Filed Pursuant to Rule 424(b)(5)
Registration No. 33-52525
Registration Nos. 333-43811 and 333-43811-01
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 23, 1998)
$150,000,000
ENSERCH Capital I
FLOATING RATE CAPITAL SECURITIES
(LIQUIDATION PREFERENCE $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED AS SET FORTH HEREIN BY
ENSERCH Corporation
-------------
The Floating Rate Capital Securities (Capital Securities)
offered hereby are being issued by and represent undivided
preferred beneficial interests in ENSERCH Capital I (ENSERCH
Capital), a statutory business trust created under the laws of
the State of Delaware. ENSERCH Corporation (Company), a Texas
corporation, will be the owner of the undivided common beneficial
interests in the assets of ENSERCH Capital (Common Securities
and, together with the Capital Securities, herein referred to as
the Trust Securities). The Bank of New York and The Bank of New
York (Delaware) are the Property Trustee and the Delaware
Trustee, respectively, and certain individuals who are employees
of the Company or its affiliates are the Administrative Trustees
of ENSERCH Capital. ENSERCH Capital exists for the sole purpose
of issuing its Trust Securities (including the Capital
Securities) and investing the proceeds thereof in Floating Rate
Junior Subordinated Debentures, Series A issued by the Company
(Series A Debentures) in an aggregate principal amount equal to
the aggregate liquidation amount of the Trust Securities.
(cover continued on following page)
-------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-6, FOR CERTAIN
INFORMATION RELEVANT TO AN INVESTMENT IN THE CAPITAL SECURITIES.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------
Underwriting Proceeds to
Price to Discounts and ENSERCH
Public(1) Commissions(2) Capital(1)(3)(4)
--------- -------------- ----------------
Per Capital
Security . . . $988.07 (3) $988.07
Total . . . . . . $148,210,500 (3) $148,210,500
--------------------
(1) Plus accumulated distributions, if any, from the date of
original issuance.
(2) ENSERCH Capital and the Company have each agreed to
indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) In view of the fact that the entire proceeds of the sale of
the Capital Securities will be used to purchase the Series A
Debentures, the Company will pay to the Underwriters, as
compensation for their arranging the investment therein of
such proceeds, $10.00 per Capital Security (or $1,500,000 in
the aggregate). See "Underwriting."
(4) Before deduction of expenses of the offering, payable by the
Company, which are estimated to be $263,000.
-------------
The Capital Securities are offered, subject to prior sale,
when, as and if accepted by the Underwriters and subject to
approval of certain legal matters by Winthrop, Stimson, Putnam &
Roberts, counsel for the Underwriters. It is expected that
delivery of the Capital Securities will be made only in
book-entry form through the facilities of The Depository Trust
Company on or about July 2, 1998, against payment therefor in
immediately available funds.
June 25, 1998
MORGAN STANLEY DEAN WITTER
LEHMAN BROTHERS
MERRILL LYNCH & CO.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE
PRICE OF THE CAPITAL SECURITIES OFFERED HEREBY. SPECIFICALLY,
THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR, AND PURCHASE, SUCH SECURITIES IN THE OPEN
MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
--------------
The Series A Debentures will mature on July 1, 2028. The
Capital Securities will have a preference under certain
circumstances with respect to cash distributions and amounts
payable on liquidation, redemption or otherwise over the Common
Securities. See "Description of The Preferred Trust Securities
-- Subordination of Common Trust Securities" in the accompanying
Prospectus.
Holders of the Capital Securities will be entitled to
receive cumulative cash distributions accruing from the date of
original issuance and payable quarterly in arrears on January 1,
April 1, July 1 and October 1 of each year, commencing October 1,
1998, at a rate per annum equal to 3-month LIBOR (as defined)
plus 1.35% (the Distribution Rate). Interest on the Series A
Debentures is the sole source of income for ENSERCH Capital from
which payment of distributions on the Capital Securities can be
made. The Company has the right to defer payments of interest on
the Series A Debentures by extending the interest payment period
thereon at any time for up to 20 consecutive quarterly periods
(each such extended payment period, an Extension Period),
provided that the aggregate interest payment period, as so
extended, may not exceed 20 consecutive quarterly interest
payment periods or extend beyond the maturity of the Series A
Debentures. Upon the termination of any Extension Period and
the payment of all amounts then due, including interest on
deferred interest payments, the Company may elect to begin a new
Extension Period, subject to the above requirements.
If interest payments are so deferred, distributions on the
Capital Securities will also be deferred to such extent. During
an Extension Period, distributions will continue to accrue, and
Holders of Capital Securities will be required to accrue income
for United States federal income tax purposes. Cash
distributions in arrears will bear interest thereon at the
Distribution Rate (to the extent permitted by applicable law),
compounded quarterly. See "Description of the Junior
Subordinated Debentures -- Option to Extend Interest Payment
Period" and "Certain United States Federal Income Tax
Consequences Relating to the Preferred Trust Securities --
Original Issue Discount" in the Prospectus and "Certain Terms of
The Capital Securities -- Distributions" herein. During an
Extension Period, the Company may not declare or pay dividends on
(other than dividends paid in shares of Common Stock of the
Company) or redeem or acquire, any of its capital stock, make any
payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any indebtedness that is pari passu with the
Series A Debentures or make any guarantee payment with respect to
the foregoing. Any Extension Period with respect to payment of
interest on the Series A Debentures or any similar securities,
will apply to the Series A Debentures and to all such securities
and will also apply to distributions with respect to the Capital
Securities and all other securities with terms substantially the
same as the Capital Securities. Based upon the Company's current
financial condition and, in light of the restriction on payment
of dividends on the Company's securities during an Extension
Period, the Company believes that an extension of a distribution
payment period on the Capital Securities is currently unlikely
and has no current intention to cause such an extension. See
"Certain Terms of The Capital Securities -- Distributions."
The payment of distributions out of moneys held by ENSERCH
Capital and payments on liquidation of ENSERCH Capital or the
redemption of Capital Securities, as set forth below, are
guaranteed by the Company to the extent ENSERCH Capital has
sufficient funds available to make such payments pursuant to the
Guarantee. See "Description of The Guarantee" in the Prospectus.
If the Company fails to make interest payments on the Series A
Debentures held by ENSERCH Capital, ENSERCH Capital will have
insufficient funds to pay distributions on the Capital
Securities. The Guarantee does not cover payment of
distributions when ENSERCH Capital does not have sufficient funds
to pay such distributions. In such event, a Holder of Capital
Securities could institute a legal proceeding directly against
the Company to enforce payment to such Holder of the principal of
S-2
<PAGE>
or interest on Series A Debentures having a principal amount
equal to the aggregate liquidation amount of the Capital
Securities held by such Holder. The Company's obligations under
the Guarantee are subordinate and junior in right of payment to
all other liabilities of the Company except any liabilities that
may be made pari passu expressly by their terms. The Company has
agreed in an Agreement as to Expenses and Liabilities (Expense
Agreement) to provide funds to pay obligations of ENSERCH Capital
to parties other than Holders of Trust Securities of ENSERCH
Capital. The Series A Debentures and the Guarantee, together
with the obligations of the Company with respect to the Capital
Securities under the Indenture, the Trust Agreement and the
Expense Agreement, constitute a full and unconditional guarantee
of the Capital Securities by the Company.
The Company may organize in the future trusts similar to
ENSERCH Capital for the purpose of issuing securities similar to
the Capital Securities and may issue securities similar to Series
A Debentures which will be pari passu with the Series A
Debentures. Any extension period with respect to any such other
securities of the Company will apply to the Series A Debentures
and to the Capital Securities and any securities substantially
the same as the Capital Securities.
