SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
X Preliminary information statement __ Confidential, for use of
__ the Commission only (as
permitted by Rule 14c-5(d)(2))
X Definitive information
__ statement
ILLINOIS POWER COMPANY
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(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
__
__ Fee computed on table below per Exchange Act Rules 14c-5(g) and
0-11.
(1) Title of each class of securities to which transaction
applies.
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was determined).
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(4) Proposed maximum aggregate value of transaction:
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<PAGE> 2
__ Fee paid previously with preliminary materials.
__ Check box if any part of the fee is offered as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offering fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 3
ILLINOIS POWER COMPANY
500 South 27th Street
Decatur, IL 62525-1805
_______________________
NOTICE OF MEETING OF HOLDERS OF ITS
OUTSTANDING FIRST MORTGAGE BONDS
To Be Held On October 24, 1997
_________________________________
At the request of Illinois Power Company (the "Company"), Harris
Trust and Savings Bank, the Trustee (the "Trustee") under the Mortgage
and Deed of Trust dated November 1, 1943 by and between the Company
and the Trustee, as heretofore amended and supplemented (the "1943
Mortgage"), hereby calls and gives notice of, pursuant to Article XV
of the 1943" Mortgage, a meeting of the holders of the Company's First
Mortgage Bonds currently outstanding under the 1943 Mortgage to be
held at the offices of Harris Trust and Savings Bank, 111 West Monroe
Street, Chicago, Illinois 60603 on October 24, 1997 at 10:00 o'clock
A.M. (Central Daylight Time), for the purpose of voting on a proposal
to amend the 1943 Mortgage in certain respects as described in the
accompanying Information Statement prepared by the Company, and to
consider and act upon such other matters as may properly come before
the meeting or any adjournment thereof.
At the request of the Company, the Trustee has fixed September
11, 1997 as the record date for the meeting. Holders of fully
registered First Mortgage Bonds and First Mortgage Bonds registered as
to principal who were registered owners of such Bonds at the close of
business on September 11, 1997 will be entitled to receive notice of
and to attend the meeting.
Additional copies of the Information Statement may be obtained
upon request from the Company at 500 South 27th Street, Decatur, IL
62525-1805, Attention: Leah Manning Stetzner, Vice President, General
Counsel and Secretary. The Trustee has not verified the content of
the Information Statement other than with respect to the series and
the aggregate amount of outstanding First Mortgage Bonds.
HARRIS TRUST AND SAVINGS BANK
as Trustee under the 1943 Mortgage
September __,1997
<PAGE> 4
Information Statement (pursuant to Section 14(c) of the Securities
Exchange Act of 1934)
ILLINOIS POWER COMPANY
500 South 27th Street
Decatur, IL 62525-1805
______________
MEETING OF HOLDERS OF ITS FIRST MORTGAGE BONDS
To Be Held On October 24, 1997
______________
INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY
The information herein is furnished in connection with the
meeting of the holders of the outstanding First Mortgage Bonds of the
series identified on EXHIBIT A (the "Bonds") of Illinois Power Company
(the "Company") to be held at the offices of Harris Trust and Savings
Bank, 111 West Monroe Street, Chicago, Illinois 60603 on October 24,
1997, at 10:00 o'clock A.M. (Central Daylight Time), for the purposes
set forth in the accompanying Notice of Meeting. This Information
Statement is first being mailed to holders of the Bonds on or about
September __, 1997.
INFORMATION CONCERNING VOTING
Vote Required For the Proposed Amendments
At the meeting there will be submitted for approval a proposal to
amend the Mortgage and Deed of Trust dated November 1, 1943 by and
between the Company and Harris Trust and Savings Bank, as Trustee (the
"Trustee"), as heretofore amended and supplemented (the "1943
Mortgage"), in certain respects as described herein. The proposed
amendments are set forth in a supplemental indenture to the 1943
Mortgage, which will be executed by the Company and the Trustee and
recorded in each county in Illinois in which the Company owns property
following this meeting. Copies of the supplemental indenture are
available upon request from the Company's Shareholder Services
Department at 500 South 27th Street, Decatur, Illinois, 62525-1805,
telephone number: (800) 800-8220.
