Filed Pursuant to Rule 424(b)(4)
Registration Nos. 33-64211 and 33-64211-01
8,000,000 PREFERRED SECURITIES
TU ELECTRIC CAPITAL III
8.00% CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES (QUIPS (SM))*
(LIQUIDATION PREFERENCE $25.00 PER UNIT)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
TEXAS UTILITIES ELECTRIC COMPANY
--------------------------
The 8.00% Cumulative Quarterly Income Preferred Securities (QUIPS)
offered hereby are being issued by and represent undivided preferred
beneficial interests in TU Electric Capital III (TU Electric Capital),
a statutory business trust formed under the laws of the State of
Delaware. Texas Utilities Electric Company (Company), a Texas
corporation, is the owner of the undivided common beneficial interests
in the assets of TU Electric Capital (Common Securities, together
with the QUIPS herein referred to as the Trust Securities). The Bank
of New York and The Bank of New York (Delaware) are the Property
Trustee and the Delaware Trustee, respectively, and certain individuals
who are employees of the Company or its affiliates are the Administrative
Trustees of TU Electric Capital. TU Electric Capital exists for the
sole purpose of issuing its trust interests (including the QUIPS) and
investing the proceeds thereof in 8.00% Junior Subordinated Debentures,
Series C, Due December 31, 2035, issued by the Company (Junior
Subordinated Debentures) in an aggregate principal amount equal to
the aggregate liquidation preference of the Trust Securities. The
QUIPS will have a preference under certain circumstances with respect
to cash distributions and amounts payable on liquidation, redemption or
otherwise over the Common Securities. See DESCRIPTION OF THE QUIPS -
"Subordination of Common Securities".
(cover continued on following page)
SEE RISK FACTORS, BEGINNING ON PAGE 7, FOR CERTAIN INFORMATION RELEVANT
TO AN INVESTMENT IN THE QUIPS, INCLUDING THE PERIOD AND CIRCUMSTANCES
DURING AND UNDER WHICH PAYMENT OF DISTRIBUTIONS ON THE QUIPS MAY BE
DEFERRED AND CERTAIN RELATED FEDERAL INCOME TAX CONSEQUENCES.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------------------
Initial Public Underwriting Proceeds to
Offering Price Commission(1) Company(2)(3)
-------------- ------------- -------------
Per Unit of QUIPS... $25.00 (2) $25.00
Total............... $200,000,000 (2) $200,000,000
-----------------
(1) TU Electric Capital and the Company have agreed to indemnify the
several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
UNDERWRITING.
(2) In view of the fact that the entire proceeds of the sale of the
QUIPS will be used to purchase the Junior Subordinated
Debentures, the Underwriting Agreement provides that the Company
will pay to the Underwriters, as compensation for their
arranging the investment therein of such proceeds, $.7875 per
unit of QUIPS (or $63,000,000 in the aggregate). See
UNDERWRITING.
(3) Expenses of the offering, which are payable by the Company, are
estimated to be $445,000.
--------------------------
The QUIPS offered hereby are offered severally by the Underwriters, as
specified herein, and subject to receipt and acceptance by them and subject
to their right to reject any order in whole or in part. It is expected
that delivery of the QUIPS will be made only in book-entry form through the
facilities of DTC on or about December 13, 1995.
-------------------------
*QUIPS is a service mark of Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
DEAN WITTER REYNOLDS INC.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
-------------------------------
The date of this Prospectus is December 6, 1995.
<PAGE>
(cover continued)
Holders of the QUIPS will be entitled to receive cumulative cash
distributions accruing from the date of original issuance and payable
quarterly in arrears on the last day of March, June, September and December
of each year, commencing December 31, 1995, at the per annum rate of 8.00%
of the liquidation preference amount thereof. Interest on the Junior
Subordinated Debentures is the sole source of income for TU Electric
Capital from which payment of distributions on the QUIPS can be made. The
Company has the right to defer payments of interest on the Junior
Subordinated Debentures by extending the interest payment period thereon at
any time for up to 20 consecutive quarters (each such extended payment
period, an Extension Period), provided that the aggregate interest payment
period, as so extended, may not exceed 20 consecutive quarterly interest
payment periods or extend beyond the maturity of the Junior Subordinated
Debentures. Upon the termination of any Extension Period and the payment
of all amounts then due, including interest on deferred interest payments,
the Company may elect a new Extension Period, subject to the above
requirements.
If interest payments are so deferred, distributions on the QUIPS will
also be deferred to such extent. During an Extension Period, distributions
will continue to accrue, and Holders of QUIPS will be required to accrue
income for United States federal income tax purposes. Cash distributions
in arrears will bear interest thereon at the per annum rate of 8.00% (to
the extent permitted by applicable law), compounded quarterly. See
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES - "Option to Extend
Interest Payment Period" and CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES - "Original Issue Discount." During an Extension Period,
the Company may not declare or pay dividends on (other than dividends
paid in shares of Common Stock of the Company) or redeem or acquire,
any of its capital stock, redeem any indebtedness that is pari passu
with the Junior Subordinated Debentures or make any guarantee payment
with respect to the foregoing. Any Extension Period with respect to
payment of interest on the Junior Subordinated Debentures, other Debt
Securities (as defined herein) or on any similar securities will apply
to all such securities and will also apply to distributions with respect
to the QUIPS and all other securities with terms substantially the same
as the QUIPS. Based upon the Company's current financial condition and,
in light of the restriction on payment of dividends on the Company's
securities during an Extension Period, the Company believes that an
extension of a distribution payment period on the QUIPS is currently
unlikely and has no current intention to cause such an extension.
See DESCRIPTION OF THE QUIPS - "Distributions."
The payment of distributions out of moneys held by TU Electric Capital
and payments on liquidation of TU Electric Capital or the redemption of
QUIPS, as set forth below, are guaranteed by the Company to the extent TU
Electric Capital has sufficient funds available to make such payments
(Guarantee). See DESCRIPTION OF THE GUARANTEE. If the Company fails to
make interest payments on the Junior Subordinated Debentures held by TU
Electric Capital, TU Electric Capital will have insufficient funds to pay
distributions on the QUIPS. The Guarantee does not cover payment of
distributions when TU Electric Capital does not have sufficient funds to
pay such distributions. In such event, the Holders of QUIPS would be
required to rely on enforcement of the rights of TU Electric Capital under
the Junior Subordinated Debentures held by TU Electric Capital. The
Company's obligations under the Guarantee are subordinate and junior in
right of payment to all other liabilities of the Company except any
liabilities that may be made pari passu expressly by their terms. The
Company may organize trusts similar to TU Electric Capital for the purpose
of issuing securities similar to the QUIPS. It is expected that junior
subordinated debentures or other Debt Securities of the Company that are
pari passu with the Junior Subordinated Debentures will be issued in
connection with the issuance of any such securities. Any extension period
with respect to any such junior subordinated debentures of the Company will
apply to the Junior Subordinated Debentures, any other Debt Securities, any
similar securities, the QUIPS and any securities substantially the same as
the QUIPS.
The QUIPS are subject to mandatory redemption upon repayment of the
Junior Subordinated Debentures at maturity or upon their earlier
redemption. See DESCRIPTION OF THE QUIPS - "Redemption Procedures." The
Company will have the option at any time on or after January 1, 2001, upon
not less than 45 days' notice, to redeem the Junior Subordinated
Debentures, in whole or in part. The Company also will have the right at
any time, upon the occurrence of a Tax Event (as defined herein), to cause
the termination of TU Electric Capital and, in connection therewith, after
satisfaction of creditors of TU Electric Capital, if any, to distribute
Junior Subordinated Debentures to the Holders of QUIPS or, under certain
circumstances, to redeem, in whole or in part, the Junior Subordinated
Debentures. Any redemption of the QUIPS and the Common Securities by TU
Electric Capital will be, upon not less than 30 days' nor more than 60
days' notice to the Holders thereof, in amounts having an aggregate
liquidation preference equal to the aggregate principal of Junior
Subordinated Debentures to be redeemed at a redemption price of 100% of
such liquidation preference amount (Redemption Price), plus accrued and
unpaid distributions, including interest thereon, if any, to the redemption
date. Each class of the Trust Securities will be redeemed in proportion to
the percentage they represent of all the Trust Securities. See DESCRIPTION
OF THE JUNIOR SUBORDINATED DEBENTURES - "Optional Redemption."
The Junior Subordinated Debentures are subordinated and junior in right
of payment to all Senior Indebtedness (as defined herein) of the Company.
As of September 30, 1995, the Company had approximately $7.5 billion of
principal amount of indebtedness for borrowed money and capital lease
obligations constituting Senior Indebtedness (as defined herein). See
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES - "Subordination" and
DESCRIPTION OF THE QUIPS.
In the event of the liquidation of TU Electric Capital, the Holders of
the Trust Securities will be entitled to receive Junior Subordinated
Debentures in an aggregate principal amount of $25 for each security or, in
certain circumstances, a liquidation preference of $25 for each security,
plus accrued and unpaid distributions thereon to the date of payment,
subject to certain limitations. See DESCRIPTION OF THE QUIPS - "Liquidation
Distribution upon Dissolution."
Application has been made to list the QUIPS on the New York Stock
Exchange (NYSE).
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission (Commission) pursuant to the Securities Exchange Act of
1934, as amended (1934 Act), are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1994
(1994 10-K).
2. Quarterly Reports on Form 10-Q for the quarters ended March 31,
1995, June 30, 1995 and September 30, 1995.
3. Current Reports on Form 8-K, dated October 17, 1995 and October
26, 1995.
All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the 1934 Act and prior to the termination of
the offering hereunder shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents. The documents which are incorporated by reference in this
Prospectus are sometimes hereinafter referred to as the "Incorporated
Documents."
Any statement contained in an Incorporated Document shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed
document which is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN
DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY
OR ALL OF THE DOCUMENTS REFERRED TO ABOVE WHICH HAVE BEEN OR MAY BE
INCORPORATED IN THIS PROSPECTUS BY REFERENCE, OTHER THAN EXHIBITS TO SUCH
DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
INTO SUCH DOCUMENTS). REQUESTS SHOULD BE DIRECTED TO PETER B. TINKHAM,
SECRETARY, TEXAS UTILITIES ELECTRIC COMPANY, 1601 BRYAN STREET, DALLAS,
TEXAS 75201, TELEPHONE NUMBER (214) 812-4600.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the 1934 Act
and in accordance therewith files reports and other information with the
Commission. Such reports and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following Regional Offices of the Commission: Chicago Regional
Office, Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois
60661; and New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Certain depositary shares
representing shares of cumulative preferred stock of the Company are listed
on the NYSE, where reports and other information concerning the Company may
be inspected.
Securityholders of the Company may obtain, upon request, copies of an
Annual Report on Form 10-K containing financial statements as of the end of
the most recent fiscal year audited and reported upon (with an opinion
expressed) by independent auditors.
No separate financial statements of TU Electric Capital are included
herein. The Company considers that such financial statements would not be
material to Holders of the QUIPS because the Company is a reporting company
under the Exchange Act and TU Electric Capital has no independent
operations, but exists for the sole purpose of issuing the Trust Securities
and holding as trust assets the Junior Subordinated Debentures.
TU Electric Capital will not file separate reports under the 1934 Act.
The aggregate of the following rights and obligations constitute a full and
unconditional guarantee by the Company of payments due on the QUIPS: the
obligations of the Company under the Junior Subordinated Debentures, the
Trust Agreement, the Guarantee, the Indenture and the Agreement as to
Expenses and Liabilities between the Company and TU Electric Capital
(Expense Agreement). See DESCRIPTION OF THE QUIPS, DESCRIPTION OF THE
JUNIOR SUBORDINATED DEBENTURES and DESCRIPTION OF THE GUARANTEE.
PROSPECTUS SUMMARY
The following is a summary of certain information contained herein and
should be read in conjunction with such information contained elsewhere in
this Prospectus and is subject to and qualified by reference to such
information. Capitalized terms used herein have the respective meanings
ascribed to them elsewhere in this Prospectus.
THE COMPANY
The Company was incorporated under the laws of Texas in 1982 and is an
electric utility engaged in the generation, purchase, transmission,
distribution and sale of electric energy wholly within the state of Texas.
The principal executive offices of the Company are located at Energy Plaza,
1601 Bryan Street, Dallas, Texas 75201; and the telephone number is (214)
812-4600.
TU ELECTRIC CAPITAL
TU Electric Capital is a Delaware statutory business trust formed for
the exclusive purposes of (i) issuing the QUIPS and Common Securities
representing undivided beneficial interests in the assets of TU Electric
Capital, (ii) holding as trust assets the Junior Subordinated Debentures
and (iii) engaging in only those other activities necessary or incidental
thereto. Upon issuance of the QUIPS, the Holders thereof will own all of
the issued and outstanding QUIPS. The Company has agreed to acquire Common
Securities in an amount equal to at least 3% of the total capital of TU
Electric Capital and will own all of the issued and outstanding Common
Securities.
DESCRIPTION OF QUIPS
The QUIPS are undivided preferred beneficial interests in the assets of
TU Electric Capital and will have a preference, under certain
circumstances, with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise over the trust interests represented
by the Common Securities issued by TU Electric Capital.
Holders of the QUIPS will be entitled to receive cumulative cash
distributions accruing from the date of original issuance and payable
quarterly in arrears on the last day of March, June, September and December
of each year, commencing December 31, 1995, at the per annum rate of 8.00%
of the liquidation preference amount thereof to the persons in whose names
the QUIPS are registered at the close of business on the relevant record
dates. Such distributions will originally accrue from, and include, the
Closing Date and will accrue to, and include, the first distribution
payment date, and thereafter will accrue from, and exclude, the last
distribution payment date through which distributions have been paid. In
the event that any date on which a distribution is payable on the QUIPS is
not a Business Day (as defined herein), then such distribution will be made
on the next succeeding Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is
in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date.
TU Electric Capital will hold Junior Subordinated Debentures in an
aggregate principal amount equal to the liquidation preference of the Trust
Securities. The Junior Subordinated Debentures are unsecured subordinated
debt securities issued under an Indenture dated as of December 1, 1995,
between the Company and The Bank of New York, as Trustee (Indenture). TU
Electric Capital will use interest payments on the Junior Subordinated
Debentures to make distributions on the QUIPS. The Junior Subordinated
Debentures will be subordinate to all Senior Indebtedness of the Company
but are senior to all capital stock of the Company.
The Company has the right to defer payments of interest on the Junior
Subordinated Debentures during Extension Periods of up to 20 consecutive
quarters, provided that no single distribution payment period, as extended,
may exceed 20 consecutive quarterly interest payment periods or extend
beyond the maturity of the Junior Subordinated Debentures. Distributions
on the QUIPS will accrue with interest, compounded quarterly, but will not
be payable, during an Extension Period. The Company may prepay at any time
all or any portion of the interest accrued during an Extension Period.
Based upon the Company's current financial condition and, in light of the
restriction on payment of dividends during an Extension Period, the Company
believes that an extension of a distribution payment period on the QUIPS is
unlikely and has no current intention to extend such a distribution payment
period. Upon the termination of any Extension Period and the payment of
all amounts then due, the Company may elect another Extension Period. The
Company will give TU Electric Capital and the Debenture Trustee notice of
its election of an Extension Period prior to the earlier of (i) one
Business Day prior to the record date for the distribution which would
occur but for such election or (ii) the date the Company is required to
give notice to the NYSE or other applicable self-regulatory organization of
such record date and will cause TU Electric Capital to send notice of such
election to the Holders of QUIPS.
