decommissioning costs to be approximately
$381 million (1996 dollars) or $687 million (2026 dollars, assuming a 2%
inflation factor). The NRC bases the minimum only on the cost of removing
radioactive plant structures. IP concluded a site-specific study in 1996 to
estimate the costs of dismantlement, removal and disposal of Clinton. This
study resulted in projected decommissioning costs of $473 million (1996
dollars) or $853 million (2026 dollars, assuming a 2% inflation factor) for
IP. Regulatory approval for funding of this increased decommissioning cost
is expected during the third quarter of 1997.
External decommissioning trusts, as prescribed under Illinois law and
authorized by the ICC, accumulate funds for the future decommissioning of
Clinton based on the expected service life of the plant. For the years 1996,
1995 and 1994, IP contributed $3.9 million, $5.0 million and $5.5 million,
respectively, to its external nuclear decommissioning trust funds. The
balances in these nuclear decommissioning funds at December 31, 1996, and
1995 were $41.4 million and $32.7 million, respectively. Decommissioning funds
are recorded as assets on the balance sheet. A decommissioning liability
approximately equivalent to trust assets was also recorded. IP recognizes
earnings and expenses from the trust fund as changes in its assets and
liabilities relating to these funds.
The Financial Accounting Standards Board (FASB) is reviewing the accounting
for closure and removal costs of long-lived assets. Changes to current
electric utility industry accounting practices for decommissioning may result
in recording the estimated total cost for decommissioning as a liability and
an increase to plant balances, depreciating the increased plant balances, and
reporting trust fund income from the external decommissioning trusts as
investment income rather than as a reduction to decommissioning expense.
Based on current information, IP believes that these changes will not have an
adverse effect on results of operations due to existing and anticipated future
ability to recover decommissioning costs through rates.
In 1992, the ICC entered an order in which it expressed concern that IP take
all reasonable action to ensure that Soyland contributes its ownership share
of the current or any revised estimate of decommissioning costs. The order
also states that if IP becomes liable for decommissioning expenses
attributable to Soyland, the ICC will then decide whether that expense should
be the responsibility of IP shareholders or its customers. If Soyland were to
fail to meet these or other obligations related to its ownership of Clinton,
then IP could become liable for such payments. (See sub-caption "Soyland"
under Contingencies below.)
Under the Nuclear Waste Policy Act of 1982, the Department of Energy (DOE) is
responsible for the permanent storage and disposal of spent nuclear fuel. The
DOE currently charges one mill ($0.001) per net kilowatt-hour (one dollar per
MWH) generated and sold for future disposal of spent fuel. IP is recovering
these charges through rates. In 1996, the D.C. Circuit Court of Appeals
issued an order, at the behest of nuclear-owning utilities and state
regulatory agencies, confirming DOE's unconditional obligation to take
responsibility for spent nuclear fuel commencing in 1998, even if it has no
permanent repository at that time. Notwithstanding this decision, which the
DOE did not appeal, the DOE has indicated to all nuclear utilities that it
may experience delay in performance. The impact of any such delay on IP
will depend on many factors, including the duration of such delay and the
cost and feasibility of interim, on-site storage.
Environmental Matters
Clean Air Act In August 1992, IP announced that it had suspended
construction of two scrubbers at the Baldwin Power Station (Baldwin). At
December 31, 1996, approximately $24 million in costs for the suspended
Baldwin program continue to be carried by IP as plant held for future use.
To comply with the sulfur dioxide (SO2) emission reduction requirements of
Phase I (1995-1999) of the 1990 Clean Air Act Amendments, IP continues to
purchase emission allowances. An emission allowance is the authorization by
the United States Environmental Protection Agency (U.S. EPA) to emit one ton
of SO2. The ICC approved IP's Phase I Clean Air Act compliance plan in
September 1993, and IP is continuing to implement that plan. IP has acquired
sufficient emission allowances to meet most of its anticipated needs for
1997 and will purchase the remainder on the spot market. In 1993, the
Illinois General Assembly passed and the governor signed legislation
authorizing, but not requiring, the ICC to permit expenditures and revenues
from emission allowance purchases and sales to be included in rates charged
to customers as a cost of fuel. In December 1994, the ICC approved the
recovery of emission allowance costs through the Uniform Fuel Adjustment
Clause. IP's compliance plan will defer, until at least 2000, any need for
scrubbers or other capital projects associated with SO2 emission reductions.
Phase II (2000 and beyond) SO2 emission requirements of the Clean Air Act
could require additional actions and may result in capital expenditures and
the purchase of emission allowances.
To comply with the Phase I nitrogen-oxide (NOx) emission reduction
requirements of the acid rain provisions of the Clean Air Act, IP installed
low-NOx burners at Baldwin Unit 3 and Vermilion Unit 2. On November 29, 1994,
the Phase I NOx rules were remanded to the U.S. EPA. On April 13, 1995, the
U.S. EPA reinstated, with some modifications, the Phase I NOx rules effective
January 1, 1996. IP was positioned to comply with these revised rules without
additional modifications to any of its generating plants.
The U.S. EPA issued revised Phase II NOx emission limits on December 10, 1996.
IP has prepared a Phase II Compliance Plan. Litigation over the scope and
legality of these Phase II NOx limits precludes a precise quantification of
anticipated capital cost for compliance; however, capital expenditures for
IP's NOx program, which includes upgrading two air heaters at Baldwin, are
expected to be $100 million prior to the year 2000.
IP is monitoring the development of several emerging clean air compliance
issues which could have a significant impact on its fossil-fueled generating
plants. These issues include global climate change (theorized to result from
emissions of "greenhouse gases" such as carbon dioxide), controls on
"hazardous air pollutants," potential requirements to further reduce NOx
emissions from IP plants to help achieve compliance with the air quality
standards in the St. Louis and Chicago metropolitan areas and new standards
for fine particulates, ozone and SO2. Compliance with potential new
regulations in these areas may require significant additional expenditures
after 2000.
Manufactured-Gas Plant (MGP) IP's estimated liability for MGP site
remediation is $69 million. This amount represents IP's current best estimate
of the costs that it will incur in remediation of the 24 MGP sites for which
it is responsible. Because of the unknown and unique characteristics at each
site, IP cannot presently determine its ultimate liability for remediation of
the sites.
IP is currently recovering MGP site remediation through tariff riders approved
by the ICC. Accordingly, IP has recorded a regulatory asset on its balance
sheet totaling $69 million as of December 31, 1996. Management expects that
cleanup costs will be fully recovered from IP's customers.
To offset the burden imposed on its customers, IP has initiated litigation
against a number of insurance carriers. Any settlement proceeds or damages
recovered from the carriers will be credited to IP's customers through the
tariff rider mechanism which the ICC previously approved.
Electric and Magnetic Fields (EMF) The possibility that exposure to EMF
emanating from power lines, household appliances and other electric sources
may result in adverse health effects continues to be the subject of litigation
and governmental, medical and media attention. Litigants have also claimed
that EMF concerns justify recovery from utilities for the loss in value of
real property exposed to power lines, substations and other such sources of
EMF. The National Research Council (Council) of the National Academy of
Sciences released a report in 1996 which concluded there is "no conclusive
and consistent evidence" that exposure to residential EMF presents a health
hazard. The Council's conclusion is based on a review of more than 500
studies conducted worldwide over the last 17 years. Additional research is
being conducted to attempt to resolve continuing scientific uncertainties.
