Filed Pursuant to Rule 424(b)(3)
Registration Nos. 33-63033 and 33-63033-01
TEXAS UTILITIES ELECTRIC COMPANY
OFFER TO EXCHANGE FOR ANY OR ALL OF ITS
5,000,000
$2.05 DEPOSITARY SHARES,
EACH REPRESENTING 1/4 SHARE OF
$8.20 CUMULATIVE PREFERRED STOCK
CUSIP 882850 48 0
EITHER
TU ELECTRIC CAPITAL II or Cash
9.00% Trust Originated Preferred in the amount of $26.50
SecuritiesSM (TOPrSSM)
(liquidation preference $25.00 per
Preferred Security
and guaranteed to the extent set
forth herein
by Texas Utilities Electric Company)
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME ON DECEMBER 6, 1995,
UNLESS THE EXCHANGE OFFER IS EXTENDED
Texas Utilities Electric Company (Company) hereby offers to
exchange for any and all of its 5,000,000 outstanding Depositary
Shares, each representing 1/4 share of $8.20 Cumulative Preferred
Stock (Depositary Shares), either 9.00% Trust Originated
Preferred Securities (TOPrS SM) issued by and representing
undivided preferred beneficial interests (Preferred Securities)
in the assets of TU Electric Capital II, a Delaware statutory
business trust (TU Electric Capital) or cash, upon the terms and
subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (Letter of Transmittal), which
together with this Prospectus, constitutes the Exchange Offer.
(cover continued on following page)
SEE RISK FACTORS BEGINNING ON PAGE 14 FOR CERTAIN
INFORMATION RELEVANT TO THE EXCHANGE OFFER AND AN INVESTMENT IN
THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND CIRCUMSTANCES
DURING AND UNDER WHICH PAYMENT OF DISTRIBUTIONS ON THE PREFERRED
SECURITIES 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.
-------------------------------
The Dealer Managers for the Exchange Offer are:
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO. LEHMAN BROTHERS SMITH BARNEY INC.
-------------------------------
The date of this Prospectus is November 7, 1995.
SM"Trust Originated Preferred Securities" and "TOPrS" are service
marks of Merrill Lynch & Co.
<PAGE>
(cover page continued)
At the option of the Holder thereof, the Company will
exchange each Depositary Share validly tendered and accepted
by the Company for the following consideration: either
Preferred Securities with a liquidation preference of $25.00
or cash in the amount of $26.50 for each Depositary Share.
In addition, as part of the Exchange Offer, the Holders
(as defined herein) of Depositary Shares accepted for
exchange will be entitled to receive cash equal to
the accrued and unpaid dividends on such shares accumulating
after October 1, 1995 to the Closing Date (as defined herein),
in lieu of such dividends, on their Depositary Shares accepted
for exchange, such amount, without interest (Payment in Lieu of
Accumulated Dividends), to be payable on the Closing Date.
Holders of Depositary Shares may participate in the Exchange
Offer by properly completing and signing the Letter of
Transmittal and tendering their Depositary Shgares in accordance
with the instructions contained in THE EXCHANGE OFFER -
"Procedures for Tender" herein and in the Letter of Transmittal
on or prior to the Expiration Date (as defined herein). A Holder
of Depositary Shares who desires to tender such shares and whose
certificates for such shares are not immediately available, or
who cannot comply in a timely manner with the procedure for
book-entry transfer, may tender such shares by following procedures
for guaranteed delivery set forth in THE EXCHANGE OFFER -
"Procedures for Tendereing - Guaranteed Delivery." Tenders of
Depositary Shares pursuant to the Exchange Offer may be
withdrawn from the Exchange Offer at any time on or prior
to the Expiration Date and, unless the Company has accepted
such Depositary Shares for exchange, at any time after
January 5, 1996. Depositary Shares that have been withdrawn
may be retendered prior to the Expiration Date for exchange
for the same or a different form of offered consideration.
For a description of the other terms of the Exchange Offer,
see THE EXCHANGE OFFER - "Terms of the Exchange Offer"; "Expiration
Date; Extensions; Amendments; Termination"; and "Withdrawal of
Tenders" herein; and the Letter of Transmittal. The Company
expressly reserves the right to extend, amend or modify the
terms of the Exchange Offer, and not to accept for exchange
Depositary Shares at any time on or prior to the Expiration
Date for any reason, including, without limitation, if
fewer than 100,000 Depositary Shares would remain outstanding
upon acceptance of those tendered (which condition may be
waived by the Company). The Company has not set a date beyond
which the Exchange Offer will not be extended. See THE EXCHANGE
OFFER - "Expiration Date; Extensions; Amendments; Termination."
The 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 Preferred
Securities herein referred to as the Trust Securities). The Bank
of New York and The Bank of New York (Delaware) are the Property
Trustee and the Delaware Trustee, respectively, and three
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 Trust
Securities to the Company in exchange for, and holding as trust
assets, 9.00% Junior Subordinated Debentures, Series B, due
September 30, 2030 issued by the Company (Junior Subordinated
Debentures) in an aggregate principal amount equal to the
aggregate liquidation preference of the Trust Securities. The
Preferred Securities will have a preference under certain
circumstances with respect to cash distributions and amounts
payable on liquidation, redemption or otherwise over the Common
Securities. See DESCRIPTION OF THE PREFERRED SECURITIES -
"Subordination of Common Securities."
Holders of the Preferred Securities 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 9.00% 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
Preferred Securities 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
Preferred Securities will also be deferred to such extent.
During an Extension Period, distributions will continue to
accrue, and Holders of Preferred Securities will be required to
accrue income for United States federal income tax purposes.
Cash distributions in arrears will bear interest thereon at the
rate per annum of 9.00% of the liquidation preference amount of
$25 per Preferred Security (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 Preferred Securities and all other securities with terms
substantially the same as the Preferred Securities. Based upon
the Company's current financial condition and, in light of the
restriction on payment of dividends on the Company's securities
during an Extension Period, the Company believes that an
extension of a distribution payment period on the Preferred
Securities is currently unlikely and has no current intention to
cause such an extension. See DESCRIPTION OF THE PREFERRED
SECURITIES - "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 Preferred Securities, 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 Preferred
Securities. 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
Preferred Securities 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
Preferred Securities. 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 Preferred Securities and any securities substantially the
same as the Preferred Securities.
The Preferred Securities are subject to mandatory redemption
upon repayment of the Junior Subordinated Debentures at maturity
or upon their earlier redemption. See DESCRIPTION OF THE
PREFERRED SECURITIES - "Redemption Procedures." The Company will
have the option at any time on or after January 1, 1998, 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 Preferred Securities or, under
certain circumstances, to redeem, in whole or in part, the Junior
Subordinated Debentures. Any redemption of the Preferred
Securities 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, plus accrued and
unpaid distributions and 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"; also, for a comparison of the
redemption terms of the Preferred Securities and the Depositary
Shares, see PROSPECTUS SUMMARY - "Comparison of Preferred
Securities and Depositary Shares."
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 PREFERRED SECURITIES.
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 PREFERRED SECURITIES
- "Liquidation Distribution upon Dissolution."
Application will be made to list the Preferred Securities on
the New York Stock Exchange (NYSE).
The Depositary Shares are listed and principally traded on
the NYSE. On September 27, 1995, the last full day of trading
prior to the first public announcement of the proposal to make
the Exchange Offer, the closing sales price of the Depositary
Shares on the NYSE, as reported on the composite tape, was $25.50
per Depositary Share. On November 6, 1995, the last full day of
trading prior to the commencement of the Exchange Offer, the
closing price on the NYSE, as reported on the composite tape, was
$26.125 per Depositary Share. Holders of the Depositary Shares
are urged to obtain current market quotations for the Depositary
Shares. To the extent that the aggregate market value of the
Depositary Shares tendered and accepted in the Exchange Offer
results in the number of Holders of outstanding Depositary Shares
being less than 100,000, the Company would be required to delist
the Depositary Shares from the NYSE pursuant to NYSE rules and
regulations and the trading market for untendered Depositary
Shares could be adversely affected. See LISTING AND TRADING OF
PREFERRED SECURITIES AND DEPOSITARY SHARES.
For United States federal income tax purposes, the exchange
of Depositary Shares for either Preferred Securities or for cash
pursuant to the Exchange Offer will be a taxable transaction. In
addition, the Junior Subordinated Debentures will be treated as
having been issued with original issue discount (OID) which will
require Holders of Preferred Securities to include their pro rata
share of OID in gross income as it accrues on the Junior
Subordinated Debentures in advance of the receipt of cash. For a
discussion of these and other United States federal income tax
considerations relevant to the Exchange Offer, see CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES.
The Preferred Securities constitute a new issue of
securities with no established trading market. While the Company
will apply to have the Preferred Securities listed on the NYSE,
there can be no assurance that an active trading market for the
Preferred Securities will develop or be sustained in the future.
Merrill Lynch & Co., Goldman, Sachs & Co., Lehman Brothers
Inc. and Smith Barney Inc. have been retained as Dealer Managers
to solicit tenders of Depositary Shares pursuant to the Exchange
Offer. See THE EXCHANGE OFFER - "Dealer Managers." The Dealer
Managers may receive additional compensation if they also perform
services as a Soliciting Dealer (as defined herein). See the
next paragraph and FEES AND EXPENSES; TRANSFER TAXES.
Subject to the receipt of a properly completed and duly
executed Notice of Solicited Tenders as described herein, the
Company will pay to any Soliciting Dealer a solicitation fee of
$.50 per Depositary Share validly tendered, accepted by the
Company and exchanged for a Preferred Security or $.25 per
Depositary Share validly tendered, accepted by the Company and
exchanged for cash, in each case pursuant to the Exchange Offer.
See FEES AND EXPENSES; TRANSFER TAXES.
D.F. King & Co., Inc. has been retained to act as
Information Agent and Chemical Mellon Shareholder Services,
L.L.C. has been retained to act as Exchange Agent to assist with
the Exchange Offer.
Questions and requests for assistance may be directed to the
Dealer Managers or the Information Agent as set forth on the back
cover of this Prospectus. Requests for additional copies of this
Prospectus, any Letter of Transmittal and the Notice of
Guaranteed Delivery may be directed to the Information Agent.
TABLE OF CONTENTS
PAGE
----
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . 4
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . 4
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . 6
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . 14
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 18
TU ELECTRIC CAPITAL . . . . . . . . . . . . . . . . . . . . . 18
SUMMARY FINANCIAL INFORMATION . . . . . . . . . . . . . . . . 19
RATE PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . 20
THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . 21
LISTING AND TRADING OF PREFERRED
SECURITIES AND DEPOSITARY SHARES . . . . . . . . . . . . . 28
FEES AND EXPENSES; TRANSFER TAXES . . . . . . . . . . . . . . 29
DESCRIPTION OF THE PREFERRED SECURITIES . . . . . . . . . . . 30
DESCRIPTION OF THE GUARANTEE . . . . . . . . . . . . . . . . 39
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES . . . . . . 41
DESCRIPTION OF CERTAIN TERMS OF THE DEPOSITARY SHARES . . . . 50
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES . . . . 51
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
LEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . . 55
--------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE OFFER,
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MAY NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY TU ELECTRIC CAPITAL, THE COMPANY, THE
TRUSTEES OR THE DEALER MANAGERS. NEITHER TU ELECTRIC CAPITAL NOR
THE COMPANY IS AWARE OF ANY JURISDICTION IN WHICH THE MAKING OF
THE EXCHANGE OFFER IS NOT IN COMPLIANCE WITH APPLICABLE LAW. IF
TU ELECTRIC CAPITAL OR THE COMPANY BECOMES AWARE OF ANY
JURISDICTION IN WHICH THE MAKING OF THE EXCHANGE OFFER WOULD NOT
BE IN COMPLIANCE WITH APPLICABLE LAW, TU ELECTRIC CAPITAL AND THE
COMPANY WILL MAKE A GOOD FAITH EFFORT TO COMPLY WITH SUCH LAW.