To become effective, the proposed amendments to the 1943 Mortgage
must be approved by the affirmative vote of the holders of at least 66
2/3% in aggregate principal amount of all Bonds outstanding at the
time of the meeting (with all series voting as a single class). As of
June 30, 1997, the aggregate principal amount of Bonds outstanding
under the 1943 Mortgage was $1,480,532,275. The Company expects that
the same aggregate principal amount will be outstanding at the time of
<PAGE> 5
the meeting. Of such aggregate principal amount of Bonds,
$1,016,241,275 or 68.6%, are held by Harris Trust and Savings Bank in
its capacity as trustee (the "1992 Trustee") under the General
Mortgage Indenture and Deed of Trust by and between the Company and
Harris Trust and Savings Bank dated as of November 1, 1992, as
heretofore amended and supplemented (the "1992 Indenture"). Pursuant
to Section 7.05 of the 1992 Indenture, the 1992 Trustee has agreed to
vote all Bonds held by it under the 1943 Mortgage in favor of the
proposed amendments to the 1943 Mortgage. As a result, adoption of
the proposed amendments to the 1943 Mortgage is assured and the
Company does not need, nor is it soliciting, the vote of any holder of
the Bonds other than the Trustee.
Voting by Holders of Registered Bonds
Holders of fully registered Bonds and Bonds in coupon form
registered as to principal who were registered owners of such Bonds at
the close of business on September 11, 1997 will be entitled to be
present at the meeting, and any adjournment thereof, without the
necessity for producing their Bonds at the meeting and regardless of
any subsequent transfer of their Bonds. At the request of the
Company, the Trustee has fixed September 11, 1997 as the record date
for the meeting with respect to such holders of fully registered Bonds
and Bonds in coupon form registered as to principal.
THE PROPOSED AMENDMENTS TO THE 1943 MORTGAGE
Background
In 1992, the Company's Board of Directors approved the execution
and delivery of the 1992 Indenture, with the intent that it would
replace the 1943 Mortgage upon the retirement or redemption of all
outstanding Bonds. The 1992 Indenture was designed to take into
account the developments in the capital markets since the date the
1943 Mortgage was adopted, and to provide the Company with increased
financial flexibility to meet the needs of investors without unduly
limiting the Company's operations. This flexibility was deemed
particularly important to the Company's ongoing ability to compete in
a diversified and increasingly deregulated utility environment.
In order to assure that bonds issued under the 1992 Indenture
received the same credit rating and met with the same market
acceptance as Bonds issued under the 1943 Mortgage, the Company has
issued "mirror Bonds" under the 1943 Mortgage to the 1992 Trustee to
secure each issuance of bonds under the 1992 Indenture. This "mirror
Bond" structure provides holders of bonds under the 1992 Indenture
with a lien on the Company's property essentially equivalent to that
held by holders of Bonds under the 1943 Mortgage. It also has enabled
bonds under the 1992 Indenture to receive from the rating agencies
credit ratings identical to the credit ratings of the currently
outstanding Bonds under the 1943 Mortgage.
<PAGE> 6
Based upon the issuance of an aggregate principal amount of
$1,016,241,275 Bonds pursuant to this "mirror Bond" structure from
February 1993 through June 30, 1997, the 1992 Trustee now holds
approximately 68.6% in aggregate principal amount of the currently
outstanding Bonds. The 1992 Indenture contains a provision directing
the 1992 Trustee at the time it holds at least 66 2/3% in aggregate
principal amount of the outstanding Bonds to vote the Bonds in favor
of the amendments to the 1943 Mortgage identified in an Amendment
Schedule to the 1992 Indenture. The proposed amendments to the 1943
Mortgage described in this Information Statement are the amendments
identified in the Amendment Schedule to the 1992 Indenture. Since
adoption of the proposed amendments requires the affirmative vote of
the holders of 66 2/3% of the outstanding Bonds under the 1943
Mortgage, the 1992 Trustee holds sufficient Bonds to assure adoption
of the proposed amendments.