If and to the extent the Company makes interest payments on the Junior
Subordinated Debentures deposited in TU Electric Capital as trust assets,
the Property Trustee is obligated to make distributions promptly on the
QUIPS. The payment of distributions on the QUIPS and payments on
liquidation of TU Electric Capital and the redemption of QUIPS are
guaranteed by the Company if and to the extent that TU Electric Capital has
funds available therefor.
The Junior Subordinated Debentures are redeemable, in whole or in part,
on or after January 1, 2001, or at any time upon the occurrence of a Tax
Event, at the option of the Company. Upon redemption of the Junior
Subordinated Debentures, the QUIPS will be redeemed.
Upon the occurrence and during the continuation of a Tax Event arising
from a change in law or a change in legal interpretation or other specified
circumstance, TU Electric Capital shall, unless the Junior Subordinated
Debentures are redeemed in the limited circumstances described below and
subject to certain other limited exceptions, be terminated, with the result
that after the satisfaction of creditors of TU Electric Capital, if any,
the Junior Subordinated Debentures will be distributed to the Holders of
the QUIPS and the Common Securities on a pro rata basis, in lieu of any
cash distribution. In the case of a Tax Event, the Company will have the
right in certain circumstances to redeem the Junior Subordinated Debentures
at any time, in which event TU Electric Capital will redeem the Trust
Securities on a pro rata basis to the same extent as the Junior
Subordinated Debentures are redeemed. If the Junior Subordinated
Debentures are distributed to the Holders of the QUIPS, the Company will
use its best efforts to have the Junior Subordinated Debentures listed on
the New York Stock Exchange or on such other exchange as the QUIPS are then
listed. See DESCRIPTION OF THE QUIPS - "Tax Event Redemption or
Distribution."
The Company will guarantee payment, where applicable, of accrued and
unpaid distributions, the Redemption Price and amounts due upon
liquidation, to the extent TU Electric Capital has funds available
therefor.
The Trust Agreement (as defined herein) provides that the Company shall
pay for all debts and obligations (other than with respect to the Trust
Securities) and all costs and expenses of TU Electric Capital, including
any taxes and all costs and expenses with respect thereto, to which TU
Electric Capital may become subject, except for United States withholding
taxes.
No Sinking Fund will be established for the benefit of the QUIPS.
RISK FACTORS
Prospective purchasers of QUIPS should carefully consider the following
risk factors with respect to the QUIPS:
DEPENDENCE OF TU ELECTRIC CAPITAL ON THE COMPANY FOR FUNDS; SUBORDINATION
OF GUARANTEE AND JUNIOR SUBORDINATED DEBENTURES
The ability of TU Electric Capital to pay amounts due on the QUIPS is
solely dependent upon the Company making payments on the Junior
Subordinated Debentures as and when required.
The Company's obligations under the Guarantee are subordinated and
junior in right of payment to all other liabilities of the Company, except
any liabilities that may be made pari passu expressly by their terms. The
obligations of the Company under the Junior Subordinated Debentures are
subordinated and junior in right of payment to Senior Indebtedness of the
Company. As of September 30, 1995, Senior Indebtedness of the Company
aggregated approximately $7.5 billion. There are no terms of the QUIPS,
the Junior Subordinated Debentures or the Guarantee that limit the
Company's ability to incur additional indebtedness, including indebtedness
that would rank senior to the Junior Subordinated Debentures and the
Guarantee. See DESCRIPTION OF THE GUARANTEE - "Status of the Guarantee"
and DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES - "Subordination."
PAYMENT DELAY UPON EXERCISE OF OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right under the Indenture to extend the interest
payment period from time to time on the Junior Subordinated Debentures, for
a period not exceeding 20 consecutive quarters. Upon the termination of any
such Extension Period and the payment of all amounts then due, the Company
may select an additional Extension Period, subject to the requirements
described herein. During any such Extension Period, quarterly distributions
on the QUIPS would be deferred (but would continue to accrue with interest
thereon compounded quarterly) by TU Electric Capital. In the event that
the Company exercises this right, during the Extension Period the Company
may not declare or pay dividends or distributions (other than dividends or
distributions in Common Stock of the Company) on, or redeem, purchase,
acquire, or make a liquidation payment with respect to any of its capital
stock, redeem any indebtedness that is pari passu with the Junior
Subordinated Debentures or make any guarantee payment with respect to the
foregoing. Prior to the termination of any such Extension Period, the
Company may further extend the interest payment period, provided that such
Extension Period together with all such previous and further extensions
thereof may not exceed 20 consecutive quarters and that such extended
interest payment period may not extend beyond the maturity date of the
Junior Subordinated Debentures. Any extension period with respect to
payment of interest on the Junior Subordinated Debentures, other Debt
Securities or on any similar securities will apply to all such securities
and will also apply to distributions with respect to the QUIPS and all
other securities with terms substantially the same as the QUIPS. If the
Company should determine to exercise its extension right in the future, the
market price of the QUIPS is likely to be affected. Based upon the
Company's current financial condition and, in light of the restriction on
payment of dividends during an Extension Period, TU Electric Capital and
the Company believe that such an extension of an interest payment period on
the Junior Subordinated Debentures is unlikely to occur. See DESCRIPTION
OF THE QUIPS - "Distributions" and DESCRIPTION OF THE JUNIOR SUBORDINATED
DEBENTURES - "Option to Extend Interest Payment Period."
ADVERSE TAX CONSEQUENCES OF EXTENSION OF INTEREST PAYMENT PERIOD; OID
Because the Company has the right to extend the interest payment period
for the Junior Subordinated Debentures, the Junior Subordinated Debentures
will be treated as having been issued with OID for United States federal
income tax purposes. As a result, Holders of QUIPS will be required to
include in their gross income distributions with respect to the QUIPS as
they accrue, rather than when they are paid, regardless of the Holders'
regular method of accounting. OID on the QUIPS will be treated as interest
and will generally be equal to the amount of stated distributions accruing
on the QUIPS each year. During an Extension Period, a Holder of QUIPS that
is subject to United States federal income tax would be required to
continue to include in gross income an amount of OID in respect of the
distributions accruing on the QUIPS for United States federal income tax
purposes in advance of the receipt of cash regardless of such Holder's
regular method of accounting. See CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES - "Original Issue Discount." A Holder that disposed of its
QUIPS prior to the record date for the payment of interest at the end of an
Extension Period would not receive cash from TU Electric Capital related to
such interest because the accrued distributions related to such interest
will be paid to the Holder of record on such record date, regardless of who
the Holder of record may have been on other dates during the Extension
Period. In addition, as a result of the Company's right to extend the
interest payment period, the market price of the QUIPS may be more volatile
than debt instruments with OID which do not afford the issuer such a right.
See CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES - "Original Issue
Discount."
RIGHTS UNDER THE GUARANTEE; LIMITATION AS TO FUNDS AVAILABLE TO TU ELECTRIC
CAPITAL
The Guarantee will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (Trust Indenture Act). The Bank of New
York will act as indenture trustee under the Guarantee for the purposes of
compliance with the Trust Indenture Act (Guarantee Trustee). The Bank of
New York will also act as trustee for the Junior Subordinated Debentures
and will hold the Guarantee for the benefit of the Holders of the QUIPS.
The Guarantee guarantees to the Holders of the QUIPS the payment (but
not the collection) of (i) any accrued and unpaid distributions required to
be paid on the QUIPS, to the extent TU Electric Capital has funds available
therefor, (ii) the Redemption Price, plus all accrued and unpaid
distributions, with respect to QUIPS called for redemption by the Issuer,
to the extent TU Electric Capital has funds available therefor and (iii)
upon a voluntary or involuntary dissolution, winding-up or termination of
TU Electric Capital (other than in connection with a redemption of all of
the QUIPS), the lesser of (a) the aggregate of the liquidation preference
and all accrued and unpaid distributions on the QUIPS to the date of
payment and (b) the amount of assets of TU Electric Capital remaining
available for distribution to Holders of the QUIPS in liquidation of TU
Electric Capital. The Holders of a majority in liquidation preference of
the QUIPS have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Guarantee Trustee or to
direct the exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee. If the Company were to default on its
obligations under the Junior Subordinated Debentures, TU Electric Capital
would lack available funds for the payment of distributions or amounts
payable on redemption of the QUIPS or otherwise, and in such event Holders
of the QUIPS would not be able to rely upon the Guarantee for payment of
such amounts. Instead, Holders of the QUIPS would be required to rely on
the enforcement by the Property Trustee of its rights, as registered Holder
of the Junior Subordinated Debentures, against the Company pursuant to the
terms of the Junior Subordinated Debentures. See DESCRIPTION OF THE
GUARANTEE - "Status of the Guarantee" and DESCRIPTION OF THE JUNIOR
SUBORDINATED DEBENTURES - "Subordination" herein. The Trust Agreement
pursuant to which TU Electric Capital has been formed provides that each
Holder of QUIPS by acceptance thereof agrees to the provisions of the
Guarantee and the Indenture.
The QUIPS are subject to mandatory redemption upon repayment of the
Junior Subordinated Debentures at maturity or upon their earlier
redemption. See DESCRIPTION OF THE QUIPS - "Redemption Procedures." The
Company will have the option at any time on or after January 1, 2001 upon
not less than 45 days' notice, to redeem the Junior Subordinated
Debentures, in whole or in part.
TAX EVENT REDEMPTION OR DISTRIBUTION; POTENTIAL ADVERSE EFFECT ON MARKET
PRICE
Upon the occurrence of a Tax Event, the Company shall cause the
termination of TU Electric Capital and, in connection therewith, after
satisfaction of creditors of TU Electric Capital, if any, distribute Junior
Subordinated Debentures to the Holders of Trust Securities; provided that,
under certain circumstances the Company shall have the right to redeem the
Junior Subordinated Debentures, in whole or in part, in which event TU
Electric Capital will redeem the QUIPS. There can be no assurance as to
the market prices for the Junior Subordinated Debentures which may be dis-
tributed in exchange for QUIPS if a termination and liquidation of TU Elec-
tric Capital were to occur. Accordingly, such Junior Subordinated
Debentures could, if distributed, trade at a discount to the price of the
QUIPS exchanged. See DESCRIPTION OF THE QUIPS - "Tax Event Redemption or
Distribution" and CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
NO ESTABLISHED TRADING MARKET FOR QUIPS
The QUIPS constitute a new issue of securities with no established
trading market. While the Company has applied to list the QUIPS on the
NYSE, a minimum of 400 beneficial holders and 1,000,000 outstanding
securities is required for listing a new class of securities on the NYSE.
Accordingly, no assurance can be given as to the liquidity of, or the
development and maintenance of trading markets for, the QUIPS. See LISTING
AND TRADING OF QUIPS.
UNDERWRITER MARKET ACTIVITY; NO ASSURANCE AS TO ACTIVE MARKET
The Underwriters currently plan to make a market in the QUIPS. However,
there can be no assurance that the Underwriters will engage in such
activities or that any active market in the QUIPS will develop or be
maintained.
TRADING PRICE; POTENTIAL ADVERSE INCOME TAX EFFECT
The QUIPS may trade at a price that does not fully reflect the value of
accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A Holder that disposes of QUIPS between record
dates for payments of distributions thereon will be required to include in
his or her income accrued but unpaid interest on the Junior Subordinated
Debentures through the date of disposition, and to add such amount to such
Holder's adjusted tax basis in his or her pro rata share of the underlying
Junior Subordinated Debentures deemed disposed of. To the extent the
selling price is less than the Holder's adjusted tax basis (which will
include, in the form of OID, all accrued and unpaid interest), a Holder
will recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United
States federal income tax purposes. See CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES - "Original Issue Discount" and "Sale, Exchange and
Retirement of the QUIPS."
QUIPS HAVE NO VOTING RIGHTS
Subject to the Company's right to extend payment as described under
DESCRIPTION OF THE QUIPS - "Distributions," Holders will have the right to
receive distributions as and when due but will have only limited voting
rights, exercisable only in the event of a proposed change in the terms of
the QUIPS. See DESCRIPTION OF THE QUIPS - "Voting Rights."
THE COMPANY
The Company was incorporated under the laws of the State of Texas in
1982 and has perpetual existence under the provisions of the Texas Business
Corporation Act. The Company is an electric utility engaged in the
generation, purchase, transmission, distribution and sale of electric
energy wholly within the State of Texas. The principal executive offices of
the Company are located at Energy Plaza, 1601 Bryan Street, Dallas, Texas
75201; the telephone number is (214) 812-4600.
The Company is the principal subsidiary of Texas Utilities Company
(Texas Utilities). Texas Utilities has another electric utility
subsidiary, Southwestern Electric Service Company, which is engaged in the
purchase, transmission, distribution and sale of electric energy in ten
counties in the eastern and central parts of Texas with a population
estimated at 125,000. Texas Utilities also has another subsidiary, Texas
Utilities Australia, Ltd., which acquired all of the common stock of
Eastern Energy Ltd. (Eastern) on December 1, 1995. Eastern is engaged in
the distribution and sale of electric energy in the eastern half of the
State of Victoria in southeastern Australia with a population estimated at
1,100,000. Texas Utilities also has five other subsidiaries which perform
specialized functions within the Texas Utilities Company System: Texas
Utilities Fuel Company owns a natural gas pipeline system, acquires, stores
and delivers fuel gas and provides other fuel services at cost for the
generation of electric energy by the Company; Texas Utilities Mining
Company owns, leases and operates fuel production facilities for the
surface mining and recovery of lignite at cost for the generation of
electric energy by the Company; Texas Utilities Properties Inc. owns,
leases and manages real and personal properties; Texas Utilities
Communications Inc. was recently organized to provide access to advanced
telecommunications technology, primarily for the System Companies' expected
expanding energy service business in the future; and Texas Utilities
Services Inc. provides financial, accounting, information technology,
personnel, procurement and other administrative services at cost.
The Company's service area covers the north central, eastern and western
parts of Texas, with a population estimated at 5,730,000 - about one-third
of the population of Texas. Electric service is provided in 91 counties and
372 incorporated municipalities, including Dallas, Fort Worth, Arlington,
Irving, Plano, Waco, Mesquite, Grand Prairie, Wichita Falls, Odessa,
Midland, Carrollton, Tyler, Richardson and Killeen. The area is a
diversified commercial and industrial center with substantial banking,
insurance, communications, electronics, aerospace, petrochemical and
specialized steel manufacturing, and automotive and aircraft assembly. The
territory served includes major portions of the oil and gas fields in the
Permian Basin and East Texas, as well as substantial farming and ranching
sections of the State. It also includes the Dallas-Fort Worth International
Airport and the Alliance Airport.
TU ELECTRIC CAPITAL
TU Electric Capital is a statutory business trust created under Delaware
law pursuant to (i) a trust agreement executed by the Company, as depositor
for TU Electric Capital, and the Property Trustee and the Delaware Trustee
and the Administrative Trustees (each as defined herein) of such trust
(Original Trust Agreement) and (ii) the filing of a certificate of trust
with the Delaware Secretary of State on October 17, 1995. Such trust
agreement will be amended and restated in its entirety (as so amended and
restated, the Trust Agreement) substantially in the form filed as an
exhibit to the Registration Statement of which this Prospectus forms a
part. The Trust Agreement will be qualified as an indenture under the
Trust Indenture Act. TU Electric Capital exists for the exclusive purposes
of (i) issuing Trust Securities representing undivided beneficial interests
in the assets of TU Electric Capital, (ii) holding the Junior Subordinated
Debentures as trust assets and (iii) engaging in only those other
activities necessary or incidental thereto. All of the Common Securities
will be owned by the Company. The Common Securities will rank pari passu,
and payments will be made thereon pro rata, with the QUIPS, except that
upon the occurrence and continuance of a default under the Trust Agreement,
the rights of the Holder of the Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise will
be subordinated to the rights of the Holders of the QUIPS. The Company
will acquire Common Securities having an aggregate liquidation preference
amount equal to 3% of the total capital of TU Electric Capital. TU
Electric Capital has a term of approximately 40 years, but may terminate
earlier as provided in the Trust Agreement. TU Electric Capital's business
and affairs will be conducted by the Administrative Trustees (as defined
herein). 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 TU Electric Capital is c/o Texas Utilities Electric Company,
Energy Plaza, 1601 Bryan Street, Dallas, Texas 75201.
