Document:

Exhibit 10.23

 

AMENDMENT NO. 07 TO LOAN AND SECURITY
AGREEMENT

 

Dated October 17, 2008

 

THIS AMENDMENT NO. 07 (“Amendment”) to that
certain Loan and Security Agreement No. 4521 dated March 28,
2005, as amended (the “Agreement”;
all capitalized terms not otherwise defined herein are defined in the
Agreement), is entered into as of October 17, 2008, by and between LIGHTHOUSE CAPITAL PARTNERS V, L.P. (“Lender”)
and ARYX THERAPEUTICS, INC., a Delaware
corporation (“Borrower”).

 

WHEREAS, Borrower and Lender have previously entered into the
Agreement; and

 

WHEREAS, Borrower has requested Lender restructure the terms of its
existing term loan financing; and

 

WHEREAS, Lender has agreed to do so, subject to all of the terms and
conditions hereof and of the Agreement;

 

NOW, THEREFORE, in
consideration of the foregoing and the mutual covenants herein contained, the
parties hereby agree to modify the Agreement and to perform such other
covenants and conditions as follows:

 

I.              Section 1.1,
the following definitions shall be added to the Agreement:

 

“Amendment No. 07” means this Amendment No. 07 to
Loan and Security Agreement by and between Lender and Borrower.

 

“Restructure Warrant” means the Warrant in favor of Lender to purchase
securities of Borrower, substantially in the form of Exhibit C-2
attached
to Amendment No. 07 and issued in conjunction with Commitment Two.

 

II.            Section 1.1,
each of  the following
definitions of the Agreement shall be deleted in its entirety and replaced with
the following:

 

“Loan Documents” means, collectively, the
Agreement, Amendments 01 through 07, the Warrants, the Notes and all other documents,
instruments and agreements entered into between Borrower or any subsidiary or
affiliate of Borrower and Lender in connection with the Loan, all as amended or
extended from time to time.

 

“Note” means (i) a Secured Promissory Note in the form of Exhibit B
attached to this Agreement for Advances funded under the Commitment prior to
Amendment No. 05; (ii) a
Secured Promissory Note  in
the form of Exhibit B-1
attached to Amendment No. 05 for Advances funded under
Commitment Two and (iii) Amended and Restated Secured
Promissory Notes  in
the form of Exhibit B-2  and B-3 attached
to Amendment No. 07.

 

“Warrants” means the Warrants in favor of
Lender and its affiliated fund, Lighthouse Capital Partners IV, L.P. (“LCP-IV”) to purchase securities of
Borrower substantially in (i) the
form of Exhibit C,
(ii) the form attached to
Amendment No. 05 as Exhibit C-1
for Advances under Commitment Two and (iii) the
form attached to Amendment No. 07 as Exhibit C-2 for the Restructure Warrants.

 

III.           Section 7,
Section 7.3 of the Agreement shall be deleted in its entirety
and replaced with the following:

 

7.3
Restructure. Make any material change in Borrower’s financial
structure or business operations (other than through the sale of preferred or common stock to equity
investors which does not result in a change of control of Borrower or through
the sale of stock in an IPO or secondary public offering); cause a liquidation
event; or suspend operation of Borrower’s business.

 

IV.           Section 7.10 of the Agreement shall be deleted in its
entirety and replaced with the following:

 

 

7.10 Deposit and Securities Accounts. Maintain any deposit accounts or
accounts holding securities owned by Borrower except accounts in which Lender
has obtained a perfected first priority security interest. Notwithstanding the
foregoing, Lender’s security interest shall be subordinate to that of Comerica (i) in
that certain deposit account
#                    
held with Comerica Bank as security for a line of credit related to corporate
purchasing credit cards; provided, such account shall not exceed $150,000; (ii) in
Borrower’s account
#                    
at Comerica supporting letter of credit
#                    
issued to Biomed Realty Trust, Inc. in conjunction with Borrower’s real
property lease; provided, such letter of credit shall not exceed $703,200 and
letter of credit
#                    
issued to ADP TotalSource, Inc. in conjunction with Borrower’s payroll;
provided, such letter of credit shall not exceed $500,000 and such account
subordination shall not exceed $1,203,200; and (iii) in that certain
deposit
account #                    
at Comerica in conjunction with Borrower’s employee stock purchase
plan (ESPP); provided, such account shall not exceed $150,000.

 

V.            Conditions Precedent to the effectiveness of
Amendment 07:

 

The obligation of Lender to make any Advances pursuant to Commitment
Two is subject to each and every of the following conditions precedent in form
and substance satisfactory to lender in its sole discretion:

 

(a)           This Amendment duly executed by Borrower.

 

(b)           The Restructure Warrant has been issued to Lender duly executed by
Borrower.

 

(c)           Without limiting the
foregoing or Lender’s rights or Borrower’s obligations under the Agreement,
such consents, amendments, filings, recordations, or other documents from any
persons or entities necessary to maintain the perfection and priority of Lender’s
security interest in the Collateral, in form and substance satisfactory to
Lender in its sole discretion.

 

(d)           A good standing certificate from Borrower’s state of incorporation or
formation and the state in which Borrower’s principal place of business is
located, together with certificates of the applicable governmental authorities
stating that Borrower is in compliance with the franchise tax laws of each such
state, each dated as of a recent date.

 

(e)           All necessary
consents of shareholders, members, and other third parties with respect to the
execution, delivery and performance of this Agreement, Amendment 07, the
Restructure Warrant, and the other Loan Documents.

 

VI.           Additional Terms and Conditions

 

(a)           Further
Conditions.  The
following are conditions precedent to Lender’s obligations hereunder, without
delivery and performance of which to Lender’s satisfaction, the original
payment terms of the Loan Documents and the Promissory Notes shall remain in
full force and effect, unamended hereby:

 

(i)            Borrower shall
deliver an Incumbency Certificate, certified by responsible officers of
Borrower, and attachments thereto including the resolutions adopted by Borrower’s
board of directors authorizing the execution and delivery of this Amendment No. 07
and the other documents referred to in this Amendment and the performance by
Borrower of its obligations under such documents.

 

(ii)           Borrower shall execute and
deliver all other documents, as Lender shall have reasonably requested prior to
the execution by Borrower and Lender of this Amendment.

 

(iii)          Borrower shall pay all
Lenders Expenses for the preparation and negotiation of this Amendment No. 07,
up to a maximum of $5,000.

 

(b)           Representations and Warranties of Borrower. Borrower reaffirms the representations and
warranties made to Lender in the Agreement as of the date hereof as though
fully set forth herein.
Borrower further warrants and represents, as a significant material
inducement to Lender to enter hereinto, that: (i) no Events of Default have occurred that have
not been disclosed to Lender by Borrower in writing; (ii) it is not and
has no reason to believe

 

2

 

it
may be named as a party to any judicial or administrative proceeding,
litigation or arbitration, and has not received any communication from any
person or entity (whether private or governmental) threatening or indicating
the same, except as previously disclosed to Lender in writing; and (iii) it
is in full compliance with Section 7.10 of the Agreement, as amended.

 

(c)           No Control.  Borrower warrants and represents, as a
significant material inducement to Lender to enter hereinto, that none of
Lender nor any affiliate, officer, director, employee, agent, or attorney of
Lender, have at any time, from Borrower’s date of formation through to the date
hereof, (i) exercised management or other control over the Borrower, (ii) exercised
undue influence over Borrower or any of its officers, employees or directors, (iii) made
any representation or warranty, express or implied, to any party on behalf of
Borrower, (iv) entered into any joint venture, agency relationship,
employment relationship, or partnership with Borrower, (v) directed or
instructed Borrower on the manner, method, amount, or identity of payee of any
payment made to any creditor of Borrower, and further, Borrower warrants and
represents that by entering hereinto with Lender has not, are not and will not
have engaged in any of the foregoing.

 

VII.         Integration Clause.  This Amendment represents and documents the
entirety of the agreement and understanding of the parties hereto with respect
to its subject matter.  All prior
understandings, whether oral or written, other than the Financing Documents,
are hereby merged hereinto.  NONE OF THE AGREEMENT OR THIS AMENDMENT MAY BE
MODIFIED EXCEPT BY A WRITING SIGNED BY LENDER AND BORROWER.  Each provision hereof shall be severable from
every other provision when determining its legal enforceability such that
Lender’s rights and remedies under this Amendment and the Agreement may be
enforced to the maximum extent permitted under applicable law.  This Amendment shall be binding upon, and
inure to the benefit of, each party’s respective permitted successors and
assigns.  This Amendment may be executed
in counterpart originals, all of which, when taken together, shall constitute
one and the same original document.  No
provision of any other document between Lender and Borrower shall limit the
effectiveness hereof or the rights and remedies of Lender against
Borrower.  In the event of any contradiction
or inconsistency among the terms and conditions of this Amendment or the
Agreement the interpretation most favorable to the interests of Lender shall
prevail.

 

Except
as amended hereby, the Agreement remains unmodified and unchanged.

 

	
  BORROWER:

  	
   

  	
  LENDER:

  
	
   

  	
   

  	
   

  
	
  ARYX
  THERAPEUTICS, INC.

  	
   

  	
  LIGHTHOUSE
  CAPITAL PARTNERS V, L.P.

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ 

  	
  John
  Varian

  	
   

  	
  By:

  	
  LIGHTHOUSE
  MANAGEMENT

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  PARTNERS
  V, L.L.C., its general partner

  
	
  Name:

  	
   

  	
   John Varian

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
    COO

  	
   

  	
  By:

  	
  /s/ Thomas Conneely

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
     Thomas Conneely

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
       Vice President

  
													

 

3

 

EXHIBIT B-2

 

AMENDED AND
RESTATED SECURED PROMISSORY NOTE

 

(Notes originally issued in
the amount of $10,000,000)

 

$3,211,659.97

 

This
AMENDED AND RESTATED SECURED PROMISSORY NOTE (this “Note”) is made October 1, 2008, by ARYX THERAPEUTICS, INC. (“Borrower”) in favor of LIGHTHOUSE CAPITAL PARTNERS V, L.P.
(collectively with its assigns, “Lender”),
and its assigns (collectively, “Holder”) and
amends, restates and replaces in its entirety those certain Secured Promissory
Notes dated September 30, 2005 and December 30, 2005, each pursuant
to that certain Loan and Security Agreement No. 4521 between Borrower and
Lender dated March 28, 2005 (the “Loan Agreement”)
with reference to the following:

 

FOR
VALUE RECEIVED, Borrower promises to pay in lawful money of the United States,
to the order of Lender, at 500 Drake’s Landing Road, Greenbrae, California
94904, or such other place as Lender may from time to time designate (“Lender’s Office”), the principal sum of
$3,211,659.97 (the “Advance”),
including interest on the unpaid balance of the Advance at the Basic Rate, and
all other amounts due or to become due hereunder according to the terms
hereof.   Capitalized terms used and not
otherwise defined herein are defined in the Loan Agreement.

 

“Basic Rate” means a per annum fixed rate of interest equal to
9.75%.

 

“Final Payment”  means $1,200,000.

 

“Loan Commencement Date” for this Note
means July 1, 2009.

 

“Maturity Date” means June 30, 2010,
or if earlier, the date of prepayment under the Note.

 

“Repayment Period” means
the period beginning on the Loan Commencement Date and continuing for 12
calendar months.

 

“Restructure Fee”  means $200,000.

 

1.             Repayment.  Borrower
shall repay the principal and interest thereupon will be paid as
follows:

 

a.             Scheduled
Payments.  From and
after the Loan Commencement Date, Borrower shall make amortizing payments of
principal and interest in advance (collectively, “Scheduled Payments”) on the first day of each month during
the Repayment Period (each a “Payment Date”),
in an amount equal to $279,710.34.  In
addition, all unpaid principal and accrued interest, together with all Lenders
Expenses associated with the Advance and this Note shall be due and payable in
full on the Maturity Date.

 

b.             Interim
Payments.  In addition
to the Scheduled Payments, Borrower shall pay to Lender, monthly in advance, an
amount (the “Interim Payment”)
equal to $26,094.74 from the date of this Note until the Loan Commencement Date
with respect to this Note.