The Series A Debentures are redeemeable prior to maturity at
the option of the Company on or after July 1, 2003, in whole or
in part, at a redemption price equal to the principal amount of
the Series A Debentures so redeemed plus the accrued and unpaid
interest, if any, on such Series A Debentures to the redemption
date. In addition, the Company will have the right at any time
to cause the termination of ENSERCH Capital and, in connection
therewith, after satisfaction of creditors of ENSERCH Capital, if
any, to distribute the Series A Debentures to the Holders of
Capital Securities or, upon the occurrence of a Tax Event (as
defined herein), under certain circumstances, to redeem, in whole
but not in part, the Series A Debentures. Any redemption of the
Capital Securities and the Common Securities by ENSERCH Capital
will be, upon not less than 30 days' nor more than 60 days'
notice to the Holders thereof, in amounts having an aggregate
liquidation preference equal to the aggregate principal amount of
Series A Debentures to be redeemed. Each class of the Trust
Securities will be redeemed in proportion to the percentage they
represent of all the Trust Securities. The Capital Securities
will represent 97% of the Trust Securities and the Common
Securities will represent 3% of the Trust Securities. For a
description of the redemption prices for the Capital Securities
(in each case, a Redemption Price), see "Certain Terms of The
Capital Securities -- Redemption of Capital Securities" and
"Certain Terms of The Series A Debentures -- Redemption."
The Series A Debentures are subordinated and junior in right
of payment to all Senior Indebtedness (as defined in the
Prospectus) of the Company. As of March 31, 1998, the Company
had approximately $1.0 billion principal amount of indebtedness
for borrowed money constituting Senior Indebtedness (as defined
in the Prospectus). See "Description of The Junior Subordinated
Debentures -- Subordination" and "Description of The Preferred
Trust Securities" in the Prospectus.
In the event of the liquidation of ENSERCH Capital, the
Holders of the Trust Securities will be entitled to receive
Series A Debentures in an aggregate principal amount of $1,000
for each Capital Security, subject to certain limitations. See
"Description of The Preferred Trust Securities -- Liquidation
Distribution upon Dissolution" in the Prospectus.
The Capital Securities will be represented by one or more
global certificates registered in the name of The Depository
Trust Company (DTC) or its nominee. Beneficial interests in the
Capital Securities will be shown on, and transfers thereof will
be effected only through, records maintained by participants in
DTC. Except as described herein, Capital Securities in
certificated form will not be issued in exchange for the global
certificates. See "Certain Terms of The Capital Securities --
Book-Entry Only Issuance -- The Depository Trust Company."
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE INFORMATION CONTAINED IN THE PROSPECTUS AND
TO THE EXTENT IT IS INCONSISTENT THEREWITH, IT REPLACES SUCH
S-3
<PAGE>
INFORMATION. EACH OF THE CAPITALIZED TERMS USED IN THIS
PROSPECTUS SUPPLEMENT AND NOT OTHERWISE DEFINED HEREIN HAS THE
MEANING GIVEN SUCH TERM IN THE PROSPECTUS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ENSERCH CAPITAL, OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS NOR ANY SALES UNDER THESE DOCUMENTS
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR ENSERCH
CAPITAL SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT OR THAT THE
INFORMATION CONTAINED IN THESE DOCUMENTS IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
CAPITAL SECURITIES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH CAPITAL SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
<PAGE>
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . S-6
The Company . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Summary of Consolidated Financial Information of
The Company and Its Subsidiaries . . . . . . . . . . . S-11
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . S-12
Certain Terms of The Capital Securities . . . . . . . . . . S-12
Certain Terms of The Series A Debentures . . . . . . . . . S-16
Certain ERISA Considerations . . . . . . . . . . . . . . . S-18
Underwriting . . . . . . . . . . . . . . . . . . . . . . . S-20
PROSPECTUS
Incorporation of Certain Documents by Reference . . . . . . . 3
Available Information . . . . . . . . . . . . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 5
Historical and Pro Forma Ratios of Earnings to Fixed
Charges and Earnings to Combined
Fixed Charges and Preferred Dividends . . . . . . . . . 5
Description of Debt Securities . . . . . . . . . . . . . . . 6
Description of the Preferred Trust Securities . . . . . . . . 13
Description of the Guarantee . . . . . . . . . . . . . . . . 21
Description of the Junior Subordinated Debentures . . . . . . 23
Certain United States Federal Income Tax Consequences
Relating to the Preferred Trust Securities . . . . . . . 31
Experts and Legality . . . . . . . . . . . . . . . . . . . . 34
Plan of Distribution . . . . . . . . . . . . . . . . . . . . 34
S-5
<PAGE>
RISK FACTORS
Prospective purchasers of the Capital Securities should
carefully review the information contained elsewhere in this
Prospectus Supplement or in the accompanying Prospectus or
incorporated by reference herein or therein and should
particularly consider the following matters:
DEPENDENCE OF ENSERCH CAPITAL ON THE COMPANY FOR FUNDS;
SUBORDINATION OF GUARANTEE AND SERIES A DEBENTURES
The ability of ENSERCH Capital to pay amounts due on the
Capital Securities is solely dependent upon the Company making
payments on the Series A Debentures as and when required.
The Company's obligations under the Guarantee are
subordinated and junior in right of payment to all other
liabilities of the Company, except any liabilities that may be
made pari passu expressly by their terms. The obligations of the
Company under the Series A Debentures are subordinated and junior
in right of payment to Senior Indebtedness of the Company. As of
March 31, 1998, Senior Indebtedness of the Company aggregated
approximately $1.0 billion. There are no terms of the Capital
Securities, the Series A Debentures or the Guarantee that limit
the Company's ability to incur additional indebtedness, including
indebtedness that would rank senior to the Series A Debentures
and the Guarantee. See "Description of The Guarantee -- Status
of the Guarantee" and "Description of The Junior Subordinated
Debentures -- Subordination" in the Prospectus.
PAYMENT DELAY UPON EXERCISE OF OPTION TO EXTEND INTEREST PAYMENT
PERIOD
So long as it is not in default in the payment of interest
on the Junior Subordinated Debentures of any series, the Company
has the right under the Indenture to extend the interest payment
period from time to time on the Series A Debentures, for a period
not exceeding 20 consecutive quarterly periods. Upon the
termination of any such Extension Period and the payment of all
amounts then due, including interest on deferred interest
payments, the Company may elect to begin an additional Extension
Period, subject to the requirements described herein. During any
such Extension Period, quarterly distributions on the Capital
Securities would be deferred (but would continue to accrue with
interest thereon compounded quarterly) by ENSERCH Capital. In
the event that the Company exercises this right, during the
Extension Period the Company may not declare or pay dividends or
distributions (other than dividends or distributions in Common
Stock of the Company) on, or redeem, purchase, acquire, or make a
liquidation payment with respect to any of its capital stock,
make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any indebtedness that is pari passu
with the Series A Debentures or make any guarantee payment with
respect to the foregoing. Prior to the termination of any such
Extension Period, the Company may further extend the interest
payment period, provided that such Extension Period together with
all such previous and further extensions thereof may not exceed
20 consecutive quarterly periods and that such extended interest
payment period may not extend beyond the maturity date of the
Series A Debentures. Any Extension Period with respect to payment
of interest on the Series A Debentures or on any similar
securities will apply to the Series A Debentures and all such
securities and will also apply to distributions with respect to
the Capital Securities and all other securities with terms
substantially the same as the Capital Securities. If the Company
should determine to exercise its extension right in the future,
the market price of the Capital Securities is likely to be
affected. Based upon the Company's current financial condition
and in light of the restriction on payment of dividends during an
Extension Period, ENSERCH Capital and the Company believe that
such an extension of an interest payment period on the Series A
Debentures is unlikely to occur. See "Certain Terms of The
Capital Securities -- Distributions" herein and "Description of
The Junior Subordinated Debentures -- Option to Extend Interest
Payment Period" in the Prospectus.
S-6
<PAGE>
ADVERSE TAX CONSEQUENCES OF EXTENSION OF INTEREST PAYMENT PERIOD;
OID
Should the Company exercise its right to extend the interest
payment period for the Series A Debentures, each holder of
Capital Securities would be required to accrue income as original
issue discount (OID) in respect of the deferred interest. As a
result, a Holder of Capital Securities would be required to
continue to include in gross income an amount of OID in respect
of the distributions accruing on the Capital Securities for
United States federal income tax purposes in advance of the
receipt of cash, regardless of such Holder's regular method of
accounting. A Holder that disposed of its Capital Securities
prior to the record date for the payment of interest at the end
of an Extension Period would not receive cash from ENSERCH
Capital related to such interest because the accrued
distributions related to such interest will be paid to the Holder
of record on such record date, regardless of who the Holder of
record may have been on other dates during the Extension Period.