In February 1997, the Board approved the amendments to the 1943
Mortgage contemplated by the 1992 Indenture and the Amendment Schedule
thereto, and authorized the appropriate officers of the Company to
direct the Trustee to take all necessary and appropriate action under
the 1943 Mortgage to call a meeting of the holders of the Bonds for
the purpose of adopting the proposed amendments to the 1943 Mortgage.
The Board believes the amendments, as described below, are in the best
interests of the Company for the following principal reasons: (i) the
amendments eliminate a number of restrictive and outdated provisions
which unduly limit the Company's ability to issue Bonds, (ii) the
amendments expand the circumstances under which the Company may
withdraw or otherwise use available cash in the trust estate, (iii)
the amendments allow the Company to dispose of certain minor
properties without adherence to the property release provisions, (iv)
the amendments revise certain financial and other covenants to provide
the Company with greater flexibility in the financial marketplace and
(v) the amendments effect these changes without materially impairing
the rights of the holders of the Bonds. In particular, the amendments
make no changes to the principal amounts, interest rates, interest
payment dates, maturity dates or other pricing terms of any
outstanding Bonds. The amendments do not affect the security
underlying outstanding Bonds, namely, that such Bonds are secured,
equally and ratably (except as to any sinking or similar fund
established for particular series of Bonds) by a valid first mortgage
lien on substantially all of the fixed property, franchises and rights
of the Company, subject to certain exceptions set forth in the 1943
Mortgage. However, as a result of the amendments, this mortgaged
property may be subject in the event of a default under the 1943
Mortgage to the claims of a greater principal amount of Bonds since
the Company has the ability, as described below, to issue more Bonds
under the amendments on the basis of property additions than it
currently has under the 1943 Mortgage.
A description of the principal amendments, together with an
explanation of their purpose and consequences, follows.
<PAGE> 7
Amendments Relating to the Issuance of Additional Bonds Under the 1943
Mortgage
The amendments enhance the Company's ability to issue additional
Bonds under the 1943 Mortgage in several respects:
Property Additions. The Company is permitted under the 1943
Mortgage to issue additional Bonds based on a percentage of the net
bondable value of property additions not subject to an unfunded prior
lien. The amendments increase the aggregate principal amount of
additional Bonds that the Company may issue by increasing from 60% to
75% the percentage of the net bondable value of property additions not
subject to an unfunded prior lien which forms the basis upon which
additional Bonds may be issued.
The net bondable value of property additions not subject to an
unfunded prior lien is a defined term under the 1943 Mortgage and is
calculated by taking the aggregate of the cost (or fair value if less
than cost) of gross property additions acquired by the Company and
subtracting from that number, among other things, (i) a percentage of
all cash theretofore withdrawn from the trust estate, and (ii) a
percentage of the aggregate principal amount of additional Bonds
theretofore authenticated and delivered upon the basis of property
additions. The amendments reduce these percentages, in each case,
from 10/6ths to 133 1/3%, thereby increasing the aggregate principal
amount of Bonds that may be issued under the 1943 Mortgage.
Earnings Tests. The Company's ability to issue additional Bonds
under the 1943 Mortgage is subject to the satisfaction of the
following two earnings tests:
(a) net earnings available for interest and property
retirement appropriations for 12 consecutive months within the 15
months immediately preceding the month in which application for
such additional Bonds is made, shall have been equal to at least
the greater of two and one-half times annual interest charges on,
or 10% of the principal amount of, and
(b) net earnings available for interest after property
retirement appropriations for the same 12-month period shall have
been equal to at least two times the annual interest charges on,
all Bonds outstanding under the 1943 Mortgage immediately after
the issue of the additional Bonds applied for by the Company.
The amendments modify the definition of net earnings available
for interest and property retirement appropriations to make it
consistent with the concept of "adjusted net earnings" under the 1992
Indenture. The current definition provides for the calculation of net
earnings available for interest and property retirement appropriations
as follows:
<PAGE> 8
"(a) The total operating revenues of the Company
and the net non-operating revenues of the
properties of the Company shall be ascertained.