 

                c.             Final Payment.  On the
Maturity Date, Borrower shall pay, in addition to all unpaid principal and
interest due hereunder, the Final Payment and the Restructure Fee.

 

2.             Interest.  Interest not paid when due will, to the
maximum extent permitted under applicable law, become part of principal, at
Lender’s option, and thereafter bear like interest as principal.  All Obligations due not paid when due shall
bear interest at the Default Rate unless waived in writing by Lender. All
amounts paid hereunder including principal, interest or fees and expenses will
be applied in Lender’s discretion and as provided in the Loan Agreement.

 

1

 

3.             Prepayment.

 

a.             Mandatory
Prepayment Upon Acceleration.  If this Note is accelerated following the
occurrence of an Event of Default or otherwise, then Borrower shall immediately
pay to Lender (i) all unpaid
Scheduled Payments due before the date of prepayment, (ii) the outstanding principal amount
of the Note, (iii) the Final
Payment, (iv) the Restructure
Fee and (v) all other sums,
if any, that shall have become due and payable hereunder with respect to this
Note.

 

b.             Voluntary
Prepayment.  Borrower
may voluntarily prepay all of the principal due under this Note, provided that each of the following
conditions is satisfied:  Borrower pays
to Lender (i) all unpaid
Scheduled Payments due before the date of prepayment, (ii) the outstanding principal amount
of this Note and any unpaid accrued interest, (iii) the
Final Payment, (iv) the
Restructure Fee and (v) all
other sums, if any, that shall have become due and payable.

 

c.             No Other
Prepayment.  Borrower may
not prepay this Note except described herein.

 

4.             Collateral.  This Note is secured by the Collateral.

 

5.             Waivers.  Borrower, and all guarantors and endorsers of
this Note, regardless of the time, order or place of signing, hereby waive
notice, demand, presentment, protest, and notices of every kind, presentment
for the purpose of accelerating maturity, diligence in collection, and, to the
fullest extent permitted by law, all rights to plead any statute of limitations
as a defense to any action on this Note.

 

6.             Choice of
Law; Venue.  THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.   EACH OF
BORROWER AND LENDER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS LOCATED IN THE CITY AND COUNTY OF SAN FRANCISCO, STATE OF
CALIFORNIA.  BORROWER AND LENDER EACH
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE. 
EACH PARTY FURTHER WAIVES ANY RIGHT TO CONSOLIDATE ANY ACTION IN WHICH A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED.

 

7.             Miscellaneous.  THIS NOTE MAY BE MODIFIED ONLY BY A
WRITING SIGNED BY BORROWER AND LENDER.  Each provision hereof is severable
from every other provision hereof and of the Loan Agreement when determining
its legal enforceability.  Sections and
subsections are titled for convenience, and not for construction.  “Hereof,” “herein,” “hereunder,” and similar
words refer to this Note in its entirety. 
“Or” is not necessarily exclusive. 
“Including” is not limiting.  The
terms and conditions hereof inure to the benefit of and are binding upon the
parties’ respective permitted successors and assigns.  This Note is subject to all the terms and conditions
of the Loan Agreement.

 

IN
WITNESS WHEREOF, Borrower has caused this Note to be executed by a duly
authorized officer as of the day and year first above written.

 

 

	
   

  	
   

  	
  ARYX THERAPEUTICS, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ 

  	
  John
  Varian

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
  John
  Varian

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  COO

  
								

 

2

 

EXHIBIT B-3

 

AMENDED
AND RESTATED SECURED PROMISSORY NOTE

 

(Note
originally issued in the amount of $9,000,000)

 

$9,000,000

 

This AMENDED AND RESTATED SECURED PROMISSORY NOTE (this “Note”) is made October 1, 2008, by ARYX THERAPEUTICS, INC. (“Borrower”) in favor of LIGHTHOUSE CAPITAL PARTNERS V, L.P.
(collectively with its assigns, “Lender”),
and its assigns (collectively, “Holder”) and
amends, restates and replaces in its entirety that certain Secured Promissory
Note dated February 29, 2008, pursuant to that certain Loan and Security
Agreement No. 4521 between Borrower and Lender dated March 28, 2005
(the “Loan Agreement”) with
reference to the following:

 

FOR VALUE RECEIVED, Borrower promises to pay in lawful money of the
United States, to the order of Lender, at 500 Drake’s Landing Road, Greenbrae,
California 94904, or such other place as Lender may from time to time designate
(“Lender’s Office”), the
principal sum of $9,000,000 (the “Advance”),
including interest on the unpaid balance of the Advance at the Basic Rate, and
all other amounts due or to become due hereunder according to the terms
hereof.   Capitalized terms used and not
otherwise defined herein are defined in the Loan Agreement.

 

“Basic Rate” means a per annum fixed rate of interest equal to (i) 9.75%
prior to the Loan Commencement Date and (ii) 12.25% on and after the Loan
Commencement Date.

 

“Final
Payment”  means
$675,000.

 

“Loan Commencement Date”
for this Note means July 1, 2009.

 

“Maturity Date” means June 30,
2012, or if earlier, the date of prepayment under the Note.

 

“Prepayment Fee” means 3%
of the outstanding principal amount being prepaid.

 

“Repayment
Period” means the period beginning on the Loan Commencement Date and
continuing for 36 calendar months.

 

1.             Repayment.  Borrower shall repay the principal and
interest thereupon will be paid as follows:

 

a.             Scheduled Payments.  From and after the Loan Commencement Date,
Borrower shall make amortizing payments of principal and interest in advance
(collectively, “Scheduled Payments”)
on the first day of each month during the Repayment Period (each a “Payment Date”), in an amount equal to
$296,972.97.  In addition, all unpaid
principal and accrued interest, together with all Lenders Expenses associated
with the Advance and this Note shall be due and payable in full on the Maturity
Date.

 

b.             Interim Payments.  In addition to the Scheduled Payments,
Borrower shall pay to Lender, monthly in advance, an amount (the “Interim Payment”) equal to $73,125.00 from
the date of this Note until the Loan Commencement Date with respect to this
Note.

 

c.             Final Payment.  On the Maturity Date, Borrower shall pay, in
addition to all unpaid principal and interest due hereunder, the Final Payment.

 

2.             Interest.  Interest not paid when due will, to the
maximum extent permitted under applicable law, become part of principal, at
Lender’s option, and thereafter bear like interest as principal.  All Obligations due not paid when due shall
bear interest at the Default Rate unless waived in writing by Lender.  All amounts paid hereunder including
principal, interest or fees and expenses will be applied in Lender’s discretion
and as provided in the Loan Agreement.

 

1

 

3.             Prepayment.

 

a.             Mandatory Prepayment
Upon Acceleration.  If this Note is
accelerated following the occurrence of an Event of Default or otherwise, then
Borrower shall immediately pay to Lender (i) all
unpaid Scheduled Payments due before the date of prepayment, (ii) the outstanding principal amount
of the Note, (iii) the Final
Payment, (iv) the Prepayment
Fee, and (v) all other sums,
if any, that shall have become due and payable hereunder with respect to this
Note.

 

b.             Voluntary Prepayment.  Borrower may voluntarily prepay all of the
principal due under this Note, provided that
each of the following conditions is satisfied: 
Borrower pays to Lender (i) all
unpaid Scheduled Payments due before the date of prepayment, (ii) the outstanding principal amount
of this Note and any unpaid accrued interest, (iii) the
Final Payment, (iv) the
Prepayment Fee, and (v) all
other sums, if any, that shall have become due and payable hereunder with
respect to this Note.

 

c.             No Other Prepayment.  Borrower may not prepay this Note except
described herein.

 

4.             Collateral.  This Note is secured by the Collateral.

 

5.             Waivers.  Borrower, and all guarantors and endorsers of
this Note, regardless of the time, order or place of signing, hereby waive
notice, demand, presentment, protest, and notices of every kind, presentment
for the purpose of accelerating maturity, diligence in collection, and, to the
fullest extent permitted by law, all rights to plead any statute of limitations
as a defense to any action on this Note.

 

6.             Choice of Law; Venue.  THIS NOTE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.   EACH OF BORROWER AND LENDER HEREBY SUBMITS
TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE
CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA.  BORROWER AND LENDER EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS NOTE.  EACH PARTY
FURTHER WAIVES ANY RIGHT TO CONSOLIDATE ANY ACTION IN WHICH A JURY TRIAL HAS
BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED.

 

7.             Miscellaneous.  THIS NOTE MAY BE MODIFIED ONLY BY A
WRITING SIGNED BY BORROWER AND LENDER.  Each provision hereof is severable
from every other provision hereof and of the Loan Agreement when determining
its legal enforceability.  Sections and
subsections are titled for convenience, and not for construction.  “Hereof,” “herein,” “hereunder,” and similar
words refer to this Note in its entirety. 
“Or” is not necessarily exclusive. 
“Including” is not limiting.  The
terms and conditions hereof inure to the benefit of and are binding upon the
parties’ respective permitted successors and assigns.  This Note is subject to all the terms and
conditions of the Loan Agreement.

 

IN WITNESS WHEREOF, Borrower has caused this Note to be executed by a
duly authorized officer as of the day and year first above written.

 

 

	
   

  	
  ARYX THERAPEUTICS, INC.

  	 

	
   

  	
   

  	 

	
   

  	
  By:

  	
  /s/ 

  	
  John Varian

  	 

	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
  John Varian

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
  COO

  
								

 

2

 

EXHIBIT
C-2

 

RESTRUCTURE
WARRANT

 

See attached

 

 

EXHIBIT
C-2

 

RESTRUCTURE
WARRANT

 

THIS
WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “1933 ACT”), OR ANY APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE
OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND APPLICABLE LAWS IS AVAILABLE WITH RESPECT THERETO.

 

COMMON
STOCK PURCHASE WARRANT

 

	
  Warrant No.
                           

  	
  Number of Shares: 158,770

  
	
   

  	
  Common Stock

  

 

ARYX THERAPEUTICS, INC.

 

Effective
as of October 17, 2008

 

Void
after October 17, 2013

 

1.             Issuance.  This Common Stock Purchase Warrant (the “Warrant”) is issued to LIGHTHOUSE CAPITAL PARTNERS V, L.P. (the “Holder”) by ARYX THERAPEUTICS, INC., a Delaware corporation (hereinafter
with its successors called the “Company”).

 

2.             Purchase Price; Number of Shares.

 

(a)           The registered
holder of this Warrant, commencing on the date hereof, is entitled upon
surrender of this Warrant with the subscription form annexed hereto duly
executed, at the principal office of the Company, to purchase from the Company,
at a price per share equal to $3.97516 (the “Purchase
Price”), 158,770 fully paid and nonassessable shares of the Company’s
Common Stock, par value $0.001 per share 
(the “Common Stock”).

 

Any term not defined herein shall have the meaning as
set forth in the Loan Agreement.

 

Until such time as this Warrant is exercised in full
or expires, the Purchase Price and the securities issuable upon exercise of
this Warrant are subject to adjustment as hereinafter provided.  The person or persons in whose name or names
any certificate representing shares of Common Stock is issued hereunder shall
be deemed to have become the holder of record of the shares represented thereby
as at the close of business on the date this Warrant is exercised with respect
to such shares, whether or not the transfer books of the Company shall be
closed.

 

3.             Payment of Purchase
Price.  The Purchase Price may be
paid (i) in cash or by check, (ii) by the surrender by the Holder to
the Company of any promissory notes or other obligations issued by the Company,
with all such notes and obligations so surrendered being credited against the
Purchase Price in an amount equal to the principal amount thereof plus accrued
interest to the date of surrender, or (iii) by any combination of the
foregoing.