IF, AFTER SUCH GOOD FAITH EFFORT, TU ELECTRIC CAPITAL AND THE
COMPANY CANNOT COMPLY WITH ANY SUCH LAW, THE EXCHANGE OFFER WILL
NOT BE MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF
OF) HOLDERS RESIDING IN SUCH JURISDICTIONS. IN ANY JURISDICTION
WHERE THE SECURITIES, BLUE SKY OR OTHER LAWS REQUIRE THE EXCHANGE
OFFER TO BE MADE BY OR THROUGH A LICENSED BROKER OR DEALER, THE
EXCHANGE OFFER IS BEING MADE ON BEHALF OF TU ELECTRIC CAPITAL AND
THE COMPANY BY THE DEALER MANAGERS OR ONE OR MORE REGISTERED
BROKERS OR DEALERS LICENSED UNDER THE LAWS OF SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF TU ELECTRIC
CAPITAL OR THE COMPANY SINCE THE DATE HEREOF.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company under File No.
0-11442 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 and June 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. The Depositary Shares 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 Preferred
Securities 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 obligations of the Company under the Junior
Subordinated Debentures to pay principal and interest, and the
obligations of the Company under the Junior Subordinated
Debentures and pursuant to the Trust Agreement to pay amounts
equal to all expenses of TU Electric Capital, together with the
Guarantee and the rights of the Holders of Preferred Securities
to directly enforce the Company's obligations with respect to the
Junior Subordinated Debentures, constitute a full and
unconditional guarantee by the Company of payments due on the
Preferred Securities. See DESCRIPTION OF THE JUNIOR SUBORDINATED
DEBENTURES - "Additional Interest" and DESCRIPTION OF THE
GUARANTEE - "Events of Default."
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 Preferred
Securities 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 Preferred Securities in
exchange for Depositary Shares, the Holders thereof will own all
of the issued and outstanding Preferred Securities. 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.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The purpose of the Exchange Offer is to refinance with the
Preferred Securities or repurchase the Depositary Shares and to
achieve certain tax efficiencies for the Company while preserving
the Company's flexibility with respect to future financings. The
Company expects to finance cash purchases of Depositary Shares
pursuant to the Exchange Offer with the proceeds of an offer of
securities similar to the Preferred Securities in a separate
transaction. This refinancing will permit the Company to deduct
interest payable on the Junior Subordinated Debentures (and any
similar debt issued in connection with the aforementioned
financing) for United States federal income tax purposes.
Dividends payable on the Depositary Shares are not tax deductible
by the Company. See THE EXCHANGE OFFER - "Purpose of the
Exchange Offer." While dividends on the Depositary Shares are
eligible for the dividends received deduction for corporate
Holders, distributions on the Preferred Securities will not be
eligible for the dividends received deduction for corporate
Holders. The dividends received deduction is not available to
individual, non-corporate Holders of either Preferred Securities
or Depositary Shares. See "Comparison of Preferred Securities
and Depositary Shares."
TERMS OF THE EXCHANGE OFFER
At the option of the Holder thereof, the Company will
exchange each Depositary Share validly tendered and accepted by
the Company for the Holder's selection from the following
consideration: either a Preferred Security with a liquidation
preference of $25.00 or cash in the amount of $26.50 for each
Depositary Share, upon the terms and subject to the conditions
set forth herein and in the Letter of Transmittal. In addition,
as part of the Exchange Offer, Holders of Depositary Shares
accepted for exchange will be entitled to receive the Payment in
Lieu of Accumulated Dividends, payable on the Closing Date. See
THE EXCHANGE OFFER - "Terms of the Exchange Offer."
EXPIRATION DATE; WITHDRAWALS
Upon the terms and subject to the conditions of the Exchange
Offer, the Company intends to accept for exchange any and all of
the Depositary Shares validly tendered and not withdrawn prior to
12 midnight, New York City time, on December 6, 1995, or if the
Exchange Offer is extended by the Company, in its sole
discretion, the latest date and time to which the Exchange Offer
has been extended (Expiration Date). Tenders of Depositary
Shares pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date and, unless accepted for
exchange by the Company, may be withdrawn at any time after
January 5, 1996. Depositary Shares that have been withdrawn may
be retendered for exchange for the same or a different form of
offered consideration. See THE EXCHANGE OFFER - "Withdrawal of
Tenders"; "Expiration Date; Extensions; Amendments; Termination."
EXTENSIONS; AMENDMENTS; TERMINATION
The Company expressly reserves the right, in its sole
discretion, to (i) extend, amend or modify the terms of the
Exchange Offer in any manner and (ii) withdraw or terminate the
Exchange Offer and not accept for exchange any Depositary Shares,
at any time on or prior to the Expiration Date for any reason,
including (without limitation) if fewer than 100,000 Depositary
Shares would remain outstanding upon acceptance of those tendered
(which condition may be waived by the Company). The Company may
therefore amend the annual distribution rate and may
independently change the amount of cash to be paid for each
Depositary Share. The Company has not set a date beyond which
the Exchange Offer will not beextended. See THE EXCHANGE OFFER -
"Expiration Date; Extensions; Amendments; Termination."
PROCEDURES FOR TENDERING
Each Holder of Depositary Shares wishing to participate in
the Exchange Offer must (i) properly complete and sign the Letter
of Transmittal to be tendered or a facsimile thereof (all
references in this Prospectus to a Letter of Transmittal shall be
deemed to include a facsimile thereof) in accordance with the
instructions contained herein and in such Letter of Transmittal,
together with any required signature guarantees, and deliver the
same to Chemical Mellon Shareholder Services, L.L.C., as Exchange
Agent, on or prior to the Expiration Date and either (a)
certificates for the Depositary Shares must be received by the
Exchange Agent at such address or (b) book-entry transfer, as
described herein, and a confirmation of such book-entry transfer
must be received by the Exchange Agent, in each case on or prior
to the Expiration Date or (ii) comply with the guaranteed
delivery procedures described herein. See THE EXCHANGE OFFER -
"Procedures for Tendering."
LETTERS OF TRANSMITTAL, CERTIFICATES FOR DEPOSITARY SHARES
AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT ONLY TO THE
EXCHANGE AGENT NOT TO THE COMPANY, THE DEALER MANAGERS OR THE
INFORMATION AGENT.
SPECIAL PROCEDURE FOR BENEFICIAL OWNERS
Any beneficial owner whose Depositary Shares are registered
in the name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender such Depositary Shares
should contact such registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf.
If, however, such beneficial owner wishes to tender on its own
behalf, such owner must, prior to completing and executing a
Letter of Transmittal and delivering its Depositary Shares,
either make appropriate arrangements to register ownership of the
Depositary Shares in such owner's name or obtain a properly
completed stock power from the registered Holder. The transfer
of registered ownership may take considerable time and may not be
able to be completed on or prior to the Expiration Date. See THE
EXCHANGE OFFER - "Procedures for Tendering."
GUARANTEED DELIVERY PROCEDURES
If a Holder desires to accept the Exchange Offer and time
will not permit a Letter of Transmittal or certificates for
Depositary Shares to reach the Exchange Agent on or prior to the
Expiration Date or the procedure for book-entry transfer cannot
be completed on a timely basis, a tender may be effected in
accordance with the guaranteed delivery procedures set forth in
THE EXCHANGE OFFER - "Procedures for Tendering - Guaranteed
Delivery."
ACCEPTANCE OF SHARES
The Company expressly reserves the right, in its sole
discretion, to delay acceptance for exchange of Depositary Shares
tendered under the Exchange Offer and the delivery of the
Preferred Securities and/or cash with respect to the Depositary
Shares accepted for exchange (subject to Rules 13e-4 and 14e-1
under the Exchange Act, which require that the Company consummate
the Exchange Offer or return any Depositary Shares deposited by
or on behalf of the Holders thereof promptly after the
termination or withdrawal of the Exchange Offer with respect to
such Depositary Shares) at any time on or prior to the Expiration
Date for any reason including (without limitation) if fewer than
100,000 Depositary Shares would remain outstanding upon
acceptance of those tendered (which condition may be waived by
the Company). See THE EXCHANGE OFFER - "Acceptance of Depositary
Shares; Delivery of Preferred Securities" and "Expiration Date;
Extensions; Amendments; Termination."
All Depositary Shares not accepted pursuant to the Exchange
Offer will be returned to the tendering Holders at the Company's
expense as promptly as practicable following the Expiration Date.
All Depositary Shares accepted pursuant to the Exchange
Offer by the Company will be retired and canceled.
DELIVERY OF PREFERRED SECURITIES
Subject to the terms and conditions of the Exchange Offer,
the delivery of the Preferred Securities will occur and cash
payments will be made as promptly as practicable on a settlement
date (Closing Date) following the Expiration Date. See THE
EXCHANGE OFFER - "Acceptance of Depositary Shares; Delivery of
Preferred Securities" and "Expiration Date; Extensions;
Amendments; Termination."
UNTENDERED SHARES
Holders of Depositary Shares who do not tender their
Depositary Shares in the Exchange Offer or whose Depositary
Shares are not accepted for exchange will continue to hold such
Depositary Shares and will be entitled to all the rights and
preferences, and will be subject to all of the limitations,
applicable thereto. See LISTING AND TRADING OF PREFERRED
SECURITIES AND DEPOSITARY SHARES."
DEALER MANAGERS MARKET ACTIVITY
The Dealer Managers currently plan to make a market in the
Preferred Securities following the completion of the Exchange
Offer and may buy and sell the Preferred Securities on a "when
and if issued" basis prior to the completion of the Exchange
Offer. However, there can be no assurance that the Dealer
Managers will engage in such activities or that any active market
in the Preferred Securities will develop or be maintained.
EXCHANGE AGENT AND INFORMATION AGENT
Chemical Mellon Shareholder Services, L.L.C. has been
appointed as Exchange Agent in connection with the Exchange
Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notices of Guaranteed Delivery
should be directed to D.F. King & Co., Inc., which has been
retained by the Company to act as Information Agent for the
Exchange Offer. The addresses and telephone numbers of the
Exchange Agent and the Information Agent are set forth in THE
EXCHANGE OFFER - "Exchange Agent and Information Agent" and on
the outside back cover of this Prospectus.
DEALER MANAGERS
Merrill Lynch & Co., Goldman, Sachs & Co., Lehman Brothers
Inc. and Smith Barney Inc. have been retained as Dealer Managers
in connection with the Exchange Offer. Questions with respect to
the Exchange Offer may be directed to Merrill Lynch & Co. at
(212) 236-4565 (Collect), to Goldman, Sachs & Co. at (800) 828-
3182, to Lehman Brothers Inc. at (800) 438-3242 and to Smith
Barney Inc. at (800) 813-3754. For information regarding fees
payable to the Dealer Managers and Soliciting Dealers (as defined
herein), see FEES AND EXPENSES; TRANSFER TAXES.
