DEFM14A 1 d47274ddefm14a.htm DEFINITIVE PROXY STATEMENT - MERGER defm14a
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Rule 14a-101)
Filed by the Registrant þ

Filed by a Party other than the Registrant o
Check the appropriate box:
o   Preliminary Proxy Statement
     
o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
     
þ   Definitive Proxy Statement
     
o   Definitive Additional Materials
     
o   Soliciting Material Pursuant to §240.14a-12
 
TXU CORP.
 
(Name of Registrant as Specified In Its Charter)
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
o   No fee required.
 
o   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)   Title of each class of securities to which transaction applies:
 
 
      Common Stock, without par value (the “Common Stock”) of TXU Corp.
     
 
 
  (2)   Aggregate number of securities to which transaction applies:
 
     
     
 
 
  (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
     
     
 
 
  (4)   Proposed maximum aggregate value of transaction:
 
     
     
 
 
  (5)   Total fee paid:
 
     
     
 
þ   Fee paid previously with preliminary materials.
 
o   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)   Amount Previously Paid:
 
     
     
 
 
  (2)   Form, Schedule or Registration Statement No.:
 
     
     
 
 
  (3)   Filing Party:
 
     
     
 
 
  (4)   Date Filed:
 
     
     
 


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(TXU CORP LOGO)
 
 
TXU Corp.
 
 
Notice of Annual Meeting
of Shareholders and
Proxy Statement
 
 
Annual Meeting of Shareholders:
Friday, September 7, 2007, at 9:30 a.m.
Dallas Ballroom
International Conference and Exposition Center
Adam’s Mark Hotel
400 North Olive Street
Dallas, Texas 75201
 
 
Whether or not you will be able to attend the annual meeting, please vote your shares promptly so that you may be represented at the meeting.
 


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(TXU LOGO)
 
July 24, 2007
 
To the shareholders of TXU Corp.:
 
We cordially invite you to attend the annual meeting of shareholders of TXU Corp., at 9:30 a.m., local time, on Friday, September 7, 2007, in the Dallas Ballroom of the International Conference and Exposition Center located in the Adam’s Mark Hotel at 400 North Olive Street, Dallas, Texas 75201. Directions to the location of the annual meeting are included in the proxy statement attached to this letter.
 
At the annual meeting, we will ask you to vote for a proposal to approve an Agreement and Plan of Merger, dated as of February 25, 2007 (as it may be amended from time to time, and including the plan of merger it contains, the “Merger Agreement”), among TXU Corp., Texas Energy Future Holdings Limited Partnership, a Delaware limited partnership (“Parent”), and Texas Energy Future Merger Sub Corp., a Texas corporation (“Merger Sub”), which provides for the merger of Merger Sub with and into TXU Corp. (the “Merger”), as a result of which TXU Corp. will become a subsidiary of Parent. Parent and Merger Sub were formed by an investor group led by affiliates of Kohlberg Kravis Roberts & Co. L.P. and Texas Pacific Group solely for the purpose of entering into the Merger Agreement and completing the transactions contemplated by the Merger Agreement. If TXU Corp.’s shareholders approve the Merger Agreement and the Merger is completed, you will be entitled to receive $69.25 in cash, without interest, for each share of common stock of TXU Corp., without par value (the “Common Stock”), you own (unless you have properly exercised your rights of dissent and appraisal with respect to the Merger).
 
After careful consideration and following receipt of the unanimous recommendation of the Strategic Transactions Committee of the board of directors of TXU Corp., in February of this year, TXU Corp.’s board of directors by unanimous vote (excluding Dr. E. Gail de Planque) determined that it was in the best interests of TXU Corp.’s shareholders that TXU Corp. enter into the Merger Agreement. Dr. de Planque, to avoid any perception of a potential conflict of interest arising out of her historical professional relationships within the industry, based upon the advice of outside counsel to both TXU Corp. and the Strategic Transactions Committee and the recommendation of the board of directors, recused herself from all discussions about the Merger.
 
In advance of mailing the enclosed proxy statement, TXU Corp.’s board of directors and its Strategic Transactions Committee each undertook a review of the current facts and circumstances relevant to TXU Corp.’s board of directors’ recommendation that shareholders vote to approve the Merger Agreement. Based on that review and following receipt of the unanimous recommendation of the Strategic Transactions Committee of the board of directors of TXU Corp., as more fully discussed on page 22 of the enclosed proxy statement, TXU Corp.’s board of directors by unanimous vote has determined that it is in the best interests of TXU Corp.’s shareholders that TXU Corp. complete the Merger on the terms and conditions of the Merger Agreement. Therefore, TXU Corp.’s board of directors unanimously recommends that you vote “FOR” the approval of the Merger Agreement and “FOR” any proposal by TXU Corp. to adjourn or postpone the annual meeting, if determined to be necessary. In considering the recommendation of TXU Corp.’s board of directors with respect to the Merger and the Merger Agreement, you should be aware that some of TXU Corp.’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of TXU Corp.’s shareholders generally.
 
As more fully described in the proxy statement, at the annual meeting, we will also consider the election of TXU Corp.’s directors and the selection of Deloitte & Touche LLP as TXU Corp.’s independent auditor for the year ending December 31, 2007, and two shareholder proposals. The board of directors of TXU Corp. recommends a vote “FOR” each nominee for director and “FOR” the selection of Deloitte & Touche LLP as TXU Corp.’s independent auditor. The board of directors of TXU Corp. recommends a vote “AGAINST” each of the two shareholder proposals.
 
The proxies being solicited hereby are being solicited by TXU Corp. and the board of directors of TXU Corp. We have retained Georgeson Inc. to assist in the distribution of the proxy statement and solicitation of proxies. The enclosed proxy statement provides you with detailed information about the Merger Agreement, the proposed Merger and the other matters to be considered at the annual meeting. We encourage you to read the entire proxy


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statement carefully. You may also obtain more information about TXU Corp. from documents we have filed with the Securities and Exchange Commission.
 
Your vote is very important regardless of the number of shares of Common Stock you own. We cannot complete the Merger unless holders of two-thirds or more of the outstanding shares of Common Stock entitled to vote at the annual meeting of shareholders vote for the approval of the Merger Agreement. A failure to vote will have the same effect as a vote against the approval of the Merger Agreement. In addition, the election of directors requires the affirmative vote of the holders of a plurality of the votes cast at the annual meeting, and the approval of all other matters requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock present in person or represented by proxy and entitled to vote at the annual meeting, assuming a quorum is present. We would like you to attend the annual meeting. However, whether or not you plan to attend the annual meeting, it is important that your shares of Common Stock be represented. Accordingly, please complete, sign, date and return the enclosed proxy card in the postage-paid envelope or submit your proxy by calling the toll-free number listed on the proxy card or through the Internet as indicated on the proxy card prior to the annual meeting. If you hold shares of Common Stock through a broker, bank or other nominee, you should follow the procedures provided by your broker, bank or other nominee, but in any case, you should vote your shares because the nominee cannot vote for you on the proposal to approve the Merger Agreement. If you attend the annual meeting and vote in person, your vote by ballot will revoke any proxy previously submitted.
 
Please note that only shareholders entitled to vote at the annual meeting or their proxy holders and TXU Corp.’s guests may attend the annual meeting. Each shareholder or proxyholder and each guest will be asked to present valid picture identification, such as a driver’s license or passport. If your shares are held through a broker, bank or other nominee, you must bring to the annual meeting an account statement or letter from the holder of record indicating that you beneficially owned the shares on the record date.
 
Thank you for your continued support and we look forward to seeing you on September 7, 2007.
 
Sincerely,
(C John Wilder SIG)
C. John Wilder
Chairman, President and CEO
 
Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or fairness of the disclosure in this document. Any representation to the contrary is a criminal offense.
 
The proxy statement is dated July 24, 2007, and is first being mailed to shareholders on or about July 27, 2007.


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(TXU LOGO)
 
1601 Bryan Street
Dallas, Texas 75201-3411
(214) 812-4600
 
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
 
TO BE HELD ON SEPTEMBER 7, 2007
 
To the shareholders of TXU Corp.:
 
An annual meeting of the shareholders of TXU Corp., a Texas corporation (“TXU Corp.”), will be held at 9:30, a.m., local time, on Friday, September 7, 2007, in the Dallas Ballroom of the International Conference and Exposition Center located in the Adam’s Mark Hotel at 400 North Olive Street, Dallas, Texas 75201 for the following purposes:
 
  1.       To vote upon a proposal to approve the Agreement and Plan of Merger, dated as of February 25, 2007 (as amended from time to time, the “Merger Agreement”) among TXU Corp., Texas Energy Future Holdings Limited Partnership, a Delaware limited partnership (“Parent”), and Texas Energy Future Merger Sub Corp., a Texas corporation (“Merger Sub”), including the plan of merger contained in the Merger Agreement. The Merger Agreement, a copy of which is attached as Annex A to the accompanying proxy statement, provides for the merger of Merger Sub with and into TXU Corp. (the “Merger”), with TXU Corp. continuing as the surviving corporation but becoming a subsidiary of Parent. Pursuant to the Merger Agreement, each share of TXU Corp.’s common stock, without par value (the “Common Stock”), issued and outstanding immediately prior to the effective time of the Merger, other than those shares (i) owned by Parent or any of its subsidiaries, including Merger Sub, or owned by TXU Corp. or any of its subsidiaries, and in each case not held on behalf of third parties, or (ii) held by shareholders who properly exercise their rights of dissent and appraisal under Texas law, if any, will be converted into the right to receive $69.25 in cash, without interest, and less any applicable withholding tax;
 
  2.       To vote upon any proposal by TXU Corp. to adjourn or postpone the annual meeting, if determined to be necessary;
 
  3.       To elect the directors of TXU Corp. for the ensuing year;
 
  4.       To approve the selection of Deloitte & Touche LLP as TXU Corp.’s independent auditor for the year 2007;
 
  5.       To consider a shareholder proposal related to TXU Corp.’s adoption of quantitative goals for emissions at its existing and proposed plants;
 
  6.       To consider a shareholder proposal requesting a report on TXU Corp.’s political contributions and expenditures; and
 
  7.       To transact such other business that may properly come before the annual meeting or any adjournment or postponement thereof.
 
In accordance with TXU Corp.’s bylaws, the board of directors of TXU Corp. has fixed the close of business on July 19, 2007 as the record date for the purposes of determining shareholders entitled to notice of and to vote at the annual meeting and at any adjournment or postponement thereof. A list of TXU Corp.’s shareholders will be available at TXU Corp.’s principal executive offices at Energy Plaza, 1601 Bryan Street, Dallas, Texas 75201-3411 during ordinary business hours for 11 days prior to the annual meeting. All TXU Corp. shareholders entitled to vote at the meeting are cordially invited to attend the annual meeting in person. Please plan to arrive early to allow sufficient time for processing through security.


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The approval of the Merger Agreement requires the affirmative vote of the holders of two-thirds or more of the outstanding shares of Common Stock entitled to vote at the annual meeting. In addition, the election of directors requires the affirmative vote of the holders of a plurality of the votes cast at the annual meeting, and the approval of all other matters requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock present in person or represented by proxy and entitled to vote at the annual meeting, assuming a quorum is present. Whether or not you plan to attend the annual meeting, we urge you to vote your shares by telephone, the Internet or by completing, signing, dating and returning the enclosed proxy card as promptly as possible prior to the annual meeting to ensure that your shares will be represented at the annual meeting if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the approval of the Merger Agreement and be voted in accordance with TXU Corp.’s board of directors’ other recommendations with respect to the other matters to be considered at the annual meeting. If you fail to return your proxy card or fail to submit your proxy by telephone or the Internet and do not vote in person at the annual meeting, your shares of Common Stock will not be counted for purposes of determining whether a quorum is present at the annual meeting and, if a quorum is present, it will have the same effect as a vote against the approval of the Merger Agreement. Any TXU Corp. shareholder attending the annual meeting may vote in person, even if he or she has returned a proxy card; such vote by ballot will revoke any proxy previously submitted. However, if you hold your shares of Common Stock through a broker, bank or other nominee, you must provide a legal proxy issued from such record holder in order to vote your shares of Common Stock in person at the annual meeting.
 
Shareholders who vote against the approval of the Merger Agreement will have the right to seek appraisal of the fair value of their shares of Common Stock if the Merger is completed, but only if they submit a written objection to the Merger to TXU Corp. before the vote is taken on the Merger Agreement and they comply with all requirements of Texas law, which are summarized in the accompanying proxy statement. We urge you to read the entire proxy statement carefully.
 
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.
 
By Order of the Board of Directors,
(C John Wilder SIG)
C. John Wilder
Chairman, President and CEO
Dallas, Texas
July 24, 2007


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ANNEX A
  AGREEMENT AND PLAN OF MERGER
     
ANNEX B
  OPINION OF CREDIT SUISSE SECURITIES (USA) LLC, DATED FEBRUARY 25, 2007
     
ANNEX C
  OPINION OF LAZARD FRÈRES & CO. LLC, DATED FEBRUARY 25, 2007
     
ANNEX D
  UPDATED OPINION OF LAZARD FRÈRES & CO. LLC, DATED JULY 12, 2007
     
ANNEX E
  CHAPTER 10, SUBCHAPTER H OF THE TEXAS BUSINESS ORGANIZATIONS CODE — RIGHTS OF DISSENTING OWNERS


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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE MERGER
 
The following questions and answers address briefly some questions you may have regarding the annual meeting of the shareholders of TXU Corp. (the “annual meeting”) and the proposed merger (the “Merger”) of Texas Energy Future Merger Sub Corp (“Merger Sub”), a Texas corporation formed by an investor group led by Kohlberg Kravis Roberts & Co. L.P. (“KKR”) and Texas Pacific Group (“TPG”), with and into TXU Corp. These questions and answers may not address all information that may be important to you as a shareholder of TXU Corp. To fully understand the Merger, please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement. In this proxy statement, the terms “we,” “our,” and “us” refer to TXU Corp.
 
Q: What is the proposed transaction?
 
A: The proposed transaction is the acquisition of TXU Corp. by Texas Energy Future Holdings Limited Partnership, a Delaware limited partnership (“Parent”), pursuant to an Agreement and Plan of Merger, dated as of February 25, 2007 (as it may be amended from time to time, including the plan of merger it contains, the “Merger Agreement”) among TXU Corp., Parent and Merger Sub. Parent and Merger Sub are entities formed by an investor group led by KKR and TPG solely for the purpose of entering into the Merger Agreement and completing the transactions contemplated by the Merger Agreement.
 
If the Merger Agreement is approved by TXU Corp.’s shareholders and the other closing conditions under the Merger Agreement have been satisfied or waived, Merger Sub will merge with and into TXU Corp., and each share of common stock of TXU Corp., without par value (the “Common Stock”), issued and outstanding immediately prior to the Effective Time (as defined on page 68) of the Merger, other than those shares (i) owned by Parent or any of its subsidiaries, including Merger Sub, or owned by TXU Corp. or any of its subsidiaries, and in each case not held on behalf of third parties, or (ii) held by shareholders who properly exercise their rights of dissent and appraisal under Texas law, if any, will be converted into the right to receive $69.25 in cash, without interest, and less any applicable withholding tax. As a result of the Merger, TXU Corp. would become a subsidiary of Parent and no longer be a publicly held corporation, and its Common Stock would be delisted from the New York and Chicago stock exchanges.
 
Q: What will I receive for my shares of Common Stock in the Merger?
 
A: Upon completion of the Merger, unless you properly perfect your right of dissent and appraisal under Texas law, you will be entitled to receive $69.25 in cash, without interest and less any applicable withholding tax, for each share of Common Stock that you own. For example, if you own 100 shares of Common Stock, you will be entitled to receive $6,925 in cash for your shares of Common Stock (excluding the effects of any applicable withholding taxes). You, including those of you who exercise your right of dissent and appraisal under Texas law, will no longer own shares in TXU Corp. after completion of the Merger.
 
The $69.25 paid per share of Common Stock is referred to in this proxy statement as the “Per Share Merger Consideration.”
 
Q: Will I continue to receive regular quarterly dividends?
 
A: Our current policy is to provide quarterly cash dividends on your shares of Common Stock at a rate of $0.4325 per share. The terms of the Merger Agreement allow us to continue this policy through the last regular quarterly dividend record date preceding the closing date of the Merger. However, any future decision by TXU Corp.’s board of directors (the “Board of Directors”) to pay cash dividends will depend on, among other factors, our earnings, financial position, capital requirements and legislative and regulatory changes.
 
Q: What am I being asked to vote on at the annual meeting?
 
A: You are being asked to consider and vote on a proposal to approve the Merger Agreement that provides for the acquisition of TXU Corp. by Parent and to approve any proposal by TXU Corp. to adjourn or postpone the annual meeting, if determined to be necessary. Also, you are being asked to consider and vote on the


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election of directors of TXU Corp.; the selection of Deloitte & Touche LLP as TXU Corp.’s independent auditor for the year ending December 31, 2007; two shareholder proposals, if presented at the annual meeting; and any other business that may properly come before the annual meeting or any adjournment or postponement thereof.
 
Q: What vote of TXU Corp.’s shareholders is required to approve the Merger Agreement?
 
A: For us to complete the Merger, shareholders holding two-thirds or more of the outstanding shares of Common Stock on the record date must vote “FOR” the approval of the Merger Agreement, with each share having a single vote for these purposes. Accordingly, failure to vote, a broker non-vote (described below) or an abstention will have the same effect as a vote “against” approval of the Merger Agreement.
 
Q: Does the Board of Directors recommend that our shareholders vote “FOR” the approval of the Merger Agreement and “FOR” any proposal by TXU Corp. to adjourn or postpone the annual meeting, if determined to be necessary?
 
A: Yes. After careful consideration in both February and July of 2007, and following receipt of the unanimous recommendation of the Strategic Transactions Committee of the Board of Directors, the Board of Directors unanimously recommends that you vote “FOR” the approval of the Merger Agreement and “FOR” any proposal by TXU Corp. to adjourn or postpone the annual meeting, if determined to be necessary. You should read “The Merger — Reasons and Recommendation of the Board of Directors” beginning on page 22 of this proxy statement for a discussion of the factors that the Board of Directors considered in deciding to recommend the approval of the Merger Agreement. This discussion includes both the factors considered in connection with the decision on February 25, 2007 to enter into the Merger Agreement and recommend its approval by shareholders, and the factors considered in July 2007 in connection with the decision to include that recommendation in this proxy statement.
 
Q: Do any of TXU Corp.’s directors or officers have interests in the Merger that may differ from or be in addition to my interests as a shareholder?
 
A: Yes. In considering the recommendation of the Board of Directors with respect to the Merger Agreement, you should be aware that some of TXU Corp.’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of our shareholders generally. See “The Merger — Interests of our Directors and Executive Officers in the Merger” beginning on page 51.
 
Q: What was the role of the Strategic Transactions Committee?
 
A: The Strategic Transactions Committee of the Board of Directors was formed as a committee of the Board of Directors and consists of four independent directors. The Strategic Transactions Committee’s purpose was to facilitate the efficient and effective review of the KKR/TPG proposal and TXU Corp.’s other strategic alternatives. As requested by the Board of Directors, the Strategic Transactions Committee evaluated and directed the negotiation of the terms of the KKR/TPG proposal and also evaluated the other strategic options potentially available to TXU Corp. The Strategic Transactions Committee also assisted the Board of Directors in considering the effect of changes since the February 25, 2007 signing of the Merger Agreement on the advisability of including in this proxy statement the Board of Directors’ recommendation that shareholders vote “FOR” the approval of the Merger Agreement.
 
Q: Am I entitled to exercise rights of dissent and appraisal instead of receiving the Per Share Merger Consideration for my shares of Common Stock?
 
A: Yes. As a holder of Common Stock you are entitled to rights of dissent and appraisal under Texas law in connection with the Merger if you meet certain conditions, which are described in this proxy statement under “The Merger — Rights of Dissent and Appraisal” beginning on page 63.


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Q: When do you expect the Merger to be completed?
 
A: We are working toward completing the Merger as quickly as possible, and we anticipate that it will be completed in the fourth quarter of 2007, assuming satisfaction or waiver of all of the conditions to the Merger. However, because the Merger is subject to certain conditions, including approval of the Merger Agreement by our shareholders, receipt of certain regulatory approvals and the conclusion of the Marketing Period (as defined below under “The Merger Agreement — Effective Time; Marketing Period”), the exact timing of the completion of the Merger and the likelihood thereof cannot be predicted. If any of the conditions in the Merger Agreement, which are described under “The Merger Agreement — Conditions to the Merger” beginning on page 80 of this proxy statement, are not satisfied or waived, the Merger will not be completed.
 
Q: Who will bear the cost of this solicitation?
 
A: The expenses of preparing, printing and mailing this proxy statement and the proxies solicited hereby will be borne by TXU Corp. Additional solicitation may be made by telephone, facsimile or other contact by certain directors, officers, employees or agents of TXU Corp., none of whom will receive additional compensation therefor. TXU Corp. will, upon request, reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable expenses for forwarding material to the beneficial owners of shares held of record by others.
 
Q: Will the proceeds I receive for my shares in the Merger be taxable to me?
 
A: Yes. Your receipt of cash in exchange for Common Stock pursuant to the Merger Agreement will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local or foreign income or other tax laws. You should read the section entitled “The Merger — Material U.S. Federal Income Tax Consequences of the Merger to U.S. Shareholders” beginning on page 66 for a more complete discussion of the federal income tax consequences of the Merger.
 
Q: Will a proxy solicitor be used?
 
A: Yes. TXU Corp. has engaged Georgeson Inc. to assist in the solicitation of proxies for the annual meeting and TXU Corp. estimates that it will pay Georgeson Inc. a fee of up to $30,000. TXU Corp. has also agreed to reimburse Georgeson Inc. for reasonable administrative and out-of-pocket expenses incurred in connection with the proxy solicitation and indemnify Georgeson Inc. against certain losses, costs and expenses. Parent, directly or through one or more affiliates or representatives, may, at its own cost, also make solicitations of proxies by mail, telephone, facsimile or other contact in connection with the Merger. Parent has retained Innisfree M&A Incorporated to provide advisory services and to assist it in any solicitation efforts it may decide to make in connection with the Merger.
 
Q: Should I send in my stock certificates now?
 
A: No. Shortly after the Merger is completed, you will receive a letter of transmittal with instructions informing you how to send in your stock certificates to the paying agent in order to receive the applicable Per Share Merger Consideration. You should use the letter of transmittal to exchange stock certificates for the applicable portion of the Merger Consideration to which you are entitled as a result of the Merger. PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY.
 
Q: How does the Board of Directors recommend that I vote on matters other than the Merger and any proposal by TXU Corp. to adjourn or postpone the annual meeting?
 
A: The Board of Directors unanimously recommends that our shareholders vote “FOR” each of the nominees in the election of directors, “FOR” the selection of Deloitte & Touche LLP as our independent auditor for the year ending December 31, 2007, and “AGAINST” each of the two shareholder proposals, if presented at the annual meeting.


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Q: What vote of our shareholders is required for the matters to be considered at the annual meeting other than the Merger?
 
A: Subject to the resignation policy in TXU Corp.’s Corporate Governance Guidelines, in uncontested elections, directors are elected by a plurality of the votes cast at the annual meeting. This means that the director nominees with the most votes are elected. For a more complete description of our resignation policy, please see “Director Resignations” on page 91. In addition, you may exercise cumulative voting rights in the election of directors if you give written notice of your intention to do so to the Secretary of TXU Corp. at 1601 Bryan Street, Dallas, Texas 75201-3411 on or before the day before the annual meeting. If you exercise this right, you will be entitled to one vote for each share you hold multiplied by the number of directors to be elected, and you may cast all of your votes for a single nominee or spread your votes among the nominees in any manner you desire.
 
Approval of all other proposals requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock present in person or represented by proxy and entitled to vote at the annual meeting, assuming a quorum is present (other than the approval of the Merger Agreement which is described elsewhere). Abstentions and broker non-votes will have the same effect as negative votes on the proposal to approve the Merger Agreement, any proposal by TXU Corp. to adjourn or postpone the annual meeting if determined to be necessary, and the proposal relating to the selection of auditors. Broker non-votes will not be counted in determining the outcome of the shareholder proposals, but abstentions will have the same effect as votes against the shareholder proposals. Broker non-votes are shares held by brokers, banks and other nominees that are present at the meeting but not voted on matters for which the nominee does not have the discretion to vote the shares and the beneficial holder of the shares does not timely deliver voting instructions to the nominee. Under the New York Stock Exchange Rules, the proposals to elect directors, to postpone or adjourn the annual meeting if determined to be necessary, and to ratify the selection of independent auditors are considered “discretionary” items. This means that brokerage firms may vote in their discretion on these matters on behalf of clients who have not furnished voting instructions at least 15 days before the date of annual meeting. For a more complete description of the treatment of abstentions and broker non-votes, please see “The Annual Meeting — Quorum, Abstentions, Withholds and Broker Non-Votes” on page 14.
 
Q: Where and when is the annual meeting?
 
A: The annual meeting will be held at 9:30 a.m., local time, on Friday, September 7, 2007, in the Dallas Ballroom of the International Conference and Exposition Center located in the Adam’s Mark Hotel at 400 North Olive Street, Dallas, Texas 75201.
 
Q: Who is eligible to vote and attend the annual meeting?
 
A: All shareholders who are the record owner of shares of Common Stock at the close of business on July 19, 2007 (the “record date”) will be entitled to receive notice of the annual meeting, to attend the annual meeting and to vote the shares of Common Stock that they hold on the record date at the annual meeting (including if the annual meeting is postponed to a day on or before September 17, 2007), or any adjournments of the annual meeting.
 
Q: Which of my shares of Common Stock may I vote?
 
A: All shares of Common Stock owned by you as of the close of business on the record date may be voted by you. These shares include shares that are: (i) held directly in your name as the shareholder of record, and (ii) held for you as the beneficial owner through a broker, bank or other nominee. Except as described above with respect to the exercise of cumulative voting rights in the election of directors, each of your shares of Common Stock is entitled to one vote at the annual meeting.


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Q: What is the difference between holding shares of Common Stock as a shareholder of record and as a beneficial owner?
 
A: Most of our shareholders hold their shares of Common Stock through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are some differences between shares of Common Stock held of record and those owned beneficially.
 
Shareholder of Record:  If your shares of Common Stock are registered directly in your name with TXU Corp.’s transfer agent, American Stock Transfer & Trust Company, you are considered, with respect to those shares, the shareholder of record, and these proxy materials are being sent directly to you by TXU Corp. As the shareholder of record, you have the right to grant your voting proxy directly to TXU Corp. or to vote in person at the annual meeting. We have enclosed a proxy card for you to use.
 
Beneficial Owner:  If your shares of Common Stock are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in “street name”, and these proxy materials are being forwarded to you by your broker, bank or other nominee who is considered, with respect to those shares, the shareholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares and are also invited to attend the annual meeting (provided you bring an account statement or letter from the holder of record indicating that you beneficially owned the shares on the record date). However, since you are not the shareholder of record, you may not vote these shares of Common Stock in person at the annual meeting unless you obtain a signed proxy from the record holder giving you the right to vote the shares. Your broker, bank or other nominee has enclosed a voting instruction card for you to use in directing the broker, bank or other nominee regarding how to vote your shares of Common Stock. Regarding the vote on the Merger Agreement, your broker, bank or other nominee generally cannot vote your shares without your direction.
 
Q: How can I vote my shares of Common Stock in person at the annual meeting?
 
A: Shares of Common Stock held directly in your name as the shareholder of record on the record date may be voted by you in person at the annual meeting. If you choose to do so, please bring the enclosed proxy card and proof of identification. Even if you plan to attend the annual meeting, we recommend that you also submit your proxy as described below so that your vote will be counted if you later decide not to attend the annual meeting. You may request that your previously submitted proxy card not be used if you desire to vote in person when you attend the annual meeting.
 
Shares of Common Stock held in “street name” may be voted in person by you at the annual meeting only if you obtain a signed proxy from the record holder (your broker, bank or other nominee) giving you the right to vote the shares. Your vote is important. Accordingly, we urge you to complete, sign, date and return the accompanying proxy card or voting instruction card accompanying this proxy statement whether or not you plan to attend the annual meeting.
 
Q: What steps should I take if I want to attend the annual meeting?
 
A: If you plan to attend the annual meeting, please note that only shareholders entitled to vote at the meeting or their proxy holders and TXU Corp’s guests may attend the meeting. Space is limited; therefore, admission to the annual meeting will be on a first-come, first-served basis. Each shareholder or proxyholder and each guest will be asked to present valid picture identification, such as a driver’s license or passport. If your shares are held through a broker, bank or other nominee, you must bring to the meeting an account statement or letter from the holder of record indicating that you beneficially owned the shares on the record date. Cameras (including cellular telephones with photographic capabilities), recording devices and other electronic devices will not be permitted at the annual meeting.
 
Q: How can I vote my shares of Common Stock without attending the annual meeting?
 
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instructions accompanying this proxy statement, properly signed, the shares represented will be voted in accordance with your directions.
 
Q: How do I revoke or change my vote?
 
A: You can change your vote at any time before your proxy is voted at the annual meeting. If you are the shareholder of record, you may revoke your proxy by providing written notice to the Secretary of TXU Corp. at 1601 Bryan Street, Dallas, Texas 75201-3411, by telephone by calling the toll free number 1-888-693-8683, or by accessing the Internet website www.cesvote.com. In addition, your proxy may be revoked by attending the annual meeting and voting in person. However, simply attending the annual meeting will not revoke your proxy. If you have instructed a broker, bank or other nominee to vote your shares of Common Stock, the above-described options for changing your vote do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to change your vote.
 
Q: Is my vote confidential?
 
A: Yes. TXU Corp. has adopted a confidential voting policy. Accordingly, your vote and all others cast at the annual meeting or by proxy will be tabulated by an independent agent and generally kept private and not disclosed to TXU Corp.
 
Q: Who will count the votes?
 
A: Corporate Election Services will tabulate the votes and act as inspector of election.
 
Q: What does it mean if I get more than one proxy card or voting instruction card?
 
A: If your shares of Common Stock are registered differently and are in more than one account, you will receive more than one card. Please complete, sign, date and return all of the proxy cards and voting instruction cards you receive (or submit your proxy by telephone or the Internet as indicated on the proxy card or voting instruction card) to ensure that all of your shares of Common Stock are voted.
 
Q: What if I return my proxy card without specifying my voting choices?
 
A: If you are a shareholder of record and your proxy card is signed and returned without specifying choices, the shares of Common Stock will be voted in favor of the approval of the Merger Agreement in accordance with the recommendation of the Board of Directors and in accordance with all other recommended votes of the Board of Directors.
 
Q: If my shares of Common Stock are held in “street name” by my broker, bank or other nominee, will my broker, bank or other nominee vote my shares for me?
 
A: For the proposal regarding the approval of the Merger Agreement and the two shareholder proposals, your broker, bank or other nominee will not vote your shares of Common Stock on your behalf unless you provide instructions to your broker, bank or other nominee on how to vote. You should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares in favor of the Merger. Without those instructions, your shares will not be voted in favor of the Merger, which will have the same effect as voting “AGAINST” the Merger. For all proposals other than the Merger and shareholder proposals, the broker may vote your shares at its discretion if you do not provide voting instructions.
 
Q: What constitutes a quorum?
 
A: The presence, in person or by proxy, of shareholders holding a majority of the outstanding shares of Common Stock is necessary to constitute a quorum at the annual meeting. Abstentions and broker non-votes (described below) are counted for quorum purposes, but since they are not votes cast “FOR” a particular matter, they will have the same effect as negative votes or a vote “AGAINST” the approval of the Merger Agreement.


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Q: What happens if I sell my shares of Common Stock before the annual meeting?
 
A: The record date of the annual meeting is earlier than the annual meeting date and the date that the Merger is expected to be completed. If you transfer your shares of Common Stock after the record date but before the annual meeting, you will retain your right to vote at the annual meeting, but will have transferred the right to receive the Per Share Merger Consideration. In order to receive the Per Share Merger Consideration, you must hold your shares through completion of the Merger. If you have sold your shares of Common Stock after the record date, we still encourage you to vote your shares as recommended by the Board of Directors.
 
Q: What else do I need to do now?
 
A: We urge you to read this proxy statement carefully, including its annexes and the information incorporated by reference, and to consider how the Merger affects you. If you are a shareholder as of the record date, then you can ensure that your shares are voted at the annual meeting by completing, signing, dating and returning the proxy card in the postage-paid envelope provided or by submitting your proxy by telephone or the Internet as indicated on the proxy card prior to the annual meeting.
 
Q: Who can help answer my other questions?
 
A: If you have more questions about the Merger or the other matters to be considered at the annual meeting, need assistance in submitting your proxy or voting your shares, or need additional copies of the proxy statement or the enclosed proxy card, you should contact our proxy solicitor, Georgeson Inc., toll-free at: (888) 605-7523. Brokers, banks and other nominees may call collect at (212) 440-9800. If a broker, bank or other nominee holds your shares of Common Stock, you should call your broker, bank or other nominee for additional information.


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SUMMARY
 
This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To understand the Merger fully and for a more complete description of the legal terms of the Merger and the other matters being considered at the annual meeting, you should carefully read this entire proxy statement and the documents to which we have referred you. In particular, you should read the annexes attached to this proxy statement, including the Agreement and Plan of Merger, dated as of February 25, 2007, among TXU Corp., Texas Energy Future Holdings Limited Partnership and Texas Energy Future Merger Sub Corp, which is attached as Annex A to this proxy statement. We have included page references in parentheses to direct you to a more complete description of the topics presented in this summary. See the section entitled “Where You Can Find More Information” on page 150.
 
The Annual Meeting (Page 13)
 
Time, Date and Place. An annual meeting of our shareholders will be held at 9:30 am, local time, on Friday, September 7, 2007, in the Dallas Ballroom of the International Conference and Exposition Center located in the Adam’s Mark Hotel at 400 North Olive Street, Dallas, Texas 75201.
 
Purpose of the Annual Meeting. The purpose of the annual meeting is to consider and vote upon the following: (i) a proposal to approve the Merger Agreement; (ii) any proposal by TXU Corp. to adjourn or postpone the annual meeting, if determined to be necessary; (iii) the election of directors; (iv) the selection of Deloitte & Touche LLP as independent auditor for TXU Corp. for the year ending December 31, 2007; (v) two shareholder proposals, if presented at the annual meeting; and (vi) any other business properly brought before the annual meeting or any adjournment thereof.
 
Record Date and Voting Power. You are entitled to vote at the annual meeting if you owned shares of Common Stock at the close of business on July 19, 2007, the record date set by the Board of Directors for the annual meeting. Except as indicated below with respect to the exercise of cumulative voting rights in the election of directors, you will have one vote at the annual meeting for each share of Common Stock you owned at the close of business on the record date. As of the record date, there were 461,152,009 shares of Common Stock outstanding and entitled to be voted at the annual meeting.
 
Required Vote. The approval of the Merger Agreement requires the affirmative vote of shareholders holding two-thirds or more of the shares of Common Stock outstanding at the close of business on the record date. Subject to the resignation policy in TXU Corp.’s Corporate Governance Guidelines, in uncontested elections, directors are elected by a plurality of the votes cast at the annual meeting. For a more complete description of our resignation policy, please see “Director Resignations” on page 91. You may also exercise cumulative voting rights in the election of directors by giving written notice to TXU Corp. The proposal to adjourn or postpone the annual meeting requires the affirmative vote of shareholders holding a majority of the shares of Common Stock present in person or represented by proxy at the annual meeting and entitled to vote on the matter (whether or not a quorum is present). Approval of all other proposals requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock present in person or represented by proxy and entitled to vote at the annual meeting, assuming a quorum is present.
 
Voting at the Annual Meeting. If you are a shareholder of record, you may vote in person by ballot at the annual meeting or by submitting a proxy. We recommend you submit your proxy even if you plan to attend the annual meeting. If you attend the annual meeting, you may vote by ballot, thereby canceling any proxy previously submitted.
 
How to Vote by Proxy. If you are a shareholder of record and choose to submit your proxy by mail, please complete each proxy card you receive, date and sign it, and return it in the prepaid envelope which accompanied that proxy card. If you are a shareholder of record, you can submit your proxy by telephone by calling the toll-free telephone number on your proxy card (1-888-693-8683) or through the Internet by accessing the website identified on your proxy card (www.cesvote.com). If you hold your shares indirectly through a broker, bank or other nominee,


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as a “street-name shareholder,” you will receive instructions from your broker, bank or other nominee describing how to vote your shares.
 
