<PAGE> 1
PROSPECTUS SUPPLEMENT
(To Prospectus dated September 10, 1998)
[ILLINOIS POWER LOGO]
ILLINOIS POWER COMPANY
$100,000,000
New Mortgage Bonds, 6% Series due 2003
Interest payable March 15 and September 15
ISSUE PRICE 99.80%
The New Mortgage Bonds offered hereby (the "Offered Bonds") constitute a series
of New Mortgage Bonds described in the accompanying Prospectus to which this
Prospectus Supplement relates. The Offered Bonds will mature on September 15,
2003. Interest is payable semiannually, on March 15 and September 15 of each
year, beginning March 15, 1999. The Offered Bonds will not be redeemable prior
to maturity.
The Offered Bonds will be represented by Offered Bonds in book-entry form (each,
a "Book-Entry Security") registered in the name of a nominee of The Depository
Trust Company (the "Depositary"). Beneficial interests in each Book-Entry
Security will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary (with respect to beneficial interests of
participants) or by participants or persons that hold interests through
participants (with respect to beneficial interests of beneficial owners). Owners
of beneficial interests in the Book-Entry Securities will be entitled to
physical delivery of Offered Bonds in certificated form equal in principal
amount to their respective beneficial interests only under the limited
circumstances described under "Certain Terms of the Offered Bonds -- Book-Entry
System."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNT AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Offered Bond 99.80% .60% 99.20%
- ---------------------------------------------------------------------------------------------------------------------
Total $99,800,000 $600,000 $99,200,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from September 16, 1998.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses payable by the Company estimated to be $350,000.
The Offered Bonds are offered, subject to prior sale, when, as and if accepted
by the Underwriters named herein and subject to approval of certain legal
matters by Thelen Reid & Priest LLP, counsel for the Underwriters. It is
expected that delivery of the Offered Bonds will be made on or about September
16, 1998 through the book-entry facilities of the Depositary against payment
therefor in immediately available funds.
J.P. MORGAN & CO.
ABN AMRO INCORPORATED
DONALDSON, LUFKIN & JENRETTE
September 10, 1998
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED BONDS.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE THE OFFERED BONDS IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER, DEALER OR
AGENT. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS OR AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION
MADE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF, OR THAT THE INFORMATION
HEREIN OR THEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF OR
THEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Use of Proceeds............................................. S-3
Certain Terms of the Offered Bonds.......................... S-3
Underwriting................................................ S-6
Legal Opinions.............................................. S-6
PROSPECTUS
Available Information....................................... 2
Documents Incorporated by Reference......................... 2
The Company................................................. 3
Use of Proceeds............................................. 3
Ratio of Earnings to Fixed Charges.......................... 3
Description of the New Mortgage Bonds....................... 4
Description of Unsecured Debt Securities.................... 17
Plan of Distribution........................................ 20
Legal Opinions.............................................. 20
Experts..................................................... 20
</TABLE>
S-2
<PAGE> 3
USE OF PROCEEDS
The net proceeds from the sale of the Offered Bonds will be added to the
Company's general funds and used for the repayment of approximately $100,000,000
of short-term commercial paper indebtedness. The short-term commercial paper
indebtedness was issued at annual interest rates ranging from 5.73% to 5.80% and
will mature on September 16 and 17, 1998.
CERTAIN TERMS OF THE OFFERED BONDS
The Offered Bonds are being issued under the Company's General Mortgage
Indenture and Deed of Trust dated as of November 1, 1992 (the "New Mortgage")
between the Company and Harris Trust and Savings Bank (the "New Mortgage
Trustee"), as supplemented by various supplemental indentures, including the
Supplemental Indenture dated as of September 15, 1998 relating to the Offered
Bonds (the "Supplemental Indenture"). The Offered Bonds will be secured
primarily by a First Mortgage Bond (the "First Mortgage Bond") issued to the New
Mortgage Trustee under the Company's Mortgage and Deed of Trust dated November
1, 1943 (the "First Mortgage") between the Company and Harris Trust and Savings
Bank, as supplemented by various supplemental indentures, including the
supplemental indenture dated as of September 15, 1998 relating to the First
Mortgage Bond. The First Mortgage constitutes, subject to certain exceptions, a
first lien on substantially all properties of the Company. The Offered Bonds
will also be secured by the lien of the New Mortgage on the Company's properties
used in the generation, purchase, transmission, distribution and sale of
electricity and gas, which lien is junior to the lien of the First Mortgage. See
"Description of the New Mortgage Bonds" in the accompanying Prospectus.
The following summaries of certain provisions of the New Mortgage, the
Supplemental Indenture and the Offered Bonds (referred to in the accompanying
Prospectus as "New Mortgage Bonds") hereby supplement and to the extent
inconsistent therewith replace, the description of the general terms and
provisions of the New Mortgage Bonds set forth in the accompanying Prospectus,
to which description reference is hereby made. The following summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, the provisions of the New Mortgage and the Supplemental
Indenture. The following makes use of defined terms in the New Mortgage and the
Supplemental Indenture.
INTEREST RATE AND MATURITY. The Offered Bonds will bear interest from their
date of issuance at the rate of 6% per annum, payable semi-annually on March 15
and September 15, beginning March 15, 1999. The interest so payable on any March
15 or September 15 will be paid to the person in whose name an Offered Bond is
registered at the close of business on the immediately preceding March 1 or
September 1, as the case may be. The Offered Bonds will mature on September 15,
2003.
REDEMPTION. The Offered Bonds will not be redeemable prior to maturity.
BOOK-ENTRY SYSTEM. The Depositary will act as securities depository for the
Offered Bonds. The Offered Bonds will be issued as fully-registered securities
registered in the name of Cede & Co. (the Depositary's nominee). One
fully-registered Offered Bond certificate will be issued for the Offered Bonds
in the aggregate principal amount of such issue, and will be deposited with the
Depositary.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. The Depositary holds securities that its
participants ("Participants") deposit with the Depositary. The Depositary also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
of the Depositary ("Direct Participants") include securities brokers and dealers
(including the Underwriters), banks, trust companies, clearing corporations and
certain other organizations. The Depositary is owned by a number of its Direct
Participants and by The New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the Depositary's system is also available to others such as securities
brokers and dealers, banks and trust companies that clear
S-3
<PAGE> 4
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to the
Depositary and its Participants are on file with the Securities and Exchange
Commission.
Purchases of Book-Entry Securities under the Depositary's system must be
made by or through Direct Participants, which will receive a credit for such
Book-Entry Securities on the Depositary's records. The ownership interest of
each actual purchaser of each Offered Bond represented by a Book-Entry Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from the Depositary of their purchase, but Beneficial Owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Direct or Indirect Participant
through which such Beneficial Owner entered into the transaction. Transfers of
ownership interests in Offered Bonds represented by Book-Entry Securities are to
be accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners of Offered Bonds represented by Book-Entry
Securities will not receive certificated securities representing their ownership
interests therein, except in the event that use of the book-entry system for
such Book-Entry Securities is discontinued.
To facilitate subsequent transfers, all Offered Bonds represented by
Book-Entry Securities which are deposited with the Depositary are registered in
the name of the Depositary's nominee, Cede & Co. The deposit of Offered Bonds
with the Depositary and their registration in the name of Cede & Co. effect no
change in beneficial ownership. The Depositary has no knowledge of the actual
Beneficial Owners of the Offered Bonds represented by the Book-Entry Securities;
the Depositary's records reflect only the identity of the Direct Participants to
whose accounts such Book-Entry Securities are credited, which may or may not be
the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Offered Bonds represented by Book-Entry Securities. Under its usual
procedures, the Depositary mails an Omnibus Proxy to the Company as soon as
possible after the applicable record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
the Book-Entry Securities are credited on the applicable record date (identified
in a listing attached to the Omnibus Proxy).
Principal and/or interest, if any, payments on the Offered Bonds
represented by Book-Entry Securities will be made to Cede & Co., as nominee of
the Depositary. The Depositary's practice is to credit Direct Participants'
accounts upon the Depositary's receipt of funds and corresponding detail
information from the Company or the New Mortgage Trustee, on the applicable
payment date in accordance with their respective holdings shown on the
Depositary's records. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name", and will be the responsibility of such Participant and not of the
Depositary, the New Mortgage Trustee or the Company, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal and/or interest, if any, to Cede & Co. is the responsibility of the
Company or the New Mortgage Trustee, disbursement of such payments to Direct
Participants shall be the responsibility of the Depositary, and disbursement of
such payments to the Beneficial Owners shall be the responsibility of Direct and
Indirect Participants.
The Depositary may discontinue providing its services as depository with
respect to the Book-Entry Securities at any time by giving reasonable notice to
the Company or the New Mortgage Trustee. Under such circumstances, in the event
that a successor securities depository is not obtained, Offered Bonds in
certificated form are required to be printed and delivered.
S-4
<PAGE> 5
The Company may decide to discontinue use of the system of book-entry
transfers through the Depositary (or a successor securities depository). In that
event, Offered Bonds in certificated form will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company, the Underwriters and the New Mortgage
Trustee take no responsibility for the accuracy thereof.
Ownership of beneficial interests in a Book-Entry Security will be limited
to Participants or persons that may hold interests through Participants. The
laws of some states require that certain purchasers of securities take physical
delivery of such securities in certificated form. Such limits and laws may
impair the ability to transfer beneficial interests in a Book-Entry Security.
SECURITY. The Offered Bonds will be secured primarily by the First Mortgage
Bond (the "Pledged Bond") issued under the First Mortgage, as supplemented by
various supplemental indentures, including the supplemental indenture dated as
of September 15, 1998 relating to the Pledged Bond. The Pledged Bond will be
issued and delivered to, and registered in the name of, the New Mortgage Trustee
or its nominee and will be owned and held by the New Mortgage Trustee, subject
to the provisions of the New Mortgage, for the benefit of the Holders (as
defined in the accompanying Prospectus) of the Offered Bonds, and the Company
will have no interest in the Pledged Bond. The Pledged Bond will be issued in
the principal amount of $100,000,000, and, as is the case with the Offered
Bonds, will mature on September 15, 2003, will bear interest at the rate of 6%
per annum, payable semi-annually on March 15 and September 15, beginning March
15, 1999 and will not be redeemable prior to maturity. Any payment by the
Company of principal of or interest on, the Pledged Bond shall be applied by the
New Mortgage Trustee to the payment of any principal or interest, as the case
may be, in respect of the Offered Bonds which is then due, and, to the extent of
such application, the obligation of the Company under the New Mortgage to make
such payment in respect of the Offered Bonds will be deemed satisfied and
discharged. Any payment by the Company under the New Mortgage of principal of or
interest on, the Offered Bonds will, to the extent thereof, be deemed to satisfy
and discharge the obligation of the Company to make a payment of principal or
interest, as the case may be, in respect of the Pledged Bond which is then due.
