<PAGE> 1
PROSPECTUS SUPPLEMENT
- ----------------------------------
(TO PROSPECTUS DATED JANUARY 16, 1998)
$200,000,000
[ILLINOVA LOGO]
ILLINOVA CORPORATION
MEDIUM-TERM NOTES, SERIES A
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
------------------------
Illinova Corporation (the "Company") may offer from time to time up to
$200,000,000 aggregate initial offering price, or the equivalent thereof in one
or more foreign or composite currencies, of its Medium-Term Notes, Series A, Due
Nine Months or More From Date of Issue (the "Notes"). Such aggregate initial
offering price is subject to reduction as a result of the sale by the Company of
other Senior Debt Securities described in the accompanying Prospectus. Each Note
will mature on any day nine months or more from the date of its issue (the
"Stated Maturity Date"), as specified in the applicable pricing supplement
hereto (each, a "Pricing Supplement"), and may be subject to redemption at the
option of the Company or repayment at the option of the Holder thereof, in each
case, in whole or in part, prior to its Stated Maturity Date, if specified in
the applicable Pricing Supplement. In addition, each Note will be denominated
and/or payable in United States dollars or a foreign or composite currency, as
specified in the applicable Pricing Supplement. The Notes, other than Foreign
Currency Notes (as defined under "Description of Notes -- General"), will be
issued in minimum denominations of $1,000 and integral multiples thereof, unless
otherwise specified in the applicable Pricing Supplement, while Foreign Currency
Notes will be issued in the minimum denominations specified in the applicable
Pricing Supplement.
(Continued on following page)
SEE "RISK FACTORS" COMMENCING ON PAGE S-3 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY
SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=====================================================================================================================
PRICE TO AGENTS' DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(1)(2) COMPANY(1)(3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note............. 100% .125%-.750% 99.875%-99.250%
- ------------------------------------------------------------------------------------------------------------------
Total(4)............. $200,000,000 $250,000-$1,500,000 $199,750,000-$198,500,000
=====================================================================================================================
</TABLE>
(1) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Salomon Brothers Inc or other Agents selected from time to time by the
Company who become parties to the Distribution Agreement (the "Distribution
Agreement") between the Company and each of the Agents (the "Agents"),
individually or in a syndicate, may purchase Notes, as principal, from the
Company for resale to investors and other purchasers at varying prices
relating to prevailing market prices at the time of resale as determined by
the applicable Agent or, if so specified in the applicable Pricing
Supplement, for resale at a fixed offering price. Unless otherwise specified
in the applicable Pricing Supplement, any Note sold to an Agent as principal
will be purchased by such Agent at a price equal to 100% of the principal
amount thereof less a percentage of the principal amount equal to the
commission applicable to an agency sale (as described below) of a Note of
identical maturity. If agreed to by the Company and an Agent, such Agent may
utilize its reasonable efforts on an agency basis to solicit offers to
purchase the Notes at 100% of the principal amount thereof, unless otherwise
specified in the applicable Pricing Supplement. The Company will pay a
commission to an Agent, ranging from .125% to .750% of the principal amount
of a Note, depending upon the Stated Maturity Date, sold through an Agent.
Commissions with respect to Notes with stated maturities in excess of 30
years that are sold through such Agent will be negotiated between the
Company and such Agent at the time of such sale. See "Plan of Distribution."
(2) The Company has agreed to indemnify the Agents against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Plan of Distribution."
(3) Before deducting expenses payable by the Company estimated at $550,000.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
------------------------
The Notes are being offered on a continuing basis by the Company to or
through the Agents. Unless otherwise specified in the applicable Pricing
Supplement, the Notes will not be listed on any securities exchange. There is no
assurance that the Notes offered hereby will be sold or, if sold, that there
will be a secondary market for the Notes or liquidity in the secondary market if
one develops. The Company reserves the right to cancel or modify the offer made
hereby without notice. The Company or an Agent, if it solicits the offer on an
agency basis, may reject any offer to purchase Notes in whole or in part. See
"Plan of Distribution."
------------------------
MERRILL LYNCH & CO. SALOMON SMITH BARNEY
------------------------
The date of this Prospectus Supplement is January 16, 1998.
<PAGE> 2
The Company may issue Notes that bear interest at fixed rates ("Fixed Rate
Notes") or at floating rates ("Floating Rate Notes"). The applicable Pricing
Supplement will specify whether a Floating Rate Note is a Regular Floating Rate
Note, a Floating Rate/Fixed Rate Note or an Inverse Floating Rate Note and
whether the rate of interest thereon is determined by reference to one or more
of the CD Rate, the CMT Rate, the Commercial Paper Rate, the Eleventh District
Cost of Funds Rate, the Federal Funds Rate, LIBOR, the Prime Rate or the
Treasury Rate (each, an "Interest Rate Basis"), or any other interest rate basis
or formula, as adjusted by any Spread and/or Spread Multiplier. Interest on each
Floating Rate Note will accrue from its date of issue and, unless otherwise
specified in the applicable Pricing Supplement, will be payable monthly,
quarterly, semiannually or annually in arrears, as specified in the applicable
Pricing Supplement, and on the Maturity Date (as defined under "Description of
Notes--General"). Unless otherwise specified in the applicable Pricing
Supplement, the rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semiannually or annually, as specified in the
applicable Pricing Supplement. Interest on each Fixed Rate Note will accrue from
its date of issue and, unless otherwise specified in the applicable Pricing
Supplement, will be payable semiannually in arrears on February 1 and August 1
of each year and on the Maturity Date. The Company may also issue Discount
Notes, Indexed Notes and Amortizing Notes (each as defined herein).
The interest rate, or formula for the determination of the interest rate, if
any, applicable to each Note and the other variable terms thereof will be
established by the Company on the date of issue of such Note and will be
specified in the applicable Pricing Supplement. Interest rates or formulas and
other terms of Notes are subject to change by the Company, but no such change
will affect any Note previously issued or as to which an offer to purchase has
been accepted by the Company.
Each Note will be issued in book-entry form (a "Book-Entry Note") or in
fully registered certificated form (a "Certificated Note"), as specified in the
applicable Pricing Supplement. Each Book-Entry Note will be represented by a
global security (each, a "Global Security") deposited with or on behalf of The
Depository Trust Company, New York, New York (or such other depositary
identified in the applicable Pricing Supplement) (the "Depositary") and
registered in the name of the Depositary or the Depositary's nominee. Interests
in the Global Securities will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary (with respect to its
participants) and the Depositary's participants (with respect to beneficial
owners). Except in limited circumstances, Book-Entry Notes will not be
exchangeable for Certificated Note. See "Description of Notes--Book-Entry
Notes."
------------------------
<PAGE> 3
IN CONNECTION WITH AN OFFERING OF NOTES PURCHASED BY ONE OR MORE AGENTS AS
PRINCIPAL ON A FIXED PRICE BASIS, SUCH AGENT(S) MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES TO COVER
SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION."
------------------------
RISK FACTORS
This Prospectus Supplement does not describe all of the risks of an
investment in Notes, whether resulting from such Notes being denominated or
payable in or determined by reference to a currency or composite currency other
than United States dollars or to one or more interest rate, currency or other
indices or formulas, or otherwise. The Company and the Agents disclaim any
responsibility to advise prospective investors of such risks as they exist at
the date of this Prospectus Supplement or as they change from time to time.
Prospective investors should consult their own financial and legal advisors as
to the risks entailed by an investment in such Notes and the suitability of
investing in such Notes in light of their particular circumstances. Foreign
Currency Notes are not an appropriate investment for investors who are
unsophisticated with respect to foreign currency transactions or transactions
involving the applicable interest rate or currency index or other indices or
formulas. Prospective investors should carefully consider, among other factors,
the matters described below.
STRUCTURE RISKS
An investment in Notes indexed, as to principal, premium, if any, and/or
interest, if any, to one or more interest rate, currency (including exchange
rates and swap indices between currencies or composite currencies) or other
indices or formulas, either directly or inversely, entails significant risks
that are not associated with similar investments in a conventional fixed rate or
floating rate debt security. Such risks include, without limitation, the
possibility that such indices or formulas may be subject to significant changes,
that no interest will be payable in respect of such Notes or will be payable at
a rate lower than one applicable to a conventional fixed rate or floating rate
debt security issued by the Company at the same time, that repayment of the
principal and/or premium, if any, in respect of such Notes may occur at times
other than that expected by the Holders, and that the Holders could lose all or
a substantial portion of principal and/or premium, if any, payable with respect
to such Notes on the Maturity Date. Such risks depend on a number of
interrelated factors, including economic, financial and political events, over
which the Company has no control. Additionally, if the formula used to determine
the amount of principal, premium, if any, and/or interest, if any, payable with
respect to such Notes contains a multiplier or leverage factor, the effect of
any change in the applicable index or indices or formula or formulas will be
magnified. In recent years, values of certain indices and formulas have been
highly volatile and such volatility may be expected to continue in the future.
Fluctuations in the value of any particular index or formula that have occurred
in the past are not necessarily indicative, however, of fluctuations that may
occur in the future.
Any optional redemption feature of Notes might affect the market value of
such Notes. Since the Company may be expected to redeem such Notes when
prevailing interest rates are relatively low, Holders generally will not be able
to reinvest the redemption proceeds in a comparable security at an effective
interest rate as high as the current interest rate on such Notes.
The Notes will not have an established trading market when issued, and
there can be no assurance of a secondary market for the Notes or the liquidity
of the secondary market if one develops. See "Plan of Distribution."
The secondary market, if any, for Notes will be affected by a number of
factors independent of the creditworthiness of the Company and the value of the
applicable index or indices or formula or formulas, including the complexity and
volatility of each such index or formula, the method of calculating the
principal, premium, if any, and/or interest, if any, in respect of such Notes,
the time remaining to the Stated Maturity Date of such Notes, the outstanding
amount of such Notes, any redemption features of such Notes, the amount of other
debt securities linked to such index or formula and the level, direction and
volatility of market
S-3
<PAGE> 4
interest rates generally. Such factors also will affect the market value of such
Notes. In addition, certain Notes may be designed for specific investment
objectives or strategies and, therefore, may have a more limited secondary
market and experience more price volatility than conventional debt securities.
Holders may not be able to sell such Notes readily or at prices that will enable
them to realize their anticipated yield. No investor should purchase Notes
unless such investor understands and is able to bear the risk that such Notes
may not be readily saleable, that the value of such Notes will fluctuate over
time and that such fluctuations may be significant.
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Foreign Currency Notes entails significant risks that are
not associated with a similar investment in a debt security denominated and
payable in United States dollars. Such risks include, without limitation, the
possibility of significant changes in the rate of exchange between the United
States dollar and the Specified Currency (as defined under "Description of
Notes--General") and the possibility of the imposition or modification of
exchange controls by the applicable governments or monetary authorities. Such
risks generally depend on factors over which the Company has no control, such as
economic, financial and political events and the supply and demand for the
applicable currencies or composite currencies. In addition, if the formula used
to determine the amount of principal, premium, if any, and/or interest, if any,
payable with respect to Foreign Currency Notes contains a multiplier or leverage
factor, the effect of any change in the applicable currencies or composite
currencies will be magnified. In recent years, rates of exchange between the
United States dollar and foreign or composite currencies have been highly
volatile and such volatility may be expected to continue in the future.
Fluctuations in any particular exchange rate that have occurred in the past are
not necessarily indicative, however, of fluctuations that may occur in the
future. Depreciation of the Specified Currency applicable to a Foreign Currency
Note against the United States dollar would result in a decrease in the United
States dollar-equivalent yield of such Foreign Currency Note, in the United
States dollar-equivalent value of the principal and premium, if any, payable on
the Maturity Date of such Foreign Currency Note, and, generally, in the United
States dollar-equivalent market value of such Foreign Currency Note.
Governments or monetary authorities have imposed from time to time, and may
in the future impose or revise, exchange controls at or prior to the date on
which any payment of principal of, or premium, if any, or interest, if any, on,
a Foreign Currency Note is due, which could affect exchange rates as well as the
availability of the Specified Currency on such date. Even if there are no
exchange controls, it is possible that the Specified Currency would not be
available on the applicable payment date due to other circumstances beyond the
control of the Company. In such cases, the Company will be entitled to satisfy
its obligations in respect of such Foreign Currency Note in United States
dollars. See "Special Provisions Relating to Foreign Currency
Notes--Availability of Specified Currency."
CREDIT RATINGS
The credit ratings assigned to the Company's medium-term note program may
not reflect the potential impact of all risks related to structure and other
factors on the value of the Notes. Accordingly, prospective investors should
consult their own financial and legal advisors as to the risks entailed by an
investment in the Notes and the suitability of investing in such Notes in light
of their particular circumstances.
THE COMPANY AND ITS SUBSIDIARIES
The Company is a holding company organized in Illinois in May 1994, which
conducts substantially all of its business through its subsidiaries. It has
three principal operating subsidiaries: Illinois Power Company ("Illinois
Power"), organized in May 1923, is a combination electric and gas utility;
Illinova Generating Company, organized in October 1992, is an independent power
company which invests in energy supply projects and competes in the independent
power market worldwide; and Illinova Energy Partners, Inc., organized in July
1994, is in the business of (i) developing and marketing energy-related services
to the unregulated energy market in the United States and (ii) brokering and
marketing electric power and gas to
S-4
<PAGE> 5
various customers. Illinois Power's financial position and results of operations
are currently the principal factors affecting the Company's consolidated
financial position and results of operation.
Illinois Power 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. Gas service is provided to 257
incorporated municipalities, adjacent suburban areas and numerous unincorporated
municipalities. 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).
USE OF PROCEEDS
The net proceeds from the sale of the Notes will be added to the Company's
general funds and used for the repayment of debt or other general corporate
purposes, including loans to or investments in the Company's operating
subsidiaries. Until so utilized, it is expected that such net proceeds will be
placed in interest bearing time deposits or invested in short-term marketable
securities.
DESCRIPTION OF NOTES
The Notes will be issued as a series of Senior Debt Securities under an
Indenture, dated as of February 1, 1997, as amended or modified from time to
time (the "Indenture"), between the Company, as issuer, and The First National
Bank of Chicago, as trustee (the "Trustee"). The Indenture is subject to, and
governed by, the Trust Indenture Act of 1939, as amended. The following summary
of certain provisions of the Notes and the Indenture does not purport to be
complete and is qualified in its entirety by reference to the actual provisions
of the Notes and the Indenture. Capitalized terms used but not defined herein
shall have the meanings given to them in the accompanying Prospectus, the Notes
or the Indenture, as the case may be. The term "Senior Debt Securities," as used
in this Prospectus Supplement, refers to all debt securities, including the
Notes, issued and issuable from time to time under the Indenture. The following
description of the Notes will apply to each Note offered hereby unless otherwise
specified in the applicable Pricing Supplement and supplements, and to the
extent inconsistent therewith replaces, the description of the general terms and
provisions of the Senior Debt Securities set forth under the caption
"Description of the Senior Debt Securities" in the accompanying Prospectus.
GENERAL
All Senior Debt Securities, including the Notes, issued and to be issued
under the Indenture will be general unsecured obligations of the Company and
will rank pari passu with the Company's existing and future unsecured and
unsubordinated indebtedness. As of September 30, 1997, the amount of the
Company's total unsecured and unsubordinated indebtedness with which the Notes
would have ranked pari passu was $123 million. The Notes will be subordinated
effectively to all obligations of the subsidiaries of the Company. Consequently,
the rights of the Company to receive assets of any subsidiary (and thus the
ability of Holders of the Notes to benefit indirectly from such assets) are
subject to the prior claims of creditors of that subsidiary. As of September 30,
1997, $2,060 million of the Company's total debt was indebtedness of
subsidiaries, and such subsidiaries may incur additional indebtedness in the
future. See "Description of the Senior Debt Securities--General" in the
accompanying Prospectus.
The Indenture does not limit the aggregate principal amount of Senior Debt
Securities that may be issued thereunder, and Senior Debt Securities may be
issued thereunder from time to time in one or more series up to the aggregate
principal amount from time to time authorized by the Company for each series. As
of the date of this Prospectus Supplement, the Company has issued and
outstanding $100,000,000 aggregate principal amount of Senior Debt Securities.
The Company may, from time to time, without the consent of the
S-5
<PAGE> 6
Holders of the Notes, provide for the issuance of Notes or other Senior Debt
Securities under the Indenture in addition to the $200,000,000 aggregate initial
offering price of Notes offered hereby.
The Notes are currently limited to up to $200,000,000 aggregate initial
offering price or the equivalent thereof in one or more foreign or composite
currencies. Such aggregate initial offering price is subject to reduction as a
result of the sale by the Company of other Senior Debt Securities described in
the accompanying Prospectus. Each Note will mature on any day nine months or
more from its date of issue, as specified in the applicable Pricing Supplement,
unless the principal thereof (or any installment of principal thereof) becomes
due and payable prior to the Stated Maturity Date, whether by the declaration of
acceleration of maturity, notice of redemption at the option of the Company,
notice of the Holder's option to elect repayment or otherwise (the Stated
Maturity Date or such prior date, as the case may be, is herein referred to as
the "Maturity Date" with respect to the principal of such Note repayable on such
date). Unless otherwise specified in the applicable Pricing Supplement,
interest-bearing Notes will either be Fixed Rate Notes or Floating Rate Notes,
as specified in the applicable Pricing Supplement. The Company may also issue
Discount Notes, Indexed Notes and Amortizing Notes.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be denominated in, and payments of principal, premium, if any, and/or
interest, if any, in respect thereof will be made in, United States dollars. The
Notes also may be denominated in, and payments of principal, premium, if any,
and/or interest, if any, in respect thereof may be made in, one or more foreign
or composite currencies ("Foreign Currency Notes"). See "Special Provisions
Relating to Foreign Currency Notes--Payment of Principal, Premium, if any, and
Interest, if any." The currency or composite currency in which a particular Note
is denominated (or, if such currency or composite currency is no longer legal
tender for the payment of public and private debts, such other currency or
composite currency of the relevant country which is then legal tender for the
payment of such debts) is herein referred to as the "Specified Currency" with
respect to such Note. References herein to "United States dollars", "U.S.
dollars" or "$" are to the lawful currency of the United States of America (the
"United States").
