Document:

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                                                                     EXHIBIT 4.1

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                             ILLINOIS POWER COMPANY

                                       TO

                            BNY MIDWEST TRUST COMPANY

                                    ---------

                             Supplemental Indenture

                          DATED AS OF DECEMBER 15, 2002

                                       TO

                  General Mortgage Indenture and Deed of Trust

                          DATED AS OF NOVEMBER 1, 1992

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                             ILLINOIS POWER COMPANY

                             SUPPLEMENTAL INDENTURE
                          DATED AS OF DECEMBER 15, 2002

                                Table of Contents
<TABLE>
<CAPTION>
<S>                                                                       <C>
PARTIES       ..........................................................    1

RECITALS      ..........................................................    1

ARTICLE I.    DEFINITIONS ..............................................    3

ARTICLE II.   DESCRIPTION OF THE INITIAL BONDS .........................   27

ARTICLE III.  DESCRIPTION OF THE EXCHANGE BONDS AND THE  PRIVATE
              EXCHANGE BONDS ...........................................   34

ARTICLE IV.   ISSUE OF THE INITIAL BONDS, THE EXCHANGE BONDS AND
              THE PRIVATE EXCHANGE BONDS ...............................   39

ARTICLE V.    ADDITIONAL PROVISIONS RELATING TO THE INITIAL
              BONDS, THE EXCHANGE BONDS AND THE PRIVATE EXCHANGE
              BONDS ....................................................   47

ARTICLE VI.   AMENDMENT OF INDENTURE ...................................   82

ARTICLE VII.  THE TRUSTEE ..............................................   82

ARTICLE VIII. MISCELLANEOUS PROVISIONS .................................   82

SIGNATURES    ..........................................................   84

EXHIBIT A     ..........................................................  A-1

EXHIBIT B     ..........................................................  B-1

EXHIBIT C     ..........................................................  C-1

EXHIBIT D     ..........................................................  D-1

EXHIBIT E     ..........................................................  E-1
</TABLE>

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Supplemental Indenture dated as of December 15, 2002 ("Supplemental Indenture"),
made by and between ILLINOIS POWER COMPANY, a corporation organized and existing
under the laws of the State of Illinois, party of the first part, and BNY
MIDWEST TRUST COMPANY, an Illinois trust company, as Trustee under the General
Mortgage Indenture and Deed of Trust dated as of November 1, 1992, hereinafter
mentioned, party of the second part.

                                 R E C I T A L S

         WHEREAS, the Company has heretofore executed and delivered its General
Mortgage Indenture and Deed of Trust dated as of November 1, 1992, as from time
to time amended (the "Indenture"), to the Trustee for the security of the Bonds
of the Company issued and to be issued thereunder (the "Bonds"); and

         WHEREAS, pursuant to the terms and provisions of the Indenture there
were created and authorized by supplemental indentures thereto bearing the
following dates, respectively, the Mortgage Bonds of the series issued
thereunder and respectively identified opposite such dates:

<TABLE>
<CAPTION>
        Date of
Supplemental Indenture                   Identification of Series                             Called
----------------------                   ------------------------                             ------
<S>                                      <C>                                        <C>
February 15, 1993                        8% Series due 2023                         Bonds of the 2023 Series
                                         (redeemed)

March 15, 1993                           6 1/8% Series due 2000                     Bonds of the 2000 Series
                                         (paid at maturity)

March 15, 1993                           6 3/4% Series due 2005                     Bonds of the 2005 Series

July 15, 1993                            7 1/2% Series due 2025                     Bonds of the 2025 Series

August 1, 1993                           6 1/2% Series due 2003                     Bonds of the 2003 Series

October 15, 1993                         5 5/8% Series due 2000                     Bonds of the Second 2000 Series
                                         (paid at maturity)

November 1, 1993                         Pollution Control Series M (redeemed)      Bonds of the Pollution Control
                                                                                    Series M

November 1, 1993                         Pollution Control Series N (redeemed)      Bonds of the Pollution Control
                                                                                    Series N

November 1, 1993                         Pollution Control Series O (redeemed)      Bonds of the Pollution Control
                                                                                    Series O
</TABLE>

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<TABLE>
<S>                                      <C>                                        <C>
April 1, 1997                 Pollution Control Series P                 Bonds of the Pollution Control
                                                                         Series P

April 1, 1997                 Pollution Control Series Q                 Bonds of the Pollution Control
                                                                         Series Q

April 1, 1997                 Pollution Control Series R                 Bonds of the Pollution Control
                                                                         Series R

March 1, 1998                 Pollution Control Series S                 Bonds of the Pollution Control
                                                                         Series S

March 1, 1998                 Pollution Control Series T                 Bonds of the Pollution Control
                                                                         Series T

July 15, 1998                 6 1/4% Series due 2002                     Bonds of the 2002 Series
                              (paid at maturity)

September 15, 1998            6% Series due 2003                         Bonds of the Second 2003 Series

June 15, 1999                 7.50% Series due 2009                      Bonds of the 2009 Series

July 15, 1999                 Pollution Control Series U                 Bonds of the Pollution Control
                                                                         Series U

July 15, 1999                 Pollution Control Series V                 Bonds of the Pollution Control
                                                                         Series V

May 1, 2001                   Pollution Control Series W                 Bonds of the Pollution Control
                                                                         Series W

May 1, 2001                   Pollution Control Series X                 Bonds of the Pollution Control
                                                                         Series X;

July 1, 2002                  10 5/8% Series due 2007 (not issued)       Bonds of the 2007 Series

July 1, 2002                  10 5/8% Series due 2012 (not issued)       Bonds of the 2012 Series

and
</TABLE>

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         WHEREAS a supplemental indenture with respect to the Mortgage Bonds of
the 2007 Series and the Mortgage Bonds of the 2012 Series listed above was
executed and filed but such Mortgage Bonds of the 2007 Series and Mortgage Bonds
of the 2012 Series were never issued and a release with respect to such
supplemental indenture was subsequently executed and filed; and

         WHEREAS, the Company desires to create three new series of Bonds to be
issued under the Indenture to be known as (i) the Mortgage Bonds, 11.50% Series
due 2010 (the "Initial Bonds"), (ii) the Exchange Bonds (as defined herein) for
issue only in a Registered Exchange Offer (as defined herein) pursuant to the
Registration Rights Agreement (as defined herein), for a like principal amount
of Initial Bonds and (iii) the Private Exchange Bonds (as defined herein) for
issue only in a Private Exchange (as defined herein) pursuant to a Registration
Rights Agreement for a like principal amount of Initial Bonds, the form and
substance of the Initial Bonds, Exchange Bonds and Private Exchange Bonds and
the terms, provisions and conditions thereof to be as set forth in the Indenture
and this Supplemental Indenture; and

         WHEREAS, the Company, in the exercise of the powers and authority
conferred upon and reserved to it under the provisions of the Indenture, and
pursuant to appropriate resolutions of the Board of Directors, has duly resolved
and determined to make, execute and deliver to the Trustee a Supplemental
Indenture in the form hereof for the purposes herein provided; and

         WHEREAS, all conditions and requirements necessary to make this
Supplemental Indenture a valid, binding and legal instrument have been done,
performed and fulfilled and the execution and delivery hereof have been in all
respects duly authorized;

         NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:

         THAT the Company, in consideration of the purchase and ownership from
time to time of the Mortgage Bonds and the service by the Trustee, and its
successors, under the Indenture and of One Dollar to it duly paid by the Trustee
at or before the ensealing and delivery of these presents, the receipt whereof
is hereby acknowledged, hereby covenants and agrees to and with the Trustee and
its successors in the trust under the Indenture, for the benefit of those who
shall hold the Mortgage Bonds as follows:

                                   ARTICLE I.

                                   DEFINITIONS

         SECTION 1.

         Set forth below are certain defined terms used in this Supplemental
Indenture. Terms used in this Supplemental Indenture and

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not otherwise defined in this Supplemental Indenture shall have the meanings
assigned to them in the Indenture.

         "Acquired Debt" means with respect to any specified Person:

         (1)  Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person but excluding Indebtedness which is
extinguished, retired or repaid in connection with such Person merging with or
becoming a Subsidiary of such specified Person; and

         (2)  Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.

         "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a specified Person will be deemed to be control by the other
Person; provided further that any third Person which also beneficially owns 10%
or more of the Voting Stock of the other Person shall not be deemed an Affiliate
of the specified Person merely because of such common ownership in the other
Person. For purposes of this definition, the terms "controlling," "controlled
by" and "under common control with" have correlative meanings. Notwithstanding
the preceding, no Transitional Funding Trust will be deemed to be an Affiliate
of the Company or any of its Restricted Subsidiaries.

         "Affiliate Transaction" has the meaning assigned to it in Article V,
Section 4(f)(i) of this Supplemental Indenture.

         "Agent Members" has the meaning assigned to it in Article IV, Section
3(b) of this Supplemental Indenture.

         "Asset Sale" means:

         (1) the sale, lease, conveyance or other disposition of any assets or
rights, other than inventory, obsolete equipment or the sales or transportation
of electricity or gas supply in the ordinary course of business consistent with
past practices; provided that the sale, conveyance or other disposition of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole shall be governed by the provisions in Article V,
Section 6(a) under the caption "Repurchase at the Option of Holders---Offer to

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         Purchase Upon Change of Control," and Article V, Section 4(e) under the
caption "Triggering Events--Merger, Consolidation or Sale of Assets" and not by
Article V, Section 6(b) under the caption "Repurchase at the Option of
Holders--Asset Sales" of this Supplemental Indenture; and

         (2) the issuance of Equity  Interests in any of the Company's
Subsidiaries or the sale of Equity Interests in any of its
Restricted Subsidiaries.

         Notwithstanding the preceding, the following items will not be deemed
to be Asset Sales:

         (1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $1.0 million;

         (2) a transfer of assets,  rights or Equity  Interests  in a
Restricted  Subsidiary  between or among the Company and its
Restricted Subsidiaries;

         (3) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary;

         (4) a Restricted Payment or Permitted Investment that does not result
in a Triggering Event described in Article V, Section 4(a) under the caption
"Triggering Events--Restricted Payments";

         (5) sales, transfers or other dispositions of assets, including Capital
Stock of Restricted Subsidiaries, or rights for consideration at least equal to
the fair market value of the assets or rights sold or disposed of, but only if
the consideration received consists of Capital Stock of a Person that becomes a
Restricted Subsidiary engaged in, or property or assets (other than cash, except
to extent used as a bona fide means of equalizing the value of the property or
assets involved in the swap transaction) of a nature or type or that are used
in, a business of the Company and its Restricted Subsidiaries existing on the
date of such sale or other disposition; provided, however, that any cash
received by the Company shall be treated as Net Proceeds and applied as set
forth in the Triggering Event described in Article V, Section 6(b) under the
caption "Repurchase at the Option of Holders--Asset Sales"; provided further
that the fair market value of the assets sold or disposed of is determined as
provided in Article V, Section 4(a)(iii) of the Trigging Event described below
under "Triggering Events--Restricted Payments".

         (6) a sale,  transfer or disposition of the Tilton Energy Center for
consideration  not less than the Company's  purchase price;

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         (7)  any  sale,  transfer  or other  disposition  of cash or Cash
Equivalents, Hedging Obligations or other financial instruments in the ordinary
course of business;

         (8)  the creation or perfection of a Lien on any properties or assets
(or any income or profit therefrom) of the Company or any of its Restricted
Subsidiaries that is permitted by the Triggering Event described in Article V,
Section 4(c) the caption "Triggering Events--Liens";

         (9)  the surrender or waiver of contract rights or the settlement,
release or surrender of contractual, non-contractual or other claims of any
kind, in each case with Persons who are not Affiliates;

         (10) the grant in the  ordinary  course of business of any
non-exclusive license of patents, trademarks, registrations therefor and other
similar intellectual property; and

         (11) the sale to a Transitional Funding Trust, either directly or
indirectly, of any intangible transition property established pursuant to a
transitional funding order issued by the ICC.

         "Asset Sale Offer" has the meaning assigned to it in Article V, Section
7(a) of this Supplemental Indenture.

         "Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.

         "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.

         "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.

         "Board of Directors" means:

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         (1)      with respect to a corporation, the board of directors of the
corporation;

         (2)      with respect to a partnership  having a corporate  general
partner,  the board of directors of the general partner of the partnership; and

         (3)      with respect to any other Person, the board or committee of
such Person serving a similar function.

         "Board Resolution" means a copy of a resolution certified by the
Secretary or Assistant Secretary, or the equivalent thereof, to have been duly
adopted by the Board of Directors of a Person and to be in full force and effect
on the date of such certification.

         "Bonds" has the meaning assigned to it in the first Recital of this
Supplemental Indenture.

         "Capital Lease Obligation" means, at the time any determination is to
be made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.

         "Capital Stock" means:

         (1)      in the case of a corporation, corporate stock;

         (2)      in the case of an association or business  entity,  any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;

         (3)      in the case of a partnership or limited liability  company,
partnership or membership interests (whether general or limited); and

         (4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.

         "Cash Equivalents" means:

         (1)      United States dollars;

         (2)      securities issued or directly and fully guaranteed or insured
by the United States government or any agency or instrumentality of the United
States government (provided that the full faith and credit of the United States
is pledged in support of those securities) having maturities of not more than
one year from the date of acquisition;

         (3)      certificates  of  deposit  and  eurodollar  time  deposits
with maturities of 180 days or less from the date of acquisition, bankers'

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acceptances with maturities not exceeding 180 days and overnight bank deposits
and similar types of investments routinely offered by commercial banks, in each
case, with any lender under a Credit Facility or any commercial bank having
capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating
of "B" or better;

         (4)      repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications specified
in clause (3) above;

         (5)      commercial paper having one of the two highest ratings
obtainable from Moody's or S&P and in each case maturing within 270 days after
the date of acquisition; and

         (6)      money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (1) through (5) of
this definition.

         "Change of Control" means the occurrence of any of the following:

         (1)      the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the properties or assets
of the Company and its Restricted Subsidiaries taken as a whole to any "person"
(as that term is used in Section 13(d)(3) of the Exchange Act, including any
"group" with the meaning of the Exchange Act) other than to Dynegy or a
Subsidiary of Dynegy;

         (2)      the adoption of a plan relating to the liquidation or
dissolution of the Company or Dynegy;

         (3)      the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) becomes the Beneficial Owner, directly or
indirectly, of more than 40% of the Voting Stock of the Company or Illinova or
Dynegy, measured by voting power rather than number of shares; or

         (4)      the first day on which a majority of the members of the
Board of Directors of the Company or Dynegy are not Continuing Directors.

         "Change of Control Offer" has the meaning assigned to it in Article V,
Section 6(a)(i) of this Supplemental Indenture.

         "Change of Control Payment" has the meaning assigned to it in Article
V, Section 6(a)(i) of this Supplemental Indenture.

         "Change of Control Payment Date" has the meaning assigned to it in
Article V, Section 6(a)(ii) of this Supplemental Indenture.

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         "Commission" means the U.S. Securities and Exchange Commission or any
successor agency.

         "Consolidated Cash Flow" means, with respect to any specified Person
for any period, the Consolidated Net Income of such Person for such period plus:

         (1)      an amount equal to any net loss realized by such Person or any
of its Subsidiaries in connection with an Asset Sale or the disposition of any
securities or extinguishment of Indebtedness, to the extent such losses were
deducted in computing such Consolidated Net Income; plus

         (2)      provision for taxes based on income or profits of such Person
and its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income; plus

         (3)      consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net of the effect of all payments made or received pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing such
Consolidated Net Income; plus

         (4)      depreciation, amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or reserve for
cash expenses in any future period) of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation, amortization
and other non-cash expenses were deducted in computing such Consolidated Net
Income; plus

         (5)      all extraordinary,  unusual or non-recurring items of loss or
expense to the extent not included in clause (1) above;
minus

         (6)      non-cash items increasing such Consolidated Net Income for
such period, other than the accrual of revenue in the ordinary course of
business;

in each case, on a consolidated basis and determined in accordance with GAAP;
provided that non-cash expenses recorded as a result of deferred energy
accounting will not be added to Consolidated Net Income.

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         "Consolidated Net Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that:

         (1)      the aggregate Net Income (but not net loss in excess of such
aggregate Net Income) of any Person that is not a Restricted Subsidiary or that
is accounted for by the equity method of accounting will be included only to the
extent of the amount of dividends or distributions paid in cash to the specified
Person or a Restricted Subsidiary of the Person;

         (2)      the Net Income of any Restricted Subsidiary will be excluded
to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, partners or members;

         (3)      the Net Income of any Person acquired in a pooling of
interests  transaction for any period prior to the date of such
acquisition will be excluded;

         (4)      the cumulative effect of a change in accounting principles
will be excluded; and

         (5)      any equity in earnings or losses of Illinova or Dynegy will be
excluded.

         "Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who:

         (1)      was a member of the Board of Directors on the original issue
date of the Initial Bonds; or

         (2)      was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors who were
members of such Board of Directors at the time of such nomination or election.

         "Credit Facilities" means one or more debt facilities or commercial
paper facilities, in each case with banks or other institutional lenders
providing for revolving credit loans, term loans or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time, and includes any securities issued
pursuant to the Indenture in order to secure any amounts outstanding under a
credit

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facility from time to time; provided that the obligation of the Company to make
any payment on any such securities shall be:

         (1)      no greater than the amount required to be paid under such
credit facility that is secured by such payment obligation;

         (2)      payable no earlier than such amount is required to be paid
under such credit facility; and

         (3) deemed to have been paid or otherwise satisfied and discharged to
the extent that the Company has paid such amount under such credit facility;

provided further, that any amounts the Company is obligated to pay under such
securities will not be included for purposes of determining the aggregate amount
outstanding under Credit Facilities that is permitted under Article V, Section
4(b)(ii)(A) under the caption "Triggering Events--Incurrence of Indebtedness and
Issuance of Preferred Stock" below.

         "Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default as defined in the
Indenture.

         "Depository" or "DTC" means The Depository Trust Company, its nominees
and their respective successors.

         "Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event (other than as a result of an optional
redemption by the issuer thereof), matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or redeemable at the option
of the holder of the Capital Stock, in whole or in part, on or prior to the date
that is 91 days after the date on which the Mortgage Bonds mature.
Notwithstanding the preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders of the Capital Stock have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a change of control or an asset sale will not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
or such Restricted Subsidiary may not repurchase or redeem any such Capital
Stock pursuant to such provisions unless such repurchase or redemption complies
with the Triggering Event described in Article V, Section 4(a) under the caption
"Triggering Events--Restricted Payments".

         "DMG Power Purchase Agreement" means the Power Purchase Agreement
between the Company and Dynegy Midwest Generation, Inc. existing on the Issue
Date, as amended, restated, modified, renewed or replaced in whole or in part
from time to time, provided that any such amendment,

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restatement, modification, renewal or replacement shall have been approved by
appropriate regulatory authorities.

         "Dynegy" means Dynegy,  Inc., an Illinois  corporation  and the parent
company of Illinova and the indirect  parent company of
the Company.

         "Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

         "Escrow Agreement" means the Escrow Agreement to be dated as of the
Issue Date by and among Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
representative of the several Initial Purchasers, the Trustee and the escrow
agent named therein relating to the proceeds of the Tranche Two Initial Bonds.

         "Event of Default" means an Event of Default as defined in the
Indenture.

         "Excess Proceeds" has the meaning assigned to it in Article V, Section
6(b)(iv) of this Supplemental Indenture. "Exchange Act" means the Securities
Exchange Act of 1934, as amended.

         "Exchange Bonds" has the meaning assigned to it in Article III, Section
1 of this Supplemental Indenture.

         "Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under a Credit Facility) in existence on
the original issue date of the Initial Bonds and the Transitional Funding Notes
Series 1998-1 issued by a Transitional Funding Trust, and any Indebtedness
consisting of letters of credit for purposes of supporting the Company's
obligations arising out of its sale of its electric transmission assets, not to
exceed $45 million at any time outstanding.

         "Fixed Charges" means, with respect to any specified Person for any
period, the sum, without duplication, of:

         (1)    the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued, including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, the interest component of all distributions made by a
Transitional Funding Trust to holders of its Transitional Funding Notes, imputed
interest with respect to Attributable Debt, commissions, discounts and other

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fees and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received pursuant to
Hedging Obligations described in clause (1) of the definition of Hedging
Obligations; plus

         (2)      the consolidated  interest of such Person and its Restricted
Subsidiaries  that was capitalized  during such period;
plus

         (3)      any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries, whether or
not such Guarantee or Lien is called upon; plus

         (4)      all dividends, whether paid or accrued and whether or not in
cash, on any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividends on Equity Interests payable solely in Equity
Interests of the Company (other than Disqualified Stock) or to the Company or a
Restricted Subsidiary of the Company.

         "Fixed Charge Coverage Ratio" means with respect to any specified
Person for any period, the ratio of the Consolidated Cash Flow of such Person
and its Restricted Subsidiaries for such period to the Fixed Charges of such
Person and its Restricted Subsidiaries for such period. In the event that the
specified Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary
working capital borrowings) or issues, repurchases or redeems preferred stock
subsequent to the end of the period for which the Fixed Charge Coverage Ratio is
being calculated and on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect
to such incurrence, assumption, Guarantee, repayment, repurchase or redemption
of Indebtedness, or such issuance, repurchase or redemption of preferred stock,
and the use of the proceeds therefrom as if the same had occurred at the
beginning of the applicable four-quarter reference period.

         In addition, for purposes of calculating the Fixed Charge Coverage
Ratio:

         (1)      acquisitions that have been made by the specified Person or
any of its Restricted Subsidiaries, including through mergers, consolidations or
otherwise (including acquisitions of assets used in a Permitted Business) and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date will be given pro forma effect as if they had occurred on the first day of
the four-quarter reference period, including any pro forma expense and

                                       13

<PAGE>

cost reductions that have occurred or are reasonably expected to occur, in the
reasonable judgment of the chief financial officer of the Company (regardless of
whether those cost savings or operating improvements could then be reflected in
pro forma financial statements in accordance with Regulation S-X promulgated
under the Securities Act or any other regulation or policy of the Commission
related thereto);

         (2)      the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded; and

         (3)      the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, will be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations of the
specified Person or any of its Restricted Subsidiaries following the Calculation
Date.

         "GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the original issue date of the Initial Bonds.

         "Global Bonds" has the meaning assigned to it in Article IV, Section
3(a) of this Supplemental Indenture.

         "Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.

         "Hedging Obligations" means, with respect to any specified Person, the
net obligations (not the notional amount) of such Person incurred in the normal
course of business and not for speculative purposes under:

         (1)      interest rate swap agreements, interest rate cap agreements
and interest rate collar agreements designed to protect the Person entering into
the agreement against fluctuations in interest rates with respect to
Indebtedness incurred and not for purposes of speculation;

         (2)      foreign exchange contracts and currency protection agreements
entered into with one or more financial institutions designed to protect the
Person entering into the agreement against

                                       14

<PAGE>

fluctuations in currency exchange rates with respect to Indebtedness incurred
and not for purposes of speculation;

         (3)      any commodity futures contract, commodity option or other
similar agreement or arrangement designed to protect against fluctuations in the
price of commodities used by that Person at the time; and

         (4)      other agreements or arrangements designed to protect such
Person against fluctuations in interest rates or currency exchange rates.

         "ICC" means the Illinois Commerce Commission.

         "Illinova" means Illinova Corporation, an Illinois corporation and
direct parent company of the Company.

         "Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:

         (1)      in respect of borrowed money;

         (2)      evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof other than
letters of credit taken out by such Person in the ordinary course of business,
to the extent not drawn);

         (3)      in respect of banker's acceptances;

         (4)      representing Capital Lease Obligations;

         (5)      representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable; or

         (6)      representing any Hedging Obligations,

if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.

         The amount of any Indebtedness outstanding as of any date will be:

         (1)      the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount; and

                                       15

<PAGE>

         (2)      the principal amount of the Indebtedness, together with any
interest on the Indebtedness that is more than 30 days past due, in the case of
any other Indebtedness.

         "Indenture" has the meaning assigned to it in the first paragraph of
this Supplemental Indenture.

         "Initial Bonds" has the meaning assigned to it in Article II Section 1
of this Supplemental Indenture.

         "Initial Purchasers" means, with respect to the Initial Bonds, the
entities identified as purchasers in the Purchase Agreement.

         "Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act.

         "Investment Grade Rating" means a rating equal to or higher than Baa3
(or the equivalent) by Moody's or BBB- (or the equivalent) by S&P.

         "Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, moving, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company will be deemed to have made an Investment
on the date of any such sale or disposition equal to the fair market value of
the Equity Interests of such Subsidiary not sold or disposed of in an amount
determined as provided in Article V, Section 4(a)(iii) under the caption
"Triggering Events--Restricted Payments". The acquisition by the Company or any
Subsidiary of the Company of a Person that holds an Investment in a third Person
will be deemed to be an Investment by the Company or such Subsidiary in such
third Person in an amount equal to the fair market value of the Investment held
by the acquired Person in such third Person in an amount determined as provided
in Article V, Section 4(a)(iii) of the Triggering Event described below under
the caption "Triggering Events--Restricted Payments".

         "Issue Date" means the original issue date of the Tranche One Initial
Bonds and is sometimes referred to as the "original issue date" in this
Supplemental Indenture.

                                       16

<PAGE>

         "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement representing a lease not intended as a
security agreement.

         "Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.

         "Mortgage Bonds" means the Mortgage Bonds, 11.50% Series due 2010 and
includes, if, as and when issued, the Initial Bonds, the Exchange Bonds and the
Private Exchange Bonds, as applicable.

         "Net Income" means, with respect to any specified Person, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:

         (1)      the aggregate gain (but not loss in excess of such aggregate
gain), together with any related provision for taxes on such gain (but not loss
in excess of such aggregate gain), realized in connection with: (a) any Asset
Sale; or (b) the disposition of any securities by such Person or any of its
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Subsidiaries; and

         (2)      the aggregate extraordinary, unusual or non-recurring gain
(but not loss in excess of such aggregate extraordinary gain), together with any
related provision for taxes on such extraordinary gain (but not loss).

         "Net Proceeds" means the aggregate proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale in cash or Cash
Equivalents (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale), net
of the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result of the Asset Sale, taxes paid or
estimated to be payable as a result of the Asset Sale, in each case, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, amounts required to be applied to the repayment of Indebtedness,
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.

                                       17

<PAGE>

         "Non-Recourse Debt" means Indebtedness:

         (1)      as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the lender;

         (2)      no default with respect to which (including any rights that
the holders of the Indebtedness may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both any
holder of any other Indebtedness (other than the Mortgage Bonds) of the Company
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment of the Indebtedness to be accelerated or
payable prior to its stated maturity; and

         (3)      as to which the lenders have been notified in writing that
they shall not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.

         "Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.

         "Offer Amount" has the meaning assigned to it in Article V, Section
7(b) of this Supplemental Indenture.

         "Offer Period" has the meaning assigned to it in Article V, Section
7(b) of this Supplemental Indenture.

         "Permitted Business" means any business that derives a majority of its
revenues from the business engaged in by the Company and its Restricted
Subsidiaries on the original issue date of the Mortgage Bonds and/or activities
that are reasonably similar, ancillary, incidental, complementary or related to,
or a reasonable extension, development or expansion of, the businesses in which
the Company and its Restricted Subsidiaries are engaged on the original issue
date of the Mortgage Bonds, as determined in good faith by the Board of
Directors.