The First Mortgage constitutes, subject to certain exceptions, a first lien
on substantially all properties of the Company. The Offered Bonds will also be
secured by the lien of the New Mortgage on the Company's properties used in the
generation, purchase, transmission, distribution and sale of electricity and
gas, which lien is junior to the lien of the First Mortgage. See "Description of
the New Mortgage Bonds" in the accompanying Prospectus.
S-5
<PAGE> 6
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated September 10, 1998 (the "Underwriting Agreement") among the Company, J.P.
Morgan Securities Inc., ABN AMRO Incorporated and Donaldson, Lufkin & Jenrette
Securities Corporation (the "Underwriters"), the Company has agreed to sell to
the Underwriters and the Underwriters have severally agreed to purchase, the
respective principal amounts of the Offered Bonds set forth after their names
below.
<TABLE>
<CAPTION>
UNDERWRITER PRINCIPAL AMOUNT
- ----------- ----------------
<S> <C>
J.P. Morgan Securities Inc. ................................ $ 34,000,000
ABN AMRO Incorporated....................................... 33,000,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 33,000,000
------------
Total..................................................... $100,000,000
============
</TABLE>
The Company has been advised by the Underwriters that they propose
initially to offer the Offered Bonds to the public at the public offering price
set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such price less a concession not in excess of .350% of the principal
amount of the Offered Bonds. The Underwriters may allow and such dealers may
reallow a concession not in excess of .225% of the principal amount of the
Offered Bonds to certain other dealers. After the initial public offering, the
public offering price and such concessions may be changed.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
and to contribute to payments that the Underwriters may be required to make in
respect thereof.
In order to facilitate the offering of the Offered Bonds, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
prices of the Offered Bonds. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Offered Bonds for
their own account. In addition, to cover allotments or to stabilize the price of
the Offered Bonds, the Underwriters may bid for, and purchase the Offered Bonds
in the open market. Finally, the underwriting syndicate may reclaim selling
concessions allowed to an underwriter or dealer for distributing the Offered
Bonds in the offering if the syndicate repurchases previously distributed
Offered Bonds in transactions to cover syndicate short positions in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain market prices of the Offered Bonds above independent market levels.
The Underwriters are not required to engage in these activities and may end any
of these activities at any time.
There is at present no trading market for the Offered Bonds. The
Underwriters are not obligated to make a market in the Offered Bonds, and the
Company cannot predict whether a trading market for the Offered Bonds will
develop or, if developed, will be maintained. The Company does not intend to
apply for listing of the Offered Bonds on a national securities exchange.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or commercial banking
services to the Company and its affiliates, for which such Underwriters or their
affiliates have received or will receive customary fees and commissions.
LEGAL OPINIONS
Certain legal matters in connection with the Offered Bonds will be passed
upon for the Company by Schiff Hardin & Waite, Chicago, Illinois and for the
Underwriters by Thelen Reid & Priest LLP, New York, New York.
S-6
<PAGE> 7
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
ILLINOIS POWER COMPANY
$200,000,000
DEBT SECURITIES
---------------------------
Illinois Power Company (the "Company") intends from time to time to issue,
in one or more series, up to $200,000,000 aggregate principal amount of its New
Mortgage Bonds or other debt securities (collectively, "Securities") on terms to
be determined when the agreement to sell is made or at the time of sale, as the
case may be. For each issue of Securities for which this Prospectus is being
delivered (the "Offered Securities") there is an accompanying Prospectus
Supplement ("Prospectus Supplement") that sets forth the type of Offered
Securities, the series designation, the aggregate principal amount of the issue,
the maturities, rates and times of payment of interest, and any redemption
terms, credit enhancement terms and other special terms of the Offered
Securities, as well as any planned listing thereof on a stock exchange.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------
The Securities will be sold in accordance with the plan of distribution
described in "Plan of Distribution" herein.
---------------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 10, 1998.
<PAGE> 8
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports, proxy
and information statements and other information filed by the Company with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located
at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661 and at Seven World Trade Center, 13th Floor, New York, New York
10048, or obtained from the Commission's Web site on the World Wide Web at
http://www.sec.gov. Copies of such material may be obtained from the public
reference section of the Commission, 450 Fifth Street, N.W, Washington, D.C.
20549, at prescribed rates. Such reports, proxy and information statements and
other information concerning the Company may also be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005, on which
exchange certain of the Company's securities are listed. In addition, such
reports, proxy and information statements and other information concerning the
Company may be inspected at the principal office of the Company, 500 South 27th
Street, Decatur, Illinois 62525.
This Prospectus does not contain all the information set forth in the
Registration Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement"), which the Company has filed with the
Commission under the Securities Act of 1933, as amended (the "Securities Act").
Statements contained or incorporated by reference herein concerning the
provisions of documents are necessarily summaries of such documents, and each
statement is qualified in its entirety by reference to the Registration
Statement.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission under the
Exchange Act are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1998 and June 30, 1998 (the latter as amended by the
Company's Quarterly Report on Form 10-Q/A); and
(c) The Company's Current Reports on Form 8-K dated December 16, 1997,
January 21, 1998, February 13, 1998, April 14, 1998, May 6, 1998, June 24,
1998, July 6, 1998 and July 15, 1998.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering of the Securities offered hereby shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein, in the Prospectus Supplement or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF
THIS PROSPECTUS HAS BEEN DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF SUCH
PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS REFERRED TO ABOVE WHICH HAVE BEEN
OR MAY BE INCORPORATED IN THIS PROSPECTUS BY REFERENCE, OTHER THAN EXHIBITS TO
SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE INTO THE
INFORMATION THAT THE PROSPECTUS INCORPORATES. REQUESTS FOR SUCH COPIES SHOULD BE
DIRECTED TO THE SHAREHOLDER SERVICES DEPARTMENT, ILLINOIS POWER COMPANY AT 500
SOUTH 27TH STREET, DECATUR, ILLINOIS 62525, TELEPHONE NUMBER: 1(800) 800-8220 OR
AT THE WEB SITE OF ITS PARENT COMPANY, ILLINOVA CORPORATION ("ILLINOVA"), ON THE
WORLD WIDE WEB AT HTTP://WWW.ILLINOVA.COM.
2
<PAGE> 9
THE COMPANY
Illinois Power Company (the "Company") was incorporated under the laws of
the State of Illinois on May 25, 1923. It 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. Its service
area is a widely diversified industrial and agricultural area comprising
approximately 15,000 square miles in northern, central and southern Illinois.
Electric service is provided at retail to 310 incorporated municipalities,
adjacent suburban and rural areas and numerous unincorporated municipalities
having an estimated aggregate population of approximately 1,265,000. Gas service
is provided to 257 incorporated municipalities, adjacent suburban areas and
numerous unincorporated municipalities having an estimated aggregate population
of approximately 920,000. The larger cities served include Decatur, East St.
Louis (gas only), Champaign, Danville, Belleville, Granite City, Bloomington
(electric only), Galesburg, Urbana and Normal (electric only). Illinova owns all
of the outstanding common stock of the Company.
The executive offices of the Company are located at 500 South 27th Street,
Decatur, Illinois 62525, and the Company's telephone number is (217) 424-6600.
USE OF PROCEEDS
Unless otherwise provided in the Prospectus Supplement accompanying this
Prospectus, the net proceeds from the sale of the Securities will be added to
the Company's general funds and used for general corporate purposes. Until so
used, it is expected that the net proceeds will be placed in interest bearing
time deposits or invested in short-term marketable securities. Any other use of
the net proceeds of any offering of Securities may be determined at the time of
such offering and will be described in the accompanying Prospectus Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges of
the Company for the periods indicated. This information is qualified in its
entirety by the information appearing elsewhere in this Prospectus and by the
information and financial statements incorporated in this Prospectus by
reference.
<TABLE>
<CAPTION>
TWELVE
YEAR ENDED DECEMBER 31, MONTHS SIX MONTHS
- --------------------------------------------------------- ENDED ENDED
1993 1994 1995 1996 1997 JUNE 30, 1998 JUNE 30, 1998
- --------- --------- --------- --------- --------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
0.80(1) 2.73 2.77 3.40 0.42(1) (1.08)(1) 0.32(1)
</TABLE>
- ---------------
(1) The ratios of earnings to fixed charges of 0.80, 0.42, (1.08), and 0.32 for
the years ended December 31, 1993 and 1997, for the twelve months ended
June 30, 1998 and for the six months ended June 30, 1998, respectively,
indicate that earnings were inadequate to cover fixed charges. Additional
earnings of approximately $63 million in 1993, approximately $84 million in
1997, approximately $301 million in the twelve months ended June 30, 1998
and approximately $50 million for the six months ended June 30, 1998 were
required to attain a one-to-one ratio of earnings to fixed charges.
Excluding disallowed Clinton Power Station plant costs, the ratio of
earnings to fixed charges would have been 2.25 for the year ended December
31, 1993. Excluding the write-off related to the discontinued application
of SFAS 71, "Accounting for the Effects of Certain Types of Regulation,"
for the generation segment of the Company's business, the ratio of earnings
to fixed charges would have been 2.58 for the year ended December 31, 1997
and 1.08 for the twelve months ended June 30, 1998.
Earnings used in the calculation of the ratio of earnings to fixed charges
include the allowance for funds used during construction and the deferred
financing costs associated with the Company's Clinton Power Station and are
before deduction of income taxes and fixed charges. Fixed charges include
interest on long-term debt, related amortization of debt discount, premium, and
expense, other interest and that portion of rent expense which is estimated to
be representative of the interest component.