Moreover, accrued OID would be added to a Holder's adjusted tax
basis in its Capital Securities but may not be reflected in the
amount realized on such disposition. To the extent the amount
realized was less than a Holder's adjusted tax basis, the Holder
would recognize a capital loss for United States federal income
tax purposes. The deduction of capital losses is subject to
limitations. See "Certain United States Federal Income Tax
Consequences Relating to The Preferred Trust Securities --
Original Issue Discount" in the Prospectus. In addition, as a
result of the Company's right to extend the interest payment
period, the market price of the Capital Securities may be more
volatile than debt instruments with OID which do not afford the
issuer such a right. See "Certain United States Federal Income
Tax Consequences Relating to The Preferred Trust Securities --
Original Issue Discount" in the Prospectus.
RIGHTS UNDER THE GUARANTEE; LIMITATION AS TO FUNDS AVAILABLE TO
ENSERCH CAPITAL
The Guarantee will be qualified as an indenture under the
Trust Indenture Act of 1939, as amended (Trust Indenture Act).
The Bank of New York will act as indenture trustee under the
Guarantee for the purposes of compliance with the Trust Indenture
Act (Guarantee Trustee). The Bank of New York will also act as
trustee for the Series A Debentures and will hold the Guarantee
for the benefit of the Holders of the Capital Securities.
The Guarantee guarantees to the Holders of the Capital
Securities the payment (but not the collection) of (i) any
accrued and unpaid distributions required to be paid on the
Capital Securities, to the extent ENSERCH Capital has funds
available therefor, (ii) the Redemption Price, plus all accrued
and unpaid distributions, with respect to Capital Securities
called for redemption, to the extent ENSERCH Capital has funds
available therefor and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of ENSERCH Capital (other
than in connection with the distribution of Series A Debentures
to the Holders in exchange for Capital Securities as provided in
the Trust Agreement or upon a redemption of all of the Capital
Securities upon maturity or redemption of the Series A Debentures
as provided in the Trust Agreement), the lesser of (a) the
aggregate of the liquidation preference and all accrued and
unpaid distributions on the Capital Securities to the date of
payment and (b) the amount of assets of ENSERCH Capital remaining
available for distribution to Holders of the Capital Securities
in liquidation of ENSERCH Capital. The Holders of a majority in
liquidation preference of the Capital Securities have the right
to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee or to direct
the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee. If the Company were to default on
its obligations under the Series A Debentures, ENSERCH Capital
would lack available funds for the payment of distributions or
amounts payable on redemption of the Capital Securities or
otherwise, and in such event Holders of the Capital Securities
would not be able to rely upon the Guarantee for payment of such
amounts. In such event, a Holder of Capital Securities could
institute a legal proceeding directly against the Company to
enforce payment to such Holder of the principal of or interest on
Series A Debentures having a principal amount equal to the
aggregate liquidation amount of the Capital Securities held by
such Holder. See "Description of The Guarantee -- Status of the
Guarantee" and "Description of The Junior Subordinated Debentures
-- Subordination" in the Prospectus. The Trust Agreement pursuant
to which ENSERCH Capital has been formed provides that each
Holder of Capital Securities by acceptance thereof agrees to the
provisions of the Guarantee and the Indenture.
S-7
<PAGE>
TAX EVENT REDEMPTION
Upon the occurrence of a Tax Event, under certain
circumstances, the Company shall have the right to redeem the
Series A Debentures, in whole (but not in part), and thereby
cause a mandatory redemption of the Capital Securities and the
Common Securities at the Redemption Price, within 90 days
following the occurrence of such Tax Event. See "Certain Terms
of The Capital Securities -- Right to Redeem upon a Tax Event."
It has been reported that the Internal Revenue Service (IRS)
recently challenged another company's deduction for interest paid
on a debt instrument similar in some respects to the Series A
Debentures issued to an entity similar in some respects to
ENSERCH Capital. Based on available information, the Company and
ENSERCH Capital do not believe that this challenge will affect
the Company's ability to deduct payments of interest on the
Series A Debentures. However, prospective investors should be
aware that further developments concerning the IRS's challenge,
or other unrelated developments, could give rise to a Tax Event.
DISTRIBUTION OF THE SERIES A DEBENTURES; POTENTIAL ADVERSE EFFECT
ON MARKET PRICE
At any time, the Company has the right to terminate ENSERCH
Capital and, after satisfaction of liabilities to creditors, if
any, of ENSERCH Capital as provided by applicable law, cause
Series A Debentures to be distributed to the holders of the
Capital Securities in liquidation of ENSERCH Capital.
There can be no assurance as to the market prices for
Capital Securities or Series A Debentures that may be distributed
in exchange for Capital Securities if a liquidation of ENSERCH
Capital were to occur. Accordingly, the Capital Securities that
an investor may purchase, whether pursuant to the offer made
hereby or in the secondary market, or the Series A Debentures
that a holder of Capital Securities may receive on liquidation of
ENSERCH Capital, may trade at a discount to the price that the
investor paid to purchase the Capital Securities offered hereby.
Because holders of Capital Securities may receive Series A
Debentures if the Company exercises its right to terminate
ENSERCH Capital, prospective purchasers of Capital Securities are
also making an investment decision with regard to the Series A
Debentures and should carefully review all the information
regarding the Series A Debentures contained herein. See "Certain
Terms of The Capital Securities -- Distribution of the Series A
Debentures" herein and "Certain United States Federal Income Tax
Consequences Relating to The Preferred Trust Securities" in the
Prospectus.
NO ESTABLISHED TRADING MARKET FOR CAPITAL SECURITIES
The Capital Securities constitute a new issue of securities
with no established trading market. No assurance can be given as
to the liquidity of, or the development and maintenance of
trading markets for, the Capital Securities. See "Underwriting"
herein.
UNDERWRITER MARKET ACTIVITY; NO ASSURANCE AS TO ACTIVE MARKET
The Underwriters currently plan to make a market in the
Capital Securities. However, there can be no assurance that the
Underwriters will engage in such activities or that any active
market in the Capital Securities will develop or be maintained.
CAPITAL SECURITIES HAVE NO VOTING RIGHTS
Subject to the Company's right to extend payment as
described under "Certain Terms of The Capital Securities --
Distributions" herein, Holders will have the right to receive
distributions as and when due but will have limited voting
rights, exercisable only in the event of a proposed change in the
terms of the Capital Securities. See "Description of The
Preferred Trust Securities -- Voting Rights" in the Prospectus.
S-8
<PAGE>
THE COMPANY
The Company was incorporated under the laws of the State of
Texas in 1942 and has perpetual existence under the provisions of
the Texas Business Corporation Act. The Company, a wholly owned
subsidiary of Texas Utilities Company (Texas Utilities), is an
integrated company focused on natural gas. Its major business
operations are natural gas pipeline, processing, marketing and
distribution. Through these business operations, the Company is
engaged in owning and operating interconnected natural gas
transmission lines, underground storage reservoirs, compressor
stations and related properties in Texas; gathering and
processing natural gas to remove impurities and extract liquid
hydrocarbons for sale, and the wholesale and retail marketing of
natural gas in several areas of the United States, and owning and
operating approximately 550 local gas utility distribution
systems in Texas. The principal executive offices of the Company
are located at 1601 Bryan Street, Dallas, Texas 75201; the
telephone number is (214) 812-4600.