It is too soon to tell what, if any, impact these actions may have on
IP's consolidated financial position.
Other
Legal Proceedings IP is involved in legal or administrative
proceedings before various courts and agencies with respect to matters
occurring in the ordinary course of business, some of which involve
substantial amounts of money. Management believes that the final disposition
of these proceedings will not have a material adverse effect on the
consolidated financial position or the results of operations.
Accounts Receivable IP sells electric energy and natural gas to residential,
commercial and industrial customers throughout Illinois. At December 31,
1996, 68%, 20% and 12% of Accounts receivable - Service were from residential,
commercial and industrial customers, respectively. IP maintains reserves for
potential credit losses and such losses have been within management's
expectations.
Contingencies
Soyland IP and Soyland have entered into an agreement to transfer Soyland's
13.2% ownership of Clinton to IP contingent on approval by the NRC. The NRC
is expected to act on IP's request during the first quarter of 1997.
IP and Soyland have renegotiated the existing Power Coordination Agreement.
This agreement is expected to result in a reduction of rates for Soyland
while IP will be assured a long-term sales agreement for 10 to 20 years. IP
is expected to file with FERC a request for approval of this agreement in
February 1997.
FERC Audit In 1996 FERC conducted an audit of IP's financial books and
records for the years 1992 through 1995 and preliminarily identified a number
of issues. IP responded to the issues raised. FERC has taken no action
regarding disposition of these matters. At this time, the outcome of the
audit cannot be determined; however, management does not expect that
resolution of the audit will have a material adverse effect on IP's
consolidated financial position or results of operations.
IRS Audit The Internal Revenue Service is currently auditing IP's federal
income tax returns for the years 1991 through 1993. At this time, the outcome
of the audit cannot be determined; however, management does not expect that
the results will have a material adverse effect on IP's consolidated financial
position or results of operations. For a detailed discussion of income taxes,
see "Note 6 - Income Taxes" of the "Notes to Consolidated Financial
Statements."
Note 4 - Lines of Credit and Short-Term Loans
IP has total lines of credit represented by bank commitments amounting to
$354 million, all of which were unused at December 31, 1996. These lines of
credit are renewable in May 1997, August 1997 and May 2001. These bank
commitments support the amount of commercial paper outstanding at any time,
limited only by the amount of unused bank commitments, and are available to
support other IP activities.
IP pays facility fees up to .15% per annum on $350 million of the total lines
of credit, regardless of usage. The interest rate on borrowings under these
agreements is, at IP's option, based upon the lending banks' reference rate,
their Certificate of Deposit rate, the borrowing rate of key banks in the
London interbank market or competitive bid.
IP has letters of credit totaling $206 million and pays fees up to .45% per
annum on the unused amount of credit.
In addition, IP and IP Fuel Company have a short-term financing option to
obtain funds not to exceed $30 million. IP and IP Fuel Company pay no fees
for this uncommitted facility and funding is subject to availability upon
request.
For the years 1996, 1995, and 1994, IP had short-term borrowings consisting of
bank loans, commercial paper, extendible floating rate notes and other short-
term debt outstanding at various times as follows:
<TABLE>
- ------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars, except rates) 1996 1995 1994
- ------------------------------------------------------------------------------
Short-term borrowings
at December 31, $ 310.0 $ 359.6 $ 238.8
Weighted average interest
rate at December 31, 5.7% 6.0% 6.2%
Maximum amount outstanding
at any month end $ 310.0 $ 359.6 $ 238.8
Average daily borrowings
outstanding during
the year $ 261.9 $ 306.5 $ 165.4
Weighted average interest
rate during the year 5.6% 6.2% 4.6%
- ------------------------------------------------------------------------------
</TABLE>
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on floating-rate debt. IP's three variable rate
interest rate cap agreements cover up to $289 million of commercial paper.
These agreements entitle IP to receive from a counterparty on a monthly basis
the amount, if any, by which IP's interest payments on a nominal amount of
commercial paper exceed the interest rate set by the cap. On December 31,
1996, the cap rates were set at 6.0%, 6.25% and 7.0% while the current market
rate available to IP was 5.7%.
Note 5 - Facilities Agreements
IP and Soyland share ownership of Clinton, with IP owning 86.8% (ownership
share under negotiation - see sub-caption "Soyland" of "Note 3 - Commitments
and Contingencies" of the "Notes to Consolidated Financial Statements" for
additional information) and Soyland owning 13.2%. Agreements between IP and
Soyland provide that IP has control over construction and operation of the
generating station, that the parties share electricity generated in proportion
to their ownership interests and that IP will have certain obligations to
provide replacement power to Soyland if IP ceases to operate or reduces
output from Clinton.
Under the provisions of a Power Coordination Agreement (PCA) between Soyland
and IP dated October 5, 1984, as amended, IP is required to provide Soyland
with 12.0% (436 megawatts) of the electrical capacity from its fossil-fueled
generating plants until the agreement expires or is terminated. This is in
addition to the capacity Soyland receives as an owner of Clinton. IP is
compensated with capacity charges and for energy costs and variable operating
expenses. IP transmits energy for Soyland through IP's transmission and
subtransmission systems. Under provisions of the PCA, Soyland has the
option of participating financially in major capital expenditures at the
fossil-fueledplants, such as those needed for Phase II Clean Air Act
compliance, to the extent of its capacity entitlement with each party bearing
its own direct capital costs, or by having the costs treated as plant
additions and billed to Soyland in accordance with other billing provisions
of the PCA. At any time after December 31, 2004, either IP or Soyland may
terminate the PCA by giving not less than seven years prior written notice
to the other party. The party to whom termination notice has been given may
designate an earlier effective date of termination which shall be not less
than 12 months after receiving notice. See "Note 3 -- Commitments and
Contingencies" of the "Notes to Consolidated Financial Statements" for
discussion of the Clean Air Act.