DESCRIPTION OF PREFERRED SECURITIES
The Preferred Securities 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 Preferred Securities 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 9.00% of the
liquidation preference amount thereof to the persons in whose
names the Preferred Securities 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
Preferred Securities 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 Preferred
Securities. 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 Preferred
Securities 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
Preferred Securities 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 the
Trust to send notice of such election to the Holders of Preferred
Securities.
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 Preferred Securities. The
payment of distributions on the Preferred Securities and payments
on liquidation of TU Electric Capital and the redemption of
Preferred Securities 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, 1998, 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 Preferred
Securities 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 Preferred Securities 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 Preferred Securities, 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 Preferred Securities are then listed. See DESCRIPTION OF
THE PREFERRED SECURITIES - "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
Preferred Securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The exchange of Depositary Shares either for Preferred
Securities or for cash pursuant to the Exchange Offer will be a
taxable transaction. For further discussion of this and other
federal income tax matters, including the treatment of
distributions with respect to the Preferred Securities as
Original Issue Discount see CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES.
COMPARISON OF PREFERRED SECURITIES AND DEPOSITARY SHARES
The following is a brief summary of certain terms of the
Preferred Securities and Depositary Shares. For a more complete
description of the Preferred Securities, see DESCRIPTION OF THE
PREFERRED SECURITIES; and for additional information about the
Depositary Shares, see DESCRIPTION OF CERTAIN TERMS OF THE
DEPOSITARY SHARES.
Preferred
Securities Depositary Shares
----------- -----------------
Issuer . . . . . . TU Electric Capital The Company
Distribution/Divide 9.00% per annum Dividend, payable
nd Rate . . . . . . payable in equal quarterly on the
q u a r t e r l y first calendar day
installments, in of April, July,
arrears, on the October and January
last calendar day of each year, out
of March, June, of funds legally
September and available therefor,
December (each a when, as and if
Distribution declared by the
Payment Date) and Company's Board of
accruing originally Directors, at the
f r o m , a n d rate of $2.05.
including, the date
of issuance thereof Dividends are
to, and including, cumulative.
t h e f i r s t Accumulated unpaid
Distribution dividends do not
Payment Date, and bear interest.
thereafter from, While no dividends
and excluding, the are required to be
last Distribution paid and such
Payment Date payment could be
through which d e f e r r e d
distributions have indefinitely, all
been paid, subject dividends to date
to the Company's have been paid when
right to elect, due.
from time to time,
Extension Periods,
each of which may
not exceed 20
consecutive
q u a r t e r l y
distribution
payment periods.
D u r i n g a n y
Extension Period
(to the extent
permitted by law),
distributions would
continue to accrue,
with interest
thereon compounded
quarterly and would
be due and payable
on the last
Business Day of the
Extension Period.
Redemption . . . . Upon redemption of Redeemable at the
t h e J u n i o r option of the
Subordinated Company, in whole
Debentures, which or in part, on or
may be redeemed on after January 1,
or after January 1, 1998, and on not
1998, at the option less than 20 days'
of the Company, in notice, at $25.00
whole or in part, a per share, plus
like amount of accrued and unpaid
Trust Securities dividends, if any,
will be redeemed on to the redemption
a pro rata basis as date.
between the two
classes, upon not
less than 30 nor
more than 60 days'
notice, at 100% of
the liquidation
preference amount
of the Preferred
Securities redeemed
plus accrued
distributions and
unpaid interest
thereon, if any, to
the redemption
date.
Tax Event Upon occurrence of No comparable
Distribution . . . a Tax Event, after provision.
or Redemption satisfaction of
creditors of TU
Electric Capital,
i f a n y ,
distribution of
Junior Subordinated
Debentures will be
made to Holders or,
i n c e r t a i n
circumstances at
the option of the
Company, may be
redeemed in whole
or in part. In such
event, a like
amount of Preferred
Securities would be
redeemed.
Maturity Date . . . S u b j e c t t o No maturity date
m a n d a t o r y and not subject to
redemption on the m a n d a t o r y
maturity date of redemption.
t h e J u n i o r
Subordinated
Debentures,
September 30, 2030.
Subordination . . . Junior Subordinated Subordinated to
Debentures will be claims of creditors
subordinated to all of the Company,
existing and future including Holders
Senior Indebtedness of the Company's
of the Company and outstanding Senior
senior to all Indebtedness and
capital stock of o t h e r D e b t
the Company, Securities and the
including the Junior Subordinated
Depositary Shares. Debentures, pari
As of September 30, passu as to
1995, approximately dividends and
$7.5 billion of liquidation
such Senior preference with all
Indebtedness was other Preferred
outstanding. Stock of the
Payments on the Company and senior
P r e f e r r e d to the Common Stock
Securities are of the Company.
fully and uncon-
d i t i o n a l l y
guaranteed by the
Company to the
extent of funds
available to TU
Electric Capital.
The obligations of
the Company on the
Guarantee are
subordinated to all
S e n i o r
Indebtedness. The
Trust Agreement
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 income taxes,
duties and other
governmental
charges, and all
costs and expenses
with respect
thereto, to which
TU Electric Capial
may become subject,
except for United States
withholding taxes.
Listing . . . . . . Application will be The Depositary
made to list the Shares are listed
P r e f e r r e d on the NYSE.
Securities on the However, see
NYSE. LISTING AND TRADING
OF PREFERRED
SECURITIES AND
DEPOSITARY SHARES.
Dividends Received Distributions will Dividends are
Deduction . . . . . not be eligible for eligible for the
the dividends dividends received
received deduction deduction for
for any Holders. corporate Holders.
The dividends
received deduction
is not available to
individual, non-
corporate Holders.
Voting Subject to the If any four full
Rights/Enforcement Company's right to quarterly dividends
extend payment as on any class of the
described under Company's preferred
DESCRIPTION OF THE stock, including
P R E F E R R E D the cumulative
SECURITIES preferred stock
"Distributions." underlying the
Holders will have Depositary Shares,
the right to are in default, the
r e c e i v e Holders of all
distributions as preferred stock,
and when due but including the
have only limited Holders of the
voting rights, Depositary Shares,
exercisable in the will become
event of a proposed entitled, voting as
change in the terms one class, to elect
of the Preferred a majority of the
Securities or with Board of Directors.
respect to certain When entitled to
actions following vote, each Holder
an Event of Default of Depositary
and selection of Shares shall have
Successor Trustees. one quarter (1/4) of
The Property one vote for each
Trustee has the share held of
power to exercise record by such
all rights under Holder.
the Indenture with
respect to the
Junior Subordinated
Debentures and is
also authorized to
enforce the
Guarantee on behalf
of holders of the
P r e f e r r e d
Securities. The
holders of the
P r e f e r r e d
Securities will
have the right to
direct the Property
Trustee with
respect to certain
matters under the
Trust Agreement and
the Guarantee and
to take action
directly in certain
circumstances to
enforce their rights
thereunder.
RISK FACTORS
None of TU Electric Capital, its Trustees, the Company or the
Company's Board of Directors makes any recommendation to Holders
of Depositary Shares as to whether to tender all or any shares of
Depositary Shares in the Exchange Offer or to elect to receive as
consideration for any Depositary Shares tendered either Preferred
Securities or cash. Holders of Depositary Shares should
carefully consider the following risk factors with respect to the
Exchange Offer and the Preferred Securities:
EXCHANGE IS TAXABLE EVENT
The exchange of Depositary Shares for either Preferred
Securities or for cash pursuant to the Exchange Offer will be a
taxable event. Accordingly, in the event of an exchange for
Preferred Securities, gain or loss will be recognized in an
amount equal to the difference between the fair market value of
the Preferred Securities received in the exchange plus the
Payment in Lieu of Accumulated Dividends, and the exchanging
shareholder's tax basis in the Depositary Shares surrendered. In
the event of an exchange for cash, gain or loss will be
recognized in an amount equal to the difference between the cash
received and the shareholder's tax basis in the Depositary Shares
surrendered. See CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES. Exchanging Holders who elect to receive Preferred
Securities and who have a taxable gain could incur a tax
liability that exceeds the amount of cash received in the
exchange. All Holders of Depositary Shares are advised to
consult their own tax advisors regarding the federal, state,
local and other tax consequences of the exchange of Preferred
Securities for Depositary Shares.
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
Preferred Securities 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 Preferred
Securities, 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",
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES -
"Subordination" and PROSPECTUS SUMMARY "Comparison of
Preferred Securities and Depositary Shares."
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 Preferred Securities 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 Preferred
Securities and all other securities with terms substantially the
same as the Preferred Securities. If the Company should
determine to exercise its extension right in the future, the
market price of the Preferred Securities is likely to be
affected. Based upon the Company's current financial condition
and, in light of the restriction on payment of dividends during
an Extension Period, 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 PREFERRED SECURITIES - "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 Preferred Securities will be required to
include in their gross income distributions with respect to the
Preferred Securities as they accrue, rather than when they are
paid, regardless of the Holders' regular method of accounting.
OID on the Preferred Securities will be treated as interest and
will generally be equal to the amount of stated distributions
accruing on the Preferred Securities each year. During an
Extension Period, a Holder of Preferred Securities 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 Preferred Securities 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 Preferred Securities 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 Preferred Securities may be more volatile than debt
instruments with OID which do not afford the issuer such a right.
See CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES -
"Original Issue Discount."
In addition, if the issue price of the Junior Subordinated
Debentures (fair market value of the Preferred Securities at the
time of their exchange of Depositary Shares, not including any
cash received) at the time of issuance of the Preferred
Securities is less than their stated principal amount, the
difference will be additional OID, a pro rata share of which will
be includable in the gross income of the Holders over the term of
such Preferred Securities.
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 Preferred
Securities.
The Guarantee guarantees to the Holders of the Preferred
Securities the payment (but not the collection) of (i) any
accrued and unpaid distributions required to be paid on the
Preferred Securities, to the extent TU Electric Capital has funds
available therefor, (ii) the redemption price, including all
accrued and unpaid distributions, with respect to Preferred
Securities 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 Preferred Securities), the lesser of (a)
the aggregate of the liquidation preference and all accrued and
unpaid distributions on the Preferred Securities to the date of
payment and (b) the amount of assets of TU Electric Capital
remaining available for distribution to Holders of the Preferred
Securities in liquidation of TU Electric Capital. The Holders of
a majority in liquidation preference of the Preferred Securities
have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Guarantee Trustee
or to direct the exercise of any trust or power conferred upon
the Guarantee Trustee under the Guarantee. If the Company were to
default on its obligations under the Junior Subordinated
Debentures, TU Electric Capital would lack available funds for
the payment of distributions or amounts payable on redemption of
the Preferred Securities or otherwise, and in such event Holders
of the Preferred Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, Holders of the
Preferred Securities 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
Preferred Securities by acceptance thereof agrees to the
provisions of the Guarantee and the Indenture.
The Preferred Securities are subject to mandatory redemption
upon repayment of the Junior Subordinated Debentures at maturity
or upon their earlier redemption. See DESCRIPTION OF THE
PREFERRED SECURITIES - "Redemption Procedures." The Company will
have the option at any time on or after January 1, 1998 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 Preferred Securities.