 

4.             Net Issue Election.  The Holder may elect to receive, without the
payment by the Holder of any additional consideration, shares of Common Stock
equal to the value of this Warrant or any portion hereof by the surrender of
this Warrant or such portion to the Company, with the net issue election notice
annexed hereto duly executed, at the principal office of the Company.  Thereupon, the Company shall issue to the
Holder such number of fully paid and nonassessable shares of Common Stock as is
computed using the following formula:

 

1

 

	
   

  	
  X=  

  	
  Y(A-B)

  	
   

  	
   

  
	
   

  	
   

  	
  A

  	
   

  	
   

  

 

	
  where:

  	
   

  	
  X =

  	
   

  	
  the number of shares of Common Stock to be issued
  to the Holder pursuant to this Section 4.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Y =

  	
   

  	
  the number of shares of Common Stock covered by this Warrant in respect
  of which the net issue election is made pursuant to this Section 4.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  A =

  	
   

  	
  the Fair Market Value (defined below) of one share of Common Stock, as
  determined at the time the net issue election is made pursuant to this Section 4.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  B =

  	
   

  	
  the Purchase Price in effect under this Warrant at the time the net
  issue election is made pursuant to this Section 4.

  

 

 

For purposes of this
Warrant, the “Fair Market Value”
of a share of Common Stock as of the date that the net issue election is made
(the “Determination Date”) shall
mean: (i) if traded on a securities exchange or the NASDAQ Global Market,
the fair market value of the Common Stock shall be deemed to be the average of
the closing or last reported sale prices of the Common Stock on such exchange
or market for the five (5) consecutive trading days immediately prior to
the Determination Date, or (ii) if otherwise traded in an over-the-counter
market, the fair market value of the Common Stock shall be deemed to be the
average of the closing ask prices of the Common Stock for the five (5) consecutive
trading days immediately prior to the Determination Date, or (iii) if
there is no public market for the Common Stock or if the fair market value
cannot be calculated as of the Determination Date on any of the foregoing
bases, then the fair market value shall be determined in good faith by the
Company’s Board of Directors.

 

5.             Partial Exercise.  This Warrant may be exercised in part, and
the Holder shall be entitled to receive a new warrant, which shall be dated as
of the date of this Warrant, covering the number of shares in respect of which
this Warrant shall not have been exercised.

 

6.             Fractional Shares.  In no event shall any fractional share of
Common Stock be issued upon any exercise of this Warrant.  If, upon exercise of this Warrant in its
entirety, the Holder would, except as provided in this Section 6, be entitled to receive a
fractional share of Common Stock, then the Company shall, in lieu of issuance
of any fractional share, pay the Holder otherwise entitled to such fraction a
sum in cash equal to the product resulting from multiplying the then current
Fair Market Value of one share of Common Stock by such fraction.

 

7.             Expiration Date;
Automatic Exercise.  This Warrant
shall expire at the earliest to occur of (i) the close of business on October 17,
2013; or (ii) the effective date of a Merger as defined below, unless
otherwise assumed per the language below (the “Expiration
Date”) and shall be void thereafter.

 

“Merger”
means: (i) a sale, license or other disposition of all or substantially
all of the Company’s assets to an Unaffiliated Entity (as defined below), or (ii) the
merger, consolidation or acquisition of the Company with, into or by an
Unaffiliated Entity (other than a merger or consolidation for the principle
purpose of changing the domicile of the Company or a bona fide stock equity
financing), the result of which is that stockholders of the Company immediately
prior to the merger, consolidation or acquisition do not own or control more
than fifty percent (50%) of the voting power of the surviving entity
immediately following such merger, consolidation or acquisition.  “Unaffiliated
Entity” means any entity that is owned or controlled by parties who
own less than twenty percent (20%) of the combined voting power of the voting
securities of the Company immediately prior to such merger, consolidation or
acquisition.  Notwithstanding the
foregoing, in the event that any outstanding warrants to purchase equity
securities of the Company are assumed by the successor entity of a Merger (or
parent thereof), this Warrant will be similarly assumed.  Notwithstanding anything to the contrary in
this Warrant, if Holder exercises this Warrant after receiving a notice from
the Company of a proposed merger or if the exercise was otherwise precipitated
by such proposed Merger, the Company will hold the exercise notice, without
processing such notice, until immediately prior to the consummation of the
Merger, at which time the exercise notice shall be processed. If the Merger is
terminated, the Holder will have ten (10) business days from the date the
Company gives Holder notice indicating such termination to rescind its exercise
notice, otherwise the exercise notice shall be processed by

 

2

 

the Company as set forth herein. 
In the event of such rescission, this Warrant will continue to be
exercisable on the same terms and conditions.

 

Notwithstanding the foregoing, this Warrant shall
automatically be deemed to be exercised in full pursuant to the provisions of Section 4 hereof, without any further
action on behalf of the Holder, immediately prior to the time this Warrant
would otherwise expire pursuant to this Section 7,
unless otherwise assumed per above.

 

8.             Reserved Shares;
Valid Issuance.  The Company
covenants that it will at all times from and after the date hereof reserve and
keep available such number of its authorized shares of Common Stock issuable
upon exercise of this Warrant free from all preemptive or similar rights
therein.  The Company further covenants
that such shares as may be issued pursuant to such exercise will, upon
issuance, be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof.

 

9.             Stock Splits and
Dividends.  If after the date hereof
the Company shall subdivide the Common Stock, by split-up or otherwise, or
combine the Common Stock, or issue additional shares of Common Stock in payment
of a stock dividend on the Common Stock, the number of shares of Common Stock
issuable on the exercise of this Warrant shall forthwith be proportionately
increased in the case of a subdivision or stock dividend, or proportionately
decreased in the case of a combination, and the Purchase Price shall forthwith
be proportionately decreased in the case of a subdivision or stock dividend, or
proportionately increased in the case of a combination.

 

11.          Mergers and
Reclassifications.  Subject to Section 7, if after the date hereof
the Company shall enter into any Reorganization (as hereinafter defined), then,
as a condition of such Reorganization, lawful provisions shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall thereafter have the
right to purchase, at a total price not to exceed that payable upon the
exercise of this Warrant in full, the kind and amount of shares of stock and
other securities and property receivable upon such Reorganization by a holder
of the number of shares of Common Stock which might have been purchased by the
Holder immediately prior to such Reorganization, and in any such case
appropriate provisions shall be made with respect to the rights and interest of
the Holder to the end that the provisions hereof (including without limitation,
provisions for the adjustment of the Purchase Price and the number of shares
issuable hereunder and the provisions relating to the net issue election) shall
thereafter be applicable in relation to any shares of stock or other securities
and property thereafter deliverable upon exercise hereof.  For the purposes of this Section 11, the term “Reorganization” shall include without
limitation any reclassification, capital reorganization or change of the Common
Stock (other than as a result of a subdivision, combination or stock dividend
provided for in Section 9
hereof), or any consolidation of the Company with, or merger of the Company
into, another corporation or other business organization (other than a merger
in which the Company is the surviving corporation and which does not result in
any reclassification or change of the outstanding Common Stock), or any sale or
conveyance to another corporation or other business organization of all or
substantially all of the assets of the Company.

 

12.          Certificate of
Adjustment.  Whenever the Purchase
Price is adjusted, as herein provided, the Company shall promptly deliver to
the Holder a certificate of the Company’s chief financial officer setting forth
the Purchase Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.

 

13.          Notices of Record Date,
Etc.  In the event of:

 

(a)            any taking by the
Company of a record of the holders of any class of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend or
other distribution, or any right to subscribe for, purchase, sell or otherwise
acquire or dispose of any shares of stock of any class or any other securities
or property, or to receive any other right;

 

(b)            any reclassification
of the capital stock of the Company, capital reorganization of the Company,
consolidation or merger involving the Company, or sale or conveyance of all or
substantially all of its assets; or

 

(c)            any voluntary or
involuntary dissolution, liquidation or winding-up of the Company;

 

3

 

then
in each such event the Company will provide or cause to be provided to the
Holder a written notice thereof.  Such
notice shall be provided at least ten (10) business days prior to the date
specified in such notice on which any such action is to be taken.

 

14.          Representations,
Warranties and Covenants.  This
Warrant is issued and delivered by the Company and accepted by each Holder on
the basis of the following representations, warranties and covenants made by
the Company:

 

(a)            The Company has all
necessary authority to issue, execute and deliver this Warrant and to perform
its obligations hereunder.  This Warrant
has been duly authorized issued, executed and delivered by the Company and is
the valid and binding obligation of the Company, enforceable in accordance with
its terms.

 

(b)            The shares of Common
Stock issuable upon the exercise of this Warrant have been duly authorized and
reserved for issuance by the Company and, when issued in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable.

 

(c)            The issuance,
execution and delivery of this Warrant do not, and the issuance of the shares
of Common Stock upon the exercise of this Warrant in accordance with the terms
hereof will not, (i) violate or contravene the Company’s Certificate of
Incorporation or by-laws, or any law, statute, regulation, rule, judgment or
order applicable to the Company, (ii) violate, contravene or result in a
material breach or default under any material contract, material agreement or
material instrument to which the Company is a party or by which the Company or
any of its assets are bound or (iii) require the consent or approval of or
the filing of any notice or registration with any person or entity.

 

16.          Amendment.  The terms of this Warrant may be amended,
modified or waived only with the written consent of the Holder and the Company.

 

17.          Representations and
Covenants of the Holder.  This
Warrant has been entered into by the Company in reliance upon the following
representations and covenants of the Holder, which by its execution hereof the
Holder hereby confirms:

 

(a)            Investment Purpose.  The right to acquire Common Stock issuable
upon exercise of the Holder’s rights contained herein will be acquired for
investment and not with a view to the sale or distribution of any part thereof,
and the Holder has no present intention of selling or engaging in any public
distribution of the same except pursuant to a registration or exemption.

 

(b)            Accredited Investor.  Holder is an “accredited investor” within the
meaning of Rule 501 of Regulation D promulgated under the 1933 Act.

 

(c)            Private Issue.  The Holder understands (i) that the
Common Stock issuable upon exercise of the Holder’s rights contained herein is
not registered under the 1933 Act or qualified under applicable state
securities laws on the ground that the issuance contemplated by this Warrant
will be exempt from the registration and qualifications requirements thereof,
and (ii) that the Company’s reliance on such exemption is predicated on
the representations set forth in this Section 17.

 

(d)            Financial Risk.  Holder understands that the purchase of this
Warrant and its underlying securities involves substantial risk.  Holder has experience as an investor in
securities of companies in the development stage and acknowledges that Holder
can bear the economic risk of such Holder’s investment in this Warrant and its
underlying securities and has such knowledge and experience in financial or
business matters that Holder is capable of evaluating the merits and risks of
its investment in this Warrant and its underlying securities and/or has a
preexisting personal or business relationship with the Company and certain of
its officers, directors or controlling persons of a nature and duration that
enables Holder to be aware of the character, business acumen and financial
circumstances of such persons.

 

4

 

(e)            Rule 144. The Holder is aware that neither the
Warrant, nor the Common Stock issuable upon conversion thereof may be sold
pursuant to Rule 144 adopted under the 1933 Act unless certain conditions
are met, including, among other things, the existence of a public market for
the shares, the availability of certain current public information about the
Company, the resale following the required holding period under Rule 144
and the number of shares being sold during any three month period not exceeding
specified limitations. Holder is aware that the Company has no obligation
hereunder to satisfy the conditions for resale set forth in Rule 144.

 

18.          Notices, Transfers, Etc.

 

(a)            Any notice or written communication
required or permitted hereunder shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party to be notified,
(b) when sent by confirmed facsimile to the facsimile number specified in
writing by the recipient if sent during normal business hours of the recipient
on a business day, if not, then on the next business day, or (c) the next
business day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.  All communications shall be sent to the
Company or the Holder at the address listed on the signature page hereto
or at such other address as the Company or Holder may designate by ten (10) days
advance written notice to the other party hereto.

 

(b)            Subject to compliance
with applicable federal and state securities laws and the terms hereof, this
Warrant may be transferred by the Holder with respect to any or all of the
shares purchasable hereunder.  Upon
surrender of this Warrant to the Company, together with the assignment notice
annexed hereto duly executed, for transfer of this Warrant as an entirety by
the Holder, the Company shall issue a new warrant of the same denomination to
the assignee.  Upon surrender of this Warrant
to the Company, together with the assignment hereof properly endorsed, by the
Holder for transfer with respect to a portion of the shares of Common Stock
purchasable hereunder, the Company shall issue a new warrant to the assignee,
in such denomination as shall be requested by the Holder hereof, and shall
issue to such Holder a new warrant covering the number of shares in respect of
which this Warrant shall not have been transferred.