On August 5, 1997 (Merger Date), Texas Utilities became the
holding company for both the Company and Texas Energy Industries,
Inc. (TEI). Immediately prior to the transaction (Merger), the
Company's ownership interests in Enserch Exploration, Inc. and
Lone Star Energy Plant Operations, Inc. (together, the Unacquired
Business) were distributed to the holders of the Company's Common
Stock. Pursuant to the Merger, Lone Star Gas Company and Lone
Star Pipeline Company, the local distribution and pipeline
divisions of the Company, and other businesses, excluding the
Unacquired Businesses, were acquired by Texas Utilities.
TEI is a holding company formerly known as Texas Utilities
Company. The principal subsidiary of TEI is Texas Utilities
Electric Company (TU Electric), which is an electric utility
engaged in the generation, purchase, transmission, distribution
and sale of electric energy wholly within the State of Texas.
The other electric utility subsidiaries of TEI are Southwestern
Electric Service Company, which is engaged in the purchase,
transmission, distribution and sale of electric energy in ten
counties in the eastern and central parts of Texas with a
population estimated at 126,900, and Texas Utilities Australia
Pty. Ltd. (TU Australia), owner of Eastern Energy Limited, which
is engaged in the purchase, distribution, marketing and sale of
electric energy to approximately 481,000 customers in the State
of Victoria, Australia. TEI also has three other subsidiaries
which perform specialized functions within the Texas Utilities
system: Texas Utilities Fuel Company owns a natural gas pipeline
system, acquires, stores and delivers fuel gas and provides other
fuel services at cost for the generation of electric energy by TU
Electric; Texas Utilities Mining Company owns, leases and
operates fuel production facilities for the surface mining and
recovery of lignite at cost for the generation of electric energy
by TU Electric; and Texas Utilities Services Inc. provides
financial, accounting, information technology, environmental
services, customer services, personnel, procurement and other
administrative services at cost. In addition, in November 1997,
Texas Utilities acquired Lufkin-Conroe Communications Co. (LCC).
LCC offers long-distance, cellular, internet and other services
and provides local telephone services in Southeast Texas.
In February 1998, TU Australia announced an offer to acquire
Allgas Energy Limited (Allgas), a publicly held gas distribution
company in Queensland, Australia, for approximately $138 million.
The offer, which was increased to approximately $145 million on
April 8, 1998, is subject to acceptance by holders of at least
51% of Allgas outstanding shares and the waiver by the Queensland
government of the current limit on individual share holdings in
Allgas. The Queensland government has announced that this
limitation will be lifted on July 1, 1998. TU Australia has
acquired 12.49% of the outstanding shares of Allgas. TU
Australia's bid has already received all necessary Australian and
U.S. regulatory approvals. The offer will be funded by TU
Australia's cash flows and bank lines.
In March 1998, Texas Utilities announced an offer by its
wholly owned subsidiary, TU Acquisitions PLC (TU Acquisitions),
to acquire 100% of the ordinary shares of The Energy Group PLC
(TEG), including the ordinary shares evidenced by American
Depository Receipts, for L8.40 per share. TEG is the holding
company for The Eastern Group PLC, which is one of the largest
electric companies in the United Kingdom (U.K.), one of the
largest U.K. generators of electricity and one of the largest
U.K. suppliers of natural gas. On May 19, 1998, Texas Utilities
S-9
<PAGE>
declared its offer unconditional. As of June 22, 1998, TU
Acquisitions owns, has rights over or has received valid
acceptances in respect of approximately 95.5% of TEG's issued
ordinary share capital and is in the process of acquiring the
remaining shares.
As of December 31, 1997, the Company transferred its
interests in four of its subsidiaries to TEI (Reorganization).
These subsidiaries are Enserch Development Corporation, Lone Star
Gas International, Inc., National Pipeline Company and Enserch
International Services Inc. As a result of the Reorganization,
the Company is no longer engaged in foreign and domestic power
and pipeline project development. The Reorganization was
effected in order to strengthen the Company's financial position
by relieving it of certain indebtedness as well as its obligation
to make capital expenditures in the future. See "Summary of
Consolidated Financial Information of The Company and Its
Subsidiaries" herein.
S-10
<PAGE>
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
OF THE COMPANY AND ITS SUBSIDIARIES
(THOUSANDS OF DOLLARS, EXCEPT RATIOS AND PERCENTAGES)
The following material, which is presented herein solely to
furnish limited introductory information, is qualified in its
entirety by, and should be considered in conjunction with, the
other information appearing in this Prospectus Supplement and the
accompanying Prospectus, including the Incorporated Documents.
In the opinion of the Company, all adjustments (constituting only
normal recurring accruals) necessary for a fair statement of the
results of operations for the three months ended March 31, 1998,
have been made.
PREDECESSOR COMPANY
--------------------------------------------------------
TWELVE MONTHS ENDED DECEMBER 31,
---------------------------------------------
PERIOD
FROM
JANUARY 1,
1997 TO
ACQUI-
SITION
1993 1994 1995 1996 DATE
---- ---- ---- ---- ---------
Income statement
data(a):
Operating
Revenues . . $1,790,597 $2,014,376 $1,791,041 $1,894,260 $1,278,157
Income (Loss)
from
Continuing
Operations . $22,260 $(5,661) $21,362 $9,751 $(15,377)
Ratio of
Earnings to
Fixed Charges 1.52 0.82 1.46 1.31 0.58
Ratio of
Earnings to
Fixed Charges
and Preferred
Dividends . . 1.18 0.58 1.18 1.01 0.49
THREE
PERIOD FROM MONTHS
ACQUISITION ENDED
DATE TO MARCH 31,
DECEMBER 31, 1998
1997(B) (UNAUDITED)
------------ -----------
Income statement
data(a):
Operating $1,276,107 $1,018,978
Revenues . .
Income (Loss)
from
Continuing $(9,565) $17,484
Operations .
Ratio of
Earnings to
Fixed Charges 0.66 2.56
Ratio of
Earnings to
Fixed Charges
and Preferred
Dividends . . 0.57 2.29
ADJUSTED(C)
-------------------
OUTSTANDING
AT
MARCH 31,
1998 AMOUNT PERCENT
----------- ------ -------
Capitalization (Unaudited):
Long-term Debt . . . . . . . . . . . $ 803,341 $ 703,341 37.4%
Advances from Parent . . . . . . . . 175,616 175,616 9.3
Preferred Stock . . . . . . . . . . . 75,000 75,000 4.0
Company Obligated, Mandatorily
Redeemable, Preferred Securities
of Subsidiary Trust(d) . . . . . . -- 150,000 8.0
Common Stock Equity . . . . . . . . . 778,040 778,040 41.3
---------- ---------- -----
Total Capitalization . . . . . . . $1,831,997 $1,881,997 100.0%
========== ========== =====
------------------------
(a) In August 1997, in connection with the Merger, the Company
distributed to its shareholders its interests in Enserch
Exploration, Inc. (EEX) and Lone Star Energy Plant
Operations, Inc. (LSEPO). The audited financial information
for the twelve-month periods ended December 31, 1993 through
1996, and the audited financial information for the period
from January 1, 1997 to Acquisition Date and have been
restated to reflect EEX and LSEPO as discontinued
operations. Such restated financial information for all
periods prior to August 5, 1997 (Acquisition Date) is
derived from historical data for the predecessor to the
Company. Net Income (Loss), including Income (Loss) from
Discontinued Operations, for each of the twelve-month
periods ended December 31, 1993 through 1996, the audited
period from January 1, 1997 to Acquisition Date, the audited
period from Acquisition Date to December 31, 1997 and the
unaudited financial information for the three months ended
March 31, 1998 was $59,381, $102,095, $13,053, $19,042,
$(240,068), $(9,565) and $17,484, respectively.
(b) On December 31, 1997, the Company sold to another subsidiary
of Texas Utilities a group of companies which had
constituted the Company's power development and
international gas distribution operations. For financial
reporting purposes, the sale was deemed to have occurred on
the Acquisition Date. Prior periods were not restated to
reflect the sale.