3
<PAGE> 10
DESCRIPTION OF THE NEW MORTGAGE BONDS
If the Offered Securities are the Company's New Mortgage Bonds (the "New
Mortgage Bonds"), then the following description is applicable to the Offered
Securities.
GENERAL
The New Mortgage Bonds will be bonds, notes or other evidences of
indebtedness authenticated and delivered under a General Mortgage Indenture and
Deed of Trust between the Company and Harris Trust and Savings Bank (the "New
Mortgage Trustee"), dated as of November 1, 1992. The New Mortgage Bonds will be
issued in one or more series in registered form, without coupons. The General
Mortgage and Deed of Trust, as supplemented by various supplemental indentures,
including one or more supplemental indentures relating to the New Mortgage
Bonds, is hereinafter referred to as the "New Mortgage." The summaries under
this heading do not purport to be complete and are subject to the detailed
provisions of the New Mortgage. Capitalized terms used under this heading which
are not otherwise defined in this Prospectus shall have the meanings ascribed
thereto in the New Mortgage. Wherever particular provisions of the New Mortgage
or terms defined therein are referred to, such provisions or definitions are
incorporated by reference as a part of the statements made herein and such
statements are qualified in their entirety by such reference. References to
article and section numbers in this description of the New Mortgage Bonds,
unless otherwise indicated, are references to article and section numbers of the
New Mortgage.
Reference is made to the Prospectus Supplement for a description of the
following terms of each series of New Mortgage Bonds in respect of which this
Prospectus is being delivered: (i) the title of such New Mortgage Bonds; (ii)
the limit, if any, upon the aggregate principal amount of such New Mortgage
Bonds; (iii) the date or dates on which the principal of such New Mortgage Bonds
is payable; (iv) the rate or rates at which such New Mortgage Bonds will bear
interest, if any; the date or dates from which such interest will accrue; the
dates on which such interest will be payable ("Interest Payment Dates"); and the
regular record dates for the interest payable on such Interest Payment Dates;
(v) the option, if any, of the Company to redeem such New Mortgage Bonds and the
periods within which or the dates on which, the prices at which and the terms
and conditions upon which, such New Mortgage Bonds may be redeemed, in whole or
in part, upon the exercise of such option; (vi) the obligation, if any, of the
Company to redeem or purchase such New Mortgage Bonds pursuant to any sinking
fund or analogous provisions or at the option of the Holder and the periods
within which or the dates on which, the prices at which and the terms and
conditions upon which such New Mortgage Bonds will be redeemed or purchased, in
whole or in part, pursuant to such obligation; (vii) the denominations in which
such New Mortgage Bonds will be issuable; (viii) whether such New Mortgage Bonds
are to be issued in whole or in part in the form of one or more global New
Mortgage Bonds and, if so, the identity of the depositary for such global New
Mortgage Bonds; and (ix) any other terms of such New Mortgage Bonds not
inconsistent with the provisions of the New Mortgage.
REDEMPTION OF THE NEW MORTGAGE BONDS
Any terms for the optional or mandatory redemption of New Mortgage Bonds
will be set forth in the Prospectus Supplement. Except as shall otherwise be
provided in the applicable Prospectus Supplement with respect to New Mortgage
Bonds redeemable at the option of the Holder, New Mortgage Bonds will be
redeemable only upon notice by mail not less than 30 days prior to the date
fixed for redemption, and, if less than all the New Mortgage Bonds of a series,
or any Tranche thereof, are to be redeemed, the particular New Mortgage Bonds to
be redeemed will be selected by such method as shall be provided for any
particular series or Tranche, or in the absence of any such provision, by such
method as the Bond Registrar deems fair and appropriate. (See Sections 5.03 and
5.04.)
Any notice of redemption at the option of the Company may state that such
redemption shall be conditioned upon receipt by the New Mortgage Trustee, on or
prior to the date fixed for such redemption, of money sufficient to pay the
principal of and premium, if any, and interest, if any, on such New Mortgage
Bonds and that if such money has not been so received, such notice will be of no
force and effect and the Company will not be required to redeem such New
Mortgage Bonds. (See Section 5.04.)
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While the New Mortgage contains provisions for the maintenance of the
Mortgaged Property, it does not contain any provisions for a maintenance or
sinking fund and, except as may be provided in a Supplemental Indenture (and
described in the applicable Prospectus Supplement) there will be no provisions
for any such funds for the New Mortgage Bonds.
SECURITY
General. Except as discussed below, New Mortgage Bonds now or hereafter
issued under the New Mortgage will be secured primarily by:
(a) bonds ("First Mortgage Bonds") issued under the Company's Mortgage
and Deed of Trust, dated November 1, 1943 (the "First Mortgage"), to Harris
Trust and Savings Bank, as trustee (the "First Mortgage Trustee"), and
delivered to the New Mortgage Trustee under the New Mortgage; as discussed
under "Description of First Mortgage Bonds," the First Mortgage
constitutes, subject to certain exceptions, a first mortgage lien on
substantially all properties of the Company; and
(b) the lien of the New Mortgage on the Company's properties used in
the generation, purchase, transmission, distribution and sale of
electricity or gas, which lien is junior to the lien of the First Mortgage.
As discussed below under "Pledged Bonds," following a merger or
consolidation of another corporation into the Company, the Company could deliver
to the New Mortgage Trustee bonds issued under an existing mortgage on the
properties of such other corporation in lieu of or in addition to bonds issued
under the First Mortgage. In such event, the New Mortgage Bonds would be
secured, additionally, by such bonds and by the lien of the New Mortgage on the
properties of such other corporation, which would be junior to the liens of such
existing mortgage and the First Mortgage. The First Mortgage and all such other
mortgages are hereinafter, collectively, called the "Prior Mortgages," and all
bonds issued under the Prior Mortgages and delivered to the New Mortgage Trustee
are hereinafter collectively called the "Pledged Bonds." If and when no Prior
Mortgages are in effect, the New Mortgage will constitute a first mortgage lien
on all property of the Company subject thereto.
Pledged Bonds. The Pledged Bonds will be issued and delivered to, and
registered in the name of, the New Mortgage Trustee or its nominee and will be
owned and held by the New Mortgage Trustee, subject to the provisions of the New
Mortgage, for the benefit of the Holders of all New Mortgage Bonds Outstanding
from time to time, and the Company will have no interest in such Pledged Bonds.
Pledged Bonds issued as the basis for the authentication and delivery of New
Mortgage Bonds (a) will mature on the same dates, and in the same principal
amounts, as such New Mortgage Bonds and (b) will contain, in addition to any
mandatory redemption provisions applicable to all Pledged Bonds Outstanding
under the related Prior Mortgage, mandatory redemption provisions correlative to
provisions for mandatory redemption, or for redemption at the option of the
Holder, of such New Mortgage Bonds. Pledged Bonds issued as the basis for
authentication and delivery of a series or Tranche of New Mortgage Bonds (x)
may, but need not, bear interest, any such interest to be payable at the same
times as interest on the New Mortgage Bonds of such series or Tranche and (y)
may, but need not, contain provisions for the redemption thereof at the option
of the Company, any such redemption to be made at a redemption price or prices
not less than the principal amount of such Pledged Bonds. (See Sections 4.02 and
7.01.)
Any payment by the Company of principal of or premium or interest on the
Pledged Bonds held by the New Mortgage Trustee will be applied by the New
Mortgage Trustee to the payment of any principal, premium or interest, as the
case may be, in respect of the New Mortgage Bonds which is then due, and, to the
extent of such application, the obligation of the Company under the New Mortgage
to make such payment in respect of the New Mortgage Bonds will be deemed
satisfied and discharged. If, at the time of any such payment of principal of
Pledged Bonds, there shall be no principal then due in respect of the New
Mortgage Bonds, the proceeds of such payment will be deemed to constitute Funded
Cash and will be held by the New Mortgage Trustee as part of the Mortgaged
Property, to be withdrawn, used or applied as provided in the New Mortgage. If,
at the time of any such payment of premium or interest on Pledged Bonds, there
shall be no premium or interest, as the case may be, then due in respect of the
New Mortgage Bonds, the proceeds of such
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payments will be remitted to the Company at its request. (See Section 7.02 and
"-- Withdrawal of Cash" below). Any payment by the Company of principal of or
premium or interest on New Mortgage Bonds authenticated and delivered on the
basis of the deposit with the New Mortgage Trustee of Pledged Bonds (other than
by application of the proceeds of payments in respect of such Pledged Bonds)
will, to the extent thereof, be deemed to satisfy and discharge the obligation
of the Company, if any, to make a payment of principal, premium or interest, as
the case may be, in respect of such Pledged Bonds which is then due.
The New Mortgage Trustee may not sell, assign or otherwise transfer any
Pledged Bonds except to a successor trustee under the New Mortgage. (See Section
7.04.) At the time any New Mortgage Bonds of any series or Tranche which have
been authenticated and delivered upon the basis of Pledged Bonds cease to be
Outstanding (other than as a result of the application of the proceeds of the
payment or redemption of such Pledged Bonds), the New Mortgage Trustee shall
surrender to or upon the order of the Company an equal principal amount of such
Pledged Bonds having the same Stated Maturity and mandatory redemption
provisions as such New Mortgage Bonds. (See Section 7.03.)
At the date of this Prospectus, the only Prior Mortgage is the First
Mortgage and the only Pledged Bonds issuable at this time are First Mortgage
Bonds issuable thereunder. The New Mortgage provides that in the event of the
merger or consolidation of another company with or into the Company, an existing
mortgage constituting a lien on properties of such other company prior to the
lien of the New Mortgage may be designated by the Company as an additional Prior
Mortgage. Bonds thereafter issued under such additional mortgage would be
Pledged Bonds and could provide the basis for the authentication and delivery of
New Mortgage Bonds under the New Mortgage. (See Section 7.06.) When no Pledged
Bonds are Outstanding under a Prior Mortgage except for Pledged Bonds held by
the New Mortgage Trustee, then, at the request of the Company and subject to
satisfaction of certain conditions, the New Mortgage Trustee will surrender such
Pledged Bonds for cancellation, and the related Prior Mortgage will be satisfied
and discharged, the lien of such Prior Mortgage on the Company's property will
cease to exist and the priority of the lien of the New Mortgage will be
increased. (See Section 7.07.)