Note 6 - Income Taxes
Deferred tax assets and liabilities were comprised of the following:
<TABLE>
Balances as of December 31,
- ------------------------------------------------------------------------------
<C> <C> <C>
(Millions of dollars) 1996 1995
- ------------------------------------------------------------------------------
Deferred tax assets:
- ------------------------------------------------------------------------------
Current:
Misc. book/tax recognition differences $ 7.7 $ 26.1
- ------------------------------------------------------------------------------
Noncurrent:
Depreciation and other property related 42.0 45.5
Alternative minimum tax 198.5 184.1
Tax credit and net operating loss
carryforward 32.8 32.4
Unamortized investment tax credit 120.9 126.1
Misc. book/tax recognition differences 65.8 59.4
- ------------------------------------------------------------------------------
460.0 447.5
- ------------------------------------------------------------------------------
Total deferred tax assets $ 467.7 473.6
==============================================================================
Deferred tax liabilities:
- ------------------------------------------------------------------------------
Current:
Misc. book/tax recognition differences $ 11.3 $ 6.5
- ------------------------------------------------------------------------------
Noncurrent:
Depreciation and other property related 1,350.1 1,303.5
Deferred Clinton costs 58.2 60.1
Misc. book/tax recognition differences 99.7 103.0
- ------------------------------------------------------------------------------
1,508.0 1,466.6
- ------------------------------------------------------------------------------
Total deferred tax liabilities $ 1,519.3 $ 1,473.1
==============================================================================
</TABLE>
Income taxes included in the Consolidated Statements of Income consist of the
following components:
<TABLE>
Years Ended December 31,
- ------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
Current taxes-
Included in operating
expenses and taxes $ 79.2 $ 98.6 $ 58.3
Included in other income
and deductions (14.5) (20.3) -
- ------------------------------------------------------------------------------
Total current taxes 64.7 78.3 58.3
- ------------------------------------------------------------------------------
Deferred taxes-
Included in operating
expenses and taxes
Property related differences 60.4 62.2 60.0
Alternative minimum tax 1.1 2.9 (50.4)
Gain/loss on reacquired debt (1.6) (1.9) -
Net operating loss
carryforward - (.2) 62.0
Enhanced retirement
and severance 2.6 (15.0) -
Misc. book/tax recognition
differences 6.1 (13.9) (7.8)
Internal Revenue Service
interest on tax issues - - 7.5
Included in other income
and deductions
Property related differences 10.2 9.7 10.0
Net operating loss
carryforward - - (17.4)
Misc. book/tax recognition
differences 1.7 2.2 1.9
- ------------------------------------------------------------------------------
Total deferred taxes 80.5 46.0 65.8
- -------------------------------------------------------------------------------
Deferred investment
tax credit-net
Included in operating
expenses and taxes (7.3) (6.9) (11.3)
Included in other income
and deductions - - (.3)
- ------------------------------------------------------------------------------
Total investment tax credit (7.3) (6.9) (11.6)
- ------------------------------------------------------------------------------
Total income taxes $ 137.9 $ 117.4 $ 112.5
==============================================================================
</TABLE>
The reconciliations of income tax expense to amounts computed by applying the
statutory tax rate to reported pretax results for the period are set below:
<TABLE>
Years Ended December 31,
- ------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
Income tax expense at the
federal statutory tax rate $ 128.3 $ 105.0 $ 102.5
Increases/(decreases) in taxes
resulting from-
State taxes,
net of federal effect 13.7 14.0 13.8
Investment tax credit
amortization (7.3) (6.9) (7.8)
Depreciation not normalized 9.4 7.4 4.3
Interest expenses on preferred securities (6.9) (3.7) (.9)
Other-net .7 1.6 .6
- ------------------------------------------------------------------------------
Total income taxes $ 137.9 $ 117.4 $ 112.5
==============================================================================
</TABLE>
Combined federal and state effective income tax rates were 37.6%, 39.1% and
38.4% for the years 1996, 1995 and 1994, respectively.
IP is subject to the provisions of the Alternative Minimum Tax System
(AMT). As a result, IP has an AMT credit carryforward at December 31,
1996, of approximately $198.5 million. This credit can be carried forward
indefinitely to offset future regular income tax liabilities in excess of the
tentative minimum tax.
The Internal Revenue Service is currently auditing IP's consolidated federal
income tax returns for the years 1991 through 1993. At this time, the outcome
of the audit cannot be determined. However, the results of the audit are not
expected to have a material adverse effect on IP's consolidated
financial position or results of operations.
Note 7 - Capital Leases
Illinois Power Fuel Company (Fuel Company), which is 50% owned by IP, was
formed in 1981 for the purpose of leasing nuclear fuel to IP for Clinton.
Lease payments are equal to the Fuel Company's cost of fuel as consumed
(including related financing and administrative costs). Billings under the
lease agreement during 1996, 1995 and 1994 were $35 million, $41 million and
$52 million, respectively, including financing costs of $5 million, $7 million
and $7 million, respectively. IP is obligated to make subordinated loans to
the Fuel Company at any time the obligations of the Fuel Company that are
due and payable exceed the funds available to the Fuel Company. IP has an
obligation for nuclear fuel disposal costs of leased nuclear fuel. See
"Note 3 -- Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for discussion of decommissioning and nuclear fuel
disposal costs. Nuclear fuel lease payments are included with Fuel for
electric plants on IP's Consolidated Statements of Income.
At December 31, 1996 and 1995, current obligations under capital lease for
nuclear fuel are $36.9 million and $33.3 million, respectively.
Over the next five years estimated payments under capital leases are as
follows:
<TABLE>
- --------------------------------------------------
(Millions of dollars)
<C> <C>
- --------------------------------------------------
1997 $ 39.7
1998 28.5
1999 18.6
2000 11.6
2001 5.1
Thereafter 2.6
- -------------------------------------------------
106.1
Less: Interest 9.7
- -------------------------------------------------
Total $ 96.4
=================================================
</TABLE>
Note 8 - Long-Term Debt
<TABLE>
(Millions of dollars)
- -------------------------------------------------------------------------------
<C> <C> <C>
December 31, 1996 1995
First mortgage bonds-
5.85% series due 1996 $ - $ 40.0
61/2 %series due 1999 72.0 72.0
6.60% series due 2004 (Pollution Control Series A) 6.5 6.8
7.95% series due 2004 72.0 72.0
6% series due 2007 (Pollution Control Series B) 18.7 18.7
75/8% series due 2016 (Pollution Control Series F, G and H) 150.0 150.0
8.30% series due 2017 (Pollution Control Series I) 33.8 33.8
73/8% series due 2021 (Pollution Control Series J) 84.7 84.7
83/4% series due 2021 57.1 120.0
5.70% series due 2024 (Pollution Control Series K) 35.6 35.6
7.40% series due 2024 (Pollution Control Series L) 84.1 84.1
- ------------------------------------------------------------------------------
Total first mortgage bonds 614.5 717.7
- ------------------------------------------------------------------------------
New mortgage bonds-
61/8% series due 2000 40.0 40.0
5.625%series due 2000 110.0 110.0
61/2% series due 2003 100.0 100.0
63/4% series due 2005 70.0 70.0
8% series due 2023 229.0 235.0
71/2% series due 2025 177.0 200.0
Adjustable rate series due 2028 (Pollution Control
Series M, N and O) 111.8 111.8
- ------------------------------------------------------------------------------
Total new mortgage bonds 837.8 866.8
- ------------------------------------------------------------------------------
Total mortgage bonds 1,452.3 1,584.5
- ------------------------------------------------------------------------------
Medium-term notes, series A 78.5 100.0
Variable rate long-term debt due 2017 75.0 75.0
- ------------------------------------------------------------------------------
Total other long-term debt 153.5 175.0
- ------------------------------------------------------------------------------
1,605.8 1,759.5
Unamortized discount on debt (18.1) (20.3)
- ------------------------------------------------------------------------------
Total long-term debt excluding capital lease obligations 1,587.7 1,739.2
Obligations under capital leases 96.4 95.1
- ------------------------------------------------------------------------------
1,684.1 1,834.3
Long-term debt and lease obligations maturing within
one year (47.7) (95.0)
- -------------------------------------------------------------------------------
Total long-term debt $ 1,636.4 $ 1,739.3
===============================================================================
</TABLE>
In 1996, a total of $62.9 million of 83/4% First Mortgage Bonds due 2021 was
purchased at various times on the open market. In April 1996, $23.0 million
of 71/2% New Mortgage Bonds due 2025 was purchased on the open market. In
June 1996, $6.0 million of 8% New Mortgage Bonds due 2023 was purchased on
the open market.