         "Permitted Investments" means:

         (1)      any  Investment in the Company or in a Restricted
Subsidiary of the Company (excluding redemptions, purchases, acquisitions or
retirements of Equity Interests of the Company);

         (2)      any Investment in Cash Equivalents;

         (3)      any Investment by the Company or any Restricted Subsidiary
of the Company in a Person, if as a result of such Investment:

                                       18

<PAGE>

                  (a)      such Person becomes a Restricted Subsidiary of the
                           Company; or

                  (b)      such Person is merged, consolidated or amalgamated
                           with or into, or transfers or conveys substantially
                           all of its assets to, or is liquidated into, the
                           Company or a Restricted Subsidiary of the Company);

         (4)      any Investment made as a result of the receipt of
consideration consisting of other than cash or Cash Equivalents from (a) an
Asset Sale that was made pursuant to and in compliance with the provisions in
Article V, Section 6(b) under the caption "Repurchase at the Option of
Holders--Asset Sales" or (b) a disposition of assets not constituting an Asset
Sale pursuant to clause (1) of the items deemed not to be Asset Sales under the
definition of "Asset Sale";

         (5)      any  acquisition of assets to the extent it is in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of the Company;

         (6)      any Investments received in compromise of obligations of trade
creditors or customers that were incurred in the ordinary course of business,
including pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of any trade creditor or customer;

         (7)      Hedging Obligations;

         (8)      payroll advances or loans in the ordinary course of business
to officers and employees of the Company or any of its Restricted Subsidiaries,
so long as the aggregate principal amount of such advances or loans that
constitute Investments does not exceed $1.0 million at any one time outstanding;

         (9)      any Investments made in accordance with clause (5) of the
definition of "Asset Sale" with respect to items not deemed to be Asset Sales;
and

         (10)     other Investments in any Person that is not also a Restricted
Subsidiary of the Company having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (10) since the original issue date of the Mortgage Bonds, not to
exceed $5 million.

         "Permitted Liens" means:

         (1)      Liens securing any Indebtedness under a Credit Facility that
was permitted by the terms of this Supplemental Indenture to be incurred, and
all Obligations and Hedging Obligations relating to such Indebtedness;

                                       19

<PAGE>

         (2)      Liens in favor of the Company or any Subsidiary Guarantors;

         (3)      Liens on property of a Person existing at the time such Person
is merged with or into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or the Restricted Subsidiary;

         (4)      Liens on property existing at the time of acquisition of the
property by the Company or any Restricted Subsidiary of the Company, provided
that such Liens were in existence prior to the contemplation of such
acquisition;

         (5)      Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;

         (6)      Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by Article V, Section 4(b)(ii)(D) under the caption
"Triggering Events--Incurrence of Indebtedness and Issuance of Preferred Stock"
covering only the assets acquired with such Indebtedness;

         (7)      Liens securing Existing Indebtedness (including the Lien of
the Indenture);

         (8)      Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as is required in conformity
with GAAP has been made therefor;

         (9)      Liens incurred in the ordinary course of business of the
Company or any Restricted Subsidiary with respect to Indebtedness or
Attributable Debt (including Hedging Obligations) that does not exceed $15.0
million at any one time outstanding;

         (10)     Liens to secure Indebtedness  permitted by Article V, Section
4(b)(ii)(G),(M) or (N) "Triggering  Events--Incurrence
of Indebtedness and Issuance of Preferred Stock";

         (11)     Liens securing the Mortgage Bonds or any other Indebtedness
issued or to be issued under the Indenture that was permitted to be incurred
under the terms of Article V, Section 4(b) under the caption "Triggering
Events--Incurrence of Indebtedness and Issuance of Preferred Stock");

         (12)     Liens securing Permitted Refinancing Indebtedness incurred to
refinance Indebtedness that was previously so secured, provided that any such
Lien is limited to all or part of the same property or

                                       20

<PAGE>

assets (plus improvements, accessions, proceeds or dividends or distributions in
respect thereof) that secured (or, under the written arrangements under which
the original Lien arose, could secure) the Indebtedness being refinanced or is
in respect of property that is the security for a Permitted Lien hereunder;

         (13)     Liens, including pledges, rights of offset and bankers' liens,
on deposit accounts, instruments, investment accounts and investment property
(including cash, cash equivalents and marketable securities) from time to time
maintained with or held by any financial and/or depository institutions, in each
case solely to secure any and all Indebtedness or Attributable Debt Obligations
now or hereafter existing of the Company or any of its Subsidiaries in
connection with any deposit account, investment account or cash management
service (including ACH, Fedwire, CHIPS, concentration and zero balance accounts,
and controlled disbursement, lockbox or restricted accounts) now or hereafter
provided by any financial and/or depository institutions to or for the benefit
of the Company, any of its Subsidiaries or any special purpose entity directly
or indirectly providing loans to or making receivables purchases from the
Company or any of its Subsidiaries; and

         (14)     Liens resulting from the creation and establishment of
intangible transition property pursuant to a transitional funding order issued
by the ICC.

         "Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
or a Transitional Funding Trust (other than intercompany Indebtedness) or issued
in replacement of any such Indebtedness repaid or otherwise retired within the
preceding three months; provided that:

         (1)      the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued and unpaid interest on
the Indebtedness and the amount of all expenses and premiums incurred in
connection therewith);

         (2)      such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; provided, however, that if such Permitted Refinancing Indebtedness is
issued in exchange for or the net proceeds of which are used for the purpose of
extending, refinancing, renewing, replacing, defeasing or refunding Indebtedness
of a Transitional Funding Trust, such Permitted

                                       21

<PAGE>

Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity greater than the Weighted
Average Life to Maturity of, the Mortgage Bonds.

         (3)      if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is contractually subordinated in right of payment
to the Mortgage Bonds, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Mortgage Bonds on terms at least as favorable to the
holders of Mortgage Bonds as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and

         (4)      if the Company is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded, then such
Permitted Refinancing Indebtedness is solely the Indebtedness of the Company.

         "Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.

         "Private Exchange" means the offer by the Company pursuant to the
Registration Rights Agreement to the Initial Purchasers to issue and deliver to
the Initial Purchasers in exchange for the Initial Bonds held by the Initial
Purchasers as part of their initial distribution, a like aggregate principal
amount of Private Exchange Bonds.

         "Private Exchange Bonds" has the meaning specified in Article III,
Section 2 of this Supplemental Indenture.

         "Purchase Agreement" means, with respect to the Initial Bonds, the
Purchase Agreement dated December 17, 2002 among the Company and the Initial
Purchasers, as such agreement may be amended, modified or supplemented from time
to time.

         "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

         "Rating Agencies" means S&P and Moody's, or if S&P or Moody's or both
shall not make a rating on the Mortgage Bonds publicly available, a nationally
recognized statistical rating agency or agencies, as the case may be, selected
by the Company (as certified by a resolution of its Board of Directors) which
shall be substituted for S&P or Moody's or both, as the case may be.

         "Registered Exchange Offer" means the offer by the Company, pursuant to
the Registration Rights Agreement, to Holders of Initial Bonds eligible to
participate in the offer, to issue and deliver to

                                       22

<PAGE>

such Holders, in exchange for the Initial Bonds, a like aggregate principal
amount of Exchange Bonds registered under the Securities Act.

         "Registration Rights Agreement" means with respect to the Initial
Bonds, the Registration Rights Agreement by and between the Company and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several
Initial Purchasers, as such agreement may be amended, modified or supplemented
from time to time.

         "Restricted Global Bond" has the meaning assigned to it in Article IV,
Section 3(a) of this Supplemental Indenture.

         "Restricted Investment" means an Investment other than a Permitted
Investment.

         "Restricted Payments" has the meaning assigned to it in Article V,
Section 4(a) of this Supplemental Indenture.

         "Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.

         "Rule 144A" means Rule 144A promulgated under the Securities Act.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Securities Custodian" means the custodian with respect to a Global
Bond (as appointed by the Depository), or any successor Person thereto, and
shall initially be the Trustee.

         "Services and Facilities Agreement" means the Services and Facilities
Agreement, dated as of June 27, 2000, among Dynegy, the Company and Illinova, as
amended, restated, modified, renewed or replaced in whole or in part from time
to time, provided that any such amendment, restatement, modification, renewal or
replacement shall have been approved by appropriate regulatory authorities.

         "Shelf Registration Statement" means the registration statement filed
by the Company in connection with the offer and sale of Initial Bonds or Private
Exchange Bonds pursuant to the Registration Rights Agreement.

         "Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the original issue date of the Initial Bonds.

         "S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor to the rating agency business
thereof.

                                       23

<PAGE>

         "Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.

         "Subsidiary" means, with respect to any specified Person:

         (1)      any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees of the corporation, association or other
business entity is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person (or a
combination thereof); and

         (2)      any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are that Person or one or more Subsidiaries
of that Person (or any combination thereof).

         A Transitional Funding Trust will not be deemed to be a Subsidiary of
the Company or any of its Subsidiaries notwithstanding that the financial
results of such Transitional Funding Trust are consolidated with those of the
Company in accordance with GAAP, except for purposes of calculating the Fixed
Charge Coverage Ratio and its components (including Consolidated Net Income).

         "Subsidiary Guarantee" means any Guarantee of the Mortgage Bonds to be
executed by any Subsidiary of the Company pursuant to Article V, Section 4(h)
under the caption "Triggering Events--Future Subsidiary Guarantees".

         "Subsidiary Guarantors" means any Subsidiary of the Company that
executes a Subsidiary Guarantee in accordance with the provisions of the
Indenture, and their respective successors and assigns.

         "Supplemental Indenture" has the meaning assigned to it in the first
paragraph of this Supplemental Indenture.

         "Tranche One Initial Bonds" has the meaning assigned to it in Article
II, Section 1 of this Supplemental Indenture.

         "Tranche Two Initial Bonds" has the meaning assigned to it in Article
II, Section 1 of this Supplemental Indenture.

                                       24

<PAGE>

         "Transfer Restricted Bonds" means Initial Bonds or Private Exchange
Bonds that bear or are required to bear the legend set forth in Article IV,
Section 4(b).

         "Transitional Funding Notes" means any debt securities issued by a
Transitional Funding Trust in accordance with a transitional funding order of
the ICC.

         "Transitional Funding Trust" means the Illinois Power Special Purpose
Trust or any future similar entity, the only assets of which are the intangible
transition property which is the right to receive transition charges collected
by the Company.

         "Triggering Event" has the meaning assigned to it in Article V, Section
3(a) of this Supplemental Indenture.

         "Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:

         (1)      has no Indebtedness other than Non-Recourse Debt;

         (2)      is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company;

         (3)      is a Person with respect to which neither the Company nor any
of its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results;

         (4)      has not guaranteed or otherwise  directly or indirectly
provided credit support for any  Indebtedness of the Company
or any of its Restricted Subsidiaries; and

         (5)      has at least one director on its Board of Directors that is
not a director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries.

         Any designation of a Subsidiary of the Company of the Company as an
Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officer's Certificate certifying that such designation
complied with the preceding conditions and was

                                       25

<PAGE>

permitted by Article V, Section 4(a) under the caption "Triggering
Events--Restricted Payments". If, at any time, any Unrestricted Subsidiary would
fail to meet the preceding requirements as an Unrestricted Subsidiary, it will
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary will be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date and, if such Indebtedness
is not permitted to be incurred as of such date under Article V, Section 4(b)
under the caption "Triggering Events--Incurrence of Indebtedness and Issuance of
Preferred Stock", such a Triggering Event will occur.

         "U.S." means the United States of America.

         "Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.

         "Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:

         (1)      the sum of the products obtained by multiplying (a) the amount
of each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in respect
of the Indebtedness, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment;
by

         (2)      the then outstanding principal amount of such Indebtedness.

         "Wholly-Owned Subsidiary" means, with respect to any specified Person:

         (1)      any Subsidiary of which 100% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees of the
Subsidiary is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof); and

         (2)      any Subsidiary all the general partnership interest and
limited partnership interests, if any, of which are owned, directly or
indirectly, by that Person or one or more other Subsidiaries of that Person (or
any combination thereof).

                                       26

<PAGE>

                                  ARTICLE II.

                        DESCRIPTION OF THE INITIAL BONDS

         SECTION 1. The Company hereby creates a new series of Bonds to be known
as the "Mortgage Bonds, 11.50% Series due 2010" (the "Initial Bonds"). The
Initial Bonds shall be executed, authenticated and delivered in accordance with
the provisions of, and shall in all respects be subject to, all of the terms,
conditions and covenants of the Indenture, as supplemented and modified,
including the provisions of Article V of this Supplemental Indenture. References
in Article V to "Mortgage Bonds" shall be deemed to include the Initial Bonds.

         The Initial Bonds shall be issued in two Tranches with identical terms
except as to principal amount and date of issuance. The first Tranche shall be
in the aggregate principal amount of $400,000,000 which shall be issued on the
Issue Date (the "Tranche One Initial Bonds"). The second Tranche shall be in the
aggregate principal amount of $150,000,000, and shall be issued, subject to ICC
approval, on or before January 31, 2003 (the "Tranche Two Initial Bonds").

         The commencement of the first interest period for the Initial Bonds
shall be December 20, 2002. All Initial Bonds shall mature on December 15, 2010,
and shall bear interest at the rate of ELEVEN AND ONE-HALF PER CENT (11.50%) per
annum, payable semi-annually on June 15 and December 15, in each year,
commencing June 15, 2003, until the principal sum is paid in full. If such June
15 or December 15 shall be a legal holiday or a day on which banking
institutions in New York, New York, are not open for business, then the interest
shall be payable on the next succeeding day which shall not be (i) a legal
holiday or (ii) a day on which such institutions are not open for business. The
person in whose name any of the Initial Bonds are registered at the close of
business on any record date (as hereinafter defined) with respect to any
interest payment date shall be entitled to receive the interest payable on such
interest payment date notwithstanding the cancellation of such Initial Bonds
upon any transfer or exchange subsequent to the record date and prior to such
interest payment date; provided, however, that if and to the extent the Company
shall default in the payment of the interest due on such interest payment date,
such defaulted interest shall be paid as provided in Section 3.07 of the
Indenture.

         The Company shall perform its obligations under the Registration Rights
Agreement and shall comply in all material respects with the terms and
conditions contained therein including, without limitation, the payment of
additional interest (as described in Section 2.5 of the Registration Rights
Agreement).

         The term "record date" as used in this Section with respect to any
interest payment date shall mean the June 1 or December 1, as the case may be,
next preceding the semi-annual interest payment date, or,

                                       27

<PAGE>

if such June 1 or December 1 shall be a legal holiday or a day on which banking
institutions in New York, New York, are not open for business, then the next
preceding day which shall not be (i) a legal holiday or (ii) a day on which such
institutions are not open for business.

         SECTION 2. The Initial Bonds shall be issued only as registered bonds
without coupons of the denomination of $1,000, or any integral multiple of
$1,000, appropriately numbered. The Initial Bonds may be exchanged, upon
surrender thereof, at the agency of the Company in the City of Chicago,
Illinois, for one or more Initial Bonds of other authorized denominations, for
the same aggregate principal amount, subject to the terms and conditions set
forth in the Indenture.

         The Initial Bonds may be exchanged or transferred without expense to
the registered owner thereof except that any taxes or other governmental charges
required to be paid with respect to such transfer or exchange shall be paid by
the registered owner requesting such transfer or exchange as a condition
precedent to the exercise of such privilege.

         SECTION 3. The Trustee shall be the Bond Registrar and the Paying Agent
for the Initial Bonds; provided, however, that the Company reserves the right to
change the Bond Registrar and the Paying Agent.

         SECTION 4. The Initial Bonds and the Trustee's Certificate of
Authentication shall be substantially in the following forms respectively, and
each such Initial Bond shall have annexed thereto an Assignment and an Option of
Holder to Elect Purchase substantially in the forms of Exhibit D and Exhibit E
hereto, respectively:

                             [Form of Face of Bond]

         THIS BOND IS A GLOBAL BOND WITHIN THE MEANING OF THE INDENTURE REFERRED
TO ON THE REVERSE HEREOF. UNLESS THIS GLOBAL BOND IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO ILLINOIS POWER COMPANY OR ITS AGENT OR AGENTS FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY GLOBAL BOND ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

         TRANSFERS OF THIS GLOBAL BOND SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL BOND SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE

                                       28

<PAGE>

RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.*

                            [Restricted Bonds Legend]

                  THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                  OF 1933 (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
                  OTHER STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR
                  ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
                  ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
                  DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
                  TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
                  REGISTRATION.

                  THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES
                  ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR
                  WHICH IT HAS PURCHASED SECURITIES TO OFFER, SELL OR OTHERWISE
                  TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
                  RESTRICTION TERMINATION DATE") THAT IS TWO YEARS AFTER THE
                  LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON
                  WHICH ILLINOIS POWER COMPANY (THE "COMPANY") OR ANY AFFILIATE
                  OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
                  PREDECESSOR TO SUCH SECURITY), ONLY (A) TO THE COMPANY, (B)
                  PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
                  EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS
                  SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER
                  THE SECURITIES ACT TO A PERSON IT REASONABLY BELIEVES IS A
                  "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER
                  THE SECURITIES ACT THAT PURCHASES SUCH SECURITY FOR ITS OWN
                  ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
                  TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
                  RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED
                  INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR
                  (7) UNDER THE SECURITIES ACT ACQUIRING THE SECURITY FOR ITS
                  OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL
                  ACCREDITED INVESTOR, IN EACH CASE FOR INVESTMENT PURPOSES AND
                  NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY
                  DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E)
                  PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
                  REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S
                  AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH SALE OR TRANSFER (i)
                  PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN
                  OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
                  SATISFACTORY TO EACH OF THEM AND (ii) IN EACH OF THE FOREGOING
                  CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
                  APPEARING ON THIS SECURITY IS

----------------------
         * To be included in a book-entry bond.

                                       29

<PAGE>

                  COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.
                  THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
                  HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.

                                       30

<PAGE>

                             ILLINOIS POWER COMPANY
             (Incorporated under the laws of the State of Illinois)

                  INITIAL MORTGAGE BOND, 11.50% SERIES DUE 2010

No. . . . . .                                                       $550,000,000

         ILLINOIS POWER COMPANY, a corporation organized and existing under the
laws of the State of Illinois (the "Company," which term shall include any
successor corporation as defined in the Indenture hereinafter referred to), for
value received, hereby promises to pay to Cede & Co. or registered assigns, the
principal sum of Five Hundred and Fifty Million Dollars ($550,000,000) [or such
amount as is indicated on the Schedule of Exchanges of Bonds attached as Exhibit
A]* on December 15, 2010, in any coin or currency of the United States of
America which at the time of payment is legal tender for public and private
debts, and to pay interest thereon in like coin or currency from December 20,
2002, payable semi-annually on June 15 and December 15 in each year, commencing
June 15, 2003, at the rate of ELEVEN AND ONE-HALF PER CENT (11.50%) per annum,
until the Company's obligation with respect to the payment of such principal
shall be discharged as provided in the Indenture hereinafter mentioned. The
interest so payable on any June 15 or December 15, will, subject to certain
exceptions provided in the Supplemental Indenture dated as of December 15, 2002,
be paid to the person in whose name this Mortgage Bond is registered at the
close of business on the immediately preceding June 1 or December 1, as the case
may be. Both principal of, and interest on, this Mortgage Bond are payable at
the agency of the Company in the City of Chicago, Illinois. So long as any
Mortgage Bonds are represented by a Global Bond, interest (other than interest
payable at maturity or upon redemption) shall be paid in immediately available
funds by wire transfer to the Depository for such Mortgage Bonds, on the written
order of the Depository.

         Payment of interest (other than interest payable in accordance with the
provisions of the immediately preceding paragraph) will, subject to certain
exceptions provided in the Indenture referred to herein, be made by check,
mailed to the address of the person entitled thereto as such address shall
appear in the security register as of the applicable record date or, at the
option of the Holder, by wire transfer to an account maintained by such person
with a bank located in the United States.

         This Mortgage Bond shall not be entitled to any benefit under the
Indenture or any indenture supplemental thereto, or become valid or obligatory
for any purpose, until the form of certificate endorsed hereon shall have been
signed by or on behalf of BNY Midwest Trust

---------------
         * To be included in a book-entry bond.

                                       31

<PAGE>

Company, the Trustee under the Indenture, or a successor trustee thereto under
the Indenture (the "Trustee").

         The provisions of this Mortgage Bond are continued on the reverse
hereof and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.

                      Illinois Commerce Commission No. 6224

         IN WITNESS WHEREOF, the Company has caused this Mortgage Bond to be
signed (manually or by facsimile signature) in its name by an Authorized
Executive Officer, as defined in the Indenture, and its corporate seal (or a
facsimile thereof) to be hereto affixed and attested (manually or by facsimile
signature) by an Authorized Executive Officer, as defined in the Indenture.

Dated:  December 20, 2002                   ILLINOIS POWER COMPANY

                                            By:______________________________
                                                 Authorized Executive Officer

(Corporate Seal)

ATTEST:

_________________________________
     Authorized Executive Officer

                [Form of Trustee's Certificate of Authentication]

         This Mortgage Bond is one of the bonds of the series designated therein
referred to in the within-mentioned Indenture dated as of November 1, 1992 and
the Supplemental Indenture dated as of December 15, 2002.

                                           BNY MIDWEST TRUST COMPANY,
                                                                       Trustee,

                                           By:  _____________________________
                                                  Authorized Signatory

                                       32

<PAGE>

                            [Form of Reverse of Bond]

         This Mortgage Bond is one of a duly authorized issue of bonds of the
Company (the "Bonds") in unlimited aggregate principal amount, of the series
hereinafter specified, all issued and to be issued under and equally secured by
a General Mortgage Indenture and Deed of Trust (the "Indenture"), dated as of
November 1, 1992, executed by the Company to BNY Midwest Trust Company (the
"Trustee"), as Trustee, to which Indenture and all indentures supplemental
thereto reference is hereby made for a description of the properties mortgaged
and pledged, the nature and extent of the security, the rights of registered
owners of the Bonds and of the Trustee in respect thereof, and the terms and
conditions upon which the Bonds are, and are to be, secured. The Bonds may be
issued in series, for various principal sums, may mature at different times, may
bear interest at different rates and may otherwise vary as provided in the
Indenture. This Mortgage Bond is one of a series designated as the "Mortgage
Bonds, 11.50% Series due 2010" (the "Mortgage Bonds of the 2010 Series") of the
Company, limited in aggregate principal amount to $550,000,000, issued under and
secured by the Indenture and described in the supplemental indenture dated as of
December 15, 2002 (the "Supplemental Indenture dated as of December 15, 2002"),
between the Company and the Trustee, supplemental to the Indenture.

         The Mortgage Bonds of the 2010 Series are subject to additional terms
and conditions, including optional redemption, mandatory redemption, redemption
at the option of the Holders, and certain Triggering Events, all as more fully
set forth in Article V of the Supplemental Indenture dated as of December 15,
2002.

         In case an Event of Default, as defined in the Indenture, shall occur,
the principal of all the Bonds at any such time outstanding under the Indenture
may be declared or may become due and payable, upon the conditions and in the
manner and with the effect provided in the Indenture. The Indenture provides
that such declaration may be rescinded under certain circumstances.

         In addition to the rights provided to Holders of the Mortgage Bonds of
the 2010 Series under the Indenture, Holders of the Mortgage Bonds of the 2010
Series shall have all the rights set forth in the Registration Rights Agreement,
as defined in the Supplemental Indenture dated as of December 15, 2002,
including without limitation the right to receive additional interest as
described in Section 2.5 thereof.

                                       33

<PAGE>

                                  ARTICLE III.

                    DESCRIPTION OF THE EXCHANGE BONDS AND THE
                             PRIVATE EXCHANGE BONDS.

        SECTION 1. The Company hereby creates a new series of Bonds to be known
as the "Exchange Mortgage Bonds, 11.50% Series due 2010" (the "Exchange Bonds").
The terms of the Exchange Bonds shall be identical in all material respects to
the terms of the Initial Bonds. The Exchange Bonds shall be executed,
authenticated and delivered in accordance with the provisions of, and shall in
all respects be subject to, all of the terms, conditions and covenants of the
Indenture, as supplemented and modified, including the provisions of Article V
of this Supplemental Indenture. References in Article V to "Mortgage Bonds"
shall be deemed to include the Exchange Bonds.

        SECTION 2. The Company hereby creates a new series of Bonds to be known
as the "Private Exchange Mortgage Bonds, 11.50% Series due 2010" (the "Private
Exchange Bonds"). The terms of the Private Exchange Bonds shall be identical in
all material respects to the terms of the Initial Bonds. The Private Exchange
Bonds shall be executed, authenticated and delivered in accordance with the
provisions of, and shall in all respects be subject to, all of the terms,
conditions and covenants of the Indenture, as supplemented and modified,
including the provisions of Article V of this Supplemental Indenture. References
in Article V to the "Mortgage Bonds" shall be deemed to include the Private
Exchange Bonds.

        SECTION 3. The Trustee shall be the Bond Registrar and the Paying Agent
for the Exchange Bonds and the Private Exchange Bonds; provided, however, that
the Company reserves the right to change the Bond Registrar and the Paying
Agent.

        SECTION 4. Each series of the Exchange Bonds and Private Exchange Bonds
and the Trustee's Certificate of Authentication shall be substantially in the
following forms (except that the Private Exchange Bonds shall contain the
Restricted Bonds Legend from the Initial Bonds as set forth below, and each such
Mortgage Bond shall have annexed thereto an Assignment and an Option of Holder
to Elect Purchase substantially in the forms of Exhibit D and Exhibit E hereto,
respectively):

                             [Form of Face of Bond]

         THIS BOND IS A GLOBAL BOND WITHIN THE MEANING OF THE INDENTURE REFERRED
TO ON THE REVERSE HEREOF. UNLESS THIS GLOBAL BOND IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
NEW YORK, NEW YORK, TO ILLINOIS POWER COMPANY OR ITS AGENT OR AGENTS FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY GLOBAL BOND ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS

                                       34

<PAGE>

MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

        TRANSFERS OF THIS GLOBAL BOND SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL BOND SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.*

                            [Restricted Bonds Legend]

                  THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                  OF 1933 (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
                  OTHER STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR
                  ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
                  ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
                  DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
                  TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
                  REGISTRATION.

                  THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES
                  ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR
                  WHICH IT HAS PURCHASED SECURITIES TO OFFER, SELL OR OTHERWISE
                  TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
                  RESTRICTION TERMINATION DATE") THAT IS TWO YEARS AFTER THE
                  LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON
                  WHICH ILLINOIS POWER COMPANY (THE "COMPANY") OR ANY AFFILIATE
                  OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
                  PREDECESSOR TO SUCH SECURITY), ONLY (A) TO THE COMPANY, (B)
                  PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
                  EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS
                  SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER
                  THE SECURITIES ACT TO A PERSON IT REASONABLY BELIEVES IS A
                  "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER
                  THE SECURITIES ACT THAT PURCHASES SUCH SECURITY FOR ITS OWN
                  ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
                  TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
                  RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED
                  INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR
                  (7) UNDER THE SECURITIES ACT ACQUIRING THE SECURITY FOR ITS
                  OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL
                  ACCREDITED INVESTOR, IN EACH CASE FOR INVESTMENT PURPOSES AND
                  NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY
                  DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E)
                  PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
                  REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S
                  AND THE

-------------------------
         * To be included in a book-entry bond.