Proxies Without Instruction. If you are a shareholder of record and submit your proxy but do not make specific choices, your proxy will be voted in accordance with the Board of Directors’ recommendations.
 
Revocation of Proxies. You may revoke your proxy at any time prior to the time your shares are voted. If you are a shareholder of record, your proxy can be revoked in several ways:
 
  •  by entering a new vote by telephone or through the Internet;
 
  •  by delivering a written revocation to our corporate secretary that is received prior to the annual meeting;
 
  •  by submitting another valid proxy bearing a later date that is received prior to the annual meeting; or
 
  •  by attending the annual meeting and voting your shares in person.
 
If your shares are held in “street name” through a broker, bank or other nominee, you must check with your broker, bank or other nominee to determine how to revoke your proxy.
 
Share Ownership of Directors and Executive Officers. As of the record date, our directors and executive officers and their affiliates owned less than 1% of the shares of Common Stock entitled to vote at the annual meeting. Our directors and executive officers have indicated their intention to vote their shares of Common Stock in favor of the proposal to approve the Merger Agreement and as recommended by the Board of Directors on all other matters, although none of them has entered into any agreement obligating them to do so.
 
See the section entitled “The Annual Meeting” beginning on page 13.
 
The Parties to the Merger (Page 12)
 
TXU Corp. TXU Corp. is a Dallas-based energy company that manages a portfolio of competitive and regulated energy businesses in Texas. TXU Corp. is a holding company conducting its operations principally through its subsidiaries, Texas Competitive Electric Holdings Company LLC (which was formerly named TXU Energy Company LLC, and which we refer to as “Competitive Holdings”), Oncor Electric Delivery Company (which was formerly named TXU Electric Delivery Company, and which we refer to as “Oncor”) and their respective subsidiaries. Competitive Holdings is a holding company whose subsidiaries are engaged in competitive market activities consisting of electricity generation, retail electricity sales to residential and business customers, wholesale energy sales and purchases as well as commodity risk management and trading activities, all largely in Texas. On July 12, 2007, TXU Corp.’s generation and related businesses, which include mining, wholesale marketing and trading, construction and development operations, adopted the new Luminant brand. TXU Corp.’s retail business, which we refer to as TXU Energy, provides electricity and related services to more than 2.1 million competitive electricity customers in Texas. TXU Corp.’s generation business, which we refer to as Luminant Power, has over 18,300 MW of generation in Texas, including 2,300 MW of nuclear generation capacity and 5,800 MW of coal-fueled generation capacity. TXU Corp.’s wholesale business, which we refer to as Luminant Energy, optimizes the purchases and sales of energy for TXU Energy and Luminant Power and provides related services to other market participants. Luminant Energy is the largest purchaser of wind-generated electricity in Texas and the fifth largest in the United States. TXU Energy, Luminant Power and Luminant Energy conduct their operations through a number of separate legal entities that, in accordance with regulatory requirements, operate independently within the competitive Texas power market. Luminant Development includes subsidiaries engaged in the development of new coal-fueled generation facilities in Texas and activities relating to development of renewable energy generation projects and clean power generation technologies; these development activities are expected to be continued by subsidiaries of Competitive Holdings. Luminant Energy, Luminant Power and Luminant Development are sometimes referred to collectively in this proxy statement as “Luminant.” TXU Corp.’s regulated business, Oncor, is an electric distribution and transmission business that uses superior asset management skills to provide reliable electricity delivery to consumers. Oncor operates the largest distribution and transmission system in Texas, providing power to three million electric delivery points over more than 101,000 miles of


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distribution and 14,300 miles of transmission lines. While Oncor is a wholly-owned subsidiary of TXU Corp., Oncor is a separate legal entity from TXU Corp. and all of its other affiliates, with its own assets and liabilities.
 
Parent. Texas Energy Future Holdings Limited Partnership (“Parent”) is a Delaware limited partnership that was formed solely for the purpose of acquiring TXU Corp. Parent is owned by an investor group led by affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”) and Texas Pacific Group (“TPG”). Parent has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement.
 
Merger Sub. Texas Energy Future Merger Sub Corp (“Merger Sub”) is a Texas corporation that was formed solely for the purpose of completing the proposed Merger. Upon the completion of the proposed Merger, Merger Sub will merge with and into TXU Corp. and will cease to exist. TXU Corp. will continue as the surviving corporation and will become a subsidiary of Parent. Merger Sub is wholly owned by Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement.
 
The Merger (Page 18)
 
In the Merger, Parent will acquire TXU Corp. through a merger of Merger Sub, Parent’s wholly-owned subsidiary, with and into TXU Corp. under the terms of the Agreement and Plan of Merger, dated as of February 25, 2007, as it may be amended from time to time, and including the plan of merger it contains (“Merger Agreement”), among TXU Corp., Parent and Merger Sub. The Merger Agreement is described in this proxy statement and attached as Annex A. We encourage you to read the Merger Agreement carefully and in its entirety. It is the principal document governing the Merger.
 
After the Merger is completed, your shares of Common Stock will be converted into the right to receive $69.25 in cash (the “Per Share Merger Consideration”) without interest and less any applicable withholding tax, unless you vote against the approval of the Merger Agreement and properly perfect your rights of dissent and appraisal under Texas law. In either case, at the time of the Merger, you will no longer have any rights as a shareholder of TXU Corp. As a former shareholder of TXU Corp., you will be entitled to receive the Per Share Merger Consideration, without interest and less any applicable withholding tax, after exchanging your shares of Common Stock, including stock certificates, if applicable, in accordance with the instructions contained in the letter of transmittal to be sent to you shortly after completion of the Merger or, if applicable, the consideration determined by your appraisal process.
 
The Strategic Transactions Committee
 
The Strategic Transactions Committee was formed as a committee of the Board of Directors to facilitate the efficient and effective review of the KKR/TPG proposal and TXU Corp.’s other strategic alternatives. As requested by the Board of Directors, the Strategic Transactions Committee evaluated and directed the negotiation of the terms of the KKR/TPG proposal and also evaluated the other strategic options potentially available to TXU Corp. The Strategic Transactions Committee also assisted the Board of Directors in considering the effect of changes since the February 25, 2007 signing of the Merger Agreement on the advisability of including in this proxy statement the Board of Directors’ recommendation that shareholders vote “FOR” the approval of the Merger Agreement. The Strategic Transactions Committee is comprised of the following four independent directors: Michael W. Ranger (chair), Leldon E. Echols, Jack E. Little and Glenn F. Tilton.
 
Reasons and Recommendation of the Board of Directors (Page 22)
 
After careful consideration, in both February and July of 2007, of the factors described in the section entitled “The Merger — Reasons and Recommendation of the Board of Directors” and following receipt of the unanimous recommendation of the Strategic Transactions Committee of the Board of Directors, the Board of Directors unanimously determined that it is in the best interests of TXU Corp.’s shareholders that TXU Corp. complete the Merger on the terms and conditions set forth in the Merger Agreement; and unanimously recommends that our shareholders vote “FOR” the approval of the Merger Agreement and “FOR” any proposal by TXU Corp. to adjourn or postpone the annual meeting, if determined to be necessary.


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In considering the recommendation of the Board of Directors with respect to the Merger Agreement, you should be aware that some of our directors and executive officers who participated in meetings of the Board of Directors have interests in the Merger that are different from, or in addition to, yours. See the section entitled “The Merger — Interests of our Directors and Executive Officers in the Merger” beginning on page 51. For factors considered by the Board of Directors in reaching its decision to approve the Merger Agreement, see the section entitled “The Merger — Reasons and Recommendation of the Board of Directors” beginning on page 22. This discussion includes both the factors considered in connection with the decision on February 25, 2007 to enter into the Merger Agreement and recommend its approval by shareholders, and the factors considered in July 2007 in connection with the decision to include that recommendation in this proxy statement. For information regarding the Board of Directors’ recommendation on the other matters to be considered at the annual meeting, see the section entitled “Other Matters to be Considered at the Annual Meeting” beginning on page 9.
 
Opinions of TXU Corp.’s Financial Advisors (Pages 26-47)
 
Opinion of TXU Corp.’s Financial Advisor. In connection with the Merger, TXU Corp.’s financial advisor, Credit Suisse Securities (USA) LLC (“Credit Suisse”), delivered a written opinion, dated February 25, 2007, to the Board of Directors and its Strategic Transactions Committee as to the fairness, from a financial point of view and as of the date of such opinion, of the Per Share Merger Consideration to be received by the holders of Common Stock. The full text of Credit Suisse’s written opinion is attached to this proxy statement as Annex B and is incorporated into this proxy statement by reference. The Strategic Transactions Committee was provided Credit Suisse’s opinion on the basis of it being an administrative committee of the Board of Directors that was not established as a special independent committee for purposes of evaluating a possible conflicted or similar transaction.
 
Initial Opinion of the Strategic Transactions Committee’s and the Board of Directors’ Financial Advisor. In connection with the Merger, Lazard Frères & Co. LLC (“Lazard”), financial advisor to the Strategic Transactions Committee of the Board of Directors and the Board of Directors, delivered an opinion to the Strategic Transactions Committee and the Board of Directors, dated February 25, 2007, to the effect that, as of that date and based upon and subject to certain assumptions, procedures, factors, limitations and qualifications set forth therein, the Per Share Merger Consideration to be paid to holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares, which are described below) pursuant to the Merger was fair, from a financial point of view, to such holders. The full text of Lazard’s written opinion is attached to this proxy statement as Annex C and is incorporated into this proxy statement by reference. The opinion of Lazard dated February 25, 2007 is referred to from time to time in this proxy statement as Lazard’s opinion or Lazard’s initial opinion.
 
Updated Opinion of the Strategic Transactions Committee’s and the Board of Directors’ Financial Advisor. In connection with the Merger, Lazard delivered an updated opinion to the Strategic Transactions Committee and the Board of Directors, dated July 12, 2007, to the effect that, as of that date and based upon and subject to certain assumptions, procedures, factors, limitations and qualifications set forth therein, the Per Share Merger Consideration to be paid to holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares, which are described below) pursuant to the Merger was fair, from a financial point of view, to such holders. The full text of Lazard’s written updated opinion is attached to this proxy statement as Annex D and is incorporated into this proxy statement by reference. The opinion of Lazard dated July 12, 2007 is referred to from time to time in this proxy statement as Lazard’s updated opinion.
 
We encourage you to read each opinion described above carefully in its entirety for a description of the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in connection with such opinion. Each opinion described above was provided to the Board of Directors and its Strategic Transactions Committee in connection with their evaluation of the Per Share Merger Consideration from a financial point of view and does not address any other aspect of the proposed Merger. In addition, none of the opinions described above constitutes a recommendation to any shareholder as to how such shareholder should vote or act with respect to the Merger or any other matter relating thereto.


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See the section entitled “The Merger — Opinion of Credit Suisse Securities (USA) LLC” beginning on page 26 and the section entitled “The Merger — Opinions of Lazard Frères & Co. LLC” beginning on page 31.
 
Interests of our Directors and Executive Officers in the Merger (Page 51)
 
When considering the recommendation by the Board of Directors, you should be aware that a number of our executive officers and directors have interests in the Merger that are different from, or in addition to, yours, including, among others:
 
  •  some of our executive officers will receive acceleration of the vesting and payment of their performance units in connection with the Merger;
 
  •  some of our executive officers will be entitled to receive potential severance payments in connection with a termination of employment that may occur in connection with the Merger (and, in some cases, a tax gross-up relating to parachute payment excise taxes resulting from such severance payments);
 
  •  our outside directors will receive payment in respect of share units previously earned and deferred under the TXU Deferred Compensation Plan for Outside Directors; and
 
  •  indemnification arrangements and insurance coverage for our current and former directors and executive officers will be continued if the Merger is completed.
 
In addition, equity awards under many of our benefit plans will accelerate at the completion of the Merger, including awards granted to our executive officers. See the section entitled “The Merger — Interests of our Directors and Executive Officers in the Merger” beginning on page 51.
 
Market Price and Dividend Data (Page 60)
 
Our Common Stock is listed on the New York Stock Exchange (“NYSE”) and the Chicago Stock Exchange under the symbol “TXU”. On February 22, 2007, the last full trading day prior to reports from U.S. publications that we were in discussions concerning a possible merger transaction, the closing per share sales price of our Common Stock, as reported on the NYSE, was $57.64. On February 23, 2007, the last full trading day prior to the public announcement of the proposed Merger, our Common Stock closed at a price of $60.02. On July 23, 2007, the last full trading day prior to the date of this proxy statement, our Common Stock closed at a price of $67.25. See the section entitled “The Merger — Market Price and Dividend Data” beginning on page 60.
 
Delisting and Deregistration of Common Stock (Page 68)
 
If the Merger is completed, our Common Stock will no longer be traded on the NYSE or the Chicago Stock Exchange and will be deregistered under the Securities Exchange Act of 1934, as amended.
 
The Merger Agreement (Page 68)
 
Conditions to the Merger.
 
The obligations of TXU Corp., Parent and Merger Sub to effect the Merger are subject to the satisfaction or waiver of a number of conditions, including the following:
 
  •  the Merger Agreement must have been approved by TXU Corp.’s shareholders holding two-thirds or more of the outstanding shares of Common Stock;
 
  •  the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), must have expired or been terminated;
 
  •  the approval by the Nuclear Regulatory Commission (“NRC”) of the indirect transfer of our Comanche Peak plant’s nuclear operating licenses and, to the extent necessary, any conforming amendments to such


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  licenses to reflect that indirect transfer and the approval by the Federal Energy Regulatory Commission (“FERC”) of the Merger under Section 203 of the Federal Power Act must have been obtained;
 
  •  no injunction, judgment, order or law that prohibits, restrains or renders illegal the completion of the Merger shall be in effect;
 
  •  TXU Corp.’s, Parent’s and Merger Sub’s respective representations and warranties in the Merger Agreement must be true and correct as of the closing date in the manner described under “The Merger Agreement — Conditions to the Merger” beginning on page 80;
 
  •  each of TXU Corp., Parent and Merger Sub must have performed in all material respects all obligations that it is required to perform under the Merger Agreement; and
 
  •  with respect to TXU Corp.’s obligation to effect the Merger only, Parent must have delivered to TXU Corp. a solvency certificate.
 
Solicitations of Alternative Proposals.
 
The Merger Agreement provides that, until 12:01 a.m., Eastern Standard Time, on April 16, 2007, we were permitted to initiate, solicit and encourage acquisition proposals for TXU Corp. (including by way of providing information), and to enter into and maintain discussions or negotiations with respect to acquisition proposals for TXU Corp. or otherwise cooperate with or assist or participate in or facilitate any inquiries, proposals, discussions or negotiations with respect to any such acquisition proposal. Prior to terminating the Merger Agreement or entering into an acquisition agreement with respect to any such acquisition proposal, TXU Corp. was required to comply with certain terms of the Merger Agreement applicable to changes by the Board of Directors of its recommendation with respect to the Merger, including, if required, paying a termination fee. During the period prior to April 16, 2007, Lazard conducted a “go-shop” process on behalf of TXU Corp. The Board of Directors determined that no proposal was received during the “go shop” period that could reasonably be expected to result in a proposal more favorable to TXU Corp.’s shareholders from a financial point of view than the Merger.
 
The Merger Agreement provides that from and after April 16, 2007, we are generally not permitted to initiate, solicit or knowingly encourage (including by way of providing information) the submission of any inquiries, proposals or offers that constitute or may reasonably be expected to lead to, an acquisition proposal for TXU Corp. or engage in any discussions or negotiations or provide information (other than with a person who submitted a proposal prior to April 16, 2007 under certain circumstances) with respect thereto, or otherwise knowingly facilitate any effort or attempt by any person to make an acquisition proposal.
 
Notwithstanding these restrictions, under certain circumstances, we may, before the Merger Agreement is approved by our shareholders, respond to an unsolicited bona fide written proposal for an alternative acquisition or terminate the Merger Agreement and enter into an acquisition agreement with respect to a superior proposal, so long as we comply with certain terms of the Merger Agreement applicable to the circumstances in which the Board of Directors may change its recommendation with respect to the Merger Agreement, including negotiating with Parent and Merger Sub in good faith to make adjustments to the Merger Agreement prior to termination and, if required, paying a termination fee.
 
Termination of the Merger Agreement.
 
The Merger Agreement may be terminated:
 
  •  by mutual written consent of TXU Corp. and Parent;
 
  •  by either Parent or TXU Corp., if:
 
  •  the Merger is not completed on or before March 15, 2008, or, under certain circumstances where the conditions to the completion of the Merger have not yet been satisfied but remain capable of being satisfied, and either Parent or TXU Corp. provides a notice extending such date, on or before June 15,


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  2008, or (if the “Marketing Period” (as defined below under “The Merger Agreement — Effective Time; Marketing Period”) has not ended on or before such date), on or before July 10, 2008, so long as the failure to complete the Merger is not the result of, or caused by, the failure of the terminating party to comply with the terms of the Merger Agreement;
 
  •  our shareholders do not approve the Merger Agreement at the annual meeting or any adjournment or postponement thereof; or
 
  •  an injunction, judgment, order or law that prohibits, restrains or renders illegal the completion of the Merger has become final and non-appealable;
 
  •  by TXU Corp., if:
 
  •  prior to obtaining the vote of shareholders at the annual meeting, TXU Corp. receives a superior proposal and concurrently with the termination of the Merger Agreement enters into a definitive agreement with respect to such superior proposal, provided that TXU Corp. has complied with its obligations under the Merger Agreement described under “The Merger Agreement — Acquisition Proposals” beginning on page 76, and provided that TXU Corp. has paid the termination fee owed to Parent as described under “The Merger Agreement — Termination Fees” beginning on page 82;
 
  •  Parent or Merger Sub has materially breached or failed to perform any of its representations, warranties, covenants or agreements under the Merger Agreement which would give rise to the failure of certain conditions to closing to be satisfied if that breach or failure to perform cannot be cured by the termination date of the Merger Agreement (as described above), if we are not in a material breach of the Merger Agreement that would cause certain of the closing conditions not to be satisfied;
 
  •  conditions to Parent’s obligation to complete the Merger have been satisfied or waived and Parent has not completed the Merger within two business days after the final day of the Marketing Period; or
 
  •  within 15 days after a new Texas statute is enacted, or regulatory action taken under such new statute, to require us or our subsidiaries to divest or submit to a capacity auction for baseload solid fuel generation capacity, as described under “The Merger Agreement — Filings; Other Actions; Notification” beginning on page 78, and Parent does not waive its right to take the consequences of such action into account in determining whether a Company Material Adverse Effect (as defined under “The Merger Agreement — Representations and Warranties”) has occurred; or
 
  •  by Parent, if:
 
  •  the Board of Directors or a committee of the Board of Directors withholds, withdraws, modifies or qualifies, or publicly proposes or resolves to withhold, withdraw, modify or qualify, in a manner adverse to Parent, its recommendation that our shareholders approve the Merger Agreement, or takes action or makes any public statement in connection with the annual meeting inconsistent with such recommendation, or approves or recommends, or resolves to approve or recommend, any acquisition proposal by a third party other than the Merger, or fails to include its recommendation of approval of the Merger Agreement in this proxy statement; or
 
  •  we have materially breached or failed to perform any of our representations, warranties, covenants or agreements under the Merger Agreement which would give rise to the failure of certain conditions to closing to be satisfied and where that breach or failure to perform cannot be cured by the termination date of the Merger Agreement (as described above), if Parent is not in a material breach of the Merger Agreement that would cause certain of the closing conditions not to be satisfied.
 
Termination Fees.
 
If the Merger Agreement is terminated under certain circumstances:
 
  •  TXU Corp. may be obligated to pay a termination fee of $925 million (or in certain circumstances $1 billion) as directed by Parent; and


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  •  Parent will be obligated to pay TXU Corp. a termination fee of $1 billion. Members of the investor group have agreed severally to guarantee the obligation of Parent to pay this termination fee, subject to individual caps, equal to $1 billion in the aggregate.
 
Financing (Page 84)
 
The Merger Agreement does not contain any condition relating to the receipt of financing by Parent. TXU Corp. and Parent estimate that the total amount of funds necessary to complete the Merger and related transactions, including the new financing arrangements, the assumption, the refinancing, repayment or redemption of certain of TXU Corp.’s and TXU Corp.’s subsidiaries’ outstanding indebtedness and the payment of customary fees and expenses in connection with the proposed Merger and financing arrangements, will be approximately $46.7 billion, which is expected to be funded by new credit facilities, private and/or public offerings of debt securities and equity financing as well as cash on hand at TXU Corp. and the assumption of certain existing indebtedness of TXU Corp. and its subsidiaries. Funding of the equity and debt financing is subject to the satisfaction of the conditions set forth in the commitment letters pursuant to which the financing will be provided. See the section entitled “Financing” beginning on page 84. Parent and Merger Sub have obtained equity and debt financing commitments summarized below in connection with the transactions contemplated by the Merger Agreement. Both the equity and debt financings are subject to conditions, including conditions that do not relate directly to the Merger Agreement. Although obtaining financing is not a condition to the completion of the Merger, the failure of Parent and Merger Sub to obtain sufficient financing is likely to result in the failure of the Merger to be completed.
 
Equity Financing. Parent has received equity commitment letters for an aggregate investment at closing of up to $8.0 billion. KKR 2006 Fund L.P. and TPG Partners V, L.P. (collectively, the “Sponsors”) have collectively agreed to cause up to $6.5 billion of cash to be contributed to Parent at closing. In addition, each of J.P. Morgan Ventures Corporation, Citigroup Global Markets Inc. and Morgan Stanley & Co. Incorporated (collectively, the “Bridge Investors”) has separately committed to contribute $500 million of cash in equity to Parent. Subject to certain conditions, the Sponsors and the Bridge Investors may assign all or a portion of their equity commitment obligations to other investors, provided that they remain obligated to perform to the extent not performed by the assignee. As of the date of this proxy statement, the Sponsors and the Bridge Investors have obtained approximately $1.8 billion in equity commitments from other existing investors in the Sponsors’ private equity funds, as further described under “Financing — Equity Financing” beginning on page 84 which commitments are expected to be used at closing to reduce the commitments of the Sponsors and Bridge Investors. In addition, GS Capital Partners VI Fund, L.P. and affiliated funds (“Goldman Sachs”) and affiliates of Lehman Brothers Holdings Inc. (“Lehman Brothers”), have committed to contribute directly or indirectly through other vehicles, up to $1.9 billion of equity collectively to Parent, which amounts are expected to be used to reduce at closing the equity investment by the Sponsors.
 
Debt Financing. Merger Sub has received an amended and restated debt commitment letter, dated as of July 20, 2007, from affiliates of Citigroup (“Citigroup” shall mean Citigroup Global Markets Inc. (“CGMI”), Citibank, N.A., Citicorp USA Inc., Citicorp North America, Inc. and/or any of their affiliates), Credit Suisse, Cayman Islands Branch and Credit Suisse Securities (USA) LLC, Goldman Sachs Credit Partners L.P., JPMorgan Chase Bank, N.A. and J.P. Morgan Securities Inc. (together, “JP Morgan Chase”), Lehman (“Lehman” shall mean Lehman Brothers Inc., Lehman Brothers Holdings Inc., Lehman Brothers Commercial Bank and Lehman Commercial Paper Inc.) and Morgan Stanley Senior Funding, Inc. (“Morgan Stanley”), that includes, among other things, commitments to provide (a) senior secured term loan facilities, a senior secured revolving credit facility, a senior secured synthetic letter of credit facility and a senior unsecured revolving credit facility in an aggregate principal amount of up to $26.1 billion (not all of which is expected to be drawn at closing or used to finance the completion of the Merger); and (b) senior unsecured bridge facilities in an aggregate principal amount of up to $11.25 billion.
 
Material U.S. Federal Income Tax Consequences of the Merger to U.S. Shareholders (Page 66)
 
The receipt of cash by U.S. Holders (as defined under the caption “The Merger — Material U.S. Federal Income Tax Consequences of the Merger to U.S. Holders” below) for shares of Common Stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction


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under applicable state, local or foreign income or other tax laws. U.S. Holders are urged to consult their tax advisors to determine the particular tax consequences to them (including the application and effect of any state, local or foreign income and other tax laws) of the Merger.
 
Regulatory Matters (Page 60)
 
The HSR Act prohibits us and Parent from completing the Merger until we and Parent have furnished required information and materials to the Antitrust Division of the Department of Justice (the “DOJ”) and the Federal Trade Commission (the “FTC”) and the required waiting period has ended or been earlier terminated. Parent and we filed the required notification and report forms on June 28, 2007. We received notification on July 16, 2007 that the waiting period under the HSR Act had been terminated. The Merger is also subject to approval by FERC, NRC and the Federal Communications Commission (the “FCC”). We or our subsidiaries have filed applications in connection with the approvals sought by each of the foregoing commissions, and we and Parent have agreed to cooperate with each other to facilitate the review of those applications. The FCC has approved our applications and the FERC and NRC applications are being reviewed. In addition, on April 25, 2007, Oncor and Parent filed a Joint Report and Application with the Public Utility Commission of Texas (the “PUCT”) pursuant to Section 14.101 of the Texas Public Utility Regulatory Act seeking a determination by the PUCT that the proposed transaction is consistent with the public interest. Completion of the PUCT’s review under Section 14.101 of the Texas Public Utility Regulatory Act is not a condition to the parties’ obligations to complete the Merger. See the section entitled “The Merger — Regulatory Matters” beginning on page 60.
 
Rights of Dissent and Appraisal (Page 63)
 
The Texas Business Organizations Code provides you with rights of dissent and appraisal in connection with the Merger. This means that if you are not satisfied with the amount you are receiving in the Merger, you are entitled to have the fair value of your shares of Common Stock determined by a Texas court and to receive payment based on that valuation. The ultimate amount you receive as a dissenting shareholder in an appraisal proceeding may be more or less than, or the same as, the amount you would have received in the Merger. To exercise your rights of dissent and appraisal, you must deliver a written objection to the Merger before the Merger Agreement is voted on at the annual meeting and you must vote against the approval of the Merger Agreement. Your failure to follow exactly the procedures specified under Texas law will result in the loss of your rights of dissent and appraisal.
 
Annex E to this proxy statement contains the full text of Subchapter H of Chapter 10 of the Texas Business Organizations Code, which relates to your rights of dissent and appraisal. We encourage you to read these provisions carefully and in their entirety.
 
Other Matters to be Considered at the Annual Meeting
 
At the annual meeting, we are also asking you to consider and vote on the following matters:
 
  •  the election of directors to the Board of Directors;
 
  •  the selection of Deloitte & Touche LLP as our independent auditor for the year ending December 31, 2007;
 
  •  the consideration of two shareholder proposals (if presented at the meeting) related to TXU Corp.’s adoption of quantitative goals for emissions at its existing and proposed plants and requesting a report on TXU Corp.’s political contributions and expenditures, respectively; and
 
  •  any other business properly brought before the annual meeting.
 
Approval by you of these other annual meeting matters is not a condition to completion of the Merger. The Board of Directors unanimously recommends that you vote “FOR” each of the nominees in the election of directors, “FOR” the selection of Deloitte & Touche LLP as our independent auditor for the year ending December 31, 2007 and “AGAINST” each of the two shareholder proposals, if presented at the annual meeting.


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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This proxy statement, and the documents to which we refer you in this proxy statement, contain “forward-looking” statements based on expectations, beliefs, plans, goals, strategies, future events or performance, estimates, assumptions and other statements that are other than statements of historical facts. Forward-looking statements include information concerning TXU Corp.’s future outlook, strategy, anticipated capital expenditures, future cash flow and borrowings, possible or assumed future results of operations of TXU Corp., the expected completion and timing of the Merger and other information relating to the Merger. There are “forward-looking” statements throughout this proxy statement, including, among others, under the headings “Questions and Answers About the Annual Meeting and the Merger”, “Summary”, “The Merger”, “Financing”, “Other Matters to be Considered at the Annual Meeting”, “Opinion of Credit Suisse Securities (USA) LLC”, “Opinions of Lazard Frères & Co. LLC”, “Regulatory Matters”, “Projected Financial Information” and “Merger-Related Litigation” and in statements containing the words “believes”, “estimates”, “expects”, “anticipates”, “intends”, “contemplates”, “may”, “will”, “could”, “should”, or “would” or other similar expressions.
 
You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of TXU Corp. These forward-looking statements speak only as of the date on which the statements were made, and we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements included in this proxy statement or elsewhere as a result of new information, future events or otherwise.
 
In addition to other factors and matters contained or incorporated in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:
 
  •  the financial performance of TXU Corp. through the date of the completion of the Merger;
 
  •  the failure by Parent and Merger Sub to obtain the necessary debt financing arrangements set forth in the debt commitment letter received by Merger Sub in connection with the Merger or replacement debt financing;
 
  •  the failure to satisfy any of the closing conditions set forth in the Merger Agreement, including the approval of TXU Corp.’s shareholders and regulatory approvals;
 
  •  the effect of legislative and regulatory initiatives, actions, reviews, approvals, restrictions or conditions relating to TXU Corp. or its subsidiaries and the industries in which TXU Corp. and its subsidiaries conduct their businesses;
 
  •  the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement, including a termination under circumstances that could require us to pay a termination fee of $925 million, or in certain circumstances $1 billion;
 
  •  the failure of the Merger to close for any reason;
 
  •  any significant delay in the expected completion of the Merger;
 
  •  the outcome of any legal proceedings instituted against TXU Corp. and others in connection with the proposed Merger;
 
  •  the effect of the announcement of the Merger on our customer relationships, regulatory relationships, operating results and business generally;
 
  •  diversion of management’s attention from ongoing business concerns;
 
  •  business uncertainty and contractual restrictions that may exist during the pendency of the Merger;
 
  •  regulatory review, approvals and restrictions;


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  •  the amount of the costs, fees, expenses and charges related to the Merger and the final terms of the financings that will be obtained for the Merger; and
 
  •  other risks related to our business that are described in our public filings (see the section entitled “Where You Can Find More Information” beginning on page 150).
 
These and other important factors are detailed in various Securities and Exchange Commission (the “SEC”) filings made periodically by us, particularly our latest report on Form 10-K and subsequent reports on Form 10-Q, copies of which are available from us without charge or online at www.txucorp.com. Please review such filings and do not place undue reliance on these forward-looking statements.
 
You should carefully consider the cautionary statements contained or referred to in this section in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We do not undertake any obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances that occur after the date of this proxy statement or to reflect the occurrence of unanticipated events.


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THE PARTIES TO THE MERGER
 
TXU Corp.
 
TXU Corp. is a Dallas-based energy company that manages a portfolio of competitive and regulated energy businesses in Texas. TXU Corp. is a holding company conducting its operations principally through its subsidiaries, Competitive Holdings, Oncor and their respective subsidiaries. Competitive Holdings is a holding company whose subsidiaries are engaged in competitive market activities consisting of electricity generation, retail electricity sales to residential and business customers, wholesale energy sales and purchases as well as commodity risk management and trading activities, all largely in Texas. On July 12, 2007, TXU Corp.’s generation and related businesses, which include mining, wholesale marketing and trading, construction and development operations, adopted the new Luminant brand. TXU Energy provides electricity and related services to more than 2.1 million competitive electricity customers in Texas. Luminant Power has over 18,300 MW of generation in Texas, including 2,300 MW of nuclear generation capacity and 5,800 MW of coal-fueled generation capacity. Luminant Energy optimizes the purchases and sales of energy for TXU Energy and Luminant Power and provides related services to other market participants. Luminant Energy is the largest purchaser of wind-generated electricity in Texas and the fifth largest in the United States. TXU Energy, Luminant Power and Luminant Energy conduct their operations through a number of separate legal entities that, in accordance with regulatory requirements, operate independently within the competitive Texas power market. Luminant Development includes subsidiaries engaged in the development of new coal-fueled generation facilities in Texas and activities relating to development of renewable energy generation projects and clean power generation technologies; these development activities are expected to be continued by subsidiaries of Competitive Holdings. Oncor, is an electric distribution and transmission business that uses superior asset management skills to provide reliable electricity delivery to consumers. Oncor operates the largest distribution and transmission system in Texas, providing power to three million electric delivery points over more than 101,000 miles of distribution and 14,300 miles of transmission lines. While Oncor is a wholly-owned subsidiary of TXU Corp., Oncor is a separate legal entity from TXU Corp. and all of its other affiliates, with its own assets and liabilities. TXU Corp.’s principal executive offices are currently located at Energy Plaza, 1601 Bryan Street, Dallas, Texas 75201-3411 and our telephone number is (214) 812-4600. For more information about TXU Corp., visit www.txucorp.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference. TXU Corp. is publicly traded on the NYSE and on the Chicago Stock Exchange under the symbol “TXU”.
 
Texas Energy Future Holdings Limited Partnership (Parent)
 
Parent is a Delaware limited partnership that was formed solely for the purpose of acquiring TXU Corp. Parent is owned by an investor group led by affiliates of KKR and TPG. Parent has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. The principal office addresses of Parent are c/o Kohlberg Kravis Roberts & Co. L.P., 9 West 57th Street, Suite 4200, New York, NY 10019 and c/o Texas Pacific Group, 301 Commerce Street, Suite 3300, Fort Worth, TX 76102. The telephone number at each of these principal offices is (212) 750-8300 and (817) 871-4000, respectively.
 
Texas Energy Future Merger Sub Corp (Merger Sub)
 
Merger Sub is a Texas corporation that was formed solely for the purpose of completing the proposed Merger. Upon the completion of the proposed Merger, Merger Sub will merge with and into TXU Corp. and will cease to exist. TXU Corp. will continue as the surviving corporation and will become a subsidiary of Parent. Merger Sub is wholly owned by Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the Merger Agreement. The principal office addresses of Merger Sub are c/o Kohlberg Kravis Roberts & Co. L.P., 9 West 57th Street, Suite 4200, New York, NY 10019 and c/o Texas Pacific Group, 301 Commerce Street, Suite 3300, Fort Worth, TX 76102. The telephone number at each of these principal offices is (212) 750-8300 and (817) 871-4000, respectively.


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THE ANNUAL MEETING
 
Date, Time and Place of the Annual Meeting
 
This proxy statement is being furnished to our shareholders as part of the solicitation of proxies by the Board of Directors for use at an annual meeting to be held at 9:30 a.m., local time, on Friday, September 7, 2007 in the Dallas Ballroom of the International Conference and Exposition Center located in the Adam’s Mark Hotel, 400 North Olive Street, Dallas, Texas 75201 or at any adjournment or postponement thereof.
 
Purpose of the Annual Meeting
 
The purpose of the annual meeting is to consider and vote upon the following:
 
  1.       A proposal to approve the Merger Agreement;
 
  2.       Any proposal by TXU Corp. to adjourn or postpone the annual meeting, if determined to be necessary;
 
  3.       Election of directors of TXU Corp.;
 
  4.       Selection of Deloitte & Touche LLP as independent auditor for TXU Corp. for the year ending December 31, 2007;
 
  5.       Two shareholder proposals, if presented at the annual meeting; and
 
  6.       Any other business properly brought before the annual meeting or any postponement or adjournment thereof.
 
If the shareholders fail to approve the Merger Agreement, the Merger will not occur. A copy of the Merger Agreement is attached to this proxy statement as Annex A.
 
Who Can Vote at the Annual Meeting
 
In accordance with TXU Corp.’s bylaws, the Board of Directors has set the close of business on July 19, 2007 as the record date. The holders of record of shares of Common Stock as of the record date are entitled to receive notice of and to vote at the annual meeting (including if the annual meeting is postponed to a day on or before September 17, 2007) or any adjournments of the annual meeting. If you own shares of Common Stock that are registered in someone else’s name (for example, a broker), you need to direct that person to vote those shares of Common Stock or obtain an authorization from them to vote the shares of Common Stock yourself at the annual meeting in person or by proxy. On July 19, 2007, there were 461,152,009 shares of Common Stock outstanding.
 
Shares Entitled to Vote
 
Shares entitled to vote at the annual meeting are shares of Common Stock held as of the close of business on the record date. Except as indicated below with respect to the exercise of cumulative voting rights in the election of directors, each shareholder is entitled to one vote at the annual meeting for each share of Common Stock held by that shareholder at the close of business on the record date.
 