There can be no assurance as to the market prices for the Junior
Subordinated Debentures which may be distributed in exchange for
Preferred Securities if a termination and liquidation of TU Elec-
tric Capital were to occur. Accordingly, such Junior Subordinat-
ed Debentures could, if distributed, trade at a discount to the
price of the Depositary Shares exchanged. See DESCRIPTION OF THE
PREFERRED SECURITIES - "Tax Event Redemption or Distribution" and
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
NO ESTABLISHED TRADING MARKET FOR PREFERRED SECURITIES
The Preferred Securities constitute a new issue of securities
with no established trading market. While the Company will apply
to list the Preferred Securities 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
Preferred Securities or whether the sales price of the Preferred
Securities on the NYSE at the time of issuance thereof (or at any
time thereafter) will be greater than or less than either the
stated liquidation preference thereof or the closing sales price
of the Depositary Shares on the NYSE on the Expiration Date. See
LISTING AND TRADING OF PREFERRED SECURITIES AND DEPOSITARY
SHARES.
DEALER MANAGERS MARKET ACTIVITY; NO ASSURANCE AS TO ACTIVE MARKET
The Dealer Managers currently plan to make a market in the
Preferred Securities following the completion of the Exchange
Offer and may buy and sell the Preferred Securities on a "when
and if issued" basis prior to the completion of the Exchange
Offer. However, there can be no assurance that the Dealer
Managers will engage in such activities or that any active market
in the Preferred Securities will develop or be maintained.
DEPOSITARY SHARES MAY BE DELISTED; MARKET FOR DEPOSITARY SHARES
MAY BECOME ILLIQUID
To the extent that more than 4,900,000 of the Depositary
Shares are tendered and accepted in the Exchange Offer and the
market value of publicly held Depositary Shares is reduced to
less than $2,000,000, the Company would be required to delist the
Depositary Shares from the NYSE pursuant to the rules and
regulations of the NYSE, and the trading market for shares of
Depositary Shares which are not tendered and accepted could be
adversely affected. See LISTING AND TRADING OF PREFERRED
SECURITIES AND DEPOSITARY SHARES.
TRADING PRICE; POTENTIAL ADVERSE INCOME TAX EFFECT
The Preferred Securities 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 Preferred Securities 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 Preferred Securities."
PREFERRED SECURITIES HAVE NO VOTING RIGHTS
The Preferred Securities will not have any of the voting
rights of the Depositary Shares. Subject to the Company's right
to extend payment as described under DESCRIPTION OF THE PREFERRED
SECURITIES - "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 Preferred Securities. See DESCRIPTION OF
CERTAIN TERMS OF THE DEPOSITARY SHARES - "Voting Rights."
UNTENDERED SHARES; POTENTIAL ILLIQUIDITY
Holders of Depositary Shares who do not tender their
Depositary Shares in the Exchange Offer or whose Depositary
Shares are not accepted for exchange will continue to hold such
Depositary Shares and will be entitled to all the rights and
preferences, and will be subject to all of the limitations, as
have heretofore been applicable thereto.
To the extent that Depositary Shares are tendered and accepted
in the Exchange Offer, the terms on which untendered Depositary
Shares could subsequently be sold could be adversely affected.
See "No Established Trading Market for Preferred Securities" and
"Depositary Shares May be Delisted; Depositary Shares May Become
Illiquid."
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). The other electric utility subsidiary
of Texas Utilities is 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 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 September 28, 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 Preferred Securities, 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 Preferred Securities. 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
---- ---- ----
Income statement data:
Operating Revenues. . . . . . . . $4,540,915 $4,891,522 $4,906,695
Net Income (Loss)(a). . . . . . . 964,276 (289,173) 821,123
Ratio of Earnings to
Fixed Charges (a)(b) . . . . . . 2.54 0.34 2.48
Ratio of Earnings to
Fixed Charges and
Preferred Dividends (a)(b) . . . 2.13 0.27 2.08
TWELVE MONTHS ENDED
-------------------
DECEMBER 31,
SEPTEMBER 30,
------------------- 1995
1993 1994 (Unaudited)
---- ---- -----------
Income statement data:
Operating Revenues. . . . . $5,409,156 $5,613,175 $5,545,186
Net Income (Loss)(a). . . . 476,526 658,192 408,083
Ratio of Earnings to
Fixed Charges (a)(b) . . . 2.00 2.45 1.92
Ratio of Earnings to
Fixed Charges and
Preferred Dividends (a)(b) 1.62 2.03 1.62
Adjusted(c)
-----------
Outstanding at
September 30, 1995
Amount
------------------ ------
Capitalization
(Unaudited):
Long-term Debt. . . . . . . . . . $7,234,493 $7,052,959
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
Company Obligated Mandatorily
Redeemable Preferred Securities
of Trusts (d). . . . . . . . . . - 481,825
Common Stock Equity . . . . . . . . 5,849,891 5,849,891
--------- ---------
Total Capitalization. . . . . . . $14,215,898 $14,034,364
=========== ===========
Adjusted(c)
-----------
Percent
-------
Capitalization
(Unaudited):
Long-term Debt. . . . . . . . . . 50.3%
Preferred Stock
Not subject to
mandatory redemption . . . . .
Subject to mandatory
redemption . . . . . . . . . .
Total Preferred Stock . . . . 4.6
Company Obligated Mandatorily
Redeemable Preferred Securities
of Trusts (d). . . . . . . . . . 3.4
Common Stock Equity . . . . . . . . 41.7
----
Total Capitalization. . . . . . . 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 and the
contemporaneous filing of an offer by the Company
to exchange for preferred securities plus cash or
for cash only an aggregate of 14,273,000
outstanding shares of $1.875 and $1.805 depositary
shares, assuming that all such depositary shares
and all the Depositary Shares are validly tendered
and accepted by the Company for exchange for
preferred securities, (2) the prepayment in
October 1995 of $175,534,049 of long-term debt,
and (3) the anticipated redemption in November
1995 of $6,000,000 of First Mortgage Bonds.
Adjusted amounts do not reflect any possible
future sales from time to time by TU Electric of
up to $300,000,000 Medium-Term Notes pursuant to a
program established in October 1995, $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
also held that the PUC could not use the tax benefits generated
by disallowed expenses to reduce rates.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The purpose of the Exchange Offer is to refinance all or a
portion of the Depositary Shares with the Preferred Securities or
repurchase all or a portion of the Depositary Shares and to
achieve certain tax efficiencies for the Company while preserving
the Company's flexibility with respect to future financings. The
Company expects to finance cash purchases of Depositary Shares
pursuant to the Exchange Offer with the proceeds of an offer of
securities similar to the Preferred Securities. This refinancing
will permit the Company to deduct interest payable on the Junior
Subordinated Debentures (and any similar debt issued in
connection with the aforementioned financing) for United States
federal income tax purposes. Dividends payable on the Depositary
Shares are not tax deductible to the Company.
GENERAL
Participation in the Exchange Offer is voluntary, and Holders
of Depositary Shares should carefully consider whether to tender
their Depositary Shares. Neither the Company nor its Board of
Directors makes any recommendation to Holders of Depositary
Shares as to whether to tender all or any portion of the
Depositary Shares owned by such Holder in the Exchange Offer to
elect to receive, as consideration for any Depositary Shares
tendered, either Preferred Securities or a purchase price in
cash. Holders of Depositary Shares are urged to consult their
financial and tax advisors in making their decisions on what
action to take in light of their own particular circumstances.
Unless the context requires otherwise, the term Holder
(a) with respect to the Depositary Shares, means (i) any person
in whose name any Depositary Shares are registered on the books
of Chemical Bank, N.A., as Depositary, or (ii) any other person
who has obtained a properly completed stock power from the
registered Holder or (iii) any person whose beneficially owned
Depositary Shares are held of record by a Book-Entry Transfer
Facility (as defined herein) who desires to deliver such
Depositary Shares by book-entry transfer at a Book-Entry Transfer
Facility, and (b) with respect to any other security, means the
person in whose name such security is registered on the books of
the security registrar with respect thereto.
TERMS OF THE EXCHANGE OFFER
At the option of the Holder thereof, the Company will exchange
each Depositary Share validly tendered and accepted by the
Company for the Holder's selection from the following
consideration: either a Preferred Security with a liquidation
preference of $25.00 or cash in the amount of $26.50 for each
Depositary Share, upon the terms and subject to the conditions
set forth herein and in the Letter of Transmittal, See
"Procedures for Tendering." In addition, as part of its Exchange
Offer, Holders of Depositary Shares accepted for exchange will be
entitled to receive the Payment in Lieu of Accumulated Dividends.
Under the terms of the Exchange Offer, the Company intends to
accept any of the Depositary Shares validly tendered and not
withdrawn on or prior to the Expiration Date and, unless the
Exchange Offer has been withdrawn or terminated, the Company will
deliver Preferred Securities in exchange therefor on the Closing
Date to the tendering Holders of Depositary Shares, subject to
the right of the Company to extend, terminate or amend the
Exchange Offer. The Company expressly reserves the right, in its
sole discretion, to delay acceptance for exchange of Depositary
Shares tendered under the Exchange Offer and the delivery of the
Preferred Securities and/or cash payments with respect to the
Depositary Shares accepted for exchange (subject to Rules 13e-4
and 14e-1 under the Exchange Act, which require that the Company
consummate the Exchange Offer or return the Depositary Shares
deposited by or on behalf of the Holders thereof promptly after
the termination or withdrawal of the Exchange Offer) at any time
prior to the Expiration Date for any reason including (without
limitation) if fewer than 100,000 Depositary Shares would remain
outstanding upon acceptance of those tendered (which condition
may be waived by the Company).
In all cases, except to the extent waived by the Company,
delivery of Preferred Securities and/or cash payments issued with
respect to the Depositary Shares accepted for exchange pursuant
to the Exchange Offer will be made only after timely receipt by
the Exchange Agent of Depositary Shares (or confirmation of book-
entry transfer thereof), a properly completed and duly executed
Letter of Transmittal and any other documents required thereby.
As of September 30, 1995, there were 5,000,000 Depositary
Shares outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered Holders of
Depositary Shares as of November 7, 1995.
The Company shall be deemed to have accepted validly tendered
Depositary Shares (or Depositary Shares which the Company has, in
its sole discretion, determined to be defectively tendered, with
respect to which the Company has waived such defect) when, as and
if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the
tendering Holders for the purpose of receiving the Preferred
Securities from the Company and remitting such Preferred
Securities to tendering Holders who are participating in the
Exchange Offer. Upon the terms and subject to the conditions of
the Exchange Offer, delivery of Preferred Securities will be made
to the Exchange Agent on the Closing Date.
If any tendered Depositary Shares are not accepted for
exchange because of an invalid tender, the occurrence of certain
other events set forth herein or otherwise, unless otherwise
requested by the Holder under "Special Delivery Instructions" in
the Letter of Transmittal, such Depositary Shares will be
returned, without expense, to the tendering Holder thereof (or
in the case of Depositary Shares tendered by book-entry transfer
into the Exchange Agent's account at DTC, such Depositary Shares
will be credited to an account maintained at DTC designated by
the participant therein who so delivered such Depositary Shares),
as promptly as practicable after the Expiration Date with respect
to such shares or the withdrawal or termination of the Exchange
Offer.