                                       35

<PAGE>

                  TRUSTEE'S RIGHT PRIOR TO ANY SUCH SALE OR TRANSFER (i)
                  PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN
                  OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
                  SATISFACTORY TO EACH OF THEM AND (ii) IN EACH OF THE FOREGOING
                  CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
                  APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE
                  TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON
                  THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
                  TERMINATION DATE.

                                       36

<PAGE>

                             ILLINOIS POWER COMPANY
             (Incorporated under the laws of the State of Illinois)

            [PRIVATE] EXCHANGE MORTGAGE BOND, 11.50% SERIES DUE 2010

No. . . . . .                                                       $550,000,000

         ILLINOIS POWER COMPANY, a corporation organized and existing under the
laws of the State of Illinois (the "Company," which term shall include any
successor corporation as defined in the Indenture hereinafter referred to), for
value received, hereby promises to pay to Cede & Co. or registered assigns, the
principal sum of Five Hundred and Fifty Million Dollars ($550,000,000) [or such
amount as is indicated on the Schedule of Exchanges of Bonds attached as Exhibit
A]* on December 15, 2010, in any coin or currency of the United States of
America which at the time of payment is legal tender for public and private
debts, and to pay interest thereon in like coin or currency from December 20,
2002, payable semi-annually on June 15 and December 15 in each year, commencing
June 15, 2003, at the rate of ELEVEN AND ONE-HALF PER CENT (11.50%) per annum,
until the Company's obligation with respect to the payment of such principal
shall be discharged as provided in the Indenture hereinafter mentioned. The
interest so payable on any June 15 or December 15, will, subject to certain
exceptions provided in the Supplemental Indenture dated as of December 15, 2002,
be paid to the person in whose name this [Private] Exchange Bond is registered
at the close of business on the immediately preceding June 1 or December 1, as
the case may be. Both principal of, and interest on, this [Private] Exchange
Bond are payable at the agency of the Company in the City of Chicago, Illinois.
So long as any [Private] Exchange Bonds are represented by a Global Bond,
interest (other than interest payable at maturity or upon redemption) shall be
paid in immediately available funds by wire transfer to the Depository for such
[Private] Exchange Bonds, on the written order of the Depository.

         Payment of interest (other than interest payable in accordance with the
provisions of the immediately preceding paragraph) will, subject to certain
exceptions provided in the Indenture referred to herein, be made by check mailed
to the address of the person entitled thereto as such address shall appear in
the security register as of the applicable record date or, at the option of the
Holder, by wire transfer to an account maintained by such person with a bank
located in the United States.

         This [Private] Exchange Bond shall not be entitled to any benefit under
the Indenture or any indenture supplemental thereto, or become valid or
obligatory for any purpose, until the form of certificate endorsed hereon shall
have been signed by or on behalf of BNY Midwest

------------------
         * To be included in a book-entry bond.

                                       37

<PAGE>

Trust Company, the Trustee under the Indenture, or a successor trustee thereto
under the Indenture (the "Trustee").

         The provisions of this [Private] Exchange Bond are continued on the
reverse hereof and such continued provisions shall for all purposes have the
same effect as though fully set forth at this place.

                  Illinois Commerce Commission No. [6250][6251]

         IN WITNESS WHEREOF, the Company has caused this [Private] Exchange Bond
to be signed (manually or by facsimile signature) in its name by an Authorized
Executive Officer, as defined in the Indenture, and its corporate seal (or a
facsimile thereof) to be hereto affixed and attested (manually or by facsimile
signature) by an Authorized Executive Officer, as defined in the Indenture.

Dated:  ____________, 2002                   ILLINOIS POWER COMPANY

                                             By:  _____________________________
                                                   Authorized Executive Officer

(Corporate Seal)

ATTEST:

_______________________________
   Authorized Executive Officer

                [Form of Trustee's Certificate of Authentication]

         This [Private] Exchange Bond is one of the bonds of the series
designated therein referred to in the within-mentioned Indenture dated as of
November 1, 1992 and the Supplemental Indenture dated as of December 15, 2002.

                                             BNY MIDWEST TRUST COMPANY,
                                                                        Trustee,

                                             By:  _____________________________
                                                   Authorized Signatory

                                       38

<PAGE>

                            [Form of Reverse of Bond]

         This [Private] Exchange Bond is one of a duly authorized issue of bonds
of the Company (the "Bonds") in unlimited aggregate principal amount, of the
series hereinafter specified, all issued and to be issued under and equally
secured by a General Mortgage Indenture and Deed of Trust (the "Indenture"),
dated as of November 1, 1992, executed by the Company to BNY Midwest Trust
Company (the "Trustee"), as Trustee, to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the
properties mortgaged and pledged, the nature and extent of the security, the
rights of registered owners of the Bonds and of the Trustee in respect thereof,
and the terms and conditions upon which the Bonds are, and are to be, secured.
The Bonds may be issued in series, for various principal sums, may mature at
different times, may bear interest at different rates and may otherwise vary as
provided in the Indenture. This [Private] Exchange Bond is one of a series
designated as the "11.50% [Private] Exchange Bonds, 11.50% due 2010" (the
"[Private] Exchange Bonds") of the Company, limited in aggregate principal
amount to $550,000,000, issued under and secured by the Indenture and described
in the supplemental indenture dated as of December 15, 2002 (the "Supplemental
Indenture dated as of December 15, 2002"), between the Company and the Trustee,
supplemental to the Indenture.

         The [Private] Exchange Bonds are subject to additional terms and
conditions, including optional redemption, mandatory redemption, redemption at
the option of the Holders, and certain Triggering Events, all as more fully set
forth in Article V of the Supplemental Indenture dated as of December 15, 2002.

         In case an Event of Default, as defined in the Indenture, shall occur,
the principal of all the Bonds at any such time outstanding under the Indenture
may be declared or may become due and payable, upon the conditions and in the
manner and with the effect provided in the Indenture. The Indenture provides
that such declaration may be rescinded under certain circumstances.

         [In addition to the rights provided to Holders of the Private Exchange
Bonds under the Indenture, Holders of the Private Exchange Bonds shall have all
the rights set forth in the Registration Rights Agreement, as defined in the
Supplemental Indenture, dated as of December 15, 2002, including without
limitation the right to receive additional interest as described in Section 2.5
thereof.]

                                  ARTICLE IV.

  ISSUE OF THE INITIAL BONDS, THE EXCHANGE BONDS AND THE PRIVATE EXCHANGE BONDS

         SECTION 1.  (a)  Authentication of Initial Bonds. The Company hereby
exercises the right to obtain the authentication and delivery

                                       39

<PAGE>

by the Trustee on the Issue Date of (i) $375,000,000 of the Tranche One Initial
Bonds on the basis of Property Additions pursuant to Section 4.03 of the
Indenture, and (ii) $25,000,000 of the Tranche One Initial Bonds on the basis of
Retired Bonds pursuant to Section 4.04 of the Indenture. The Company hereby
exercises the right to obtain the authentication and delivery by the Trustee of
the Tranche Two Initial Bonds at such time after the Issue Date and on or before
January 31, 2003, as may be set forth in a Company Order in accordance with the
terms of the Indenture.

        (b) Authentication of Exchange Bonds and Private Exchange Bonds. The
Company hereby exercises the right to obtain the authentication and delivery by
the Trustee of the Exchange Bonds for issue only in a Registered Exchange Offer
and the Private Exchange Bonds for issue only in a Private Exchange pursuant to
the Registration Rights Agreement for a like principal amount of Initial Bonds,
in each case at such time after the Issue Date as may be set forth in a Company
Order in accordance with the terms of the Indenture.

        (c) Maximum Amount.  The aggregate principal amount of Initial Bonds,
Exchange Bonds and Private Exchange Bonds outstanding at any time may not exceed
$550,000,000.

        SECTION 2. The Initial Bonds, the Exchange Bonds and the Private
Exchange Bonds may be authenticated and delivered prior to the filing for
recordation of this Supplemental Indenture.

        SECTION 3. (a) Form and Dating. Initial Bonds shall be offered and sold
only to QIBs in reliance on Rule 144A, and the Private Exchange Bonds shall be
issued only as provided in the Registration Rights Agreement. Both Initial Bonds
and Private Exchange Bonds shall be issued initially in the form of one or more
permanent global bonds in definitive, fully registered form without interest
coupons with the applicable global securities legend and restricted securities
legend set forth in Articles II and III (each, a "Restricted Global Bond"). Each
Restricted Global Bond representing Initial Bonds shall be deposited on behalf
of the purchasers of the Initial Bonds represented thereby with the Trustee, at
its Corporate Trust Office, as Securities Custodian (or with such other
Securities Custodian as the Depository may direct), and registered in the name
of the Depository or a nominee of the Depository, duly executed by the Company
and authenticated by the Trustee as provided herein. Institutional Accredited
Investors who are offered and sold Initial Bonds by QIBs shall receive physical
delivery of certificated Initial Bonds. Exchange Bonds shall be issued in global
form (with the global securities legend set forth in this Article IV). Exchange
Bonds issued in global form and Restricted Global Bonds are sometimes referred
to in this Supplemental Indenture as "Global Bonds." The aggregate principal
amount of the Global Bonds may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depository or its nominee
as hereinafter provided. Such exchanges of Global Bonds and the decrease

                                       40

<PAGE>

or increase in the principal amount of a Global Bond will be reported on a
schedule (in substantially the form of Exhibit A).

         The Initial Bonds, the Exchange Bonds and the Private Exchange Bonds
shall be treated for all purposes under the Indenture as a single class.

         (b)      Book-Entry Provisions.  This Section 3(b) shall apply only
to a Global Bond deposited with or on behalf of the Depository.

         The Company shall execute and the Trustee shall, in accordance with
this Section 3(b), authenticate and deliver initially one or more Global Bonds
that (a) shall be registered in the name of the Depository or the nominee of the
Depository and (b) shall be delivered by the Trustee to the Depository or
pursuant to the Depository's instructions or held by the Trustee as Securities
Custodian.

         Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Supplemental Indenture with respect to any Global Bond
held on their behalf by the Depository or by the Trustee as the Securities
Custodian or under such Global Bond, and the Company, the Trustee and any agent
of the Company or the Trustee shall be entitled to treat the Depository as the
absolute owner of such Global Bond for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall prevent the Company, the Trustee or any
agent of the Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depository or
impair, as between the Depository and its Agent Members, the operation of
customary practices of such Depository governing the exercise of the rights of a
holder of a beneficial interest in any Global Bond.

         (c)      Certificated Bonds. Except as provided in Section 3, Section 4
or Section 5 of this Article IV, owners of beneficial interests in Global Bonds
shall not be entitled to receive physical delivery of Initial Bonds, Exchange
Bonds or Private Exchange Bonds in certificated form.

         SECTION 4. (a) Transfer and Exchange of Global Bonds. (i) The transfer
and exchange of Global Bonds or beneficial interests therein shall be effected
through the Depository, in accordance with this Supplemental Indenture
(including applicable restrictions on transfer set forth herein, if any) and the
procedures of the Depository therefor. A transferor of a beneficial interest in
a Global Bond shall deliver to the Bond Registrar, who shall be responsible for
maintaining a bond register for the registration of Bonds and registration of
transfers thereof, a written order given in accordance with the Depository's
procedures containing information regarding the participant account of the
Depository to be credited with a beneficial interest in the Global Bond. The
Bond Registrar shall, in accordance with such written order, instruct the
Depository to credit to the

                                       41

<PAGE>

account of the Person specified in such written order a beneficial interest in
the Global Bond and to debit from the account of the Person making the transfer
and exchange the beneficial interest in the Global Bond being transferred and
exchanged.

         (ii)  Notwithstanding any other provision of this Supplemental
Indenture (other than the provisions set forth in Section 5), a Global Bond may
not be transferred or exchanged as a whole except by the Depository to a nominee
of the Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.

         (iii) In the event that a Restricted Global Bond or an Initial Bond in
certificated registered form is transferred and exchanged for an Initial Bond in
certificated registered form pursuant to Section 5 prior to the consummation of
a Registered Exchange Offer or the effectiveness of a Shelf Registration
Statement with respect to such Initial Bonds, such Restricted Global Bond or
Initial Bond in certificated registered form may be exchanged only in accordance
with such procedures as are substantially consistent with the provisions of this
Section 4 and such other procedures as may from time to time be adopted by the
Company including:

         (A)      if such Transfer Restricted Bonds are being delivered to the
Bond Registrar by a Holder for registration in the name of such Holder, without
transfer, a certification from such Holder to that effect (in substantially the
form of Exhibit B hereto); or

         (B)      if such Transfer Restricted Bonds are being transferred to an
Institutional Accredited Investor, pursuant to a private placement exemption
from the registration requirements of the Securities Act, a certification to
that effect from such Holder (in substantially the form of Exhibit B hereto) and
a certification from the applicable transferee (in substantially the form of
Exhibit C hereto) and an opinion of counsel to that effect if the Company or the
Trustee so requests; or

         (C)      if such Transfer Restricted Bonds are being transferred in
reliance on and in compliance with another exemption from the registration
requirements of the Securities Act, a certification to that effect from such
Holder (in substantially the form of Exhibit B hereto) and an opinion of counsel
to that effect if the Company or the Trustee so requests.

         (iv)  In the event that an Initial Bond in certificated registered form
is transferred and exchanged for a beneficial interest in a Global Bond pursuant
to Section 5 prior to the consummation of a Registered Exchange Offer or the
effectiveness of a Shelf Registration Statement with respect to such Initial
Bonds, such Initial Bond may be exchanged only in accordance with such
procedures as are substantially

                                       42

<PAGE>

consistent with the provisions of this Section 4 and such other procedures as
may from time to time be adopted by the Company including:

         (A)      if such Transfer Restricted Bonds are being delivered to the
Bond Registrar by a Holder for registration in the name of such Holder, without
transfer, a certification from such Holder to that effect (in substantially the
form of Exhibit B hereto); or

         (B)      if such Transfer Restricted Bonds are being transferred in
reliance on and in compliance with another exemption from the registration
requirements of the Securities Act, a certification to that effect from such
Holder (in substantially the form of Exhibit B hereto) and an opinion of counsel
to that effect if the Company or the Trustee so requests.

         (b)      Legend.

         (i)      Except as permitted by the following paragraphs (ii), (iii)
and (iv), each Initial Bond certificate and Private Exchange Bond evidencing a
Transfer Restricted Bond shall bear a legend in substantially the following
form:

                            [Restricted Bonds Legend]

                  THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                  OF 1933 (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
                  OTHER STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR
                  ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
                  ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
                  DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
                  TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
                  REGISTRATION.

                  THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES
                  ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR
                  WHICH IT HAS PURCHASED SECURITIES TO OFFER, SELL OR OTHERWISE
                  TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
                  RESTRICTION TERMINATION DATE") THAT IS TWO YEARS AFTER THE
                  LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON
                  WHICH ILLINOIS POWER COMPANY (THE "COMPANY") OR ANY AFFILIATE
                  OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
                  PREDECESSOR TO SUCH SECURITY), ONLY (A) TO THE COMPANY, (B)
                  PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
                  EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS
                  SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER
                  THE SECURITIES ACT TO A PERSON IT REASONABLY BELIEVES IS A
                  "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER
                  THE SECURITIES ACT THAT PURCHASES SUCH SECURITY FOR ITS OWN
                  ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED

                                       43

<PAGE>

                  INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER
                  IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
                  INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE
                  501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT ACQUIRING
                  THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER
                  INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE FOR INVESTMENT
                  PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN
                  CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
                  SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
                  FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
                  SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY
                  SUCH SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D) OR (E) TO
                  REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
                  AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (ii)
                  IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE
                  OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS
                  COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS
                  LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER
                  THE RESALE RESTRICTION TERMINATION DATE.

         (ii)  Upon any sale or transfer of a Transfer Restricted Bond
(including any Transfer Restricted Bond represented by a Restricted Global Bond)
pursuant to Rule 144, the Security Registrar shall permit the transferee thereof
to exchange such Transfer Restricted Bond for a certificated Bond that does not
bear the legend set forth above and rescind any restriction on the transfer of
such Transfer Restricted Bond, if the transferor thereof certifies in writing to
the Security Registrar that such sale or transfer was made in reliance on Rule
144 (such certification to be substantially in the form of Exhibit B hereto) and
an Opinion of Counsel to that effect if the Company or the Trustee so requests.

         (iii) After a transfer of any Initial Bonds or Private Exchange Bonds
pursuant to and during the period of the effectiveness of a Shelf Registration
Statement with respect to such Initial Bonds or Private Exchange Bonds all
requirements pertaining to legends on such Initial Bonds or Private Exchange
Bonds with respect to such Bonds transferred will cease to apply and the Initial
Bonds or Private Exchange Bonds in global form, without restrictive transfer
legends, will be available to the transferee of the Holder of such Initial Bonds
or Private Exchange Bonds upon written directions to transfer such Holder's
interest in the Global Bond.

         (iv)  Upon the consummation of a Registered Exchange Offer with respect
to the Initial Bonds, Exchange Bonds in global form will be available to Holders
that exchange such Initial Bonds in such Registered Exchange Offer without
restrictive transfer legend; however, any (A) broker-dealer who purchased the
Initial Bonds directly from the Company for resale, (B) Person participating in
the Registered Exchange Offer for purposes of distributing the Exchange

                                       44

<PAGE>

Bonds or (C) Person who is an "affiliate" (as defined in Rule 144 under the
Securities Act) of the Company will not be able to tender Initial Bonds in the
Registered Exchange Offer. The Company shall identify to the Trustee such
Holders of the Initial Bonds in a written certification signed by an officer of
the Company and, absent certification from the Company to such effect, the
Trustee shall assume that there are no such Holders.

     (v)  Upon the consummation of a Private Exchange with respect to the
Initial Bonds, all requirements pertaining to such Initial Bonds issued in
global form will still apply with respect to Holders of such Initial Bonds that
do not exchange their Initial Bonds, and Private Exchange Bonds in global form
with the Restricted Bonds Legend set forth in Articles II and III hereto will be
available to Holders that exchange such Initial Bonds in such Private Exchange.

     (c)  Cancellation or Adjustment of Global Bond. At such time as all
beneficial interests in a Global Bond have either been exchanged for
certificated Bonds, redeemed, purchased or canceled, such Global Bond shall be
returned to the Depository for cancellation or retained and canceled by the
Trustee. At any time prior to such cancellation, if any beneficial interest in a
Global Bond is exchanged for certificated Bonds, redeemed, purchased or
canceled, the principal amount of Bonds represented by such Global Bond shall be
reduced and an adjustment shall be made on the books and records of the
Securities Custodian with respect to such Global Bond.

     (d)  Obligations with Respect to Transfers and Exchanges of Bonds.

          (i)    To permit registrations of transfers and exchanges, the Company
     shall execute and the Trustee shall authenticate certificated Bonds and
     Global Bonds at the Bond Registrar's request.

          (ii)   No service charge shall be made for any registration of
     transfer or exchange, except as provided in Section 3.05 of the Indenture.

          (iii)  The Bond Registrar shall not be required to register the
     transfer of or exchange of any Bond during a period of 15 business days
     immediately preceding the date notice is given of redemption, all in
     accordance with Section 3.05 of the Indenture.

          (iv)   Prior to the due presentation for registration of transfer of
     any Bond, the Company, the Trustee, the Paying Agent or the Bond Registrar
     may deem and treat the Person in whose name a Bond is registered as the
     absolute owner of such Bond for the purpose of receiving payment of
     principal of and interest on such Bond and for all other purposes
     whatsoever, whether or not such Bond is overdue, and none of the Company,
     the Trustee, the Paying

                                       45

<PAGE>

     Agent or the Bond Registrar shall be affected by notice to the contrary.

          (v)   All Bonds issued upon any transfer or exchange pursuant to the
     terms of the Indenture shall evidence the same debt and shall be entitled
     to the same benefits under the Indenture as the Bonds surrendered upon such
     transfer or exchange.

          (e)   No Obligation of the Trustee.

          (i)   The Trustee shall have no responsibility or obligation to any
     beneficial owner of a Global Bond, Agent Member or other person with
     respect to the accuracy of the records of the Depository or its nominee or
     of any Agent Member, with respect to any ownership interest in the Bonds or
     with respect to the delivery to any Agent Member, beneficial owner or other
     person (other than the Depository) of any notice (including any notice of
     redemption) or the payment of any amount, under or with respect to such
     Bonds. All notices and communications to be given to the Holders and all
     payments to be made to Holders under the Bonds shall be given or made only
     to or upon the order of the registered Holders (which shall be the
     Depository or its nominee in the case of a Global Bond). The rights of
     beneficial owners in any Global Bond shall be exercised only through the
     Depository subject to the applicable rules and procedures of the
     Depository. The Trustee may rely and shall be fully protected in relying
     upon information furnished by the Depository with respect to its Agent
     Members and any beneficial owners.

          (ii)  The Trustee shall have no obligation or duty to monitor,
     determine or inquire as to compliance with any restrictions on transfer
     imposed under this Supplemental Indenture or under applicable law with
     respect to any transfer of any interest in any Bond (including any
     transfers between or among Agent Members or beneficial owners in any Global
     Bond) other than to require delivery of such certificates and other
     documentation or evidence as are expressly required by, and to do so if and
     when expressly required by, the terms of the Indenture.

     SECTION 5. Certificated Bonds.

     (a)  A Global Bond deposited with the Depository or with the Trustee as
Securities Custodian pursuant to Section 3 shall be transferred to the
beneficial owners thereof in the form of certificated Bonds in an aggregate
principal amount equal to the principal amount of such Global Bond, in exchange
for such Global Bond, only if such transfer complies with this Section 5 and the
conditions set forth in Section 3.05 of the Indenture.

                                       46

<PAGE>

     (b)  Any Global Bond that is transferable to the beneficial owners thereof
pursuant to this Section shall be surrendered by the Depository to the Trustee
at its Corporate Trust Office to be so transferred, in whole or from time to
time in part, without charge, and the Trustee shall authenticate and deliver,
upon such transfer of each portion of such Global Bond, an equal aggregate
principal amount of certificated Bonds of authorized denominations. Any portion
of a Global Bond transferred pursuant to this Section shall be executed,
authenticated and delivered only in denominations of $1,000 principal amount and
any integral multiple thereof and registered in such names as the Depository
shall direct. Any certificated Bond representing beneficial interests in an
Initial Bond or Private Exchange Bond shall, except as otherwise provided by
Section 4(b) of Article IV, bear the restricted securities legend that is borne
by such Bond.

     (c)  The Company shall promptly make available to the Trustee a reasonable
supply of certificated Bonds in definitive, fully registered form without
interest coupons only if: (i) DTC notifies the Company that it is unwilling or
unable to continue as a Depository for the Global Bond or if at any time the
Depository ceases to be a clearing agency registered under the Exchange Act, as
amended, and a successor Depository is not appointed by the Company within 90
days; (ii) the Company, at its option, executes and delivers to the Trustee an
order that such Bonds shall be so exchangeable and the transfer so registrable;
or (iii) there shall have occurred and be continuing an Event of Default (as
defined in the Indenture) or any event which after notice or lapse of time or
both would be an Event of Default with respect to the Bonds.

     (d)  In all cases, certificated Bonds delivered in exchange for any Global
Bond or beneficial interests in such Global Bond will be registered in the
names, and issued in any approved denominations, requested by or on behalf of
the Depository, in accordance with its customary procedures. Any certificated
Bond issued in exchange for an interest in a Global Bond will bear the
restricted securities legend that is borne by such Global Bond. Any such
exchange will be effected through the DTC's Deposit/Withdrawal at Custodian
system and an appropriate adjustment will be made in the records of the
Securities Custodian to reflect a decrease in the principal amount of the
relevant Global Bond.

                                   ARTICLE V.

        ADDITIONAL PROVISIONS RELATING TO THE INITIAL BONDS, THE EXCHANGE
                      BONDS AND THE PRIVATE EXCHANGE BONDS

     SECTION 1. Optional Redemption.

     (a)  Optional Redemption. Except as set forth in Section 1(b) below, the
Mortgage Bonds shall not be redeemable at the Company's option prior to December
15, 2006. On and after December 15, 2006,

                                       47

<PAGE>

the Company may redeem all or a part of the Mortgage Bonds upon not less than 30
nor more than 60 days' notice, at the Redemption Prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest, if any, on the Mortgage Bonds redeemed, to the applicable Redemption
Date, if redeemed during the twelve-month period beginning on December 15 of the
years indicated below:

          Year                          Percentage

          2006                          105.750%

          2007                          102.875%

          2008 and thereafter           100.000%

     (b)  Equity Claw-back. Notwithstanding the foregoing, at any time prior to
December 15, 2005, the Company may on any one or more occasions redeem up to 35%
of the aggregate principal amount of the Mortgage Bonds at a Redemption Price of
111.50% of the principal amount, plus accrued and unpaid interest, if any, to
the redemption date, with the net cash proceeds of any public or private
offering of its Equity Interests (other than Disqualified Stock) or a cash
contribution to the Company's equity capital, provided that (i) at least 65% of
the aggregate principal amount of the Mortgage Bonds remains outstanding
immediately after the occurrence of such redemption (excluding Mortgage Bonds
held by the Company and its Affiliates); and (ii) any such redemption occurs
within 120 days of the date of the closing of such offering or contribution.

     (c)  Notice of Redemption. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the Redemption Date to
each Holder of Mortgage Bonds to be redeemed at its registered address, except
that redemption notices may be mailed more than 60 days prior to a Redemption
Date if the notice is issued in connection with a satisfaction and discharge of
the Mortgage Bonds under the Indenture. Notices of redemption may not be
conditional. Except as set forth herein, notices of redemption shall be made in
accordance with Section 5.04 of the Indenture.

     (d)  Selection of Mortgage Bonds to be Redeemed. In accordance with Section
5.03 of the Indenture, the following method is provided for the selection of
Mortgage Bonds to be redeemed and these procedures shall be followed by the
Trustee in the event of a redemption of the Mortgage Bonds pursuant to the
provisions of this Supplemental Indenture. If less than all of the Mortgage
Bonds are to be redeemed at any time, the Trustee shall select Mortgage Bonds
for redemption as follows:

          (i)  if the Mortgage Bonds are listed on any national securities
               exchange, in compliance with the

                                       48

<PAGE>

                requirements of the principal national securities exchange on
                which the Mortgage Bonds are listed; or

          (ii)  if the Mortgage Bonds are not listed on any national securities
                exchange, on a pro rata basis, by lot or by such method as the
                Trustee deems fair and appropriate.

     No Mortgage Bonds of $1,000 principal amount or less can be redeemed in
part.

     SECTION 2. Mandatory Redemption.

     (a)  Except as provided in Article V, Section 2(b) or Article V, Section 3
below, the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Mortgage Bonds.