SUMMARY FINANCIAL INFORMATION
(THOUSANDS OF DOLLARS, EXCEPT RATIOS AND PERCENTAGES)
The following material, which is presented herein solely to furnish
limited introductory information, is qualified in its entirety by, and
should be considered in conjunction with, the other information appearing
in this Prospectus, including the Incorporated Documents. In the opinion
of the Company, all adjustments (constituting only normal recurring
accruals) necessary for a fair statement of the results of operations for
the twelve months ended September 30, 1995, have been made.
TWELVE MONTHS ENDED
------------------------------------------------
DECEMBER 31,
------------------------------------------------
1990 1991 1992 1993
---- ---- ---- ----
Income statement data:
Operating Revenues.... $4,540,915 $4,891,522 $4,906,695 $5,409,156
Net Income (Loss)(a).. 964,276 (289,173) 821,123 476,526
Ratio of Earnings to
Fixed Charges (a)(b). 2.54 0.34 2.48 2.00
Ratio of Earnings to
Fixed Charges and
Preferred Dividends
(a)(b)............... 2.13 0.27 2.08 1.62
SEPTEMBER 30,
1995
1994 (UNAUDITED)
---- ------------
Income statement data:
Operating Revenues.... $5,613,175 $5,545,186
Net Income (Loss)(a).. 658,192 408,083
Ratio of Earnings to
Fixed Charges (a)(b). 2.45 1.92
Ratio of Earnings to
Fixed Charges and
Preferred Dividends
(a)(b)............... 2.03 1.62
ADJUSTED(c)
-----------
OUTSTANDING AT
SEPTEMBER 30, 1995 AMOUNT PERCENT
------------------ ------ -------
Capitalization (Unaudited):
Long-term Debt... $7,234,493 $7,254,109 50.9%
Preferred Stock
Not subject to mandatory
redemption.... 855,869 374,044
Subject to mandatory
redemption.... 275,645 275,645
---------- ----------
Total Preferred
Stock..... 1,131,514 649,689 4.6
Company Obligated
Mandatorily Redeemable
Preferred Securities of
Trusts (d)........ - 481,825 3.4
Common Stock Equity.. 5,849,891 5,849,891 41.1
----------- ---------- ----
Total Capitalization.. $14,215,898 $14,235,514 100.0%
=========== ========== =====
----------------------
(a) The net loss for the twelve-month period ended December 31, 1991 was
due primarily to the recognition of a charge against earnings,
representing a provision for regulatory disallowances and for fuel gas
costs disallowed in the Company's Docket 9300 rate case.
Additionally, the twelve month periods ended December 31, 1990,
December 31, 1991 and December 31, 1992 were affected by the
discontinuation of the accrual of allowance for funds used during
construction (AFUDC) and the commencement of depreciation on
approximately $1.3 billion of investment in Unit 1 of the Comanche
Peak nuclear generating station (Comanche Peak) and facilities which
are common to Comanche Peak Units 1 and 2 incurred after the end of
the June 30, 1989 test year and, therefore, not included in the
Company's Docket 9300 rate case. Effective January 1992, the Company
began recording base rate revenue for energy sold but not billed to
achieve a better matching of revenues and expenses. The effect of
this change in accounting increased net income for the twelve months
ended December 31, 1992, by approximately $102 million, of which
approximately $80 million represents the cumulative effect of the
change in accounting at January 1, 1992. The twelve-month period
ended December 31, 1993 was affected by the recording of regulatory
disallowances in Docket 11735 (See the 1994 10-K.). The twelve month
period ended September 30, 1995 was affected by the impairment of
several nonperforming assets. (See the Company's Current Report on
Form 8-K dated October 17, 1995).
(b) The Company's earnings were inadequate to cover its fixed charges and
its fixed charges and preferred dividends for the twelve month period
ended December 31, 1991. The deficiencies in such coverage were
$499,062,000 and $706,809,000, respectively. The computations of the
ratios of earnings to fixed charges and earnings to fixed charges and
preferred dividends do not include interest payments made by
affiliated companies on senior notes, which are recovered currently
through the fuel component of rates.
(c) To give effect to (1) this transaction, (2) the consummation of
pending offers by the Company to exchange for preferred securities
plus cash or for cash only 19,273,000 outstanding depositary shares of
the Company, assuming that 8,000,000 of such depositary shares are
validly tendered and accepted by the Company for cash only and
11,273,000 of such depositary shares are validly tendered and accepted
by the Company for exchange for preferred securities, (3) the
prepayment in October 1995 of $175,534,049 of long-term debt, (4) the
redemption in November 1995 of $6,000,000 of First Mortgage Bonds and
(5) the sale of $201,150,000 of Medium-Term Notes in November 1995
pursuant to a program established in October 1995. Adjusted amounts
do not reflect any possible future sales from time to time by TU
Electric of up to an additional $98,850,000 of Medium-Term Notes,
$350,000,000 principal amount of First Mortgage Bonds and $25,000,000
of the Company's cumulative preferred stock (Preferred Stock), for
which registration statements are effective pursuant to Rule 415 under
the Securities Act of 1933 (1933 Act).
(d) The sole assets of such trusts consist of junior subordinated
debentures of the Company in principal amounts, and having other
payment terms, corresponding to the securities issued by such trusts.
RATE PROCEEDINGS
In July 1994, the Company filed a petition in the 200th Judicial
District Court of Travis County, Texas to seek judicial review of the final
order of the Public Utility Commission of Texas (PUC) granting a $449
million, or 9.0%, rate increase in connection with the Company's January
1993 rate increase request of $760 million, or 15.3% (Docket 11735). Other
parties to the PUC proceedings also filed appeals with respect to various
portions of the order. The Company is unable to predict the outcome of
such appeals.
The PUC's final order (Order) in connection with the Company's January
1990 rate increase request (Docket 9300) was reviewed by the 250th Judicial
District Court of Travis County, Texas (District Court) and thereafter was
appealed to the Court of Appeals for the Third District of Texas (Court of
Appeals). In June 1994, the Court of Appeals affirmed a prudence
disallowance of $472 million provided for in the Order with respect to the
Company's Comanche Peak nuclear generating station (Comanche Peak),
reversed and remanded the portion of the District Court's judgment that had
affirmed a disallowance of $25 million relating to the Company's
reacquisitions of the minority owner interests in Comanche Peak nuclear
fuel, and affirmed the District Court's remand of the remainder of the
disallowance of $884 million relating to the reacquisitions of such
minority owner interests. Therefore, the Court of Appeals remanded an
aggregate of $909 million of disallowances with respect to the Company's
reacquisitions of minority owner interests in Comanche Peak to the PUC for
reconsideration and ordered that such reconsideration be on the basis of a
prudent investment standard.
In addition, the Court of Appeals reversed the District Court's finding
that the PUC erred in ordering a refund of $2.5 million with respect to
certain fuel gas costs. Also, the Court of Appeals specified that, on
remand, the PUC will be required to re-evaluate the appropriate level of
the Company's construction work in progress included in rate base in light
of its financial condition at the time of the initial hearing and to
reconsider whether the $442 million revenue increase provided for in the
PUC's final order remains the benchmark in light of this re-examination.
The Court of Appeals also ruled in the appeal of the Company's Docket
9300 rate case that prior court rulings required that the tax benefits
generated by costs, including capital costs, not allowed in rates, must be
used to reduce rates charged to customers, reversing the District Court's
decision. The Company believes that such ruling is erroneous and not
consistent with the Texas Public Utility Regulatory Act. The Company
contended that, according to a Private Letter Ruling issued to the Company
by the Internal Revenue Service (IRS) with respect to investment tax
credits, such ratemaking treatment, to the extent related to property
classified for tax purposes as public utility property, would result in a
violation of the normalization rules under the Internal Revenue Code of
1986, as amended. In September 1995, the IRS issued another Private Letter
Ruling to the Company, which ruled that such ratemaking treatment would
also violate the normalization rules applicable to depreciation. Violation
of the normalization rules would result in a significant adverse effect on
the Company's results of operation and liquidity. If there are
normalization violations, the Company will forfeit its investment tax
credits that remain unamortized as of the date of the violation, and will
also forfeit the ability to take advantage of accelerated tax depreciation
in years to which the violative order relates. This could result in
payments to the IRS of up to $1.3 billion. The Company disagrees with
certain portions of the decision of the Court of Appeals, including
specifically its decision with respect to federal income taxes, and has
filed an appeal to the Supreme Court of Texas. Other parties have also
filed appeals of this decision to the Supreme Court of Texas. The Company
cannot predict whether such appeals will be accepted by the Supreme Court
of Texas and cannot predict the outcome of any such appeals or any
resulting reconsideration of these issues on remand by the PUC.
In April 1995, in an appeal of a rate case involving another utility,
the Supreme Court of Texas held that the PUC has considerable discretion in
determining the fair share of consolidated tax savings to be allocated to a
utility and, accordingly, is not required to include losses of unregulated
affiliates in determining such fair share. The Supreme Court of Texas also
held that the PUC could not use the tax benefits generated by disallowed
expenses to reduce rates.
USE OF PROCEEDS
The proceeds to be received by TU Electric Capital from the sale of the
QUIPS will be used to purchase Junior Subordinated Debentures of the
Company. The proceeds of such purchase will be applied by the Company for
general corporate purposes, which may include the acquisition of
outstanding securities of the Company.
DESCRIPTION OF THE QUIPS
TU Electric Capital was authorized and created by the Original Trust
Agreement. The QUIPS and the Common Securities will be created pursuant to
the terms of the Trust Agreement. The QUIPS represent undivided beneficial
interests in the assets of TU Electric Capital and entitle the Holders
thereof to a preference over the Common Securities in certain circumstances
with respect to distributions and amounts payable on redemption or
liquidation, as well as other benefits as described in the Trust Agreement.
The following summaries of certain provisions of the Trust Agreement do not
purport to be complete and are subject to, and are qualified in their
entirety by reference to, the provisions of the Trust Agreement, including
the definitions therein of certain terms, and the Trust Indenture Act.
Wherever particular sections or defined terms of the Trust Agreement are
referred to, such sections or defined terms are incorporated herein by
reference. The Trust Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
GENERAL
All of the Common Securities are owned by the Company. The Common
Securities rank pari passu, and payments will be made thereon pro rata,
with the QUIPS based on the liquidation preference of the Trust Securities,
except as described under "Subordination of Common Securities." (Section
4.03) The Junior Subordinated Debentures will be owned by TU Electric
Capital and held by the Property Trustee in trust for the benefit of the
Holders of the Trust Securities. (Section 2.09). The aggregate of the
following rights and obligations constitute a full and unconditional
guarantee by the Company of payments due on the QUIPS: the obligations of
the Company under the Junior Subordinated Debentures, the Trust Agreement,
the Guarantee, the Indenture and the Expense Agreement. See DESCRIPTION
OF THE QUIPS, DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES and
DESCRIPTION OF THE GUARANTEE.
DISTRIBUTIONS
The distributions payable on the QUIPS will be fixed at a rate per annum
of 8.00% of the stated liquidation preference amount thereof. The term
"distributions" as used herein includes interest payable on overdue
distributions, unless otherwise stated. The amount of distributions
payable for any period will be computed on the basis of 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. (Section 4.01(b)).
Distributions on the QUIPS will be cumulative, will accrue from the date
of initial issuance thereof, and will be payable quarterly in arrears, on
March 31, June 30, September 30 and December 31 of each year, commencing
December 31, 1995, except as otherwise described below. Such distributions
will originally accrue from, and include, the date of initial issuance and
will accrue to, and include, the first distribution payment date, and
thereafter will accrue from, and exclude, the last distribution payment
date through which distributions have been paid. In the event that any
date on which distributions are otherwise payable on the QUIPS is not a
Business Day, payment of the distribution payable on such date will be made
on the next succeeding Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day is
in the next succeeding calendar year, payment of such distribution shall be
made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date (each date on which distributions
are otherwise payable in accordance with the foregoing, a distribution
payment date). (Section 4.01(a)). A Business Day is used herein to mean
any day other than a Saturday or a Sunday or a day on which banking
institutions in The City of New York are authorized or required by law or
executive order to remain closed or a day on which the Corporate Trust
Office of the Property Trustee or the Debenture Trustee (as defined herein)
is closed for business.
It is anticipated that the income of TU Electric Capital available for
distribution to the Holders of the QUIPS will be limited to payments on the
Junior Subordinated Debentures for which TU Electric Capital will exchange
the QUIPS and the Common Securities. See DESCRIPTION OF THE JUNIOR
SUBORDINATED DEBENTURES. If the Company does not make interest payments on
the Junior Subordinated Debentures, the Property Trustee will not have
funds available to pay distributions on the QUIPS. The payment of
distributions (if and to the extent TU Electric Capital has sufficient
funds available for the payment of such distributions) is guaranteed on a
limited basis by the Company as set forth herein under DESCRIPTION OF THE
GUARANTEE.
Distributions on the QUIPS will be payable to the Holders thereof as
they appear on the register of TU Electric Capital on the relevant record
dates, which is 15 days prior to the relevant distribution payment date or
if such date is not a Business Day, the next succeeding Business Day.
(Section 4.01(d)).
The Company has the right under the Indenture pursuant to which it will
issue the Junior Subordinated Debentures to extend the interest payment
period from time to time on the Junior Subordinated Debentures to a period
not exceeding 20 consecutive quarters, with the consequence that quarterly
distributions on the QUIPS would be deferred (but would continue to accrue
with interest payable on unpaid distributions at the rate per annum set
forth above, compounded quarterly) by TU Electric Capital during any such
Extension Period. In the event that the Company exercises this right,
during such period the Company may not declare or pay any dividend or
distribution on (other than dividends paid in shares of Common Stock of the
Company), or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock, or make any guarantee payments with
respect to the foregoing or redeem any indebtedness that is pari passu with
the Junior Subordinated Debentures. Any Extension Period with respect to
payment of interest on the Junior Subordinated Debentures, or any extended
interest payment period in respect of other Debt Securities or on any
similar securities will apply to all such securities and will also apply to
distributions with respect to the QUIPS and all other securities with terms
substantially the same as the QUIPS. Prior to the termination of any such
Extension Period, the Company may further extend the interest payment
period, provided that such Extension Period together with all such previous
and further extensions thereof may not exceed 20 consecutive quarters or
extend beyond the maturity of the Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all amounts then
due, the Company may select a new extended interest payment period, subject
to the foregoing requirements. See DESCRIPTION OF THE JUNIOR SUBORDINATED
DEBENTURES - "Interest" and "Option to Extend Interest Payment Period."
The Holders of QUIPS do not have a right to appoint a special
representative in the event that the Company defers interest on the Junior
Subordinated Debentures.