Unless otherwise specified in the applicable Pricing Supplement, purchasers
are required to pay for the Notes in the applicable Specified Currencies. At the
present time, there are limited facilities in the United States for the
conversion of United States dollars into foreign or composite currencies and
vice versa, and commercial banks do not generally offer non-United States dollar
checking or savings account facilities in the United States. The Agent from or
through which a Foreign Currency Note is purchased will be prepared to arrange
for the conversion of United States dollars into the Specified Currency in order
to enable the purchaser to pay for such Foreign Currency Note, provided that a
request is made to such Agent on or prior to the fifth Business Day (as
hereinafter defined) preceding the date of delivery of such Foreign Currency
Note, or by such other day as determined by such Agent. Each such conversion
will be made by such Agent on such terms and subject to such conditions,
limitations and charges as such Agent may from time to time establish in
accordance with its regular foreign exchange practices. All costs of exchange
will be borne by the purchaser of each such Foreign Currency Note. See "Special
Provisions Relating to Foreign Currency Notes."
Interest rates offered by the Company with respect to the Notes may differ
depending upon, among other factors, the aggregate principal amount of Notes
purchased in any single transaction. Notes with different variable terms other
than interest rates may also be offered concurrently to different investors.
Interest rates or formulas and other terms of Notes are subject to change by the
Company from time to time, but no such change will affect any Note previously
issued or as to which an offer to purchase has been accepted by the Company.
Each Note will be issued as a Book-Entry Note represented by one Global
Security registered in the name of the Depositary or the Depositary's nominee or
as a Certificated Note registered in the names of the Beneficial Owners (as
hereinafter defined) thereof. The minimum denominations of each Note other than
a Foreign Currency Note will be $1,000 and integral multiples thereof, unless
otherwise specified in the applicable Pricing Supplement, while the minimum
denominations of each Foreign Currency Note will be specified in the applicable
Pricing Supplement.
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<PAGE> 7
Payments of principal of, and premium, if any, and interest, if any, on,
Book-Entry Notes will be made by the Company through the Trustee to the
Depositary. See "--Book-Entry Notes." In the case of Certificated Notes, payment
of principal and premium, if any, due on the Maturity Date will be made in
immediately available funds upon presentation and surrender thereof (and, in the
case of any repayment on an Optional Repayment Date, upon submission of a duly
completed election form in accordance with the provisions described below) at
the office or agency maintained by the Company for such purpose in the Borough
of Manhattan, The City of New York, currently the corporate trust office of the
Trustee located at 14 Wall Street, 8th Floor, New York, New York 10005. Payment
of interest, if any, due on the Maturity Date of a Certificated Note will be
made to the person to whom payment of the principal thereof and premium, if any,
thereon shall be made. Payment of interest, if any, due on a Certificated Note
on any Interest Payment Date (as hereinafter defined) other than the Maturity
Date will be made by check mailed to the address of the Holder entitled thereto
as such address shall appear in the security register of the Company.
Notwithstanding the foregoing, a Holder of $10,000,000 (or, if the Specified
Currency is other than United States dollars, the equivalent thereof in such
Specified Currency) or more in aggregate principal amount of Certificated Notes
(whether having identical or different terms and provisions) will be entitled to
receive interest payments, if any, on any Interest Payment Date other than the
Maturity Date by wire transfer of immediately available funds to an account in
the United States if appropriate wire transfer instructions have been received
in writing by the Trustee not less than 15 days prior to such Interest Payment
Date. Any such wire transfer instructions received by the Trustee shall remain
in effect until revoked by such Holder. For special payment terms applicable to
Foreign Currency Notes, see "Special Provisions Relating to Foreign Currency
Notes--Payment of Principal, Premium, if any, and Interest, if any."
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law, regulation or executive order to close in The
City of New York; provided, however, that, with respect to Foreign Currency
Notes, such day is also not a day on which banking institutions are authorized
or required by law, regulation or executive order to close in the Principal
Financial Center (as hereinafter defined) of the country issuing the Specified
Currency (unless the Specified Currency is European Currency Units ("ECU"), in
which case such day is also not a day that appears as an ECU non-settlement day
on the display designated as "ISDE" on the Reuter Monitor Money Rates Service
(or is not a day designated as an ECU non-settlement day by the ECU Banking
Association) or, if ECU non-settlement days do not appear on that page (and are
not so designated), a day that is not a day on which payments in ECU cannot be
settled in the international interbank market); provided, further, that, with
respect to Notes for which LIBOR is an applicable Interest Rate Basis, such day
is also a London Business Day (as hereinafter defined). "London Business Day"
means a day on which dealings in the Designated LIBOR Currency (as hereinafter
defined) are transacted in the London interbank market.
"Principal Financial Center" means (i) the capital city of the country
issuing the Specified Currency (except as described in the immediately preceding
paragraph with respect to ECU) or (ii) the capital city of the country to which
the Designated LIBOR Currency, if applicable, relates (or, in the case of ECU,
Luxembourg), except, in each case, that with respect to United States dollars,
Australian dollars, Canadian dollars, Deutsche marks, Dutch guilders, Italian
lire and Swiss francs, the "Principal Financial Center" shall be The City of New
York, Sydney, Toronto, Frankfurt, Amsterdam, Milan (solely in the case of clause
(i) above) and Zurich, respectively, unless otherwise specified in the
applicable Pricing Supplement.
Book-Entry Notes may be transferred or exchanged only through the
Depositary. See "--Book-Entry Notes." Registration of transfer or exchange of
Certificated Notes will be made at the office or agency maintained by the
Company for such purpose in the Borough of Manhattan, The City of New York,
currently the corporate trust office of the Trustee. No service charge will be
made by the Company or the Trustee for any such registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith (other than exchanges pursuant to the Indenture not involving any
transfer).
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<PAGE> 8
REDEMPTION AT THE OPTION OF THE COMPANY
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Company prior to the Stated Maturity Date only if an Initial
Redemption Date is specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to redemption at the option of the Company
on any date on and after the applicable Initial Redemption Date in whole or from
time to time in part in increments of $1,000 or such other minimum denomination
specified in such Pricing Supplement (provided that any remaining principal
amount thereof shall be at least $1,000 or such minimum denomination), at the
applicable Redemption Price (as hereinafter defined), together with unpaid
interest accrued thereon to the date of redemption, on written notice given to
the Holders thereof not more than 60 nor less than 30 calendar days prior to the
date of redemption and in accordance with the provisions of the Indenture.
"Redemption Price", with respect to a Note, means an amount equal to the Initial
Redemption Percentage specified in the applicable Pricing Supplement (as
adjusted by the Annual Redemption Percentage Reduction, if applicable)
multiplied by the unpaid principal amount to be redeemed. The Initial Redemption
Percentage, if any, applicable to a Note shall decline at each anniversary of
the Initial Redemption Date by an amount equal to the applicable Annual
Redemption Percentage Reduction, if any, until the Redemption Price is equal to
100% of the unpaid principal amount to be redeemed. For a discussion of the
redemption of Discount Notes, see "--Discount Notes."
REPAYMENT AT THE OPTION OF THE HOLDER
The Notes will be repayable by the Company at the option of the Holders
thereof prior to the Stated Maturity Date only if one or more Optional Repayment
Dates are specified in the applicable Pricing Supplement. If so specified, the
Notes will be subject to repayment at the option of the Holders thereof on any
Optional Repayment Date in whole or from time to time in part in increments of
$1,000 or such other minimum denomination specified in the applicable Pricing
Supplement (provided that any remaining principal amount thereof shall be at
least $1,000 or such other minimum denomination), at a repayment price equal to
100% of the unpaid principal amount to be repaid, together with unpaid interest
accrued thereon to the date of repayment. For any Note to be repaid, such Note
must be received, together with the form thereon entitled "Option to Elect
Repayment" duly completed, by the Trustee at its office maintained for such
purpose in the Borough of Manhattan, The City of New York, currently the
corporate trust office of the Trustee, not more than 60 nor less than 30
calendar days prior to the date of repayment. Exercise of such repayment option
by the Holder will be irrevocable. For a discussion of the repayment of Discount
Notes, see "--Discount Notes."
Only the Depositary may exercise the repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, Beneficial Owners of
Global Securities that desire to have all or any portion of the Book-Entry Notes
represented by such Global Securities repaid must instruct the Participant (as
hereinafter defined) through which they own their interest to direct the
Depositary to exercise the repayment option on their behalf by delivering the
related Global Security and duly completed election form to the Trustee as
aforesaid. In order to ensure that such Global Security and election form are
received by the Trustee on a particular day, the applicable Beneficial Owner
must so instruct the Participant through which it owns its interest before such
Participant's deadline for accepting instructions for that day. Different firms
may have different deadlines for accepting instructions from their customers.
Accordingly, Beneficial Owners should consult the Participants through which
they own their interest in a Global Security for the respective deadlines for
such Participants. All instructions given to Participants from Beneficial Owners
of Global Securities relating to the option to elect repayment shall be
irrevocable. In addition, at the time such instructions are given, each such
Beneficial Owner shall cause the Participant through which it owns its interest
to transfer such Beneficial Owner's interest in the Global Security or
Securities representing the related Book-Entry Notes, on the Depositary's
records, to the Trustee. See "--Book-Entry Notes."
If applicable, the Company will comply with the requirements of Section
14(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules promulgated thereunder, and any other securities laws or
regulations in connection with any such repayment.
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The Company may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by the Company may, at the
discretion of the Company, be held, resold or surrendered to the Trustee for
cancellation.
INTEREST
GENERAL
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from its date of issue at the rate per
annum, in the case of a Fixed Rate Note, or pursuant to the interest rate
formula, in the case of a Floating Rate Note, in each case as specified in the
applicable Pricing Supplement, until the principal thereof is paid or duly made
available for payment. Unless otherwise specified in the applicable Pricing
Supplement, interest payments in respect of Fixed Rate Notes and Floating Rate
Notes will be made in an amount equal to the interest accrued from and including
the immediately preceding Interest Payment Date in respect of which interest has
been paid or duly made available for payment (or from and including the date of
issue, if no interest has been paid or duly made available for payment) to but
excluding the applicable Interest Payment Date or the Maturity Date, as the case
may be (each, an "Interest Period").
Interest on Fixed Rate Notes and Floating Rate Notes will be payable in
arrears to the Holders of such Notes (which, in the case of Global Securities
representing Book-Entry Notes, will be a nominee of the Depositary) as of the
Record Date for each Interest Payment Date and on the Maturity Date. Unless
otherwise specified in the applicable Pricing Supplement, the first payment of
interest on any such Note originally issued between a Record Date (as
hereinafter defined) and the related Interest Payment Date will be made on the
Interest Payment Date immediately following the next succeeding Record Date to
the Holder on such next succeeding Record Date. Unless otherwise specified in
the applicable Pricing Supplement, a "Record Date" shall be the fifteenth
calendar day (whether or not a Business Day) immediately preceding the related
Interest Payment Date.
FIXED RATE NOTES
Interest on Fixed Rate Notes will be payable on February 1 and August 1 of
each year or on such other date(s) specified in the applicable Pricing
Supplement (each, an "Interest Payment Date" with respect to Fixed Rate Notes)
and on the Maturity Date. Unless otherwise specified in the applicable Pricing
Supplement, interest (including payments for partial periods) on Fixed Rate
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note
falls on a day that is not a Business Day, the required payment of principal,
premium, if any, or interest to be made on such day need not be made on such
day, but may be made on the next succeeding Business Day as if made on the date
such payment was due, and no interest will accrue on such payment for the period
from and after such Interest Payment Date or the Maturity Date, as the case may
be, to the date of such payment on the next succeeding Business Day.
FLOATING RATE NOTES
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the Eleventh District Cost of Funds Rate, (v) the Federal Funds Rate,
(vi) LIBOR, (vii) the Prime Rate, (viii) the Treasury Rate, or (ix) such other
Interest Rate Basis or interest rate formula as may be specified in the
applicable Pricing Supplement. The applicable Pricing Supplement will specify
certain terms with respect to which each Floating Rate Note is being delivered,
including: whether such Floating Rate Note is a "Regular Floating Rate Note," a
"Floating Rate/Fixed Rate Note" or an "Inverse Floating Rate Note," the Fixed
Rate Commencement Date, if applicable, Fixed Interest Rate, if applicable,
Interest Rate Basis or Bases, Initial Interest Rate, if any, Initial Interest
Reset Date, Interest Reset Dates, Interest Payment Dates, Index Maturity,
Maximum Interest Rate and/or Minimum Interest Rate, if
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<PAGE> 10
any, and Spread and/or Spread Multiplier, if any, as such terms are defined
below. If one or more of the applicable Interest Rate Bases is LIBOR or the CMT
Rate, the applicable Pricing Supplement will also specify the Designated LIBOR
Currency and Designated LIBOR Page or the Designated CMT Maturity Index and
Designated CMT Telerate Page, respectively, as such terms are defined below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note" or an "Inverse Floating Rate Note", or as having an
Addendum attached or having "Other/Additional Provisions" apply, in each
case relating to a different interest rate formula, such Floating Rate Note
will be designated as a "Regular Floating Rate Note" and, except as
described below or in the applicable Pricing Supplement, will bear interest
at the rate determined by reference to the applicable Interest Rate Basis
or Bases (a) plus or minus the applicable Spread, if any, and/or (b)
multiplied by the applicable Spread Multiplier, if any. Commencing on the
Initial Interest Reset Date, the rate at which interest on such Regular
Floating Rate Note shall be payable shall be reset as of each Interest
Reset Date; provided, however, that the interest rate in effect for the
period, if any, from the date of issue to the Initial Interest Reset Date
will be the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note," then, except as described below or in the applicable
Pricing Supplement, such Floating Rate Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any. Commencing on the Initial Interest
Reset Date, the rate at which interest on such Floating Rate/Fixed Rate
Note shall be payable shall be reset as of each Interest Reset Date;
provided, however, that (1) the interest rate in effect for the period, if
any, from the date of issue to the Initial Interest Reset Date will be the
Initial Interest Rate and (2) the interest rate in effect for the period
commencing on the Fixed Rate Commencement Date to the Maturity Date shall
be the Fixed Interest Rate, if such rate is specified in the applicable
Pricing Supplement or, if no such Fixed Interest Rate is specified, the
interest rate in effect thereon on the day immediately preceding the Fixed
Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the Fixed
Interest Rate minus the rate determined by reference to the applicable
Interest Rate Basis or Bases (a) plus or minus the applicable Spread, if
any, and/or (b) multiplied by the applicable Spread Multiplier, if any;
provided, however, that, unless otherwise specified in the applicable
Pricing Supplement, the interest rate thereon will not be less than zero.
Commencing on the Initial Interest Reset Date, the rate at which interest
on such Inverse Floating Rate Note shall be payable shall be reset as of
each Interest Reset Date; provided, however, that the interest rate in
effect for the period, if any, from the date of issue to the Initial
Interest Reset Date will be the Initial Interest Rate.
The "Spread" is the number of basis points to be added to or subtracted
from the related Interest Rate Basis or Bases applicable to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to such Floating Rate Note by which such Interest Rate
Basis or Bases will be multiplied to determine the applicable interest rate on
such Floating Rate Note. The "Index Maturity" is the period to maturity of the
instrument or obligation with respect to which the related Interest Rate Basis
or Bases will be calculated.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate with respect to each Interest Rate Basis will be determined in
accordance with the applicable provisions below. Except as set forth above or in
the applicable Pricing Supplement, the interest rate in effect on each day shall
be (i) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as hereinafter defined) immediately preceding
such Interest Reset Date or (ii) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
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<PAGE> 11
The applicable Pricing Supplement will specify whether the rate of interest
on the related Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually or on such other specified basis (each, an
"Interest Reset Period") and the dates on which such rate of interest will be
reset (each, an "Interest Reset Date"). Unless otherwise specified in the
applicable Pricing Supplement, the Interest Reset Dates will be, in the case of
Floating Rate Notes which reset: (i) daily, each Business Day; (ii) weekly, the
Wednesday of each week (with the exception of weekly reset Floating Rate Notes
as to which the Treasury Rate is an applicable Interest Rate Basis, which will
reset the Tuesday of each week, except as described below); (iii) monthly, the
third Wednesday of each month (with the exception of monthly reset Floating Rate
Notes as to which the Eleventh District Cost of Funds Rate is an applicable
Interest Rate Basis, which will reset on the first calendar day of the month);
(iv) quarterly, the third Wednesday of March, June, September and December of
each year; (v) semiannually, the third Wednesday of the two months specified in
the applicable Pricing Supplement; and (vi) annually, the third Wednesday of the
month specified in the applicable Pricing Supplement; provided however, that,
with respect to Floating Rate/Fixed Rate Notes, the rate of interest thereon
will not reset after the applicable Fixed Rate Commencement Date. If any
Interest Reset Date for any Floating Rate Note would otherwise be a day that is
not a Business Day, such Interest Reset Date will be postponed to the next
succeeding Business Day, except that in the case of a Floating Rate Note as to
which LIBOR is an applicable Interest Rate Basis and such Business Day falls in
the next succeeding calendar month, such Interest Reset Date will be the
immediately preceding Business Day.