     (b)  Upon the occurrence of the events described below in clauses (i) or
(ii) of this Article V, Section 2(b), the Company shall be required to redeem
the Mortgage Bonds as soon as is permissible in accordance with the procedures
of DTC, at a Redemption Price equal to 100% of the aggregate principal amount of
the Mortgage Bonds plus accrued and unpaid interest, if any, on the Mortgage
Bonds to the date of redemption, without further action or notice on the part of
the Trustee or the Holders of the Mortgage Bonds:

          (i)   the Company or any of its Subsidiaries that is a Significant
                Subsidiary or any group of Subsidiaries that, taken as a whole,
                would constitute a Significant Subsidiary pursuant to or within
                the meaning of Bankruptcy Law:

                (A)  commences a voluntary case,

                (B)  consents to the entry of an order for relief against it in
                     an involuntary case,

                (C)  consents to the appointment of a custodian of it or for all
                     or substantially all of its property,

                (D)  makes general assignment for the benefit of its creditors,
                     or

                (E)  admits in writing of its inability to pay its debts
                     generally as they become due; or

          (ii)  a court of competent jurisdiction enters an order or decree
                under any Bankruptcy Law that:

                (A)  is for relief against the Company or any of its
                     Subsidiaries that is a Significant Subsidiary or

                                       49

<PAGE>

                      any group of Subsidiaries that, taken as a whole, would
                      constitute a Significant Subsidiary in an involuntary
                      case;

                (B)   appoints a custodian of the Company or any of its
                      Subsidiaries that is a Significant Subsidiary or any group
                      of Subsidiaries that, taken as a whole, would constitute a
                      Significant Subsidiary or for all or substantially all of
                      the property of the Company or any of its Subsidiaries
                      that is a Significant Subsidiary or any group of
                      Subsidiaries that, taken as a whole, would constitute a
                      Significant Subsidiary; or

                (C)   orders the liquidation of the Company or any of its
                      Subsidiaries that is a Significant Subsidiary or any group
                      of Restricted Subsidiaries that, taken as a whole, would
                      constitute a Significant Subsidiary;

                and the order or decree remains unstayed and in effect for 60
                consecutive days.

     SECTION 3. Redemption at the Option of the Holders.

     (a)  Upon the occurrence of any of the following events (each a "Triggering
Event"):

                (i)   failure for 30 days to pay when due interest on the
                      Mortgage Bonds;

                (ii)  failure to pay when due the principal of, or premium, if
                      any, on the Mortgage Bonds;

                (iii) the events described in Article V, Sections 4(a), 4(b)
                      4(c), 4(d), 4(e), 4(f), 4(g), 4(h), 4(i) or 4(j) of this
                      Supplemental Indenture (under the headings "Triggering
                      Events--Restricted Payments," "Triggering
                      Events--Incurrence of Indebtedness and Issuance of
                      Preferred Stock," "Triggering Events--Liens," "Triggering
                      Events--Dividend and Other Payment Restrictions Affecting
                      Subsidiaries," "Triggering Events--Merger, Consolidation
                      or Sale of Assets," "Triggering Events--Transactions with
                      Affiliates," "Triggering Events--Designation of Restricted
                      and Unrestricted Subsidiaries," "Triggering Events--Future
                      Subsidiary Guarantees," "Triggering Events--Sale and
                      Leaseback Transactions," or "Triggering Events--Business
                      Activities");

                                       50

<PAGE>

                (iv)  failure by the Company or any of its Restricted
                      Subsidiaries for 30 days after notice from the Trustee or
                      the Holders of at least 25% in principal amount of the
                      Mortgage Bonds then Outstanding to comply with the
                      provisions described in Article V, Section 4(k) or Section
                      6(b) of this Supplemental Indenture (under the headings
                      "Triggering Events--Reports," and "Repurchase at the
                      Option of Holders--Asset Sales");

                (v)   default under any mortgage, indenture or instrument under
                      which there may be issued or by which there may be secured
                      or evidenced any Indebtedness for money borrowed by the
                      Company or any of its Restricted Subsidiaries or a
                      Transitional Funding Trust (or the payment of which is
                      guaranteed by the Company or any of its Restricted
                      Subsidiaries or a Transitional Funding Trust) whether such
                      Indebtedness or guarantee now exists, or is created after
                      the original issue date of the Mortgage Bonds, if that
                      default:

                      (A) is caused by a failure to pay principal of, or
                          interest or premium, if any, on such Indebtedness
                          prior to the expiration of the grace period provided
                          in such Indebtedness on the date of such default (a
                          "Payment Default"); or

                      (B) results in the acceleration of such Indebtedness prior
                          to its express maturity,

                      and, in each case, the principal amount of any such
                      Indebtedness, together with the principal amount of any
                      other such Indebtedness under which there has been a
                      Payment Default or the maturity of which has been so
                      accelerated, aggregates $25 million or more; or

                (vi)  failure by the Company or any of its Subsidiaries to pay
                      final judgments no longer subject to appeal or for which
                      execution of the judgment is not stayed aggregating in
                      excess of $25 million, which judgments are not paid,
                      discharged or stayed for a period of 60 days;

the Holders of Mortgage Bonds of at least 25% in principal amount of the
Mortgage Bonds then Outstanding may deliver a notice to the Company requiring
the Company to redeem the Mortgage Bonds at a Redemption Price equal to 100% of
the aggregate principal amount of the Mortgage Bonds plus accrued and unpaid
interest, if any, on the Mortgage Bonds to the Redemption Date. Within three
days after the delivery of such notice, the Company will commence mandatory
redemption of the Mortgage Bonds in accordance with the procedures of

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DTC with a Redemption Date not more than 30 days after notice to the Holders of
the Mortgage Bonds.

       (b) The Holders of a majority in aggregate principal amount of the
Mortgage Bonds then Outstanding by notice to the Company and the Trustee may on
behalf of the Holders of all of the Mortgage Bonds waive any existing Triggering
Event and its consequences except a continuing Triggering Event related to the
payment of interest on, or the principal of, the Mortgage Bonds.

       (c) In the case of any Triggering Event occurring by reason of any
willful action or inaction taken or not taken by or on behalf of the Company
with the intention of avoiding payment of the premium that the Company would
have had to pay if the Company then had elected to redeem the Mortgage Bonds
pursuant to the provisions of Article V, Section 1(a) of this Supplemental
Indenture relating to redemption at the option of the Company, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the redemption of the Mortgage Bonds at the option of the
Holders thereof. If a Triggering Event occurs prior to December 15, 2006, by
reason of any willful action or inaction taken or not taken by or on behalf of
the Company with the intention of avoiding the prohibition on redemption of the
Mortgage Bonds prior to December 15, 2006, then the premium of 11.50% shall also
become immediately due and payable to the extent permitted by law upon the
redemption of the Mortgage Bonds at the option of the Holders thereof

       (d) Upon becoming aware of any Triggering Event, the Company shall
deliver to the Trustee a statement specifying such Triggering Event.

       SECTION 4. Triggering Events.

       (a) Restricted Payments.

           (i) A Triggering Event shall occur if the Company or any of its
               Restricted Subsidiaries directly or indirectly:

               (A)  declares or pays any dividend or makes any other payment or
                    distribution on account of the Company's or any of its
                    Restricted Subsidiaries' Equity Interests (including,
                    without limitation, any payment in connection with any
                    merger or consolidation involving the Company or any of its
                    Restricted Subsidiaries) or to the direct or indirect
                    holders of the Company's or any of its Restricted
                    Subsidiaries' Equity Interests in their capacity as such
                    (other than dividends or distributions payable in Equity
                    Interests (other than Disqualified Stock) of the Company or
                    to the

                                       52

<PAGE>

                                 Company or a Restricted Subsidiary of the
                                 Company);

                           (B)   purchases, redeems or otherwise acquires or
                                 retires for value (including, without
                                 limitation, in connection with any merger or
                                 consolidation involving the Company) any Equity
                                 Interests of the Company or any direct or
                                 indirect parent of the Company;

                           (C)   makes any payment on or with respect to, or
                                 purchases, redeems, defeases or otherwise
                                 acquires or retires for value any Indebtedness
                                 of the Company that is contractually
                                 subordinated in right of payment to the
                                 Mortgage Bonds, except (i) a payment of
                                 interest or principal at the Stated Maturity
                                 thereof, or (ii) a purchase, redemption,
                                 acquisition or retirement required to be made
                                 pursuant to the terms of such Indebtedness
                                 (including pursuant to an asset sale or change
                                 in control provision); or

                           (D)   makes any Restricted Investment (all such
                                 payments and other actions set forth in these
                                 clauses (A) through (D) above being
                                 collectively referred to as "Restricted
                                 Payments"),

                           unless, at the time of and after giving effect to
                           such Restricted Payment:

                           (1)   no Default or Event of Default has occurred and
                                 is continuing or would occur as a consequence
                                 of such Restricted Payment;

                           (2)   the Company would, at the time of such
                                 Restricted Payment and after giving pro forma
                                 effect thereto as if such Restricted Payment
                                 had been made at the beginning of the
                                 applicable four-quarter period, have been
                                 permitted to incur at least $1.00 of additional
                                 Indebtedness pursuant to the Fixed Charge
                                 Coverage Ratio test set forth in Article V,
                                 Section 4(b)(i) ("Triggering Events --
                                 Incurrence of Indebtedness and Issuance of
                                 Preferred Stock"); and

                           (3)   such Restricted Payment, together with the
                                 aggregate amount of all other Restricted
                                 Payments made by the Company and its Restricted
                                 Subsidiaries after the original issue date of
                                 the Mortgage Bonds (excluding Restricted
                                 Payments permitted by Article V, Sections
                                 4(a)(ii)(B),

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<PAGE>

                           4(a)(ii)(C), 4(a)(ii)(D) and 4(a)(ii)(H)), is less
                           than the sum, without duplication, of:

                           (a)   50% of the Consolidated Net Income of the
                           Company for the period (taken as one accounting
                           period) from the beginning of the first fiscal
                           quarter commencing after the original issue date of
                           the Mortgage Bonds to the end of the Company's most
                           recently ended fiscal quarter for which internal
                           financial statements are available at the time of
                           such Restricted Payment (or, if such Consolidated Net
                           Income for such period is a deficit, less 100% of
                           such deficit), plus

                           (b)   100% of the aggregate net cash proceeds
                           received by the Company (including the fair market
                           value of any Permitted Business or assets used or
                           useful in a Permitted Business to the extent acquired
                           in consideration of Equity Interests (other than
                           Disqualified Stock) of the Company) since the
                           original issue date of the Mortgage Bonds as a
                           contribution to its common equity capital or from the
                           issue or sale of Equity Interests of the Company
                           (other than Disqualified Stock and other than sales
                           to a Restricted Subsidiary of the Company) or from
                           the issue or sale of convertible or exchangeable
                           Disqualified Stock or convertible or exchangeable
                           debt securities of the Company that have been
                           converted into or exchanged for such Equity Interests
                           (other than Disqualified Stock or debt securities
                           sold to a Restricted Subsidiary of the Company), plus

                           (c)   to the extent that any Restricted Investment
                           that was made after the original issue date of the
                           Mortgage Bonds is sold for cash or otherwise
                           liquidated or repaid for cash, the lesser of (i) the
                           cash return of capital with respect to such
                           Restricted Investment (less the cost of disposition,
                           if any) and (ii) the initial amount of such
                           Restricted Investment, plus

                           (d)   to the extent that any Unrestricted Subsidiary
                           of the Company is redesignated as a Restricted
                           Subsidiary after the original issue date of the
                           Mortgage Bonds, the lesser of (i) the fair market
                           value of the Company's Investment in such Subsidiary
                           as of the date of such redesignation and (ii) the
                           book value (determined in accordance with GAAP) of
                           the Company's

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<PAGE>

                                    Investment in such Subsidiary as of the date
                                    of such redesignation.

                        (ii)  Notwithstanding the foregoing, the following shall
                              not constitute a Triggering Event:

                              (A)   the payment of any dividend within 60 days
                                    after the date of declaration of the
                                    dividend, if at the date of declaration the
                                    dividend payment would have complied with
                                    the provisions of this Supplemental
                                    Indenture;

                              (B)   the redemption, repurchase, retirement,
                                    defeasance or other acquisition of any
                                    Indebtedness of the Company that is
                                    contractually subordinated in right of
                                    payment to the Mortgage Bonds or of any
                                    Equity Interests of the Company or any
                                    direct or indirect parent of the Company in
                                    exchange for, or out of the net cash
                                    proceeds of the substantially concurrent
                                    sale (other than to a Restricted Subsidiary
                                    of the Company) of, Equity Interests of the
                                    Company (other than Disqualified Stock);
                                    provided that the amount of any such net
                                    cash proceeds that are utilized for any such
                                    redemption, repurchase, retirement,
                                    defeasance or other acquisition shall be
                                    excluded from Article V, Section
                                    4(a)(i)(3)(b) above;

                              (C)   the defeasance, redemption, repurchase or
                                    other acquisition of any Indebtedness of the
                                    Company that is contractually subordinated
                                    in right of payment to the Mortgage Bonds
                                    with the net cash proceeds from an
                                    incurrence of Permitted Refinancing
                                    Indebtedness;

                              (D)   the payment of any distribution or dividend
                                    by a Restricted Subsidiary of the Company to
                                    the holders of its Equity Interests on a pro
                                    rata basis;

                              (E)   the repurchase, redemption or other
                                    acquisition or retirement for value of any
                                    Equity Interests of the Company held by any
                                    member of the Company's (or any of its
                                    Restricted Subsidiaries') management
                                    pursuant to any management equity
                                    subscription agreement, stock option
                                    agreement or similar agreement; provided
                                    that the aggregate price paid for all such
                                    repurchased, redeemed, acquired or retired
                                    Equity Interests may not exceed $1.5 million
                                    in any calendar year;

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<PAGE>

                              (F)   payments to Illinova to enable Illinova to
                                    pay its reasonable fees and expenses
                                    (including but not limited to, interest on
                                    Illinova's Indebtedness) incurred in the
                                    ordinary course of business, which fees and
                                    expenses shall not be greater than the sum
                                    of (a) amounts necessary to pay interest
                                    that accrues on the principal amount of
                                    Illinova's 7.125% Senior Notes due 2004
                                    Outstanding on the original issue date of
                                    the Mortgage Bonds, provided that at the
                                    time of payment no Triggering Event shall
                                    have occurred and Illinova shall have made
                                    all required payments on its note or notes
                                    payable to the Company, and (b) $1.0 million
                                    for any calendar year; provided that (a) any
                                    such payment complies with any regulatory
                                    restrictions then applicable to the Company
                                    and (b) the Fixed Charge Coverage Ratio for
                                    the Company's most recently ended four full
                                    fiscal quarters for which internal financial
                                    statements are available immediately
                                    preceding the date on which any such payment
                                    is made was at least 2.0 to 1;

                              (G)   payments of dividends on shares of the
                                    Company's preferred stock Outstanding on the
                                    original issue date of the Mortgage Bonds,
                                    in an amount not to exceed $2.5 million in
                                    any calendar year;

                              (H)   payments made pursuant to the Services and
                                    Facilities Agreement; and

                              (I)   other Restricted Payments in an aggregate
                                    amount since the original issue date of the
                                    Mortgage Bonds not to exceed $5 million;

                              provided that, with respect to clauses (B), (C),
                              (E), (F), (G), (H) and (I) above, no Default or
                              Event of Default shall have occurred and be
                              continuing immediately after such transaction.

                        (iii) The amount of all Restricted Payments (other than
                              cash) shall be the fair market value on the date
                              of the Restricted Payment of the asset(s) or
                              securities proposed to be transferred or issued by
                              the Company or such Restricted Subsidiary, as the
                              case may be, pursuant to the Restricted Payment.
                              The fair market value of any assets or securities
                              that are required to be valued by this Triggering
                              Event shall be determined by the Board of
                              Directors whose resolution with respect thereto
                              shall be delivered to the Trustee. The Board of
                              Directors' determination must be based upon

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<PAGE>

                              an opinion or appraisal issued by an accounting,
                              appraisal or investment banking firm of national
                              standing if the fair market value exceeds $20
                              million. Not later than the date of making any
                              Restricted Payment (excluding Restricted Payments
                              permitted by clauses (E)-(H) above), the Company
                              shall deliver to the Trustee an Officer's
                              Certificate stating that such Restricted Payment
                              is permitted and setting forth the basis upon
                              which the calculations required by this Article V,
                              Section 4(a) ("Restricted Payments") were
                              computed, together with a copy of any fairness
                              opinion or appraisal required under this
                              Supplemental Indenture. The Trustee shall have no
                              duty or responsibility to determine the accuracy
                              or correctness of this calculation and shall be
                              fully protected in relying on such Officer's
                              Certificate. The Trustee shall make such fairness
                              opinion available for inspection by Holders of
                              Mortgage Bonds upon reasonably prior written
                              request during regular business hours.

                        (iv)  The provisions of this Article V, Section 4(a)
                              ("Restricted Payments") are subject to the
                              provisions of Article V, Section 5 ("Suspension of
                              Triggering Events").

                   (b)  Incurrence of Indebtedness and Issuance of Preferred
                        Stock.

                        (i)   A Triggering Event shall occur if:

                              (A) the Company or any of its Restricted
                                  Subsidiaries, directly or indirectly, creates,
                                  incurs, issues, assumes, guarantees or
                                  otherwise becomes directly or indirectly
                                  liable, contingently or otherwise, with
                                  respect to (collectively, "incur") any
                                  Indebtedness (including Acquired Debt), or the
                                  Company issues any Disqualified Stock or
                                  permits any of its Restricted Subsidiaries to
                                  issue any shares of preferred stock; provided,
                                  however, that the Company may incur
                                  Indebtedness (including Acquired Debt) or
                                  issue Disqualified Stock, and its Subsidiary
                                  Guarantors may incur Indebtedness (including
                                  Acquired Debt) or issue Disqualified Stock,
                                  without the occurrence of a Triggering Event,
                                  if the Fixed Charge Coverage Ratio for the
                                  Company's most recently ended four full fiscal
                                  quarters for which internal financial
                                  statements are available immediately preceding
                                  the date on which such additional Indebtedness
                                  is incurred or such Disqualified Stock is
                                  issued would have been

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<PAGE>

                                  at least 2.0 to 1, determined on a pro forma
                                  basis (including a pro forma application of
                                  the net proceeds therefrom), as if the
                                  additional Indebtedness had been incurred or
                                  Disqualified Stock had been issued, as the
                                  case may be, at the beginning of such
                                  four-quarter period;

                            (B)   the Company incurs any Indebtedness (including
                                  Permitted Debt as defined below) that is
                                  contractually subordinated in right of payment
                                  to any other Indebtedness of the Company
                                  unless such Indebtedness is also contractually
                                  subordinated in right of payment to the
                                  Mortgage Bonds on substantially identical
                                  terms; provided, however, that no Indebtedness
                                  of the Company will be deemed to be
                                  contractually subordinated in right of payment
                                  to any other Indebtedness of the Company
                                  solely by virtue of being secured on a junior
                                  basis or by virtue of being unsecured; or

                            (C)   a Transitional Funding Trust incurs
                                  Indebtedness represented by Transitional
                                  Funding Notes issued after the original issue
                                  date of the Mortgage Bonds (a) with an
                                  aggregate principal amount in excess of $300
                                  million or (b) for any purpose other than,
                                  directly or indirectly, to refund, refinance
                                  or replace any other Indebtedness of the
                                  Transitional Funding Trust, the Company or any
                                  of its Restricted Subsidiaries.

                     (ii)   Notwithstanding the foregoing, the incurrence of any
                            of the following items of Indebtedness
                            (collectively, "Permitted Debt") will not constitute
                            a Triggering Event:

                            (A)   the incurrence by the Company pursuant to this
                                  clause (A) of additional Indebtedness and
                                  letters of credit under one or more Credit
                                  Facilities (with letters of credit being
                                  deemed to have a principal amount equal to the
                                  maximum potential liability of the Company
                                  thereunder), in an aggregate amount up to $300
                                  million at any time outstanding less any
                                  amounts permanently repaid under any such
                                  Credit Facility with the Net Proceeds of an
                                  Asset Sale;

                            (B)   Existing Indebtedness;

                            (C)   the incurrence by the Company of Indebtedness
                                  represented by the Mortgage Bonds (including
                                  the Exchange Bonds to be issued pursuant to
                                  the

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<PAGE>

                                    Registration Rights Agreement) and the
                                    incurrence by any Subsidiary Guarantor of a
                                    Subsidiary Guarantee of those Mortgage Bonds
                                    (including the Exchange Bonds);

                              (D)   the incurrence by the Company or any of its
                                    Restricted Subsidiaries of Indebtedness
                                    represented by Capital Lease Obligations,
                                    mortgage financings or purchase money
                                    obligations, in each case, incurred for the
                                    purpose of financing all or any part of the
                                    purchase price or cost of construction or
                                    improvement of property, plant or equipment
                                    used in the business of the Company or such
                                    Restricted Subsidiary, in an aggregate
                                    principal amount, including all Permitted
                                    Refinancing Indebtedness incurred to refund,
                                    refinance or replace any Indebtedness
                                    incurred pursuant to this clause (D), not to
                                    exceed $10.0 million at any time
                                    outstanding;

                              (E)   the incurrence by the Company or any of its
                                    Restricted Subsidiaries of Permitted
                                    Refinancing Indebtedness in exchange for, or
                                    the net proceeds of which are used to
                                    refund, refinance or replace Indebtedness
                                    (other than intercompany Indebted-ness) that
                                    was incurred under Article V, Section
                                    4(b)(i) or Article V, Section 4(b)(ii)(B),
                                    (C), (E) or (L);

                              (F)   the incurrence by the Company or any of its
                                    Restricted Subsidiaries of intercompany
                                    Indebtedness between or among the Company or
                                    any of its Restricted Subsidiaries;
                                    provided, however, that:

                                    (1) if the Company is the obligor on such
                                    Indebtedness, such Indebtedness must be
                                    expressly subordinated to the prior payment
                                    in full in cash of all Obligations with
                                    respect to the Mortgage Bonds;

                                    (2) if a Subsidiary Guarantor is the obligor
                                    on such Indebtedness, such Indebtedness is
                                    expressly subordinated to the prior payment
                                    in full in cash of such Subsidiary
                                    Guarantor's Subsidiary Guarantee, if any;
                                    and

                                    (3) (a) any subsequent issuance or transfer
                                    of Equity Interests that results in any such
                                    Indebtedness being held by a Person other
                                    than

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<PAGE>

                                    the Company or a Restricted Subsidiary and
                                    (b) any sale or other transfer of any such
                                    Indebtedness to a Person that is not either
                                    the Company or a Restricted Subsidiary shall
                                    be deemed, in each case, to constitute an
                                    incurrence of such Indebtedness by the
                                    Company or such Restricted Subsidiary, as
                                    the case may be, that was not permitted by
                                    this clause (F);

                              (G)   the incurrence by the Company or any of its
                                    Restricted Subsidiaries of Hedging
                                    Obligations;

                              (H)   the guarantee by the Company or any
                                    Restricted Subsidiary of Indebtedness of the
                                    Company or any Restricted Subsidiary that
                                    was permitted to be incurred by another
                                    provision of this Article V, Section 4(b)
                                    ("Incurrence of Indebtedness and Issuance of
                                    Preferred Stock");

                              (I)   the accrual of interest, the accretion or
                                    amortization of original issue discount, the
                                    payment of interest on any Indebtedness in
                                    the form of additional Indebtedness with the
                                    same terms, and the payment of dividends on
                                    Disqualified Stock in the form of additional
                                    shares of such Disqualified Stock shall not
                                    be deemed to be an incurrence of
                                    Indebtedness or an issuance of Disqualified
                                    Stock for purposes of this Article V,
                                    Section 4(b) ("Incurrence of Indebtedness
                                    and Issuance of Preferred Stock"); provided,
                                    in each such case, that the amount thereof
                                    is included in the Fixed Charges of the
                                    Company as accrued;

                              (J)   Indebtedness in respect of bid, performance
                                    or surety bonds issued for the account of
                                    the Company or any Restricted Subsidiary
                                    thereof in the ordinary course of business,
                                    including guarantees or obligations of the
                                    Company or any Restricted Subsidiary thereof
                                    with respect to letters of credit supporting
                                    such bid, performance or surety obligations
                                    (in each case other than for an obligation
                                    for money borrowed);

                              (K)   the incurrence by the Company's Unrestricted
                                    Subsidiaries of Non-Recourse Debt; provided,
                                    however, that if any such Indebtedness
                                    ceases to be Non-Recourse Debt of an
                                    Unrestricted Subsidiary, such event shall be
                                    deemed to constitute an incurrence of
                                    Indebtedness by a

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<PAGE>

                                    Restricted Subsidiary of the Company that
                                    was not permitted by this clause (K);

                              (L)   the incurrence by the Company of additional
                                    Indebtedness consisting of securities issued
                                    pursuant to the Indenture in respect of
                                    claims relating to the Company's obligations
                                    pursuant to agreements with gas, electric
                                    power and other energy suppliers that have
                                    been terminated as of the original issue
                                    date of the Mortgage Bonds;

                              (M)   the incurrence by the Company or any
                                    Restricted Subsidiary of additional
                                    Indebtedness consisting of letters of credit
                                    for purposes of supporting the Company's or
                                    any Restricted Subsidiary's obligations now
                                    or hereafter owing to gas, electric power or
                                    other energy suppliers or transportation or
                                    service providers, not to exceed $25 million
                                    at any time outstanding; and

                              (N)   the incurrence by the Company or any
                                    Restricted Subsidiary of additional
                                    Indebtedness in an aggregate principal
                                    amount (or accreted value, as applicable),
                                    including all Permitted Refinancing
                                    Indebtedness incurred to refund, refinance
                                    or replace any Indebtedness incurred
                                    pursuant to this clause (N), not to exceed
                                    $25 million at any time outstanding.

                        (iii) For purposes of determining compliance with this
                              Article V, Section 4(b) ("Incurrence of
                              Indebtedness and Issuance of Preferred Stock"):

                              (A)   in the event that an item of proposed
                                    Indebtedness, including Acquired Debt, meets
                                    the criteria of more than one of the
                                    categories of Permitted Debt described in
                                    clauses (A) through (N) above, or is
                                    entitled to be incurred pursuant under
                                    Article V, Section 4(b)(i), the Company
                                    shall be permitted to classify (or later
                                    classify or reclassify such Indebtedness, in
                                    whole or in part in its sole discretion)
                                    such item of Indebtedness in any manner that
                                    complies with this Article V, Section 4(b);
                                    and

                              (B)   with respect to any dollar-denominated
                                    restriction on the incurrence of
                                    Indebtedness denominated in a foreign
                                    currency, the dollar-equivalent principal
                                    amount of such Indebtedness incurred
                                    pursuant thereto shall be calculated based
                                    on the relevant currency exchange rate in

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<PAGE>

                           effect on the date that such Indebtedness was
                           incurred.

               (iv)  The provisions of this Article V, Section 4(b)
                     ("Incurrence of Indebtedness and Issuance of
                     Preferred Stock") are subject to the provisions of
                     Article V, Section 5 ("Suspension of Triggering
                     Events").

         (c)   Liens.

         A Triggering Event shall occur if the Company, or any of its Restricted
Subsidiaries, directly or indirectly, creates, incurs, assumes or otherwise
causes or suffers to exist or becomes effective any Lien of any kind securing
Indebtedness or Attributable Debt on any of their property or assets, now owned
or hereafter acquired, except Permitted Liens.

         (d)   Dividend and Other Payment Restrictions Affecting Subsidiaries.

               (i)   A Triggering Event will occur if the Company or any of its
                     Restricted Subsidiaries, directly or indirectly, creates or
                     permits to exist or becomes effective any consensual
                     encumbrance or restriction on the ability of any Restricted
                     Subsidiary to:

                     (A)   pay dividends or make any other distributions on its
                           Capital Stock to the Company or any of its Restricted
                           Subsidiaries, or pay any Indebtedness owed to the
                           Company or any of its Restricted Subsidiaries;

                     (B)   make loans or advances to Company or any of its
                           Restricted Subsidiaries; or

                     (C)   transfer any of its properties or assets to the
                           Company or any of its Restricted Subsidiaries.