REDEMPTION OF QUIPS
The Junior Subordinated Debentures will mature on December 31, 2035, and
the Company has the right to redeem the Junior Subordinated Debentures in
whole or in part on or after January 1, 2001, or earlier in certain
circumstances upon the occurrence of a Tax Event, subject to the conditions
described under DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES -
"Optional Redemption."
Upon the repayment of the Junior Subordinated Debentures, whether at
maturity or upon earlier redemption as provided in the Indenture, the
proceeds from such repayment shall be applied by the Property Trustee to
redeem a Like Amount (as defined herein) of Trust Securities, upon not less
than 30 nor more than 60 days' notice, at the Redemption Price plus accrued
and unpaid distributions. See DESCRIPTION OF THE JUNIOR SUBORDINATED
DEBENTURES - "Optional Redemption."
Like Amount means (i) with respect to a redemption of Trust Securities,
QUIPS and Common Securities, each in amounts having a liquidation value
equal to the proportion all such securities have to the liquidation value
of all the Trust Securities, together having an aggregate liquidation value
equal to the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, the proceeds
of which are to be used to pay the Redemption Price plus accrued and unpaid
distributions of such Trust Securities and (ii) with respect to a
distribution of Junior Subordinated Debentures to Holders of Trust
Securities in connection with a liquidation of TU Electric Capital upon the
occurrence of a Tax Event or the bankruptcy, termination or liquidation of
TU Electric Capital, Junior Subordinated Debentures having a principal
amount equal to the liquidation value of the Trust Securities of the
Holders to which such Junior Subordinated Debentures are distributed.
TAX EVENT REDEMPTION OR DISTRIBUTION
If at any time, a Tax Event shall occur and be continuing, TU Electric
Capital shall, unless the Junior Subordinated Debentures are redeemed in
the limited circumstances described below, be terminated with the result
that, after satisfaction of creditors of TU Electric Capital, if any,
Junior Subordinated Debentures in a Like Amount of the QUIPS and the Common
Securities would be distributed on a pro rata basis to the Holders of the
QUIPS and the Common Securities in liquidation of such Holders' interests
in TU Electrical Capital, within 90 days following the occurrence of such
Tax Event; provided, however, that as a condition of such termination and
distribution, the Administrative Trustees shall have received an opinion of
nationally recognized independent tax counsel experienced in such matters
(No Recognition Opinion), which opinion may rely on any then applicable
published revenue rulings of the Internal Revenue Service, to the effect
that the Holders of the QUIPS will not recognize any gain or loss for
United States federal income tax purposes as a result of such termination
and distribution of Junior Subordinated Debentures; and, provided, further,
that, if at the time there is available to TU Electric Capital the
opportunity to eliminate, within such 90-day period, the Tax Event by
taking some ministerial action, such as filing a form or making an
election, or pursuing some other similar reasonable measure, which has no
adverse effect on TU Electric Capital or the Company or the Holders of the
QUIPS, TU Electric Capital will pursue such measure in lieu of termination.
Furthermore, if (i) the Administrative Trustees have received an opinion of
nationally recognized independent tax counsel experienced in such matters
(Redemption Tax Opinion) that, as a result of a Tax Event, there is more
than an insubstantial risk that the Company would be precluded from
deducting the interest on the Junior Subordinated Debentures for United
States federal income tax purposes even if the Junior Subordinated
Debentures were distributed to the Holders of QUIPS and Common Securities
in liquidation of such Holders' interests in TU Electric Capital as
described above or (ii) the Administrative Trustees shall have been
informed by such tax counsel that a No Recognition Opinion cannot be
delivered to TU Electric Capital, the Company shall have the right, upon
not less than 30 nor more than 60 days' notice, to redeem the Junior
Subordinated Debentures in whole or in part for cash within 90 days
following the occurrence of such Tax Event, and promptly following such
redemption QUIPS and Common Securities with an aggregate liquidation
preference amount equal to the aggregate principal amount of the Junior
Subordinated Debentures so redeemed will be redeemed by TU Electric Capital
at the Redemption Price, plus accrued and unpaid distributions, on a pro
rata basis, provided, however, that if at the time there is available to
the Company or the Administrative Trustees the opportunity to eliminate,
within such 90-day period, the Tax Event by taking some ministerial action,
such as filing a form or making an election, or pursuing some other similar
reasonable measure, which has no adverse effect on TU Electric Capital, the
Company or the Holders of the QUIPS, the Company will pursue such measure
in lieu of redemption and provided further that the Company shall have no
right to redeem the Junior Subordinated Debentures while the Administrative
Trustees on behalf of TU Electric Capital are pursuing any such ministerial
action. The Common Securities will be redeemed on a pro rata basis with
the QUIPS, except that if an Event of Default under the Trust Agreement has
occurred and is continuing, the QUIPS will have a priority over the Common
Securities with respect to payment of the Redemption Price.
"Tax Event" means the receipt by TU Electric Capital of an opinion of
counsel experienced in such matters to the effect that, as a result of (a)
any amendment to, clarification of, or change (including any announced
prospective change) in, the laws or treaties (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein affecting taxation, (b) any judicial decision
or any official administrative pronouncement, ruling, regulatory procedure,
notice or announcement (including any notice or announcement of intent to
issue or adopt any such administrative pronouncement, ruling, regulatory
procedure or regulation) (each, an Administrative Action), or (c) any
amendment to, clarification of, or change in the official position or the
interpretation of any such Administrative Action or judicial decision or
any interpretation or pronouncement that provides for a position with
respect to such Administrative Action or judicial decision that differs
from the theretofore generally accepted position, in each case by any
legislative body, court, governmental authority or regulatory body,
irrespective of the manner in which such amendment, clarification or change
is made known, which amendment, clarification, or change is effective,
which Administrative Action is taken or which judicial decision is issued,
in each case on or after the date of issuance of the QUIPS, there is more
than an insubstantial risk that (i) TU Electric Capital is, or will be,
subject to United States federal income tax with respect to interest
received on the Junior Subordinated Debentures, (ii) interest payable by
the Company on the Junior Subordinated Debentures is not, or will not be,
fully deductible for United States federal income tax purposes, or (iii) TU
Electric Capital is, or will be, subject to more than a de minimis amount
of other taxes, duties or other governmental charges.
On the date fixed for any distribution of Junior Subordinated
Debentures, upon termination of TU Electric Capital (i) the QUIPS and the
Common Securities will no longer be deemed to be outstanding and (ii)
certificates representing QUIPS will be deemed to represent Junior
Subordinated Debentures having an aggregate principal amount equal to the
stated liquidation preference amount of, and bearing accrued and unpaid
interest equal to accrued and unpaid distributions on, such QUIPS until
such certificates are presented to the Company or its agent for transfer or
reissuance.
There can be no assurance as to the market price for the Junior
Subordinated Debentures which may be distributed in exchange for QUIPS if a
termination and liquidation of TU Electric Capital were to occur.
Accordingly, the Junior Subordinated Debentures which the investor may
subsequently receive on termination and liquidation of TU Electric Capital,
may trade at a discount to the price of the QUIPS exchanged. If the Junior
Subordinated Debentures are distributed to the Holders of QUIPS upon the
dissolution of the Company, the Company will use its best efforts to list
the Junior Subordinated Debentures on the NYSE or on such other exchange on
which the QUIPS are then listed.
REDEMPTION PROCEDURES
The Company may not redeem fewer than all the Junior Subordinated
Debentures and TU Electric Capital may not redeem fewer than all the
outstanding QUIPS unless all accrued and unpaid distributions have been
paid on all QUIPS for all quarterly distribution periods terminating on or
prior to the date of redemption or if a partial redemption of the QUIPS
would result in the delisting of the QUIPS by any national securities
exchange on which the QUIPS are then listed.
QUIPS redeemed on each redemption date shall 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 QUIPS shall be made and the Redemption Price plus
accrued and unpaid distributions shall be deemed payable on each date
selected for redemption (Redemption Date) only to the extent that TU
Electric Capital has funds available for the payment of such Redemption
Price plus accrued and unpaid distributions. (Section 4.02(c)). See also
"Subordination of Common Securities."
If TU Electric Capital gives a notice of redemption in respect of QUIPS
(which notice will be irrevocable), then, on or before the Redemption Date,
TU Electric Capital will irrevocably deposit with the paying agent for the
QUIPS funds sufficient to pay the applicable Redemption Price plus accrued
and unpaid distributions and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price plus accrued and
unpaid distributions to the Holders thereof upon surrender of their
certificates evidencing QUIPS. Notwithstanding the foregoing,
distributions payable on or prior to the redemption date for any QUIPS
called for redemption shall be payable to the Holders of such QUIPS on the
relevant record dates for the related distribution payment dates. If
notice of redemption shall have been given and funds deposited as required,
then on the Redemption Date, all rights of Holders of such QUIPS so called
for redemption will cease, except the right of the Holders of such QUIPS to
receive the Redemption Price plus accrued and unpaid distributions, but
without interest thereon, and such QUIPS will cease to be outstanding. In
the event that any date fixed for redemption of QUIPS is not a Business
Day, then payment of the amount payable on such date will be made on the
next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay). In the event that payment of
the Redemption Price plus accrued and unpaid distributions in respect of
QUIPS called for redemption is improperly withheld or refused and not paid
either by TU Electric Capital or by the Company pursuant to the Guarantee
described herein under DESCRIPTION OF THE GUARANTEE, distributions on such
QUIPS will continue to accrue at the then applicable rate, from the
original redemption date to the date of payment, in which case the actual
payment date will be considered the date fixed for redemption for purposes
of calculating the Redemption Price plus accrued and unpaid distributions.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company may at any time and from time to time
purchase outstanding QUIPS by tender, in the open market or by private
agreement.
If less than all the Trust Securities are to be redeemed on a Redemption
Date, then the aggregate liquidation preference of such securities to be
redeemed shall be allocated on a pro rata basis to the Common Securities
and the QUIPS. The particular QUIPS to be redeemed shall be selected not
more than 60 days prior to the Redemption Date by the Property Trustee from
the outstanding QUIPS not previously called for redemption, by such method
as the Property Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of QUIPS in liquidation preference
amounts equal to $25 or integral multiples thereof. The Property Trustee
shall promptly notify the security registrar in writing of the QUIPS
selected for redemption and, in the case of any QUIPS selected for partial
redemption, the liquidation preference amount thereof to be redeemed. For
all purposes of the Trust Agreement, unless the context otherwise requires,
all provisions relating to the redemption of QUIPS shall relate, in the
case of any QUIPS redeemed or to be redeemed only in part, to the portion
of the liquidation preference amount of QUIPS that has been or is to be
redeemed. (Section 4.02(f)).
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the Redemption Price plus accrued and
unpaid distributions of, the Trust Securities, shall be made pro rata based
on the liquidation preference of the Trust Securities; provided, however,
that if on any distribution payment date or Redemption Date a default (as
described below, see "Events of Default; Notice") under the Trust Agreement
shall have occurred and be continuing, no payment of any Distribution on,
or Redemption Price plus accrued and unpaid distributions of, any Common
Security, and no other payment on account of the redemption, liquidation or
other acquisition of Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid distributions on all outstanding
QUIPS for all distribution periods terminating on or prior thereto, or in
the case of payment of the Redemption Price plus accrued and unpaid
distributions, the full amount of such Redemption Price plus accrued and
unpaid distributions on all outstanding QUIPS, shall have been made or
provided for, and all funds available to the Property Trustee shall first
be applied to the payment in full of all distributions on, or Redemption
Price plus accrued and unpaid distributions of, QUIPS then due and payable.
(Section 4.03(a)).
In the case of any default under the Trust Agreement resulting from an
Event of Default under the Indenture, the Holder of Common Securities will
be deemed to have waived any such default under the Trust Agreement until
the effect of all such Defaults with respect to the QUIPS have been cured,
waived or otherwise eliminated. Until any such default under such Trust
Agreement with respect to the QUIPS has been so cured, waived or otherwise
eliminated, the Property Trustee shall act solely on behalf of the Holders
of the QUIPS and not the Holders of the Common Securities, and only Holders
of QUIPS will have the right to direct the Property Trustee to act on their
behalf. (Section 4.03(b)).
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to the Trust Agreement, TU Electric Capital shall terminate and
shall be liquidated by the Property Trustee on the first to occur of: (i)
December 31, 2040, the expiration of the term of TU Electric Capital; (ii)
the bankruptcy, dissolution or liquidation of the Company; (iii) the
occurrence of a Tax Event; and (iv) the redemption of all of the QUIPS.
(Sections 9.01 and 9.02).
If an early termination occurs as described in clause (ii) and (iii)
above, TU Electric Capital shall be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be appropriate by
adequately providing for the satisfaction of liabilities of creditors, if
any, and by distributing to each Holder of QUIPS and Common Securities a
Like Amount of Junior Subordinated Debentures, unless such distribution is
determined by the Property Trustee not to be practical, in which event such
Holders will be entitled to receive, out of the assets of TU Electric
Capital available for distribution to Holders after adequate provision, as
determined by the Property Trustee, has been made for the satisfaction of
liabilities of creditors, if any, an amount equal to, in the case of
Holders of QUIPS, the aggregate liquidation preference of the QUIPS plus
accrued and unpaid distributions thereon to the date of payment (such
amount being the Liquidation Distribution). If such Liquidation
Distribution can be paid only in part because TU Electric Capital has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by TU Electric Capital on
the QUIPS shall be paid on a pro rata basis. The Company as Holder of the
Common Securities, will be entitled to receive distributions upon any such
termination pro rata with the Holders of the QUIPS, except that if default
has occurred and is continuing under the Trust Agreement, the QUIPS shall
have a preference over the Common Securities. (Sections 9.04(a) and
9.04(d)).
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an Event of Default under
the Trust Agreement (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(i) the occurrence of an Event of Default as defined in Section 801
of the Indenture (see DESCRIPTION OF THE JUNIOR SUBORDINATED
DEBENTURES - "Events of Default"); or
(ii) default by the TU Electric Capital in the payment of any
distribution when it becomes due and payable, and continuation of such
default for a period of 30 days; or
(iii) default by the TU Electric Capital in the payment of any
Redemption Price, plus accrued and unpaid distributions, of any Trust
Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material
respect, of any covenant or warranty of the Property Trustee in the
Trust Agreement (other than a covenant or warranty a default in the
performance of which or the breach of which is specifically dealt with
in clause (ii) or (iii) above), and continuation of such default or
breach for a period of 60 days after there has been given, by
registered or certified mail, to the Property Trustee by the Holders
of QUIPS having at least 10% of the total liquidation preference
amount of the outstanding QUIPS a written notice specifying such
default or breach and requiring it to be remedied and stating that
such notice is a Notice of Default thereunder; or
(v) the occurrence of certain events of bankruptcy or insolvency
with respect to TU Electric Capital.
Within five Business Days after the occurrence of any Event of Default,
the Property Trustee shall transmit to the Holders of Trust Securities and
the Company notice of any such Event of Default actually known to the
Property Trustee, unless such Event of Default shall have been cured or
waived.
A Holder of QUIPS may directly institute a proceeding for enforcement of
payment to such Holder directly of the principal of or interest on Junior
Subordinated Debentures having a principal amount equal to the aggregate
liquidation preference amount of the QUIPS of such Holder on or after the
respective due dates specified in the Junior Subordinated Debentures. The
Holders of the QUIPS would not be able to exercise directly any other
remedies available to the holder of the Junior Subordinated Debentures
unless the Property Trustee or the Debenture Trustee, acting for the
benefit of the Property Trustee, fails to do so. See "Voting Rights."