Holders of Depositary Shares will not have any appraisal or
dissenters' rights under the Texas Business Corporation Act in
connection with the Exchange Offer. The Company intends to
conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of
the Commission thereunder.
Holders who tender Depositary Shares in the Exchange Offer
will not be required to pay brokerage commissions or fees or,
subject to the instructions in the Letter of Transmittal,
transfer taxes with respect to the exchange of Depositary Shares
pursuant to the Exchange Offer. See FEES AND EXPENSES; TRANSFER
TAXES.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The Exchange Offer will expire on the Expiration Date. The
Company reserves the right to extend the Exchange Offer with
respect to the Depositary Shares in its sole discretion at any
time and from time to time by giving oral or written notice to
the Exchange Agent and by timely public announcement
communicated, unless another means is required by applicable law
or regulation, by making a release to the Dow Jones News Service.
During any extension of the Exchange Offer, all Depositary Shares
previously tendered pursuant to the Exchange Offer and not
withdrawn will remain subject to the Exchange Offer. The Company
has not established a date beyond which the Exchange Offer may
not be extended. The Company expressly reserves the right to (i)
extend, amend or modify the terms of the Exchange Offer in any
manner and (ii) withdraw or terminate the Exchange Offer and not
accept for exchange any Depositary Shares, at any time prior to
the Expiration Date for any reason, including (without
limitation) if fewer than 100,000 Depositary Shares would remain
outstanding upon acceptance of those tendered in the Exchange
Offer (which condition may be waived by the Company). The
Company may therefore amend the annual distribution rate and may
independently change the amount of cash only to be paid for each
Depositary Share. If the Company makes a material change in the
terms of the Exchange Offer or if it waives a material condition
of the Exchange Offer, the Company will extend the Exchange
Offer. Any withdrawal or termination of the Exchange Offer will
be followed as promptly as practicable by public announcement
thereof through the Dow Jones News Service. If the Company
withdraws or terminates the Exchange Offer, it will give
immediate notice to the Exchange Agent, and all Depositary Shares
theretofore tendered pursuant to the Exchange Offer will be
returned promptly to the tendering Holders thereof. See
"Withdrawal of Tenders."
The minimum period for which the Exchange Offer will be
extended following a material change or waiver will depend upon
the facts and circumstances, including the relative materiality
of the change or waiver. With respect to a change in the amount
of Depositary Shares sought, a change in the consideration
offered or a change in the fee to be paid to Soliciting Dealers,
the Exchange Offer will be extended for a minimum of 10 Business
Days following the date that notice of such change is first
published, sent or given to Holders of Depositary Shares.
PROCEDURES FOR TENDERING
Depositary Shares may be tendered for exchange by indicating
on the Letter of Transmittal the number of shares being tendered.
Each tendering Holder must elect whether to receive Preferred
Securities or cash, for the Depositary Shares by so indicating on
the Letter of Transmittal.
The tender of Depositary Shares by a Holder thereof pursuant
to one of the procedures described below will constitute an
agreement between such Holder and the Company in accordance with
the terms and subject to the conditions set forth in the Exchange
Offer and in the Letter of Transmittal.
Each Holder of the Depositary Shares wishing to participate in
the Exchange Offer must (i) properly complete and sign the Letter
of Transmittal in accordance with the instructions contained
herein and in the Letter of Transmittal, including such Holder's
election to receive Preferred Securities or cash for all the
Depositary Shares tendered, together with any required signature
guarantees, and deliver the same to the Exchange Agent, at one of
its addresses set forth in "Exchange Agent and Information Agent"
prior to the Expiration Date and either (a) certificates for the
Depositary Shares must be received by the Exchange Agent at such
address or (b) such Depositary Shares must be transferred
pursuant to the procedures for book-entry transfer described
below and a confirmation of such book-entry transfer must be
received by the Exchange Agent, in each case prior to the
Expiration Date or (ii) comply with the guaranteed delivery
procedures described below.
In order to participate in the Exchange Offer, Holders of
Depositary Shares must comply with the other procedures for
tendering in accordance with the instructions contained herein
and in the Letter of Transmittal prior to the Expiration Date.
Except as otherwise noted herein, after the Expiration Date,
tendering Holders of Depositary Shares may not withdraw tendered
shares from the Exchange Offer.
LETTERS OF TRANSMITTAL, CERTIFICATES FOR DEPOSITARY SHARES AND
ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE
AGENT; NOT TO THE COMPANY, TU ELECTRIC CAPITAL, THE DEALER
MANAGERS OR THE INFORMATION AGENT.
Signature Guarantees. If tendered Depositary Shares are
registered in the name of the signer of a Letter of Transmittal
and beneficial ownership of the Preferred Securities to be issued
in exchange therefor is to be issued (and any untendered
Depositary Shares are to be reissued) in the name of the
registered Holder (which term, for the purposes described herein,
shall include any participant in DTC whose name appears on a
security listing as the owner of Depositary Shares), the
signature of such signer need not be guaranteed. If the tendered
Depositary Shares are registered in the name of someone other
than the signer of such Letter of Transmittal, such tendered
Depositary Shares must be endorsed or accompanied by written
instruments of transfer in a form satisfactory to the Company and
duly executed by the registered Holder, and the signature on the
endorsement or instrument of transfer must be guaranteed by a
financial institution (including a bank, savings and loans
association or brokerage house) that is a participant in the
Security Transfer Agents Medallion Program or the Stock Exchange
Medallion Program (any of the foregoing hereinafter referred to
as an Eligible Institution). If the Preferred Securities and/or
the Depositary Shares not exchanged are to be delivered to an
address other than that of the registered Holder appearing on the
register for the Depositary Shares, the signature in the Letter
of Transmittal must be guaranteed by an Eligible Institution.
Book-Entry Transfer. As used herein, a Book-Entry Transfer
Facility shall mean any of DTC, Midwest Securities Trust Company
or Philadelphia Depository Trust Company. The Company
understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish an account with
respect to the Depositary Shares at each Book-Entry Transfer
Facility for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution
that is a participant in a Book-Entry Transfer Facility's system
may make book-entry delivery of Depositary Shares by causing such
Book-Entry Transfer Facility to transfer such Depositary Shares
in accordance with such Book-Entry Transfer Facility's Automated
Tender Offer Program or other similar procedures (ATOP) for such
book-entry transfers. However, the exchange for the Depositary
Shares so tendered will only be made after timely confirmation
(Book-Entry Confirmation) of such Book-Entry Transfer of
Depositary Shares into the Exchange Agent's account and timely
receipt by the Exchange Agent of an Agent's Message (as such term
is defined in the next sentence), the Letter of Transmittal and
any other documents required by the Letter of Transmittal. The
term Agent's Message means a message, transmitted by a Book-Entry
Transfer Facility and received by the Exchange Agent and forming
a part of a Book-Entry Confirmation, which states that such Book-
Entry Transfer Facility has received an express acknowledgment
from a participant tendering Depositary Shares that is the
subject of such Book-Entry Confirmation that such participant has
received and agrees to be bound by the terms of the Letter of
Transmittal, and that the Company may enforce such agreement
against such participant.
Guaranteed Delivery. If a Holder desires to participate in
the Exchange Offer and time will not permit a Letter of
Transmittal or certificates for Depositary Shares to reach the
Exchange Agent before the Expiration Date or the procedure for
book-entry transfer cannot be completed on a timely basis, a
tender may be effected if the Exchange Agent has received at its
office prior to the Expiration Date, a letter, telegram or
facsimile transmission from an Eligible Institution setting forth
the name and address of the tendering Holder, the name(s) in
which the Depositary Shares are registered and, if the Depositary
Shares are held in certificated form, the certificate numbers of
the Depositary Shares to be tendered, and stating that the tender
is being made thereby and guaranteeing that within three NYSE
trading days after the date of execution of such letter, telegram
or facsimile transmission by the Eligible Institution, the
Depositary Shares in proper form for transfer together with a
properly completed and duly executed Letter of Transmittal (and
any other required documents), or a confirmation of book-entry
transfer of such Depositary Shares into the Exchange Agent's
account at a Book-Entry Transfer Facility, will be delivered by
such Eligible Institution. Unless the Depositary Shares being
tendered by the above-described method are deposited with the
Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of
Transmittal and any other required documents) or a confirmation
of book-entry transfer of such Depositary Shares into the
Exchange Agent's account at a Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's ATOP
procedures is received, the Company may, at its option, reject
the tender. In addition to the copy being transmitted herewith,
copies of a Notice of Guaranteed Delivery which may be used by
Eligible Institutions for the purposes described in this
paragraph are available from the Exchange Agent and the
Information Agent.
Miscellaneous. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for
exchange of any tender of Depositary Shares will be determined by
the Company, in its sole discretion, and such determination will
be final and binding. The Company reserves the absolute right to
reject any or all tenders that it determines are not in proper
form or the acceptance for exchange of which may, in the opinion
of the Company's counsel, be unlawful. The Company also reserves
the absolute right to waive any defect or irregularity in the
tender of any Depositary Shares, and the Company's interpretation
of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and
binding. None of the Company, the Exchange Agent, the Dealer
Managers, the Information Agent or any other person will be under
any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such
notification.
Tenders of Depositary Shares involving any irregularities will
not be deemed to have been made until such irregularities have
been cured or waived. Depositary Shares received by the Exchange
Agent that are not validly tendered and as to which the
irregularities have not been cured or waived will be returned by
the Exchange Agent to the tendering Holder (or in the case of
Depositary Shares tendered by book-entry transfer into the
Exchange Agent's account at a Book-Entry Transfer Facility, such
Depositary Shares will be credited to an account maintained at
such Book-Entry Transfer Facility designated by the participant
therein who so delivered such Depositary Shares), unless
otherwise requested by the Holder in the Letter of Transmittal,
as promptly as practicable after the Expiration Date or the
withdrawal or termination of the Exchange Offer.
LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the
following terms and conditions, which are part of the Exchange
Offer:
The party tendering Depositary Shares for exchange
(Transferor) exchanges, assigns and transfers such Depositary
Shares to the Company and irrevocably constitutes and appoints
the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause such Depositary Shares to be assigned, transferred and
exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer
such Depositary Shares and, in the event such an election has
been made, to acquire beneficial ownership of Preferred
Securities issuable upon the exchange of such tendered Depositary
Shares, and that, when such Transferor's Depositary Shares are
accepted for exchange, the Company will acquire good and
unencumbered title to such tendered Depositary Shares free and
clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The Transferor also represents
that it will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to
complete the exchange, assignment and transfer of the tendered
Depositary Shares or transfer ownership of such Depositary Shares
on the account books maintained by a Book-Entry Transfer
Facility. All authority conferred by the Transferor will survive
the death, bankruptcy or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs,
legal representative, successors, assigns, executors and
administrators of such Transferor.
WITHDRAWAL OF TENDERS
Tenders of Depositary Shares pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date and,
unless accepted for exchange by the Company, may be withdrawn at
any time after January 5, 1996. Depositary Shares that have been
withdrawn may be retendered prior to the Expiration Date for
exchange for the same or a different form of offered
consideration.