Vote Required
 
The approval of the Merger Agreement, which is recommended by the Board of Directors, requires the affirmative vote of the holders of two-thirds or more of the outstanding shares of Common Stock entitled to vote thereon, with each share having a single vote for these purposes. The failure to vote, a broker non-vote or an abstention has the same effect as a vote “against” approval of the Merger Agreement. Subject to the resignation policy in TXU Corp.’s Corporate Governance Guidelines, in uncontested elections, directors of TXU Corp. are elected by a plurality of the votes cast at the annual meeting. For a more complete description of our


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resignation policy, please see “Director Resignations” on page 91. You may exercise cumulative voting rights in the election of directors if you give written notice of your intention to do so to the Secretary of TXU Corp. at 1601 Bryan Street, Dallas, Texas 75201-3411 on or before the day before the annual meeting. If you exercise this right, you will be entitled to one vote for each share you hold multiplied by the number of directors to be elected, and you may cast all of your votes for a single nominee or spread your votes among the nominees in any manner you desire. The proposal to adjourn or postpone the annual meeting requires the affirmative vote of shareholders holding a majority of the shares of Common Stock present or represented by proxy at the annual meeting and entitled to vote on the matter (whether or not a quorum is present). Approval of all other proposals requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock present in person or represented by proxy and entitled to vote at the annual meeting, assuming a quorum is present. Abstentions and broker non-votes will have the same effect as votes against the proposal to adjourn or postpone the annual meeting and the proposal regarding the selection of the independent auditor, and abstentions will have the same effect as votes against the shareholder proposals. For a complete description of abstentions and broker non-votes, please see “— Quorum, Abstentions, Withholds and Broker Non-Votes” below.
 
Quorum, Abstentions, Withholds and Broker Non-Votes
 
The holders of a majority of the outstanding shares of Common Stock entitled to be cast as of the record date, represented in person or by proxy, will constitute a quorum for purposes of the annual meeting. Abstentions and broker non-votes are counted as present for purposes of determining whether a quorum is present. A quorum is necessary to hold the annual meeting. Once a share of Common Stock is represented at the annual meeting, it will be counted for the purposes of determining a quorum at the annual meeting, and any postponement or adjournment of the annual meeting, and for transacting all business, unless the holder is present solely to object to the annual meeting. If a quorum is not present at the annual meeting, it is expected that the meeting will be adjourned or postponed. If a new record date is set for an adjourned or postponed meeting, then a new quorum will have to be established. See “— Adjournment and Postponements” beginning on page 17.
 
Under the rules of the NYSE, brokers holding shares of record for a customer have the discretionary authority to vote on some matters if the brokers do not receive timely instructions from the customer regarding how the customer wants the shares voted. There are also non-discretionary matters for which brokers do not have discretionary authority to vote even if they do not receive timely instructions from the customer. When a broker does not have the discretion to vote on a particular matter and the customer has not given timely instructions on how the broker should vote, a “broker non-vote” results. Although any broker non-vote would be counted as present at the annual meeting for purposes of determining a quorum, it would be treated as not entitled to vote with respect to non-discretionary matters. For the proposals regarding the election of directors, the selection of the independent auditor, and the adjournment or postponement of the annual meeting if determined to be necessary, brokers will have discretionary authority in the absence of timely instructions from their customers. Under NYSE rules, however, a broker may not vote a customer’s shares on the proposal regarding the approval of the Merger Agreement or the shareholder proposals absent instructions from the customer.
 
Because the required vote for the Merger Agreement is based upon the number of shares of our Common Stock outstanding rather than the number of votes cast at the annual meeting, failure to vote your shares (including as a result of broker non-votes) and abstentions will have the same effect as a vote “against” the approval of the Merger Agreement. However, because the required vote to approve the shareholder proposals is the affirmative vote of the holders of a majority of the shares of Common Stock present in person or represented by proxy at the annual meeting and entitled to vote on these proposals, and because broker non-votes are not considered “entitled to vote” on the shareholder proposals, a broker non-vote will have no effect in determining the outcome of the shareholder proposals. Abstentions will have the same effect as votes against the shareholder proposals.
 
SEC rules provide that specifically designated spaces are provided on the proxy card for shareholders to mark if they wish either to withhold authority to vote for one or more nominees for director or to abstain on one or more of the proposals. Withholds and broker non-votes (if submitted by brokers even though they have discretionary authority in the voting for directors) in connection with the election of one or more of the nominees for director will not have an effect on such election. With respect to the proposals relating to the selection of auditors and to the


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adjournment or postponement of the annual meeting, abstentions and broker non-votes (if submitted by brokers even though they have discretionary authority in such matters) will have the same effect as negative votes.
 
Shares Beneficially Owned by Our Directors and Executive Officers
 
Our directors and executive officers and their affiliates beneficially owned 2,656,619 shares of Common Stock on the record date for the annual meeting. These shares represent in total less than 1% of the total voting power of our voting securities outstanding and entitled to vote as of the record date. Our directors and executive officers have indicated their intention to vote their shares of Common Stock for the approval of the Merger Agreement and as recommended by the Board of Directors, although none of them has entered into any agreements obligating them to do so.
 
Voting at the Annual Meeting
 
If you are a shareholder of record, you may vote in person by ballot at the annual meeting or by submitting a proxy. We recommend you submit your proxy even if you plan to attend the annual meeting. If you attend the annual meeting, you may vote by ballot, thereby canceling any proxy previously submitted.
 
Voting instructions are included on your proxy card. If you properly give your proxy and submit it to us in time to vote, one of the individuals named as your proxy will vote your shares as you have directed. You may vote for or against the proposals, “withhold” votes with respect to director candidates, or abstain from voting.
 
Vote by Proxy
 
This proxy statement is being sent to you on behalf of the Board of Directors for the purpose of requesting that you allow your shares of Common Stock to be represented at the annual meeting by the persons named in the enclosed proxy card. All shares of Common Stock represented at the annual meeting by proxies voted by telephone, the Internet or by properly executed proxy cards will be voted in accordance with the instructions indicated on that proxy. If you sign and return a proxy card without giving voting instructions, your shares will be voted as recommended by the Board of Directors. After careful consideration in both February and July of 2007, and following receipt of the unanimous recommendation of the Strategic Transactions Committee comprised of independent directors of TXU Corp., the Board of Directors unanimously recommends a vote “FOR” approval of the Merger Agreement and “FOR” any proposal by TXU Corp. to adjourn or postpone the annual meeting, if determined to be necessary. In considering the recommendation of the Board of Directors with respect to the Merger Agreement, you should be aware that some of TXU Corp.’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of our shareholders generally. See “The Merger — Interests of our Directors and Executive Officers in the Merger” beginning on page 51. The Board of Directors also recommends a vote “FOR” the proposal to elect the directors named in the director election proposal and “FOR” the proposal to select Deloitte & Touche LLP as TXU Corp.’s independent auditor for the year 2007. The Board of Directors recommends a vote “AGAINST” each of the two shareholder proposals related to TXU Corp.’s adoption of quantitative goals for emissions at its existing and proposed plants and requesting a report on TXU Corp.’s political contributions and expenditures, respectively.
 
If your shares of Common Stock are held in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares of Common Stock voted or to change or revoke an earlier instruction. If you do not instruct your broker, bank or other nominee to vote your shares of Common Stock, a broker non-vote will occur with respect to the proposal to approve the Merger Agreement and the shareholder proposals, which has the same effect as a vote “against” approval of the Merger Agreement but will have no effect in determining the outcome of the vote on the shareholder proposals. Under NYSE rules, your broker may vote on the proposals regarding the election of directors, the selection of the independent auditor and the adjournment or postponement of the annual meeting if determined to be necessary, if you have not furnished voting instructions at least 15 days before the date of the annual meeting.
 
If you are a shareholder of record and you sign and return a proxy card without giving voting instructions, your shares will be voted “FOR” approval of the Merger Agreement and “FOR” any proposal by TXU Corp. to adjourn or postpone the annual meeting, if determined to be necessary. Your proxy will also be voted in accordance with all


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other recommended votes of the Board of Directors. The persons named in the proxy card will use their own judgment to determine how to vote your shares of Common Stock regarding any matters not described in this proxy statement that are properly presented at the annual meeting. TXU Corp. does not know of any matter to be presented at the annual meeting other than the proposal to approve the Merger Agreement (and to approve the adjournment or postponement of the meeting) and the other matters to be considered at the annual meeting described in the preceding paragraphs.
 
Revocation of Proxies
 
You may revoke your proxy at any time before the vote is taken at the annual meeting. If you are a shareholder of record of Common Stock, to revoke your proxy, you must either send a signed written notice to the Secretary of TXU Corp. at 1601 Bryan Street, Dallas, Texas 75201-3411 revoking your proxy, submit a new proxy by telephone, Internet or mail dated after the date of the earlier proxy you wish to change or revoke, or attend the annual meeting and vote your shares of Common Stock in person. Merely attending the annual meeting without voting will not constitute revocation of your earlier proxy. Please note that if your shares are held in street name and you have instructed your broker, bank or other nominee to vote your shares, the options for revoking your proxy described in this paragraph do not apply and instead you must follow the directions provided by your broker, bank or other nominee to change these instructions.
 
Proxy Solicitation
 
TXU Corp. will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, directors, officers and employees of TXU Corp. may solicit proxies personally and by telephone, facsimile or otherwise. None of these persons will receive additional or special compensation for soliciting proxies. TXU Corp. has retained Georgeson Inc. to assist in its solicitation of proxies in connection with the annual meeting, and TXU Corp. estimates that it will pay Georgeson Inc. a fee of up to $30,000. Georgeson Inc. may solicit proxies from individuals, banks, brokers, custodians, nominees, other institutional holders and other fiduciaries. TXU Corp. has also agreed to reimburse Georgeson Inc. for its reasonable administrative and out-of-pocket expenses and to indemnify it against certain losses, costs and expenses. TXU Corp. also, upon request, will reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions. Parent, directly or through one or more affiliates or representatives, may, at its own cost, also make solicitations of proxies by mail, telephone, facsimile or other contact in connection with the Merger. Parent has retained Innisfree M&A Incorporated to provide advisory services and to assist it in any solicitation efforts it may decide to make in connection with the Merger. Innisfree M&A Incorporated may solicit proxies from individuals, banks, brokers, custodians, nominees, other institutional holders and other fiduciaries.
 
Submitting Proxies via the Internet or by Telephone
 
Our shareholders of record as of the record date and many of our shareholders who hold their shares of Common Stock through a broker, bank or other nominee will have the option to submit their proxies or voting instructions via the Internet or by telephone. Please note however that voting by telephone is not available to shareholders of record outside of the United States, Puerto Rico and Canada. There are separate arrangements for using the Internet and telephone to submit your proxy depending on whether you are a shareholder of record or your shares of Common Stock are held in street name by your broker, bank or other nominee. If your shares of Common Stock are held in street name, you should check the voting instruction card provided by your broker, bank or other nominee to see which options are available and the procedures to be followed.
 
In addition to submitting the enclosed proxy card by mail, shareholders of record may submit their proxies:
 
  •  via the Internet by visiting a website established for that purpose at www.cesvote.com and following the instructions on the website; or
 
  •  by telephone by calling the toll-free number 1-888-693-8683 in the United States, Puerto Rico or Canada on a touch-tone phone and following the recorded instructions.


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Adjournments and Postponements
 
Although it is not currently expected, the annual meeting may be adjourned or postponed for the purpose of soliciting additional proxies or for such other reasons as TXU Corp. shall determine. Any adjournment or postponement may be made without notice, other than by an announcement made at the annual meeting, of the time, date and place of the adjourned or postponed meeting. TXU Corp. may postpone the annual meeting without any vote of shares of Common Stock, although it may elect to present a postponement for a vote. Whether or not a quorum exists, holders of a majority of the shares of Common Stock present in person or represented by proxy at the annual meeting and entitled to vote at the annual meeting may adjourn or postpone the annual meeting. If you are a record holder of shares of Common Stock and if your proxy card is signed and no instructions are indicated on your proxy card, your shares of Common Stock will be voted “FOR” any proposal by TXU Corp. to adjourn or postpone the annual meeting, if determined to be necessary. Any adjournment or postponement of the annual meeting for the purpose of soliciting additional proxies with respect to matters that have not yet been considered at the annual meeting will allow TXU Corp.’s shareholders who have already sent in their proxies to revoke them as to those matters at any time prior to their use at the annual meeting as adjourned or postponed.
 
Communications with the Board of Directors
 
You may communicate with the entire Board of Directors, the lead director or individual directors, including non-management directors, by writing to them c/o Lead Director, TXU Corp., 1601 Bryan Street, Dallas, Texas 75201-3411.
 
Confidential Voting
 
TXU Corp. has adopted a confidential voting policy. Accordingly, your vote and all others cast at the annual meeting or by proxy will be tabulated by an independent agent and generally kept private and not disclosed to TXU Corp.
 
Attending the Annual Meeting
 
Only shareholders entitled to vote at the annual meeting or their proxy holders and TXU Corp.’s guests may attend the annual meeting. Your ownership of shares of Common Stock on the record date will be verified prior to your admittance to the annual meeting. Each shareholder or proxy holder and each guest will be asked to present a valid government-issued picture identification, such as a driver’s license or passport, before being admitted to the meeting. If your shares are held through a broker, bank or other nominee, you must bring to the meeting an account statement or letter from the holder of record indicating that you beneficially owned the shares on the record date.
 
Assistance
 
If you need assistance in completing your proxy card or have questions regarding the annual meeting, please contact:
 
TXU Corp.
Energy Plaza
1601 Bryan Street
Dallas, Texas 75201-3411
Telephone: (214) 812-4600
Attention: Corporate Secretary
E-mail: annualmeeting@txu.com
 
or our proxy solicitor,
 
Georgeson Inc.
17 State Street
New York, New York, 10004
Telephone: (212) 440-9800
Attention: TXU Annual Meeting of Shareholders
E-mail: txuinfo@georgeson.com


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THE MERGER
 
The discussion of the Merger in this proxy statement is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Annex A. You should read the Merger Agreement carefully.
 
Background of the Merger
 
Consistent with the Board of Directors’ ongoing evaluation of TXU Corp.’s business and strategic direction, in early 2006, representatives of TXU Corp. had separate discussions with representatives of each of KKR and TPG, among others, regarding possible transactions involving TXU Corp.’s electric distribution and power generation businesses, but those discussions never proceeded beyond a preliminary stage. Those discussions were initiated by TXU Corp. or representatives of investment banks acting on its behalf based upon their understanding of the potential interest of KKR and TPG in investing in those businesses and as a part of a broad effort by TXU Corp. to identify and develop possible transactions to enhance the value of the Common Stock.
 
In late November of 2006, a representative of KKR and TPG called our Chief Executive Officer, John Wilder, to express interest in discussing a possible acquisition or other transaction involving TXU Corp. or one or more of its businesses. At the request of this representative, Mr. Wilder met with representatives of TPG and KKR in Dallas on November 27, 2006 to discuss in more detail their possible interest in a transaction with TXU Corp. At that meeting Mr. Wilder agreed that TXU Corp. would share a limited amount of confidential information regarding TXU Corp. with KKR and TPG, subject to their entry into a confidentiality agreement. On November 30, 2006, KKR and TPG entered into a confidentiality agreement with TXU Corp. and commenced preliminary financial and business due diligence, including meetings in December 2006 and early January 2007 with senior financial executives of TXU Corp. and a small number of additional TXU Corp. executives.
 
In mid December 2006, Mr. Wilder advised the chair of the Board of Directors’ Finance and Business Development Committee, Michael Ranger, that TXU Corp., KKR and TPG had entered into a confidentiality agreement and were in the midst of preliminary due diligence on TXU Corp. On January 5, 2007, Mr. Wilder advised Mr. Ranger that KKR and TPG appeared to have a serious interest in making a proposal to acquire the entire company. In early January 2007, Mr. Wilder advised the entire Board of Directors of KKR and TPG’s interest. On January 18, 2007, KKR and TPG orally advised Mr. Wilder that they believed that if they were given several weeks of more extensive due diligence and an opportunity to arrange debt financing they could make by the end of February a fully financed cash offer to acquire TXU Corp. for $66.00 per share of Common Stock. KKR and TPG also requested a period of exclusivity within which to prepare a proposal.
 
On January 22, 2007, the Board of Directors met telephonically to discuss the KKR/TPG proposal and how TXU Corp. would respond to it. The Board of Directors decided at this meeting to permit KKR and TPG access to additional due diligence information and to establish the Strategic Transactions Committee to evaluate the KKR/TPG proposal along with and against TXU Corp.’s other stand alone and strategic alternatives. The Board of Directors decided to form the Strategic Transactions Committee to facilitate the efficient and effective review of any KKR/TPG proposal and to direct TXU Corp.’s dealings with KKR and TPG, including any negotiations with KKR and TPG regarding a possible transaction. This committee was also formed in part in anticipation of the possibility that management might be invited or required as a condition of an agreement to invest with KKR and TPG in acquiring TXU Corp. The Board of Directors also decided they wished to preserve the flexibility of the Strategic Transactions Committee and therefore not to grant KKR and TPG any period of exclusivity. The Board of Directors was advised that KKR and TPG had not, to that date, made any proposal to TXU Corp. or management with respect to management retention, and the Board of Directors determined to prohibit TXU Corp. management from discussing any equity investment in the KKR/TPG transaction or future employment with TXU Corp. if a KKR/TPG transaction should proceed unless and until authorized by the Board of Directors or the Strategic Transactions Committee.
 
Following the Board of Directors meeting on January 22, 2007, TXU Corp. retained Credit Suisse and Sullivan & Cromwell LLP (“Sullivan & Cromwell”) as its financial and legal advisors, respectively. In addition, the Strategic Transactions Committee retained Cravath, Swaine & Moore LLP (“Cravath”) to act as legal advisor to the Strategic Transactions Committee. On January 26, 2007, KKR and TPG confirmed in writing their $66.00 per share


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proposal and KKR and TPG were provided access to more detailed due diligence information and management presentations. Due diligence then continued until shortly before the parties entered into the Merger Agreement, including ongoing discussions among representatives of KKR and TPG and management regarding TXU Corp.’s business operations and strategy, including TXU Corp.’s plans to construct 11 new coal-fueled generation facilities.
 
After its formation, the Strategic Transactions Committee requested that management and Credit Suisse assist the Strategic Transactions Committee in considering TXU Corp.’s current business strategy and certain modifications to that strategy, possible risks of pursuing the existing business strategy and potential alternatives, the availability of alternative sale transactions and the potential risks to its business associated with entering into a transaction with an entity formed by KKR and TPG. The Strategic Transactions Committee also considered, over several meetings, the identity of other possible acquirors of TXU Corp., their likely degree of interest in such a transaction, the ability and willingness of other potential acquirors to pay more than the KKR/TPG proposal, regulatory issues potentially associated with these potential acquirors, the likelihood that such potential acquirors could quickly complete due diligence and proceed with a transaction and the practical utility of a right to seek higher bids after signing a merger agreement with a KKR/TPG entity. As a part of this process, the Strategic Transactions Committee met seven times between January 22, 2007 and February 25, 2007 and its members had additional conversations from time to time with each other and with management about these issues.
 
On February 9, 2007, counsel for TXU Corp. provided KKR and TPG with a proposed form of Merger Agreement. Also on that date, the Strategic Transactions Committee and the Board of Directors retained Lazard as their financial advisor in recognition of the possibility that Credit Suisse might ultimately participate in the financing of the KKR/TPG transaction or any other potential transaction that TXU Corp. might pursue. Credit Suisse and Lazard are collectively referred to in this proxy statement as TXU Corp.’s financial advisors.
 
On February 13, 2007, counsel for KKR and TPG provided comments on the proposed form of Merger Agreement and from that date until the Merger Agreement was signed on the night of February 25, 2007 the parties negotiated the Merger Agreement and related documents. Significant issues negotiated, in addition to price, included the right of TXU Corp. to affirmatively seek higher offers after entering into the Merger Agreement, the allocation, through the definition of what constitutes a Company Material Adverse Effect (as defined in the Merger Agreement), of risks of adverse regulatory developments and changes in law after signing the Merger Agreement, the nature and amount of the financial commitment KKR and TPG were prepared to make to TXU Corp. through the Guarantee, the scope of TXU Corp.’s representations and warranties, the limitations on TXU Corp.’s conduct of its business prior to the completion of the Merger, the right of TXU Corp. to pay a final interim dividend before closing, the duration of the debt marketing period, the extent of limitations on the liability of KKR, TPG and Parent, and limitations on the availability of specific performance against Parent and Merger Sub and the right of the Board of Directors to change its recommendations to shareholders in favor of the Merger.
 
On February 15, 2007, at the direction of the Strategic Transactions Committee, TXU Corp.’s advisors requested that KKR and TPG increase their price for the acquisition of TXU Corp. and respond to a list of significant concerns the Strategic Transactions Committee and their advisors identified with respect to the revised Merger Agreement, based on the issues described in the preceding paragraph.
 
On February 17, 2007, KKR and TPG made a revised proposal to acquire TXU Corp. at a price of $69.00 per share of Common Stock, and KKR and TPG’s advisors responded with their positions on the significant contract issues. After consideration, the Strategic Transactions Committee instructed the advisors to TXU Corp. and the Strategic Transactions Committee to consider strategies for obtaining the highest price available from KKR and TPG and improving the key non-price contract terms. On February 20, 2007 the Strategic Transactions Committee met, together with management and TXU Corp.’s and the Strategic Transactions Committee’s legal and financial advisors, to discuss the revised proposal, TXU Corp.’s alternatives and whether KKR and TPG would potentially pay a higher price. After extensive discussion among the Strategic Transactions Committee and such persons, including consideration of the factors described above regarding other potential acquirors, the Strategic Transactions Committee determined to seek a higher price from KKR and TPG and concessions from KKR and TPG on key non-price terms, rather than opening up a broader auction process. The Strategic Transactions Committee ultimately authorized Lazard and Credit Suisse to indicate that the committee would support a $70.00 per share of Common Stock proposal with agreement terms that allocated to buyers the risk of change in law, other


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than to the extent a material baseload generation divestiture results in a material adverse effect on TXU Corp. and other specified terms. In response to this proposal, KKR and TPG proposed increasing the price to $69.25 per share of Common Stock and accepting most of the risk of a change in law as requested by TXU Corp., but did not agree to several of TXU Corp.’s other requested contract changes. The Strategic Transactions Committee discussed the revised proposal with TXU Corp.’s and the Strategic Transactions Committee’s advisors and discussed whether KKR and TPG might be willing to further increase their price. TXU Corp.’s financial advisors indicated that they did not believe, based on their discussions as of that date with KKR and TPG, that further price increases would be forthcoming from KKR and TPG. The Strategic Transactions Committee concluded that $69.25 per share of Common Stock was superior to TXU Corp.’s other available alternatives and determined to recommend to the Board of Directors a price of $69.25 per share of Common Stock on the terms being discussed. Also on February 20, the Strategic Transactions Committee gave permission for our Chief Executive Officer to discuss with KKR and TPG his willingness to remain with the Company following any transaction.
 
On February 21, 2007, the Board of Directors met, together with management, members of the Strategic Transactions Committee, Sullivan & Cromwell and TXU Corp.’s and the Strategic Transactions Committee’s legal and financial advisors to discuss the status of negotiations with KKR and TPG and TXU Corp.’s alternatives. After extensive discussion, the Board of Directors concluded there was a sufficient probability of reaching a final agreement to consent to having KKR and TPG begin meeting with state government officials. Also on February 21, at the request of the Board of Directors, TXU Corp.’s counsel advised counsel for KKR and TPG, that any conversations with management regarding their willingness to remain with TXU Corp. following a transaction must be completed before commencement of meetings with any government officials regarding the transaction. TXU Corp.’s counsel also indicated that, after KKR and TPG had started meeting with government officials and other stakeholders, no further discussions with management on these topics would be permitted at least until the “go shop” process was well underway. That evening, representatives of KKR and TPG had a conversation with our Chief Executive Officer in which they discussed KKR and TPG’s general philosophy on post-closing management investment and compensation arrangements. KKR, TPG and our Chief Executive Officer did not propose or discuss any specific arrangements for any members of the senior management team and KKR and TPG did not ask for or receive any commitment relating to any members of the senior management team remaining with TXU Corp. after a transaction.
 
Beginning on February 22, 2007, representatives of KKR, TPG and TXU Corp. met with certain Texas state government officials to brief them on the potential transaction and KKR and TPG’s proposed approach to ownership and operations of TXU Corp. Also during this time, negotiation of final Merger Agreement terms continued.
 
On February 24 and 25, 2007, the Board of Directors held telephonic meetings during which it reviewed with management and TXU Corp.’s and the Strategic Transactions Committee’s legal and financial advisors a summary of the negotiations of the proposed Merger Agreement, the terms and conditions of the proposed Merger Agreement, the terms of the debt financing being considered by the investor group led by KKR and TPG, and the interests of officers and certain directors in the proposed Merger. In addition, Cravath reviewed with the Board of Directors its fiduciary duties in considering and acting on the proposed Merger Agreement. At the February 24, 2007 meeting of the Board of Directors, each of Credit Suisse and Lazard separately reviewed with the Board of Directors its financial analysis of the Per Share Merger Consideration. At the February 25, 2007 meeting of the Board of Directors, Credit Suisse delivered to the Board of Directors and the Strategic Transactions Committee an oral opinion, which was confirmed by delivery of a written opinion dated February 25, 2007, to the effect that, as of that date and based upon and subject to various assumptions and limitations described in its opinion, the Per Share Merger Consideration to be received by holders of shares of Common Stock was fair, from a financial point of view, to such holders. Also, on February 25, 2007, Lazard delivered to the Board of Directors and the Strategic Transactions Committee an oral opinion, which was confirmed by delivery of a written opinion dated February 25, 2007, to the effect that, as of that date and based upon and subject to certain assumptions, procedures, factors, limitations and qualifications set forth therein, the Per Share Merger Consideration to be paid to the holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares, which are described below) pursuant to the Merger was fair, from a financial point of view, to such holders. Thereafter the Strategic Transactions Committee unanimously recommended that the Board of Directors approve the Merger pursuant to the Merger Agreement. The Board of Directors unanimously (excluding Dr. E. Gail de Planque who, to avoid any


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perception of a potential conflict of interest arising out of her historical professional relationships within the industry, based upon the advice of outside counsel to both TXU Corp. and the Strategic Transactions Committee and the recommendation of the Board of Directors, recused herself from all discussions about the Merger) approved the Merger Agreement and the transactions contemplated in the Merger Agreement, including the Merger, and unanimously (by all directors voting) recommended that shareholders vote to approve the Merger Agreement. No member of the Board of Directors (other than Dr. de Planque) had any material pre-existing business or professional relationships with KKR, TPG or any of their respective partners.
 
Following the February 25, 2007 meeting of the Board of Directors, on the night of February 25, 2007, TXU Corp., Parent and Merger Sub executed the Merger Agreement, Parent and Merger Sub’s financing sources executed a debt commitment letter in favor of Merger Sub, affiliates of KKR, TPG, JP Morgan, Citigroup and Morgan Stanley executed equity commitment letters in favor of Parent, and affiliates of KKR, TPG, Citigroup and Morgan Stanley executed limited guarantees in favor of TXU Corp.
 
On February 26, 2007, prior to the opening of trading on the NYSE and the Chicago Stock Exchange, TXU Corp., KKR, TPG and Goldman Sachs & Co. issued a joint press release announcing the transaction.
 
The Merger Agreement provides that, until 12:01 a.m., Eastern Standard Time, on April 16, 2007, TXU Corp. was permitted to initiate, solicit and encourage acquisition proposals for TXU Corp. (including by way of providing information), and to enter into and maintain discussions or negotiations with respect to acquisition proposals for TXU Corp. or otherwise cooperate with or assist or participate in or facilitate any inquiries, proposals, discussions or negotiations with respect to any such acquisition proposal. During the period prior to April 16, 2007, Lazard conducted the “go-shop” process on behalf of TXU Corp. and solicited interest from over 70 potential purchasers, including U.S. utility companies, non-U.S. utility companies, other energy companies and financial sponsors and infrastructure investors. TXU Corp. entered into confidentiality agreements with ten of these entities and provided them confidential information regarding TXU Corp. and its subsidiaries. TXU Corp. entertained expressions of interest from potential purchasers interested in less than all of TXU Corp. in an effort to combine parties interested in different components of TXU Corp.’s businesses. No participant that entered into a confidentiality agreement submitted a proposal for TXU Corp. as an entirety and no party contacted expressed interest in doing so at a price competitive with the $69.25 Per Share Merger Consideration. TXU Corp. also did not receive any expressions of interest in any businesses of TXU Corp. at valuation levels that suggested the possibility of a transaction that would yield value for TXU Corp.’s shareholders competitive with the $69.25 Per Share Merger Consideration. At the conclusion of this process, the Board of Directors determined that no proposal was received that could reasonably be expected to result in a proposal more favorable to TXU Corp.’s shareholders from a financial point of view than the Merger.
 
In connection with the preparation of this proxy statement and as a result of, among other things, the period of time that had transpired since the February 2007 date of the Merger Agreement and, changes in the market price for natural gas and trading prices of our peer companies since that date, the Board of Directors requested that the Strategic Transactions Committee work with TXU Corp. management and Lazard to update and refresh its views on: (i) TXU Corp.’s alternatives to the Merger and the potential value to shareholders of those alternatives; and (ii) the impact of changes in the market on the advisability of the Board of Directors recommending approval of the Merger Agreement. The Chairman of the Strategic Transactions Committee met on June 12, 2007 with Lazard and the legal advisors for TXU Corp. and the Strategic Transactions Committee to discuss the work that would be requested of Lazard and TXU Corp. management. The Chairman of the Strategic Transactions Committee later conferred with each member of that Committee and with TXU Corp. management and agreed on a scope of updated information to be provided to the Strategic Transactions Committee and the Board of Directors. The Strategic Transactions Committee met on July 9, 2007 and received a description from Sullivan & Cromwell regarding the duties of directors in making a recommendation to shareholders and the terms of the Merger Agreement relating to that recommendation, including the provisions relating to a potential $1 billion payment to Parent if the recommendation is changed. In addition, the Strategic Transactions Committee received presentations from TXU Corp. management and a presentation of preliminary financial information from Lazard. The Strategic Transactions Committee discussed the factors affecting a decision to recommend approval of the Merger Agreement to TXU Corp. shareholders. The Strategic Transactions Committee also requested that Lazard


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deliver to the Board of Directors and the Strategic Transactions Committee an updated opinion of the fairness, from a financial point of view, to the holders of shares of Common Stock of the Per Share Merger Consideration to be paid to such holders of shares of Common Stock pursuant to the Merger and resolved to recommend to the Board of Directors that the Board of Directors recommend approval of the Merger Agreement to TXU Corp.’s shareholders, if it was Lazard’s updated opinion that the Per Share Merger Consideration was fair, from a financial point of view, to such holders of shares of Common Stock.
 
On July 12, 2007, the Board of Directors met and received a description from Sullivan & Cromwell regarding the duties of directors in making a recommendation to shareholders and the terms of the Merger Agreement relating to that recommendation, including the provisions relating to a potential $1 billion payment to Parent if the recommendation is changed, and received presentations from management and Lazard. Lazard delivered to the Board of Directors and the Strategic Transactions Committee an oral updated opinion, which was confirmed by delivery of a written updated opinion dated July 12, 2007, to the effect that, as of that date and based upon and subject to certain assumptions, procedures, factors, limitations and qualifications set forth therein, the Per Share Merger Consideration to be paid to the holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares, which are described below) pursuant to the Merger was fair, from a financial point of view, to such holders. After discussion of the various changes in the marketplace and in TXU Corp.’s businesses since February 2007 and after receiving the recommendation of the Strategic Transactions Committee, the Board of Directors resolved to recommend that shareholders vote to approve the Merger Agreement.
 
Reasons and Recommendation of the Board of Directors
 
Reasons for the Recommendation of the Board of Directors
 
In the course of making its decision to approve the Merger Agreement and recommend that TXU Corp.’s shareholders vote “FOR” the approval of the Merger Agreement in February 2007, the Board of Directors, with Dr. E. Gail de Planque recusing herself from the deliberations and vote, to avoid any perception of a potential conflict of interest arising out of her historical professional relationships within the industry, based upon the advice of outside counsel to both TXU Corp. and the Strategic Transactions Committee and the recommendation of the Board of Directors, considered the recommendation of its Strategic Transactions Committee and a number of other factors. The material factors considered by the Board of Directors in February 2007 were the same factors considered by the Strategic Transactions Committee in arriving at its decision to recommend the Merger to the Board of Directors (other than the recommendation of the Strategic Transactions Committee as set out in the seventh bullet below) and included the following:
 
  •  the $69.25 Per Share Merger Consideration represented an approximately 25% premium to the average closing price of Common Stock for the 20-trading-day period ending on February 22, 2007, the last full trading day before press speculation about a possible merger transaction, an approximately 20% premium to the closing price of the Common Stock on February 22, 2007 and a small premium to the 52-week high trading price for Common Stock;
 
  •  the $69.25 Per Share Merger Consideration represented a premium to the values the Board of Directors believed, after consultation with management and the financial advisors to TXU Corp. and the Strategic Transactions Committee and presentations from management, would reasonably be likely to result from the execution of TXU Corp.’s current business plan or any identified modification or alternative to that business plan;
 
  •  in addition to the premium provided to TXU Corp.’s shareholders through the $69.25 Per Share Merger Consideration, the Merger removes the shareholders’ exposure to the risks inherent in continuing as a public company, including operational and regulatory risks associated with TXU Corp.’s planned construction of new coal-fueled electric generation facilities, risks of changes in government regulation at the federal and state levels, including, but not limited to, potential environmental related restrictions that could reduce the value of TXU Corp.’s assets, and risks resulting from the sensitivity of the market value of TXU Corp.’s generating assets to the price of natural gas;


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  •  the future natural gas prices embedded in the implied value of TXU Corp.’s generation assets based on the $69.25 Per Share Merger Consideration were higher than the future prices TXU Corp. management believed were likely, taking into account the inherently unpredictable factors that impact long-term natural gas prices;
 
  •  the opinion of Credit Suisse, dated February 25, 2007, to the Board of Directors and its Strategic Transactions Committee as to the fairness, from a financial point of view and as of the date of the opinion, of the Per Share Merger Consideration to be received by the holders of Common Stock, and the financial presentation in connection therewith, as more fully described below under “Opinion of Credit Suisse Securities (USA) LLC”;
 
  •  the opinion of Lazard, dated February 25, 2007, to the Board of Directors and its Strategic Transactions Committee to the effect that, as of that date and based upon and subject to certain assumptions, procedures, factors, limitations and qualifications, the Per Share Merger Consideration to be paid to the holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares, which are described below) pursuant to the Merger was fair from a financial point of view, to such holders, and the financial presentation in connection therewith, as more fully described below under “Opinions of Lazard Frères & Co. LLC — Initial Opinion Dated February 25, 2007”;
 
  •  the recommendation of the Strategic Transactions Committee in favor of the Merger to the full Board of Directors, which reflected the results of seven Strategic Transactions Committee meetings which were also attended by management and legal and financial advisors to TXU Corp. and to the Strategic Transactions Committee as well as private deliberations and discussions among members of the Strategic Transactions Committee regarding the advantages and disadvantages of proceeding with the Merger;
 
  •  the terms of the Merger Agreement, which the Board of Directors believed minimized, to the extent reasonably practical, the risk that a condition to closing would not be satisfied and provided reasonable flexibility to operate TXU Corp.’s business during the pendency of the Merger;
 
  •  the right of TXU Corp. under the Merger Agreement to solicit superior acquisition proposals from third parties until April 16, 2007 and the right to receive and consider unsolicited proposals thereafter until approval of the Merger Agreement by TXU Corp.’s shareholders, including the right to terminate the Merger Agreement to accept a superior proposal;
 
  •  the amount of the termination fee required to be paid by TXU Corp. to Parent in order to accept a superior proposal and the fact that a lower termination fee of $375 million is payable in respect of transactions solicited and negotiated during the pre-April 16, 2007 “go shop” period;
 
  •  the fact that the debt commitment letter obtained by Merger Sub indicated a strong commitment on the part of lenders with few conditions that would permit lenders to terminate their commitment;
 
  •  the right under the Merger Agreement of the Board of Directors, under certain circumstances, to change its recommendation that its shareholders vote in favor of approval of the Merger Agreement, subject to the payment to Parent of a termination fee of $925 million, or in certain circumstances $1 billion, or approximately 3% of the equity value of the Merger;
 
  •  the right of TXU Corp.’s shareholders to exercise rights of dissent and appraisal;
 
  •  the fact that TXU Corp.’s management had no agreements with Parent regarding future employment and therefore would have been free to work with any competing bidders that emerged during the “go shop” process; and
 
  •  the fact that, under certain circumstances, TXU Corp. would not be required to establish damages in the event of a failure of the Merger to be completed as a result of the terms of the $1 billion termination fee payable by Parent and guaranteed by Parent’s equity owners.