The New Mortgage contains no restrictions on the issuance of bonds issued
under Prior Mortgages in addition to Pledged Bonds issued to the New Mortgage
Trustee as the basis for the authentication and delivery of New Mortgage Bonds.
First Mortgage Bonds may currently be issued under the First Mortgage on the
basis of property additions, retirements of bonds previously issued under the
First Mortgage and cash deposited with the First Mortgage Trustee. (See
"Description of First Mortgage Bonds.")
Lien of the New Mortgage. The properties of the Company used in the
generation, purchase, transmission, distribution and sale of electricity and gas
will be subject to the lien of the New Mortgage. Substantially all of such
property, while subject to the lien of the New Mortgage, will be also subject to
the prior lien of the First Mortgage. The New Mortgage Bonds will have the
benefit of the first mortgage lien of the First Mortgage on such property, and
the benefit of the prior lien of any additional Prior Mortgage on any property
subject thereto, to the extent of the aggregate principal amount of Pledged
Bonds, issued under the respective Prior Mortgages, held by the New Mortgage
Trustee.
The lien of the New Mortgage is subject to Permitted Liens which include
tax liens and other governmental charges which are not delinquent and which are
being contested, construction and material-men's liens, certain judgment liens,
easement, reservations and rights of others (including governmental entities)
in, and defects of title in, certain property of the Company, certain leasehold
interests, liens on the Company's pollution control and sewage and solid waste
facilities and certain other liens and encumbrances. (See Section 1.01.)
There are excepted from the lien of the New Mortgage, among other things,
cash and securities not paid to, deposited with or held by the New Mortgage
Trustee under the New Mortgage; contracts, leases and other agreements of all
kinds, contract rights, bills, notes and other instruments, accounts receivable,
claims, certain intellectual property rights and other general intangibles;
automobiles, other vehicles, movable equipment, aircraft and vessels; all goods,
wares and merchandise held for sale in the ordinary course of business or for
the use by or the benefit of the Company; nuclear fuel; fuel, materials,
supplies and other personal property consumable in the operations of the
Company's business; computers, machinery and equipment; coal, ore, gas,
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oil, minerals and timber mined or extracted from the land; electric energy, gas,
steam water and other products generated, produced or purchased; leasehold
interests; and all books and records. (See Section 1.01.)
Without the consent of the Holders, the Company and the New Mortgage
Trustee may enter into supplemental indentures to subject to the lien of the New
Mortgage additional property, whether or not used in the electric or gas utility
businesses (including property which would otherwise be excepted from such
lien). (See Section 14.01.) Such property, so long as the same would otherwise
constitute Property Additions (as described below), would thereupon constitute
Property Additions and be available as a basis for the issuance of New Mortgage
Bonds. (See "Issuance of Additional New Mortgage Bonds.")
The New Mortgage contains provisions subjecting after-acquired property to
the lien thereof, subject to the prior lien of the First Mortgage. These
provisions are limited in the case of consolidation or merger (whether or not
the Company is the surviving corporation) or sale of substantially all of the
Company's assets. In the event of consolidation or merger or the transfer of all
the mortgaged property as or substantially as an entirety, the New Mortgage will
not be required to be a lien upon any of the properties then owned or thereafter
acquired by the successor corporation except properties acquired from the
Company in or as a result of such transaction and improvements, extensions and
additions to such properties and renewals, replacements and substitutions of or
for any part or parts of such properties. (See Article Thirteen and
"-- Consolidation, Merger, Conveyance, Transfer or Lease.") In addition,
after-acquired property may be subject to vendors' liens, purchase money
mortgages and other liens thereon at the time of acquisition thereof, including
the lien of any Prior Mortgage.
The New Mortgage provides that the New Mortgage Trustee will have a lien,
prior to the lien on behalf of the holders of New Mortgage Bonds, upon Mortgaged
Property, for the payment of its reasonable compensation and expenses and for
indemnity against certain liabilities. (See Section 11.07.)
CREDIT ENHANCEMENT
See the Prospectus Supplement for credit enhancement terms, if any, of the
New Mortgage Bonds.
ISSUANCE OF ADDITIONAL NEW MORTGAGE BONDS
The maximum principal amount of New Mortgage Bonds which may be issued
under the New Mortgage is unlimited. (See Section 3.01.) New Mortgage Bonds of
any series may be issued from time to time under Article Four of the New
Mortgage on the basis of, and in an aggregate principal amount not exceeding:
(1) the aggregate principal amount of Pledged Bonds issued and
delivered to the New Mortgage Trustee;
(2) 75% of the Cost or Fair Value (whichever is less) of Property
Additions (as described below) which do not constitute Funded Property
(generally, Property Additions which have been made the basis of the
authentication and delivery of New Mortgage Bonds, the release of mortgaged
property or cash withdrawals, or which have been substituted for retired
property) after certain deductions and additions, primarily including
adjustments to offset property retirements;
(3) the aggregate principal amount of Retired Bonds (which consist of
New Mortgage Bonds no longer outstanding under the New Mortgage which have
not been used for certain other purposes under the New Mortgage and which
are not to be paid, redeemed or otherwise retired by the application of
Funded Cash), but if Pledged Bonds had been made the basis for the
authentication and delivery of such Retired Bonds, only if the related
Prior Mortgage has been discharged; and
(4) an amount of cash deposited with the New Mortgage Trustee.
In general, the issuance of New Mortgage Bonds is subject to Adjusted Net
Earnings of the Company for 12 consecutive months within the preceding 18 months
being at least twice the Annual Interest Requirements on all New Mortgage Bonds
at the time outstanding, New Mortgage Bonds then applied for, all outstanding
Prior Bonds other than Pledged Bonds held by the New Mortgage Trustee under the
New Mortgage, and all other indebtedness (with certain exceptions) secured by a
lien prior to the lien of the New Mortgage, except
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that no such net earnings requirement need be met if the additional New Mortgage
Bonds to be issued are to have no Stated Interest Rate prior to Maturity. The
Company is not required to satisfy the net earnings requirement prior to
issuance of New Mortgage Bonds as provided in (1) above, if the Pledged Bonds
issued and delivered to the New Mortgage Trustee as the basis for such issuance
have been authenticated and delivered under the related Prior Mortgage on the
basis of retired Prior Bonds unless (a) the Stated Maturity of such retired
Prior Bonds is a date more than two years after the date of the Company Order
requesting the authentication and delivery of such New Mortgage Bonds and (b)
the Stated Interest Rate, if any, on such retired Prior Bonds immediately prior
to Maturity is less than the Stated Interest Rate, if any, on such New Mortgage
Bonds to be in effect upon the initial authentication and delivery thereof. In
addition, the Company is not required to satisfy the net earnings requirement
prior to issuance of New Mortgage Bonds as provided in (3) above. In general,
the interest requirement with respect to variable interest rate indebtedness, if
any, is determined with reference to the rate or rates in effect on the date
immediately preceding such determination or the rate to be in effect upon
initial authentication. (See Section 1.03 and Article Four.)
Adjusted Net Earnings are calculated before, among other things, provisions
for income taxes; depreciation or amortization of property; interest on any
indebtedness and amortization of debt discount and expense; any non-recurring
charge to income 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 item in the Company's books of
account; and any refund of revenues previously collected or accrued by the
Company subject to possible refund. Adjusted Net Earnings also do not take into
account profits or losses from the sale or other disposition of property, or
non-recurring charges of any kind or nature, whether items of revenue or
expense. With respect to New Mortgage Bonds of a series subject to a Periodic
Offering (such as a medium-term note program), the New Mortgage Trustee will be
entitled to receive a certificate evidencing compliance with the net earnings
requirements only once, at or prior to the time of the first authentication and
delivery of the New Mortgage Bonds of such series. (See Sections 1.03 and 4.01.)
Property Additions generally include any property which is owned by the
Company and is subject to the lien of the New Mortgage except (with certain
exceptions) goodwill or going concern value rights, or any property the cost of
acquisition or construction of which is properly chargeable to an operating
expense account of the Company. (See Section 1.04.)
Unless otherwise provided in the applicable Prospectus Supplement or
supplement thereto, the Company will issue the New Mortgage Bonds on the basis
of Pledged Bonds (i.e., First Mortgage Bonds) issued under its First Mortgage.
RELEASE OF PROPERTY
The Company may obtain the release from the lien of the New Mortgage of any
Funded Property, except for cash held by the New Mortgage Trustee, upon delivery
to the New Mortgage Trustee of cash equal in amount to the amount, if any, by
which the Cost of the property to be released (or, if less, the Fair Value of
such property at the time it became Funded Property) exceeds the aggregate of:
(1) the principal amount, subject to certain limitations, of
obligations secured by purchase money mortgage upon the property to be
released delivered to the New Mortgage Trustee;
(2) the Cost or Fair Value (whichever is less) of certified Property
Additions not constituting Funded Property after certain deductions and
additions, primarily including adjustments to offset property retirements
(except that such adjustments need not be made if such Property Additions
were acquired or made within the 90-day period preceding the release);
(3) an amount equal to 133 1/3% of the aggregate principal amount of
New Mortgage Bonds the Company would be entitled to issue on the basis of
Retired Bonds (with such entitlement being waived by operation of such
release);
(4) an amount equal to 133 1/3% of the aggregate principal amount of
New Mortgage Bonds delivered to the New Mortgage Trustee (with such New
Mortgage Bonds to be canceled by the New Mortgage Trustee);
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(5) the deposit of cash or, to a limited extent, the principal amount
of obligations secured by purchase money mortgages upon the property
released delivered to the trustee or other holder of a lien prior to the
lien of the New Mortgage; and
(6) any taxes and expenses incidental to any sale, exchange,
dedication or other disposition of the property to be released.
Property which is not Funded Property may generally be released from the
lien of the New Mortgage without depositing any cash or property with the New
Mortgage Trustee as long as (a) the aggregate amount of Cost or Fair Value
(whichever is less) of all Property Additions which do not constitute Funded
Property (excluding the property to be released) after certain deductions and
additions, primarily including adjustments to offset property retirements, is
not less than zero or (b) the Cost or Fair Value (whichever is less) of property
to be released does not exceed the aggregate amount of the Cost or Fair Value
(whichever is less) of Property Additions acquired or made within the 90-day
period preceding the release.