In 1989 and 1991, IP issued a series of fixed rate medium-term notes. At
December 31, 1996, the maturity dates on these notes ranged from 1997 to 1998
with interest rates ranging from 9% to 9.31%. Interest rates on variable rate
long-term debt due 2017 are adjusted weekly and ranged from 3.0% to 3.3% at
December 31, 1996.
For the years 1997, 1998, 1999, 2000 and 2001, IP has long-term debt
maturities and cash sinking fund requirements in the aggregate of (in
millions) $10.8, $68.8, $72.8, $150.8 and $.8, respectively. These amounts
exclude capital lease requirements. See "Note 7 - Capital Leases" of the
"Notes to Consolidated Financial Statements." Certain supplemental indentures
to the First Mortgage require that IP make annual deposits, as a sinking and
property fund, in amounts not to exceed $1.8 million in each of the years
1997 through 2001. These amounts are subject to reduction and historically
have been met by pleding property additions, as permitted by the First
Mortgage.
At December 31, 1996, the aggregate total of unamortized debt expense and
unamortized loss on reacquired debt was approximately $105.3 million.
IP's First Mortgage Bonds are secured by a first mortgage lien on
substantially all of the fixed property, franchises and rights of IP with
certain minor exceptions expressly provided in the First Mortgage. In 1992,
the Board authorized a new general obligation mortgage, which is intended to
replace the First Mortgage. IP anticipates that during 1997 the 1943 mortgage
will be amended to be consistent with the 1992 mortgage. Bonds issued under
the New Mortgage were secured by a corresponding issue of First Mortgage
Bonds under the First Mortgage. The remaining balance of net bondable
additions at December 31, 1996, was approximately $1.5 billion.
Note 9 - Preferred Stock
<TABLE>
(Millions of dollars)
- ------------------------------------------------------------------------------
<C> <C> <C>
December 31, 1996 1995
Serial Preferred Stock, cumulative,
$50 par value-
Authorized 5,000,000 shares; 1,221,700 and 1,356,800
shares outstanding, respectively
Series Shares Redemption Prices
4.08% 300,000 $ 51.50 $ 15.0 $ 15.0
4.26% 150,000 51.50 7.5 7.5
4.70% 200,000 51.50 10.0 10.0
4.42% 150,000 51.50 7.5 7.5
4.20% 180,000 52.00 9.0 9.0
7.75% 241,700 50.00 after July 1, 2003 12.1 18.8
Net premium on preferred stock .2 .2
- -----------------------------------------------------------------------------
Total Preferred Stock, $50 par value $ 61.3 $ 68.0
- -----------------------------------------------------------------------------
Serial Preferred Stock, cumulative,
without par value-
Authorized 5,000,000 shares; 698,200 and 1,152,550
shares outstanding, respectively
Series Shares Redemption Prices
A 698,200 $ 50.00 $ 34.9 $ 37.1
B - - - 20.5
- -----------------------------------------------------------------------------
Total Preferred Stock, without par value $ 34.9 $ 57.6
- -----------------------------------------------------------------------------
Preference Stock, cumulative,
without par value-
Authorized 5,000,000 shares; none outstanding - -
- ------------------------------------------------------------------------------
Total Serial Preferred Stock, Preference Stock and
Preferred Securities $ 96.2 $ 125.6
==============================================================================
Company Obligated Mandatorily Redeemable Preferred
Securities of:
Illinois Power Capital, L.P.
Monthly Income Preferred Securities, cumulative,
$25 liquidation preference-
3,880,000 shares authorized and outstanding $ 97.0 $ 97.0
Illinois Power Financing I
Trust Originated Preferred Securities, cumulative,
$25 liquidation preference-
4,000,000 shares authorized and outstanding 100.0 -
- -----------------------------------------------------------------------------
Total Mandatorily Redeemable Preferred
Stock $ 197.0 $ 97.0
=============================================================================
Serial Preferred Stock ($50 par value) is redeemable at the option of IP in
whole or in part at any time with not less than 30 days and not more than 60
days notice by publication.
Quarterly dividend rates for Serial Preferred Stock, Series A, are determined
based on market interest rates of certain U.S. Treasury securities. Dividends
paid in 1996 and 1995 were $.75 per quarter. The dividend rate for any
dividend period will not be less than 6% per annum or greater than 12% per
annum applied to the liquidation preference value of $50 per share.
Illinois Power Capital, L.P. is a limited partnership in which IP serves as a
general partner. Illinois Power Capital issued (1994) $97 million of tax-
advantaged monthly income preferred securities (MIPS) at 9.45% (5.67% after-
tax rate) with a liquidation preference of $25 per share. IP consolidates the
accounts of Illinois Power Capital.
Illinois Power Financing I (IPFI) is a statutory business trust in which IP
serves as sponsor. IPFI issued $100 million of trust originated preferred
securities (TOPrS) at 8% (4.8% after-tax rate) in January 1996. IPFI issued
the TOPrS and invested the proceeds in an equivalent amount of IP subordinated
debentures due in 2045. IP used the proceeds to repay short-term indebtedness
on varying dates on or before March 1, 1996. IP incurred the indebtedness in
December 1995, to redeem $95.3 million (principal value) of higher-cost
outstanding preferred stock of IP.
On April 15, 1996, IP issued a notice of redemption to all holders of its
Adjustable Rate Series B Preferred Stock. All 410,250 shares outstanding were
redeemed on May 15, 1996, at the redemption price of $50 per share.
In 1996, IP redeemed $6.7 million of the 7.75% Serial Preferred Stock, $2.2
million of its Series A Serial Preferred Stock and the remaining $20.5 million
of its Series B Serial Preferred Stock. The carrying amount was $.7 million
under consideration paid and was recorded in equity and included in Net
income applicable to common stock.
Note 10 - Common Stock and Retained Earnings
On May 31, 1994, common shares of IP began trading as common shares of
Illinova. Illinova is the sole shareholder of IP common stock.
In 1996, IP repurchased 714,811 shares of its common stock from Illinova.
In 1995, IP repurchased 2,696,086 shares of its common stock from Illinova.
Under Illinois law, such shares may be held as treasury stock and treated as
authorized but unissued, or may be cancelled by resolution of the Board of
Directors. IP holds the common stock as treasury stock and deducts it from
common equity at the cost of the shares.
IP has an Incentive Savings Plan (Plan) for salaried employees. IP's matching
contribution is used to purchase Illinova common stock. Under this Plan,
27,545 shares of common stock were designated for issuance at December 31,
1996.
IP has an Incentive Savings Plan for Employees Covered Under a Collective
Bargaining Agreement. IP's matching contribution is used to purchase Illinova
common stock. Under this plan, 69,167 shares of common stock were designated
for issuance at December 31, 1996.
IP employees participate in an Employees' Stock Ownership Plan (ESOP) that
includes an incentive compensation feature which is tied to achievement of
specified corporate performance goals. This arrangement began in 1991 when IP
loaned $35 million to the Trustee of the Plans, which used the loan proceeds
to purchase 2,031,445 shares of IP's common stock on the open market. The
loan and common shares were converted to Illinova instruments with the
formation of Illinova in May 1994. These shares are held in a suspense account
under the Plans and are being distributed to the accounts of participating
employees as the loan is repaid by the Trustee with funds contributed by IP,
together with dividends on the shares acquired with the loan proceeds. IP
financed the loan with funds borrowed under its bank credit agreements.