 

(c)            In case this Warrant
shall be mutilated, lost, stolen or destroyed, the Company shall, on such terms
as to indemnity or otherwise as it may reasonably impose (which shall, in the
case of a mutilated Warrant, include the surrender thereof), issue a new
warrant of like tenor and denomination and deliver the same (i) in exchange
and substitution for and upon surrender and cancellation of any mutilated
Warrant, or (ii) in lieu of any Warrant lost, stolen or destroyed, upon
receipt of an affidavit of the Holder or other evidence reasonably satisfactory
to the Company of the loss, theft or destruction of such Warrant

 

19.          Governing Law.  The provisions and terms of this Warrant
shall be governed by and construed in accordance with the internal laws of the
State of California without giving effect to its principles regarding conflicts
of laws.

 

20.          Successors and Assigns.  This Warrant shall be binding upon the
Company’s successors and assigns and shall inure to the benefit of the Holder’s
successors, legal representatives and permitted assigns.

 

21.          Business Days.  If the last or appointed day for the taking
of any action required or the expiration of any rights granted herein shall be
a Saturday or Sunday or a legal holiday in California, then such action may be
taken or right may be exercised on the next succeeding day which is not a
Saturday or Sunday or such a legal holiday.

 

5

 

22.          No Stockholder Rights. This Warrant in and of itself shall not
entitle the Holder to any voting rights or other rights as a stockholder of the
Company.

 

 

	
   

  	
  ARYX THERAPEUTICS, INC.

  	 

	
   

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
  By:

  	
  /s/ 

  	
  John Varian

  	 

	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
  John Varian

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
  COO

  
	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  Address:

  	
  6300 Dumbarton Circle

  	 

	
   

  	
   

  	
  Fremont, CA 94555

  	 

								

 

Accepted
and Agreed:

 

LIGHTHOUSE CAPITAL PARTNERS V, L.P.

 

	
  By:

  	
  Lighthouse Management Partners V, L.L.C.

  
	
   

  	
  its general partner

  

 

 

	
  By:

  	
  /s/ Thomas Conneely

  	
   

  
	
   

  
	
  Name:

  	
  Thomas Conneely

  	
   

  
	
   

  
	
  Title:

  	
    Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  500 Drake’s Landing Road  

  	
   

  
	
   

  	
  Greenbrae, CA  94904

  	
   

  
						

 

6

 

Subscription

 

	
  To:

  
	
  Date:

  	
   

  	
   

  

 

The
undersigned hereby subscribes for                                   
shares of Common Stock covered by this Warrant. 
The certificate(s) for such shares shall be issued in the name of
the undersigned or as otherwise indicated below:

 

	
   

  	
   

  
	
  Signature

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Name for Registration

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Mailing Address

  	
   

  

 

 

Net Issue Election Notice

 

	
  To:

  	
   

  	
  Date:

  	
   

  

 

The
undersigned hereby elects under Section 4
to surrender the right to purchase shares of Common Stock pursuant to this
Warrant.  The certificate(s) for
such shares issuable upon such net issue election shall be issued in the name
of the undersigned or as otherwise indicated below:

 

	
   

  	
   

  
	
  Signature

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Name for Registration

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Mailing Address

  	
   

  

 

 

Assignment

 

For value received                                                                               
hereby sells, assigns and transfers unto

 

 

[Please print or typewrite name and address of Assignee]

 

the within Warrant, and does hereby irrevocably constitute and appoint                                                                     
its attorney to transfer the within Warrant on the books of the within named
Company with full power of substitution on the premises.

 

	
  Dated:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Signature

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Name for Registration

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  In the Presence of:Exhibit 4.2

 

Company Order

 

October 23, 2008

 

The Bank of New York
Mellon Trust Company, N.A.

Two North LaSalle Street,
Suite 1020

Chicago, IL  60602

 

Ladies and Gentlemen:

 

Application is hereby
made to The Bank of New York Mellon Trust Company, N.A., a national banking
association, as trustee (the “Trustee”), under the Indenture dated as of June 1,
2006 (the “Indenture”), between Illinois Power Company, an Illinois corporation
(the “Company”), and the Trustee for the authentication and delivery of $400,000,000
aggregate principal amount of the Company’s 9.75% Senior Secured Notes due 2018
(the “Notes”), pursuant to the provisions of Article II of the
Indenture.  Additional Notes without
limitation as to amount, and without the consent of the holders of the then
Outstanding Notes, may also be authenticated and delivered in the manner
provided in Section 2.05 of the Indenture. 
All capitalized terms not defined herein that are defined in the
Indenture shall have the same meaning as used in the Indenture.

 

The Notes will be
initially issued pursuant to Section 4(2) of the Securities Act of
1933, as amended (the “Securities Act”), in the form of Global Notes registered
in the name of Cede & Co. (as nominee for The Depository Trust Company
(“DTC”), New York, New York, which will act as the Depositary for the Global
Notes).  Pursuant to Section 2.05(c) of
the Indenture, the Notes will have the terms set forth in the form of Global
Note attached hereto as Exhibit A and in the form of definitive Note
attached hereto as Exhibit B (which terms are incorporated by reference in
this Company Order).  The Global Notes
shall bear the depository legend in substantially the form set forth in Exhibit A
attached hereto.  The Notes will be
issued only in denominations of $2,000 and in integral multiples of $1,000 in
excess thereof.

 

Initially, beneficial
interests in the Notes offered and sold to qualified institutional buyers (as
defined in Rule 144A under the Securities Act) (“QIBs”) in reliance upon Rule 144A
under the Securities Act will be represented by one or more separate Global
Notes (each, a “Rule 144A Global Certificate”) registered in the name of
Cede & Co., as registered owner and as nominee for DTC and shall
include the non-registration and registration rights legends set forth in Exhibit A
attached hereto. Initially beneficial interests in the Notes offered and sold
to purchasers pursuant to Regulation S under the Securities Act will be
evidenced by one or more separate Global Notes (each, a “Regulation S Global
Certificate”) and will be registered in the name of Cede & Co., as
registered owner and as nominee for DTC for the accounts of The Euroclear
System (“Euroclear”) or Clearstream Banking, Luxembourg, société anonyme (“Clearstream”)
and shall include the Regulation S and registration rights legends set
forth in Exhibit A attached hereto. 
Notes offered and sold to institutional “accredited investors” (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act) who are not QIBs and who are not purchasers pursuant to Regulation S under
the Securities Act will be in definitive form in the 

 

 

form attached hereto as Exhibit B
and shall include the non-registration and registration rights legends set
forth therein.  The Trustee and the
Company will have no responsibility or liability for any aspect of transfers of
beneficial interests in the Notes (which transfers will be conducted pursuant
to the customary procedures of DTC), any records of DTC of beneficial interests
or any transactions between DTC and its participants or between any such
participants and any other beneficial owners or for monitoring, supervising or
reviewing of any thereof.

 

Transfers of beneficial
interests in the Rule 144A Global Certificate will be subject to the
restrictions on transfer contained in the non-registration legend set forth in Exhibit A
hereto.  Prior to the expiration of the
period of 40 consecutive days beginning on and including the later of (x) the
day on which the offering of the Notes commences and (y) the original issue
date of the Notes (the “Distribution Compliance Period”), transfers of
beneficial interests in the Regulation S Global Certificate will be
subject to the restrictions on transfer contained in the Regulation S
legend set forth in Exhibit A hereto. 
After the expiration of the Distribution Compliance Period, transfers of
beneficial interests in the Regulation S Global Certificate will not be
subject to any restrictions.

 

In connection with any
transfer of Notes, the Trustee and the Company shall be under no duty to
inquire into, may conclusively presume the correctness of, and shall be fully
protected in relying upon the certificates and other information (set forth in
the form of definitive Note attached hereto as Exhibit B, for use in
connection with the transfer of the Notes in definitive form, or set forth in Exhibit A-1
attached hereto, for use in connection with the transfer of beneficial
interests between a Rule 144A Global Certificate and a Regulation S Global
Certificate or to a Note in definitive form, or otherwise) received from the
Holders and any transferees of any Notes regarding the validity, legality and
due authorization of any such transfer, the eligibility of the transferee to
receive such Note and any other facts and circumstances related to such
transfer.  Transfers of beneficial
interests between a Rule 144A Global Certificate and a Regulation S Global
Certificate, and other transfers relating to beneficial interests in the Notes
in global form, shall be reflected by endorsements of the Trustee, as custodian
for DTC, on the schedule attached to such certificate.

 

The Company has entered
into a Registration Rights Agreement dated as of October 23, 2008 (the “Registration
Rights Agreement”) with the initial purchasers of the Notes pursuant to which
the Notes that are issued and sold without registration (the “Private Notes”)
under the Securities Act may be exchanged for Notes that will be registered
under the Securities Act and that will otherwise have substantially the same
terms as the Private Notes (the “Exchange Notes”), except that such Exchange
Notes will be issued in the form of Global Note attached hereto as Exhibit A
and will bear all customary legends (except for the non-registration,
Regulation S and registration rights legends) or, in lieu of such exchange, the
Company has agreed to file a shelf registration statement for the resale of the
Notes (in which case any Notes so resold will be issued in the form of Global
Note attached hereto as Exhibit A and bear all customary legends (except
for the non-registration, Regulation S and registration rights legends)).  The Private Notes will be exchanged for
Exchange Notes only pursuant to an effective registration statement under the
Securities Act and otherwise in accordance with the Registration Rights
Agreement and the Indenture.  The Private
Notes and the Exchange Notes will constitute a single series of notes under the
Indenture.  Exchange Notes shall be 

 

2

 

authenticated and
delivered by the Trustee at one time or from time to time upon the receipt by
the Trustee of a Company Order in principal amounts equal to the principal
amounts of the Private Notes surrendered in exchange therefor.  In addition, upon the receipt of such Company
Order, the Trustee will take such actions as to effectuate the exchange of any
Private Notes for Exchange Notes in accordance with the Registration Rights
Agreement and the Indenture.

 

In connection with this
Company Order, there are delivered to you herewith the following:

 

	
  1.

  	
   

  	
  Certified copies of the
  resolutions adopted by the Board of Directors of the Company authorizing this
  Company Order and the issuance and sale of the Notes by the Company pursuant
  to Section 2.05(c)(1) of the Indenture;

  
	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Opinions of Counsel
  addressed to you or in which it is stated that you may rely pursuant to
  Section 2.05(c)(2) of the Indenture;

  
	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Expert’s certificate
  pursuant to Section 2.05(c)(3) of the Indenture;

  
	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Officers’ Certificate
  pursuant to Section 2.05(c)(4) of the Indenture;

  
	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Two Global Notes
  representing the Notes executed on behalf of the Company in accordance with
  the terms of Section 2.05(a) of the Indenture, specifying the terms
  of the Notes (which terms are incorporated by reference herein); and

  
	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Pursuant to
  Section 2.05(c)(3) of the Indenture, the Company’s Mortgage Bonds
  designated “Mortgage Bonds, Senior Notes Series DD” (the “Mortgage
  Bonds”) in the principal amount of $400,000,000 relating to the Notes, fully
  registered in the name of the Trustee in trust for the benefit of the Holders
  from time to time of such Notes.

  

 

You are hereby instructed
to authenticate the Global Notes representing the Notes and hold them as DTC’s
custodian.  The Global Notes representing
the Notes are to be held for delivery through the facilities of DTC to the
initial purchasers thereof against payment therefor at the closing in respect
of the sale thereof, such closing to be held at 10:00 a.m., New York time,
October 23, 2008, at the offices of Pillsbury Winthrop Shaw Pittman LLP,
1540 Broadway, New York, New York 10036.

 

3

 

Please acknowledge
receipt of the Global Notes representing the Notes, the instructions referred
to above and the supporting documentation pursuant to the Indenture referred to
above (including the Mortgage Bonds in trust for the benefit of the Holders).