(b) From the total, determined as provided in
Subdivision (a), there shall be deducted (1) all
operating expense, including all salaries,
rentals, insurance, license and franchise fees,
expenditures for ordinary repairs and maintenance,
taxes (other than income and excess or other
profits taxes which are imposed on income after
the deduction of interest charges) but excluding
all depreciation or property retirement
appropriations, all interest charges, and
amortization of stock and debt discount and
expense or premium, and (2) net non-operating
losses of the properties of the Company, if any.
(c) the balance remaining after the deduction of
the total amount computed pursuant to Subdivision
(b) from the total amount computed pursuant to
Subdivision (a) shall constitute the "net earnings
of the Company available for interest and property
retirement appropriations."
(d) No income received or accrued by the Company
from securities or other investments in other
corporations and no profits or losses from the
sale or abandonment of capital assets or
diminution in value of securities or other
investments shall be included in making such
computations.
(e) No deduction or credit shall be made on
account of (1) write-down of the carrying value of
investments or of street railway, bus, water or
ice properties or provision for reserve in respect
thereto on account of losses in value occurring
prior to November 1, 1943; or (2) write-off of the
excess of the amount at which any property owned
by the Company on November 1, 1943 may be carried
on the books of the Company over such amount as
any regulatory body having competent jurisdiction
shall require or authorize the Company to enter on
its books of account as the cost of such property,
or provision for reserves in respect thereto; or
(3) extraordinary charges and credits applicable
to periods prior to November 1, 1943."
The proposed definition provides for the calculation of such net
earnings of the Company as follows:
<PAGE> 9
"(a) its operating revenues (which may include
revenues of the Company subject when collected or
accrued to possible refund at a future date) with
the principal divisions thereof;
(b) its operating expenses, with the principal
divisions thereof, excluding (A) expenses for
income, profits and other taxes measured by, or
dependent on, net income, (B) provisions for
reserves for renewals, replacements, depreciation,
depletion or retirement of property (or any
expenditures therefor), or provisions for
amortization of property, (C) expenses or
provisions for interest on any indebtedness of the
Company, for the amortization of debt discount,
premium, expense or loss of reacquired debt, for
any maintenance and replacement, improvement or
sinking fund or other device for the retirement of
any indebtedness, or for other amortization, (D)
expenses or provisions for any non-recurring
charge to income or to retained earnings of
whatever kind or nature (including without
limitation the recognition of expense due to the
non-recoverability of assets or expense), whether
or not recorded as a non-recurring charge in the
Company's books of account, and (E) provisions for
any refund of revenues previously collected or
accrued by the Company subject to possible refund;
(c) the amount remaining after deducting the
amount in clause (b) above from the amount in
clause (a) above;
(d) its rental revenues (net of rental expenses
not included in clause (b) above);
(e) the sum of the amounts in clauses (c) and (d)
above;
(f) its other income, which amount may include any
portion of the allowance for funds used during
construction and other income related to deferred
costs (or any analogous amounts) which is not
included in "other income" (or any analogous item)
in the Company's books of account;
(g) net earnings of the Company available for
interest and property retirement appropriations
(being the sum of the amounts in clauses (e) and
(f) above)."
<PAGE> 10
This revised definition is more consistent with the terminology
of the Company's current financial accounting practices. It also
specifically allows the Company to include revenues subject to
possible later refund as part of operating revenues and to exclude
from operating expenses the expense associated with non-recoverability
of assets. The result of these changes is to make it relatively
easier for the Company to meet the earnings test based on net earnings
available for interest and property retirement appropriations.
Separately, the earnings test based on net earnings of the
Company available for interest and property retirement appropriations
requires the Company to meet the greater of two and one-half times the
annual interest charges on, or 10% of the principal amount of, all
outstanding Bonds after the issuance of the additional Bonds applied
for by the Company. To determine whether the Company meets this
earnings test, the 1943 Mortgage currently provides that the Company
may measure the net earnings using any 12 consecutive calendar months
within the 15 months immediately preceding the month in which it
wishes to issue additional Bonds. The amendments revise this earnings
test and thereby increase the Company's flexibility by (i) lowering
the required interest coverage from two and one-half times to two
times and eliminating the alternative of 10% of the outstanding Bonds
after the issuance of additional Bonds, and (ii) increasing from 15 to
18 the number of months in the preceding period available to the
Company in determining its compliance with this net earnings test.