Unless an Event of Default shall have occurred and be continuing, the
Property Trustee may be removed at any time by act of the Holder of the
Common Securities. If an Event of Default has occurred and is continuing,
the Property Trustee may be removed at such time by act of the Holders of
QUIPS having a majority of the liquidation preference of the QUIPS. No
resignation or removal of the Property Trustee and no appointment of a
successor trustee shall be effective until the acceptance of appointment by
the successor Property Trustee in accordance with the provisions of the
Trust Agreement. (Section 8.10).
If an Event of Default described above has not occurred solely by reason
of the requirement that time lapse or notice be given, and is continuing,
the QUIPS shall have a preference over the Common Securities upon
termination of TU Electric Capital as described above. See "Liquidation
Distribution upon Termination."
MERGER OR CONSOLIDATION OF THE PROPERTY TRUSTEE OR THE DELAWARE TRUSTEE
Any entity into which the Property Trustee or the Delaware Trustee may
be merged or with which it may be consolidated, or any entity resulting
from any merger, conversion or consolidation to which the Property Trustee
or the Delaware Trustee shall be a party, or any entity succeeding to all
or substantially all the corporate trust business of the Property Trustee
or the Delaware Trustee, shall be the successor to the Property Trustee or
the Delaware Trustee under the Trust Agreement, provided such entity shall
be otherwise qualified and eligible. (Section 8.12).
BOOK-ENTRY ONLY ISSUANCE - THE DEPOSITORY TRUST COMPANY
The Depository Trust Company (DTC) will act as securities depositary for
the QUIPS. The QUIPS will be issued only as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more fully-
registered global QUIPS certificates, representing the total aggregate
number of QUIPS, will be issued and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and
a "clearing agency" registered pursuant to the provisions of Section 17A of
the 1934 Act. DTC holds securities that its participants (Participants)
deposit with DTC. DTC also facilitates the settlement among Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement
of securities certificates. Direct Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain
other organizations (Direct Participants). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others, such as securities
brokers and dealers, banks and trust companies that clear transactions
through or maintain a direct or indirect custodial relationship with a
Direct Participant either directly or indirectly (Indirect Participants).
The rules applicable to DTC and its Direct Participants and Indirect
Participants (together, Participants) are on file with the Commission.
Purchases of QUIPS within the DTC system must be made by or through
Direct Participants, which will receive a credit for the QUIPS on DTC's
records. The ownership interest of each actual purchaser of each QUIP
(Beneficial Owner) is in turn to be recorded on the Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Participants through which the
Beneficial Owners purchased QUIPS. Transfers of ownership interests in the
QUIPS are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the QUIPS, except in
the event that use of the book-entry system for the QUIPS is discontinued.
To facilitate subsequent transfers, all the QUIPS deposited by Direct
Participants with DTC are registered in the name of DTC's nominee, Cede &
Co. The deposit of QUIPS with DTC and their registration in the name of
Cede & Co. effect no change in beneficial ownership. DTC has no knowledge
of the actual Beneficial Owners of the QUIPS; DTC's records reflect only
the identity of the Direct Participants to whose accounts such QUIPS are
credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by
Participants to Beneficial Owners will be governed by arrangements among
them, subject to any statutory or regulatory requirements that may be in
effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
QUIPS are being redeemed, DTC's practice is to determine by lot the amount
of the interest of each Direct Participant in such issue to be redeemed.
Although voting with respect to the QUIPS is limited, in those cases
where a vote is required, neither DTC nor Cede & Co. will itself consent or
vote with respect to QUIPS. Under its usual procedures, DTC would mail an
Omnibus Proxy to TU Electric Capital as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co. consenting or voting rights to
those Direct Participants to whose accounts the QUIPS are credited on the
record date (identified in a listing attached to the Omnibus Proxy). The
Company and TU Electric Capital believe that the arrangements among DTC,
Direct and Indirect Participants, and Beneficial Owners will enable the
Beneficial Owners to exercise rights equivalent in substance to the rights
that can be directly exercised by a holder of a beneficial interest in TU
Electric Capital.
Distribution payments on the QUIPS will be made to DTC. DTC's practice
is to credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment
date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered
in "street name," and such payments will be the responsibility of such
Participant and not of DTC, TU Electric Capital or the Company, subject to
any statutory or regulatory requirements to the contrary that may be in
effect from time to time. Payment of distributions to DTC is the
responsibility of TU Electric Capital, disbursement of such payments to
Direct Participants is the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners is the responsibility of Participants.
Except as provided herein, a Beneficial Owner will not be entitled to
receive physical delivery of QUIPS. Accordingly, each Beneficial Owner
must rely on the procedures of DTC to exercise any rights under the QUIPS.
DTC may discontinue providing its services as securities depositary with
respect to the QUIPS at any time by giving reasonable notice to TU Electric
Capital. Under such circumstances, in the event that a successor
securities depositary is not obtained, QUIPS certificates are required to
be printed and delivered. Additionally, the Administrative Trustees (with
the consent of the Company) may decide to discontinue use of the system of
book-entry transfers through DTC (or any successor depositary) with respect
to the QUIPS. In that event, certificates for the QUIPS will be printed
and delivered.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Company and TU Electric
Capital believe to be reliable, but neither the Company nor TU Electric
Capital takes responsibility for the accuracy thereof.
VOTING RIGHTS
Holders of Trust Securities shall be entitled to one vote for each $25
in liquidation preferences represented by their Trust Securities in respect
of any matter as to which such Holders of Trust Securities are entitled to
vote. Except as described below and under "Amendments to the Trust
Agreement," and under DESCRIPTION OF THE GUARANTEE - "Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
Holders of the QUIPS will have no voting rights. (Section 6.01(a)).
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Property Trustee shall not (i) direct the time, method and
place of conducting any proceeding for any remedy available to the
Debenture Trustee, or executing any trust or power conferred on the
Debenture Trustee with respect to the Junior Subordinated Debentures, (ii)
waive any past default which is waivable under Section 6.01 of the
Indenture, (iii) exercise any right to rescind or annul a declaration that
the principal of all the Junior Subordinated Debentures shall be due and
payable or (iv) consent to any amendment, modification or termination of
the Indenture or the Junior Subordinated Debentures, where such consent
shall be required, without, in each case, obtaining the prior approval of
the Holders of QUIPS having of at least 66 2/3% of the liquidation
preference amount of the outstanding QUIPS; provided, however, that where a
consent under the Indenture would require the consent of each Holder of
Junior Subordinated Debentures affected thereby, no such consent shall be
given by the Property Trustee without the prior consent of each Holder of
QUIPS. The Property Trustee shall not revoke any action previously
authorized or approved by a vote of the QUIPS. Except with respect to
enforcement of the right to receive principal or interest on the Junior
Subordinated Debentures (see "Events of Default; Notice"), 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 QUIPS may, after such Holder's written request to the Property
Trustee to enforce such rights, institute a legal proceeding directly
against the 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 any other
person or entity. The Property Trustee shall notify all Holders of the
QUIPS of any notice of default received from the Debenture Trustee. In
addition to obtaining the foregoing approvals of the Holders of the QUIPS,
prior to taking any of the foregoing actions, the Property Trustee shall
receive an opinion of counsel experienced in such matters to the effect
that TU Electric Capital will not be classified as an association taxable
as a corporation for United States federal income tax purposes on account
of such action. (Section 6.01(b)).
Any required approval of Holders of QUIPS may be given at a separate
meeting of Holders of QUIPS convened for such purpose or pursuant to
written consent. The Administrative Trustees will cause a notice of any
meeting at which Holders of QUIPS are entitled to vote, or of any matter
upon which action by written consent of such Holders is to be taken, to be
given to each Holder of QUIPS in the manner set forth in the Trust
Agreement. (Section 6.02).
No vote or consent of the Holders of QUIPS will be required for TU
Electric Capital to redeem and cancel QUIPS in accordance with the Trust
Agreement.
Notwithstanding that Holders of QUIPS are entitled to vote or consent
under any of the circumstances described above, any of the QUIPS that are
owned by the Company, the Property Trustee or any affiliate of the Company
or the Property Trustee, shall, for purposes of such vote or consent, be
treated as if they were not outstanding.
Holders of the QUIPS will have no rights to appoint or remove the
Administrative Trustees, who may be appointed, removed or replaced solely
by the Company as the Holder of the Common Securities.
AMENDMENTS
The Trust Agreement may be amended from time to time by TU Electric
Capital (on approval of a majority of the Administrative Trustees) and the
Company, without the consent of any Holders of Trust Securities, (i) to
cure any ambiguity, correct or supplement any provision herein or therein
which may be inconsistent with any other provision herein or therein, or to
make any other provisions with respect to matters or questions arising
under the Trust Agreement, which shall not be inconsistent with the other
provisions of the Trust Agreement, provided, however, that any such
amendment shall not adversely affect in any material respect the interests
of any Holder of Trust Securities or (ii) to modify, eliminate or add to
any provisions of the Trust Agreement to such extent as shall be necessary
to ensure that TU Electric Capital will not be classified for United States
federal income tax purposes as an association taxable as a corporation at
any time that any Trust Securities are outstanding or to ensure TU Electric
Capital's exemption from the status of an "investment company" under the
Investment Company Act of 1940, as amended; provided, however, that, except
in the case of clause (ii), such action shall not adversely affect in any
material respect the interests of any Holder of Trust Securities and, in
the case of clause (i), any amendments of the Trust Agreement shall become
effective when notice thereof is given to the Holders of Trust Securities.
Except as provided below, any provision of the Trust Agreement may be
amended by the Trustees and the Company with (i) the consent of Holders of
Trust Securities representing not less than a majority in liquidation
preference of the Trust Securities then outstanding and (ii) receipt by the
Trustees of an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the Trustees in accordance with such
amendment will not cause TU Electric Capital to be classified for federal
income tax purposes as an association taxable as a corporation or affect TU
Electric Capital's exemption from status of an "investment company" under
the Investment Company Act of 1940, as amended.
Without the consent of each affected Holder of Trust Securities, the
Trust Agreement may not be amended to (i) change the amount or timing of
any distribution with respect to the Trust Securities or otherwise
adversely affect the amount of any distribution required to be made in
respect of the Trust Securities as of a specified date or (ii) restrict the
right of a Holder of Trust Securities to institute suit for the enforcement
of any such payment on or after such date.
CO-TRUSTEES AND SEPARATE TRUSTEE
Unless an Event of Default under the Trust Agreement shall have occurred
and be continuing, at any time or times, 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 (as defined in the Trust Agreement)
may at the time be located, the Holder of the Common Securities and the
Property Trustee shall have power to appoint, and upon the written request
of the Property Trustee, the Company, as Depositor, shall for such purpose
join with the Property Trustee in the execution, delivery and performance
of all instruments and agreements necessary or proper to 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 such Trust
Property, or to act as separate trustee of any such property, in either
case with such powers as may be provided in the instrument of appointment,
and to vest in such person or persons in such capacity, any property,
title, right or power deemed necessary or desirable, subject to the
provisions of the Trust Agreement. If the Company, as Depositor, does not
join in such appointment within 15 days after the receipt by it of a
request so to do, or in case an Event of Default under the Indenture has
occurred and is continuing, the Property Trustee alone shall have power to
make such appointment. (Section 8.09).
FORM, EXCHANGE, AND TRANSFER
The QUIPS will be issuable only in fully registered form in units having
a liquidation preference amount of $25 and any integral multiple thereof.
At the option of the Holder, subject to the terms of the Trust
Agreement, QUIPS will be exchangeable for other QUIPS of the same series,
of any authorized denomination and of like tenor and aggregate liquidation
preference.
Subject to the terms of the Trust Agreement, QUIPS 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 Security Registrar or at the office of any transfer agent designated by
the Company for such purpose. The Company may designate itself the
Security Registrar. No service charge will be made for any registration of
transfer or exchange of QUIPS, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith. Such transfer or exchange will be effected upon the
Security Registrar or such transfer agent, as the case may be, being
satisfied with the documents of title and identity of the person making the
request. The 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 the Company will
be required to maintain a transfer agent in each place of payment for the
QUIPS.
TU Electric Capital will not be required to (i) issue, register the
transfer of, or exchange any QUIPS during a period beginning at the opening
of business 15 calendar days before the day of mailing of a notice of
redemption of any QUIPS called for redemption and ending at the close of
business on the day of such mailing or (ii) register the transfer of or
exchange any QUIPS so selected for redemption, in whole or in part, except
the unredeemed portion of any such QUIPS being redeemed in part.
REGISTRAR AND TRANSFER AGENT
Texas Utilities Services Inc. will act as registrar and transfer agent
for the QUIPS.
Registration of transfers of QUIPS will be effected without charge by or
on behalf of TU Electric Capital, but upon payment (with the giving of such
indemnity as TU Electric Capital or the Company may require) in respect of
any tax or other governmental charges which may be imposed in relation to
it.
TU Electric Capital will not be required to register or cause to be
registered any transfer of QUIPS after they have been called for redemption
except the unredeemed portion of any QUIPS being redeemed in part.
CONCERNING THE PROPERTY TRUSTEE
The Property Trustee is trustee under the Company's Mortgage and Deed of
Trust with respect to substantially all the properties of the Company,
which secures the Company's first mortgage bonds. The Company maintains
deposit accounts and conducts 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 Indenture.
MISCELLANEOUS
Application has been made to list the QUIPS on the New York Stock
Exchange.
The Delaware Trustee will act as the resident trustee in the State of
Delaware and will have no other significant duties. The Property Trustee
will hold the Junior Subordinated Debentures on behalf of TU Electric
Capital and will maintain a payment account with respect to the Trust
Securities, and will also act as trustee under the Trust Agreement for the
purposes of the Trust Indenture Act. See "Events of Default; Notice." The
Administrative Trustees will administer the day to day operations of TU
Electric Capital. See "Voting Rights."
The Administrative Trustees are authorized and directed to conduct the
affairs of TU Electric Capital and to operate TU Electric Capital so that
TU Electric Capital will not be deemed to be an "investment company"
required to be registered under the 1940 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 the Company for
United States federal income tax purposes. In this connection, 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 such purposes, as long as such action does not materially
adversely affect the interests of the Holders of the QUIPS.
Holders of the QUIPS have no preemptive rights.
DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee
that will be executed and delivered by the Company for the benefit of the
Holders from time to time of QUIPS. The Guarantee will be qualified as an
indenture under the Trust Indenture Act. The Bank of New York will act as
Guarantee Trustee under the Guarantee for the purposes of compliance with
the Trust Indenture Act. The terms of the Guarantee will be those set
forth in such Guarantee and those made part of such Guarantee by the Trust
Indenture Act. The summary does not purport to be complete and is subject
in all respects to the provisions of, and is qualified in its entirety by
reference to, the Guarantee, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and the Trust
Indenture Act. The Guarantee Trustee will hold the Guarantee for the
benefit of the Holders of the QUIPS.
GENERAL
The Company will fully and unconditionally agree, to the extent set
forth herein, to pay the Guarantee Payments (as defined herein) in full to
the Holders of the QUIPS (except to the extent paid by or on behalf of TU
Electric Capital), as and when due, regardless of any defense, right of
set-off or counterclaim that the Company may have or assert. The following
payments with respect to the QUIPS, to the extent not paid by or on behalf
of TU Electric Capital (Guarantee Payments), will be subject to the
Guarantee (without duplication): (i) any accrued and unpaid distributions
required to be paid on the QUIPS, to the extent TU Electric Capital has
funds available therefor, (ii) the Redemption Price, plus all accrued and
unpaid distributions, with respect to any QUIPS called for redemption by TU
Electric Capital, to the extent TU Electric Capital has funds available
therefor and (iii) upon a voluntary or involuntary dissolution, winding-up
or termination of TU Electric Capital (other than in connection with a
redemption of all of the QUIPS), the lesser of (a) the aggregate of the
liquidation preference amounts and all accrued and unpaid distributions
on the QUIPS to the date of payment and (b) the amount of assets of
TU Electric Capital remaining available for distribution to Holders of
QUIPS in liquidation of TU Electric Capital. The Company's obligation
to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by the Company to the Holders of QUIPS or by causing
TU Electric Capital to pay such amounts to such Holders.