The interest rate applicable to each Interest Reset Period commencing on
the related Interest Reset Date will be the rate determined by the Calculation
Agent as of the applicable Interest Determination Date and calculated on or
prior to the Calculation Date (as hereinafter defined), except with respect to
LIBOR and the Eleventh District Cost of Funds Rate, which will be calculated on
such Interest Determination Date. The "Interest Determination Date" with respect
to the CD Rate, the CMT Rate, the Commercial Paper Rate, the Federal Funds Rate
and the Prime Rate will be the second Business Day immediately preceding the
applicable Interest Reset Date; the "Interest Determination Date" with respect
to the Eleventh District Cost of Funds Rate will be the last working day of the
month immediately preceding the applicable Interest Reset Date on which the
Federal Home Loan Bank of San Francisco (the "FHLB of San Francisco") publishes
the Index (as hereinafter defined); and the "Interest Determination Date" with
respect to LIBOR will be the second London Business Day immediately preceding
the applicable Interest Reset Date, unless the Designated LIBOR Currency is
British pounds sterling, in which case the "Interest Determination Date" will be
the applicable Interest Reset Date. With respect to the Treasury Rate, the
"Interest Determination Date" will be the day in the week in which the
applicable Interest Reset Date falls on which day Treasury Bills (as hereinafter
defined) are normally auctioned (Treasury Bills are normally sold at an auction
held on Monday of each week, unless that day is a legal holiday, in which case
the auction is normally held on the following Tuesday, except that such auction
may be held on the preceding Friday); provided, however, that if an auction is
held on the Friday of the week preceding the applicable Interest Reset Date, the
"Interest Determination Date" will be such preceding Friday; provided, further,
that if the Interest Determination Date would otherwise fall on an Interest
Reset Date, then such Interest Reset Date will be postponed to the next
succeeding Business Day. The "Interest Determination Date" pertaining to a
Floating Rate Note the interest rate of which is determined by reference to two
or more Interest Rate Bases will be the most recent Business Day which is at
least two Business Days prior to the applicable Interest Reset Date for such
Floating Rate Note on which each Interest Rate Basis is determinable. Each
Interest Rate Basis will be determined as of such date, and the applicable
interest rate will take effect on the applicable Interest Reset Date.
Notwithstanding the foregoing, a Floating Rate Note may also have either or
both of the following: (i) a Maximum Interest Rate, or ceiling, that may accrue
during any Interest Period and (ii) a Minimum Interest Rate, or floor, that may
accrue during any Interest Period. In addition to any Maximum Interest Rate that
may apply to any Floating Rate Note, the interest rate on Floating Rate Notes
will in no event be higher than the maximum rate permitted by New York law, as
the same may be modified by United States law of general application.
Except as provided below or in the applicable Pricing Supplement, interest
will be payable, in the case of Floating Rate Notes which reset: (i) daily,
weekly or monthly, on the third Wednesday of each month or on
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the third Wednesday of March, June, September and December of each year, as
specified in the applicable Pricing Supplement; (ii) quarterly, on the third
Wednesday of March, June, September and December of each year; (iii)
semiannually, on the third Wednesday of the two months of each year specified in
the applicable Pricing Supplement; and (iv) annually, on the third Wednesday of
the month of each year specified in the applicable Pricing Supplement (each, an
"Interest Payment Date" with respect to Floating Rate Notes) and, in each case,
on the Maturity Date. If any Interest Payment Date other than the Maturity Date
for any Floating Rate Note would otherwise be a day that is not a Business Day,
such Interest Payment Date will be postponed to the next succeeding Business
Day, except that in the case of a Floating Rate Note as to which LIBOR is an
applicable Interest Rate Basis and such Business Day falls in the next
succeeding calendar month, such Interest Payment Date will be the immediately
preceding Business Day. If the Maturity Date of a Floating Rate Note falls on a
day that is not a Business Day, the required payment of principal, premium, if
any, and interest to be made on such day need not be made on such day, but may
be made on the next succeeding Business Day as if made on the date such payment
was due, and no interest will accrue on such payment for the period from and
after the Maturity Date to the date of such payment on the next succeeding
Business Day.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five-one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used in
or resulting from such calculation on Floating Rate Notes will be rounded, in
the case of United States dollars, to the nearest cent or, in the case of a
foreign or composite currency, to the nearest unit (with one-half cent or unit
being rounded upwards).
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise specified in the
applicable Pricing Supplement, the interest factor for each such day will be
computed by dividing the interest rate applicable to such day by 360, in the
case of Floating Rate Notes for which an applicable Interest Rate Basis is the
CD Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate,
the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number of days
in the year in the case of Floating Rate Notes for which an applicable Interest
Rate Basis is the CMT Rate or the Treasury Rate. Unless otherwise specified in
the applicable Pricing Supplement, the interest factor for Floating Rate Notes
for which the interest rate is calculated with reference to two or more Interest
Rate Bases will be calculated in each period in the same manner as if only the
lowest, highest or average of the applicable Interest Rate Basis specified in
the applicable Pricing Supplement applied.
Unless otherwise specified in the applicable Pricing Supplement, The First
National Bank of Chicago will be the "Calculation Agent." Upon request of the
Holder of any Floating Rate Note, the Calculation Agent will disclose the
interest rate then in effect and, if determined, the interest rate that will
become effective as a result of a determination made for the next succeeding
Interest Reset Date with respect to such Floating Rate Note. Unless otherwise
specified in the applicable Pricing Supplement, the "Calculation Date," if
applicable, pertaining to any Interest Determination Date will be the earlier of
(i) the tenth calendar day after such Interest Determination Date or, if such
day is not a Business Day, the next succeeding Business Day or (ii) the Business
Day immediately preceding the applicable Interest Payment Date or the Maturity
Date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, the
Calculation Agent shall determine each Interest Rate Basis in accordance with
the following provisions.
CD Rate. Unless otherwise specified in the applicable Pricing Supplement,
"CD Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CD Rate (a "CD Rate Interest Determination Date"), the rate on such date for
negotiable United States dollar certificates of deposit having the Index
Maturity specified in the applicable Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" or any successor publication ("H.15(519)")
under the heading
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"CDS (Secondary Market)," or, if not published by 3:00 P.M., New York City time,
on the related Calculation Date, the rate on such CD Rate Interest Determination
Date for negotiable United States dollar certificates of deposit of the Index
Maturity specified in the applicable Pricing Supplement as published by the
Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" or any successor
publication ("Composite Quotations") under the heading "Certificates of
Deposit." If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 P.M., New York City time, on the related Calculation Date,
then the CD Rate on such CD Rate Interest Determination Date will be calculated
by the Calculation Agent and will be the arithmetic mean of the secondary market
offered rates as of 10:00 A.M., New York City time, on such CD Rate Interest
Determination Date, of three leading nonbank dealers in negotiable United States
dollar certificates of deposit in The City of New York (which may include the
Agents or their affiliates) selected by the Calculation Agent for negotiable
United States dollar certificates of deposit of major United States money center
banks for negotiable certificates of deposit with a remaining maturity closest
to the Index Maturity specified in the applicable Pricing Supplement in an
amount that is representative for a single transaction in that market at that
time; provided, however, that if the dealers so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the CD Rate determined as
of such CD Rate Interest Determination Date will be the CD Rate in effect on
such CD Rate Interest Determination Date.
CMT Rate. Unless otherwise specified in the applicable Pricing Supplement,
"CMT Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CMT Rate (a "CMT Rate Interest Determination Date"), the rate displayed on
the Designated CMT Telerate Page under the caption "...Treasury Constant
Maturities...Federal Reserve Board Release H.15...Mondays Approximately 3:45
P.M.," under the column for the Designated CMT Maturity Index for (i) if the
Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest
Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the
weekly or monthly average, as specified in the applicable Pricing Supplement,
for the week or the month, as applicable, ended immediately preceding the week
or the month, as applicable, in which the related CMT Rate Interest
Determination Date falls. If such rate is no longer displayed on the relevant
page or is not displayed by 3:00 P.M., New York City time, on the related
Calculation Date, then the CMT Rate for such CMT Rate Interest Determination
Date will be such treasury constant maturity rate for the Designated CMT
Maturity Index as published in H.15(519). If such rate is no longer published or
is not published by 3:00 P.M., New York City time, on the related Calculation
Date, then the CMT Rate on such CMT Rate Interest Determination Date will be
such treasury constant maturity rate for the Designated CMT Maturity Index (or
other United States Treasury rate for the Designated CMT Maturity Index) for the
CMT Rate Interest Determination Date with respect to such Interest Reset Date as
may then be published by either the Board of Governors of the Federal Reserve
System or the United States Department of the Treasury that the Calculation
Agent determines to be comparable to the rate formerly displayed on the
Designated CMT Telerate Page and published in H.15(519). If such information is
not provided by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate on the CMT Rate Interest Determination Date will be calculated
by the Calculation Agent and will be a yield to maturity, based on the
arithmetic mean of the secondary market offered rates as of approximately 3:30
P.M., New York City time, on such CMT Rate Interest Determination Date reported,
according to their written records, by three leading primary United States
government securities dealers in The City of New York (which may include the
Agents or their affiliates) (each, a "Reference Dealer") selected by the
Calculation Agent (from five such Reference Dealers selected by the Calculation
Agent and eliminating the highest quotation (or, in the event of equality, one
of the highest) and the lowest quotation (or, in the event of equality, one of
the lowest)), for the most recently issued direct noncallable fixed rate
obligations of the United States ("Treasury Notes") with an original maturity of
approximately the Designated CMT Maturity Index and a remaining term to maturity
of not less than such Designated CMT Maturity Index minus one year. If the
Calculation Agent is unable to obtain three such Treasury Note quotations, the
CMT Rate on such CMT Rate Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity based on the arithmetic mean
of the secondary market offered rates as of approximately 3:30 P.M., New York
City time, on such CMT Rate Interest Determination Date of three Reference
Dealers in The City of New York (from five such Reference Dealers
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selected by the Calculation Agent and eliminating the highest quotation (or, in
the event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for Treasury Notes with an original
maturity of the number of years that is the next highest to the Designated CMT
Maturity Index and a remaining term to maturity closest to the Designated CMT
Maturity Index and in an amount of at least $100 million. If three or four (and
not five) of such Reference Dealers are quoting as described above, then the CMT
Rate will be based on the arithmetic mean of the offered rates obtained and
neither the highest nor the lowest of such quotes will be eliminated; provided,
however, that if fewer than three Reference Dealers so selected by the
Calculation Agent are quoting as mentioned herein, the CMT Rate determined as of
such CMT Rate Interest Determination Date will be the CMT Rate in effect on such
CMT Rate Interest Determination Date. If two Treasury Notes with an original
maturity as described in the second preceding sentence have remaining terms to
maturity equally close to the Designated CMT Maturity Index, the Calculation
Agent will obtain quotations for the Treasury Note with the shorter remaining
term to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service (or any successor service) on the page specified in the applicable
Pricing Supplement (or any other page as may replace such page on such service)
for the purpose of displaying Treasury Constant Maturities as reported in
H.15(519). If no such page is specified in the applicable Pricing Supplement,
the Designated CMT Telerate Page shall be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable Pricing Supplement with respect to which the CMT
Rate will be calculated or, if no such maturity is specified in the applicable
Pricing Supplement, 2 years.
Commercial Paper Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Commercial Paper Rate (a "Commercial Paper
Rate Interest Determination Date"), the Money Market Yield (as hereinafter
defined) on such date of the rate for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement as published in H.15(519) under
the caption "Commercial Paper--Nonfinancial." In the event that such rate is not
published by 3:00 P.M., New York City time, on the related Calculation Date,
then the Commercial Paper Rate on such Commercial Paper Rate Interest
Determination Date will be the Money Market Yield of the rate for commercial
paper having the Index Maturity specified in the applicable Pricing Supplement
as published in Composite Quotations under the heading "Commercial Paper" (with
an Index Maturity of one month or three months being deemed to be equivalent to
an Index Maturity of 30 days or 90 days, respectively). If such rate is not yet
published in either H.15(519) or Composite Quotations by 3:00 P.M., New York
City time, on the related Calculation Date, then the Commercial Paper Rate on
such Commercial Paper Rate Interest Determination Date will be calculated by the
Calculation Agent and will be the Money Market Yield of the arithmetic mean of
the offered rates at approximately 11:00 A.M., New York City time, on such
Commercial Paper Rate Interest Determination Date of three leading dealers of
commercial paper in The City of New York (which may include the Agents or their
affiliates) selected by the Calculation Agent for commercial paper having the
Index Maturity specified in the applicable Pricing Supplement placed for an
industrial issuer whose bond rating is "Aa", or the equivalent, from a
nationally recognized statistical rating organization; provided, however, that
if the dealers so selected by the Calculation Agent are not quoting as mentioned
in this sentence, the Commercial Paper Rate determined as of such Commercial
Paper Rate Interest Determination Date will be the Commercial Paper Rate in
effect on such Commercial Paper Rate Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
<TABLE>
<S> <C> <C>
D x 360
Money Market Yield --------------- X 100
360 - (D x M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the applicable Interest Reset Period.
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Eleventh District Cost of Funds Rate. Unless otherwise specified in the
applicable Pricing Supplement, "Eleventh District Cost of Funds Rate" means,
with respect to any Interest Determination Date relating to a Floating Rate Note
for which the interest rate is determined with reference to the Eleventh
District Cost of Funds Rate (an "Eleventh District Cost of Funds Rate Interest
Determination Date"), the rate equal to the monthly weighted average cost of
funds for the calendar month immediately preceding the month in which such
Eleventh District Cost of Funds Rate Interest Determination Date falls, as set
forth under the caption "11th District" on Telerate Page 7058 as of 11:00 A.M.,
San Francisco time, on such Eleventh District Cost of Funds Rate Interest
Determination Date. If such rate does not appear on Telerate Page 7058 on such
Eleventh District Cost of Funds Rate Interest Determination Date, then the
Eleventh District Cost of Funds Rate on such Eleventh District Cost of Funds
Rate Interest Determination Date shall be the monthly weighted average cost of
funds paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the FHLB of San
Francisco as such cost of funds for the calendar month immediately preceding
such Eleventh District Cost of Funds Rate Interest Determination Date. If the
FHLB of San Francisco fails to announce the Index on or prior to such Eleventh
District Cost of Funds Rate Interest Determination Date for the calendar month
immediately preceding such Eleventh District Cost of Funds Rate Interest
Determination Date, the Eleventh District Cost of Funds Rate determined as of
such Eleventh District Cost of Funds Rate Interest Determination Date will be
the Eleventh District Cost of Funds Rate in effect on such Eleventh District
Cost of Funds Rate Interest Determination Date.
Federal Funds Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Federal Funds Rate (a "Federal Funds Rate
Interest Determination Date"), the rate on such date for United States dollar
federal funds as published in H.15(519) under the heading "Federal Funds
(Effective)" or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be the arithmetic mean of the rates for the last transaction in overnight United
States dollar federal funds arranged by three leading brokers of federal funds
transactions in The City of New York (which may include the Agents or their
affiliates) selected by the Calculation Agent prior to 9:00 A.M., New York City
time, on such Federal Funds Rate Interest Determination Date; provided, however,
that if the brokers so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Federal Funds Rate determined as of such Federal
Funds Rate Interest Determination Date will be the Federal Funds Rate in effect
on such Federal Funds Rate Interest Determination Date.
LIBOR. Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined in accordance with the following provisions:
(i) With respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference
to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the Designated LIBOR Page by
its terms provides only for a single rate, in which case such single rate
shall be used) for deposits in the Designated LIBOR Currency having the
Index Maturity specified in such Pricing Supplement, commencing on the
applicable Interest Reset Date, that appear (or, if only a single rate is
required as aforesaid, appears) on the Designated LIBOR Page as of 11:00
A.M., London time, on such LIBOR Interest Determination Date, or (b) if
"LIBOR Telerate" is specified in the applicable Pricing Supplement or if
neither "LIBOR Reuters" nor LIBOR Telerate" is specified in the applicable
Pricing Supplement as the method for calculating LIBOR, the rate for
deposits in the Designated LIBOR Currency having the Index Maturity
specified in such Pricing Supplement, commencing on such Interest Reset
Date, that appears on the Designated LIBOR Page as of 11:00 A.M., London
time, on such LIBOR Interest Determination Date. If fewer than two such
offered rates so
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appear, or if no such rate so appears, as applicable, LIBOR on such LIBOR
Interest Determination Date will be determined in accordance with the
provisions described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates appear, or no rate appears, as the case may
be, on the Designated LIBOR Page as specified in clause (i) above, the
Calculation Agent will request the principal London offices of each of four
major reference banks (which may include affiliates of the Agents) in the
London interbank market, as selected by the Calculation Agent, to provide
the Calculation Agent with its offered quotation for deposits in the
Designated LIBOR Currency for the period of the Index Maturity specified in
the applicable Pricing Supplement, commencing on the applicable Interest
Reset Date, to prime banks in the London interbank market at approximately
11:00 A.M., London time, on such LIBOR Interest Determination Date and in a
principal amount that is representative for a single transaction in the
Designated LIBOR Currency in such market at such time. If at least two such
quotations are so provided, then LIBOR on such LIBOR Interest Determination
Date will be the arithmetic mean of such quotations. If fewer than two such
quotations are so provided, then LIBOR on such LIBOR Interest Determination
Date will be the arithmetic mean of the rates quoted at approximately 11:00
A.M., in the applicable Principal Financial Center, on such LIBOR Interest
Determination Date by three major banks (which may include affiliates of
the Agents) in such Principal Financial Center selected by the Calculation
Agent for loans in the Designated LIBOR Currency to leading European banks,
having the Index Maturity specified in the applicable Pricing Supplement
and in a principal amount that is representative for a single transaction
in the Designated LIBOR Currency in such market at such time; provided,
however, that if the banks so selected by the Calculation Agent are not
quoting as mentioned in this sentence, LIBOR determined as of such LIBOR
Interest Determination Date will be LIBOR in effect on such LIBOR Interest
Determination Date.
"Designated LIBOR Currency" means the currency or composite currency
specified in the applicable Pricing Supplement as to which LIBOR shall be
calculated or, if no such currency or composite currency is specified in the
applicable Pricing Supplement, United States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuter Monitor Money Rates
Service (or any successor service) on the page specified in such Pricing
Supplement (or any other page as may replace such page on such service) for the
purpose of displaying the London interbank rates of major banks for the
Designated LIBOR Currency, or (b) if "LIBOR Telerate" is specified in the
applicable Pricing Supplement or neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable Pricing Supplement as the method for calculating
LIBOR, the display on the Dow Jones Telerate Service (or any successor service)
on the page specified in such Pricing Supplement (or any other page as may
replace such page on such service) for the purpose of displaying the London
interbank rates of major banks for the Designated LIBOR Currency.
