Filing under Rule 424(b)(5)
Registration No. 333-43811
Subject to Completion dated October 6, 2000
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 18, 1999) October , 2000
--------------------------------------------------------------------------------
$
TXU GAS COMPANY
PUTABLE ASSET TERM SECURITIES (PATS SM)
PUTABLE/CALLABLE OCTOBER , 2002
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o The PATS are unsecured debt securities of TXU Gas Company.
o The PATS will bear interest at the rate of % per year from their date of
issuance to but excluding October , 2002, which is the first Coupon Reset
Date, and then at a fixed or floating rate as discussed under DESCRIPTION
OF THE PATS.
o Interest on the PATS is payable on and of each year,
beginning on , 2001 and continuing to October , 2002, and then at
intervals as discussed under DESCRIPTION OF THE PATS. On October , 2002
and at the end of any floating period, as described below, the PATS will
either be mandatorily tendered to and purchased by , as Callholder
or mandatorily redeemed by TXU Gas Company, in each case at the prices
discussed under DESCRIPTION OF THE PATS.
o If the Callholder chooses to purchase the PATS, TXU Gas Company may choose
to have the PATS remarketed for a floating rate period of up to one year.
During any floating rate period, the interest rate will be reset monthly.
At the end of any floating rate period, holders of PATS must sell their
PATS to the Callholder.
o If the Callholder purchases the PATS, the PATS will bear interest from the
later of October , 2002 or the end of the floating rate period if TXU Gas
Company chooses to have the PATS remarketed for a floating rate period, in
each case at a fixed rate to be determined as described under DESCRIPTION
OF THE PATS.
o The PATS will mature on October , 2012 unless extended to the tenth
anniversary of the end of the floating rate period, which will not be later
than October , 2013. TXU Gas Company may redeem some or all of the PATS
on and after the later of October , 2002 or the end of the floating rate
period if TXU Gas Company chooses to have the PATS remarketed for a
floating rate period, in each case at prices, plus accrued and unpaid
interest, if any, to the redemption dates as described under DESCRIPTION OF
THE PATS.
Per PATS Total
---------------------------------------------------- ----------- ------------
Public Offering Price (1).......................... % $
Underwriting Discount.............................. % $
Proceeds to TXU Gas Company (before expenses) (2).. % $
---------------------------------------------------- ----------- ------------
(1) Plus accrued interest, if any, from October , 2000.
(2) Includes consideration for the Callholder's option to purchase the PATS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement and the accompanying prospectus are truthful or complete.
Any representation to the contrary is a criminal offense.
The underwriters are offering the PATS subject to various conditions. The
underwriters expect to deliver the PATS through the book-entry facilities of the
Depository Trust Company on or about October , 2000.
UBS WARBURG LLC BANC OF AMERICA SECURITIES LLC
-----------------
SM "PATS" is a service mark of UBS Warburg LLC.
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS IS
AN OFFER TO SELL THESE SECURITIES AND NEITHER IS SOLICITING ANY OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
About This Prospectus Supplement.............................................S-2
Summary......................................................................S-3
Summary of Historical Consolidated Financial Information of TXU Gas
Company and its Subsidiaries...............................................S-5
Use of Proceeds..............................................................S-6
Description of the PATS......................................................S-6
Material United States Federal Income Tax Considerations....................S-12
Underwriting................................................................S-15
Glossary of Defined Terms...................................................S-17
PROSPECTUS
About This Prospectus..........................................................2
Where You Can Find More Information............................................2
TXU Gas Company................................................................3
TXU Gas Capital II, TXU Gas Capital III, and TXU Gas Capital IV................3
Use of Proceeds................................................................3
Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends........................................4
Description of Debt Securities.................................................4
Description of TXU Gas Capital's Preferred Trust Securities and Common
Trust Securities............................................................10
Description of the Guarantee..................................................18
Description of the Junior Subordinated Debentures.............................20
Plan of Distribution..........................................................29
Experts and Legality..........................................................29
ABOUT THIS PROSPECTUS SUPPLEMENT
You should read this prospectus supplement along with the prospectus that
follows. You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the prospectus. TXU Gas Company has
not authorized any other person to provide you with different information. TXU
Gas Company is not making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should not assume that the
information contained or incorporated by reference in this prospectus supplement
or the prospectus is accurate as of any date other than the date on the front of
this prospectus supplement.
S-2
<PAGE>
SUMMARY
This summary may not contain all of the information that may be important
to you. You should read the entire prospectus supplement and the accompanying
prospectus, as well as the documents that have been incorporated into the
prospectus, before making an investment decision. See GLOSSARY OF DEFINED TERMS
for the definitions of some of the defined terms used in this prospectus
supplement.
Issuer............................. TXU Gas Company.
Trustee............................ The Bank of New York.
Offered Securities................. TXU Gas Company will issue $
aggregate principal amount of PATS. The
PATS will mature on October , 2012
unless extended to the tenth anniversary
of the end of the floating rate period,
if any, which will not be later than
October , 2013; however, TXU Gas
Company may redeem, or be required to
redeem, all of the PATS before that
date, but not prior to October , 2002.
Interest Rates..................... The PATS will bear interest at the rate
of % per year from their date of
issuance to, but excluding, October ,
2002, which is the first Coupon Reset
Date, and then at a fixed or floating
rate as discussed under DESCRIPTION OF
THE PATS.
Interest Payment Dates............. Interest on the PATS will be payable
on and of
each year, beginning on , 2001
and continuing to October , 2002, and
then at intervals as discussed under
DESCRIPTION OF THE PATS.
Interest Accrual................... From their date of issuance to, but
excluding, October , 2002, the PATS
will accrue interest at a fixed rate of
% per year computed on the basis of a
360-day year consisting of twelve 30-day
months. From October , 2002, the PATS
will accrue interest at a fixed rate or
at a floating rate, depending on whether
TXU Gas Company chooses to have the PATS
remarketed for a floating rate period.
If the rate is fixed, interest will be
computed on the basis of a 360-day year
consisting of twelve 30-day months. If
the rate is floating, interest will be
computed on the basis of the actual
number of days in the applicable
floating rate reset period over a
360-day year.
For a more detailed description of the
payment of interest, you should refer to
DESCRIPTION OF THE PATS -- "Interest and
Interest Payment Dates," "Interest Rate
to Maturity" and "Floating Rate Period."
Ranking............................ The PATS will be unsecured obligations
ranking equally with other outstanding
unsecured indebtedness of TXU Gas
Company. Under certain circumstances
involving the creation by TXU Gas
Company, or a subsidiary of TXU Gas
Company, of any mortgage, pledge or
other lien or encumbrance on any of its
properties or assets, certain
outstanding unsecured indebtedness of
TXU Gas Company would be entitled to the
benefit of a security interest in those
properties or assets. In no event will
the PATS be entitled to the benefit of a
security interest in those properties or
assets.
S-3
<PAGE>
Call Option........................ TXU Gas Company has assigned to ,
as Callholder, the option to purchase
all of the PATS on October , 2002. If
the Callholder purchases the PATS on
October , 2002 and TXU Gas Company
chooses to have the PATS remarketed for
a floating rate period, the Callholder
must purchase the PATS on the date on
which the floating rate period ends. The
purchase price for the PATS will be
equal to 100% of the aggregate principal
amount outstanding if they are purchased
on October , 2002 or the Dollar Price
if they are purchased on the last day of
the floating rate period.
For a more detailed description of the
call option, you should refer to
DESCRIPTION OF THE PATS-- "Call Option."
Put Option......................... If the Callholder does not purchase the
PATS on October , 2002, the Trustee,
on behalf of the beneficial owners, will
require TXU Gas Company to redeem all of
the PATS for 100% of the aggregate
principal amount outstanding plus
accrued and unpaid interest, if any. If
TXU Gas Company chooses to have the PATS
remarketed for a floating rate period
and the Callholder does not purchase the
PATS on the last day of the floating
rate period, the Trustee, on behalf of
the beneficial owners, will require TXU
Gas Company to redeem the PATS at the
Dollar Price plus accrued and unpaid
interest, if any.
For a more detailed description of the
put option, you should refer to
DESCRIPTION OF THE PATS -- "Put Option."
Post-Coupon Reset
Optional Redemption................ TXU Gas Company may redeem some or all
of the PATS at any time on or after the
later of October , 2002 or the end of
the floating rate period if TXU Gas
Company chooses to have PATS remarketed
for a floating rate period, in each case
at prices, plus accrued and unpaid
interest, if any, to the redemption
date, as described in DESCRIPTION OF THE
PATS -- "Post-Coupon Reset Optional
Redemption."
Ratings............................ The PATS are expected to be rated "BBB"
by Standard & Poor's Ratings Group,
"Baa2" by Moody's Investors Service,
Inc. and "BBB" by Fitch, Inc. These
ratings will be obtained with the
understanding that these rating agencies
will continue to monitor the credit
rating of TXU Gas Company and will make
future adjustments to the extent
warranted. A rating reflects only the
views of the particular rating agency
and is not a recommendation to buy, sell
or hold the PATS. There is no assurance
that any rating will be retained for any
period of time or that it will not be
revised downward or withdrawn entirely
if, in the judgement of the rating
agency, circumstances so warrant.
Sinking Fund....................... The PATS are unsecured and are not
entitled to any sinking fund.
Use of Proceeds.................... The net proceeds from the sale of the
PATS and the assignment of the call
option will be approximately $ million.
TXU Gas Company expects to use the net
proceeds to repay certain short-term
borrowings and for general corporate
purposes, including the repayment of
advances from TXU Corp.
S-4
<PAGE>
SUMMARY OF HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION OF TXU GAS COMPANY AND ITS SUBSIDIARIES
(MILLIONS OF DOLLARS, EXCEPT RATIOS AND PERCENTAGES)
The following material, which is presented in this prospectus
supplement solely to furnish limited introductory information, is qualified by,
and should be considered in conjunction with, the more detailed information
appearing in the accompanying prospectus and the documents incorporated by
reference in the prospectus. In the opinion of TXU Gas Company, all adjustments
(constituting only normal recurring accruals) necessary for a fair statement of
the results of operations for the six months ended June 30, 2000, have been
made. Results for the six months ended June 30, 2000 include a pre-tax gain of
$53 million ($34 million after-tax) from the sale in May 2000 of TXU Gas
Company's natural gas processing business and are not necessarily indicative of
the results that may be expected for the entire year.
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------
PERIOD FROM PERIOD FROM
TWELVE MONTHS ENDED JANUARY 1, AUGUST 5, TWELVE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 TO 1997 TO DECEMBER 31, JUNE 30,
------------------- AUGUST 5, DECEMBER 31, ------------------ ------------------
1995 1996 1997 1997 1998 1999 1999 2000
-------- --------- ----------- ------------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Operating Revenues $1,791 $1,894 $1,280 $1,277 $4,038 $3,835 $1,786 $2,688
Net Income (Loss) 13 19 (240) (9) (22) (18) (21) 33
Ratio of Earnings to
Fixed Charges (a) 1.46 1.31 0.58 0.66 0.68 0.57 0.28 2.48
</TABLE>
<TABLE>
<CAPTION>
ADJUSTED (B)
OUTSTANDING AT --------------------
JUNE 30, 2000 AMOUNT PERCENT
-------------- ---------- ---------
<S> <C> <C> <C>
Capitalization (Unaudited):
Long-term Debt,
less amounts due currently...................... $ 551 $
Preferred Stock................................... 75
TXU Gas Company Obligated, Mandatorily
Redeemable, Preferred Securities of Subsidiary
Trust Holding Solely Junior Subordinated
Debentures of TXU Gas Company................... 147
Advances from Parent.............................. 396
Common Stock Equity............................... 996
------- ------- ------
Total Capitalization............................ $ 2,165 $ 100.0%
======= ======= ======
</TABLE>
(a) See RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED DIVIDENDS in the accompanying prospectus. For
the year ended December 31, 1999 fixed charges exceeded earnings by $33.6
million.
(b) To give effect to the issuance of the PATS and the application of the net
proceeds of the issuance of the PATS and the assignment of the Callholder's
option to purchase the PATS. Adjusted amounts do not reflect any possible
future sales from time to time by TXU Gas Company of up to an additional
$ ,000,000 principal amount of its debt securities and/or preferred trust
securities of its subsidiaries, for which registration statements are
effective pursuant to Rule 415 under the Securities Act.
S-5
<PAGE>
USE OF PROCEEDS
TXU Gas Company currently anticipates using substantially all of the
proceeds from the sale of PATS and from the consideration paid by the Callholder
for the option to purchase the PATS, estimated to total approximately $
(after deducting the underwriting commission and estimated expenses of the
offering), for general corporate purposes, including among other things the
repayment of advances from TXU Corp. and the repayment of certain short-term
borrowings of TXU Gas Company. At June 30, 2000, TXU Gas Company had an
aggregate of $1 million of short-term debt outstanding.
DESCRIPTION OF THE PATS
The following description of the particular terms of the PATS, which are
referred to in the accompanying prospectus as "debt securities," supplements
and, to the extent it is inconsistent with the description in the accompanying
prospectus, replaces the description of the general terms and provisions of the
debt securities in the prospectus. Material terms of the PATS and the indenture
under which they will be issued are described in this prospectus supplement
together with the accompanying prospectus. TXU Gas Company will issue the PATS
under its Indenture (For Unsecured Debt Securities) dated as of January 1, 1998
between TXU Gas Company and The Bank of New York, as supplemented by an
officer's certificate. This summary is qualified in its entirety by reference to
the Indenture. Please see GLOSSARY OF DEFINED TERMS for the definitions of some
of the terms used in this prospectus supplement.
GENERAL
The PATS will mature on October , 2012 unless extended to the tenth
anniversary of the Floating Period Termination Date, which will not be later
than October , 2013. TXU Gas Company may be required to redeem the PATS before
that maturity date as described in --"Put Option" below. TXU Gas Company may
also redeem some or all of the PATS after the Fixed Rate Coupon Reset Date as
described in --"Post-Coupon Reset Optional Redemption" below. The PATS may also
be purchased by the Callholder as described in --"Call Option" below.
The PATS are unsecured and are not entitled to any sinking fund.
The PATS will initially be issued only in registered, book-entry form, in
denominations of $1,000 and any integral multiples of $1,000 as described under
-- "Book-Entry Only Issuance--The Depository Trust Company" below. TXU Gas
Company will issue global securities in denominations that together equal the
total principal amount of the outstanding PATS.
If any interest, principal or other payment date of the PATS (including any
payment date in connection with the call option or the put option as described
below) does not fall on a Business Day, a payment otherwise payable on that day
will be made on the next succeeding Business Day. It will have the same effect
as if made on the actual payment date, and no interest will accrue for the
period from and after that interest payment date, maturity date or other payment
date, except in the case of an interest payment date or other payment date
occurring during the Floating Rate Period.
INTEREST AND INTEREST PAYMENT DATES
The PATS will bear interest at the rate of % per year, from their
date of issuance to, but excluding, October , 2002. TXU Gas Company will pay
interest semiannually on and of each year, beginning on , 2001.
TXU Gas Company will pay interest on the PATS, accruing from the Fixed Rate
Coupon Reset Date, semiannually on each day that is a six-month anniversary of
that date. Interest on the PATS from the Fixed Rate Coupon Reset Date will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
S-6
<PAGE>
Interest on the PATS accruing during any Floating Rate Reset Period will be
payable on the next following Reference Rate Reset Date if such date is a
Business Day or on the next following Business Day. Interest on the PATS during
the Floating Rate Period will be computed on the basis of the actual number of
days in the applicable Floating Rate Reset Period over a 360-day year.
Interest payable on any interest payment date will be payable to the
persons in whose names the PATS are registered at the close of business on the
Business Day immediately preceding the related interest payment date.
Interest payments will be in the amount of interest accrued from and
including the next preceding interest payment date (or from and including the
date of issuance if no interest has been paid or duly provided with respect to
the PATS) to but excluding the relevant interest payment date, Coupon Reset Date
or the maturity date, as the case may be.
Interest to be payable from and including each Coupon Reset Date will be
calculated by , as the Calculation Agent appointed by TXU Gas Company
pursuant to the Indenture. TXU Gas Company will agree to indemnify the
Calculation Agent against certain liabilities, arising out of or in connection
with its duties under the Indenture.
The Indenture provides that the Calculation Agent may resign at any time as
Calculation Agent effective ten Business Days after the delivery of written
notice to TXU Gas Company and the Trustee. In such case, TXU Gas Company may
appoint a successor Calculation Agent.
The Calculation Agent, in its individual capacity, may buy, sell, hold and
deal in PATS and may exercise any vote or join in any action which any holder of
PATS may be entitled to exercise or take as if it were not the Calculation
Agent. The Calculation Agent, in its individual capacity, may also engage in any
transaction with TXU Gas Company or its affiliates as if it were not the
Calculation Agent.
INTEREST RATE TO MATURITY
If the Callholder elects to purchase the PATS, then by 3:30 p.m., New York
City time, on the third Business Day immediately preceding any Coupon Reset
Date, the Calculation Agent will determine either (a) the Floating Rate Spread,
in the case of the first Coupon Reset Date where TXU Gas Company has elected to
exercise its Floating Period Option, or (b) the Interest Rate to Maturity, to
the nearest one hundredth of one percent per year, unless TXU Gas Company is
required to redeem the PATS. Each Floating Period Interest Rate will equal the
sum of a Reference Rate and the Floating Rate Spread. The Interest Rate to
Maturity will equal the sum of the Base Rate ( %) and the Applicable Spread,
which will be based on the Dollar Price of the PATS. The Floating Period
Interest Rate, the Interest Rate to Maturity and the Dollar Price for the PATS
as announced by the Calculation Agent, absent manifest error, will be binding
and conclusive upon the beneficial owners, TXU Gas Company and the Trustee.