The New Mortgage provides simplified procedures for the release of property
which has been released from the lien of a Prior Mortgage, minor properties and
property taken by eminent domain, and provides for dispositions of certain
obsolete property and grants or surrender of certain rights without any release
or consent by the New Mortgage Trustee.
If any property released from the lien of the New Mortgage continues to be
owned by the Company after such release, the New Mortgage will not become a lien
on any improvement, extension or addition to such property or renewals,
replacements or substitutions of or for any part or parts of such property. (See
Article Eight.)
WITHDRAWAL OF CASH
Subject to certain limitations, cash held by the New Mortgage Trustee may
(1) be withdrawn by the Company (a) to the extent of the Cost or Fair Value
(whichever is less) of Property Additions not constituting Funded Property,
after certain deductions and additions, primarily including adjustments to
offset retirements or (b) in an amount equal to 133 1/3% of the aggregate
principal amount of New Mortgage Bonds that the Company would be entitled to
issue on the basis of Retired Bonds (with such entitlement being waived by
operation of such withdrawal) or (c) in an amount equal to 133 1/3% of the
aggregate principal amount of any Outstanding New Mortgage Bonds delivered to
the New Mortgage Trustee, or (2) upon the request of the Company, be applied to
(a) the purchase of New Mortgage Bonds (at prices not exceeding 133 1/3% of the
principal amount thereof) or (b) the redemption or payment at Stated Maturity of
New Mortgage Bonds (with any New Mortgage Bonds received by the New Mortgage
Trustee pursuant to these provisions being cancelled by the New Mortgage
Trustee) (see Section 8.06); provided, however, that cash deposited with the New
Mortgage Trustee as the basis for the authentication and delivery of New
Mortgage Bonds, as well as cash representing a payment of principal of Pledged
Bonds, may only be withdrawn in an amount equal to the aggregate principal
amount of New Mortgage Bonds the Company would be entitled to issue on any basis
(with such entitlement being waived by operation of such withdrawal), or may,
upon the request of the Company, be applied to the purchase, redemption or
payment of New Mortgage Bonds at prices not exceeding, in the aggregate, the
principal amount thereof (see Sections 4.05 and 7.02).
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Company may not consolidate with or merge into any other corporation or
convey, transfer or lease the Mortgaged Property as or substantially as an
entirety to any Person unless (a) such transaction is on such terms as will
fully preserve in all material respects the lien and security of the New
Mortgage and the rights and powers of the New Mortgage Trustee and Holders, (b)
the corporation formed by such consolidation or into which the Company is merged
or the Person which acquires by conveyance or transfer, or which leases, the
Mortgaged Property as or substantially as an entirety is a corporation organized
and existing under the laws of the United States of America or any State or
Territory thereof or the District of Columbia, and such corporation executes and
delivers to the New Mortgage Trustee a supplemental indenture, which contains an
assumption by such corporation of the due and punctual payment of the principal
of and premium, if any, and
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interest, if any, on the New Mortgage Bonds and the performance of all of the
covenants of the Company under the New Mortgage and which contains a grant,
conveyance, transfer and mortgage by the corporation confirming the lien of the
New Mortgage on the Mortgaged Property and subjecting to such lien all property
thereafter acquired by the corporation which shall constitute an improvement,
extension or addition to the Mortgaged Property or a renewal, replacement or
substitution of or for any part thereof, and, at the election of the
corporation, subjecting to the lien of the New Mortgage such other property then
owned or thereafter acquired by the corporation as the corporation shall specify
and (c) in the case of a lease, such lease will be made expressly subject to
termination by the Company or the New Mortgage Trustee at any time during the
continuance of an Event of Default. (See Section 13.01.)
MODIFICATION OF NEW MORTGAGE
Without the consent of any Holders, the Company and the New Mortgage
Trustee may enter into one or more supplemental indentures for any of the
following purposes:
(a) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company in the
New Mortgage and in the New Mortgage Bonds; or
(b) to add one or more covenants of the Company or other provisions
for the benefit of all Holders or for the benefit of the Holders of, or to
remain in effect only so long as there shall be Outstanding, New Mortgage
Bonds of one or more specified series, or one or more Tranches thereof, or
to surrender any right or power conferred upon the Company by the New
Mortgage; or
(c) to correct or amplify the description of any property at any time
subject to the lien of the New Mortgage, or better to assure, convey and
confirm to the New Mortgage Trustee any property subject or required to be
subjected to the lien of the New Mortgage, or to subject to the lien of the
New Mortgage additional property; or
(d) to convey, transfer and assign to the New Mortgage Trustee and to
subject to the Lien of the New Mortgage with the same force and effect as
if included in the New Mortgage, property of subsidiaries of the Company
used or to be used for one or more purposes which if owned by the Company
would constitute property used or to be used for one or more of the Primary
Purposes of the Company's business, which property shall for all purposes
of the New Mortgage be deemed to be property of the Company, together with
such other provisions as may be appropriate to express the respective
rights of the New Mortgage Trustee and the Company in regard thereto; or
(e) to change or eliminate any provision of the New Mortgage or to add
any new provision to the New Mortgage, provided that if such change,
elimination or addition adversely affects the interests of the Holders of
the New Mortgage Bonds of any series or Tranche in any material respect,
such change, elimination or addition will become effective with respect to
such series or Tranche only when no New Mortgage Bond of such series or
Tranche remains outstanding under the New Mortgage; or
(f) to establish the form or terms of the New Mortgage Bonds of any
series or Tranche as permitted by the New Mortgage; or
(g) to provide for the authentication and delivery of bearer
securities and coupons appertaining thereto representing interest, if any,
thereon and for the procedures for the registration, exchange and
replacement thereof and for the giving of notice to, and the solicitation
of the vote or consent of, the holders thereof, and for any and all other
matters incidental thereto; or
(h) to evidence and provide for the acceptance of appointment by a
successor trustee or by a co-trustee or separate trustee; or
(i) to provide for the procedures required to permit the utilization
of a noncertificated system of registration for all, or any series or
tranche of, the New Mortgage Bonds; or
(j) to change any place where (1) the principal of and premium, if
any, and interest, if any, on the New Mortgage Bonds of any series, or any
Tranche thereof, will be payable, (2) any New Mortgage
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Bonds of any series, or any Tranche thereof, may be surrendered for
registration of transfer, (3) any New Mortgage Bonds of any series, or any
Tranche thereof, may be surrendered for exchange and (4) notices and
demands to or upon the Company in respect of the New Mortgage Bonds of any
series, or any Tranche thereof, and the New Mortgage may be served; or
(k) to cure any ambiguity, to correct or supplement any provision
therein which may be defective or inconsistent with any other provision
therein, or to make any changes to the provisions thereof or to add other
provisions with respect to matters and questions arising under the New
Mortgage, so long as such other changes or additions do not adversely
affect the interests of the Holders of New Mortgage Bonds of any series or
Tranche in any material respect; or
(l) to reflect changes in Generally Accepted Accounting Principles; or
(m) to provide the terms and conditions of the exchange or conversion,
at the option of the holders of New Mortgage Bonds of any series, of the
New Mortgage Bonds of such series for or into New Mortgage Bonds of other
series or stock or other securities of the Company or any other
corporation; or
(n) to change the words "Mortgage Bonds" to "First Mortgage Bonds" in
the descriptive title of all Outstanding New Mortgage Bonds at any time
after the discharge of the First Mortgage; or
(o) to comply with the rules or regulations of any national securities
exchange on which any of the New Mortgage Bonds may be listed.
(See Section 14.01.)
Without limiting the generality of the foregoing, if the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), is amended after the date
of the New Mortgage in such a way as to require changes to the New Mortgage or
the incorporation therein of additional provisions or so as to permit changes
to, or the elimination of, provisions which, at the date of the New Mortgage or
at any time thereafter, were required by the Trust Indenture Act to be contained
in the New Mortgage, the Company and the New Mortgage Trustee may, without the
consent of any Holders, enter into one or more supplemental indentures to
evidence or effect such amendment. (See Section 14.01.)
Except as provided above, the consent of the Holders of a majority in
aggregate principal amount of the New Mortgage Bonds of all series then
Outstanding, considered as one class, is required for the purpose of adding any
provisions to, or changing in any manner, or eliminating any of the provisions
of, the New Mortgage pursuant to one or more supplemental indentures; provided,
however, if less than all of the series of New Mortgage Bonds Outstanding are
directly affected by a proposed supplemental indenture, then the consent only of
the Holders of a majority in aggregate principal amount of Outstanding New
Mortgage Bonds of all series so directly affected, considered as one class, will
be required; and provided, further, that if the New Mortgage Bonds of any series
have been issued in more than one Tranche and if the proposed supplemental
indenture directly affects the rights of the Holders of one or more, but less
than all, such Tranches, then the consent only of the Holders of a majority in
aggregate principal amount of the Outstanding New Mortgage Bonds of all Tranches
so directly affected, considered as one class, will be required; and provided,
further, that no such amendment or modification may, without the consent of each
Holder of the Outstanding New Mortgage Bonds of each series or Tranche directly
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any New Mortgage Bond, or reduce the
principal amount thereof or the rate of interest thereon (or the amount of any
installment of interest thereon) or change the method of calculating such rate
or reduce any premium payable upon the redemption thereof, or reduce the amount
of the principal of a Discount Bond that would be due and payable upon a
declaration of acceleration of maturity or change the coin or currency (or other
property) in which any New Mortgage Bond or any premium or the interest thereon
is payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the redemption date), (b) permit the creation of any
lien ranking prior to the lien of the New Mortgage with respect to all or
substantially all of the Mortgaged Property or terminate the lien of the New
Mortgage on all or substantially all of the Mortgaged Property, or deprive such
Holder of the benefit of the security of the lien of the New Mortgage, (c)
reduce the percentage in principal amount of the Outstanding New Mortgage
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Bonds of such series or Tranche, the consent of the Holders of which is required
for any such supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with any provision of the New Mortgage or
of any default thereunder and its consequences, or reduce the requirements for
quorum or voting, or (d) modify certain of the provisions of the New Mortgage
relating to supplemental indentures, waivers of certain covenants and waivers of
past defaults. A supplemental indenture which changes or eliminates any covenant
or other provision of the New Mortgage which has expressly been included solely
for the benefit of the Holders of, or which is to remain in effect only so long
as there shall be Outstanding New Mortgage Bonds of one or more specified
series, or one or more Tranches thereof, or modifies the rights of the Holders
of New Mortgage Bonds of such series or Tranches with respect to such covenant
or other provision, will be deemed not to affect the rights under the New
Mortgage of the Holders of the New Mortgage Bonds of any other series or
Tranche. (See Section 14.02.)