Prime Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Prime Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the Prime Rate (a "Prime Rate Interest Determination Date"), the
rate on such date as such rate is published in H.15(519) under the heading "Bank
Prime Loan." If such rate is not published prior to 3:00 P.M., New York City
time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 Page (as hereinafter defined) as such
bank's prime rate or base lending rate as in effect for such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 Page for such Prime Rate Interest Determination Date, then the Prime
Rate shall be the arithmetic mean of the prime rates or base lending rates
quoted on the basis of the actual number of days in the year divided by a
360-day year as of the close of business on such Prime Rate Interest
Determination Date by four major money center banks (which may include
affiliates of the Agents) in The City of New York selected by the Calculation
Agent. If fewer than four such quotations are so provided, then the Prime Rate
shall be the arithmetic mean of four prime rates quoted on the basis of the
actual number of days in the year divided by a 360-day year as of the close of
business on such Prime Rate Interest Determination Date as furnished in The City
of New York by the major money center banks, if any, that have provided such
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quotations and by a reasonable number of substitute banks or trust companies
(which may include affiliates of the Agents) to obtain four such prime rate
quotations, provided such substitute banks or trust companies are organized and
doing business under the laws of the United States, or any State thereof, each
having total equity capital of at least $500 million and being subject to
supervision or examination by Federal or State authority, selected by the
Calculation Agent to provide such rate or rates; provided, however, that if the
banks or trust companies so selected by the Calculation Agent are not quoting as
mentioned in this sentence, the Prime Rate determined as of such Prime Rate
Interest Determination Date will be the Prime Rate in effect on such Prime Rate
Interest Determination Date.
"Reuters Screen USPRIME1 Page" means the display on the Reuter Monitor
Money Rates Service (or any successor service) on the "USPRIME1" page (or such
other page as may replace the USPRIME1 page on such service) for the purpose of
displaying prime rates or base lending rates of major United States banks.
Treasury Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date relating to a Floating Rate Note for which the interest rate is determined
by reference to the Treasury Rate (a "Treasury Rate Interest Determination
Date"), the rate from the auction held on such Treasury Rate Interest
Determination Date (the "Auction") of direct obligations of the United States
("Treasury Bills") having the Index Maturity specified in the applicable Pricing
Supplement, as such rate is published in H.15(519) under the heading "Treasury
Bills-auction average (investment)" or, if not published by 3:00 P.M., New York
City time, on the related Calculation Date, the auction average rate of such
Treasury Bills (expressed as a bond equivalent on the basis of a year of 365 or
366 days, as applicable, and applied on a daily basis) as otherwise announced by
the United States Department of the Treasury. In the event that the results of
the Auction of Treasury Bills having the Index Maturity specified in the
applicable Pricing Supplement are not reported as provided by 3:00 P.M., New
York City time, on the related Calculation Date, or if no such Auction is held,
then the Treasury Rate will be calculated by the Calculation Agent and will be a
yield to maturity (expressed as a bond equivalent on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis) of the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 P.M., New York City
time, on such Treasury Rate Interest Determination Date, of three leading
primary United States government securities dealers (which may include the
Agents or their affiliates) selected by the Calculation Agent, for the issue of
Treasury Bills with a remaining maturity closest to the Index Maturity specified
in the applicable Pricing Supplement; provided, however, that if the dealers so
selected by the Calculation Agent are not quoting as mentioned in this sentence,
the Treasury Rate determined as of such Treasury Rate Interest Determination
Date will be the Treasury Rate in effect on such Treasury Rate Interest
Determination Date.
OTHER/ADDITIONAL PROVISIONS; ADDENDUM
Any provisions with respect to the Notes, including the specification and
determination of one or more Interest Rate Bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
the Stated Maturity Date, any redemption or repayment provisions or any other
term relating thereto, may be modified and/or supplemented as specified under
"Other/Additional Provisions" on the face thereof or in an Addendum relating
thereto, if so specified on the face thereof and described in the applicable
Pricing Supplement.
DISCOUNT NOTES
The Company may offer Notes ("Discount Notes") from time to time that have
an Issue Price (as specified in the applicable Pricing Supplement) that is less
than 100% of the principal amount thereof (i.e., par) by more than a percentage
equal to the product of 0.25% and the number of full years to the Stated
Maturity Date. Discount Notes may not bear any interest currently or may bear
interest at a rate that is below market rates at the time of issuance. The
difference between the Issue Price of a Discount Note and par is referred to
herein as the "Discount." In the event of redemption, repayment or acceleration
of maturity of a Discount Note, the amount payable to the Holder of such
Discount Note will be equal to the sum of (i) the Issue Price (increased by any
accruals of Discount) and, in the event of any redemption of such Discount Note
(if applicable), multiplied by the Initial Redemption Percentage (as adjusted by
the Annual
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Redemption Percentage Reduction, if applicable) and (ii) any unpaid interest
accrued thereon to the date of such redemption, repayment or acceleration of
maturity, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, for
purposes of determining the amount of Discount that has accrued as of any date
on which a redemption, repayment or acceleration of maturity occurs for a
Discount Note, such Discount will be accrued using a constant yield method. The
constant yield will be calculated using a 30-day month, 360-day year convention,
a compounding period that, except for the Initial Period (as hereinafter
defined), corresponds to the shortest period between Interest Payment Dates for
the applicable Discount Note (with ratable accruals within a compounding
period), a coupon rate equal to the initial coupon rate applicable to such
Discount Note and an assumption that the maturity of such Discount Note will not
be accelerated. If the period from the date of issue to the initial Interest
Payment Date for a Discount Note (the "Initial Period") is shorter than the
compounding period for such Discount Note, a proportionate amount of the yield
for an entire compounding period will be accrued. If the Initial Period is
longer than the compounding period, then such period will be divided into a
regular compounding period and a short period with the short period being
treated as provided in the preceding sentence. The accrual of the applicable
Discount may differ from the accrual of original issue discount for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"), certain Discount
Notes may not be treated as having original issue discount within the meaning of
the Code, and Notes other than Discount Notes may be treated as issued with
original issue discount for federal income tax purposes. See "United States
Federal Income Tax Considerations".
INDEXED NOTES
The Company may from time to time offer Notes ("Indexed Notes") with the
amount of principal, premium and/or interest payable in respect thereof to be
determined with reference to the price or prices of specified commodities or
stocks, to the exchange rate of one or more designated currencies (including a
composite currency such as the ECU) relative to an indexed currency or to other
items, in each case as specified in the applicable Pricing Supplement. In
certain cases, Holders of Indexed Notes may receive a principal payment on the
Maturity Date that is greater than or less than the principal amount of such
Indexed Notes depending upon the relative value on the Maturity Date of the
specified indexed item. Information as to the method for determining the amount
of principal, premium, if any, and/or interest, if any, payable in respect of
Indexed Notes, certain historical information with respect to the specified
indexed item and any material tax considerations associated with an investment
in Indexed Notes will be specified in the applicable Pricing Supplement. See
also "Risk Factors."
AMORTIZING NOTES
The Company may from time to time offer Notes ("Amortizing Notes") with the
amount of principal thereof and interest thereon payable in installments over
the term of such Notes. Unless otherwise specified in the applicable Pricing
Supplement, interest on each Amortizing Note will be computed on the basis of a
360-day year of twelve 30-day months. Payments with respect to Amortizing Notes
will be applied first to interest due and payable thereon and then to the
reduction of the unpaid principal amount thereof. Further information concerning
additional terms and provisions of Amortizing Notes will be specified in the
applicable Pricing Supplement, including a table setting forth repayment
information for such Amortizing Notes.
BOOK-ENTRY NOTES
The Company has established a depositary arrangement with The Depository
Trust Company with respect to the Book-Entry Notes, the terms of which are
summarized below. Any additional or differing terms of the depositary
arrangement with respect to the Book-Entry Notes will be described in the
applicable Pricing Supplement.
Each Global Security representing Book-Entry Notes will be deposited with,
or on behalf of, the Depositary and will be registered in the name of the
Depositary or a nominee of the Depositary. No Global Security may be transferred
except as a whole by a nominee of the Depositary to the Depositary or to another
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nominee of the Depositary, or by the Depositary or such nominee to a successor
of the Depositary or a nominee of such successor.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or its nominee, as the case may be, will be the
sole Holder of the Book-Entry Notes represented thereby for all purposes under
the Indenture. Except as otherwise provided below, the Beneficial Owners of the
Global Security or Securities representing Book-Entry Notes will not be entitled
to receive physical delivery of Certificated Notes and will not be considered
the Holders thereof for any purpose under the Indenture, and no Global Security
representing Book-Entry Notes shall be so exchangeable or transferable.
Accordingly, each Beneficial Owner must rely on the procedures of the Depositary
and, if such Beneficial Owner is not a Participant, on the procedures of the
Participant through which such Beneficial Owner owns its interest in order to
exercise any rights of a Holder under such Global Security or the Indenture. The
laws of some jurisdictions 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 Global Security
representing Book-Entry Notes.
Unless otherwise specified in the applicable Pricing Supplement, each
Global Security representing Book-Entry Notes will be exchangeable for
Certificated Notes of like tenor and terms and of differing authorized
denominations in a like aggregate principal amount, only if (i) the Depositary
notifies the Company that it is unwilling or unable to continue as Depositary
for the Global Securities or the Company becomes aware that the Depositary has
ceased to be a clearing agency registered under the Exchange Act and, in any
such case, the Company shall not have appointed a successor to the Depositary
within 90 days thereafter, (ii) the Company, in its sole discretion, determines
that the Global Securities will be exchangeable for Certificated Notes or (iii)
an Event of Default will have occurred and be continuing with respect to the
Notes under the Indenture. Upon any such exchange, the Certificated Notes will
be registered in the names of the Beneficial Owners of the Global Security or
Securities representing Book-Entry Notes, which names will be provided by the
Depositary's relevant Participants (as identified by the Depositary) to the
Trustee.
The following is based on information furnished by the Depositary:
The Depositary will act as securities depository for the Book-Entry
Notes. The Book-Entry Notes will be issued as fully registered securities
registered in the name of Cede & Co. (the Depositary's partnership
nominee). One fully registered Global Security will be issued for each
issue of Book-Entry Notes, each in the aggregate principal amount of such
issue, and will be deposited with the Depositary or its custodian.
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 Exchange Act. 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 Agents), 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 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 Notes under the Depositary's system must be
made by or through Direct Participants, which will receive a credit for
such Book-Entry Notes on the Depositary's records. The ownership interest
of each actual purchaser of each Book-Entry Note represented by a Global
Security
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("Beneficial Owner") is in turn to be recorded on the records of Direct
Participants and Indirect Participants. 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 Participants or Indirect Participants through which such Beneficial
Owner entered into the transaction. Transfers of ownership interests in a
Global Security representing Book-Entry Notes are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners of a Global Security representing Book-Entry
Notes will not receive Certificated Notes representing their ownership
interests therein, except in the event that use of the book-entry system
for such Book-Entry Notes is discontinued.
To facilitate subsequent transfers, all Global Securities representing
Book-Entry Notes which are deposited with, or on behalf of, the Depositary
are registered in the name of the Depositary's nominee, Cede & Co. The
deposit of Global Securities with, or on behalf of, 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 Global Securities representing the Book-Entry Notes; the
Depositary's records reflect only the identity of the Direct Participants
to whose accounts such Book-Entry Notes 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 Global Securities representing the Book-Entry Notes. 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 Notes are credited on the
applicable record date (identified in a listing attached to the Omnibus
Proxy).
Principal, premium, if any, and/or interest, if any, payments on the
Global Securities representing the Book-Entry Notes will be made in
immediately available funds to the Depositary. The Depositary's practice is
to credit Direct Participants' accounts on the applicable payment date in
accordance with their respective holdings shown on the Depositary's records
unless the Depositary has reason to believe that it will not receive
payment on such date. 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 Trustee or the Company, subject
to any statutory or regulatory requirements as may be in effect from time
to time. Payment of principal, premium, if any, and/or interest, if any, to
the Depositary is the responsibility of the Company and the 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 Participants and
Indirect Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less
than all of the Book-Entry Notes of like tenor and terms are being
redeemed, the Depositary's practice is to determine by lot the amount of
the interest of each Direct Participant in such issue to be redeemed.
A Beneficial Owner shall give notice of any option to elect to have
its Book-Entry Notes repaid by the Company, through its Participant, to the
Trustee, and shall effect delivery of such Book-Entry Notes by causing the
Direct Participant to transfer the Participant's interest in the Global
Security or Securities representing such Book-Entry Notes, on the
Depositary's records, to the Trustee. The requirement for physical delivery
of Book-Entry Notes in connection with a demand for repayment will be
deemed satisfied when the ownership rights in the Global Security or
Securities representing such Book-Entry Notes are transferred by Direct
Participants on the Depositary's records.
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The Depositary may discontinue providing its services as securities
depository with respect to the Book-Entry Notes at any time by giving
reasonable notice to the Company or the Trustee. Under such circumstances,
in the event that a successor securities depository is not obtained,
Certificated Notes are required to be printed and delivered.
In the event that the Company decides to discontinue use of the system
of book-entry transfers through the Depositary (or a successor securities
depository) or an Event of Default occurs and is continuing under the
Indenture, Certificated Notes will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Company believes to
be reliable, but the Company, the Agents and the Trustee take no responsibility
for the accuracy thereof.
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise specified in the applicable Pricing Supplement, Foreign
Currency Notes will not be sold in, or to residents of, the country issuing the
applicable currency. The information set forth in this Prospectus Supplement is
directed to prospective purchasers who are United States residents and, with
respect to Foreign Currency Notes, is by necessity incomplete. The Company and
the Agents disclaim any responsibility to advise prospective purchasers who are
residents of countries other than the United States with respect to any matters
that may affect the purchase, holding or receipt of payments of principal of,
and premium, if any, and interest, if any, on, Foreign Currency Notes. Such
persons should consult their own financial and legal advisors with regard to
such matters. See "Risk Factors--Exchange Rates and Exchange Controls."
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST, IF ANY
Unless otherwise specified in the applicable Pricing Supplement, the
Company is obligated to make payments of principal of, and premium, if any, and
interest, if any, on, a Foreign Currency Note in the Specified Currency. Any
such amounts payable by the Company in the Specified Currency will be converted
by the exchange rate agent named in the applicable Pricing Supplement (the
"Exchange Rate Agent") into United States dollars for payment to Holders unless
otherwise specified in the applicable Pricing Supplement or the Holder of such
Foreign Currency Note elects, in the manner hereinafter described, to receive
such amounts in the Specified Currency.
Any United States dollar amount to be received by a Holder of a Foreign
Currency Note will be based on the highest bid quotation in The City of New York
received by the Exchange Rate Agent at approximately 11:00 A.M., New York City
time, on the second Business Day preceding the applicable payment date from
three recognized foreign exchange dealers (one of whom may be the Exchange Rate
Agent) selected by the Exchange Rate Agent and approved by the Company for the
purchase by the quoting dealer of the Specified Currency for United States
dollars for settlement on such payment date in the aggregate amount of such
Specified Currency payable to all Holders of Foreign Currency Notes scheduled to
receive United States dollar payments and at which the applicable dealer commits
to execute a contract. All currency exchange costs will be borne by the Holders
of such Foreign Currency Notes by deductions from such payments. If three such
bid quotations are not available, payments will be made in the Specified
Currency.
Holders of Foreign Currency Notes may elect to receive all or a specified
portion of any payment of principal, premium, if any, and/or interest, if any,
in the Specified Currency by submitting a written request for such payment to
the Trustee at its corporate trust office in The City of New York on or prior to
the applicable Record Date or at least fifteen calendar days prior to the
Maturity Date, as the case may be. Such written request may be mailed or hand
delivered or sent by cable, telex or other form of facsimile transmission.
Holders of Foreign Currency Notes may elect to receive all or a specified
portion of all future payments in the Specified Currency and need not file a
separate election for each payment. Such election will remain in effect until
revoked by written notice to the Trustee, but written notice of any such
revocation must be received by
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the Trustee on or prior to the applicable Record Date or at least fifteen
calendar days prior to the Maturity Date, as the case may be. Holders of Foreign
Currency Notes to be held in the name of a broker or nominee should contact such
broker or nominee to determine whether and how an election to receive payments
in the Specified Currency may be made.
Unless otherwise specified in the applicable Pricing Supplement, if the
Specified Currency is other than United States dollars, a Beneficial Owner of
the related Global Security or Securities which elects to receive payments of
principal, premium, if any, and/or interest, if any, in the Specified Currency
must notify the Participant through which it owns its interest on or prior to
the applicable Record Date or at least fifteen calendar days prior to the
Maturity Date, as the case may be, of such Beneficial Owner's election. Such
Participant must notify the Depositary of such election on or prior to the third
Business Day after such Record Date or at least twelve calendar days prior to
the Maturity Date, as the case may be, and the Depositary will notify the
Trustee of such election on or prior to the fifth Business Day after such Record
Date or at least ten calendar days prior to the Maturity Date, as the case may
be. If complete instructions are received by the Participant from the Beneficial
Owner and forwarded by the Participant to the Depositary, and by the Depositary
to the Trustee, on or prior to such dates, then such Beneficial Owner will
receive payments in the Specified Currency.
Payments of the principal of, and premium, if any, and/or interest, if any,
on, Foreign Currency Notes which are to be made in United States dollars will be
made in the manner specified herein with respect to Notes denominated in United
States dollars. See "Description of Notes--General." Payments of interest, if
any, on Foreign Currency Notes which are to be made in the Specified Currency on
an Interest Payment Date other than the Maturity Date will be made by check
mailed to the address of the Holders of such Foreign Currency Notes as they
appear in the security register, subject to the right to receive such interest
payments by wire transfer of immediately available funds under the circumstances
described under "Description of Notes--General." Payments of principal of, and
premium, if any, and/or interest, if any, on, Foreign Currency Notes which are
to be made in the Specified Currency on the Maturity Date will be made by wire
transfer of immediately available funds to an account with a bank designated at
least fifteen calendar days prior to the Maturity Date by each Holder thereof,
provided that such bank has appropriate facilities therefor and that the
applicable Foreign Currency Note is presented and surrendered at the office or
agency maintained by the Company for such purpose in the Borough of Manhattan,
The City of New York, currently the corporate trust office of the Trustee, in
time for the Trustee to make such payments in such funds in accordance with its
normal procedures.