For the year ended December 31, 1996, 69,367 common shares were allocated to
salaried employees and 62,975 shares to employees covered under the Collective
Bargaining Agreement through the matching contribution feature of the ESOP
arrangement. Under the incentive compensation feature, 83,300 common shares
were allocated to employees for the year ended December 31, 1996. During 1996,
IP contributed $5.2 million to the ESOP and using the shares allocated method,
recognized $1.6 million of expense. Interest paid on the ESOP debt was
approximately $1.6 million in 1996 and dividends used for debt services were
approximately $2.2 million.
In 1992, the Board of Directors adopted and the shareholders approved a Long-
Term Incentive Compensation Plan (the Plan) for officers or employee members
of the Board, but excluding directors who are not officers or employees.
The types of awards that may be granted under the Plan are restricted stock,
incentive stock options, non-qualified stock options, stock appreciation
rights, dividend equivalents and other stock-based awards. The Plan provides
that any one or more types of awards may be granted for up to 1,500,000 shares
of Illinova's common stock. The following table outlines the activity thus
far under this Plan:
</TABLE>
<TABLE>
- --------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Year Options Grant Year Expiration Options
Granted Granted Price Exercisable Date Exercised
- ---------------------------------------------------------------------------
1992 62,000 $ 23 3/8 1996 6/10/01 38,000
1993 73,500 $ 24 1/4 1997 6/9/02 -
1994 82,650 $ 20 7/8 1997 6/8/03 -
1995 69,300 $ 24 7/8 1998 6/14/04 -
1996 80,500 $ 29 3/4 1999 2/7/05 -
============================================================================
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), effective for fiscal years beginning after December
15, 1995. If the accounting provisions of FAS 123 had been adopted as of the
beginning of 1996, the effect on 1996 net earnings would have been immaterial.
Further, based on current and anticipated use of stock options, it is not
envisioned that the impact of FAS 123 accounting provisions would be material
in any future period. IP continues to account for its stock options in
accordance with Accounting Principle Board Opinion No. 25.
The provisions of Supplemental Indentures to IP's General Mortgage Indenture
and Deed of Trust contain certain restrictions with respect to the declaration
and payment of dividends. IP was not limited by any of these restrictions at
December 31, 1996. Under the Restated Articles of Incorporation, common
stock dividends are subject to the preferential rights of the holders of
preferred and preference stock.
Note 11 - Pension and Other Benefit Costs
Illinova offers certain benefit plans to the employees of all of its
subsidiaries. IP is sponsor and administrator of all the benefit plans.
IP is reimbursed by the other Illinova subsidiaries for their shares of the
expenses of the benefit plans. The discussion and values below represent the
plans in total, including the amounts attributable to the other subsidiaries.
IP sponsors defined-benefit pension plans covering all officers and employees.
Benefits are based on years of service and compensation. IP's funding policy
is to contribute annually at least the minimum amount required by government
funding standards, but not more than can be deducted for federal income tax
purposes.
Pension costs, a portion of which have been capitalized for 1996, 1995 and
1994, include the following components:
<TABLE>
Years Ended December 31,
- ------------------------------------------------------------------------------
<C> <C> <C> <C>
(Millions of Dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
Service cost on benefits
earned during the year $ 10.2 $ 10.4 $ 11.9
Interest cost on projected
benefit obligation 26.8 23.6 21.8
Return on plan assets (42.2) (58.3) (7.9)
Net amortization and deferral 9.4 29.6 (19.2)
Effect of enhanced retirement
program - 15.7 -
- --------------------------------------------------------------------------------
Net periodic pension cost $ 4.2 $ 21.0 $ 6.6
================================================================================
</TABLE>
The estimated funded status of the plans at December 31, 1996 and 1995, using
discount rates of 8.0% and 7.75%, respectively, and future compensation
increases of 4.5% was as follows:
<TABLE>
Balances as of December 31,
- -----------------------------------------------------------------------------
<C> <C> <C>
(Millions of Dollars) 1996 1995
- -----------------------------------------------------------------------------
Acturial present value of:
Vested benefit obligation $ (291.7) $ (276.8)
- -----------------------------------------------------------------------------
Accumulated benefit obligation (312.5) (297.5)
- -----------------------------------------------------------------------------
Projected benefit obligation (361.5) (343.6)
Plan assets at fair value 357.2 331.5
- -----------------------------------------------------------------------------
Funded Status (4.3) (12.1)
Unrecognized net (gain)/loss (13.8) (5.1)
Unrecognized net asset at transition (30.3) (34.6)
Unrecognized prior service cost 19.3 21.2
- -----------------------------------------------------------------------------
Accrued pension cost included in
accounts payable $ (29.1) $ (30.6)
=============================================================================
</TABLE>
The plan's assets consist primarily of common stocks, fixed income securities,
cash equivalents and real estate. The acturial present value of accumulated
plan benefits at January 1, 1996 and 1995, were $361 million and $258 million,
respectively, including vested benefits of $337 million and $239 million,
respectively. The pension cost for 1996, 1995 and 1994 was calculated using
a discount rate of 7.75%, 8.75% and 7.75%, respectively; future compensation
increases of 4.5% for 1996, 1995 and 1994; and a return on assets of 9.5% for
1996, 9.0% for 1995 and 1994. The unrecognized net asset at transition and
unrecognized prior service cost are amortized on a straight-line basis over
the average remaining service period of employees who are expected to receive
benefits under the plan. IP made cash contributions of $6 million in 1996,
$2 million and $10 million in 1994.
IP sponsors health care and life insurance benefits for certain retired
employees, including their eligible dependents, who attain specified ages
and years of service under the terms of the defined-benefit plans. Post-
retirement benefits, a portion of which have been capitalized, for 1996 and
1995 included the following components:
<TABLE>
Years Ended December 31,
- ----------------------------------------------------------------------------
<C> <C> <C>
(Millions of Dollars) 1996 1995
- ----------------------------------------------------------------------------
Service cost on benefits earned
during the year $ 2.2 $ 2.1
Interest cost on projected
benefit obligation 6.1 5.5
Return on plan assets (5.9) (4.7)
Amortization of unrecognized
transition obligation 6.4 6.3
Effect of enhanced retirement program - 9.5
- ---------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 8.8 $ 18.7
===========================================================================
</TABLE>
The net periodic postretirement benefit cost in the preceding table includes
amortization of the previously unrecognized accumulated postretirement benefit
plan obligation, which was $44.2 million and $52.3 million as of January 1,
1996 and 1995, respectively, over 20 years on a straight-line basis.