FLOATING RATE PERIOD
Following the Callholder's election to purchase the PATS in connection with
the first Coupon Reset Date, but prior to the Floating Period Notification Date,
which will be the fourth Business Day prior to the first Coupon Reset Date, TXU
Gas Company may elect to exercise its Floating Period Option. If TXU Gas Company
so elects, the PATS will bear interest at the Floating Period Interest Rate
until the Floating Period Termination Date, which will be the earlier of October
, 2003, or the date which otherwise would be the Reference Rate Reset Date
following the Floating Period Termination Notification Date. The Floating Period
Termination Notification Date will be at least four Business Days prior to such
Reference Rate Reset Date. In the event that TXU Gas Company exercises its
Floating Period Option, the maturity date of the PATS will be extended to the
tenth anniversary of the Floating Period Termination Date, which will not be
later than October , 2013.
The amount of interest payable for each day that the PATS are outstanding
during the Floating Rate Period will be calculated by dividing the Floating
Period Interest Rate in effect for such day by 360 and multiplying the result by
S-7
<PAGE>
the Dollar Price. The amount of interest payable for any Floating Rate Reset
Period will be calculated by adding the interest payable for each day in the
Floating Rate Reset Period.
COUPON RESET PROCESS
If the Callholder has exercised the Call Option as set forth below under --
"Call Option", TXU Gas Company and the Calculation Agent will complete the
following steps in order to determine each Coupon Reset Rate. TXU Gas Company
and the Calculation Agent will use reasonable efforts to cause the actions
contemplated below to be completed in as timely a manner as possible.
(a) TXU Gas Company will provide the Calculation Agent with a list, no
later than five Business Days prior to the Coupon Reset Date, containing the
names and addresses of up to five Reference Corporate Dealers or Reference Money
Market Dealers, as the case may be, from which it desires the Calculation Agent
to obtain Fixed Rate Bids or Floating Rate Bids for the purchase of the PATS.
(b) Within one Business Day following receipt by the Calculation Agent of
the dealer list referred to above, the Calculation Agent will provide to each
dealer on that list:
o a copy of the prospectus dated October 18, 1999 and a copy of this
prospectus supplement dated October , 2000 relating to the offering
of the PATS;
o a copy of the form of the PATS; and
o a written request that each dealer submit a Fixed Rate Bid or Floating
Rate Bid, as the case may be, to the Calculation Agent by 3:30 p.m.,
New York City time (Bid Deadline), on the third Business Day prior to
the Coupon Reset Date (Bid Date).
Each Dealer will be provided with:
o the name of TXU Gas Company;
o an estimate of the Dollar Price;
o the principal amount and maturity of the PATS; and
o the method by which interest will be calculated on the PATS.
(c) Following receipt of the bids, the Calculation Agent will provide
written notice to TXU Gas Company of:
o the name of each of the dealers from whom the Calculation Agent
received bids on the Bid Date;
o the bid submitted by each of those dealers; and
o the Dollar Price.
(d) Immediately after calculating the Coupon Reset Rate, the Calculation
Agent will provide written notice of that Coupon Reset Rate to TXU Gas Company,
the Trustee and the dealer submitting the lowest applicable bid.
CALL OPTION
On a Business Day not earlier than 20 Business Days prior to the first
Coupon Reset Date, and not later than 4:00 p.m., New York City time, on the 15th
Business Day prior to the first Coupon Reset Date, the Callholder will notify
TXU Gas Company and the Trustee as to whether it elects to purchase the PATS for
remarketing.
S-8
<PAGE>
If the Callholder so elects, the PATS will be subject to mandatory tender,
and will be deemed tendered, to the Callholder for purchase and remarketing, and
the Callholder will be obligated to purchase and remarket the PATS, on the first
Coupon Reset Date and, if TXU Gas Company chooses to exercise its Floating
Period Option, on the Floating Period Termination Date, in accordance with the
terms and subject to the conditions described in the Indenture.
On the Fixed Rate Coupon Reset Date, the PATS will be remarketed by the
Callholder at a fixed rate of interest equal to the Interest Rate to Maturity.
If the PATS are so remarketed, the maturity of the PATS will be automatically
extended to the tenth anniversary of the Fixed Rate Coupon Reset Date. If TXU
Gas Company so elects, the PATS will bear interest at the Floating Period
Interest Rate until the Floating Period Termination Date, at which time the PATS
will be remarketed at a fixed rate of interest equal to the Interest Rate to
Maturity unless TXU Gas Company is required to redeem, the PATS.
The call price of the tendered PATS will be equal to 100% of their
aggregate principal amount on the first Coupon Reset Date, or the Dollar Price
on the Floating Period Termination Date. In the event of exercise of the Call
Option, then (i) not later than 12:00 noon, New York City time, on the first
Coupon Reset Date or the Floating Period Termination Date, as the case may be,
the Callholder will deliver the call price in immediately available funds to the
Trustee for payment of the call price on that Coupon Reset Date and (ii) the
holders of the PATS will be required to deliver the PATS to the Callholder
against payment therefor on that Coupon Reset Date through the facilities of
DTC.
If the Callholder elects to exercise the Call Option, the obligation of the
Callholder to pay the call price is subject to various conditions precedent. In
addition, the Call Option may be terminated in certain circumstances prior to
the time the Callholder exercises the Call Option. No holder of PATS shall have
any rights or claims against the Callholder as a result of the Callholder
purchasing or not purchasing the PATS. No holder has the right to consent or
object to the Trustee's duty to exercise the Put Option.
If the Callholder elects to exercise the Call Option, on the applicable
Coupon Reset Date the Callholder will sell the aggregate principal amount of the
PATS at the Dollar Price to the Reference Corporate Dealer or to the Reference
Money Market Dealer, whichever is applicable, providing the lowest Fixed or
Floating Rate Bid, in the case of the first Coupon Reset Date, or the lowest
Fixed Rate Bid, in the case of the Floating Period Termination Date. If the
lowest applicable Bid is submitted by two or more of the applicable Reference
Dealers, the Callholder will sell the PATS to one or more of such Reference
Dealers, as it will determine in its sole discretion.
If for any reason the Callholder does not purchase the PATS on the relevant
Coupon Reset Date, TXU Gas Company will be required to redeem the PATS at a
price equal to 100% of their aggregate principal amount, plus accrued and unpaid
interest, if any, if such Coupon Reset Date is the first Coupon Reset Date, or
at the Dollar Price, plus accrued and unpaid interest, if any, on the Floating
Period Termination Date. See -- "Put Option" below.
PUT OPTION
If the Call Option has not been exercised, or in the event the Callholder
is not required or fails to deliver the call price to the Trustee not later than
12:00 noon, New York City time, on the relevant Coupon Reset Date, the Trustee
will be required for and on behalf of the holders of the PATS to exercise the
option to put the PATS to TXU Gas Company pursuant to the Indenture (Put
Option). Upon exercise of the Put Option, TXU Gas Company will be required to
purchase all of the PATS on the applicable Coupon Reset Date at a purchase price
equal to 100% of the aggregate principal amount of the PATS, if such Coupon
Reset Date is the first Coupon Reset Date, or at the Dollar Price on the
Floating Period Termination Date (in each case, the Put Redemption Price). The
Put Option will be exercised automatically by the Trustee, on behalf of the
holders, if the Call Option has not been exercised, or in the event the
Callholder is not required or fails to deliver the call price to the Trustee. If
the Trustee exercises the Put Option, TXU Gas Company will deliver the Put
Redemption Price to the Trustee, together with the accrued and unpaid interest
due on the applicable Coupon Reset Date, by no later than 2:00 p.m., New York
City time, on the Coupon Reset Date, and the holders of the PATS will be
required to deliver the PATS to TXU Gas Company against payment therefor on the
Coupon Reset Date through the facilities of DTC. No holder of any PATS or any
interest therein has the right to consent or object to the Trustee's duty to
exercise the Put Option.
S-9
<PAGE>
POST-COUPON RESET OPTIONAL REDEMPTION
After the Fixed Rate Coupon Reset Date, the PATS are redeemable, in whole
or in part, at any time, at TXU Gas Company's option, at a redemption price
equal to the greater of:
o 100% of the principal amount of the PATS then outstanding to be
redeemed, or
o the sum of the present values of the remaining scheduled payments of
principal and interest thereon from the redemption date to the
maturity date computed by discounting to the applicable redemption
date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, which will be
calculated on the third Business Day prior to the redemption date,
plus basis points as calculated by an Independent Investment Banker.
TXU Gas Company will mail notice of redemption at least 30 days but not
more than 60 days before the applicable redemption date to each holder of the
PATS to be redeemed. If TXU Gas Company elects to partially redeem the PATS, the
Trustee will select in a fair and appropriate manner the PATS to be redeemed.
Upon payment of the redemption price, interest will cease to accrue on and
after the applicable redemption date on the PATS or portions thereof called for
redemption.
SETTLEMENT
In the event that the PATS are purchased by the Callholder, the Callholder
will pay to the Trustee, in same day funds not later than 12:00 noon, New York
City time, on the first Coupon Reset Date, an amount equal to 100% of the
aggregate principal amount of the PATS or on the Floating Period Termination
Date, an amount equal to the Dollar Price.
On any such Coupon Reset Date, the Callholder will cause the Trustee to
make payment of the purchase price for the tendered PATS that have been
purchased for remarketing by the Callholder to DTC for payment to the DTC
participant of each tendering beneficial owner of PATS. This payment will be
made against delivery through DTC of the beneficial owner's PATS by book-entry
through DTC by the close of business on the Coupon Reset Date.
The purchase price of the tendered PATS will be equal to 100% of their
aggregate principal amount, on the first Coupon Reset Date, and the Dollar
Price, on the Floating Period Termination Date. TXU Gas Company will make, or
cause the Trustee to make, payment of interest to DTC for payment to each
beneficial owner of PATS, due on a Coupon Reset Date by book-entry through DTC,
by the close of business on such Coupon Reset Date.
The transactions described above will be executed on the applicable Coupon
Reset Date through DTC in accordance with the procedures of DTC, and the
accounts of the respective Participants will be debited and credited, and the
PATS delivered by book-entry as necessary to effect the purchases and sales
thereof.
All payments of principal and interest in respect of the PATS in book-entry
form will be made in immediately available funds. The PATS will trade in DTC's
Same-Day Funds Settlement System until the maturity date, Coupon Reset Date or
the post-coupon reset redemption date, as the case may be, or until the PATS are
issued in definitive form. Secondary market trading activity in the PATS will be
required by DTC to settle in immediately available funds.
The tender and settlement procedures described above, including the
provisions for payment to selling beneficial owners of tendered PATS, or for
payment by the purchasers of PATS, in a remarketing, may be modified to the
extent required by DTC or, if the book-entry system is no longer available for
the PATS at the time of a remarketing, to the extent required to facilitate the
tendering and remarketing of PATS in certificated form. In addition, the
Callholder may modify the settlement procedures set forth above in order to
facilitate the settlement process.
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As long as DTC or its nominee holds a certificate representing the PATS in
the book-entry system of DTC, no certificates for the PATS will be delivered to
any beneficial owner. In addition, under the terms of the PATS, the Indenture
and the underwriting agreement, TXU Gas Company has agreed that (1) it will use
its reasonable best efforts to maintain the PATS in book-entry form with DTC or
any successor thereto, and to appoint a successor depositary to the extent
necessary to maintain the PATS in book-entry form, and (2) it will waive any
discretionary right it otherwise has under its Indenture to cause the PATS to be
issued in certificated form.
CALLHOLDER
If the Callholder elects to purchase the PATS, the Callholder will not
receive any fees or reimbursement of expenses from TXU Gas Company in connection
with the purchase and remarketing of the PATS, except under certain
circumstances. The aggregate amount paid to TXU Gas Company for the purchase of
the PATS will include an amount paid by the Callholder for its right to purchase
the PATS.
On or after the first Coupon Reset Date, TXU Gas Company may at any time
purchase any PATS at any price in the open market or otherwise. The PATS so
purchased by TXU Gas Company may, at its discretion, be held, resold or
surrendered to the Trustee for cancellation.
RECENT ACCOUNTING DEVELOPMENTS
For purposes of financial accounting and reporting, for publicly held
companies the Securities and Exchange Commission may require prospective
investors to separately account for the Callholder's option to purchase and to
remarket the PATS on the first Coupon Reset Date. Persons considering investing
in the PATS, who are required to file financial reports with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
should consult their own accounting advisors concerning potential reporting
requirements.
RANKING
The PATS will be unsecured obligations ranking equally with other
outstanding unsecured indebtedness of TXU Gas Company. The creation by TXU Gas
Company, or a subsidiary of TXU Gas Company, of any mortgage, pledge or other
lien or encumbrance on any of its properties or assets, may entitle some
outstanding unsecured indebtedness of TXU Gas Company to the benefit of a
security interest in those properties or assets. In no event will the PATS be
entitled to the benefit of a security interest in those properties or assets. At
June 30, 2000, TXU Gas Company had outstanding approximately $551 million of
unsecured and unsubordinated indebtedness and no secured indebtedness. The
Indenture contains no restrictions on the amount of additional indebtedness that
TXU Gas Company may issue.
DENOMINATIONS
The PATS will be issuable in denominations of $1,000 and integral multiples
of $1,000.
BOOK-ENTRY ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
The PATS will trade through DTC. The PATS will be represented by a global
certificate registered in the name of Cede & Co., DTC's nominee.
DTC is a New York clearing corporation and a clearing agency registered
under Section 17A of the Securities Exchange Act of 1934. DTC holds securities
for its participants. DTC facilitates settlement of securities transactions
among its participants through electronic computerized book-entry changes in the
participants' accounts. This eliminates the need for physical movement of
securities certificates. The participants include securities brokers and
dealers, banks, trust companies and clearing corporations. DTC is owned by a
number of its participants and by the New York Stock Exchange, Inc., the
American Stock Exchange LLC, and the National Association of Securities Dealers,
Inc. Others who maintain a custodial relationship with a participant can use the
DTC system. The rules that apply to DTC and those using its systems are on file
with the SEC.
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Purchases of the PATS within the DTC system must be made through
participants, which will receive a credit for the PATS on DTC's records. The
beneficial ownership interest of each purchaser will be recorded on the
participants' records. Beneficial owners will not receive written confirmation
from DTC of their purchases, but beneficial owners should receive written
confirmations of the transactions, as well as periodic statements of their
holdings, from the participants through which they purchased PATS. Beneficial
owners will not receive certificates for their PATS, except if use of the
book-entry system for the PATS is discontinued.
To facilitate subsequent transfers, all PATS deposited by direct
participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of the PATS with DTC and their registration in the name of Cede &
Co. effects no change in beneficial ownership. DTC has no knowledge of the
actual beneficial owners of the PATS. DTC's records reflect only the identity of
the participants to whose accounts such PATS are credited. These participants
may or may not be the beneficial owners. Participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to participants, and
by participants to indirect participants and beneficial owners, will be governed
by arrangements among them.
Redemption notices will be sent to Cede & Co. If less than all of the PATS
are being redeemed, DTC's practice is to determine by lot the amount of PATS of
each participant to be redeemed.
Neither DTC nor Cede & Co. will itself consent or vote with respect to
PATS. Under its usual procedures, DTC would mail an omnibus proxy to TXU Gas
Company as soon as possible after the record date. The omnibus proxy assigns the
consenting or voting rights of Cede & Co. to those participants to whose
accounts the PATS are credited on the record date. TXU Gas Company believes that
these arrangements will enable the beneficial owners to exercise rights
equivalent in substance to the rights that can be directly exercised by a
registered holder of PATS.
Interest and redemption payments on the PATS will be made to DTC. DTC's
practice is to credit 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 that payment date.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices. Payments will be the responsibility of
participants and not of DTC, The Bank of New York or TXU Gas Company. Payment of
redemption proceeds, distributions and interest to DTC is the responsibility of
TXU Gas Company. Disbursement of payments to participants is the responsibility
of DTC, and disbursement of payments to the beneficial owners is the
responsibility of participants.
Except as provided in this prospectus supplement, a beneficial owner will
not be entitled to receive physical delivery of PATS. Accordingly, each
beneficial owner must rely on the procedures of DTC to exercise any rights under
the PATS.
DTC may discontinue providing its services as securities depository with
respect to the PATS at any time by giving reasonable notice to TXU Gas Company.
In the event no successor securities depository is obtained, certificates for
the PATS will be printed and delivered. If TXU Gas Company decides to
discontinue use of the DTC system of book-entry transfers, certificates for the
PATS will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that TXU Gas Company believes to be reliable, but
TXU Gas Company does not take responsibility for the accuracy of this
information.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States federal income tax
consequences of the purchase, ownership and disposition of the PATS is based
upon the Internal Revenue Code of 1986, as amended (Code), Treasury regulations,
Internal Revenue Service (IRS) rulings and pronouncements and administrative and
judicial decisions currently in effect, all of which are subject to change
(possibly with retroactive effect) or possible differing interpretations. This
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summary deals only with PATS held as capital assets as defined in the Code and
does not purport to deal with persons in special tax situations, such as
financial institutions, insurance companies, regulated investment companies,
real estate investment trusts, dealers in securities or currencies, persons
holding PATS as a hedge against currency risk or as a position in a "straddle,"
or conversion transaction, or person whose functional currency is not the U.S.
dollar.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE PATS ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
"U.S. Holder" means a beneficial owner of PATS that is for United States
federal income tax purposes (1) a citizen or resident of the United States, (2)
a corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof (other than a
partnership that is not treated as a United States person under any applicable
Treasury regulations), (3) an estate the income of which is subject to United
States federal income tax regardless of its source, or (4) a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. As used herein, the
term "non-U.S. Holder" means a beneficial owner of the PATS that is not a U.S.