AVAILABILITY OF SPECIFIED CURRENCY
Except as set forth below, if the Specified Currency for a Foreign Currency
Note is not available for the required payment of principal, premium, if any,
and/or interest, if any, in respect thereof due to the imposition of exchange
controls or other circumstances beyond the control of the Company, the Company
will be entitled to satisfy its obligations to the Holder of such Foreign
Currency Note by making such payment in United States dollars on the basis of
the Market Exchange Rate (as hereinafter defined), computed by the Exchange Rate
Agent, on the second Business Day prior to such payment or, if such Market
Exchange Rate is not then available, on the basis of the most recently available
Market Exchange Rate, or as otherwise specified in the applicable Pricing
Supplement.
If the Specified Currency for a Foreign Currency Note is a composite
currency that is not available for the required payment of principal, premium,
if any, and/or interest, if any, in respect thereof due to the imposition of
exchange controls or other circumstances beyond the control of the Company, the
Company will be entitled to satisfy its obligations to the Holder of such
Foreign Currency Note by making such payment in United States dollars on the
basis of the equivalent of the composite currency in United States dollars. The
component currencies of the composite currency for this purpose (the "Component
Currencies") shall be the currency amounts that were components of the composite
currency as of the last day on which the composite currency was used. The
equivalent of the composite currency in United States dollars shall be
calculated by aggregating the United States dollar equivalents of the Component
Currencies. The United States dollar equivalent of each of the Component
Currencies shall be determined by the Exchange Rate Agent on the
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basis of the Market Exchange Rate on the second Business Day prior to the
required payment or, if such Market Exchange Rate is not then available, on the
basis of the most recently available Market Exchange Rate for each such
Component Currency, or as otherwise specified in the applicable Pricing
Supplement.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of the currency as a Component
Currency shall be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, the amounts of
those currencies as Component Currencies shall be replaced by an amount in such
single currency equal to the sum of the amounts of the consolidated Component
Currencies expressed in such single currency. If any Component Currency is
divided into two or more currencies, the amount of the original Component
Currency shall be replaced by the amounts of such two or more currencies, the
sum of which shall be equal to the amount of the original Component Currency.
The "Market Exchange Rate" for a Specified Currency other than United
States dollars means the noon dollar buying rate in The City of New York for
cable transfers for such Specified Currency as certified for customs purposes
(or, if not so certified, as otherwise determined) by the Federal Reserve Bank
of New York. Any payment made in United States dollars under such circumstances
where the required payment is in a Specified Currency other than United States
dollars will not constitute an Event of Default under the Indenture with respect
to the Notes.
All determinations referred to above made by the Exchange Rate Agent shall
be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on the Holders of the Foreign Currency
Notes.
JUDGMENTS
Under current New York law, a state court in the State of New York
rendering a judgment in respect of a Foreign Currency Note would be required to
render such judgment in the Specified Currency, and such foreign currency
judgment would be converted into United States dollars at the exchange rate
prevailing on the date of entry of such judgment. Accordingly, the Holder of
such Foreign Currency Note would be subject to exchange rate fluctuations
between the date of entry of such foreign currency judgment and the time the
amount of such foreign currency judgment is paid to such Holder in United States
dollars and converted by such Holder into the Specified Currency. It is not
certain, however, whether a non-New York state court would follow the same rules
and procedures with respect to conversions of foreign currency judgments.
The Company will indemnify the Holder of any Note against any loss incurred
by such Holder as a result of any judgment or order being given or made for any
amount due under such Note and such judgment or order requiring payment in a
currency or composite currency (the "Judgment Currency") other than the
Specified Currency, and as a result of any variation between (i) the rate of
exchange at which the Specified Currency amount is converted into the Judgment
Currency for the purpose of such judgment or order, and (ii) the rate of
exchange at which the Holder of such Note, on the date of payment of such
judgment or order, is able to purchase the Specified Currency with the amount of
the Judgment Currency actually received by such Holder, as the case may be.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding Notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers (except where otherwise specifically
noted). Persons considering the purchase of the Notes should consult their own
tax advisors concerning the application of United States
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Federal income tax laws to their particular situations as well as any
consequences of the purchase, ownership and disposition of the Notes arising
under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to United
States Federal income taxation regardless of its source, (iv) a trust, the
administration over which a United States court can exercise primary supervision
and for which one or more United States fiduciaries have the authority to
control all substantive decisions, or (v) any other person whose income or gain
in respect of a Note is effectively connected with the conduct of a United
States trade or business. As used herein, the term "non-U.S. Holder" means a
beneficial owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
PAYMENTS OF INTEREST
Payments of interest on a Note generally will be taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting).
ORIGINAL ISSUE DISCOUNT
The following summary is a general discussion of the United States Federal
income tax consequences to U.S. Holders of the purchase, ownership and
disposition of Notes issued with original issue discount ("Original Issue
Discount Notes"). "Original Issue Discount Notes" include Notes identified as
Discount Notes, as well as Notes that are not otherwise Discount Notes but that
nonetheless have been issued with original issue discount. The following summary
is based upon final Treasury regulations (the "OID Regulations") released by the
Internal Revenue Service ( the "IRS") on January 27, 1994, as amended on June
11, 1996, under the original issue discount provisions of the Code.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of 1%
of the Note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date or, in the case of a Note
providing for the payment of any amount other than qualified stated interest (as
hereinafter defined) prior to maturity, multiplied by the weighted average
maturity of such Note). The issue price of each Note in an issue of Notes equals
the first price at which a substantial amount of such Notes has been sold
(ignoring sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers). The
stated redemption price at maturity of a Note is the sum of all payments
provided by the Note other than "qualified stated interest" payments. The term
"qualified stated interest" generally means stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at a single fixed rate. In addition, under the OID
Regulations, if a Note bears interest for one or more accrual periods at a rate
below the rate applicable for the remaining term of such Note (e.g., Notes with
teaser rates or interest holidays), and if the greater of either the resulting
foregone interest on such Note or any "true" discount on such Note (i.e., the
excess of the Note's stated principal amount over its issue price) equals or
exceeds a specified de minimis amount, then the stated interest on the Note
would be treated as original issue discount rather than qualified stated
interest.
Payments of qualified stated interest on a Note are taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of an Original Issue Discount Note must include
original issue discount in income as ordinary interest for United States Federal
income tax purposes as it accrues under a constant yield method in advance of
receipt of the cash payments attributable to such income, regardless of such
U.S. Holder's regular method of tax accounting. In general, the amount of
original issue discount included in income by the initial U.S. Holder of an
Original Issue Discount Note is the sum of the daily portions of
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original issue discount with respect to such Original Issue Discount Note for
each day during the taxable year (or portion of the taxable year) on which such
U.S. Holder held such Original Issue Discount Note. The "daily portion" of
original issue discount on any Original Issue Discount Note is determined by
allocating to each day in any accrual period a ratable portion of the original
issue discount allocable to that accrual period. An "accrual period" may be of
any length and the accrual periods may vary in length over the term of the
Original Issue Discount Note, provided that each accrual period is no longer
than one year and each scheduled payment of principal or interest occurs either
on the final day of an accrual period or on the first day of an accrual period.
The amount of original issue discount allocable to each accrual period is
generally equal to the difference between (i) the product of the Original Issue
Discount Note's adjusted issue price at the beginning of such accrual period and
its yield to maturity (determined on the basis of compounding at the close of
each accrual period and appropriately adjusted to take into account the length
of the particular accrual period) and (ii) the amount of any qualified stated
interest payments allocable to such accrual period. The "adjusted issue price"
of an Original Issue Discount Note at the beginning of any accrual period is the
sum of the issue price of the Original Issue Discount Note plus the amount of
original issue discount allocable to all prior accrual periods minus the amount
of any prior payments on the Original Issue Discount Note that were not
qualified stated interest payments. Under these rules, U.S. Holders generally
will have to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
A U.S. Holder who purchases an Original Issue Discount Note for an amount
that is greater than its adjusted issue price as of the purchase date and less
than or equal to the sum of all amounts payable on the Original Issue Discount
Note after the purchase date other than payments of qualified stated interest,
will be considered to have purchased the Original Issue Discount Note at an
"acquisition premium." Under the acquisition premium rules, the amount of
original issue discount which such U.S. Holder must include in its gross income
with respect to such Original Issue Discount Note for any taxable year (or
portion thereof in which the U.S. Holder holds the Original Issue Discount Note)
will be reduced (but not below zero) by the portion of the acquisition premium
properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes ("Variable
Notes") are subject to special rules whereby a Variable Note will qualify as a
"variable rate debt instrument" if (a) its issue price does not exceed the total
noncontingent principal payments due under the Variable Note by more than a
specified de minimis amount and (b) it provides for stated interest, paid or
compounded at least annually, at current values of (i) one or more qualified
floating rates, (ii) a single fixed rate and one or more qualified floating
rates, (iii) a single objective rate, or (iv) a single fixed rate and a single
objective rate that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed multiple that is
greater than .65 but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate and a
fixed multiple that is greater than .65 but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Variable Note (e.g., two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable Note's
issue date) will be treated as a single qualified floating rate. Notwithstanding
the foregoing, a variable rate that would otherwise constitute a qualified
floating rate but which is subject to one or more restrictions such as a maximum
numerical limitation (i.e., a cap) or a minimum numerical limitation (i.e., a
floor) may, under certain circumstances, fail to be treated as a qualified
floating rate under the OID Regulations unless such cap or floor is fixed
throughout the term of the Note. An "objective rate" is a rate that is not
itself a qualified floating rate but which is determined using a single fixed
formula and which is based upon objective financial or economic information. A
rate will not qualify as an objective rate if it is based on information that is
within the control of the issuer (or a related party) or that is unique to the
circumstances of the issuer (or a related party), such as dividends, profits or
the value of the issuer's stock (although a rate does not fail to be an
objective rate merely because it
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is based on the credit quality of the issuer). A "qualified inverse floating
rate" is any objective rate where such rate is equal to a fixed rate minus a
qualified floating rate, as long as variations in the rate can reasonably be
expected to inversely reflect contemporaneous variations in the qualified
floating rate. The OID Regulations also provide that if a Variable Note provides
for stated interest at a fixed rate for an initial period of one year or less
followed by a variable rate that is either a qualified floating rate or an
objective rate and if the variable rate on the Variable Note's issue date is
intended to approximate the fixed rate (e.g., the value of the variable rate on
the issue date does not differ from the value of the fixed rate by more than 25
basis points), then the fixed rate and the variable rate together will
constitute either a single qualified floating rate or objective rate, as the
case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations and if
interest on such Note is unconditionally payable in cash or property (other than
debt instruments of the issuer) at least annually, then all stated interest on
such Note will constitute qualified stated interest and will be taxed
accordingly. Thus, a Variable Note that provides for stated interest at either a
single qualified floating rate or a single objective rate throughout the term
thereof and that qualifies as a "variable rate debt instrument" under the OID
Regulations will generally not be treated as having been issued with original
issue discount unless the Variable Note is issued at a "true" discount (i.e., at
a price below the Note's stated principal amount) in excess of a specified de
minimis amount. The amount of qualified stated interest and the amount of
original issue discount, if any, that accrues during an accrual period on such
Variable Note is determined under the rules applicable to fixed rate debt
instruments by assuming that the variable rate is a fixed rate equal to (i) in
the case of a qualified floating rate or qualified inverse floating rate, the
value as of the issue date, of the qualified floating rate or qualified inverse
floating rate, or (ii) in the case of an objective rate (other than a qualified
inverse floating rate), a fixed rate that reflects the yield that is reasonably
expected for the Variable Note. The qualified stated interest allocable to an
accrual period is increased (or decreased) if the interest actually paid during
an accrual period exceeds (or is less than) the interest assumed to be paid
during the accrual period pursuant to the foregoing rules.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. In
the case of a Variable Note that qualifies as a "variable rate debt instrument"
and provides for stated interest at a fixed rate in addition to either one or
more qualified floating rates or a qualified inverse floating rate, the fixed
rate is initially converted into a qualified floating rate (or a qualified
inverse floating rate, if the Variable Note provides for a qualified inverse
floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Variable Note as of the Variable Note's issue date
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or
qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Note is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and qualified
stated interest as if the U.S. Holder held the "equivalent" fixed rate debt
instrument. Each accrual period appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed
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rate debt instrument in the event that such amounts differ from the actual
amount of interest accrued or paid on the Variable Note during the accrual
period.
If a Variable Note does not qualify as a "variable debt instrument" under
the OID Regulations, then the Variable Note will be treated as a contingent
payment obligation. On June 11, 1996 the IRS released final Treasury regulations
dealing with the treatment of contingent payment obligations (the "Contingent
Debt Regulations"). Generally, if a Variable Note is treated as a contingent
payment obligation, interest payments thereon will be treated as "contingent
interest" payments. Any contingent interest payments on a Variable Note would be
includible in income in a taxable year whether or not the amount of any payment
is fixed or determinable in that year. The amount of interest included in income
in any particular accrual period would be determined by estimating a projected
payment schedule (as determined under the Contingent Debt Regulations) for the
Variable Note based on a comparable yield based on a hypothetical fixed rate
instrument having similar terms and conditions as the Variable Note and applying
daily accrual rules similar to those for accruing original issue discount on
Notes issued with original issue discount (as discussed above). If the actual
amount of contingent interest payments is not equal to the projected amount, an
adjustment to income at the time of the payment must be made to reflect the
difference. Moreover, in general, any gain recognized by a U.S. Holder on the
sale, exchange or retirement of a contingent payment obligation will be treated
as ordinary income and all or a portion of any loss realized could be treated as
ordinary loss as opposed to capital loss (depending upon the circumstances). The
proper United States Federal income tax treatment of Variable Notes that are
treated as contingent payment obligations will be more fully described in the
applicable Pricing Supplement.
Certain of the Notes (i) may be redeemable at the option of the Company
prior to their stated maturity (a "call option") and/or (ii) may be repayable at
the option of the holder prior to their stated maturity (a "put option"). Notes
containing such features may be subject to rules that differ from the general
rules discussed above. Investors intending to purchase Notes with such features
should consult their own tax advisors, since the original issue discount
consequences will depend, in part, on the particular terms and features of the
purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
SHORT-TERM NOTES
Notes that have a fixed maturity of one year or less ("Short-Term Notes")
will be treated as having been issued with original issue discount. In general,
an individual or other cash method U.S. Holder is not required to accrue such
original issue discount unless the U.S. Holder elects to do so. If such an
election is not made, any gain recognized by the U.S. Holder on the sale,
exchange or maturity of the Short-Term Note will be ordinary income to the
extent of the original issue discount accrued on a straight-line basis, or upon
election under the constant yield method (based on daily compounding), through
the date of sale or maturity, and a portion of the deductions otherwise
allowable to the U.S. Holder for interest on borrowings allocable to the
Short-Term Note will be deferred until a corresponding amount of income is
realized. U.S. Holders who report income for United States Federal income tax
purposes under the accrual method, and certain other holders including banks and
dealers in securities, are required to accrue original issue discount on a
Short-Term Note on a straight-line basis unless an election is made to accrue
the original issue discount under a constant yield method (based on daily
compounding).
MARKET DISCOUNT
If a U.S. Holder purchases a Note, other than an Original Issue Discount
Note, for an amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity) or, in the case
of an Original Issue Discount Note, for an amount that is less than its adjusted
issue price as of the
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purchase date, such U.S. Holder will be treated as having purchased such Note at
a "market discount," unless such market discount is less than a specified de
minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment (or, in the case of an Original Issue Discount
Note, any payment that does not constitute qualified stated interest) on, or any
gain realized on the sale, exchange, retirement or other disposition of, a Note
as ordinary income to the extent of the lesser of (i) the amount of such payment
or realized gain or (ii) the market discount which has not previously been
included in income and is treated as having accrued on such Note at the time of
such payment or disposition. Market discount will be considered to accrue
ratably during the period from the date of acquisition to the maturity date of
the Note, unless the U.S. Holder elects to accrue market discount on a constant
interest rate basis.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note or
certain earlier dispositions, because a current deduction is only allowed to the
extent the interest expense exceeds an allocable portion of market discount. A
U.S. Holder may elect to include market discount in income currently as it
accrues (on either a ratable or semiannual compounding basis), in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the Note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply. Generally, such
currently included market discount is treated as ordinary interest for United
States Federal income tax purposes. Such an election will apply to all debt
instruments acquired by the U.S. Holder on or after the first day of the first
taxable year to which such election applies and may be revoked only with the
consent of the IRS.
PREMIUM
If a U.S. Holder purchases a Note for an amount that is greater than the
sum of all amounts payable on the Note after the purchase date other than
payments of qualified stated interest, such U.S. Holder will be considered to
have purchased the Note with "amortizable bond premium" equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant yield
method over the remaining term of the Note and may offset interest otherwise
required to be included in respect of the Note during any taxable year by the
amortized amount of such excess for the taxable year. However, if the Note may
be optionally redeemed after the U.S. Holder acquires it at a price in excess of
its stated redemption price at maturity, special rules would apply which could
result in a deferral of the amortization of some bond premium until later in the
term of the Note. Any election to amortize bond premium applies to all taxable
debt instruments then owned and thereafter acquired by the U.S. Holder on or
after the first day of the first taxable year to which such election applies and
may be revoked only with the consent of the IRS.
DISPOSITION OF A NOTE
Except as discussed above, upon the sale, exchange or retirement of a Note,
a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a
Note generally will equal such U.S. Holder's initial investment in the Note
increased by any original issue discount included in income (and accrued market
discount, if any, if the U.S. Holder has included such market discount in
income) and decreased by the amount of any payments, other than qualified stated
interest payments, received and amortizable bond premium taken with respect to
such Note. Such gain or loss generally will be long-term capital gain or loss if
the Note were held for more than one year.