               (ii)  Notwithstanding the foregoing, this Article V, Section 4(d)
                     Triggering Event shall not apply to encumbrances or
                     restrictions existing under or by reason of:

                     (A)   agreements governing Existing Indebtedness and Credit
                           Facilities in effect on the original issue date of
                           the Mortgage Bonds and any amendments, modifications,
                           restatements, renewals, increases, supplements,
                           refundings, replacements or refinancings of those
                           agreements, provided that the amendments,
                           modifications, restatements, renewals, increases,
                           supplements, refundings, replacements or refinancings
                           are no more

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<PAGE>

                           restrictive, taken as a whole, with respect to such
                           dividend and other payment restrictions than those
                           contained in those agreements on the original issue
                           date of the Mortgage Bonds;

                     (B)   the Indenture, this Supplemental Indenture and the
                           Mortgage Bonds;

                     (C)   applicable law, regulations or regulatory orders;

                     (D)   any instrument governing Indebtedness or Capital
                           Stock of a Person acquired by the Company or any of
                           its Restricted Subsidiaries as in effect at the time
                           of such acquisition (except to the extent such
                           Indebtedness or Capital Stock was incurred in
                           connection with or in contemplation of such
                           acquisition), which encumbrance or restriction is not
                           applicable to any Person, or the properties or assets
                           of any Person, other than the Person, or the property
                           or assets of the Person, so acquired, provided that,
                           in the case of Indebtedness, such Indebtedness was
                           permitted by the terms of this Supplemental Indenture
                           to be incurred;

                     (E)   customary non-assignment provisions in leases and
                           other agreements entered into in the ordinary course
                           of business;

                     (F)   purchase money obligations for property acquired in
                           the ordinary course of business that impose
                           restrictions on that property of the nature described
                           in Section 4(d)(i)(C) above;

                     (G)   any agreement for the sale or other disposition of a
                           Restricted Subsidiary that restricts distributions or
                           dispositions of assets by that Restricted Subsidiary
                           pending its sale or other disposition;

                     (H)   Permitted Refinancing Indebtedness, provided that the
                           restrictions contained in the agreements governing
                           such Permitted Refinancing Indebtedness are not more
                           restrictive, taken as a whole, than those contained
                           in the agreements governing the Indebtedness being
                           refinanced;

                     (I)   Liens securing Indebtedness or Attributable Debt
                           otherwise permitted to be incurred under the
                           provisions of Article V, Section 4(c) ("Liens") that
                           limit the right of the debtor to dispose of

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<PAGE>

                           the assets subject to such Liens, and Liens attaching
                           to intangible transition property established in
                           accordance with a transitional funding order issued
                           by the ICC; and

                     (J)   provisions with respect to the disposition or
                           distribution of assets or property in joint venture
                           agreements, asset sale agreements, stock sale
                           agreements and other similar agreements entered into
                           in the ordinary course of business.

               (iii) The provisions of this Article V, Section 4(d) ("Dividends
                     and Other Payment Restrictions Affecting Restricted
                     Subsidiaries") are subject to the provisions of Article V,
                     Section 5 ("Suspension of Certain Triggering Events").

          (e)  Merger, Consolidation or Sale of Assets.

               (i)   A Triggering Event will occur if the Company, directly or
                     indirectly: (1) consolidates or merges with or into another
                     Person (whether or not the Company is the surviving
                     corporation); (2) sells, assigns, transfers, conveys or
                     otherwise disposes of all or substantially all of the
                     properties or assets of the Company and its Restricted
                     Subsidiaries taken as a whole, in one or more related
                     transactions, to another Person or (3) leases all or
                     substantially all of its properties or assets, in one or
                     more related transactions, to any other Person, unless:

                     (A)   either: (1) the Company is the surviving corporation;
                           or (2) the Person formed by or surviving any such
                           consolidation or merger (if other than the Company)
                           or to which such sale, assignment, transfer,
                           conveyance or other disposition has been made is a
                           Person organized or existing under the laws of the
                           United States, any state of the United States or the
                           District of Columbia;

                     (B)   (1) the Person formed by or surviving any such
                           consolidation or merger (if other than the Company)
                           or the Person to which such sale, assignment,
                           transfer, conveyance or other disposition has been
                           made assumes all the obligations of the Company under
                           the Mortgage Bonds, the Indenture and the
                           Registration Rights Agreement pursuant to agreements
                           in form reasonably satisfactory to the Trustee; and
                           (2) such Person executes and delivers to the Trustee

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                                   a supplemental indenture that contains a
                                   grant, conveyance, transfer and mortgage by
                                   such Person confirming the lien of the
                                   Indenture on the property subject to such
                                   lien and subjecting to such lien all property
                                   thereafter acquired by such Person that shall
                                   constitute an improvement, extension or
                                   addition to the property subject to the lien
                                   of the Indenture or renewal, replacement or
                                   substitution of or for any part thereof and,
                                   at the election of such Person, subjecting to
                                   the lien of the Indenture such other property
                                   then owned or thereafter acquired by such
                                   Person as such Person shall specify;

                            (C)    immediately after such transaction no Default
                                   or Event of Default exists;

                            (D)    the Company or the Person formed by or
                                   surviving any such consolidation or merger
                                   (if other than the Company), or to which such
                                   sale, assignment, transfer, conveyance or
                                   other disposition has been made shall, on the
                                   date of such transaction after giving pro
                                   forma effect thereto and any related
                                   financing transactions as if the same had
                                   occurred at the beginning of the applicable
                                   four-quarter period, be permitted to incur at
                                   least $1.00 of additional Indebtedness
                                   pursuant to the Fixed Charge Coverage Ratio
                                   test set forth in Article V, Section 4(b)(i)
                                   ("Incurrence of Indebtedness and Issuance of
                                   Preferred Stock"); provided, however, that
                                   this clause (D) shall be suspended during any
                                   period in which the Company and its
                                   Restricted Subsidiaries are not subject to
                                   the Suspended Triggering Events; and

                            (E)    the Company, or the Person formed by or
                                   surviving any such consolidation or merger
                                   (if other than the Company), or to which such
                                   sale, assignment, transfer, conveyance or
                                   other disposition has been made, shall have
                                   delivered to the Trustee an Officer's
                                   Certificate and an Opinion of Counsel, each
                                   stating that such transaction and any
                                   supplemental indenture entered into in
                                   connection therewith comply with all of the
                                   terms of this Article V, Section 4(e) and
                                   that all conditions precedent provided for in
                                   this Article V, Section 4(e) relating to such
                                   transaction or series of transactions have
                                   been complied with.

                     (ii)   Clauses (D) and (E) under this Article V, Section
                            4(e) shall not apply to a sale, assignment,
                            transfer,

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<PAGE>

                           conveyance or other disposition of assets between or
                           among the Company and any of its Restricted
                           Subsidiaries or as a result of the creation and
                           establishment of intangible transition property
                           pursuant to a transition funding order issued by the
                           ICC.

              (f)    Transactions with Affiliates.

                     (i)    A Triggering Event will occur if the Company or any
                            of its Restricted Subsidiaries makes any payment to,
                            or sells, leases, transfers or otherwise disposes of
                            any of its properties or assets to, or purchases any
                            property or assets from, or enters into or makes or
                            amends any transaction, contract, agreement,
                            understanding, loan, advance or guarantee with, or
                            for the benefit of, any Affiliate or any
                            Transitional Funding Trust (each, an "Affiliate
                            Transaction"), unless:

                            (A)    the Affiliate Transaction (i) is on terms
                                   that are no less favorable to the Company or
                                   the relevant Restricted Subsidiary than those
                                   that would have been obtained in a comparable
                                   transaction by the Company or such Restricted
                                   Subsidiary with an unrelated Person or (ii)
                                   has been approved by applicable regulatory
                                   authorities; and

                            (B)    the Company delivers to the Trustee:

                                   (1) with respect to any Affiliate Transaction
                                   or series of related Affiliate Transactions
                                   involving aggregate consideration in excess
                                   of $10.0 million, a resolution of the Board
                                   of Directors set forth in an Officer's
                                   Certificate certifying that such Affiliate
                                   Transaction complies with Article V, Section
                                   4(f)(i)(A) above and that such Affiliate
                                   Transaction has been approved by a majority
                                   of the disinterested members of the Board of
                                   Directors; and

                                   (2) with respect to any Affiliate Transaction
                                   or series of related Affiliate Transactions
                                   (i) where there is no disinterested member of
                                   the Board of Directors and the aggregate
                                   consideration is in excess of $10 million, or
                                   (ii) involving aggregate consideration in
                                   excess of $20.0 million, an opinion as to the
                                   fairness to the Holders of Mortgage Bonds of
                                   such Affiliate Transaction from a financial
                                   point of

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<PAGE>

              view issued by an accounting, appraisal or investment banking firm
              of national standing.

       (ii)   The following items shall not be deemed to be Affiliate
              Transactions and, therefore, shall not be deemed to be a
              Triggering Event pursuant to this Article V, Section 4(f):

              (A)    any employment agreement entered into by the Company or any
                     of its Restricted Subsidiaries in the ordinary course of
                     business of the Company or such Restricted Subsidiary;

              (B)    transactions between or among the Company and/or its
                     Restricted Subsidiaries;

              (C)    transactions with a Person that is an Affiliate of the
                     Company solely because the Company owns an Equity Interest
                     in such Person;

              (D)    payment of reasonable directors fees to Persons who are not
                     otherwise Affiliates of the Company;

              (E)    sales of Equity Interests (other than Disqualified Stock)
                     to Affiliates of the Company;

              (F)    Permitted Investments pursuant to this Supplemental
                     Indenture and Restricted Payments that are permitted by the
                     provisions of Article V, Section 4(a) (under the heading
                     "Restricted Payments");

              (G)    fees and compensation paid to and indemnity provided on
                     behalf of directors, officers or employees of the Company
                     or any Restricted Subsidiary of the Company in the ordinary
                     course of business, including reimbursement or advancement
                     of out of pocket expenses and provision of directors' and
                     officers' liability insurance;

              (H)    transactions pursuant to any agreement in effect on the
                     original issue date of the Mortgage Bonds as the same may
                     be amended from time to time in any manner not materially
                     less favorable to the Holders of the Mortgage Bonds;

              (I)    advances to officers, directors and employees of the
                     Company or any Restricted Subsidiary made in the ordinary
                     course of business of the Company and/or its Restricted
                     Subsidiaries and in

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<PAGE>

                     compliance with applicable law in an aggregate amount not
                     to exceed $1.0 million outstanding at any one time;

              (J)    transactions pursuant to the Services and Facilities
                     Agreement or the DMG Power Purchase Agreement, as the same
                     may be amended, renewed, extended, replaced or otherwise
                     modified, provided such amendment, renewal, extension,
                     replacement or other modification has been approved by the
                     applicable regulatory agency;

              (K)    transactions respecting the renewal of the lease of the
                     Tilton Energy Center on terms no less favorable to Illinois
                     Power and dispositions of the leased property by Illinois
                     Power for consideration not less than Illinois Power's
                     purchase price of such property;

              (L)    purchases of natural gas supply and transportation by
                     Illinois Power from an Affiliate, and sales of electric
                     transmission services, natural gas supply and distribution
                     services and electric supply and distribution services by
                     Illinois Power to an Affiliate, in each case in the
                     ordinary course of business in accordance with past
                     practices so long as such purchases or sales are subject to
                     regulatory oversight; and

              (M)    the sale to a Transitional Funding Trust, either directly
                     or indirectly, of any intangible transition property
                     established pursuant to a transitional funding order issued
                     by the ICC.

       (iii)  The provisions of this Article V, Section 4(f) ("Transactions with
              Affiliates") are subject to the provisions of Article V, Section 5
              ("Suspension of Certain Triggering Events").

   (g) Designation of Restricted and Unrestricted Subsidiaries.

       (i)    The Board of Directors may designate any Restricted Subsidiary to
              be an Unrestricted Subsidiary if that designation would not cause
              a Triggering Event; provided that in no event shall the business
              currently operated by the Company be transferred to or held by an
              Unrestricted Subsidiary. If a Restricted Subsidiary is designated
              as an Unrestricted Subsidiary, the aggregate fair market value of
              all outstanding Investments owned by the Company and its
              Restricted

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<PAGE>

                            Subsidiaries in the Subsidiary properly designated
                            shall be deemed to be an Investment made as of the
                            time of the designation and shall reduce the amount
                            available for Restricted Payments under Article V,
                            Section 4(a)(i) (under the heading "Restricted
                            Payments"). That designation shall only be permitted
                            if the Investment would be permitted at that time
                            and if the Restricted Subsidiary otherwise meets the
                            definition of an Unrestricted Subsidiary.

                     (ii)   The Board of Directors may at any time designate any
                            Unrestricted Subsidiary to be a Restricted
                            Subsidiary; provided that (1) such designation shall
                            be deemed to be an incurrence of Indebtedness by a
                            Restricted Subsidiary of the Company of any
                            outstanding Indebtedness of such Unrestricted
                            Subsidiary and (2) such Indebtedness is permitted
                            under Article V, Section 4(b) (under the heading
                            "Incurrence of Indebt-edness and Issuance of
                            Preferred Stock"), calculated on a pro forma basis
                            as if such designation had occurred at the beginning
                            of the four-quarter reference period; and (3) no
                            Default or Event of Default would be in existence
                            following such designation.

                     (iii)  The provisions of this Article V, Section 4(g)
                            ("Designation of Restricted and Unrestricted
                            Subsidiaries") are subject to the provisions of
                            Article V, Section 5 ("Suspension of Certain
                            Triggering Events").

              (h)    Future Subsidiary Guarantees.

                     (i)    A Triggering Event will occur if any Restricted
                            Subsidiary of the Company guarantees the payment of
                            any Indebtedness of the Company unless (1) such
                            Restricted Subsidiary simultaneously executes and
                            delivers to the Trustee a Subsidiary Guarantee of
                            such Restricted Subsidiary except that with respect
                            to a Guarantee of Indebtedness of the Company if
                            such Indebtedness is by its express terms
                            subordinated in right of payment to the Mortgage
                            Bonds, any such Guarantee of such Restricted
                            Subsidiary with respect to such Indebtedness shall
                            be subordinated in right of payment to such
                            Restricted Subsidiary's Subsidiary Guarantee with
                            respect to the Mortgage Bonds substantially to the
                            same extent as such Indebtedness is subordinated to
                            the Mortgage Bonds; (2) such Restricted Subsidiary
                            waives and does not in any manner whatsoever claim
                            or take the benefit or advantage of, any rights or
                            reimbursement, indemnity

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<PAGE>

                            or subrogation or any other rights against the
                            Company or any other Restricted Subsidiary as a
                            result of any payment by such Restricted Subsidiary
                            under its Subsidiary Guarantee of the Mortgage
                            Bonds; and (3) such Restricted Subsidiary delivers
                            to the Trustee an Opinion of Counsel to the effect
                            that (a) such Subsidiary Guarantee has been duly
                            executed and authorized and (b) such Subsidiary
                            Guarantee constitutes a valid, binding and
                            enforceable obligation of such Restricted
                            Subsidiary, except insofar as enforcement thereof
                            may be limited by bankruptcy, insolvency or similar
                            laws (including, without limitation, all laws
                            relating to fraudulent transfers) and except insofar
                            as enforcement thereof is subject to general
                            principles of equity; provided that this Article V,
                            Section 4(h)(i) shall not be applicable to any
                            Guarantee of any Restricted Subsidiary that (x)
                            existed at the time such Person became a Restricted
                            Subsidiary of the Company and (y) was not incurred
                            in connection with, or in contemplation of, such
                            Person becoming a Restricted Subsidiary of the
                            Company.

                     (ii)   Notwithstanding the foregoing and the other
                            provisions of this Supplemental Indenture, in the
                            event a Subsidiary Guarantor is sold or disposed of
                            (whether by merger, consolidation, the sale of its
                            Capital Stock or the sale of all or substantially
                            all of its assets (other than by lease) and whether
                            or not the Subsidiary Guarantor is the surviving
                            corporation in such transaction) to a Person which
                            is not the Company or a Restricted Subsidiary of the
                            Company, such Subsidiary Guarantor shall be released
                            from its obligations under its Subsidiary Guarantee
                            if:

                            (A)    the sale or other disposition shall not
                                   result in a Triggering Event; and

                            (B)    the Subsidiary Guarantor is also released or
                                   discharged from its obligations under the
                                   Guarantee which resulted in the creation of
                                   such Subsidiary Guarantee, except by or as a
                                   result of payment under such Guarantee.

                     (iii)  A Subsidiary Guarantor shall be released from its
                            obligations under its Subsidiary Guarantee if it is
                            released or discharged from its obligations under
                            the Guarantee which resulted in the creation of such
                            Subsidiary Guarantee, except by or as a result of
                            payment under such Guarantee.

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<PAGE>

       (i) Sale and Leaseback Transactions. A Triggering Event will occur if the
Company or any of its Restricted Subsidiaries enters into any sale and leaseback
transaction; provided that the Company or any Restricted Subsidiary may enter
into a sale and leaseback transaction if:

                            (A)    the Company or that Restricted Subsidiary, as
                                   applicable, could have incurred Indebtedness
                                   in an amount equal to the Attributable Debt
                                   relating to such sale and leaseback
                                   transaction under the Fixed Charge Coverage
                                   Ratio test in Article V, Section 4(b)(i)
                                   (under the heading "Incurrence of
                                   Indebtedness and Issuance of Preferred
                                   Stock");

                            (B)    the gross cash proceeds of that sale and
                                   leaseback transaction are at least equal to
                                   the fair market value, as determined in good
                                   faith by the Board of Directors and set forth
                                   in an Officer's Certificate delivered to the
                                   Trustee, of the property that is the subject
                                   of that sale and leaseback transaction; and

                            (C)    the transfer of assets in that sale and
                                   leaseback transaction is permitted by, and
                                   the Company applies the proceeds of such
                                   transaction in compliance with, the
                                   Triggering Event described below under
                                   Article V, Section 6(b) of this Supplemental
                                   Indenture (under the heading "Asset Sales");

       provided, however, that the foregoing clauses (A) and (C) shall be
       suspended during any period in which the Company and its Restricted
       Subsidiaries are not subject to the Suspended Triggering Events.

       (j) Business Activities.

       A Triggering Event will occur if the Company or any Restricted
Subsidiaries engages in any business other than Permitted Businesses, except to
such extent as would not be material to the Company and its Subsidiaries taken
as a whole.

       (k) Reports.

           (i)  Whether or not required by the Commission, so long as any
                Mortgage Bonds are Outstanding, the Company shall furnish to the
                Holders of Mortgage Bonds (unless publicly available on the
                Commission's EDGAR system) within the time periods specified in
                the Commission's rules and regulations (as if required):

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                     (A)    all quarterly and annual financial information that
                            would be required to be contained in a filing with
                            the Commission on Forms 10-Q and 10-K if the Company
                            were required to file such Forms, including a
                            "Management's Discussion and Analysis of Financial
                            Condition and Results of Operations" and the
                            certifications that would be required by Rule 13a-14
                            under the Exchange Act and, with respect to the
                            annual information only, a report on the annual
                            financial statements by the Company's certified
                            independent accountants; and

                     (B)    all current reports that would be required to be
                            filed with the Commission on Form 8-K if the Company
                            were required to file such reports,

                     failing which a Triggering Event will occur 30 days after
                     notice as specified in Article V, Section 3(a)(iv).

              (ii)   If the Company has designated any of its Subsidiaries as
                     Unrestricted Subsidiaries, then the quarterly and annual
                     financial information required by the preceding paragraph
                     shall include a reasonably detailed presentation, either on
                     the face of the financial statements or in the footnotes
                     thereto, and in Management's Discussion and Analysis of
                     Financial Condition and Results of Operations, of the
                     financial condition and results of operations of the
                     Company and its Restricted Subsidiaries separate from the
                     financial condition and results of operations of the
                     Unrestricted Subsidiaries of the Company.

              (iii)  In addition, a Triggering Event will occur, after notice
                     and expiration of time as specified in Article V, Section
                     3(a)(iv), if (1) the Company fails to file a copy of all of
                     the information and reports referred to in clauses (i) and
                     (ii) above with the Commission for public availability
                     within the time periods specified in the Commission's rules
                     and regulations (unless the Commission shall not accept
                     such a filing) and fails to make such information available
                     to securities analysts and prospective investors upon
                     request or (2) the Company fails to furnish to the Holders
                     of Mortgage Bonds and to prospective investors, upon their
                     request, the information required to be delivered pursuant
                     to Rule 144A(d)(4) under the Securities Act.

              (iv)   The Company shall deliver to the Trustee annually an
                     Officer's Certificate regarding compliance with the

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<PAGE>

                   Indenture as required by the Trust Indenture Act of 1939,
                   and, upon becoming aware of any Triggering Event, the Company
                   shall deliver to the Trustee a statement specifying such
                   Triggering Event, failing which a Triggering Event will occur
                   30 days after notice as specified in Article V, Section
                   3(a)(iv).

       (l)   Asset Sales.

             (i)   A Triggering Event will occur, subject to notice and lapse of
       time, if the Company or any of its Restricted Subsidiaries consummates an
       Asset Sale as provided, and subject to the exceptions, in Article V,
       Section 6(b) ("Repurchase at the Option of Holders -- Asset Sales"), or
       does not comply with the provisions respecting an Asset Sale as provided
       in Article V, Section 7 ("Offer to Purchase by Application of Excess
       Proceeds").

             (ii)  The provisions of this Article V, Section 4(l) ("Asset
       Sales") are subject to the provisions of Article V, Section 5
       ("Suspension of Certain Triggering Events").

       SECTION 5. Suspension of Triggering Events.

       (a)   During any period of time that the Mortgage Bonds have an
Investment Grade Rating from both of the Rating Agencies and no Default or Event
of Default has occurred and is continuing under the Indenture, the Company and
its Restricted Subsidiaries shall not be subject to the following provisions of
this Supplemental Indenture :

             .     Article V, Section 4(a) (under the heading "--Restricted
                   Payments");

             .     Article V, Section 4(b) (under the heading "--Incurrence of
                   Indebtedness and Issuance of Preferred Stock");

             .     Article V, Section 4(d) (under the heading "--Dividend and
                   Other Payment Restrictions Affecting Restricted
                   Subsidiaries");

             .     Article V, Section 4(f) (under the heading "--Transactions
                   with Affiliates");

             .     Article V, Section 4(g) (under the heading "--Designation of
                   Restricted and Unrestricted Subsidiaries"); and

             .     Article V, Section 6(b) (under the heading "Repurchase at the
                   Option of Holders--Asset Sales");

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<PAGE>

(collectively, the "Suspended Triggering Events"); provided, however, that the
Triggering Events described under the following provisions of this Supplemental
Indenture shall not be so suspended:

             .     Article V, Section 4(c) (under the heading "--Liens");

             .     Article V, Section 4(e) (under the heading "--Merger,
                   Consolidation or Sale of Assets," except as set forth
                   therein);

             .     Article V, Section 4(j) (under the heading "--Business
                   Activities");

             .     Article V, Section 4(h) (under the heading "--Future
                   Subsidiary Guarantees,");

             .     Article V, Section 4(i) (under the heading "--Sale and
                   Leaseback Transactions," except as set forth therein); and

             .     Article V, Section 4(k) (under the heading "--Reports").

       (b)   If the Company and its Restricted Subsidiaries are not subject to
the Suspended Triggering Events for any period of time as a result of Article V,
Section 5(a) and, subsequently, either of the Rating Agencies withdraws its
ratings or downgrades the ratings assigned to the Mortgage Bonds below the
Investment Grade Ratings so that the Mortgage Bonds do not have an Investment
Grade Rating from both Rating Agencies, or a Default or Event of Default occurs
and is continuing, the Company and its Restricted Subsidiaries shall thereafter
again be subject to the Suspended Triggering Events, subject to the terms,
conditions and obligations set forth in this Supplemental Indenture (each such
date of reinstatement being the "Reinstatement Date"), including Article V,
Section 5(a); provided, however, that no immediate Triggering Event shall occur
as a result of such reinstatement of the Suspended Triggering Events. Compliance
with the Suspended Triggering Events with respect to Restricted Payments made
after the Reinstatement Date shall be calculated in accordance with the terms of
Article V, Section 4(a) ("Triggering Events--Restricted Payments") only for the
period the Triggering Event provision had been in effect, with any Restricted
Payment made during any other period being disregarded for purposes of
calculating the "basket" amount in Article V, Section 4(a)(i)(3) and any credit
to such basket during such period likewise being disregarded.

       SECTION 6. Repurchase at the Option of Holders.

       (a)   Offer to Purchase Upon Change of Control.

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<PAGE>

              (i)    If a Change of Control occurs, each Holder of Mortgage
                     Bonds shall have the right to require the Company to
                     repurchase all or any part (equal to $1,000 or an integral
                     multiple of $1,000) of that Holder's Mortgage Bonds
                     pursuant to the offer described below (the "Change of
                     Control Offer") on the terms set forth in this Supplemental
                     Indenture. In the Change of Control Offer, the Company
                     shall offer an amount in cash (the "Change of Control
                     Payment") equal to 101% of the aggregate principal amount
                     of Mortgage Bonds repurchased plus accrued and unpaid
                     interest, if any, on the Mortgage Bonds repurchased, to
                     Change of Control Payment Date (as defined below).

              (ii)   Within 30 days following any Change of Control, the Company
                     shall mail a notice to each Holder of Mortgage Bonds
                     stating:

                     (A)    the description of the transaction or transactions
                            that constitute the Change of Control, that the
                            Change of Control Offer is being made pursuant to
                            this Article V, Section 6(a), and that all Mortgage
                            Bonds validly tendered and not withdrawn shall be
                            accepted for payment;

                     (B)    the purchase price and the purchase date, which
                            shall be no earlier than 30 days and no later than
                            60 days from the date such notice is mailed (the
                            "Change of Control Payment Date");

                     (C)    that any Mortgage Bonds not tendered or accepted for
                            payment shall continue to accrue interest;

                     (D)    that, unless the Company defaults in the payment of
                            the Change of Control Payment, all Mortgage Bonds
                            accepted for payment pursuant to the Change of
                            Control Offer shall cease to accrue interest after
                            the Change of Control Payment Date;

                     (E)    that Holders of Mortgage Bonds electing to have any
                            Mortgage Bonds purchased pursuant to a Change of
                            Control Offer shall be required to surrender the
                            Mortgage Bonds properly endorsed, with the form
                            entitled "Option of Holder to Elect Purchase"
                            (substantially in the form of Exhibit E) properly
                            completed, together with other customary documents
                            as the Company may reasonably request, to the Paying
                            Agent at the address specified in the notice prior
                            to the close of

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<PAGE>

                            business on the third Business Day preceding the
                            Change of Control Payment Date;

                     (F)    that Holders of Mortgage Bonds shall be entitled to
                            withdraw their election if the Paying Agent
                            receives, not later than the close of business on
                            the second Business Day preceding the Change of
                            Control Payment Date, a telegram, telex, facsimile
                            transmission or letter setting forth the name of the
                            Holder, the principal amount of Mortgage Bonds
                            delivered for purchase, and a statement that such
                            Holder of Mortgage Bonds is withdrawing its election
                            to have the Mortgage Bonds purchased; and

                     (G)    that Holders of Mortgage Bonds whose Mortgage Bonds
                            are being purchased only in part shall be issued new
                            Mortgage Bonds equal in principal amount to the
                            unpurchased portion of the Mortgage Bonds
                            surrendered, which unpurchased portion must be equal
                            to $1,000 in principal amount or an integral
                            multiple thereof.