WAIVER
The Holders of a majority in aggregate principal amount of all New Mortgage
Bonds may waive the Company's obligations to comply with certain covenants,
including the Company's obligation to maintain its corporate existence and
properties, pay taxes and discharge liens, maintain certain insurance and to
make such recordings and filings as are necessary to protect the security of the
Holders and the rights of the New Mortgage Trustee, provided that such waiver
occurs before the time such compliance is required. The Holders of a majority of
the aggregate principal amount of Outstanding New Mortgage Bonds of all affected
series or Tranches, considered as one class, may waive, before the time for such
compliance, compliance with the Company's obligations to maintain an office or
agency where the New Mortgage Bonds of such series or Tranches may be
surrendered for payment, registration, transfer or exchange, and compliance with
any other covenant specified in a supplemental indenture respecting such series
or Tranches. (See Section 6.09.)
EVENTS OF DEFAULT
Each of the following events constitutes an Event of Default under the New
Mortgage:
(1) failure to pay interest on any New Mortgage Bond within 45 days
after the same becomes due;
(2) failure to pay principal of or premium, if any, on any New
Mortgage Bond within three business days after its Maturity;
(3) failure to perform or breach of any covenant or warranty of the
Company in the New Mortgage (other than a covenant or warranty a default in
the performance of which or breach of which is dealt with elsewhere under
this paragraph) for a period of 60 days after there has been given to the
Company by the New Mortgage Trustee, or to the Company and the New Mortgage
Trustee by the Holders of at least 25% in principal amount of Outstanding
New Mortgage Bonds, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default," unless the New Mortgage Trustee, or the New Mortgage Trustee and
the Holders of a principal amount of New Mortgage Bonds not less than the
principal amount of New Mortgage Bonds the Holders of which gave such
notice, as the case may be, agree in writing to an extension of such period
prior to its expiration; provided, however, that the New Mortgage Trustee,
or the New Mortgage Trustee and such Holders, as the case may be, will be
deemed to have agreed to an extension of such period if corrective action
has been initiated by the Company within such period and is being
diligently pursued;
(4) certain events relating to reorganization, bankruptcy or
insolvency of the Company or the appointment of a receiver or trustee for
its property; or
(5) the occurrence of a Matured Event of Default under any Prior
Mortgage; provided that the waiver or cure of any such event of default and
the rescission and annulment of the consequences thereof will constitute a
waiver of the corresponding Event of Default under the New Mortgage and a
rescission and annulment of the consequences thereof. (See Section 10.01.)
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REMEDIES
If an Event of Default occurs and is continuing, then the New Mortgage
Trustee or the Holders of not less than 33% in principal amount of New Mortgage
Bonds then Outstanding may declare the principal amount (or if any of the New
Mortgage Bonds are Discount Bonds, such portion of the principal amount as may
be provided for such Discount Bonds pursuant to the terms of the New Mortgage)
of all of the New Mortgage Bonds, together with the premium, if any, and
interest accrued, if any, thereon to be immediately due and payable. At any time
after such declaration of the maturity of the New Mortgage Bonds then
Outstanding, but before the sale of any of the Mortgaged Property and before a
judgment or decree for payment of money shall have been obtained by the New
Mortgage Trustee as provided in the New Mortgage, the Event or Events of Default
giving rise to such declaration of acceleration will, without further act, be
deemed to have been waived, and such declaration and its consequences will,
without further act, be deemed to have been rescinded and annulled, if
(a) the Company has paid or deposited with the New Mortgage Trustee a
sum sufficient to pay
(1) all overdue interest, if any, on all New Mortgage Bonds then
Outstanding;
(2) the principal of and premium, if any, on any New Mortgage Bonds
then Outstanding which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate or rates
prescribed therefor in such New Mortgage Bonds; and
(3) all amounts due to the New Mortgage Trustee as compensation and
reimbursement as provided in the New Mortgage; and
(b) any other Event or Events of Default, other than the non-payment
of the principal of New Mortgage Bonds which shall have become due solely
by such declaration of acceleration, shall have been cured or waived as
provided in the New Mortgage. (See Sections 10.02 and 10.17.)
The New Mortgage provides that, under certain circumstances and to the
extent permitted by law, if an Event of Default occurs and is continuing, the
New Mortgage Trustee has the power to take possession of, and to hold, operate
and manage, the Mortgaged Property, or with or without entry, to sell the
Mortgaged Property. If the Mortgaged Property is sold, whether by the New
Mortgage Trustee or pursuant to judicial proceedings, the principal of the
Outstanding New Mortgage Bonds, if not previously due, will become immediately
due, together with premium, if any, and any accrued interest. (See Sections
10.03, 10.04 and 10.05.)
If an Event of Default occurs and is continuing, the Holders of a majority
in principal amount of the New Mortgage Bonds then Outstanding will have the
right to direct the time, method and place of conducting any proceedings for any
remedy available to the New Mortgage Trustee or exercising any trust or power
conferred on the New Mortgage Trustee, provided that (a) such direction does not
conflict with any rule of law or with the New Mortgage, and could not involve
the New Mortgage Trustee in personal liability in circumstances where indemnity
would not, in the New Mortgage Trustee's sole discretion, be adequate and (b)
the New Mortgage Trustee may take any other actions deemed proper by the New
Mortgage Trustee which is not inconsistent with such discretion (See Section
10.16.)
The New Mortgage provides that no Holder of any New Mortgage Bond will have
any right to institute any proceeding, judicial or otherwise, with respect to
the New Mortgage or the appointment of a receiver or trustee, or for any other
remedy thereunder unless (a) such Holder has previously given to the New
Mortgage Trustee written notice of a continuing Event of Default; (b) the
Holders of a majority in aggregate principal amount of the New Mortgage Bonds
then Outstanding have made written request to the New Mortgage Trustee to
institute proceedings in respect of such Event of Default and have offered the
New Mortgage Trustee reasonable indemnity against costs and liabilities incurred
in complying with such request; and (c) for sixty days after receipt of such
notice, the New Mortgage Trustee has failed to institute any such proceeding and
no direction inconsistent with such request has been given to the New Mortgage
Trustee during such sixty-day period by the Holders of a majority in aggregate
principal amount of New Mortgage Bonds then Outstanding. Furthermore, no Holder
will be entitled to institute any such action if and to the extent that such
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action would disturb or prejudice the rights of other Holders. (See Section
10.11.) Notwithstanding that the right of a Holder to institute a proceeding
with respect to the New Mortgage is subject to certain conditions precedent,
each Holder of a New Mortgage Bond has the right, which is absolute and
unconditional, to receive payment of the principal of and premium, if any, and
interest, if any, on such New Mortgage Bond when due and to institute suit for
the enforcement of any such payment, and such rights may not be impaired without
the consent of such Holder. (See Section 10.12.) The New Mortgage provides that
the New Mortgage Trustee must give the Holders notice of any default under the
New Mortgage to the extent required by the Trust Indenture Act, unless such
default shall have been cured or waived, except that no such notice to Holders
of a default of the character described in paragraph (3) under "-- Events of
Default" may be given until at least 45 days after the occurrence thereof. (See
Section 11.02.) The Trust Indenture Act currently permits the New Mortgage
Trustee to withhold notices of default (except for certain payment defaults) if
the New Mortgage Trustee in good faith determines the withholding of such notice
to be in the interest of the Holders.
As a condition precedent to certain actions by the New Mortgage Trustee in
the enforcement of the lien of the New Mortgage and institution of action on the
New Mortgage Bonds, the New Mortgage Trustee may require adequate indemnity
against costs, expenses and liabilities to be incurred in connection therewith.
(See Sections 10.11 and 11.01.)
In addition to every other right and remedy provided in the New Mortgage,
the New Mortgage Trustee may exercise any right or remedy available to the New
Mortgage Trustee in its capacity as owner and holder of Pledged Bonds which
arises as a result of a default or Matured Event of Default under any Prior
Mortgage, whether or not an Event of Default under the New Mortgage has occurred
and is continuing. (See Section 10.20.)
DEFEASANCE
Any New Mortgage Bond or Bonds, or any portion of the principal amount
thereof, will be deemed to have been paid for purposes of the New Mortgage and
the entire indebtedness of the Company in respect thereof will be deemed to have
been satisfied and discharged, if there has been irrevocably deposited with the
New Mortgage Trustee, in trust: (a) money in the amount which will be
sufficient, or (b) Eligible Obligations (as described below) which do not
contain provisions permitting the redemption or other prepayment thereof at the
option of the issuer thereof, the principal of and the interest on which when
due, without any regard to reinvestment thereof, will provide monies which will
be sufficient, or (c) a combination of (a) and (b) which will be sufficient, to
pay when due the principal of and premium, if any, and interest, if any, due and
to become due on such New Mortgage Bond or Bonds or portions thereof. (See
Section 9.01.) For this purpose, Eligible Obligations include direct obligations
of, or obligations unconditionally guaranteed by, the United States of America,
entitled to the benefit of the full faith and credit thereof, and certificates,
depositary receipts or other instruments which evidence a direct ownership
interest in such obligations or in any specific interest or principal payments
due in respect thereof.