NOTES DENOMINATED, OR IN RESPECT OF WHICH INTEREST IS PAYABLE, IN A FOREIGN
CURRENCY
As used herein, "Foreign Currency" means a currency or composite currency
other than U.S. dollars.
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PAYMENTS OF INTEREST IN A FOREIGN CURRENCY
Cash Method. A U.S. Holder who uses the cash method of accounting for
United States Federal income tax purposes and who receives a payment of interest
on a Note (other than original issue discount or market discount) will be
required to include in income the U.S. dollar value of the Foreign Currency
payment (determined on the date such payment is received) regardless of whether
the payment is in fact converted to U.S. dollars at that time, and such U.S.
dollar value will be the U.S. Holder's tax basis in such Foreign Currency.
Accrual Method. A U.S. Holder who uses the accrual method of accounting for
United States Federal income tax purposes, or who otherwise is required to
accrue interest prior to receipt, will be required to include in income the U.S.
dollar value of the amount of interest income (including original issue discount
or market discount and reduced by amortizable bond premium to the extent
applicable) that has accrued and is otherwise required to be taken into account
with respect to a Note during an accrual period. The U.S. dollar value of such
accrued income will be determined by translating such income at the average rate
of exchange for the accrual period or, with respect to an accrual period that
spans two taxable years, at the average rate for the partial period within the
taxable year. A U.S. Holder may elect, however, to translate such accrued
interest income using the rate of exchange on the last day of the accrual period
or, with respect to an accrual period that spans two taxable years, using the
rate of exchange on the last day of the taxable year. If the last day of an
accrual period is within five business days of the date of receipt of the
accrued interest, a U.S. Holder may translate such interest using the rate of
exchange on the date of receipt. The above election will apply to other debt
obligations held by the U.S. Holder and may not be changed without the consent
of the IRS. A U.S. Holder should consult a tax advisor before making the above
election. A U.S. Holder will recognize exchange gain or loss (which will be
treated as ordinary income or loss) with respect to accrued interest income on
the date such income is received. The amount of ordinary income or loss
recognized will equal the difference, if any, between the U.S. dollar value of
the Foreign Currency payment received (determined on the date such payment is
received) in respect of such accrual period and the U.S. dollar value of
interest income that has accrued during such accrual period (as determined
above).
PURCHASE, SALE AND RETIREMENT OF NOTES
A U.S. Holder who purchases a Note with previously owned Foreign Currency
will recognize ordinary income or loss in an amount equal to the difference, if
any, between such U.S. Holder's tax basis in the Foreign Currency and the U.S.
dollar fair market value of the Foreign Currency used to purchase the Note,
determined on the date of purchase.
Except as discussed above with respect to Short-Term Notes, upon the sale,
exchange or retirement of a Note, a U.S. Holder will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement and such U.S. Holder's adjusted tax basis in the Note. Such gain
or loss generally will be capital gain or loss (except to the extent of any
accrued market discount not previously included in the U.S. Holder's income) and
will be long-term capital gain or loss if at the time of sale, exchange or
retirement the Note has been held by such U.S. Holder for more than one year. To
the extent the amount realized represents accrued but unpaid interest, however,
such amounts must be taken into account as interest income, with exchange gain
or loss computed as described in "Payments of Interest in a Foreign Currency"
above. If a U.S. Holder receives Foreign Currency on such a sale, exchange or
retirement the amount realized will be based on the U.S. dollar value of the
Foreign Currency on the date the payment is received or the Note is disposed of
(or deemed disposed of as a result of a material change in the terms of such
Note). In the case of a Note that is denominated in Foreign Currency and is
traded on an established securities market, a cash basis U.S. Holder (or, upon
election, an accrual basis U.S. Holder) will determine the U.S. dollar value of
the amount realized by translating the Foreign Currency payment at the spot rate
of exchange on the settlement date of the sale. A U.S. Holder's adjusted tax
basis in a Note will equal the cost of the Note to such holder, increased by the
amounts of any market discount or original issue discount previously included in
income by the holder with respect to such Note and reduced by any amortized
acquisition or other premium and any principal payments received by the holder.
A U.S. Holder's tax basis in a Note, and the amount of any subsequent
adjustments to such holder's tax basis, will be the U.S. dollar value of the
Foreign
S-29
<PAGE> 30
Currency amount paid for such Note, or of the Foreign Currency amount of the
adjustment, determined on the date of such purchase or adjustment.
Gain or loss realized upon the sale, exchange or retirement of a Note that
is attributable to fluctuations in currency exchange rates will be ordinary
income or loss which will not be treated as interest income or expense. Gain or
loss attributable to fluctuations in exchange rates will equal the difference
between the U.S. dollar value of the Foreign Currency principal amount of the
Note, determined on the date such payment is received or the Note is disposed
of, and the U.S. dollar value of the Foreign Currency principal amount of the
Note, determined on the date the U.S. Holder acquired the Note. Such Foreign
Currency gain or loss will be recognized only to the extent of the total gain or
loss realized by the U.S. Holder on the sale, exchange or retirement of the
Note.
ORIGINAL ISSUE DISCOUNT
In the case of an Original Issue Discount Note or Short-Term Note, (i)
original issue discount is determined in units of the Foreign Currency, (ii)
accrued original issue discount is translated into U.S. dollars as described in
"Payments of Interest in a Foreign Currency--Accrual Method" above and (iii) the
amount of Foreign Currency gain or loss on the accrued original issue discount
is determined by comparing the amount of income received attributable to the
discount (either upon payment, maturity or an earlier disposition), as
translated into U.S. dollars at the rate of exchange on the date of such
receipt, with the amount of original issue discount accrued, as translated
above.
PREMIUM AND MARKET DISCOUNT
In the case of a Note with market discount, (i) market discount is
determined in units of the Foreign Currency, (ii) accrued market discount taken
into account upon the receipt of any partial principal payment or upon the sale,
exchange, retirement or other disposition of the Note (other than accrued market
discount required to be taken into account currently) is translated into U.S.
dollars at the exchange rate on such disposition date (and no part of such
accrued market discount is treated as exchange gain or loss) and (iii) accrued
market discount currently includible in income by a U.S. Holder for any accrual
period is translated into U.S. dollars on the basis of the average exchange rate
in effect during such accrual period, and the exchange gain or loss is
determined upon the receipt of any partial principal payment or upon the sale,
exchange, retirement or other disposition of the Note in the manner described in
"Payments of Interest in a Foreign Currency--Accrual Method" above with respect
to computation of exchange gain or loss on accrued interest.
With respect to a Note issued with amortizable bond premium, such premium
is determined in the relevant Foreign Currency and reduces interest income in
units of the Foreign Currency. Although not entirely clear, a U.S. Holder should
recognize exchange gain or loss equal to the difference between the U.S. dollar
value of the bond premium amortized with respect to a period, determined on the
date the interest attributable to such period is received, and the U.S. dollar
value of the bond premium determined on the date of the acquisition of the Note.
EXCHANGE OF FOREIGN CURRENCIES
A U.S. Holder will have a tax basis in any Foreign Currency received as
interest or on the sale, exchange or retirement of a Note equal to the U.S.
dollar value of such Foreign Currency, determined at the time the interest is
received or at the time of the sale, exchange or retirement. Any gain or loss
realized by a U.S. Holder on a sale or other disposition of Foreign Currency
(including its exchange for U.S. dollars or its use to purchase Notes) will be
ordinary income or loss.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a Note, unless such non-U.S. Holder is a direct or indirect
10% or greater shareholder of the Company, a controlled foreign corporation
S-30
<PAGE> 31
related to the Company or a bank receiving interest described in section
881(c)(3)(A) of the Code. To qualify for the exemption from taxation, the last
United States payor in the chain of payment prior to payment to a non-U.S.
Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (i) is signed by the beneficial owner of the
Note under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution. The Treasury Department is
considering implementation of further certification requirements aimed at
determining whether the issuer of a debt obligation is related to holders
thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, provided the gain is not effectively connected with the conduct of a trade
or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the Company
or, at the time of such individual's death, payments in respect of the Notes
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be reported
by the broker to the IRS, unless either (i) the broker determines that the
seller is an exempt recipient or (ii) the seller certifies its non-U.S. status
(and certain other conditions are met). Certification of the registered owner's
non-U.S. status would be made normally on an IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis for sale by the Company
to or through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Salomon Brothers Inc or other Agents selected from time to time by
the Company who become parties to the Distribution Agreement. The Agents,
individually or in a syndicate, may purchase Notes, as principal, from the
Company from time to time for resale to investors and other purchasers at
varying prices relating to prevailing market prices at the time of
S-31
<PAGE> 32
resale as determined by the applicable Agent or, if so specified in the
applicable Pricing Supplement, for resale at a fixed offering price. If agreed
to by the Company and an Agent, such Agent may also utilize its reasonable
efforts on an agency basis to solicit offers to purchase the Notes at 100% of
the principal amount thereof, unless otherwise specified in the applicable
Pricing Supplement. The Company will pay a commission to an Agent, ranging from
.125% to .750% of the principal amount of each Note, depending upon its stated
maturity, sold through such Agent as an agent of the Company. Commissions with
respect to Notes with stated maturities in excess of 30 years that are sold
through an Agent as an agent of the Company will be negotiated between the
Company and such Agent at the time of such sale. The Company may also sell the
Notes directly to purchasers in those jurisdictions in which it is permitted to
do so. No commission or discount will be payable by the Company on Notes sold
directly by the Company.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a Note of
identical maturity. An Agent may sell Notes it has purchased from the Company as
principal to certain dealers less a concession equal to all or any portion of
the discount received in connection with such purchase. Such Agent may allow,
and such dealers may reallow, a discount to certain other dealers. After the
initial offering of Notes, the offering price (in the case of Notes to be resold
on a fixed offering price basis), the concession and the reallowance may be
changed.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject offers in whole or in part (whether placed
directly with the Company or through an Agent). Each Agent will have the right,
in its discretion reasonably exercised, to reject in whole or in part any offer
to purchase Notes received by it on an agency basis.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in the Specified Currency in The City of New York on the date of
settlement. See "Description of Notes--General."
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. The Agents may from time to
time purchase and sell Notes in the secondary market, but the Agents are not
obligated to do so, and there can be no assurance that there will be a secondary
market for the Notes or that there will be liquidity in the secondary market if
one develops. From time to time, the Agents may make a market in the Notes, but
the Agents are not obligated to do so and may discontinue any market-making
activity at any time.
In connection with an offering of Notes purchased by one or more Agents as
principal on a fixed price basis, each such Agent will be permitted to engage in
certain transactions that stabilize the price of such Notes. Such transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of such Notes. If an Agent creates short position in such
Notes (i.e., if it sells Notes in an aggregate principal amount exceeding that
set forth in the applicable Pricing Supplement), such Agent may reduce that
short position by purchasing Notes in the open market.
In general, purchases of Notes for the purpose of stabilization or to
reduce a short position could cause the price of Notes to be higher than it
might be in the absence of such purchases.
Neither the Company nor any of the Agents makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Notes. In addition, neither the
Company nor any of the Agents makes any representation that the Agents will
engage in any such transactions or that such transactions once commenced will
not be discontinued without notice.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Company has
agreed to indemnify the Agents against, and to provide contribution with respect
to, certain liabilities (including liabilities under the Securities Act). The
Company has agreed to reimburse the Agents for certain other expenses.
S-32
<PAGE> 33
In the ordinary course of its business, the Agents and their affiliates
have engaged and may in the future engage in investment and commercial banking
transactions with the Company and certain of its affiliates.
From time to time, the Company may issue and sell other Senior Debt
Securities described in the accompanying Prospectus, and the amount of Notes
offered hereby is subject to reduction as a result of such sales.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Schiff Hardin & Waite, Chicago, Illinois and for the Agents by
Winthrop, Stimson, Putnam & Roberts, New York, New York. See "Legal Matters" in
the accompanying Prospectus.
S-33
<PAGE> 34
PROSPECTUS
ILLINOVA CORPORATION
SENIOR DEBT SECURITIES
-------------------------
[ILLINOVA LOGO]
-------------------------
Illinova Corporation (the "Company") may offer and issue from time to time,
in one or more series, unsecured debentures, notes or other evidences of
indebtedness (the "Senior Debt Securities") with an initial offering price not
to exceed $300,000,000 (or, if applicable, the equivalent in foreign denominated
currency or units based on or relating to currencies, including European
Currency Units). The Company will offer the Senior Debt Securities to the public
on terms determined by market conditions. The Prospectus Supplement sets forth
the specific designation, aggregate principal amount, purchase price, maturity,
interest rate (or manner of calculation thereof), time of payment of interest
(if any), listing (if any) on a securities exchange and any other specific terms
of the Senior Debt Securities and the name of and compensation to each dealer,
underwriter, or agent (if any) involved in the sale of each series of the Senior
Debt Securities. The managing underwriters with respect to each series sold to
or through underwriters will be named in the Prospectus Supplement.
The Senior Debt Securities will be general unsecured obligations of the
Company and will rank pari passu with the Company's existing and future
unsecured and unsubordinated indebtedness. As of September 30, 1997, the amount
of the Company's total unsecured and unsubordinated indebtedness with which the
Senior Debt Securities would have been pari passu was $123 million. The Senior
Debt Securities will be effectively subordinated to all obligations of the
subsidiaries of the Company. Consequently, the rights of the Company to receive
assets of any subsidiary (and thus the ability of holders of Senior Debt
Securities to benefit indirectly from such assets) are subject to the prior
claims of creditors of that subsidiary. As of September 30, 1997, $2,060 million
of the Company's total debt was indebtedness of subsidiaries, and such
subsidiaries may incur additional indebtedness in the future.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
The Senior Debt Securities may be offered through dealers, through
underwriters, or through agents designated from time to time, as set forth in
the Prospectus Supplement. Net proceeds to the Company will be the purchase
price in the case of a dealer, the public offering price less discount in the
case of an underwriter or the purchase price less commission in the case of an
agent, and in each case, less other expenses attributable to issuance and
distribution. See "Plan of Distribution" for possible indemnification
arrangements for dealers, underwriters and agents.
This Prospectus does not constitute an offer to sell or the solicitation of
an offer to buy any of the Senior Debt Securities other than the Senior Debt
Securities described in the accompanying Prospectus Supplement.
-------------------------
The date of this Prospectus is January 16, 1998.
<PAGE> 35
Senior Debt Securities of a series may be issuable as individual securities
in registered form without coupons or in bearer form with or without coupons
attached. Senior Debt Securities may be sold for United States dollars, foreign
denominated currency or currency units. Principal of and any interest on Senior
Debt Securities may likewise be payable in United States dollars, foreign
denominated currency or currency units, in each case, as the Company
specifically designates.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS, IF ANY, MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
SENIOR DEBT SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
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, information statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, information
statements and other information filed by the Company 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 at Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661 and at the 13th Floor, Seven World
Trade Center, 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, 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 and the Chicago Stock Exchange, 440 South LaSalle Street, Chicago,
Illinois 60605, on which exchanges the Common Stock of the Company is listed. In
addition, such reports, 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.
2
<PAGE> 36
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission under the
Exchange Act are incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K for the year ended
December 31, 1996;
(2) the Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997; and
(3) the Company's Current Reports on Form 8-K dated January 29, 1997,
March 5, 1997, September 22, 1997, November 21, 1997 and December 16, 1997.
All documents subsequently filed by the Company pursuant to Sections 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 Senior Debt 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 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 THIS PROSPECTUS INCORPORATES. REQUESTS FOR SUCH COPIES SHOULD
BE DIRECTED TO THE SHAREHOLDER SERVICES DEPARTMENT, ILLINOVA CORPORATION AT 500
SOUTH 27TH STREET, DECATUR, ILLINOIS 62525, TELEPHONE NUMBER 1(800)800-8220 OR
AT ITS WEB SITE ON THE WORLD WIDE WEB AT HTTP://WWW.ILLINOVA.COM.
THE COMPANY AND ITS SUBSIDIARIES
The Company is a holding company organized in Illinois in May 1994. It has
three principal operating subsidiaries: Illinois Power Company ("Illinois
Power"), organized in May 1923, is a combination electric and gas utility;
Illinova Generating Company, organized in October 1992, is an independent power
company which invests in energy supply projects and competes in the independent
power market world-wide; Illinova Energy Partners, Inc., organized in July 1994,
is in the business of (i) developing and marketing energy-related services to
the unregulated energy market in the United States and (ii) brokering and
marketing electric power and gas to various customers. Illinois Power's
financial position and results of operations are currently the principal factors
affecting the Company's consolidated financial position and results of
operation.
Illinois Power 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 1,265,000. Gas service is provided to 257 incorporated municipalities,
adjacent suburban areas and numerous unincorporated municipalities having an
estimated aggregate population of 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).
The executive offices of the Company and Illinois Power are located at 500
South 27th Street, Decatur, Illinois 62525, and their telephone number is
1(217)424-6600.
3
<PAGE> 37
USE OF PROCEEDS
Unless otherwise provided in the Prospectus Supplement accompanying this
Prospectus, the net proceeds from the sale of the Senior Debt Securities will be
added to the Company's general funds and used for repayment of debt or other
general corporate purposes, including loans to or investments in the Company's
operating subsidiaries. Until so utilized, it is expected that such net proceeds
will be placed in interest bearing time deposits or invested in short-term
marketable securities. The specific use of the net proceeds of any offering of
Senior Debt Securities will 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>
12 MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1997
- -------------------------------------------------------- ------------------
1992 1993 1994 1995 1996
- ---- ---- ---- ---- ---- (UNAUDITED)
<S> <C> <C> <C> <C> <C>
1.87 0.66(a) 2.56 2.56 3.07 2.78
</TABLE>
- -------------------------
(a) The ratio of earnings to fixed charges of 0.66 for the year ended December
31, 1993 indicates that earnings were inadequate to cover fixed charges. The
dollar amount of the coverage deficiency for the year ended 1993 was
approximately $37 million. Excluding the loss on disallowed plant costs of
$200 million, net of income taxes, recorded in the third quarter of 1993,
the ratio of earnings to fixed charges would have been 2.11 for the year
ended 1993.