In addition, the amendments to the 1943 Mortgage eliminate the
second earnings test based on net earnings available after property
retirement appropriations, thereby allowing the Company to issue
additional Bonds solely upon satisfaction of the earnings test based
on net earnings available for interest and property retirement
appropriations.
Amendments Relating to the Withdrawal of Cash from the Trust Estate
The amendments increase the Company's ability to withdraw cash from
the trust estate in the following respects:
Property Additions. The Company generally has the ability under
the 1943 Mortgage to withdraw cash from the trust estate upon the same
basis that it may issue additional Bonds based upon property
additions. Accordingly, the proposed change to the definition of net
bondable value of property additions not subject to an unfunded prior
lien described above would likewise increase the amount of cash that
the Company may withdraw from the trust estate. A similar conforming
change permits the Company to withdraw additional cash from the trust
estate by increasing from 60% to 75% the percentage of net bondable
value of property additions not subject to an unfunded prior lien
which forms the basis upon which cash may be withdrawn from the trust
estate.
<PAGE> 11
Under the 1943 Mortgage, only gross property additions that were
purchased, constructed or otherwise acquired by the Company after the
date of the application for the withdrawal of cash are eligible as the
basis for such withdrawal of cash. This timing restriction has
effectively precluded the Company from taking full advantage of this
withdrawal provision since most of the Company's property additions
relate to the period prior to the application for withdrawal. The
amendments expand the Company's ability to withdraw cash by permitting
all property additions not previously used for purposes of issuing
Bonds or withdrawing cash to serve as the basis for withdrawing cash
regardless of their time of purchase, construction or acquisition.
Required Use of Cash in the Trust Estate. The amendments
eliminate the requirements that (i) any cash not withdrawn by the
Company pursuant to the terms of the 1943 Mortgage must be used by the
Trustee at the request of the Company to purchase outstanding Bonds,
and (ii) the Trustee must use any unapplied cash three years after
deposit to purchase Bonds.
Amendments Relating to the Release of Property from the Lien of the
1943 Mortgage
Minor Properties. As a general matter, the Company must comply
with certain property release provisions in order to obtain the
release of property from the lien of the 1943 Mortgage. The
amendments enable the Company to obtain the release of certain
property from the lien of the 1943 Mortgage without compliance with
the property release provisions, provided the following conditions
have been satisfied:
(a) the Company is not in default under the 1943 Mortgage, and
(b) (i) if the aggregate fair value of the property, together
with all other property released thereunder during the then
current calendar year is less than the greater of $5,000,000
or 1% of the aggregate principal amount of outstanding
Bonds, then the Company must provide the Trustee with an
engineer's certificate stating the fair value of the
property to be released and that in its judgment the release
will not impair the security of the lien under the 1943
Mortgage, or (ii) if the aggregate fair value of the
property, together with all other property released during
such calendar year is more than the greater of $5,000,000 or
1% of the aggregate principal amount of outstanding Bonds,
but not in excess of 3% of such outstanding Bonds, then the
Company must provide the Trustee with a engineer's
certificate similar to that described above and must deposit
with the Trustee cash in an amount equal to the aggregate
cost (or fair value if less) of the properties so released
during the previous calendar year.
<PAGE> 12
Capital Stock and Funded Indebtedness of Subsidiaries. The
amendments permit the release from the lien of the 1943 Mortgage all
capital stock and funded indebtedness of any Subsidiary of the
Company, and eliminate the requirement that the Company comply with
provisions relating to the release of property in releasing such
capital stock or funded indebtedness (including those provisions
requiring cash deposits).
Amendments Relating to Certain Covenants and Related Provisions
Subsidiaries. The amendments eliminate (i) restrictions on
funded indebtedness that a Subsidiary may incur, (ii) restrictions on
the ability of a Subsidiary to merge or dispose of its assets, or
issue stock to any person other than the Company, (iii) restrictions
on the Company to transfer, sell or pledge any funded indebtedness of
a Subsidiary owned by the Company, and (iv) the requirement that the
Company pledge all the capital stock and funded debt of any Subsidiary
owned by the Company to the Trustee. Provisions related to the now
defunct Illinois Terminal Railroad Company and Central Terminal
Company are also eliminated by this modification.