IP has established two separate trusts for those retirees who were subject to
a collectively bargained agreement and all other retirees to fund retiree
health care and life insurance benefits. IP's funding policy is to contribute
annually an amount at least equal to the revenues collected for the amount of
postretirement benefit costs allowed in rates. The plan assets consist of
common stocks and fixed income securities at December 31, 1996 and 1995. The
estimated funded status of the plans at December 31, 1996 and 1995, using
weighted average discount rates of 8.0% and 7.75%, respectively, and a return
on assets of 9.0% was as follows:
<TABLE>
Balances as of December 31,
- ----------------------------------------------------------------------------
<C> <C> <C>
(Millions of Dollars) 1996 1995
- -----------------------------------------------------------------------------
Accumulated postretirement benefit obligation
Retirees $ (49.6) $ (54.5)
Other fully eligible participants (3.5) (3.0)
Other active plan participants (28.6) (27.5)
- -----------------------------------------------------------------------------
Total benefit obligation (81.7) (85.0)
Plan assets at fair value 34.4 25.6
- -----------------------------------------------------------------------------
Funded status (47.3) (59.4)
Unrecognized transition obligation 41.5 44.2
Unrecognized net (gain)/loss (9.2) -
- -----------------------------------------------------------------------------
Accrued postretirement benefit cost
included in accounts payable $ (15.0) $ (15.2)
=============================================================================
</TABLE>
The pre-65 health-care-cost trend rate decreases from 7.3% to 5.5% over nine
years and the post-65 health-care-cost trend rate is level at 1.5%. A 1%
increase in each future year's assumed health-care-cost trend rates increases
the service and interest cost form $8.3 million to $9.3 million and the
accumulated postretirement benefit obligation from $81.7 million to $89.6
million.
Enhanced Retirement
In December 1994, IP announced plans for voluntary enhanced retirement
programs. During the fourth quarter of 1995, enhanced retirement and
severance reduced the number of employees by 492 and 235, respectively. The
combined enhanced retirement and severance programs generated pre-tax charges
of approximately $26 million and $12 million, respectively, against fourth
quarter 1995 earnings.
Note 12 - Segments of Business
Illinois Power Company is a public utility engaged in the generation,
transmission, distribution and sale of electric energy, and the distribution,
transportation and sale of natural gas. The following is a summary of
operations:
<TABLE>
(Millions of dollars)
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C>
1996 1995 1994
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Total Total
Electric Gas Corporation Electric Gas Corporation Electric Gas Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Operation information -
Operating revenues $ 1,340.5 $ 348.2 $ 1,688.7 $ 1,368.9 $ 272.5 1,641.4 $ 1,287.5 $ 302.0 $ 1,589.5
Operating expenses,
excluding provision for
income taxes 886.2 300.5 1,186.7 946.2 245.0 1,191.2 876.1 274.7 1,150.8
- -------------------------------------------------------------------------------------------------------------------------------
Pre-tax operating income 454.3 47.7 502.0 422.7 27.5 450.2 411.4 27.3 438.7
Allowance for funds used
during construction (AFUDC) 6.3 .2 6.5 5.5 .5 6.0 8.9 .4 9.3
- -------------------------------------------------------------------------------------------------------------------------------
Pre-tax operating income,
including AFUDC $ 460.6 $ 47.9 $ 508.5 $ 428.2 $28.0 $ 456.2 $ 420.3 $ 27.7 $ 448.0
- ----------------------------------------------- ------------------ -------------------
Other deductions, net 9.0 8.1 11.3
Interest charges 133.0 148.0 143.9
Provision for income taxes 137.9 117.4 112.5
- ------------------------------------------------------------------------------------------------------------------------------
Net income 228.6 182.7 180.3
Preferred dividend requirements (22.3) (23.7) (24.9)
Carrying value over (under)
consideration paid for redeemed
preferred stock (.7) (3.5) 6.4
- -------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 205.6 $ 155.5 $ 161.8
===============================================================================================================================
Other information -
Depreciation $ 164.0 $ 22.5 $ 186.5 $ 161.4 $ 21.6 $ 183.0 $ 156.1 $ 21.1 $ 177.2
- -------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 164.0 $ 23.3 $ 187.3 $ 185.7 $ 23.6 $ 209.3 $ 173.1 $ 20.6 $ 193.7
- -------------------------------------------------------------------------------------------------------------------------------
Investment information -
Identifiable assets* $ 4,577.1 $ 481.9 $ 5,059.0 $4,580.4 $ 446.3 $ 5,026.7 $ 4,589.0 $ 442.6 5,031.6
------------------------------------------ --------------------- --------------------
Nonutility plant and
other investments 14.3 16.2 15.2
Assets utilized for
overall operations 495.2 524.3 549.0
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 5,568.5 $ 5,567.2 $5,595.8
===============================================================================================================================
*Utility plant, nuclear fuel, materials and supplies, deferred Clinton costs
and prepaid and deferred energy costs.
Note 13 - Fair Value of Financial Instruments
</TABLE>
<TABLE>
<C> <C>
1996 1995
- ---------------------------------------------------------------------------
<C> <C> <C> <C> <C>
Carrying Fair Carrying Fair
(Millions of dollars) Value Value Value Value
- ----------------------------------------------------------------------------
Nuclear decommissioning
trust funds $ 41.4 $ 41.4 $ 32.7 $ 32.7
Cash and cash equivalents 12.5 12.5 4.3 4.3
Mandatorily redeemable
preferred stock 197.0 199.3 97.0 108.2
Long-term debt 1,587.7 1,629.3 1,739.2 1,855.8
Notes payable 310.0 310.0 359.6 359.6
============================================================================
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments listed in the table above:
Nuclear Decommissioning Trust Funds The fair values of available-for-
sale marketable debt securities and equity investments held by the Nuclear
Decommissioning Trust are based on quoted market prices at the reporting date
for those or similar investments.
Cash and Cash Equivalents The carrying amount of cash and cash equivalents
approximates fair value due to the short maturity of these instruments.
Mandatorily Redeemable Serial Preferred Stock and Long-Term Debt
The fair value of mandatorily redeemable preferred stock
and long-term debt is estimated based on the quoted market prices for
similar issues or by discounting expected cash flows at the rates currently
offered for debt of the same remaining maturities.
Notes Payable The carrying amount of notes payable approximates fair value
due to the short maturity of these instruments.
Note 14 - Quarterly Consolidated Financial Information and Common Stock Data
(unaudited)
<TABLE>
(Millions of dollars except per common share amounts)
- -----------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
First Quarter Second Quarter Third Quarter Fourth Quarter
1996 1996 1996 1996
- -----------------------------------------------------------------------------------------------------------------
Operating revenues $ 446.7 $ 365.7 $ 458.4 $ 417.9
Operating income 88.1 74.9 133.3 65.1
Net income 49.1 48.7 100.6 30.2
Net income applicable to common stock 43.5 42.5 94.8 24.8
Cash dividends declared on common stock 21.2 21.2 21.2 23.5
Cash dividends paid on common stock 21.2 21.2 21.2 21.2
First Quarter Second Quarter Third Quarter Fourth Quarter
1995 1995 1995 1995
- ----------------------------------------------------------------------------------------------------------------
Operating revenues $ 425.5 $ 344.3 $ 486.1 $ 385.5
Operating income 78.3 67.1 137.2 41.8
Net income 41.7 34.5 98.2 8.3
Net income (loss) applicable to common stock 35.3 35.1 95.9 (10.8)
Cash dividends declared on common stock 18.9 18.9 18.9 21.2
Cash dividends paid on common stock 18.9 18.6 18.9 18.9
The 1995 fourth quarter earnings include $(23) million for the enhanced
retirement and severance program and $(3.5) million for the carrying amount
under consideration paid for redeemed preferred stock.