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The Board of Directors also considered and balanced against the potential benefits of the Merger a number of potentially adverse factors, including the following:
 
  •  the risk that the Merger might not be completed in a timely manner, or at all, including the risks of adverse regulatory or other governmental reactions or that the financing contemplated by the debt financing commitments is not obtained, along with the risk that the transaction could prompt regulatory or legislative actions that could prevent the Merger and adversely affect the ongoing regulatory position of TXU Corp.;
 
  •  the loss of the opportunity for TXU Corp.’s shareholders to benefit from the possibility that the future price of natural gas will be higher than anticipated as of the date of the Merger Agreement and other factors that could favorably affect the potential future earnings of TXU Corp. and the value of TXU Corp.;
 
  •  the fact that Parent is a newly-formed limited partnership and Merger Sub is a newly formed corporation with essentially no assets and that any remedy in the event of breach of the Merger Agreement by Parent or Merger Sub, even a breach that is deliberate or willful, is limited to a maximum of $1 billion and is guaranteed by certain investors in Parent;
 
  •  the interest of certain directors and executive officers of TXU Corp. as described under “The Merger — Interests of our Directors and Executive Officers in the Merger”;
 
  •  the fact that the Merger Agreement was entered into without any pre-signing market check, although the Merger Agreement would permit a post-signing market check through the “go-shop” with a limited termination fee; and
 
  •  the fact that the Per Share Merger Consideration will be taxable to TXU Corp.’s U.S. shareholders.
 
In addition to the factors above, in making its recommendation in this proxy statement that TXU Corp.’s shareholders approve the Merger Agreement, the Strategic Transactions Committee and the Board of Directors considered that since the February 25, 2007 signing of the Merger Agreement there had been changes that could affect the advisability of recommending the Merger Agreement to shareholders. These changes included the completion of the “go shop” auction process without receipt by TXU Corp. of any superior proposal, changes in the trading prices for other electricity generation and distribution companies and the company’s financial projections, general increases in the current trading prices and projected future trading prices for natural gas and electric power, adverse developments in the regulatory environment in Texas and nationally, and an increase in prevailing interest rates. To assess the effects of these and other changes, the Strategic Transactions Committee and the Board of Directors received presentations from TXU Corp. management and Lazard and also received Lazard’s updated opinion. After considering these changes, presentations and Lazard’s updated opinion, the Strategic Transactions Committee and the Board of Directors reached the following conclusions:
 
  •  Although it is not possible to know what TXU Corp.’s unaffected stock trading price would be if the Merger had not been announced, the Strategic Transactions Committee and the Board of Directors believe the $69.25 Per Share Merger Consideration still represents a meaningful premium to TXU Corp.’s likely unaffected stock trading price after taking these changes into consideration;
 
  •  Trading prices of stocks used as comparables for purposes of calculating the implied unaffected stock trading price for TXU Corp. referred to in the prior bullet have experienced a high level of volatility since February. In many cases, key factors that have benefited the prices of some of the comparable stocks are not factors that might positively impact TXU Corp.’s valuation. In addition, assessing comparability of companies in similar businesses is difficult because of factors such as the size and duration of out-of-the-money hedging positions, provider of last resort (POLR) obligations and exposure to capacity auctions. Furthermore, the prices of the comparable stocks likely have been favorably impacted by the fact that TXU Corp. entered into the Merger Agreement;
 
  •  The value of TXU Corp. is significantly affected by the price of natural gas and expectations regarding the price of natural gas because rising natural gas prices typically result in an increase the market price of electricity within the ERCOT market, which in turn increases the value of TXU Corp.’s coal and nuclear


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  fueled generation plants. The Strategic Transactions Committee and the Board of Directors noted that: (1) natural gas prices and natural gas price expectations have risen considerably from February 25, 2007 through mid July 2007, such that the value of TXU Corp. has been positively impacted; (2) the increase in value is mitigated due to the fact that TXU Corp.’s exposure to natural gas prices, and its ability to benefit from price increases, is substantially hedged through 2012; (3) notwithstanding the recent changes, long-term natural gas prices remain subject to the same degree of unpredictability and risk considered by the Strategic Transactions Committee and the Board of Directors in February 2007; and (4) to the extent that natural gas prices do increase on a sustained basis, it is possible that these increases would not result in higher value to TXU Corp.’s shareholders because of the risk that actions by suppliers and regulators and other market factors would reduce that economic value;
 
  •  The natural gas price assumptions that TXU Corp. management believes are implicit in the Per Share Merger Consideration suggest higher natural gas price assumptions than TXU Corp. management believes are implicit in the current market value of the stocks of comparable companies;
 
  •  The value per kilowatt of TXU Corp.’s baseload generation assets that TXU Corp. management believes is implicit in the Per Share Merger Consideration suggests a higher valuation of the baseload generation assets than TXU Corp. management believes is implicit in the current market value of the stocks of comparable companies, although the gap is narrower than it was in February;
 
  •  The “go shop” process was conducted during the time period in which most of the increase in value of comparable stocks and in natural gas prices occurred, which suggests that potential buyers would have been able to take those higher values into account in determining whether a bid in excess of $69.25 was feasible;
 
  •  The results of the “go-shop” process and new laws in Texas that would likely require PUCT approval of any direct or indirect change in control of Oncor suggest that it could be more difficult in the future to obtain a transaction that would realize a premium to the trading value of the Common Stock. Also, TXU Corp.’s size limits the universe of potential buyers and the “go shop” process did not identify any potential buyer that was willing to make an offer to acquire TXU Corp. at a per share price higher than the Per Share Merger Consideration;
 
  •  Although the 2007 Texas legislative session closed without the passage of legislation that significantly negatively impacted TXU Corp.’s businesses, the regulatory environment in Texas is less favorable than was believed in February 2007 as reflected in (1) the adoption of legislation likely requiring prior PUCT approval for any future direct or indirect acquisition of Oncor, (2) introduction of legislation that, if passed, would have required the structural separation of TXU Corp.’s generation, distribution and retail businesses and divestiture of significant wholesale power generation assets, and allowed the PUCT to cap retail electric prices, (3) intense focus on reduction of retail electricity prices, (4) suspension of the InfrastruX outsourcing joint venture and (5) the proposed $210 million fine, an amount substantially greater than any other fine proposed by the PUCT, for alleged market behavior by Luminant Energy in 2005. The Strategic Transactions Committee and the Board of Directors concluded that this regulatory environment increases the risk of TXU Corp. failing to realize future financial projections and could affect the ability of Luminant or TXU Energy to fully realize the economic benefits and offset the additional costs of potentially higher long-term natural gas prices;
 
  •  If the Merger is not approved by TXU Corp.’s shareholders or is not completed for other reasons, the alternative business plan that seems likely to create the most value for TXU Corp.’s shareholders would involve the separation of TXU Corp.’s businesses into three separate public companies — one that would own the regulated transmission and distribution businesses of Oncor, another that would own the baseload power generation and the wholesale businesses of Luminant, and one that would be a holding company that would own the retail business and related assets of TXU Energy and could have a power supply agreement with Luminant Energy or could own, in separate subsidiaries, some or all of the natural gas-fueled generation plants currently owned by Luminant Power. Certain aspects of this restructuring could require PUCT approval. Also, the separation of TXU Corp.’s businesses would involve significant transaction


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  costs, expose each of the newly separate companies to business risks arising out of their smaller scale and less diversified business mix as compared to TXU Corp. today; and this restructuring does not generate as much aggregate projected EBITDA in the years 2008 through 2011 (even if transaction costs are excluded) as compared to management’s February 2007 forecasts and still results in a valuation that is likely to be inferior to the $69.25 Per Share Merger Consideration;
 
  •  Since February 2007, the expected value to TXU Corp.’s shareholders of the alternative business plan that seems likely to create the most value for TXU Corp.’s shareholders has been reduced by a number of factors including: (1) the likelihood of substantial delays in obtaining approvals necessary to construct the three new coal-fueled generation units (or “reference plants”) that the Strategic Transactions Committee and Board of Directors believed were possible in February, together with higher than expected retail price discounts and other retail concessions, such as rebates, (2) higher than anticipated equipment costs, net of salvage values associated with the suspension of development of eight of the eleven planned coal-fueled units and (3) increases in shipping costs for coal and in the cost of uranium fuel for nuclear generating facilities;
 
  •  Interest rates have increased approximately one-half percent since February 25, 2007 and increasing interest rates tend to reduce the value of regulated electric utilities such as Oncor; and
 
  •  The downturn in the leveraged debt capital markets, combined with the increase in interest rates described above, will make it more difficult for financial or other buyers to arrange debt financing that would permit an alternative cash transaction at a price superior to the $69.25 Per Share Merger Consideration.
 
In connection with its recommendations, each of the Strategic Transactions Committee and the Board of Directors considered the oral opinion of Lazard delivered on July 12, 2007, which was later confirmed in writing, to the effect that as of July 12, 2007 and based upon and subject to certain assumptions, procedures, factors, limitations and qualifications, the Per Share Merger Consideration to be paid to the holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares) pursuant to the Merger was fair, from a financial point of view, to such holders, and the financial presentation in connection therewith, as more fully described below under “Opinions of Lazard Frères & Co. LLC — Updated Opinion Dated July 12, 2007” as an additional factor supporting their decision to recommend that TXU Corp.’s shareholders vote to approve the Merger Agreement.
 
After taking into account the factors set forth above, as well as others, the Board of Directors concluded in February 2007 and confirmed on July 12, 2007 that the benefits of the Merger outweigh the risks and that the Merger Agreement and the Merger are advisable and in the best interests of TXU Corp. and its shareholders. The Board of Directors has approved the Merger Agreement and unanimously recommends that TXU Corp.’s shareholders vote to approve the Merger Agreement.
 
The Board of Directors did not assign relative weights to the factors above or the other factors considered by it. In addition, the Board of Directors did not reach any specific conclusions on each factor considered, but conducted an overall analysis of these factors. Individual members of the Board of Directors may have given different weight to different factors.
 
Board of Directors’ Recommendation to Shareholders
 
After careful consideration and following receipt of the unanimous recommendation of the Strategic Transactions Committee, and taking into account the factors outlined above, the Board of Directors unanimously recommends that our shareholders vote “FOR” the approval of the Merger Agreement. The Board of Directors also recommends that TXU Corp.’s shareholders vote “FOR” any proposal by TXU Corp. to adjourn or postpone the annual meeting, if determined to be necessary.
 
Opinion of Credit Suisse Securities (USA) LLC
 
TXU Corp. retained Credit Suisse to act as its financial advisor in connection with the Merger. In connection with Credit Suisse’s engagement, Credit Suisse was requested to evaluate the fairness, from a financial point of


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view, of the Per Share Merger Consideration to be received by the holders of Common Stock. On February 25, 2007, at a meeting of the Board of Directors held to evaluate the proposed Merger, Credit Suisse rendered an oral opinion, which opinion was confirmed by delivery of a written opinion dated February 25, 2007, to the effect that, as of that date and based on and subject to the considerations described in its opinion, the Per Share Merger Consideration was fair, from a financial point of view, to holders of Common Stock. The Strategic Transactions Committee was provided the opinion on the basis of it being an administrative committee of the Board of Directors that was not established as a special independent committee for purposes of evaluating a possible conflicted or similar transaction.
 
The full text of Credit Suisse’s written opinion, dated February 25, 2007, to the Board of Directors and its Strategic Transactions Committee, which sets forth, among other things, the procedures followed, assumptions made, matters considered and limitations on the scope of review undertaken by Credit Suisse in rendering its opinion, is attached as Annex B and is incorporated into this proxy statement by reference in its entirety. Holders of Common Stock are encouraged to read this opinion carefully in its entirety. Credit Suisse’s opinion was provided to the Board of Directors and its Strategic Transactions Committee for their information in connection with their evaluation of the Per Share Merger Consideration and relates only to the fairness of the Per Share Merger Consideration from a financial point of view, does not address any other aspect of the proposed Merger and does not constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to any matters relating to the Merger. The summary of Credit Suisse’s opinion in this proxy statement is qualified in its entirety by reference to the full text of the opinion.
 
In arriving at its opinion, Credit Suisse reviewed the Merger Agreement as well as certain publicly available business and financial information relating to TXU Corp. Credit Suisse also reviewed certain other information relating to TXU Corp., including financial forecasts under alternative business scenarios and commodity pricing assumptions, provided to or discussed with Credit Suisse by TXU Corp., and met with TXU Corp.’s management to discuss TXU Corp.’s business and prospects. Credit Suisse also considered certain financial and stock market data of TXU Corp. and compared that data with similar data for other publicly held companies in businesses Credit Suisse deemed similar to that of TXU Corp., and Credit Suisse considered, to the extent publicly available, the financial terms of certain other business combinations and other transactions recently effected or announced. Credit Suisse also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which it deemed relevant.
 
In connection with its review, Credit Suisse did not assume any responsibility for independent verification of any of the foregoing information and relied on such information being complete and accurate in all material respects. With respect to the financial forecasts for TXU Corp. which Credit Suisse reviewed, TXU Corp.’s management advised Credit Suisse, and Credit Suisse assumed, that such forecasts were reasonably prepared on bases reflecting the best currently available estimates and judgments of TXU Corp.’s management as to TXU Corp.’s future financial performance under the alternative business scenarios reflected in such forecasts. With respect to the alternative commodity pricing assumptions that Credit Suisse reviewed, Credit Suisse was advised by TXU Corp.’s management, and Credit Suisse assumed, that they were a reasonable basis on which to evaluate TXU Corp.’s future financial performance and were appropriate for Credit Suisse to utilize in its analyses. Credit Suisse also assumed, with TXU Corp.’s consent, that, in the course of obtaining any regulatory or third party consents, approvals or agreements in connection with the Merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect, in any respect material to Credit Suisse’s analyses, on TXU Corp. or the Merger and that the Merger would be completed in accordance with the terms of the Merger Agreement without waiver, modification or amendment of any material term, condition or agreement. Credit Suisse was not requested to make, and did not make, an independent evaluation or appraisal of TXU Corp.’s assets or liabilities, contingent or otherwise, and Credit Suisse was not furnished with any such evaluations or appraisals. Credit Suisse’s opinion addressed only the fairness, from a financial point of view and as of the date of the opinion, to the holders of Common Stock of the Per Share Merger Consideration and does not address any other aspect or implication of the Merger or any other agreement, arrangement or understanding entered into in connection with the Merger or otherwise. Credit Suisse was not requested to, and did not, solicit third party indications of interest in acquiring all or any part of TXU Corp.; however, Credit Suisse was advised that TXU Corp. would solicit such indications of


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interest from potential buyers for a limited period after the date of the Merger Agreement as permitted under the provisions of the Merger Agreement. Credit Suisse’s opinion was necessarily based upon information made available to it as of the date of its opinion and financial, economic, market and other conditions as they existed and could be evaluated on the date of its opinion, including assumptions as to future commodity fuel prices which are subject to significant volatility and which, if different than as assumed, could have a material impact on Credit Suisse’s analyses. Credit Suisse’s opinion did not address the relative merits of the Merger as compared to alternative transactions or strategies that might be available to TXU Corp., nor did it address the underlying business decision of TXU Corp. to proceed with the Merger. Except as described above, TXU Corp. imposed no other limitations on Credit Suisse with respect to the investigations made or procedures followed in rendering its opinion.
 
In preparing its opinion, Credit Suisse performed a variety of financial and comparative analyses, including those described below. The summary of Credit Suisse’s analyses described below is not a complete description of the analyses underlying Credit Suisse’s opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. Credit Suisse arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis. Accordingly, Credit Suisse believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.
 
In its analyses, Credit Suisse considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond TXU Corp.’s control. No company, transaction or business used in Credit Suisse’s analyses as a comparison is identical to TXU Corp. or the proposed Merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed. The estimates contained in Credit Suisse’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Credit Suisse’s analyses are inherently subject to substantial uncertainty.
 
Credit Suisse was not requested to, and it did not, recommend the specific consideration payable in the proposed Merger, which consideration was determined through negotiations between TXU Corp., on the one hand, and KKR and TPG, on the other hand, and the decision to enter into the Merger was solely that of the Board of Directors. Credit Suisse’s opinion and financial analyses were only one of many factors considered by the Board of Directors and its Strategic Transactions Committee in their evaluation of the proposed Merger and should not be viewed as determinative of the views of the Board of Directors, the Strategic Transactions Committee or TXU Corp.’s management with respect to the Merger or the Per Share Merger Consideration.
 
The following is a summary of the material financial analyses reviewed with the Board of Directors in connection with Credit Suisse’s opinion dated February 25, 2007. The financial analyses summarized below include information presented in tabular format. In order to fully understand Credit Suisse’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Credit Suisse’s financial analyses.


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Company Financial Analyses
 
Discounted Cash Flow Analysis
 
Credit Suisse performed a discounted cash flow analysis of TXU Corp. to calculate the estimated present value of the unlevered, after-tax free cash flows that TXU Corp. could generate on a standalone basis from its operations at its current leverage position, other than TXU Corp.’s Power Direct program and gas plant portfolio, during calendar years 2007 through 2012. Estimated cash flows were based on internal estimates of TXU Corp.’s management, including projected commodity fuel pricing assumptions utilized by TXU Corp.’s management, under three alternative business scenarios regarding the number of coal plants to be constructed by TXU Corp. during the next several years. These three alternative business scenarios consisted of a “no build” scenario which assumed no additional coal plants would be constructed, a “base build” scenario which assumed five coal plants would be constructed and a “full build” scenario which assumed 10 coal plants would be constructed. Credit Suisse calculated terminal values of TXU Corp.’s operations (other than TXU Corp.’s Power Direct program and gas plant portfolio) by applying to the calendar year 2012 estimated earnings before interest, taxes, depreciation and amortization (“EBITDA”), attributable to those operations a range of terminal value EBITDA multiples of 7.0x to 8.25x, which range of EBITDA terminal value multiples was derived taking into account the EBITDA trading multiples of the integrated merchant power companies referred to below under “Selected Publicly Traded Companies Analysis” adjusted for the impact of publicly disclosed below market contracts and projected rate case settlements. The present value of the cash flows and terminal values of TXU Corp.’s operations (other than TXU Corp.’s Power Direct program and gas plant portfolio) were calculated using discount rates ranging from 7.5% to 8.25%, which range of discount rates was derived taking into account the weighted average cost of capital of those integrated merchant power companies. The present values of TXU Corp.’s Power Direct program and gas plant portfolio were based on internal estimates of TXU Corp.’s management. This analysis indicated the following implied per share equity reference ranges for TXU Corp. under the alternative business scenarios referred to above, as compared to the Per Share Merger Consideration:
 
                 
Implied Per Share Equity Reference Ranges for TXU Corp.    
No Build   Base Build   Full Build   Per Share Merger Consideration
 
$50.42 - $61.31
  $53.70 - $67.34   $48.36 - $63.55   $ 69.25  
 
Credit Suisse also performed a discounted cash flow analysis of TXU Corp. as described above utilizing alternative projected commodity fuel pricing assumptions based on New York Mercantile Exchange forward curve pricing as of February 22, 2007. This analysis indicated the following implied per share equity reference ranges for TXU Corp. under each of the three alternative business scenarios referred to above, as compared to the Per Share Merger Consideration:
 
                 
Implied Per Share Equity Reference Ranges for TXU Corp.    
No Build   Base Build   Full Build   Per Share Merger Consideration
 
$52.99 - $64.44
  $56.73 - $70.99   $51.72 - $67.60   $ 69.25  


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Selected Public Companies Analysis
 
Credit Suisse reviewed financial and stock market information of TXU Corp. and the following 10 selected publicly traded companies, six of which are engaged in both regulated utility operations and unregulated wholesale power generation, referred to as integrated merchant power companies, and four of which are primarily focused on unregulated wholesale power generation, referred to as merchant generation companies:
 
     
Integrated Merchant Power Companies   Merchant Generation Companies
 
• Allegheny Energy, Inc.
 
• Dynegy Inc.
• Constellation Energy Group, Inc.
 
• Mirant Corporation
• Exelon Corporation
 
• NRG Energy, Inc.
• FirstEnergy Corp.
 
• Reliant Energy, Inc.
• PPL Corporation
   
• Public Service Enterprise Group Incorporated
   
 
Credit Suisse reviewed, among other things, enterprise values of the selected companies, calculated as market value based on closing stock prices on February 23, 2007, plus debt, preferred stock and out-of-the-money convertibles, less cash and cash equivalents, of the selected companies as multiples of calendar year 2007 estimated EBITDA (adjusted for the impact of publicly disclosed below market contracts and projected rate case settlements) and earnings before interest and taxes (“EBIT”). Credit Suisse also reviewed market values of the selected companies based on closing stock prices on February 23, 2007 as a multiple of calendar year 2007 estimated net income. Credit Suisse then applied a range of selected multiples of such financial data derived from the selected companies of 7.0x to 8.25x in the case of calendar year 2007 estimated EBITDA, 9.0x to 11.0x in the case of calendar year 2007 estimated EBIT and 13.5x to 15.5x in the case of calendar year 2007 estimated net income to corresponding data of TXU Corp. Financial data of the selected companies were based on publicly available research analysts’ estimates and public filings. Financial data of TXU Corp. were based on internal estimates of TXU Corp.’s management under the “base build” scenario described above and included TXU Corp.’s Power Direct program and gas plant portfolio. This analysis indicated the following implied per share equity reference range for TXU Corp., as compared to the Per Share Merger Consideration:
 
         
Implied Per Share Equity
   
Reference Range for TXU Corp.   Per Share Merger Consideration
 
$54.80 - $71.93
  $ 69.25  
 
Selected Transactions Analysis
 
Credit Suisse reviewed the transaction values of the following four transactions in the power generation industry publicly announced from July 21, 2004 through December 19, 2005:
 
     
Acquiror   Target
 
• FPL Group, Inc.
 
• Constellation Energy Group, Inc
• NRG Energy, Inc.
 
• Texas Genco LLC
• Exelon Corporation
 
• Public Service Enterprise Group Incorporated
• The Blackstone Group, Hellman & Friedman LLC, Kohlberg Kravis Roberts & Co. L.P. and Texas Pacific Group
 
• Texas Genco Holdings, Inc.
 
Credit Suisse reviewed, among other things, transaction values in the selected transactions as a multiple of latest 12 months EBITDA. Credit Suisse then applied a range of selected latest 12 months EBITDA multiples derived from the selected transactions of 7.0x to 9.0x TXU Corp.’s calendar year 2006 estimated EBITDA. Financial data of the selected transactions were based on publicly available information at the time of announcement of the relevant transactions. Financial data of TXU Corp. were based on internal estimates of


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TXU Corp.’s management and included TXU Corp.’s Power Direct program and gas plant portfolio. This analysis indicated the following implied per share equity reference range for TXU Corp., as compared to the Per Share Merger Consideration:
 
         
Implied Per Share Equity
   
Reference Range for TXU Corp.
 
Per Share Merger Consideration
 
$53.73 - $76.22
  $ 69.25  
 
Miscellaneous
 
TXU Corp. selected Credit Suisse based on Credit Suisse’s qualifications, experience and reputation, and its familiarity with TXU Corp. and its business. Credit Suisse is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes.
 
TXU Corp. has agreed to pay Credit Suisse for its financial advisory services in connection with the Merger an aggregate fee estimated to be approximately $37 million, $4 million of which was payable upon rendering its opinion and approximately $33 million of which is contingent upon the completion of the Merger. If Credit Suisse participates in Parent’s debt financing for the Merger, as is contemplated by the current debt commitment letter described on page 84, the aggregate fee payable by TXU Corp. to Credit Suisse for its financial advisory services would be reduced by $3 million. In addition, TXU Corp. has agreed to reimburse Credit Suisse for its reasonable expenses, including fees and expenses of legal counsel and any other advisor retained by Credit Suisse, and to indemnify Credit Suisse and related parties against certain liabilities and other items, including liabilities under the federal securities laws, arising out of its engagement.
 
TXU Corp. requested that Credit Suisse and certain of its affiliates offer to provide, arrange, or otherwise assist Parent and other potential buyers in obtaining, all or a portion of the financing in connection with acquiring TXU Corp., for which Credit Suisse and such affiliates would receive compensation. TXU Corp. has been advised that Credit Suisse has committed to participate in part of Parent’s debt financing for the Merger. Credit Suisse and its affiliates from time to time in the past have provided and currently are providing investment banking and other financial services to TXU Corp., for which services Credit Suisse and its affiliates have received, and expect to receive, compensation. Credit Suisse and its affiliates also from time to time in the past have provided, currently are providing and in the future may provide investment banking and other financial services to KKR, TPG, their respective affiliates and certain of their respective portfolio companies, for which services Credit Suisse and its affiliates have received, and may receive, compensation. In addition, Credit Suisse and certain of its affiliates and certain of its and their respective employees and certain private investment funds affiliated or associated with Credit Suisse have invested in affiliates of KKR and TPG. Credit Suisse is a full service securities firm engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, Credit Suisse and its affiliates may acquire, hold or sell, for its and its affiliates’ own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of TXU Corp., KKR, TPG and any other entities that may be involved in the Merger, as well as provide investment banking and other financial services to such companies.
 
Opinions of Lazard Frères & Co. LLC
 
     Initial Opinion Dated February 25, 2007
 
Under an agreement dated February 9, 2007, as amended on July 13, 2007, the Special Transactions Committee and the Board of Directors retained Lazard to act as their financial advisor in connection with the Merger. As part of that engagement, the Special Transactions Committee and the Board of Directors requested that Lazard evaluate the fairness, from a financial point of view, to the holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of shares of Common Stock who have not voted such shares in favor of the


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Merger and who have otherwise taken all of the steps required by Subchapter H of Chapter 10 of the Texas Business Organizations Code to properly exercise and perfect such shareholders’ dissenters rights (shares referred to in clause (y) being “Excluded Shares”)) of the Per Share Merger Consideration to be paid to such holders pursuant to the Merger. Lazard delivered an oral opinion to the Special Transactions Committee and the Board of Directors, which opinion was subsequently confirmed by the delivery of a written opinion, dated February 25, 2007, to the effect that, as of that date and based upon and subject to certain assumptions, procedures, factors, limitations and qualifications set forth therein, the Per Share Merger Consideration to be paid to holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares) pursuant to the Merger was fair, from a financial point of view, to such holders.
 
The full text of Lazard’s opinion, which sets forth the procedures followed, assumptions made, factors considered and limitations and qualifications on the review undertaken in connection with the opinion, is attached as Annex C to this proxy statement and is incorporated into this proxy statement by reference. The following is a summary of Lazard’s opinion. The description of Lazard’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of Lazard’s opinion attached as Annex C to this proxy statement. Holders of shares of Common Stock are urged to read Lazard’s opinion carefully in its entirety for a description of the procedures followed, assumptions made, factors considered and limitations and qualifications on the review undertaken by Lazard in connection with its opinion.
 
Lazard’s opinion was directed only to the Special Transactions Committee and the Board of Directors and only addresses the fairness, from a financial point of view, to the holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares) of the Per Share Merger Consideration to be paid to such holders pursuant to the Merger. Lazard’s opinion did not address the merits of the underlying decision by TXU Corp. to engage in the Merger or the relative merits of the Merger as compared to other business strategies or transactions that might be available to TXU Corp. In that regard, Lazard was not authorized to, and did not, solicit third party indications of interest in acquiring all or a part of TXU Corp. or engaging in a business combination or any other strategic transaction with TXU Corp. in connection with its engagement prior to the date of Lazard’s opinion. Lazard’s opinion was not intended to and does not constitute a recommendation to any holder of Common Stock as to how such holder should vote with respect to the Merger or any other matter relating thereto. Further, Lazard’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of its opinion, including, without limitation, the price of natural gas, which may be subject to significant fluctuation between the date of Lazard’s opinion and the effective time of the Merger, and thereafter. Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of its opinion.
 
In connection with its opinion, Lazard:
 
  •  reviewed the financial terms and conditions contained in the latest draft of the Merger Agreement reviewed by Lazard;
 
  •  analyzed certain historical publicly available business and financial information relating to TXU Corp.;
 
  •  reviewed various financial forecasts and other data provided to Lazard by the management of TXU Corp. relating to its businesses;
 
  •  held discussions with members of the senior management of TXU Corp. with respect to the businesses and prospects of TXU Corp.;
 
  •  reviewed public information with respect to certain other companies in lines of business Lazard believed to be generally comparable to those of TXU Corp.;
 
  •  reviewed the financial terms of certain business combinations involving companies in lines of business Lazard believed to be generally comparable to those of TXU Corp.;


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  •  reviewed the historical stock prices and trading volumes of Common Stock; and
 
  •  conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.
 
Lazard relied upon the accuracy and completeness of the foregoing information, and Lazard did not assume any responsibility for any independent verification of such information or any independent valuation or appraisal of any of the assets or liabilities of TXU Corp., or concerning the solvency or fair value of TXU Corp., and Lazard had not been furnished with any such valuation or appraisal prior to the delivery of its opinion. With respect to the financial forecasts, Lazard assumed that they had been reasonably prepared on bases reflecting the best then currently available estimates and judgments of the management of TXU Corp. as to the future financial performance of TXU Corp. Lazard did not assume any responsibility for and expressed no view as to such forecasts or the assumptions on which they were based.
 
In rendering its opinion, Lazard assumed that the Merger would be consummated on the terms described in the Merger Agreement, without any waiver or modification of any material terms or conditions, including Parent’s or Merger Sub’s obtaining the necessary financing to effect the Merger. Lazard further assumed that the executed Merger Agreement would not differ in any material respect from the latest draft provided to Lazard prior to the delivery of its opinion. In addition, Lazard assumed that the representations and warranties of TXU Corp. contained in the Merger Agreement and all agreements related thereto were true and complete.
 
Lazard did not express any opinion as to any tax or other consequences that might result from the Merger, nor did its opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that the Special Transactions Committee, the Board of Directors and TXU Corp. obtained such advice as they deemed necessary from qualified professionals. Lazard’s opinion did not address the solvency or fair value of TXU Corp. or any other entity, including under any state, federal or other applicable laws relating to bankruptcy, insolvency or similar matters. Lazard did not express any opinion as to the price at which shares of Common Stock may trade subsequent to the date of its opinion.
 
In preparing its opinion, Lazard performed a variety of financial and comparative analyses that it deemed to be appropriate for this type of transaction, including those described below. The summary of Lazard’s analyses described below is not a complete description of the analyses underlying Lazard’s opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances and, therefore, is not readily susceptible to summary description. In arriving at its opinion, Lazard considered the results of all the analyses as a whole and did not, and believes that one should not, attribute any particular weight to any factor or analysis considered by it. Rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.
 
In its analyses, Lazard considered industry performance, regulatory, general business, economic, market and financial conditions and other matters, many of which are beyond the control of TXU Corp. No company, transaction or business used in Lazard’s analyses as a comparison is identical to TXU Corp. or the Merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed. The estimates contained in Lazard’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Lazard’s analyses and estimates are inherently subject to substantial uncertainty.
 
Lazard’s opinion was one of many factors taken into consideration by the Special Transactions Committee and the Board of Directors in determining to enter into the Merger Agreement. See “Reasons for the Recommendation of the Board of Directors.” Consequently, the analyses described below should not be viewed as determinative of the opinion of the Special Transactions Committee or the Board of Directors with respect to the Per Share Merger


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Consideration or of whether the Special Transactions Committee or Board of Directors would have been willing to determine that a different merger consideration was fair. The Per Share Merger Consideration to be paid to the holders of shares of Common Stock pursuant to the Merger was determined through arm’s-length negotiations between TXU Corp. and representatives of Parent and was recommended by the Special Transactions Committee and approved by the Board of Directors. Lazard did not recommend any specific merger consideration to the Special Transactions Committee, the Board of Directors or TXU Corp. or that any given merger consideration constituted the only appropriate consideration for the Merger.
 
The following is a brief summary of the material financial and comparative analyses that were performed by Lazard in connection with rendering its opinion. Lazard prepared these analyses for the purpose of providing an opinion to the Special Transactions Committee and the Board of Directors as to the fairness, from a financial point of view, to the holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares) of the Per Share Merger Consideration to be paid to such holders pursuant to the Merger. The financial analyses summarized below include information presented in tabular format. In order to fully understand Lazard’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Lazard’s financial analyses.
 
Historical Trading Prices
 
Lazard compared the Per Share Merger Consideration to the closing price of Common Stock on February 21, 2007, the date that is two full trading days prior to the announcement of the execution of the Merger Agreement, and to the average daily closing prices of Common Stock for the trailing 30- and 90-trading day time periods as of February 21, 2007 and noted the following implied offer premia:
 
                 
          Implied Premium to
 
    Common
    Per Share Merger
 
    Stock Price     Consideration(b)  
 
Premium to:(a)
               
As of February 21, 2007
  $ 56.07       23.5 %
30-day trailing average
  $ 55.49       24.8 %
90-day trailing average
  $ 55.29       25.2 %
 
 
(a) 30- and 90-day averages calculated based on period ending February 21, 2007.
 
(b) Based on the Per Share Merger Consideration of $69.25 per share of Common Stock.
 
Comparable Public Companies Analysis
 
Lazard calculated an implied valuation for TXU Corp. based on an analysis of companies that Lazard believed to be generally comparable to TXU Corp. In performing these analyses, Lazard reviewed and analyzed certain publicly available financial information, valuation multiples and market trading data relating to the selected comparable companies and compared such information to the corresponding information for TXU Corp. This analysis was performed to derive a range of implied equity values per share of Common Stock based on the market values of shares of comparable publicly traded companies.
 
For purposes of this analysis, Lazard reviewed seven public utility companies that had substantial operations in certain or all of merchant generation, electricity delivery and retail electricity supply (the “Merchant Utility Companies”). Although none of the Merchant Utility Companies is directly comparable to TXU Corp., the Merchant Utility Companies were chosen because they are publicly traded companies with operations that, for


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purposes of analysis, were considered similar to certain operations of TXU Corp. The Merchant Utility Companies are:
 
  •  American Electric Power Co. Inc.;
 
  •  Allegheny Energy Inc.;
 
  •  Constellation Energy Group Inc.;
 
  •  Edison International;
 
  •  NRG Energy Inc.;
 
  •  Reliant Energy Inc.; and
 
  •  Sempra Energy.
 
In general, historical financial data used for this analysis was as of September 30, 2006 or December 31, 2006, depending on the date of the most recently available public information for each Merchant Utility Company, and market data used for this analysis was as of February 21, 2007. Projected earnings per share, or EPS, and long-term growth rates used for this analysis were based on consensus estimates as of February 21, 2007 from I/B/E/S (a data source that compiles estimates issued by research analysts) for each Merchant Utility Company. Other projected information for the Merchant Utility Companies used for this analysis was based on selected Wall Street equity research reports.
 
Using this data, Lazard reviewed the:
 
  •  trading price (common stock price) of each of the Merchant Utility Companies as a multiple of projected 2007 and 2008 EPS;
 
  •  enterprise value (defined as market capitalization plus net debt) of the Merchant Utility Companies as a multiple of projected 2007 and 2008 EBITDA; and
 
  •  enterprise value of the Merchant Utility Companies as a multiple of projected 2007 and 2008 earnings before interest and taxes (“EBIT”).
 
The following table summarizes the results of this review:
 
                         
    Merchant Utility Company  
    Range(a)     Mean     Median  
 
Multiple of Stock Price to:
                       
Projected 2007 EPS
    13.9x-21.1x       16.7x       16.1x  
Projected 2008 EPS
    13.4x-18.0x       15.0x       14.6x  
Enterprise Value to:
                       
Projected 2007 EBITDA
    6.7x-10.2x       8.6x       8.6x  
Projected 2008 EBITDA
    6.5x- 9.2x       7.8x       7.9x  
Projected 2007 EBIT
    9.8x-15.3x       12.6x       12.2x  
Projected 2008 EBIT
    9.7x-12.8x       11.1x       11.1x  
 
 
(a) Reliant excluded from stock price to projected EPS multiple ranges as Reliant’s insignificant near-term earnings did not form a valuation basis that Lazard believed was appropriate for its shares.
 