(c) To give effect to (1) the issuance of the Capital Securities
by ENSERCH Capital, and the proposed redemption in July of
the Company's 8-7/8% Notes due 2001 in an aggregate amount
of $100,000,000. Adjusted amounts do not reflect any
possible future sales from time to time by the Company of up
to an additional $100,000,000 principal amount of its debt
securities and/or preferred trust securities of its
subsidiary, ENSERCH Capital, for which registration
statements are effective pursuant to Rule 415 under the
Securities Act of 1933 (1933 Act).
(d) The sole assets of such trust consist of Series A Debentures
of the Company in principal amounts, and having other
payment terms, corresponding to the securities issued by
such trusts.
S-11
<PAGE>
USE OF PROCEEDS
The proceeds to be received by ENSERCH Capital from the sale
of the Capital Securities will be used to purchase Series A
Debentures of the Company. The proceeds of such purchase will be
used by the Company for general corporate purposes, which may
include the acquisition or redemption of outstanding securities
of the Company.
CERTAIN TERMS OF THE CAPITAL SECURITIES
GENERAL
The following summary of certain terms of the Capital
Securities supplements and should be read together with the
description of the terms and provisions of the Capital Securities
set forth under "Description of The Preferred Trust Securities"
in the Prospectus, does not purport to be complete and is subject
to, and qualified in its entirety by reference to, the provisions
of the Trust Agreement, including the definitions therein of
certain terms, and by reference to the Trust Indenture Act.
Wherever particular sections or defined terms of the Trust
Agreement are referred to, such sections or defined terms are
incorporated herein by reference. The Trust Agreement has been
filed as an exhibit to the Registration Statement of which the
Prospectus forms a part. The Capital Securities and the Common
Securities will be created pursuant to the terms of the Trust
Agreement. The Capital Securities will represent undivided
preferred beneficial interests in the assets of ENSERCH Capital
and entitle the Holders thereof to a preference over the Common
Securities in certain circumstances with respect to distributions
and amounts payable on redemption or liquidation, as well as
other benefits as described in the Trust Agreement.
DISTRIBUTIONS
Distributions will be payable on the Capital Securities at
the Distribution Rate. The term "distributions" as used herein
includes interest payable on overdue distributions, unless
otherwise stated. The amount of distributions payable for any
period will be computed on the basis of actual number of days
elapsed in a 360-day year. (Section 4.01(b)).
Distributions on the Capital Securities will be payable in
U.S. dollars at a variable annual rate equal to 3-month LIBOR
plus 1.35% (which is the same rate payable on the Series A
Debentures) on the stated liquidation preference thereof, will be
cumulative and will be payable quarterly in arrears, on January
1, April 1, July 1 and October 1, of each year, commencing
October 1, 1998. Such distributions will originally accrue from,
and include, the date of initial issuance. In the event that any
date on which distributions are otherwise payable on the Capital
Securities is not a Business Day, payment of the distribution
payable on such date will be made on the next succeeding Business
Day (and without any interest or other payment in respect of any
such delay), in each case with the same force and effect as if
made on such date (each date on which distributions are otherwise
payable in accordance with the foregoing, a Distribution Date).
(Section 4.01(a)). A Business Day is used herein to mean any day
other than a Saturday or a Sunday or a day on which banking
institutions in The City of New York are authorized or required
by law or executive order to remain closed or a day on which the
Corporate Trust Office of the Property Trustee or the Debenture
Trustee (as defined herein) is closed for business.
Distributions on the Capital Securities will be payable to
the Holders thereof as they appear on the register of ENSERCH
Capital on the relevant record dates, which will be, for so long
as the Capital Securities remain in book-entry only form, one
Business Day prior to the relevant Distribution Date, and in the
event that the Capital Securities are not in book-entry only
form, the fifteenth day (whether or not a Business Day) prior to
the relevant Distribution Date. (Section 4.01(d)).
S-12
<PAGE>
So long as it is not in default in the payment of interest
on the Junior Subordinated Debentures of any series, the Company
has the right under the Indenture pursuant to which it will issue
the Series A Debentures to extend the interest payment period
from time to time on the Series A Debentures to a period not
exceeding 20 consecutive quarterly periods, with the consequence
that quarterly distributions on the Capital Securities would be
deferred (but would continue to accrue with interest payable on
unpaid distributions at the rate per annum set forth above,
compounded quarterly) by ENSERCH Capital during any such
Extension Period. In the event that the Company exercises this
right, during such period the Company may not declare or pay any
dividend or distribution on (other than dividends paid in shares
of Common Stock of the Company), or redeem, purchase, acquire or
make a liquidation payment with respect to, any of its capital
stock, make any payment of principal, interest or premium, if
any, on or repay, repurchase or redeem any indebtedness that is
pari passu with the Series A Debentures or make any guarantee
payments with respect to the foregoing. Any Extension Period
with respect to payment of interest on the Series A Debentures,
or any extended interest payment period in respect of any similar
securities will apply to all such securities and will also apply
to distributions with respect to the Capital Securities and all
other securities with terms substantially the same as the Capital
Securities. Prior to the termination of any such Extension
Period, the Company may further extend the interest payment
period, provided that such Extension Period together with all
such previous and further extensions thereof may not exceed 20
consecutive quarterly periods or extend beyond the maturity of
the Series A Debentures. Upon the termination of any Extension
Period and the payment of all amounts then due, including
interest on deferred interest payments, the Company may elect to
begin a new extended interest payment period, subject to the
foregoing requirements. See "Description of The Junior
Subordinated Debentures -- Interest" and "Description of The
Junior Subordinated Debentures -- Option to Extend Interest
Payment Period" in the Prospectus.
REDEMPTION OF CAPITAL SECURITIES
The Series A Debentures will mature on July 1, 2028. The
Company has the right to redeem the Series A Debentures (i) in
whole or in part on or after July 1, 2003 or (ii) earlier in
certain circumstances upon the occurrence of a Tax Event, subject
to the conditions described under "Certain Terms of The Capital
Securities -- Right to Redeem upon a Tax Event."
Upon the repayment of the Series A Debentures, whether at
maturity or upon earlier redemption as provided in the Indenture,
the proceeds from such repayment shall be applied by the Property
Trustee to redeem a Like Amount of Trust Securities, upon not
less than 30 nor more than 60 days' notice, at the Redemption
Price. See "Certain Terms of The Series A Debentures --
Redemption" herein and "Description of The Junior Subordinated
Debentures -- Optional Redemption" in the Prospectus.
RIGHT TO REDEEM UPON A TAX EVENT
If a Tax Event occurs and either (i) in the opinion of
counsel to the Company experienced in such matters, there would
in all cases, after effecting the termination of ENSERCH Capital
and the distribution of the Series A Debentures to the holders of
the Capital Securities in exchange therefor, be more than an
insubstantial risk that an Adverse Tax Consequence (as defined
below) would continue to exist or (ii) the Series A Debentures
are not held by ENSERCH Capital, then the Company shall have the
right to redeem the Series A Debentures, in whole but not in
part, at any time within 90 days following the occurrence of the
Tax Event at the Redemption Price. See "Certain Terms of The
Capital Securities -- Redemption of Capital Securities," "Certain
Terms of Series A Debentures -- General" and "Certain Terms of
Series A Debentures -- Redemption" herein.
"Tax Event" means the receipt by ENSERCH Capital or the
Company of an opinion of counsel experienced in such matters to
the effect that, as a result of (a) any amendment to,
clarification of, or change (including any announced prospective
change) in, the laws or treaties (or any regulations thereunder)
of the United States or any political subdivision or taxing
authority thereof or therein affecting taxation, (b) any judicial
decision or any official administrative pronouncement, ruling,
regulatory procedure, notice or announcement (including any
S-13
<PAGE>
notice or announcement of intent to issue or adopt any such
administrative pronouncement, ruling, regulatory procedure or
regulation) (each, an Administrative Action), or (c) any
amendment to, clarification of, or change in the official
position or the interpretation of any such Administrative Action
or judicial decision or any interpretation or pronouncement that
provides for a position with respect to such Administrative
Action or judicial decision that differs from the theretofore
generally accepted position, in each case by any legislative
body, court, governmental authority or regulatory body,
irrespective of the time or manner in which such amendment,
clarification or change is introduced or made known, which
amendment, clarification, or change is effective, which
Administrative Action is taken or which judicial decision is
issued, in each case on or after the date of issuance of the
Capital Securities, there is more than an insubstantial risk that
(i) ENSERCH Capital is, or will be, subject to United States
federal income tax with respect to interest received on the
Series A Debentures, (ii) interest payable by the Company on the
Series A Debentures is not, or will not be, fully deductible by
the Company for United States federal income tax purposes, or
(iii) ENSERCH Capital is, or will be, subject to more than a de
minimis amount of other taxes, duties or other governmental
charges (each of the circumstances described in clauses (i), (ii)
or (iii) being an Adverse Tax Consequence).