Holder.
EXPECTED TAX TREATMENT
The United States federal income tax treatment of debt obligations such as
the PATS is not entirely certain. Because the PATS are subject to mandatory
tender or redemption by TXU Gas Company on the first Coupon Reset Date, TXU Gas
Company intends to treat the PATS as maturing on the first Coupon Reset Date for
United States federal income tax purposes. In addition, TXU Gas Company expects
to issue the PATS at a price that will not create "original issue discount," as
described below. Interest on the PATS thus should constitute "qualified stated
interest" and generally should be taxable to a U.S. Holder as ordinary interest
income at the time such payments are accrued or received, in accordance with the
U.S. Holder's regular method of tax accounting.
If the PATS are issued to the U.S. Holder at a price that is not less than
99.5% of par value, the PATS will not be treated as having original issue
discount. If the PATS are issued at a discount greater than 0.5%, the PATS will
have original issue discount for federal income tax purposes. In the latter
case, a U.S. Holder will include in income, as ordinary interest, both the
qualified stated interest paid on the PATS and the original issue discount, as
such discount accrues under a constant yield method. The original issue discount
amounts would thus be taxable income to the holder in advance of receipt of the
cash payments attributable to such income, regardless of the U.S. Holder's
regular method of tax accounting.
Upon the sale, exchange or retirement of PATS, a U.S. Holder generally will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (other than amounts representing
accrued and unpaid interest) and such U.S. Holder's adjusted tax basis in the
PATS. A U.S. Holder's adjusted tax basis in the PATS generally will equal such
U.S. Holder's initial investment in the PATS increased by any original issue
discount included in income and decreased by the amount of any payments, other
than qualified stated interest payments, received with respect to the PATS. Such
gain or loss will generally be capital gain or loss and will be long-term
capital gain or loss if the PATS have been held by the U.S. Holder for more than
one year on the date of disposition.
POSSIBLE ALTERNATIVE TAX TREATMENT
There can be no assurance that the IRS will agree with TXU Gas Company's
treatment of the PATS, and it is possible that the IRS could assert another
treatment. For instance, it is possible that the IRS could seek to treat the
PATS as maturing on their stated maturity date. In the event the PATS were
treated as maturing on their stated maturity date for United States federal
income tax purposes, the PATS would be treated as having contingent interest
under the Code. In such event, under Treasury regulations governing debt
instruments that provide for contingent payments, the amount treated as taxable
interest in each accounting period would be a hypothetical amount based upon TXU
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Gas Company's current borrowing costs for comparable, noncontingent debt
instruments. The hypothetical amount would not necessarily be the same as the
stated interest actually paid on the PATS. As a result, a U.S. Holder might be
required to include interest in income in excess of actual cash payments
received for certain taxable years. Also, the character of any gain or loss upon
the sale or exchange of the PATS (including a sale pursuant to the mandatory
tender on the Coupon Reset Date) by a U.S. Holder, will likely differ if the
PATS were treated as contingent payment obligations. Any such taxable gain
generally would be treated as ordinary income. Any such taxable loss generally
would be ordinary to the extent of previously accrued original issue discount,
and any excess would generally be treated as capital loss.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States federal income or
withholding taxes on payments of principal, premium (if any) or interest
(including original issue discount, if any) on the PATS, unless such non-U.S.
Holder constructively owns 10% or more of the total combined voting power of all
classes of stock of TXU Gas Company entitled to vote through ownership of stock
of TXU Corp., a controlled foreign corporation related to TXU Gas Company
through stock ownership or a bank receiving interest on an extension of credit
made pursuant to a loan agreement entered into in the ordinary course of its
trade or business. To qualify for the exemption from taxation, a non-U.S. Holder
must provide a statement signed by the beneficial owner under penalties of
perjury that certifies that such owner is not a U.S. Holder and provides the
name and address of the beneficial owner.
Any gain or income realized by non-U.S. Holders upon the sale, exchange,
retirement or other disposition of the PATS generally will not be subject to
United States federal income tax unless (i) such gain or income is effectively
connected with the conduct of a trade or business in the United States by the
non-U.S. Holder or (ii) in the case of a non-U.S. Holder who is an individual,
such individual is present in the United States for 183 days or more in the
taxable year of such sale, exchange, retirement or other disposition, and
certain other conditions are met.
PATS beneficially owned by an individual who at the time of death is not a
United States citizen or resident will not be subject to the United States
federal estate tax as a result of such individual's death, provided that such
individual does not constructively own 10% or more of the total combined voting
power of all classes of stock of TXU Gas Company entitled to vote through
ownership of shares of TXU Corp. and provided that the interest payments with
respect to such PATS would not have been, if received at the time of such
individual's death, effectively connected with the conduct of a United States
trade or business by such individual.
BACKUP WITHHOLDING
Backup withholding of United States federal income tax at a rate of 31% may
apply to payments made in respect of the PATS to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the PATS to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for non-U.S. Holders.
Upon the sale of the PATS to or through a broker, the broker must withhold
31% of the entire purchase price, unless either (i) the broker determines that
the seller is a corporation or other exempt recipient or (ii) the seller
provides, in the required manner, certain identifying information and, in the
case of a non-U.S. Holder, certifies that such seller is a non-U.S. Holder and
certain other conditions are met. Such a sale must also be reported by the
broker to the IRS, unless either (i) the broker determines that the seller is an
exempt recipient or (ii) the seller certifies its non-U.S. status and certain
other conditions are met. Certification of the registered owner's non-U.S.
status would be made normally on an IRS form under penalties of perjury.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States federal income tax, provided the required
information is furnished to the IRS.
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FINAL WITHHOLDING REGULATIONS
The Treasury Department recently issued final Treasury regulations which
make certain modifications to the withholding, backup withholding and
information reporting rules described above. These final regulations will
generally be effective for payments made on or after January 1, 2001 subject to
certain transition rules. Prospective investors are urged to consult their own
tax advisors regarding these final regulations.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
dated October , 2000 among TXU Gas Company and the underwriters named below,
TXU Gas Company has agreed to sell to the underwriters, and the underwriters
have severally agreed to purchase from TXU Gas Company, the following respective
principal amounts of the PATS:
Underwriter Principal Amount of PATS
----------- ------------------------
UBS Warburg LLC............................. $
Banc of America Securities LLC.............. $
-----------
Total............................... $
===========
In the underwriting agreement, the underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the PATS offered
hereby if any PATS are purchased. The underwriters have advised TXU Gas Company
that the underwriters propose to offer the PATS to the public initially at the
offering price set forth on the cover page of this prospectus supplement, and to
certain dealers initially at that price less a discount not in excess of %
of the principal amount of the PATS. The underwriters may allow, and those
dealers may reallow, a concession to certain other dealers not in excess of
% of the principal amount of the PATS. After the initial offering of the
PATS to the public, the public offering price and these concessions may be
changed.
TXU Gas Company has agreed to indemnify the underwriters against, or
contribute to payments the underwriters may be required to make in respect of,
certain liabilities, including liabilities under the Securities Act.
TXU Gas Company has been advised by the underwriters that they intend to
make a market in the PATS as permitted by applicable laws and regulations. The
underwriters are not obligated, however, to make a market in the PATS, and any
market making may be discontinued at any time without notice.
In connection with the offering the underwriters may purchase and sell PATS
in the open market. These transactions may include over-allotment, syndicate
covering transactions and stabilizing transactions. Over-allotment involves
syndicate sales of PATS in excess of the principal amount of the PATS creating a
syndicate short position. Syndicate covering transactions involve purchases of
the PATS in the open market after the distribution has been completed in order
to cover syndicate short positions. Stabilizing transactions consist of certain
bids or purchases of PATS made for the purpose of preventing or retarding a
decline in the market price of the PATS while the offering is in progress.
The underwriters may also impose a penalty bid. A penalty bid permits the
underwriters to reclaim a selling concession from a syndicate member when the
PATS originally sold by that syndicate member are purchased in a syndicate
transaction.
Any of these activities may cause the price of the PATS to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. Neither TXU Gas Company nor the underwriters make any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the PATS. In addition,
neither TXU Gas Company nor the underwriters make any representation that the
underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
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TXU Gas Company estimates that its total expenses of this offering will be
$ .
The Callholder will pay to TXU Gas Company % of the aggregate
principal amount of the PATS as consideration for the assignment of the Call
Option to purchase the PATS (a) at 100% of their aggregate principal amount on
the first Coupon Reset Date and (b) at the Dollar Price on the Floating Period
Termination Date.
The underwriters and their affiliates may, from time to time, engage in
transactions with and perform services on behalf of TXU Gas Company and its
affiliates the ordinary course of business.
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GLOSSARY OF DEFINED TERMS
Set forth below are definitions of the defined terms used in this
prospectus supplement.
"Adjusted Treasury Rate" means, with respect to any post-coupon reset
redemption date:
o the yield, under the heading which represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Board of Governors of the
Federal Reserve System and which establishes yields on actively traded
U.S. Treasury securities adjusted to constant maturity under the
caption "Treasury Constant Maturities," for the maturity corresponding
to the Post-Coupon Reset Comparable Treasury Issue (if no maturity is
within three months before or after the remaining term of the PATS,
yields for the two published maturities most closely corresponding to
the Post-Coupon Reset Comparable Treasury Issue will be determined and
the Adjusted Treasury Rate will be interpolated or extrapolated from
such yields on a straight line basis, rounding to the nearest month);
or
o if such release (or any successor release) is not published during the
week preceding the calculation date or does not contain such yields,
the rate per annum equal to the semiannual equivalent yield to
maturity of the Post-Coupon Reset Comparable Treasury Issue,
calculated using a price for the Post-Coupon Reset Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Post-Coupon Reset Comparable Treasury Price for such redemption date.
"Applicable Spread" means the lowest Fixed Rate Bid, expressed as a spread
(in the form of a percentage or in basis points) above the Base Rate for the
PATS, obtained by the Callholder by 3:30 p.m., New York City time, on the Fixed
Rate Determination Date, from the Fixed Rate Bids quoted to the Callholder by up
to five Reference Corporate Dealers.
"Base Rate" means %.
"Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in New York City are authorized or obligated by law
or executive order to close.
"Calculation Agent" means the Calculation Agent appointed pursuant to the
Indenture, initially .
"Call Notice" means notice by the Callholder to TXU Gas Company and the
Trustee that it elects to purchase the PATS for remarketing on the first Coupon
Reset Date.
"Call Option" means the option of the Callholder to purchase the PATS for
remarketing on each Coupon Reset Date, as described under DESCRIPTION OF THE
PATS - "Call Option".
"Comparable Treasury Issues" for the PATS means the U.S. Treasury security
or securities selected by the Calculation Agent, as of the first Determination
Date, as having an actual or interpolated maturity or maturities comparable to
the remaining term of the PATS being purchased by the Callholder.
"Comparable Treasury Price" means, with respect to the first Coupon Reset
Date:
o the offer prices for the Comparable Treasury Issues (expressed, in
each case, as a percentage of its principal amount) at 12:00 noon, New
York City time, on the first Determination Date, as set forth on
"Telerate Page 500" (or such other page as may replace "Telerate Page
500") or
o if such page (or any successor page) is not displayed or does not
contain such offer prices on such Determination Date, the average of
the Reference Treasury Dealer Quotations for such Determination Date,
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after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or if the Calculation Agent obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such
Reference Treasury Dealer Quotations.
"Coupon Reset Date(s)" means October , 2002, assuming the Callholder has
elected to purchase the PATS and TXU Gas Company has not elected to exercise its
Floating Period Option, or October , 2002 and the Floating Rate Termination
Date, if TXU Gas Company has elected to exercise its Floating Period Option.
"Coupon Reset Rate" means the interest rate to be paid on the PATS from and
including each Coupon Reset Date.
"Determination Date" means each of the Floating Rate Spread Determination
Date or Fixed Rate Determination Date.
"Dollar Price" means, with respect to the PATS, (1) the principal amount of
the PATS, plus (2) the premium equal to the excess, if any, of (A) the present
value, as of the first Coupon Reset Date, of the Remaining Scheduled Payments
for such PATS, discounted to the first Coupon Reset Date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate, over (B) the principal amount of the PATS.
"Fixed Rate Bid" means an irrevocable offer to purchase the aggregate
outstanding principal amount of the PATS at the Dollar Price, but assuming:
o a settlement date that is the Fixed Rate Coupon Reset Date applicable
to such PATS;
o a maturity date that is the tenth anniversary of the Fixed Rate Coupon
Reset Date; and
o a stated annual interest rate equal to the Base Rate plus the spread
bid by the applicable Reference Corporate Dealer.
"Fixed Rate Coupon Reset Date" means October , 2002, assuming the
Callholder has elected to purchase the PATS and TXU Gas Company has not elected
to exercise its Floating Period Option, or the Floating Period Termination Date
in the event that TXU Gas Company has elected to exercise its Floating Period
Option.
"Fixed Rate Determination Date" means the third Business Day prior to the
Fixed Rate Coupon Reset Date.
"Floating Period Interest Rate" means the sum of the Reference Rate and the
Floating Rate Spread.
"Floating Period Notification Date" means the fourth Business Day prior to
the first Coupon Reset Date.
"Floating Period Option" means TXU Gas Company's right, on any date after
the Callholder elects to purchase the PATS but prior to the fourth Business Day
prior to the first Coupon Reset Date, to require the Callholder to remarket the
PATS at the Floating Period Interest Rate.
"Floating Period Termination Date" means the earlier of October , 2003 or
the date which otherwise would be the first Reference Rate Reset Date following
the Floating Period Termination Notification Date.
"Floating Period Termination Notification Date" means the date on which TXU
Gas Company gives notice of its election to terminate the Floating Rate Period
which shall be at least Four Business Days prior to the next Reference Rate
Reset Date.
"Floating Rate Bid" means an irrevocable offer to purchase the aggregate
outstanding principal amount of the PATS at the Dollar Price, but assuming:
o a settlement date that is the Floating Rate Coupon Reset Date;
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o a maturity date equal to the Floating Period Termination Date;
o a stated annual interest rate equal to the Reference Rate plus the
Floating Rate Spread;
o that the PATS are callable by the Callholder at the Dollar Price on
the Floating Period Termination Date; and
o that TXU Gas Company will redeem the PATS at the Dollar Price on the
Floating Period Termination Date, if not previously purchased by the
Callholder.
"Floating Rate Coupon Reset Date" means October , 2002 in the event TXU Gas
Company has elected to exercise its Floating Period Option.
"Floating Rate Period" means the period from and including the Floating
Rate Coupon Reset Date to but excluding the Floating Period Termination Date.
"Floating Rate Reset Period" means the period from and including the first
Reference Rate Reset Date, to but excluding the next following Reference Rate
Reset Date, and thereafter the period from and including a Reference Rate Reset
Date to but excluding the next following Reference Rate Reset Date; provided
that the final Floating Rate Reset Period will run to but exclude the Floating
Period Termination Date.
"Floating Rate Spread" means the lowest Floating Rate Bid expressed as a
spread (in the form of a percentage or in basis points) above the Reference Rate
for the PATS obtained by the Calculation Agent by 3:30 p.m., New York City time,
on the Floating Rate Spread Determination Date, from the Floating Rate Bids
quoted to the Calculation Agent by up to five Reference Money Market Dealers.
"Floating Rate Spread Determination Date" means the third Business Day
prior to the Floating Rate Coupon Reset Date.
"Independent Investment Banker" means UBS Warburg LLC or Banc of America
Securities LLC and any successor firm selected by TXU Gas Company, or if any
such firm is unwilling or unable to serve as such, an independent investment and
banking institution of national standing appointed by TXU Gas Company.
"Interest Rate to Maturity" means the sum of Base Rate and the Applicable
Spread, which will be based on the Dollar Price of the PATS.
"London Business Day" means any day on which dealings in U.S. dollars are
transacted in the London Inter-Bank Market.
"Notification Date" means a Business Day, not later than four Business Days
prior to the occurrence of the Floating Period Termination Date.
"Post-Coupon Reset Reference Treasury Dealer" means each of up to five
dealers to be selected by TXU Gas Company, and their respective successors;
provided that if any of the foregoing ceases to be, and has no affiliate that
is, a Primary Treasury Dealer, TXU Gas Company will substitute for it another
Primary Treasury Dealer.
"Post-Coupon Reset Comparable Treasury Issue" for the PATS means the U.S.
Treasury security selected by an Independent Investment Banker as having a
maturity comparable to the remaining term of the PATS to be redeemed that would
be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such PATS or, if, in the reasonable judgment
of the Independent Investment Banker, there is no such security, then the
Post-Coupon Reset Comparable Treasury Issue will mean the U.S. Treasury security
or securities selected by an Independent Investment Banker as having an actual
or interpolated maturity or maturities comparable to the remaining term of the
PATS.