The Guarantee will be a guarantee with respect to the QUIPS issued by TU
Electric Capital from the time of issuance of the QUIPS, but will not apply
to (i) any payment of distributions if and to the extent that TU Electric
Capital does not have funds available to make such payments, or (ii)
collection of payment. If the Company does not make interest payments on
the Junior Subordinated Debentures held by TU Electric Capital, TU Electric
Capital will not have funds available to pay distributions on the QUIPS.
The Guarantee will rank subordinate and junior in right of payment to all
liabilities of the Company (except those made pari passu by their terms).
See "Status of the Guarantee."
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely
affect the rights of Holders of QUIPS (in which case no vote will be
required), the terms of the Guarantee may be changed only with the prior
approval of the Holders of QUIPS having at least 66 2/3% of the liquidation
preference amount of the outstanding QUIPS. All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit
of the Holders of the QUIPS then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of
the Company to perform any of its payment obligations thereunder. The
Holders of QUIPS having a majority of the liquidation preference of the
QUIPS have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of
the Guarantee or to direct the exercise of any trust or power conferred
upon the Guarantee Trustee under the Guarantee.
Notwithstanding anything to the contrary contained in the Guarantee,
any Holder of QUIPS may institute a legal proceeding directly against
the Company to enforce its rights under such Guarantee without first
instituting a legal proceeding against TU Electric Capital, the
Guarantee Trustee or any other person or entity.
The Company will be required to provide annually to the Guarantee
Trustee a statement as to the performance by the Company of certain of its
obligations under the Guarantee and as to any default in such performance.
The Company will also be required to file under certain circumstances
with the Guarantee Trustee an officer's certificate as to the Company's
compliance with all conditions under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of an event of default
by the Company under the Guarantee, has undertaken to perform only
such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of
care as a prudent individual would exercise in the conduct of his or her
own affairs. Subject to this provision, 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 QUIPS unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be
incurred thereby. See DESCRIPTION OF THE QUIPS - "Concerning the Property
Trustee."
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price, plus accrued and unpaid
distributions, of all QUIPS, the distribution of Junior Subordinated
Debentures to Holders of QUIPS in exchange for all of the QUIPS or full
payment of the amounts payable upon liquidation of TU Electric Capital.
The Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any Holder of QUIPS must restore payment of any
sums paid under the QUIPS or the Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior in right of payment to all liabilities
of the Company (except liabilities that may be made pari passu by their
terms), (ii) pari passu with the most senior preferred or preference stock
now or hereafter issued by the Company and with any guarantee now or
hereafter entered into by the Company in respect of any preferred or
preference stock of any affiliate of the Company and (iii) senior to the
Company's common stock. The Trust Agreement provides that each Holder of
QUIPS by acceptance thereof agrees to the subordination provisions and
other terms of the Guarantee.
The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Guarantor to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or
entity).
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Junior
Subordinated Debentures which TU Electric Capital will hold as trust
assets. The following description does not purport to be complete and is
qualified in its entirety by reference to the description in the Indenture
between the Company and the Trustee with respect to the Junior Subordinated
Debentures (Debenture Trustee), which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. Whenever
particular provisions or defined terms in the Indenture are referred to
herein, such provisions or defined terms are incorporated by reference
herein. Section references used herein are references to provisions of the
Indenture unless otherwise noted.
The Indenture provides for the issuance of debentures (including the
Junior Subordinated Debentures), notes or other evidence of indebtedness by
the Company (each a Debt Security) in an unlimited amount from time to
time. The Junior Subordinated Debentures constitute a separate series
under the Indenture.
GENERAL
The Junior Subordinated Debentures will be limited in aggregate
principal amount to the sum of the aggregate liquidation preference amount
of the QUIPS and the consideration paid by the Company for the Common
Securities. The Junior Subordinated Debentures are unsecured, subordinated
obligations of the Company which rank junior to all of the Company's Senior
Indebtedness.
The entire outstanding principal amount of the Junior Subordinated
Debentures will become due and payable, together with any accrued and
unpaid interest thereon, including Additional Interest (as defined herein),
if any, on December 31, 2035. The amounts payable as principal and
interest on the Junior Subordinated Debentures will be sufficient to
provide for payment of distributions payable on the Trust Securities.
If Junior Subordinated Debentures are distributed to Holders of QUIPS in
a termination of TU Electric Capital, such Junior Subordinated Debentures
will be issued in fully registered certificated form in denominations of
$25 and integral multiples thereof and may be transferred or exchanged at
the offices described below.
Payments of principal and interest on Junior Subordinated Debentures
will be payable, the transfer of Junior Subordinated Debenture will be
registrable, and Junior Subordinated Debentures will be exchangeable for
Junior Subordinated Debentures of other denominations of a like aggregate
principal amount, at the corporate trust office of the Debenture Trustee in
The City of New York; provided that payment of interest may be made at the
option of the Company by check mailed to the address of the persons
entitled thereto and that the payment in full of principal with respect to
any Junior Subordinated Debenture will be made only upon surrender of such
Junior Subordinated Debenture to the Debenture Trustee.
OPTIONAL REDEMPTION
On or after January 1, 2001, the Company will have the right, at any
time and from time to time, to redeem the Junior Subordinated Debentures,
in whole or in part, at a redemption price equal to 100% of the principal
amount of the Junior Subordinated Debentures being redeemed, together with
any accrued but unpaid interest, including Additional Interest, if any, to
the redemption date.
If a Tax Event shall occur and be continuing, the Company shall have
the right to redeem the Junior Subordinated Debentures in whole or in part,
at a redemption price equal to 100% of the principal amount of Junior
Subordinated Debentures then outstanding plus any accrued and unpaid
interest, including Additional Interest, if any, to the redemption date.
For so long as TU Electric Capital is the Holder of all the outstanding
Junior Subordinated Debentures, the proceeds of any such redemption will be
used by TU Electric Capital to redeem QUIPS and Common Securities in
accordance with their terms. The Company may not redeem less than all the
Junior Subordinated Debentures unless all accrued and unpaid interest
(including any Additional Interest) has been paid in full on all
outstanding Junior Subordinated Debentures for all quarterly interest
periods terminating on or prior to the date of redemption.
Any optional redemption of Junior Subordinated Debentures shall be made
upon not less than 30 nor more than 60 days' notice from the Debenture
Trustee to the Holders of Junior Subordinated Debentures, as provided in
the Indenture. All notices of redemption shall state the redemption date,
the redemption price plus accrued and unpaid interest, if less than all the
Junior Subordinated Debentures are to be redeemed, the identification of
those to be redeemed and the portion of the principal amount of any Junior
Subordinated Debentures to be redeemed in part; 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 upon each such Junior Subordinated Debenture to be redeemed and
that interest thereon will cease to accrue on and after said date; and the
place or places where such Debentures are to be surrendered for payment of
the redemption price plus accrued and unpaid interest.
INTEREST
The Junior Subordinated Debentures shall bear interest at the rate of
8.00% per annum. Such interest is payable quarterly in arrears on March
31, June 30, September 30 and December 31 of each year (each, an Interest
Payment Date), commencing December 31, 1995, to the person in whose name
each Junior Subordinated Debenture is registered, by the close of business
on the Business Day 15 days preceding such Interest Payment Date. It is
anticipated that TU Electric Capital will be the sole Holder of the Junior
Subordinated Debentures.
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
(Section 310). In the event that any date on which interest is payable on
the Junior Subordinated Debentures is not a Business Day, then payment of
the interest payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the
next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on the date the payment was originally payable (Section
113).
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right under the Indenture to extend the
interest payment period from time to time on the Junior Subordinated
Debentures to a period not exceeding 20 consecutive quarters during which
period interest will be compounded quarterly. At the end of an Extension
Period, the Company must pay all interest then accrued and unpaid (together
with interest thereon at the rate specified for the Junior Subordinated
Debentures compounded quarterly, to the extent permitted by applicable
law). However, during any such Extension Period, the Company shall not
declare or pay any dividend or distribution (other than a dividend or
distribution in Common Stock of the Company) on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital
stock, redeem any indebtedness that is pari passu with the Junior
Subordinated Debentures, or make any guarantee payments with respect to the
foregoing. Prior to the termination of any such Extension Period, the
Company may further extend the interest payment period, provided that such
Extension Period together with all such previous and further extensions
thereof shall not exceed 20 consecutive quarters at any one time or extend
beyond the maturity date of the Junior Subordinated Debentures. Any
extension period with respect to payment of interest on the Junior
Subordinated Debentures, other Debt Securities or on any similar securities
will apply to all such securities and will also apply to distributions with
respect to the QUIPS and all other securities with terms substantially the
same as the QUIPS. Upon the termination of any such Extension Period and
the payment of all amounts then due, the Company may select a new Extension
Period, subject to the above requirements. No interest shall be due and
payable during an Extension Period, except at the end thereof. The Company
will give TU Electric Capital and the Debenture Trustee notice of its
election of an Extension Period prior to the earlier of (i) one Business
Day prior to the record date for the distribution which would occur but for
such election or (ii) the date the Company is required to give notice to
the NYSE or other applicable self-regulatory organization of the record
date and will cause the Trust to send notice of such election to the
Holders of QUIPS.
ADDITIONAL INTEREST
So long as any QUIPS remain outstanding, if TU Electric Capital shall be
required to pay, with respect to its income derived from the interest
payments on the Junior Subordinated Debentures any amounts for or on
account of any taxes, duties, assessments or governmental charges of
whatever nature imposed by the United States, or any other taxing
authority, then, in any such case, the Company will pay as interest on such
Junior Subordinated Debentures such additional interest (Additional
Interest) as may be necessary in order that the net amounts received and
retained by TU Electric Capital after the payment of such taxes, duties,
assessments or governmental charges shall result in the TU Electric
Capital's having such funds as it would have had in the absence of the
payment of such taxes, duties, assessments or governmental charges.
DEFEASANCE
The principal amount of any series of Debt Securities issued under the
Indenture will be deemed to have been paid for purposes of the Indenture
and the entire indebtedness of the Company in respect thereof will be
deemed to have been satisfied and discharged, if there shall have been
irrevocably deposited with the Debenture Trustee or any paying agent, in
trust: (a) money in an amount which will be sufficient, or (b) in the case
of a deposit made prior to the maturity of the Junior Subordinated
Debentures, Government Obligations (as defined herein), which do not
contain provisions permitting the redemption or other prepayment thereof at
the option of the issuer thereof, the principal of and the interest on
which when due, without any regard to reinvestment thereof, will provide
moneys which, together with the money, if any, deposited with or held by
the Debenture Trustee, will be sufficient, or (c) a combination of (a) and
(b) which will be sufficient, to pay when due the principal of and premium,
if any, and interest, if any, due and to become due on the Debt Securities
of such series that are outstanding. For this purpose, Government
Obligations, include direct obligations of, or obligations unconditionally
guaranteed by, the United States of America entitled to the benefit of the
full faith and credit thereof and certificates, depositary receipts or
other instruments which evidence a direct ownership interest in such
obligations or in any specific interest or principal payments due in
respect thereof.
It is possible that for federal income tax purposes any deposit
contemplated in the preceding paragraph could be treated as a taxable
exchange of the Junior Subordinated Debentures outstanding for an issue of
obligations of TU Electric Capital or a direct interest in the cash and
securities held by TU Electric Capital. In that case, Holders of the
Junior Subordinated Debentures outstanding would recognize a gain or loss
for federal income tax purposes, as if their share of TU Electric Capital
obligations or the cash or securities deposited, as the case may be, had
actually been received by them in exchange for their Junior Subordinated
Debentures. In addition, such Holders thereafter would be required to
include in income a share of the income, gain or loss of TU Electric
Capital. The amount so required to be included in income could be
different from the amount that would be includable in the absence of such
deposit. Prospective investors are urged to consult their own tax advisors
as to the specific consequences to them of such deposit.
SUBORDINATION
The Junior Subordinated Debentures will be subordinate and junior in
right of payment to all Senior Indebtedness of the Company as provided in
the Indenture. No payment of principal of (including redemption and
sinking fund payments), or interest on, the Junior Subordinated Debentures
may be made (i) upon the occurrence of certain events of bankruptcy,
insolvency or reorganization, (ii) if any Senior Indebtedness is not paid
when due, (iii) if any other default has occurred pursuant to which the
Holders of Senior Indebtedness have accelerated the maturity thereof and
with respect to (ii) and (iii), such default has not been cured or waived,
or (iv) if the maturity of any series of Debt Securities has been
accelerated, because of an event of default with respect thereto, which
remains uncured. Upon any distribution of assets of the Company to
creditors upon any dissolution, winding-up, liquidation or reorganization,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership
or other proceedings, 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 thereon. (Section 1502). Subject to the
prior payment of all Senior Indebtedness, the rights of the Holders of the
Junior Subordinated Debentures will be subrogated to the rights of the
Holders of Senior Indebtedness to receive payments or distributions
applicable to Senior Indebtedness until all amounts owing on the Junior
Subordinated Debentures are paid in full. (Section 1504).
The term Senior Indebtedness is defined in the Indenture to mean all
obligations (other than non-recourse obligations and the indebtedness
issued under the Indenture) of, or guaranteed or assumed by, the Company
for borrowed money, including both senior and subordinated indebtedness for
borrowed money (other than the Debt Securities), or for the payment of
money relating to any lease which is capitalized on the consolidated
balance sheet of the Company and its subsidiaries in accordance with
generally accepted accounting principles as in effect from time to time, or
evidenced by bonds, debentures, notes or other similar instruments, and in
each case, amendments, renewals, extensions, modifications and refundings
of any such indebtedness or obligations, whether existing as of the date of
this Indenture or subsequently incurred by the Company unless, in the case
of any particular indebtedness, renewal, extension or refunding, the
instrument creating or evidencing the same or the assumption or guarantee
of the same expressly provides that such indebtedness, renewal, extension
or refunding is not superior in right of payment to or is pari passu with
the Junior Subordinated Debentures; provided that the Company's obligations
under the Guarantee shall not be deemed to be Senior Indebtedness.
(Section 101).
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued. As of September 30, 1995, the Company had
approximately $7.5 billion principal amount of indebtedness for borrowed
money constituting Senior Indebtedness. In addition, as of September 30,
1995, there were approximately $84.610 million of contingent obligations
constituting Senior Indebtedness where there exists a financially viable
and unrelated primary obligor and where the risk of loss to Company is, in
the opinion of the Company, remote.
CONSOLIDATION, MERGER, AND SALE OF ASSETS
Under the terms of the Indenture, the 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 (i) the
corporation formed by such consolidation or into which the Company is
merged or the entity which acquires by conveyance or transfer, or which
leases, the property and assets of the Company substantially as an entirety
shall be a entity organized and validly existing under the laws of any
domestic jurisdiction and such entity expressly assumes the Company's
obligations on all Debt Securities and under the Indenture,
(ii) immediately after giving effect to the transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing, and
(iii) the Company shall have delivered to the Debenture Trustee an
Officer's Certificate and an Opinion of Counsel as provided in the
Indenture (Section 1101).