To be effective, a written notice of withdrawal delivered by
mail, hand delivery or facsimile transmission must be timely
received by the Exchange Agent at the address set forth below
under "Exchange Agent and Information Agent." The method of
notification is at the risk and election of the Holder. Any such
notice of withdrawal must specify (i) the Holder named in the
Letter of Transmittal as having tendered Depositary Shares to be
withdrawn, (ii) if the Depositary Shares are held in certificated
form, the certificate numbers of the Depositary Shares to be
withdrawn, (iii) that such Holder is withdrawing his election to
have such Depositary Shares exchanged and (iv) the name of the
registered Holder of such Depositary Shares, and must be signed
by the Holder in the same manner as the original signature on the
Letter of Transmittal (including any required signature
guarantees) or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to
the beneficial ownership of the Depositary Shares being
withdrawn. The Exchange Agent will return the properly withdrawn
Depositary Shares promptly following receipt of notice of
withdrawal. If Depositary Shares have been tendered pursuant to
the procedure for book-entry transfer, any notice of withdrawal
must specify the name and number of the account at a Book-Entry
Transfer Facility to be credited with the withdrawn Depositary
Shares and otherwise comply with such Book-Entry Transfer
Facility's procedures. All questions as to the validity of
notice of withdrawal, including time of receipt, will be
determined by the Company, in its sole discretion, and such
determination will be final and binding on all parties. Properly
withdrawn Depositary Shares, however, may be retendered by
following the procedures therefor described elsewhere herein at
any time prior to the Expiration Date with respect thereto. See
"Procedures for Tendering."
ACCEPTANCE OF DEPOSITARY SHARES; DELIVERY OF PREFERRED
SECURITIES
The Company expressly reserves the right, in its sole
discretion, to delay acceptance for exchange of Depositary Shares
tendered under the Exchange Offer and the delivery of the
Preferred Securities with respect to the Depositary Shares
accepted for exchange (subject to Rules 13e-4 and 14e-1 under the
Exchange Act, which require that the Company consummate the
Exchange Offer or return the Depositary Shares deposited by or on
behalf of the Holders thereof promptly after the termination or
withdrawal of the Exchange Offer) at any time prior to the
Expiration Date for any reason including (without limitation) if
fewer than 100,000 Depositary Shares would remain outstanding
upon acceptance of those tendered (which condition may be waived
by the Company).
All Depositary Shares not accepted pursuant to the Exchange
Offer will be returned to the tendering Holders at the Company's
expense as promptly as practicable following the Expiration Date.
All Depositary Shares accepted pursuant to the Exchange Offer
will be delivered to the Company in exchange for Preferred
Securities and will be retired and canceled and a corresponding
number of shares of the Preferred Stock underlying the Depositary
Shares (Underlying Preferred) will be withdrawn from the
Depositary and canceled.
EXCHANGE AGENT AND INFORMATION AGENT
The Exchange Agent is:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
BY HAND: BY OVERNIGHT COURIER:
Office Hours: 9:00 a.m. - Chemical Mellon Shareholder
5:00 p.m. Services, L.L.C.
(New York City Time) Reorganization Department
Chemical Mellon Shareholder 85 Challenger Road
Services, L.L.C. Ridgefield Park, New Jersey
Reorganization Department 07660
120 Broadway
13th Floor
New York, New York 10271
BY MAIL:
(registered, insured mail recommended)
Chemical Mellon Shareholder Services, L.L.C.
Reorganization Department
P.O. Box 817
Midtown Station
New York, New York 10018
Facsimile Transmission
(201) 296-4293
(For Eligible Institutions Only)
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
(201) 296-4209
D.F. King & Co., Inc. has been retained by the Company as the
Information Agent to assist in connection with the Exchange
Offer. Questions and requests for assistance regarding the
Exchange Offer, requests for additional copies of this Prospectus
or of Letters of Transmittal and requests for Notice of
Guaranteed Delivery may be directed to D.F. King & Co., Inc. at
(800) 697-6974. Banks and brokers call collect (212) 269-5550.
The Company will pay the Exchange Agent and Information Agent
reasonable and customary fees for their services and will
reimburse them for all their reasonable out-of-pocket expenses in
connection therewith.
DEALER MANAGERS
Merrill Lynch & Co., Goldman, Sachs & Co., Lehman Brothers
Inc. and Smith Barney Inc. are acting as Dealer Managers for the
Exchange Offer under a Dealer Managers Agreement dated November
7, 1995 (Dealer Managers Agreement). Pursuant to the Dealer
Managers Agreement, the Company has agreed to pay the Dealer
Managers, upon acceptance for payment of Depositary Shares
pursuant to the Exchange Offer, a fee of $.125 per Depositary
Share accepted in the Exchange Offer. The Dealer Managers will
also be reimbursed by the Company for their reasonable out-of-
pocket expenses, including certain attorneys' fees. The Company
has agreed to indemnify the Dealer Managers against certain
liabilities in connection with the Exchange Offer, including
certain liabilities under the federal securities laws. See FEES
AND EXPENSES; TRANSFER TAXES.
The Dealer Managers will perform those services in connection
with the Exchange Offer as are customarily performed by
investment banking concerns acting as dealer managers in
connection with offers of like nature, including, but not limited
to, soliciting tenders of Depositary Shares pursuant to the
Exchange Offer and communicating generally, and responding to
requests for information and material, regarding the Exchange
Offer and the Preferred Securities with brokers, dealers,
commercial banks and trust companies and other persons, including
the Holders of Depositary Shares.
Each of Merrill Lynch & Co., Goldman, Sachs & Co., Lehman
Brothers Inc. and Smith Barney Inc. engages in transactions with,
and from time to time has performed services for, the Company.
LISTING AND TRADING OF PREFERRED SECURITIES AND DEPOSITARY SHARES
The Preferred Securities constitute a new issue of securities
with no established trading market. While the Company will apply
to list the Preferred Securities on the NYSE, there can be no
assurance that an active market for the Preferred Securities will
develop or be sustained in the future. The Dealer Managers
currently plan to make a market in the Preferred Securities
following the completion of the Exchange Offer and may buy and
sell the Preferred Securities on a "when and if issued" basis
prior to the completion of the Exchange Offer. However, there
can be no assurance that the Dealer Managers will engage in such
activities or that any active market in the Preferred Securities
will develop or be maintained. Accordingly, no assurance can be
given as to the liquidity of, or trading markets for, the
Preferred Securities.
The Depositary Shares are currently listed on the NYSE. The
following table sets forth for the calendar quarters indicated
the high and low sale prices as reported by the NYSE.
High Low
---- ----
1993:
First Quarter *$26 *$24 1/2
Second Quarter 26 3/4 25
Third Quarter 27 1/2 26 1/8
Fourth Quarter 27 3/8 25 3/4
1994:
First Quarter 26 1/2 24 3/4
Second Quarter 25 1/4 23 3/4
Third Quarter 25 22 3/8
Fourth Quarter 23 1/4 21 1/2
1995:
First Quarter 25 1/8 22 1/2
Second Quarter 25 7/8 23 7/8
Third Quarter 25 7/8 24 3/4
Fourth Quarter (through
November 3, 1995) 26 3/8 25 1/4
____________
*From date of issuance to end of period.
Holders of Depositary Shares who do not tender their
Depositary Shares in the Exchange Offer or whose Depositary
Shares are not accepted for exchange will continue to hold such
Depositary Shares and will be entitled to all the rights and
preferences, and will be subject to all of the limitations, as
heretofore have been applicable thereto. To the extent that a
certain number of shares of Depositary Shares are tendered and
accepted in the Exchange Offer and/or the number of Holders of
Depositary Shares is reduced to below certain levels, the
Company, pursuant to NYSE rules and regulations, would be
required to delist the Depositary Shares from the NYSE, and the
trading market for untendered Depositary Shares could be
adversely affected. The Company does not believe that the
Exchange Offer has a reasonable likelihood of causing the
Depositary Shares to be delisted from the NYSE.
FEES AND EXPENSES; TRANSFER TAXES
The expenses of soliciting tenders of the Depositary Shares
will be borne by the Company. For compensation to be paid to the
Dealer Managers, see THE EXCHANGE OFFER - "Dealer Managers." The
total cash expenditures to be incurred by the Company, other than
fees payable to the Dealer Managers, but including the expenses
of the Dealer Managers, printing, accounting and certain legal
fees, and the fees and expenses of the Exchange Agent, the
Information Agent and the Trustee under the Indenture, are
estimated to be approximately $250,000.
Subject to the receipt of a properly completed and duly
executed notice included in the materials provided to brokers and
dealers (Notice of Solicited Tenders), the Company will pay to
any Soliciting Dealer a solicitation fee of $.50 per Depositary
Share validly tendered, accepted by the Company and exchanged for
Preferred Securities or $.25 per Depositary Share validly
tendered, accepted by the Company and exchanged for cash, in each
case pursuant to the Exchange Offer. "Soliciting Dealer"
includes (i) any broker or dealer in securities, including the
Dealer Manager in its capacity as a broker or dealer, who is a
member of any national securities exchange or of the National
Association of Securities Dealers, Inc. (NASD), (ii) any foreign
broker or dealer not eligible for membership in the NASD who
agrees to conform to the NASD's Rules of Fair Practice in
soliciting tenders outside the United States to the same extent
as though it were an NASD member, or (iii) any bank or trust
company, any one of whom has solicited and obtained a tender
pursuant to the Exchange Offer. No such fee shall be payable to
a Soliciting Dealer in respect of Depositary Shares registered in
the name of such Soliciting Dealer unless such Depositary Shares
are being held by such Soliciting Dealer as nominee and such
Depositary Shares are being tendered for the benefit of one or
more beneficial owners identified in the Letter of Transmittal or
in the Notice of Solicited Tenders (included in the materials
provided to brokers and dealers). No such fee shall be payable
to a Soliciting Dealer with respect to the tender of Depositary
Shares by a Holder of record, for the benefit of the beneficial
owner, unless the beneficial owner has designated such Soliciting
Dealer. No such fee shall be payable to a Soliciting Dealer
unless the Soliciting Dealer returns a Notice of Solicited
Tenders to the Depositary within five Business Days after the
Expiration Date. No such fee shall be payable to a Soliciting
Dealer to the extent such Soliciting Dealer is required for any
reason to transfer the amount of such fee to any person (other
than itself). The Dealer Managers may not, until the Expiration
Date, buy, sell, deal or trade in the Depositary Shares for their
own account.
No broker, dealer, bank, trust company or fiduciary shall be
deemed to be the agent of the Company, TU Electric Capital, the
Dealer Managers, the Exchange Agent or the Information Agent for
purposes of the Exchange Offer except that, in any jurisdiction
where the securities, blue sky, or other laws require the
Exchange Offer to be made by or through a licensed broker or
dealer, the Exchange Offer is being made on behalf of the
Company, by the Dealer Managers or one or more registered brokers
or dealers licensed under the law of such jurisdiction.
The Company will pay all transfer taxes, if any, applicable
to the exchange of Depositary Shares pursuant to the Exchange
Offer. If, however, beneficial ownership of Preferred Securities
or shares of Depositary Shares not tendered or accepted for
exchange, are to be issued in the name of, or are to be delivered
to, any person other than the registered Holder of the Depositary
Shares tendered or if a transfer tax is imposed for any reason
other than the exchange of Depositary Shares pursuant to the
Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other person)
will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not
submitted with a Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
Tendering Holders will not be obligated to pay brokerage
commissions or fees to the Dealer Managers, the Exchange Agent,
the Information Agent, the Company or TU Electric Capital.