 

 

	
   

  	
  Very truly yours,

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Illinois Power Company

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jerre E. Birdsong

  
	
   

  	
   

  	
  Name:

  	
  Jerre E. Birdsong

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President and Treasurer

  
					

 

4

 

Receipt from the
Company of the Global Notes representing the Notes, certain instructions
related thereto and the supporting documentation pursuant to the Indenture
(including the Mortgage Bonds in trust for the benefit of the Holders) in
connection with the authentication and delivery of the Notes is hereby
acknowledged.

 

	
   

  	
  The Bank of New York
  Mellon Trust Company, N.A.,

  
	
   

  	
  as Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Linda E. Garcia

  
	
   

  	
   

  	
  Name: Linda E. Garcia

  
	
   

  	
   

  	
  Title: Vice President

  
				

 

5

 

EXHIBIT A

FORM OF GLOBAL NOTE

 

[depository legend]

 

THIS SECURITY IS A GLOBAL
NOTE REGISTERED IN THE NAME OF THE DEPOSITARY (REFERRED TO HEREIN) OR A NOMINEE
THEREOF AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE FOR THE INDIVIDUAL NOTES
REPRESENTED HEREBY AS PROVIDED IN THE INDENTURE REFERRED TO BELOW, THIS
SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY
OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE
TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS
THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK), TO THE TRUSTEE FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT
IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

 

[non-registration legend to be included on Private
Notes]

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).  THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED PRIOR TO THE DATE WHICH IS ONE YEAR
(OR SIX MONTHS IF ALL APPLICABLE CONDITIONS TO SUCH RESALE UNDER RULE 144 UNDER
THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION THEREOF) ARE SATISFIED) AFTER
THE LATER OF THE ORIGINAL ISSUANCE DATE THEREOF, THE ISSUANCE DATE OF ANY
SUBSEQUENT REOPENING AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE
THEREOF WAS THE OWNER OF THIS SECURITY OR THE EXPIRATION OF SUCH SHORTER PERIOD
AS MAY BE PRESCRIBED BY SUCH RULE 144 (OR SUCH SUCCESSOR PROVISION)
PERMITTING RESALES OF THIS SECURITY WITHOUT ANY CONDITIONS (THE “RESALE
RESTRICTION TERMINATION DATE”) OTHER THAN (1) TO THE COMPANY, (2) IN
A TRANSACTION ENTITLED TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT, (3) SO LONG AS THIS SECURITY IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
RESALE, PLEDGE OR OTHER 

 

A-1

 

TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ATTACHED TO THIS SECURITY), (4) IN
AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S
UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON
THE CERTIFICATE OF TRANSFER ATTACHED TO THIS SECURITY), (5) TO AN
INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED
BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ATTACHED TO THIS SECURITY)
THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION, AND A CERTIFICATE IN THE FORM ATTACHED TO THIS SECURITY IS
DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE OR (6) IN ACCORDANCE
WITH ANOTHER APPLICABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.  THE FOREGOING RESTRICTIONS ON RESALE WILL NOT
APPLY SUBSEQUENT TO THE RESALE RESTRICTION TERMINATION DATE.  THE HOLDER OF THIS SECURITY ACKNOWLEDGES THAT
THE COMPANY RESERVES THE RIGHT PRIOR TO ANY OFFER, SALE OR OTHER TRANSFER (1) PURSUANT
TO CLAUSE (2) PRIOR TO THE RESALE RESTRICTION TERMINATION DATE TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS OR OTHER INFORMATION
SATISFACTORY TO THE COMPANY AND (2) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATE AS TO COMPLIANCE WITH CERTAIN CONDITIONS TO TRANSFER
IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY.

 

[Regulation S legend
to be included on Private Notes]

 

BY ITS ACQUISITION HEREOF, EACH HOLDER OF THIS SECURITY,
AND EACH PERSON THAT ACQUIRES A BENEFICIAL INTEREST IN SUCH SECURITY, AGREES
THAT PRIOR TO THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD (AS DEFINED
IN THE COMPANY ORDER ESTABLISHING THE TERMS OF THIS SECURITY), BENEFICIAL
INTERESTS IN THIS SECURITY MAY ONLY BE OFFERED, RESOLD OR OTHERWISE
TRANSFERRED (A) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT OF 1933 OR (B) OUTSIDE
THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR 904 UNDER THE
SECURITIES ACT OF 1933 AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION.

 

[registration rights
legend to be included on Private Notes]

 

BY ITS ACCEPTANCE OF THE SECURITIES EVIDENCED HEREBY
OR A BENEFICIAL INTEREST IN SUCH SECURITIES, THE HOLDER OF, AND ANY PERSON 

 

A-2

 

THAT
ACQUIRES A BENEFICIAL INTEREST IN, SUCH SECURITIES AGREES TO BE BOUND BY THE
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT (THE “REGISTRATION RIGHTS
AGREEMENT”) DATED AS OF OCTOBER 23, 2008 AND RELATING TO THE REGISTRATION UNDER
THE SECURITIES ACT OF SECURITIES EXCHANGEABLE FOR THE SECURITIES EVIDENCED
HEREBY AND REGISTRATION OF THE SECURITIES EVIDENCED HEREBY.

 

Illinois Commerce Commission ID
No.: 6505

 

ILLINOIS POWER COMPANY

9.75% SENIOR SECURED NOTE DUE 2018

 

	
  CUSIP:
  [452092CW7][U4504NCE7]

  	
   

  	
  NUMBER:
  1

  
	
  ISIN:
  [US452092CW77][USU4504NCE77]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ORIGINAL
  ISSUE DATE: October 23, 2008

  	
   

  	
  PRINCIPAL
  AMOUNT: 

  	
  Listed
  on Schedule I hereto

  
	
   

  	
   

  	
   

  
	
  INTEREST
  RATE: 9.75%

  	
   

  	
  MATURITY
  DATE: November 15, 2018

  

 

ILLINOIS POWER COMPANY, a
corporation of the State of Illinois (the “COMPANY”), for value received hereby
promises to pay to CEDE & CO. or registered assigns, the principal
amount specified above on the Maturity Date set forth above, and to pay
interest thereon from and including the Original Issue Date specified above or
from and including the most recent Interest Payment Date to which interest has
been paid or duly provided for, semi-annually in arrears on May 15 and November 15
in each year, commencing May 15, 2009, and on the Maturity Date, at the
per annum interest rate set forth above until the principal hereof is paid or
made available for payment. If the Company does not comply with certain of its
obligations under the Registration Rights Agreement, dated as of October 23,
2008, this bond shall, in accordance with Section 2(e) of such
Registration Rights Agreement, bear additional interest (“Additional Interest”)
in addition to the interest provided for in the immediately preceding
sentence.  For purposes of this Note, the
term “interest” shall be deemed to include interest provided for in the second
immediately preceding sentence and Additional Interest, if any. No interest
shall accrue on the Maturity Date, so long as the principal amount of this Note
is paid in full on the Maturity Date. The interest so payable and punctually
paid or duly provided for on any such Interest Payment Date will (except for interest
payable on the Maturity Date set forth above or, if applicable, upon redemption
or acceleration), as provided in the Indenture (as defined below), be paid to
the Person in whose name this Note is registered at the close of business on
the Regular Record Date for such interest, which shall be May 1 or November 1,
as the case may be, next preceding such Interest Payment Date; provided, that
the first Interest Payment Date for any part of this Note, the Original Issue
Date of which is after a Regular Record Date but prior to the applicable
Interest Payment Date, shall be the Interest Payment Date following the next
succeeding Regular Record Date; and provided, that interest payable on the
Maturity Date set forth above or, if applicable, upon redemption or
acceleration, shall be payable to the Person to whom principal shall be
payable. Except as otherwise provided in the Indenture, any such interest not
so punctually paid or duly provided for will forthwith cease to be payable to
the Holder on such Regular Record Date and shall be paid to the Person in whose
name this Note 

 

A-3

 

is registered at
the close of business on a Special Record Date for the payment of such
defaulted interest to be fixed by the Trustee, notice whereof shall be given to
Noteholders not more than fifteen days nor fewer than ten days prior to such
Special Record Date.  Payment of the
principal of and interest and premium on this Note shall be payable pursuant to
Section 2.12(a) of the Indenture.

 

This Note is a Global
Note in respect of a duly authorized issue of 9.75% Senior Secured Notes due
2018 (the “NOTES OF THIS SERIES”, which term includes any Global Notes
representing such Notes) of the Company issued and to be issued under an Indenture
dated as of June 1, 2006 between the Company and The Bank of New York
Mellon Trust Company, N.A., as trustee (herein called the “TRUSTEE”, which term
includes any successor Trustee under the Indenture) and indentures supplemental
thereto (collectively, the “INDENTURE”). Under the Indenture, one or more
series of notes may be issued and, as used herein, the term “Notes” refers to
the Notes of this Series.  Reference is
hereby made to the Indenture for a more complete statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Noteholders and of the terms upon which the Notes are and
are to be authenticated and delivered. This Note has been issued in respect of
the series designated on the first page hereof, issued in the initial
aggregate principal amount of $400,000,000.

 

The Notes will be secured
by mortgage bonds (the “SENIOR NOTE MORTGAGE BONDS”) delivered by the Company
to the Trustee for the benefit of the Holders of the Notes, issued under the
General Mortgage Indenture and Deed of Trust, dated as of November 1, 1992
between the Company and The Bank of New York Mellon Trust Company, N.A.
(formerly BNY Midwest Trust Company), as successor trustee (the “MORTGAGE
TRUSTEE”), as supplemented and modified (collectively, the “MORTGAGE”).
Reference is made to the Mortgage and the Indenture for a description of the
rights of the Trustee as holder of the Senior Note Mortgage Bonds, the property
mortgaged and pledged, the nature and extent of the security and the rights of
the holders of mortgage bonds, under the Mortgage and the rights of the Company
and of the Mortgage Trustee in respect thereof, the duties and immunities of
the Mortgage Trustee and the terms and conditions upon which the Senior Note
Mortgage Bonds are secured and the circumstances under which additional
mortgage bonds may be issued.

 

So long as any of the
Notes of this Series are outstanding, the Company will not optionally
redeem, purchase or otherwise retire in full its outstanding Mortgage Bonds,
and, therefore, the Release Date will not occur.

 

Each Note of this Series shall
be dated and issued as of the date of its authentication by the Trustee and
shall bear an Original Issue Date. Each Note of this Series issued upon transfer,
exchange or substitution of such Note shall bear the Original Issue Date of
such transferred, exchanged or substituted Note, as the case may be.

 

Interest on this Note
will accrue from and including the Original Issue Date specified above to, but excluding,
May 15, 2009, and thereafter, from and including each Interest Payment
Date to, but excluding, the next succeeding Interest Payment Date or the
Maturity Date, as the case may be.

 

A-4

 

Interest payments for
this Note shall be computed on the basis of a 360-day year consisting of twelve
30-day months.  If any Interest Payment
Date falls on a day that is not a Business Day, the Interest Payment Date will
be the next succeeding Business Day (and without any interest or other payment
in respect of any such delay).  If the
Maturity Date of this Note or any redemption date falls on a day that is not a
Business Day, the payment of principal, premium, if any, and interest will be
made on the next succeeding Business Day, and no interest on such payment shall
accrue for the period from and after the Maturity Date or such redemption date.

 

All or a portion of the
Notes of this Series may be redeemed at the option of the Company at any
time or from time to time. The redemption price for the Notes of this Series to
be redeemed on any redemption date will be equal to the greater of the
following amounts: (a) 100% of the principal amount of the Notes of this Series being
redeemed on the redemption date; or (b) the sum of the present values of
the remaining scheduled payments of principal and interest on the Notes of this
Series being redeemed on that redemption date (not including any portion
of any payments of interest accrued to the redemption date) discounted to the
redemption date on a semiannual basis at the Adjusted Treasury Rate (as defined
below) plus 50 basis points, as determined by the Reference Treasury Dealer (as
defined below); plus, in each case, accrued and unpaid interest thereon to the
redemption date. Notwithstanding the foregoing, installments of interest on
Notes of this Series that are due and payable on Interest Payment Dates
falling on or prior to a redemption date will be payable on the Interest
Payment Date to the Holder of this Note as of the close of business on the
relevant Regular Record Date. The redemption price will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.