RESIGNATION AND REMOVAL OF THE NEW MORTGAGE TRUSTEE
The New Mortgage Trustee may resign at any time by giving written notice
thereof to the Company or may be removed at any time by Act of the Holders of a
majority in principal amount of New Mortgage Bonds then Outstanding delivered to
the New Mortgage Trustee and the Company. No resignation or removal of the New
Mortgage Trustee and no appointment of a successor trustee will become effective
until the acceptance of appointment by a successor trustee in accordance with
the requirements of the New Mortgage. So long as no Event of Default or event
which, after notice or lapse of time, or both, would become an Event of Default
has occurred and is continuing, if the Company has delivered to the New Mortgage
Trustee a resolution of its Board of Directors appointing a successor trustee
and such successor has accepted such appointment in accordance with the terms of
the New Mortgage, the New Mortgage Trustee will be deemed to have resigned and
the successor will be deemed to have been appointed as trustee in accordance
with the New Mortgage. (See Section 11.10.)
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CONCERNING THE NEW MORTGAGE TRUSTEE
Harris Trust and Savings Bank, the Trustee under the New Mortgage, has been
a regular depositary of funds of the Company. From time to time the Company
borrows funds on a short-term basis from Harris Trust and Savings Bank. As
trustee under both the New Mortgage and the First Mortgage, Harris Trust and
Savings Bank would have a conflicting interest for purposes of the Trust
Indenture Act if an Event of Default were to occur under either mortgage. In
that case, the New Mortgage Trustee may be required to eliminate such
conflicting interest by resigning either as New Mortgage Trustee or as First
Mortgage Trustee. There are other instances under the Trust Indenture Act which
would require the resignation of the New Mortgage Trustee if an Event of Default
were to occur, such as an affiliate of the New Mortgage Trustee acting as
underwriter with respect to any of the New Mortgage Bonds.
TRANSFER
The transfer of New Mortgage Bonds may be registered, and New Mortgage
Bonds may be exchanged for other New Mortgage Bonds of the same series and
Tranche, of authorized denominations and of like tenor and aggregate principal
amount, at the office of Harris Trust and Savings Bank, of Chicago, Illinois, as
Bond Registrar for the New Mortgage Bonds. The Company may change the place for
registration of transfer of the New Mortgage Bonds, may appoint one or more
additional Bond Registrars (including the Company) and may remove any Bond
Registrar, all at its discretion. (See Section 6.02.) The applicable Prospectus
Supplement, or a supplement thereto, will identify any new place for
registration of transfer and any additional Bond Registrar appointed, and will
disclose the removal of any Bond Registrar effected, prior to the date of such
Prospectus Supplement, or supplement thereto. Except as otherwise provided in
the applicable Prospectus Supplement, no service charge will be made for any
transfer or exchange of the New Mortgage Bonds, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
the New Mortgage Bonds. The Company will not be required to issue and no Bond
Registrar will be required to register the transfer of or to exchange (a) New
Mortgage Bonds of any series (including the New Mortgage Bonds) during a period
of 15 days prior to giving any notice of redemption or (b) any New Mortgage Bond
selected for redemption in whole or in part, except the unredeemed portion of
any New Mortgage Bond being redeemed in part. (See Section 3.05.)
DESCRIPTION OF FIRST MORTGAGE BONDS
General. The following statements are brief summaries of certain
provisions of the First Mortgage and supplemental indentures, which are filed as
exhibits to the Registration Statement, and do not purport to be complete. They
make use of defined terms (including those appearing herein in italics) and are
qualified in their entirety by the references to provisions of the First
Mortgage and supplemental indentures, which provisions are incorporated in these
summaries by such references. The parenthetical references in this
"-- Description of First Mortgage Bonds" are to the Articles in Roman numerals
and Sections in Arabic numerals of the First Mortgage ("M").
Security. The First Mortgage Bonds will be secured, equally and ratably
(except as to any sinking or similar fund established for a particular series of
bonds) with all other bonds issued under the First Mortgage, by a valid first
mortgage lien on substantially all of the fixed property, franchises and rights
of the Company, subject to certain exceptions.
Limitations and Restrictions on Dividends. Certain supplemental indentures
to the First Mortgage dated on or after July 1, 1949 contain covenants
restricting the payment of dividends. None of the approximately $89,500,000 of
retained earnings of the Company at December 31, 1997 were restricted by these
covenants.
Sinking and Property Fund; Other Sinking Funds. Certain supplemental
indentures to the First Mortgage dated on or after July 1, 1949 provide for
annual cash deposits for Sinking and Property Funds for the bonds outstanding
thereunder, respectively, in each case beginning with the eleventh year after
the date of issuance, the overall effect of which is that the annual aggregate
requirements under all of such Sinking and
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Property Funds shall not exceed 1% of the total First Mortgage Bonds of the
various then outstanding series theretofore issued.
Maintenance and Renewal Fund. Certain supplemental indentures to the First
Mortgage dated on or after July 1, 1949 require the Company to deposit in cash
with the First Mortgage Trustee each year the amount of $2,000,000 plus 2 1/4%
of net property additions from January 1, 1946, which amount may be reduced in
any year by the principal amount of bonds of any series surrendered to the First
Mortgage Trustee for cancellation, or by application of the lesser of cost or
fair value of gross property additions not subject to an unfunded prior lien
acquired during the preceding calendar year.
Issuance of Additional First Mortgage Bonds. Additional bonds of any
series may be issued under the First Mortgage in a principal amount equal to (1)
75% of the net bondable value of property additions not subject to an unfunded
prior lien; (2) the principal amount of bonds retired other than out of trust
estate moneys; and (3) the amount of cash deposited with the First Mortgage
Trustee for such purpose (which may thereafter be withdrawn upon the same basis
that additional bonds are issuable under (1) and (2) above) but in each case
only if net earnings available for interest and property retirement
appropriations for 12 consecutive months within the 18 months immediately
preceding the month in which application for such additional bonds is made,
shall have been equal to at least two times annual interest charges on all bonds
which will be outstanding under the First Mortgage immediately after the issue
of the additional bonds applied for and all prior lien bonds, if any, except
that no net earnings requirements are applicable (i) to the withdrawal of cash
so deposited, or (ii) to the issuance of additional bonds to refund bonds of any
series at or within two years of their maturity if all or substantially all of
such additional bonds or their proceeds of sale will be applied to such
refunding or to the payment of moneys borrowed for such purpose. (M III 3, 4, 5
and 6 and VIII 3)
Defaults. Defaults are defined to include: (i) the failure to pay interest
on any bond within 45 days after the same becomes due; (ii) the failure to pay
the principal of or premium, if any, on any bond within three business days
after its maturity; (iii) the failure to make any payment to any sinking,
maintenance or analogous fund within 60 days after the same becomes due; (iv) a
breach of the terms of the covenant relating to dividends, or failure for 60
days after notice to perform any other covenant, agreement or condition
contained in the First Mortgage or any supplemental indenture or in the bonds;
(v) certain events of bankruptcy, receivership and similar proceedings; and (vi)
the occurrence of an Event of Default under the New Mortgage or a Matured Event
of Default under any Prior Mortgage; provided that the waiver or cure of any
such Event of Default or Matured Event of Default shall constitute a waiver of
the default and the rescission and annulment of the consequences thereof. (M IX
1)
Each bondholder has the absolute and unconditional right to enforce the
payment of principal of and interest on his bonds at or after the maturity
thereof. (M IX 12) The holders of 25% or more of the outstanding bonds, or the
First Mortgage Trustee, may declare the principal of all outstanding bonds due
upon the happening of any of the events of default, but holders of a majority of
the outstanding bonds may waive any such default and rescind any such
declaration, whether made by the First Mortgage Trustee or holders of 25% or
more of the outstanding bonds, if all defaults (other than payment of principal
due on account of such declaration) have been made good or secured to the
satisfaction of the First Mortgage Trustee or provision deemed by the First
Mortgage Trustee to be adequate shall be made therefor. Any waiver does not
affect any subsequent default. (M IX 1) The holders of a majority of the
outstanding bonds may, upon the happening of any of the events of default,
direct the First Mortgage Trustee to enforce payment of the bonds and the lien
of the First Mortgage. (M IX 4) The First Mortgage Trustee is under no
obligation to exercise any of its trusts or powers at the request of the
bondholders unless such bondholders have offered adequate indemnity against
costs, expenses and liabilities to be incurred thereby. (M XIII 1)
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Within 90 days after the close of each fiscal year, the Company is required
to furnish to the First Mortgage Trustee an officer's certificate as to the
absence of default and as to compliance with the terms of the First Mortgage. (M
IV 8).
Concerning the First Mortgage Trustee. Harris Trust and Savings Bank, the
Trustee under the First Mortgage, has been a regular depositary of funds of the
Company. From time to time the Company borrows funds on a short-term basis from
Harris Trust and Savings Bank. As trustee under both the New Mortgage and the
First Mortgage, Harris Trust and Savings Bank would have a conflicting interest
under the Trust Indenture Act if an Event of Default were to occur under either
mortgage. In that case, the First Mortgage Trustee may be required to eliminate
such conflicting interest by resigning either as First Mortgage Trustee or as
New Mortgage Trustee. There are other instances under the Trust Indenture Act
which would require the resignation of the First Mortgage Trustee if an Event of
Default were to occur, such as an affiliate of the First Mortgage Trustee acting
as underwriter with respect to any First Mortgage Bonds.
Modification. The First Mortgage may be modified with the consent of the
holders of at least 66 2/3% in amount of the bonds outstanding under the First
Mortgage, and at least 66 2/3% in amount of each series affected, if less than
all series are affected, except that no modification is permitted which will
affect the terms of payment of the principal of, or premium, if any, or interest
on, any bond issued under the First Mortgage. (M XV 6) As described more fully
in "Description of New Mortgage Bonds," First Mortgage Bonds may be issued to
the New Mortgage Trustee as security for New Mortgage Bonds.
DESCRIPTION OF UNSECURED DEBT SECURITIES
If the Offered Securities are the Company's unsecured debentures, notes or
other evidences of indebtedness (the "Unsecured Debt Securities"), then the
following description is applicable to the Offered Securities.
GENERAL
The Unsecured Debt Securities are to be issued under an Indenture dated as
of July 15, 1986 (the "Indenture"), between the Company and The Chase Manhattan
Bank (the successor to Chemical Bank), as Trustee, as supplemented by one or
more Supplemental Indentures relating to the Unsecured Debt Securities. A copy
of the Indenture has been filed as an exhibit to the Registration Statement
under which the Securities are registered. The following summary does not
purport to be complete, and where particular provisions of the Indenture are
referred to, such provisions, including definitions of certain terms, are
incorporated by reference as a part of such summary, which is qualified in its
entirety by such reference.