The amendments further eliminate provisions (i) governing the
delivery of the stock of Subsidiaries of the Company to the Trustee,
(ii) requiring the Trustee to receive all distributions on capital
stock and principal indebtedness of any Subsidiary of the Company held
by the Trustee, (iii) prohibiting the Company from selling, assigning,
transferring, mortgaging, pledging or encumbering any right to
interest or dividends with respect to any indebtedness or capital
stock of any Subsidiary held as part of the trust estate, and (iv)
governing the relative rights of the Company and Trustee with respect
to the governance of such Subsidiaries.
Property Acquisitions. The 1943 Mortgage restricts the ability
of the Company to acquire property subject to a lien which will on
acquisition be an unfunded prior lien or liens. Specifically, it
provides that the principal amount of indebtedness secured by a lien
or liens may not exceed 50% of the lesser of cost or fair value of the
property additions subject to such liens, unless (i) the net earnings
of such property available for interest and property retirement
appropriations exceed the greater of two and one-half times annual
interest charges or 10% of the outstanding principal amount of all
indebtedness secured by such liens, measured for any 12 consecutive
calendar months during the period of 15 months preceding such
acquisition, and (ii) the net earnings of such property available for
interest after property retirement appropriations for the same 12
months exceed two times annual interest charges.
Consistent with the amendments described above relating to the
issuance of additional Bonds and the withdrawal of cash from the trust
estate, the amendments provide the Company with additional flexibility
to make property acquisitions by (i) increasing from 50% to 75% the
permitted ratio of principal amount of indebtedness secured by such
<PAGE> 13
liens to the lesser of cost or fair value, (ii) reducing the required
interest coverage from two and one-half times to two times annual
interest charges, (iii) eliminating the alternative provision that
interest coverage must exceed 10% of the outstanding principal amount
indebtedness secured by such liens, (iv) increasing from 15 to 18 the
number of months in the preceding period available to the Company for
the calculation of net earnings, and (v) eliminating the requirement
that the property acquisition meet the second earnings test of net
earnings of such property available for interest after property
retirement appropriations.
Issuance of Prior Lien Bonds. The amendments make conforming
changes to the provisions of the 1943 Mortgage which restrict the
ability of the Company to issue prior lien bonds secured by unfunded
prior liens. Specifically, the amendments provide the Company with
additional flexibility to issue unfunded prior lien bonds by (i)
increasing from 60% to 75% the percentage of the amount of net
bondable value of property additions subject to unfunded prior liens
as the basis for the issuance of prior lien bonds, (ii) increasing the
basis upon which cash previously deposited in connection with the
issuance of prior lien bonds may be withdrawn from 60% to 75%, (iii)
reducing the interest coverage in the earnings test applicable to the
issuance of prior lien bonds from two and one-half times to two times
annual interest charges, (iv) eliminating the alternative provision
that interest coverage must exceed 10% of the outstanding principal
amount indebtedness secured by such liens, (v) increasing from 15 to
18 the number of months in the preceding period available to the
Company for the calculation of earnings, and (vi) eliminating the
requirement that the Company meet the second earnings test of net
earnings available for interest after property retirement
appropriations.
The net bondable value of property additions subject to an
unfunded prior lien is a defined term under the 1943 Mortgage and is
calculated by taking the aggregate of the cost (or fair value if less
than cost) of gross property additions subject to an unfunded prior
lien acquired by the Company and subtracting from that number, among
other things, (i) a percentage of the aggregate principal amount of
prior lien bonds theretofore issued by the Company, and (ii) a
percentage of all cash theretofore deposited by the Company and
subsequently withdrawn on the basis of property additions. The
amendments reduce these percentages, in each case, from 10/6ths to 133
1/3%, thereby increasing the aggregate principal amount of prior lien
bonds that may be issued under the 1943 Mortgage.