 

The Company shall mail
notice of any redemption at least 30 days but not more than 60 days before the
redemption date to each Holder of the Notes of this Series to be redeemed.
Unless the Company defaults in payment of the redemption price, on and after
the redemption date, interest will cease to accrue on the Notes of this Series or
portions thereof called for redemption.

 

“ADJUSTED TREASURY RATE”
means, with respect to any redemption date, the rate per annum equal to the
semiannual equivalent yield to maturity of the Comparable Treasury Issue,
assuming a price for the Comparable Treasury Issue (expressed as a percentage
of its principal amount) equal to the Comparable Treasury Price for such
redemption date.

 

“COMPARABLE TREASURY
ISSUE” means the United States Treasury security selected by the Reference
Treasury Dealer as having a maturity comparable to the remaining term of the
Notes of this Series to be redeemed that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
term of such Notes of this Series.

 

“COMPARABLE TREASURY
PRICE” means, with respect to any redemption date, (A) the average of the
Reference Treasury Dealer Quotations for such redemption date, after excluding
the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if
the Trustee obtains fewer than four such Reference Treasury Dealer Quotations,
the average of all such quotations, or (C) if only one Reference Treasury
Dealer Quotation is received, such quotation.

 

A-5

 

“REFERENCE TREASURY
DEALER” means (A) Barclays Capital Inc., J.P. Morgan Securities Inc. or
UBS Securities LLC or their respective affiliates which are primary U.S.
Government securities dealers in the United States (each, a “Primary Treasury
Dealer”), and their respective successors; provided, however, that if any of
the foregoing shall cease to be a Primary Treasury Dealer, the Company shall
substitute therefor another Primary Treasury Dealer; and (B) any other
Primary Treasury Dealer(s) selected by the Company.

 

“REFERENCE TREASURY
DEALER QUOTATIONS” means, with respect to each Reference Treasury Dealer and
any redemption date, the average, as determined by the Company, of the bid and
asked prices for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the Company by such
Reference Treasury Dealer at 5:00 p.m. (New York City time) on the third
Business Day preceding such redemption date.

 

The Company, at its
option, and subject to the terms and conditions provided in the Indenture, will
be discharged from any and all obligations in respect of the Notes of this Series (except
for certain obligations including obligations to register the transfer or
exchange of Notes of this Series, replace stolen, lost or mutilated Notes of
this Series, maintain paying agencies and hold monies for payment in trust, all
as set forth in the Indenture) if the Company deposits with the Trustee money,
U.S. Government Obligations which through the payment of interest thereon and
principal thereof in accordance with their terms will provide money, or a
combination of money and U.S. Government Obligations, in any event in an amount
sufficient, without reinvestment, to pay all the principal of and any premium
and interest on the Notes of this Series on the dates such payments are
due in accordance with the terms of the Notes of this Series.

 

If an Event of Default
shall occur and be continuing with respect to the Notes, the principal of and
interest on the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture and, upon such declaration, the Trustee
shall demand the redemption of the Senior Note Mortgage Bonds to the extent
provided in the Indenture.

 

The Indenture permits,
with certain exceptions as therein provided, the amendment thereof and the
modifications of the rights and obligations of the Company and the rights of
the Noteholders under the Indenture at any time by the Company and the Trustee
with the consent of the Holders of a majority in aggregate principal amount of
the outstanding Notes. Any such consent or waiver by the Holder of this Note
shall be conclusive and binding upon such Holder and upon all future Holders of
this Note and of any Note issued upon the registration of transfer hereof or in
exchange therefor or in lieu thereof whether or not notation of such consent or
waiver is made upon this Note.

 

As set forth in and
subject to the provisions of the Indenture, no Holder of any Notes will have
any right to institute any proceeding with respect to the Indenture or for any
remedy thereunder unless such Holder shall have previously given to the Trustee
written notice of a continuing Event of Default with respect to such Notes, the
Holders of a majority in aggregate principal amount of the outstanding Notes
affected by such Event of Default shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as Trustee and
the Trustee shall have failed to institute such proceeding within 60 days;
provided, however, that such limitations do not apply to a suit instituted by
the Holder hereof for the 

 

A-6

 

enforcement of
payment of the principal of and any premium or interest on this Note on or
after the respective due dates expressed herein.

 

No reference herein to
the Indenture and to provisions of this Note or of the Indenture shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of and any premium and interest on this Note at the times,
places and rates and the coin or currency prescribed in the Indenture.

 

As provided in the
Indenture and subject to certain limitations therein set forth, this Note may
be transferred only as permitted by the legend hereto and the provisions of the
Indenture.

 

The Indenture and the
Notes shall be governed by, and construed in accordance with, the laws of the
State of New York without regard to conflicts of law principles thereof.

 

Unless the certificate of
authentication hereon has been executed by the Trustee, directly or through an
Authenticating Agent by manual signature of an authorized officer, this Note
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

 

All terms used in this
Note that are defined in the Indenture shall have the meanings assigned to them
in the Indenture unless otherwise indicated herein.

 

A-7

 

IN WITNESS WHEREOF, the
Company has caused this instrument to be duly executed.

 

	
   

  	
   

  	
  ILLINOIS POWER COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attest:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TRUSTEE’S CERTIFICATE

  	
   

  	
   

  	
   

  
	
  OF AUTHENTICATION

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated: October 23, 2008

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  This Note is one of the Notes of the series herein

  	
   

  	
   

  	
   

  
	
  designated, described or provided for in the within-

  	
   

  	
   

  	
   

  
	
  mentioned Indenture.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  THE BANK OF NEW
  YORK MELLON TRUST COMPANY, N.A., As Trustee

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  	
   

  	
   

  	
   

  
							

 

A-8

 

SCHEDULE I

 

[144A]*[REGULATION
S]* GLOBAL SECURITY

 

The
initial principal amount of Notes evidenced by this Global Note is
$                          .

 

CHANGES
TO PRINCIPAL AMOUNT OF NOTES EVIDENCED BY GLOBAL NOTE

 

	
  Date

  	
   

  	
  Principal Amount of

  Notes by which this

  Global Note is to be

  Reduced or Increased,

  and Reason for

  Reduction or Increase

  	
   

  	
  Remaining Principal

  Amount of Notes

  Represented by this

  Global Note

  	
   

  	
  Notation Made by

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  *

  	
   

  	
  Include
  bracketed language only in a Private Note.

  

 

A-9

 

EXHIBIT A-1

 

CERTIFICATE OF TRANSFER*

 

ILLINOIS POWER COMPANY

 

9.75% Senior Secured Notes due 2018

 

FOR
VALUE RECEIVED, the undersigned sells, assigns and transfers unto

 

PLEASE
INSERT SOCIAL SECURITY OR OTHER

IDENTIFYING
NUMBER OF ASSIGNEE

 

	
   

  	
   

  	
  Name
  and address of assignee must be printed or typewritten.

  

 

$

principal
amount of beneficial interest in the referenced Security of the Company and
does hereby irrevocably constitute and appoint

 

to
transfer the said beneficial interest in such Security, with full power of
substitution in the premises.

 

The
undersigned certifies that said beneficial interest in said Security is being
resold, pledged or otherwise transferred as follows:

 

(check
one)

 

	
  o

  	
   

  	
  to
  the Company;

  
	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  to
  a Person whom the undersigned reasonably believes is a qualified
  institutional buyer within the meaning of Rule 144A under the Securities
  Act of 1933, as amended (the “Securities Act”), purchasing for its own
  account or for the account of a qualified institutional buyer to whom notice
  is given that the resale, pledge or other transfer is being made in reliance
  on Rule 144A;

  
	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  in
  an offshore transaction in accordance with Rule 903 or 904 of Regulation
  S under the Securities Act;

  
	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  to
  an institution that is an “accredited investor” as defined in
  Rule 501(a)(1), (2), (3) or (7) under the Securities Act that
  is acquiring this Security for investment purposes and not for distribution
  (attach a copy of an Institutional Accredited Investor Certificate in the
  form annexed signed by an authorized officer of the transferee);

  
	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  as
  otherwise permitted by the non-registration legend appearing on this
  Security; or

  
	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  as
  otherwise agreed by the Company, confirmed in writing to the Trustee, as
  follows: [describe]

  

 

	
  Dated:

  	
   

  	
   

  	
  Signature:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  NOTICE:
  The signature to this assignment must correspond with the name as written
  upon the face of the within instrument in every particular without alteration
  or enlargement, or any change whatever.

  

 

	
  *

  	
   

  	
  Include this form of
  Certificate of Transfer only in a Private Note.

  

 

A-10

 

SIGNATURE GUARANTEE

 

Signatures
must be guaranteed by an “eligible guarantor institution” meeting the
requirement of the registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program (“STAMP”) or
such other “signature guarantee program” as may be determined by the registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.

 

A-11

 

[FORM OF INSTITUTIONAL ACCREDITED INVESTOR CERTIFICATE]*

 

[Transferor
Name and Address]

 

Ladies
and Gentlemen:

 

In
connection with our proposed purchase of 9.75% Senior Secured Notes due 2018
(the “Notes”) issued by Illinois Power Company d/b/a AmerenIP (the “Issuer”),
we confirm that:

 

1.             We have received a
copy of the Offering Memorandum (the “Offering Memorandum”) relating to the
Notes and such other information as we deem necessary in order to make our
investment decision.  We acknowledge that
we have read and agree to the matters stated under the caption NOTICE TO
INVESTORS in such Offering Memorandum.

 

2.             We understand that
any subsequent transfer of the Notes is subject to certain restrictions and
conditions set forth in the indenture relating to the Notes (the “Indenture”)
and as set forth under NOTICE TO INVESTORS in the Offering Memorandum and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with such restrictions and conditions
and the Securities Act of 1933, as amended (the “Securities Act”).

 

3.             We understand that
the offer and sale of the Notes have not been registered under the Securities
Act, and that the Notes may not be offered or sold except as permitted in the
following sentence.  We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we sell any Notes, we will do so only (A) to the Issuer, (B) so
long as the Notes are eligible for resale pursuant to Rule 144A under the
Securities Act (“Rule 144A”), to a person whom we reasonably believe is a “qualified
institutional buyer” within the meaning of Rule 144A that purchases for
its own account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or other transfer is being made in
reliance on Rule 144A, (C) to an institutional “accredited investor”
(as defined below) that, prior to such transfer, furnishes to the Trustee (as
defined in the Indenture) a signed letter containing certain representations
and agreements relating to the restrictions on transfer of the Notes
(substantially in the form of this letter), (D) in an offshore transaction
in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant
to the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (F) in accordance with another
applicable exemption from the registration requirements of, or in a transaction
not subject to, the Securities Act or pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing any of the Notes from us a notice advising such purchaser
that resales of the Notes are restricted as stated herein.

 

	
  *

  	
   

  	
  Include
  this form only in a Private Note.

  

 

A-12

 

4.             We understand that,
on any proposed resale of any Notes, we will be required to furnish to the
Trustee and the Issuer such certification and other information as the Trustee
and the Issuer may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. 
We further understand that the Notes purchased by us will bear a legend
to the foregoing effect.

 

5.             We are an
institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) and have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its investment.

 

6.             We are acquiring the
Notes purchased by us for our own account or for one or more accounts (each of
which is an institutional “accredited investor”) as to each of which we
exercise sole investment discretion in each case for investment and not with a
view to, or for offer or sale in connection with, any distribution in violation
of the Securities Act.