DESCRIPTION OF THE PREFERRED SECURITIES
TU Electric Capital was authorized and created by the
Original Trust Agreement. The Preferred Securities and the
Common Securities will be created pursuant to the terms of the
Trust Agreement. The Preferred Securities 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 Preferred Securities 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 Guarantee is a full and unconditional guarantee with
respect to the Preferred Securities but does not guarantee
payment of distributions or amounts payable on redemption or
liquidation of the Preferred Securities when TU Electric Capital
does not have funds available to make such payments.
DISTRIBUTIONS
The distributions payable on the Preferred Securities will
be fixed at a rate per annum of 9.00% 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 Preferred Securities 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
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 distributions are otherwise payable on the Preferred
Securities is not a Business Day, payment of the distribution
payable on such date will be made on the next succeeding Business
Day (and without any interest or other payment in respect of any
such delay) 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 Preferred
Securities will be limited to payments on the Junior Subordinated
Debentures for which TU Electric Capital will exchange the
Preferred Securities 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 Preferred Securities. 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 Preferred Securities 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 Preferred Securities would be deferred (but would continue to
accrue with interest payable on unpaid distributions at the rate
per annum set forth above, compounded quarterly) by 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 Preferred Securities and all
other securities with terms substantially the same as the
Preferred Securities. Prior to the termination of any such
Extension Period, the Company may further extend the interest
payment period, provided that such Extension Period together with
all such previous and further extensions thereof may not exceed
20 consecutive 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 Preferred Securities 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 PREFERRED SECURITIES
The Junior Subordinated Debentures will mature on September
30, 2030, and the Company has the right to redeem the Junior
Subordinated Debentures in whole or in part on or after January
1, 1998, 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, Preferred Securities 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 Preferred Securities and the
Common Securities would be distributed on a pro rata basis to the
Holders of the Preferred Securities 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 Preferred Securities 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
Preferred Securities, 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 Preferred Securities 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 Preferred
Securities 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 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 Preferred Securities, 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 Preferred Securities, except that if an Event of
Default under the Trust Agreement has occurred and is continuing,
the Preferred Securities 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
Preferred Securities, 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 Preferred Securities and the Common Securities will no
longer be deemed to be outstanding and (ii) certificates
representing Preferred Securities 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 Preferred Securities 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 Preferred Securities 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
Preferred Securities exchanged. If the Junior Subordinated
Debentures are distributed to the Holders of Preferred Securities
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 Preferred Securities
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 Preferred Securities unless all
accrued and unpaid distributions have been paid on all Preferred
Securities for all quarterly distribution periods terminating on
or prior to the date of redemption or if a partial redemption of
the Preferred Securities would result in the delisting of the
Preferred Securities by any national securities exchange on which
the Preferred Securities are then listed.
Preferred Securities 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
Preferred Securities 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 Preferred Securities (which notice will be
irrevocable), then, on or before the Redemption Date, TU Electric
Capital will irrevocably deposit with the paying agent for the
Preferred Securities 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 Preferred Securities. Notwithstanding the foregoing,
distributions payable on or prior to the redemption date for any
Preferred Securities called for redemption shall be payable to
the Holders of such Preferred Securities 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
Preferred Securities so called for redemption will cease, except
the right of the Holders of such Preferred Securities to receive
the redemption price plus accrued and unpaid distributions, but
without interest thereon, and such Preferred Securities will
cease to be outstanding. In the event that any date fixed for
redemption of Preferred Securities 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 Preferred Securities 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 Preferred Securities 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 Preferred
Securities 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 Preferred Securities. The
particular Preferred Securities to be redeemed shall be selected
not more than 60 days prior to the Redemption Date by the
Property Trustee from the outstanding Preferred Securities 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 Preferred Securities in
liquidation preference amounts equal to $25 or integral multiples
thereof. The Property Trustee shall promptly notify the security
registrar in writing of the Preferred Securities selected for
redemption and, in the case of any Preferred Securities 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 Preferred Securities shall relate, in the case of
any Preferred Securities redeemed or to be redeemed only in part,
to the portion of the liquidation preference amount of Preferred
Securities 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 Preferred
Securities 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 Preferred Securities, 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, Preferred Securities 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 Preferred Securities have been
cured, waived or otherwise eliminated. Until any such default
under such Trust Agreement with respect to the Preferred
Securities has been so cured, waived or otherwise eliminated, the
Property Trustee shall act solely on behalf of the Holders of the
Preferred Securities and not the Holders of the Common
Securities, and only Holders of Preferred Securities 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, 2035, 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 Preferred Securities.
(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 Preferred Securities 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 Preferred Securities, the aggregate
liquidation preference of the Preferred Securities 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 Preferred Securities 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 Preferred
Securities, except that if default has occurred and is continuing
under the Trust Agreement, the Preferred Securities 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 Preferred Securities having at least 10% of
the total liquidation preference amount of the outstanding
Preferred Securities 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 the Property Trustee;
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.
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 Preferred
Securities having a majority of the liquidation preference of the
Preferred Securities. 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 Preferred Securities 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).
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 Preferred Securities 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 Preferred Securities having of
at least 66 2/3% of the liquidation preference amount of the
outstanding Preferred Securities; 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 Preferred Securities. The
Property Trustee shall not revoke any action previously
authorized or approved by a vote of the Preferred Securities. If
the Property Trustee fails to enforce its rights under the Junior
Subordinated Debentures or the Trust Agreement to the fullest
extent permitted by law, a Holder of Preferred Securities 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 Preferred Securities of
any notice of default received from the Debenture Trustee. In
addition to obtaining the foregoing approvals of the Holders of
the Preferred Securities, 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 Preferred Securities may
be given at a separate meeting of Holders of Preferred Securities
convened for such purpose or pursuant to written consent. The
Administrative Trustees will cause a notice of any meeting at
which Holders of Preferred Securities 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 Preferred
Securities in the manner set forth in the Trust Agreement.
(Section 6.02).
No vote or consent of the Holders of Preferred Securities
will be required for TU Electric Capital to redeem and cancel
Preferred Securities in accordance with the Trust Agreement.
Notwithstanding that Holders of Preferred Securities are
entitled to vote or consent under any of the circumstances
described above, any of the Preferred Securities 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 Preferred Securities 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 Preferred Securities 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, Preferred Securities will be exchangeable for
other Preferred Securities of the same series, of any authorized
denomination and of like tenor and aggregate liquidation
preference.
Subject to the terms of the Trust Agreement, Preferred
Securities may be presented for exchange as provided above or for
registration of transfer (duly endorsed or accompanied by a duly
executed instrument of transfer) at the office of the 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 Preferred Securities, 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 addi-
tional 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
Preferred Securities.
TU Electric Capital will not be required to (i) issue,
register the transfer of, or exchange any Preferred Securities
during a period beginning at the opening of business 15 calendar
days before the day of mailing of a notice of redemption of any
Preferred Securities 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 Preferred Securities so selected for
redemption, in whole or in part, except the unredeemed portion of
any such Preferred Securities being redeemed in part.
REGISTRAR AND TRANSFER AGENT
Texas Utilities Services Inc. will act as registrar and
transfer agent for the Preferred Securities.
Registration of transfers of Preferred Securities 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 Preferred Securities after
they have been called for redemption except the unredeemed
portion of any Preferred Securities 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 will be made to list the Preferred Securities 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 Preferred Securities.
Holders of the Preferred Securities 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 Preferred
Securities. 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 Preferred
Securities.
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 Preferred
Securities (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 Preferred
Securities, 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 Preferred Securities, to the extent TU
Electric Capital has funds available therefor, (ii) the
redemption price, including all accrued and unpaid distributions,
with respect to any Preferred Securities called for redemption by
TU Electric Capital (redemption price plus accrued and unpaid
distributions), 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
Preferred Securities), the lesser of (a) the aggregate of the
liquidation preference and all accrued and unpaid distributions
on the Preferred Securities to the date of payment and (b) the
amount of assets of TU Electric Capital remaining available for
distribution to Holders of Preferred Securities 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 Preferred
Securities or by causing TU Electric Capital to pay such amounts
to such Holders.
The Guarantee will be a guarantee with respect to the
Preferred Securities issued by TU Electric Capital from the time
of issuance of the Preferred Securities, 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 Preferred Securities. 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 Preferred Securities
(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 Preferred Securities having at least 66 2/3% of the
liquidation preference amount of the outstanding Preferred
Securities. 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 Preferred Securities 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 Preferred Securities having a
majority of the liquidation preference of the Preferred
Securities 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.
If the Guarantee Trustee fails to enforce the Guarantee, any
Holder of Preferred Securities may, enforce the Guarantee,
institute a legal proceeding directly against the Company to
enforce the Guarantee Trustee's 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 annually 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 a default
by the Company in performance of 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 Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby. See DESCRIPTION OF
THE PREFERRED SECURITIES - "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 Preferred Securities, the
distribution of Junior Subordinated Debentures to Holders of
Preferred Securities in exchange for all of the Preferred
Securities 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 Preferred Securities must restore payment
of any sums paid under the Preferred Securities 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 Preferred Securities 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 Preferred Securities 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 September
30, 2030. 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 Preferred Securities 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, 1998, 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 plus accrued and
unpaid distributions 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
Preferred Securities 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 distributions, 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
Trustee's receipt of the redemption monies, the redemption price
plus accrued and unpaid distributions will become due and payable
upon each such Junior Subordinated Debentures to be redeemed and
that interest thereon will cease to accrue on and after said
date; and the place or places where such Securities are to be
surrendered for payment of the redemption price plus accrued and
unpaid distributions.
INTEREST
The Junior Subordinated Debentures shall bear interest at
the rate of 9.00% 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 Preferred
Securities and all other securities with terms substantially the
same as the Preferred Securities. 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
Preferred Securities.
ADDITIONAL INTEREST
So long as any Preferred Securities 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 series 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 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 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 Preferred Securities) 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
all 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. The Bank of New York
(Delaware) acts as the Delaware Trustee under the Trust
Agreement. See DESCRIPTION OF THE PREFERRED SECURITIES -
"Concerning the Property Trustee."
DESCRIPTION OF CERTAIN TERMS OF THE DEPOSITARY SHARES
In addition to terms described above under PROSPECTUS
SUMMARY - "Comparison of Preferred Securities and Depositary
Shares," the following terms apply to the Depositary Shares:
VOTING RIGHTS
Texas Utilities, as the only Holder of Common Stock of the
Company, has sole voting power, except as indicated below or as
otherwise required by law. If any four full quarterly dividends
on the Company's Preferred Stock, including the Underlying
Preferred, are in default, the Holders of shares of all
outstanding shares of the Preferred Stock become entitled, as one
class, to elect a majority of the Board of Directors, which right
does not terminate until full dividends have been provided for
all past periods. When entitled to vote, the Holders of the
Preferred Stock shall have one vote for each share held. No
Preferred Stock dividends are currently in default.
The Depositary for the Depositary Shares will endeavor
insofar as practicable to vote the Underlying Preferred in
accordance with the instructions of the Holders of the Depositary
Shares. It will vote those shares of Underlying Preferred as to
which it has received no instruction in conformity with the
instructions it has received from the majority of Holders of
Depositary Shares which have given instructions.