Earnings used in the calculation of the ratios of earnings to fixed charges
include the allowance for funds used during construction and the deferred
financing costs associated with Illinois Power'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,
expense, other interest and that portion of rent expense which is estimated to
be representative of the interest component.
DESCRIPTION OF SENIOR DEBT SECURITIES
The Senior Debt Securities will be issued under an indenture (the
"Indenture"), between the Company, as issuer, and The First National Bank of
Chicago, as Trustee (the "Trustee"). The form of the Indenture is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
terms of the Senior Debt Securities include those stated in the Indenture and
those made a part of the Indenture by reference to the Trust Indenture Act of
1939 as in effect on the date of the Indenture (the "Trust Indenture Act"). The
following summary of certain provisions of the Indenture and the Senior Debt
Securities does not purport to be complete and such summary is subject to the
detailed provisions of the Indenture to which reference is hereby made for a
full description of such provisions, including the definition of certain terms
used herein, and for other information regarding the Senior Debt Securities.
Wherever particular sections or defined terms of the Indenture are referred to,
such sections or defined terms are incorporated herein by reference as part of
the statement made, and the statement is qualified in its entirety by such
reference. The Senior Debt Securities offered by this Prospectus and the
accompanying Prospectus Supplement are referred to herein as the "Offered Debt
Securities."
The Senior Debt Securities may be issued from time to time in one or more
series. The following description of the Senior Debt Securities sets forth
certain general terms and provisions of the Senior Debt Securities of all
series. The particular terms of each series of Senior Debt Securities offered by
any Prospectus Supplement will be described in the Prospectus Supplement
relating to such series.
4
<PAGE> 38
GENERAL
The Indenture provides that Senior Debt Securities may be issued from time
to time in one or more series. The Indenture does not limit the amount of Senior
Debt Securities that may be issued by the Company, nor does the Indenture
restrict transactions between the Company and its affiliates, or dividends and
other distributions by the Company to its stockholders. As of the date of this
Prospectus, the Company has issued and outstanding $100,000,000 aggregate
principal amount of Senior Debt Securities. Other than as set forth under
"Certain Covenants of the Company--Limitation on Liens," the Indenture does not
contain any covenant or provision which affords the Person in whose name the
Senior Debt Securities are registered or, if not registered, the bearer of the
Senior Debt Securities (each, a "Holder") protection in the event of a change of
control of the Company or a highly leveraged transaction involving the Company.
The Senior Debt Securities will be general unsecured obligations of the
Company and will rank pari passu with the Company's existing and future
unsecured and unsubordinated indebtedness. Accordingly, the ability of the
Company to meet its obligations under the Indenture and the Senior Debt
Securities will be dependent on the earnings and cash flows of its Subsidiaries
and the ability of its Subsidiaries to pay dividends or to advance funds to the
Company. As of September 30, 1997, the amount of the Company's total unsecured
and unsubordinated indebtedness with which the Senior Debt Securities would have
been pari passu was $123 million.
The Company is a holding company, conducting substantially all of its
business through its Subsidiaries, and the Indenture does not restrict the
incurrence of debt by such Subsidiaries. The Senior Debt Securities will be
effectively subordinated to all obligations of such Subsidiaries. Consequently,
the rights of the Company to receive assets of any Subsidiary (and thus the
ability of holders of Senior Debt Securities to benefit indirectly from such
assets) are subject to the prior claims of creditors of that Subsidiary. As of
September 30, 1997, $2,060 million of the Company's total debt was indebtedness
of Subsidiaries, and such Subsidiaries may incur additional indebtedness in the
future.
The Company's short-term credit agreement, which terminates on June 10,
1998, limits the amount of debt that the Company may incur at any time to the
product of four multiplied by the lesser of (i) the amount of dividends paid to
the Company during the four fiscal quarters then most recently ended and (ii)
the aggregate net income of subsidiaries of the Company during such period. At
September 30, 1997, the Company could have issued approximately $365 million of
debt (such as the Senior Debt Securities) without violating this agreement.
Reference is made to the Prospectus Supplement for the following terms of
and information relating to the Offered Debt Securities: (i) the specific
designation, aggregate principal amount, purchase price and denomination; (ii)
currency or units based on or relating to currencies in which such Offered Debt
Securities are denominated and/or in which principal, premium, if any, and/or
any interest will or may be payable; (iii) the date of maturity; (iv) interest
rate or rates (or method by which such rate will be determined), if any; (v) the
dates on which any such interest will be payable; (vi) the place or places where
the principal of and interest, if any, on the Offered Debt Securities will be
payable; (vii) whether the Offered Debt Securities will be issuable in
registered or bearer form or both and, if Offered Debt Securities in bearer form
are issuable, restrictions applicable to the exchange of one form for another
and to the offer, sale and delivery of Offered Debt Securities in bearer form;
(viii) any applicable United States federal income tax consequences, including
whether and under what circumstances the Company will pay additional amounts on
Offered Debt Securities held by any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof (each, a "Person") who
is not a United States Person (as defined in the Prospectus Supplement) in
respect of any tax, assessment or governmental charge withheld or deducted, and
if so, whether the Company will have the option to redeem such Offered Debt
Securities rather than pay such additional amounts; (ix) the obligation, if any,
of the Company to redeem, repurchase or repay such Offered Debt Securities
pursuant to any mandatory sinking fund or analogous provisions or at the option
of a Holder thereof and the price or prices at which, the period or periods
within which, and the terms and conditions upon which such Offered Debt
Securities may be redeemed, repurchased or repaid, in whole or in part, pursuant
to such obligation; and (x) any other specific
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terms of the Offered Debt Securities, including any additional events of default
or covenants provided for with respect to such Offered Debt Securities, and any
terms which may be required by or advisable under United States laws or
regulations.
Senior Debt Securities may be issued as original issue discount securities.
An "Original Issue Discount Security" is a Senior Debt Security that (i) is
issued at a price lower than the amount payable upon the stated maturity thereof
and (ii) provides that upon redemption or acceleration of the maturity thereof
an amount less than the amount payable upon the stated maturity thereof and
determined in accordance with the terms of such Senior Debt Security will become
due and payable. Special United States federal income tax considerations
applicable to Senior Debt Securities issued at an original issue discount,
including Original Issue Discount Securities, will be set forth in any
Prospectus Supplement relating thereto.
Senior Debt Securities may be presented for exchange, and registered Senior
Debt Securities may be presented for transfer in the manner, at the places and
subject to the restrictions set forth in the Senior Debt Securities and the
Prospectus Supplement. Such services will be provided without charge, other than
any tax or other governmental charge payable in connection therewith, but
subject to the limitations provided in the Indenture. Senior Debt Securities in
bearer form and the coupons, if any, appertaining thereto will be transferable
by delivery.
REGISTERED GLOBAL SECURITIES
The registered Senior Debt Securities of a series may be issued in the form
of one or more fully registered global securities (a "Registered Global
Security") that will be deposited with a depositary (the "Depositary"), or with
a nominee for a Depositary identified in the Prospectus Supplement relating to
such series. In such case, one or more Registered Global Securities will be
issued in a denomination or aggregate denominations equal to the portion of the
aggregate principal amount of outstanding registered Senior Debt Securities of
the series to be represented by such Registered Global Security or Senior Debt
Securities. Unless and until it is exchanged in whole or in part for Senior Debt
Securities in definitive registered form, a Registered Global Security may not
be transferred except as a whole by the Depositary for such Registered Global
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or any such nominee to a
successor of such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any
portion of a series of Senior Debt Securities to be represented by a Registered
Global Security will be described in the Prospectus Supplement relating to such
series. The Company anticipates that the following provisions will apply to all
depositary arrangements.
Upon the issuance of a Registered Global Security, the Depositary for such
Registered Global Security will credit, on its book-entry registration and
transfer system, the respective principal amounts of the Senior Debt Securities
represented by such Registered Global Security to the accounts of Persons that
have accounts with such Depositary ("participants"). The accounts to be credited
shall be designated by any underwriters or agents participating in the
distribution of such Senior Debt Securities. Ownership of beneficial interests
in a Registered Global Security will be limited to participants or Persons that
may hold interests through participants. Ownership of beneficial interests in
such Registered Global Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the Depositary
for such Registered Global Security (with respect to interests of participants)
or by participants or Persons that hold through participants (with respect to
interests of Persons other than participants). So long as the Depositary for a
Registered Global Security, or its nominee, is the registered owner of such
Registered Global Security, such Depositary or such nominee, as the case may be,
will be considered the sole owner or Holder of the Senior Debt Securities
represented by such Registered Global Security for all purposes under the
Indenture. Except as set forth below, owners of beneficial interests in a
Registered Global Security will not be entitled to have the Senior Debt
Securities represented by such Registered Global Security registered in their
names, will not receive or be entitled to receive physical delivery of such
Senior Debt Securities in definitive form and will not be considered the owners
or Holders thereof under the Indenture.
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Principal, premium, if any, and interest payments on Senior Debt Securities
represented by a Registered Global Security registered in the name of a
Depositary or its nominee will be made to such Depositary or its nominee, as the
case may be, as the registered owner of such Registered Global Security. None of
the Company, the Trustee or any paying agent for such Senior Debt Securities
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in such
Registered Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company expects that the Depositary for any Senior Debt Securities
represented by a Registered Global Security, upon receipt of any payment of
principal, premium or interest, will immediately credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Registered Global Security as shown on the
records of such Depositary. The Company also expects that payments by
participants to owners of beneficial interests in such Registered Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with the securities
held for the accounts of customers registered in "street names" and will be the
responsibility of such participants.
If the Depositary for any Senior Debt Securities represented by a
Registered Global Security is at any time unwilling or unable to continue as
Depositary and a successor Depositary is not appointed by the Company within
ninety days, the Company will issue such Senior Debt Securities in definitive
form in exchange for such Registered Global Security. In addition, the Company
may at any time and in its sole discretion determine not to have any of the
Senior Debt Securities of a series represented by one or more Registered Global
Securities and, in such event, will issue Senior Debt Securities of such series
in definitive form in exchange for all of the Registered Global Security or
Senior Debt Securities representing such Senior Debt Securities.
CERTAIN COVENANTS OF THE COMPANY
Limitation on Liens. The Indenture provides that, except as otherwise
specified with respect to a particular series of Senior Debt Securities, so long
as any Senior Debt Securities of any series are Outstanding, the Company will
not mortgage, hypothecate or grant a security interest in, or permit any
mortgage, pledge, security interest or other lien upon any, capital stock of any
Subsidiary (hereinafter defined) now or hereinafter owned by the Company to
secure any Indebtedness (hereinafter defined), without making effective
provisions whereby the Outstanding Senior Debt Securities shall (so long as such
other Indebtedness shall be so secured) be equally and ratably secured with any
and all such other Indebtedness and any other indebtedness similarly entitled to
be equally and ratably secured. This restriction does not apply to, nor prevent
the creation or existence of, (i) any mortgage, pledge, security interest, lien
or encumbrance upon any such capital stock created at the time of the
acquisition of such capital stock by the Company or within one year after such
time to secure all or a portion of the purchase price for such capital stock or
existing thereon at the time of the acquisition thereof by the Company (whether
or not the obligations secured thereby are assumed by the Company); or (ii) any
extension, renewal or refunding of any mortgage, pledge, security interest, lien
or encumbrance described in clause (i) above on capital stock of any Subsidiary
theretofore subject thereto (or substantially the same capital stock) or any
portion thereof.
For purposes of the restriction described in the preceding paragraph,
"Indebtedness" means (i) all indebtedness, whether or not represented by bonds,
debentures, notes or other securities, created or assumed by the Company for the
repayment of money borrowed; (ii) all indebtedness for money borrowed secured by
a lien upon property owned by the Company and upon which indebtedness for money
borrowed the Company customarily pays interest, although the Company has not
assumed or become liable for the payment of such indebtedness for money
borrowed; and (iii) all indebtedness for money borrowed of others guaranteed as
to payment of principal by the Company or in effect guaranteed by the Company
through a contingent agreement to purchase such indebtedness for money borrowed,
but excluding from this definition any other contingent obligation of the
Company in respect of indebtedness for money borrowed or other obligations
incurred by others. "Subsidiary" means a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by the
Company or by one or more of the Company's other Subsidiaries, or by
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<PAGE> 41
the Company and one or more other Subsidiaries. For the purposes of this
definition, "voting stock" means stock that ordinarily has voting power for the
election of directors, whether at all times or only so long as no senior class
of stock has such voting power by reason of any contingency.
Notwithstanding the foregoing, except as otherwise specified with respect
to a particular series of Senior Debt Securities, the Company may, without
securing the Senior Debt Securities, pledge, mortgage, hypothecate or grant a
security interest in, or permit any mortgage, pledge, security interest or other
lien (in addition to liens expressly permitted as described in the second
preceding paragraph) upon, capital stock of any Subsidiary now or hereafter
owned by the Company to secure any Indebtedness (which would otherwise be
subject to the foregoing restriction) in an aggregate amount which, together
with all other such Indebtedness, does not exceed 5% of Consolidated
Capitalization. For this purpose, "Consolidated Capitalization" means the sum
obtained by adding (i) Consolidated Shareholders' Equity, (ii) Consolidated
Indebtedness (exclusive of any thereof which is due and payable within one year
of the date such sum is determined) and, without duplication, (iii) any
preference or preferred stock of the Company or any Consolidated Subsidiary
which is subject to mandatory redemption or sinking fund provisions.
The term "Consolidated Shareholders' Equity" (as used above) means the
total Assets of the Company and its Consolidated Subsidiaries less all
liabilities of the Company and its Consolidated Subsidiaries. As used in the
foregoing definition, "liabilities" means all obligations which would, in
accordance with generally accepted accounting principles in the United States,
be classified on a balance sheet as liabilities, including without limitation
(i) indebtedness secured by property of the Company or any of its Consolidated
Subsidiaries whether or not the Company or such Consolidated Subsidiary is
liable for the payment thereof unless, in the case that the Company or such
Consolidated Subsidiary is not so liable, such property has not been included
among the Assets of the Company of such Consolidated Subsidiary on such balance
sheet, (ii) deferred liabilities and (iii) indebtedness of the Company or any of
its Consolidated Subsidiaries that is expressly subordinated in right and
priority of payment to other liabilities of the Company or such Consolidated
Subsidiary. As used in this definition, "liabilities" includes preference or
preferred stock of the Company or any Consolidated Subsidiary only to the extent
of any such preference or preferred stock that is subject to mandatory
redemption or sinking fund provisions.
The term "Consolidated Subsidiary" (as used above) means at any date any
Subsidiary the financial statements of which under generally accepted accounting
principles would be consolidated with those of the Company in its consolidated
financial statements as of such date. The "Assets" of any Person means the whole
or any part of its business, property, assets, cash and receivables. The term
"Consolidated Indebtedness" means total indebtedness as shown on the
consolidated balance sheet of the Company and its Consolidated Subsidiaries.
As of September 30, 1997, the Consolidated Capitalization of the Company
was approximately $3.61 billion.
Consolidation, Merger, Conveyance of Assets. The Indenture provides that
the Company will not consolidate with or merge into any other corporation or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, unless the corporation formed by such consolidation or into which
the Company is merged or the Person which acquires such assets shall expressly
assume the Company's obligations under the Indenture and the Senior Debt
Securities issued thereunder and immediately after giving effect to such
transaction, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have happened and be
continuing.
EVENTS OF DEFAULT
Unless otherwise indicated in the Prospectus Supplement, an Event of
Default is defined under the Indenture with respect to Senior Debt Securities of
any series issued under the Indenture as: (i) default in payment of any
principal of the Senior Debt Securities of such series, either at maturity, upon
any redemption, by declaration or otherwise; (ii) default for 30 days in payment
of any interest on any Senior Debt Securities of such series; (iii) default for
90 days after written notice in the observance or performance of any covenant or
warranty in the Senior Debt Securities of such series or the Indenture (other
than a covenant a default in whose performance or whose breach is specifically
dealt with), (iv) certain events of bankruptcy, insolvency or
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reorganization of the Company; (v) the acceleration of the maturity of any
indebtedness for borrowed money of the Company or Illinois Power or the failure
to pay any portion of such indebtedness when due and payable after the
expiration of any applicable grace period (in each case, other than the Senior
Debt Securities of such series or indebtedness of the Company or Illinois Power
in respect of which the recourse of the holder of such indebtedness, whether
direct or indirect and whether contingent or otherwise, is effectively limited
to specified assets, and with respect to which neither the Company nor Illinois
Power provides any credit support) having an aggregate principal amount
outstanding in excess of $25,000,000, if such acceleration is not rescinded or
annulled, such failure to pay is not cured, or such indebtedness shall not have
been discharged, within 15 days after written notice thereof to the Company by
either the Trustee or the Holders of not less than 25 percent in principal
amount of Senior Debt Securities of such series; or (vi) any other Event of
Default provided in a supplemental indenture thereto with respect to Senior Debt
Securities of that series; provided, however, that, except as otherwise may be
established for a series of Senior Debt Securities, the occurrence of any of the
events described in the foregoing clauses (iii) or (vi) shall not constitute an
Event of Default if such occurrence is the result of changes in generally
accepted accounting principles as recognized by the American Institute of
Certified Public Accountants at the date as of which this Indenture is executed
and a certificate to such effect is delivered to the Trustee by the Company's
independent public accountants.
The Indenture provides that, (a) if an Event of Default described in
clauses (i), (ii) or (iii) above (if the Event of Default under clause (iii) is
with respect to less than all series of Senior Debt Securities then outstanding)
occurs, either the Trustee or the Holders of not less than 25 percent in
principal amount of Senior Debt Securities of each affected series (treated as
one class) issued under the Indenture and then outstanding may then declare the
entire principal (or, if the Senior Debt Securities of that series are Original
Issue Discount Securities, such portion of the principal amount as may be
specified in the terms of that series) of all Senior Debt Securities of each
such affected series and interest accrued thereon to be due and payable
immediately and (b) if an Event of Default due to a default described in clause
(iii) above which is applicable to all series of Senior Debt Securities then
outstanding or due to certain events of bankruptcy, insolvency and
reorganization of the Company, shall have occurred and be continuing, either the
Trustee or the Holders of not less than 25 percent in principal amount of all
Senior Debt Securities issued under the Indenture and then outstanding (treated
as one class) may declare the entire principal of all such Senior Debt
Securities and interest accrued thereon to be due and payable immediately, but
upon certain conditions such declarations may be annulled and past defaults may
be waived (except a continuing default in payment of principal of, premium, if
any, or interest on such Senior Debt Securities) by the Holders of a majority in
aggregate principal amount of the Senior Debt Securities of all such affected
series then outstanding.