 

You,
the Issuer and the Trustee are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A-13

 

EXHIBIT B

FORM OF DEFINITIVE NOTE

 

[non-registration legend to be included on Private Notes]

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).  THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED PRIOR TO THE DATE WHICH IS ONE YEAR
(OR SIX MONTHS IF ALL APPLICABLE CONDITIONS TO SUCH RESALE UNDER RULE 144 UNDER
THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION THEREOF) ARE SATISFIED) AFTER THE
LATER OF THE ORIGINAL ISSUANCE DATE THEREOF, THE ISSUANCE DATE OF ANY
SUBSEQUENT REOPENING AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE
THEREOF WAS THE OWNER OF THIS SECURITY OR THE EXPIRATION OF SUCH SHORTER PERIOD
AS MAY BE PRESCRIBED BY SUCH RULE 144 (OR SUCH SUCCESSOR PROVISION)
PERMITTING RESALES OF THIS SECURITY WITHOUT ANY CONDITIONS (THE “RESALE
RESTRICTION TERMINATION DATE”) OTHER THAN (1) TO THE COMPANY, (2) IN
A TRANSACTION ENTITLED TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT, (3) SO LONG AS THIS SECURITY IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER
ATTACHED TO THIS SECURITY), (4) IN AN OFFSHORE TRANSACTION IN ACCORDANCE
WITH RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE
OF THIS SECURITY), (5) TO AN INSTITUTION THAT IS AN “ACCREDITED INVESTOR”
AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A CERTIFICATE IN THE FORM ATTACHED
TO THIS SECURITY IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE
OR (6) IN ACCORDANCE WITH ANOTHER APPLICABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES.  AN INSTITUTIONAL
ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT WILL FURNISH TO THE COMPANY
AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY
REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES 

 

B-1

 

WITH
THE FOREGOING RESTRICTIONS.  THE
FOREGOING RESTRICTIONS ON RESALE WILL NOT APPLY SUBSEQUENT TO THE RESALE
RESTRICTION TERMINATION DATE.  THE HOLDER
OF THIS SECURITY ACKNOWLEDGES THAT THE COMPANY RESERVES THE RIGHT PRIOR TO ANY
OFFER, SALE OR OTHER TRANSFER (1) PURSUANT TO CLAUSE (2) PRIOR TO THE
RESALE RESTRICTION TERMINATION DATE TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATIONS OR OTHER INFORMATION SATISFACTORY TO THE COMPANY AND (2) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE AS TO COMPLIANCE
WITH CERTAIN CONDITIONS TO TRANSFER IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE COMPANY.

 

[Regulation S legend
to be included on Private Notes]

 

BY ITS ACQUISITION HEREOF, EACH HOLDER OF THIS
SECURITY, AND EACH PERSON THAT ACQUIRES A BENEFICIAL INTEREST IN SUCH SECURITY,
AGREES THAT PRIOR TO THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD (AS
DEFINED IN THE COMPANY ORDER ESTABLISHING THE TERMS OF THIS SECURITY),
BENEFICIAL INTERESTS IN THIS SECURITY MAY ONLY BE OFFERED, RESOLD OR
OTHERWISE TRANSFERRED (A) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT
OF 1933 OR (B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903
OR 904 UNDER THE SECURITIES ACT OF 1933 AND, IN EACH CASE, IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION.

 

[registration rights
legend to be included on Private Notes]

 

BY ITS ACCEPTANCE OF THE SECURITIES EVIDENCED HEREBY
OR A BENEFICIAL INTEREST IN SUCH SECURITIES, THE HOLDER OF, AND ANY PERSON THAT
ACQUIRES A BENEFICIAL INTEREST IN, SUCH SECURITIES AGREES TO BE BOUND BY THE
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT (THE “REGISTRATION RIGHTS
AGREEMENT”) DATED AS OF OCTOBER 23, 2008 AND RELATING TO THE REGISTRATION UNDER
THE SECURITIES ACT OF SECURITIES EXCHANGEABLE FOR THE SECURITIES EVIDENCED
HEREBY AND REGISTRATION OF THE SECURITIES EVIDENCED HEREBY.

 

B-2

 

Illinois Commerce Commission ID No.: 6505

 

ILLINOIS POWER COMPANY

9.75% SENIOR SECURED NOTE DUE 2018

 

	
  CUSIP:

  	
   

  	
   

  	
   

  	
  PRINCIPAL
  AMOUNT: $400,000,000

  
	
  ISIN:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ORIGINAL
  ISSUE DATE: October 23, 2008

  	
   

  	
  MATURITY
  DATE: November 15, 2018

  
	
   

  	
   

  	
   

  
	
  INTEREST
  RATE: 9.75%

  	
   

  	
  NUMBER:
  1

  
							

 

ILLINOIS POWER COMPANY, a
corporation of the State of Illinois (the “COMPANY”), for value received hereby
promises to pay to CEDE & CO or registered assigns, the principal
amount specified above on the Maturity Date set forth above, and to pay
interest thereon from and including the Original Issue Date specified above or
from and including the most recent Interest Payment Date to which interest has
been paid or duly provided for, semi-annually in arrears on May 15 and November 15
in each year, commencing May 15, 2009, and on the Maturity Date, at the
per annum interest rate set forth above until the principal hereof is paid or
made available for payment. If the Company does not comply with certain of its
obligations under the Registration Rights Agreement, dated as of October 23,
2008, this bond shall, in accordance with Section 2(e) of such
Registration Rights Agreement, bear additional interest (“Additional Interest”)
in addition to the interest provided for in the immediately preceding sentence.  For purposes of this Note, the term “interest”
shall be deemed to include interest provided for in the second immediately
preceding sentence and Additional Interest, if any. No interest shall accrue on
the Maturity Date, so long as the principal amount of this Note is paid in full
on the Maturity Date. The interest so payable and punctually paid or duly
provided for on any such Interest Payment Date will (except for interest
payable on the Maturity Date set forth above or, if applicable, upon redemption
or acceleration), as provided in the Indenture (as defined below), be paid to
the Person in whose name this Note is registered at the close of business on
the Regular Record Date for such interest, which shall be May 1 or November 1,
as the case may be, next preceding such Interest Payment Date; provided, that
the first Interest Payment Date for any part of this Note, the Original Issue
Date of which is after a Regular Record Date but prior to the applicable
Interest Payment Date, shall be the Interest Payment Date following the next
succeeding Regular Record Date; and provided, that interest payable on the
Maturity Date set forth above or, if applicable, upon redemption or
acceleration, shall be payable to the Person to whom principal shall be
payable. Except as otherwise provided in the Indenture (referred to on the
reverse hereof), any such interest not so punctually paid or duly provided for
will forthwith cease to be payable to the Holder on such Regular Record Date
and shall be paid to the Person in whose name this Note is registered at the
close of business on a Special Record Date for the payment of such defaulted
interest to be fixed by the Trustee, notice whereof shall be given to
Noteholders not more than fifteen days nor fewer than ten days prior to such
Special Record Date.  Principal,
applicable premium and interest due at the Maturity of this Note shall be
payable in immediately available funds when due upon presentation and surrender
of this Note at the corporate trust office of the Trustee or at the authorized
office of any paying agent in the Borough of Manhattan, The City and State of
New York or Chicago, Illinois. Interest on this 

 

B-3

 

Note (other than
interest payable at Maturity) shall be paid by check payable in clearinghouse
funds to the Holder as its name appears on the register; provided, that if the
Trustee receives a written request from any Holder of Notes, the aggregate
principal amount of all of which having the same Interest Payment Date as this
Note equals or exceeds $10,000,000, on or before the applicable Regular Record
Date for such Interest Payment Date, interest on the Note shall be paid by wire
transfer of immediately available funds to a bank within the continental United
States (designated by such Holder in its request or by direct deposit into the
account of such Holder designated by such Holder in its request if such account
is maintained with the Trustee or any paying agent).

 

REFERENCE IS HEREBY MADE
TO THE FURTHER PROVISIONS OF THIS NOTE SET FORTH IN FULL ON THE REVERSE HEREOF,
WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET
FORTH IN FULL AT THIS PLACE.

 

Unless the certificate of
authentication hereon has been executed by the Trustee referred to on the
reverse hereof, directly or through an Authenticating Agent by manual signature
of an authorized officer, this Note shall not be entitled to any benefit under
the Indenture or be valid or obligatory for any purpose.

 

B-4

 

IN WITNESS WHEREOF, the
Company has caused this instrument to be duly executed.

 

	
   

  	
  ILLINOIS POWER COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Attest:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					

 

TRUSTEE’S CERTIFICATE

OF AUTHENTICATION

 

Dated: October 23, 2008

 

This Note is one of the Notes of the series herein

designated, described or provided for in the within-

mentioned Indenture.

 

THE BANK OF NEW
YORK MELLON TRUST COMPANY, N.A., As Trustee

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Signatory

  

 

B-5

 

[FORM OF REVERSE OF NOTE]

 

ILLINOIS POWER COMPANY

9.75% SENIOR SECURED NOTE DUE 2018

 

This Note is one of a
duly authorized issue of 9.75% Senior Secured Notes due 2018 (the “NOTES OF
THIS SERIES”) of the Company issued and to be issued under an Indenture dated
as of June 1, 2006, between the Company and The Bank of New York Mellon
Trust Company, N.A., as trustee (herein called the “TRUSTEE”, which term
includes any successor Trustee under the Indenture) and indentures supplemental
thereto (collectively, the “INDENTURE”). Under the Indenture, one or more
series of notes may be issued and, as used herein, the term “Notes” refers to
the Notes of this Series.  Reference is
hereby made to the Indenture for a more complete statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Noteholders and of the terms upon which the Notes are and
are to be authenticated and delivered. This Note is one of the series
designated on the face hereof, issued in the initial aggregate principal amount
of $400,000,000.

 

The Notes will be secured
by mortgage bonds (the “SENIOR NOTE MORTGAGE BONDS”) delivered by the Company
to the Trustee for the benefit of the Holders of the Notes, issued under the
General  Mortgage Indenture and Deed of
Trust, dated as of November 1, 1992 between the Company and The Bank of
New York Mellon Trust Company, N.A. (formerly BNY Midwest Trust Company), as
successor trustee (the “MORTGAGE TRUSTEE”), as supplemented and modified
(collectively, the “MORTGAGE”). Reference is made to the Mortgage and the
Indenture for a description of the rights of the Trustee as holder of the
Senior Note Mortgage Bonds, the property mortgaged and pledged, the nature and
extent of the security and the rights of the holders of mortgage bonds, under
the Mortgage and the rights of the Company and of the Mortgage Trustee in
respect thereof, the duties and immunities of the Mortgage Trustee and the
terms and conditions upon which the Senior Note Mortgage Bonds are secured and
the circumstances under which additional mortgage bonds may be issued.

 

So long as any of the
Notes of this Series are outstanding, the Company will not optionally
redeem, purchase or otherwise retire in full its outstanding Mortgage Bonds,
and, therefore, the Release Date will not occur.

 

Each Note of this Series shall
be dated and issued as of the date of its authentication by the Trustee and
shall bear an Original Issue Date.  Each
Note of this Series issued upon transfer, exchange or substitution of such
Note shall bear the Original Issue Date of such transferred, exchanged or
substituted Note, as the case may be.

 

Interest on this Note
will accrue from and including the Original Issue Date specified above to, but
excluding, May 15, 2009, and thereafter, from and including each Interest
Payment Date to, but excluding, the next succeeding Interest Payment Date or
the Maturity Date, as the case may be.

 

Interest payments for
this Note shall be computed on the basis of a 360-day year consisting of twelve
30-day months.  If any Interest Payment
Date falls on a day that is not a Business Day, the Interest Payment Date will
be the next succeeding Business Day (and without 

 

B-6

 

any interest or
other payment in respect of any such delay). 
If the Maturity Date of this Note or any redemption date falls on a day
that is not a Business Day, the payment of principal, premium, if any, and
interest will be made on the next succeeding Business Day, and no interest on
such payment shall accrue for the period from and after the Maturity Date or
such redemption date.

 

All or a portion of the
Notes of this Series may be redeemed at the option of the Company at any
time or from time to time. The redemption price for the Notes of this Series to
be redeemed on any redemption date will be equal to the greater of the
following amounts: (a) 100% of the principal amount of the Notes of this Series being
redeemed on the redemption date; or (b) the sum of the present values of
the remaining scheduled payments of principal and interest on the Notes of this
Series being redeemed on that redemption date (not including any portion
of any payments of interest accrued to the redemption date) discounted to the
redemption date on a semiannual basis at the Adjusted Treasury Rate (as defined
below) plus 50 basis points, as determined by the Reference Treasury Dealer (as
defined below); plus, in each case, accrued and unpaid interest thereon to the
redemption date. Notwithstanding the foregoing, installments of interest on
Notes of this Series that are due and payable on Interest Payment Dates
falling on or prior to a redemption date will be payable on the Interest
Payment Date to the Holder of this Note as of the close of business on the
relevant Regular Record Date. The redemption price will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.