</TABLE>
<TABLE>
ILLINOIS POWER COMPANY
SELECTED CONSOLIDATED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
(Millions of dollars)
1996 1995 1994 1993 1992 1986
- ---------------------------------------------------------------------------------------------------------------------------
Operating revenues
Electric $ 1,202.9 $ 1,252.6 $ 1,177.5 $ 1,135.6 $ 1,117.9 $ 814.1
Electric interchange 137.6 116.3 110.0 130.8 73.0 76.6
Gas 348.2 272.5 302.0 314.8 288.6 369.7
- ---------------------------------------------------------------------------------------------------------------------------
Total operating revenues $ 1,688.7 $ 1,641.4 $ 1,589.5 $ 1,581.2 $ 1,479.5 $ 1,260.4
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 228.6 182.7 180.3 (56.1) 122.1 292.7
Effective income tax rate 37.6% 39.1% 38.4% (72.4%) 39.4% 20.5%
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ 205.6 151.5 161.8 (82.2) 93.2 256.5
Cash dividends declared on common stock 87.1 77.9 49.1 30.2 105.9 171.1
Cash dividends paid on common stock 84.8 75.3 60.5 60.5 60.5 168.6
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 5,568.5 5,567.2 5,595.8 5,445.1 5,331.7 5,622.8*
- -----------------------------------------------------------------------------------------------------------------------------
Capitalization
Common stock equity $ 1,576.1 $1,478.1 $1,466.0 $1,342.8 $ 1,454.0 $1,691.9
Preferred stock 96.2 125.6 224.7 303.7 303.1 315.2
Mandatorily redeemable preferred stock 197.0 97.0 133.0 48.0 100.0 196.0
Long-term debt 1,636.4 1,739.3 1,946.1 1,926.3 2,017.4 2,241.0*
- -----------------------------------------------------------------------------------------------------------------------------
Total capitalization $ 3,505.7 $3,440.0 $3,769.8 $3,620.8 $ 3,874.5 $4,444.1*
- -----------------------------------------------------------------------------------------------------------------------------
Embedded cost of long-term debt 8.0% 7.9% 7.6% 7.5% 8.3% 9.1%
- ------------------------------------------------------------------------------------------------------------------------------
Retained earnings (deficit) $ 245.9 129.6 51.1 (71.0) 41.0 481.2
- ------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 187.3 $ 209.3 $ 193.7 $ 277.7 $ 244.4 $ 710.1
Cash flows from operations $ 443.4 473.7 280.2 396.6 374.5 212.3
AFUDC as a percent of earnings applicable to common stock 3.2% 3.9% 5.7% N/A 5.6% 85.5%
Return on average common equity 12.0% 9.9% 11.4% (6.0)% 6.5% 15.9%
Ratio of earnings to fixed charges 3.40 2.77 2.73 .80 2.02 2.57
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Restated for the effect of capitalized nuclear fuel lease.
<TABLE>
ILLINOIS POWER COMPANY
SELECTED STATISTICS
<C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1986
- ------------------------------------------------------------------------------------------------------------
Electric Sales in KWH (Millions)
Residential 4,782 4,754 4,537 4,546 4,138 4,198
Commercial 3,894 3,804 3,517 3,246 3,055 2,821
Industrial 8,493 8,670 8,685 8,120 8,083 7,341
Other 367 367 536 337 466 875
- -------------------------------------------------------------------------------------------------------------
Sales to ultimate consumers 17,536 17,595 17,275 16,249 15,742 15,235
Interchange 5,454 4,444 4,837 6,015 2,807 2,726
Wheeling 928 642 622 569 402 -
- -------------------------------------------------------------------------------------------------------------
Total electric sales 23,918 22,681 22,734 22,833 18,951 17,961
- -------------------------------------------------------------------------------------------------------------
Electric Revenues (Millions)
Residential $ 483 $ 500 $ 471 $ 463 $ 435 $ 293
Commercial 318 321 295 269 263 187
Industrial 360 392 378 360 381 290
Other 38 37 30 40 38 44
- ------------------------------------------------------------------------------------------------------------
Revenues from ultimate consumers 1,199 1,250 1,174 1,132 1,117 814
Interchange 138 116 110 131 73 77
Wheeling 4 3 3 3 1 -
- ------------------------------------------------------------------------------------------------------------
Total electric revenues $ 1,341 $ 1,369 $ 1,287 $ 1,266 $ 1,191 891
- ------------------------------------------------------------------------------------------------------------
Gas Sales in Therms (Millions)
Residential 427 356 359 371 339 357
Commercial 177 144 144 148 138 161
Industrial 99 88 81 78 136 198
- ------------------------------------------------------------------------------------------------------------
Sales to ultimate consumers 703 588 584 597 613 716
Transportation of customer-owned gas 251 273 262 229 204 253
- ------------------------------------------------------------------------------------------------------------
Total gas sold and transported 954 861 846 826 817 969
Interdepartmental sales 9 21 5 7 12 1
- -------------------------------------------------------------------------------------------------------------
Total gas delivered 963 882 851 833 829 970
- -------------------------------------------------------------------------------------------------------------
Gas Revenues (Millions)
Residential $ 216 $ 173 $ 192 $ 200 $ 181 $ 206
Commercial 79 60 66 68 61 78
Industrial 40 24 31 34 37 73
- -------------------------------------------------------------------------------------------------------------
Revenues to ultimate consumers 335 257 289 302 279 357
Transportation of customer-owned gas 7 8 9 8 7 11
Miscellaneous 6 7 4 5 3 2
- ------------------------------------------------------------------------------------------------------------
Total gas revenues $ 348 $ 272 $ 302 $ 315 $ 289 $ 370
- ------------------------------------------------------------------------------------------------------------
System peak demand (native load) in kw (thousands) 3,492 3,667 3,395 3,415 3,109 3,176
Firm peak demand (native load) in kw (thousands) 3,381 3,576 3,232 3,254 2,925 2,949
Net generating capability in kw (thousands) 4,148 3,862 4,121 4,045 4,052 3,397
- -------------------------------------------------------------------------------------------------------------
Electric customers (end of year) 549,957 529,966 553,869 554,270 549,391 540,595
Gas customers (end of year) 389,223 374,299 388,170 394,379 386,261 383,201
Employees (end of year) 3,635 3,559 4,350 4,540 4,624 4,593
- ------------------------------------------------------------------------------------------------------------
Illinois Power 500 South 27th Street, Decatur, Illinois 62525
http://www.illinova.com
</TABLE>
Exhibit 21(a)
Subsidiaries of Illinova Corporation and Illinois Power Company
State or Jurisdiction
Name of Incorporation
- ---- ---------------------
Illinova Corporation Illinois
Illinois Power Company Illinois
IP Gas Supply Company Illinois
Illinois Power Fuel Company (1) Illinois
Illinois Power Capital, L.P. (2) Delaware
Illinois Power Financing I Delaware
Illinova Generating Company Illinois
Electric Energy, Inc. (3) Illinois
IPG Canfield Co. Illinois
IPG Dominguez Co. Illinois
IPG Eastern, Inc. Illinois
IPG Ferndale, Inc. Illinois
IPG Frederickson, Inc. Illinois
IGC Solutions, Inc.
(formerly IPG LAP Cogen, Inc.) Illinois
IPG Panorama Co. Illinois
IPG Paris, Inc. Illinois
IPG Western, Inc. Illinois
IGC Acquisition Co.