S-19
<PAGE>
"Post-Coupon Reset Comparable Treasury Price" means (1) the average of five
Post-Coupon Reset Reference Treasury Dealer Quotations for the post-coupon reset
redemption date, after excluding the highest and lowest Post-Coupon Reset
Reference Treasury Dealer Quotations, or (2) if the Independent Investment
Banker obtains fewer than five such Post- Coupon Reset Reference Treasury Dealer
Quotations, the average of all such quotations.
"Post-Coupon Reset Reference Treasury Dealer Quotations" means, with
respect to each Post-Coupon Reset Reference Treasury Dealer and any coupon reset
redemption date, the average, as determined by the Independent Investment Banker
of the bid and asked prices for the Post-Coupon Reset Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Independent Investment Banker and the Trustee at 5:00 p.m., New
York City time, on the third Business Day preceding such redemption date.
"Put Option" means the obligation of the Trustee to put the PATS to TXU Gas
Company as described under DESCRIPTION OF THE PATS - "Put Option".
"Reference Corporate Dealer" means each of up to five leading dealers of
publicly traded debt securities, including TXU Gas Company's debt securities,
which shall be selected by TXU Gas Company. TXU Gas Company will advise the
Calculation Agent of its selection of Reference Corporate Dealers no later than
five Business Days prior to the Fixed Rate Coupon Reset Date. One of the
Reference Corporate Dealers TXU Gas Company selects will be , if
, is then the Callholder.
"Reference Money Market Dealer" means each of up to five leading dealers of
publicly traded debt securities, including TXU Gas Company's debt securities,
which TXU Gas Company shall select, who are also leading dealers in money market
instruments. TXU Gas Company will advise the Calculation Agent of its selection
of Reference Money Market Dealers no later than five Business Days prior to the
Floating Rate Coupon Reset Date. One of the Reference Money Market Dealers TXU
Gas Company selects will be , if , is then the Callholder.
"Reference Rate" means:
o The rate for each Floating Rate Reset Period which will be the rate
for deposits in U.S. dollars for a period of one month which appears
on the Telerate Page 3750 (or any successor page) as of 11:00 a.m.,
London time, on the applicable Reference Rate Determination Date.
o If no rate appears on Telerate Page 3750 on the Reference Rate
Determination Date, the Calculation Agent will request the principal
London offices of four major reference banks in the London Inter-Bank
Market, to provide the Calculation Agent, in the case of each such
bank, with its offered quotation for deposits in U.S. dollars for the
period of one month, commencing on the first day of the Floating Rate
Reset Period, to prime banks in the London Inter-Bank Market at
approximately 11:00 a.m., London time, on that Reference Rate
Determination Date and in a principal amount that is representative
for a single transaction in U.S. dollars in that market at that time.
If at least two quotations are provided, then the Reference Rate will
be the average of those quotations. If fewer than two quotations are
provided, then the Reference Rate will be the average (rounded, if
necessary, to the nearest one hundredth of a percent) of the rates
quoted at approximately 11:00 a.m., New York City time, on the
Reference Rate Determination Date by three major banks in New York
City selected by the Calculation Agent for loans in U.S. dollars to
leading European banks, having a one-month maturity and in a principal
amount that is representative for a single transaction in U.S. dollars
in that market at that time. If the banks selected by the Calculation
Agent are not providing quotations in the manner described in this
paragraph, the rate for the Floating Rate Reset Period following the
Reference Rate Determination Date will be the rate in effect on that
Reference Rate Determination Date.
"Reference Rate Determination Date" will be the second London Business Day
preceding each Reference Rate Reset Date.
"Reference Rate Reset Date" means October , 2002 and the day of each
month thereafter until, but excluding, the Floating Period Termination Date.
S-20
<PAGE>
"Reference Treasury Dealer" means each of up to five dealers to be selected
by TXU Gas Company, and their respective successors; provided that if any of the
foregoing ceases to be, and has no affiliate that is, a primary U.S. Government
securities dealer (Primary Treasury Dealer), TXU Gas Company will substitute for
it another Primary Treasury Dealer. One of the Reference Treasury Dealers TXU
Gas Company selects will be , if , is then the Callholder.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer, the offer prices for the Comparable Treasury Issues
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Calculation Agent by such Reference Treasury Dealer, by 12:00
noon, New York City time, on the first Determination Date.
"Remaining Scheduled Payments" means, with respect to the PATS, the
remaining scheduled payments of the principal and interest thereon, calculated
at the Base Rate applicable to such PATS, that would be due from but excluding
the first Coupon Reset Date to and including the maturity date; provided that if
such Coupon Reset Date is not an interest payment date, the amount of the next
succeeding scheduled interest payment, calculated at the Base Rate, will be
reduced by the amount of interest accrued, calculated at the Base Rate only, to
the first Coupon Reset Date.
"Telerate Page 500" means the display designated as "Telerate Page 500" on
Dow Jones Markets (or such other page as may replace "Telerate Page 500" on such
service) or such other service displaying the offer prices for the Comparable
Treasury Issues, as may replace Dow Jones Markets.
"Treasury Rate" for the PATS means, with respect to the first Coupon Reset
Date, the rate per year equal to the semiannual equivalent yield to maturity or
interpolated (on a day count basis) yield to maturity of the Comparable Treasury
Issues, assuming a price for the Comparable Treasury Issues (expressed as a
percentage of their principal amounts) equal to the Comparable Treasury Price
for such Coupon Reset Date.
S-21
<PAGE>
PROSPECTUS
$600,000,000
AGGREGATE AMOUNT
---------------
TXU GAS COMPANY
DEBT SECURITIES
-------------
TXU GAS CAPITAL II
TXU GAS CAPITAL III
TXU GAS CAPITAL IV
PREFERRED TRUST SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED AS SET
FORTH IN THIS PROSPECTUS BY
TXU GAS COMPANY
-----------------------------------------------------
We will provide specific terms of these securities, their offering
prices and how they will be offered in supplements to this prospectus.
You should read this prospectus and any supplement carefully
before you invest.
-----------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAVE THESE ORGANIZATIONS
DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus is dated October 18, 1999.
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, or SEC, using a "shelf" registration
process. Under this shelf process, we may, over the next two years, sell
combinations of the securities described in this prospectus in one or more
offerings up to a total dollar amount of $600,000,000. This amount includes
$100,000,000 of securities registered under an earlier registration statement.
This prospectus provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described under the heading
WHERE YOU CAN FIND MORE INFORMATION.
For more detailed information about the securities, you can read the
exhibits to the registration statement. Those exhibits have been either filed
with the registration statement or incorporated by reference to earlier SEC
filings listed in the registration statement.
WHERE YOU CAN FIND MORE INFORMATION
TXU Gas Company, a Texas corporation, changed its name from ENSERCH
Corporation on June 14, 1999. TXU Gas Company files annual, quarterly and
special reports and other information with the SEC under File No. 1-3183. These
SEC filings are available to the public over the Internet at the SEC's website
at http://www.sec.gov. You may also read and copy any of these SEC filings at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we make with the
SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act, until we sell
all of the securities described in this prospectus.
o TXU Gas Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
o TXU Gas Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1999 and June 30, 1999.
You may request a copy of these filings at no cost by writing or contacting
TXU Gas Company at the following address: Secretary, TXU Gas Company, Energy
Plaza, 1601 Bryan Street, Dallas, Texas 75201; telephone number (214) 812-4600.
2
<PAGE>
TXU GAS COMPANY
TXU Gas Company is an integrated company focused on natural gas operating
primarily in the north central, eastern and western parts of Texas. TXU Gas
Company is engaged in:
o Owning and operating interconnected natural gas transmission lines,
underground storage reservoirs, compressor stations and related
properties in Texas;
o Gathering and processing natural gas to remove impurities and extract
liquid hydrocarbons for sale;
o Wholesale and retail marketing of natural gas in several areas of the
United States; and
o Owning and operating approximately 550 local gas utility distribution
systems in Texas.
On August 5, 1997, Texas Utilities Company, now doing business as TXU Corp,
acquired TXU Gas Company. Immediately before the transaction, TXU Gas Company's
ownership interests in Enserch Exploration, Inc. and Lone Star Energy Plant
Operations, Inc. were distributed to the holders of the TXU Gas' common stock.
TXU Corp is a holding company whose principal operations are conducted
through TXU Electric Company, TXU Gas Company, Eastern Energy Limited and
Eastern Group plc. Through these and other subsidiaries, TXU Corp engages in the
generation, purchase, transmission, distribution and sale of electricity; the
gathering, processing, transportation and distribution of natural gas; energy
marketing; and telecommunications, retail energy services, international gas
operations, power development and other businesses, primarily in the United
States, the United Kingdom and Australia.
TXU Gas Company's principal place of business is Energy Plaza, 1601 Bryan
Street, Dallas, Texas 75201.
TXU GAS CAPITAL II, TXU GAS CAPITAL III, AND TXU GAS CAPITAL IV
TXU Gas Capital II, TXU Gas Capital III and TXU Gas Capital IV are
identical Delaware business trusts and each will be described in this prospectus
as TXU Gas Capital. TXU Gas Capital was created under a trust agreement among
TXU Gas Company as depositor of TXU Gas Capital, The Bank of New York as the
property trustee and The Bank of New York (Delaware) as the Delaware trustee and
an administrative trustee appointed by TXU Gas Company. The trust agreement will
be amended and restated substantially in the form filed as an exhibit to the
registration statement. TXU Gas Capital exists only to issue its preferred trust
securities and common trust securities and to hold the junior subordinated
debentures of TXU Gas Company as trust assets. All of the common trust
securities will be owned by TXU Gas Company. The common trust securities will
represent at least 3% of the total capital of TXU Gas Capital. Payments will be
made on the common trust securities pro rata with the preferred trust
securities, except that the common trust securities' right to payment will be
subordinated to the rights of the preferred trust securities if there is a
default under the trust agreement. TXU Gas Capital has a term of approximately
40 years, but may dissolve earlier as provided in the trust agreement. TXU Gas
Capital's business and affairs will be conducted by its administrative trustees.
The office of the Delaware trustee in the State of Delaware is White Clay
Center, Route 273, Newark, Delaware 19711. The principal place of business of
TXU Gas Capital is c/o TXU Gas Company, Energy Plaza, 1601 Bryan Street, Dallas,
Texas 75201.
USE OF PROCEEDS
Unless otherwise described in a prospectus supplement, the net proceeds
from the offering of the securities will be used for general corporate purposes
of TXU Gas Company.
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
The following ratios were calculated to exclude the effect of businesses
that were disposed of by TXU Gas Company on August 5, 1997, the date TXU Gas
Company was acquired by TXU Corp.
<TABLE>
<CAPTION>
Ratio of Earnings Amount by Which
Amount by Which to Combined Fixed Fixed Charges and
Ratio of Earnings Fixed Charges Charges and Preferred Dividends
Period to Fixed Charges Exceeded Earnings Preferred Dividends Exceeded Earnings
------ ---------------- ----------------- ------------------- -----------------
(millions) (millions)
<S> <C> <C> <C> <C>
Year ended December 31, 1994 0.82 $12.8 0.58 $41.8
Year ended December 31, 1995 1.46 -- 1.18 --
Year ended December 31, 1996 1.31 -- 1.01 --
January 1, 1997 to August 5, 1997 0.58 $19.0 0.49 $27.7
August 5, 1997 to December 31, 1997 0.66 $10.8 0.57 $16.2
Year ended December 31, 1998 0.68 $24.9 0.64 $29.4
Six months ended June 30, 1999 0.28 $27.4 0.27 $29.7
</TABLE>
DESCRIPTION OF DEBT SECURITIES
The debt securities will be TXU Gas Company's direct unsecured general
obligations. The debt securities will be issued under the Indenture (For
Unsecured Debt Securities), dated as of January 1, 1998, between TXU Gas Company
and The Bank of New York as trustee under the indenture.
Material terms of the debt securities and the indenture are summarized
below. The form of the indenture was filed with the SEC and you should read the
indenture for provisions that may be important to you. The indenture will be
qualified under the Trust Indenture Act of 1939. You should refer to the Trust
Indenture Act for provisions that apply to the debt securities. Whenever
particular provisions or defined terms in the indenture are referred to under
this DESCRIPTION OF DEBT SECURITIES, those provisions or defined terms are
incorporated by reference in this prospectus.
The debt securities will rank equally with all of TXU Gas Company's other
senior and unsubordinated debt.
A prospectus supplement and an officer's certificate relating to any series
of debt securities being offered will include specific terms relating to that
offering. These terms will include any of the following terms that apply to that
series:
o The title of the debt securities;
o The total principal amount of the debt securities;
o The dates on which the principal of the debt securities will be
payable and how it will be paid;
o The interest rate or rates which the debt securities will bear, or how
the rate or rates will be determined, the interest payment dates for
the debt securities and the regular record dates for interest
payments;
o The percentage, if less than 100%, of the principal amount of the debt
securities that will be payable if the maturity of the debt securities
is accelerated;
4
<PAGE>
o Any date or dates on which the debt securities may be redeemed at the
option of TXU Gas Company and any restrictions on those redemptions;
o Any sinking fund or other provisions that would obligate TXU Gas
Company to repurchase or otherwise redeem the debt securities;
o Any changes or additions to the Events of Default under the indenture
or changes or additions to the covenants of TXU Gas Company under the
indenture;
o If the debt securities will be issued in denominations other than
$1,000;
o If payments on the debt securities may be made in a currency or
currencies other than United States dollars; and
o Any other terms of the debt securities not inconsistent with the terms
of the indenture (Indenture, Section 301).
The indenture does not limit the principal amount of debt securities that
TXU Gas Company may issue.
TXU Gas Company may sell debt securities at a discount below their
principal amount. United States federal income tax considerations applicable to
debt securities sold at an original issue discount may be described in the
prospectus supplement. In addition, important United States federal income tax
or other tax considerations applicable to any debt securities denominated or
payable in a currency or currency unit other than United States dollars may be
described in the prospectus supplement.
Except as may otherwise be described in the applicable prospectus
supplement, the covenants contained in the indenture will not afford holders of
debt securities protection in the event of a highly-leveraged transaction
involving TXU Gas Company.
PAYMENT AND PAYING AGENTS
Except as may be provided in the prospectus supplement, interest, if any,
on each debt security payable on each interest payment date will be paid to the
person in whose name that debt security is registered as of the close of
business on the regular record date for the interest payment date. However,
interest payable at maturity will be paid to the person to whom the principal is
paid. If there has been a default in the payment of interest on any debt
security, the defaulted interest may be paid to the holder of the debt security
as of the close of business on a date between 10 and 15 days before the date
proposed by TXU Gas Company for payment of defaulted interest or in any other
manner permitted by any securities exchange on which that debt security may be
listed, if the trustee finds it workable (Indenture, Section 307).
Unless otherwise specified in the prospectus supplement, principal,
premium, if any, and interest on the debt securities at maturity will be payable
upon presentation of the debt securities at the corporate trust office of The
Bank of New York, in The City of New York, as paying agent for TXU Gas Company.
TXU Gas Company may change the place of payment on the debt securities, may
appoint one or more additional paying agents, including TXU Gas Company, and may
remove any paying agent, all at the discretion of TXU Gas Company (Indenture,
Section 602).
REGISTRATION AND TRANSFER
Unless otherwise specified in the prospectus supplement, the transfer of
debt securities may be registered, and debt securities may be exchanged for
other debt securities of the same series or tranche, of authorized denominations
and with the same terms and principal amount, at the corporate trust office of
The Bank of New York in The City of New York. TXU Gas Company may change the
place for registration of transfer and exchange of the debt securities and may
5
<PAGE>
designate additional places for registration and exchange (Indenture, Section
602). Unless otherwise provided in the prospectus supplement, no service charge
will be made for any transfer or exchange of the debt securities. However, TXU
Gas Company may require payment to cover any tax or other governmental charge
that may be imposed. TXU Gas Company will not be required to execute or to
provide for the registration of transfer of, or the exchange of, (a) any debt
security during the 15 days before giving any notice of redemption or (b) any
debt security selected for redemption except the unredeemed portion of any debt
security being redeemed in part (Indenture, Section 305).
DEFEASANCE
TXU Gas Company will be discharged from its obligations on the debt
securities of a particular series if it deposits with the trustee sufficient
cash or government securities to pay the principal, interest, any premium and
any other sums when due on the stated maturity date or a redemption date of that
series of debt securities (Indenture, Section 701).
CONSOLIDATION, MERGER, AND SALE OF ASSETS
Under the terms of the indenture, TXU Gas Company may not consolidate with
or merge into any other entity or convey, transfer or lease its properties and
assets substantially as an entirety to any entity, unless:
o The surviving or successor entity is organized and validly existing
under the laws of any domestic jurisdiction and it expressly assumes
TXU Gas Company's obligations on all debt securities and under the
indenture;
o Immediately after giving effect to the transaction, no Event of
Default under the indenture or no event which, after notice or lapse
of time or both, would become an Event of Default under the indenture,
will have occurred and be continuing; and
o TXU Gas Company will have delivered to the trustee an officer's
certificate and an opinion of counsel as provided in the indenture
(Indenture, Section 1101).
The terms of the indenture do not restrict TXU Gas Company in a merger in
which TXU Gas Company is the surviving entity.