DISTRIBUTION OF THE SERIES A DEBENTURES
At any time, the Company has the right to terminate ENSERCH
Capital and, after satisfaction of liabilities to creditors, if
any, of ENSERCH Capital as provided by applicable law, cause
Series A Debentures to be distributed to the holders of the
Capital Securities. On the date fixed for any distribution of
Series A Debentures, upon termination of ENSERCH Capital (i) the
Capital Securities and the Common Securities will no longer be
deemed to be outstanding and (ii) certificates representing
Capital Securities will be deemed to represent Series A
Debentures having an aggregate principal amount equal to the
stated liquidation preference of, and bearing accrued and unpaid
interest equal to accrued and unpaid distributions on, such
Capital Securities until such certificates are presented to the
Company or its agent for transfer or reissuance.
If Series A Debentures are distributed to Holders of Capital
Securities in a termination of ENSERCH Capital, such Series A
Debentures will be issued in fully registered certificated form
in denominations of $1,000 and integral multiples thereof and may
be transferred or exchanged at the offices described in
"Description of The Junior Subordinated Debentures -- General" in
the Prospectus.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
DTC will act as securities depositary for the Capital
Securities. The Capital Securities will be issued only as fully-
registered securities registered in the name of Cede & Co. (DTC's
nominee). One or more fully-registered global Capital Securities
certificates, representing the total aggregate number of Capital
Securities, will be issued and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning
of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC holds securities that its
participants (Participants) deposit with DTC. DTC also
facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations (Direct
Participants). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also
available to others, such as securities brokers and dealers,
banks and trust companies that clear transactions through or
maintain a direct or indirect custodial relationship with a
Direct Participant either directly or indirectly (Indirect
S-14
<PAGE>
Participants). The rules applicable to DTC and its Direct
Participants and Indirect Participants (together, Participants)
are on file with the Securities and Exchange Commission.
Purchases of Capital Securities within the DTC system must
be made by or through Direct Participants, which will receive a
credit for the Capital Securities on DTC's records. The
ownership interest of each actual purchaser of Capital Securities
(Beneficial Owner) is in turn to be recorded on the Participants'
records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected
to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings,
from the Participants through which the Beneficial Owners
purchased Capital Securities. Transfers of ownership interests
in the Capital Securities are to be accomplished by entries made
on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the Capital Securities,
except in the event that use of the book-entry system for the
Capital Securities is discontinued.
To facilitate subsequent transfers, all the Capital
Securities deposited by Direct Participants with DTC are
registered in the name of DTC's nominee, Cede & Co. The deposit
of Capital Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has
no knowledge of the actual Beneficial Owners of the Capital
Securities; DTC's records reflect only the identity of the Direct
Participants to whose accounts such Capital Securities are
credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to
Direct Participants, by Direct Participants to Indirect
Participants and by Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or
regulatory requirements that may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than
all of the Capital Securities are being redeemed, DTC's practice
is to determine by lot the amount of the interest of each Direct
Participant in such issue to be redeemed.
Although voting with respect to the Capital Securities is
limited, in those cases where a vote is required, neither DTC nor
Cede & Co. will itself consent or vote with respect to Capital
Securities. Under its usual procedures, DTC would mail an
Omnibus Proxy to ENSERCH Capital as soon as possible after the
record date. The Omnibus Proxy assigns Cede & Co. consenting or
voting rights to those Direct Participants to whose accounts the
Capital Securities are credited on the record date (identified in
a listing attached to the Omnibus Proxy). The Company and
ENSERCH Capital believe that the arrangements among DTC, Direct
and Indirect Participants, and Beneficial Owners will enable the
Beneficial Owners to exercise rights equivalent in substance to
the rights that can be directly exercised by a holder of a
beneficial interest in ENSERCH Capital.
Distribution payments on the Capital Securities will be made
to DTC. DTC's practice is to credit Direct Participants'
accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason
to believe that it will not receive payments on such payment
date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is
the case with securities held for the account of customers in
bearer form or registered in "street name," and such payments
will be the responsibility of such Participant and not of DTC,
ENSERCH Capital or the Company, subject to any statutory or
regulatory requirements to the contrary that may be in effect
from time to time. Payment of distributions to DTC is the
responsibility of ENSERCH Capital, disbursement of such payments
to Direct Participants is the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners is the
responsibility of Participants.
Except as provided herein, a Beneficial Owner will not be
entitled to receive physical delivery of Capital Securities.
Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Capital Securities.
S-15
<PAGE>
DTC may discontinue providing its services as securities
depositary with respect to the Capital Securities at any time by
giving reasonable notice to ENSERCH Capital. Under such
circumstances, in the event that a successor securities
depositary is not obtained, Capital Securities certificates are
required to be printed and delivered. Additionally, the
Administrative Trustees (with the consent of the Company) may
decide to discontinue use of the system of book-entry transfers
through DTC (or any successor depositary) with respect to the
Capital Securities. In that event, certificates for the Capital
Securities will be printed and delivered.
The information in this section concerning DTC and DTC's
book-entry system has been obtained from sources that the Company
and ENSERCH Capital believe to be reliable, but neither the
Company nor ENSERCH Capital takes responsibility for the accuracy
thereof.
CERTAIN TERMS OF THE SERIES A DEBENTURES
GENERAL
The following summary of certain terms of the Series A
Debentures supplements and should be read together with the
description of the terms and provisions of the Junior
Subordinated Debentures set forth under "Description of The
Junior Subordinated Debentures" in the Prospectus, does not
purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Indenture,
including the definitions therein of certain terms, and by
reference to the Trust Indenture Act. Wherever particular
sections or defined terms of the Indenture are referred to, such
sections or defined terms are incorporated herein by reference.
The Indenture has been filed as an exhibit to the Registration
Statement of which the Prospectus forms a part.
Concurrently with the issuance of the Capital Securities,
ENSERCH Capital will invest the proceeds thereof and the
consideration paid by the Company for the Common Securities in
the Series A Debentures issued by the Company.
INTEREST
The Series A Debentures shall bear interest at a variable
rate per annum equal to 3-month LIBOR (determined as described
under "Determination of 3-month LIBOR") plus 1.35% (the Interest
Rate), payable quarterly in arrears on January 1, April 1, July 1
and October 1 of each year (each, an Interest Payment Date),
commencing October 1, 1998, to the person in whose name each
Series A Debenture is registered, on the fifteenth day (whether
or not a Business Day) prior to the relevant Interest Payment
Date. The amounts payable as principal and interest on the
Series A Debentures are designed to be sufficient to provide
distributions payable on the Trust Securities.
The amount of interest payable for any period will be
computed on the basis of the actual number of days elapsed in a
360-day year. In the event that any date on which interest is
payable on the Series A Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the
next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), in each
case with the same force and effect as if made on the date the
payment was originally payable.
The entire outstanding principal amount of the Series A
Debentures will become due and payable, together with any accrued
and unpaid interest thereon, including Additional Interest (as
defined under "Description of The Junior Subordinated Debentures"
in the Prospectus), if any, on July 1, 2028.
If Series A Debentures are distributed to Holders of Capital
Securities in a termination of ENSERCH Capital, such Series A
Debentures will be issued in fully registered certificated form
in denominations of $1,000 and integral multiples thereof and may
be transferred or exchanged at the offices described in
"Description of The Junior Subordinated Debentures -- General" in
the Prospectus.