(formerly IPG Aztec Co.) Illinois
IGC Brazos, Inc. Illinois
IGC Development Company Illinois
IGC International, Inc. Cayman Islands
IGC Sub Co., Inc. Illinois
ICG White Oak Energy Investors, Inc. Illinois
ECI Energy, Ltd. (4) Delaware
North American Energy Services Co. (5) Washington
IGC ELCO Partnership, LLC (6) Cayman Islands
IGC Jamaica Partnership, LLC (7) Cayman Islands
IGC International II, Inc. Cayman Islands
IGC Flores Partnership, LLC (8) Cayman Islands
IGC Flores Partnership II, LLC (9) Cayman Islands
FIG Leasing International, LLC (10) Cayman Islands
FIG Leasing International III, Inc. Cayman Islands
FIG Equipment, LLC (11) Cayman Islands
IGC Aguatia Partners (12) Cayman Islands
IGC-ABC Shanghai Co., Ltd. Mauritius
IGC-ZJ XC Company (13) Mauritius
IGC Mauritius International Company Mauritius
IGC Uch, LLC Cayman Islands
Illinova Power Marketing, Inc. Delaware
Tenaska Marketing Ventures (14) Nebraska
Illinova Insurance Company Vermont
Illinova Energy Partners, Inc. Delaware
(1) Illinois Power Company owns 50% of the common stock of
Illinois Power Fuel Company.
(2) Illinois Power Company is the general partner in
Illinois Power Capital, L.P., with a 3% equity ownership
share. Illinois Power Capital is consolidated in the
accounts of Illinois Power Company.
(3) Illinova Generating Company owns 20% of the common
stock of EEI.
(4) Illinova Generating Company owns 47.5% of the voting
common stock of ECI Energy, Ltd..
(5) Illinova Generating Company owns 50% of the common
stock of North American Energy Services Company.
(6) Illinova Generating Company owns 1% and IGC
International, Inc. (a wholly-owned subsidiary of
Illinova Generating Company) owns 99% of ELCO
Partnership LLC.
(7) IGC International, Inc. (a wholly-owned subsidiary of
Illinova Generating Company) owns 99% and IGC
International II, Inc. (a wholly-owned
subsidiary of Illinova Generating Company) owns 1% of
IGC Jamaica Partnership, LLC.
(8) IGC International, Inc. (a wholly-owned subsidiary of
Illinova Generating Company) owns 99% and IGC
International II, Inc. (a wholly-owned
subsidiary of Illinova Generating Company) owns 1% of
IGC Flores Partnership, LLC.
(9) IGC International, Inc. (a wholly-owned subsidiary of
Illinova Generating Company) owns 99% and IGC
International II, Inc. (a wholly-owned
subsidiary of Illinova Generating Company) owns 1% of
IGC Flores Partnership II, LLC.
(10) IGC Flores Partnership, LLC (a subsidiary of IGC
International, Inc. and IGC International II,
Inc.) owns 50% and IGC Flores Partnership II,
LLC (a subsidiary of IGC International Inc. and
IGC International II, Inc.) owns 50% of FIG Leasing
International, LLC.
(11) IGC International, Inc. (a wholly-owned subsidiary of
Illinova Generating Company) owns 99% and IGC International II,
Inc. (a wholly-owned subsidiary of Illinova Generating Company)
owns 1% of FIG Equipment, LLC.
(12) IGC International, Inc. (a wholly-owned
subsidiary of Illinova Generating Company) owns 99% and IGC
International II, Inc. (a wholly-owned subsidiary of Illinova
Generating Company) owns 1% of IGC Aguaytia Partners, LLC.
(13) IGC International II, Inc. (a wholly-owned subsidiary
of Illinova Generating Company) owns 99% and IGC
International Inc. (a wholly owned subsidiary of IGC)
owns 1% of IGC-ZJ XC Company.
(14) Illinova Power Marketing, Inc. owns 50% of the equity
of Tenaska Marketing Ventures.
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 33-22068), the
Registration Statement on Form S-8 (No. 33-60278), the
Registration Statement on Form S-8 (No. 33-66124), the
Prospectus constituting part of the Registration Statement on
Form S-3 (No. 33-25699), the Prospectus constituting part of the
Registration Statement on Form S-3 (No. 33-17847), and the
Prospectus constituting part of the Registration Statement on
Form S-3 (No. 33-03011)of our report dated February 7, 1997,
appearing on page A-10 of the Annual Report to Shareholders in
the appendix to the Illinova Corporation Proxy Statement which is
incorporated in this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
March 25, 1997
[TYPE] EX-27
[DESCRIPTION] FINANCIAL DATA SCHEDULE UT
FOR 1996 10K
[TEXT]
[ARTICLE] UT
[LEGEND] THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET, INCOME STATEMENT,
AND CASH FLOW STATEMENT OF ILLINOIS POWER COMPANY
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE BALANCE SHEET, INCOME STATEMENT AND CASH FLOW
STATEMENT OF ILLINOIS POWER COMPANY.
[RESTATED] 0
[SUBSIDIARY] 0
[NUMBER] 0
[MULTIPLIER] 1,000,000
[CURRENCY] DEFAULT
[PERIOD-START] JAN-01-1996
[PERIOD-END] DEC-31-1996
[PERIOD-TYPE] YEAR
[EXCHANGE-RATE] 0
[BOOK-VALUE] PER BOOK
[TOTAL-NET-UTILITY-PLANT] 4664
[OTHER-PROPERTY-AND-INVEST] 15
[TOTAL-CURRENT-ASSETS] 444
[TOTAL-DEFERRED-CHARGES] 446
[OTHER-ASSETS] 0
[TOTAL-ASSETS] 5569
[COMMON] 1330
[CAPITAL-SURPLUS-PAID-IN] 0
[RETAINED-EARNINGS] 246
[TOTAL-COMMON-STOCKHOLDERS-EQ] 1576
[PREFERRED-MANDATORY] 197
[PREFERRED] 96
<LONG-TERM-DEBT-NET) 1577
[SHORT-TERM-NOTES] 75
[LONG-TERM-NOTES-PAYABLE] 0
[COMMERCIAL-PAPER-OBLIGATIONS] 235
[LONG-TERM-DEBT-CURRENT-PORT] 11
[PREFERRED-STOCK-CURRENT] 0
[CAPITAL-LEASE-OBLIGATIONS] 59
[LEASES-CURRENT] 37
[OTHER-ITEMS-CAPITAL-AND-LIAB] 1706
[TOT-CAPITALIZATION-AND-LIAB] 5569
[GROSS-OPERATING-REVENUE] 1689
[INCOME-TAX-EXPENSE] 141
[OTHER-OPERATING-EXPENSES] 1186
[TOTAL-OPERATING-EXPENSES] 1327
[OPERATING-INCOME-LOSS] 361
[OTHER-INCOME-NET] (6)
[INCOME-BEFORE-INTEREST-EXPEN] 355
[TOTAL-INTEREST-EXPENSE] 126
[NET-INCOME] 229
[PREFERRED-STOCK-DIVIDENDS] 22
[EARNINGS-AVAILABLE-FOR-COMM] 206
[COMMON-STOCK-DIVIDENDS] 87
[TOTAL-INTEREST-ON-BONDS] 118
[CASH-FLOW-OPERATIONS] 443
[EPS-PRIMARY] 0
[EPS-DILUTED] 0