Based on the foregoing review and after comparing the results of the review to (i) estimates for TXU Corp.’s results of operations from selected Wall Street equity research reports, and (ii) internal estimates and forecasts of


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TXU Corp.’s management making certain subjective valuation judgments based on TXU Corp.’s business mix, its projected financial performance relative to the Merchant Utility Companies and its historic trading multiples relative to the Merchant Utility Companies, Lazard calculated the following implied equity reference value ranges per share of Common Stock:
 
                                 
Financial Metric   Multiples Range     Implied Equity Value Per Share  
    Low     High     Low     High  
 
Projected 2007 EBITDA
    7.25 x     8.00 x   $ 52.24     $ 60.15  
Projected 2008 EBITDA
    7.50 x     8.25 x   $ 51.85     $ 59.45  
Projected 2007 EBIT
    9.25 x     10.50 x   $ 58.52     $ 69.70  
Projected 2008 EBIT
    9.50 x     11.00 x   $ 56.42     $ 69.14  
Projected 2007 Net Income
    11.50 x     13.50 x   $ 55.61     $ 65.28  
Projected 2008 Net Income
    11.00 x     13.00 x   $ 55.84     $ 65.99  
 
 
From this analysis, based on the assumptions and subjective judgments set forth above, Lazard derived an implied equity reference range per share of Common Stock of $53.12 to $63.86, as compared to the Per Share Merger Consideration of $69.25 per share.
 
Precedent Transactions Analysis
 
Lazard analyzed certain publicly available information relating to selected publicly announced precedent transactions in the electric utility industry and other large buyout transactions to assess the market values of shares of reasonably comparable publicly traded companies and to provide a range of implied equity values per share of Common Stock.
 
In selecting the precedent transactions it used in this analysis, Lazard reviewed merger transactions since 1997 involving companies in the electric utility industry but relied more extensively on recently announced transactions, specifically those announced since December 2004. In addition, Lazard reviewed several large buyout transactions across a variety of industries since 2005 in order to compare the implicit premium paid to the existing shareholders of the relevant targets. Although none of the selected precedent transactions or the companies party to the precedent transactions is directly comparable to the Merger or to TXU Corp., the precedent transactions were chosen because they involve transactions that, for purposes of analysis, were considered similar to the Merger and/or involve publicly traded companies with operations that, for purposes of analysis, were considered similar to certain operations of TXU Corp.


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The precedent electric utility transactions selected by Lazard are (listed by the date publicly announced, the acquiror and the target company):
 
         
Date Publicly Announced   Acquiror   Target
 
Recent Transactions:
       
February 7, 2007
  Great Plains/Black Hills   Aquila, Inc.
July 10, 2006
  WPS Resources   Peoples Energy Corporation
July 5, 2006
  Investor Group/Macquarie   Duquesne Light Holdings, Inc.
April 25, 2006
  Babcock & Brown Infrastructure   NorthWestern Corporation
February 27, 2006
  National Grid plc   KeySpan Corporation
December 19, 2005
  FPL Group, Inc.   Constellation Energy Group, Inc.
May 24, 2005
  MidAmerican Energy Company   PacifiCorp
May 9, 2005
  Duke Energy Corporation   Cinergy Corp.
December 20, 2004
  Exelon Corporation   Public Service Enterprise Group Incorporated
Other Selected Transactions:
       
February 3, 2004
  Ameren Corporation   Illinois Power Company
April 28, 2002
  Ameren Corporation   CILCORP Inc.
February 20, 2001
  Energy East Corporation   RGS Energy Group, Inc.
February 12, 2001
  PEPCO Holdings, Inc.   Conectiv
November 9, 2000
  Public Service Company of New Mexico   Western Resources Electric Utility
September 5, 2000
  National Grid Group plc   Niagara Mohawk Power Corporation
August 8, 2000
  FirstEnergy Corp.   GPU, Inc.
July 17, 2000
  The AES Corporation   IPALCO Enterprises Inc
February 28, 2000
  PowerGen plc   LG&E Energy Corp.
October 25, 1999
  Investor Group   MidAmerican Energy Holdings Co.
August 23, 1999
  Carolina Power & Light Company   Florida Progress Corporation
June 14, 1999
  Dynegy Inc.   Illinova Corporation
February 1, 1999
  New England Electric System   Eastern Utilities Associates
December 14, 1998
  National Grid Group plc   New England Electric System
December 7, 1998
  Scottish Power plc   PacifiCorp
August 12, 1998
  CalEnergy Co Inc   MidAmerican Energy Company
May 11, 1998
  Consolidated Edison, Inc.   Orange & Rockland Utilities, Inc.
December 22, 1997
  American Electric Power Company Inc.   Central & South West Corporation
 


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For each of the selected electric utility precedent transactions, Lazard calculated (i) the target company’s transaction value (calculated as equity purchase price plus net debt) as a multiple of EBITDA for the target company for the last twelve months prior to the announcement of the transaction, or LTM, (ii) the equity purchase price as a multiple of the target company’s forward earnings as available as of the announcement of the transaction, and (iii) the premium paid or proposed to be paid in the precedent transaction based on the stock price of the target company one day and one week prior to the public announcement of the transaction. In performing this analysis, Lazard calculated the following multiple and premia ranges based on the recent precedent transactions indicated above and for all of the selected precedent transactions indicated above:
 
         
Recent Precedent Electric Utility Merger Transactions:   Range   Median
 
Transaction Value / LTM EBITDA
  8.5x-11.5x   9.1x
Equity Purchase Price / Forward Earnings
  15.0x-20.6x   17.8x
Premia Paid:
       
1-Day
  (2.8%)-21.7%   14.2%
1-Week
  0.2%-24.7%   16.8%
 
         
All Precedent Electric Utility Merger Transactions:   Range   Median
 
Transaction Value / LTM EBITDA
  5.5x-11.5x   7.9x
Equity Purchase Price / Forward Earnings
  11.4x-20.6x   16.9x
Premia Paid:
       
1-Day
  (2.8%)-57.8%   20.0%
1-Week
  0.2%-58.4%   19.5%
         
 
The large buyout transactions selected by Lazard are (listed by the acquiror and the target company):
 
     
Acquiror
 
Target
 
The Blackstone Group
  Equity Office Properties Trust
Bain Capital Partners, LLC /Kohlberg Kravis Roberts & Co. L.P. / Merrill Lynch Global Partners, Inc.   HCA Inc.
Kohlberg Kravis Roberts & Co. L.P.
  RJR Nabisco, Inc.
Apollo Management, L.P. and TPG Partners, L.P.
  Harrah’s Entertainment, Inc.
Bain Capital Partners, LLC / Thomas H. Lee Partners, L.P.   Clear Channel Communications, Inc.
GS Capital Partners / American International Group, Inc. /The Carlyle Group / Riverstone Holdings LLC   Kinder Morgan, Inc.
The Blackstone Group /The Carlyle Group / Permira Advisers LLC /Texas Pacific Group   Freescale Semiconductor, Inc.
Cerberus Capital Management, L.P.   Albertson’s, Inc.
Apax Partners Worldwide LLP / The Blackstone Group International Limited / Kohlberg Kravis Roberts & Co. L.P. / Permira Advisers KB / Providence Equity Partners Limited   TDC A/S
Clayton, Dubilier & Rice, Inc. / The Carlyle Group / Merrill Lynch Global Private Equity   The Hertz Corporation


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For each of the selected large buyout transactions, Lazard calculated the premium paid or proposed to be paid based on the closing stock price of the target company one day prior to announcement of the transaction.
 
Based on the foregoing, and after making certain subjective judgments regarding appropriate multiples and premia based on TXU Corp.’s business mix and projected financial performance relative to that of the target universe in the reviewed precedent transactions, Lazard determined the following implied equity reference value ranges per share of Common Stock:
 
                                 
Financial Metric   Multiples Range   Implied Equity Value per Share  
    Low   High   Low     High  
 
Enterprise Value / 2006E EBITDA
  7.75x   8.75x   $ 64.87     $ 76.36  
Enterprise Value / 2007E EBITDA
  8.00x   9.00x   $ 60.15     $ 70.69  
Equity Purchase Price /Forward Earnings
  11.50x   13.50x   $ 67.70     $ 77.37  
Premia Paid – Utility Transactions
  12%   20%   $ 63.48     $ 68.02  
Premia Paid – Large Buyout Transactions
  15%   25%   $ 65.18     $ 70.85  
                         
 
 
From this analysis, based on the assumptions and subjective judgments set forth above, Lazard derived an implied equity reference range per share of Common Stock of $60.50 to $70.84, as compared to the Per Share Merger Consideration of $69.25 per share.
 
Sum of the Parts Discounted Cash Flow Analysis
 
Lazard performed an analysis of the present value of the projected unlevered free cash flows derived from each of the business segments of TXU Corp. using financial projections provided by TXU Corp. management and assuming discount rates reflective of the calculated weighted average cost of capital for peer companies of each of the respective business segments. This analysis was performed to derive a valuation of shares of Common Stock as a function of the future unlevered free cash flows and going concern values of each of its business segments to provide a range of implied equity values per share of Common Stock based on the value of TXU Corp.’s enterprise as a whole.
 
In performing this analysis, Lazard analyzed the forecasted cash flow for the following segments of TXU Corp.:
 
  •  electricity generation operation (“Power”);
 
  •  regulated electricity transmission and distribution business (“Delivery”);
 
  •  consumer and business retail electricity sales (“Retail”);
 
  •  additional generation asset development (“Development”);
 
  •  wholesale power management business (“Wholesale”); and
 
  •  corporate and other business operations (“Corporate”).
 
For Power, Lazard performed a five-year discounted cash flow analysis using a discount rate range of 9.5% to 10.5% and a terminal value based on a 2012 EBITDA exit multiple range of 8.0x to 9.0x; for Delivery, a five-year discounted cash flow analysis using a discount rate range of 5.5% to 6.5% and a terminal value based on a 2012 EBITDA exit multiple range of 8.0x to 8.5x; for Retail, a thirteen-year discounted cash flow analysis using a discount rate range of 8.5% to 9.5% and a terminal value based on a 2020 EBITDA exit multiple range of 6.0x to 7.0x; for Development, a five-year discounted cash flow analysis using a discount rate range of 9.5% to 10.5% and a terminal value based on a 2012 EBITDA exit multiple range of 8.0x to 9.0x; for Wholesale, a five-year discounted cash flow analysis using a discount rate range of 8.5% to 9.5% and a terminal value based on a 2012 EBITDA exit multiple range of 5.0x to 6.0x; and for Corporate, a five-year


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discounted cash flow analysis using a discount rate range of 5.5% to 6.5% and a terminal value based on a 2012 EBITDA exit multiple range of 5.0x to 6.0x.
 
The following table represents the results of the analysis performed by Lazard:
 
                 
Business Segment   Enterprise Value  
    (in millions, except per share amounts)  
    Low     High  
 
Power
    $16,039       $18,062  
Development
    2,607       3,800  
Delivery
    10,186       11,309  
Retail
    5,446       6,141  
Wholesale
    1,923       2,144  
Corporate
    1,290       1,371  
Total Enterprise Value
    $37,490       $42,828  
Less: Net Debt
    $(11,262 )     $(11,262 )
Equity Value
    $26,228       $31,566  
Equity Value per Share
    $56.32       $67.78  
                 
 
 
From this analysis, based on the assumptions set forth above, Lazard derived an implied equity reference range per share of Common Stock of $56.32 to $67.78, as compared to the Per Share Merger Consideration of $69.25 per share.
 
Updated Opinion Dated July 12, 2007
 
Under an agreement dated February 9, 2007, as amended on July 13, 2007, the Special Transactions Committee and the Board of Directors retained Lazard to act as their financial advisor in connection with the Merger. As part of that engagement, the Special Transactions Committee and the Board of Directors requested that Lazard evaluate the fairness, from a financial point of view, to the holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares) of the Per Share Merger Consideration to be paid to such holders pursuant to the Merger. Lazard delivered an oral opinion to the Special Transactions Committee and the Board of Directors, which opinion was subsequently confirmed by the delivery of a written opinion, dated July 12, 2007, to the effect that, as of that date and based upon and subject to certain assumptions, procedures, factors, limitations and qualifications set forth therein, the Per Share Merger Consideration to be paid to holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares) pursuant to the Merger was fair, from a financial point of view, to such holders.
 
The full text of Lazard’s updated opinion, which sets forth the procedures followed, assumptions made, factors considered and limitations and qualifications on the review undertaken in connection with the updated opinion, is attached as Annex D to this proxy statement and is incorporated into this proxy statement by reference. The following is a summary of Lazard’s updated opinion. The description of Lazard’s updated opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of Lazard’s updated opinion attached as Annex D to this proxy statement. Holders of shares of Common Stock are urged to read Lazard’s updated opinion carefully in its entirety for a description of the procedures followed, assumptions made, factors considered and limitations and qualifications on the review undertaken by Lazard in connection with its updated opinion.
 
Lazard’s updated opinion was directed only to the Special Transactions Committee and the Board of Directors and only addresses the fairness, from a financial point of view, to the holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares) of the Per Share Merger Consideration to be paid to such holders pursuant to the Merger. Lazard’s updated opinion did not address the merits of the underlying decision by TXU Corp. to engage in the Merger or the relative merits of the Merger as compared to other business strategies or transactions that might be available to


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TXU Corp. Lazard’s updated opinion was not intended to and does not constitute a recommendation to any holder of Common Stock as to how such holder should vote with respect to the Merger or any other matter relating thereto. Further, Lazard’s updated opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of its opinion, including, without limitation, the price of natural gas, which may be subject to significant fluctuation between the date of Lazard’s updated opinion and the effective time of the Merger, and thereafter. Lazard assumed no responsibility for updating or revising its updated opinion based on circumstances or events occurring after the date of its updated opinion.
 
In connection with its updated opinion, Lazard:
 
  •  reviewed the financial terms and conditions contained in the Merger Agreement;
 
  •  analyzed certain historical publicly available business and financial information relating to TXU Corp.;
 
  •  reviewed various financial forecasts and other data provided to Lazard by the management of TXU Corp. relating to its businesses;
 
  •  held discussions with members of the senior management of TXU Corp. with respect to the businesses and prospects of TXU Corp.;
 
  •  reviewed public information with respect to certain other companies in lines of business Lazard believed to be generally comparable to those of TXU Corp.;
 
  •  reviewed the financial terms of certain business combinations involving companies in lines of business Lazard believed to be generally comparable to those of TXU Corp.;
 
  •  reviewed the historical stock prices and trading volumes of Common Stock; and
 
  •  conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.
 
Lazard relied upon the accuracy and completeness of the foregoing information, and Lazard did not assume any responsibility for any independent verification of such information or any independent valuation or appraisal of any of the assets or liabilities of TXU Corp., or concerning the solvency or fair value of TXU Corp., and Lazard had not been furnished with any such valuation or appraisal prior to the delivery of its updated opinion. With respect to the financial forecasts, Lazard assumed that they had been reasonably prepared on bases reflecting the best then currently available estimates and judgments of the management of TXU Corp. as to the future financial performance of TXU Corp. Lazard did not assume any responsibility for and expressed no view as to such forecasts or the assumptions on which they were based.
 
In rendering its updated opinion, Lazard assumed that the Merger would be consummated on the terms described in the Merger Agreement, without any waiver or modification of any material terms or conditions, including Parent’s or Merger Sub’s obtaining the necessary financing to effect the Merger. In addition, Lazard assumed that the representations and warranties of TXU Corp. contained in the Merger Agreement and all agreements related thereto were true and complete.
 
Lazard did not express any opinion as to any tax or other consequences that might result from the Merger, nor did its updated opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that the Special Transactions Committee, the Board of Directors and TXU Corp. obtained such advice as they deemed necessary from qualified professionals. Lazard’s updated opinion did not address the solvency or fair value of TXU Corp. or any other entity, including under any state, federal or other applicable laws relating to bankruptcy, insolvency or similar matters. Lazard did not express any opinion as to the price at which shares of Common Stock may trade subsequent to the date of its updated opinion.
 
In preparing its updated opinion, Lazard performed a variety of financial and comparative analyses that it deemed to be appropriate for this type of transaction, including those described below. The summary of Lazard’s analyses described below is not a complete description of the analyses underlying Lazard’s updated opinion. The


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preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances and, therefore, is not readily susceptible to summary description. In arriving at its updated opinion, Lazard considered the results of all the analyses as a whole and did not, and believes that one should not, attribute any particular weight to any factor or analysis considered by it. Rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.
 
In its analyses, Lazard considered industry performance, regulatory, general business, economic, market and financial conditions and other matters, many of which are beyond the control of TXU Corp. No company, transaction or business used in Lazard’s analyses as a comparison is identical to TXU Corp. or the Merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed. The estimates contained in Lazard’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Lazard’s analyses and estimates are inherently subject to substantial uncertainty.
 
Lazard’s updated opinion was one of many factors taken into consideration by the Special Transactions Committee and the Board of Directors in taking actions with respect to the Merger Agreement, including making its recommendation described in this proxy statement. See “Reasons and Recommendation of the Board of Directors.” Consequently, the analyses described below should not be viewed as determinative of the opinion of the Special Transactions Committee or the Board of Directors with respect to the Per Share Merger Consideration or of whether the Special Transactions Committee or Board of Directors would have been willing to determine that a different merger consideration was fair. The Per Share Merger Consideration to be paid to the holders of shares of Common Stock pursuant to the Merger was determined through arm’s-length negotiations between TXU Corp. and representatives of Parent and was recommended by the Special Transactions Committee and approved by the Board of Directors. Lazard did not recommend any specific merger consideration to the Special Transactions Committee, the Board of Directors or TXU Corp. or that any given merger consideration constituted the only appropriate consideration for the Merger.
 
The following is a brief summary of the material financial and comparative analyses that were performed by Lazard in connection with rendering its updated opinion. Lazard prepared these analyses for the purpose of providing an updated opinion to the Special Transactions Committee and the Board of Directors as to the fairness, from a financial point of view, to the holders of shares of Common Stock (other than (x) Parent’s affiliates or (y) holders of Excluded Shares) of the Per Share Merger Consideration to be paid to such holders pursuant to the Merger. The financial analyses summarized below include information presented in tabular format. In order to fully understand Lazard’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Lazard’s financial analyses.
 
Historical Trading Prices
 
Lazard compared the Per Share Merger Consideration to the closing price of Common Stock on February 21, 2007, the date that is two full trading days prior to the announcement of the execution of the Merger Agreement, and to the average daily closing prices of Common Stock for the trailing 30- and 90-trading day time periods as of February 21, 2007. The results of these comparisons were identical to those set forth in the section “— Initial Opinion Dated February 25, 2007 — Historical Trading Prices”.


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Comparable Public Companies Analysis
 
Lazard calculated an implied valuation for TXU Corp. based on an analysis of companies that Lazard believed to be generally comparable to TXU Corp. In performing these analyses, Lazard reviewed and analyzed certain publicly available financial information, valuation multiples and market trading data relating to the selected comparable companies and compared such information to the corresponding information for TXU Corp. This analysis was performed to derive a range of implied equity values per share of Common Stock based on the market values of shares of comparable publicly traded companies.
 
For purposes of this analysis, Lazard reviewed seven Merchant Utility Companies, which as noted in the section “— Initial Opinion dated February 25, 2007 — Comparable Public Companies Analysis” are public utility companies that had substantial operations in certain or all of merchant generation, electricity delivery and retail electricity supply. Although none of the Merchant Utility Companies is directly comparable to TXU Corp., the Merchant Utility Companies were chosen because they are publicly traded companies with operations that, for purposes of analysis, were considered similar to certain operations of TXU Corp. The Merchant Utility Companies are the same as those Merchant Utility Companies set forth in the section “— Initial Opinion Dated February 25, 2007 — Comparable Public Companies Analysis”.
 
In general, historical financial data used for this analysis was as of December 31, 2006 or March 31, 2007, depending on the date of the most recently available public information for each Merchant Utility Company, and market data used for this analysis was as of July 5, 2007. Projected earnings per share, or EPS, and long-term growth rates used for this analysis were based on consensus estimates as of July 5, 2007 from I/B/E/S (a data source that compiles estimates issued by research analysts) for each Merchant Utility Company. Other projected information for the Merchant Utility Companies used for this analysis was based on selected Wall Street equity research reports.
 
Using this data, Lazard reviewed the:
 
  •  trading price (common stock price) of each of the Merchant Utility Companies as a multiple of projected 2007 and 2008 EPS;
 
  •  enterprise value (defined as market capitalization plus net debt) of the Merchant Utility Companies as a multiple of projected 2007 and 2008 EBITDA; and
 
  •  enterprise value of the Merchant Utility Companies as a multiple of projected 2007 and 2008 EBIT.
 
The following table summarizes the results of this review:
 
                         
    Merchant Utility Company  
    Range(a)     Mean     Median  
 
Multiple of Stock Price to:
                       
Projected 2007 EPS
    15.4x-23.8x       18.5x       18.0x  
Projected 2008 EPS
    14.4x-20.0x       16.4x       15.6x  
Enterprise Value to:
                       
Projected 2007 EBITDA
    7.3x-12.1x       8.8x       8.7x  
Projected 2008 EBITDA
    7.2x-10.1x       8.0x       7.7x  
Projected 2007 EBIT
    10.6x-19.5x       13.3x       12.7x  
Projected 2008 EBIT
    9.5x-15.8x       11.8x       11.1x  
 
 
(a) Reliant excluded from stock price to projected EPS multiple ranges as Reliant’s insignificant near-term earnings did not form a valuation basis that Lazard believed was appropriate for its shares.


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Based on the foregoing review and after comparing the results of the review to (i) estimates for TXU Corp.’s results of operations from selected Wall Street equity research reports, and (ii) internal estimates and forecasts of TXU Corp.’s management making certain subjective valuation judgments based on TXU Corp.’s business mix, its projected financial performance relative to the Merchant Utility Companies and its historical trading multiples relative to the Merchant Utility Companies, Lazard calculated the following implied equity reference value ranges per share of Common Stock:
 
                                 
Financial Metric   Multiples Range     Implied Equity Value Per Share  
    Low     High     Low     High  
 
Projected 2007 EBITDA
    8.25x       9.25x     $ 55.61     $ 65.81  
Projected 2008 EBITDA
    8.25x       9.25x     $ 53.45     $ 63.40  
Projected 2007 EBIT
    10.0x       11.0x     $ 55.41     $ 63.81  
Projected 2008 EBIT
    10.0x       11.0x     $ 51.98     $ 60.04  
Projected 2007 Net Income
    12.5x       14.5x     $ 55.81     $ 64.74  
Projected 2008 Net Income
    13.0x       15.0x     $ 57.40     $ 66.23  
                                 
 
 
From this analysis, based on the assumptions and subjective judgments set forth above, Lazard derived an implied equity reference range per share of Common Stock of $54.46 to $65.25, as compared to the Per Share Merger Consideration of $69.25 per share.
 
Precedent Transactions Analysis
 
Lazard analyzed certain publicly available information relating to selected publicly announced precedent transactions in the electric utility industry and other large buyout transactions to assess the market values of shares of reasonably comparable publicly traded companies and to provide a range of implied equity values per share of Common Stock.
 
In selecting the precedent transactions it used in this analysis, Lazard reviewed merger transactions since 1997 involving companies in the electric utility industry but relied more extensively on recently announced transactions, specifically those announced since December 2004. In addition, Lazard reviewed several large buyout transactions across a variety of industries since 2005 in order to compare the implicit premium paid to the existing shareholders of the relevant targets. Although none of the selected precedent transactions or the companies party to the precedent transactions is directly comparable to the Merger or to TXU Corp., the precedent transactions were chosen because they involve transactions that, for purposes of analysis, were considered similar to the Merger and/or involve publicly traded companies with operations that, for purposes of analysis, were considered similar to certain operations of TXU Corp.
 
The precedent electric utility transactions selected by Lazard are the same as those precedent electric utility transactions set forth in the section “— Initial Opinion Dated February 25, 2007 — Precedent Transactions Analysis” except that they also include Iberdrola S.A. (acquiror) / Energy East Corporation (target) announced on June 25, 2007.
 
For each of the selected electric utility precedent transactions, Lazard calculated (i) the target company’s transaction value (calculated as equity purchase price plus net debt) as a multiple of EBITDA for the target company for the last twelve months prior to the announcement of the transaction, or LTM, (ii) the equity purchase price as a multiple of the target company’s forward earnings as available as of the announcement of the transaction, and (iii) the premium paid or proposed to be paid in the precedent transaction based on the stock price of the target company one day and one week prior to the public announcement of the transaction. In performing this analysis,


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Lazard calculated the following multiple and premia ranges based on the recent precedent transactions indicated above and for all of the selected precedent transactions indicated above:
 
         
Recent Precedent Electric Utility Merger Transactions:   Range   Median
 
Transaction Value / LTM EBITDA
  8.5x-11.5x   9.1x
Equity Purchase Price /Forward Earnings
  15.0x-20.6x   18.2x
Premia Paid:
       
1-Day
  (2.8%)-26.4%   15.0%
1-Week
  0.2%-24.7%   18.0%
 
         
All Precedent Electric Utility Merger Transactions:   Range   Median
 
Transaction Value /LTM EBITDA
  5.5x-11.5x   7.8x
Equity Purchase Price /Forward Earnings
  11.4x-20.6x   16.5x
Premia Paid:
       
1-Day
  (5.3%)-57.8%   19.7%
1-Week
  (0.6%)-58.4%   19.1%
         
 
The large buyout transactions selected by Lazard are the same as those large buyout transactions set forth in the section “— Initial Opinion Dated February 25, 2007 — Precedent Transactions Analysis” except that they also include Ontario Teachers Pension Plan Board, Providence Equity Partners Inc. and Madison Dearborn Partners, LLC (acquiror) / BCE Inc. (target) announced on June 30, 2007.
 
For each of the selected large buyout transactions, Lazard calculated the premium paid or proposed to be paid based on the closing stock price of the target company one day prior to announcement of the transaction.
 
Based on the foregoing, and after making certain subjective judgments regarding appropriate multiples and premia based on TXU Corp.’s business mix and projected financial performance relative to that of the target universe in the reviewed precedent transactions, Lazard determined the following implied equity reference value ranges per share of Common Stock:
 
                                 
Financial Metric   Multiples Range     Implied Equity Value Per Share  
    Low     High     Low     High  
 
Enterprise Value / 2006E EBITDA
    7.75 x     8.75 x   $ 60.72     $ 72.24  
Enterprise Value / 2007E EBITDA
    8.00 x     9.00 x   $ 53.05     $ 63.26  
Equity Purchase Price / 2007E Earnings
    14.0 x     16.0 x   $ 62.51     $ 71.44  
Equity Purchase Price / 2008E Earnings
    14.5 x     16.5 x   $ 64.03     $ 72.86  
Premia Paid – Utility Transactions
    12 %     20 %   $ 62.80     $ 67.28  
Premia Paid – Large Buyout Transactions
    15 %     25 %   $ 64.48     $ 70.09  
                                 
 
From this analysis, based on the assumptions and subjective judgments set forth above, Lazard derived an implied equity reference range per share of Common Stock of $60.93 to $70.64, as compared to the Per Share Merger Consideration of $69.25 per share.


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Sum of the Parts Discounted Cash Flow Analysis
 
Lazard performed an analysis of the present value of the projected unlevered free cash flows derived from each of the business segments of TXU Corp. using financial projections provided by TXU Corp. management and assuming discount rates reflective of the calculated weighted average cost of capital for peer companies of each of the respective business segments. This analysis was performed to derive a valuation of shares of Common Stock as a function of the future unlevered free cash flows and going concern values of each of its business segments to provide a range of implied equity values per share of Common Stock based on the value of TXU Corp.’s enterprise as a whole.
 
In performing this analysis, Lazard analyzed the forecasted cash flow for the following segments of TXU Corp.:
 
  •  Power;
 
  •  Delivery;
 
  •  Retail;
 
  •  Development;
 
  •  Wholesale; and
 
  •  Corporate.
 
These segments are described in the section “— Initial Opinion Dated February 25, 2007 — Sum of the Parts Discounted Cash Flow Analysis”.
 
For Power, Lazard performed a five-year discounted cash flow analysis using a discount rate range of 9.0% to 10.0% and a terminal value based on a 2012 EBITDA exit multiple range of 8.5x to 9.5x; for Delivery, a five-year discounted cash flow analysis using a discount rate range of 6.0% to 7.0% and a terminal value based on a 2012 EBITDA exit multiple range of 8.25x to 8.75x; for Retail, a thirteen-year discounted cash flow analysis using a discount rate range of 8.5% to 9.5% and a terminal value based on a 2020 EBITDA exit multiple range of 6.5x to 8.5x; for Development, a five-year discounted cash flow analysis using a discount rate range of 9.0% to 10.0% and a terminal value based on a 2012 EBITDA exit multiple range of 8.5x to 9.5x; for Wholesale, a five-year discounted cash flow analysis using a discount rate range of 8.5% to 9.5% and a terminal value based on a 2012 EBITDA exit multiple range of 6.0x to 7.0x; and for Corporate, a five-year discounted cash flow analysis using a discount rate range of 6.0% to 7.0% and a terminal value based on a 2012 EBITDA exit multiple range of 7.0x to 8.0x. Differences in the assumed discount rate ranges for the various business segments of TXU Corp. between Lazard’s initial opinion rendered on February 25, 2007 and Lazard’s updated opinion reflect changes in the calculated weighted average cost of capital for peer companies of the respective TXU Corp. business segments. Differences in the assumed EBITDA exit multiple ranges for the various business segments of TXU Corp. between Lazard’s initial opinion rendered on February 25, 2007 and Lazard’s updated opinion reflect changes in the underlying trading multiples for peer companies of the respective TXU Corp. business segments.
 
The following table represents the results of the analysis performed by Lazard:
 
                 
Business Segment   Enterprise Value  
    (in millions, except per share amounts)  
    Low     High  
 
Power
    $18,855       $21,210  
Development
    4,225       4,978  
Delivery
    10,850       11,911  
Retail
    3,787       4,540  
Wholesale
    570       628  
Corporate
    882       962  
Total Enterprise Value
    $39,168       $44,230  
Less: Net Debt
    $(13,252 )     $(13,252 )
Equity Value
    $25,916       $30,978  
Equity Value per Share
    $55.90       $66.82  
                 


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From this analysis, based on the assumptions set forth above, Lazard derived an implied equity reference range per share of Common Stock of $55.90 to $66.82, as compared to the Per Share Merger Consideration of $69.25 per share.
 
Miscellaneous
 
In connection with Lazard’s services as the financial advisor to the Special Transactions Committee and the Board of Directors, TXU Corp. has agreed to pay Lazard an aggregate fee of $13.5 million. TXU Corp. had initially agreed to pay Lazard an aggregate fee of $8 million pursuant to the original engagement agreement with Lazard, $1 million of which became payable upon the execution of the original engagement agreement with Lazard, $5 million of which became payable upon the earliest of the delivery of Lazard’s initial opinion (and was not contingent upon the outcome of the opinion), the execution of the Merger Agreement and the consummation of the Merger and $2 million of which was contingent upon the consummation of the Merger. In addition, TXU Corp. agreed to pay Lazard an additional fee if Lazard conducted the “go shop” process at the request of the Special Transactions Committee and the Board of Directors upon the occurrence of certain events following the receipt by TXU Corp. of an alternative acquisition proposal. In connection with the request by the Strategic Transactions Committee that Lazard provide additional services (including, if requested, delivery of an updated opinion), TXU Corp. agreed to amend its fee arrangement with Lazard. The amended fee arrangement resulted in a fee of $2 million becoming payable to Lazard upon execution of the amendment, and an additional fee of $3.5 million becoming payable to Lazard upon the filing with the SEC of this proxy statement. In addition, TXU Corp. agreed to remove the contingency relating to the $2 million that would have been payable to Lazard upon consummation of the Merger. This $2 million fee also became payable upon the filing with the SEC of this proxy statement. These amounts are in addition to the $6 million previously paid to Lazard. No other fees are payable to Lazard under the original engagement agreement or the amendment thereto. Under certain circumstances, if Lazard terminates its engagement with respect to the Merger, it will refund TXU Corp. a portion of the fees that became payable upon the filing with the SEC of this proxy statement. TXU Corp. has also agreed to reimburse Lazard for its reasonable expenses (including reasonable fees and disbursements of attorneys) and to indemnify Lazard and certain related parties against liabilities, including certain liabilities under the federal securities laws, arising out of its engagement.
 
Lazard has in the past provided investment banking services to TXU Corp. and may have provided and may currently be providing investment banking services to one or more of the equity holders of Parent, or to one or more of their respective portfolio companies or other affiliates, for which Lazard has received and/or may receive customary fees.
 
Lazard, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts, and valuations for estate, corporate and other purposes. In addition, in the ordinary course of their respective businesses, affiliates of Lazard and LFCM Holdings LLC (an entity held in large part by managing directors of Lazard) may actively trade securities of TXU Corp. and/or the securities of the portfolio companies and/or affiliates of the equity holders of Parent for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities.
 
Lazard is an internationally recognized investment banking firm providing a full range of financial advisory and securities services. Lazard was selected to act as investment banker to the Special Transactions Committee and the Board of Directors because of its qualifications, expertise and reputation in investment banking and mergers and acquisitions, as well as its familiarity with the business of TXU Corp.
 
Projected Financial Information
 
Although TXU Corp. periodically may issue limited guidance to investors concerning its expected financial performance, TXU Corp. does not as a matter of course publicly disclose detailed financial projections. However, in connection with the due diligence for the Merger, in February 2007, TXU Corp. provided KKR, TPG and other equity and debt financing sources, as well as TXU Corp.’s financial advisors, with certain non-public financial projections that were prepared by TXU Corp.’s management for internal planning purposes and not for public disclosure. These initial projections were prepared based upon a variety of cases and assumptions and were


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regularly refined and revised prior to the February 25, 2007 signing of the Merger Agreement. In addition, in late June and early July 2007, TXU Corp.’s management prepared, at the request of the Strategic Transactions Committee, updated financial projections that reflected management’s view of its proposed business plan and TXU Corp.’s business prospects assuming that the Merger was not consummated. These updated projections are referred to as the “July Base Case Financial Projections” and were provided to Lazard prior to the delivery of Lazard’s updated opinion.
 
Initial Projections
 
Set forth below is a summary of the base case projections of TXU Corp.’s management as of shortly before the Merger Agreement was signed on February 25, 2007. These initial projections were provided by TXU Corp. to KKR, TPG, other equity and debt financing sources, and TXU Corp.’s financial advisors. TXU Corp.’s financial advisors also were provided additional data that was used by the financial advisors in connection with their analyses, which additional data differed from the summary financial projections described below. TXU Corp. believes that such additional data differed from the summary financial projections in immaterial respects.
 
TXU Corp. Summary of Initial Financial Projections
(all amounts are in billions and are approximate)
 
                               
      2007     2008     2009     2010     2011
 
EBITDA
  $ 4.9   $ 4.9   $ 5.5   $ 6.5   $ 6.5
                               
Capital expenditures
  $ 4.3   $ 4.0   $ 2.5   $ 1.3   $ 1.2
                               
Net income (loss) available for common stock
  $ 2.3   $ 2.4   $ 2.7   $ 3.1   $ 3.3
 
The prospective financial information set forth above reflects certain assumptions, which may cause the initial financial projections to vary significantly from actual financial results. As described in the following paragraph, since the date the initial financial projections were provided, some of these assumptions no longer reflect TXU Corp.’s expectations. Significant assumptions underlying the initial financial projections set forth above include the following:
 
  •  TXU Corp.’s generation business would develop and build six new coal-fueled units: Sandow 5, two units at Oak Grove and three other coal-fueled units;
 
  •  the cost and schedule for the construction of the proposed six new coal-fueled units, and the salvage values for equipment previously ordered for the five discontinued development units, would meet estimates based on analyses performed by TXU Corp. as of the date the projections were prepared;
 
  •  long-term natural gas prices, ERCOT heat rates, coal prices, uranium prices, and emissions prices would evolve in a manner consistent with the assumptions used by TXU Corp. as of the date the initial projections were prepared;
 
  •  TXU Corp.’s regulated business would achieve projected cost savings as a result of its implementation of the InfrastruX Energy Service Group LP joint venture, and that joint venture, along with other corporate growth initiatives, would generate additional earnings;
 
  •  TXU Corp. would apply all excess cash flows to the reduction of existing debt;
 
  •  new regulations concerning carbon emission reduction would be implemented after the period for which projections are presented; and
 
  •  TXU Corp.’s retail business would achieve estimated gross residential margins (which reflected estimated price reductions) and its market share estimates in the territories in which it operates, based on analyses performed by TXU Corp. as of the date the projections were prepared.