              (iii)  If any of the Mortgage Bonds subject to a Change of Control
                     Offer are in the form of a Global Bond, then the Company
                     shall modify such notice to the extent necessary to accord
                     with the applicable procedures of the Depositary applicable
                     to offers to purchase.

              (iv)   On the Change of Control Payment Date, the Company shall,
                     to the extent lawful:

                     (A)    accept for payment all Mortgage Bonds or portions
                            thereof properly tendered pursuant to the Change of
                            Control Offer;

                     (B)    deposit with the Paying Agent in immediately
                            available funds an amount equal to the Change of
                            Control Payment in respect of all Mortgage Bonds or
                            portions thereof so tendered; and

                     (C)    deliver or cause to be delivered to the Trustee the
                            Mortgage Bonds so accepted together with an
                            Officer's Certificate stating the aggregate
                            principal amount of Mortgage Bonds or portions
                            thereof being purchased by the Company.

              The Paying Agent shall promptly mail to each Holder of Mortgage
              Bonds so tendered the Change of Control Payment for such Mortgage
              Bonds, and the Trustee shall promptly authenticate and make
              available for delivery to each Holder

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                     of Mortgage Bonds a new Mortgage Bond equal in principal
                     amount to any unpurchased portion of the Mortgage Bonds
                     surrendered, if any; provided that each such new Mortgage
                     Bonds shall be in a principal amount of $1,000 or an
                     integral multiple thereof. Any Mortgage Bonds not so
                     accepted shall be promptly mailed or delivered by the
                     Company to the Holder thereof. The Company shall publicly
                     announce the results of the Change of Control Offer on or
                     as soon as practicable after the Change of Control Payment
                     Date.

                     (v)    The Change of Control provisions described above
                            that require the Company to make a Change of Control
                            Offer following a Change of Control shall be
                            applicable whether or not any other provisions of
                            this Supplemental Indenture are applicable.

                     (vi)   The Company shall not be required to make a Change
                            of Control Offer upon a Change of Control if a third
                            party makes the Change of Control Offer in the
                            manner, at the times and otherwise in compliance
                            with the requirements set forth herein applicable to
                            a Change of Control Offer made by the Company and
                            purchases all Mortgage Bonds properly tendered and
                            not withdrawn under such Change of Control Offer.

              (b)    Asset Sales.

                     (i)    A Triggering Event will occur, subject to notice and
                            lapse of time as specified in Article V, Section
                            3(a)(iv), if the Company or any of its Restricted
                            Subsidiaries consummates an Asset Sale unless:

                            (A)    The Company (or the Restricted Subsidiary, as
                                   the case may be) receives consideration at
                                   the time of the Asset Sale at least equal to
                                   the fair market value of the assets or Equity
                                   Interests issued or sold or otherwise
                                   disposed of;

                            (B)    the fair market value is determined by the
                                   Company's Board of Directors and evidenced by
                                   a resolution of the Board of Directors set
                                   forth in an Officer's Certificate delivered
                                   to the Trustee; and

                            (C)    at least 75% of the consideration received in
                                   the Asset Sale by the Company or such
                                   Restricted Subsidiary is in the form of cash
                                   or Cash Equivalents. For purposes of this
                                   provision, each of the following shall be
                                   deemed to be cash:

                                       77

<PAGE>

                     (1) any liabilities, as shown on the Company's or such
                     Restricted Subsidiary's most recent balance sheet, of the
                     Company or any Restricted Subsidiary (other than contingent
                     liabilities and liabilities that are by their terms
                     subordinated to the Mortgage Bonds in right of payment)
                     that are assumed by the transferee of any such assets
                     pursuant to a customary novation agreement that releases
                     the Company or such Restricted Subsidiary from further
                     liability; and

                     (2) any securities, notes or other obligations received by
                     the Company or any such Restricted Subsidiary from such
                     transferee that are converted by the Company or such
                     Restricted Subsidiary into cash within 60 days of the Asset
                     Sale, to the extent of the cash received in that
                     conversion.

          (ii)   Within 365 days after the receipt of any Net Proceeds from an
                 Asset Sale, the Company or such Restricted Subsidiary may apply
                 those Net Proceeds at its option:

                 (A) to repay senior secured Indebtedness of the Company,
                     Transitional Funding Notes or to permanently repay
                     Indebtedness under any of the Credit Facilities;

                 (B) to acquire all or substantially all of the assets of, or a
                     majority of the Voting Stock of, another Permitted
                     Business;

                 (C) to make a capital expenditure; or

                 (D) to acquire other long-term assets that are used or useful
                     in a Permitted Business.

         (iii)   Pending the final application of any Net Proceeds, the Company
                 or such Restricted Subsidiary may temporarily reduce revolving
                 credit borrowings or otherwise invest the Net Proceeds in any
                 manner that is not prohibited by this Supplemental Indenture.

          (iv)   Any Net Proceeds from Asset Sales that are not applied or
                 invested as provided in Article V Section 6(b)(ii) ("Offer to
                 Purchase by Application of Excess Proceeds") above shall
                 constitute "Excess Proceeds." When the aggregate amount of
                 Excess Proceeds exceeds $25.0 million, the Company shall make
                 an Asset Sale Offer pursuant to the provisions of Article V,
                 Section

                                       78

<PAGE>

                  7 ("Offer to Purchase by Application of Excess Proceeds").

              (v) To the extent that any Asset Sale constitutes the sale,
                  conveyance or other disposition of all or substantially all of
                  the assets of the Company and its Restricted Subsidiaries
                  taken as a whole, such transaction shall be governed by the
                  provisions of Article V, Sections 6(a) and 4(e) ("Repurchase
                  at the Option of Holders--Offer to Purchase Upon a Change of
                  Control" and "Triggering Events--Merger, Consolidation or Sale
                  of Assets") and not by the provisions of Article V, Section
                  6(b)(ii) or Article V, Section 7 ("Offer to Purchase by
                  Application of Excess Proceeds").

       SECTION 7. Offer to Purchase by Application of Excess Proceeds.

       (a)    In the event that, pursuant to Article V, Section 6(b)(iv)
("Repurchase at the Option of Holders--Asset Sales"), the Company shall be
required to commence an Asset Sale Offer, it shall make an offer (an "Asset Sale
Offer") to all Holders of Mortgage Bonds, and all holders of other Indebtedness
that ranks equally in right of payment with the Mortgage Bonds containing
provisions similar to those set forth in this Supplemental Indenture with
respect to offers to purchase or redeem with the proceeds of sales of assets to
purchase the maximum principal amount of the Mortgage Bonds and such other
Indebtedness that may be purchased out of the Excess Proceeds. The offer price
in any Asset Sale Offer shall be equal to 100% of principal amount plus accrued
and unpaid interest, if any, to the date of purchase, and shall be payable in
cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer,
the Company may use those Excess Proceeds for any purpose not otherwise
prohibited by this Supplemental Indenture. If the aggregate principal amount of
Mortgage Bonds tendered into such Asset Sale Offer exceeds the amount of Excess
Proceeds allocated to repurchases of the Mortgage Bonds, the Trustee shall
select the Mortgage Bonds to be purchased on a pro rata basis. Upon completion
of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Failure to comply with the provisions respecting an Asset Sale Offer shall
constitute a Triggering Event, subject to notice and lapse of time as specified
in Article V, Section 3(a)(iv).

       (b)    Any Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law or the rules and regulations of DTC
(the "Offer Period"). No later than five Business Days after the termination of
the Offer Period (the "Purchase Date"), the Company shall purchase the principal
amount of Mortgage Bonds required to be purchased pursuant to paragraph (a)
above (the "Offer Amount") or, if less than the Offer Amount has been tendered,

                                       79

<PAGE>

all Mortgage Bonds validly tendered in response to the Asset Sale Offer.

       (c) Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to each of the Holders of Mortgage Bonds, with a
copy to the Trustee, stating:

             (i)   that the Asset Sale Offer is being made pursuant to this
                   Article V, Section 7 and Article V, Section 6(b) ("Repurchase
                   at the Option of Holders--Asset Sales") and the length of
                   time the Asset Sale Offer shall remain open;

             (ii)  the purchase price and the Purchase Date;

             (iii) that any Mortgage Bonds not tendered or accepted for payment
                   shall continue to accrue interest;

             (iv)  that, unless the Company defaults in making such payment, any
                   Mortgage Bonds accepted for payment pursuant to the Asset
                   Sale Offer shall cease to accrue interest after the Purchase
                   Date;

             (v)   that Holders of Mortgage Bonds electing to have a Mortgage
                   Bonds purchased pursuant to any Asset Sale Offer shall be
                   required to surrender the Mortgage Bonds, with the form
                   entitled "Option of Holder to Elect Purchase" (in
                   substantially the form of Exhibit E) properly completed,
                   together with other customary documents as the Company may
                   reasonably request, to the Paying Agent at the address
                   specified in the notice prior to the close of business on the
                   third Business Day preceding the Purchase Date;

             (vi)  that Holders of Mortgage Bonds shall be entitled to withdraw
                   their election if the Paying Agent receives, not later than
                   the close of business on the second Business Day preceding
                   the Purchase Date, a telegram, telex, facsimile transmission
                   or letter setting forth the name of the Holder, the principal
                   amount of Mortgage Bonds delivered for purchase, and a
                   statement that such Holder of Mortgage Bonds is withdrawing
                   its election to have the Mortgage Bonds purchased;

             (vii) that, if the aggregate principal amount of Mortgage Bonds
                   surrendered by Holders of Mortgage Bonds exceeds the Offer
                   Amount, the Trustee shall select the Mortgage Bonds to be
                   purchased on a pro rata basis (with such adjustments as may
                   be deemed appropriate by the Trustee so that only Mortgage
                   Bonds in

                                       80

<PAGE>

                   denominations of $1,000, or integral multiples thereof, shall
                   be purchased); and

            (viii) that Holders of Mortgage Bonds whose Mortgage Bonds are being
                   purchased only in part shall be issued new Mortgage Bonds
                   equal in principal amount to the unpurchased portion of the
                   Mortgage Bonds surrendered, which unpurchased portion must be
                   equal to $1,000 in principal amount or an integral multiple
                   thereof.

       (d)  If any of the Mortgage Bonds subject to an Asset Sale Offer is in
the form of a Global Note, then the Company shall modify such notice to the
extent necessary to accord with the Applicable Procedures of the Depository
applicable to offers to purchase.

       (e)  On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Mortgage Bonds or portions thereof tendered pursuant to the
Asset Sale Offer, or if less than the Offer Amount has been tendered, all
Mortgage Bonds tendered, and shall deliver to the Trustee an Officer's
Certificate stating that such Mortgage Bonds or portions thereof were accepted
for payment by the Company in accordance with the terms of this Article V,
Section 7. The Paying Agent shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder of
Mortgage Bonds an amount equal to the purchase price of the Mortgage Bonds
tendered by such Holder of Mortgage Bonds and accepted by the Company for
purchase, and the Company shall promptly issue a new Mortgage Bonds, and the
Trustee, upon written request from the Company, shall authenticate and make
available for delivery such new Mortgage Bonds to such Holder of Mortgage Bonds,
in a principal amount equal to any unpurchased portion of the Mortgage Bonds
surrendered; provided that each such new Mortgage Bonds shall be in a principal
amount of $1,000 or an integral multiple thereof. Any Mortgage Bonds not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Asset Sale Offer
on the Purchase Date.

       (f)  The provisions of this Article V, Section 7 ("Offer to Purchase by
Application of Excess Proceeds") are subject to the provisions of Article V,
Section 5 ("Suspension of Certain Triggering Events").

       SECTION 8. Offers to Purchase - General.

       (a)  If the Change of Control Payment Date or Purchase Date is on or
after a Regular Record Date and on or before the related Interest Payment Date,
any accrued and unpaid interest, if any, shall be paid to the Person in whose
name a Mortgage Bond is registered at the close of business on such Regular
Record Date, and no additional interest shall be payable to Holders of Mortgage
Bonds who tender

                                       81

<PAGE>

Mortgage Bonds pursuant to the Change of Control Offer or the Asset Sale Offer.

       (b) The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with a Change of
Control Offer or an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Change of Control Offer or
Asset Sale Offer provisions of this Supplemental Indenture, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the Change of Control Offer or
Asset Sale Offer provisions of this Supplemental Indenture by virtue of such
conflict.

                                  ARTICLE VI.

                             AMENDMENT OF INDENTURE

       The definition of "Tranche" in Article One, Section 1.01 of the Indenture
is hereby amended by inserting "and/" immediately prior to the word "or" in the
second line.

                                  ARTICLE VII.

                                  THE TRUSTEE.

       The Trustee hereby accepts the trusts hereby declared and provided, and
agrees to perform the same upon the terms and conditions in the Indenture set
forth and upon the following terms and conditions:

       The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this Supplemental Indenture or the due
execution hereof by the Company or for or in respect of the recitals contained
herein, all of which recitals are made by the Company solely. In general, each
and every term and condition contained in Article Eleven of the Indenture shall
apply to this Supplemental Indenture with the same force and effect as if the
same were herein set forth in full, with such omissions, variations and
modifications thereof as may be appropriate to make the same conform to this
Supplemental Indenture.

                                 ARTICLE VIII.

                            MISCELLANEOUS PROVISIONS.

       This Supplemental Indenture may be simultaneously executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original; but such counterparts shall together constitute but one and the same
instrument.

                                       82

<PAGE>

       IN WITNESS WHEREOF, Illinois Power Company has caused this Supplemental
Indenture to be executed on its behalf by an Authorized Executive Officer as
defined in the Indenture, and its corporate seal to be hereto affixed and said
seal and this Supplemental Indenture to be attested by an Authorized Executive
Officer as defined in the Indenture and BNY Midwest Trust Company, in evidence
of its acceptance of the trust hereby created, has caused this Supplemental
Indenture to be executed on its behalf by one of its Vice Presidents and its
corporate seal to be hereto affixed and said seal and this Supplemental
Indenture to be attested by one of its Assistant Secretaries, all as of the date
first written above.

                                 ILLINOIS POWER COMPANY

(CORPORATE SEAL)
                                 By: /s/ Peggy E. Carter
                                    --------------------------------------------
                                 Name:  Peggy E. Carter
                                 Title:  Vice President and Controller

ATTEST:

By:  /s/ Kathryn L. Patton
    ----------------------
Name:  Kathryn L. Patton
Title:  Senior Vice President, General Counsel
           and Corporate Secretary

                                 BNY MIDWEST TRUST COMPANY,
                                                                        Trustee,

                                 By: /s/ J. Bartolini
                                     -------------------------------------------
(CORPORATE SEAL)                 Name:  J. Bartolini
                                 Title:  Vice President

ATTEST:

By: /s/ D.G. Donovan
    ----------------------
Name:  D.G. Donovan
Title:  Assistant Secretary

<PAGE>

STATE OF ILLINOIS   )
                        SS.
COUNTY OF MACON     )

       BE IT REMEMBERED, that on this 17th day of December, 2002, before me, the
undersigned, a Notary Public within and for the County and State aforesaid,
personally came Peggy E. Carter, Vice President and Controller and Kathryn L.
Patton, Senior Vice President, General Counsel and Corporate Secretary, of
Illinois Power Company, a corporation duly organized, incorporated and existing
under the laws of the State of Illinois, who are personally known to me to be
such officers, and who are personally known to me to be the same persons who
executed as such officers the within instrument of writing, and such persons
duly acknowledged that they signed, sealed and delivered the said instrument as
their free and voluntary act as such officers and as the free and voluntary act
of said Illinois Power Company for the uses and purposes therein set forth.

       IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year last above written.

                                        /s/ Kimberly S. Tish
                                        --------------------------------------
                                        Notary Public, Macon County, Illinois

My Commission Expires on    3/5/2005   .
                         --------------
(NOTARIAL SEAL)

<PAGE>

STATE OF ILLINOIS     )
                          SS.
COUNTY OF COOK        )

     BE IT REMEMBERED, that on this 17th day of December, 2002, before me, the
undersigned, a Notary Public within and for the County and State aforesaid,
personally came J. Bartolini, Vice President, and D. G. Donovan, Assistant
Secretary of BNY Midwest Trust Company, an Illinois trust company, who are
personally known to me to be the same persons who executed as such officers the
within instrument of writing, and such persons duly acknowledged that they
signed, sealed and delivered the said instrument as their free and voluntary act
as such Vice President and Assistant Secretary, and as the free and voluntary
act of said BNY Midwest Trust Company for the uses and purposes therein set
forth.

     IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year last above written.

                                           /s/ A. Hernandez
                                           ------------------------------------
                                           Notary Public, Cook County, Illinois

My Commission Expires on 7/8/06
                         ------
(NOTARIAL SEAL)

<PAGE>

Return To:                                     This Instrument Was Prepared By:

ILLINOIS POWER COMPANY                         SCHIFF HARDIN & WAITE
Real Estate Dept. F-14500                      6600 Sears Tower
S. 27th Street                                 Chicago, IL 60606
Decatur, IL 62525

<PAGE>

                                                                       Exhibit A

                        SCHEDULE OF EXCHANGES OF BONDS*

The following exchanges of a part of this book-entry bond for other Bonds have
been made:

<TABLE>
<CAPTION>
                                                                             Principal Amount
                              Amount of                 Amount of           of this Book-Entry          Signature of
                             decrease in               increase in            Bond following        authorized signatory
                           Principal Amount         Principal Amount           such decrease           of Trustee or
  Date of Exchange     of this Book-Entry Bond   of this Book-Entry Bond      (or increase)         Securities Custodian
  ----------------     -----------------------   -----------------------      -------------         --------------------
<S>                    <C>                       <C>                        <C>                     <C>
</TABLE>

------------------------------------
   * To be included in a book-entry bond.

                                       A-1

<PAGE>

                                                                       Exhibit B

                FORM OF CERTIFICATE TO BE DELIVERED UPON EXCHANGE
                      OR REGISTRATION OF TRANSFER OF BONDS

     Re: Mortgage Bonds, 11.50% Series due 2010 of Illinois Power Company.

          This Certificate relates to $_____ principal amount of Bonds held in
*______ book-entry or *______ definitive form by _____________________ (the
"Transferor").

          The Transferor has requested the Trustee by written order to exchange
or register the transfer of a Bond or Bonds.

          In connection with such request and in respect of each such
Bond, the Transferor does hereby certify that the Transferor is familiar with
the Indenture relating to the above-captioned Bonds and that the transfer of
this Bond does not require registration under the Securities Act (as defined
below) because:*

     9    Such Bond is being acquired for the Transferor's own account without
transfer.

     9    Such Bond is being transferred to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")), in accordance with Rule 144A under the Securities Act.

     9    Such Bond is being transferred (i) pursuant to an exemption from
registration in accordance with Rule 144 under the Securities Act (and based
upon an opinion of counsel if the Company or the Trustee so requests) or (ii)
pursuant to an effective registration statement under the Securities Act.

     9    Such Bond is being transferred to an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act pursuant to a private placement exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel if the Company or the Trustee so requests), together with a
certification in substantially the form of Exhibit C to the Indenture, and, to
the knowledge of the Transferor, such institutional accredited investor to whom
such Bond is to be transferred is not an "affiliate" (as defined in Rule 144
under the Securities Act) of the Company.

     9    Such Bond is being transferred in reliance on and in compliance with
another exemption from the registration requirements

---------------------------
*    Fill in blank or check appropriate box, as applicable.

                                      B-1

<PAGE>

of the Securities Act (and based upon an opinion of counsel if the Company or
the Trustee so requests).

                                           [INSERT NAME OF TRANSFEROR]

                                           By:__________________________________
                                           Name:
                                           Title:
                                           Address:

Date: _________________________

                                      B-2

<PAGE>

                                                                       Exhibit C

                   FORM OF TRANSFEREE LETTER OF REPRESENTATION
              TO BE DELIVERED BY INSTITUTIONAL ACCREDITED INVESTORS

Illinois Power Company
c/o President
      500 South 27th Street
      Decatur, Illinois 62521-2200

Ladies and Gentlemen:

          In connection with our proposed purchase of $[        ] aggregate
principal amount of Mortgage Bonds, 11.50% Series due 2010 (the "Bonds") of
Illinois Power Company (the "Company"):

          1.    We understand that the Bonds have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any other
applicable securities laws, and may not be sold except as permitted in the
following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing the Bonds to offer, sell or otherwise
transfer such Bonds prior to the date which is two years (or such shorter period
of time as permitted by Rule 144(k) under the Securities Act) after the later of
the date of original issue and the last date on which the Company or any
affiliate of the Company was the owner of such Bonds, or any predecessor thereto
(the "Resale Restriction Termination Date") only (a) to the Company, (b)
pursuant to a registration statement that has been declared effective by the
Securities and Exchange Commission (the "SEC"), (c) for so long as the Bonds are
eligible for resale pursuant to Rule 144A under the Securities Act, to a person
we reasonably believe is a qualified institutional buyer under Rule 144A (a
"QIB") that purchases for its own account or for the account of a QIB to whom
notice is given that the transfer is being made in reliance on Rule 144A, (d) to
an institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act (an "Institutional
Accredited Investor") that is acquiring the Bonds for its own account or for the
account of another Institutional Accredited Investor for investment purposes and
not with a view to, or for offer or sale in connection with, any distribution
thereof in violation of the regulations of the Securities Act and any other
applicable securities laws, or (e) pursuant to any other available exemption
from the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
and the property of such investor account or accounts be at all times within our
or their control. The foregoing restrictions on resale will not apply subsequent
to the Resale Restriction Termination Date. If any resale or other transfer of
the Bonds is proposed to be made pursuant to clause (d) above prior to the
Resale Restriction Termination Date, the transferor shall deliver a letter from
the transferee

                                      C-1

<PAGE>

substantially in the form of this letter to the Trustee, which shall provide,
among other things, that the transferee is an Institutional Accredited Investor
and that it is acquiring such Bonds for investment purposes and not for
distribution in violation of the Securities Act. We acknowledge that the Company
and the Trustee reserve the right prior to any offer, sale or other transfer
pursuant to clause (d) or (e) prior to the Resale Restriction Termination Date
of the Bonds to require the delivery of an opinion of counsel, certifications
and/or other information satisfactory to the Company and the Trustee.

          2.     We are an Institutional Accredited Investor purchasing for our
own account or for the account of another Institutional Accredited Investor.

          3.     We are acquiring the Bonds purchased by us for our own account,
or for one or more accounts as to each of which we exercise sole investment
discretion, for investment purposes and not with a view to, or for offer or sale
in connection with any distribution in violation of, the Securities Act. We have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of investment in the Bonds, we invest in
securities similar to the Bonds in the normal course of our business and we, and
all accounts for which we are acting, are able to bear the economic risk of
investment in the Bonds.

          4.     You are entitled to rely upon this letter and you 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,

                                                Name of Transferee:_____________

                                                ________________________________

                                                By:_____________________________

                                                Date:___________________________

          Upon transfer the Bonds would be registered in the name of the new
beneficial owner as follows:

Name:            ___________________________
Address:         ___________________________
                 ___________________________
Taxpayer ID No:  ___________________________

                                      C-2

<PAGE>

                                                                       Exhibit D

                                 ASSIGNMENT FORM

          To assign this Bond, fill in the form below: (I) or (we) assign and
transfer this Bond to___________________________________________________________
________________________________________________________________________________

                          (Insert assignee's social security or tax I.D. number)

________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
                           (Print or type assignee's name, address and zip code)

and irrevocably appoint ________________________________________________________
as agent to transfer this Bond on the books of the Company.  The agent may
substitute another to act for him.
________________________________________________________________________________

Date:____________________          Your Signature:______________________________
                                                  (Sign exactly as your name
                                                   appears on the face of this
                                                   Bond)

Signature Guarantee:____________________________________________________________
                               (Participant in a Recognized Signature
                                     Guaranty Medallion Program)

                                      D-1

<PAGE>

                                                                     Exhibit E

                       OPTION OF HOLDER TO ELECT PURCHASE

          If you want to elect to have this Mortgage Bond purchased by the
Company pursuant to Article V Section 6(a) (Offer to Purchase Upon Change of
Control) or Article V, Section 7 (Offer to Purchase by Application of Excess
Proceeds) of the Supplemental Indenture, check the box below:

[_] Article V, Section 6(a) (Offer          [_] Article V, Section 7 (Offer to
    to Purchase Upon Change of Control)         Purchase by Application of
                                                Excess Proceeds)

          If you want to elect to have only part of the Mortgage Bond purchased
by the Company pursuant to Section 6(a) (Offer to Purchase Upon Change of
Control) or Article V, Section 7 (Offer to Purchase by Application of Excess
Proceeds) of the Supplemental Indenture, state the amount you elect to have
purchased:

          $_________________________

Date:     __________________________

Your Signature:_________________________________________________________________
               (Sign exactly as your name appears on the face of the Mortgage
               Bond)

Tax Identification No.:_________________________________________________________

SIGNATURE GUARANTEE:____________________________________________________________

                                             Signatures must be guaranteed by an
                                             "eligible guarantor institution"
                                             meeting the requirements of the
                                             Bond 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 Bond
                                             Registrar in addition to, or in
                                             substitution for, STAMP, all in
                                             accordance with the Securities
                                             Exchange Act of 1934, as amended.

                                      E-1<PAGE>

                          REGISTRATION RIGHTS AGREEMENT

     This Registration Rights Agreement (the "Agreement") is made and entered
into this 20th day of December, 2002, among Illinois Power Company, an Illinois
corporation (the "Company"), and Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Credit Suisse First Boston Corporation
(collectively, the "Initial Purchasers").

     This Agreement is made pursuant to the Purchase Agreement, dated December
17, 2002, among the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchasers of an aggregate of $400,000,000 aggregate principal amount of its
Mortgage Bonds, 11.5% Series due 2010 (the "Initial Delivery Bonds") and
$150,000,000 aggregate principal amount of its Mortgage Bonds, 11.5% Series due
2010 (the "Delayed Delivery Bonds," and, together with the Initial Delivery
Bonds, the "Securities"). In order to induce the Initial Purchasers to enter
into the Purchase Agreement, the Company has agreed to provide to the Initial
Purchasers and their direct and indirect transferees the registration rights set
forth in this Agreement. The execution and delivery of this Agreement is a
condition to the closing under the Purchase Agreement.

     In consideration of the foregoing, the parties hereto agree as follows:

1. Definitions.

     As used in this Agreement, the following capitalized defined terms shall
have the following meanings:

          "1933 Act" shall mean the Securities Act of 1933, as amended from time
     to time.

          "1934 Act" shall mean the Securities Exchange Act of l934, as amended
     from time to time.

          "Closing Date" shall mean the Closing Time as defined in the Purchase
     Agreement.

          "Company" shall have the meaning set forth in the preamble and shall
     also include the Company's successors.

          "Depositary" shall mean The Depository Trust Company, or any other
     depositary appointed by the Company, provided, however, that such
     depositary must have an address in the Borough of Manhattan, in the City of
     New York.

          "Exchange Offer" shall mean the exchange offer by the Company of
     Exchange Securities for Registrable Securities pursuant to Section 2.1
     hereof.

          "Exchange Offer Registration" shall mean a registration under the 1933
     Act effected pursuant to Section 2.1 hereof.

                                       1

<PAGE>

          "Exchange Offer Registration Statement" shall mean an exchange offer
     registration statement on Form S-4 (or, if applicable, on another
     appropriate form), and all amendments and supplements to such registration
     statement, including the Prospectus contained therein, all exhibits thereto
     and all documents incorporated by reference therein.