S-16
<PAGE>
DETERMINATION OF 3-MONTH LIBOR
The Bank of New York, as Calculation Agent (the "Calculation
Agent"), will calculate the interest rate for each quarterly
interest period based on 3-month LIBOR determined as of two
London Business Days (defined as any day, other than a Saturday
or Sunday, on which banks are open for business in London) prior
to the first day of such interest period (each, a "Determination
Date"). "3-month LIBOR" means, with respect to a quarterly
interest period relating to an Interest Payment Date, the London
interbank offered rate for three-month, Eurodollar deposits
determined in the following order of priority:
(a) the rate (expressed as a percentage per annum) for
Eurodollar deposits having a three-month maturity that
appears on Telerate Page 3750 as of 11:00 a.m. (London time)
on the related Determination Date;
(b) if such rate does not appear on Telerate Page 3750
as of 11:00 a.m. (London time) on the related Determination
Date, 3-month LIBOR will be the arithmetic mean (if
necessary rounded upwards to the nearest whole multiple of
.00001%) of the rates (expressed as percentages per annum)
for Eurodollar deposits having a three-month maturity that
appear on Reuters Monitor Money Rates Page LIBO ("Reuters
Page LIBO") as of 11:00 a.m. (London time) on such
Determination Date;
(c) if such rate does not appear on Reuters Page LIBO
as of 11:00 a.m. (London time) on the related Determination
Date, the Calculation Agent will request the principal
London offices of four leading banks in the London interbank
market to provide such banks' offered quotations (expressed
as percentages per annum) to prime banks in the London
interbank market for Eurodollar deposits having a three-
month maturity as of 11:00 a.m. (London time) on such
Determination Date. If at least two quotations are
provided, 3-month LIBOR will be the arithmetic mean (if
necessary rounded upwards to the nearest whole multiple of
.00001%) of such quotations;
(d) if fewer than two such quotations are provided as
requested in clause (c) above, the Calculation Agent will
request four major New York City banks to provide such
banks' offered quotations (expressed as percentages per
annum) to leading European banks for loans in Eurodollars as
of 11:00 a.m. (London time) on such Determination Date. If
at least two such quotations are provided, 3-month LIBOR
will be the arithmetic mean (if necessary rounded upwards to
the nearest whole multiple of .00001%) of such quotations;
and
(e) if fewer than two such quotations are provided as
requested in clause (d) above, 3-month LIBOR will be 3-month
LIBOR determined with respect to the interest period
immediately preceding such current interest period.
If the rate for Eurodollar deposits having a three-month
maturity that initially appears on Telerate Page 3750 or Reuters
Page LIBO, as the case may be, as of 11:00 a.m. (London time) on
the related Determination Date is superseded on Telerate Page
3750 or Reuters Page LIBO, as the case may be, by a corrected
rate before 12:00 noon (London time) on such Determination Date,
the corrected rate as so substituted on the applicable page will
be the applicable 3-month LIBOR for such Determination Date.
Absent manifest error, the Calculation Agent's determination
of 3-month LIBOR and its calculation of the applicable interest
rate for each interest period will be final and binding.
Investors may obtain the interest rates for the current and
preceding interest period by writing or calling Corporate Trust
Administration at the Calculation Agent at The Bank of New York,
101 Barclay Street, New York, New York 10286.
So long as it is not in default in the payment of interest
on the Junior Subordinated Debentures of any series, the Company
shall have the right under the Indenture to extend the interest
payment period from time to time on the Series A Debentures to a
period not exceeding 20 consecutive quarterly periods during
which period interest will be compounded quarterly. At the end
of an Extension Period, the Company must pay all interest then
S-17
<PAGE>
accrued and unpaid (together with interest thereon at the rate
specified for the Series A Debentures compounded quarterly, to
the extent permitted by applicable law). However, during any
such Extension Period, or at any time the Series A Debentures are
outstanding if the Company is in default under the Guarantee or
with respect to payments due on any Junior Subordinated
Debentures, the Company shall not declare or pay any dividend or
distribution (other than a dividend or distribution in Common
Stock of the Company) on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock,
make any payments of principal, interest, or premium, if any, on
or repay, repurchase or redeem any indebtedness that is pari
passu with the Series A Debentures, or make any guarantee
payments with respect to the foregoing. Prior to the termination
of any such Extension Period, the Company may further extend the
interest payment period, provided that such Extension Period
together with all such previous and further extensions thereof
shall not exceed 20 consecutive quarterly periods at any one time
or extend beyond the maturity date of the Series A Debentures.
Any extension period with respect to payment of interest on the
Series A Debentures or on any similar securities will apply to
the Series A Debentures and all such securities and will also
apply to distributions with respect to the Capital Securities and
all other securities with terms substantially the same as the
Capital Securities. Upon the termination of any such Extension
Period and the payment of all amounts then due, including
interest on deferred interest payments, the Company may elect to
begin a new Extension Period, subject to the above requirements.
No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company will give ENSERCH Capital
and the Debenture Trustee notice of its election of an Extension
Period prior to one Business Day prior to the record date for the
distribution which would occur but for such election and will
cause ENSERCH Capital to send notice of such election to the
Holders of Capital Securities.
REDEMPTION
The Series A Debentures are redeemable at the option of the
Company (i) on or after July 1, 2003, in whole or at any time or
in part from time to time or (ii) at any time, in certain
circumstances as described under "Certain Terms of The Capital
Securities -- Right to Redeem upon a Tax Event," in whole (but
not in part) within 90 days following the occurrence of a Tax
Event. The proceeds of any such redemption will be used by
ENSERCH Capital to redeem the Trust Securities. The Redemption
Price in each case shall be equal to 100% of the principal amount
plus accrued and unpaid interest thereon to the Redemption Date.
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other
employee benefit plan subject to the Employee Retirement Income
Security Act of 1974, as amended (ERISA) (a Plan), should
consider the fiduciary standards of ERISA in the context of the
Plan's particular circumstances before authorizing an investment
in the Capital Securities. Accordingly, among other factors, the
fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would
be consistent with the documents and instruments governing the
Plan.
Section 406 of ERISA and Section 4975 of the Internal
Revenue Code of 1986, as amended (Code), prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to
Section 4975 of the Code (also Plans), from engaging in certain
transactions involving "plan assets" with persons who are
"parties in interest" under ERISA or "disqualified persons" under
the Code (Parties in Interest) with respect to such Plan. A
violation of these "prohibited transaction" rules may result in
an excise tax or other liabilities under ERISA and/or Section
4975 of the Code for such persons, unless exemptive relief is
available under an applicable statutory or administrative
exemption. Certain employee benefit plans such as governmental
plans (as defined in Section 3(32) of ERISA), certain church
plans (as defined in Section 3(33) of ERISA) and foreign plans
(as described in Section 4(b)(4) of ERISA) are not subject to the
requirements of ERISA or Section 4975 of the Code; governmental
plans may be subject to similar provisions under applicable state
laws.
S-18
<PAGE>
Under a regulation (Plan Assets Regulation) issued by the
U.S. Department of Labor (DOL), the assets of ENSERCH Capital
would be deemed to be "plan assets" of a Plan for purposes of
ERISA and Section 4975 of the Code if "plan assets" of the Plan
were used to acquire an equity interest in ENSERCH Capital and no
exception were applicable under the Plan Assets Regulation. An
"equity interest" is defined under the Plan Assets Regulation as
any interest in an entity other than an instrument which is
treated as indebtedness under applicable local law and which has
no substantial equity features and specifically includes a
beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets
Regulation, the assets of ENSERCH Capital would not be deemed to
be "plan assets" of investing Plans if, immediately after the
most recent acquisition of any equity interest in ENSERCH
Capital, less than 25% of the value of each class of equity
interests in ENSERCH Capital were held by Plans, other employee
benefit plans not subject to ERISA or Section 4975 of the Code
(such as governmental, church and foreign plans), and entities
holding assets deemed to be "plan assets" of any Plan
(collectively, Benefit Plan Investors), or if the Capital
Securities were "publicly-offered securities" for purposes of the
Plan Assets Regulation. No assurance can be given that the value
of the Capital Securities held by Benefit Plan Investors will be
less than 25% of the total value of such Capital Securities at
the completion of the initial offering or thereafter, and no
monitoring or other measures will be taken with respect to the
satisfaction of the conditions of this exception. In addition,
no assurance can be given that the Capital Securities would be
considered to be "publicly-offered securities" under the Plan
Assets Regulation. All of the Common Securities will be
purchased and held by the Company.