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July Base Case Financial Projections
 
Since the date the initial financial projections were prepared, some of the assumptions underlying the initial projections no longer reflect TXU Corp.’s current expectations, including several of the assumptions listed above. For example, the estimates and assumptions regarding the development and construction of three coal-fueled units in addition to the Sandow 5 and Oak Grove units no longer reflect TXU Corp.’s current expectations with respect to these units, as the permitting efforts for these units were suspended following the Texas state court ruling challenging the constitutionality of the governor’s executive order regarding the environmental permitting process and in connection with the announcement of the Merger. In addition, the initial estimates and assumptions regarding the InfrastruX Energy Service Group LP joint venture no longer reflect TXU Corp.’s current expectations, as the agreements relating to this joint venture were suspended in April 2007.
 
Further, the estimates and assumptions regarding TXU Corp.’s retail business no longer reflect TXU Corp.’s current expectations, as TXU Energy has agreed to provide certain residential customers located in TXU Energy’s traditional service area additional price reductions beyond those contemplated in the financial projections set forth above as well as other benefits such as customer rebates. In any event, the remaining estimates and assumptions may not be realized and are inherently subject to significant business, economic, competitive and regulatory uncertainties, all of which are difficult to predict and many of which are beyond the control of TXU Corp.
 
Set forth below is a summary of the July Base Case Financial Projections, which were prepared by TXU Corp.’s management as of shortly before the date of this proxy statement. These projections were prepared by TXU Corp.’s management to assist the Strategic Transactions Committee and the Board of Directors in making their updated assessment of the advisability of recommending the approval of the Merger Agreement to TXU Corp.’s shareholders. TXU Corp.’s financial advisor, Lazard, was provided the projections set forth below prior to the delivery of its updated opinion.
 
TXU Corp. Summary of July Base Case Financial Projections
(all amounts are in billions and are approximate)
 
                               
      2007     2008     2009     2010     2011
 
EBITDA (adjusted for estimated special items)(1)
  $ 4.7   $ 4.6   $ 5.4   $ 5.8   $ 5.5
                               
EBITDA (not adjusted for special items)
  $ 2.7   $ 4.6   $ 5.5   $ 6.0   $ 5.8
                               
Capital expenditures
  $ 3.6   $ 2.6   $ 2.0   $ 1.3   $ 1.3
                               
Net income available for common stock
  $ 0.7   $ 1.4   $ 2.7   $ 2.9   $ 3.0
                               
Operational earnings available for common stock (adjusted for estimated special items)(1)
  $ 2.1   $ 2.0   $ 2.6   $ 2.8   $ 2.8
 
 
(1) Adjustments for special items include estimated charges related to the suspension, in the first quarter of 2007, of eight generation development units, estimated unrealized mark-to-market and day-one losses on the positions in TXU Corp.’s long-term hedging program as of June 29, 2007, debt retirement fees in 2008-2011 associated with the hypothetical assumption (not likely to be applied) of using all excess cash flows over this period for the reduction of existing debt, estimated one-time costs associated with a potential restructuring into three separate businesses in 2008 and other charges, credits or gains that are unusual or nonrecurring. Operational earnings include gains and losses associated with TXU Corp.’s long-term natural gas hedge program in the years in which those gains and losses would be realized.


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The prospective financial information set forth above reflects certain assumptions, which may cause the current financial projections to vary significantly from actual financial results. EBITDA as presented in the initial financial projections provided above does not include adjustments for special items, and would be comparable to EBITDA (not adjusted for special items) as presented in the July Base Case Financial Projections. Additional financial information has been added to the July Base Case Financial Projections to clarify the impact of adjustments for special items. Significant assumptions underlying the current financial projections set forth above include the following:
 
  •  TXU Corp.’s generation business would develop and build three new coal-fueled units and associated mines: Sandow 5 and Oak Grove;
 
  •  the cost and schedule for the construction of the proposed three new coal-fueled units, and the salvage values for equipment previously ordered for the eight discontinued development units, would meet estimates based on analyses performed by TXU Corp. as of the date the July Base Case Financial Projections were prepared;
 
  •  long-term natural gas prices, ERCOT heat rates, coal prices, uranium prices, and emissions prices would evolve in a manner consistent with the assumptions used by TXU Corp. as of the date the July Base Case Financial Projections were prepared;
 
  •  TXU Corp. would apply all excess cash flows to the reduction of existing debt;
 
  •  new regulations concerning carbon emission reduction would be implemented after the period for which projections are presented;
 
  •  TXU Corp.’s retail business would achieve estimated gross residential margins (which reflected TXU Corp.’s previously announced price reductions) and its market share estimates in the territories in which it operates, based on analyses performed by TXU Corp. as of the date the projections were prepared; and
 
  •  TXU Corp.’s businesses would be separated into three separate public companies — one that would own the regulated businesses of Oncor, another that would own the baseload power generation and the wholesale businesses of Luminant, and one that would be a holding company that would own the retail business and related assets of TXU Energy and could have a power supply agreement with Luminant Energy or could own, in separate subsidiaries, some or all of the natural gas-fueled generation plants currently owned by Luminant Power. Although TXU Corp. currently believes that the restructuring would create the most value for TXU Corp. shareholders if the Merger is not consummated, in the years 2008 through 2011, it would expose each of the newly separate businesses to increased risks and expenses arising out of their smaller scale and less diversified business mix. The July Base Case Financial Projections (which summarize the aggregate performance of the three separated businesses) may not be indicative of TXU Corp.’s actual business performance in the event that the restructuring is not undertaken.
 
    The July Base Case Financial Projections estimate that Oncor, Luminant and TXU Energy would contribute approximately 30%, 63% and 7%, respectively, of the aggregate EBITDA set forth above for 2008 and 28%, 62% and 11%, respectively, of the aggregate EBITDA set forth above for 2011. In addition, while capital structure was not a significant value driver in the current analysis, and the July Base Case Financial Projections include an assumption that TXU Corp. would apply all excess cash flows to reduce existing debt, the underlying expectation was that existing Oncor debt would remain with Oncor upon separation, TXU Energy would not issue additional debt or assume any existing debt of TXU Corp. or Competitive Holdings, and Luminant would retain existing debt of TXU Corp. and Competitive Holdings and be recapitalized at levels that could include approximately $5 to $6 billion of additional debt by the end of 2008. Although TXU Corp. management currently believes this separation is likely to create the most value for TXU Corp. shareholders if the Merger is not completed, there can be no assurance that management would recommend this separation or that this separation would occur if the Merger is not completed.


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On a comparative basis relative to the initial financial projections,1 EBITDA (adjusted for estimated special items) as presented in the July Base Case Financial Projections reflects a decline of approximately $400 million in 2007 and $275 million in 2008. Of this decrease in 2007, approximately 45% is due to retail price decreases and other customer benefits, approximately 35% is due to factors such as heat rate, commodity price, and fuel costs, and approximately 20% is due to weather, foregone growth initiatives such as the InfrastruX Energy Service Group LP joint venture and other factors. For 2008, the decrease is approximately 60% due to retail price decreases and other customer benefits, approximately 20% due to the estimated recurring costs associated with the potential separation into three businesses, and approximately 20% due to factors such as heat rate and commodity price changes, foregone growth initiatives, and other factors, net of productivity improvements.
 
While each of the summary financial projections set forth above were prepared in good faith by TXU Corp.’s management, no assurance can be given regarding future events, many of which are beyond TXU Corp.’s control. Therefore, these financial projections may not be predictive of future operating results, and this information should not be relied on as such. The financial projections in this section were not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information or published guidelines of the SEC regarding financial projections. The financial projections are not historical fact and should not be relied upon as being necessarily indicative of actual future results. In light of the foregoing, and considering that TXU Corp.’s annual meeting will be held more than six months after the date that the initial financial projections were prepared and approximately two months after the date that the July Base Case Financial Projections were prepared, as well as the uncertainties inherent in any financial projections, shareholders are cautioned not to unduly rely on either set of summary financial projections.
 
The estimates and assumptions underlying the financial projections of TXU Corp. involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions. The inclusion of these financial projections should not be interpreted as an indication that TXU Corp. considers this information necessarily predictive of actual future results, and this information should not be relied on for that purpose. These projections are not included in this document in order to induce any shareholder of TXU Corp. to vote to approve the Merger Agreement, or to impact any investment decision with respect to the Common Stock. See “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 10.
 
TXU CORP. DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THESE PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING SINCE THEIR PREPARATION OR TO REFLECT THE OCCURRENCE OF SUBSEQUENT EVENTS EVEN IN THE EVENT THAT ANY OR ALL OF THE UNDERLYING ASSUMPTIONS ARE NO LONGER APPROPRIATE.
 
Interests of our Directors and Executive Officers in the Merger
 
In considering the recommendation of the Board of Directors, TXU Corp.’s shareholders should be aware that certain of TXU Corp.’s directors and executive officers have interests in the transaction that are different from, and/or in addition to, the interests of TXU Corp.’s shareholders generally (see “Beneficial Ownership of our Common Stock” beginning on page 86 for a listing of the beneficial ownership of Common Stock by such persons). These interests may present such directors and executive officers with actual or potential conflicts of interest. The Board of Directors and the Strategic Transactions Committee were aware of these interests and considered them, among other matters, in reaching their decisions to approve and recommend the Merger Agreement.
 
At its July 12, 2007 meeting, Mr. Wilder advised the Board of Directors that he would not be remaining with TXU Corp. following the Merger. Our Vice-Chairman, T. L. Baker has also advised TXU Corp. of his intention to retire following the Merger. The Board of Directors, in considering the request of Parent to begin discussions with other executives regarding post-merger employment and the implications of these departures for TXU Corp. during
 
 
1     “EBITDA” in the initial financial projections for 2007 included approximately $250 million of estimated charges related to the assumed suspension of five generation development units that would be subject to adjustment as special items. Excluding these charges for comparative purposes, as they are excluded in EBITDA (adjusted for estimated special items) as presented in the July Base Case Financial Projections, projected EBITDA in the initial financial projections for 2007 would have been approximately $5.1 billion.


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the period before the Effective Time and if the Merger for any reason is not completed, concluded that taking a number of actions related to executive retention and motivation would be in TXU Corp.’s best interests, and directed TXU Corp.’s outside counsel to seek consent from Parent and Merger Sub to (1) implement a contingent executive retention program to assure TXU Corp. management that the Board of Directors was committed to retaining those executives if the Merger was not completed in order to oversee TXU Corp.’s business and the implementation of an alternative strategy, (2) permit the termination and payout of the executive officers’ 2005, 2006 and 2007 LTIP awards on the later of the Effective Time or January 2, 2008, (3) clarify the right of certain corporate executives to terminate their employment after the Effective Time for “good reason” under their employment agreements, (4) set a value for the contractual commitment to certain executives to be awarded LTIP grants in 2008 and 2009 and (5) clarify mechanics of the operation of employment agreements in areas such as timing of tax gross-up payments. These changes were sought to ensure an orderly transition in advance of and following the Merger, minimize the influence Parent and Merger Sub might exert over executives before the Effective Time, reduce distractions of executives in a circumstance where their Chief Executive Officer would not be remaining with TXU Corp. after the Merger and motivate executives to remain at TXU Corp. if the Merger is not completed. After discussion, Parent and Merger Sub consented to the foregoing matters, but provided a “window period” during which executives could leave, and have such departure treated as a resignation for good reason, beginning six months after the Effective Time, rather than expanding or clarifying any right of executives to terminate employment at the Effective Time for “good reason” and provided that the matters in clause (4) would only apply to those executives who terminate their employment for “good reason.” As a result of the foregoing consent with Parent and Merger Sub, TXU Corp. is permitted to amend employment agreements with its executive officers; because these amendments will be implemented prior to the annual meeting, the disclosure under the section entitled “The Merger – Interests of our Directors and Executive Officers in the Merger” of this proxy statement is presented as though the amendments have already been implemented. In addition, in providing its consent to these matters, Parent sought from TXU, and was granted, the opportunity to begin meeting with senior managers of TXU Corp. and its subsidiaries for the purpose of discussing employment opportunities with TXU Corp. following the Effective Time. Parent expects to begin those discussions shortly.
 
Equity Compensation Awards
 
Long-Term Incentive Plan (“LTIP”) Performance Awards
 
TXU Corp.’s LTIP performance awards were designed to provide incentives for TXU Corp. management, over a three-year period, linked to total shareholder return (“TSR”, which basically is stock price appreciation/depreciation plus dividends) as compared to the companies in the Standard & Poor’s (“S&P”) 500 Electric Utility Index and/or the S&P Multi-Utilities Index, and, for certain awards, in part on an absolute TSR over the relevant performance period. Because the Merger will cause the Common Stock to cease to be publicly traded, the Organization and Compensation Committee of the Board of Directors decided to end the performance periods under outstanding LTIP awards as of the completion of the Merger and make performance calculations based on relative TSR performance and/or absolute TSR performance through the Effective Time as determined by the Organization and Compensation Committee of the Board of Directors measured by the $69.25 Per Share Merger Consideration (with awards measured on absolute TSR performance adjusted for the duration of the performance period through the closing). The cash amounts payable will be determined by taking the number of shares of Common Stock issuable based upon the performance calculations, multiplied by $69.25. The amounts payable will be vested and not subject to forfeiture, but for our executive officers, other than our Controller and the CEO of Oncor (who became an executive officer after the Merger Agreement was signed), will not be paid until the end of the LTIP awards’ original performance period (which is March 31, 2008 for the 2005 LTIP awards, March 31, 2009 for the 2006 LTIP awards, and March 31, 2010 for the 2007 LTIP awards). However, as noted above, TXU Corp. is permitted to terminate and pay out the 2005, 2006 and 2007 LTIP awards at the later of the Effective Time or January 2, 2008. For our Controller, the CEO of Oncor and all other non-executive employees, amounts payable in respect of outstanding LTIP awards will be paid at the closing of the Merger.
 
The number of shares of Common Stock payable pursuant to the 2005 and 2006 LTIP performance awards to Messrs. Wilder, Campbell and Poole, and Jonathan Siegler can range from 0% to 200% of the number of awards granted, calculated solely on the relative TSR performance. The number of shares payable pursuant to the 2005 and


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2006 LTIP performance awards to Messrs. Baker, Greene, Michael McCall, James Burke, Rizwan Chand, Michael Childers, Robert Shapard and Charles Enze can range from 0% to 175% of the number of awards granted, with the final calculation being based on a combination of such comparative TSR performance and an absolute TSR performance. The 2007 LTIP performance awards for our executive officers are capped at a 100% payout if the merger is completed, except with regard to Messrs. Poole and Siegler, whose awards have a maximum payout level of 200% pursuant to their respective employment agreements.
 
The actual payouts for 2005, 2006 and 2007 awards upon completion of the Merger are not known at this time, and will not be known prior to the completion of the Merger. The calculation of payout values as of the completion of the Merger will be based on TXU Corp.’s TSR relative to the other companies in the peer group indices referred to above and the defined absolute performance standard, as would be the case if the transaction did not close. Factors that will impact the ultimate payout level include the time it takes to secure regulatory approvals and satisfy other conditions to the closing of the Merger and the shareholder returns of the other companies in the peer group indices through the closing date of the Merger. During the period since the Merger was announced there has been substantial volatility in the TSR of the peer group companies, and as a result the number of shares issuable based on performance at particular points in time has also been quite volatile. For illustrative purposes, if the Merger were to have been completed as of July 20, 2007, with performance payout percentages and the resulting number of shares payable based on TXU Corp.’s actual and relative TSR performance and the performance of other companies in the relevant peer group indices through that date, and valuing the shares payable using a $69.25 share price, the hypothetical resultant amounts our executive officers would have been entitled to receive are shown in the table below:
 
2005, 2006 and 2007 LTIP Performance Awards Held and Implied Values
 
                                               
            Number of
      Shares Issuable
      Shares Issuable
      Implied Pre-Tax Value
 
            Shares/Units
      (at maximum
      (based on performance
      (based on performance
 
Name     Grant Year     Issued       performance)       through July 20, 2007)       through July 20, 2007)  
C. John Wilder
    2005       300,000         638,923         543,084       $ 37,608,567  
                                               
      2006       300,000         620,943         367,380       $ 25,441,065  
                                               
      2007       300,000         301,917         301,917       $ 20,907,752  
                                               
David A. Campbell
    2005       40,000         85,190         72,412       $ 5,014,531  
                                               
      2006       40,000         82,792         48,984       $ 3,392,142  
                                               
      2007       40,000         40,256         40,256       $ 2,787,728  
                                               
M. S. Greene
    2005       28,000         52,179         47,706       $ 3,303,641  
                                               
      2006       13,100         23,725         21,039       $ 1,456,951  
                                               
      2007       9,100         9,158         9,158       $ 634,192  
                                               
T. L. Baker
    2005       28,000         52,179         47,706       $ 3,303,641  
                                               
      2006       10,500         19,016         16,864       $ 1,167,832  
                                               
David P. Poole
    2005       30,000         63,892         54,308       $ 3,760,829  
                                               
      2006       30,000         62,094         36,738       $ 2,544,107  
                                               
      2007       30,000         60,383         60,384       $ 4,181,592  
                                               
Other 7 Executive Officers
(as a group)
    2005       107,970         203,867         185,023       $ 12,812,843  
                                               
      2006       117,300         215,027         184,579       $ 12,782,096  
                                               
      2007       66,300         76,787         76,788       $ 5,317,569  
 
Ungranted 2008 and 2009 Long Term Incentive Awards upon a Termination without Cause or Resignation for Good Reason
 
Under the terms of their respective employment agreements, if Messrs. Campbell and Poole were to (1) be terminated by TXU Corp. without cause or (2) resign for good reason or (3) depart during a 30-day period commencing on the six month anniversary of the Effective Time, they would be entitled to receive a cash payment


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equal to the guaranteed number of LTIP units issuable for 2008 and 2009 multiplied by the $69.25 Per Share Merger Consideration. Mr. Siegler is similarly entitled to a cash payment in lieu of LTIP awards for 2008. Upon such a qualifying termination, the payments these executives would be entitled to receive are shown in the table below:
 
Ungranted 2008 and 2009 LTIP Performance Awards Obligations
 
                 
    Guaranteed Number of
   
Name   Units Issuable   Estimated Value of Units
 
David A. Campbell
  80,000   $5,540,000
David P. Poole
  60,000   $4,155,000
Jonathan A. Siegler
  10,000   $692,500
 
Deferred LTIP Shares/Units
 
Mr. Wilder’s two year LTIP performance award that was earned and vested on March 31, 2006, has resulted in 407,094 shares and stock units (including reinvested dividends) being deferred by Mr. Wilder pursuant to limitations in the LTIP in compliance with Section 162(m) of the Internal Revenue Code. Similarly, Mr. Baker’s 2002 and two year 2003 LTIP performance awards which were earned and vested on March 31, 2005, resulted in 149,058 shares and deferred stock units (including reinvested dividends) being deferred. On May 25, 2007, the following 2004 LTIP performance awards which were earned and vested on March 31, 2007 were deferred pursuant to the LTIP: 423,808 for Mr. Wilder, 160,950 for Mr. Baker, 73,152 for Mr. Greene and 12,425 for Mr. Campbell. The number of deferred shares discussed above has increased with reinvested dividends through July 20, 2007 to: 426,516 for Mr. Wilder, 161,978 for Mr. Baker, 73,620 for Mr. Greene and 12,505 for Mr. Campbell. Upon the completion of the Merger, these previously earned and vested deferred shares and units will be converted into the right to receive cash in an amount equal to $69.25 per share or unit. Certain of the deferred shares and units included in the table below for Messrs. Wilder (190,426) and Baker (1,150) are also included in the beneficial ownership table on page 86.
 
Deferred LTIP Shares and Units Held and Values
 
                 
    Number of Deferred
   
Name   LTIP Shares/Units   Pre-Tax Value
 
C. John Wilder
  833,610   $57,727,493
T. L. Baker
  311,036   $21,539,243
M.S. Greene
  73,620   $5,098,185
David A. Campbell
  12,505   $865,971
 
Deferred Shares Held in Rabbi Trust
 
To join TXU Corp., Mr. Wilder had to forfeit certain benefits from his prior employer. To partially compensate Mr. Wilder for a portion of his forgone compensation and to conserve cash payments in a time TXU Corp. was cash constrained, TXU Corp. established a rabbi trust, which holds 1,000,000 shares of Common Stock purchased for the benefit of Mr. Wilder by TXU Corp. On June 20, 2005, Mr. Wilder elected to defer the distribution of the shares held in the rabbi trust to the later of their original distribution dates, or April 1 following the calendar year during which Mr. Wilder’s employment with TXU Corp. terminates. The number of shares has increased with reinvested dividends to 1,087,964. Upon the completion of the Merger, these deferred shares will be converted into the right to receive cash in an amount equal to $69.25 per share, which would result in an aggregate cash out value of $75,341,507.


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Directors’ Deferred Stock Units
 
Upon completion of the Merger, all share units previously earned under the TXU Deferred Compensation Plan for Outside Directors will be paid out in cash in an amount equal to each director’s number of units held multiplied by $69.25. The aggregate number of share units held by the directors (including Dr. de Planque, who resigned on March 2, 2007) is 110,277 and the aggregate cash out value at $69.25 is $7,636,682. The average payout per outside director is $763,667 and the highest payout for any outside director is $2,162,308.
 
Employment Agreements and Change in Control Severance Policy
 
Employment Agreement with Mr. Wilder
 
Mr. Wilder’s employment agreement with TXU Corp. provides that (1) if the completion of the Merger occurs after February 23, 2008 and Mr. Wilder terminates his employment for any reason within six months following the completion of the Merger, or (2) if Mr. Wilder is terminated without cause (as defined in the employment agreement) or he resigns for good reason (as described in the employment agreement), Mr. Wilder will be entitled to the following:
 
  •  A prorated annual bonus for the year of termination.
 
  •  A cash severance payment equal to two times Mr. Wilder’s annualized base salary and target bonus paid immediately after termination.
 
  •  Distribution of the rabbi trust shares previously earned and vested by him.
 
  •  Certain continuing health care and fringe benefits.
 
  •  A tax gross-up payment concurrently with and to offset any “golden parachute excise taxes” which may result under Section 4999 of the Code or other excise or special additional taxes.
 
  •  Any vested, accrued benefits to which he or she is entitled under TXU Corp.’s employee benefits plans paid within thirty days of termination, or, if applicable, according to the terms of the plan, policy or program under which the benefit was granted.
 
If the completion of the Merger occurs on or prior to February 23, 2008 and Mr. Wilder terminates his employment for any reason (other than by resignation with good reason) within six months following the closing, Mr. Wilder will be entitled to the benefits set forth above, except that Mr. Wilder will not be entitled to receive the cash severance payment.
 
Mr. Wilder’s employment agreement also provides for an automatic extension if a change of control (as defined in the employment agreement) is completed during the last two years of the initial five year term of the agreement. Consequently, upon completion of the Merger, the term of his employment agreement would be extended until the second anniversary of the completion of the Merger. His employment agreement also provides that he will be entitled to an LTIP award having a target payout of 300,000 shares during each year the term of the agreement is extended and Mr. Wilder remains employed by TXU Corp.
 
Mr. Wilder has indicated that he will not remain employed by TXU Corp. following the Effective Time, and has agreed with Parent that his departure would constitute a resignation for “good reason.”
 
Employment Agreements with Messrs. Campbell, Burke, Poole and Siegler
 
Messrs. Campbell, Burke, Poole and Siegler’s employment agreements with TXU Corp. provide that in the event the executive is terminated without cause (as defined in the individual employment agreements) or resigns for good reason (as defined in the individual employment agreements) within 24 months following the completion of


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the Merger or if the executive resigns for any reason during the 30-day period commencing on the six month anniversary of the Effective Time, the executive will be entitled to receive:
 
  •  A lump sum cash payment equal to three times the sum of the annualized base salary and annual bonuses for Mr. Campbell and two times the sum of the annualized base salary and annual bonuses for the other executives paid immediately after termination.
 
  •  For all but Mr. Burke, granting, immediately after termination, cash payment in lieu of all ungranted LTIP performance awards that would have been granted during the remainder of the term of the employment agreement in an amount equal to the guaranteed number of units issuable to such executive multiplied by the $69.25 Per Share Merger Consideration.
 
  •  Certain continuing health care and fringe benefits.
 
  •  A tax gross-up payment concurrently with and to offset any “golden parachute excise taxes” which may result under Section 4999 of the Code or other excise or special additional taxes.
 
  •  For Mr. Campbell and Mr. Poole, an additional two years of service credit for each year remaining in the term of their respective employment agreement under the TXU Retirement Plan and the TXU Second Supplemental Retirement Plan.
 
  •  Any vested, accrued benefits to which he or she is entitled under TXU Corp.’s employee benefits plans paid within thirty days of termination, or, if applicable, according to the terms of the plan, policy or program under which the benefit was granted.
 
The employment agreements for Messrs. Campbell, Burke, Poole and Siegler also provide for an automatic extension upon a change of control (as defined in their respective employment agreements). Consequently, upon completion of the Merger, the term of their respective employment agreements would be extended until the second anniversary of the completion of the Merger (except with respect to Mr. Siegler, whose employment agreement provides for a one year extension).
 
Executive Change in Control Policy
 
Messrs. Baker, Greene, Chand, Childers, Enze, Shapard and McCall are not covered by individual employment agreements, but they participate in the TXU Executive Change in Control Policy. This policy provides transition benefits in the event a covered executive is terminated without cause (as defined in the policy), or resigns for good reason (as defined in the policy), from TXU Corp. within 24 months following the Effective Time (as that term is defined on page 68). Messrs. Wilder, Campbell, Burke, Poole and Siegler are currently not eligible for benefits under the Executive Change in Control Policy because they have entered into employment agreements with TXU Corp. Under the terms of the Executive Change in Control Policy and upon the events described above, a participant will receive:
 
  •  A one-time lump sum cash severance payment in an amount equal to two times the sum of (a) his or her annualized base salary and (b) his or her annual target incentive award for the year of termination or resignation.
 
  •  Continued coverage under TXU Corp.’s health care benefit plans for two years.
 
  •  Outplacement assistance at TXU Corp.’s expense for 18 months.
 
  •  Any vested, accrued benefits to which he or she is entitled under TXU Corp.’s employee benefits plans.
 
  •  A tax gross-up payment concurrently with and to offset any “golden parachute excise taxes” which may result under Section 4999 of the Code from the severance benefits described above under the Executive Change in Control Policy (plus a prorated portion of the LTIP awards), provided that such severance benefits will be subject to a cut-back to the Section 280G limit if the severance benefits do not exceed 110% of such limit.


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Given an assumed closing date for the Merger of December 1, 2007 and assuming an immediate qualifying termination of each executive officer, the one-time lump sum cash severance amount payable to our executive officers (excluding other severance benefits and “golden parachute” gross-ups and cut-backs) in such circumstance would be:
 
Cash Severance Amounts Payable
 
         
Name   Amount
 
C. John Wilder
  $9,791,667
T. L. Baker
  $2,022,400
David A. Campbell
  $1,833,600
M. S. Greene
  $1,622,400
David P. Poole
  $982,400
Other 7 Executive Officers (as a group)
  $8,435,000
 
Potential Aggregate Excise Tax Gross Up Amount
 
Under certain circumstances, as explained above, TXU Corp. executives may be subject to certain excise taxes under Code Section 4999 as a result of the application of Code Section 280G to any payments they receive in connection with a change in control of TXU Corp. (which would include completion of the Merger). Pursuant to their employment agreements, TXU Corp. has agreed to reimburse Messrs. Wilder, Campbell, Poole, Burke and Siegler for all excise taxes that are imposed on them, including those imposed under Code Section 4999, and any income and excise taxes, interest and penalties that are payable by the executive as a result of any such reimbursements. TXU Corp. will also reimburse its other executives for excise taxes that are attributable to benefits received pursuant to its Change in Control Policy, which would only provide benefits if the executive’s employment is terminated without cause or the executive resigns for good reason (as those terms are defined in the Policy) within 24 months following the completion of the Merger.
 
While the actual cost to TXU Corp. under these provisions is impossible to calculate at this time (actual excise tax liability and lost tax deductibility depends on whether the benefit payments actually paid to executives are deemed to be “parachute payments” subject to federal excise tax, and on a number of other employment-related items that have not yet been decided, including the reasonableness of executive compensation rates and future employment arrangements), the maximum aggregate cost to TXU Corp. related to these provisions is approximately $143,000,000 for our 12 executive officers as a group. This amount represents TXU Corp.’s estimated maximum possible exposure level for costs related to excise tax liability and the actual amount payable is likely to be substantially lower. The actual costs for excise tax-related liability, if payable, would be incurred by TXU Corp. through tax withholding on behalf of the executive in the year that the “parachute payments” are made to the executive. If the amounts paid on behalf of the executive at the time the excise taxes are due are not sufficient to satisfy the tax in full, TXU Corp. will pay the additional amounts necessary to satisfy the excise taxes in accordance with the terms of the respective employment agreements, or otherwise, within 30 days of the deadline for payment of such excise taxes. Similarly, if the amounts paid by TXU Corp. to satisfy the excise taxes result in a refund paid to the executive, the executive will be required to pay the refund amount to TXU Corp. within 30 days of the executive’s receipt of such excise refund.
 
This amount is based on the same assumptions and conditions explained in detail in the section entitled “Excise Tax Gross-Ups” beginning on page 139, except that the maximum aggregate cost of $143,000,000 listed above was calculated (1) assuming that a change in control of TXU Corp. occurred on December 1, 2007, (2) valuing TXU Corp.’s stock at the $69.25 Per Share Merger Consideration, (3) assuming that the executive’s employment with TXU Corp. terminated on December 1, 2007, and (4) including the value of TXU Corp.’s lost tax deduction under Code Section 280G. In addition, to the extent that any payout was conditioned upon or determined based on achievement of performance criteria, it was assumed that such payout would be at the maximum level of performance.


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Deferred Compensation Plans and Pension Arrangements
 
Upon the completion of the Merger, all participants (including our executive officers) will become fully vested in their accounts under the TXU Salary Deferral Program, the TXU Second Supplemental Retirement Plan and the TXU Deferred Incentive Compensation Program. In addition, upon completion of the Merger, under the TXU Deferred and Incentive Compensation Plan, (1) all amounts that would mature within 12 months of the completion of the Merger will be deemed matured, and the trustee will pay such amounts in full, within 30 days following the closing, and (2) with respect to all amounts that would mature more than 12 months following the completion of the Merger, participants will be entitled to elect, as of the closing, to have such amounts mature and be distributed on the first anniversary of the completion of the Merger or as of the date they would otherwise mature.
 
Under the TXU Thrift Plan, all excess amounts in the suspense account of the Leveraged Employee Stock Ownership Plan will be allocated to participants’ accounts (including our executive officers’ accounts) no later than the last day of the plan year in which the completion of the Merger occurs.
 
Based on an assumed closing date for the Merger of December 1, 2007, the table below sets forth the aggregate accelerated vesting of deferred compensation plans and pension arrangements and the LESOP excess allocation amount for our executive officers:
 
Aggregate Accelerated Vesting of Deferred Compensation Plans and Pension Arrangements Values
 
         
Name   Value
 
C. John Wilder
  $2,997,575
T. L. Baker
  $29,319
David A. Campbell
  $204,748
M. S. Greene
  $29,319
David P. Poole
  $189,207
Other 7 Executive Officers (as a group)
  $5,558,948
 
Trust Funding
 
Within 30 days after the Effective Time, TXU Corp. will be obligated to (1) fully fund into a trust all of the unfunded obligations under the TXU Salary Deferral Program and the TXU Second Supplemental Retirement Plan and (2) fund a trust to pay for the premiums on the vested portion of the TXU Split Dollar Life Insurance Program until such time as the cash surrender value is sufficient to maintain the policy. Such funding is for the benefit of all participants in such plans (including our executive officers) and the aggregate trust funding for such benefits is expected to be about $17 million.
 
In addition, TXU Corp. will fund into a trust all amounts payable in respect of LTIP awards which are not paid out on the completion of the Merger. For this purpose, prior to the completion of the Merger, TXU Corp. currently intends to establish an irrevocable rabbi trust and immediately prior to the completion of the Merger would fund such trust with the amounts payable in respect of such LTIP awards, including any anticipated accrued dividends. The trust is expected to have an independent trustee, such as a trust company, which would administer all amounts held in the trust. The trust document is expected to provide that any funds in the trust associated with 2005 LTIP awards will be paid out on March 31, 2008; any funds in the trust associated with the 2006 LTIP awards will be paid out on March 31, 2009; and any funds in the trust associated with the 2007 LTIP awards will be paid out on March 31, 2010, provided that if TXU Corp. terminates and pays out the executive officers’ 2005, 2006 and 2007 LTIP awards at the later of the Effective Time or January 2, 2008, then such funds will be paid out on such date. LTIP award participants with funds in this trust would receive, as of the date of the completion of the Merger, a statement listing the amount of the funds to which he or she is entitled and the timing of payment.


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Potential Future Employment
 
Mr. Wilder has indicated that he will not remain employed by TXU Corp. following the Merger. Mr. Baker has also advised TXU Corp. of his intention to retire following the Merger. While Parent has requested, and been granted, the opportunity to begin discussions with the other executive officers regarding future employment opportunities with TXU Corp. following the Effective Time, and expects to begin these discussions shortly, as of the date of this proxy statement, none of the other executive officers have entered into any agreement or understanding with the Parent regarding employment with, or the right to receive equity compensation awards from or make a personal investment in, Parent after the Effective Time. However, companies controlled by private equity firms, such as Parent, often seek to retain certain existing management employees of acquired companies, such as TXU Corp. Executives who are retained may enter into employment arrangements that provide the opportunity to invest in the equity of the acquired company and/or may be provided equity or equity-linked awards and incentives. These arrangements create the opportunity for significant investment returns if the investment proves to be successful for the private equity firms. As stated above, no such arrangements exist as of the date of this proxy statement.
 
Indemnification and Insurance
 
We have director and officer, or “D&O”, liability insurance for the purpose of reimbursing us when we have indemnified our directors and officers. D&O liability insurance also provides direct payment to our directors and officers under certain circumstances when we have not previously provided indemnification. We also have liability insurance which provides fiduciary coverage for us, our directors, officers and employees for any alleged breach of fiduciary duty under the Employee Retirement Income Security Act. The D&O insurance was purchased for a one-year period commencing on October 31, 2006 at a net cost of $8,140,657. Fiduciary liability insurance was also purchased for a one-year period commencing on October 31, 2006 at a net cost of $1,541,000. We plan to renew both programs upon expiration. Our directors and officers also have interests as set forth under “Election of Directors — Independence of Directors” beginning on page 91.
 
The Merger Agreement provides that, from and after the Effective Time, the surviving corporation in the Merger will indemnify and hold harmless, to the fullest extent permitted by law, the present and former directors and officers of TXU Corp. and its subsidiaries with respect to claims arising out of acts or omissions occurring at or prior to the Effective Time.
 
The Merger Agreement also provides that TXU Corp. will, prior to the Effective Time, obtain and fully pay the premium for the extension of the directors’ and officers’ liability insurance covering those persons who are currently covered by our directors’ and officers’ liability insurance policy and our fiduciary liability insurance policies for at least six years from and after the Effective Time in an amount and on terms no less advantageous than those applicable to our current directors and officers.
 
See section entitled “The Merger Agreement — Indemnification; Directors’ and Officers’ Insurance” on page 83.