EVENTS OF DEFAULT
"Event of Default," when used in the indenture with respect to debt
securities of a specific series, means any of the following:
o Failure to pay interest on any debt security of that series for 30
days after it is due;
o Failure to pay the principal of or any premium on any debt security of
that series when due;
o Failure to perform any other covenant in the indenture, other than a
covenant that does not relate to the debt securities of that series,
for 90 days after TXU Gas Company receives written notice from the
trustee or TXU Gas Company and the trustee receive written notice from
the holders of 33% in aggregate principal amount of the debt
securities;
o Events in bankruptcy, insolvency or reorganization of TXU Gas Company
specified in the indenture; or
o Any other Event of Default included in any supplemental indenture or
officer's certificate for that series of debt securities (Indenture,
Section 801).
An Event of Default for a particular series of debt securities does not
necessarily constitute an Event of Default for any other series of debt
securities issued under the indenture. The trustee may withhold notice to the
6
<PAGE>
holders of debt securities of any default, except default in the payment of
principal or interest, if it considers the withholding of notice to be in the
interests of the holders.
REMEDIES
If an Event of Default for any series of debt securities occurs and
continues, the trustee or the holders of at least 33% in aggregate principal
amount of all the debt securities of the series may declare the entire principal
amount of all the debt securities of that series, together with accrued
interest, to be due and payable immediately. However, if the Event of Default is
applicable to all outstanding debt securities under the indenture, only the
trustee or holders of at least 33% in aggregate principal amount of all
outstanding debt securities of all series, voting as one class, and not the
holders of any one series, may make that declaration of acceleration (Indenture,
Section 802).
At any time after a declaration of acceleration with respect to the debt
securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained, the Event of Default giving rise to
the declaration of acceleration will be considered waived, and the declaration
and its consequences will be considered rescinded and annulled, if:
o TXU Gas Company has paid or deposited with the trustee a sum
sufficient to pay:
(1) all overdue interest on all debt securities of the series;
(2) the principal of and premium, if any, on any debt securities of
the series which have otherwise become due and interest that is
currently due;
(3) interest on overdue interest; and
(4) all amounts due to the trustee under the indenture; and
o Any other Event of Default with respect to the debt securities of that
series has been cured or waived as provided in the indenture
(Indenture, Section 802).
There is no automatic acceleration, even in the event of bankruptcy,
insolvency or reorganization of TXU Gas Company.
Other than its duties in case of an Event of Default, the trustee is not
obligated to exercise any of its rights or powers under the indenture at the
request, order or direction of any of the holders, unless the holders offer the
trustee a reasonable indemnity (Indenture, Section 903). If they provide this
reasonable indemnity, the holders of a majority in principal amount of any
series of debt securities will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee, or
exercising any power conferred upon the trustee. However, if the Event of
Default relates to more than one series, only the holders of a majority in
aggregate principal amount of all affected series will have the right to give
this direction (Indenture, Section 812). The trustee is not obligated to comply
with directions that conflict with law or other provisions of the indenture.
No holder of debt securities of any series will have any right to institute
any proceeding under the indenture, or any remedy under the indenture, unless:
o The holder has previously given to the trustee written notice of a
continuing Event of Default;
o The holders of a majority in aggregate principal amount of the
outstanding debt securities of all series in respect of which an Event
of Default has occurred and is continuing have made a written request
to the trustee, and have offered reasonable indemnity to the trustee
to institute proceedings; and
o The trustee has failed to institute any proceeding for 60 days after
notice (Indenture, Section 807).
7
<PAGE>
However, these limitations do not apply to a suit by a holder of a debt
security for payment of the principal, premium, if any, or interest on the debt
security on or after the applicable due date (Indenture, Section 808).
TXU Gas Company will provide to the trustee an annual statement by an
appropriate officer as to TXU Gas Company's compliance with all conditions and
covenants under the indenture (Indenture, Section 606).
MODIFICATION AND WAIVER
Without the consent of any holder of debt securities issued under an
indenture, TXU Gas Company and the trustee may enter into one or more
supplemental indentures for any of the following purposes:
o To evidence the assumption by any permitted successor of the covenants
of TXU Gas Company in the indenture and in the debt securities;
o To add additional covenants of TXU Gas Company or to surrender any
right or power of TXU Gas Company under the indenture;
o To add additional Events of Default;
o To change or eliminate or add any provision to the indenture;
provided, however, if the change will adversely affect the interests
of the holders of debt securities of any series in any material
respect, the change, elimination or addition will become effective
only:
(1) when the consent of the holders of debt securities of that series
has been obtained in accordance with the indenture; or
(2) when no debt securities of the affected series remain outstanding
under the indenture;
o To provide collateral security for all but not part of the debt
securities;
o To establish the form or terms of debt securities of any other series
as permitted by the indenture;
o To provide for the authentication and delivery of bearer securities
with or without coupons;
o To evidence and provide for the acceptance of appointment of a
successor trustee;
o To provide for the procedures required for use of a noncertificated
system of registration for the debt securities of all or any series;
o To change any place where principal, premium, if any, and interest
will be payable, debt securities may be surrendered for registration
of transfer or exchange and notices to TXU Gas Company may be served;
or
o To cure any ambiguity or inconsistency or to make any other provisions
with respect to matters and questions arising under the indenture;
provided that the changes or additions do not adversely affect the
interests of the holders of debt securities of any series in any
material respect (Indenture, Section 1201).
The holders of at least a majority in aggregate principal amount of the
debt securities of all series then outstanding may waive compliance by TXU Gas
Company with some restrictive provisions of the indenture (Indenture, Section
607). The holders of not less than a majority in principal amount of the
outstanding debt securities of any series may waive any past default under the
indenture with respect to that series, except a default in the payment of
principal, premium, if any, or interest and some covenants and provisions of the
8
<PAGE>
indenture that cannot be modified or be amended without the consent of the
holder of each outstanding debt security of the series affected (Indenture,
Section 813).
If the Trust Indenture Act is amended after the date of the indenture in a
way as to require changes to the indenture, the indenture will be deemed to be
amended so as to conform to that amendment to the Trust Indenture Act. TXU Gas
Company and the trustee may, without the consent of any holders, enter into one
or more supplemental indentures to evidence the amendment (Indenture, Section
1201).
The consent of the holders of a majority in aggregate principal amount of
the debt securities of all series then outstanding is required for all other
modifications to the indenture. However, if less than all of the series of debt
securities outstanding are directly affected by a proposed supplemental
indenture, then the consent only of the holders of a majority in aggregate
principal amount of all series that are directly affected will be required. No
amendment or modification may:
o Change the stated maturity of the principal of, or any installment of
principal of or interest on, any debt security, or reduce the
principal amount of any debt security or its rate of interest or
change the method of calculating the interest rate or reduce any
premium payable upon redemption, or change the currency in which
payments are made, or impair the right to institute suit for the
enforcement of any payment on or after the stated maturity of any debt
security, without the consent of the holder;
o Reduce the percentage in principal amount of the outstanding debt
securities of any series whose consent is required for any
supplemental indenture or any waiver of compliance with a provision of
the indenture or any default thereunder and its consequences, or
reduce the requirements for quorum or voting, without the consent of
all the holders of the series; or
o Modify some of the provisions of the indenture relating to
supplemental indentures, waivers of some covenants and waivers of past
defaults with respect to the debt securities of any series, without
the consent of the holder of each outstanding debt security affected
by them (Indenture, Section 1202).
A supplemental indenture which changes the indenture solely for the benefit
of one or more particular series of debt securities, or modifies the rights of
the holders of debt securities of one or more series, will not affect the rights
under the indenture of the holders of the debt securities of any other series.
The indenture provides that debt securities owned by TXU Gas Company or
anyone else required to make payment on the debt securities will be disregarded
and considered not to be outstanding in determining whether the required holders
have given a request or consent (Indenture, Section 101).
TXU Gas Company may fix in advance a record date to determine the required
number of holders entitled to give any request, demand, authorization,
direction, notice, consent, waiver or other act of the holders, but TXU Gas
Company will have no obligation to do so. If TXU Gas Company fixes a record
date, that request, demand, authorization, direction, notice, consent, waiver or
other act of the holders may be given before or after that record date, but only
the holders of record at the close of business on that record date will be
considered holders for the purposes of determining whether holders of the
required percentage of the outstanding debt securities have authorized or agreed
or consented to the request, demand, authorization, direction, notice, consent,
waiver or other act of the holders. For that purpose, the outstanding debt
securities will be computed as of the record date. Any request, demand,
authorization, direction, notice, consent, election, waiver or other act of a
holder will bind every future holder of the same debt securities and the holder
of every debt security issued upon the registration of transfer of or in
exchange of these debt securities. A transferee will be bound by acts of the
trustee or TXU Gas Company in reliance on them, whether or not notation of that
action is made upon the debt security (Indenture, Section 104).
RESIGNATION OF A TRUSTEE
A trustee may resign at any time by giving written notice to TXU Gas
Company or may be removed at any time by act of the holders of a majority in
principal amount of all series of debt securities then outstanding delivered to
the trustee and TXU Gas Company. No resignation or removal of a trustee and no
appointment of a successor trustee will be effective until the acceptance of
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appointment by a successor trustee. So long as no Event of Default or event
which, after notice or lapse of time, or both, would become an Event of Default
has occurred and is continuing and except with respect to a trustee appointed by
act of the holders, if TXU Gas Company has delivered to the trustee a resolution
of its Board of Directors appointing a successor trustee and that successor has
accepted the appointment in accordance with the terms of the respective
indenture, the trustee will be deemed to have resigned and the successor will be
deemed to have been appointed as trustee in accordance with the indenture
(Indenture, Section 910).
NOTICES
Notices to holders of debt securities will be given by mail to the
addresses of the holders as they may appear in the security register for debt
securities (Indenture, Section 106).
TITLE
TXU Gas Company, the trustee, and any agent of TXU Gas Company or the
trustee, may treat the person in whose name any debt security is registered as
the absolute owner of it, whether or not the debt security may be overdue, for
the purpose of making payments and for all other purposes irrespective of notice
to the contrary (Indenture, Section 308).
GOVERNING LAW
The indenture and the debt securities will be governed by, and construed in
accordance with, the laws of the State of New York (Indenture, Section 112).
REGARDING THE TRUSTEE
The trustee will be The Bank of New York. In addition to acting as trustee,
The Bank of New York acts, and may act, as trustee under various indentures and
trusts of TXU Gas Company, TXU Corp and other affiliates, including the trust
agreement for the preferred trust securities and the indenture for the junior
subordinated debentures described below. TXU Gas Company, TXU Corp and other
affiliates maintain deposit accounts and credit and liquidity facilities and
conduct other banking transactions with the trustee in the ordinary course of
their businesses.
DESCRIPTION OF TXU GAS CAPITAL'S PREFERRED TRUST
SECURITIES AND COMMON TRUST SECURITIES
TXU Gas Capital will issue preferred trust securities and common trust
securities under a trust agreement. The preferred trust securities will
represent preferred undivided beneficial interests in the assets of TXU Gas
Capital and will entitle their holders to a preference over the common trust
securities with respect to distributions and amounts payable on redemption or
liquidation. The material terms of the trust agreement are summarized below. The
form of trust agreement was filed with the SEC and you should read the trust
agreement for provisions that may be important to you. The trust agreement will
be qualified as an indenture under the Trust Indenture Act. You should also
refer to the Trust Indenture Act for provisions that apply to the preferred
trust securities. Wherever particular defined terms of the trust agreement are
referred to, those defined terms are incorporated in this prospectus by
reference.
The preferred trust securities and common trust securities issued by TXU
Gas Capital will be substantially the same except that, if TXU Gas Capital fails
to make required payments, the rights of TXU Gas Company as the holder of the
common trust securities to payment of distributions and upon liquidation or
redemption will be subordinated to the rights of the holders of the preferred
trust securities. If there is a continuing Event of Default under the
subordinated indenture described below, holders of the preferred trust
securities may vote to appoint, remove or replace any of trustees of TXU Gas
Capital. All of the common trust securities of TXU Gas Capital will be owned by
TXU Gas Company.
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TXU Gas Capital will use the proceeds from the sale of the preferred trust
securities and common trust securities to purchase junior subordinated
debentures from TXU Gas Company in an aggregate principal amount equal to the
aggregate liquidation preference amount of the preferred trust securities and
the common trust securities. The junior subordinated debentures will be issued
under the Subordinated Indenture, dated June 1, 1998, between TXU Gas Company
and The Bank of New York, as debenture trustee. The property trustee will hold
the junior subordinated debentures in trust for the benefit of holders of the
preferred trust securities and common trust securities (Trust Agreement, Section
2.09).
TXU Gas Company will fully and unconditionally guarantee payments due on
the preferred trust securities through a combination of the following:
o TXU Gas Company's obligations under the junior subordinated
debentures;
o The rights of holders of preferred trust securities to enforce those
obligations;
o TXU Gas Company's agreement to pay the expenses of TXU Gas Capital; or
o TXU Gas Company's guarantee of payments due on the preferred trust
securities to the extent of TXU Gas Capital's assets.
A prospectus supplement relating to the preferred trust securities will
include specific terms of those securities and of the junior subordinated
debentures. For a description of some specific terms that will affect both the
preferred trust securities and the junior subordinated debentures and your
rights under each, see DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES below.
DISTRIBUTIONS
The only income of TXU Gas Capital available for distribution to the
holders of preferred trust securities will be payments on the junior
subordinated debentures. If TXU Gas Company does not make interest payments on
the junior subordinated debentures, TXU Gas Capital will not have funds
available to pay distributions on preferred trust securities. The payment of
distributions, if and to the extent TXU Gas Capital has sufficient funds
available for the payment of those distributions, is guaranteed on a limited
basis by TXU Gas Company.
So long as there is no default in the payment of interest on the junior
subordinated debentures, TXU Gas Company may extend the interest payment period
from time to time on the junior subordinated debentures for one or more periods.
As a consequence, distributions on preferred trust securities would be deferred
during any such period. Interest would, however, continue to accrue. If TXU Gas
Company extends the interest period or is in default under the guarantee or with
respect to payments on the junior subordinated debentures, TXU Gas Company may
not:
o Declare or pay any dividend or distribution on its capital stock,
other than dividends paid in shares of common stock of TXU Gas
Company;
o Redeem, purchase, acquire or make a liquidation payment with respect
to any of its capital stock;
o Redeem any indebtedness that is equal in right of payment with the
junior subordinated debentures; or
o Make any guarantee payments with respect to any of the above.
Any extension period with respect to payment of interest on the junior
subordinated debentures, or any extended interest payment period in respect of
other securities issued under the subordinated indenture or on any similar
securities, will apply to all securities of the same type. Those extensions will
also apply to distributions on preferred trust securities and common trust
securities and all other securities with terms substantially the same as
preferred trust securities and common trust securities. Before an extension
period ends, TXU Gas Company may further extend the interest payment period. No
extension period as further extended may exceed 20 consecutive quarters. After
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any extension period and the payment of all amounts then due, TXU Gas Company
may select a new extended interest payment period. No interest period may be
extended beyond the maturity of the junior subordinated debentures.
REDEMPTION OF PREFERRED TRUST SECURITIES AND COMMON TRUST SECURITIES
Whenever junior subordinated debentures are repaid, whether at maturity or
earlier redemption, the proceeds will be applied to redeem a like amount of
preferred trust securities and common trust securities. Holders of junior
subordinated debentures will be given not less than 30 nor more than 60 days'
notice of any redemption.
REDEMPTION PROCEDURES
Preferred trust securities will be redeemed at the redemption price plus
accrued and unpaid distributions with the proceeds from the contemporaneous
redemption of junior subordinated debentures. Redemptions of the preferred trust
securities will be made on a redemption date only if TXU Gas Capital has funds
available for the payment of the redemption price plus accrued and unpaid
distributions (Trust Agreement, Section 4.02(c)).
Notice of redemption of preferred trust securities will be irrevocable. On
or before the redemption date, TXU Gas Capital will irrevocably deposit with the
paying agent for preferred trust securities sufficient funds and will give the
paying agent irrevocable instructions and authority to pay the redemption price
plus accrued and unpaid distributions to the holders upon surrender of their
preferred trust securities. Distributions payable on or before a redemption date
will be payable to the holders on the record date for the distribution payment.
If notice is given and funds are deposited as required, then on the redemption
date all rights of holders of the preferred trust securities called for
redemption will cease, except the right of the holders to receive the redemption
price plus accrued and unpaid distributions, and the preferred trust securities
will cease to be outstanding. No interest will accrue on amounts payable on the
redemption date. If any date fixed for redemption of preferred trust securities
is not a business day, then payment will be made on the next business day. No
interest will be payable because of any such delay. If payment of preferred
trust securities called for redemption is improperly withheld or refused and not
paid either by TXU Gas Capital or by TXU Gas Company in accordance with the
guarantee, distributions on those preferred trust securities will continue to
accrue to the date of payment. That date will be considered the date fixed for
redemption for purposes of calculating the redemption price plus accrued and
unpaid distributions (Trust Agreement, Section 4.02(d)).
Subject to applicable law, including United States federal securities law,
TXU Gas Company may purchase outstanding preferred trust securities by tender,
in the open market or by private agreement.
If preferred trust securities are partially redeemed on a redemption date,
a corresponding percentage of the common trust securities will be redeemed. The
particular preferred trust securities to be redeemed will be selected not more
than 60 days before the redemption date by the property trustee by a method that
the property trustee determines is fair, taking into account the denominations
in which they were issued. The property trustee will promptly notify the
registrar for the preferred trust security in writing of the preferred trust
securities selected for redemption and, where applicable, the partial amount to
be redeemed (Trust Agreement, Section 4.02(f)).