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indenture with respect to the Debt Securities of any series: (a) failure
to pay any interest on the Debt Securities of such series within 30 days
after the same becomes due and payable; (b) failure to pay principal or
premium, if any, on the Debt Securities of such series when due and
payable; (c) failure to perform, or breach of, any other covenant or
warranty of the Company in the Indenture (other than a covenant or warranty
of the Company in the Indenture solely for the benefit of one or more
series of Debt Securities other than such series) for 60 days after written
notice to the Company by the Debenture Trustee, or to the Company and the
Debenture Trustee by the Holders of at least 33% in principal amount of the
Debt Securities of such series outstanding under the Indenture as provided
in the Indenture; (d) the entry by a court having jurisdiction in the
premises of (1) a decree or order for relief in respect of the Company in
an involuntary case or proceeding under any applicable Federal or state
bankruptcy, insolvency, reorganization or other similar law or (2) a decree
or order adjudging the Company a bankrupt or insolvent, or approving as
properly filed a petition by one or more Persons other than the Company
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable Federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official for the Company or for any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and any such decree or order for relief or any such other
decree or order shall have remained unstayed and in effect for a period of
90 consecutive days; and (e) the commencement by the Company of a voluntary
case or proceeding under any applicable Federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it
to the entry of a decree or order for relief in respect of the Company in a
case or other similar proceeding or to the commencement of any bankruptcy
or insolvency case or proceeding against it under any applicable Federal or
state law or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or state law, or the
consent by it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or of any substantial part
of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due, or the authorization of such action by
the Board of Directors (Section 801).
An Event of Default with respect to the Debt Securities of a particular
series may not necessarily constitute an Event of Default with respect to
Debt Securities of any other series issued under the Indenture.
If an Event of Default due to the default in payment of principal of or
interest on any series of Debt Securities or due to the default in the
performance or breach of any other covenant or warranty of the Company
applicable to the Debt Securities of such series but not applicable to all
series occurs and is continuing, then either the Debenture Trustee or the
Holders of 33% in principal amount of the outstanding Debt Securities of
such series may declare the principal of all of the Debt Securities of such
series and interest accrued thereon to be due and payable immediately
(subject to the subordination provisions of the Indenture). If an Event of
Default due to the default in the performance of any other covenants or
agreements in the Indenture applicable to all outstanding Debt Securities
or due to certain events of bankruptcy, insolvency or reorganization of the
Company has occurred and is continuing, either the Debenture Trustee or the
Holders of not less than 33% in principal amount of all outstanding Debt
Securities, considered as one class, and not the Holders of the Debt
Securities of any one of such series may make such declaration of
acceleration (subject to the subordination provisions of the Indenture).
At any time after the 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 or Events of
Default giving rise to such declaration of acceleration will, without
further act, be deemed to have been waived, and such declaration and its
consequences will, without further act, be deemed to have been rescinded
and annulled, if
(a) the Company has paid or deposited with the Debenture Trustee a sum
sufficient to pay
(1) all overdue interest on all Debt Securities of such series;
(2) the principal of and premium, if any, on any Debt Securities of
such series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed therefor
in such Debt Securities;
(3) interest upon overdue interest at the rate or rates prescribed
therefor in such Debt Securities, to the extent that payment of such
interest is lawful; and
(4) all amounts due to the Debenture Trustee under the Indenture;
(b) any other Event or Events of Default with respect to Debt
Securities of such series, other than the nonpayment of the principal of
the Debt Securities of such series which has become due solely by such
declaration of acceleration, have been cured or waived as provided in the
Indenture (Section 802).
Subject to the provisions of the Indenture relating to the duties of the
Debenture Trustee in case an Event of Default shall occur and be
continuing, the Debenture Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request or direction
of any of the Holders, unless such Holders shall have offered to the
Debenture Trustee reasonable indemnity (Section 903). If an Event of
Default has occurred and is continuing in respect of a series of Debt
Securities, subject to such provisions for the indemnification of the
Debenture Trustee, the Holders of a majority in principal amount of the
outstanding Debt Securities of such series 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 trust or power
conferred on the Debenture Trustee, with respect to the Debt Securities of
such series; provided, however, that if an Event of Default occurs and is
continuing with respect to more than one series of Debt Securities, the
Holders of a majority in aggregate principal amount of the outstanding Debt
Securities of all such series, considered as one class, will have the right
to make such direction, and not the Holders of the Debt Securities of any
one of such series; and provided, further, that such direction will not be
in conflict with any rule of law or with the Indenture. (Section 812).
No Holder of Debt Securities of any series will have any right to
institute any proceeding with respect to the Indenture, or for the
appointment of a receiver or a trustee, or for any other remedy thereunder,
unless (i) such Holder has previously given to the Debenture Trustee
written notice of a continuing Event of Default with respect to the Debt
Securities of such series, (ii) the Holders of not less than a majority in
aggregate principal amount of the outstanding Debt Securities of all series
in respect of which an Event of Default shall have occurred and be
continuing, considered as one class, have made written request to the
Debenture Trustee, and such Holder or Holders have offered reasonable
indemnity to the Debenture Trustee to institute such proceeding in respect
of such Event of Default in its own name as trustee and (iii) the Debenture
Trustee has failed to institute any proceeding, and has not received from
the Holders of a majority in aggregate principal amount of the outstanding
Debt Securities of such series a direction inconsistent with such request,
within 60 days after such notice, request and offer (Section 807).
However, such limitations do not apply to a suit instituted by a Holder of
a Debt Security for the enforcement of payment of the principal of or any
premium or interest on such Debt Security on or after the applicable due
date specified in such Debt Security (Section 808).
The Company will be required to furnish to the Debenture Trustee
annually a statement by an appropriate officer as to such officer's
knowledge of the Company's compliance with all conditions and covenants
under the Indenture, such compliance to be determined without regard to any
period of grace or requirement of notice under the Indenture (Section 606).
MODIFICATION AND WAIVER
Without the consent of any Holder of Debt Securities, the Company and
the Debenture Trustee may enter into one or more supplemental indentures
for any of the following purposes: (a) to evidence the assumption by any
permitted successor to the Company of the covenants of the Company in the
Indenture and in the Debt Securities; or (b) to add one or more covenants
of the Company or other provisions for the benefit of the Holders of
outstanding Debt Securities or to surrender any right or power conferred
upon the Company by the Indenture; or (c) to add any additional Events of
Default with respect to outstanding Debt Securities; or (d) to change or
eliminate any provision of the Indenture or to add any new provision to the
Indenture, provided that if such change, elimination or addition will
adversely affect the interests of the Holders of Debt Securities of any
series in any material respect, such change, elimination or addition will
become effective with respect to such series only (1) when the consent of
the Holders of Debt Securities of such series has been obtained in
accordance with the Indenture, or (2) when no Debt Securities of such
series remain outstanding under the Indenture; or (e) to provide collateral
security for all but not part of the Debt Securities; (f) to establish the
form or terms of Debt Securities of any other series as permitted by the
Indenture; or (g) to provide for the authentication and delivery of bearer
securities and coupons appertaining thereto representing interest, if any,
thereon and for the procedures for the registration, exchange and
replacement thereof and for the giving of notice to, and the solicitation
of the vote or consent of, the Holders thereof, and for any and all other
matters incidental thereto; or (h) to evidence and provide for the
acceptance of appointment of a successor Debenture Trustee under the
Indenture with respect to the Debt Securities of one or more series and to
add to or change any of the provisions of the Indenture as shall be
necessary to provide for or to facilitate the administration of the trusts
under the Indenture by more than one trustee; or (i) to provide for the
procedures required to permit the utilization of a noncertificated system
of registration for the Debt Securities of all or any series; or (j) to
change any place where (1) the principal of and premium, if any, and
interest, if any, on all or any series of Debt Securities shall be payable,
(2) all or any series of Debt Securities may be surrendered for
registration of transfer or exchange and (3) notices and demands to or upon
the Company in respect of Debt Securities and the Indenture may be served;
or (k) to cure any ambiguity or inconsistency or to add or change any other
provisions with respect to matters and questions arising under the
Indenture, provided such changes or additions shall not adversely affect
the interests of the Holders of Debt Securities of any series in any
material respect (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 the
Company with certain restrictive provisions of the 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 such series, except a default in the payment
of principal, premium, or interest and certain covenants and provisions of
the Indenture that cannot be modified or be amended without the consent of
the Holder of each outstanding Debt Security of such series affected
(Section 813).
Without limiting the generality of the foregoing, if the Trust Indenture
Act is amended after the date of the Indenture in such a way as to require
changes to the Indenture or the incorporation therein of additional
provisions or so as to permit changes to, or the elimination of, provisions
which, at the date of the Indenture or at any time thereafter, were
required by the Trust Indenture Act to be contained in the Indenture, the
Indenture will be deemed to have been amended so as to conform to such
amendment of the Trust Indenture Act or to effect such changes, additions
or elimination, and the Company and the Debenture Trustee may, without the
consent of any Holders, enter into one or more supplemental indentures to
evidence or effect such amendment (Section 1201).
Except as provided above, the consent of the Holders of not less than a
majority in aggregate principal amount of the Debt Securities of all series
then outstanding, considered as one class, is required for the purpose of
adding any provisions to, or changing in any manner, or eliminating any of
the provisions of, the Indenture or modifying in any manner the rights of
the Holders of such Debt Securities under the Indenture pursuant to one or
more supplemental indentures; provided, however, that 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 outstanding Debt Securities of
all series so directly affected, considered as one class, will be required;
and provided further, that no such amendment or modification may (a) 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 thereof
or the rate of interest thereon (or the amount of any installment of
interest thereon) or change the method of calculating such rate or reduce
any premium payable upon the redemption thereof, or change the coin or
currency (or other property) in which any Debt Security or any premium or
the interest thereon is payable, or impair the right to institute suit for
the enforcement of any such payment on or after the Stated Maturity of any
Debt Security (or, in the case of redemption, on or after the redemption
date) without, in any such case, the consent of the Holder of such Debt
Security, (b) reduce the percentage in principal amount of the outstanding
Debt Security of any series, (or, if applicable, in liquidation preference
of QUIPS) the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is required
for any waiver of compliance with any provision of the Indenture or any
default thereunder and its consequences, or reduce the requirements for
quorum or voting, without, in any such case, the consent of the Holder of
each outstanding Debt Security of such series, or (c) modify certain of the
provisions of the Indenture relating to supplemental indentures, waivers of
certain covenants and waivers of past defaults with respect to the Debt
Security of any series, without the consent of the Holder of each
outstanding Junior Subordinated Debenture affected thereby. A supplemental
indenture which changes or eliminates any covenant or other provision of
the Indenture which has expressly been included solely for the benefit of
one or more particular series of Debt Securities, or modifies the rights of
the Holders of Debt Securities of such series with respect to such covenant
or other provision, will be deemed not to affect the rights under the
Indenture of the Holders of the Debt Securities of any other series
(Section 1202).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the outstanding Debt Securities have given
any request, demand, authorization, direction, notice, consent or waiver
under the Indenture, or whether a quorum is present at the meeting of the
Holders of Debt Securities, Debt Securities owned by the Company or any
other obligor upon the Debt Securities or any affiliate of the Company or
of such other obligor (unless the Company, such affiliate or such obligor
owns all Debt Securities outstanding under the Indenture, determined
without regard to this provision) shall be disregarded and deemed not to be
outstanding.
If the Company shall solicit from Holders any request, demand,
authorization, direction, notice, consent, election, waiver or other Act,
the Company may, at its option, fix in advance a record date for the
determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other such act, but
the Company shall have no obligation to do so. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only
the Holders of record at the close of business on such record date shall be
deemed to be Holders for the purposes of determining whether Holders of the
requisite proportion of the outstanding Debt Securities have authorized or
agreed or consented to such request, demand, authorization, direction,
notice, consent, waiver or other Act, and for that purpose the outstanding
Debt Securities shall be computed as of the record date. Any request,
demand, authorization, direction, notice, consent, election, waiver or
other Act of a Holder shall bind every future Holder of the same Debt
Security and the Holder of every Debt Security issued upon the registration
of transfer thereof or in exchange therefor or in lieu thereof in respect
of anything done, omitted or suffered to be done by the Debenture Trustee
or the Company in reliance thereon, whether or not notation of such action
is made upon such Debt Security (Section 104).
RESIGNATION OF DEBENTURE TRUSTEE
The Debenture Trustee may resign at any time by giving written notice
thereof to the Company or may be removed at any time by Act of the Holders
of a majority in principal amount of a series of Debt Securities then
outstanding delivered to the Debenture Trustee and the Company. No
resignation or removal of the Debenture Trustee and no appointment of a
successor trustee will become effective until the acceptance of appointment
by a successor trustee in accordance with the requirements of the
Indenture. 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 Debenture Trustee appointed by
Act of the Holders, if the Company has delivered to the Debenture Trustee a
resolution of its Board of Directors appointing a successor trustee and
such successor has accepted such appointment in accordance with the terms
of the 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 (Section 910).
NOTICES
Notices to Holders of Debt Securities will be given by mail to the
addresses of such Holders as they may appear in the security register
therefor.
TITLE
The Company, the Debenture Trustee, and any agent of the Company or the
Debenture Trustee, may treat the Person in whose name Debt Securities are
registered as the absolute owner thereof (whether or not such Debt
Securities may be overdue) for the purpose of making payments and for all
other purposes irrespective of notice to the contrary.
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.
REGARDING THE DEBENTURE TRUSTEE
The Debenture Trustee under the Indenture is The Bank of New York. In
addition to acting as Debenture Trustee under the Indenture, The Bank of
New York acts as trustee under the Company's Mortgage and Deed of Trust
with respect to substantially all the properties of the Company, which
secures the Company's first mortgage bonds. In addition, The Bank of New
York acts as Property Trustee under the Trust Agreement and as Guarantee
Trustee under the Guarantee and in the same capacities in respect of other
trust subsidiaries of the Company. The Bank of New York (Delaware) acts as
the Delaware Trustee under the Trust Agreement. See DESCRIPTION OF THE
QUIPS - "Concerning the Property Trustee."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the ownership of QUIPS as of the date hereof and represents
the opinion of Reid & Priest LLP, counsel to the Company, insofar as it
relates to matters of law or legal conclusions. Except where noted, it
deals only with QUIPS held as capital assets and does not deal with special
situations, such as those of dealers in securities or currencies, financial
institutions, life insurance companies, persons holding QUIPS as a part of
a hedging or conversion transaction or a straddle, United States Holders
(as defined herein) whose "functional currency" is not the U.S. dollar, or
persons who are not United States Holders. In addition, this discussion
does not address the tax consequences to persons who purchase QUIPS other
than pursuant to their initial issuance and distribution. Furthermore, the
discussion below is based upon the provisions of the Internal Revenue Code
of 1986, as amended (Code), and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed,
revoked or modified so as to result in federal income tax consequences
different from those discussed below.
PROSPECTIVE PURCHASERS OF QUIPS, INCLUDING PERSONS WHO ARE NOT UNITED
STATES HOLDERS AND PERSONS WHO PURCHASE QUIPS IN THE SECONDARY MARKET, ARE
ADVISED TO CONSULT WITH THEIR TAX ADVISORS AS TO THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF QUIPS IN LIGHT
OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE,
LOCAL OR OTHER TAX LAWS.
UNITED STATES HOLDERS
As used herein, a "United States Holder" means a Holder that is a
citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States
or any political subdivision thereof, or an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source.