 

The Company shall mail
notice of any redemption at least 30 days but not more than 60 days before the
redemption date to each Holder of the Notes of this Series to be redeemed.
Unless the Company defaults in payment of the redemption price, on and after
the redemption date, interest will cease to accrue on the Notes of this Series or
portions thereof called for redemption.

 

“ADJUSTED TREASURY RATE”
means, with respect to any redemption date, the rate per annum equal to the
semiannual equivalent yield to maturity of the Comparable Treasury Issue,
assuming a price for the Comparable Treasury Issue (expressed as a percentage
of its principal amount) equal to the Comparable Treasury Price for such
redemption date.

 

“COMPARABLE TREASURY
ISSUE” means the United States Treasury security selected by the Reference
Treasury Dealer as having a maturity comparable to the remaining term of the
Notes of this Series to be redeemed that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
term of such Notes of this Series.

 

“COMPARABLE TREASURY
PRICE” means, with respect to any redemption date, (A) the average of the
Reference Treasury Dealer Quotations for such redemption date, after excluding
the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if
the Trustee obtains fewer than four such Reference Treasury Dealer Quotations,
the average of all such quotations, or (C) if only one Reference Treasury
Dealer Quotation is received, such quotation.

 

“REFERENCE
TREASURY DEALER” means (A) Barclays Capital Inc., J.P. Morgan Securities
Inc. or UBS Securities LLC or their respective affiliates which are primary
U.S. 

 

B-7

 

Government securities dealers in the United States (each, a “Primary
Treasury Dealer”), and their respective successors; provided, however, that if
any of the foregoing shall cease to be a Primary Treasury Dealer, the Company
shall substitute therefor another Primary Treasury Dealer; and (B) any
other Primary Treasury Dealer(s) selected by the Company.

 

“REFERENCE TREASURY
DEALER QUOTATIONS” means, with respect to each Reference Treasury Dealer and
any redemption date, the average, as determined by the Company, of the bid and
asked prices for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the Company by such
Reference Treasury Dealer at 5:00 p.m. (New York City time) on the third
Business Day preceding such redemption date.

 

The Company, at its option,
and subject to the terms and conditions provided in the Indenture, will be
discharged from any and all obligations in respect of the Notes of this Series (except
for certain obligations including obligations to register the transfer or
exchange of Notes of this Series, replace stolen, lost or mutilated Notes of
this Series, maintain paying agencies and hold monies for payment in trust, all
as set forth in the Indenture) if the Company deposits with the Trustee money,
U.S. Government Obligations which through the payment of interest thereon and
principal thereof in accordance with their terms will provide money, or a
combination of money and U.S. Government Obligations, in any event in an amount
sufficient, without reinvestment, to pay all the principal of and any premium
and interest on the Notes of this Series on the dates such payments are
due in accordance with the terms of the Notes of this Series.

 

If an Event of Default
shall occur and be continuing with respect to the Notes, the principal of and
interest on the Notes may be declared due and payable in the manner and with
the effect provided in the Indenture and, upon such declaration, the Trustee
shall demand the redemption of the Senior Note Mortgage Bonds to the extent
provided in the Indenture.

 

The Indenture permits,
with certain exceptions as therein provided, the amendment thereof and the
modifications of the rights and obligations of the Company and the rights of
the Noteholders under the Indenture at any time by the Company and the Trustee
with the consent of the Holders of a majority in aggregate principal amount of
the outstanding Notes. Any such consent or waiver by the Holder of this Note
shall be conclusive and binding upon such Holder and upon all future Holders of
this Note and of any Note issued upon the registration of transfer hereof or in
exchange therefor or in lieu thereof whether or not notation of such consent or
waiver is made upon this Note.

 

As set forth in and
subject to the provisions of the Indenture, no Holder of any Notes will have
any right to institute any proceeding with respect to the Indenture or for any
remedy thereunder unless such Holder shall have previously given to the Trustee
written notice of a continuing Event of Default with respect to such Notes, the
Holders of a majority in aggregate principal amount of the outstanding Notes
affected by such Event of Default shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as Trustee and
the Trustee shall have failed to institute such proceeding within 60 days;
provided, however, that such limitations do not apply to a suit instituted by
the Holder hereof for the enforcement of payment of the principal of and any
premium or interest on this Note on or after the respective due dates expressed
herein.

 

B-8

 

No reference herein to
the Indenture and to provisions of this Note or of the Indenture shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of and any premium and interest on this Note at the times,
places and rates and the coin or currency prescribed in the Indenture.

 

As provided in the
Indenture and subject to certain limitations therein set forth, the transfer of
this Note is registrable in the Note register. Upon surrender of this Note for
registration or transfer at the corporate trust office of the Trustee or such
other office or agency as may be designated by the Company in the Borough of
Manhattan, the City and State of New York, or Chicago, Illinois, endorsed by or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Note registrar, duly executed by the Holder hereof or the
attorney in fact of such Holder duly authorized in writing, one or more new
Notes of this Series of like tenor and of authorized denominations and for
the same aggregate principal amount will be issued to the designated transferee
or transferees.

 

The Notes of this Series are
issuable only in registered form, without coupons, in denominations of $2,000
and integral multiples of $1,000 thereof. As provided in the Indenture and
subject to certain limitations therein set forth, Notes of this Series are
exchangeable for a like aggregate principal amount of Notes of this Series of
like tenor and of a different authorized denomination, as requested by the
Holder surrendering the same.

 

No service charge shall
be made for any such registration of transfer or exchange but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.

 

Prior to due presentment
of this Note for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in whose name this
Note is registered as the owner thereof for all purposes, whether or not this
Note is overdue, and neither the Company, the Trustee nor any such agent shall
be affected by notice to the contrary.

 

The Indenture and the
Notes shall be governed by, and construed in accordance with, the laws of the
State of New York without regard to conflicts of law principles thereof.

 

All terms used in this
Note that are defined in the Indenture shall have the meanings assigned to them
in the Indenture unless otherwise indicated herein.

 

B-9

 

ABBREVIATIONS

 

The following
abbreviations, when used in the inscription on the face of this instrument,
shall be construed as though they were written out in full according to
applicable laws or regulations:

 

	
  TEN
  COM — as tenants in common

  	
   

  	
  UNIF
  GIFT

  
	
   

  	
   

  	
  MIN
  ACT - 

  	
   

  	
   Custodian

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (Cust)

  	
   

  	
  (Minor)

  	
   

  
	
  TEN
  ENT — as tenants by the

  	
   

  	
   

  
	
  entireties

  	
   

  	
  Under
  Uniform Gifts to Minors

  
	
   

  	
   

  	
   

  
	
  JT
  TEN — as joint tenants with right

  	
   

  	
   

  
	
  of
  survivorship and not as tenants in

  	
   

  	
   

  
	
  common

  	
   

  	
   

  
	
   

  	
   

  	
  State

  

Additional abbreviations may also be used 

though not in the above list.

 

B-10

 

CERTIFICATE OF TRANSFER*

 

ILLINOIS POWER COMPANY

 

9.75% Senior Secured Notes due 2018

 

FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto

 

PLEASE
INSERT SOCIAL SECURITY OR OTHER

IDENTIFYING
NUMBER OF ASSIGNEE

 

Name
and address of assignee must be printed or typewritten.

 

$

 

principal
amount of beneficial interest in the referenced Security of the Company and
does hereby irrevocably constitute and appoint 

 

to
transfer the said beneficial interest in such Security, with full power of
substitution in the premises.

 

The
undersigned certifies that said beneficial interest in said Security is being
resold, pledged or otherwise transferred as follows:

 

(check
one)

 

o                        to the Company;

 

o                        to a Person whom
the undersigned reasonably believes is a qualified institutional buyer within
the meaning of Rule 144A under the Securities Act of 1933, as amended (the
“Securities Act”), purchasing for its own account or for the account of a
qualified institutional buyer to whom notice is given that the resale, pledge
or other transfer is being made in reliance on Rule 144A;

 

o                        in an offshore
transaction in accordance with Rule 903 or 904 of Regulation S under the
Securities Act;

 

o                        to an institution
that is an “accredited investor” as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act that is acquiring this Security for
investment purposes and not for distribution (attach a copy of an Institutional
Accredited Investor Certificate in the form annexed signed by an authorized
officer of the transferee);

 

o                        as otherwise
permitted by the non-registration legend appearing on this Security; or

 

o                        as otherwise agreed
by the Company, confirmed in writing to the Trustee, as follows: [describe]

 

	
  Dated:

  	
   

  	
   

  	
   

  	
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  NOTICE:
  The signature to this assignment must correspond with the name as written
  upon the face of the within instrument in every particular without alteration
  or enlargement, or any change whatever.

  

 

*  Include this form
of Certificate of Transfer only in a Private Note.

 

B-11

 

SIGNATURE GUARANTEE

 

Signatures
must be guaranteed by an “eligible guarantor institution” meeting the
requirement of the registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program (“STAMP”) or
such other “signature guarantee program” as may be determined by the registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.

 

B-12

 

[FORM OF INSTITUTIONAL ACCREDITED INVESTOR CERTIFICATE]*

 

 

[Transferor
Name and Address]

 

Ladies
and Gentlemen:

 

In
connection with our proposed purchase of 9.75% Senior Secured Notes due 2018
(the “Notes”) issued by Illinois Power Company d/b/a AmerenIP (the “Issuer”),
we confirm that:

 

1.             We have received a
copy of the Offering Memorandum (the “Offering Memorandum”) relating to the
Notes and such other information as we deem necessary in order to make our
investment decision.  We acknowledge that
we have read and agree to the matters stated under the caption NOTICE TO
INVESTORS in such Offering Memorandum.

 

2.             We understand that
any subsequent transfer of the Notes is subject to certain restrictions and
conditions set forth in the indenture relating to the Notes (the “Indenture”)
and as set forth under NOTICE TO INVESTORS in the Offering Memorandum and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with such restrictions and conditions
and the Securities Act of 1933, as amended (the “Securities Act”).

 

3.             We understand that
the offer and sale of the Notes have not been registered under the Securities
Act, and that the Notes may not be offered or sold except as permitted in the
following sentence.  We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we sell any Notes, we will do so only (A) to the Issuer, (B) so
long as the Notes are eligible for resale pursuant to Rule 144A under the
Securities Act (“Rule 144A”), to a person whom we reasonably believe is a “qualified
institutional buyer” within the meaning of Rule 144A that purchases for
its own account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or other transfer is being made in
reliance on Rule 144A, (C) to an institutional “accredited investor”
(as defined below) that, prior to such transfer, furnishes to the Trustee (as
defined in the Indenture) a signed letter containing certain representations
and agreements relating to the restrictions on transfer of the Notes
(substantially in the form of this letter), (D) in an offshore transaction
in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant
to the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (F) in accordance with another
applicable exemption from the registration requirements of, or in a transaction
not subject to, the Securities Act or pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing any of the Notes from us a notice advising such purchaser
that resales of the Notes are restricted as stated herein.

 

*  Include
this form only in a Private Note.

 

B-13

 

4.             We understand that,
on any proposed resale of any Notes, we will be required to furnish to the
Trustee and the Issuer such certification and other information as the Trustee
and the Issuer may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. 
We further understand that the Notes purchased by us will bear a legend
to the foregoing effect.

 

5.             We are an
institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) and have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its investment.

 

6.             We are acquiring
the Notes purchased by us for our own account or for one or more accounts (each
of which is an institutional “accredited investor”) as to each of which we
exercise sole investment discretion in each case for investment and not with a
view to, or for offer or sale in connection with, any distribution in violation
of the Securities Act.

 

You,
the Issuer and the Trustee are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

B-14

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