Certain transactions involving ENSERCH Capital could be
deemed to constitute direct or indirect prohibited transactions
under ERISA and Section 4975 of the Code with respect to a Plan
if the Capital Securities were acquired with "plan assets" of
such Plan and the assets of ENSERCH Capital were deemed to be
"plan assets" of Plans investing in ENSERCH Capital. For
example, if the Company were a Party in Interest with respect to
a Plan whose assets were used to acquire the Capital Securities
(either directly or indirectly), extensions of credit between the
Company and ENSERCH Capital (as represented by the Series A
Debentures and the Guarantee) would likely be prohibited by
Section 406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the
Code, unless exemptive relief were available under an applicable
administrative exemption (see below). In addition, if the
Company were considered to be a fiduciary with respect to ENSERCH
Capital as a result of certain powers it holds (such as the
powers to remove and replace the Property Trustee and the
Administrative Trustees), certain operations of ENSERCH Capital,
including the optional redemption or acceleration of the Series A
Debentures, could be considered to be prohibited transactions
under Section 406(b) of ERISA and Section 4975(c)(1)(E) of the
Code. In order to avoid such prohibited transactions, each
investing plan, by purchasing Capital Securities, will be deemed
to have directed ENSERCH Capital to invest in the Series A
Debentures and to have appointed the Property Trustee.
The DOL has issued five prohibited transaction class
exemptions (PTEs) that may provide exemptive relief if required
for direct or indirect prohibited transactions that may arise
from the purchase or holding of the Capital Securities if assets
of ENSERCH Capital were deemed to be "plan assets" of Plans
investing in ENSERCH Capital as described above. Those class
exemptions are PTE 96-23 (for certain transactions determined by
in-house asset managers), PTE 95-60 (for certain transactions
involving insurance company general accounts), PTE 91-38 (for
certain transactions involving bank collective investment funds),
PTE 90-1 (for certain transactions involving insurance company
separate accounts), and PTE 84-14 (for certain transactions
determined by independent qualified asset managers).
Because the Capital Securities may be deemed to be equity
interests in ENSERCH Capital for purposes of applying ERISA and
Section 4975 of the Code, the Capital Securities may not be
purchased and should not be held by any Plan, any entity whose
underlying assets include "plan assets" by reason of any Plan's
investment in the entity (a Plan Asset Entity) or any person
investing "plan assets" of any Plan, unless such purchaser or
holder is eligible for the exemptive relief available under PTE
96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable
exemption. Any purchaser or Holder of Capital Securities or any
interest therein will be deemed to have represented by its
purchase and holding thereof that it either (a) is not a Plan or
a Plan Asset Entity and is not purchasing such securities on
behalf of or with "plan assets" of any Plan, or (b) is eligible
S-19
<PAGE>
for the exemptive relief available under PTE 96-23, 95-60, 91-38,
90-1 or 84-14 or another applicable exemption with respect to
such purchase or holding. If a purchaser of the Capital
Securities that is a Plan or a Plan Asset Entity elects to rely
on an exemption other than PTE 96-23, 95-60, 91-38, 90-1 or 84-
14, the Company and ENSERCH Capital may require a satisfactory
opinion of counsel or other evidence with respect to the
availability of such exemption for such purchase and holding.
Due to the complexity of these rules and the penalties that
may be imposed upon persons involved in non-exempt prohibited
transactions, it is particularly important that fiduciaries or
other persons considering purchasing the Capital Securities on
behalf of or with "plan assets" of any Plan consult with their
counsel regarding the potential consequences if the assets of
ENSERCH Capital were deemed to be "plan assets" and the
availability of exemptive relief under PTE 96-23, 95-60, 91-38,
90-1 or 84-14 or any other applicable exemption.
UNDERWRITING
Subject to the terms and conditions of the Underwriting
Agreement, the Company and ENSERCH Capital have agreed that
ENSERCH Capital will issue and sell to each of the Underwriters
named below, and each of the Underwriters has severally agreed to
purchase from ENSERCH Capital the Liquidation Amount of the
Capital Securities set forth opposite its name below:
Liquidation Amount
of the
Underwriters Capital Securities
------------ ------------------
Morgan Stanley & Co. Incorporated $ 50,000,000
Lehman Brothers Inc. $ 50,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated $ 50,000,000
------------
Total . . . . . . . . . . . $150,000,000
============
Subject to the terms and conditions of the Underwriting
Agreement, the Underwriters are committed to take and pay for all
the Capital Securities offered hereby, if any are taken. In the
event of a default by an Underwriter, the Underwriting Agreement
provides that, in certain circumstances, the purchase commitments
of non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Underwriters propose to offer the Capital Securities in
part directly to the public at the initial public offering price
set forth on the cover page of this Prospectus Supplement, and in
part to certain securities dealers at such price less a
concession not in excess of $6.00 per Capital Security. The
Underwriters may allow, and such dealers may reallow, a
concession not in excess of $2.50 per Capital Security to certain
brokers and dealers. After the Capital Securities are released
for sale to the public, the offering price and other selling
terms may from time to time be varied by the Underwriters.
In order to facilitate the offering of the Capital
Securities, the Underwriters may engage in transactions that
stabilize, maintain, or otherwise affect the price of the Capital
Securities. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the
Capital Securities for their own account. In addition, to cover
overallotments or to stabilize the price of the Capital
Securities, the Underwriters may bid for, and purchase, the
Capital Securities in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Capital Securities
in the offering, if the syndicate repurchases previously
distributed Capital Securities in transactions to cover syndicate
short positions, in stabilization transactions, or otherwise.
Any of these activities may stabilize or maintain the market
S-20
<PAGE>
price of the Capital Securities above independent market levels.
The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.
In view of the fact that the proceeds of the sale of the
Capital Securities will be used to purchase the Series A
Debentures, the Underwriting Agreement provides that the Company
will pay as compensation, for the Underwriters' arranging the
investment therein of such proceeds, an amount of $10.00 per
Capital Security (or $1,500,000 in the aggregate) for the
accounts of the Underwriters.
Because the National Association of Securities Dealers, Inc.
(NASD) is expected to view the Capital Securities as interests in
a direct participation program, the offering of the Capital
Securities is being made in compliance with the applicable
provisions of Rule 2810 of the NASD's Conduct Rules. Offers and
sales of Capital Securities will be made only to institutional
investors for whom an investment is non-convertible investment
grade preferred securities is appropriate. The Underwriters may
not confirm sales to any accounts over which they exercise
discretionary authority without the prior written approval of the
transaction by the customer.
The Company and ENSERCH Capital have agreed that, during the
period beginning on the date of the Underwriting Agreement and
continuing to and including the Closing Date, they will not
offer, sell, contract to sell, in the market in which the Capital
Securities are being offered and sold, any securities of the
Company or any of its subsidiaries or ENSERCH Capital which are
of the same class, without the prior written consent of the
Underwriters.
Prior to this offering, there has been no public market for
the Capital Securities. The Company and ENSERCH Capital do not
intend to apply for listing of the Capital Securities on any
national securities exchange, but the Underwriters have advised
the Company and ENSERCH Capital that they intend to make a market
in the Capital Securities, but are not obligated to do so and may
discontinue market making at any time without notice. No
assurance can be given as to the liquidity of the trading market
for the Capital Securities.
The Company and ENSERCH Capital have agreed to indemnify the
Underwriters against certain liabilities, including liabilities
under the 1933 Act.
Certain of the Underwriters engage in transactions with, and
from time to time have performed services for, the Company in the
ordinary course of business.
S-21