CLASSIFICATION OF TU ELECTRIC CAPITAL
Reid & Priest LLP, special counsel to the Company and TU Electric
Capital, is of the opinion that, under current law and assuming full
compliance with the terms of the Indenture and the instruments establishing
TU Electric Capital (and certain other documents), TU Electric Capital will
be classified as a "grantor trust" for federal income tax purposes and will
not be classified as an association taxable as a corporation. Each Holder
will be treated as owning an undivided beneficial interest in the Junior
Subordinated Debentures. Accordingly, each Holder will be required to
include in its gross income the OID accrued with respect to its allocable
share of Junior Subordinated Debentures as described below. Investors
should be aware that the opinion of Reid & Priest LLP does not address any
other issue and is not binding on the Internal Revenue Service or the
courts.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
Based on the advice of its counsel, the Company believes and intends to
take the position that the Junior Subordinated Debentures will constitute
indebtedness for United States federal income tax purposes. No assurance
can be given that such position will not be challenged by the Internal
Revenue Service or, if challenged, that such a challenge will not be
successful. By purchasing and accepting QUIPS, each Holder covenants to
treat the Junior Subordinated Debentures as indebtedness and the QUIPS as
evidence of an indirect beneficial ownership in the Junior Subordinated
Debentures. The remainder of this discussion assumes that the Junior
Subordinated Debentures will be classified as indebtedness of the Company
for United States federal income tax purposes.
ORIGINAL ISSUE DISCOUNT
Under the terms of the Junior Subordinated Debentures, the Company has
the option to defer payments of interest for up to 20 consecutive quarterly
distribution payment periods and to pay as a lump sum at the end of such
period all of the interest that has accrued during such period. During any
such Extension Period, distributions on the QUIPS will also be deferred.
Because of this option to extend the interest payment periods, all of the
stated distribution payments on the QUIPS will be treated as OID. As a
result, United States Holders will be required to accrue interest income
even if they use the cash method of tax accounting. In the event of an
Extension Period, a United States Holder will be required to continue to
include OID in income on an economic accrual basis notwithstanding that TU
Electric Capital will not make any distribution payments on the QUIPS
during such Extension Period.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF TU
ELECTRIC CAPITAL
Under certain circumstances, as described under the caption DESCRIPTION
OF THE QUIPS - "Tax Event Redemption on Distribution," Junior Subordinated
Debentures may be distributed to Holders of QUIPS in exchange for the QUIPS
and in liquidation of TU Electric Capital. Under current law, for United
States federal income tax purposes, such a distribution would be treated as
a non-taxable event to each United States Holder, and each United States
Holder would receive an aggregate tax basis in the Junior Subordinated
Debentures equal to such Holder's aggregate tax basis in its QUIPS. A
United States Holder's holding period for the Junior Subordinated
Debentures received in liquidation of TU Electric Capital would include the
period during which such Holder held the QUIPS.
Under certain circumstances, as described under the caption DESCRIPTION
OF THE QUIPS - "Redemption of QUIPS," the Junior Subordinated Debentures
may be redeemed for cash and the proceeds of such redemption distributed to
Holders of QUIPS in redemption of the QUIPS. Under current law, such a
redemption would, for United States federal income tax purposes, constitute
a taxable disposition of the QUIPS, and a Holder would recognize gain or
loss as if such Holder had sold such redeemed QUIPS. See "Sale, Exchange
and Redemption of the QUIPS."
SALE, EXCHANGE AND REDEMPTION OF THE QUIPS
Upon the sale, exchange or redemption of QUIPS, a United States Holder
will recognize gain or loss equal to the difference between the amount
realized upon the sale, exchange or redemption and such Holder's adjusted
tax basis in the QUIPS. A United States Holder's adjusted tax basis will,
in general, be the issue price of the QUIPS, increased by the OID
previously included in income by the United States Holder and reduced by
any distributions on the QUIPS. Such gain or loss will be capital gain or
loss and will be long-term capital gain or loss if at the time of sale,
exchange or redemption, the QUIPS have been held for more than one year.
Under current law, net capital gains of individuals are, under certain
circumstances, taxed at lower rates than items of ordinary income. The
deductibility of capital losses is subject to limitations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Subject to the qualification discussed below, income on the QUIPS will
be reported to holders on Forms 1099, which should be mailed to such
holders by January 31 following each calendar year.
TU Electric Capital will be obligated to report annually to Cede & Co.,
as holder of record of the QUIPS, the OID related to the Junior
Subordinated Debentures that accrued during the year. TU Electric Capital
currently intends to report such information on Form 1099 prior to January
31, following each calendar year. The Underwriters have indicated to TU
Electric Capital that, to the extent that they hold QUIPS as nominees for
beneficial holders, they currently expect to report the OID that accrued
during the calendar year on such QUIPS to such beneficial holders on Forms
1099 by January 31 following each calendar year. Under current law,
holders of QUIPS who hold as nominees for beneficial holders will not have
any obligation to report information regarding the beneficial holders to TU
Electric Capital. TU Electric Capital, moreover, will not have any
obligation to report to beneficial holders who are not also record holders.
Thus, beneficial holders of QUIPS who hold their QUIPS through the
Underwriters will receive Forms 1099 reflecting the income on their QUIPS
from such nominee holders rather than from TU Electric Capital.
Payments made in respect of, and proceeds from the sale of, QUIPS (or
Junior Subordinated Debentures distributed to holders of QUIPS) may be
subject to "backup" withholding tax of 31% unless the holder complies with
certain identification requirements or fails to report in full dividend and
interest income. Any withheld amounts will be allowed as a refund or a
credit against the holder's United Stated federal income tax liability,
provided the required information is provided to the Internal Revenue
Service.
These information reporting and backup withholding tax rules are subject
to temporary Treasury Regulations. Accordingly, the application of such
rules to the QUIPS could be changed.
EXPERTS
The financial statements and financial statement schedules included in
the 1994 10-K, incorporated herein by reference, have been audited by
Deloitte & Touche LLP, Independent Auditors, as stated in their report
included in such 1994 10-K, and have been incorporated by reference herein
in reliance upon such report given upon the authority of that firm as
experts in accounting and auditing.
With respect to the unaudited interim financial information included in
the Company's Quarterly Reports on Form 10-Q incorporated herein by
reference, Deloitte & Touche LLP has applied limited procedures in
accordance with professional standards for reviews of such information.
However, as stated in any of their reports that are included in the
Company's Quarterly Reports on Form 10-Q, incorporated herein by reference,
they did not audit and they do not express an opinion on that interim
financial information. Deloitte & Touche LLP is not subject to the
liability provisions of Section 11 of the 1933 Act for any of its reports
on such unaudited interim financial information because those reports are
not "reports" or a "part" of the Registration Statement filed under the
1933 Act with respect to the QUIPS prepared or certified by an accountant
within the meaning of Sections 7 and 11 of the 1933 Act.
The statements made in the Company's latest Annual Report on Form 10-K
under Part I, Item 1 - Business-Regulation and Rates and Environmental
Matters, incorporated herein by reference, have been reviewed by Worsham,
Forsythe & Wooldridge, L.L.P., Dallas, Texas, General Counsel for the
Company. All of such statements are set forth or incorporated by reference
herein in reliance upon the opinion of that firm given upon their authority
as experts. At June 30, 1995, members of the firm of Worsham, Forsythe &
Wooldridge, L.L.P. owned approximately 47,000 shares of the common stock of
Texas Utilities. Statements as to United States federal income taxation
under CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES herein have
been passed upon for the Company and TU Electric Capital by Reid & Priest
LLP, New York, New York, of counsel to the Company.
LEGALITY
Certain matters of Delaware law relating to the validity of the QUIPS,
the enforceability of the Trust Agreement and the creation of TU Electric
Capital are being passed upon by Richards, Layton & Finger, Special
Delaware counsel for the Company and TU Electric Capital. The legality of
the other securities offered hereby will be passed upon for the Company and
TU Electric Capital by Worsham, Forsythe & Wooldridge, L.L.P. and by Reid &
Priest LLP, and for the Underwriters by Winthrop, Stimson, Putnam &
Roberts, New York, New York. However, all matters pertaining to
incorporation of the Company and all other matters of Texas law will be
passed upon only by Worsham, Forsythe & Wooldridge, L.L.P.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and TU Electric Capital have agreed that TU Electric Capital will
issue and sell to each of the Underwriters named below, and each of the
Underwriters, for whom Goldman, Sachs & Co., Dean Witter Reynolds Inc.,
Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
PaineWebber Incorporated and Smith Barney Inc. are acting as
Representatives, has severally agreed to purchase from TU Electric Capital
the respective number of QUIPS set forth opposite its name below:
Number of Units
Underwriters of QUIPS
------------ ---------------
Goldman, Sachs & Co. . . . . . . . . 941,500
Dean Witter Reynolds Inc. . . . . . . 941,300
Lehman Brothers Inc. . . . . . . . . 941,300
Merrill Lynch, Pierce, Fenner
& Smith Incorporated . . . . . . . 941,300
PaineWebber Incorporated . . . . . . 941,300
Smith Barney Inc. . . . . . . . . . . 941,300
Bear, Stearns & Co. Inc. . . . . . . . 70,000
Alex. Brown & Sons Incorporated. . . . 70,000
CS First Boston Corporation. . . . . . 70,000
Donaldson, Lufkin & Jenrette
Securities Corporation . . . . . . . 70,000
A.G. Edwards & Sons, Inc. . . . . . . 70,000
EVEREN Securities, Inc. . . . . . . . 70,000
Legg Mason Wood Walker, Incorporated . 70,000
Morgan Stanley & Co. Incorporated . . 70,000
Oppenheimer & Co., Inc. . . . . . . . 70,000
Prudential Securities Incorporated . . 70,000
Salomon Brothers Inc . . . . . . . . . 70,000
SBC Capital Markets. . . . . . . . . . 70,000
Advest, Inc. . . . . . . . . . . . . . 36,000
Robert W. Baird & Co. Incorporated . . 36,000
M.R. Beal & Company. . . . . . . . . . 36,000
J.C. Bradford & Co. . . . . . . . . . 36,000
Commerzbank Capital Markets
Corporation. . . . . . . . . . . . . 36,000
Cowen & Company. . . . . . . . . . . . 36,000
Crowell, Weedon & Co. . . . . . . . . 36,000
Dain Bosworth Incorporated . . . . . . 36,000
Duff & Phelps Securities Co. . . . . . 36,000
Doft & Co., Inc. . . . . . . . . . . . 36,000
Fahnestock & Co. Inc. . . . . . . . . 36,000
First Albany Corporation . . . . . . . 36,000
First of Michigan Corporation. . . . . 36,000
Furman Selz Incorporated . . . . . . . 36,000
Grigsby Branford & Co., Inc. . . . . . 36,000
Gruntal & Co., Incorporated. . . . . . 36,000
J.J.B. Hilliard, W.L. Lyons, Inc. . . 36,000
Interstate/Johnson Lane
Corporation . . . . . . . . . . . . 36,000
Janney Montgomery Scott Inc. . . . . . 36,000
McDonald & Company
Securities, Inc. . . . . . . . . . . 36,000
McGinn, Smith & Co., Inc. . . . . . . 36,000
Morgan Keegan & Company, Inc. . . . . 36,000
The Ohio Company . . . . . . . . . . . 36,000
Olde Discount Corporation . . . . . . 36,000
Piper Jaffray Inc. . . . . . . . . . . 36,000
Principal Financial
Securities, Inc. . . . . . . . . . . 36,000
Pryor, McClendon, Counts
& Co., Inc. . . . . . . . . . . . . 36,000
Ragen MacKenzie Incorporated . . . . . 36,000
Rauscher Pierce Refsnes, Inc. . . . . 36,000
Raymond James & Associates, Inc. . . . 36,000
The Robinson-Humphrey
Company, Inc. . . . . . . . . . . . 36,000
Roney & Co. . . . . . . . . . . . . . 36,000
Muriel Siebert & Co., Inc. . . . . . . 36,000
Southwest Securities, Inc. . . . . . . 36,000
Stephens Inc. . . . . . . . . . . . . 36,000
Sutro & Co. Incorporated . . . . . . . 36,000
Trilon International Inc. . . . . . . 36,000
Tucker Anthony Incorporated. . . . . . 36,000
U.S. Clearing Corp. . . . . . . . . . 36,000
Utendahl Capital Partners, L.P. . . . 36,000
Wedbush Morgan Securities. . . . . . . 36,000
Wheat, First Securities, Inc. . . . . 36,000
---------
Total. . . . . . . . . . . . . . . 8,000,000
=========
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the QUIPS offered
hereby, if any are taken.
The Underwriters propose to offer the QUIPS in part directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus, and in part to certain securities dealers at such price
less a concession of $.50 per unit of QUIPS. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $.30 per unit
of QUIPS to certain brokers and dealers. After the QUIPS are released for
sale to the public, the offering price and other selling terms may from
time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the QUIPS will
be used to purchase the Junior Subordinated Debentures, the Underwriting
Agreement provides that the Company will pay as compensation, for the
Underwriters' arranging the investment therein of such proceeds, an
amount of $.7875 per unit of QUIPS for the accounts of the several
Underwriters.
Prior to this offering, there has been no public market for the QUIPS.
Application has been made to list the QUIPS on the NYSE. In order to meet
one of the requirements for listing the QUIPS on the NYSE, the Underwriters
will undertake to sell lots of 100 or more QUIPS to a minimum of 400
beneficial holders. Trading of the QUIPS on the NYSE is expected to
commence within a fourteen-day period after the initial delivery of the
QUIPS. The Representatives have advised the Company that they intend to
make a market in the QUIPS prior to commencement of trading on the NYSE,
but are not obligated to do so and may discontinue any such market making
at any time without notice.
The Company and TU Electric Capital have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
1933 Act.
Goldman, Sachs & Co., Lehman Brothers Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Smith Barney Inc. are acting as co-dealer
managers in a pending exchange offer by the Company and engage in
transactions with, and from time to time have performed services for, the
Company in the ordinary course of business.
<PAGE>
=================================== ===================================
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, 8,000,000 PREFERRED SECURITIES
IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES TU ELECTRIC CAPITAL III
NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY 8.00% CUMULATIVE QUARTERLY INCOME
ANY SECURITIES OTHER THAN THE PREFERRED SECURITIES
SECURITIES DESCRIBED IN THIS
PROSPECTUS OR AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY GUARANTEED TO THE EXTENT
SUCH SECURITIES IN ANY CIRCUMSTANCES SET FORTH HEREIN BY
IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
-----------------
TABLE OF CONTENTS TEXAS UTILITIES
PAGE ELECTRIC COMPANY
----
Incorporation of Certain
Documents by Reference . . . 3
Available Information . . . . . 3
Prospectus Summary . . . . . . 5
Risk Factors . . . . . . . . . 7
The Company . . . . . . . . . . 10 ---------------
TU Electric Capital . . . . . . 10 PROSPECTUS
Summary Financial Information . 11 ---------------
Rate Proceedings . . . . . . . 12
Use of Proceeds . . . . . . . . 13
Description of the QUIPS . . . 13 GOLDMAN, SACHS & CO.
Description of the Guarantee . 23 DEAN WITTER REYNOLDS INC.
Description of the Junior LEHMAN BROTHERS
Subordinated Debentures . . . 25
MERRILL LYNCH & CO.
Certain United States Federal
Income Tax Consequences . . . 32 PAINEWEBBER INCORPORATED
Experts . . . . . . . . . . . . 34 SMITH BARNEY INC.
Legality . . . . . . . . . . . 35
Underwriting . . . . . . . . . 35 REPRESENTATIVES OF THE
UNDERWRITERS
=================================== ===================================