Without the consent of the Holders of at least two-thirds of
the total number of shares of Preferred Stock, the Company may
not:
(A) create or authorize any new stock ranking prior to
Preferred Stock as to dividends or in liquidation, dissolution,
winding up or distribution, or create or authorize any security
convertible into shares of any such stock; or
(B) amend, alter, change or repeal any of the express terms
of Preferred Stock then outstanding in a manner substantially
prejudicial to the Holders thereof; provided, however, that if
such amendment, alteration, or change effects less than all
series of Preferred Stock, only the consent of the Holders of
two-thirds of the aggregate of the series so affected shall be
required.
In addition, without the consent of the Holders of a
majority of Preferred Stock, voting separately as a class, or if
Holders of one-third of Preferred Stock vote against such action,
the Company may not:
(A) issue additional shares of Preferred Stock or stock
ranking prior to or on a parity therewith, (1)(i) unless net
income (determined after provisions for taxes and depreciation)
available for the payment of all dividends for a period of twelve
consecutive calendar months within the fifteen calendar months
immediately preceding the issuance is at least 2 times the annual
dividend requirements on all outstanding shares of Preferred
Stock and stock ranking equal or prior thereto, including the
shares proposed to be issued, and (ii) unless the gross income
for said period (after provisions for taxes and depreciation)
available for the payment of interest is at least 1 1/2 times the
sum of the annual interest charges on all outstanding
indebtedness and the annual dividend requirements on all
outstanding shares of Preferred Stock and stock ranking equal or
prior thereto, including the shares proposed to be issued; (2)
unless the aggregate capital applicable to common stock and
surplus shall not be less than the aggregate capital applicable
to Preferred Stock and stock ranking on a parity therewith,
including the shares proposed to be issued; (3) unless for a
period of twelve consecutive months out of the immediately
preceding fifteen months net earnings, before income taxes,
available for the payment of interest shall have been at least 1 1/2
times the sum of the annual interest charges on indebtedness to
be outstanding immediately after the issuance of such shares and
the annual dividend requirement on Preferred Stock and stock
ranking equal or prior thereto, including the shares proposed to
be issued; or (4) if such issuance would bring the aggregate
stated value of all shares of Preferred Stock and stock ranking
equal or prior thereto to be then outstanding to an amount in
excess of the sum of the stated value of all outstanding stock
junior to Preferred Stock and the amount of the Company's
retained earnings; or
(B) create or assume any unsecured debt (other than certain
refunding debt) having a maturity of more than one year unless
for a period of twelve consecutive months out of the immediately
preceding fifteen months net earnings, before income taxes,
available for the payment of interest shall have been at least 2
times the annual interest charges on debt having a maturity of
more than one year to be then outstanding, or if the amount of
unsecured debt having a maturity of more than one year shall
thereupon exceed 25% of the Company's secured debt, capital stock
and retained earnings; or
(C) purchase or redeem any stock junior to Preferred Stock,
except junior Preferred Stock at a price not more than the
current redemption price when there is no continuing default in
the payment of any dividend on Preferred Stock and except for any
purchase of stock junior to the Preferred Stock under any
employee benefit plan; or
(D) pay any dividend on any stock junior to Preferred Stock
which would reduce retained earnings to less than 1 1/2 times the
annual dividend requirement on Preferred Stock and stock ranking
equal or prior thereto.
The Articles of Incorporation of the Company limit the
payment of annual dividends on the common stock to (a) 50% of
current net income available for such dividends when the common
stock equity, as therein defined, is less than 20% of total
capitalization, as therein defined, or would by the dividend be
reduced to less than 20% of such total capitalization, or (b) 75%
of such net income when such equity is or by the declaration of
such dividend would become less than 25% but not less than 20% of
such total capitalization. The payment of such dividends is
unlimited when such equity is 25% or more of such total
capitalization, except when such dividends would bring such
equity within the limits specified in (a) and (b) above.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up
of the Company, the Underlying Preferred, pari passu with all
series of Preferred Stock then outstanding, shall have a
preference over the Company's common stock until an amount equal
to the then current liquidation price plus unpaid accumulated
dividends shall have been paid.
MISCELLANEOUS
The Underlying Preferred has no subscription rights,
conversion rights or preemptive rights.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States
federal income tax consequences, as of the date hereof, of the
ownership of Preferred Securities and the exchange of Depositary
Shares for Preferred Securities or for cash 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 Preferred Securities held as capital
assets and acquired pursuant to the Exchange Offer and does not
deal with special situations, such as those of dealers in
securities or currencies, financial institutions, life insurance
companies, persons holding Preferred Securities as a part of a
hedging or conversion transaction or a straddle, or 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 Preferred Securities 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.
ALL HOLDERS OF DEPOSITARY SHARES, INCLUDING PERSONS WHO ARE
NOT UNITED STATES HOLDERS, AND ALL PERSONS WHO PURCHASE PREFERRED
SECURITIES IN THE SECONDARY MARKET, ARE ADVISED TO CONSULT WITH
THEIR TAX ADVISORS AS TO THE UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE EXCHANGE OF DEPOSITARY SHARES FOR PREFERRED
SECURITIES OR FOR CASH AND OF THE OWNERSHIP AND DISPOSITION OF
PREFERRED SECURITIES 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
Declaration (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 exchanging Depositary Shares for Preferred Securities, each
Holder covenants to treat the Junior Subordinated Debentures as
indebtedness and the Preferred Securities 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.
EXCHANGE OF DEPOSITARY SHARES FOR PREFERRED SECURITIES OR
FOR CASH
The exchange of Depositary Shares either for Preferred
Securities or for cash pursuant to the Exchange Offer will be a
taxable transaction. In the event of an exchange for Preferred
Securities, gain or loss will be recognized in an amount equal to
the difference between the fair market value of the Preferred
Securities at the time of the exchange plus the Payment in Lieu
of Accumulated Dividends, and the exchanging Holder's tax basis
in the Depositary Shares exchanged therefor. In the event of an
exchange for cash, gain or loss will be recognized in an amount
equal to the difference between the cash received and the selling
Holder's cash basis in the Depositary Shares surrendered. In the
case of a United States Holder who owns (actually or
constructively) solely Depositary Shares, or not more than one
percent of the Depositary Shares outstanding and not more than
one percent of any other class of the Company's capital stock,
any such gain recognized will be long-term capital gain or loss
if the Depositary Shares have been held for more than one year as
of such date. A United States Holder's aggregate tax basis in
the Preferred Securities will be equal to the fair market value
of the Preferred Securities at the time of the exchange.
Holders of the Depositary Shares owning (actually or
constructively) more than one percent of any class of the
Company's stock are advised to consult their own tax advisors as
to the income tax consequences of exchanging Preferred Securities
for Depositary Shares.
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 Preferred Securities will also be deferred.
Because of this option to extend the interest payment periods,
all of the stated distribution payments on the Preferred
Securities 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 Preferred Securities.
In addition, the amount of OID will be increased or
decreased if the "issue price" of the Junior Subordinated
Debentures (fair market value of the Preferred Securities at the
time of the exchange, which will not include the the Payment in
Lieu of Accumulated Dividends ) is less than or greater than
their stated principal amount. In the event that the issue price
of the Junior Subordinated Debentures is less than their stated
principal amount, the Treasury Regulations may be read to require
a recalculation of the amount of OID for each period that the
Company does not exercise its right to extend the interest
payment. This recalculation could result in minor adjustments to
the amount of OID taxable to the Holders for such 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 PREFERRED SECURITIES - "Tax Event Distribution
or Redemption," Junior Subordinated Debentures may be distributed
to Holders of Preferred Securities in exchange for the Preferred
Securities 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 Preferred
Securities. 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 Preferred Securities.
Under certain circumstances, as described under the caption
DESCRIPTION OF THE PREFERRED SECURITIES - "Redemption of
Preferred Securities," Junior Subordinated Debentures may be
redeemed for cash and the proceeds of such redemption distributed
to Holders of Preferred Securities in redemption of the Preferred
Securities. Under current law for United States federal income
tax purposes, such a redemption would constitute a taxable
disposition of the redeemed Preferred Securities, and a United
States Holder would recognize gain or loss as if such Holder had
sold such redeemed Preferred Securities. See "Sale, Exchange and
Retirement of the Preferred Securities."
SALE, EXCHANGE AND RETIREMENT OF THE PREFERRED SECURITIES
Upon the sale, exchange or retirement of Preferred
Securities, a United States Holder will recognize gain or loss
equal to the difference between the amount realized upon the
sale, exchange or retirement and such Holder's adjusted tax basis
in the Preferred Securities. A United States Holder's adjusted
tax basis in Preferred Securities will, in general, be the United
States Holder's initial basis therein, increased by OID or market
discount previously included in income by the United States
Holder and reduced by any amortized premium and any cash payments
on the Preferred Securities. Except with respect to market
discount, 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 retirement, the Preferred Securities 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.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to
(i) certain payments of liquidation preference or distributions
paid on the Preferred Securities, (ii) the gross proceeds from
the exchange of Depositary Shares either for Preferred Securities
(including the Payment in Lieu of Accumulated Dividends) or for
cash pursuant to the Exchange Offer, and (iii) the proceeds of
sale of the Preferred Securities made to United States Holders
other than certain exempt recipients (such as corporations). A
31% backup withholding tax will apply to payments described in
the preceding sentence if the United States Holder fails to
provide a taxpayer identification number or certification of
exempt status or fails to report in full dividend and interest
income. It is anticipated that persons who hold Preferred
Securities as nominees for beneficial holders will report the
required tax information to beneficial holders on Form 1099.
Any amounts withheld under the backup withholding rules will
be allowed as a refund or a credit against such Holder's United
States federal income tax liability provided the required
information is furnished to the IRS.
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 Preferred Securities 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 Preferred Securities, 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.
The Exchange Agent is:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
BY HAND: BY OVERNIGHT COURIER:
Office Hours: 9:00a.m. - 5:00 p.m. Chemical Mellon
(New York City Time) Shareholder Services,
Chemical Mellon Shareholder L.L.C.
Services, L.L.C. 85 Challenger Road
Reorganization Department Ridgefield Park,
120 Broadway New Jersey 07660
13th Floor
New York, New York 10271
BY MAIL:
(registered, insured mail recommended)
Chemical Mellon Shareholder Services, L.L.C.
Reorganization Department
P.O. Box 817
Midtown Station
New York, New York 10018
Facsimile Transmission
(201) 296-4293
(For Eligible Institutions Only)
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
(201) 296-4209
Any questions or requests for assistance or additional copies
of this Prospectus, the Letter of Transmittal and the Notice of
Guaranteed Delivery may be directed to the Information Agent or
the Dealer Managers at their respective telephone numbers and
locations set forth below. You may also contact your broker,
dealer, commercial bank or trust company or other nominee for
assistance concerning the Exchange Offer.
The Information Agent is:
D.F. KING & CO., INC.
77 Water Street
20th Floor
New York, New York 10005
BANKS AND BROKERS CALL COLLECT:
(212) 269-5550
ALL OTHERS CALL TOLL-FREE:
(800) 697-6974
The Dealer Managers for the Exchange Offer are:
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO. LEHMAN BROTHERS SMITH BARNEY INC.