          "Exchange Period" shall have the meaning set forth in Section 2.1
     hereof.

          "Exchange Securities" shall mean the mortgage bonds issued by the
     Company under the Mortgage containing terms identical to the Securities in
     all material respects (except for references to certain interest rate
     provisions, restrictions on transfers and restrictive legends), to be
     offered to Holders of Securities in exchange for Registrable Securities
     pursuant to the Exchange Offer.

          "Holder" shall mean an Initial Purchaser, for so long as it owns any
     Registrable Securities, and each of its successors, assigns and direct and
     indirect transferees who become registered owners of Registrable Securities
     under the Mortgage and each Participating Broker-Dealer that holds Exchange
     Securities for so long as such Participating Broker-Dealer is required to
     deliver a prospectus meeting the requirements of the 1933 Act in connection
     with any resale of such Exchange Securities.

          "Initial Purchaser" or "Initial Purchasers" shall have the meaning set
     forth in the preamble.

          "Majority Holders" shall mean the Holders of a majority of the
     aggregate principal amount of Outstanding (as defined in the Mortgage)
     Registrable Securities; provided that whenever the consent or approval of
     Holders of a specified percentage of Registrable Securities is required
     hereunder, Registrable Securities held by the Company and other obligors on
     the Securities or any Affiliate (as defined in the Mortgage) of the Company
     shall be disregarded in determining whether such consent or approval was
     given by the Holders of such required percentage amount.

          "Mortgage" shall mean the Mortgage relating to the Securities, dated
     as of November 1, 1992, between the Company and BNY Midwest Trust Company,
     as successor trustee to Harris Trust and Savings Bank, as the same may be
     amended, supplemented, waived or otherwise modified from time to time in
     accordance with the terms thereof.

          "Participating Broker-Dealer" shall mean any of Merrill Lynch, Pierce,
     Fenner & Smith Incorporated, Credit Suisse First Boston Corporation and any
     other broker-dealer which makes a market in the Securities and exchanges
     Registrable Securities in the Exchange Offer for Exchange Securities.

          "Person" shall mean an individual, partnership (general or limited),
     corporation, limited liability company, trust or unincorporated
     organization, or a government or agency or political subdivision thereof.

          "Private Exchange" shall have the meaning set forth in Section 2.1
     hereof.

                                        2

<PAGE>

          "Private Exchange Securities" shall have the meaning set forth in
     Section 2.1 hereof.

          "Prospectus" shall mean the prospectus included in a Registration
     Statement, including any preliminary prospectus, and any such prospectus as
     amended or supplemented by any prospectus supplement, including any such
     prospectus supplement with respect to the terms of the offering of any
     portion of the Registrable Securities covered by a Shelf Registration
     Statement, and by all other amendments and supplements to a prospectus,
     including post-effective amendments, and in each case including all
     material incorporated by reference therein.

          "Purchase Agreement" shall have the meaning set forth in the preamble.

          "Registrable Securities" shall mean the Initial Delivery Bonds, and,
     if issued, the Delayed Delivery Bonds, and the Private Exchange Securities;
     provided, however, that the Initial Delivery Bonds and, if issued, the
     Delayed Delivery Bonds and the Private Exchange Securities, shall cease to
     be Registrable Securities when (i) a Registration Statement with respect to
     such Securities shall have been declared effective under the 1933 Act and
     such Securities shall have been disposed of pursuant to such Registration
     Statement, (ii) such Securities have been sold to the public pursuant to
     Rule l44 (or any similar provision then in force, but not Rule 144(A) under
     the 1933 Act or are eligible to be sold to the public pursuant to Rule
     144(k) under the 1933 Act, (iii) such Securities shall have ceased to be
     outstanding or (iv) the Exchange Offer is consummated (except in the case
     of Securities purchased from the Company and continued to be held by the
     Initial Purchasers).

          "Registration Expenses" shall mean any and all expenses incident to
     performance of or compliance by the Company with this Agreement, including
     without limitation: (i) all SEC, stock exchange or National Association of
     Securities Dealers, Inc. (the "NASD") registration and filing fees,
     including, if applicable, the fees and expenses of any "qualified
     independent underwriter" (and its counsel) that is required to be retained
     by any Holder of Registrable Securities in accordance with the rules and
     regulations of the NASD, (ii) all fees and expenses incurred in connection
     with compliance with state securities or blue sky laws and compliance with
     the rules of the NASD (including reasonable fees and disbursements of one
     firm of legal counsel for any underwriters or Holders in connection with
     blue sky qualification of any of the Exchange Securities or Registrable
     Securities and any filings with the NASD), (iii) all expenses of any
     Persons in preparing or assisting in preparing, word processing, printing
     and distributing any Registration Statement, any Prospectus, any amendments
     or supplements thereto, any underwriting agreements, securities sales
     agreements and other documents relating to the performance of and
     compliance with this Agreement, (iv) all fees and expenses incurred in
     connection with the listing, if any, of any of the Registrable Securities
     on any securities exchange or exchanges, (v) all rating agency fees, (vi)
     the fees and disbursements of counsel for the Company and of the
     independent public accountants of the Company, including the expenses of
     any special audits or "cold comfort" letters required by or incident to
     such performance and compliance, (vii) the fees and expenses of the Trustee
     and its counsel, and any escrow agent or custodian,

                                       3

<PAGE>

     (viii) the reasonable fees and expenses of the Initial Purchasers in
     connection with the Exchange Offer, including the reasonable fees and
     expenses of one firm of legal counsel to the Initial Purchasers in
     connection therewith, (ix) the reasonable fees and disbursements of one
     special counsel representing the Holders of Registrable Securities and (x)
     any fees and disbursements of the underwriters customarily required to be
     paid by issuers or sellers of securities and the fees and expenses of any
     special experts retained by the Company in connection with any Registration
     Statement, but excluding underwriting discounts and commissions and
     transfer taxes, if any, relating to the sale or disposition of Registrable
     Securities by a Holder.

          "Registration Statement" shall mean any registration statement of the
     Company which covers any of the Exchange Securities or Registrable
     Securities pursuant to the provisions of this Agreement, and all amendments
     and supplements to any such Registration Statement, including
     post-effective amendments, in each case including the Prospectus contained
     therein, all exhibits thereto and all material incorporated by reference
     therein.

          "SEC" shall mean the Securities and Exchange Commission or any
     successor agency or government body performing the functions currently
     performed by the United States Securities and Exchange Commission.

          "Shelf Registration" shall mean a registration effected pursuant to
     Section 2.2 hereof.

          "Shelf Registration Statement" shall mean a "shelf" registration
     statement of the Company pursuant to the provisions of Section 2.2 of this
     Agreement which covers all of the Registrable Securities or all of the
     Private Exchange Securities on an appropriate form under Rule 415 under the
     1933 Act, or any similar rule that may be adopted by the SEC, and all
     amendments and supplements to such registration statement, including
     post-effective amendments, in each case including the Prospectus contained
     therein, all exhibits thereto and all material incorporated by reference
     therein.

          "Trustee" shall mean the trustee with respect to the Securities under
     the Mortgage.

2. Registration Under the 1933 Act.

     2.1 Exchange Offer. The Company shall, for the benefit of the Holders, at
the Company's cost, (A) prepare and file with the SEC an Exchange Offer
Registration Statement on an appropriate form under the 1933 Act with respect to
a proposed Exchange Offer and the issuance and delivery to the Holders, in
exchange for the Registrable Securities (other than Private Exchange
Securities), of a like principal amount of Exchange Securities, (B) use its
commercially reasonable efforts to cause the Exchange Offer Registration
Statement to be declared effective under the 1933 Act, (C) use its commercially
reasonable efforts to keep the Exchange Offer Registration Statement effective
until the closing of the Exchange Offer and (D) use its commercially reasonable
efforts to cause the Exchange Offer to be consummated not later than 270 days
after the Closing Date. The Exchange Securities will be issued under the

                                       4

<PAGE>

Mortgage. Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Exchange Offer, it being the objective
of such Exchange Offer to enable each Holder eligible and electing to exchange
Registrable Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Company within the meaning of Rule 405 under the 1933
Act, (b) is not a broker-dealer tendering Registrable Securities acquired
directly from the Company for its own account, (c) acquired the Exchange
Securities in the ordinary course of such Holder's business and (d) has no
arrangements or understandings with any Person to participate in the Exchange
Offer for the purpose of distributing the Exchange Securities) to transfer such
Exchange Securities from and after their receipt without any limitations or
restrictions under the 1933 Act and under state securities or blue sky laws.

     In connection with the Exchange Offer, the Company shall:

          (a) mail as promptly as practicable to each Holder a copy of the
     Prospectus forming part of the Exchange Offer Registration Statement,
     together with an appropriate letter of transmittal and related documents;

          (b) keep the Exchange Offer open for acceptance for a period of not
     less than 30 calendar days after the date notice thereof is mailed to the
     Holders (or longer if required by applicable law) (such period referred to
     herein as the "Exchange Period");

          (c) utilize the services of the Depositary for the Exchange Offer;

          (d) permit Holders to withdraw tendered Registrable Securities at any
     time prior to 5:00 p.m. (Eastern Time), on the last business day of the
     Exchange Period, by sending to the institution specified in the notice, a
     telegram, telex, facsimile transmission or letter setting forth the name of
     such Holder, the principal amount of Registrable Securities delivered for
     exchange, and a statement that such Holder is withdrawing such Holder's
     election to have such Securities exchanged;

          (e) notify each Holder that any Registrable Security not tendered will
     remain outstanding and continue to accrue interest, but will not retain any
     rights under this Agreement (except in the case of the Initial Purchasers
     and Participating Broker-Dealers as provided herein); and

          (f) otherwise comply in all respects with all applicable laws relating
     to the Exchange Offer.

     If, prior to consummation of the Exchange Offer, the Initial Purchasers
hold any Securities acquired by them and having the status of an unsold
allotment in the initial distribution, the Company upon the request of any
Initial Purchaser shall, simultaneously with the delivery of the Exchange
Securities in the Exchange Offer, issue and deliver to such Initial Purchaser in
exchange (the "Private Exchange") for the Securities held by such Initial
Purchaser, a like principal amount of mortgage bonds of the Company, that are
identical (except that such mortgage bonds shall bear appropriate transfer
restrictions) to the Exchange Securities (the "Private Exchange Securities").

                                       5

<PAGE>

     The Exchange Securities and the Private Exchange Securities shall be issued
under (i) the Mortgage or (ii) a mortgage identical in all material respects to
the Mortgage and which, in either case, has been qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), or is exempt from such
qualification and shall provide that the Exchange Securities shall not be
subject to the transfer restrictions set forth in the Mortgage but that the
Private Exchange Securities shall be subject to such transfer restrictions. The
Mortgage or such mortgage shall provide that the Exchange Securities, the
Private Exchange Securities and the Securities shall vote and consent together
on all matters as one class and that none of the Exchange Securities, the
Private Exchange Securities or the Securities will have the right to vote or
consent as a separate class on any matter. The Private Exchange Securities shall
be of the same series as and the Company shall use all commercially reasonable
efforts to have the Private Exchange Securities bear the same CUSIP number as
the Exchange Securities. The Company shall not have any liability under this
Agreement solely as a result of such Private Exchange Securities not bearing the
same CUSIP number as the Exchange Securities.

     As soon as practicable after the close of the Exchange Offer and/or the
Private Exchange, as the case may be, the Company shall:

          (i) accept for exchange all Registrable Securities duly tendered and
     not validly withdrawn pursuant to the Exchange Offer in accordance with the
     terms of the Exchange Offer Registration Statement and the letter of
     transmittal which shall be an exhibit thereto;

          (ii) accept for exchange all Securities properly tendered pursuant to
     the Private Exchange;

          (iii) deliver to the Trustee for cancellation all Registrable
     Securities so accepted for exchange; and

          (iv) cause the Trustee promptly to authenticate and deliver Exchange
     Securities or Private Exchange Securities, as the case may be, to each
     Holder of Registrable Securities so accepted for exchange in a principal
     amount equal to the principal amount of the Registrable Securities of such
     Holder so accepted for exchange.

     Interest on each Exchange Security and Private Exchange Security will
accrue from the last date on which interest was paid on the Registrable
Securities surrendered in exchange therefor or, if no interest has been paid on
the Registrable Securities, from the date of original issuance. The Exchange
Offer and the Private Exchange shall not be subject to any conditions, other
than (i) that the Exchange Offer or the Private Exchange, or the making of any
exchange by a Holder, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) the due tendering of Registrable
Securities in accordance with the Exchange Offer and the Private Exchange, (iii)
that each Holder of Registrable Securities exchanged in the Exchange Offer shall
have represented that all Exchange Securities to be received by it shall be
acquired in the ordinary course of its business and that at the time of the
consummation of the Exchange Offer it shall have no arrangement or understanding
with any person to participate in the distribution (within the meaning of the
1933 Act) of the Exchange Securities and shall have

                                       6

<PAGE>

made such other representations as may be reasonably necessary under applicable
SEC rules, regulations or interpretations to render the use of Form S-4 or other
appropriate form under the 1933 Act available and (iv) that no action or
proceeding shall have been instituted or threatened in any court or by or before
any governmental agency with respect to the Exchange Offer or the Private
Exchange which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer or the
Private Exchange. If requested, the Company shall inform the Initial Purchasers
of the names and addresses of the Holders to whom the Exchange Offer is made,
and the Initial Purchasers shall have the right to contact such Holders and
otherwise facilitate the tender of Registrable Securities in the Exchange Offer.

     2.2 Shelf Registration. (i) If, because of any changes in law, SEC rules or
regulations or applicable interpretations thereof by the staff of the SEC, the
Company is not permitted to effect the Exchange Offer as contemplated by Section
2.1 hereof, (ii) if for any other reason the Exchange Offer is not consummated
within 270 days after the Closing Date, (iii) upon the request of the Initial
Purchasers (but only with respect to any Registrable Securities which the
Initial Purchaser acquired directly from the Company) or (iv) if a Holder is not
permitted by the federal securities laws or applicable interpretations thereof
by the staff of the SEC to participate in the Exchange Offer or does not receive
fully tradeable Exchange Securities pursuant to the Exchange Offer, then in case
of each of clauses (i) through (iv) the Company shall, at its cost:

     (a) As promptly as practicable, file with the SEC, and thereafter shall use
its commercially reasonable efforts to cause to be declared effective as
promptly as practicable but no later than 300 days after the Closing Date, a
Shelf Registration Statement relating to the offer and sale of the Registrable
Securities by the Holders from time to time in accordance with the methods of
distribution elected by the Majority Holders participating in the Shelf
Registration and set forth in such Shelf Registration Statement.

     (b) Use its commercially reasonable efforts to keep the Shelf Registration
Statement continuously effective in order to permit the Prospectus forming part
thereof to be usable by Holders for a period of two years from the date the
Shelf Registration Statement is declared effective by the SEC, or for such
shorter period that will terminate when all Registrable Securities covered by
the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement or cease to be outstanding or otherwise to be Registrable
Securities (the "Effectiveness Period"); provided, however, that the Company
shall not be obligated to keep such Shelf Registration Statement effective if
(A) any event occurs or facts are discovered which make any statement made in
such Shelf Registration Statement or the related Prospectus untrue in any
material respect or which require the making of any changes in such Shelf
Registration Statement or Prospectus in order to make the statements therein not
misleading; (B) the Company determines, in its reasonable judgment, upon advice
of counsel, as authorized by a resolution of its Board of Directors, that the
continued effectiveness and usability of such Shelf Registration Statement would
(x) require the disclosure of material information, which the Company has a bona
fide business reason for preserving as confidential, or (y) interfere with any
financing, acquisition, corporate reorganization or other material transaction
involving the Company or any of its subsidiaries, and provided, further, that
the failure to keep such Shelf Registration Statement effective and usable for
offers and sales of Registrable

                                       7

<PAGE>

Securities for any of the foregoing reasons shall occur no more than twice in
any 12-month period and shall last no longer than 45 days in any 12-month period
whereafter Additional Interest (as defined in Section 2.5) shall become payable
in accordance with Section 2.5, and (B) the Company thereafter complies as
promptly as practicable with the requirements of Section 3(k) hereof, if
applicable. Any such period during which the Company is excused from keeping the
Shelf Registration Statement effective and usable for offers and sales of
Registrable Securities is referred to herein as a "Suspension Period"; a
Suspension Period shall commence on and include the date that the Company gives
prompt notice to the Holders that the Shelf Registration Statement is no longer
effective or the prospectus included therein is no longer usable for offers and
sales of Registrable Securities as a result of the application of the proviso
(which contains clauses (A) and (B)) of the foregoing sentence and shall end on
the earlier to occur of (1) the date on which each seller of Registrable
Securities covered by the Shelf Registration Statement either receives the
copies of the supplemented or amended prospectus contemplated by Section 3(k)
hereof or is advised in writing by the Company as promptly as practicable
following its determination that use of the prospectus may be resumed and (2)
the expiration of 45 days in any 12-month period during which one or more
Suspension Periods has been in effect. The Company shall extend the
Effectiveness Period (or the period during which Participating Broker-Dealers
are entitled to use the prospectus included in the Exchange Offer Registration
Statement in connection with the resale of the Exchange Securities, as the case
may be) by the number of days during either such period from and including the
date of the giving of such notice to and including the date which is the earlier
to occur as described in the preceding sentence.

     (c) Notwithstanding any other provisions hereof, use its commercially
reasonable efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any supplement
thereto complies in all material respects with the 1933 Act and the rules and
regulations thereunder, (ii) any Shelf Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any Prospectus
forming part of any Shelf Registration Statement, and any supplement to such
Prospectus (as amended or supplemented from time to time), does not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements, in light of the circumstances under which they
were made, not misleading.

     The Company shall not permit any securities other than Registrable
Securities to be included in the Shelf Registration Statement. The Company
further agrees, if necessary, to supplement or amend the Shelf Registration
Statement, as required by Section 3(b) below, and to furnish to the Holders of
Registrable Securities copies of any such supplement or amendment promptly after
its being used or filed with the SEC.

     2.3 Expenses. The Company shall pay all Registration Expenses in connection
with the registration pursuant to Section 2.1 or 2.2. Each Holder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to the
Shelf Registration Statement.

                                       8

<PAGE>

     2.4 Effectiveness. (a) The Company will be deemed not have used its
commercially reasonable efforts to cause the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, to become, or
to remain, effective during the requisite period if the Company voluntarily
takes any action that would, or omits to take any action which omission would,
result in any such Registration Statement not being declared effective or in the
Holders of Registrable Securities covered thereby not being able to exchange or
offer and sell such Registrable Securities during that period as and to the
extent contemplated hereby, unless such action is required by applicable law.

     (b) An Exchange Offer Registration Statement pursuant to Section 2.1 hereof
or a Shelf Registration Statement pursuant to Section 2.2 hereof will not be
deemed to have become effective unless it has been declared effective by the
SEC; provided, however, that if, after it has been declared effective, the
offering of Registrable Securities pursuant to an Exchange Offer Registration
Statement or a Shelf Registration Statement is interfered with by any stop
order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Registration Statement will be deemed not to
have become effective during the period of such interference, until the offering
of Registrable Securities pursuant to such Registration Statement may legally
resume.

     2.5 Interest. The Mortgage executed in connection with the Securities will
provide that in the event that either (a) the Exchange Offer is not consummated
on or prior to the 270th calendar day after the Closing Date, (b) a Shelf
Registration Statement, if required, is not declared effective on or prior to
the 300th calendar day after the Closing Date, or (c) after the Shelf
Registration Statement has been filed and declared effective, the Shelf
Registration Statement is unusable by the Holders for any reason (including
without limitation any of the reasons described in clauses (A) or (B) of Section
2.2(b)) during the Effectiveness Period, and the aggregate number of days in any
consecutive twelve-month period for which the Shelf Registration Statement shall
not be usable exceeds 45 days in the aggregate (each such event referred to in
clauses (a) through (c) above, a "Registration Default"), the interest rate
borne by the Securities shall be increased ("Additional Interest") by
one-quarter of one percent per annum upon the occurrence of a Registration
Default, which rate will increase by one quarter of one percent each quarterly
period that such Additional Interest continues to accrue under any such
circumstance, provided that the maximum aggregate increase in the interest rate
will in no event exceed one percent 1% per annum. Additional Interest shall be
computed based on the actual number of days elapsed in each quarterly period in
which a Registration Default Exists. Following the cure of all Registration
Defaults the accrual of Additional Interest will cease and the interest rate
will revert to the original rate.

     The Company shall notify the Trustee within three business days after each
and every date on which an event occurs in respect of which Additional Interest
is required to be paid (an "Event Date"). Additional Interest shall be paid by
depositing with the Trustee, in trust, for the benefit of the Holders of
Registrable Securities, on or before the applicable semiannual interest payment
date, immediately available funds in sums sufficient to pay the Additional
Interest then due. The Additional Interest due shall be payable on each interest
payment date to the record Holder of Securities entitled to receive the interest
payment to be paid on such date as set forth in the Mortgage. Each obligation to
pay Additional Interest shall be deemed to accrue from and including the day
following the applicable Event Date.

                                       9

<PAGE>

3. Registration Procedures.

     In connection with the obligations of the Company with respect to
Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company
shall:

     (a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (i) shall be selected by the
Company, (ii) shall, in the case of a Shelf Registration, be available for the
sale of the Registrable Securities by the selling Holders thereof, (iii) shall
comply as to form in all material respects with the requirements of the
applicable form and include or incorporate by reference all financial statements
required by the SEC to be filed therewith or incorporated by reference therein,
and (iv) shall comply in all material respects with the requirements of
Regulation S-T under the 1933 Act, and use its commercially reasonable efforts
to cause such Registration Statement to become effective and remain effective in
accordance with Section 2 hereof;

     (b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under applicable
law to keep such Registration Statement effective for the applicable period; and
cause each Prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 (or any similar
provision then in force) under the 1933 Act and comply with the provisions of
the 1933 Act, the 1934 Act and the rules and regulations thereunder applicable
to them with respect to the disposition of all securities covered by each
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the selling Holders thereof
(including sales by any Participating Broker-Dealer);

     (c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities, at least five business days prior to filing, that a
Shelf Registration Statement with respect to the Registrable Securities is being
filed and advising such Holders that the distribution of Registrable Securities
will be made in accordance with the method selected by the Majority Holders
participating in the Shelf Registration; (ii) furnish to each Holder of
Registrable Securities and to each underwriter of an underwritten offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and, if the
Holder so requests, all exhibits in order to facilitate the public sale or other
disposition of the Registrable Securities; and (iii) hereby consent to the use
of the Prospectus or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities in connection with the offering and sale of
the Registrable Securities covered by the Prospectus or any amendment or
supplement thereto;

     (d) use its commercially reasonable efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue sky" laws
of such jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement and each underwriter of an underwritten offering of
Registrable Securities shall reasonably request by the time the applicable
Registration Statement is declared effective by the SEC, and do any and all
other acts and things which may be reasonably necessary or advisable to enable
each such Holder and underwriter to consummate the disposition in each such
jurisdiction of such

                                       10

<PAGE>

Registrable Securities owned by such Holder; provided, however, that the Company
shall not be required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), or (ii) take any action which would subject
it to general service of process or taxation in any such jurisdiction where it
is not then so subject;

     (e) notify promptly each Holder of Registrable Securities under a Shelf
Registration or any Participating Broker-Dealer who has notified the Company
that it is utilizing the Exchange Offer Registration Statement as provided in
paragraph (f) below and, if requested by such Holder or Participating
Broker-Dealer, confirm such advice in writing promptly (i) when a Registration
Statement has become effective and when any post-effective amendments and
supplements thereto become effective, (ii) of any request by the SEC or any
state securities authority for post-effective amendments and supplements to a
Registration Statement and Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by the SEC or
any state securities authority of any stop order suspending the effectiveness of
a Registration Statement or the initiation of any proceedings for that purpose,
(iv) in the case of a Shelf Registration, if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and correct in all
material respects, (v) if at any time when a Prospectus is required to be
delivered under the Securities Act, that such Registration Statement,
Prospectus, prospectus amendment or supplement or post-effective amendment does
not conform in all material respects to the applicable requirements of the
Securities Act and the Trust Indenture Act and the rules and regulations of the
SEC thereunder, (vi) of the happening of any event or the discovery of any facts
during the period a Shelf Registration Statement is effective which makes any
statement made in such Registration Statement or the related Prospectus untrue
in any material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements therein not
misleading, (vii) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Registrable Securities or the
Exchange Securities, as the case may be, for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose and (viii) of any
determination by the Company that a post-effective amendment to such
Registration Statement would be appropriate;

     (f) (A) in the case of the Exchange Offer Registration Statement (i)
include in the Exchange Offer Registration Statement a section entitled "Plan of
Distribution" which section shall be reasonably acceptable to Merrill Lynch on
behalf of the Participating Broker-Dealers, and which shall contain a summary
statement of the positions taken or policies made by the staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that holds
Registrable Securities acquired for its own account as a result of market-making
activities or other trading activities and that will be the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of Exchange Securities to be
received by such broker-dealer in the Exchange Offer, whether such positions or
policies have been publicly disseminated by the staff of the SEC or such
positions or policies, in the reasonable judgment of Merrill Lynch on behalf of
the Participating Broker-Dealers and its counsel, represent the prevailing views
of the staff of the SEC, including a statement that any such broker-dealer who
receives Exchange Securities for

                                       11

<PAGE>

Registrable Securities pursuant to the Exchange Offer may be deemed a statutory
underwriter and must deliver a prospectus meeting the requirements of the 1933
Act in connection with any resale of such Exchange Securities, (ii) include in
the Exchange Offer Registration Statement a Prospectus for use in any resales by
any Participating Broker-Dealer, (iii) keep such Exchange Offer Registration
Statement effective for a period of up to 180 days after the last date
Registrable Securities are accepted in the Exchange Offer (as such period may be
extended pursuant to the third to last paragraph of Section 3 of this
Agreement), if requested by the Initial Purchasers or by one or more
Participating Broker-Dealers, (iv) furnish to each Participating Broker-Dealer
who has delivered to the Company the notice referred to in Section 3(e), without
charge, as many copies of each Prospectus included in the Exchange Offer
Registration Statement, including any preliminary prospectus, and any amendment
or supplement thereto, as such Participating Broker-Dealer may reasonably
request, (v) hereby consent to the use of the Prospectus forming part of the
Exchange Offer Registration Statement or any amendment or supplement thereto, by
any Person subject to the prospectus delivery requirements of the SEC, including
all Participating Broker-Dealers, in connection with the sale or transfer of the
Exchange Securities covered by the Prospectus or any amendment or supplement
thereto, and (vi) include in the transmittal letter or similar documentation to
be executed by an exchange offeree in order to participate in the Exchange Offer
(x) the following provision:

          "If the exchange offeree is a broker-dealer holding Registrable
          Securities acquired for its own account as a result of market-making
          activities or other trading activities, it will deliver a prospectus
          meeting the requirements of the 1933 Act in connection with any resale
          of Exchange Securities received in respect of such Registrable
          Securities pursuant to the Exchange Offer;" and

     (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus in
connection with the exchange of Registrable Securities, the broker-dealer will
not be deemed to admit that it is an underwriter within the meaning of the 1933
Act; and