SUBORDINATION OF COMMON TRUST SECURITIES
Payment of distributions on, and the redemption price, plus accrued and
unpaid distributions, of, the preferred trust securities and common trust
securities will be made proportionately based on the liquidation preference
amount. However, if on any distribution payment date or redemption date an Event
of Default under the trust agreement has occurred and is continuing, no payment
on any common trust security will be made until all payments due on the
preferred trust securities have been made. In that case, funds available to the
property trustee will first be applied to the payment in full of all
distributions on, or the redemption price plus accrued and unpaid distributions
of, preferred trust securities then due and payable (Trust Agreement, Section
4.03(a)).
If an Event of Default under the trust agreement results from an Event of
Default under the subordinated indenture, the holder of common trust securities
cannot take action with respect to the trust agreement default until the effect
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of all defaults with respect to preferred trust securities has been cured,
waived or otherwise eliminated. Until the Event of Default under the trust
agreement with respect to preferred trust securities has been cured, waived or
otherwise eliminated, the property trustee will act solely on behalf of the
holders of preferred trust securities and not the holders of the common trust
securities. Only holders of preferred trust securities will have the right to
direct the property trustee to act on their behalf (Trust Agreement, Section
4.03(b)).
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
TXU Gas Capital will be dissolved and will be liquidated by the property
trustee on the first to occur of:
o The expiration of the term of TXU Gas Capital;
o The bankruptcy, dissolution or liquidation of TXU Gas Company;
o Redemption of all of the preferred trust securities;
o The entry of an order for dissolution of TXU Gas Capital by a court of
competent jurisdiction; and
o At any time, at the election of TXU Gas Company (Trust Agreement,
Sections 9.01 and 9.02).
If an early dissolution occurs because of bankruptcy, dissolution or
liquidation of TXU Gas Company, if all the preferred trust securities are
redeemed, or if TXU Gas Company so elects, TXU Gas Capital will be liquidated by
the property trustee as expeditiously as the property trustee determines to be
appropriate. The property trustee will provide for the satisfaction of
liabilities of creditors, if any, and distribute to each holder of the preferred
trust securities and common trust securities a proportionate amount of junior
subordinated debentures. If a distribution of junior subordinated debentures is
determined by the property trustee not to be practical, holders will be entitled
to receive, out of the assets of TXU Gas Capital after adequate provision for
the satisfaction of liabilities of creditors, if any, an amount equal to the
aggregate liquidation preference of the preferred trust securities plus accrued
and unpaid distributions on them to the date of payment. If this liquidation
distribution can be paid only in part because TXU Gas Capital has insufficient
assets available to pay in full the aggregate liquidation distribution, then the
amounts payable directly by TXU Gas Capital on the preferred trust securities
will be paid to the holders proportionately based on the total liquidation
preference amount of the preferred trust securities they hold. TXU Gas Company,
as holder of the common trust securities, will be entitled to receive
distributions upon any dissolution proportionately with the holders of the
preferred trust securities, except that if an Event of Default has occurred and
is continuing under the trust agreement, the preferred trust securities will
have a preference over the common trust securities (Trust Agreement, Section
9.04).
EVENTS OF DEFAULT; NOTICE
Any one of the following events will be an Event of Default under the trust
agreement whether it will be voluntary or involuntary or be effected by
operation of law or in accordance with any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body:
o The occurrence of an Event of Default under the subordinated
indenture;
o Default by TXU Gas Capital in the payment of any distribution when it
becomes due and payable, and continuation of that default for 30 days;
o Default by TXU Gas Capital in the payment of any redemption price,
plus accrued and unpaid distributions, of any preferred trust security
or common trust security when it becomes due and payable;
o Default in the performance, or breach, in any material respect, of any
covenant or warranty of the trustees in the trust agreement which is
not dealt with above, and the continuation of that default or breach
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for 60 days after notice to TXU Gas Capital by the holders of
preferred trust securities having at least 10% of the total
liquidation preference amount of the outstanding preferred trust
securities; or
o The occurrence of specified events of bankruptcy or insolvency with
respect to TXU Gas Capital (Trust Agreement, Section 1.01).
Within 90 business days after the occurrence of any Event of Default under
the trust agreement, the property trustee will transmit to the holders of
preferred trust securities and common trust securities and TXU Gas Company
notice of any default actually known to the property trustee, unless that
default has been cured or waived (Trust Agreement, Section 8.01(a)).
A holder of preferred trust securities may directly institute a proceeding
to enforce payment when due directly to the holder of the preferred trust
securities of the principal of or interest on junior subordinated debentures
having a principal amount equal to the aggregate liquidation preference amount
of the holder's preferred trust securities. The holders of preferred trust
securities have no other rights to exercise directly any other remedies
available to the holder of the junior subordinated debentures unless the
property trustee fails to do so (Trust Agreement, Section 6.01(a)).
Unless an Event of Default under the subordinated indenture has occurred
and is continuing, the holder of the common trust securities may remove the
property trustee at any time. If an Event of Default under the subordinated
indenture has occurred and is continuing, the holders of a majority of the total
liquidation preference amount of the outstanding preferred trust securities may
remove the property trustee. Any resignation or removal of the property trustee
will take effect only on the acceptance of appointment by the successor property
trustee (Trust Agreement, Section 8.10).
MERGER OR CONSOLIDATION OF THE PROPERTY TRUSTEE OR THE DELAWARE TRUSTEE
If the property trustee or the Delaware trustee merge or consolidate with
another entity, or if any entity succeeds to all or substantially all the
corporate trust business of the property trustee or the Delaware trustee, the
successor or surviving company will be the successor to the property trustee or
the Delaware trustee under the trust agreement, so long as it is otherwise
qualified and eligible (Trust Agreement, Section 8.12).
VOTING RIGHTS
Except with respect to amendments to the trust agreement and amendments to
and assignment of the guarantee, the holders of preferred trust securities will
have no voting rights not otherwise required by law or the trust agreement
(Trust Agreement, Section 6.01(a)).
While junior subordinated debentures are held by the property trustee, the
property trustee will not:
o Direct the time, method and place to conduct any proceeding for any
remedy available to the debenture trustee, or to execute any trust or
power conferred on the debenture trustee with respect to the junior
subordinated debentures;
o Waive any past default under the subordinated indenture;
o Exercise any right to rescind or annul a declaration that the
principal of all the junior subordinated debentures will be due and
payable; or
o Consent to any amendment, modification or termination of the
subordinated indenture or the junior subordinated debentures, where
that consent will be required;
without, in each case, obtaining the prior approval of the holders of preferred
trust securities having at least 66 2/3% of the liquidation preference amount of
the outstanding preferred trust securities. Where a consent of each holder of
junior subordinated debentures affected is required, no consent will be given by
the property trustee without the prior consent of each holder of the preferred
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trust securities. The property trustee will not revoke any action previously
authorized or approved by a vote of the holders of preferred trust securities.
If the property trustee fails to enforce its rights under the junior
subordinated debentures or the trust agreement, to the fullest extent permitted
by law, a holder of the preferred trust securities may institute a legal
proceeding directly against TXU Gas Company to enforce the property trustee's
rights under the junior subordinated debentures or the trust agreement without
first instituting any legal proceeding against the property trustee or anyone
else. The property trustee will notify all holders of preferred trust securities
of any notice of default received from the debenture trustee. The property
trustee will not take any action approved by the consent of the holders of the
preferred trust securities without an opinion of counsel experienced in those
matters to the effect that TXU Gas Capital will not be classified as an
association taxable as a corporation for United States federal income tax
purposes on account of that action (Trust Agreement, Sections 6.01(a) and
6.01(b)).
Holders of preferred trust securities may give any required approval at a
meeting convened for that purpose or by written consent without prior notice
(Trust Agreement, Section 6.06). The administrative trustees will give notice of
any meeting at which holders of preferred trust securities are entitled to vote
(Trust Agreement, Section 6.02).
No vote or consent of the holders of preferred trust securities will be
required for TXU Gas Capital to redeem and cancel preferred trust securities in
accordance with the trust agreement.
Although holders of preferred trust securities are entitled to vote or
consent under any of the circumstances described above, any of the preferred
trust securities that are owned by TXU Gas Company, any trustee under the trust
agreement or any affiliate of TXU Gas Company will be treated as if they were
not outstanding for purposes of that vote or consent (Trust Agreement, Section
1.01).
Unless an Event of Default under the subordinated indenture has occurred
and is continuing, holders of preferred trust securities will have no rights to
appoint or remove the administrative trustees of TXU Gas Capital, who may be
appointed, removed or replaced solely by TXU Gas Company as the holder of the
common trust securities (Trust Agreement, Section 8.10).
AMENDMENTS
The trust agreement may be amended from time to time by TXU Gas Capital and
TXU Gas Company without the consent of any holders of preferred trust securities
and common trust securities:
o To cure any ambiguity, correct inconsistent provisions, make any other
provisions with respect to matters or questions arising under the
trust agreement that do not conflict with the other provisions of the
trust agreement or any amendments of the trust agreement, or to change
the name of the trust; or
o To modify, eliminate or add to any provisions of the trust agreement
to the extent necessary to ensure that TXU Gas Capital will not be
classified as an association taxable as a corporation for United
States federal income tax purposes at any time that any preferred
trust securities and common trust securities are outstanding or to
ensure TXU Gas Capital's exemption from the status of an "investment
company" under the Investment Company Act of 1940.
No amendment described above may materially adversely affect the interests
of any holder of preferred trust securities and common trust securities. The
amendments to the trust agreement which cure ambiguity, correct inconsistencies
or supplement existing provisions will become effective when notice of the
amendment is given to the holders of preferred trust securities and common trust
securities (Trust Agreement, Section 10.03(a)).
Except as provided below, any provision of the trust agreement may be
amended by the administrative trustees and TXU Gas Company with:
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o The consent of holders of preferred trust securities and common trust
securities representing not less than a majority of the total
liquidation preference amount of the preferred trust securities and
common trust securities then outstanding; and
o Receipt by the trustees of an opinion of counsel to the effect that
the amendment or the exercise of any power granted to the trustees in
accordance with the amendment will not cause TXU Gas Capital to be
classified as an association taxable as a corporation for United
States federal income tax purposes or affect TXU Gas Capital's
exemption from status of an "investment company" under the Investment
Company Act (Trust Agreement, Section 10.03(b)).
Each holder of preferred trust securities or common trust securities must
consent to any amendment to the trust agreement that:
o Changes the amount or timing of any distribution with respect to
preferred trust securities or common trust securities or otherwise
adversely affects the amount of any distribution required to be made
in respect of preferred trust securities and common trust securities
as of a specified date; or
o Restricts the right of a holder of preferred trust securities and
common trust securities to institute suit for the enforcement of any
distribution on or after a specified date (Trust Agreement, Section
10.03(c)).
CO-TRUSTEES AND SEPARATE TRUSTEE
If no Event of Default under the trust agreement has occurred and is
continuing, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the trust property of
TXU Gas Capital may at the time be located, TXU Gas Company and the property
trustee may appoint one or more persons approved by the property trustee either
to act as co-trustee, jointly with the property trustee, of all or any part of
the trust property, or to act as separate trustee of any trust property. Upon
the written request of the property trustee, TXU Gas Company will for that
purpose join with the property trustee in the execution, delivery and
performance of all instruments necessary or proper to make that appointment. The
appointment will vest in that person or persons in that capacity, any property,
title, right or power deemed necessary or desirable, subject to the provisions
of the trust agreement. If TXU Gas Company does not join in that appointment
within 15 days after the receipt by it of a request so to do, or in case an
Event of Default under the subordinated indenture has occurred and is
continuing, the property trustee alone will have power to make that appointment
(Trust Agreement, Section 8.09).
FORM, EXCHANGE, AND TRANSFER
Preferred trust securities of any TXU Gas Capital Trust may be exchanged
for other preferred trust securities of that trust in any authorized
denomination and with the same terms and total liquidation preference (Trust
Agreement, Section 5.04).
Subject to the terms of the trust agreement, preferred trust securities may
be presented for exchange as provided above or for registration of transfer,
duly endorsed or accompanied by a duly executed instrument of transfer, at the
office of the preferred trust security registrar or at the office of any
transfer agent designated by TXU Gas Company for that purpose. TXU Gas Company
may designate itself the preferred trust security registrar. No service charge
will be made for any registration of transfer or exchange of preferred trust
securities, but TXU Gas Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection with the transfer. In
that case, the holder requesting transfer must pay the tax or charges and give
any indemnity that TXU Gas Capital or TXU Gas Company may require (Trust
Agreement, Section 5.04). A transfer or exchange will be made when the transfer
agent is satisfied with the documents of title and identity of the person making
the request. TXU Gas Company may at any time designate additional transfer
agents or rescind the designation of any transfer agent or approve a change in
the office through which any transfer agent acts, except that TXU Gas Company
will be required to maintain a transfer agent in each place of payment for
preferred trust securities.
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TXU Gas Capital will not be required to:
o Issue, register the transfer of, or exchange any preferred trust
securities during the 15 calendar days before the mailing of a notice
of redemption of any preferred trust securities called for redemption
and ending at the close of business on the day the notice is mailed;
or
o Register the transfer of or exchange any preferred trust securities so
selected for redemption, in whole or in part, except the unredeemed
portion of any preferred trust securities being redeemed in part
(Trust Agreement, Section 5.04).
REGISTRAR AND TRANSFER AGENT
TXU Business Services Company, an affiliate of TXU Gas Company, will act as
registrar and transfer agent for the preferred trust securities (Trust
Agreement, Section 5.04).
CONCERNING THE PROPERTY TRUSTEE
The property trustee will be The Bank of New York, which also acts as
trustee under various indentures and trusts of TXU Gas Company, TXU Corp and
other affiliates, including the indentures for the debt securities described
above, and the junior subordinated debentures described below. TXU Gas Company,
TXU Corp and other affiliates maintain deposit accounts and credit and liquidity
facilities and conduct other banking transactions with the property trustee in
the ordinary course of their businesses. The property trustee also acts as the
guarantee trustee under the guarantee and the debenture trustee under the
subordinated indenture. The Delaware trustee will be The Bank of New York
(Delaware).
DUTIES OF THE TRUSTEES
The Delaware trustee will act as the resident trustee in the State of
Delaware and will have no other significant duties (Trust Agreement, Section
2.06). The property trustee will hold the junior subordinated debentures on
behalf of TXU Gas Capital and will maintain a payment account with respect to
the preferred trust securities and common trust securities, and will also act as
trustee under the trust agreement for the purposes of the Trust Indenture Act.
The administrative trustees of TXU Gas Capital are authorized and directed
to conduct the affairs of TXU Gas Capital and to operate TXU Gas Capital so that
TXU Gas Capital will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxed as a corporation for United
States federal income tax purposes and so that the junior subordinated
debentures will be treated as indebtedness of TXU Gas Company for United States
federal income tax purposes. In this regard, the administrative trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust or the trust agreement, that the administrative trustees
determine in their discretion to be necessary or desirable for those purposes,
as long as the action does not materially adversely affect the interests of the
holders of the preferred trust securities (Trust Agreement, Section 2.07(d)).
GOVERNING LAW
The trust agreement and the preferred trust securities will be governed by,
and construed in accordance with, the laws of the State of Delaware (Trust
Agreement, Section 10.05).
MISCELLANEOUS
Holders of the preferred trust securities have no preemptive or similar
rights (Trust Agreement, Section 5.13).
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DESCRIPTION OF THE GUARANTEE
Material terms of the guarantee that TXU Gas Company will execute and
deliver for the benefit of the holders of the preferred trust securities are
summarized below. The form of guarantee was filed with the SEC and you should
read the guarantee for provisions that may be important to you. The guarantee
will be qualified as an indenture under the Trust Indenture Act. You should
refer to the Trust Indenture Act for provisions that apply to the guarantee.
Whenever particular provisions or defined terms of the guarantee are referred to
in this prospectus, those provisions or defined terms are incorporated in this
prospectus by reference.
The Bank of New York will act as guarantee trustee under the guarantee. The
Bank of New York also will act as the property trustee under the trust agreement
and the debenture trustee under the subordinated indenture. The guarantee
trustee will hold the guarantee for the benefit of the holders of the preferred
trust securities.
GENERAL TERMS OF THE GUARANTEE
TXU Gas Company will irrevocably and unconditionally agree to make the
guarantee payments listed below in full to the holders of the preferred trust
securities if they are not made by TXU Gas Capital, as and when due, regardless
of any defense, right of set-off or counterclaim that TXU Gas Company may have
or assert. The following payments will be subject to the guarantee, without
duplication:
o Any accrued and unpaid distributions required to be paid on preferred
trust securities, to the extent TXU Gas Capital has sufficient funds
available for payments;
o The redemption price, plus all accrued and unpaid distributions, for
any preferred trust securities called for redemption by TXU Gas
Capital, to the extent TXU Gas Capital has sufficient funds available
for payments; and
o Upon a voluntary or involuntary dissolution, winding-up or termination
of TXU Gas Capital except in connection with (1) the distribution of
junior subordinated debentures to the holders in exchange for
preferred trust securities as provided in the trust agreement or (2)
the redemption of all of the preferred trust securities upon maturity
or redemption of the junior subordinated debentures as provided in the
trust agreement, the lesser of:
(1) the total liquidation preference amount of, and all accrued and
unpaid distributions on, preferred trust securities to the date
of payment; and
(2) the amount of assets of TXU Gas Capital remaining available for
distribution to holders of preferred trust securities in
liquidation of TXU Gas Capital (Guarantee Agreement, Section
5.01).