The Indenture does not limit the amount of Unsecured Debt Securities which
can be issued thereunder and provides that Unsecured Debt Securities may be
issued thereunder in one or more series up to the aggregate principal amount
which may be authorized from time to time by the Company.
Reference is made to the Prospectus Supplement for a description of the
following terms of each series of Unsecured Debt Securities in respect of which
this Prospectus is being delivered: (i) the title of such Unsecured Debt
Securities; (ii) the limit, if any, upon the aggregate principal amount of such
Unsecured Debt Securities; (iii) the date or dates on which the principal of
such Unsecured Debt Securities is payable; (iv) the rate or rates at which such
Unsecured Debt Securities will bear interest, if any; the date or dates from
which such interest will accrue; the dates on which such interest will be
payable; and the regular record dates for the interest payable on such interest
payment dates; (v) the option, if any, of the Company to redeem such Unsecured
Debt Securities and the periods within which or the dates on which, the prices
at which and the terms and conditions upon which, such Unsecured Debt Securities
may be redeemed, in whole or in part, upon the exercise of such option; (vi) the
obligation, if any, of the Company to redeem or purchase such Unsecured Debt
Securities pursuant to any sinking fund or analogous provisions or at the option
of the holder and the periods within which or the dates on which, the prices at
which and the terms and conditions upon which such Unsecured Debt Securities
will be redeemed or purchased, in whole or in part, pursuant to such obligation;
(vii) the denominations in which such Unsecured Debt Securities will be
issuable; (viii) whether such
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Unsecured Debt Securities are to be issued in whole or in part in the form of
one or more global Unsecured Debt Securities and, if so, the identity of the
depositary for such global Unsecured Debt Securities; and (ix) any other terms
of such Unsecured Debt Securities not inconsistent with the provisions of the
Indenture.
The Amended and Restated Articles of Incorporation of the Company limit the
amount of unsecured indebtedness that the Company may issue or assume, without
the consent of the holders of a majority of the total number of shares of
Preferred Stock then outstanding, to 20% of the aggregate of the total principal
amount of all outstanding First Mortgage Bonds or other securities representing
secured indebtedness of the Company and the capital and surplus of the Company
as then stated on the Company's books.
Except as may otherwise be set forth in the Prospectus Supplement, the
Company has designated the office of the Trustee in the Borough of Manhattan,
the City of New York (currently 450 West 33rd Street, 15th Floor, New York, New
York 10001-2697) as the place at which principal of and the premium, if any, and
the interest on the Unsecured Debt Securities will be payable and at which
Unsecured Debt Securities may be presented for registration of transfer and for
exchange for a like series of Unsecured Debt Securities of different
denominations, provided that payment of any interest may be made at the option
of the Company by check mailed to the registered holders of the Unsecured Debt
Securities at their registered addresses. (sec.sec. 2.01, 2.03, 4.03)
The Unsecured Debt Securities will be issued only in fully registered
certificated or book-entry form without coupons. The Company may charge a
reasonable fee for any transfer or exchange of the Unsecured Debt Securities,
with certain exceptions. (sec. 2.06)
The Unsecured Debt Securities will be unsecured and will rank pari passu
with all other unsecured and unsubordinated indebtedness of the Company. The
Indenture does not restrict the amount of additional unsecured debt which the
Company may incur.
RESTRICTIONS ON CONSOLIDATION, MERGER OR TRANSFER OF ASSETS
The Company may not consolidate with or merge into another corporation, or
convey, transfer or lease its properties and assets substantially as an entirety
to another entity, unless the corporation formed by or surviving such
consolidation or merger (if other than the Company), or the entity which
acquires or leases such properties and assets, is a corporation organized under
the laws of the United States of America, any State thereof or the District of
Columbia and shall assume payment of the Unsecured Debt Securities and the
performance of all of the other covenants of the Company under the Indenture,
and immediately after giving effect to such transaction no default under the
Indenture shall have happened and be continuing. (sec. 5.01) Unless otherwise
indicated in the applicable Prospectus Supplement, the Indenture does not
contain covenants specifically designed to protect holders of Unsecured Debt
Securities in the event of a highly leveraged transaction.
MODIFICATION OF THE INDENTURE
Certain modifications and amendments of the Indenture may be made by the
Company and the Trustee only with the consent of the holders of a majority in
aggregate principal amount of the outstanding Unsecured Debt Securities of each
series issued under the Indenture which is affected by the modification or
amendment, provided that no such modification or amendment may, without the
consent of the holder of each Unsecured Debt Security affected thereby: (a)
change the stated maturity date of the principal of, or any installment of
interest on, any such Unsecured Debt Security; (b) reduce the principal amount
of, or interest (or premium, if any) on, any such Unsecured Debt Security; (c)
change the currency of payment of principal of, or interest (or premium, if any)
on, any such Unsecured Debt Security; (d) impair the right to institute suit for
the enforcement of any payment of the principal of, and premium, if any, and
interest on any such Unsecured Debt Security or adversely affect the right of
repayment, if any, at the option of the holder; or (e) reduce the percentage of
holders of each affected series of Unsecured Debt Securities necessary to modify
or amend the Indenture or waive defaults with respect to the series. (sec. 9.02)
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EVENTS OF DEFAULT
The Indenture defines an Event of Default with respect to any series of
Unsecured Debt Securities as being any one of the following events and such
other event as may be established for the Unsecured Debt Securities of a
particular series: (a) default for 30 days in the payment of any interest on
such series; (b) default for 3 business days in any payment of principal, and
premium, if any, on such series when due; (c) default for 60 days, after
appropriate notice, in performance of any other agreement in the Indenture with
respect to such series or in the Unsecured Debt Securities of such series; or
(d) certain events in bankruptcy, insolvency or reorganization. No Event of
Default with respect to a particular series of Unsecured Debt Securities issued
under the Indenture (other than under preceding clause (d)) necessarily
constitutes an Event of Default with respect to any other series of Unsecured
Debt Securities issued thereunder. In case an Event of Default shall occur and
be continuing with respect to any series of Unsecured Debt Securities, the
Trustee or the holders of not less than 33% in aggregate principal amount of the
Unsecured Debt Securities then outstanding of the series may declare the
principal of such series (or such portion of the principal as may be specified
as due upon acceleration at that time in the terms of that series) to be due and
payable. Any Event of Default with respect to a particular series of Unsecured
Debt Securities may be waived by the holders of a majority in aggregate
principal amount of the outstanding Unsecured Debt Securities of such series,
except in each case a failure to pay principal or premium, if any, or any
interest on such Unsecured Debt Security. (sec.sec. 6.01, 6.02, 6.04)
The Indenture requires the Company to file annually with the Trustee a
statement signed by two officers of the Company as to the absence of defaults
under the terms of the Indenture. The Indenture provides that the Trustee may
withhold notice to the holders of the Unsecured Debt Securities of any default
(except in payment of principal or premium, if any, or interest) if it considers
it in the interest of the holders of the Unsecured Debt Securities to do so.
(sec.sec. 4.04, 7.05)
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Indenture
provides that the Trustee shall be under no obligation to exercise any of its
rights or powers under the Indenture at the request, order or direction of the
holders of the Unsecured Debt Securities unless such holders shall have offered
to the Trustee satisfactory indemnity. Subject to such provisions for
indemnification and certain other rights of the Trustee, the Indenture provides
that the holders of a majority in principal amount of the outstanding Unsecured
Debt Securities of any series affected shall have the right to direct the time,
method and place of conducting any proceeding for any remedy for that series
which is available to the Trustee or exercising any trust or power conferred on
the Trustee for the benefit of such series. (sec.sec. 6.05, 7.01)
DEFEASANCE
The Indenture provides that the Company may terminate its obligations under
the Indenture if (i) all the Unsecured Debt Securities either mature within one
year or are called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption and (ii) the
Company irrevocably deposits in trust with the Trustee money or U.S.
Governmental Obligations (as described below) sufficient to pay principal and
interest on the Unsecured Debt Securities to maturity or redemption, as the case
may be. (sec. 8.01) For this purpose, U.S. Government Obligations means
obligations issued or guaranteed by the United States of America the payment of
which the full faith and credit of the United States of America is pledged.
REGARDING THE TRUSTEE
The Chase Manhattan Bank is the Trustee under the Indenture. The Chase
Manhattan Bank makes loans to the Company in the normal course of its business.
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PLAN OF DISTRIBUTION
The Company may sell the Securities in the following ways: (i) through
dealers, (ii) through underwriters, (iii) through agents, (iv) directly to
purchasers, or (v) through any combination of the above. The Prospectus
Supplement with respect to the Offered Securities will set forth the terms of
the offering of the Offered Securities, including the name or names of any
underwriters, the price to the public of the Offered Securities and the proceeds
to the Company from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If underwriters are used in the sale, the Securities will be acquired by
the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
Securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
underwriters. The underwriter or underwriters with respect to a particular
underwritten offering of Offered Securities will be named in the Prospectus
Supplement relating to such offering and, if an underwriting syndicate is used,
the managing underwriter or underwriters will be set forth on the cover page of
such Prospectus Supplement. Unless otherwise set forth in the Prospectus
Supplement, the obligations of the underwriters to purchase the Offered
Securities will be subject to certain conditions precedent, the underwriters
will be obligated to purchase all the Offered Securities if any are purchased,
and the Company will have agreed to indemnify the underwriters against certain
civil liabilities, including liabilities under the Securities Act.
If the Securities are sold directly by the Company or through agents
designated by the Company from time to time, any agent involved in the offer or
sale of the Offered Securities in respect of which this Prospectus is delivered
will be named, and any commissions payable by the Company to such agent will be
set forth, in the Prospectus Supplement relating thereto. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a
reasonable best efforts basis for the period of its appointment.
LEGAL OPINIONS
Certain legal matters in connection with the Securities will be passed upon
for the Company by Schiff Hardin & Waite, Chicago, Illinois and for any
underwriters, dealers or agents by counsel named in the applicable Prospectus
Supplement.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Company's Annual Report on Form 10-K for the year ended December 31, 1997
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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