Consolidation and Merger. The 1943 Mortgage restricts the
ability of the Company to consolidate, merge into another corporation
or sell its property as an entirety unless immediately after such
merger, consolidation or sale (i) the principal amount of indebtedness
outstanding which will be secured by a lien or liens on the properties
of such other corporation (other than junior liens or funded prior
liens) shall not exceed 50% of the fair value (or cost, if lower) of
<PAGE> 14
the property additions then owned by such other corporation, as
certified in an engineer's certificate to the Trustee, and (ii) the
net earnings of such other corporation available for interest and
property retirement appropriations for any 12 consecutive calendar
months during the period of 15 calendar months immediately preceding
the first day of the month in which such consolidation, merger or sale
is to be made, shall have amounted in the aggregate to at least the
greater of two and one-half times the amount of the annual interest
charges on, or 10% of the principal amount of, and the net earnings of
such corporation available for interest after property retirement
appropriations for the same 12-month period shall have amounted in the
aggregate to at least two times the amount of the annual interest
charges on, all indebtedness secured by such liens on the properties
of the other corporation which will remain outstanding and all other
indebtedness of such other corporation maturing more than one year
from the date of creation thereof which will remain outstanding after
the consolidation, merger or sale.
The amendments revise these debt and net earnings tests to make
them consistent with the revisions described above applicable to the
Company's ability to issue additional Bonds and withdraw cash from the
trust estate. Specifically, the debt limit is increased from 50% to
75%, and a single net earnings test -- net earnings available for
interest and property retirement appropriations -- is imposed over an
18-month rather than a 15-month period.
Miscellaneous Amendments
Default. The amendments modernize the 1943 Indenture and provide
more flexibility with respect to the default provisions by (i) adding
a 45-day grace period for interest payment defaults, a three-business
day grace period for principal payment defaults, a 60-day grace period
for sinking fund and other payment defaults, and a 60-day grace period
after written notice of covenant and warranty defaults, (ii) raising
the required percentage of the holders of Bonds needed to declare an
event of default from 15% to 25% and (iii) granting a 90-day grace
period in the event of an involuntary bankruptcy. In addition, the
amendments include as an additional event of default under the 1943
Mortgage an "event of default" under the 1992 Indenture.
Insurance. The amendments require the Company to insure against
the risk of fire (rather than "such hazards and risks as are usually
incurred by companies similarly situated and operating like
properties"). Additionally, the amendments provide that no particular
risk need be insured except to the extent of the excess thereof, if
any, over the greater of $5,000,000 or 3% of the aggregate principal
amount of outstanding Bonds (previously, the excess thereof, if any,
over $50,000). The amendments also increase the threshold below which
proceeds are not required to be paid to the Trustee in the event of a
loss from $25,000 to the greater of $5,000,000 or 3% of the aggregate
principal amount of outstanding Bonds.
<PAGE> 15
FINANCIAL STATEMENTS
The consolidated financial statements of the Company for the
fiscal year ended December 31, 1996 are included in the Company's 1996
Information Statement and Annual Report to Shareholders. Copies of
the 1996 Information Statement and Annual Report are available upon
request from the Company's Shareholder Services Department at 500
South 27th Street, Decatur, Illinois 62525-1805, telephone number:
(800) 800-8220 or at its Web site on the World Wide Web at
http://www.illinova.com.
OTHER MATTERS
The Company does not presently intend to present, and has no
information that others will present, any business at the meeting
other than the foregoing proposal to amend the 1943 Mortgage.
By order of the Board of Directors,
Leah Manning Stetzner
Vice President, General Counsel and Secretary
Decatur, Illinois
September __, 1997
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EXHIBIT A
SERIES OF FIRST MORTGAGE BONDS OUTSTANDING
UNDER THE 1943 MORTGAGE
6 1/2% Series due 1999
7.95% Series due 2004
8 3/4% Series due 2021
6 1/8% Series due 2000
5 5/8% Series due 2000
6 1/2% Series due 2003
6 3/4% Series due 2005
8% Series due 2023
7 1/2 Series due 2025
Pollution Control Series A due 2004
Pollution Control Series B due 2007
Pollution Control Series I due 2017
Pollution Control Series J due 2021
Pollution Control Series M due 2028
Pollution Control Series N due 2028
Pollution Control Series O due 2028
Pollution Control Series P due 2032
Pollution Control Series Q due 2032
Pollution Control Series R due 2032