TXU Gas Company's obligation to make a guarantee payment may be satisfied by
direct payment of the required amounts by TXU Gas Company to the holders of
preferred trust securities or by causing TXU Gas Capital to pay those amounts to
the holders (Guarantee Agreement, Section 5.01).
The guarantee will be a guarantee with respect to the preferred trust
securities, but will not apply to any payment of distributions if and to the
extent that TXU Gas Capital lacks the funds available to make those payments or
to any collection of payment.
If TXU Gas Company does not make interest payments on the junior
subordinated debentures held by TXU Gas Capital, TXU Gas Capital will not have
funds available to pay distributions on the preferred trust securities. The
guarantee will rank subordinate and junior in right of payment to all
liabilities of TXU Gas Company except liabilities that are equal in right of
payment by their terms (Guarantee Agreement, Section 6.01).
TXU Gas Company will enter into an agreement as to expenses and liabilities
with TXU Gas Capital, to provide funds to TXU Gas Capital as needed to pay
obligations of TXU Gas Capital to parties other than holders of preferred trust
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securities. The junior subordinated debentures and the guarantee, together with
the obligations of TXU Gas Company with respect to the preferred trust
securities under the subordinated indenture, the trust agreement, the guarantee
and the agreement as to expenses and liabilities, constitute a full and
unconditional guarantee of the preferred trust securities by TXU Gas Company. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes that guarantee. It is only the combined
operation of these documents that has the effect of providing a full and
unconditional guarantee by TXU Gas Company of the preferred trust securities.
AMENDMENTS AND ASSIGNMENT
No vote is required for changes to the trust agreement that do not
materially adversely affect the rights of holders of preferred trust securities.
Other terms of the guarantee may be changed only with the prior approval of the
holders of the preferred trust securities having at least 66 2/3% of the total
liquidation preference amount of the outstanding preferred trust securities
(Guarantee Agreement, Section 8.02). All guarantees and agreements contained in
the guarantee will bind the successors, assigns, receivers, trustees and
representatives of TXU Gas Company and will inure to the benefit of the holders
of the preferred trust securities then outstanding (Guarantee Agreement, Section
8.01).
EVENTS OF DEFAULT
An Event of Default under the guarantee will occur if TXU Gas Company fails
to perform any of its payment obligations under the guarantee (Guarantee
Agreement, Section 1.01). The holders of the preferred trust securities having a
majority of the total liquidation preference amount of the preferred trust
securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the guarantee trustee under the guarantee
or to direct the exercise of any trust or power conferred upon the guarantee
trustee under the guarantee (Guarantee Agreement, Section 5.04).
If the guarantee trustee fails to enforce the guarantee, any holder of the
preferred trust securities may enforce the guarantee, or institute a legal
proceeding directly against TXU Gas Company to enforce the guarantee trustee's
rights under the guarantee without first instituting a legal proceeding against
TXU Gas Capital, the guarantee trustee or anyone else (Guarantee Agreement,
Section 5.04).
TXU Gas Company will be required to provide an annual statement to the
guarantee trustee about TXU Gas Company's performance of some of its obligations
under the guarantee and any default in its performance of the obligations.
TXU Gas Company will also be required to file annually with the guarantee
trustee an officer's certificate as to TXU Gas Company's compliance with all
conditions under the guarantee (Guarantee Agreement, Section 2.04).
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee will undertake to perform only those duties
specifically described in the guarantee until a default occurs. After a default
under the guarantee, the guarantee trustee must exercise the same degree of care
in its duties as a prudent individual would exercise in the conduct of his or
her own affairs (Guarantee Agreement, Section 3.01(b)). Otherwise, the guarantee
trustee is under no obligation to exercise any of the powers vested in it by the
guarantee at the request of any holder of the preferred trust securities unless
it is offered reasonable indemnity against the costs, expenses and liabilities
that it might incur (Guarantee Agreement, Section 3.01(c)).
TERMINATION OF THE GUARANTEE
The guarantee will terminate and be of no further force and effect upon:
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o Full payment of the redemption price, plus accrued and unpaid
distributions, for all the preferred trust securities;
o The distribution of junior subordinated debentures to holders of the
preferred trust securities in exchange for all of the preferred trust
securities; or
o Full payment of the amounts payable upon liquidation of TXU Gas
Capital.
The guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of preferred trust securities must
restore payment of any sums paid under the preferred trust securities or the
guarantee (Guarantee Agreement, Section 7.01).
STATUS OF THE GUARANTEE
The guarantee will be an unsecured obligation of TXU Gas Company and will
rank:
o Subordinate and junior in right of payment to all liabilities of TXU
Gas Company, except any liabilities that are equal in right of payment
by their terms;
o Equal in right of payment with the most senior preferred or preference
stock that may be issued by TXU Gas Company and with any guarantee
that may be entered into by TXU Gas Company in respect of any
preferred or preference stock of any affiliate of TXU Gas Company; and
o Senior to TXU Gas Company's common stock (Guarantee Agreement, Section
6.01).
The trust agreement provides that by accepting preferred trust securities,
a holder agrees to the subordination provisions and other terms of the
guarantee.
The guarantee will be a guarantee of payment and not of collection
(Guarantee Agreement, Section 5.05). That is, the guaranteed party may institute
a legal proceeding directly against TXU Gas Company to enforce its rights under
the guarantee without first instituting a legal proceeding against anyone else.
GOVERNING LAW
The guarantee will be governed by, and construed in accordance with, the
laws of the State of New York (Guarantee Agreement, Section 8.06).
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures which the property trustee will hold on
behalf of TXU Gas Capital as trust assets will be subordinated obligations of
TXU Gas Company. The junior subordinated debentures will be issued under the
subordinated indenture.
Material terms of the junior subordinated debentures and the subordinated
indenture are summarized below. The subordinated indenture has been filed with
the SEC, and you should read the subordinated indenture for provisions that may
be important to you. The subordinated indenture will be qualified under the
Trust Indenture Act. You should refer to the Trust Indenture Act for provisions
that apply to the junior subordinated debentures. Whenever particular provisions
or defined terms in a subordinated indenture are referred to in this prospectus,
those provisions or defined terms are incorporated by reference in this
prospectus.
The subordinated indenture provides for the issuance of subordinated
debentures, including the junior subordinated debentures, and other subordinated
debt in an unlimited amount from time to time (Subordinated Indenture, Section
301). The junior subordinated debentures issued to TXU Gas Capital will
constitute a separate series of subordinated debentures under the subordinated
indenture.
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A prospectus supplement and an officer's certificate relating to the junior
subordinated debentures being offered will include specific terms relating to
that offering. These terms will include some or all of the following:
o The title of the junior subordinated debentures;
o The total principal amount of the junior subordinated debentures;
o The dates on which the principal of the junior subordinated debentures
will be payable and how it will be paid;
o The interest rate or rates which the junior subordinated debentures
will bear, or how the rate or rates will be determined, the interest
payment dates for the junior subordinated debentures and the regular
record dates for interest payments;
o Any right to extend the interest payment periods for the junior
subordinated debentures;
o The percentage, if less than 100%, of the principal amount of the
junior subordinated debentures that will be payable if the maturity of
the junior subordinated debentures is accelerated;
o Any date or dates on which the junior subordinated debentures may be
redeemed at the option of TXU Gas Company and any restrictions on
those redemptions;
o Any sinking fund or other provisions that would obligate TXU Gas
Company to repurchase or otherwise redeem the junior subordinated
debentures;
o Any changes or additions to the Events of Default under the
subordinated indenture or changes or additions to the covenants of TXU
Gas Company under the subordinated indenture;
o If the junior subordinated debentures will be issued in denominations
other than $25;
o If payments on the junior subordinated debentures may be made in a
currency or currencies other than United States dollars; and
o Any other terms of the junior subordinated debentures not inconsistent
with the terms of the subordinated indenture (Subordinated Indenture,
Section 301).
The junior subordinated debentures of each series will be limited in total
principal amount to the sum of the total liquidation preference amount of the
preferred trust securities and the consideration paid by TXU Gas Company for the
common trust securities of the related TXU Gas Capital trust. The junior
subordinated debentures are unsecured, subordinated obligations of TXU Gas
Company which rank junior to all of TXU Gas Company's Senior Indebtedness
(Subordinated Indenture, Section 1501). Senior Indebtedness is defined in the
subordinated indenture to include all notes and other obligations including
guarantees of TXU Gas Company for borrowed money that is not subordinate or
junior in right of payment to any other indebtedness of TXU Gas Company unless
by its terms it is equal in right of payment to the junior subordinated
debentures. The obligations of TXU Gas Company under the guarantee and the
junior subordinated debentures will not be deemed to be Senior Indebtedness
(Subordinated Indenture, Section 101). The amounts payable as principal and
interest on the junior subordinated debentures will be sufficient to provide for
payment of distributions payable on preferred trust securities and common trust
securities.
If junior subordinated debentures are distributed to holders of preferred
trust securities in a dissolution of TXU Gas Capital, the junior subordinated
debentures will be issued in fully registered certificated form in the
denominations and integral multiples of the denominations in which the preferred
trust securities have been issued, and they may be transferred or exchanged at
the offices of the debenture trustee (Subordinated Indenture, Section 201).
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Payments of principal and interest on junior subordinated debentures will
be payable, the transfer of junior subordinated debentures will be registrable,
and junior subordinated debentures will be exchangeable for junior subordinated
debentures of the same series of other denominations of the same total principal
amount, at the corporate trust office of the debenture trustee in The City of
New York (Subordinated Indenture, Section 602). However, TXU Gas Company may
choose to make payment of interest by check mailed to the address of the persons
entitled to it and may require that the payment in full of principal with
respect to any junior subordinated debenture be made only upon surrender of the
junior subordinated debenture to the debenture trustee.
OPTIONAL REDEMPTION
For so long as TXU Gas Capital is the holder of all the related outstanding
junior subordinated debentures, the proceeds of any optional redemption will be
used by TXU Gas Capital to redeem preferred trust securities and common trust
securities in accordance with their terms.
The debenture trustee will give notice to the holders of any optional
redemption of junior subordinated debentures, not less than 30 nor more than 60
days before that redemption. All notices of redemption will state the redemption
date and the redemption price plus accrued and unpaid interest. If less than all
the junior subordinated debentures are to be redeemed, the notice will identify
those to be redeemed and the portion of the principal amount of any junior
subordinated debentures to be redeemed in part. The notice will state that on
the redemption date, subject to the debenture trustee's receipt of the
redemption monies, the redemption price plus accrued and unpaid interest will
become due and payable on each junior subordinated debenture to be redeemed and
that interest will cease to accrue on and after that date. It will name the
place or places where the junior subordinated debentures are to be surrendered
for payment of the redemption price plus accrued and unpaid interest
(Subordinated Indenture, Section 404).
INTEREST
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months and for any period shorter than a full
month, on the basis of the actual number of days elapsed (Subordinated
Indenture, Section 310). If any date on which interest is payable on the junior
subordinated debentures is not a business day, then payment will be made on the
next business day. No interest will be paid in respect of any such delay.
However, if the delayed payment date is in the next calendar year, the payment
will be made on the last business day of the earlier year. These payments will
have the same force and effect as if made on the date the payment was originally
payable (Subordinated Indenture, Section 113).
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as there is no default in the payment of interest on the junior
subordinated debentures, TXU Gas Company may extend the interest payment period
from time to time on the junior subordinated debentures for one or more periods
(Subordinated Indenture, Section 311). As a consequence, distributions on
preferred trust securities would be deferred during any extension period.
Interest would, however, continue to accrue. If TXU Gas Company extends the
interest period or is in default under the guarantee or with respect to payments
on the junior subordinated debentures, TXU Gas Company may not:
o Declare or pay any dividend or distribution on its capital stock,
other than dividends paid in shares of common stock of TXU Gas
Company;
o Redeem, purchase, acquire or make a liquidation payment with respect
to any of its capital stock;
o Redeem any indebtedness that is equal in right of payment with the
junior subordinated debentures; or
o Make any guarantee payments with respect to any of the above
(Subordinated Indenture, Section 608).
Any extension period with respect to payment of interest on the junior
subordinated debentures, or any extension period in respect of other securities
issued under the subordinated indenture or on any similar securities, will apply
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to all securities of the same type. Those extensions will also apply to
distributions on preferred trust securities and common trust securities and all
other securities with terms substantially the same as preferred trust securities
and common trust securities. Before an extension period ends, TXU Gas Company
may further extend the interest payment period. No extension period as further
extended may exceed 20 consecutive quarters. After any extension period and the
payment of all amounts then due, TXU Gas Company may select a new extension
period. No interest period may be extended beyond the maturity of the junior
subordinated debentures. TXU Gas Company will give TXU Gas Capital and the
debenture trustee notice of its election of an extension period before the
earlier of (1) one business day before the record date for the distribution
which would occur if TXU Gas Company did not make the election to extend or (2)
the date TXU Gas Company is required to give notice to the New York Stock
Exchange or any other applicable self-regulatory organization of the record
date. TXU Gas Company will cause TXU Gas Capital to send notice of that election
to the holders of preferred trust securities.
ADDITIONAL INTEREST
So long as any preferred trust securities remain outstanding, if TXU Gas
Capital is required to pay any taxes, duties, assessments or governmental
charges imposed by the United States or any other taxing authority on income
derived from the interest payments on the junior subordinated debentures, then
TXU Gas Company will pay as interest on the junior subordinated debentures any
additional interest that may be necessary in order that the net amounts retained
by TXU Gas Capital after the payment of those taxes, duties, assessments or
governmental charges will be the same as TXU Gas Capital would have had in the
absence of the payment of those taxes, duties, assessments or governmental
charges (Subordinated Indenture, Section 312).
DEFEASANCE
TXU Gas Company will be discharged from its obligations on the subordinated
debentures of a particular series if it deposits with the debenture trustee
sufficient cash or government securities to pay the principal, interest, any
premium and any other sums when due on the stated maturity date or a redemption
date of that series of the subordinated debentures (Subordinated Indenture,
Section 701).
SUBORDINATION
The junior subordinated debentures will be subordinate and junior in right
of payment to all Senior Indebtedness of TXU Gas Company (Subordinated
Indenture, Section 1501). No payment of the principal of the junior subordinated
debentures, including redemption and sinking fund payments, or interest on the
junior subordinated debentures may be made until all holders of Senior
Indebtedness have been paid, if any of the following occurs:
o Specified events of bankruptcy, insolvency or reorganization of TXU
Gas Company;
o Any Senior Indebtedness is not paid when due and that default
continues without waiver;
o Any other default has occurred and continues without waiver,
permitting the holders of Senior Indebtedness to accelerate the
maturity of that indebtedness; or
o The maturity of any other series of subordinated debentures under the
subordinated indenture has been accelerated, because of an Event of
Default under the subordinated indenture which remains uncured
(Subordinated Indenture, Section 1502).
Upon any distribution of assets of TXU Gas Company to creditors in
connection with any insolvency, bankruptcy or similar proceeding, all principal
of, and premium, if any, and interest due or to become due on all Senior
Indebtedness must be paid in full before the holders of the junior subordinated
debentures are entitled to receive or retain any payment (Subordinated
Indenture, Section 1504).
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The subordinated indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued. As of June 30, 1999 TXU Gas Company had
approximately $701 million principal amount of indebtedness for borrowed money
constituting Senior Indebtedness.
CONSOLIDATION, MERGER, AND SALE OF ASSETS
Under the terms of the subordinated indenture, TXU Gas Company may not
consolidate with or merge into any other entity or convey, transfer or lease its
properties and assets substantially as an entirety to any entity, unless:
o The surviving or successor entity is organized and validly existing
under the laws of any domestic jurisdiction and it expressly assumes
TXU Gas Company's obligations on all subordinated debentures issued
under the subordinated indenture;
o Immediately after giving effect to the transaction, no Event of
Default under the subordinated indenture or no event which, after
notice or lapse of time or both, would become an Event of Default
under the subordinated indenture, occurs and is continuing; and
o TXU Gas Company delivers to the debenture trustee an officer's
certificate and an opinion of counsel as provided in the subordinated
indenture (Subordinated Indenture, Section 1101).
EVENTS OF DEFAULT
"Event of Default," when used in the subordinated indenture for
subordinated debentures of a specific series, will mean any of the following:
o Failure to pay interest on any subordinated debenture of that series
for 30 days after it is due;
o Failure to pay the principal of or any premium on any subordinated
debenture of that series when due;
o Failure to perform any other covenant in the subordinated indenture,
other than a covenant that does not relate to subordinated debentures
of that series, that continues for 90 days after TXU Gas Company
receives written notice from the debenture trustee or TXU Gas Company
and the debenture trustee receive a written notice from 33% of the
holders of the subordinated debentures of that series;
o Specified events in bankruptcy, insolvency or reorganization of TXU
Gas Company; or
o Any other Event of Default included in any supplemental indenture or
officer's certificate for that series of subordinated debentures
(Subordinated Indenture, Section 801).
An Event of Default under the subordinated indenture for a particular
series of subordinated debentures does not necessarily constitute an Event of
Default under the subordinated indenture for any other series of subordinated
debentures issued under the subordinated indenture. The debenture trustee may
withhold notice to the holders of subordinated debentures of any default except
a default in the payment of principal or interest if it considers the
withholding of notice to be in the best interests of the holders.