     (B) in the case of any Exchange Offer Registration Statement, the Company
agrees to deliver to the Initial Purchasers, upon their request, on behalf of
the Participating Broker-Dealers upon the effectiveness of the Exchange Offer
Registration Statement (i) an opinion of counsel or opinions of counsel
substantially in the form attached hereto as Exhibit A, (ii) officers'
certificates substantially in the form customarily delivered in a public
offering of mortgage bonds and agrees to use its reasonable efforts to deliver a
comfort letter or comfort letters in customary form to the extent permitted by
Statement on Auditing Standards No. 72 of the American Institute of Certified
Public Accountants (or if such a comfort letter is not permitted, an agreed upon
procedures letter in customary form) from the Company's independent certified
public accountants (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements are, or are required to be, included in
the Registration Statement) at least as broad in scope and coverage as the
comfort letter or comfort letters delivered to the Initial Purchasers in
connection with the initial sale of the Securities to the Initial Purchasers;

                                       12

<PAGE>

     (g) (i) in the case of an Exchange Offer, furnish counsel for the Initial
Purchasers and (ii) in the case of a Shelf Registration, furnish counsel for the
Holders of Registrable Securities copies of any comment letters received from
the SEC or any other request by the SEC or any state securities authority for
amendments or supplements to a Registration Statement and Prospectus or for
additional information;

     (h) use its commercially reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the earliest
possible moment;

     (i) in the case of a Shelf Registration, furnish, upon request, to each
Holder of Registrable Securities, and each underwriter, if any, without charge,
at least one conformed copy of each Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
(without documents incorporated therein by reference and all exhibits thereto,
unless requested);

     (j) in the case of a Shelf Registration, cooperate with the selling Holders
of Registrable Securities to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations (consistent with the provisions of the Mortgage) and registered in
such names as the selling Holders or the underwriters, if any, may reasonably
request at least three business days prior to the closing of any sale of
Registrable Securities;

     (k) in the case of a Shelf Registration, upon the occurrence of any event
or the discovery of any facts, each as contemplated by Sections 3(e)(vi) and
3(e)(vii) hereof, as promptly as practicable after the occurrence of such an
event, use its commercially reasonable efforts to prepare a supplement or
post-effective amendment to the Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
Securities or Participating Broker-Dealers, such Prospectus will not contain at
the time of such delivery any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or will remain so
qualified. At such time as such public disclosure is otherwise made or the
Company determines that such disclosure is not necessary, in each case to
correct any misstatement of a material fact or to include any omitted material
fact, the Company agrees promptly to notify each Holder of such determination
and to furnish each Holder such number of copies of the Prospectus as amended or
supplemented, as such Holder may reasonably request;

     (l) in the case of a Shelf Registration, a reasonable time prior to the
filing of any Registration Statement, any Prospectus, any amendment to a
Registration Statement or amendment or supplement to a Prospectus after initial
filing of a Registration Statement, provide copies of such document to the
Initial Purchasers on behalf of such Holders; and make representatives of the
Company as shall be reasonably requested by the Majority Holders of Registrable
Securities who have been identified to the Company, or the Initial Purchasers on
behalf of such Holders, available for discussion of such document;

                                       13

<PAGE>

     (m) obtain a CUSIP number for all Exchange Securities, Private Exchange
Securities or Registrable Securities, as the case may be, not later than the
effective date of a Registration Statement, and provide the Trustee with printed
certificates for the Exchange Securities, Private Exchange Securities or the
Registrable Securities, as the case may be, in a form eligible for deposit with
the Depositary;

     (n) use their commercially reasonable efforts to obtain the consent or
approval of each governmental agency or authority, whether federal, state or
local, which may be required to effect the Exchange Offer Registration, the
Exchange Offer or the Shelf Registration, as the case may be, or the offering or
sale in connection therewith or to enable the Holders to offer, or to consummate
the disposition of, their Registrable Securities or Participating Broker-Dealers
to offer and sell Exchange Securities;

     (o) (i) cause the Mortgage to be qualified under the TIA in connection with
the registration of the Exchange Securities or Registrable Securities, as the
case may be, (ii) cooperate with the Trustee and the Holders to effect such
changes to the Mortgage as may be required for the Mortgage to be so qualified
in accordance with the terms of the TIA and (iii) execute, and use its
commercially reasonable efforts to cause the Trustee to execute, all documents
as may be required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable the Mortgage to be so qualified in a
timely manner;

     (p) in the case of a Shelf Registration, if requested by any Holder of
Registrable Securities covered by a Shelf Registration Statement, promptly
incorporate in a prospectus supplement or post-effective amendment such
information with respect to such Holder as such Holder reasonably requests to be
included therein; and make all required filings of such prospectus supplement or
such post-effective amendment promptly after the Company has received
notification of the matters to be incorporated in such filing;

     (q) in the case of a Shelf Registration, enter into agreements (including
underwriting agreements) and take all other customary and appropriate actions in
order to expedite or facilitate the disposition of such Registrable Securities
and in such connection whether or not an underwriting agreement is entered into
and whether or not the registration is an underwritten registration:

          (i) make such representations and warranties to the Holders of such
     Registrable Securities and the underwriters, if any, in form, substance and
     scope as are customarily made by issuers to underwriters in similar
     underwritten offerings as may be reasonably requested by them;

          (ii) obtain opinions of counsel to the Company and updates thereof
     (which counsel and opinions (in form, scope and substance) shall be
     reasonably satisfactory to the managing underwriters, if any, and the
     Holders of a majority in principal amount of the Registrable Securities
     being sold) addressed to each selling Holder and the underwriters, if any,
     covering the matters customarily covered in opinions requested in sales of
     securities or underwritten offerings and such other matters as may be
     reasonably requested by such Holders and underwriters;

                                       14

<PAGE>

          (iii) if requested by the managing underwriters, use its reasonable
     efforts to obtain "cold comfort" letters and updates thereof from the
     Company's independent certified public accountants, and an officer's
     certificate from the chief accounting officer of the Company (and, if
     necessary, any other independent certified public accountants of any
     subsidiary of the Company or of any business acquired by the Company for
     which financial statements are, or are required to be, included in the
     Registration Statement) addressed to the underwriters, if any, and use
     reasonable efforts to have such letter and certificate addressed to the
     selling Holders of Registrable Securities (to the extent consistent with
     Statement on Auditing Standards No. 72 of the American Institute of
     Certified Public Accounts), such letters and certificate to be in customary
     form and covering matters of the type customarily covered in "cold comfort"
     letters to underwriters in connection with similar underwritten offerings;

          (iv) if requested by the Majority Holders, enter into a securities
     sales agreement with the Holders and an agent of the Holders providing for,
     among other things, the appointment of such agent for the selling Holders
     for the purpose of soliciting purchases of Registrable Securities, which
     agreement shall be in form, substance and scope customary for similar
     offerings;

          (v) if an underwriting agreement is entered into, cause the same to
     set forth indemnification provisions and procedures substantially
     equivalent to the indemnification provisions and procedures set forth in
     Section 4 hereof with respect to the underwriters and all other parties to
     be indemnified pursuant to said Section or, at the request of any
     underwriters, in the form customarily provided to such underwriters in
     similar types of transactions; and

          (vi) deliver such documents and certificates as may be reasonably
     requested and as are customarily delivered in similar offerings to the
     Holders of a majority in principal amount of the Registrable Securities
     being sold and the managing underwriters, if any.

The above shall be done at each pricing and closing under any underwriting or
similar agreement as and to the extent required thereunder;

     (r) in the case of a Shelf Registration or if a Prospectus is required to
be delivered by any Participating Broker-Dealer in the case of an Exchange
Offer, make available for inspection by representatives of the Holders of the
Registrable Securities, any underwriters participating in any disposition
pursuant to a Shelf Registration Statement, any Participating Broker-Dealer and
any counsel or accountant retained by any of the foregoing, all financial and
other records, pertinent corporate documents and properties of the Company
reasonably requested by any such persons, and cause the respective officers,
directors, employees and any other agents of the Company to supply all
information reasonably requested by any such representative, underwriter,
special counsel or accountant in connection with a Registration Statement, and
make such representatives of the Company available for discussion of such
documents as shall be reasonably requested by the Initial Purchasers;

                                       15

<PAGE>

     (s) (i) in the case of an Exchange Offer Registration Statement, a
reasonable time prior to the filing of any Exchange Offer Registration
Statement, any Prospectus forming a part thereof, any amendment to an Exchange
Offer Registration Statement or amendment or supplement to such Prospectus,
provide copies of such document to the Initial Purchasers and to one firm of
legal counsel to the Holders of Registrable Securities and make such changes in
any such document prior to the filing thereof as the Initial Purchasers or such
counsel to the Holders of Registrable Securities may reasonably request and,
except as otherwise required by applicable law, not file any such document in a
form to which the Initial Purchasers on behalf of the Holders of Registrable
Securities and one firm of legal counsel to the Holders of Registrable
Securities shall not have previously been advised and furnished a copy of or to
which the Initial Purchasers on behalf of the Holders of Registrable Securities
or such counsel to the Holders of Registrable Securities shall reasonably
object, and make the representatives of the Company available for discussion of
such documents as shall be reasonably requested by the Initial Purchasers; and

          (ii) in the case of a Shelf Registration, a reasonable time prior to
     filing any Shelf Registration Statement, any Prospectus forming a part
     thereof, any amendment to such Shelf Registration Statement, provide copies
     of such document to the Holders of Registrable Securities who have been
     identified to the Company, to the Initial Purchasers, to one firm of legal
     counsel for the Holders and to the underwriter or underwriters of an
     underwritten offering of Registrable Securities, if any, make such changes
     in any such document prior to the filing thereof as the Initial Purchasers,
     such counsel to the Holders or the underwriter or underwriters reasonably
     request and not file any such document in a form to which the Majority
     Holders who have been identified to the Company, the Initial Purchasers on
     behalf of the Holders of Registrable Securities, counsel for the Holders of
     Registrable Securities or any underwriter shall not have previously been
     advised and furnished a copy of or to which the Majority Holders who have
     been identified to the Company, the Initial Purchasers of behalf of the
     Holders of Registrable Securities, counsel to the Holders of Registrable
     Securities or any underwriter shall reasonably object, and make the
     representatives of the Company available for discussion of such document as
     shall be reasonably requested by the Majority Holders of Registrable
     Securities who have been identified to the Company, the Initial Purchasers
     on behalf of such Holders, counsel for the Holders of Registrable
     Securities or any underwriter.

     (t) in the case of a Shelf Registration, use its commercially reasonable
efforts to cause all Registrable Securities to be listed on any securities
exchange on which similar mortgage bonds issued by the Company are then listed
if requested by the Majority Holders, or if requested by the underwriter or
underwriters of an underwritten offering of Registrable Securities, if any;

     (u) in the case of a Shelf Registration, use its commercially reasonable
efforts to cause the Registrable Securities to be rated by the appropriate
rating agencies, if so requested by the Majority Holders, or if requested by the
underwriter or underwriters of an underwritten offering of Registrable
Securities, if any;

                                       16

<PAGE>

     (v) otherwise comply with all applicable rules and regulations of the SEC
and make available to its security holders, as soon as reasonably practicable,
an earnings statement covering at least 12 months which shall satisfy the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder;

     (w) cooperate and assist in any filings required to be made with the NASD
and, in the case of a Shelf Registration, in the performance of any due
diligence investigation by any underwriter and its counsel (including any
"qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD); and

     (x) upon consummation of an Exchange Offer or a Private Exchange, obtain a
customary opinion of counsel to the Company addressed to the Trustee for the
benefit of all Holders of Registrable Securities participating in the Exchange
Offer or Private Exchange, and which includes an opinion that (i) the Company
has duly authorized, executed and delivered the Exchange Securities and/or
Private Exchange Securities, as applicable, and the related supplemental
indenture, and (ii) each of the Exchange Securities and related supplemental
indenture constitute a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its respective terms (with
customary exceptions).

     In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Securities to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Securities as the Company may from time to time reasonably request
in writing.

     In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event or the
discovery of any facts, each of the kind described in Section 3(e)(vi) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
pursuant to a Registration Statement until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(k) hereof,
and, if so directed by the Company, such Holder will deliver to the Company (at
its expense) all copies in such Holder's possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice.

     If the Company shall give any such notice to suspend the disposition of
Registrable Securities pursuant to a Registration Statement, the Company shall
extend the period during which the Registration Statement shall be maintained
effective pursuant to this Agreement by the number of days during the period
from and including the date of the giving of such notice to and including the
date when the Holders shall have received copies of the supplemented or amended
Prospectus necessary to resume such dispositions. The Company may give any such
notice only twice during any 365-day period and each such suspension shall not
extend for a period of more than 45 days.

     In the event that the Company fails to effect the Exchange Offer or file
any Shelf Registration Statement and maintain the effectiveness of any Shelf
Registration Statement as

                                       17

<PAGE>

provided herein, the Company shall not file any Registration Statement with
respect to any securities (within the meaning of Section 2(1) of the 1933 Act)
of the Company other than Registrable Securities.

     If any of the Registrable Securities covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the underwriter or
underwriters and manager or managers that will manage such offering will be
selected by the Majority Holders of such Registrable Securities included in such
offering and shall be acceptable to the Company. No Holder of Registrable
Securities may participate in any underwritten registration hereunder unless
such Holder (a) agrees to sell such Holder's Registrable Securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.

4. Indemnification; Contribution.

     (a) Indemnification of the Initial Purchasers and the Holders. The Company
agrees to indemnify and hold harmless the Initial Purchasers, each Holder, each
Participating Broker-Dealer, each Person who participates as an underwriter (any
such Person being an "Underwriter") and each Person, if any, who controls any
Holder or Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:

          (i) against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, arising out of any untrue statement or alleged
     untrue statement of a material fact contained in any Registration Statement
     (or any amendment or supplement thereto) pursuant to which Exchange
     Securities or Registrable Securities were registered under the 1933 Act,
     including all documents incorporated therein by reference, or the omission
     or alleged omission therefrom of a material fact required to be stated
     therein or necessary to make the statements therein not misleading, or
     arising out of any untrue statement or alleged untrue statement of a
     material fact contained in any Prospectus (or any amendment or supplement
     thereto) or the omission or alleged omission therefrom of a material fact
     necessary in order to make the statements therein, in the light of the
     circumstances under which they were made, not misleading;

          (ii) against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, to the extent of the aggregate amount paid in
     settlement of any litigation, or any investigation or proceeding by any
     governmental agency or body, commenced or threatened, or of any claim
     whatsoever based upon any such untrue statement or omission, or any such
     alleged untrue statement or omission; provided that (subject to Section
     4(d) below) any such settlement is effected with the written consent of the
     Company; and

          (iii) against any and all expense whatsoever, as incurred (including
     the fees and disbursements of counsel chosen by any indemnified party),
     reasonably incurred in investigating, preparing or defending against any
     litigation, or any

                                       18

<PAGE>

     investigation or proceeding by any governmental agency or body, commenced
     or threatened, or any claim whatsoever based upon any such untrue statement
     or omission, or any such alleged untrue statement or omission, to the
     extent that any such expense is not paid under subparagraph (i) or (ii)
     above;

provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission (i) made in
reliance upon and in conformity with written information furnished to the
Company by the Holder or Underwriter expressly for use in a Registration
Statement (or any amendment thereto) or any Prospectus (or any amendment or
supplement thereto) or (ii) if the Person asserting any such loss, liability,
claim, damage or expense was not sent or given a copy of the final Prospectus
(or any amendment or supplement thereto) (in each case exclusive of the
documents from which information is incorporated by reference) at or prior to
the written confirmation of the sale of such Registrable Securities to such
Person (other than as a result of the failure by the Company to comply with its
obligations under Section 3(c) hereof) and the untrue statement contained in or
omitted from the Prospectus delivered to such Person was subsequently corrected
in the final Prospectus (or any amendment or supplement thereto).

     (b) Indemnification of the Company. Each Holder severally, but not jointly,
agrees to indemnify and hold harmless the Company, the Initial Purchasers, each
Underwriter and the other selling Holders, and each of their respective
directors and officers, and each Person, if any, who controls the Company, the
Initial Purchasers, any Underwriter or any other selling Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any
and all loss, liability, claim, damage and expense described in the indemnity
contained in Section 4(a) hereof, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in any
Registration Statement (or any amendment thereto) or any Prospectus included
therein (or any amendment or supplement thereto) in reliance upon and in
conformity with written information with respect to such Holder furnished to the
Company by such Holder expressly for use in such Registration Statement (or any
amendment thereto) or such Prospectus (or any amendment or supplement thereto);
provided, however, that no such Holder shall be liable for any claims hereunder
in excess of the amount of net proceeds received by such Holder from the sale of
Registrable Securities pursuant to such Registration Statement.

     (c) Notices and Procedures. Each indemnified party shall give notice as
promptly as reasonably practicable to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure so to notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. If any such proceeding shall be brought or asserted against an
indemnified party and it shall have notified the indemnifying party thereof, the
indemnifying party shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others entitled to
indemnification pursuant to this Section 4 that the indemnifying party may
designate in such proceeding and shall pay the fees and expenses of such counsel
related to such proceeding. An indemnifying party may participate at its own
expense in the defense of such

                                       19

<PAGE>

action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying party or parties be liable
for the fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 4 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.

     If at any time an indemnified party shall have requested an indemnifying
party to reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 4(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.

     (d) Contribution. If the indemnification provided for in this Section 4 is
for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company from the
offering of the Securities and the Exchange Securities, on the one hand, and by
the Holders from receiving Securities or Exchange Securities registered under
the Securities Act, on the other hand, or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and the
Holders and the Initial Purchasers on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.

     The relative fault of the Company on the one hand and the Holders and the
Initial Purchasers on the other hand shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company, the Holders or the Initial Purchasers and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.

                                       20

<PAGE>

     (e) Limitation on Liability. The Company, the Holders and the Initial
Purchasers agree that it would not be just and equitable if contribution
pursuant to this Section 4 were determined by pro rata allocation (even if the
Initial Purchasers were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this Section 4. The aggregate amount of losses,
liabilities, claims, damages and expenses incurred by an indemnified party and
referred to above in this Section 4 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission. Notwithstanding the provisions of this Section 4,
no Initial Purchaser shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities sold by it were offered
exceeds the amount of any damages which such Initial Purchaser has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.

     (f) Non-Exclusive Remedies. The remedies provided for in this Section 4 are
not exclusive and shall not limit any rights or remedies that may otherwise be
available to any indemnified party at law or in equity.

     (g) Survival. The indemnity and contribution provisions contained in this
Section 4 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of the Initial Purchasers or any other Holder, their respective affiliates or
any Person controlling any Initial Purchaser or any other Holder, or by or on
behalf of the Company, their respective affiliates or the officers or directors
of or any Person controlling the Company, (iii) acceptance of any of the
Exchange Securities and (iv) any sale of Registrable Securities pursuant to a
Shelf Registration Statement.

     For purposes of this Section 4, each Person, if any, who controls an
Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Initial Purchaser or Holder, and each director of the Company, and each Person,
if any, who controls the Company within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act shall have the same rights to contribution as
the Company. The Initial Purchasers' respective obligations to contribute
pursuant to this Section 4 are several in proportion to the principal amount of
Securities set forth opposite their respective names in Schedule A to the
Purchase Agreement and not joint.

5. Miscellaneous.

     5.1 Rule 144 and Rule 144A. For so long as the Company is subject to the
reporting requirements of Section 13 or 15 of the 1934 Act, the Company
covenants that it will file the reports required to be filed by it under the
1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, the Company covenants that it will upon the
request of any Holder of Registrable Securities (a) make publicly available such
information as is necessary to

                                       21

<PAGE>

permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver such
information to a prospective purchaser as is necessary to permit sales pursuant
to Rule 144A under the 1933 Act and it will take such further action as any
Holder of Registrable Securities may reasonably request, and (c) take such
further action that is reasonable in the circumstances, in each case, to the
extent required from time to time to enable such Holder to sell its Registrable
Securities without registration under the 1933 Act within the limitation of the
exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be
amended from time to time, (ii) Rule 144A under the 1933 Act, as such Rule may
be amended from time to time, or (iii) any similar rules or regulations
hereafter adopted by the SEC. Upon the request of any Holder of Registrable
Securities, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.

     5.2 No Inconsistent Agreements. The Company has not entered into and the
Company will not after the date of this Agreement enter into any agreement which
is inconsistent with the rights granted to the Holders of Registrable Securities
in this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not and will not for the term of this
Agreement in any way conflict with the rights granted to the holders of the
Company's other issued and outstanding securities under any such agreements.

     5.3 Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the written consent of Holders of at least a
majority in aggregate principal amount of the outstanding Registrable Securities
affected by such amendment, modification, supplement, waiver or departure.

     5.4 Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand delivery, registered first-class
mail, telex, telecopier, or any courier guaranteeing overnight delivery (a) if
to a Holder, at the most current address given by such Holder to the Company by
means of a notice given in accordance with the provisions of this Section 5.4,
which address initially is the address set forth in the Purchase Agreement with
respect to the Initial Purchasers; and (b) if to the Company, initially at the
Company's address set forth in the Purchase Agreement, and thereafter at such
other address of which notice is given in accordance with the provisions of this
Section 5.4.

     All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; two business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; when receipt is acknowledged, if telecopied; and on the next
business day if timely delivered to an air courier guaranteeing overnight
delivery.

     Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee under the
Mortgage, at the address specified in such Mortgage.

     5.5 Successor and Assigns. This Agreement shall inure to the benefit of and
be binding upon the successors, assigns and transferees of each of the parties,
including, without

                                       22

<PAGE>

limitation and without the need for an express assignment, subsequent Holders;
provided that nothing herein shall be deemed to permit any assignment, transfer
or other disposition of Registrable Securities in violation of the terms of the
Purchase Agreement or the Mortgage. If any transferee of any Holder shall
acquire Registrable Securities, in any manner, whether by operation of law or
otherwise, such Registrable Securities shall be held subject to all of the terms
of this Agreement, and by taking and holding such Registrable Securities such
person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement and, if applicable, the Purchase Agreement,
and such person shall be entitled to receive the benefits hereof.

     5.6 Third Party Beneficiaries. The Initial Purchasers (even if the Initial
Purchasers are not Holders of Registrable Securities) shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Holders, on the other hand, and shall have the right to enforce
such agreements directly to the extent they deem such enforcement necessary or
advisable to protect their rights or the rights of Holders hereunder. Each
Holder of Registrable Securities shall be a third party beneficiary to the
agreements made hereunder between the Company, on the one hand, and the Initial
Purchasers, on the other hand, and shall have the right to enforce such
agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights hereunder.

     5.7 Specific Enforcement. Without limiting the remedies available to the
Initial Purchasers and the Holders, the Company acknowledges that any failure by
the Company to comply with its obligations under Sections 2.1 through 2.4 hereof
may result in material irreparable injury to the Initial Purchasers or the
Holders for which there is no adequate remedy at law, that it would not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder may obtain such relief
as may be required to specifically enforce the Company's obligations under
Sections 2.1 through 2.4 hereof.

     5.8 Restriction on Resales. Until the expiration of two years after the
original issuance of the Securities, the Company will not, and will cause their
"affiliates" (as such term is defined in Rule 144(a)(1) under the 1933 Act) not
to, resell any Securities which are "restricted securities" (as such term is
defined under Rule 144(a)(3) under the 1933 Act) that have been reacquired by
any of them and shall immediately upon any purchase of any such Securities
submit such Securities to the Trustee for cancellation.

     5.9 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

     5.10 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

     5.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE

                                       23

<PAGE>

STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.

     5.12 Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.

                                       24

<PAGE>

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

                                  ILLINOIS POWER COMPANY

                                  By: /s/ Larry F. Altenbaumer
                                     --------------------------------------
                                        Name: Larry F. Altenbaumer
                                        Title: President and
                                               Chief Executive Officer

Confirmed and accepted as of
the date first above written:

MERRILL LYNCH, PIERCE, FENNER & SMITH
             INCORPORATED

By:  /s/ Keith L. Horn
    -------------------------------------------
    Name: Keith L. Horn
    Title: Managing Director

CREDIT SUISSE FIRST BOSTON CORPORATION

By:   /s/ Jamie Welch
     -------------------------------------------
     Name: Jamie Welch
     Title: Managing Director

<PAGE>

                                                                       Exhibit A

                           Form of Opinion of Counsel

Merrill Lynch, Pierce, Fenner & Smith
         Incorporated
Credit Suisse First Boston Corporation
c/o Merrill Lynch, Pierce, Fenner & Smith
         Incorporated
4 World Financial Center, 7th Floor
New York, New York 10080

Ladies and Gentlemen:

     We have acted as counsel for Illinois Power Company, an Illinois
corporation (the "Company"), in connection with the sale by the Company to the
Initial Purchasers (as defined below) of $550,000,000 aggregate principal amount
of Mortgage Bonds, 11.5% Series due 2010 of the Company (the "Securities")
pursuant to the Purchase Agreement dated December 17, 2002 (the "Purchase
Agreement") among the Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Credit Suisse First Boston Corporation (collectively, the "Initial
Purchasers") and the filing by the Company of an Exchange Offer Registration
Statement (the "Registration Statement") in connection with an Exchange Offer to
be effected pursuant to the Registration Rights Agreement (the "Registration
Rights Agreement"), dated December 20, 2002 between the Company and the Initial
Purchasers. This opinion is furnished to you pursuant to Section 3(f)(B) of the
Registration Rights Agreement. Unless otherwise defined herein, capitalized
terms used in this opinion that are defined in the Registration Rights Agreement
are used herein as so defined.

     We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion. In rendering this opinion, as to
all matters of fact relevant to this opinion, we have assumed the completeness
and accuracy of, and are relying solely upon, the representations and warranties
of the Company set forth in the Purchase Agreement and the statements set forth
in certificates of public officials and officers of the Company, without making
any independent investigation or inquiry with respect to the completeness or
accuracy of such representations, warranties or statements, other than a review
of the certificate of incorporation, by-laws and relevant minute books of the
Company.

     Based on and subject to the foregoing, we are of the opinion that:

     1. The Exchange Offer Registration Statement and the Prospectus (other than
the financial statements, notes or schedules thereto and other financial data
and supplemental schedules included or incorporated by reference therein or
omitted therefrom and the Form T-1, as to which such counsel need express no
opinion), comply as to form in all material respects with the requirements of
the 1933 Act and the applicable rules and regulations promulgated under the 1933
Act.

<PAGE>

     2. We have participated in the preparation of the Registration Statement
and the Prospectus and in the course thereof have had discussions with
representatives of the Underwriters, officers and other representatives of the
Company and PriceWaterhouseCoopers LLP, the Company's independent public
accountants, during which the contents of the Registration Statement and the
Prospectus were discussed. We have not, however, independently verified and are
not passing upon, and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus. Based on our participation as described above,
nothing has come to our attention that would lead us to believe that the
Registration Statement (except for financial statements and schedules and other
financial data included therein as to which we make no statement) contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or that the Prospectus or any amendment or supplement thereto (except for
financial statements and schedules and other financial data included therein, as
to which we make no statement), at the time the Prospectus was issued, at the
time any such amended or supplemented Prospectus was issued or at the Closing
Time, included or includes an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

     This opinion is being furnished to you solely for your benefit in
connection with the transactions contemplated by the Registration Rights
Agreement, and may not be used for any other purpose or relied upon by any
person other than you. Except with our prior written consent, the opinions
herein expressed are not to be used, circulated, quoted or otherwise referred to
in connection with any transactions other than those contemplated by the
Registration Rights Agreement by or to any other person.

                                Very truly yours,

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