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Market Price and Dividend Data
 
The Common Stock is listed on the NYSE and the Chicago Stock Exchange (symbol: “TXU”). The table below shows, for the periods indicated, the price range of the Common Stock, as reported by Bloomberg L.P., and the dividends per share declared during each of the calendar quarters of 2007, 2006 and 2005 were as follows (prior periods adjusted to reflect the stock split):
 
                         
    Common Stock      Dividends 
 
         Low               High          Declared  
 
Year ended December 31, 2007
                       
First Quarter
    $52.85       $68.45       $0.4325  
Second Quarter
    $63.05       $68.13       $0.4325  
Third Quarter (through July 23, 2007)
    $67.13       $68.00          
                         
                      $0.8650  
                         
Year ended December 31, 2006
                       
First Quarter
    $44.43       $53.90       $0.4125  
Second Quarter
    $44.10       $59.93       $0.4125  
Third Quarter
    $58.14       $67.21       $0.4125  
Fourth Quarter
    $53.05       $65.44       $0.4325  
                         
                      $1.6700  
                         
Year ended December 31, 2005
                       
First Quarter
    $30.22       $40.38       $0.2813  
Second Quarter
    $37.36       $43.63       $0.2813  
Third Quarter
    $40.17       $56.59       $0.2813  
Fourth Quarter
    $44.01       $58.30       $0.4124  
                         
                      $1.2563  
                         
 
The following table sets forth the closing per share sales price of Common Stock, as reported on the NYSE on February 22, 2007, the last full trading day prior to reports from U.S. publications that we were in discussions concerning a possible merger transaction, on February 23, 2007, the last full trading day before the public announcement of the proposed Merger, and on July 23, 2007, the latest practicable trading day before the printing of this proxy statement:
 
     
    Common Stock
    Closing Price
 
February 22, 2007
  $57.64
February 23, 2007
  $60.02
July 23, 2007
  $67.25
 
Regulatory Matters
 
United States Antitrust. Under the HSR Act, and the rules thereunder, certain transactions, including the Merger, may not be completed unless certain waiting period requirements have been satisfied. Parent and TXU Corp. filed notification and report forms pursuant to the HSR Act with the DOJ and the FTC on June 28, 2007. TXU Corp. received notification on July 16, 2007 that the waiting period under the HSR Act had been terminated. The requirements of the HSR Act will be satisfied if the Merger is completed within one year from the termination of the waiting period. Even though the waiting period has been terminated, the DOJ, the FTC or others could take action under the antitrust laws with respect to the Merger, including seeking to enjoin the completion of the Merger, to


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rescind the Merger or to conditionally approve the Merger. There can be no assurance that a challenge to the Merger on antitrust grounds will not be made or, if such a challenge is made, that it would not be successful.
 
NRC Approval. TXU Corp. and Parent are seeking the approval of the NRC under the Atomic Energy Act of the indirect transfer of the Comanche Peak nuclear operating licenses deemed to be created by the Merger and any conforming amendments of such licenses to reflect that transfer. TXU Generation Company LP, our wholly-owned subsidiary, filed an application with the NRC on April 19, 2007, seeking approval of any such transfer, and we and Parent have agreed to cooperate with each other to facilitate the NRC’s review of that application. The receipt of the required NRC approval is a condition to the parties’ respective obligations to complete the Merger. The time period for third party intervention in respect of the NRC application expired on July 3, 2007 without notice of any intervenor.
 
FERC Approval. TXU Corp. and Parent are also seeking the approval of FERC under Section 203 of the Federal Power Act for the Merger. On May 4, 2007, two of our subsidiaries, Oncor and TXU Portfolio Management Company LP (which has been rebranded as “Luminant Energy”), along with Parent, filed an application with FERC seeking such approval, and TXU Corp. and Parent have agreed to cooperate with each other to facilitate FERC’s review of the application. The receipt of FERC approval under Section 203 of the Federal Power Act is a condition to the parties’ respective obligations to complete the Merger. The time period for third party intervention in respect of the FERC application expired on June 18, 2007 without notice of any protest.
 
FCC Approval. TXU Corp. also sought approval by the FCC of the transfer of radio licenses and point-to-point private microwave licenses we hold indirectly. We filed three applications with the FCC seeking such approvals and all three applications have been approved. The receipt of FCC approval is not a condition to the parties’ obligations to complete the Merger.
 
PUCT Report. Under the Texas Public Utility Regulatory Act and the rules of the PUCT, Oncor must file with the PUCT a report on the Merger within 30 days of the closing of the transaction. On April 25, 2007, Oncor and Parent filed the required report and application with the PUCT in order to allow the PUCT to conduct a review of the transaction as it relates to Oncor, TXU Corp.’s regulated distribution and transmission business. Completion of the PUCT’s review under Section 14.101 of the Texas Public Utility Regulatory Act is not a condition to the parties’ obligations to complete the Merger.
 
Legislative Matters. House Bill 624 was passed in the recently concluded Texas Legislative Session. That bill includes a provision that requires an electric utility or transmission and distribution utility to report to, and obtain approval of, the PUCT before closing any transaction in which: (1) the electric utility or transmission and distribution utility will be merged or consolidated with another electric utility or transmission and distribution utility; (2) at least 50 percent of the stock of the electric utility or transmission and distribution utility will be transferred or sold; or (3) a controlling interest or operational control of the electric utility or transmission and distribution utility will be transferred. House Bill 624 further provides that this requirement does not apply to a transaction for which a definitive agreement was executed before April 1, 2007, if an electric utility or transmission and distribution utility or a person seeking to acquire or merge with an electric utility or transmission and distribution utility made a filing for review of the transaction under Section 14.101 of the Texas Public Utility Regulatory Act before May 1, 2007, and the resulting proceeding was not withdrawn. Unless the Section 14.101 proceeding initiated by Oncor and Parent is withdrawn, the Merger should fall within this exception and not require approval of the PUCT prior to closing.
 
In addition to House Bill 624, during the recently concluded Texas Legislative Session, several pieces of legislation were introduced that, if passed, may have had a material impact on TXU Corp. and its financial prospects, including for example, legislation that would have:
 
  •  required TXU Corp. to separate its subsidiaries into two or three stand-alone companies, which could have a significant tax cost to TXU Corp.;
 
  •  required divestiture of significant wholesale power generation assets, which also could have resulted in a significant tax cost to TXU Corp.; and
 
  •  given new authority to the PUCT to cap retail electric prices.


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The active involvement of Parent and its representatives in the recently concluded Texas Legislative Session had a significant beneficial impact on the outcome of the Texas Legislative Session with respect to proposed and enacted legislation relating to TXU Corp. in the context of the proposed Merger. TXU Corp. expects that absent completion of the Merger, TXU Corp., as a stand-alone company, would face significant renewed and ongoing legislative and regulatory risks.
 
It is a condition to the parties’ obligations to complete the Merger that no law or order be enacted or issued that is in effect and restrains, enjoins, renders illegal or otherwise prohibits completing the Merger. Neither TXU Corp. nor Parent is aware of any other regulatory approval that is material to TXU Corp.’s businesses and that is likely to be adversely affected by completion of the transactions or of any approval or other action by any state, federal or foreign government or governmental agency, other than routine relicensing procedures, that would be required to be made or obtained before the completion of the Merger.
 
See the section entitled “The Merger Agreement — Conditions to the Merger” beginning on page 80.
 
Merger-Related Litigation
 
Two putative class and derivative lawsuits and one derivative lawsuit were filed in the United States District Court, Northern District of Texas, Dallas Division in March 2007 against the directors of TXU Corp., TXU Corp., as a nominal defendant, and the Sponsors. On April 27, 2007, the Plaintiffs filed Amended Complaints asserting only derivative claims against the same defendants. The lawsuits seek to challenge and enjoin the Merger Agreement. The cases allege that the directors abused their ability to control and influence TXU Corp., committed gross mismanagement and violated various fiduciary duties by approving the Merger Agreement and the Sponsors aided and abetted that alleged conduct. The Plaintiffs contend that the directors violated fiduciary duties owed to shareholders by failing to maximize the value of TXU Corp. and by breaching duties of loyalty and due care by not taking adequate measures to ensure that the interests of shareholders were properly protected. The Merger Agreement allowed TXU Corp. to solicit other proposals from third parties until April 16, 2007 and the transaction is subject to the approval of TXU Corp.’s shareholders. Accordingly, TXU Corp. and its directors filed a Motion to Dismiss in each action based on the Plaintiffs’ failure to comply with the provisions of the Texas Business Organizations Code (the “TBOC”) applicable to filing and pursuing derivative proceedings. The Motions are pending before the Court.
 
In February and March 2007, three derivative lawsuits were filed in Dallas County state district courts arising out of the Merger Agreement. The suits, filed by putative shareholders, allege that TXU Corp.’s directors, named as defendants, breached fiduciary duties owed TXU Corp. by approving the Merger Agreement. The petitions, now consolidated into one action in the 44th District Court, Dallas County, Texas, include claims that the defendants failed to ensure that the transaction was in the best interest of TXU Corp.; that the directors participated in a transaction where their loyalties were divided and where they were to receive a personal financial benefit; that such alleged conduct constituted a breach of their duties of care, loyalty, good faith, candor and independence owed to TXU Corp.; and that the Sponsors aided and abetted the alleged breaches of fiduciary duties by the directors. TXU Corp. believes that the Plaintiffs failed to comply with provisions of the TBOC applicable to filing and pursuing derivative proceedings and thus have filed a Motion to Dismiss that is pending before the Court. Additionally, TXU Corp. has filed a Written Statement with the Court advising that, pursuant to the TBOC, a Derivative Demand Committee of independent and disinterested members of TXU Corp.’s board of directors has been formed and is engaged in the active review, in good faith, of the allegations in the consolidated derivative lawsuits. Consequently, TXU Corp. has requested that the Court enforce the automatic and mandatory stay of the proceedings as provided in the TBOC until the Derivative Demand Committee has completed its review. On May 16, 2007, the parties agreed to stay the consolidated derivative proceeding pending the Derivative Demand Committee’s review of Plaintiffs’ claims in that proceeding. On May 18, 2007, the Court entered an order staying the action in accordance with Section 21.555 of the TBOC. On July 18, 2007, TXU Corp. filed a Written Statement pursuant to TBOC Section 21.555(c) and an Application for Additional Stay informing the District Court that the Derivative Demand Committee was continuing its active review, in good faith, of the allegations set forth in the derivative lawsuits and accordingly requested an extension of the order staying the action through August 31, 2007. The Court has not yet ruled upon the Written Statement and Application.


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In February and March 2007 eight lawsuits were filed in state district court in Dallas County, Texas by putative shareholders against the directors of TXU Corp., TXU Corp., the Sponsors, and certain financial entities, asserting claims on behalf of owners of shares of TXU common stock as well as seeking to certify a class action on behalf of allegedly similarly situated shareholders. The lawsuits, which have been consolidated into one action in the 44th District Court, Dallas County, Texas, contend that the directors of TXU Corp. violated various fiduciary duties owed plaintiffs and other shareholders in connection with the execution of the Merger Agreement and that the Sponsors and certain financial entities aided and abetted the alleged breaches of fiduciary duties by the directors. Plaintiffs seek to enjoin defendants from consummating the Merger Agreement until such time as a procedure or process is adopted to obtain the highest possible price for shareholders, as well as a request that the Court direct the officers and directors of TXU Corp. to exercise their fiduciary duties in order to obtain a transaction in the best interest of TXU Corp. shareholders. The consolidated suit includes claims that the directors failed to take steps to properly value or maximize the value of TXU Corp. and breached their duties of loyalty, good faith, candor and independence owed to TXU Corp. shareholders. The Merger Agreement allowed TXU Corp. to solicit other proposals from third parties until April 16, 2007 and is subject to the approval of TXU Corp.’s shareholders. The consolidated suit purports to assert claims by shareholders directly against the directors. TXU Corp. believes that Texas law does not recognize such a cause of action. Consequently, TXU Corp. and its directors have filed a Motion to Dismiss. On May 25, 2007, the Court granted the Motion and dismissed the consolidated putative class action suit with prejudice. On May 31, 2007, Plaintiffs moved for reconsideration of the May 25 Order dismissing the action. The motion is pending before the Court. TXU Corp. believes the claims made in this litigation are without merit and, therefore, intends to vigorously defend this litigation.
 
On July 19, 2007, a putative class action lawsuit was filed in the United States District Court, Northern District of Texas, Dallas Division by a putative shareholder against TXU Corp. and its directors asserting a claim under Section 14(a) of the Securities Exchange Act of 1934 and the rules and regulations thereunder, asserting that the preliminary proxy statement of TXU Corp. filed June 14, 2007 fails to adequately describe the relevant facts and circumstances regarding the Merger as well as seeking to certify the litigation as a class action on behalf of allegedly similarly situated shareholders. TXU Corp. has not yet responded to this litigation and, as described below, on July 23, 2007, the Sponsors, joined by TXU Corp. for the limited purpose described below, have entered into a memorandum of understanding with plaintiffs that would result in the dismissal of this litigation if the settlement is approved by the courts. In the event that TXU Corp. is required to respond to this litigation, TXU Corp. will file a Motion to Dismiss based on the fact that this proxy statement clearly and accurately describes the information regarding the Merger and the information necessary for a shareholder to evaluate the proposal to approve the Merger Agreement. TXU Corp. believes the claims made in this litigation are without merit and, therefore, if necessary, TXU Corp. intends to vigorously defend this litigation.
 
Agreement in Principle to Settle the Merger-Related Litigation
 
On July 23, 2007, the Sponsors, joined by TXU Corp. for the limited purpose described below, executed a memorandum of understanding with the plaintiffs in certain of the lawsuits described above under the heading “Merger-Related Litigation” pursuant to which, if approved by the court in which the litigation is pending, to the extent required, all of the litigation related to the Merger will be dismissed with prejudice. Neither TXU Corp. nor any of its directors agreed to fund any payment or pay any other consideration under the settlement. TXU Corp. did agree to make certain revisions to this proxy statement as part of the agreement between the Sponsors and the plaintiffs to settle the litigation and agreed that under certain circumstances the termination fee payable by TXU Corp. under the Merger Agreement would be $925 million rather $1 billion. The settlement of the litigation, subject to court approval, will result in a dismissal of all Merger-related claims against TXU Corp. and its officers and directors.
 
Rights of Dissent and Appraisal
 
Under the TBOC, you have the right to demand appraisal of your shares of Common Stock in connection with the Merger and to receive, in lieu of the Per Share Merger Consideration, payment in cash, without interest, for the fair value of your shares of Common Stock as determined by an appraiser selected in a Texas state court proceeding. TXU Corp.’s shareholders electing to exercise appraisal rights must comply with the provisions of Section 10.356 of


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the TBOC in order to perfect their rights of dissent and appraisal. TXU Corp. will require strict compliance with the statutory procedures.
 
The following is intended as a brief summary of the material provisions of the Texas statutory procedures required to be followed by a shareholder in order to demand and perfect appraisal rights. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Subchapter H of Chapter 10, and specifically Sections 10.354 to 10.361 of the TBOC. The full text of Subchapter H of Chapter 10 appears in Annex D to this proxy statement.
 
This proxy statement constitutes TXU Corp.’s notice to its shareholders of the availability of appraisal rights in connection with the Merger in compliance with the requirements of Section 10.355 of the TBOC. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 10.356 of the TBOC contained in Annex E since failure to timely and properly comply with the requirements of Section 10.356 of the TBOC will result in the loss of your appraisal rights under Texas law.
 
If you elect to demand appraisal of your shares of Common Stock, you must satisfy each of the following conditions:
 
  •  prior to the annual meeting you must deliver to TXU Corp. a written objection to the Merger stating your intention to exercise your right to dissent in the event that the Merger is completed, and setting forth the address at which notice shall be provided to you in that event.
 
  •  this written objection must be in addition to and separate from any proxy or vote against the approval of the Merger Agreement. Voting against the approval of the Merger Agreement by itself does not constitute a demand for appraisal within the meaning of Section 10.356 of the TBOC.
 
  •  you must vote against the approval of the Merger Agreement. Failing to vote against approval of the Merger Agreement will constitute a waiver of your appraisal rights. An abstention from or a vote in favor of the approval of the Merger Agreement, by proxy or in person, will constitute a waiver of your appraisal rights in respect of the shares of Common Stock so voted and will nullify any previously filed written demands for appraisal.
 
  •  You must continuously hold your shares of Common Stock through the Effective Time.
 
If you fail to comply with any of these conditions and the Merger is completed, you will be entitled to receive the Per Share Merger Consideration for your shares of Common Stock as provided for in the Merger Agreement if you are the holder of record at the Effective Time, but you will have no appraisal rights with respect to your shares of Common Stock. A proxy card which is signed and does not contain voting instructions will, unless revoked, be voted “FOR” the approval of the Merger Agreement, will constitute a waiver of your right of appraisal, and will nullify any previous written demand for appraisal.
 
All written objections should be addressed to TXU Corp.’s Secretary at Energy Plaza, 1601 Bryan Street, Dallas, Texas 75201, and should be executed by, or on behalf of, the record holder of the shares of Common Stock in respect of which appraisal is being demanded. The written objection must reasonably inform TXU Corp. of the identity of the shareholder and the intention of the shareholder to demand appraisal of such shareholder’s shares of Common Stock.
 
To be effective, a written objection must be made by or on behalf of, the shareholder of record. The written objection should set forth, fully and correctly, the shareholder of record’s name as it appears on his or her Common Stock certificate(s) and should specify the holder’s mailing address and the number of shares of Common Stock registered in the holder’s name and the fair value of the Common Stock as estimated by the shareholder. The written objection must state that the person intends to exercise their right to dissent under Texas law in connection with the Merger. Beneficial owners who do not also hold the shares of Common Stock of record may not directly make appraisal demands to TXU Corp. The beneficial holder must, in such cases, have the record owner submit the required demand in respect of those shares of Common Stock. If shares of Common Stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a written objection must be made in that capacity; and if the shares of Common Stock are owned of record by more than one person, as in a joint tenancy or tenancy in common, the written objection must be executed by or for all joint owners. An authorized agent,


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including an authorized agent for two or more joint owners, may execute the written objection for appraisal for a shareholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the written objection, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares of Common Stock as a nominee for others, may exercise his or her right of appraisal with respect to the shares of Common Stock held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written objection should state the number of shares of Common Stock as to which appraisal is sought. Where no number of shares of Common Stock is expressly mentioned, the written objection will be presumed to cover all shares of Common Stock held in the name of the record owner.
 
If you hold your shares of Common Stock in a brokerage account or in other nominee form and you wish to exercise appraisal rights, you should consult with your broker or the other nominee to determine the appropriate procedures for making a demand for appraisal by the nominee.
 
Within 10 days after the Effective Time, TXU Corp. must give written notice that the Merger has become effective to each shareholder of TXU Corp. who has properly filed a written objection and who voted against the approval of the Merger Agreement. Any shareholder making a written demand for payment must submit to TXU Corp. for notation any certificated shares held by that shareholder which are subject to the demand within 20 days after making the written demand. The failure by any shareholder making a written demand to submit its certificates may result in the termination of the shareholder’s appraisal rights.
 
TXU Corp. has 20 days after its receipt of a demand for payment to provide notice that TXU Corp. (i) accepts the amount claimed in the written demand and agrees to pay the amount claimed within 90 days from Effective Time, or (ii) offer to pay its estimated fair value of the shares of Common Stock not later than 60 days after the date the offer is accepted.
 
If, within 60 days after the date TXU Corp. first delivered its offer to pay its estimated fair value of the shares of Common Stock to the shareholder, the offer is not accepted, and TXU Corp. and a shareholder who has delivered written demand in accordance with Section 10.356 of the TBOC do not reach agreement as to the fair value of the shares of Common Stock, either TXU Corp. or the shareholder may, within 60 days after the expiration of the 60-day demand period, file a petition in a court in Dallas County, Texas, with a copy served on TXU Corp. in the case of a petition filed by a shareholder, demanding a determination of the fair value of the shares of Common Stock held by all shareholders entitled to appraisal. TXU Corp. has no obligation and has no present intention to file such a petition if there are objecting shareholders. Accordingly, it is the obligation of TXU Corp.’s shareholders to initiate all necessary action to perfect their appraisal rights in respect of shares of Common Stock within the time prescribed in Sections 10.361 of the TBOC. The failure of a shareholder to file such a petition within the period specified could nullify the shareholder’s previously written demand for appraisal.
 
If a petition for appraisal is duly filed by a shareholder and a copy of the petition is delivered to TXU Corp., TXU Corp. will then be obligated, within 10 days after receiving service of a copy of the petition, to provide the office of the clerk of the court in which the petition was filed with a list containing the names and addresses of all shareholders who have demanded an appraisal of their shares of Common Stock and with whom agreements as to the value of their shares of Common Stock have not been reached.
 
After notice to dissenting shareholders, the court will conduct a hearing upon the petition, and determine those shareholders who have complied with Sections 10.354 to 10.361 and who have become entitled to the appraisal rights provided thereby.
 
After determination of the shareholders entitled to appraisal of their shares of Common Stock, the court will appraise the shares of Common Stock, determining their fair value. When the value is determined, the court will direct the payment of such value to the shareholders entitled to receive the same, immediately to the holders of uncertificated shares of Common Stock and upon surrender by holders of the certificates representing shares of Common Stock.
 
You should be aware that the fair value of your shares of Common Stock as determined under Section 10.362 of the TBOC could be more, the same, or less than the Per Share Merger Consideration. You should also be aware that the opinions of TXU Corp.’s financial advisors as to the fairness, from a financial point of view, of the Per Share Merger Consideration do not purport to be appraisals.


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Costs of the appraisal proceeding may be imposed upon TXU Corp. and the shareholders participating in the appraisal proceeding by the court as the court deems equitable in the circumstances. Upon the application of a shareholder, the court may order all or a portion of the expenses incurred by any shareholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares of Common Stock entitled to appraisal. Any shareholder who had demanded appraisal rights will not, after the Effective Time, be entitled to vote shares of Common Stock subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares of Common Stock, other than with respect to payment as of a record date prior to the Effective Time; however, if no petition for appraisal is filed within 120 days after the date TXU Corp. first delivered its offer to pay its estimated fair value of the shares of Common Stock to the shareholder, or if the shareholder delivers a written withdrawal of such shareholder’s demand for appraisal and an acceptance of the terms of the Merger prior to the filing of a petition for appraisal or if the court adjudges that the shareholder is not entitled to elect to dissent, then the right of that shareholder to appraisal will cease and that shareholder will be entitled to receive the Per Share Merger Consideration. Any withdrawal of a demand for appraisal made after the filing of a petition for appraisal may only be made with the written approval of TXU Corp.
 
Failure to comply with all of the procedures set forth in Sections 10.354 to 10.361 of the TBOC will result in the loss of a shareholder’s statutory appraisal rights. In view of the complexity of Sections 10.354 to 10.361 of the TBOC, TXU Corp.’s shareholders who may wish to dissent from the Merger and pursue appraisal rights should consult their legal advisors.
 
Accounting Treatment
 
The Merger will be accounted for as a “purchase transaction” for financial accounting purposes.
 
Material U.S. Federal Income Tax Consequences of the Merger to U.S. Shareholders
 
The following section describes the material U.S. federal income tax consequences of the transaction to the U.S. Holders (as defined below). This discussion addresses only those U.S. Holders that hold their Common Stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code, and does not address all the United States federal income tax consequences that may be relevant to a particular U.S. Holder in light of its individual circumstances or to U.S. Holders that are subject to special rules, such as:
 
  •  financial institutions;
 
  •  insurance companies;
 
  •  shareholders subject to the alternative minimum tax;
 
  •  persons that have a functional currency other than the U.S. dollar;
 
  •  regulated investment companies;
 
  •  investors in pass-through entities;
 
  •  tax-exempt organizations;
 
  •  dealers in securities or currencies;
 
  •  traders in securities that elect to use a mark to market method of accounting;
 
  •  persons that own Common Stock as part of a straddle, hedge, constructive sale or conversion transaction; and
 
  •  shareholders who acquired their shares of Common Stock through the exercise of an employee stock option or otherwise as compensation.


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This discussion only describes the tax consequences to U.S. Holders. The term “U.S. Holder” means a beneficial owner of Common Stock that is, for U.S. federal income tax purposes:
 
  •  a citizen or resident of the U.S.;
 
  •  a domestic corporation;
 
  •  an estate whose income is subject to U.S. federal income tax regardless of its source; or
 
  •  a trust, if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust.
 
The following is based upon the Code, its legislative history, existing and proposed regulations thereunder and published rulings and decisions, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Tax considerations under state, local and foreign laws, or U.S. federal laws other than those pertaining to the U.S. federal income tax, are not addressed in this document. Determining the actual tax consequences of the Merger to a particular shareholder may be complex. They will depend on your specific situation and on factors that are not within our control. You should consult with your own tax advisor as to the tax consequences of the Merger in your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.
 
The receipt of cash for shares of our common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local or foreign income or other tax laws. For U.S. federal income tax purposes, a U.S. Holder who receives cash in exchange for shares of our Common Stock pursuant to the Merger will generally recognize capital gain or loss equal to the difference, if any, between the amount of cash received and the U.S. Holder’s adjusted tax basis in the shares of our Common Stock surrendered in exchange therefor. Such capital gain or loss will be long-term capital gain or loss if the U.S. Holder’s holding period for the shares of our Common Stock exceeds one year at the time of the consummation of the Merger. Certain limitations apply to the use of capital losses. Gain or loss and the relevant holding period will be determined separately for each block of shares of our Common Stock (that is, shares of our Common Stock acquired at the same cost in a single transaction) exchanged for cash pursuant to the Merger.
 
A U.S. Holder (other than certain exempt shareholders, including, among others, all corporations and certain foreign individuals) that exchanges shares of our Common Stock for cash pursuant to the Merger, including through the exercise of appraisal rights, may be subject, under certain circumstances, to information reporting on the cash received. In addition, such holder may be subject to backup withholding at the applicable rate unless the holder provides the holder’s taxpayer identification number (TIN), certifies under penalties of perjury that such TIN is correct (or properly certifies that it is awaiting a TIN), certifies as to no loss of exemption from backup withholding and otherwise complies with the applicable requirements of the backup withholding rules. A U.S. Holder that does not furnish a required TIN or that does not otherwise establish a basis for an exemption from backup withholding may be subject to a penalty imposed by the Internal Revenue Service. Each U.S. Holder should complete and sign the Substitute Form W-9 included as part of the letter of transmittal that will be sent to shareholders promptly following completion of the Merger so as to provide the information and certification necessary to avoid backup withholding.
 
Backup withholding is not an additional tax. Rather, the amount of the backup withholding can be credited against the U.S. federal income tax liability of the person subject to the backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund generally can be obtained by the U.S. Holder by filing a U.S. federal income tax return.
 
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR GENERAL INFORMATION ONLY AND IS BASED ON THE LAW IN EFFECT ON THE DATE HEREOF. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE MERGER.


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Delisting and Deregistration of Common Stock
 
If the Merger is completed, the Common Stock will no longer be traded on the NYSE or the Chicago Stock Exchange and will be deregistered under the Securities Exchange Act of 1934, as amended, as soon as practicable following the completion of the Merger.
 
THE MERGER AGREEMENT
 
This section describes the material terms of the Merger Agreement. The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. We encourage you to read the Merger Agreement carefully and in its entirety.
 
The Merger Agreement is included to provide you with information regarding its terms and is not intended to provide any other factual information about TXU Corp., Parent, Merger Sub or their respective affiliates. The representations, warranties and covenants made by TXU Corp., Parent and Merger Sub are qualified and subject to important limitations agreed to by TXU Corp., Parent and Merger Sub in connection with negotiating the terms of the Merger Agreement.
 
The Merger
 
The Merger Agreement provides for the merger of Merger Sub with and into TXU Corp. upon the terms, and subject to the conditions, set forth in the Merger Agreement (the “Merger”). As the surviving corporation, TXU Corp. will continue to exist following the Merger.
 
Effective Time; Marketing Period
 
The closing of the Merger will take place on the second business day following the date on which the conditions to closing (described below under “Conditions to Closing”) are satisfied or waived (other than the conditions that by their nature cannot be satisfied until the closing). If the Marketing Period (defined below) has not ended at the time of the satisfaction or waiver of the conditions to closing, the closing will take place at the earliest to occur of a date during the Marketing Period specified by Merger Sub, the final day of the Marketing Period, and the Termination Date (which, as described under “Termination” below, is March 15, 2008, subject to extension under certain circumstances).
 
The effective time of the Merger will occur as soon as practicable following the closing upon the filing of a certificate of merger with the office of the Secretary of State of the State of Texas and the delivery of a written acknowledgement of such filing by the office of the Secretary of State of the State of Texas (or at such later date as we and Parent may agree and as specified in the certificate of merger), the “Effective Time.”
 
The “Marketing Period” is the first period of 20 consecutive days following the date of the Merger Agreement during which Parent has received certain financial information from TXU Corp. and the mutual closing conditions have been satisfied and nothing has occurred and no condition exists that would prevent any of the conditions to the obligations of Parent and Merger Sub from being satisfied if the closing were to occur at any time during such 20-day period. However, if the Marketing Period has not ended on or before August 16, 2007, the Marketing Period will commence no earlier than September 3, 2007; and if the Marketing Period has not ended on or before December 20, 2007, the Marketing Period will commence no earlier than January 2, 2008. In addition, if before the completion of the Marketing Period, Deloitte & Touche LLP withdraws its audit opinion with respect to any financial statements contained in our filings with the SEC since December 31, 2003, the Marketing Period will not be deemed to have commenced.


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Treatment of Stock and Stock Awards
 
Common Stock
 
At the Effective Time, each share of Common Stock issued and outstanding immediately prior to the Effective Time will convert into the right to receive the Per Share Merger Consideration, without interest. Any applicable withholding tax will be withheld from the Per Share Merger Consideration. Common Stock owned by Parent, Merger Sub or TXU Corp. will be cancelled without payment of consideration. As described under “Rights of Dissent and Appraisal”, shareholders who perfect their dissent rights will not receive the Per Share Merger Consideration for their shares of Common Stock and will instead be entitled to the appraisal rights provided under Texas law.
 
Restricted Stock Awards
 
Except as otherwise agreed by Parent and a holder of restricted stock, immediately prior to the Effective Time each unvested share of restricted stock will vest and, at the Effective Time, each share of restricted stock will be converted into the right to receive the Per Share Merger Consideration. To the extent that an award agreement relating to restricted stock provides that the number of shares of restricted stock that vest depends on achievement of targets measured by total shareholder return, the number of shares that vest will be determined by the Organization and Compensation Committee of the Board of Directors using the Per Share Merger Consideration as the relevant share price.
 
Performance Awards
 
Except as otherwise agreed by Parent and a holder of TXU Corp. performance awards, immediately prior to the Effective Time, all TXU Corp. performance awards that remain unvested will automatically become fully vested and free of any forfeiture restrictions and, at the Effective Time, performance awards will be paid out in a lump sum cash payment equal to the product of (x) the number of shares of Common Stock payable in respect of each such performance award, based on performance through the Effective Time as determined by the Organization and Compensation Committee of the Board of Directors of TXU Corp. measured by the Per Share Merger Consideration (with awards measured on absolute performance adjusted for the duration of the performance period through the Effective Time) and (y) the Per Share Merger Consideration, subject to any applicable withholding tax.
 
Share-Based Benefits under Benefit Plans
 
At the Effective Time, each right under TXU Corp. benefits plans (other than restricted stock awards and performance awards as described above) to receive payments or benefits measured by the value of Common Stock will entitle the beneficiary of such right to receive cash in an amount equal to the product of (x) the total number of shares of Common Stock underlying such right immediately prior to the Effective Time and (y) the Per Share Merger Consideration.
 
Exchange and Payment Procedures
 
As promptly as practicable after the Effective Time the paying agent will mail a letter of transmittal and instructions to each holder of certificated shares. The letter of transmittal and instructions will tell you how to surrender your Common Stock (whether book entry or certificates) in exchange for the Per Share Merger Consideration.
 
You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.
 
If your shares are certificated, you will not be entitled to receive the Per Share Merger Consideration until you surrender your stock certificate or certificates to the paying agent, together with a duly completed and executed letter of transmittal and any other documents as may be required by the letter of transmittal.


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No interest will be paid or will accrue on the cash payable upon surrender of the certificates. Parent and the surviving corporation will be entitled to deduct, withhold, and pay to the appropriate taxing authorities, any applicable taxes from the Per Share Merger Consideration. Any sum that is withheld and paid to a taxing authority by Parent and the surviving corporation will be deemed to have been paid to the person with regard to whom it is withheld.
 
From and after the Effective Time, there will be no transfers on our stock transfer books of shares of Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates are presented to TXU Corp., Parent or the paying agent for transfer, they will be cancelled and exchanged for the Per Share Merger Consideration.
 
Any portion of the Per Share Merger Consideration deposited with the paying agent that remains unclaimed by former holders of Common Stock for 180 days after the Effective Time will be delivered, upon demand, to the surviving corporation. Former holders of Common Stock who have not complied with the above-described exchange and payment procedures will thereafter only look to the surviving corporation for payment of the Per Share Merger Consideration. None of the surviving corporation, Parent, the paying agent or any other person will be liable to any former holders of Common Stock for any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar laws.
 
If you have lost a certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the Per Share Merger Consideration, you will have to make an affidavit of the loss, theft or destruction, and if required by Parent, post a bond in a customary amount sufficient to protect it or the surviving corporation against any claim that may be made against it with respect to that certificate. These procedures will be described in the letter of transmittal that you will receive, which you should read carefully in its entirety.
 
Financing Commitments; Company Cooperation
 
In connection with the execution of the Merger Agreement, Merger Sub received the Debt Financing Commitment (described under “Financing — Debt Financing”) from certain debt financing sources and the Equity Financing Commitments (described under “Financing — Equity Financing”) from members of the investor group. The Debt Financing Commitment and the Equity Financing Commitments (referred to collectively as the “Financing Commitments”) commit the parties thereto to provide the financing necessary to complete the Merger, in each case subject to the terms and conditions of such Financing Commitments.
 
Parent has agreed that it will use its reasonable best efforts to arrange the debt financing in connection with the Merger on the terms and conditions contained in the Debt Financing Commitment delivered in connection with the execution of the Merger Agreement, including using its reasonable best efforts to:
 
  •   maintain in effect the Debt Financing Commitment;
 
  •   negotiate definitive agreements with respect to the financing on the terms and conditions contemplated by the Financing Commitments (or on other terms no less favorable to Parent and Merger Sub); and
 
  •   satisfy on a timely basis all conditions in the Debt Financing Commitment applicable to Parent that are within its control or cause Merger Sub to satisfy on a timely basis all conditions in the Debt Financing Commitment that are within its control.
 
If all conditions to the Financing Commitments (other than, in the case of the Debt Financing Commitment, the availability of the equity financing in accordance with the Equity Financing Commitments), have been satisfied in Parent’s good faith judgment, Parent has agreed to use its reasonable best efforts to cause the parties providing such financing to fund on the date of closing of the Merger the financing required to complete the Merger.
 
If any portion of the debt financing becomes unavailable on the terms and conditions contemplated in the Debt Financing Commitment, Parent has agreed to use its reasonable best efforts to arrange alternative financing on terms no less favorable to Parent (as determined in the reasonable judgment of Parent) as promptly as practicable but in any event no later than the final day of the Marketing Period or, if earlier, the business day immediately prior to the Termination Date.


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In the event that:
 
  •   all or any portion of the debt financing structured as high yield financing has not been completed,
 
  •   all closing conditions (other than the delivery of the officers’ certificates) have been satisfied or waived, and
 
  •   the bridge facilities contemplated by the Debt Financing Commitment (or alternative bridge financing obtained in accordance with the Merger Agreement) are available on the terms and conditions described in the Debt Financing Commitment (or replacements thereof on terms and conditions no less favorable to Parent and Merger Sub),
 
then Parent will use the proceeds of such bridge financing to replace such high yield financing no later than the final day of the Marketing Period or, if earlier, the business day immediately prior to the Termination Date.
 
We have agreed to extensively cooperate in connection with Parent’s efforts to obtain the financing as Parent reasonably requests. Parent will reimburse our reasonable out-of-pocket costs in connection with such cooperation.
 
The receipt by Parent of the proceeds of the Financing Commitments is not a condition to the obligations of the parties to complete the Merger.
 
Representations and Warranties
 
The Merger Agreement contains representations and warranties made by the parties solely for the benefit of each other. The statements contained in those representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with the execution and delivery of the Merger Agreement and that qualify and create exceptions to those representations and warranties, and in the case of our representations and warranties made to Parent and Merger Sub, they are also qualified by the disclosure in certain portions of certain of our filings with the SEC.
 