REMEDIES
If an Event of Default under the subordinated indenture for any series of
subordinated debentures occurs and continues, the debenture trustee or the
holders of at least 33% in aggregate principal amount of the subordinated
debentures of the series may declare the entire principal amount of all the
subordinated debentures of that series, together with accrued interest, to be
due and payable immediately. However, if the Event of Default under the
subordinated indenture is applicable to all outstanding subordinated debentures
under the subordinated indenture, only the debenture trustee or holders of at
least 33% in aggregate principal amount of all outstanding subordinated
debentures of all series, voting as one class, and not the holders of any one
series, may make that declaration of acceleration (Subordinated Indenture,
Section 802).
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At any time after a declaration of acceleration with respect to the
subordinated debentures of any series has been made and before a judgment or
decree for payment of the money due has been obtained, the Event of Default
under the subordinated indenture giving rise to the declaration of acceleration
will be considered waived, and the declaration and its consequences will be
considered rescinded and annulled, if:
o TXU Gas Company has paid or deposited with the debenture trustee a sum
sufficient to pay:
(1) all overdue interest on all subordinated debentures of the
series;
(2) the principal of and premium, if any, on any subordinated
debentures of the series which have otherwise become due and
interest that is currently due;
(3) interest on overdue interest; and
(4) all amounts due to the debenture trustee under the subordinated
indenture; and
o Any other Event of Default under the subordinated indenture with
respect to the subordinated debentures of that series has been cured
or waived as provided in the subordinated indenture (Subordinated
Indenture, Section 802).
There is no automatic acceleration, even in the event of bankruptcy,
insolvency or reorganization of TXU Gas Company.
Other than its duties in case of an Event of Default under the subordinated
indenture, the debenture trustee is not obligated to exercise any of its rights
or powers under the subordinated indenture at the request, order or direction of
any of the holders, unless the holders offer the debenture trustee a reasonable
indemnity. If they provide this reasonable indemnity, the holders of a majority
in principal amount of any series of subordinated debentures will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the debenture trustee or exercising any power conferred upon the
debenture trustee. However, if the Event of Default under the subordinated
indenture relates to more than one series, only the holders of a majority in
aggregate principal amount of all affected series will have the right to give
this direction. The debenture trustee is not obligated to comply with directions
that conflict with law or other provisions of the subordinated indenture
(Subordinated Indenture, Section 812).
No holder of subordinated debentures of any series will have any right to
institute any proceeding under the subordinated indenture, or any remedy under
the subordinated indenture, unless:
o The holder has previously given to the debenture trustee written
notice of a continuing Event of Default under the subordinated
indenture;
o The holders of a majority in aggregate principal amount of the
outstanding subordinated debentures of all series in respect of which
an Event of Default under the subordinated indenture will have
occurred and be continuing have made a written request to the
debenture trustee, and have offered reasonable indemnity to the
debenture trustee to institute proceedings; and
o The debenture trustee has failed to institute any proceeding for 60
days after notice (Subordinated Indenture, Section 807).
However, these limitations do not apply to a suit by a holder of a
subordinated debenture for payment of the principal, premium or interest on a
subordinated debenture on or after the applicable due date (Subordinated
Indenture, Section 808).
TXU Gas Company will provide to the debenture trustee an annual statement
by an appropriate officer as to TXU Gas Company's compliance with all conditions
and covenants under the subordinated indenture (Subordinated Indenture, Section
606).
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ENFORCEMENT OF RIGHTS BY HOLDERS OF PREFERRED TRUST SECURITIES
If there is an Event of Default under the subordinated indenture, then the
holders of preferred trust securities will rely on the property trustee or the
debenture trustee, acting for the benefit of the property trustee, to enforce
the property trustee's rights against TXU Gas Company as a holder of the junior
subordinated debentures. However, a holder of preferred trust securities may
enforce the subordinated indenture directly against TXU Gas Company to the same
extent as if the holder of preferred trust securities held a principal amount of
junior subordinated debentures equal to the aggregate liquidation preference
amount of its preferred trust securities (Subordinated Indenture, Section 610).
The holders of preferred trust securities would not be able to exercise
directly against TXU Gas Company any other rights unless the property trustee or
the debenture trustee failed to do so for 60 days. Upon that failure, the
holders of a majority of the aggregate liquidation preference amount of the
outstanding preferred trust securities would have the right to directly
institute proceedings for enforcement of all other rights against TXU Gas
Company to the fullest extent permitted by law (Subordinated Indenture, Section
807).
MODIFICATION AND WAIVER
Without the consent of any holder of subordinated debentures, TXU Gas
Company and the debenture trustee may enter into one or more supplemental
indentures for any of the following purposes:
o To evidence the assumption by any permitted successor of the covenants
of TXU Gas Company in the subordinated indenture and in the
subordinated debentures;
o To add additional covenants of TXU Gas Company or to surrender any
right or power of TXU Gas Company under the subordinated indenture;
o To add additional Events of Default under the subordinated indenture;
o To change or eliminate or add any provision to the subordinated
indenture; provided, however, if the change will adversely affect the
interests of the holders of subordinated debentures of any series in
any material respect, the change, elimination or addition will become
effective only:
(1) when the consent of the holders of subordinated debentures of
that series has been obtained in accordance with the subordinated
indenture; or
(2) when no subordinated debentures of the affected series remain
outstanding under the subordinated indenture;
o To provide collateral security for all but not part of the
subordinated debentures;
o To establish the form or terms of subordinated debentures of any other
series as permitted by the subordinated indenture;
o To provide for the authentication and delivery of bearer securities
with or without coupons;
o To evidence and provide for the acceptance of appointment of a
successor trustee;
o To provide for the procedures required for use of a noncertificated
system of registration for the subordinated debentures of all or any
series;
o To change any place where principal, premium and interest will be
payable, subordinated debentures may be surrendered for registration
of transfer or exchange and notices to TXU Gas Company may be served;
or
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o To cure any ambiguity or inconsistency or to make any other provisions
with respect to matters and questions arising under the subordinated
indenture; provided that the action will not adversely affect the
interests of the holders of subordinated debentures of any series in
any material respect (Subordinated Indenture, Section 1201).
The holders of at least a majority in aggregate principal amount of the
subordinated debentures of all series then outstanding may waive compliance by
TXU Gas Company with some restrictive provisions of the subordinated indenture
(Subordinated Indenture, Section 607). The holders of not less than a majority
in principal amount of the outstanding subordinated debentures of any series may
waive any past default under the subordinated indenture with respect to that
series, except a default in the payment of principal, premium, if any, or
interest and some covenants and provisions of the subordinated indenture that
cannot be modified or be amended without the consent of the holder of each
outstanding subordinated debenture of the series affected (Subordinated
Indenture, Section 813).
If the Trust Indenture Act is amended after the date of the subordinated
indenture in a way as to require changes to the subordinated indenture, the
subordinated indenture will be deemed to be amended so as to conform to that
amendment of the Trust Indenture Act. TXU Gas Company and the debenture trustee
may, without the consent of any holders, enter into one or more supplemental
indentures to evidence the amendment (Subordinated Indenture, Section 1201).
The consent of the holders of a majority in aggregate principal amount of
the subordinated debentures of all series then outstanding is required for all
other modifications to the subordinated indenture. However, if less than all of
the series of subordinated debentures outstanding are directly affected by a
proposed supplemental indenture, then the consent only of the holders of a
majority in aggregate principal amount of all series that are directly affected
will be required. No amendment or modification may:
o Change the stated maturity of the principal of, or any installment of
principal of or interest on any subordinated debenture, or reduce the
principal amount of any subordinated debenture or its rate of interest
or change the method of calculating the interest rate or reduce any
premium payable upon redemption, or change the currency in which
payments are made, or impair the right to institute suit for the
enforcement of any payment on or after the stated maturity of any
subordinated debenture, without the consent of the holder;
o Reduce the percentage in principal amount of the outstanding
subordinated debentures of any series whose consent is required for
any supplemental indenture, or any waiver of compliance with a
provision of the subordinated indenture or any default thereunder and
its consequences, or reduce the requirements for quorum or voting,
without the consent of all the holders of the series; or
o Modify some of the provisions of the subordinated indenture relating
to supplemental indentures, waivers of some covenants and waivers of
past defaults with respect to the subordinated debentures of any
series, without the consent of the holder of each outstanding
subordinated debenture affected by them (Subordinated Indenture,
Section 1202).
A supplemental indenture which changes the subordinated indenture solely
for the benefit of one or more particular series of subordinated debentures, or
modifies the rights of the holders of subordinated debentures of one or more
series, will not affect the rights under the subordinated indenture of the
holders of the subordinated debentures of any other series. So long as any of
preferred trust securities remain outstanding, the debenture trustee may not
consent to a supplemental indenture without the prior consent of the holders of
a majority in aggregate liquidation of all preferred trust securities or, in the
case of changes described in the clauses immediately above, 100% in aggregate
liquidation preference of all preferred trust securities then outstanding which
would be affected (Subordinated Indenture, Section 1202).
The subordinated indenture provides that subordinated debentures owned by
TXU Gas Company or anyone else required to make payments on the subordinated
debentures will be disregarded and considered not to be outstanding in
determining whether the required holders have given a request or consent
(Subordinated Indenture, Section 101).
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TXU Gas Company may fix in advance a record date to determine the required
number of holders entitled to give any request, demand, authorization,
direction, notice, consent, waiver or other act of holders, but TXU Gas Company
will have no obligation to do so. If TXU Gas Company fixes a record date, the
request, demand, authorization, direction, notice, consent, waiver or other act
of the holders may be given before or after that record date, but only the
holders of record at the close of business on the record date will be considered
to be holders for the purposes of determining whether holders of the required
percentage of the outstanding subordinated debentures have authorized or agreed
or consented to the request, demand, authorization, direction, notice, consent,
waiver or other act of the holders. For that purpose the outstanding
subordinated debentures will be computed as of the record date. Any request,
demand, authorization, direction, notice, consent, election, waiver or other act
of a holder will bind every future holder of the same subordinated debenture and
the holder of every subordinated debenture issued upon the registration of
transfer of or exchange of subordinated debentures. A transferee will be bound
by acts of the debenture trustee or TXU Gas Company in reliance on those acts
whether or not notation of that action is made upon the subordinated debenture
(Subordinated Indenture, Section 104).
RESIGNATION OF DEBENTURE TRUSTEE
The debenture trustee may resign at any time by giving written notice to
TXU Gas Company or may be removed at any time by act of the holders of a
majority in principal amount of all series of subordinated debentures then
outstanding delivered to the debenture trustee and TXU Gas Company. No
resignation or removal of the debenture trustee and no appointment of a
successor trustee will be effective until the acceptance of appointment by a
successor trustee. So long as no Event of Default under the subordinated
indenture or event which, after notice or lapse of time, or both, would become
an Event of Default under the subordinated indenture has occurred and is
continuing and except with respect to a trustee appointed by act of the holders,
if TXU Gas Company has delivered to the debenture trustee a resolution of its
Board of Directors appointing a successor trustee and the successor has accepted
that appointment in accordance with the terms of the respective subordinated
indenture, the debenture trustee will be deemed to have resigned and the
successor will be deemed to have been appointed as trustee in accordance with
the subordinated indenture (Subordinated Indenture, Section 910).
NOTICES
Notices to holders of subordinated debentures will be given by mail to the
addresses of the holders as they may appear in the security register for the
subordinated debentures (Subordinated Indenture, Section 106).
TITLE
TXU Gas Company, the debenture trustee, and any agent of TXU Gas Company or
the debenture trustee, may treat the person in whose name any subordinated
debenture is registered as the absolute owner of the subordinated debenture,
whether or not the subordinated debenture may be overdue, for the purpose of
making payments and for all other purposes irrespective of notice to the
contrary (Subordinated Indenture, Section 308).
GOVERNING LAW
The subordinated indenture and the subordinated debentures will be governed
by, and construed in accordance with, the laws of the State of New York
(Subordinated Indenture, Section 112).
CONCERNING THE DEBENTURE TRUSTEE
The debenture trustee under the subordinated indenture will be The Bank of
New York. In addition to acting as debenture trustee, The Bank of New York will
act as property trustee under the trust agreement and as guarantee trustee under
the guarantee. Its affiliate, The Bank of New York (Delaware), will act as the
Delaware trustee under the trust agreement. In addition, The Bank of New York
acts, and may act, as trustee under various indentures and trusts of TXU Gas
Company, TXU Corp and other affiliates. TXU Gas Company, TXU Corp and other
affiliates maintain deposit accounts and credit and liquidity facilities and
conduct other banking transactions with the debenture trustee in the ordinary
course of their businesses.
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PLAN OF DISTRIBUTION
The debt securities and the preferred trust securities described in this
prospectus may be offered (a) through agents; (b) through underwriters or
dealers; or (c) directly to purchasers.
BY AGENTS
The debt securities and preferred trust securities may be sold through
agents designated by TXU Gas Company.
BY UNDERWRITERS
If underwriters are used in any sale of debt securities or preferred trust
securities, the underwriters will acquire the securities sold for their own
account. The underwriters may resell those securities in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. Underwriters may sell
the securities directly or through underwriting syndicates represented by
managing underwriters. The obligations of the underwriters to purchase the
securities will be subject to specific conditions. The underwriters in any
underwritten offering will be obligated to purchase all the offered securities
if any are purchased. If a dealer is used in the sale, TXU Gas Company or TXU
Gas Capital will sell the securities to the dealer as principal. The dealer may
then resell the securities at varying prices determined at the time of resale.
DIRECT SALES
Debt securities and preferred trust securities may also be sold directly by
TXU Gas Company. In that case, no underwriters or agents would be involved.
GENERAL INFORMATION
Underwriters, dealers and agents that participate in any distribution of
debt securities or preferred trust securities may be underwriters as defined in
the Securities Act and any discounts or commissions received by them from TXU
Gas Company or TXU Gas Capital and any profit on the resale by them of those
securities may be treated as underwriting discounts under the Securities Act.
Any underwriters, dealers or agents will be identified and their compensation
described in a prospectus supplement.
TXU Gas Company or TXU Gas Capital may authorize agents and underwriters to
solicit offers by specified institutions to purchase debt securities or
preferred trust securities at the public offering price and on terms described
in the applicable prospectus supplement.
TXU Gas Company may have agreements with agents, underwriters and dealers
to indemnify them against specified civil liabilities, including liabilities
under the Securities Act, or to contribute with respect to payments which the
agents, underwriters, dealers and remarketing firms may be required to make.
Neither the debt securities nor the preferred trust securities has an
established trading market. TXU Gas Company may decide to list any series of
those securities on an exchange. However, TXU Gas Company will not be obligated
to list securities on an exchange unless it states otherwise in a prospectus
supplement. TXU Gas Company cannot assure that there will be any liquidity of
the trading market for any series of debt securities or preferred trust
securities.
Agents, underwriters and dealers may engage in transactions with, or
perform services for, TXU Gas Company or its subsidiaries in the ordinary course
of business.
EXPERTS AND LEGALITY
The consolidated financial statements included in the latest Annual Report
of TXU Gas Company on Form 10-K, incorporated in this prospectus by reference,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
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their report included in the latest Annual Report of TXU Gas Company on Form
10-K, and have been incorporated by reference in this prospectus in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
With respect to any unaudited condensed consolidated interim financial
information included in TXU Gas Company's Quarterly Reports on Form 10-Q which
are or will be incorporated in this prospectus by reference, Deloitte & Touche
LLP has applied limited procedures in accordance with professional standards for
reviews of that information. As stated in any of their reports included in TXU
Gas Company's Quarterly Reports on Form 10-Q, which are or will be incorporated
in this prospectus by reference, Deloitte & Touche LLP did not audit and did not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on the reports on that information should be restricted in
light of the limited nature of the review procedures applied. Deloitte & Touche
LLP is not subject to the liability provisions of Section 11 of the Securities
Act for any of their reports on the unaudited condensed consolidated interim
financial information because those reports are not "reports" or a "part" of the
registration statement filed under the Securities Act with respect to the debt
securities or preferred trust securities prepared or certified by an accountant
within the meaning of Sections 7 and 11 of the Securities Act.
Matters of Delaware law relating to the validity of the preferred trust
securities, the enforceability of the trust agreement and the creation of TXU
Gas Capital are being passed upon by Richards, Layton & Finger, P.A., Special
Delaware counsel for TXU Gas Company and TXU Gas Capital. The legality of the
other securities offered in this prospectus will be passed upon for TXU Gas
Company and TXU Gas Capital by Worsham, Forsythe & Wooldridge, L.L.P., Dallas,
Texas, and by Thelen Reid & Priest LLP, New York, New York, and for the
underwriters by Winthrop, Stimson, Putnam & Roberts, New York, New York.
However, all matters pertaining to incorporation of TXU Gas Company and all
other matters of Texas law will be passed upon only by Worsham, Forsythe &
Wooldridge, L.L.P. At June 30, 1999, members of the firm of Worsham, Forsythe &
Wooldridge, L.L.P. owned approximately 41,000 shares of the common stock of TXU
Corp, which owns all of the common stock of TXU Gas Company.
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TXU GAS COMPANY
PUTABLE ASSET TERM SECURITIES (PATS SM)
PUTABLE/CALLABLE OCTOBER , 2002
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PROSPECTUS SUPPLEMENT
October , 2000
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UBS WARBURG LLC
BANC OF AMERICA SECURITIES LLC