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during a default to act with the required standard of care,
to be indemnified by the Holders of Senior Debt Securities (treated as one
class) issued under the Indenture before proceeding to exercise any right or
power under the Indenture at the request of such Holders. Subject to such
provisions in the Indenture for the indemnification of the Trustee and certain
other limitations, the Holders of a majority in aggregate principal amount of
the outstanding Senior Debt Securities of each series affected (treated as one
class) issued under the Indenture may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee.
The Indenture provides that no Holder of Senior Debt Securities issued
under the Indenture may institute any action against the Company under the
Indenture (except actions for payment of overdue principal or interest) unless
such Holder previously shall have given to the Trustee written notice of default
and continuance thereof and unless the Holders of not less than 25 percent in
principal amount of the Senior Debt Securities of each affected series (treated
as one class) issued under the Indenture and then outstanding shall have
requested the Trustee to institute such action and shall have offered the
Trustee reasonable indemnity and the Trustee shall not have instituted such
action within 60 days of such request, and the Trustee shall not have received
direction inconsistent with such written request by the Holders of a majority in
principal amount of the Senior Debt Securities of each affected series (treated
as one class) issued under the Indenture and then outstanding.
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The Indenture contains a covenant that the Company will file annually with
the Trustee a certificate of no default or a certificate specifying any default
that exists.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company can discharge or defease its obligations under the Indenture as
set forth below.
Under terms satisfactory to the Trustee, the Company may discharge certain
obligations to Holders of any series of Senior Debt Securities issued under the
Indenture which have not already been delivered to the Trustee for cancellation
and which have either become due and payable or are by their terms due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the Trustee cash or, in the case of Senior Debt
Securities payable only in United States dollars, United States Government
Obligations (as defined in the Indenture) as trust funds in an amount certified
to be sufficient to pay at maturity (or upon redemption) the principal of and
interest on such Senior Debt Securities.
The Company may also, upon satisfaction of the condition listed below,
discharge certain obligations to Holders of any series of Senior Debt Securities
issued under the Indenture at any time ("defeasance"). Under terms satisfactory
to the Trustee, the Company may be released with respect to any outstanding
series of Senior Debt Securities issued under the Indenture from the obligations
imposed by the covenants described above limiting liens, sale and lease-back
transactions and consolidations, mergers and conveyances of assets in, and omit
to comply with such covenants without creating an Event of Default ("covenant
defeasance"). Defeasance or covenant defeasance may be effected only if, among
other things: (i) the Company irrevocably deposits with the Trustee cash or, in
the case of Senior Debt Securities payable only in United States dollars, United
States Government Obligations, as trust funds in an amount certified to be
sufficient to pay at maturity (or upon redemption) the principal of and interest
on all outstanding Senior Debt Securities of such series issued under the
Indenture; and (ii) the Company delivers to the Trustee an opinion of counsel to
the effect that the Holders of such series of Senior Debt Securities will not
recognize income, gain or loss for United States federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to United
States federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if defeasance or covenant defeasance had
not occurred (in the case of a defeasance, such opinion must be based on a
ruling of the Internal Revenue Service or a change in United States federal
income tax law occurring after the date of the Indenture, since such a result
would not occur under current tax law).
Under current United States federal income tax law, defeasance and
discharge likely would be treated as a taxable exchange of Senior Debt
Securities to be defeased for an interest in the defeasance trust. As a
consequence, in respect of a defeasance described in the second preceding
paragraph, a Holder would recognize gain or loss equal to the difference between
the Holder's cost or other tax basis for such Senior Debt Securities and the
value of the Holder's interest in the defeasance trust, and thereafter would be
required to include in income a share of the income, gain or loss of the
defeasance trust. Under current United States federal income tax law, covenant
defeasance would ordinarily not be treated as a taxable exchange of such Senior
Debt Securities.
MODIFICATION, WAIVER AND MEETINGS
The Indenture provides that the Company and the Trustee may enter into
supplemental indentures (which conform to the provisions of the Trust Indenture
Act) without the consent of the Holders to, among other things: (i) secure any
Senior Debt Securities; (ii) evidence the assumption by a successor Person of
the obligations of the Company; (iii) add further covenants for the protection
of the Holders; (iv) cure any ambiguity, correct any inconsistency or make any
other provisions in the Indenture, so long as such action will not adversely
affect the interests of the Holders; (v) establish the form or terms of Senior
Debt Securities of any series; and (vi) evidence the acceptance of appointment
by a successor trustee.
The Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the Holders of not less than the majority in
principal amount of Senior Debt Securities of each series issued under the
Indenture then outstanding and affected (voting as one class) to add any
provisions to, or change in any
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manner or eliminate any of the provisions of, the Indenture or modify in any
manner the rights of the Holders of the Senior Debt Securities of each series so
affected; provided that such changes conform to provisions of the Trust
Indenture Act and provided that the Company and the Trustee may not, without the
consent of all Holders of outstanding Senior Debt Securities affected thereby,
(i) extend the final maturity of the principal of any Senior Debt Securities, or
reduce the principal amount thereof or reduce the rate or extend the time of
payment of interest thereon, or reduce any amount payable on redemption thereof
or change the currency in which the principal thereof (including any amount in
respect of original issue discount) or interest thereon is payable, or reduce
the amount of any Original Issue Discount Security payable upon acceleration or
provable in bankruptcy or alter certain provisions of the Indenture relating to
Senior Debt Securities not denominated in United States dollars or for which
conversion to another currency is required to satisfy the judgment of any court,
or impair the right to institute suit for the enforcement of any payment on any
Senior Debt Securities when due or (ii) reduce the aforesaid percentage in
principal amount of Senior Debt Securities of any series issued under the
Indenture, the consent of the Holders of which is required for any such
modification.
The Holders of a majority in aggregate principal amount of the Senior Debt
Securities of each series may, on behalf of the Holders of all Senior Debt
Securities of that series, waive, insofar as that series is concerned,
compliance by the Company with certain restrictive provisions of the Indenture.
The Holders of a majority in aggregate principal amount of the Senior Debt
Securities of each series may, on behalf of all Holders of Senior Debt
Securities of that series, waive any past default under the Indenture with
respect to any Securities of that series, except a default (i) in the payment of
principal of, or any premium or interest on, any Senior Debt Security of such
series or (ii) in respect of a covenant or provision of the Indenture that
cannot be modified or amended without the consent of the Holder of each Senior
Debt Security of such series affected.
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Senior Debt Securities have given any request,
demand, authorization, direction, notice, consent or waiver thereunder or are
present at a meeting of the Holders of Senior Debt Securities for quorum
purposes, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal that
would be due and payable as of the date of such determination upon acceleration
of the Maturity thereof, and (ii) the principal amount of a Senior Debt Security
denominated in a foreign currency or currencies shall be the United States
dollar equivalent, determined on the date of original issuance of such Senior
Debt Security, of the principal amount of such Senior Debt Security or, in the
case of an Original Issue Discount Security, the United States dollar
equivalent, determined on the date of original issuance of such Senior Debt
Security, of the amount determined as provided in clause (i) above.
The Indenture contains provisions for convening meetings of the Holders of
Senior Debt Securities of a series. A meeting may be called at any time by the
Trustee and also, upon request, by the Company or the Holders of at least 10% in
principal amount of the Outstanding Senior Debt Securities of such series, in
any such case upon notice given in accordance with "Notices" below. Except for
any consent that must be given by the Holder of each Outstanding Senior Debt
Security affected thereby, as described above, any resolution presented at a
meeting or adjourned meeting at which a quorum is present may be adopted by the
affirmative vote of the Holders of a majority in principal amount of the
Outstanding Senior Debt Securities of that series; provided, however, that
except for any consent that must be given by the Holder of each Outstanding
Senior Debt Security affected thereby, as described above, any resolution with
respect to any consent or waiver that may be given by the Holders of a specified
percentage, which is greater than a majority in principal amount of the
Outstanding Senior Debt Securities of a series, may be adopted at a meeting or
an adjourned meeting duly convened and at which a quorum is present only by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Senior Debt Securities of that series; and provided, further,
that, except for any consent that must be given by the Holder of each
Outstanding Senior Debt Security affected thereby, as described above, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Senior Debt Securities of a series that may be adopted
at a meeting or adjourned meeting duly reconvened and at which a quorum is
present by the affirmative vote of the Holders of such specified percentage in
principal amount of the Outstanding Senior Debt Securities of that series. Any
resolution passed or decision taken at any meeting
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<PAGE> 45
of Holders of Senior Debt Securities of any series duly held in accordance with
the Indenture will be binding on all Holders of Senior Debt Securities of that
series and the related coupons. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Senior Debt
Securities of a series; provided, however, that if any action is to be taken at
such meeting with respect to a consent or waiver that may be given by the
Holders of a specified percentage, which is greater than a majority in aggregate
principal amount of the Outstanding Senior Debt Securities of a series, the
Persons holding or representing such specified percentage in principal amount of
the Outstanding Senior Debt Securities of such series will constitute a quorum.
CONCERNING THE TRUSTEE
The Trustee is one of a number of banks with which the Company and its
affiliates maintain ordinary banking relationships and with which the Company
and its affiliates maintain credit facilities. An affiliate of the Trustee has
also underwritten securities offerings for affiliates of the Company and may
underwrite future offerings for the Company and its affiliates.
The Indenture and the provisions of the Trust Indenture Act incorporated by
reference therein contain certain limitations on the right of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize for its own account on certain property received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in certain other transactions; however, if it acquires any
conflicting interest, it must eliminate such conflict or resign.
LIMITATIONS ON ISSUANCE OF BEARER DEBT SECURITIES
Except as may otherwise be provided in the Prospectus Supplement applicable
thereto, in compliance with United States federal income tax laws and
regulations, Bearer Debt Securities (including Bearer Debt Securities in global
form) will not be offered, sold, resold or delivered, directly or indirectly, in
the United States or its possessions or to United States persons (as defined
below), except as permitted by United States Treasury Regulations Section
1.163-5(c)(2)(i)(D). Any underwriters, agents and dealers participating in the
offerings of Bearer Debt Securities, directly or indirectly, must agree that (i)
they will not, in connection with the original issuance of any Bearer Debt
Securities or during the restricted period, as defined in United States Treasury
Regulations Section 1.163-5(c)(2)(i)(D)(7) (the "restricted period"), offer,
sell, resell or deliver, directly or indirectly, any Bearer Debt Securities in
the United States or its possessions or to United States persons (other than as
permitted by the applicable Treasury Regulations described above). In addition,
any such underwriters, agents and dealers must have procedures reasonably
designed to ensure that its employees or agents who are directly engaged in
selling Bearer Debt Securities are aware of the above restrictions on the
offering, sale, resale or delivery of Bearer Debt Securities. Moreover, Bearer
Debt Securities (other than temporary global Senior Debt Securities and Bearer
Debt Securities that satisfy the requirements of United States Treasury
Regulations Section 1.163-5(c)(2)(i)(D)(3)(iii)) and any coupons appertaining
thereto will not be delivered in definitive form, nor will any interest be paid
on any Bearer Debt Securities, unless the Company has received a signed
certificate in writing (or an electronic certificate described in United States
Treasury Regulations Section 1.163-5(c)(2)(i)(D)(3)(ii)) stating that on such
date such Bearer Debt Security (i) is owned by a person that is not a United
States person, (ii) is owned by a United States person that (a) is a foreign
branch of a United States financial institution (as defined in United States
Treasury Regulations Section 1.165-12(c)(1)(v)) (a "financial institution")
purchasing for its own account or for resale, or (b) is acquiring such Bearer
Debt Security through a foreign branch of a United States financial institution
and who holds the Bearer Debt Security through such financial institution
through such date (and in either case (a) or (b), each such United States
financial institution agrees, on its own behalf or through its agent, that the
Company may be advised that it will comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code, and the
regulations thereunder) or (iii) is owned by a United States or foreign
financial institution for the purposes of resale during the restricted period
and such financial institution certifies that it has not acquired the Bearer
Debt Security for purposes of resale directly or indirectly to a United States
person or to a person within the United States or its possessions.
12
<PAGE> 46
Bearer Debt Securities (other than temporary global Senior Debt Securities)
and any coupons appertaining thereto will bear a legend substantially to the
following effect: "Any United States person who holds this obligation will be
subject to limitations under the United States federal income tax laws,
including the limitations provided in Sections 165(j) and 1287(a) of the United
States Internal Revenue Code." The sections referred to in such legend provide
that, with certain exceptions, a United States person will not be permitted to
deduct any loss, and will not be eligible for capital gain treatment with
respect to any gain, realized on the sale, exchange or redemption of such Bearer
Security or coupon.
As used herein, "United States person" means any person who is, for United
States federal income tax purposes, a citizen, national or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
or an estate or trust the income of which is subject to United States federal
income taxation regardless of its source.
PLAN OF DISTRIBUTION
GENERAL
The Company may sell the Offered Debt Securities in the following ways: (i)
through agents, (ii) through underwriters, (iii) through dealers and (iv)
directly to purchasers.
Offers to purchase the Offered Debt Securities may be solicited by agents
designated by the Company from time to time. Any such agent, who may be deemed
to be an underwriter as that term is defined in the Securities Act, involved in
the offer or sale of the Offered Debt Securities in respect of which this
Prospectus is delivered will be named, and any commissions payable by the
Company to such agent set forth, in the Prospectus Supplement. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment.
If any underwriters are utilized in the sale, the Company will enter into
an underwriting agreement with such underwriters at the time of sale to them and
the names of the underwriters and the terms of the transaction will be set forth
in the Prospectus Supplement, which will be used by the underwriters to make
resales to the public of the Offered Debt Securities in respect of which this
Prospectus is delivered.
If a dealer is utilized in the sale of the Offered Debt Securities in
respect of which this Prospectus is delivered, the Company will sell such
Offered Debt Securities to the dealer, as principal. The dealer may then resell
such Offered Debt Securities to the public at varying prices to be determined by
such dealer at the time of resale.
Agents, dealers and underwriters may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments which such agents, dealers or underwriters may be
required to make in respect thereof. Agents, dealers and underwriters may be
customers of, engage in transactions with, or perform services for the Company
in the ordinary course of business.
The Offered Debt Securities may also be offered and sold, if so indicated
in the Prospectus Supplement, in connection with a remarketing upon their
purchase, in accordance with a redemption or repayment pursuant to their terms,
or otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as agents for the Company. Any remarketing firm will
be identified and the terms of its agreement, if any, with the Company and its
compensation will be described in the Prospectus Supplement. Remarketing firms
may be deemed to be underwriters in connection with the Offered Debt Securities
remarketed thereby. Remarketing firms may be entitled under agreements which may
be entered into with the Company to indemnification by the Company against
certain civil liabilities, including liabilities under the Securities Act, and
may be customers of, engage in transactions with or perform services for the
Company in the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company will authorize
agents and dealers or underwriters to solicit offers by certain purchasers to
purchase the Offered Debt Securities from the Company
13
<PAGE> 47
at the public offering price set forth in the Prospectus Supplement pursuant to
delayed delivery contracts providing for payment and delivery on a specified
date in the future. Such contracts will be subject to only those conditions set
forth in the Prospectus Supplement, and the Prospectus Supplement will set forth
the commission payable for solicitation of such offers.
The Senior Debt Securities, when first issued, will have no established
trading market. Any underwriters or agents to or through whom Senior Debt
Securities are sold by the Company for public offering and sale may make a
market in such Senior Debt Securities, but such underwriters or agents will not
be obligated to do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
any Senior Debt Securities.
DELAYED DELIVERY ARRANGEMENTS
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters or other persons acting as the Company's agents to solicit offers
by certain institutions to purchase Senior Debt Securities from the Company
pursuant to contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
contracts will be subject to the approval of the Company. The obligations of any
purchaser under any such contract will be subject to the condition that the
purchase of the Senior Debt Securities shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject. The underwriters and such agents will not have any responsibility in
respect of the validity or performance of such contracts.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
Illinova Corporation's Annual Report on Form 10-K for the year ended December
31, 1996 have been so incorporated in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
Certain legal matters in connection with the Senior Debt Securities will be
passed upon for the Company by Schiff Hardin & Waite, Chicago, Illinois. Certain
legal matters in connection with the Senior Debt Securities may be passed upon
for any underwriters, dealers or agents by Winthrop, Stimson, Putnam & Roberts,
New York, New York.
14
<PAGE> 48
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE
PRICING SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE AGENTS. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR
ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER OR A SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Risk Factors................................ S-3
The Company and its Subsidiaries............ S-4
Use of Proceeds............................. S-5
Description of Notes........................ S-5
Special Provisions Relating to Foreign
Currency Notes............................ S-21
Certain United States Federal Income Tax
Considerations............................ S-23
Plan of Distribution........................ S-31
Legal Matters............................... S-33
PROSPECTUS
Available Information....................... 2
Incorporation of Certain Documents by
Reference................................. 3
The Company and its Subsidiaries............ 3
Use of Proceeds............................. 4
Ratio of Earnings to Fixed Charges.......... 4
Description of Senior Debt Securities....... 4
Plan of Distribution........................ 13
Experts..................................... 14
Legal Matters............................... 14
</TABLE>
======================================================
======================================================
$200,000,000
[ILLINOVA LOGO]
ILLINOVA CORPORATION
MEDIUM-TERM NOTES, SERIES A
DUE NINE MONTHS OR MORE
FROM DATE OF ISSUE
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
JANUARY 16, 1998
======================================================