Our representations and warranties relate to, among other things:
 
  •   our and our subsidiaries’ due organization, existence, good standing and authorization to do business;
 
  •   our capitalization and the validity of our equity securities;
 
  •   ownership in our subsidiaries and other equity interests and the absence of commitments to make investments in, or provide funds to, any person;
 
  •   the absence of shareholder and similar agreements relating to our equity securities and our subsidiaries’ equity securities;
 
  •   our corporate power and authority to enter into, and complete the transactions under, the Merger Agreement and the enforceability of the Merger Agreement against us;
 
  •   the approval, adoption and recommendation by the Board of Directors of the Merger Agreement and the receipt of opinions from Credit Suisse and Lazard;
 
  •   the Board of Directors’ action so that Parent will not be an “affiliated shareholder” and so that Parent will not be prohibited from entering into or completing a “business combination” with us under Texas takeover laws;
 
  •   the absence of violations of, or conflicts with, our governing documents, applicable law and certain agreements relating to the Merger;
 
  •   the required governmental consents and approvals in connection with the transactions contemplated by the Merger Agreement;
 
  •   compliance with the listing and corporate governance rules and regulations of the NYSE and the Chicago Stock Exchange;
 
  •   our SEC filings since December 31, 2003 including financial statements or schedules included therein;
 
  •   our disclosure controls and procedures and internal controls over financial reporting;


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  •   the absence of a Company Material Adverse Effect (as defined below) and the absence of certain other changes or events related to us or our subsidiaries since September 30, 2006;
 
  •   the absence of certain undisclosed liabilities;
 
  •   the absence of legal proceedings and governmental orders against us;
 
  •   compliance with applicable laws, licenses and permits;
 
  •   taxes;
 
  •   material contracts;
 
  •   employment and labor matters;
 
  •   employee benefit plans;
 
  •   the inapplicability of anti-takeover regulation and anti-takeover provisions in our governing documents to the Merger;
 
  •   environmental matters;
 
  •   intellectual property;
 
  •   insurance policies;
 
  •   compliance with certain laws and regulations applicable to utilities;
 
  •   derivative products;
 
  •   the brokers’ fees; and
 
  •   real property.
 
Many of our representations and warranties are qualified by, among other things, exceptions relating to the absence of a “Company Material Adverse Effect”, which is defined in the Merger Agreement to mean a material adverse change or effect on the financial condition, business, assets, or results of operations of us and our subsidiaries taken as a whole, and we have represented that since September 30, 2006 there has not been any change in the financial condition, business, assets or results of operations of us and our subsidiaries that, taken as a whole, has had or would be reasonably expected to have, a Company Material Adverse Effect. However, none of the following will constitute, or be taken into account in determining whether there has been or is, a Company Material Adverse Effect:
 
  •   changes in general economic or political conditions or the securities, credit or financial markets in general in the United States or in the State of Texas or changes that are the result of acts of war or terrorism (other than such acts that cause any damage or destruction to or render physically unusable our facilities or property or those of any of our subsidiaries);
 
  •   any adoption, implementation, promulgation, repeal, modification, reinterpretation or proposal of any rule, regulation, ordinance, order, protocol or any other law of or by any governmental entity, including the Electric Reliability Council of Texas, Inc. (“ERCOT”);
 
  •   changes or developments in national, regional or state wholesale or retail markets for fuel, including changes in natural gas or other commodity prices or in the hedging markets therefor, or related products;
 
  •   changes or developments in national, regional or state wholesale or retail electric power prices;
 
  •   system-wide changes or developments in national, regional or state electric transmission or distribution systems, other than changes or developments involving physical damage or destruction to or rendering physically unusable facilities or properties;
 
  •   changes that are the result of factors generally affecting any business in which we and our subsidiaries operate, other than changes or developments involving physical damage or destruction to or rendering physically unusable facilities or properties;


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  •   any loss or threatened loss or adverse change or threatened adverse change in the relationship of us or any of our subsidiaries with customers, employees, regulators, financing sources or suppliers to the extent caused by the pendency or the announcement of the transactions contemplated by the Merger Agreement;
 
  •   changes or effects to the extent relating to the entry into, pendency of actions contemplated by, or the performance of obligations required by the Merger Agreement or consented to by Parent, including any change in our credit ratings to the extent relating thereto and any actions taken by us and our subsidiaries that is not in violation of the Merger Agreement to obtain approval from any governmental entity for completion of the Merger;
 
  •   changes in any law or in U.S. generally accepted accounting principles or interpretation thereof after February 25, 2007;
 
  •   our failure to meet any internal or public projections or forecasts or estimates of revenues or earnings for any period ending on or after February 25, 2007;
 
  •   changes or developments arising out of or related to any proceeding or action by or before a governmental entity to the extent it affects our and our subsidiaries’ plans for the development of new generation capacity in the State of Texas, including any related litigation; and
 
  •   a decline in the price or trading volume of Common Stock on the NYSE or the Chicago Stock Exchange.
 
The events summarized in the first six bullet points above (other than action of the PUCT) may be taken into account in determining whether there has been or is a Company Material Adverse Effect to the extent such events have a disproportionate (taking into account our and our subsidiaries’ relative size and our and our subsidiaries’ affected businesses as compared to the other relevant entities and businesses) adverse effect on us as compared to other entities engaged in the relevant business in Texas or other relevant geographic area and are not otherwise excluded by the last six bullet points above from what may be taken into account in such determination.
 
In addition, none of the exceptions to the definition of Company Material Adverse Effect operate to exclude a Material Baseload Divestiture Requirement from a determination of whether a Company Material Adverse Effect has occurred. A “Material Baseload Divestiture Requirement” means any requirement imposed by a statute enacted into law by the legislature of the State of Texas after February 25, 2007, or any legally binding regulatory or administrative action taken pursuant to authority granted by such a new statute, that we or our subsidiaries divest, or submit to capacity auctions for, a material amount of our approximately 8,137 MW as of February 25, 2007 of baseload solid fuel (coal, lignite and nuclear) generation capacity, and the effects of any Material Baseload Divestiture Requirement will take into account the after-tax proceeds or other consideration or benefits that we and our subsidiaries would reasonably be expected to receive in connection with any such divestiture or capacity auction.
 
The Merger Agreement also contains representations and warranties made by Parent and Merger Sub that are subject, in some cases, to exceptions and qualifications (including bankruptcy and general equity principles exceptions).
 
The representations and warranties of Parent and Merger Sub relate to, among other things:
 
  •   their due organization, valid existence and good standing;
 
  •   their power and authority to enter into, and complete the transactions under, the Merger Agreement and the enforceability of the Merger Agreement;
 
  •   the absence of violations of, or conflicts with, their governing documents, applicable law and certain agreements as a result of entering into the Merger Agreement and completing the Merger;
 
  •   the required governmental consents and approvals in connection with the transactions contemplated by the Merger Agreement;
 
  •   the absence of litigation against Parent and Merger Sub;
 
  •   the existence of the Financing Commitments;


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  •   as of February 25, 2007, the absence of amendment to or rescission of the Financing Commitments or any default under the Financing Commitments and the full force and effect of the Financing Commitments;
 
  •   the capitalization of Merger Sub;
 
  •   the absence of ownership, control or construction of any electric generation facilities by Parent and its affiliates that offer or are capable of delivering electricity for sale to, or are located in, the ERCOT Region (defined as the geographic area under the jurisdiction of the PUCT that is served by transmission and/or distribution providers that are not synchronously interconnected with electric utilities outside of the State of Texas);
 
  •   foreign ownership, control or influence of Parent;
 
  •   the absence of undisclosed broker’s fees;
 
  •   the solvency of Parent and TXU Corp. following the completion of the Merger;
 
  •   the guarantors’ delivery of the executed guaranties (as described below under “Limited Guaranties”); and
 
  •   the absence of shareholder voting agreements, employee retention agreements, third party equity financing agreements other than the Equity Financing Commitments and certain other agreements.
 
The representations and warranties in the Merger Agreement of each of TXU Corp., Parent and Merger Sub will terminate at the termination of the Merger Agreement pursuant to its terms.
 
Conduct of our Business Pending the Merger
 
Under the Merger Agreement, we have agreed that, subject to certain exceptions, between February 25, 2007 and the Effective Time, unless Parent gives its prior consent (which it cannot unreasonably withhold, delay or condition), we and our subsidiaries will conduct business in a manner consistent with the agreed business plan (the “Business Plan”) and will otherwise conduct business in the ordinary course (taking into account the effects of the Business Plan). The Business Plan describes our capital expenditures as well as some changes that we are implementing in our business, including changes in rates offered in our retail business and changes affecting generation capacity.
 
In addition, subject to certain agreed exceptions, neither we nor our subsidiaries will take any of the following actions without Parent’s consent (which it cannot unreasonably withhold, delay or condition):
 
  •   change our respective certificates of formation or bylaws or other applicable governing instruments;
 
  •   merge or consolidate with any other person;
 
  •   liquidate, dissolve, restructure, recapitalize or otherwise reorganize;
 
  •   acquire any asset or person for a purchase price in excess of $10 million, unless allowed by the capital expenditures contained in the Business Plan, or due to operational emergencies, equipment failures or outages;
 
  •   issue, sell, pledge, dispose, grant, transfer or encumber any shares of capital stock;
 
  •   make any loans, advances or capital contributions to or investments in any person (other than intercompany) in excess of $20 million in the aggregate;
 
  •   declare or pay any dividend or other distribution with respect to our capital stock (except for (1) regular quarterly dividends not to exceed $0.4325 per share of Common Stock per quarter (but we will not be allowed to declare a quarterly dividend for the quarter in which the Effective Time occurs unless the Effective Time is after the record date for such quarter), and (2) dividends to holders of preferred stock of TXU US Holdings Company) or enter into any agreement with respect to the voting of our capital stock;
 
  •   reclassify, split, combine, subdivide, redeem, purchase or otherwise acquire any of our capital stock or other related securities;


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  •   repurchase, redeem, defease, cancel, prepay, forgive, issue, sell, incur or otherwise acquire any of our or our subsidiaries’ indebtedness, or guarantee indebtedness of another person (other than the TXU Corp.’s subsidiaries), except for indebtedness for borrowed money incurred or repaid in the ordinary course of business (1) under existing credit facilities, (2) under commercial paper borrowings, (3) to refinance indebtedness, (4) by drawing under outstanding letters of credit or (5) in connection with the remarketing of outstanding pollution control revenue bonds, in each case not to include prepayment penalties or make-whole or similar terms and not to materially affect the financing under the Debt Financing Commitment;
 
  •   materially amend, modify or refinance any of our or our subsidiaries’ indebtedness for borrowed money, guarantees of indebtedness for borrowed money or debt securities, except in connection with any refinancing at maturity that does not include prepayment penalties or make-whole or similar terms and does not compete with, or impede in any material respect, the financing under the Debt Financing Commitment;
 
  •   except as set forth in the capital expenditures contained in the Business Plan and for expenditures related to operational emergencies, equipment failures or outages, make or authorize any capital expenditure in excess of $50 million in the aggregate during any 12-month period;
 
  •   reactivate or enter into any “reliability must run” contract with respect to any generating plant that was shutdown or “mothballed” as of February 25, 2007;
 
  •   make any material changes with respect to accounting policies or procedures;
 
  •   waive, release or settle pending or threatened litigation or other proceedings (1) for an amount in excess of $10 million, (2) entailing the incurrence of (A) any obligation in excess of $10 million or (B) any material restrictions on our or our subsidiaries’ business, or (3) brought by any current, former or purported holder of any of our capital stock or debt securities relating to the transactions contemplated by the Merger Agreement;
 
  •   other than in the ordinary course of business, make or change any material tax election, settle or compromise any tax liability in excess of $10 million, change any method of tax accounting, enter into any material tax closing agreement or surrender any right to claim a material tax refund;
 
  •   take any action outside the ordinary course of business that could result in the inclusion in taxable income of any intercompany gain;
 
  •   transfer, sell, lease, license, mortgage, pledge, surrender, encumber, divest, cancel, abandon or allow to lapse or expire or otherwise dispose of any assets, product lines or businesses (including the capital stock of any of our subsidiaries) with a fair market value in excess of $400 million in the aggregate, other than certain actions taken in the ordinary course of business or pursuant to contracts in effect prior to February 25, 2007 that have been made available to Parent and Merger Sub;
 
  •   except as required by contracts, benefit plans or law, (1) grant or provide any severance or termination payments or benefits or increase the compensation or make any new equity awards to any director, employee or designated officer, except (other than for members of our senior leadership team) in the ordinary course of business or (2) establish, adopt, terminate or materially amend any benefit plan;
 
  •   materially modify our risk management policies applicable to trading or any similar policy or, subject to specified exceptions, enter into certain derivative products or similar transactions;
 
  •   enter into, terminate, renew or materially extend or amend any material contract or waive any material default under, or release, settle or compromise any material claim against us or liability or obligation owing to us under any material contract;
 
  •   fail to maintain in full force and effect material insurance policies in a form and amount consistent with past practice except for such modifications to the form and amount of such insurance as we determine in our reasonable commercial judgment;


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  •   (1) voluntarily file or initiate any proceeding regarding rates charged by any of our subsidiaries (except for any proceedings related to automatic transmission capital trackers or automated meter reading investments), (2) enter into any settlement, or make any commitment or concession, regarding the regulated rates, regulated rate base or return on equity of any of our subsidiaries or (3) take certain restricted actions;
 
  •   sell, transfer, swap, encumber or otherwise make unavailable any air emissions allowances, credits or offsets, or purchase any air emissions allowances, credits or offsets, except for usage to offset emissions at our or our subsidiaries’ facilities;
 
  •   subject to specified exceptions, enter into certain commodity transactions that require the posting of letters of credit and/or cash as collateral support;
 
  •   revoke, withdraw, terminate or abandon any environmental permits or applications relating to (1) the construction of generation facilities; or (2) the operation of the business; or
 
  •   agree, authorize or commit to do any of the foregoing.
 
In addition, if we or our subsidiaries enter into certain types of new commodity hedging arrangements and are required to provide collateral support, the related documentation must provide for automatic termination, amendment and/or other release of such collateral on the closing date and the substitution of such collateral with liens on the collateral specified in the Debt Financing Commitment that are pari passu with the liens securing the Debt Financing. Such transactions may not include limitations on our or our subsidiaries’ ability to incur indebtedness or grant liens on our assets.
 
Acquisition Proposals
 
Until April 16, 2007 we were permitted to:
 
  •   solicit Acquisition Proposals (as defined below) from third parties, including by providing third parties non-public information pursuant to an acceptable confidentiality agreement (provided that we promptly make available to Parent and Merger Sub any material non-public information concerning TXU Corp. or our subsidiaries provided to third parties if not previously made available to Parent or Merger Sub); and
 
  •   discuss and negotiate Acquisition Proposals with third parties.
 
Except with respect to Excluded Parties (as defined below), commencing on April 16, 2007:
 
  •   we were required to immediately cease discussions and negotiations with third parties regarding Acquisition Proposals; and
 
  •   until the Effective Time (or the termination of the Merger Agreement, if earlier), we may not:
 
  •   initiate, solicit or knowingly encourage inquiries or the making of any proposal or offer that constitutes, or may reasonably be expected to lead to, an Acquisition Proposal;
 
  •   engage in, continue or otherwise participate in any discussion or negotiation regarding any Acquisition Proposal or provide non-public information to any person relating to an Acquisition Proposal; or
 
  •   knowingly facilitate any effort or attempt by any person to make an Acquisition Proposal.
 
Such restrictions are not applicable to any person, group of related persons or group that includes any person (so long as such person and the other members of such group, if any, who were members of such group immediately prior to April 16, 2007 constitute at least 50% of the equity financing of such group at all times following April 16, 2007 and prior to the termination of the Merger Agreement) or group of related persons from whom we have received, after February 25, 2007 and prior to April 16, 2007, a written Acquisition Proposal that the Board of Directors or any committee thereof determines in good faith is bona fide and could reasonably be expected to result in a Superior Proposal (as defined below) (any such person or group of related persons, an “Excluded Party”, provided that any Excluded Party will cease to be an Excluded Party for all purposes under the Merger Agreement at such time as the Acquisition Proposal (as such Acquisition Proposal may be revised during the course of ongoing


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negotiations, in which event it may temporarily cease to be a Superior Proposal or an Acquisition Proposal that could reasonably be expected to result in a Superior Proposal, so long as such negotiations are ongoing and it subsequently constitutes a Superior Proposal or could reasonably be expected to result in a Superior Proposal) made by such person fails to constitute either a Superior Proposal or an Acquisition Proposal that could reasonably be expected to result in a Superior Proposal).
 
At any time on or following April 16, 2007 and prior to the time our shareholders approve the Merger Agreement, we may:
 
  •   provide information requested by a person who has made an unsolicited bona fide written Acquisition Proposal after February 25, 2007 and who executes an acceptable confidentiality agreement;
 
  •   discuss and negotiate any such Acquisition Proposal; and
 
  •   after complying with certain requirements described below, adopt, approve or recommend or propose to adopt, approve or recommend (publicly or otherwise) such an Acquisition Proposal,
 
to the extent that (other than with respect to Excluded Parties), (x) prior to taking any such action, the Board of Directors determines in good faith after consultation with outside legal counsel that failure to take such action could be inconsistent with the directors’ fiduciary duties under applicable law, (y) in each such case referred to in the first or second bullet point above, the Board of Directors has determined in good faith based on the information then available and after consultation with its financial advisor that such Acquisition Proposal either constitutes a Superior Proposal or could reasonably be expected to result in a Superior Proposal, and (z) in the case referred to in the third bullet point above, the Board of Directors determines in good faith (after consultation with its financial advisor and outside legal counsel) that such Acquisition Proposal is a Superior Proposal.
 
An “Acquisition Proposal” means any inquiry, proposal or offer with respect to:
 
  •   a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, share exchange, business combination or similar transaction; or
 
  •   any other direct or indirect acquisition,
 
in each case, involving 15% or more of the total voting power of any class of our equity securities, or 15% or more of our consolidated total revenues or consolidated total assets (including equity securities of our subsidiaries). The term Acquisition Proposal does not include the Merger or a recapitalization of TXU Corp. or our subsidiaries or a split-off or spin-off of one or more of our business units or subsidiaries that is not a component of and a material condition to a third party Acquisition Proposal in which the consideration to holders of our equity securities that is not funded by borrowings of TXU Corp. or our subsidiaries is predominantly funded from such third party.
 
A “Superior Proposal” means a bona fide Acquisition Proposal involving:
 
  •   assets that generate more than 50% of our consolidated total revenues;
 
  •   assets that constitute more than 50% of our consolidated total assets; or
 
  •   more than 50% of the total voting power of our equity securities,
 
that the Board of Directors has determined in its good faith judgment, would, if completed, result in a transaction more favorable to our shareholders from a financial point of view than the transaction contemplated by the Merger Agreement (x) after taking into account the likelihood and timing of completion (as compared to the transactions pursuant to the Merger Agreement) and (y) after taking into account all material legal, financial (including the financing terms of any such proposal), regulatory or other aspects of such proposal.
 
The Board of Directors may not:
 
  •   withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify), in a manner adverse to Parent, its recommendation that the Merger Agreement be approved by our shareholders or adopt, approve or recommend or propose to adopt, approve or recommend (publicly or otherwise) an Acquisition Proposal; or


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  •   cause or permit us to enter into any acquisition agreement, Merger Agreement or similar definitive agreement relating to any Acquisition Proposal,
 
except that prior to approval of the Merger Agreement by our shareholders, the Board of Directors may withhold, withdraw, qualify or modify its recommendation that the Merger Agreement be approved by our shareholders in response to a material change in circumstances, or approve, recommend or otherwise declare advisable any Superior Proposal made after February 25, 2007, if the Board of Directors determines in good faith, after consultation with outside counsel, that failure to do so could be inconsistent with its fiduciary obligations under applicable law (any of the foregoing, a “Change of Recommendation”). However, in the case of any Change in Recommendation that is not the result of an Excluded Party Superior Proposal (as defined below):
 
  •   we must provide prior notice to Parent and Merger Sub, at least five calendar days in advance (the “Notice Period”), of our intention to effect a Change of Recommendation and specifying the basis for such Change of Recommendation, including, if in connection with a Superior Proposal, the identity of the party making the Superior Proposal and the material terms thereof; and
 
  •   during the Notice Period, we and our advisors must negotiate with Parent and Merger Sub in good faith to adjust the terms and conditions of the Merger Agreement so as to permit us not to effect a Change of Recommendation.
 
An “Excluded Party Superior Proposal” means any Superior Proposal made by any Excluded Party prior to April 16, 2007 and any subsequent Superior Proposal made prior to April 30, 2007 by such Excluded Party.
 
In the event of any material revisions to a Superior Proposal that is not an Excluded Party Superior Proposal, we must deliver a new notice to Parent and Merger Sub and comply with the Notice Period requirements, except that the Notice Period is reduced to three calendar days.
 
From April 16, 2007, we must notify Parent within 48 hours of the receipt of any Acquisition Proposal and any request for non-public information and discussions or negotiations sought to be initiated or continued, indicating the identity of the person or group of persons making such offer or request, the material terms of any proposals or offers and thereafter must keep Parent reasonably informed of the status thereof.
 
Nothing in the non-solicitation provisions prevents us from disclosing to our shareholders a position contemplated by Rules 14e-2(a) and 14d-9 under the Exchange Act (but any such disclosure will be deemed to be a Change of Recommendation unless the Board of Directors expressly publicly reaffirms at least two business days prior to our shareholders’ meeting its recommendation in favor of the approval of the Merger Agreement), or making any “stop-look-and-listen” or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act.
 
Shareholders’ Meeting
 
Unless the Merger Agreement is terminated, we are required to convene a meeting of our shareholders promptly after the mailing of this proxy statement. Except as described under “Acquisition Proposals”, the Board of Directors is required to recommend approval of the Merger Agreement and include such recommendation in this proxy statement, and unless there has been a Change of Recommendation, we are required to take all reasonable lawful action to solicit approval of the Merger Agreement. Unless doing so would violate applicable law, we need to call, give notice of and convene the shareholders’ meeting without regard to a Change of Recommendation, unless we terminate the Merger Agreement in connection with entering into a transaction in respect of a Superior Proposal.
 
Filings; Other Actions; Notification
 
We and Parent will cooperate and use reasonable best efforts to take all actions and do all things reasonably necessary, proper or advisable to complete the Merger and the other transactions contemplated by the Merger Agreement as soon as practicable, including effecting the regulatory filings described under “Regulatory Matters”.
 
We will cooperate with Parent in communicating to and pursuing Parent’s strategy and business plan with appropriate governmental entities, including, to the extent requested by Parent, by making filings, seeking approvals or appearing before any governmental entities in support of the strategy and business plan. Parent is


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free to modify the agreed strategy and business plan. We and our subsidiaries are not required to take or agree to take any action with respect to our or their businesses unless the effectiveness of such agreement or action is conditioned upon closing, provided that we may not take any action intended or reasonably expected to frustrate, interfere with or delay any modification of the strategy and business plan. We are not required to endorse any modifications of the strategy and business plan that we determine in good faith would not be in our best interest if the Merger were not to be completed, but we agreed, subject to the above proviso, to make such filings, seek such approvals or appear before any governmental entities, if requested by Parent or required by any governmental entity in connection with modifications to the strategy and business plan. We and our subsidiaries may not consent to any action by, or enter into any material agreement or undertaking with or incur any material obligation to, any governmental entity without the prior consent of Parent (not to be unreasonably withheld or delayed if consistent with the strategy and business plan).
 
We and Parent have agreed to, subject to certain exceptions:
 
  •   promptly provide each governmental entity with jurisdiction over any approvals required in connection with the Merger non-privileged information reasonably requested by it or that is necessary, proper or advisable to permit completion of the transactions contemplated by the Merger Agreement;
 
  •   with respect to the regulatory filings with FERC, under the HSR Act and in respect of any governmental approval required by a change in law after February 25, 2007, promptly use best efforts to obtain all necessary approvals and avoid the entry of any order or judgment that would restrain, prevent or materially delay completion of the transactions contemplated by the Merger Agreement, including Parent’s agreement to dispose of some of our assets or businesses or Parent’s or either’s subsidiaries or affiliates if such action is reasonably necessary or advisable to avoid or remove the commencement of any proceeding or issuance or enforcement of any order or judgment that would delay, restrain or prevent completion of the Merger by any governmental entity;
 
  •   with respect to filings with the NRC, TXU Corp. and Parent will jointly prepare and cause our subsidiary, TXU Generation Company LP, to file as promptly as may be practicable an application with the NRC for approval of the indirect transfer of the NRC licenses for Comanche Peak’s nuclear operations and, if and to the extent necessary, any conforming amendment of the NRC licenses to reflect such indirect transfer, including to cooperate with one another to facilitate review of the application by the NRC staff; and
 
  •   if any injunction, decision, order, judgment or law is or becomes reasonably foreseeable to be entered, issued or enacted in any proceeding, review or inquiry that would make completion of the Merger unlawful or that would restrain, prevent, enjoin materially delay or otherwise prohibit completion of the Merger or the other transactions contemplated by the Merger Agreement, use best efforts to take all steps (including appeal and posting of a bond) necessary to resist, modify, prevent, remove or comply with such injunction, decision, order, judgment or enactment so as to permit the completion on a schedule as close as possible to that contemplated by the Merger Agreement.
 
Parent is not, however, obligated to agree to modify its anticipated capital structure, modify the identity of its initial equity holders or their equity commitments or agree to a Material Baseload Divestiture Requirement (as defined under “Representations and Warranties”), except to the extent that any such divestiture or submission would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
 
If the legislature of the State of Texas enacts a law or takes a binding regulatory or administrative action under such new law that requires that we or our subsidiaries divest or submit to capacity auctions for baseload solid fuel generation capacity, then we will have the right for 15 days to terminate the Merger Agreement, unless within 30 days after the date either party notifies the other of such enactment or action, Parent and Merger Sub notify us either (i) that such enactment does not impose a Material Baseload Divestiture Requirement or (ii) that no changes resulting from such enactment will be taken into account in determining whether there has been a Company Material Adverse Effect.


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Employee Benefit Plans
 
Parent has agreed that it will, and will cause TXU Corp. after the completion of the Merger to:
 
  •   (i) from the Effective Time until December 31, 2008, provide TXU Corp.’s and its subsidiaries’ employees compensation and employee benefits (other than any equity-based benefits) that, in the aggregate, are no less favorable than the compensation and employee benefits for these employees immediately prior to the Effective Time; and (ii) for 24 months following the Effective Time, provide severance benefits that are no less favorable than those provided by us and our subsidiaries immediately prior to the Effective Time; but Parent, TXU Corp. and their affiliates are not obligated to continue to employ any particular employee;
 
  •   credit all service with us and our subsidiaries for purposes of eligibility, vesting and benefit accrual under any employee benefit plan applicable to employees of TXU Corp. or its subsidiaries after the completion of the Merger to the same extent as if such service were credited under a comparable plan of TXU Corp., and waive any preexisting conditions of its welfare benefit plans in which employees of TXU Corp. are eligible to participate; and
 
  •   honor its obligations under our benefits plans.
 
Parent has acknowledged that a “change in control” or “change of control” within the meaning of certain of our benefit plans will occur upon the Effective Time.
 
Conditions to the Merger
 
The obligations of each party to effect the Merger are subject to the satisfaction or waiver at or prior to the Effective Time of the following conditions:
 
  •   The approval of the Merger Agreement by our shareholders;
 
  •   The waiting period under the HSR Act has expired or been terminated, and the required approvals of each of the NRC and the FERC has been obtained and is in effect; and
 
  •   No court or other governmental entity issued any law or order that is in effect and restrains, renders illegal or otherwise prohibits the completion of the Merger.
 
The obligations of Parent and Merger Sub to effect the Merger are subject to the satisfaction or waiver at or prior to the Effective Time of the following additional conditions:
 
  •   The accuracy of our representations and warranties (without giving effect to any materiality or Company Material Adverse Effect qualification) as of the closing date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty must be correct as of such earlier date) except where any failures of any such representations and warranties to be correct, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect, except for (x) the representations and warranties regarding our capitalization, our corporate authority and the enforceability of the Merger Agreement, which must be true and correct in all material respects and (y) the representations and warranties regarding the absence of a Company Material Adverse Effect, which must be true and correct without disregarding TXU Corp. Material Adverse Effect qualification.
 
  •   The performance in all material respects by us of our obligations under the Merger Agreement at or prior to the closing date.
 
Our obligation to effect the Merger is subject to the satisfaction or waiver at or prior to the Effective Time of the following additional conditions:
 
  •  The accuracy of Parent’s representations and warranties as of the closing date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty must be correct in all material respects as of such earlier date) except (other than with respect to the representations and warranties regarding the solvency of Parent and the surviving corporation) where any failure to be correct would not prevent completion of the Merger;


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  •  The performance in all material respects by Parent and Merger Sub of all their obligations under the Merger Agreement at or prior to the closing date; and
 
  •  Parent’s delivery to us of a solvency certificate substantially similar in form and substance to the solvency certificate to be delivered to the senior lenders as required by the Debt Financing Commitment or any agreement entered into in connection with the debt financing for the Merger.
 
The conditions to each of the parties’ obligations to complete the Merger are for the sole benefit of such party and may be waived by such party in whole or in part (to the extent permitted by applicable laws).
 
Termination
 
We and Parent may agree to terminate the Merger Agreement without completing the Merger at any time prior to the Effective Time.
 
The Merger Agreement also may also be terminated as follows:
 
  •  by either Parent or us if:
 
  •  unless the Termination Date is extended, the Merger has not been completed by March 15, 2008 (such date, as may be extended as described below, the “Termination Date”) (this right to terminate the Merger Agreement will not be available to any party whose failure to fulfill any obligation under the Merger Agreement caused or resulted in the failure of the Merger to occur on or before the Termination Date);
 
  •  our shareholders do not approve the Merger Agreement at the annual meeting or any adjournment or postponement thereof; or
 
  •  any court or other governmental entity has issued any law or order that is in effect, which permanently restrains, renders illegal or otherwise prohibits the completion of the Merger and has become final and non-appealable.
 
  •  by us if:
 
  •  prior to the approval of the Merger Agreement by our shareholders, (1) the Board of Directors authorizes us to enter into an alternative acquisition agreement with respect to a Superior Proposal; (2) immediately prior to or concurrently with the termination of the Merger Agreement, we enter into an alternative acquisition agreement with respect to a Superior Proposal; and (3) immediately prior to or concurrently with such termination, we pay the Termination Fee (as described below under “Termination Fee”). However, we are not entitled to terminate the Merger Agreement with respect to any Superior Proposal that is not an Excluded Party Superior Proposal unless we have provided Parent with the five-and three-day periods described above during which Parent can take actions to cause a Superior Proposal to no longer be a Superior Proposal;
 
  •  Parent or Merger Sub has materially breached or failed to perform any of its representations, warranties, covenants or agreements under the Merger Agreement which would give rise to the failure of certain conditions to closing to be satisfied if that breach or failure to perform cannot be cured by the termination date of the Merger Agreement (as described above) if we are not in a material breach of the Merger Agreement that would cause certain of the closing conditions not to be satisfied;
 
  •  Parent has failed to complete the Merger no later than two business days after the final day of the Marketing Period and all of Parent’s and Merger Sub’s closing conditions would have been satisfied if the closing were to have occurred on such date; or
 
  •  within 15 days after a 30-day period starting on the date either Parent or we notify the other in writing that the legislature of the State of Texas has passed a statute which was enacted into law or any binding regulatory action was taken pursuant to authority granted by such new statute which, in either case, imposes a requirement that we divest or submit to capacity auctions for baseload solid fuel generation capacity, and Parent does not waive its right to take the consequences of such action into account in determining whether a Company Material Adverse Effect has occurred.


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  •  by Parent, if:
 
  •  the Board of Directors effects a Change of Recommendation or approves or recommends to the shareholders an Acquisition Proposal, or we fail to include the recommendation of the approval of the Merger Agreement in this proxy statement; or
 
  •  we have materially breached or failed to perform any of our representations, warranties, covenants or agreements under the Merger Agreement which would give rise to the failure of certain conditions to closing to be satisfied and where that breach or failure to perform cannot be cured by the termination date of the Merger Agreement (as described above), if Parent is not in a material breach of the Merger Agreement that would cause certain of the closing conditions not to be satisfied.
 
The Termination Date may be extended under the following situations:
 
  •  if on March 15, 2008 the conditions to closing of the Merger have not been fulfilled but remain capable of fulfillment, we (and, if the failure of the conditions to be satisfied relates to a change in law or regulation after February 25, 2007, Parent) may extend the termination date to June 15, 2008; and
 
  •  if the Marketing Period has commenced but not ended on or before any such Termination Date, such Termination Date will automatically be extended by one month, and the Termination Date will not occur sooner than three business days after the final day of the Marketing Period.
 
However, in no event will the Termination Date be later than July 10, 2008.
 
Termination Fees
 
Company Termination Fee
 
We must pay a termination fee as directed by Parent ($375 million would have been payable in connection with a transaction or alternative acquisition agreement with an Excluded Party, $1 billion is payable in connection with a termination by Parent pursuant to the second bullet point below in each case if not relating to a Superior Proposal, and $925 million is payable in all other circumstances (the “Termination Fee”)):
 
  •  if (1) a bona fide Acquisition Proposal has been made to us or any of our subsidiaries, or any person shall have publicly announced or publicly made known and not publicly withdrawn without qualification an intention to make an Acquisition Proposal within a specified number of days prior to the termination of the Merger Agreement or the shareholders’ meeting; (2) thereafter the Merger Agreement is terminated by either party because the Merger fails to be completed by the Termination Date, the shareholder approval fails to be obtained, or we are in material breach of our representations, warranties, covenants or agreements such that certain closing conditions would not be satisfied; and (3) within 12 months after such termination, we or any of our subsidiaries enter into an alternate acquisition agreement with respect to, or have completed, approved or recommended to our shareholders, an acquisition proposal (substituting “50%” for “15%” in the definition of “Acquisition Proposal”);
 
  •  if the Merger Agreement is terminated by Parent because the Board of Directors effects a Change of Recommendation, approves or recommends to our shareholders an Acquisition Proposal, or fails to include the recommendation of approval of the Merger Agreement in this proxy statement; and
 
  •  if we terminate the Merger Agreement in connection with an alternative acquisition agreement with respect to a Superior Proposal.
 
In the circumstances set forth in the second and third bullets above, the payment of the Termination Fee will be the exclusive monetary remedy of Parent, Merger Sub and their affiliates with respect to any breach of any covenant or agreement giving rise to or associated with such termination.


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Expenses
 
If the Merger Agreement is terminated by either party due to the failure to obtain shareholder approval, we will promptly pay Parent all of the documented out-of-pocket expenses incurred by Parent or Merger Sub in connection with the Merger Agreement and the transactions contemplated thereby (including the debt and equity financing) up to a maximum amount of $50 million.
 
Parent Termination Fee
 
If we terminate the Merger Agreement because Parent or Merger Sub are in material breach of any of their representations, warranties, covenants or agreements, or any such representation or warranty becomes untrue such that certain of our closing conditions would not be satisfied (so long as there is no other state of facts or circumstances that would cause those closing conditions not to be satisfied), or because of Parent’s failure to complete the Merger no later than two business days after the final day of the Marketing Period, Parent will pay us as promptly as reasonably practicable (and, in any event, within three business days following such termination) an amount equal to $1 billion. The Parent Termination Fee is the exclusive remedy of TXU Corp. against Parent and its affiliates in the event the Merger fails to be completed, except for costs or losses incurred by TXU Corp. in connection with obtaining a judgment against Parent in respect of the Parent Termination Fee or assisting Parent in procuring the financing and in connection with the tender offers for certain of TXU Corp.’s outstanding indebtedness (the “Debt Offers”).
 
Limited Guaranties
 
In connection with the Merger Agreement, each of KKR 2006 Fund L.P., TPG Partners V, L.P., Citigroup Global Markets Inc. and Morgan Stanley & Co. Incorporated entered into a Limited Guaranty in our favor to severally guarantee a determined portion (approximately 47% for each of KKR 2006 Fund L.P. and TPG Partners V, L.P. and approximately 3% for each of Citigroup Global Markets Inc. and Morgan Stanley & Co. Incorporated) of Parent’s and Merger Sub’s payment obligations under the Merger Agreement in respect of: