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Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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TEXAS UTILITIES COMPANY
(Exact name of registrant as specified in its charter)
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TEXAS 4911 75-2669310
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(State or other jurisdiction (Primary Standard Industrial (IRS Employer Identification
of incorporation or organization) Classification Code Number) Number)
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ENERGY PLAZA
1601 BRYAN STREET
DALLAS, TEXAS 75201
(214) 812-4600
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
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ROBERT A. WOOLDRIDGE, ESQ. PETER B. TINKHAM, ESQ. ROBERT J. REGER, JR. ESQ.
WORSHAM, FORSYTHE SECRETARY AND ASSISTANT TREASURER REID & PRIEST LLP
& WOOLDRIDGE, L.L.P. 1601 BRYAN STREET 40 WEST 57TH STREET
1601 BRYAN STREET DALLAS, TEXAS 75201 NEW YORK, NEW YORK 10019
DALLAS, TEXAS 75201 (214) 812-4600 (212) 603-2000
(214) 979-3000
(Names, addresses, including zip codes, and telephone numbers, including area codes, of agents for service)
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IT IS RESPECTFULLY REQUESTED THAT THE COMMISSION SEND COPIES OF ALL NOTICES,
ORDERS AND COMMUNICATIONS TO:
REX S. WHITAKER, ESQ.
NAMAN, HOWELL, SMITH & LEE, P.C.
TEXAS CENTER, P. O. BOX 1470
WACO, TEXAS 75603-1470
(254) 755-4100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement is declared effective and
all other conditions to the Merger described herein have been satisfied or
waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
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If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Each Amount Maximum Maximum Amount of
Class of Securities to be Offering Price Aggregate Registration
to be Registered Registered (1) Per Unit (2) Offering Price (2) Fee
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- --------------------------------------------------------------------------------------------------------------------------
Common Stock, without par value 10,325,000 $17.74 $106,529,060 $32,282
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(1) The actual number of shares to be issued in connection with the
Merger, as described herein, will be equal to the number of shares of
common stock of Lufkin-Conroe Communications Co. ("LCC") (other than
any shares as to which dissenter's rights have been perfected)
multiplied by a conversion ratio equal to the amount determined by
dividing $53.274 (or such lesser amount as may result from certain
adjustments as described herein) by the average closing sales price of
the registrant's Common Stock as reported on the New York Stock
Exchange Consolidated Transactions Tape on each of the 20 consecutive
trading days preceding the tenth trading day prior to the effective
time of the Merger, provided that such average price will be deemed to
be no less than $31.00 nor more than $37.00.
(2) Estimated pursuant to Rule 457 (f)(2) solely for purposes of
calculating the registration fee, based on the book value per share of
LCC common stock as of June 30, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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[LCC LETTERHEAD]
October ___, 1997
Dear Shareholders:
You are cordially invited to attend a Special Meeting ("Meeting") of
Shareholders of Lufkin- Conroe Communications Co. ("LCC") which will be held in
the offices of Lufkin-Conroe Telephone Exchange, Inc. at 321 North First
Street, Lufkin, Texas on Saturday, November 15, 1997. The meeting will start at
10:00 a.m. local time.
At the Meeting, you will be asked to approve an Agreement and Plan of
Merger ("Plan of Merger"), more fully described in the accompanying Proxy
Statement/Prospectus, which provides for the acquisition of LCC by Texas
Utilities Company ("TU"). THE BOARD OF DIRECTORS OF LCC HAS APPROVED THE PLAN
OF MERGER AND RECOMMENDS THAT LCC SHAREHOLDERS VOTE FOR APPROVAL OF THE PLAN OF
MERGER.
The Plan of Merger provides that a wholly owned subsidiary of TU
formed for such purpose will be merged into LCC (the "Merger"). As a result of
the Merger, each outstanding share of LCC Common Stock will be converted into
approximately 1.4 to 1.7 shares of TU Common Stock, depending on the average
trading price of the TU Common Stock. The TU Common Stock will be listed on the
New York, Chicago and Pacific stock exchanges.
LCC's financial advisor, Daniels & Associates, L.P., has issued its
opinion that, based on certain considerations described in its opinion, the
Common Share Exchange Ratio (as defined in the Plan of Merger) is fair from a
financial point of view to the holders of LCC Common Stock.
Approval of the Plan of Merger by holders of LCC Common Stock is a
condition to the consummation of the Merger. The Merger is further subject to
obtaining certain regulatory approvals and the satisfaction or waiver of
certain other conditions. It is anticipated that this will occur by early 1998.
You should not send in your certificate representing LCC Common Stock until
instructed to do so.
Subject to all conditions to the Merger being satisfied or waived and
in consideration of past services and efforts rendered in the negotiation and
consummation of the Merger, the Board has declared bonuses to a number of LCC's
key and long-term employees, including G. I. Ross, President of LCC. The bonus
to Mr. Ross is, however, subject to the approval of shareholders holding more
than 75% of LCC Common Stock. Please refer to "THE MERGER -- Interests of LCC
Director; Bonuses" in the attached Proxy Statement/Prospectus.
SHAREHOLDERS ARE URGED TO GIVE THE ATTACHED PROXY STATEMENT/
PROSPECTUS THEIR CAREFUL AND PROMPT ATTENTION. APPROVAL OF THE PLAN
OF MERGER REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO
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THIRDS (2/3) OF ALL VOTES ENTITLED TO BE CAST. YOUR FAILURE TO VOTE WILL BE
EQUIVALENT TO A VOTE AGAINST THE PLAN OF MERGER. ACCORDINGLY, SHAREHOLDERS ARE
URGED TO VOTE FOR THE PLAN OF MERGER BY APPROPRIATELY MARKING, SIGNING, DATING
AND MAILING THE ENCLOSED PROXY CARD TODAY IN THE ENCLOSED POSTAGE PAID
ENVELOPE.
ALSO, YOU ARE ASKED TO APPROPRIATELY MARK THE PROXY CARD IN
FAVOR OF THE BONUS TO MR. ROSS.
As a condition to its closing and as an important factor in
determining the tax-free nature of the Merger, LCC must obtain written
representations from shareholders who hold in the aggregate at least 50% of the
LCC stock at the time of the Merger to the effect that such shareholders at the
time of the statement have no present plan or intention to sell the TU stock
received in the Merger and that they will advise LCC if their plans or
intentions change prior to the time of the Merger. Therefore, please indicate
your present intention not to sell on the enclosed green-colored Notice of
Intention, execute the Notice and return it with the Proxy Card in the enclosed
postage paid envelope. This expression of your present intention is important
in determining the tax-free nature of the Merger.
Thank you for your cooperation and continued support.
Very truly yours,
Linwood D. Newman
Chairman of the Board
G. I. Ross
President & CEO
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[LCC LETTERHEAD]
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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October ___, 1997
To the Shareholders of Lufkin-Conroe Communications Co.:
A Special Meeting of Shareholders of Lufkin-Conroe Communications Co.
("LCC") will be held in the offices of Lufkin-Conroe Telephone Exchange, Inc.
at 321 North First Street, Lufkin, Texas on Saturday, November 15, 1997,
beginning at 10:00 a.m. local time for the purpose of: (i) approving the
Agreement and Plan of Merger among Texas Utilities Company, TUCOM Acquisition
Co. and LCC and the transactions contemplated therein, including the merger of
TUCOM Acquisition Co. with and into LCC, as described in the accompanying Proxy
Statement/Prospectus, and (ii) approving a bonus to Mr. G. I. Ross.
The Board of Directors has fixed the close of business on October ___,
1997 as the time as of which shareholders entitled to notice of, and to vote
at, the meeting and any adjournments thereof shall be determined.
Whether or not you plan to attend the meeting, PLEASE SIGN AND RETURN
THE ACCOMPANYING PROXY PROMPTLY.
Stephen P. Moore
Secretary
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1997
PROXY STATEMENT OF
LUFKIN-CONROE COMMUNICATIONS CO.
___________________
PROSPECTUS OF
TEXAS UTILITIES COMPANY
This Proxy Statement/Prospectus relates to the proposed merger
("Merger") of TUCOM Acquisition Co. ("TU Sub"), a Texas corporation and a
wholly owned subsidiary of Texas Utilities Company, a Texas corporation ("TU"),
with and into Lufkin-Conroe Communications Co., a Texas corporation ("LCC"),
and is being furnished to shareholders of LCC in connection with the
solicitation of proxies by the LCC Board of Directors ("LCC Board") for use at
the Special Meeting of Shareholders of LCC ("Meeting") to be held on Saturday,
November 15, 1997, in the offices of Lufkin-Conroe Telephone Exchange, Inc. at
321 North First Street, Lufkin, Texas commencing at 10:00 a.m. local time, and
at any adjournment thereof.
This Proxy Statement/Prospectus constitutes a prospectus of TU filed
as part of the Registration Statement (defined herein) with respect to up to
10,325,000 shares of the Common Stock, without par value, of TU ("TU Common
Stock") to be issued pursuant to the terms of the Agreement and Plan of Merger
dated as of August 23, 1997 among TU, TU Sub and LCC ("Plan of Merger").
________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________
The date of this Proxy Statement/Prospectus is October ___, 1997.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being sent or given to holders of the common stock, $1.25 par value per share,
of LCC ("LCC Common Stock") on October ___, 1997.
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FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus does, and the documents incorporated
herein by reference ("Incorporated Documents") may, include forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended ("Exchange Act") and Section 27A of the Securities Act of
1933, as amended ("Securities Act"). Although TU and LCC believe their
expectations are based on reasonable assumptions, no assurance can be given
that actual results will not differ from those in the forward-looking
statements contained herein and in the Incorporated Documents. The
forward-looking statements contained herein may be affected by, among other
things, the competitive environment; state and federal regulatory initiatives
that increase competition, threaten cost and investment recovery and impact
rate structures; the economic climate and growth in the service territories of
TU and LCC; the weather and other natural phenomena; conditions in capital
markets; changes in technology used and services offered by TU and LCC; and the
ability of TU and LCC to achieve the goals described in "THE MERGER --
Recommendation of the LCC Board; LCC Reasons for Merger" and "--TU Reasons for
the Merger;" in each case during the periods covered by the forward- looking
statements. For a discussion of factors which may affect forward-looking
statements contained in the Incorporated Documents, see TU's most recent Annual
Report on Form 10-K or Quarterly Report on Form 10-Q.
AVAILABLE INFORMATION
TU is, and its predecessors have been, subject to the informational
requirements of the Exchange Act, and in accordance therewith TU files, and its
predecessors have filed, reports, proxy statements and other information with
the Securities and Exchange Commission ("Commission"). Such reports, proxy
statements and other information filed by TU and its predecessors can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and New York Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such documents can also be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Certain documents filed by TU and
its predecessors, Texas Energy Industries, Inc. (formerly Texas Utilities
Company) ("TEI") and ENSERCH Corporation ("ENSERCH"), are also available on the
Commission site on the World Wide Web at http:\\www.sec.gov. TU Common Stock
is listed on the New York, Chicago and Pacific stock exchanges, where reports,
proxy statements and other information concerning TU and TEI may be inspected.
Reports, proxy statements and other information concerning ENSERCH also may be
inspected at the New York and Chicago stock exchanges.
TU has filed with the Commission under the Securities Act a
registration statement on Form S-4 (together with all amendments, schedules and
exhibits thereto, the "Registration Statement") with respect to the TU Common
Stock issuable in the Merger. This Proxy Statement/Prospectus does not contain
all the information set forth in the Registration Statement, certain portions
of which have been omitted in accordance with the rules and regulations of the
Commission, and to which portions reference is hereby made for further
information with respect to LCC, TU and the TU Common Stock offered hereby.
The Registration Statement is available for inspection and copying at the
offices of the Commission as set forth in the preceding paragraph.
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AS INDICATED BELOW, THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY
REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. TU
WILL PROVIDE, WITHOUT CHARGE, UPON THE WRITTEN OR ORAL REQUEST OF ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, A COPY OF ANY AND ALL INFORMATION (EXCLUDING CERTAIN EXHIBITS) THAT
HAVE BEEN INCORPORATED BY REFERENCE HEREIN. SUCH REQUESTS FOR INFORMATION
RELATED TO TU SHOULD BE DIRECTED TO MR. PETER B. TINKHAM, SECRETARY, 1601 BRYAN
STREET, DALLAS, TEXAS 75201; TELEPHONE (214) 812- 4600. TO ENABLE TIMELY
DELIVERY OF THE DOCUMENTS PRIOR TO THE MEETING, ANY REQUEST SHOULD BE MADE BY
NOVEMBER 10, 1997.
_________________________
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Proxy Statement/Prospectus, and if given or made, such information or
representation should not be relied upon as having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities offered by this Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction, to
or from any person to whom it is unlawful to make such offer, solicitation of
an offer or proxy solicitation in such jurisdiction. Neither the delivery of
this Proxy Statement/Prospectus nor any distribution of securities pursuant to
this Proxy Statement/Prospectus shall, under any circumstances, create an
implication that there has been no change in the affairs of TU or LCC or any of
TU's subsidiaries or in the information set forth herein since the date of this
Proxy Statement/Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
On August 5, 1997, TU became the holding company for TEI (Commission
File No. 1-3591) and ENSERCH (Commission File No. 1-3183). The following
documents, previously filed with the Commission pursuant to the Exchange Act
by TU (Commission File No. 1-12833) or these predecessor corporations are
incorporated herein by reference:
(a) TEI's Annual Report on Form 10-K for the year ended December
31, 1996 ("TEI 10-K").
(b) TEI's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1997 and June 30, 1997.
(c) The portions of TEI's proxy statement filed in connection with
TEI's Annual Meeting of Shareholders held on May 23, 1997 that
have been incorporated by reference into the TEI 10-K.
(d) ENSERCH's Annual Report on Form 10-K for the year ended
December 31, 1996 ("ENSERCH 10-K").
(e) ENSERCH's Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, 1997 and June 30, 1997.
(f) ENSERCH's Current Reports on Form 8-K dated January 14, March
12, June 5, July 3, August 4 and August 6, 1997.
(g) TU's Current Reports on Form 8-K dated August 5 and August 25,
1997.
(h) The description of the TU Common Stock, which is contained in
a registration statement filed under the Exchange Act,
including any amendment or report filed for the purpose of
updating such description.
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All documents filed by TU pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the consummation of the Merger shall be
deemed to be incorporated herein by reference and to be a part hereof from the
date of filing such documents; provided however, that the documents enumerated
above or subsequently filed by TU pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act prior to the filing with the Commission of TU's most
recent Annual Report on Form 10-K shall not be incorporated by reference in
this Prospectus or be a part hereof from and after the filing of such Annual
Report on Form 10-K.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
_________________________
The information contained in this Proxy Statement/Prospectus with
respect to TU and its subsidiaries has been supplied by TU. The information
contained herein with respect to LCC and its subsidiaries has been supplied by
LCC.
4
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TABLE OF CONTENTS
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Page
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FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Place, Time and Date of the Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Matters to be Considered at the Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Record Date; Shares Entitled to Vote; Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Interests of LCC Director; Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Recommendation of the LCC Board; LCC Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . 19
TU Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Management of LCC After the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Resales of TU Common Stock by Affiliates of LCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
THE PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Effective Time; Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Conditions to Consummation of the Merger; Regulatory Approvals . . . . . . . . . . . . . . . . . . . . 29
Conduct of Business Prior to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Termination; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
TU AND ITS SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
DESCRIPTION OF TU CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
COMPARISON OF SHAREHOLDER RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
INFORMATION CONCERNING LCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Business of LCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
LCC Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 34
OWNERSHIP OF LCC COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
EXPERTS; LEGALITY OF TU COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
FINANCIAL STATEMENTS OF LCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
ANNEX A Agreement and Plan of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
ANNEX B Opinion of Daniels & Associates, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
ANNEX C Articles 5.11, 5.12 and 5.13 of the Texas
Business Corporation Act Relating to the
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
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5
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SUMMARY
The following material, which is presented solely to furnish limited
introductory information, is qualified in its entirety by, and should be read
in conjunction with, the information appearing elsewhere in this Proxy
Statement/Prospectus and the documents incorporated herein by reference.
References herein to TU that relate to a date before August 5, 1997 shall be
deemed to be references to TU's predecessor, TEI.
THE PARTIES TO THE MERGER
TU AND TU SUB. TU is a holding company which owns all of the
outstanding common stock of TEI and ENSERCH. TEI is a holding company whose
largest subsidiary is Texas Utilities Electric Company ("TU Electric"). TU
Electric is an electric utility engaged in the generation, purchase,
transmission, distribution and sale of electric energy in the north central,
eastern and western parts of the State of Texas. ENSERCH is an integrated
company focused on natural gas. TU Sub is a wholly owned subsidiary of TU
organized solely to effect the Merger. The principal executive offices of TU
and TU Sub are located at 1601 Bryan Street, Dallas, Texas 75201; the telephone
number is (214) 812-4600.
LCC. LCC is a privately held Texas corporation. LCC, through its
subsidiaries, operates an independent local exchange telephone company and
other telecommunications businesses. The principal executive offices of LCC
are located at 321 North First Street, Lufkin, Texas 75902; the telephone
number is (409) 634-8861.
THE MEETING
TIME, PLACE AND DATE. The Meeting will be held on Saturday, November
15, 1997, in the offices of Lufkin- Conroe Telephone Exchange, Inc., 321 North
First Street, Lufkin, Texas, commencing at 10:00 a.m. local time.
MATTERS TO BE CONSIDERED AT THE MEETING. At the Meeting, holders of
LCC Common Stock will (i) vote on a proposal to approve the Plan of Merger (see
"THE PLAN OF MERGER") (ii) vote on a proposal to approve a bonus to be paid to
G. I. Ross (see "THE MERGER -- Interests of LCC Director; Bonuses") and (iii)
transact such other business, if any, as may properly come before the Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE; REQUIRED VOTE. Only holders of
record of LCC Common Stock at the close of business on October ___, 1997
("Record Date") will be entitled to notice of, and to vote at, the Meeting. As
of the Record Date, a total of 6,006,696 shares of LCC Common Stock were issued
and outstanding.
The affirmative vote of the holders of at least two-thirds (2/3) of
the outstanding shares of LCC Common Stock is required to approve the Plan of
Merger. The affirmative vote of the holders of more than 75% of the
outstanding shares of LCC Common Stock is required to approve the bonus to Mr.
Ross. Directors and officers of LCC hold, or are entitled to vote,
approximately 22.1% of the shares of LCC Common Stock entitled to vote at the
Meeting. See "GENERAL INFORMATION -- Record Date; Shares Entitled to Vote;
Required Vote."
6
<PAGE> 12
RECOMMENDATION OF THE LCC BOARD
The LCC Board has approved the Plan of Merger, has determined that the
Merger is in the best interests of LCC and the holders of LCC Common Stock, and
recommends that holders of LCC Common Stock vote FOR approval of the Plan of
Merger at the Meeting and vote FOR the approval of the bonus to Mr. Ross.
INTERESTS OF LCC DIRECTOR; BONUSES
Mr. Ross, one of the twelve members of the LCC Board and President and
CEO of LCC, has been offered an employment agreement with LCC to retain his
services after the Effective Time of the Merger. See "THE MERGER -- Interest
of LCC Director; Bonuses." All of the other officers of LCC and its
subsidiaries have also been offered employment agreements. The LCC Board has
determined that, upon the satisfaction or waiver of the conditions to the
Merger, Mr. Ross and 24 other officers and long-term employees of LCC and its
subsidiaries will be paid bonuses as compensation for their past services and
their efforts in the negotiation and consummation of the Merger. These bonuses
will be in an aggregate amount of $3,396,000. Of this amount, $1,350,000 will
be paid to Mr. Ross. These bonuses are likely to reduce the amount of TU
Common Stock received by LCC shareholders in the Merger by as much as 1.06%
(including a reduction of up to 0.42% attributable to the bonus awarded to Mr.
Ross). However, if at closing the available cash of LCC will allow the
aggregate amount of bonuses to be increased up to $3,945,000 without further
reducing the number of TU shares to be received by the LCC shareholders, then
the bonuses will be ratably increased to an amount which in the aggregate will
not exceed $3,945,000. Pursuant to the LCC Board determination, Mr. Ross is to
receive a bonus of $1,350,000 which may be increased to an amount not more than
$1,568,256 if the bonuses are increased as indicated. The bonus of Mr. Ross
is, however, subject to the approval of shareholders holding more than 75% of
the outstanding LCC Common Stock, and the bonus of Mr. Ross will be submitted
for the approval of the shareholders at the Meeting. Such approval of the
bonus to Mr. Ross will assure that the bonus will not be treated as a
"parachute payment" for tax purposes. A parachute payment is not deductible by
LCC for tax purposes and the recipient is subject to a 20% excise tax. Though
the bonus awarded to Mr. Ross is subject to shareholder approval, if it is not
approved, the LCC Board may choose to again consider the issue of a bonus and
vote to pay a bonus to Mr. Ross based upon such factors as it deems relevant.
OPINION OF LCC'S FINANCIAL ADVISOR
As of the date this Proxy Statement/Prospectus is first being mailed
to shareholders of LCC, Daniels & Associates, L.P. ("Daniels"), financial
advisor to LCC, delivered its written opinion, a copy of which is attached to
this Proxy Statement/Prospectus as Annex B, that, as of such date and subject
to the considerations and qualifications therein, the Common Share Exchange
Ratio (as defined in the Plan of Merger) is fair to such holders from a
financial point of view. For additional information concerning the matters
considered by Daniels in reaching its opinion, the limitations on their reviews
of such matters, and the fees to be received by Daniels, see "THE MERGER --
Opinion of Financial Advisor."
THE MERGER
As of the time of effectiveness of the Merger ("Effective Time"), TU
Sub will be merged with and into LCC, which will be the surviving corporation,
and each share of LCC Common Stock then issued and outstanding (other than any
Dissenting Shares (as defined herein)) will be converted into shares of TU
Common Stock in an amount equal to the number obtained by dividing $53.274 (or
such lesser number as may result from certain adjustments provided for in the
Plan of Merger) by the Average TU Price. The "Average TU Price" will be based
on the market price of TU Common Stock over a period of days but, in any case,
will not be less than $31.00 or
7
<PAGE> 13
more than $37.00. Upon consummation of the Merger, each outstanding share of
LCC Common Stock will cease to be outstanding and will be converted into the
right to receive approximately 1.4 to 1.7 shares of TU Common Stock, depending
on the Average TU Price (except as described under "THE MERGER -- Rights of
Dissenting Shareholders"), in accordance with the terms of the Plan of Merger.
Fractional shares of TU Common Stock will not be issued in connection with the
Merger. Holders of LCC Common Stock otherwise entitled to a fractional share
will be paid the value of the fractional share in cash, without interest,
determined as described in the Plan of Merger. See "THE PLAN OF MERGER --
Effective Time; Effect of Merger."
FEDERAL INCOME TAX CONSEQUENCES
A condition precedent to the consummation of the Merger is the receipt
by TU and LCC of an opinion of Reid & Priest LLP, special counsel for TU, that
the Merger will constitute a reorganization with the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code") and that a
holder of LCC Common Stock therefore will not recognize gain or loss as a
result of the Merger (except with respect to cash received in lieu of any
fractional shares of TU Common Stock). See "THE MERGER -- Certain Federal
Income Tax Consequences."
EACH HOLDER OF LCC COMMON STOCK SHOULD READ CAREFULLY THE DISCUSSION
IN "THE MERGER -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND THE OTHER
SECTIONS OF THIS PROXY STATEMENT/PROSPECTUS REFERRED TO THEREIN AND IS URGED TO
CONSULT HIS OR HER OWN ADVISORS AS TO SPECIFIC CONSEQUENCES TO HIM OR HER OF
THE MERGER UNDER FEDERAL, STATE, LOCAL OR ANY OTHER APPLICABLE TAX LAWS.
CONDITIONS TO CONSUMMATION OF THE MERGER; REGULATORY APPROVALS
The obligations of TU and LCC to effect the Merger are subject to
certain conditions including, among others, (i) that the Plan of Merger shall
have been approved by the requisite vote of holders of LCC Common Stock, (ii)
the listing on the New York Stock Exchange ("NYSE") of the TU Common Stock
issuable in connection with the Merger; (iii) receipt by LCC and TU of an
opinion of Reid & Priest LLP with respect to certain federal income tax
matters, which opinion will be based in part on certain LCC shareholder
representations, and (iv) obtaining all necessary regulatory approvals,
including approval of the Federal Communication Commission of the transfer of
certain licenses held by LCC. Holders of TU Common Stock are not required to
approve the Plan of Merger. While TU and LCC believe that they will receive
the requisite regulatory approvals concerning the Merger, there can be no
assurance as to the timing of such approvals or as to the ability to obtain
such approvals on satisfactory terms. Due to the time that may be required to
obtain such approvals, it is possible that the Merger may not be consummated
for a number of months after the Meeting. See "THE MERGER -- Conditions to
Consummation of the Merger."
TERMINATION
The Plan of Merger may be terminated at any time prior to the
Effective Time, whether prior to or after approval by the shareholders of LCC
by (i) mutual written consent of TU and LCC; (ii) either party if, among other
things, the Merger is not approved by the holders of LCC Common Stock or if the
Merger has not been consummated by December 31, 1997 (subject to TU's right to
extend this deadline to June 29, 1998 under certain circumstances); or (iii)
LCC, if LCC receives an unsolicited written offer with respect to a proposed
business combination with an unaffiliated third party that, after notice to TU
and subject to certain other qualifications, the LCC Board determines in good
faith and based upon the advice of outside legal counsel that it is required by
8
<PAGE> 14
its fiduciary obligations to accept. If LCC enters into a binding agreement
with respect to any such competing transaction within six months after
termination of the Plan of Merger, LCC will be required to pay TU a $19 million
termination fee. TU may also terminate the Plan of Merger if, during a given
period of time, its review of information about LCC reveals the Merger would be
materially less favorable to TU than had been expected. Under certain
circumstances a termination that results from a breach by one party may require
the breaching party to reimburse certain expenses of the other party (up to a
$750,000 maximum) or, if such a breach is willful, may require payment of a $19
million termination fee. See "THE PLAN OF MERGER -- Termination; Expenses."
In the event the Plan of Merger is not consummated, LCC currently has
no plans other than to continue its current operations. See "INFORMATION
CONCERNING LCC -- Business of LCC."
RIGHTS OF DISSENTING SHAREHOLDERS
In the event that the Plan of Merger is approved at the Meeting, any
holder of LCC Common Stock entitled to vote at the Meeting who objects to the
Merger prior to the Meeting and who follows the procedures prescribed by
Articles 5.11, 5.12 and 5.13 of the Texas Business Corporation Act ("TBCA") may
be entitled, in lieu of receiving the consideration provided for in the Plan of
Merger, to receive cash equal to the fair value of his shares to be determined
by agreement with LCC, as the surviving corporation in the Merger, or by
appraisal.
For a summary of these provisions, see "THE MERGER -- Rights of
Dissenting Shareholders." The text of the applicable provisions of the TBCA is
attached hereto as Annex C.
COMPARISON OF SHAREHOLDER RIGHTS
Both TU and LCC are Texas corporations, governed by the laws of the
State of Texas. Under the articles of incorporation and bylaws of LCC, holders
of LCC Common Stock have supermajority voting rights in the event certain
business combinations are proposed. Holders of TU Common Stock have no similar
rights. The supermajority voting rights contained in LCC's articles of
incorporation do not apply to the Merger. The shares of TU Common Stock
issuable to holders of LCC Common Stock pursuant to the Merger, in the
aggregate, are expected to represent approximately 4% of all issued and
outstanding shares of TU Common Stock at the Effective Time. See "COMPARISON
OF SHAREHOLDER RIGHTS."
9
<PAGE> 15
MARKET PRICE DATA
LCC Common Stock is not actively traded. TU Common Stock is listed on
the New York, Chicago and Pacific stock exchanges.
<TABLE>
<CAPTION>
Price Per Share of TU Common Stock TU Price Per
---------------------------------- Equivalent Share
of LCC *
-------------------------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1994:
First Quarter $ 43 1/8 $ 36 1/2 $ 64.688 $ 54.750
Second Quarter 38 29 7/8 57.000 44.813
Third Quarter 34 1/8 29 5/8 51.188 44.438
Fourth Quarter 34 1/8 30 3/4 51.188 46.125
1995:
First Quarter $ 35 $ 30 1/8 $ 52.500 $ 45.188
Second Quarter 36 1/8 31 5/8 54.188 47.438
Third Quarter 35 32 5/8 52.500 48.938
Fourth Quarter 41 1/4 34 1/4 61.875 51.375
1996:
First Quarter $ 42 7/8 $ 38 7/8 $ 64.313 $ 58.313
Second Quarter 42 3/4 38 1/2 64.125 57.750
Third Quarter 43 3/4 39 3/8 65.625 59.063
Fourth Quarter 42 1/8 38 3/4 63.188 58.125
1997:
First Quarter $ 42 $ 33 3/4 $ 63.000 $ 50.625
Second Quarter 37 31 1/2 55.500 47.250
Third Quarter 36 3/16 33 1/2 54.281 50.250
Fourth Quarter
(through 10 /__/97)
</TABLE>
___________________
* Calculated by multiplying the TU Common Stock price per share by an
assumed conversion ratio of 1.5 shares of TU Common Stock for each share of LCC
Common Stock.
On August 22, 1997, the last day on which shares of TU Common Stock
traded prior to the public announcement of the execution of the Plan of Merger
by LCC and TU, the closing price per share of TU Common Stock on the NYSE
Composite Tape was $35 1/16. On October ___, 1997, the closing price per share
of TU Common Stock was $______.
Because the market price of TU Common Stock is subject to fluctuation,
the market value of the shares of TU Common Stock that holders of LCC Common
Stock will receive pursuant to the Merger may be more or less than the current
estimate at the Effective Time. LCC shareholders are urged to obtain current
market quotations for TU Common Stock.
10
<PAGE> 16
DIVIDEND DATA
<TABLE>
<CAPTION>
Dividends Declared
-----------------------------------------------------------------
Historical Pro Forma
------------------------------ ----------------
TU LCC LCC Equivalent *
----- --- ----------------
<S> <C> <C> <C> <C>
Year ended December 31, 1992 $ 3.04 $ 0 .91 $ 4 .56
1993 3.08 1 .00 4 .62
1994 3.08 1 .12 4 .62
1995 2.81 1 .58 4 .22
1996 2.03 1 .32 3 .04
1997** 1.58 0 .96 2 .37
</TABLE>
_______________________
* Calculated by multiplying the dividends paid per share of TU Common
Stock by an assumed conversion ratio of 1.5 shares of TU Common Stock for each
share of LCC Common Stock.
** Through September 15, 1997.
TEI declared common stock dividends payable in cash in each year
since its incorporation in 1945. In ___________ 1997, TU declared a regular
quarterly dividend of _____ per share payable ____________, 1997 to
shareholders of record on __________, 1997. Holders of LCC Common Stock who
receive TU Common Stock in connection with the Merger will not be entitled to
this dividend or any other dividend subsequently declared with a record date
prior to the Effective Time.
LCC has declared common stock dividends payable in cash in each year
since 1969. On August 9, 1997 a regular quarterly cash dividend of $0.34 per
share was declared and payable September 15, 1997 to shareholders of record on
September 1, 1997.
COMPARATIVE PER SHARE DATA
Set forth below are certain data per common shares of TU and LCC on an
historical basis as of December 31, 1996 and on an equivalent pro forma basis
for LCC. The equivalent pro forma data for LCC was calculated by multiplying
the TU per share data by an assumed conversion ratio of 1.5 shares of TU Common
Stock for each share of LCC Common Stock.
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Six Months Ended June 30, 1997
---------------------------- ------------------------------
Pro Forma Pro Forma
TU LCC LCC Equivalent TU LCC LCC Equivalent
-- ---- -------------- -- --- --------------
<S> <C> <C> <C> <C> <C> <C>
Earnings Per Share (on
average shares outstanding) $ 3.35 $ 2.38 $ 5.03 $ 1.23 $ 1.61 $ 1.85
Dividends Declared
Per Share $ 2.03 $ 1.32 $ 3.04 $ 1.05 $ 0.62 $ 1.58
Book Value Per Share $26.86 $16.70 $40.29 $26.90 $17.74 $40.35
</TABLE>
11
<PAGE> 17
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR LCC AND ITS SUBSIDIARIES
(THOUSANDS OF DOLLARS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Twelve Months Ended December 31,
-------- --------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenues $ 53,293 $ 87,898 $ 80,008 $ 74,972 $ 63,519 $ 57,694
Net Income 9,701 14,262 16,326 11,551 9,446 9,724
Earnings and Dividends
Per Share of Common Stock:
Earnings (on average shares
outstanding) 1.61 2.38 2.72 1.93 1.57 1.62
Dividends declared 0.62 1.32 1.58 1.12 1.00 0.91
Book Value Per Share
(end of period) 17.74 16.70 15.64 14.49 13.62 13.05
CAPITALIZATION (END OF PERIOD):
Long-Term Debt $ 30,152 $ 32,086 $ 33,544 $ 32,182 $ 27,320 $ 31,958
Shareholders Equity 106,529 100,315 93,954 87,021 81,808 75,794
</TABLE>
12
<PAGE> 18
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR TU AND ITS SUBSIDIARIES
(THOUSANDS OF DOLLARS, EXCEPT FOR PER SHARE AMOUNTS) (A)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Twelve Months Ended December 31,
-------- ------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues $ 3,082,289 $ 6,550,928 $ 5,638,688 $ 5,663,543 $ 5,434,512 $ 4,907,876
Consolidated Net Income
(Loss) (b) 275,545 753,606 (138,645) 542,799 368,660 700,111
Earnings and Dividends
Per Share of Common
Stock:
Earnings Per Share
(on average shares
outstanding) (b) 1.23 3.35 (0.61) 2.40 1.66 3.26
Dividends Declared
Per Share 1.05 2.03 2.81 3.08 3.08 3.04
Book Value Per Share
(end of period) 26.90 26.86 25.38 28.74 29.29 30.33
CAPITALIZATION (END OF PERIOD):
Long-Term Debt $ 8,303,859 $ 8,668,111 $ 9,174,575 $ 7,888,413 $ 8,379,826 $ 7,931,981
TU Electric obligated,
mandatorily redeemable,
preferred securities of
subsidiary trusts holding
solely debentures of TU
Electric 874,865 381,311 381,476 --- --- ---
Preferred Stock:
Not Subject to Mandatory
Redemption 139,140 464,427 489,695 870,190 1,083,008 909,564
Subject to Mandatory
Redemption 20,593 238,391 263,196 387,482 396,917 418,748
Common Stock Equity 6,043,503 6,032,913 5,731,753 6,490,047 6,570,953 6,590,537
Total Capitalization 15,381,960 15,785,153 16,040,695 15,636,132 16,430,744 15,850,830
</TABLE>
(a) No pro forma consolidated financial data for TU and its subsidiaries,
giving effect to the Merger, is presented, since the effect of the
Merger on such financial data is immaterial. Historical financial data
for TU for periods prior to August 5, 1997 consists of data for its
predecessor TEI and excludes ENSERCH. On August 5, 1997, TU acquired
the local distribution and pipeline divisions of ENSERCH and other
ENSERCH businesses, excluding Enserch Exploration, Inc. ("EEX") and TEI
and ENSERCH became subsidiaries of TU. Proforma operating revenues and
consolidated net loss for ENSERCH for the six months ended June 30, 1997
were $1,142.860 million and $8.755 million, respectively. This pro
forma data is derived from the historical financial statements of
ENSERCH and gives effect to the distribution of all of the shares of EEX
held by ENSERCH to its shareholders ("ENSERCH Distribution") and assumes
that the ENSERCH Distribution occurred at the beginning of such period.
(b) The twelve-month period ended December 31, 1992 was affected by the
discontinuation of the accrual of allowance for funds used during
construction (AFUDC) and the commencement of depreciation on
approximately $1.3 billion of investment in Unit 1 of the Comanche Peak
nuclear generating station (Comanche Peak) and facilities which are
common to Comanche Peak Units 1 and 2 incurred after the end of the June
30, 1989 test year and, therefore, not included in TU Electric's Docket
9300 rate case. Effective January 1992, TU Electric began recording
base rate revenue for energy sold but not billed to achieve a better
matching of revenues and expenses. The effect of this change in
accounting increased net income for the twelve months ended December 31,
1992, by approximately $102 million, of which approximately $80 million
represents the cumulative effect of the change in accounting at January
1, 1992. The twelve-month period ended December 31, 1993 was affected
by the recording of regulatory disallowances in TU Electric's Docket
11735 rate case. The twelve-month period ended December 31, 1995 was
affected by the impairment of several nonperforming assets, including TU
Electric's partially completed Twin Oak and Forest Grove lignite-fueled
facilities and the New Mexico coal reserves of a subsidiary, as well as
several minor assets. Such impairment, on an after-tax basis, amounted
to $802 million.
13
<PAGE> 19
GENERAL INFORMATION
PLACE, TIME AND DATE OF THE MEETING
The Meeting will be held on Saturday, November 15, 1997, in the offices
of Lufkin-Conroe Telephone Exchange, Inc., at 321 North First Street, Lufkin,
Texas, beginning at 10:00 a.m. local time. This Proxy Statement/Prospectus is
being sent to holders of LCC Common Stock and accompanies a form of proxy which
is being solicited by the Board of Directors of LCC for use at the Meeting and
at any adjournment or postponement thereof.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Meeting, holders of LCC Common Stock will vote upon proposals to
approve the Plan of Merger, see "THE PLAN OF MERGER," and to approve a bonus
payable to G. I. Ross, see "THE MERGER -- Interest of LCC Director; Bonuses,"
and may transact such other business as may properly come before the Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE; REQUIRED VOTE
Only holders of record of LCC Common Stock at the close of business on
October ___, 1997 ("Record Date") will be entitled to notice of, and to vote
at, the Meeting. As of the Record Date, 6,006,696 shares of LCC Common Stock
were issued and outstanding. Holders of LCC Common Stock may vote in person or
by properly executed proxy. Holders of LCC Common Stock are entitled to cast
one vote per share on all matters to properly come before the Meeting.
The presence, in person or by properly executed proxy, of the holders of
a majority of the outstanding shares of LCC Common Stock entitled to vote at
the Meeting is necessary to constitute a quorum. The affirmative vote of the
holders of at least two-thirds (2/3) of the outstanding shares of LCC Common
Stock is required to approve the Plan of Merger. The affirmative vote of the
holders of more than 75% of the outstanding shares of LCC Common Stock is
required to approve the bonus payable to Mr. Ross. Under Texas law there is no
difference between a vote against the Plan of Merger and an abstention or a
broker non-vote in respect thereof.
The officers and directors of LCC have beneficial ownership of, in the
aggregate, approximately 22.1% of the currently issued and outstanding shares
of LCC Common Stock. The eleven directors of LCC who were present at the LCC
Board's August 23, 1997 meeting and voted to approve the Plan of Merger have
given TU an irrevocable proxy to vote certain shares (totaling approximately
13% of the shares of LCC Common Stock currently issued and outstanding) in
favor of approval of the Plan of Merger. See "OWNERSHIP OF LCC COMMON STOCK."
PROXIES
Shares of LCC Common Stock represented by properly executed proxies
received prior to or at the Meeting will be voted in accordance with the
instructions indicated on the proxies, unless such proxies have been revoked
prior to or at the Meeting. If no instructions are indicated on an executed
LCC form of proxy, the shares covered by such proxy will be voted FOR the
approval of the Plan of Merger and FOR the bonus to Mr. Ross.
14
<PAGE> 20
If any other matters are properly presented at the Meeting for
consideration, including, among other things, consideration of a motion to
adjourn the Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons
named in the form of proxy and acting thereunder will have discretion to vote
the shares of LCC Common Stock covered by validly executed proxies in
accordance with their best judgment. As of the date hereof, the LCC Board
knows of no such other matters.
Any proxy given pursuant to this solicitation may be revoked by the
person giving such proxy at any time prior to the time the shares are voted, by
delivery of written notice of revocation bearing a later date than the proxy or
a later dated proxy relating to the same shares of LCC Common Stock to Stephen
P. Moore, Secretary, 321 North First Street, P. O. Box 909, Lufkin, Texas
75901-0909. A person may also revoke a proxy by voting in person at the
Meeting. Attendance at the Meeting will not in itself constitute the
revocation of a proxy.
Shares of LCC Common Stock held by persons who abstain from voting such
shares will be counted as present only for quorum purposes. BECAUSE APPROVAL
OF THE PLAN OF MERGER REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF
TWO-THIRDS (2/3) OF THE OUTSTANDING SHARES OF LCC COMMON STOCK, AND APPROVAL OF
THE BONUS REQUIRES THE AFFIRMATIVE VOTE OF HOLDERS OF MORE THAN 75% OF THE
OUTSTANDING SHARES OF LCC COMMON STOCK, FAILURE TO EXECUTE AND RETURN THE
ACCOMPANYING FORM OF PROXY OR TO VOTE IN PERSON AT THE MEETING WILL HAVE THE
EFFECT OF A VOTE AGAINST THE PLAN OF MERGER AND AGAINST THE BONUS TO MR. ROSS.
In addition to soliciting proxies by mail, officers and employees of
LCC, without receiving additional compensation therefor, may solicit proxies by
telephone, by telegram or in person.
Under the Plan of Merger, the expenses of printing this Proxy
Statement/Prospectus and the expenses of printing and filing the related
Registration Statement will be paid by TU. The cost of soliciting proxies from
holders of LCC Common Stock will be borne by LCC.
15
<PAGE> 21
THE MERGER
The Plan of Merger provides that, at the Effective Time of the Merger,
TU Sub will be merged with and into LCC, with LCC being the surviving
corporation. If the Merger is consummated, each outstanding share of LCC
Common Stock, other than shares held by dissenting holders ("Dissenting
Shares") will be converted into approximately 1.5 shares of TU Common Stock
(subject to certain adjustments). See "THE PLAN OF MERGER."
BACKGROUND OF THE MERGER
In their continuing efforts to strategically position LCC to protect and
enhance shareholder value, during 1995 LCC's management and the LCC Board
became concerned about LCC's future in an increasingly competitive
telecommunications environment, especially in light of pending and proposed
state and federal legislation which would likely increase competition by
deregulation and unprotected franchises. Following industry inquiries by LCC
management to gain information and suggest possible courses of action, LCC
employed the consulting firm of Rendall and Associates to evaluate the
telecommunications industry and to recommend possible LCC strategies. The
resulting Rendall Report, presented to the LCC Board during the second quarter
of 1996 confirmed an increasingly competitive environment, the likelihood of
price erosion and the need to refocus to provide and market additional
communications services through expansion or possible strategic relationships.
As a result of management inquiries and the Rendall Report, in 1996 the
LCC Board began to evaluate future LCC strategic alternatives to respond to
competition and to expand markets beyond traditional services and territories.
By October 1996, the LCC Board was concerned that by raising additional capital
to accomplish some of the considered strategic alternatives, dividends to LCC
shareholders would likely be impeded, thereby changing the nature of the
benefits of LCC stock ownership.
In mid-1996 in an effort to seek possible strategic relationships, Mr.
G.I. Ross, President and CEO of LCC, initiated discussions with a local manager
of TU Electric in Lufkin to explore possible ways to do business together, in
particular, a bundling of energy and communications services.
TU has an established plan to seek new investment opportunities from
time to time when it concludes that such investments are consistent with its
business strategies and are likely to enhance the long-term returns to its
shareholders. In furtherance of this plan, the telecommunications field and
LCC were identified by TU management as potential opportunities and were the
subject of internal consideration in early 1996. In May 1996, H. Jarrell
Gibbs, Vice Chairman of TU, informally contacted Mr. Ross to discuss whether
LCC had any interest in an affiliation with TU. On November 12, 1996, Mr.
Gibbs met with Mr. Ross and Linwood Newman, Chairman of the Board of LCC, to
consider whether to initiate discussions between the companies. On November
22, 1996, a confidentiality agreement was executed by both TU and LCC and some
general information was exchanged over the next few months. In early 1997, TU
engaged the services of Communications Capital Partners ("CCP") as financial
advisor to assist in TU's evaluation of LCC which engagement was formalized on
March 21, 1997.
On February 12, 1997, Herbert H. Zureich, Jr., Executive Vice President
and General Manager of Texas Utilities Communications Inc. ("TU
Communications"), a TU subsidiary, provided to Mr. Ross a detailed request for
financial and operational information. The requested information was
subsequently provided to TU and its management proceeded to evaluate this
information.
16
<PAGE> 22
On March 6, 1997, Messrs. Gibbs and Zureich, Phil Slingerland, a TU
Communications employee, and representatives of CCP met with Messrs. Ross and
Newman, to further explore each party's interest and to enhance TU management's
understanding of LCC's business. On May 5, 1997, TU engaged the services of
Salomon Brothers Inc as financial advisor to provide additional assistance. TU
management presented information concerning a possible transaction to the TU
Board of Directors on May 22-23, 1997 and received authorization to proceed
with discussions with LCC with respect to such a transaction.
On March 8, 1997, the LCC Board was apprised of the discussions with TU
and LCC management was encouraged to continue negotiations. On April 2, 1997,
Mr. Ross sought advice from LCC's regular corporate counsel, Naman, Howell,
Smith & Lee, P.C. In May 1997, LCC management contacted Daniels & Associates,
L.P. ("Daniels"), an investment banking firm, to provide assistance in
evaluating the possibilities of an affiliation with TU and to provide financial
advisory services in connection with any affiliation transaction with TU.
On June 3, 1997, Messrs. Gibbs and Zureich and representatives of CCP
met with Mr. Ross, to discuss TU's views on an appropriate range of values for
LCC. On June 20, 1997, LCC formalized its engagement of Daniels. On June 26,
1997, Mr. Slingerland and a representative of CCP met with Mr. Ross and Dale
Green, an officer of LCC, and a representative of Daniels to continue
discussions of valuation methodologies. Thereafter, numerous internal
discussions took place among TU management and its legal and financial advisors
to formulate possible terms for the transaction, including an appropriate
valuation for LCC.
On July 10, 1997, Mr. Zureich and a representative of CCP met with
Messrs. Ross and Newman and a representative of Daniels to present TU's views
as to possible terms of a transaction and a range of values for LCC.
On July 12, 1997, the management of LCC discussed a possible transaction
with the LCC Board of Directors, at which time the LCC Board rejected the
transaction because it considered the proposed consideration inadequate.
On July 14, 1997, in a telephone conversation with Mr. Zureich, Mr.
Ross responded to TU's presentation on behalf of the LCC Board. Subsequent to
this telephone conversation, representatives of Daniels and LCC spoke on
numerous occasions by telephone with representatives of CCP to discuss
valuation methodologies proposed by each party and to explore terms that might
be acceptable to each party. Both parties met internally with their respective
financial advisors to discuss the status of discussions between the financial
advisors.
On July 29, 1997, Mr. Gibbs and Robert Shapard, Treasurer of TU, spoke
by telephone with Messrs. Newman and Ross to discuss whether an acceptable
agreement might be reached, at which time both parties concluded that continued
discussions would be worthwhile. On July 30, 1997, legal counsel for TU
distributed a preliminary draft of a merger agreement to Messrs. Newman and
Ross for review and comment.
On July 31, 1997, the LCC Board reviewed the status of negotiations with
TU and appointed a special committee consisting of Mr. Newman, Deane C. Watson,
Jr. and William P. Bowers (the "Special Committee") to review the proposed
transaction and negotiate the terms of any agreement with TU. On August 7,
1997, the Special Committee met with LCC legal and financial advisors to review
in detail the issues to be explored by the Special Committee.
Beginning on August 7, 1997, management and legal counsel of both TU and
LCC spoke by telephone or in person on numerous occasions to negotiate various
terms of the transaction and TU and LCC exchanged drafts of a proposed merger
agreement.
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On August 12, 1997, the Special Committee met with TU management and a
representative of Daniels to review major points of concern and relevant
factors concerning a possible affiliation. Additionally, on August 12, 1997,
the Special Committee met with LCC management and legal counsel to review the
terms of the proposed Merger and other relevant considerations and to review in
detail a draft of the proposed merger agreement.
On August 13, 1997, the Special Committee again met to review the
proposed terms of the Merger and to conduct an in-depth interview with a
recognized expert in the electric utilities industry concerning the prospects
of TU and the future of the energy utility environment.
On August 15, 1997, the Special Committee again met to review relevant
points of negotiations and the proposed merger agreement, and in particular,
price adjustment issues.
On August 16, 1997, the Special Committee met to review the terms of the
Merger and the proposed merger agreement and was advised by legal counsel with
respect to various matters. Additional telephone conferences with legal
counsel and members of the Special Committee ensued from August 16 through
August 20, 1997, concerning the Merger and various points of negotiation.
On August 22, 1997, members of the management of TU met, reviewed and,
pursuant to TU Board authority, approved the terms and conditions of a
definitive Plan of Merger. The Plan of Merger was signed by TU and TU Sub on
August 22, 1997.
On August 23, 1997, eleven of the twelve members of the LCC Board met
and reviewed the terms of the Plan of Merger. Daniels advised the LCC Board
as to the fairness of the Common Share Exchange Ratio (as defined in the Plan
of Merger) from a financial point of view and delivered its oral fairness
opinion described below. The Special Committee reported to the LCC Board that
it recommended approval of the Plan of Merger. Thereafter, the LCC Board, by
the affirmative vote of all of the eleven members present, approved the Plan of
Merger. The Plan of Merger was signed by LCC on August 23, 1997.
INTERESTS OF LCC DIRECTOR; BONUSES
Mr. Ross has been offered an employment agreement with LCC to retain his
services after the Effective Time of the Merger. All of the other officers of
LCC and its subsidiaries have also been offered employment agreements. The LCC
Board has determined that upon the satisfaction or waiver of the conditions to
the Merger, Mr. Ross and 24 other officers and long-term employees of LCC and
its subsidiaries will be paid bonuses as compensation for their past services
and their efforts in the negotiation and consummation of the Merger. These
bonuses will be in an aggregate amount of $3,396,000. Of this amount,
$1,350,000 will be paid to Mr. Ross. These bonuses are likely to reduce the
amount of TU Common Stock received by LCC shareholders in the Merger by as much
as 1.06% (including a reduction of up to 0.42% attributable to the bonus to Mr.
Ross. However, if at the Effective Time the available cash of LCC will allow
the aggregate amount of bonuses to be increased up to $3,945,000 without
further reducing the number of TU shares to be received by the LCC
shareholders, then the bonuses will be ratably increased to an amount which in
the aggregate will not exceed $3,945,000. Pursuant to the LCC Board
determination, Mr. Ross is to receive a bonus of $1,350,000 which may be
increased to an amount not more than $1,568,256 if the bonuses are increased as
indicated. The bonus of Mr. Ross is, however, subject to the approval of
shareholders holding more than 75% of the outstanding LCC Common Stock, and the
bonus awarded to Mr. Ross will be submitted for the approval of the
shareholders at the Meeting. Such approval of the bonus to Mr. Ross will
assure that the bonus will not be treated as a "parachute payment" for tax
purposes. A parachute payment is not deductible by LCC for tax purposes and
the recepient is subject to a 20% excise tax.
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Though the bonus awarded to Mr. Ross is subject to shareholder approval, if it
is not approved, the LCC Board may choose to again consider the issue of a
bonus and vote to pay a bonus to Mr. Ross based upon such factors as it deems
relevant.
RECOMMENDATION OF THE LCC BOARD; LCC REASONS FOR THE MERGER
The LCC Board has approved the Plan of Merger, has determined that the
Merger is in the best interests of LCC and the holders of its Common Stock and
recommends that holders of LCC Common Stock vote FOR approval of the Plan of
Merger at the Meeting.
In reaching its decision to approve the Plan of Merger and to recommend
that the holders of LCC Common Stock vote to approve the Plan of Merger, the
LCC Board considered the following factors to be material:
(1) The competitive environment in the telecommunications industry
and the need for additional capital and business alliances to remain
competitive;
(2) The strong dividend history of TU and the likelihood of
increased dividends that LCC shareholders would receive as TU shareholders as
compared to the dividends received as LCC shareholders;
(3) The relative stability of the electric utility industry as
compared to the telecommunications industry;
(4) The expressed intention of TU to retain the LCC employees;
(5) The potential for a synergistic relationship which would allow
LCC and TU to enter additional markets and provide expanded services;
(6) The current and historical market prices of TU Common Stock
and dividends on LCC Common Stock and TU Common Stock (the assumed merger
consideration of approximately 1.5 shares of TU Common Stock per share of LCC
Common Stock (having a pro forma dividend of $3.04) was compared to the $1.32
dividends on LCC Common Stock for 1996) (see "SUMMARY -- Market Price Data and
- -- Dividend Data");
(7) The premium which holders of LCC Common Stock would receive in
the Merger over book value of LCC Common Stock at the time (the assumed merger
consideration of approximately 1.5 shares of TU Common Stock per share of LCC
Common Stock (having a pro forma book value of approximately $40.29) was
compared to the $16.70 book value per share of LCC Common Stock on December 31,
1996) (see "SUMMARY -- Market Price Data and -- Dividend Data" and "Comparative
Per Share Data");
(8) The comparative liquidity of LCC Common Stock and TU Common
Stock (see "--Opinion of Financial Advisor");
(9) Information concerning the financial performance, condition
and business operations of each of TU and LCC for the prior three years (see
"TU AND ITS SUBSIDIARIES" and "INFORMATION CONCERNING LCC");
(10) The tax free nature of the Merger for federal income tax
purposes to holders of LCC Common Stock who receive TU Common Stock (see "--
Certain Federal Income Tax Consequences");
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(11) The terms of the Plan of Merger (see "THE PLAN OF MERGER"); and
(12) The opinion and analysis of Daniels described below (see
"--Opinion of Financial Advisor").
In determining to approve the Plan of Merger, the LCC directors
considered the information and analyses described above as a whole in relation
to their knowledge of LCC, TU and their respective businesses and their own
business experience. The LCC Board did not conclude that any single factor was
of primary importance, and believes that selecting portions of the information
and analyses, without considering all factors and analyses, could create an
incomplete view of the overall transaction. In the aggregate, such factors and
analyses led the LCC Board to conclude that the Plan of Merger was in the best
interests of the LCC shareholders. Those factors which related to the value of
the consideration available to LCC shareholders under the Plan of Merger
received more prominence in the deliberations of the LCC Board, but all of the
factors were considered interdependent in the ultimate decision to approve the
Plan of Merger.
TU REASONS FOR THE MERGER
The Board of Directors of TU approved the Merger because it believes
that the Merger represents a logical and natural extension of TU's business.
LCC is recognized as a financially sound and well managed company and is highly
regarded in the communities it serves. The management and operations of LCC
have for many years been well known to the management of TU. TU believes that
the acquisition of LCC will expand TU's ability to offer retail products and
services to customers, as well as expand TU's customer base. TU Electric
currently provides electric service to over 40,000 customers in the Lufkin,
Texas area.
OPINION OF FINANCIAL ADVISOR
Daniels was retained by LCC, pursuant to an agreement dated June 16,
1997, as its financial advisor in connection with the possible sale of the
stock of LCC. This selection was based on Daniels' experience, expertise,
reputation and overall familiarity with LCC. At the August 23, 1997 meeting of
the LCC Board, Daniels provided an oral opinion to the LCC Board that the
Common Share Exchange Ratio provided for in the Plan of Merger ("Exchange
Ratio") was fair, from a financial point of view, to the LCC shareholders as of
that date. As of the date of this Joint Proxy Statement/Prospectus, Daniels
has rendered a written opinion to the effect that the Exchange Ratio is fair,
from a financial point of view, to the LCC shareholders based on and subject to
certain matters set forth therein.
THE FULL TEXT OF DANIELS' WRITTEN OPINION, DATED AS OF THE DATE OF THIS JOINT
PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY DANIELS, IS ATTACHED
HERETO AS ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE. LCC SHAREHOLDERS
ARE URGED TO READ CAREFULLY SUCH OPINION IN ITS ENTIRETY. DANIELS' OPINION IS
DIRECTED TO THE LCC BOARD AND ADDRESSES THE FAIRNESS OF THE EXCHANGE RATIO FROM
A FINANCIAL POINT OF VIEW TO THE LCC SHAREHOLDERS. IT DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER, NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY LCC
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE LCC SHAREHOLDER
MEETING. THE SUMMARY OF THE DANIELS OPINION SET FORTH BELOW IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
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In arriving at its opinion, Daniels: (i) reviewed a copy of the Plan of
Merger; (ii) reviewed TU's Registration Statement on Form S-4, including the
Joint Proxy Statement/Prospectus of LCC and TU; (iii) reviewed the annual
reports and related financial information for the two fiscal years ended
December 31, 1995 and 1996, as well as the most recently available related
unaudited financial information prepared by management of LCC and TU,
respectively; (iv) reviewed certain information related to the business,
earnings, cash flow, assets and prospects of LCC and TU furnished to Daniels by
management of the respective companies; (v) conducted discussions with members
of senior management of LCC and TU regarding the business and prospects of LCC
and TU, respectively; (vi) reviewed minutes of meetings of the LCC Board at
which the proposed Merger, or alternatives thereto, were discussed; (vii)
compared the results of operations of LCC with those of certain public
companies which Daniels deemed to be reasonably similar to LCC; (viii) reviewed
the reported prices and trading activity for the common stock of TU for the
past 24 months; (ix) performed a discounted cash flow analysis of LCC's
five-year financial projections through the year 2001; (x) compared the
proposed financial terms of the Merger contemplated by the Plan of Merger with
the terms of certain other transactions which Daniels deemed to be relevant;
and (xi) reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as Daniels deemed
necessary for purposes of its opinion.
In arriving at its written opinion and in its August 23, 1997
presentation to the LCC Board, Daniels did not assume any obligation to verify
any of the foregoing information which it reviewed and relied upon the accuracy
and completeness of such information in all material respects. With respect to
financial projections, Daniels assumed that such information was reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of LCC and TU. In addition,
Daniels assumed that the Merger will be consummated in accordance with the
terms set forth in the Plan of Merger including, among other things, that the
Merger will be treated as a tax-free reorganization pursuant to the Code.
Daniels did not make any independent valuation or appraisal of the assets or
liabilities of LCC, nor was Daniels furnished with any such appraisals.
Daniels' opinion is necessarily based on business, market, economic and other
conditions which are in effect on, and could be evaluated as of, the date of
the written opinion. In arriving at its opinion, Daniels was not authorized to
solicit, and did not solicit, interest from any party with respect to the
acquisition of LCC or any of its assets, nor did Daniels negotiate with any
parties other than TU.
The following is a brief summary of certain analyses performed by
Daniels and reviewed with the LCC Board on August 23, 1997 in connection with
its oral presentation to the LCC Board on that date and its preparation of the
written opinion, attached in Annex B.
DISCOUNTED CASH FLOW ANALYSIS. Daniels conducted a five-year discounted
cash flow analysis of LCC for the year 1997 through 2001 to estimate the
present value of unlevered free cash flow that LCC is expected to generate if
LCC performs in accordance with the five-year financial projections supplied by
management. For purposes of Daniels' analysis, free cash flow was determined
by using LCC projections for revenues, operating expenses, investment in
working capital, taxes on earnings before interest and taxes ("EBIT") and
capital expenditures for the five-year period beginning in 1997. Daniels
calculated a terminal value for LCC by applying a range of multiples to
earnings before interest, taxes, depreciation and amortization ("EBITDA") in
year five. Based on LCC's year-to-date revenue and EBITDA growth, LCC's
diversification into non-regulated businesses, and industry forecasts, Daniels
utilized terminal EBITDA multiples ranging from 7.5x to 8.5x in its analysis.
LCC's five-year unlevered free cash flow and terminal value were discounted to
present value using a range of discount rates from 9% to 10%. The discount
rate range was selected based upon a weighted average cost of capital analysis
of LCC. Because EBITDA from LCC's non-operating business segments,
specifically its investment in cellular telephone partnerships, is not
reflected in LCC's five-year operating projections, Daniels added the estimated
value of these minority partnership interests to its discounted cash flow
analysis in order to
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evaluate a company enterprise value for LCC. By applying the analysis
discussed above, a company enterprise value for LCC ranges from $303.3 million
to $357.3 million or $50.49 to $59.48 per share.
COMPARABLE COMPANY ANALYSIS. Comparable company analysis is used to
compare a company's performance relative to comparable publicly-traded peers.
Daniels reviewed selected financial and operating results for several public
telephone companies that were deemed to have similar characteristics to LCC.
However, because of the inherent differences in size, focus and characteristics
of LCC and the selected comparable companies, Daniels used its own qualitative
judgment concerning these differences in order to obtain a comparable measure
of public market valuation. Daniels reviewed certain financial statistics,
including trading value per access line and trading value as a multiple of
trailing EBITDA for the following comparable companies: Aliant Communications,
Alltel Corporation, Century Telephone Enterprises, Hector Communications,
Roseville Communications and Southern New England Telecommunications Corp.
In performing the comparable company analysis, Daniels used
publicly-available information for the year ended December 31, 1996 and the six
months ended June 30, 1997. The most recent data available for LCC was for the
twelve months ended June 30, 1997. Based on this data, the public market
comparable analysis yields trailing twelve month EBITDA multiples ranging
between 5.2x and 8.4x and values per access line, excluding significant
wireless holdings, ranging between $1,332 and $3,566. Based on the EBITDA
analysis and adding the estimated value of LCC's investment in cellular
telephone partnerships, the implied company enterprise value ranges from $225.4
million to $348.1 million or $37.52 to $57.95 per share. Using values per
access line for comparable companies, the number of LCC's access lines as of
June 30, 1997 and adding the estimated value of LCC's investment in cellular
partnerships, the implied company enterprise value ranges from $151.2 million
to $361.2 million or $25.17 to $60.13 per share.
COMPARABLE TRANSACTION ANALYSIS. Using publicly available information,
Daniels performed an analysis of selected reported sales of comparable
telephone companies during the last three years. Daniels reviewed certain
financial statistics, including estimates of EBITDA multiples and prices paid
per access line. As no company utilized in this analysis was identical to LCC
and because of the variability and related significance of different business
lines outside of the core telephone business, Daniels focused its analysis of
comparable transactions on the estimates of valuation attributable to the
telephone business only. After arriving at a range of valuation for the
telephone operations of the comparable transactions, Daniels added the
estimated value of LCC's investment in cellular telephone partnerships to
arrive at a range of company enterprise value for LCC. Daniels' analysis
included the following comparable transactions (Seller/Buyer): PTI/Century
Telephone, Consolidated Communications/McLeod USA, US West/Pacific Telecom,
Ollig Utilities/Alliance Telecom, St. Joe Paper/Texas Pacific Group, US
West/TriTech, Alltel/Citizens Utilities, GTE/New England Independent, and SLT
Communications/Alltel.
In Daniels' analysis, the trailing telephone-only EBITDA multiples
ranges from 4.1x to 9.2x with a median of 7.0x. Based on this range, the
comparable transaction analysis yields an implied company enterprise value from
$183.2 million to $378.4 million or $30.50 to $62.49 per share. The value per
access line ranged from $2,127 to $4,450 with a median of $2,900. The value
per access line analysis yields a company enterprise value from $225.9 million
to $444.3 million or $37.61 to $73.97 per share.
No transaction utilized in this comparable transaction analysis is
identical to the Merger and the amount of information available with respect to
these transactions varies widely. In evaluating these transactions, Daniels
made judgments and assumptions with regard to industry performance, general
business, economic market and financial conditions and other matters in
general. Accordingly, an analysis of the results of this review is not
mathematical.
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In preparing its opinion to the LCC Board, Daniels performed a variety
of financial analyses, the material portions of which are summarized above.
The preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to a partial analysis or summary
description. Each methodology resulting in an implied range of enterprise
value for LCC supported Daniels' opinion that the Exchange Ratio was fair, from
a financial point of view, to the LCC shareholders. In arriving at its
opinion, Daniels did not attribute any particular weight to any particular
analysis or factor considered by it, but rather made qualitative judgments
about the relevance of each. Daniels believes that its analyses must be
considered as a whole and that selecting any portion of such analyses, without
considering all factors and analyses, could create an incomplete view of the
analyses and the processes underlying Daniels' opinion. In addition, the
analyses set forth above are not appraisals and do not purport to reflect the
price at which LCC might be sold. Because such estimates are inherently
subject to uncertainty, none of LCC, TU, Daniels or any other person assumes
any responsibility for their accuracy.
Daniels' opinion relates solely to the fairness, from a financial point
of view, of the Exchange Ratio and does not address LCC's underlying business
decision to enter into the Merger. Its opinion also does not address the
relative merits of any alternatives to the Merger which the LCC Board may have
considered, the decision of the LCC Board to proceed with the Merger or the
form of consideration being received in the Merger. Daniels expresses no
opinion and makes no recommendation as to how the LCC shareholders should vote
on the Merger.
COMPENSATION/POTENTIAL CONFLICT OF INTEREST. Pursuant to the engagement
letters entered into on June 20, 1997 and August 12, 1997, LCC has agreed to
pay Daniels: (i) a fairness opinion fee of $20,000, $10,000 paid as of August
12, 1997 and $10,000 due upon Daniels rendering the final update to its opinion
letter and, (ii) if the Merger is consummated, a fee of $1,000,000. In
addition to the foregoing compensation, LCC has agreed to reimburse Daniels for
expenses and to indemnify Daniels for certain liabilities and expenses arising
out of this engagement. These fees were determined by arms-length negotiations
between Daniels and LCC. Daniels and LCC do not believe that the prior
agreements in any way affected Daniels' ability to fairly and impartially
render its opinion.
MANAGEMENT OF LCC AFTER THE MERGER
It is TU's present intention to maintain LCC, the surviving corporation
in the Merger, as a direct or indirect subsidiary of TU. At the Effective
Time, the directors of TU Sub will become the directors of LCC.
LCC, as the surviving corporation in the Merger, is expected to enter
into an employment agreement with G. I. Ross to retain his services until his
retirement in March 1999. Each of the other officers of LCC and its
subsidiaries has been offered an employment agreement with a two year term,
retaining his or her services either for LCC or some other employer corporation
within the Texas Utilities Company System ("TU System"), provided that they
each continue to diligently perform their assigned duties and discharge their
responsibilities in compliance with the policies of their employer. These
agreements will be effective only upon consummation of the Merger. See
"Interests of LCC Director; Bonuses."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon the provisions of the Code, the
applicable regulations thereunder, judicial authority, current administrative
rulings and practice as of the date hereof and the opinion of Reid & Priest
LLP. The following discussion does not address the federal income tax
consequences to particular taxpayers in
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light of their personal investment circumstances or to special classes of
taxpayers including, without limitation, foreign persons and tax exempt
entities. This discussion also assumes that the holders of LCC Common Stock
hold such stock as capital assets at the Effective Time.
The Merger is contingent upon the receipt by LCC and TU of an opinion
from Reid & Priest LLP that the Merger qualifies, for federal income tax
purposes, as a reorganization within the meaning of Section 368(a) of the Code.
The opinion will be based upon certain assumptions and representations by the
managements of TU and LCC and certain shareholders of LCC. LCC must obtain
written representations from its shareholders who hold in the aggregate at
least 50% of the LCC Common Stock at the Effective Time to the effect that they
have no present plan or intention to sell the TU Common Stock received in the
Merger and that they will advise LCC if their plans or intentions change prior
to the Effective Time. A ruling from the Internal Revenue Service (the
"Service") concerning the tax consequences of the Merger will not be requested.
The discussion below assumes that, in accordance with the opinion of Reid &
Priest LLP, the Merger qualifies as a reorganization within the meaning of
Sections 368(a) of the Code.
EXCHANGE OF LCC COMMON STOCK SOLELY FOR TU COMMON STOCK. A holder of LCC
Common Stock who, pursuant to the Merger, exchanges all of the LCC Common Stock
owned by him solely for TU Common Stock, will not recognize any gain or loss
upon such exchange. The aggregate tax basis of TU Common Stock received in
exchange for LCC Common Stock will be equal to the aggregate tax basis of the
LCC Common Stock surrendered in exchange therefor. Provided such shares of LCC
Common Stock are held as capital assets at the Effective Time, the holding
period of the TU Common Stock will include the holding period of the LCC Common
Stock surrendered in exchange therefor.
CASH RECEIVED IN LIEU OF FRACTIONAL SHARES OF TU COMMON STOCK. No fractional
shares of TU Common Stock will be issued pursuant to the Merger. A holder of
LCC Common Stock who receives cash pursuant to the Merger in lieu of a
fractional share interest will be treated as having received such fractional
share pursuant to the Merger, and then as having exchanged such fractional
share for cash in a redemption by TU. Subject to Section 302(a) of the Code,
provided that such redemption is "substantially disproportionate" with respect
to such holder of LCC Common Stock or is "not essentially equivalent to a
dividend," the amount received will be treated as received in exchange for such
fractional share. The amount of any gain or loss recognized upon the deemed
redemption of the fractional share will be equal to the difference between the
portion of the tax basis of the LCC Common Stock surrendered in the Merger
which is allocated to such fractional share and the cash received in lieu
thereof.
BACKUP WITHHOLDING. Unless an exemption applies under the applicable law and
regulations, the bank, trust company or other entity appointed as exchange
agent ("Exchange Agent") will be required to withhold, and will withhold, 31%
of any cash payments to which a shareholder or other payee is entitled pursuant
to the Plan of Merger unless the shareholder or other payee provides his tax
identification number (social security number or employer identification
number) and certifies that such number is correct. Each shareholder and, if
applicable, each other payee should complete and sign a Substitute Form W-9, so
as to provide the information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is proved in a manner
satisfactory to TU and the Exchange Agent.
TAX CONSEQUENCES TO TU, TU SUB AND LCC. The transactions contemplated by the
Merger will not result in the recognition of gain or loss by TU, TU Sub or LCC.
The consolidated group of which TU is the common parent for federal income tax
purposes will survive the Merger, and LCC will become a member of the TU
consolidated group.
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THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. EACH LCC SHAREHOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE AND LOCAL AND OTHER TAX LAWS.
RIGHTS OF DISSENTING SHAREHOLDERS
The TBCA generally provides that any shareholder of a Texas corporation
shall have the right to dissent from any plan of merger to which such
corporation is a party, if shareholder approval is required.
Set forth below is a summary of the procedures relating to the exercise
of the right to dissent as provided in the TBCA. The summary does not purport
to be complete and is qualified in its entirety by reference to Articles 5.11,
5.12 and 5.13 of the TBCA, copies of which are attached hereto as Annex C.
FAILURE TO COMPLY WITH ANY OF THE REQUIRED STEPS MAY RESULT IN TERMINATION OF A
SHAREHOLDER'S RIGHT TO DISSENT.
Each LCC shareholder has a right to dissent which can be exercised only
by complying with the following procedures: (i) with respect to the proposal
to approve the Plan of Merger that is being submitted to a vote of the LCC
shareholders at the Meeting, the shareholder must file with LCC, prior to the
Meeting, a written objection to the Merger, setting out that the shareholder's
right to dissent will be exercised if the Merger is effective and giving the
shareholder's address, to which notice thereof shall be delivered or mailed in
the event that the Merger is consummated; and (ii) if the Merger is effected
and the shareholder shall not have voted in favor of the Merger, LCC, as the
surviving corporation shall, within ten days after the Merger is effective,
deliver or mail to the shareholder written notice that the Merger has been
effected, and the shareholder may, within ten days from the delivery or mailing
of the notice, make written demand on LCC, as the surviving corporation, for
payment of the fair value of the shareholder's shares of LCC Common Stock.
A shareholder who votes in favor of the Plan of Merger will be deemed to
have waived the right to dissent. However, as described above, a vote against
the Plan of Merger alone will not satisfy the requirements of the TBCA relative
to the right to dissent.
The fair value of the LCC Common Stock shall be the value thereof as of
the day immediately preceding the Meeting, excluding any appreciation or
depreciation in anticipation of the Merger. The demand shall state the number
of shares of LCC Common Stock owned by the shareholder and the fair value of
such shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten day period shall be bound by the Plan of Merger and the
Merger. Within twenty days after demanding payment for his shares, each holder
of certificates formerly representing shares of LCC Common Stock so demanding
payment shall submit such certificates to LCC for notation thereon that such
demand has been made. The failure of holders of such certificates to do so
shall, at the option of LCC, terminate such shareholder's rights to dissent,
unless a court of competent jurisdiction for good and sufficient cause shall
otherwise direct.
Any shareholder who has demanded payment for his shares in accordance
with the TBCA shall not thereafter be entitled to vote or exercise any other
rights of a shareholder except the right to receive payment for his shares of
LCC Common Stock in accordance with the TBCA and the right to maintain an
appropriate action to obtain relief on the ground that the Merger would be or
was fraudulent. The respective shares of LCC Common Stock for which payment
has been properly demanded shall not thereafter be considered outstanding for
the purposes of any subsequent vote of shareholders.
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Within twenty days after receipt by LCC, as the surviving corporation,
of a demand for payment made by a dissenting shareholder, LCC shall deliver or
mail to the dissenting shareholder a written notice that shall either: (i)
state that LCC accepts the amount claimed in the demand and agrees to pay that
amount within ninety days after the date on which the Merger was effected, upon
the surrender of the share certificates duly endorsed, or (ii) contain an
estimate by LCC of the fair value of the shares of LCC Common Stock, together
with an offer to pay the amount of that estimate within ninety days after the
date on which the Merger was effected, upon receipt of notice within sixty days
after that date from the shareholder that the shareholder agrees to accept that
amount, upon the surrender of the certificates duly endorsed.
If, within sixty days after the date on which the Merger was effected,
the value of the shares of LCC Common Stock is agreed upon between the
shareholder and LCC, payment for the shares shall be made within ninety days
after the date on which the Merger was effected and, in the case of shares
represented by certificates, upon surrender of the share certificates duly
endorsed.
If, within the period of sixty days after the date on which the Merger
was effected, the dissenting shareholder and LCC do not so agree, then the
shareholder or LCC may, within sixty days after the expiration of such sixty
day period, file a petition in any court of competent jurisdiction in Angelina
County, Texas asking for a finding and determination of the fair value of the
shareholder's shares of LCC Common Stock. The clerk of the court shall give
notice of the time and place fixed for the hearing of the petition by
registered mail to LCC and to the shareholders who have demanded payment for
their shares and with whom agreements as to the value of their shares have not
been reached by LCC. LCC and all LCC shareholders so notified shall be bound
by the final judgment of such court.
After the hearing on the petition, the court shall determine the
shareholders who have complied with the provisions of Article 5.12 of the TBCA
and have become entitled to the valuation of and payment for their shares, and
shall appoint one or more qualified appraisers to determine that value. In
addition to having the power to examine the books and records of LCC, the
appraisers shall afford a reasonable opportunity to the interested parties to
submit to the appraisers pertinent evidence as to the value of the shares of
LCC Common Stock.
The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the court clerk.
Notice of the filing of the report shall be given by the clerk to the parties
in interest. The report shall be subject to exceptions to be heard before the
court both upon the law and the facts. The court shall by its judgment
determine the fair value of the shares of the shareholders entitled to payment
for their shares and shall direct the payment of that value by LCC together
with interest thereon, to the date of such judgment, to the shareholders
entitled to payment. The judgment shall be payable to the holders of shares
represented by certificates only upon, and simultaneously with, the surrender
to LCC of duly endorsed certificates for those shares. Upon payment of the
judgment, the dissenting shareholders shall cease to have any interest in those
shares or in LCC. The court shall allow the appraisers a reasonable fee as
court costs, and all costs shall be allocated between the parties in the manner
that the court determines to be fair and equitable.
Pursuant to the Plan of Merger, LCC shareholders exercising their right
to dissent under the TBCA will be entitled to payment solely out of the
historic assets of LCC.
Any shareholder who has demanded payment for his shares of LCC Common
Stock in accordance with the TBCA may withdraw such demand at any time before
payment for his shares or before any petition has been filed pursuant to the
TBCA asking for a finding and determination of the fair value of such shares,
but no such
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demand may be withdrawn after such payment has been made or, unless LCC shall
consent thereto, after any such petition has been filed. However, if: (i)
such demand shall be withdrawn as hereinbefore provided, (ii) pursuant to the
TBCA, LCC shall terminate the shareholder's rights to dissent under the TBCA,
(iii) no petition asking for a finding and determination of fair value of such
shares of LCC Common Stock by a court shall have been filed within the time
provided in the TBCA, or (iv) after the hearing of a petition filed pursuant to
the TBCA, the court shall determine that such shareholder is not entitled to
the relief provided by the TBCA, then, in any such case, such shareholder and
all persons claiming under him shall be conclusively presumed to have approved
and ratified the Merger and shall be bound thereby, the right of such
shareholder to be paid the fair value of his shares shall cease, his status as
a shareholder shall be restored without prejudice to any corporate proceedings
which may have been taken during the interim, and such shareholder shall be
entitled to receive any dividends or other distributions made to shareholders
in the interim.
It is a condition to TU's obligation to consummate the Merger that not
more than five percent of the outstanding shares of LCC Common Stock shall
constitute Dissenting Shares.
Exercise of the right to dissent under the TBCA, if such right is
available, may result in a judicial determination that the "fair value" of a
dissenting shareholder's shares of LCC Common Stock is higher or lower than the
value of the consideration to be received pursuant to the Plan of Merger.
ACCOUNTING TREATMENT
TU anticipates that the Merger will be accounted for as a purchase of
LCC by TU in accordance with generally accepted accounting principles. The
purchase price will be compared to the fair value of the net assets acquired
and the difference (acquisition adjustment) will be recorded as an asset and
amortized on a straight line basis over such period as is prescribed by
regulatory authorities. The results of operations of LCC will be included in
the consolidated results of operations of TU after the Effective Time.
RESALES OF TU COMMON STOCK BY AFFILIATES OF LCC
The shares of TU Common Stock to be issued in the Merger will have been
registered under the Securities Act. Such shares will be freely transferable
under the Securities Act, except for shares issued to any person who may be
deemed to be an affiliate (as such term is defined for purposes of Rule 145
under the Securities Act, an "Affiliate") of LCC. Affiliates of LCC may not
sell shares of TU Common Stock acquired in connection with the Merger except
pursuant to: (i) an effective registration statement under the Securities Act
covering such shares, (ii) paragraph (d) of Rule 145, or (iii) any other
applicable exemption under the Securities Act.
THE PLAN OF MERGER
The information contained in this Prospectus/Proxy Statement with
respect to the Plan of Merger and the Merger is qualified in its entirety by
reference to the Plan of Merger, a copy of which is attached hereto as Annex A
and incorporated herein by reference.
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EFFECTIVE TIME; EFFECT OF THE MERGER
The Merger is to become effective upon the issuance of a Certificate of
Merger by the Secretary of State of the State of Texas in accordance with the
applicable provisions of the TBCA, after Articles of Merger have been executed
and filed by the parties to the Merger. See "--Conditions to Consummation of
the Merger; Regulatory Approvals" below.
At the Effective Time, TU Sub will be merged with and into LCC. LCC, as
the surviving corporation, will be a direct or indirect wholly owned subsidiary
of TU and will continue to own all of LCC's assets and to be responsible for
all of its liabilities.
At the Effective Time, each then outstanding share of LCC Common Stock
(other than Dissenting Shares) will be converted into the right to receive that
number of shares of TU Common Stock equal to the amount ("Exchange Ratio")
obtained by dividing $53.274 (or such lesser number as described below) by the
Average TU Price. The "Average TU Price" will be the average of the closing
sales prices of TU Common Stock as reported on the NYSE Consolidated
Transactions Tape on the 20 consecutive trading days preceding the tenth
trading day prior to the Effective Time; but will in no case be less than
$31.00 or more than $37.00.
The Plan of Merger provides that the numerator of the formula used to
determine the Exchange Ratio may be subject to reduction under certain
circumstances. The factors that will determine the amount of the reduction
will include: (a) the amount of any net indebtedness of LCC as compared to an
agreed upon level of $8,300,000, (b) the aggregate amount (up to $5,000,000) of
certain bonuses paid or payable to LCC management, and (c) any unpaid
transaction costs, in each case determined as of the Effective Time. (See
Section 2.01 of the Plan of Merger attached hereto as Annex A). The aggregate
amount of the bonuses will be determined as described in "THE MERGER --
Interests of Director; Bonuses."
No fractional shares of TU Common Stock will be issued and a person
otherwise entitled to a fractional share will not be entitled to vote or to any
rights as a holder of TU Common Stock with respect to such fractional share.
As promptly as practicable following the Effective Time, the Exchange Agent
will determine the excess of: (i) the aggregate number of shares of TU Common
Stock delivered to the Exchange Agent by TU, over (ii) the aggregate number of
whole shares to be distributed to the holders of LCC Common Stock (the "Excess
Shares"). As soon thereafter as is practicable, the Exchange Agent, as agent
for the holders of LCC Common Stock, will sell the Excess Shares at the
prevailing prices, and determine the portion of the net proceeds from the sale
of the Excess Shares to which each holder of fractional shares is entitled, if
any.
The Articles of Incorporation and Bylaws of TU Sub immediately prior to
the Effective Time will be the Articles of Incorporation and Bylaws of the
surviving corporation. The officers of LCC and the directors of TU Sub
immediately prior to the Effective Time will be the officers and directors,
respectively, of the surviving corporation.
Detailed instructions for surrendering certificates for LCC Common Stock
will be mailed to holders of LCC Common Stock promptly after the Effective
Time. These instructions will contain information regarding the procedures to
be followed. HOLDERS OF CERTIFICATES REPRESENTING LCC COMMON STOCK SHOULD NOT
SURRENDER SUCH CERTIFICATES UNTIL THEY RECEIVE THE APPROPRIATE TRANSMITTAL
MATERIALS.
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CONDITIONS TO CONSUMMATION OF THE MERGER; REGULATORY APPROVALS
TU and LCC's respective obligations to consummate the Merger are
subject, among other things, to: (i) the approval of the Plan of Merger by the
holders of not less than two-thirds (2/3) of the outstanding LCC Common Stock;
(ii) receipt of a favorable opinion of Reid & Priest LLP, regarding the
qualification of the Merger as a reorganization for federal income tax purposes
within the meaning of Section 368(a) of the Code; (iii) the listing of the TU
Common Stock to be issued in the Merger on the NYSE; (iv) expiration or
termination of the applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HSR Act"); (v) the absence of
any litigation which would prevent the consummation of the Merger; and (vi)
each party securing all necessary approvals of all federal, state and local
government agencies. In addition, the obligations of LCC to effect the Merger
are conditioned upon: (i) compliance by TU and TU Sub with the Plan of Merger
and the accuracy of all of their representations and warranties contained in
the Plan of Merger; (ii) receipt of a fairness opinion from Daniels, its
financial advisor; (iii) the absence of any material adverse event with respect
to TU; and (iv) receipt of a legal opinion as provided in the Plan of Merger.
The obligations of TU and TU Sub to effect the Merger are further conditioned
upon: (i) compliance by LCC with the Plan of Merger and the accuracy of all of
its representations and warranties contained in the Plan of Merger; (ii) the
holders of no more than five percent of the LCC Common Stock having perfected
dissenters' rights under the TBCA; (iii) at least eight of the eleven existing
officers of LCC and its subsidiaries having entered into employment agreements
with the surviving corporation; (iv) the absence of any material environmental
hazards on any of LCC's real property; (v) the absence of any material adverse
event with respect to LCC; and (vi) receipt of legal opinions and comfort
letters as provided in the Plan of Merger.
Notifications and Report Forms with respect to the Merger under the HSR
Act were filed with the Federal Trade Commission and the United States
Department of Justice by TU and LCC on September 22, 1997; and the waiting
period expired on __________, 1997.
Although TU and LCC believe that they will receive the requisite
regulatory approvals concerning the Merger, there can be no assurance as to the
timing of such approvals or as to the ability to obtain such approvals on
satisfactory terms. Due to the time that may be required to obtain such
approvals, it is possible that the Merger may not be consummated for a number
of months after the Meeting.
CONDUCT OF BUSINESS PRIOR TO THE MERGER
Pursuant to the Plan of Merger, LCC has agreed, pending consummation of
the Merger that it will, among other things: (i) conduct its business in the
ordinary course of business; (ii) not amend or propose to amend its Articles of
Incorporation or Bylaws; (iii) not split, combine or reclassify its capital
stock or declare or pay any dividend or other distribution except for: (x)
regularly scheduled quarterly dividends of not more than $0.34 per share of LCC
Common Stock and (y) scheduled special dividends of not more than $0.12 per
share which are expected to be paid in December; (iv) not issue or dispose of
any additional shares of capital stock or options or rights therefor; (v) not
acquire or dispose of any material assets, except in the ordinary course of
business; (vi) not incur or become liable for borrowed money or incur any
material liability or obligation; (vii) not make any capital expenditures,
other than as specifically provided in the Plan of Merger; (viii) not take or
fail to take any action to prevent the qualification of the Merger as a
reorganization under Section 368(a) of the Code; (ix) use its best efforts to
preserve its business organization, retain the services of its officers and key
employees and preserve the goodwill of those having business relationships with
it; and (x) not grant any severance or termination pay (other than pursuant to
LCC's policies now in effect) or adopt any additional employee benefit plan or
arrangement other than bonuses paid in the ordinary course of business and the
Bonuses.
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The Plan of Merger provides that LCC will not, nor will it permit any
officer, director, employee or investment banker, financial advisor, attorney,
accountant or other agent retained by LCC to, initiate or solicit, directly or
indirectly, any inquiries or the making of any proposal or offer with respect
to the acquisition of all or any substantial part of the business, properties
or capital stock of LCC, whether by merger, purchase of assets, tender offer or
otherwise; provided that LCC may furnish information to, and may negotiate
with, a third party if counsel to LCC has advised its Board of Directors that
the failure to provide such information or negotiate could subject them to
liability for a breach of their fiduciary duties.
Under the Plan of Merger, LCC has agreed to afford TU and its
accountants, counsel and other representatives with reasonable access, during
normal business hours throughout the period prior to the Effective Time, to its
properties, books, assets and records.
AMENDMENT AND WAIVER
The Plan of Merger may be amended by mutual agreement of TU and LCC at
any time before or after approval of the Plan of Merger by the shareholders of
LCC. After such shareholder approval, however, no amendment may be made which
would reduce the amount or change the type of consideration into which each
share of LCC Common Stock will be converted pursuant to the Plan of Merger.
At any time prior to the Effective Time, the parties may extend the time
for performance of, or waive compliance with, any of the agreements or
conditions contained in the Plan of Merger.
TERMINATION; EXPENSES
The Plan of Merger may be terminated prior to the Effective Time,
whether before or after approval by the shareholders of LCC, (i) by mutual
written consent of the Boards of Directors of TU and LCC; (ii) by TU if, prior
to October 7, 1997, its review of information about LCC reveals that the Merger
would be materially less favorable to TU than it had expected; or (iii) by
either party if: (a) the Merger is not approved by holders of LCC Common Stock
at the Meeting, (b) a court or governmental entity has entered a final
non-appealable order prohibiting the Merger, (c) there is a material breach of
the Plan of Merger by the other party which is not remedied within 20 days and
which would result in the Merger being materially less favorable to the
terminating party, or (d) the Merger is not consummated on or before December
31, 1997 (which TU may extend to June 29, 1998 under certain conditions) and
the failure to effect the Merger is not the result of any breach of the Plan of
Merger by the terminating party.
The Plan of Merger may also be terminated by LCC if the LCC Board
receives an unsolicited written bona fide offer with respect to a merger,
consolidation or sale of assets or if an unsolicited tender or exchange offer
for LCC Common Stock is commenced by a third party and, after notice to TU and
subject to certain other qualifications, the LCC Board determines in good faith
and based upon the advice of outside legal counsel, that the approval,
acceptance or recommendation of such transaction is required by their fiduciary
obligations.
If (i) the Plan of Merger is terminated for any reason and LCC has
breached its agreement not to solicit or initiate any competing offer to
acquire LCC, (ii) the Plan of Merger is terminated as a result of a unsolicited
offer which the LCC Board is obligated to approve, accept or recommend, or
(iii) within six months after termination of the Plan of Merger, LCC enters
into a binding agreement with respect to a competing offer to acquire LCC, TU
will be entitled to a termination fee of $19,000,000.
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Under certain circumstances, a termination that results from a breach by
one party may require the breaching party to reimburse certain out-of-pocket
expenses of the other party (up to a $750,000 maximum) or, if such breach is
willful, may require payment by the breaching party of a $19,000,000
termination fee. Subject to the foregoing, all costs and expenses incurred in
connection with the Plan of Merger and the transactions contemplated therein
will be paid by the party incurring the costs or expenses.
TU AND ITS SUBSIDIARIES
TU (formerly known as TUC Holding Company) is a Texas corporation
organized in 1996 for the purpose of becoming the holding company for TEI and
ENSERCH upon the mergers of TEI and ENSERCH into wholly owned subsidiaries of
TU. At the effective time of such mergers, TU changed its name from TUC
Holding Company to Texas Utilities Company and TEI changed its name from Texas
Utilities Company to Texas Energy Industries, Inc.
TEI is a holding company whose principal subsidiary, TU Electric, is an
operating public utility company engaged in the generation, purchase,
transmission, distribution and sale of electric energy in the north central,
eastern and western portions of Texas, an area with a population estimated at
5,890,000. Two other subsidiaries of TEI are engaged directly or indirectly in
public utility operations: (i) Southwestern Electric Service Company, which is
engaged in the purchase, transmission, distribution and sale of electric energy
in ten counties in the eastern and central parts of Texas, with a population
estimated at 126,900 and (ii) Texas Utilities Australia Pty. Ltd., which holds
the common stock of Eastern Energy Limited, a company engaged in the purchase,
distribution and sale of electric energy to approximately 481,000 customers in
the Melbourne area of Australia. Neither Southwestern Electric Service Company
nor Eastern Energy Limited generates any electricity. TEI also has other
wholly owned subsidiaries which perform specialized functions within and
outside the TU System.
ENSERCH, a Texas corporation, is an integrated company focused on
natural gas. Its major business segments are natural gas pipeline, processing
and marketing; natural gas distribution; and power generation. Through these
business segments, ENSERCH is engaged in: (i) owning and operating
interconnected natural gas transmission lines, underground storage reservoirs,
compressor stations and related properties in Texas; gathering and processing
natural gas to remove impurities and extract liquid hydrocarbons for sale; and
the wholesale and retail marketing of natural gas in several areas of the
United States, (ii) owning and operating approximately 550 local gas utility
distribution systems in Texas, and (iii) developing, financing and operating
electric power generating plants and cogeneration facilities worldwide,
operating thermal energy plants for large building complexes, such as
universities and medical centers, in Texas, and developing gas distribution
systems in Mexico and South America.
The principal executive offices of TU are located at Energy Plaza, 1601
Bryan Street, Dallas, Texas 75201-3411; the telephone number is (214) 812-4600.
DESCRIPTION OF TU CAPITAL STOCK
The authorized capital stock of TU consists of Common Stock, without par
value, of which __________ shares were outstanding at September 30, 1997 and
serial preference stock, par value $25 per share, of which none is outstanding.
The following statements with respect to such capital stock of TU are a summary
of certain rights
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and privileges attaching to the stock under the laws of the State of Texas and
the Restated Articles of Incorporation of TU ("TU Articles") and Bylaws, as
amended, of TU ("TU Bylaws"). This summary does not purport to be complete and
is qualified in its entirety by reference to such laws, the TU Articles and TU
Bylaws for complete statements.
Each holder of TU Common Stock is entitled to one vote for each share of
TU Common Stock held on all questions submitted to shareholders and to
cumulative voting at all elections of directors. The TU Common Stock has no
preemptive or conversion rights. Upon issuance and delivery of the shares
offered hereby, such shares will be fully paid and nonassessable.
The holders of the preference stock are not accorded voting rights,
except that, when dividends thereon are in default in an amount equivalent to
four full quarterly dividends, the holders of the preference stock are entitled
to vote for the election of one-third of the Board of Directors or two
directors, whichever is greater, and, when dividends are in default in an
amount equivalent to eight full quarterly dividends, for the election of the
smallest number of directors necessary so that a majority of the full Board
shall have been elected by the holders of the preference stock. TU must also
secure the approval of the holders of two-thirds of the outstanding shares of
preference stock prior to effecting various changes in its capital structure.
After the payment of full preferential dividends on the preference
stock, holders of TU Common Stock are entitled to dividends when and as
declared by the Board of Directors. After payment to the holders of preference
stock of the preferential amounts to which they are entitled, the remaining
assets to be distributed, if any, upon any dissolution or liquidation of TU
shall be distributed to the holders of the TU Common Stock. Each share of TU
Common Stock is equal to every other share of TU Common Stock with respect to
dividends and also with respect to distributions upon any dissolution or
liquidation.
The TU Common Stock is listed on the New York, Chicago and Pacific stock
exchanges.
The transfer agent and registrar for the TU Common Stock is Texas
Utilities Shareholder Services, Dallas, Texas.
COMPARISON OF SHAREHOLDER RIGHTS
Both TU and LCC are incorporated in the State of Texas. Shareholders of
LCC, whose rights are currently governed by Texas law and the LCC Restated
Articles of Incorporation, as amended ("LCC Articles"), and Bylaws ("LCC
Bylaws") will, upon consummation of the Merger, become shareholders of TU and
their rights will continue to be governed by Texas law and will also be
governed by the TU Articles and TU Bylaws.
Certain significant differences between the rights of shareholders of TU
and shareholders of LCC are set forth below. This summary is not intended to
be relied upon as an exhaustive list or a detailed description and analysis of
the provisions discussed and is qualified in its entirety by the TBCA and by
the LCC Articles and the LCC Bylaws and the TU Articles and the TU Bylaws, to
which LCC shareholders are referred. See "AVAILABLE INFORMATION."
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GENERAL
The shares of TU Common Stock issuable to holders of LCC Common Stock
pursuant to the Merger will in the aggregate represent only a small portion
(approximately 4%) of the total votes that may be cast by the holders of all
issued and outstanding shares of TU Common Stock.
PREEMPTIVE AND VOTING RIGHTS
LCC. Pursuant to the LCC Articles, each holder of LCC Common Stock is
entitled to one vote for each share of LCC Common Stock on all questions
submitted to the shareholders. Cumulative voting in the election of directors
and preemptive rights to subscribe to any issue of LCC Common Stock or other
securities of LCC are expressly denied by the LCC Articles.
TU. As provided by the TU Articles, each holder of TU Common Stock is
entitled to one vote for each share of TU Common Stock held on all questions
submitted to shareholders and to cumulative voting at all elections of
directors. The TU Articles also provide that the TU Common Stock has no
preemptive or conversion rights.
The TU Articles provide that the holders of Preference Stock, none of
which is currently outstanding, are not accorded voting rights, except that,
when dividends thereon are in default in an amount equivalent to four full
quarterly dividends, the holders of Preference Stock are entitled to vote for
the election of one-third of the Board of Directors or two directors, whichever
is greater, and, when dividends are in default in an amount equivalent to eight
full quarterly dividends, for the election of the smallest number of directors
necessary so that a majority of the full Board of Directors shall have been
elected by the holders of the Preference Stock. Pursuant to the TU Articles,
TU must also secure the approval of the holders of two-thirds of the
outstanding shares of Preference Stock prior to effecting various changes in
its capital structure.
INSURANCE, INDEMNIFICATION AND OTHER ARRANGEMENTS
LCC AND TU. Both the TU Articles and LCC Articles contain a director
exculpation provision, which limits the personal liability of a director, when
acting in the capacity of a director to the fullest extent allowed by Texas
law, and provide for the further elimination or limitation of personal
liability if the present laws are amended to so provide. Both the LCC Articles
and Bylaws and the TU Articles provide that their respective directors,
officers, employees or agents shall be indemnified to the fullest extent
allowed by Texas law.
TU. The TU Bylaws provide that TU may purchase, enter into, maintain or
provide insurance, indemnification or other arrangements for the benefit of any
person who is or was a director, officer, employee or agent of TU, to the
fullest extent permitted by the laws of the State of Texas, against any
liability asserted against or incurred by any such person in any such capacity
or arising out of such service in such capacity. The TU Bylaws further provide
that if the laws of the State of Texas are amended to authorize indemnity,
insurance or other arrangements to a greater extent than presently permitted,
TU shall have the authority to act in accordance therewith.
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BUSINESS COMBINATIONS
LCC. The LCC Articles require the affirmative vote of at least 80% of
the stock entitled to vote on certain transactions involving certain persons
who beneficially own ten percent or more of the shares of LCC entitled to vote
(an "Interested Shareholder"), unless: (1) a majority of the directors who are
not affiliated with the Interested Shareholder and who were elected as
directors prior to the time the Interested Shareholder became an Interested
Shareholder ("Continuing Directors") approved the transaction, or (2) the
consideration received meets or exceeds certain levels, and certain other
conditions are satisfied. Since the Merger was approved by 11 of the 12
members of the LCC Board of Directors, all of whom are Continuing Directors and
the consideration to be received by LCC shareholders in the Merger meets or
exceeds the required levels, this provision does not apply to the Merger.
TU. Neither the TU Articles nor the TU Bylaws contain any similar
provisions.
INFORMATION CONCERNING LCC
BUSINESS OF LCC
LCC is the parent company of Lufkin-Conroe Telephone Exchange, Inc.
("LCTX") and Lufkin-Conroe Telecommunications Corporation ("LCT") and its
subsidiaries. LCTX is an independent local exchange carrier providing
telephone services for almost 100 years to its customers and is the fourth
largest telephone company in Texas (28th largest in the nation). LCTX has
sixteen exchanges that serve approximately 100,000 access lines in the Alto,
Conroe and Lufkin areas of Southeast Texas. It also provides access services
to a number of interexchange carriers who provide long distance services. LCT
and its subsidiaries own fiber optic cable systems which they lease to
interexchange carriers, provide Internet access, radio communications tower
rentals, cellular mobile telephone and radio paging services and private branch
exchange (PBX) service to local customers. LCT, through its subsidiary, LCT
Long Distance, Inc. ("LCTLD"), also provides interexchange long distance
service, with a primary focus on business customers.
LCC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Available funds on hand and long-term borrowing provide the necessary
resources and liquidity to fund the working capital needs and required capital
expenditures of LCC and its subsidiaries. From 1994 to the present, LCC has
regularly paid quarterly and special dividends to its shareholders.
LCC and its subsidiaries have experienced steady growth in operating
revenues from $74,972,436 for the year 1994, to $80,007,861 in 1995, and
$87,898,121 in 1996. For the six month period ended June 30, 1997, operating
revenues continued to increase to $53,292,634. LCC and its subsidiaries
experienced accompanying increases in operating expenses (including operating
taxes) from $63,271,999 in 1994, to $65,986,922 in 1995, and $72,758,430 in
1996. For the six month period ended June 30, 1997, operating expenses
(including operating taxes) also increased to $43,468,401.
During the 1994-1996 period, the balance of cash and cash equivalents as
of the end of each period increased from $6,049,237 in 1994, to $9,799,023 in
1995, and to $11,822,008 in 1996. At June 30, 1997, cash
34
<PAGE> 40
and cash equivalents were $8,386,948, a decrease of $3,435,060 from December
31, 1996. This decrease is due largely to an acceleration of the timing of
capital expenditures for the 1997 year. Capital expenditures have remained
relatively constant at $18,388,620, $18,293,482, and $18,393,043 for 1994, 1995
and 1996 respectively.
LCC has paid aggregate annual dividends to its shareholders during this
three year period ranging from a low of $ 6,407,143 in 1994 to a high of
$9,470,557 in 1995. Dividends have been paid by LCC out of cash flow
generated from the operations of LCC and its subsidiaries with the exception of
1995 when additional dividends were paid out of proceeds of the sale of LCC's
paging interests.
LCC has maintained a line of credit with a commercial bank for a number
of years. The most recent line of credit was for $8,000,000 with no funds
drawn against the line of credit as of June 30, 1997. The line of credit
expired August 29, 1997, and was not renewed at LCC's request due to the
proposed Merger.
LCC has obtained funding of a long-term nature through the issuance of
long-term debt or notes. These funds have then been loaned to the subsidiaries
to meet their capital requirements. Intercompany loans are made at rates
similar to the rates paid by LCC to third-party lenders. Long-term debt and
common stock equity represented the following percentages of total
capitalization:
<TABLE>
<CAPTION>
June 30, December 31,
---------- ------------------------
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Long-term debt 22% 24% 26%
Common stock equity 78% 76% 74%
</TABLE>
On February 12, 1997, LCC issued a long-term note to a bank in the
amount of $8,780,000. This note re-financed maturing principal on the
following: (i) indebtedness of $1,700,000 to such bank maturing April 1, 1997;
(ii) indebtedness of $5,580,000 to an insurance company maturing September 1,
1997; and (iii) $1,500,000 borrowed against lines of credit of a bank.
Principal payments on long-term debt made by LCC (net of refinancing)
consisted of $1,055,500 for the six month period ended June 30, 1997 and
$1,638,000 for the year ended December 31, 1996. For the years 1995 and 1994,
LCC increased its long-term debt (net of principal payments) by $1,862,000 and
$1,362,000 respectively.
LCC's operations involve market risks related to changes in interest
rates. The amount of this risk is small, and LCC has not used contracts such
as derivatives for hedging purposes. LCC does not experience market risk from
foreign exchange and commodity price exposures.
RESULTS OF OPERATIONS
INCOME STATEMENT ANALYSIS. Annual percentage changes for various components
of results of operations and regulated access line counts and growth are set
forth below:
35
<PAGE> 41
<TABLE>
<CAPTION>
Six Months Ended Twelve Months Ended
June 30, December 31,
----------------------- --------------------------------
LCC Consolidated 1997 1996 1996 1995 1994
---------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Operating Revenues 27.0% 8.2% 9.9% 6.7% 18.0%
Operating Expenses 25.7% 8.5% 12.4% 3.5% 19.3%
Net Operating Income 35.8% 3.2% 12.7% 2.6% 21.4%
Net Income (excluding
sales of MHP & TCAC) 40.9% 1.9% 9.8% 11.0% 22.0%
Net Income 41.0% -32.9% -12.6% 41.3% 22.3%
LCTX Access Lines 94,437 86,808 90,281 83,648 78,868
Percent Growth 8.8% 7.0% 7.9% 6.1% 5.8%
</TABLE>
Increases in operating revenues since 1994 are attributable, to a
significant degree, to high growth in access lines of LCTX. The growth rate
in access lines is due principally to continued population growth in the
Conroe, Texas area served by LCTX and increased demand for additional access
lines for facsimile machines, modems and other uses.
SIX MONTH PERIOD ENDED JUNE 30, 1997 IN COMPARISON WITH THE SIX MONTH PERIOD
ENDED JUNE 30, 1996. Operating revenues for the six month period ended June
30, 1997 as compared to the six month period ended June 30, 1996, increased by
$11,346,363. While much of the increase is attributable to access line growth,
long distance revenues also experienced a significant increase in 1997 over the
comparable period in 1996. The increase was due in part to the addition of a
long distance customer base in Huntsville, Nacogdoches and Bryan, Texas as a
result of the TCA Communications, Inc. transaction discussed below. The
increase in long distance revenues was also attributable to the commencement
of a wholesale terminating access service by LCTLD to another interexchange
carrier. This arrangement increased long distance revenues by as much as
$450,000 in some months during the later period.
Operating expenses and access expenses increased as compared to the six
month period ended June 30, 1996, due to the costs of providing the wholesale
terminating access services. Network maintenance costs as well as payroll and
benefit costs increased due to the growth in access lines.
During the six month period ended June 30, 1997, capital expenditures
increased to $10,817,364 as compared to $8,068,973 for the six month period
ended June 30, 1996. The increase was due in part to construction of a fiber
optic route between Nacogdoches and Longview, Texas by LCC's subsidiary, East
Texas Fiber Line Incorporated. Overall capital expenditures for 1997 are not
expected to materially increase over 1996 expenditures.
YEAR ENDED DECEMBER 31, 1996 IN COMPARISON WITH YEAR ENDED DECEMBER 31, 1995.
Operating revenues for 1996 as compared to 1995 increased by $7,890,260 due
mainly to the increase in the number of access lines of LCTX. Operating
expenses likewise increased by $6,903,722 in 1996 as compared to 1995.
Increases in operating revenues were partially offset by reductions in
revenues for intraLATA long distance services during 1996. In 1994 and 1995,
LCTX provided intraLATA long distance service under the Texas Exchange Carrier
Association ("TECA") pooling arrangement. LCTX received long distance revenues
from the pool in addition to those received from customers, up to the amount of
LCTX's revenue requirement.
36
<PAGE> 42
No terminating access charges were billed or paid by pool members. As of
January 1, 1996, LCTX began to provide intraLATA long distance service as a
primary toll carrier ("PTC"). As a PTC, LCTX bills its own customers for long
distance calls, bills other carriers for terminating access charges, and pays
other carriers for termination of LCTX's calls. As a result of leaving the
TECA pool and becoming a PTC, LCC lost the toll subsidy of the TECA pool
thereby reducing long distance revenues, increasing terminating access
revenues, and increasing terminating access expenses.
In 1996, LCC recorded a $823,762 loss on disposition of property in the
nonoperating section of the income statement. Of that amount, $804,206 was
attributable to a capital loss before tax benefit resulting from the exchange
of assets by an LCC subsidiary for stock owned in TCA Communications, Inc.
("TCAC"). TCAC was formed as a Texas corporation in 1994 by LCC in alliance
with TCA Cable TV, Inc., a Tyler based cable television company. LCC, through
its subsidiaries, purchased a 50% ownership interest in TCAC by contributing
a long distance customer base in Nacogdoches and Huntsville, Texas. In 1994,
1995 and 1996, TCAC losses of ($173,727), ($689,106) and ($801,423) were
recorded as investment income (loss) in the nonoperating section of the income
statement.
LCC and TCA Cable TV, Inc. terminated their joint ownership of TCAC in
1996. Effective as of December 31, 1996, the assets of TCAC were divided and
LCC subsidiaries exchanged their stock for various assets mostly related to the
internet and long distance customer base in Huntsville, Nacogdoches, and Bryan,
Texas. LCC recorded a capital loss of $804,206 based on the fair market value
of the assets received in exchange for the TCAC stock. This transaction
produced a tax benefit of $978,520 to LCC, which resulted in an increase of
$174,314 in net income.
YEAR ENDED DECEMBER 31, 1995 IN COMPARISON WITH YEAR ENDED DECEMBER 31, 1994.
Operating revenues in 1995 as compared to 1994 increased by $5,035,425 due
mainly to high growth in access lines of LCTX. Operating revenues also
increased in 1995 due to increases in Universal Service Fund ("USF") subsidy
revenues.
In April, 1995, LCC completed the sale of its 33% ownership interest in
Metropolitan Houston Paging, Inc. ("MHP") to ProNet, Inc. The sale resulted
in a capital gain of approximately $5,000,000, which was recorded as a gain on
disposition of property in the nonoperating section of the income statement and
contributed $3,300,000 to 1995 consolidated net income. LCC declared a special
dividend related to this gain of $.33 per share, totaling $1,982,210. Also
recorded in 1995 is a MHP dividend of $437,562.
Long distance network service revenues decreased in 1995 in comparison
to 1994 due to the contribution of the long distance customer base in
Nacogdoches and Huntsville, Texas to TCAC in exchange for TCAC stock.
Increases in operating expenses in 1995 were somewhat lessened by extraordinary
operating expenses for 1994 due to flood and freeze damage.
OWNERSHIP OF LCC COMMON STOCK
On September 26, 1997, there were outstanding 6,006,696 shares of LCC
Common Stock, the only class of LCC stock outstanding and the only persons
owning of record or known to LCC to own beneficially 5% or more of the
outstanding LCC Common Stock as of September 26, 1997 are the following:
37
<PAGE> 43
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES OF LCC COMMON PERCENT
BENEFICIAL OWNER STOCK BENEFICIALLY OWNED OF CLASS
- ---------------- ------------------------- --------
<S> <C> <C>
Linwood Newman 438,675(1) 7.3%
3443 Ella Lee Lane
Houston, Texas 77027
Ernestine Lee Newman Palmer 431,732(2) 7.2%
4 Powderhorn Lane
Houston, Texas 77024
</TABLE>
____________________________
(1)Includes 60,183 shares beneficially owned by Ms. Palmer.
(2)Includes 52,083 shares beneficially owned by Mr. Newman.
The following lists the number of shares of LCC Common Stock owned by
its directors and executive officers as of September 26, 1997:
<TABLE>
<CAPTION>
SHARES OF LCC COMMON PERCENT
NAME TITLE STOCK BENEFICIALLY OWNED OF CLASS
- ---- ----- ------------------------- --------
<S> <C> <C>
William Bowers Director 10,122 0.2%
Carlos Hamilton Director 170,328 2.8%
Calvin W. Jayroe Director 70,557 1.2%
Suzanne S. Laidlaw Director 8,200 0.1%
Stephen P. Moore Director and Secretary 146,032 2.4%
Linwood D. Newman Director and
Chairman of the Board 438,675 7.3%
G. I. Ross Director, President and CEO 50,239 0.8%
Douglass Shands Director 78,840 1.3%
Thomas O. Shelton Director 131,854 2.2%
Douglas S. Shorwell Director 18,305 0.3%
Dale L. Trimble Director 5,376 0.1%
Deane C. Watson, Jr. Director 159,243 2.7%
T. Dale Green Exec. Vice President 5,858 0.1%
Kenneth R. Whitton Exec. Vice President 5,448 0.1%
M. Kirk Ross Senior Vice President 24,000 0.4%
Deborah Huffman Vice President, Controller,
Treasurer and Asst. Secretary 4,308 0.1%
All directors and
executive officers
as a group 1,327,385 22.1%
</TABLE>
38
<PAGE> 44
OTHER BUSINESS
The management of LCC knows of no other business which is likely to be
brought before the Meeting. If other matters not now known to the management
of LCC come before the Meeting, the persons named in the accompanying form of
proxy will vote the shares of LCC Common Stock covered by validly executed
proxies in accordance with their best judgment on said matters.
EXPERTS; LEGALITY OF TU COMMON STOCK
The consolidated financial statements included in TEI's Annual Report on
Form 10-K for the year ended December 31, 1996, incorporated in this Proxy
Statement/Prospectus by reference, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report included in said Annual Report
of TEI on Form 10-K, and have been incorporated by reference herein in reliance
upon such report given upon the authority of that firm as experts in accounting
and auditing.
With respect to any unaudited condensed consolidated interim financial
information included in TEI's or TU's Quarterly Reports on Form 10-Q, that are
incorporated herein by reference, Deloitte & Touche LLP applies limited
procedures in accordance with professional standards for reviews of such
information. As stated in any of their reports that are included in TEI's or
TU's Quarterly Reports on Form 10-Q, that are incorporated herein by reference,
Deloitte & Touche LLP did not audit and did not express an opinion on such
condensed consolidated interim financial information. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act for
any of their reports on such unaudited condensed consolidated interim financial
information because those reports are not "reports" or a "part" of the
Registration Statement prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Securities Act.
The consolidated financial statements included in ENSERCH's Annual
Report on Form 10-K for the year ended December 31, 1996, incorporated in this
Proxy Statement/Prospectus by reference, have been audited by Deloitte & Touche
LLP, as stated in their report included in said Annual Report of ENSERCH on
Form 10-K, and have been incorporated by reference herein in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing.
With respect to any unaudited condensed consolidated interim financial
information included in ENSERCH's Quarterly Reports on Form 10-Q, that are
incorporated herein by reference, Deloitte & Touche LLP applies limited
procedures in accordance with professional standards for reviews of such
information. As stated in any of their reports that are included in ENSERCH's
Quarterly Reports on Form 10-Q, that are incorporated herein by reference,
Deloitte & Touche LLP did not audit and did not express an opinion on such
condensed consolidated interim financial information. Deloitte & Touche LLP is
not subject to the liability provisions of Section 11 of the Securities Act for
any of their reports on such unaudited condensed consolidated interim financial
information because those reports are not "reports" or a "part" of the
Registration Statement prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Securities Act.
The balance sheets of LCC as of December 31, 1996 and 1995, and the
operating statements for each of the years in the three-year period ended
December 31, 1996, included in this Proxy Statement/Prospectus, have been
included herein in reliance upon the report of Axley & Rode LLP, certified
public accountants, appearing elsewhere herein, upon the authority of that firm
as experts in accounting and auditing.
39
<PAGE> 45
The statements made as to matters of law and legal conclusions in this
Proxy Statement/Prospectus under the caption "DESCRIPTION OF TU CAPITAL STOCK"
have been reviewed by Worsham, Forsythe & Wooldridge, L.L.P., Dallas, Texas,
General Counsel for TU. All of such statements are set forth herein in
reliance upon the opinion of that firm given upon their authority as experts.
At ____________, 1997, members of the firm of Worsham, Forsythe & Wooldridge,
L.L.P. owned approximately ____________ shares of TU Common Stock.
The legality of the shares of the TU Common Stock issued in connection
with the Merger will be passed upon for TU by Worsham, Forsythe & Wooldridge,
L.L.P. and by Reid & Priest LLP, New York, New York. However, all matters
pertaining to incorporation and all other matters of Texas law will be passed
upon only by Worsham, Forsythe & Wooldridge, L.L.P. Certain United States
federal income taxation matters in connection with the Merger will be passed
upon by Reid & Priest LLP.
40
<PAGE> 46
LUFKIN-CONROE COMMUNICATIONS CO.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Certified Public Accountants............................................... F-2
Balance Sheets at December 31, 1995, December 31, 1996
and June 30, 1997 (unaudited)..................................................... F-3
Statements of Income and Retained Earnings for the years ended December 31,
1994, December 31, 1995, December 31, 1996 and the six month periods
ended June 30, 1996 (unaudited) and June 30, 1997 (unaudited)..................... F-5
Statements of Cash Flows for the year ended December 31, 1994, December 31,
1995 and December 31, 1996 and the six month periods ended June 30, 1996
(unaudited) and June 30, 1997 (unaudited)......................................... F-7
Notes to Consolidated Financial Statements........................................... F-9
</TABLE>
F-1
<PAGE> 47
AXLEY & RODE LLP
CERTIFIED PUBLIC ACCOUNTANTS
LUFKIN o NACOGDOCHES o CROCKETT o LIVINGSTON
TEXAS
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Lufkin-Conroe Communications Co.
Lufkin, Texas
We have audited the consolidated balance sheets of Lufkin-Conroe
Communications Co. and Subsidiaries at December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Lufkin-Conroe Communications Co., Inc. and Subsidiary at December 31, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ AXLEY & RODE LLP
-----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Lufkin, Texas
February 13, 1997
F-2
<PAGE> 48
BALANCE SHEET
Company: Lufkin-Conroe Communications Co.
Consolidated
<TABLE>
<CAPTION>
UNAUDITED
June 30, December 31, December 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash 3,837,711 3,304,095 1,869,413
Special Cash Deposits 150,000 100,000 100,000
Temporary Investments 4,399,237 8,417,913 7,829,610
----------- ----------- -----------
TOTAL CASH AND CASH EQUIVALENTS 8,386,948 11,822,008 9,799,023
Telecommunications Accounts Receivable 12,184,295 12,397,086 9,886,983
Notes Receivable 2,155 1,020 1,856
Interest Receivable 49,175 71,011 256,987
Material & Supplies 2,981,277 2,277,251 2,125,294
Cost on Contracts 454,710 301,151 1,965
Prepaid Federal Income Tax -- 515,090 458,814
Prepaid Taxes 164,326 -- --
Prepaid Insurance 120,203 123,422 107,936
Other Prepayments 5,025 17,358 29,499
Capital Lease Receivable 334,688 295,467 232,618
Other Current Assets 78,310 68,498 68,818
Deferred Operating Federal Income Tax 624,867 433,881 447,215
Deferred Franchise Tax 78,120 52,766 51,442
Deferred Charges 79,424 79,424 79,424
----------- ----------- -----------
TOTAL CURRENT ASSETS 25,543,523 28,455,433 23,547,874
----------- ----------- -----------
NONCURRENT ASSETS
Investments in Debentures 312,211 312,211 3,299,250
Investments in Nonaffiliated Companies 13,963,651 12,476,726 12,348,690
Nonregulated Investments 37,226 38,658 190,373
Cash Value Life Insurance 1,237,442 1,015,314 913,234
Deferred Charges 389,204 426,226 542,680
Capital Lease Receivable 1,095,154 1,274,926 1,639,682
Franchise/Goodwill 2,189,732 2,247,876 136,468
----------- ----------- -----------
TOTAL NONCURRENT ASSETS 19,224,620 17,791,937 19,070,377
----------- ----------- -----------
PROPERTY,PLANT & EQUIPMENT
Telecommunications Plant In Service 240,140,858 232,502,374 216,705,176
Telecomm. Plant Under Constr.-Short-Term 1,469,355 204,587 25,933
Nonoperating Plant -- 323,421 323,421
----------- ----------- -----------
TOTAL GROSS PLANT 241,610,213 233,030,382 217,054,530
----------- ----------- -----------
Less: Accumulated Depreciation 99,619,415 94,830,387 84,414,983
Accumulated Depr-Nonoperating Plant -- 40,950 32,875
----------- ----------- -----------
TOTAL ACCUMULATED DEPRECIATION 99,619,415 94,871,337 84,447,858
----------- ----------- -----------
TOTAL PROPERTY,PLANT & EQUIP. NET 141,990,798 138,159,045 132,606,672
----------- ----------- -----------
TOTAL ASSETS 186,758,941 184,406,415 175,224,923
=========== =========== ===========
</TABLE>
F-3
<PAGE> 49
BALANCE SHEET
Company: Lufkin-Conroe Communications Co.
Consolidated
<TABLE>
<CAPTION>
UNAUDITED
June 30, December 31, December 31,
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable - Other 4,347,371 8,125,288 6,601,217
Advance Billings and Payments 929,063 808,768 724,409
Customer Deposits 717,902 797,340 803,044
Current Maturities of Long-Term Debt 2,188,000 1,310,000 1,490,000
Accrued Federal Income Taxes (121,550) -- --
Accrued Taxes - Other 2,680,173 1,832,565 1,480,842
Accrued Interest - Other 495,752 735,757 732,153
Accrued Payroll 797,537 602,161 354,670
Other Deferred Credits 163,611 30,030 38,409
Other Current Liabilities 115,183 154,381 225,882
Accrued Benefits 1,200,898 1,005,280 980,634
Accrued Postretirement Benefits 204,000 204,000 204,000
Debentures - Eastex Celco 148,000 148,000 148,000
Dividends Payable -- 1,802,009 1,741,942
------------ ----------- -----------
TOTAL CURRENT LIABILITIES 13,865,940 17,555,579 15,525,202
------------ ----------- -----------
LONG-TERM DEBT
Notes Payable - John Hancock 2,760,000 8,340,000 8,520,000
Notes Payable - T. L. L. Temple 8,000,000 8,000,000 8,000,000
Notes Payable - NationsBank 17,052,000 13,150,000 14,080,000
Notes Payable - First Bank & Trust 1,200,000 1,400,000 1,600,000
Notes Payable - First Bank of Conroe 400,000 400,000 400,000
Debentures - Eastex Celco 740,000 795,500 943,500
------------ ----------- -----------
TOTAL LONG-TERM DEBT 30,152,000 32,085,500 33,543,500
------------ ----------- -----------
OTHER LIABILITIES & DEFERRED CREDITS
Accrued Postretirement Benefits 16,709,814 15,420,988 13,547,355
Net Noncurrent Deferred Operating FIT 14,042,129 13,562,532 13,022,850
Net Noncurrent Deferred Franchise Tax 1,721,758 1,651,886 1,541,068
Other Deferred Credits 105,534 77,925 119,752
Regulatory Liabilities 2,157,873 2,313,355 2,624,318
------------ ----------- -----------
TOTAL OTHER LIAB & DEFERRED CREDITS 34,737,108 33,026,686 30,855,343
------------ ----------- -----------
TOTAL LIABILITIES 78,755,048 82,667,765 79,924,045
------------ ----------- -----------
MINORITY INTEREST 1,474,833 1,424,090 1,346,439
------------ ----------- -----------
SHAREHOLDERS' EQUITY
Common Stock - 12,000,000 Shares Authorized,
$1.25 Par Value, 6,006,696 Shares Issued and
Outstanding 7,508,370 7,508,370 7,508,370
Paid-In-Capital 71,093 71,093 71,093
Retained Earnings 98,197,670 92,220,337 85,887,167
Unrealized Holding Gain on Equity Securities 751,927 514,760 487,809
------------ ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 106,529,060 100,314,560 93,954,439
------------ ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 186,758,941 184,406,415 175,224,923
============ =========== ===========
</TABLE>
F-4
<PAGE> 50
STATEMENTS OF INCOME AND RETAINED EARNINGS
Company: Lufkin-Conroe Communications Co.
Consolidated
<TABLE>
<CAPTION>
UNAUDITED
Six Months Ended Years Ended
------------------------- -------------------------------------------
June 30, June 30, December 31, December 31, December 31,
1997 1996 1996 1995 1994
----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
TELECOMMUNICATION OPERATIONS
Operating Revenue:
Local Network Services Revenue 13,040,380 11,237,763 23,252,328 20,593,718 17,647,548
Service and Equipment Revenue 4,761,494 2,906,406 6,813,164 7,508,829 7,894,918
Network Access Services Revenue 18,950,911 16,450,037 34,349,734 26,205,223 23,227,446
Long Distance Network Services Revenue 12,899,944 7,619,445 16,081,362 18,761,321 19,664,472
Miscellaneous Revenue 3,917,705 3,871,570 7,774,738 7,241,936 6,857,980
Uncollectible Revenue (277,800) (138,950) (373,205) (303,166) (319,928)
----------- ----------- ----------- ----------- -----------
TOTAL OPERATING REVENUES 53,292,634 41,946,271 87,898,121 80,007,861 74,972,436
----------- ----------- ----------- ----------- -----------
Operating Expenses
Plant Specific Operations Expenses 10,897,428 8,058,864 18,277,015 17,975,099 17,758,806
Plant Nonspecific Operations Expenses 15,681,780 12,413,004 25,929,507 21,506,476 21,019,711
Customer Operations Expense 5,435,404 4,304,784 9,127,736 8,232,298 7,598,662
Corporate Operations Expense 4,803,455 4,503,565 9,461,917 8,178,580 7,616,298
----------- ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 36,818,067 29,280,217 62,796,175 55,892,453 53,993,477
----------- ----------- ----------- ----------- -----------
INCOME FROM TELECOM OPERATIONS 16,474,567 12,666,054 25,101,946 24,115,408 20,978,959
----------- ----------- ----------- ----------- -----------
OPERATING TAXES
Operating Federal Income Taxes 4,558,957 3,144,297 5,773,319 6,182,313 5,929,336
Operating Other Taxes 2,091,377 2,076,148 4,188,936 3,912,156 3,349,186
----------- ----------- ----------- ----------- -----------
TOTAL OPERATING TAXES 6,650,334 5,220,445 9,962,255 10,094,469 9,278,522
----------- ----------- ----------- ----------- -----------
NET OPERATING INCOME 9,824,233 7,445,609 15,139,691 14,020,939 11,700,437
----------- ----------- ----------- ----------- -----------
NONOPERATING INCOME
Dividend Income 3,292 3,342 6,658 444,145 6,583
Interest Income - Other 486,675 582,509 955,857 897,568 639,989
Gain(Loss)/Disposition of Property (657) (21,623) (823,762) 4,980,163 48,990
Allowance for Funds Used During Construction 20,691 15,656 77,237 15,968 --
Other Nonoperating Income 20,349 1,694 3,742 40,323 22,073
Investment Income (Loss) 1,868,884 1,437,671 3,386,325 2,758,843 3,358,516
----------- ----------- ----------- ----------- -----------
TOTAL NONOPERATING INCOME 2,399,234 2,019,249 3,606,057 9,137,010 4,076,151
----------- ----------- ----------- ----------- -----------
NONOPERATING EXPENSES
Special Charges 113,838 88,284 137,471 104,886 99,399
Nonoperating Federal Income Tax 560,546 665,975 775,976 2,996,898 --
Other -- -- 683 830 --
----------- ----------- ----------- ----------- -----------
TOTAL NONOPERATING EXPENSES 674,384 754,259 914,130 3,102,614 99,399
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INTEREST AND RELATED ITEMS 11,549,083 8,710,599 17,831,618 20,055,335 15,677,189
----------- ----------- ----------- ----------- -----------
</TABLE>
F-5
<PAGE> 51
STATEMENTS OF INCOME AND RETAINED EARNINGS
Company: Lufkin-Conroe Communications Co.
Consolidated
<TABLE>
<CAPTION>
UNAUDITED
Six Months Ended Years Ended
------------------------ ---------------------------------------
June 30, June 30, December 31, December 31, December 31,
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME BEFORE INTEREST AND RELATED ITEMS 11,549,083 8,710,599 17,831,618 20,055,335 15,677,189
----------- ----------- ----------- ----------- -----------
INTEREST AND RELATED ITEMS:
Interest on Funded Debt - Nonaffiliates 1,452,993 1,482,573 2,935,122 3,026,068 3,063,336
Amortization of Deferred Charges 82,392 24,199 39,881 168,215 260,734
Other Interest Deductions 261,485 258,564 516,954 547,216 424,050
----------- ----------- ----------- ----------- -----------
TOTAL INTEREST AND RELATED ITEMS 1,796,870 1,765,336 3,491,957 3,741,499 3,748,120
----------- ----------- ----------- ----------- -----------
NET INCOME BEFORE MINORITY INTEREST 9,752,213 6,945,263 14,339,661 16,313,836 11,929,069
MINORITY INTEREST (50,728) (62,340) (77,652) 12,024 112,965
----------- ----------- ----------- ----------- -----------
Net Income Before Cumulative Effect of Change
in Accounting Principle 9,701,485 6,882,923 14,262,009 16,325,860 12,042,034
Cumulative Effect of Change in Accounting
Principle -- -- -- -- (490,770)
----------- ----------- ----------- ----------- -----------
TOTAL NET INCOME 9,701,485 6,882,923 14,262,009 16,325,860 11,551,264
Retained Earnings -
Beginning of Period 92,220,337 85,887,167 85,887,167 84,077,489 79,233,702
Less: Dividends Declared 3,724,152 3,604,018 7,928,839 9,510,602 6,707,477
Stock Dividends -- -- -- 5,005,580 --
----------- ----------- ----------- ----------- -----------
Retained Earnings -
End of Period 98,197,670 89,166,072 92,220,337 85,887,167 84,077,489
=========== =========== =========== =========== ===========
Earnings per Share:
Net Income Before Minority Interest 1.62 1.16 2.39 2.72 1.99
Minority Interest of Consolidated Subsidiary (0.01) (0.01) (0.01) 0.00 0.02
Cumulative Effect of Change in Accounting Principle -- -- -- -- (0.08)
----------- ----------- ----------- ----------- -----------
Net Income 1.61 1.15 2.38 2.72 1.93
=========== =========== =========== =========== ===========
Dividends Declared per Share 0.62 0.60 1.32 1.58 1.12
=========== =========== =========== =========== ===========
Book Value per Share 17.74 16.19 16.70 15.64 14.49
=========== =========== =========== =========== ===========
</TABLE>
F-6
<PAGE> 52
STATEMENT OF CASH FLOWS
Company: Lufkin-Conroe Communications Co.
Consolidated
<TABLE>
<CAPTION>
UNAUDITED
Six Months Ended Years Ended
-------------------------- -------------------------------------------
June 30, June 30, December 31, December 31, December 31,
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Cash Received From Customers and Vendors 51,740,465 41,756,276 88,824,609 79,234,027 73,912,743
Cash Paid to Suppliers and Employees (32,081,601) (27,094,102) (51,879,937) (44,892,637) (45,424,106)
Interest Received 508,501 537,162 858,036 690,378 617,559
Interest Paid (1,954,479) (1,889,918) (3,448,474) (3,342,324) (3,411,683)
Dividends Received 3,292 3,342 6,658 6,583 6,583
FIT Paid (4,717,751) (3,247,455) (7,245,236) (8,317,527) (6,015,621)
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATIONS 13,498,427 10,065,305 27,115,656 23,378,500 19,685,475
----------- ----------- ----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Capital Expenditures (10,817,364) (8,068,973) (18,393,043) (18,293,482) (18,388,620)
Cash Value Life Insurance (222,128) (95,489) (102,080) (357,745) (95,382)
Other Investments 745,494 718,166 2,465,423 2,344,863 (55,488)
Debentures Investment - TCA -- -- -- (3,000,000) --
Sale of Assets 1,621 130,528 130,528 6,737,816 --
Proceeds from Capital Lease Receivable 140,551 178,590 301,907 567,463 687,999
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING (10,151,826) (7,137,178) (15,597,265) (12,001,085) (17,851,491)
----------- ----------- ----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Repayments on Notes (10,035,500) (555,500) (1,638,000) (5,508,000) (5,638,000)
Proceeds on Notes 8,780,000 -- -- 7,370,000 7,000,000
Payment of Dividends (5,526,161) (5,345,959) (7,868,772) (9,470,557) (6,407,143)
Sale of Stock -- -- -- -- 185,000
Deferred Charges -- 11,366 11,366 (19,072) (7,038)
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING (6,781,661) (5,890,093) (9,495,406) (7,627,629) (4,867,181)
----------- ----------- ----------- ----------- -----------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS (3,435,060) (2,961,966) 2,022,985 3,749,786 (3,033,197)
CASH AND CASH EQUIVALENTS -BEGINNING OF PERIOD 11,822,008 9,799,023 9,799,023 6,049,237 9,082,434
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS -END OF PERIOD 8,386,948 6,837,057 11,822,008 9,799,023 6,049,237
=========== =========== =========== =========== ===========
</TABLE>
F-7
<PAGE> 53
STATEMENT OF CASH FLOWS
Company: Lufkin-Conroe Communications Co.
Consolidated
<TABLE>
<CAPTION>
UNAUDITED
Six Months Ended Years Ended
------------------------ --------------------------------------
June 30, June 30, December 31, December 31, December 31,
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET INCOME 9,701,485 6,882,923 14,262,009 16,325,860 11,551,264
----------- ----------- ----------- ----------- -----------
ADJUSTMENT TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Deferred Federal Income Tax 8,208 109,396 227,762 339,775 (251,732)
Deferred Franchise Tax 44,518 42,409 109,494 119,477 879,379
Depreciation and Amortization 7,066,371 6,609,427 13,271,377 12,647,834 11,484,835
Provision for Postretirement Benefits 1,288,826 1,356,701 1,873,633 2,792,301 1,372,072
Minority Interest in Loss of Consolidated Sub 50,728 62,340 77,652 (12,024) (112,965)
Allowance for Funds Used During Construction (20,691) (15,656) (77,237) (15,968) --
(Gain)Losses/Disposition of Property 657 21,623 823,762 (4,980,163) (48,990)
Partnership (Income)/Losses (1,868,883) (1,436,799) (3,386,325) (2,758,843) (3,358,516)
Provision for Bad Debt Losses 349,950 138,950 373,205 303,166 231,097
Cumulative Effect due to Change in Accounting Principle -- -- -- -- 490,770
Dividend Income -- -- -- (437,562) --
CHANGE IN ASSETS AND LIABILITIES:
(Increase) Decrease in Accounts Receivable (137,159) (587,957) (2,020,251) (2,066,502) (1,486,439)
(Increase) Decrease in Notes Receivable (1,135) 936 836 (176) (109)
(Increase) Decrease in Interest Receivable - Other 21,835 (65,455) (97,820) (207,189) (22,431)
(Increase) Decrease in Materials and Supplies (704,025) (483,906) (245,009) (95,387) 113,377
(Increase) Decrease in Cost on Contracts (153,559) (393,870) (206,134) 143,169 --
(Increase) Decrease in Prepaid Expenses (144,852) (134,752) (3,468) 62,235 4,386
(Increase) Decrease in Other Current Assets 19,087 37,353 79,867 16,125 80,522
(Increase) Decrease in Deferred FIT -- 7,985 -- -- --
Increase (Decrease) in Accounts Payable (3,577,921) (3,774,298) 1,524,167 (109,710) (1,213,240)
Increase (Decrease) in Advance Billings 120,295 3,995 84,359 76,249 147,433
Increase (Decrease) in Customer Deposits (79,438) 61,582 (5,704) 36,274 97,756
Increase (Decrease) in Accrued Interest Payable (240,004) (129,544) 3,604 230,961 75,706
Increase (Decrease) in Accrued Taxes-Other 847,608 756,787 351,723 222,180 52,053
Increase (Decrease) in Accrued Payroll 195,376 323,352 247,491 9,064 66,274
Increase (Decrease) in Accrued Benefits 195,618 105,567 24,646 114,056 27,611
Increase (Decrease) in Other Liabilities 117,863 125,975 (121,707) 101,360 162,591
Increase (Decrease) in Current Deferred Revenue -- -- -- -- (60,963)
Increase (Decrease) in Accrued Federal
Income Tax 393,540 445,435 (56,276) 521,938 (596,266)
Increase(Decrease in Deferred Credits 4,129 (5,194) -- -- --
----------- ----------- ----------- ----------- -----------
TOTAL ADJUSTMENTS 3,796,942 3,182,382 12,853,647 7,052,640 8,134,211
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,498,427 10,065,305 27,115,656 23,378,500 19,685,475
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Total increase in unrealized gain(loss) on securities
available-for-sale 362,087 (8,229) 41,147 181,044 563,704
=========== =========== =========== =========== ===========
</TABLE>
F-8
<PAGE> 54
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Lufkin-Conroe Communications Co. (the
Company) and its subsidiaries conform to generally accepted accounting
principles. The accounting records of the telephone subsidiary are maintained
in accordance with the uniform system of accounts prescribed by the regulatory
bodies under whose jurisdiction the subsidiary operates.
Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, Lufkin-Conroe
Telephone Exchange, Inc., and Lufkin-Conroe Telecommunications Corporation.
Lufkin-Conroe Telecommunications includes its wholly owned subsidiary LCT Long
Distance, Inc., and East Texas Fiber Line, Inc. a 63% owned affiliate. All
material intercompany balances and transactions have been eliminated.
Nature of Operations - Lufkin-Conroe Communications, Co. (LCC) is the
parent company to Lufkin-Conroe Telephone Exchange, Inc. (LCTX) and
Lufkin-Conroe Telecommunications Corp. and its subsidiaries (LCT). LCC has no
employees of its own. LCTX is an independent local exchange carrier providing
regulated telephone services to its customers. LCTX has sixteen exchanges which
serve over 94,000 access lines in Alto, Conroe and Lufkin. It also provides
access services to a number of interexchange carriers who provide long distance
services. Approximately 48% of LCTX revenues are derived from charges related
to local and long distance services to end user customers. Approximately 41% of
LCTX revenues are derived from access charges to interexchange carriers. LCT
owns fiber optic cable systems which it leases to AT&T, provides internet
access, radio communications tower rentals, cellular mobile telephones and
radio paging services and private branch exchange (PBX) service to local
customers. LCT Long Distance provides interexchange long distance service, with
its primary focus on business customers. East Texas Fiber Line, Inc. is a
communications transport facility provider, owning and operating approximately
200 miles of fiber optic cable.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of estimates based on
management's knowledge and experience. Due to their prospective nature, actual
results could differ from those estimates.
Property, Plant, Equipment and Depreciation - Property, plant and
equipment is stated at historical cost. Depreciation is computed generally on
the straight-line method for financial reporting purposes and on both
accelerated and straight-line methods for tax reporting purposes.
Cash Equivalents - Cash equivalents are short-term, highly liquid
investments readily convertible to known amounts of cash and so near maturity
that there is no significant risk of changes in value due to changes in market
rates of interest.
Investments - The Company applies Statements of Financial Accounting
Standards No. 115 (SFAS 115) Accounting for Certain Investments in Debt and
Equity Securities. Investments in equity securities that have readily
determinable fair values are categorized as available -for -sale securities,
and are carried at fair value. The unrealized gains or losses on securities
classified as available-for-sale are included as a separate component of
stockholders' equity. Investments in associated companies that are accounted
for using the equity method of accounting and investments that do not have
readily determinable fair market values, which are carried at cost, are not
affected by this accounting principle. (See Note H).
Goodwill - Amounts paid for assets of other companies in excess of
fair value are charged to goodwill. Goodwill is amortized over its useful life,
but not more than 40 years.
Allowance for Uncollectibles - The reserve method is used to account
for losses on uncollectible accounts.
F-9
<PAGE> 55
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Inventories - Inventories of materials and supplies are valued at the
lower of cost or market. Cost is determined by a moving weighted average.
Deferred Charges - Deferred charges applicable to long-term debt are
being amortized over the life of the applicable notes payable. Deferred charges
applicable to organizational costs are being amortized over five years.
Deferred charges applicable to direct-response advertising are being amortized
over three years.
Postretirement Benefits - Pension benefits are provided for
substantially all employees of the Company. In addition, substantially all
employees may become eligible for certain health care and life insurance
benefits. The Company also has deferred compensation agreements with the board
of directors and certain key employees. Post-employment benefits expense is
accrued on a current basis using actuarially determined costs. The Company
generally funds the retirement plan to the extent that contributions are
deductible for Federal income tax purposes.
Federal Income Taxes and Deferred Credits - The Company has elected to
file a consolidated Federal income tax return with its subsidiary companies,
with the exception of ETFL which will file a separate Federal income tax
return. Consolidated Federal income taxes or benefits are allocated to each
subsidiary based on separately determined taxable income or loss. Investment
credits were accounted for using the "flow-through" method in the preparation
of consolidated financial statements.
Deferred Federal income taxes are primarily due to the use of
different depreciation methods, methods of recognizing losses from abnormal
retirements, methods of recovering cost of removal, and methods of recording
sales and use taxes and interest expense for financial reporting and tax
reporting purposes. Such amounts have been reduced by the future income tax
benefit of expense items such as postemployment benefits deducted in the
determination of pretax income for financial reporting purposes that will be
deducted for tax reporting purposes in later years. As the result of the
reduction in statutory Federal income tax rates, the Company is amortizing
excess deferred Federal income taxes applicable to 1986 and prior. East Texas
Fiber Line, Inc. had no current or deferred Federal income taxes for all the
periods presented.
Operating Revenues - All material revenues are accounted for on the
accrual basis. In 1995, the Company participated in both a toll revenue pool
and an access revenue pool with other telephone companies. Such pools are
funded by toll revenues and/or access charges. Effective January 1, 1996, the
Company withdrew from the toll pool, therefore long distance revenues in 1996
consist of only toll revenues charged directly to customers. Access revenues
recorded include estimated amounts which will be adjusted upon settlement with
the pool administrators. Management believes the recorded amounts approximate
the amounts to be ultimately received.
Earnings Per Share - Earnings per share are calculated by dividing net
income by the average number of shares outstanding during the year. A stock
dividend was declared in 1995 and is recognized on a retroactive basis in
calculating earnings per share. Therefore, the stock dividend was treated as
though it occurred on the first day of the earliest period presented (See Note
N).
Regulatory Activities - Pursuant to Section 3.403 of the Texas Public
Utility Regulatory Act of 1995, LCTX elected to operate under Subtitle I:
Infrastructure Plan for Rate of Return Companies. This election was effective
August 18, 1997. Under this plan, LCTX agrees to cap rates for six years and
implement an infrastructure plan which includes specific infrastructure
provisions. Under Subtitle I, LCTX is not subject to complaint or hearing on
reasonableness of rates subject to the Texas Public Utility Commission's
jurisdiction.
F-10
<PAGE> 56
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, is summarized by major
classification and estimated useful lives as follows:
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
------------ ----------------------------- ESTIMATED
1997 1996 1995 USEFUL LIFE
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Land $ 2,723,564 $ 2,569,023 $ 2,411,265
Buildings 16,312,870 15,837,278 14,885,809 7-50 years
Telephone plant 192,541,637 187,009,232 174,225,021 6-30 years
Furniture and office equip 14,599,615 14,130,204 12,936,639 6-20 years
Automotive and other equip 9,509,325 8,539,667 8,059,406 3-4 years
Rental Equipment 4,453,847 4,416,970 4,187,036 5-6 years
Nonoperating plant -- 323,421 323,421 30 years
Construction in progress 1,469,355 204,587 25,933
------------ ------------ ------------
$241,610,213 $233,030,382 $217,054,530
------------ ------------ ------------
</TABLE>
Depreciation expense as follows:
<TABLE>
<CAPTION>
UNAUDITED
- ------------------------------------------ -----------------------------------------------------------------
JUNE 30, DECEMBER 31,
- ------------------------------------------ -----------------------------------------------------------------
1997 1996 1996 1995 1994
- ------------------ ------------------- ------------------ ------------------- --------------------
<S> <C> <C> <C> <C>
$6,989,227 $6,585,228 $13,231,497 $12,479,621 $11,411,865
</TABLE>
NOTE C - LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
---------- -------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
John Hancock Mutual Life Insurance Company:
At 8.25% due September 1, 1997 $ -- $5,580,000 $5,760,000
At 8.80% due September 1, 2002 2,940,000 2,940,000 3,120,000
---------- ---------- ----------
2,940,000 8,520,000 8,880,000
T. L. L. Temple Foundation at 9.50% due May 1, 2002 3,000,000 3,000,000 3,000,000
T. L. L. Temple Foundation at 10.5% due December 1, 2005 5,000,000 5,000,000 5,000,000
First Bank & Trust East Texas at 7.25% due in ten equal
installments beginning March 1, 1995 1,400,000 1,600,000 1,800,000
NationsBank of Texas, N.A., Lufkin at 9.61% due in
equal installments at Dec. 31, 1995 and Dec. 31, 2000 1,500,000 1,500,000 1,500,000
NationsBank of Texas, N.A., Lufkin at 8.5% due in
equal installments at April 1, 1997 and May 1, 2002 1,700,000 3,400,000 3,400,000
NationsBank of Texas, N.A., Lufkin at 7.92% due in ten
equal installments of $130,000 beginning July 1, 1993 780,000 780,000 910,000
NationsBank of Texas, N.A., Lufkin at 7.15% due in ten
equal installments beginning March 1, 1995 2,100,000 2,400,000 2,700,000
First Bank of Conroe, at First Bank of Conroe base rate
(8.50% at June 30, 1997) due July 3, 1997 400,000 400,000 400,000
</TABLE>
F-11
<PAGE> 57
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - LONG-TERM DEBT- CONTINUED
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
----------- ---------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
NationsBank of Texas, N.A., Lufkin at 7.5% due in ten
equal installments beginning June 30, 1996 4,000,000 4,500,000 5,000,000
NationsBank of Texas, N.A., Lufkin LIBOR rate
line of credit -- 1,500,000 1,500,000
Debentures payable - Eastex Celco Co. At 8.5% due in
equal installments of $148,000 888,000 943,500 1,091,500
NationsBank of Texas, N.A, Lufkin at 7.69% through
September 1, 1997 and 7.99% to maturity date in
ten equal installments beginning March 1, 1998 8,780,000 -- --
----------- ----------- -----------
32,488,000 33,543,500 35,181,500
Less current maturities 2,336,000 1,458,000 1,638,000
----------- ----------- -----------
TOTAL LONG TERM DEBT $30,152,000 $32,085,500 $33,543,500
=========== =========== ===========
</TABLE>
The above debt will be due in the following years:
<TABLE>
<CAPTION>
Year ended June 30, YEAR ENDED
------------------- ----------
<S> <C>
1998 $ 2,336,000
1999 2,336,000
2000 3,836,000
2001 2,336,000
2002 2,336,000
Thereafter 19,308,000
------------
TOTAL $ 32,488,000
============
</TABLE>
The notes payable to John Hancock Mutual Life Insurance Company, T.L.L.
Temple Foundation, NationsBank of Texas, N.A., Lufkin, First Bank & Trust East
Texas, and First Bank of Conroe provide certain limitations on additional debt,
payment of cash dividends and sale of assets other than in the ordinary course
of business.
The $8,000,000 line of credit with NationsBank of Texas, N.A., Lufkin was
renewed in August, 1996 and as of June 30, 1997, $-0- was drawn against it.
Interest is paid, at the company's option, using the current prime rate or the
London Interbank Rate (LIBOR).
The note payable to First Bank of Conroe was renewed in July, 1996. It
will mature in 1997, but the Company intends to refinance the note, and
therefore, has elected not to show this note as a current maturity.
F-12
<PAGE> 58
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - FEDERAL INCOME TAXES
Total federal income taxes were as follows:
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
- ------------------------------------- ---------------------------------------------------------------
1997 1996 1996 1995 1994
- ------------------ ------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
$5,119,503 $3,810,272 $6,549,295 $9,179,211 $5,929,336
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
---------------------------- ----------------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Computed FIT at the expected
statutory rate $ 5,253,325 $ 3,942,439 $ 6,778,310 $ 9,430,581 $ 6,142,754
Amortization of excess deferred FIT (101,840) (101,840) (203,680) (203,680) (203,680)
Undistributed losses of
unconsolidated subsidiaries (30,224) (37,148) (46,272) (77,818) 8,247
Other additions Net (1,758) 6,821 20,937 30,128 (17,985)
----------- ----------- ----------- ----------- -----------
FEDERAL INCOME TAXES $ 5,119,503 $ 3,810,272 $ 6,549,295 $ 9,179,211 $ 5,929,336
----------- ----------- ----------- ----------- -----------
Current FIT $ 5,111,293 $ 3,692,890 $ 6,349,216 $ 9,200,136 $ 4,820,123
Deferred FIT due to temporary
differences 110,050 219,222 403,759 182,755 1,312,893
Amortization of excess deferred FIT (101,840) (101,840) (203,680) (203,680) (203,680)
----------- ----------- ----------- ----------- -----------
FEDERAL INCOME TAXES $ 5,119,503 $ 3,810,272 $ 6,549,295 $ 9,179,211 $ 5,929,336
----------- ----------- ----------- ----------- -----------
</TABLE>
Temporary differences and carryforwards which give rise to deferred
tax assets and liabilities for are as follows:
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
--------- ----------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current Deferred Assets:
Accrued Vacation $ 414,310 $ 346,821 $ 338,319
Allowance for uncollectibles 70,327 65,636 84,583
Unbilled toll 69,303 1,334 1,334
Franchise tax 78,120 52,766 51,442
Other 70,927 20,090 22,979
--------- --------- ---------
TOTAL CURRENT DEFERRED ASSETS $ 702,987 $ 486,647 $ 498,657
========= ========= =========
Noncurrent Deferred Assets:
Depreciation $(278,449) $(277,479) $(266,262)
Tax loss carryforwards (expires 2005-2008) 876,585 922,229 983,058
--------- --------- ---------
SUBTOTAL 598,136 644,750 716,796
Valuation allowance (598,136) (644,750) (716,796)
--------- --------- ---------
TOTAL NONCURRENT DEFERRED ASSETS $ -- $ -- $ --
========= ========= =========
</TABLE>
F-13
<PAGE> 59
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - FEDERAL INCOME TAXES - CONTINUED
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
------------ ------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Noncurrent Deferred Liabilities:
Deferred FIT:
Depreciation $ 21,930,133 $ 21,591,824 $ 20,822,156
Post-retirement benefits (5,961,440) (5,812,202) (5,293,447)
Franchise Tax (313,862) (323,987) (344,236)
Partnership investment 149,119 149,119 205,756
Deferred adjustments - Depreciation (2,157,874) (2,313,355) (2,624,317)
Unrealized gain on equity securities 396,053 271,133 256,938
------------ ------------ ------------
TOTAL DEFERRED FIT $ 14,042,129 $ 13,562,532 $ 13,022,850
============ ============ ============
Deferred Franchise Tax $ 1,721,758 $ 1,651,886 $ 1,541,068
============ ============ ============
Regulatory Liabilities:
Depreciation $ 2,157,873 $ 2,313,355 $ 2,624,318
------------ ------------ ------------
TOTAL REGULATORY LIABILITIES $ 2,157,873 $ 2,313,355 $ 2,624,318
============ ============ ============
</TABLE>
NOTE E - POSTRETIREMENT BENEFIT PLANS
Pension Plan:
The Company has noncontributory defined benefit pension plans covering
substantially all qualified employees. The plan is in the name of Lufkin-Conroe
Communications Co., and Its Affiliates. The plan calls for benefits to be paid
to eligible employees at retirement based primarily on credited service with
the Company and final average monthly pay. Plan assets consist of primarily
corporate stocks and bonds, U. S. Government securities, pooled funds, mutual
funds and guaranteed investment contracts.
The following sets forth the funded status of the pension plan and the
amounts reported in the Company's balance sheet at December 31, 1996, 1995, and
1994, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $19,868,648 $16,985,214 $ 15,188,424
Nonvested benefits 3,609,959 3,133,367 2,975,723
----------- ----------- ------------
Accumulated benefit obligation 23,478,607 20,118,581 18,164,147
Effect of anticipated future compensation
levels and of other events 9,679,756 8,513,622 8,157,464
----------- ----------- ------------
Projected benefit obligation 33,158,363 28,632,203 26,321,611
Fair value of plan assets 34,505,071 30,768,698 25,149,856
----------- ----------- ------------
Funded excess (shortfall) of plan assets over
(under) projected benefit obligation $ 1,346,708 $ 2,136,495 $ (1,171,755)
=========== =========== ============
</TABLE>
F-13
<PAGE> 60
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - POSTRETIREMENT BENEFIT PLANS - CONTINUED
The funded excess (shortfall) consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net unrecognized gain from past experience
different than assumed $ 7,074,555 $ 6,789,043 $ 2,501,109
Unamortized asset at transition 1,646,476 1,790,538 1,934,600
Unrecognized prior service cost (1,951,953) (1,316,492) (1,418,406)
Accrued pension expense included in
accrued postretirement benefits (5,422,370) (5,126,594) (4,189,058)
----------- ----------- -----------
FUNDED EXCESS (SHORTFALL) $ 1,346,708 $ 2,136,495 $(1,171,755)
=========== =========== ===========
</TABLE>
Net pension expense for the years ended December 31, 1996, 1995, and 1994
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Service cost of the current period $ 1,654,399 $ 1,427,456 $ 1,288,939
Interest cost on the projected benefit obligation 2,230,365 1,915,617 1,757,030
Actual return on assets held in the plan (3,411,157) (5,680,143) 561,949
Net amortization of prior service cost of
transition asset, and net gain 910,249 3,723,228 (2,680,295)
----------- ----------- -----------
Pension Expense 1,383,856 1,386,158 927,623
Less amount capitalized in accordance with
regulatory requirements (61,881) (54,612) (42,872)
----------- ----------- -----------
NET PENSION EXPENSE $ 1,321,975 $ 1,331,546 $ 884,751
=========== =========== ===========
</TABLE>
Actuarial information is available at year end only. However, the
Company has recorded $606,567 and $610,477 for pension expense for June 30,
1997 and 1996, respectively.
The assumed discount rate used to measure the projected benefit
obligation is 7.5% per year, the rate of increase in future compensation levels
is 6% per year and the expected long-term rate of return on plan assets is 7.5%
per year.
Health Care and Life Insurance Benefits:
In addition to providing pension benefits, the Company provides
certain post-employment health care and life insurance benefits. Substantially
all of the Company's employees may become eligible for these benefits if they
reach age fifty-five while working for the Company. The Company adopted SFAS
No. 106 Employer's Accounting for Postretirement Benefits Other Than Pensions,
effective January 1,1995, as required for small companies by generally accepted
accounting principles. SFAS No. 106 changed the practice of accounting for
postretirement benefits from recognizing costs as benefits are paid to accruing
the expected cost over an employee's years of service. The Company changed its
method of accounting for postretirement benefits in 1987 from the
"pay-as-you-go" basis to an accrual method; however, the accrual calculations
did not encompass all of the required assumptions under SFAS No. 106.
F-15
<PAGE> 61
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - POSTRETIREMENT BENEFIT PLANS - CONTINUED
The net postretirement benefit cost on a consolidated company basis as
of December 31, 1996 and 1995 includes the following components:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Service cost - benefits earned during the period $ 367,487 $ 481,604
Interest cost on projected benefit obligation 621,430 787,972
Net amortizations and deferrals 161,083 326,140
---------- ----------
NET POSTRETIREMENT BENEFITS COSTS $1,150,000 $1,595,716
========== ==========
</TABLE>
Actuarial information is available at year end only. However, the
Company has recorded $533,872 and $524,216 for post-retirement cost for June
30, 1997 and 1996, respectively.
The funded status of the Company's postretirement benefit costs as of
December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accumulated benefit obligation:
Retirees $ 2,875,957 $ 1,852,925
Fully eligible active plan participant 1,341,820 1,796,197
Other active plan participants 4,731,261 4,652,423
----------- -----------
TOTAL ACCUMULATED BENEFIT OBLIGATION 8,949,038 8,301,545
Fair value of plan assets -- --
----------- -----------
Unfunded postretirement benefit obligation 8,949,038 8,301,545
Less:
Unrecognized transitional obligation (3,925,091) (4,143,152)
Unrecognized net actuarial (gain)/loss 2,020,182 1,838,906
----------- -----------
ACCRUED POSTRETIREMENT BENEFIT COST $ 7,044,129 $ 5,997,299
=========== ===========
</TABLE>
The following assumptions were made in valuing the company's
postretirement benefit obligation as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Discount rate 7.50% 7.50%
General medical cost trend 9.00% 12.00%
Medicare cost trend 8.50% 10.00%
</TABLE>
F-16
<PAGE> 62
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - POSTRETIREMENT BENEFIT PLANS - CONTINUED
It was assumed that the growth in the health care cost trend rates
would gradually decline after 1995 to 4.5% by the year 2006 and then remain
level for both general medical and medicare. This assumption greatly affects
the amounts reported. To illustrate, increasing the assumed trend rate by 1% in
each year would raise the Company accumulated postretirement benefit obligation
by $1,393,962 and $1,453,315 at December 31, 1996 and 1995, respectively, and
the postretirement benefit costs by $211,545 and $293,098.
In 1994, accrued cost relating to post-retirement health care and life
insurance benefits, of which $61,978 were paid, amounted to $947,780. In 1994,
costs in the amount of $44,812 were capitalized in accordance with regulatory
requirements. The Company's policy is not to fund cost accrued. At December 31,
1994, accrued post-retirement health care and life insurance benefits amounted
to $4,530,174.
Deferred Compensation Agreements:
The Company has deferred compensation agreements in the name of
Lufkin-Conroe Communications Co. with the board of directors and certain key
employees.
The directors' plan provides for annual payments of varying amounts
for life or a minimum of 10 years, beginning when the director reaches the age
of 70. The benefits may be payable upon the death of the director before his
retirement, depending on the director's insurability. Under certain conditions,
the amount of deferred benefits can be reduced.
The key employee plan provides for annual payments of varying amounts
for 15 years, beginning when the employee reaches the age of 65 or at his/her
death. Under certain conditions, the amount of deferred benefits can be
reduced.
The Company purchases policies of ordinary life insurance on each
participant. Each participant makes a contribution toward the cost of the plan,
based upon age and amount of benefit. It is anticipated that the tax
consequences and the participant's contribution will result in minimal or no
cost to the Company. The excess of the cash surrender value of life insurance
policies over the notes payable balances related to these policies is reflected
in the Company's financial statements. These plans do not qualify under the
Internal Revenue Code and, therefore income tax deductions are allowed only
when benefits are paid.
Costs accrued relating to deferred compenstion agreements amounted to:
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
- ------------------------------------- -----------------------------------------------------
1997 1996 1996 1995 1994
- ----------------- ----------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 240,680 $ 241,630 $ 594,897 $ 458,966 $ 502,335
</TABLE>
Costs that were paid in the period amounted to:
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
- ------------------------------------- -----------------------------------------------------
1997 1996 1996 1995 1994
- ----------------- ----------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 116,707 $ 93,076 $ 204,702 $ 139,408 $ 140,560
</TABLE>
Accrued cost amounted to:
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
- ------------------------------------- -----------------------------------------------------
1997 1996 1996 1995 1994
- ----------------- ----------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 3,072,459 $ 2,707,475 $ 2,949,486 $ 2,559,291 $ 2,239,721
</TABLE>
F-17
<PAGE> 63
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - POSTRETIREMENT BENEFIT PLANS - CONTINUED
401(k) Plan - Non-Bargaining:
Lufkin-Conroe Communications Co. (LCC) sponsors a 401(k) plan for all
non-bargaining employees who have one year of service (minimum of 1,000 hours
of service) and are age twenty one or older. Eligible employees may contribute
up to 15% of their annual compensation to the plan. The Company matches 100% of
the first 3% of employee plan contributions. Participants are fully vested
after 3 years of credited service.
LCC contributions to the plan amounted to:
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
- ------------------------------------- -----------------------------------------------------
1997 1996 1996 1995 1994
- ---------------- ------------------ ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 139,714 $ 133,899 $ 263,128 $ 267,671 $ 186,343
</TABLE>
401(k) Plan - Bargaining:
Lufkin-Conroe Telephone Exchange, Inc. (LCTX) sponsors a 401(k) plan
for all bargaining employees who have one year of service (minimum of 1,000
hours of service) and are age twenty one or older. Eligible employees may
contribute up to 15% of their annual compensation to the plan. The Company
matches 33% of the first 3% of employee plan contributions. Participants are
fully vested after 3 years of credited service.
LCTX contributes to the plan amounted to:
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
- ------------------------------------- -----------------------------------------------------
1997 1996 1996 1995 1994
- ---------------- ------------------ ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 29,231 $ 18,865 $ 48,047 $ - $ -
</TABLE>
NOTE F - OPERATING LEASES
The Company is the lessor of fiber optic systems, a microwave tower,
and business systems. The leases, accounted for as operating leases, provide
for minimum future rentals to be received in each of the next five years and in
the aggregate as follows:
<TABLE>
<CAPTION>
MICROWAVE FIBER
YEARS ENDED JUNE 30, TOWER SYSTEMS
-------------------- --------- -----------
<S> <C> <C>
1998 $ 23,884 $ 1,219,324
1999 7,301 920,503
2000 7,301 665,166
2001 7,301 266,067
2002 3,650 --
-------- -----------
TOTAL MINIMUM FUTURE RENTALS $ 49,437 $ 3,071,060
======== ===========
</TABLE>
Following, is a summary of property on lease:
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
----------- ------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Microwave towers $ 381,644 $ 341,103 $ 169,329
Fiber Optic System 6,134,336 6,201,958 6,073,916
Business Systems 4,072,203 4,027,239 3,969,079
----------- ----------- -----------
10,588,183 10,570,300 10,212,324
Less accumulated depreciation 7,612,457 7,315,383 6,592,505
----------- ----------- -----------
$ 2,975,726 $ 3,254,917 $ 3,619,819
=========== =========== ===========
</TABLE>
F-18
<PAGE> 64
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - CAPITAL LEASE
In September 1989, Lufkin-Conroe Telecommunications Corporation (LCT)
entered into an agreement to construct a fiber optic system between Longview
and Texarkana, Texas. Construction was completed in August, 1990. The agreement
requires that the system be leased for a period of ten years at an annual lease
price of $1,213,000 for the first five years and $649,000 for the last five
years. The lease is being accounted for as a capital lease. A schedule of the
components of the net investment in the lease as follows:
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, DECEMBER 31,
---------- ---------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Future minimum lease payments receivable $2,062,481 $3,245,340 $3,093,722
Less: Unearned income 665,758 857,203 1,271,349
---------- ---------- ----------
NET INVESTMENT IN CAPITAL LEASE $1,396,723 $2,388,137 $1,822,373
========== ========== ==========
</TABLE>
Minimum future lease payments for the remainder of the lease period are as
follows:
<TABLE>
<CAPTION>
Years ended June 30,
--------------------
<S> <C>
1998 $ 651,310
1999 651,310
2000 651,310
2001 108,551
-----------
TOTAL $ 2,062,481
===========
</TABLE>
NOTE H - INVESTMENTS IN NONAFFILIATED COMPANIES
Marketable equity securities have been categorized as available for
sale and as a result are stated at fair value. All securities are held for
noncurrent uses and are classified as noncurrent assets on the balance sheet.
Unrealized holding gains and losses are included as a component of
stockholders' equity until realized. The overall effect of SFAS No. 115
resulted in a net of tax increase in stockholders' equity of $751,937 at June
30, 1997 and $514,760 and $487,809 at December 31,1996 and 1995, respectively.
For the purpose of determining gross unrealized gains and losses,
noncurrent marketable equity securities include the following:
<TABLE>
<CAPTION>
COST FAIR VALUE
-------------- --------------------------------------------------
UNAUDITED
JUNE 30 DECEMBER 31,
----------------- --------------------------------
1997 1996 1995
-------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Other marketable equity securities $ 1,778,963 $ 2,926,942 $ 2,564,855 $ 2,505,490
-------------- ----------------- --------------- ----------------
</TABLE>
LCT accounts for the following investments using the equity method:
<TABLE>
<CAPTION>
PERCENT OWNED
----------------------------------------------------
UNAUDITED
JUNE 30, DECEMBER 31,
----------------- ----------------------------------
1997 1996 1995
----------------- --------------- -----------------
<S> <C> <C> <C>
GTE Mobilnet of Houston LTD. Partnership 2.34% 2.34% 2.34%
TCA Communications, Inc. - - 50.00%
</TABLE>
All other investments are carried at cost.
LCT is a limited partner in several partnerships whose purpose is to
provide cellular telephone service.
F-19
<PAGE> 65
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - INVESTMENTS IN NONAFFILIATED COMPANIES - CONTINUED
During 1995, LCT received a dividend of $437,562 from Metropolitan
Houston Paging Services, Inc. During 1995 LCT sold its stock in Metropolitan
Houston Paging Services, Inc. for a sales price of $6,737,816 with a pre-tax
gain of $4,979,363.
On December 31, 1996 LCT exchanged its stock in TCA Communications for
certain assets in the serving areas of Nacogdoches, Huntsville, and Bryan. LCT
experienced a capital loss before tax benefit of $804,206, based on fair value
of the assets received.
<TABLE>
<S> <C>
Assets received were:
Accounts receivable $ 863,244
Customer base 2,125,625
Other Assets 313,324
----------
$3,302,193
==========
</TABLE>
NOTE I - MINORITY INTEREST
During 1990, LCT, in a joint venture with Eastex Celco (ETC), formed
East Texas Fiber Line, Inc. (ETFL). ETC owns 37% of the outstanding stock of
ETFL.
NOTE J - ACCOUNTING CHANGES
Cumulative Effect of Change in Accounting Principle
During 1994, LCTX recorded the cumulative effect of accruing deferred
franchise taxes as a result of adopting SFAS No. 109. This cumulative effect
should have been recorded in 1993 with adoption of SFAS No. 109. This
adjustment was necessary to reflect the effect of this change at January 1,
1994. This adjustment is technically a correction of an error. However, due to
the immateriality to the statements as a whole, and the more descriptive nature
of presenting the effect on net income as a separate item on the financial
statements, the effect is presented as a cumulative effect of a change in
accounting principle.
NOTE K - ACQUISITION
On March 15, 1994 LCT Long Distance purchased certain assets from
another long distance company. It is estimated that this purchase will increase
annual revenue by approximately $1,100,000.
The purchase price of these assets totaled approximately $540,000.
On June 1, 1994, LCT Long Distance contributed $1,797,500 of the
customer base mentioned above and other assets to LCT in the form of a
dividend. LCT in turn contributed these assets in exchange for a 50% interest
in TCA Communications, Inc.
F-20
<PAGE> 66
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - SUMMARY OF SUBSIDIARIES' FINANCIAL POSITION
The following table provides the subsidiaries' individual financial
positions:
<TABLE>
<CAPTION>
LCTX
--------------------------------------------------------------------------------
UNAUDITED
JUNE 30, DECEMBER 31,
----------------------------- ----------------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total assets $148,480,246 $139,175,867 $146,598,097 $137,994,023 $125,093,119
Total liabilities 70,965,508 67,790,479 72,635,614 68,181,223 60,061,130
Total shareholders' equity 77,514,738 71,385,388 73,962,483 69,812,800 65,031,989
Total net income 7,554,485 6,096,848 12,676,173 12,089,231 9,513,963
</TABLE>
<TABLE>
<CAPTION>
LCT CONSOLIDATED
--------------------------------------------------------------------------------
UNAUDITED
JUNE 30, DECEMBER 31,
----------------------------- ----------------------------------------------
1997 1996 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total assets $ 35,970,754 $ 33,084,235 $ 33,325,217 $ 33,133,281 $ 31,053,693
Total liabilities 14,405,093 13,858,698 14,005,858 14,842,613 15,302,302
Minority interest 1,474,833 1,408,779 1,424,089 1,346,439 1,358,462
Total shareholders' equity 20,090,828 17,816,758 17,895,269 16,944,229 14,392,929
Total net income 2,195,559 872,530 1,743,040 4,556,050 2,471,721
</TABLE>
NOTE M - LITIGATION
LCC and subsidiaries are subject to various lawsuits and claims, which
they are vigorously defending. Such matters arise out of the normal course of
business and relate to government regulation (including anti-trust issues),
property and personal damage claims, contractual claims, and other issues. Not
all of the claims are covered by insurance. The Company is unable to express an
opinion with respect to the ultimate outcome or the amount or range of
potential loss if the outcome should be favorable, and no loss contingency has
been recognized in the accompanying financial statements.
.NOTE N - STOCK DIVIDEND
On March 11, 1995, the shareholders ratified the actions of the Board
of Directors amending the Company's articles of incorporation increasing the
authorized shares to 12,000,000 shares, $1.25 par value per share, and
declaring a 2 for 1 common stock dividend. These actions were effective April
1, 1995.
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of material financial instruments for which it is
practicable to estimate the value:
Cash and Short-Term Investments - Cash and cash equivalents are valued
at their carrying amounts, which are reasonable estimates of their fair value
because of the short maturity of those instruments
Long-Term Investments - The fair value of one investment is estimated
based on the quoted market price for that investment. The carrying cost of that
investments has been adjusted on the Company's balance sheet to include the
unrealized gain in market value. For other investments for which there are not
quoted market prices because the stock is not publicly traded, reasonable
estimates of fair value could not be made without incurring excessive costs.
F-21
<PAGE> 67
LUFKIN-CONROE COMMUNICATIONS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
Long-Term Debt - The fair value of the Company's long-term debt is
estimated based on the current rates offered to the Company for debt of the
same remaining maturities.
The estimated fair values of the Company's material financial
instruments are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Long-Term Investments for Which It Is:
Practicable to estimate fair value $ 1,423,659 $ 1,423,659 $ 1,382,544 $ 1,382,544
Not practicable 1,141,196 1,141,196 1,122,946 1,122,946
Long-term debt 33,543,500 34,989,000 35,181,500 36,095,900
</TABLE>
F-22
<PAGE> 68
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TEXAS UTILITIES COMPANY
TUCOM ACQUISITION CO.
and
LUFKIN-CONROE COMMUNICATIONS CO.
Dated as of August 23, 1997
A-1
<PAGE> 69
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE MERGER A-6
SECTION 1.01. The Merger A-6
SECTION 1.02. Effective Time A-6
SECTION 1.03. Effect of the Merger A-7
SECTION 1.04. Articles of Incorporation; Bylaws A-7
SECTION 1.05. Directors A-7
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF
CERTIFICATES A-7
SECTION 2.01. Conversion of Securities A-7
SECTION 2.02. Exchange of Certificates A-9
SECTION 2.03. Share Transfer Books A-12
SECTION 2.04. Dissenting Shareholders A-12
SECTION 2.05. Closing A-12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY A-12
SECTION 3.01. Organization and Standing A-13
SECTION 3.02. Subsidiaries and Cellular Partnerships A-13
SECTION 3.03. Articles of Incorporation and Bylaws A-14
SECTION 3.04. Capitalization A-14
SECTION 3.05. Authority; Binding Obligation A-14
SECTION 3.06. No Conflict; Required Filings and Consents A-15
SECTION 3.07. Licenses; Compliance A-16
SECTION 3.08. Financial Information A-17
SECTION 3.09. Undisclosed Liabilities A-17
SECTION 3.10. Absence of Certain Changes or Events A-17
SECTION 3.11. Litigation; Disputes A-18
SECTION 3.12. Debt Instruments A-19
SECTION 3.13. Leases A-19
SECTION 3.14. Other Agreements; No Default A-20
SECTION 3.15. Labor Relations A-21
SECTION 3.16. Pension and Benefit Plans A-22
SECTION 3.17. Taxes and Tax Matters A-26
SECTION 3.18. Access Lines; Customers A-27
SECTION 3.19. Certain Business Practices A-28
SECTION 3.20. Insurance A-28
SECTION 3.21. Potential Conflicts of Interest A-29
SECTION 3.22. Receivables A-29
</TABLE>
A-2
<PAGE> 70
<TABLE>
<S> <C>
SECTION 3.23. Real Property A-30
SECTION 3.24. Books and Records A-30
SECTION 3.25. Assets A-30
SECTION 3.26. No Infringement or Contest A-31
SECTION 3.27. Board Recommendation A-31
SECTION 3.28. Vote Required A-31
SECTION 3.29. Banks; Attorneys-in-fact A-31
SECTION 3.30. Voting Agreements A-32
SECTION 3.31. Brokers A-32
SECTION 3.32. Environmental Matters A-32
SECTION 3.33. Disclosure A-33
SECTION 3.34. Company Shareholders A-33
SECTION 3.35. Directors and Officers A-33
SECTION 3.36. Copies of Documents A-33
SECTION 3.37. Operation of the Company's Business A-33
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR
AND ACQUIROR SUB A-34
SECTION 4.01. Organization and Qualification; Subsidiaries A-34
SECTION 4.02. Articles of Incorporation and Bylaws A-34
SECTION 4.03. Authority; Binding Obligation A-34
SECTION 4.04. No Conflict; Required Filings and Consents A-35
SECTION 4.05. No Prior Activities of Acquiror Sub A-35
SECTION 4.06. Brokers A-36
SECTION 4.07. SEC Documents A-36
SECTION 4.08. Acquiror Common Stock A-36
SECTION 4.09. Capitalization A-36
SECTION 4.10 Compliance A-37
SECTION 4.11 Absence of Certain Changes or Events; Absence of
Undisclosed Liabilities A-37
SECTION 4.12 Litigation A-37
SECTION 4.13 Registration Statement A-37
SECTION 4.14 Tax Matters A-38
SECTION 4.15 Employee Matters; ERISA A-38
SECTION 4.16 Environmental Matters A-39
SECTION 4.17 Regulation as a Utility A-39
SECTION 4.18 Insurance A-39
SECTION 4.19 NRC Actions A-39
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS A-40
SECTION 5.01. Conduct of Business of the Company A-40
SECTION 5.02. Other Actions A-43
SECTION 5.03. Certain Tax Matters A-43
SECTION 5.04. Access and Information A-43
SECTION 5.05. No Solicitation A-43
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VI ADDITIONAL AGREEMENTS A-45
SECTION 6.01. Meeting of Shareholders A-45
SECTION 6.02. Appropriate Action; Consents; Filings A-45
SECTION 6.03. Letters of Accountants A-46
SECTION 6.04. Disclosure Schedules; Updated Disclosures; Breaches A-46
SECTION 6.05. Public Announcements A-47
SECTION 6.06. Employee Matters. A-47
SECTION 6.07. Acquiror Information A-48
SECTION 6.08. Obligations of Acquiror Sub A-48
SECTION 6.09. Unaudited Financial Information A-48
SECTION 6.10. Rule 145 Affiliates A-48
SECTION 6.11. Environmental Matters A-48
SECTION 6.12. Acquiror SEC Documents A-49
SECTION 6.13. Directors' and Officers' Indemnification and Insurance A-49
ARTICLE VII CONDITIONS TO CLOSING A-50
SECTION 7.01. Conditions to Obligations of Each Party Under
This Merger Agreement A-50
SECTION 7.02. Additional Conditions to Obligations of Acquiror
and Acquiror Sub A-51
SECTION 7.03. Additional Conditions to Obligations of the
Company A-52
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER A-53
SECTION 8.01. Termination A-53
SECTION 8.02. Effect of Termination A-54
SECTION 8.03. Expenses A-55
SECTION 8.04. Amendment A-56
SECTION 8.05. Extension; Waiver A-56
ARTICLE IX GENERAL PROVISIONS A-56
SECTION 9.01. Nonsurvival of Representations and Warranties A-56
SECTION 9.02. Notices A-56
SECTION 9.03. Headings A-57
SECTION 9.04. Severability A-57
SECTION 9.05. Entire Agreement A-57
SECTION 9.06. Assignment A-58
SECTION 9.07. Parties in Interest A-58
SECTION 9.08. Mutual Drafting A-58
SECTION 9.09. Governing Law A-58
SECTION 9.10. Counterparts A-58
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 9.11. Further Assurances A-58
ARTICLE X DEFINITIONS A-58
</TABLE>
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AGREEMENT AND PLAN OF MERGER, dated as of August 23, 1997 (this"Merger
Agreement"), among Texas Utilities Company, a Texas corporation ("Acquiror"),
TUCOM Acquisition Co., a Texas corporation ("Acquiror Sub") and a wholly owned
direct subsidiary of Acquiror, and Lufkin-Conroe Communications Co., a Texas
corporation (the "Company").
WHEREAS, upon the terms and subject to the conditions of this Merger
Agreement and in accordance with the Texas Business Corporation Act ("Texas
Law"), Acquiror Sub will merge with and into the Company (the "Merger") and the
Company shall continue as the sole surviving corporation of the Merger;
WHEREAS, the Board of Directors of the Company has approved and
adopted this Merger Agreement and the transactions contemplated hereby and has
recommended approval and adoption of this Merger Agreement by the shareholders
of the Company;
WHEREAS, the Board of Directors of Acquiror has determined that the
Merger is in the best interests of Acquiror and its shareholders, the Board of
Directors of Acquiror Sub has approved and adopted this Merger Agreement and
the transactions contemplated hereby and has recommended approval and adoption
of this Merger Agreement to its shareholder and the shareholder of Acquiror Sub
has approved and adopted this Merger Agreement; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a tax-free reorganization under the provisions of
Section 368 of the United States Internal Revenue Code of 1986, as amended (the
"Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this Merger
Agreement, and intending to be legally bound hereby, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER.
Upon the terms and subject to the conditions set forth in this Merger
Agreement, and in accordance with Texas Law, at the Effective Time (as defined
in Section 1.02) Acquiror Sub shall be merged with and into the Company. As a
result of the Merger, the separate corporate existence of Acquiror Sub shall
cease and the Company shall continue as the sole surviving corporation of the
Merger (the "Surviving Corporation") as a direct or indirect wholly owned
subsidiary of Acquiror.
SECTION 1.02. EFFECTIVE TIME.
Subject to the provisions of Section 2.05, as promptly as practicable
after the satisfaction or, if permissible, waiver of the conditions set forth
in Article VII, the parties hereto shall cause the Merger to be
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consummated by filing this Merger Agreement, articles of merger or other
appropriate Documents (in any such case, the "Articles of Merger") with the
Secretary of State of the State of Texas, in such form as required by, and
executed in accordance with the relevant provisions of, Texas Law (the
effective date and time of such filing being the "Effective Time").
SECTION 1.03. EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger shall be as provided
by the applicable provisions of Texas Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property, if
any, of Acquiror Sub shall succeed to, be possessed by and vest in the
Surviving Corporation, and any duties of Acquiror Sub shall succeed to, be
assumed by and become the duties of the Surviving Corporation, all without
further act or deed.
SECTION 1.04. ARTICLES OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Acquiror prior to the
Effective Time, at the Effective Time the articles of incorporation of
Acquiror Sub, as in effect immediately prior to the Effective Time,
shall be the articles of incorporation of the Surviving Corporation,
until thereafter amended in accordance with Texas Law and such
articles of incorporation.
(b) Unless otherwise determined by Acquiror prior to the
Effective Time, at the Effective Time the bylaws of Acquiror Sub, as
in effect immediately prior to the Effective Time, shall be the bylaws
of the Surviving Corporation until thereafter amended in accordance
with Texas Law, the articles of incorporation of the Surviving
Corporation and such bylaws.
SECTION 1.05. DIRECTORS.
The directors of Acquiror Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold
office in accordance with the articles of incorporation and bylaws of the
Surviving Corporation.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. CONVERSION OF SECURITIES.
At the Effective Time, by virtue of the Merger and without any action
on the part of Acquiror Sub, the Company or holders of any of the following
securities:
(a) Company Common Shares. Subject to the other
provisions of this Section 2.01, each share of common stock, par value
$1.25 per share, of the Company ("Company Common Shares") issued and
outstanding immediately prior to the Effective Time (other than any
Company Common Shares to be canceled pursuant to Section 2.01(c) or
any Company Common Shares ("Dissenting Shares") held by any
shareholder of the Company who elects to exercise appraisal rights
under Texas Law) shall be converted, subject to Sections 2.01 (e) and
2.02(e), into the right to receive a number of shares of the
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common stock, without par value, of Acquiror ("Acquiror Common Stock")
(rounded to the nearest 1/1000th) (the "Common Share Exchange Ratio")
equal to the amount determined by dividing $53.274 (the "Common Share
Numerator," which is an amount determined by dividing $320,000,000 by
the outstanding Company Common Shares) by the average of the closing
sales price of Acquiror Common Stock as reported on the NYSE
Consolidated Transactions Tape on each of the 20 consecutive trading
days preceding the tenth trading day prior to the Effective Time
("Average Acquiror Price"); provided, however, that notwithstanding
the actual Average Acquiror Price, the Average Acquiror Price shall be
deemed to be $31.00 if the actual Average Acquiror Price is less than
$31.00 and shall be deemed to be $37.00 if the actual Average Acquiror
Price is greater than $37.00.
(b) Cancellation and Retirement of Company Common Shares.
All such shares of Company Common Shares referred to in Section
2.01(a) (other than any Company Common Shares to be canceled pursuant
to Section 2.01(c) or any Dissenting Shares) shall no longer be
outstanding and shall automatically be canceled and retired and shall
cease to exist, and each certificate previously representing any such
shares shall thereafter represent the right to receive the shares and
fractions thereof of Acquiror Common Stock into which such Company
Common Shares were converted in the Merger. The holders of
certificates previously representing Company Common Shares outstanding
immediately prior to the Effective Time shall cease to have any rights
with respect to such shares of Company Common Shares except as
otherwise provided herein or by Law. Certificates previously
representing such Company Common Shares shall be exchanged for the
whole shares of Acquiror Common Stock to be issued in consideration
therefor upon the surrender of such certificates in accordance with
the provisions of Section 2.02, without interest. No fractional share
of Acquiror Common Stock shall be issued, and, in lieu thereof, a cash
payment shall be made pursuant to Section 2.02(e) hereof.
(c) Cancellation of Treasury Shares. Any Company Common
Shares held in the treasury of the Company and any shares of Company
Common Shares owned by any direct or indirect wholly owned subsidiary
of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof and no
payment shall be made with respect thereto.
(d) Acquiror Sub Common Stock. Each share of common
stock of Acquiror Sub outstanding immediately prior to the Effective
Time shall be converted into the shares of common stock of the
Surviving Corporation and each certificate evidencing ownership of any
such Acquiror Sub shares as of the Effective Time shall evidence the
same number of shares of the Surviving Corporation.
(e) Adjustment of Common Share Exchange Ratio and Common
Share Numerator. The Common Share Exchange Ratio and Common Share
Numerator shall be subject to certain adjustments, as follows:
(i) In the event that between the date of this
Merger Agreement and the Effective Time the outstanding shares
of Acquiror Common Stock or Company Common Shares shall have
been changed into a different number of shares or a different
class by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, reverse split,
combination or exchange of shares, or Acquiror shall have
declared, paid or set aside a distribution (other than a cash
dividend) on the Acquiror Common Stock, the Common Share
Exchange Ratio shall be correspondingly adjusted to reflect
such stock dividend, subdivision, reclassification,
recapitalization, split, combination, exchange of shares,
stock dividend or other distribution.
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(ii) The CSN Adjustment Amount as of the Effective
Time shall be calculated in the manner set forth below based
on schedules prepared by the Company in accordance with GAAP
on a consolidated basis consistent with the Company's prior
practices, to which Deloitte & Touche LLP shall have applied
confirmation procedures acceptable to Acquiror and the Company
within 10 days after the Effective Time and reasonably
acceptable to Acquiror and the Company (the "Closing
Schedules"):
CSN Adjustment Amount = L + C + T - CE - CH - U - B, where
<TABLE>
<S> <C>
L= long-term debt of the Company (exclusive of the outstanding aggregate principal amount of 8.5%
Debentures of Eastex Celco Co.)
C= current maturities of long-term debt of the Company
T= unpaid out-of-pocket transaction costs of the Company for the transactions contemplated by this
Merger Agreement, including legal, accounting and investment advisor fees (the "Transaction
Costs")
CE= cash and cash equivalents of the Company (assuming for the purposes of this calculation that
any Bonuses that have been paid by the Company have not been paid)
CH= an agreed value of $2,000,000 for the 32,917 shares of common stock of Champion International
Corporation owned by the Company
U= an agreed value of $2,900,000 for the 208,930 shares of common stock, the 105 shares of
Series A Preferred Stock and $315,000 principal amount of convertible debentures of USTN
Holdings, Inc. owned by the Company
B= an agreed base line level of net indebtedness of $8,300,000.
</TABLE>
If the CSN Adjustment Amount is negative, the Common Share
Numerator shall be reduced by an amount equal to (A) the aggregate
amount of the Bonuses less one-half of the CSN Adjustment Amount
(expressed as a positive number for purposes of this calculation),
divided by (B) 6,006,696. If the CSN Adjustment Amount is zero, the
Common Share Numerator shall be reduced by an amount equal to the
aggregate amount of the Bonuses divided by 6,006,696. If the CSN
Adjustment is positive, the Common Share Numerator shall be reduced by
an amount equal to (A) the sum of the aggregate amount of the Bonuses
plus the CSN Adjustment Amount divided by (B) 6,006,696. In each case
any reduction to the Common Share Numerator shall be rounded to the
nearest 1000th and in no case shall the Common Stock Numerator be
increased by this calculation.
SECTION 2.02. EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. As of the Effective Time, Acquiror
shall transfer or cause to be transferred to Acquiror Sub as a capital
contribution and Acquiror Sub shall thereupon deposit, or shall cause
to be deposited, with a bank, trust company or other entity designated
by Acquiror (the "Exchange Agent"), and reasonably acceptable to the
Company, for the benefit of the holders of Company Common Shares, for
exchange through the Exchange Agent in accordance with this Article
II, certificates representing the shares of Acquiror Common Stock
issuable pursuant to Section 2.01 in exchange for outstanding Company
Common Shares (such certificates for shares of Acquiror Common Stock,
together with any dividends or distributions described in Section
2.02(c), and such amounts of cash as shall be generated in accordance
with Section 2.02(e)(ii) hereof, being hereafter referred to as the
"Exchange Fund"). The Exchange Agent shall, pursuant to this Merger
Agreement and irrevocable instructions from the holders of Company
Common Shares, deliver the shares of Acquiror Common Stock to be
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issued pursuant to Section 2.01 and the amount of cash to be paid
pursuant to Section 2.02(e) out of the Exchange Fund.
(b) Exchange Procedures. Acquiror shall, promptly after
the delivery to the Acquiror of the Closing Schedules, mail to each
holder of record of a certificate or certificates which immediately
prior to the date of such mailing represented outstanding shares of
Company Common Shares (the "Certificates"): (i) a letter of
transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent and shall be
in customary form), and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for shares of Acquiror
Common Stock and cash in lieu of any fractional share. Upon surrender
of Certificates for cancellation to the Exchange Agent, together with
such letter of transmittal, duly completed and executed, and such
other Documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange
therefor, as soon as practicable after the delivery to Acquiror of the
Closing Schedules (i) a certificate representing that number of whole
shares of Acquiror Common Stock which such holder has the right to
receive in respect of the Company Common Shares formerly represented
by such Certificate (after taking into account all Company Common
Shares then held by such holder under all such Certificates so
surrendered), and (ii) the amount of cash in lieu of any fractional
share of Acquiror Common Stock to which such holder is entitled
pursuant to Section 2.02(e). The Certificates so surrendered shall be
canceled forthwith following the Effective Time. In the event of a
transfer of ownership of Company Common Shares which is not registered
in the transfer records of the Company, the proper number of shares of
Acquiror Common Stock may be issued and the proper amount of cash in
lieu of any fractional share may be paid to a transferee if the
Certificates representing such Company Common Shares, properly
endorsed or otherwise in proper form for transfer, are presented to
the Exchange Agent, accompanied by all Documents required to evidence
and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by
Section 2.02, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such
surrender the shares of Acquiror Common Stock issuable pursuant to
Section 2.01 in exchange therefor, and cash in lieu of any fractional
share of Acquiror Common Stock to which such holder is entitled
pursuant to Section 2.02(e). No interest will be paid or will accrue
on any cash payable pursuant to Sections 2.02(c) or 2.02(e).
(c) Distributions with Respect to Unexchanged Shares of
Acquiror Common Stock. No dividends or other distributions declared
or made after the Effective Time with respect to Acquiror Common
Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the whole
shares of Acquiror Common Stock represented thereby until the holder
of such Certificate shall surrender such Certificate. Subject to the
effect of escheat, tax, withholding or other applicable Laws,
following surrender of any such Certificate, there shall be paid,
without interest, to the record holder of the certificates
representing whole shares of Acquiror Common Stock issued in exchange
therefor (i) promptly, the amount of dividends or other distributions
having a record date after the Effective Time theretofore paid with
respect to such whole shares of Acquiror Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other
distributions, having a record date after the Effective Time but prior
to surrender and a payment date occurring after surrender, payable
with respect to such whole shares of Acquiror Common Stock.
(d) No Further Rights in Company Capital Stock. All
shares of Acquiror Common Stock issued and all cash paid upon
conversion of the Company Common Shares in accordance with the terms
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hereof (including any cash paid pursuant to Sections 2.02(c) or (e))
shall be deemed to have been issued and paid in full satisfaction of
all rights pertaining to such Company Common Shares.
(e) No Fractional Shares. No fractional shares of
Acquiror Common Stock shall be issued upon surrender for exchange of
the Certificates, and any such fractional share interests will not
entitle the owner thereof to vote or to any rights of a shareholder of
Acquiror. Notwithstanding any other provision of this Merger
Agreement, each holder of Company Common Shares who would otherwise be
entitled to receive a fraction of a share of Acquiror Common Stock,
after aggregating all Certificates delivered by such holder, and
rounding down to the nearest whole share, shall receive, in lieu
thereof, an amount in cash determined as follows:
(i) As promptly as practicable following the
delivery to Acquiror of the Closing Schedules, the Exchange
Agent shall determine the excess of (x) the number of full
shares of Acquiror Common Stock over (y) the aggregate number
of whole shares of Acquiror Common Stock to be issued to
holders of Company Common Shares pursuant to Section 2.01,
such excess being herein called the "Excess Shares." As soon
after the delivery to Acquiror of the Closing Balance
Schedules as practicable, the Exchange Agent, as the agent for
the holders of Company Common Shares, shall sell the Excess
Shares at the then prevailing prices on the NYSE, all in the
manner provided in subparagraph (ii) of this Section 2.02(e).
(ii) The sale of the Excess Shares by the Exchange
Agent shall be executed on the NYSE through one or more member
firms of the NYSE and shall be executed in round lots to the
extent practicable. Until the net proceeds of such sale or
sales have been distributed to the holders of Company Common
Shares, the Exchange Agent shall hold such proceeds in trust
for the benefit of such holders as part of the Exchange Fund.
Acquiror shall pay all commissions, transfer taxes and other
out-of-pocket transaction costs of the Exchange Agent
reasonably incurred in connection with such sales of Excess
Shares. The Exchange Agent shall determine the portion of
such proceeds to which each holder of Company Common Shares is
entitled and distribute such amounts in accordance with this
Section 2.02.
(f) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of Company
Common Shares for one year after the Effective Time shall be delivered
to Acquiror, upon request, and any holders of Company Common Shares
who have not theretofore complied with this Article II shall
thereafter look only to Acquiror for the shares of Acquiror Common
Stock to which they are entitled pursuant to Section 2.01, any
dividends or other distributions with respect to Acquiror Common Stock
to which they are entitled pursuant to Section 2.02(c) and any cash in
lieu of fractional shares of Acquiror Common Stock to which they are
entitled pursuant to Section 2.02(e).
(g) No Liability. None of Acquiror, Acquiror Sub, the
Company or the Exchange Agent shall be liable to any Person for any
shares of Acquiror Common Stock (or dividends or distributions with
respect thereto) or cash delivered to a public official pursuant to
any abandoned property, escheat or similar Law.
(h) Lost, Stolen or Destroyed Certificates. In the event
any certificate evidencing Company Common Shares shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for
such lost, stolen or destroyed certificate, upon the making of an
affidavit of that fact by the holder
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thereof, such shares of Acquiror Common Stock and cash for any
fractional shares, if any, as may be required pursuant to this Article
II; provided, however, that the Exchange Agent or Acquiror may, in its
reasonable discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed
certificate to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Acquiror, the
Surviving Corporation, or the Exchange Agent with respect to the
certificate alleged to have been lost, stolen or destroyed.
SECTION 2.03. SHARE TRANSFER BOOKS.
At the Effective Time, the share transfer books of the Company shall
be closed and there shall be no further registration of transfers of Company
Common Shares thereafter on the records of the Company. From and after the
Effective Time, the holders of certificates representing Company Common Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Company Common Shares except as otherwise provided
herein or by Law. On or after the Effective Time, any Certificates presented
to the Exchange Agent or Acquiror for any reason shall be converted into shares
of Acquiror Common Stock and/or cash, including any dividends or other
distributions to which the holders thereof are entitled pursuant to Section
2.02(c) and any cash in lieu of fractional shares of Acquiror Common Stock to
which the holders thereof are entitled pursuant to Section 2.02(e).
SECTION 2.04. DISSENTING SHAREHOLDERS.
Subject to the terms and conditions hereof, at and after the Effective
Time, any holder of Company Common Shares who complies with Article 5.12 of
Texas Law (a "Dissenting Shareholder") shall be entitled to obtain payment from
the Surviving Corporation solely from the historical assets of the Company of
the fair value of such Dissenting Shareholder's Company Common Shares as
determined pursuant to Article 5.12 of Texas Law; provided, however, that no
such payment shall be made unless and until such Dissenting Shareholder has
surrendered to the Exchange Agent the Certificate representing the Company
Common Shares for which payment is being made. The Company shall give Acquiror
prompt notice of any demands for appraisal or withdrawals of demands for
appraisal received by the Company and any other Documents obtained by the
Company pursuant to the provisions of Article 5.12 of Texas Law, and, except
with the prior written consent of Acquiror, shall not settle or offer to settle
any such demands.
SECTION 2.05. CLOSING.
Subject to the terms and conditions of this Merger Agreement, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. local time
on the second business day immediately following the date on which the last of
the conditions set forth in Article VII hereof is satisfied or, if permissible,
waived (the "Closing Date"), at the offices of Worsham, Forsythe & Wooldridge,
L.L.P., 30th Floor, Energy Plaza, 1601 Bryan Street, Dallas, Texas 75201,
unless another date or place is agreed to in writing by the parties hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the Disclosure Schedule to be
delivered by the Company to Acquiror in accordance with the terms of Section
6.04 (the "Company Disclosure Schedule"), the Company hereby
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represents and warrants (which representation and warranty shall be deemed to
include the disclosure with respect thereto so specified in the Company
Disclosure Schedule) to, and covenants and agrees with, Acquiror and Acquiror
Sub as set forth below, in each case as of the date of this Merger Agreement.
With respect to each representation and warranty set forth in Sections 3.06,
3.07, 3.09, 3.10, and 3.11 each reference therein to "Subsidiary" or
"Subsidiaries" shall be deemed to include the Cellular Partnerships, except
that each such representation and warranty as to the Cellular Partnerships
shall be deemed to be made to the Knowledge of the Company and the
Subsidiaries.
SECTION 3.01. ORGANIZATION AND STANDING.
The Company is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Texas, and has all requisite
corporate power and authority to own, operate and lease its Assets, to carry on
its business as currently conducted. The Company is not qualified to conduct
business in any jurisdiction other than Texas, and neither the nature of the
business conducted by the Company nor the character of the Assets owned, leased
or otherwise held by it makes any such qualification necessary, except where
the absence of such qualification as a foreign corporation would not have a
Company Material Adverse Effect.
SECTION 3.02. SUBSIDIARIES AND CELLULAR PARTNERSHIPS.
The Company has no Subsidiaries and no material investment or other
interest, whether by debt or equity, in any corporation, association,
partnership, joint venture or other entity, except as set forth in Section 3.02
of the Company Disclosure Schedule. Each of the limited partnerships in which
the Company or a Subsidiary has any investment (the "Cellular Partnerships")
and the nature and amount as of a recent date of such investment is identified
in Section 3.02 of the Company Disclosure Schedule. The Company Disclosure
Schedule sets forth: (a) the authorized capital stock or other equity
interests of each direct and indirect Subsidiary of the Company and the
percentage of the outstanding capital stock or other equity interests of each
Subsidiary directly or indirectly owned by the Company, and (b) the nature and
amount as of a recent date of any such equity investment. All of such shares
of capital stock or other equity interests of Subsidiaries and the Cellular
Partnerships directly or indirectly held by the Company have been duly
authorized and validly issued and are outstanding, fully paid and
nonassessable. Except as set forth in Section 3.02 of the Company Disclosure
Schedule, the Company directly, or indirectly through wholly owned
Subsidiaries, owns all such shares of capital stock or other equity interests
of the direct or indirect Subsidiaries free and clear of all Encumbrances. All
equity interests in the Cellular Partnerships held by the Company directly or
indirectly through wholly owned Subsidiaries are owned free and clear of all
Encumbrances, except as set forth in the partnership agreements governing the
partnerships, copies of which have been made available to Acquiror. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Texas, and has all requisite corporate
power and authority to own, operate and lease its Assets and to carry on its
business as currently conducted. Each Subsidiary is qualified to conduct
business and is in good standing in the State of Texas. The Subsidiaries are
not qualified to conduct business in any jurisdiction other than Texas, and
neither the nature of their businesses nor the character of the Assets owned,
leased or otherwise held by them makes any such qualification necessary, except
where the absence of licensing or qualification as a foreign corporation would
not have a Company Material Adverse Effect. None of the Company, the
Subsidiaries or the Cellular Partnerships is a "public utility company," a
"holding company," a "subsidiary company" or an "affiliate" of any public
utility company within the meaning of the Public Utility Holding Company Act of
1935, as amended ("PUHCA").
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SECTION 3.03. ARTICLES OF INCORPORATION AND BYLAWS.
The Company has furnished to Acquiror a true and complete copy of the
certificate or articles of incorporation of the Company and of each Subsidiary,
as currently in effect, certified as of a recent date by the Secretary of State
(or comparable Governmental Entity) of their respective jurisdictions of
incorporation, and a true and complete copy of the bylaws of the Company and of
each Subsidiary, as currently in effect, certified by their respective
corporate secretaries. The Company has furnished to Acquiror a true and
complete copy of the agreement of limited partnership of each of the Cellular
Partnerships, as currently in effect, certified by an executive officer of the
Company and the certificate of limited partnership of each of the Cellular
Partnerships, as currently in effect, certified as of a recent date by the
Secretary of State (or comparable Governmental Entity) of their respective
jurisdictions of organization. All such certified copies are attached as
exhibits to, and constitute an integral part of, the Company Disclosure
Schedule.
SECTION 3.04. CAPITALIZATION.
The authorized capital stock of the Company consists of 12,000,000
Company Common Shares, of which: (i) 6,006,696 shares are issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable; and (ii) no shares are held in the treasury of the Company. No
Company Common Shares have been reserved for any purpose. There are no
outstanding securities convertible into or exchangeable for Company Common
Shares, any other securities of the Company, or any capital stock or other
securities of any of the Subsidiaries and no outstanding options, rights
(preemptive or otherwise), or warrants to purchase or to subscribe for any
shares of such capital stock or other securities of the Company or any of the
Subsidiaries. Except as set forth in Section 3.04 of the Company Disclosure
Schedule, there are no outstanding Agreements to which the Company is a party
affecting or relating to the voting, issuance, purchase, redemption,
registration, repurchase or transfer of Company Common Shares, any other
securities of the Company, or any capital stock or other securities of any
Subsidiary, except as contemplated hereunder. Since December 31, 1996, no
Company Common Shares have been issued by the Company. Each of the outstanding
Company Common Shares and the capital stock of, or other equity interest in,
the Subsidiaries was issued in compliance with all applicable federal and state
Laws concerning the issuance of securities. The names and addresses of, and
number of shares or other securities held by, all holders of record of Company
Common Shares (the "Company Shareholders") and all holders of record of capital
stock or other securities of the Subsidiaries are set forth in Section 3.04 of
the Company Disclosure Schedule. All of the outstanding Company Common Shares
are owned by the Company Shareholders, free and clear, to the Knowledge of the
Company and the Subsidiaries, of all Encumbrances which to the Company's
Knowledge currently restrict the holder thereof from voting such shares in
favor of the Merger . Except as set forth in Section 3.04 of the Company
Disclosure Schedule, there are no obligations, contingent or otherwise, of the
Company or any Subsidiary to provide funds to, make any investment (in the form
of a loan, capital contribution or otherwise) in, or provide any guarantee with
respect to, any Subsidiary or any Cellular Partnership. Except as set forth in
Section 3.04 of the Company Disclosure Schedule and except for cash dividends
and employee bonuses paid or to be paid in the customary manner by the Company
(as set forth in Section 5.01(b) in the case of dividends), there are no
Agreements pursuant to which any Person is or may be entitled to receive from
Company or any Subsidiary any of the revenues or earnings, or any payment based
thereon or calculated in accordance therewith, of the Company, any Subsidiary
or any Cellular Partnership.
SECTION 3.05. AUTHORITY; BINDING OBLIGATION.
The execution and delivery by the Company of this Merger Agreement,
the execution and delivery by the Company and the Subsidiaries of all other
Documents contemplated hereby, and the consummation by the
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Company and the Subsidiaries of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action, and no
other corporate proceedings on the part of the Company or the Subsidiaries are
necessary to authorize this Merger Agreement and the other Documents
contemplated hereby, or to consummate the transactions contemplated hereby and
thereby, other than the approval and adoption of this Merger Agreement by the
holders of two-thirds of the outstanding Company Common Shares, in accordance
with Texas Law and the Company's articles of incorporation and bylaws and the
satisfaction (or waiver by Acquiror) of Section 7.02(f). This Merger Agreement
has been duly executed and delivered by the Company and constitutes a legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms, except as such enforceability may be subject to shareholder approval and
all required regulatory approval, and to the effects of any applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other Laws affecting creditors' rights generally and subject to the effects of
general equitable principles (whether considered in a proceeding in equity or
at law).
SECTION 3.06. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution, delivery and performance by the
Company of this Merger Agreement and all other Documents contemplated
hereby, the fulfillment of and compliance with the respective terms
and provisions hereof and thereof, and the consummation by the Company
of the transactions contemplated hereby and thereby, do not and will
not: (i) conflict with, or violate any provision of, the articles of
incorporation or bylaws of the Company, the certificate or articles of
incorporation or bylaws of any Subsidiary or the certificate or
agreement of limited partnership of any Cellular Partnership; (ii)
subject to (A) obtaining the requisite approval and adoption of this
Merger Agreement by the holders of two-thirds of the outstanding
Company Common Shares, in accordance with Texas Law and the Company's
articles of incorporation and bylaws and the satisfaction (or waiver
by Acquiror) of Section 7.02(f) and (B) obtaining the consents,
approvals, authorizations and permits of, and making filings with or
notifications to, the applicable Governmental Entity pursuant to the
applicable requirements, if any, of the Securities Act, Blue Sky Laws,
the HSR Act, the Communications Act , the Federal Aviation Act,
applicable state utilities Laws, applicable municipal franchise Laws
and the filing and recordation of the Articles of Merger as required
by Texas Law, conflict with or violate any Law applicable to the
Company, any Subsidiary or any Cellular Partnership, or any of their
respective Assets; (iii) conflict with, result in any breach of,
constitute a default (or an event that with notice or lapse of time or
both would become a default) under any Agreement to which the Company
or any Subsidiary, or, any Agreement to which any Cellular
Partnership, is a party or by which the Company, any Subsidiary or any
Cellular Partnership or any of their respective Assets, may be bound;
or (iv) result in or require the creation or imposition of, or result
in the acceleration of, any indebtedness or any Encumbrance of any
nature upon, or with respect to, the Company, any Subsidiary or any
Cellular Partnership or any of the Assets now owned or hereafter
acquired by the Company, any Subsidiary or any Cellular Partnership;
except for any such conflict or violation described in clause (ii),
any such conflict, breach or default described in clause (iii), or any
such creation, imposition or acceleration described in clause (iv)
that would not have a Company Material Adverse Effect.
(b) Except as set forth in Section 3.06(b) of the Company
Disclosure Schedule, the execution, delivery and performance by the
Company of this Merger Agreement and all other Documents contemplated
hereby, the fulfillment of and compliance with the respective terms
and provisions hereof and thereof, and the consummation by the Company
of the transactions contemplated hereby and thereby, do not and will
not: (i) require any consent, approval, authorization or permit of, or
filing with or notification to, any Person not a party to this Merger
Agreement, except (A) the approval and
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adoption of this Merger Agreement by the holders of two-thirds of the
outstanding Company Common Shares, in accordance with Texas Law and
the Company's articles of incorporation and bylaws and the
satisfaction (or waiver by Acquiror) of Section 7.02(f), (B) pursuant
to the applicable requirements, if any, of the Securities Act, Blue
Sky Laws, the HSR Act, the Communications Act, the Federal Aviation
Act, applicable state utilities Laws and applicable municipal
franchise Laws, and (C) the filing and recordation of the Articles of
Merger as required by Texas Law; or (ii) result in or give rise to any
penalty, forfeiture, Agreement termination, right of termination,
amendment or cancellation, or restriction on business operations of
Acquiror, the Company, the Surviving Corporation, any Subsidiary or
any Cellular Partnership.
SECTION 3.07. LICENSES; COMPLIANCE.
(a) The Company and each Subsidiary is in possession of
all Licenses necessary for the Company or any Subsidiary to own, lease
and operate its Assets or to carry on its business as it is now being
conducted (the "Company Licenses"), except where the failure to
possess any such Company License would not have a Company Material
Adverse Effect. All Company Licenses that are FCC, FAA or state
utilities Licenses or municipal franchises are listed and described in
Section 3.07(a)(1) of the Company Disclosure Schedule, and all other
material Company Licenses are listed and described in Section
3.07(a)(2) of the Company Disclosure Schedule. All Company Licenses
are valid and in full force and effect through the respective dates
indicated in the Company Disclosure Schedule, except for any such
invalidity or failure to be in full force and effect that would not,
alone or in the aggregate, have a Company Material Adverse Effect, and
no suspension, cancellation, complaint, proceeding, order or
investigation of or with respect to any Company License is pending or,
to the Knowledge of the Company or any Subsidiary, threatened.
Neither the Company nor any Subsidiary is in violation of or default
under any Company License, except for any such violation or default
that would not have a Company Material Adverse Effect. Except as set
forth in Section 3.07(a)(3) of the Company Disclosure Schedule, since
December 31, 1996, neither the Company nor any Subsidiary has received
written or, to the Knowledge of the Company, oral notice from any
Governmental Entity of any such violation or default.
(b) Neither the Company nor any Subsidiary is in
violation of or default under, nor has it breached: (i) any term or
provision of its articles of incorporation, bylaws or agreement of
limited partnership or (ii) any Agreement or restriction to which the
Company or any Subsidiary is a party or by which the Company or any
Subsidiary, or any of their respective Assets, is bound or affected,
except for any such violation, default or breach described in clause
(ii) that would not have a Company Material Adverse Effect. The
Company and the Subsidiaries have complied and are in full compliance
with all Laws, except where the failure so to comply would not have a
Company Material Adverse Effect.
(c) To the Knowledge of the Company: (i) all material
returns, reports, statements and other Documents required to be filed
by the Company or any Subsidiary with any Governmental Entity have
been filed and complied with and are true, correct and complete in all
material respects, and (ii) all material records of every type and
nature relating to the Company Licenses or the business, operations or
Assets of the Company or any Subsidiary have been maintained in all
material respects in accordance with good business practices and the
rules of any Governmental Entity and are maintained at the Company or
the appropriate Subsidiary.
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SECTION 3.08. FINANCIAL INFORMATION.
(a) The Company has prepared audited consolidated balance
sheets of the Company and the Subsidiaries as of the end of the fiscal
year ending on December 31 in each of 1996, 1995 and 1994 (the
"Audited Balance Sheets") and the related audited consolidated
statements of income, shareholders' equity and cash flows of the
Company and the Subsidiaries for each of such fiscal years (the
Audited Balance Sheets and such audited consolidated statements of
income, shareholders' equity and cash flows are hereinafter referred
to collectively as the "Audited Statements"), in each case, audited by
Axley & Rode LLP in accordance with generally accepted auditing
standards and accompanied by the related report of Axley & Rode LLP.
A true and complete copy of each of the Audited Statements has been
delivered to Acquiror and is attached as an exhibit to, and
constitutes an integral part of, the Company Disclosure Schedule. The
Company has also prepared unaudited consolidated balance sheets of the
Company and the Subsidiaries as of the last day of each calendar
quarter ending after January 1, 1997 (including the unaudited
consolidated balance sheets to be furnished to Acquiror pursuant to
Section 6.09, the "Unaudited Balance Sheets") and the unaudited
consolidated statements of income and cash flows of the Company and
the Subsidiaries for the quarterly periods then ended (the Unaudited
Balance Sheets and such statements of income and cash flows, including
the unaudited consolidated statements of income and cash flows to be
furnished to Acquiror pursuant to Section 6.09, are hereinafter
referred to collectively as the "Unaudited Statements" and, together
with the Audited Statements, as the "Financial Statements").
(b) The Financial Statements (including, without
limitation, the notes thereto): (i) are complete and correct in all
material respects, (ii) have been prepared in accordance with the
books and records of the Company and the Subsidiaries, and (iii)
present fairly the consolidated financial position of the Company and
the Subsidiaries and their consolidated results of operations and cash
flows as of and for the respective dates and time periods in
accordance with GAAP applied on a basis consistent with prior
accounting periods, except as noted thereon and subject to, in the
case of the Unaudited Statements, normal and recurring audit
adjustments which were not or are not expected to be material in
amount. All changes in accounting methods (for financial accounting
purposes) made, agreed to, requested or required with respect to the
Company or any of the Subsidiaries since January 1, 1994 are reflected
in the Financial Statements.
SECTION 3.09. UNDISCLOSED LIABILITIES.
There are no material liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of a nature required to be reflected by GAAP
in a consolidated corporate balance sheet, including but not limited to
liabilities for Taxes, that are not reflected on, or reserved against in, the
Audited Balance Sheets at the end of 1996, and the notes thereto. Except as
described in Section 3.09 of the Company Disclosure Schedule, since December
31, 1996, neither the Company nor any Subsidiary has incurred any material
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
other than in the Ordinary Course of Business.
SECTION 3.10. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Other than as set forth in Section 3.10 to the Company Disclosure
Schedule, since December 31, 1996, there has been no material adverse change,
and no change except in the Ordinary Course of Business, in the business,
operations, condition (financial or otherwise), Assets or liabilities of the
Company or any Subsidiary or, to the Company's Knowledge and excluding general
trends in the industry, no material adverse change in the prospects of the
Company or any Subsidiary. Except as set forth in Section 3.10 to the Company
Disclosure Schedule, since December 31, 1996, the Company and the Subsidiaries
have conducted their respective
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businesses substantially in the manner heretofore conducted and only in the
Ordinary Course of Business, and neither the Company nor any Subsidiary has:
(a) incurred any material damage, destruction or loss not covered by insurance
(except for industry-standard deductibles) with respect to any Assets of the
Company or of any such Subsidiary; (b) issued any capital stock or other equity
securities or granted any options, warrants or other rights calling for the
issuance thereof; (c) issued any bonds or other long-term debt instruments,
granted any options, warrants or other rights calling for the issuance thereof,
or borrowed any funds other than in the Ordinary Course of Business; (d)
incurred, or become subject to, any material obligation or liability (whether
absolute, contingent, accrued or otherwise), except current liabilities
incurred in the Ordinary Course of Business; (e) except for debt reduction
required by Company obligations, discharged or satisfied any Encumbrance or
paid any material obligation or liability (whether absolute or contingent,
matured or unmatured, known or unknown) other than current liabilities shown in
the Unaudited Balance Sheets and current liabilities incurred since December
31, 1996, except in the Ordinary Course of Business; (f) declared or made
payment of, or set aside for payment, any dividends (except for the dividends
the payment of which is reflected in the books and records of the Company on
the date of this Merger Agreement or described in Section 5.01(b)) or
distributions of any Assets, or purchased, redeemed or otherwise acquired any
of its capital stock, any securities convertible into capital stock, or any
other securities; (g) mortgaged, pledged or subjected to any Encumbrance any of
its Assets; (h) sold, exchanged, transferred or otherwise disposed of any of
its Assets, or canceled any debts or claims, except in each case in the
Ordinary Course of Business; (i) written down the value of any Assets or
written off as uncollectible any debt, notes or accounts receivable, except
where previously reserved against in the Financial Statements and not material
in amount, and except for write-downs and write-offs in the Ordinary Course of
Business, none of which, individually or in the aggregate, are material; (j)
entered into any transactions other than in the Ordinary Course of Business or
which in the aggregate would have a Company Material Adverse Effect; (k)
increased the rate of compensation payable, or to become payable, by it to any
of its officers, employees, agents or independent contractors over the rate
being paid to them on December 31, 1996, except for any increase in the rate of
compensation payable, or to become payable, by it in the Ordinary Course of
Business to employees who are not directors or officers; (l) made or permitted
any amendment or termination of any material Agreement to which it is a party;
(m) through negotiation or otherwise made any commitment or incurred any
liability to any labor organization; (n) made any accrual or arrangement for or
payment of bonuses or special compensation of any kind to any director, officer
or employee, except for any accrual or arrangement for or payment of bonuses or
special compensation in the Ordinary Course of Business to employees who are
not directors or officers and bonuses permitted in accordance with Section
5.01(a); (o) directly or indirectly paid any severance or termination pay in
excess of two months' salary to any officer or employee with an annual salary
in excess of $100,000; (p) made capital expenditures, or entered into
commitments therefor, not provided for in the Company's capital budget for 1997
(a copy of which has been furnished by the Company to Acquiror) or, if
applicable, the Company's capital budget for 1998 (which capital budget has
been furnished to Acquiror as provided in Section 5.01(i)), except for capital
expenditures permitted by Section 5.01; (q) made any change in any method of
accounting or accounting practice; (r) entered into any transaction of the type
described in Section 3.19; (s) made any charitable contributions or pledges
exceeding $50,000 individually or $300,000 in the aggregate; or (t) made any
Agreement to do any of the foregoing. At the Closing, the Company shall deliver
to Acquiror an updated Section 3.10 to the Company Disclosure Schedule in
accordance with the provisions of Section 6.04.
SECTION 3.11. LITIGATION; DISPUTES
(a) Except as disclosed in Section 3.11(a) of the Company
Disclosure Schedule, there are no actions, suits, claims,
arbitrations, proceedings or investigations pending or, to the
Knowledge of the Company or any Subsidiary, threatened against,
affecting or involving the Company or any Subsidiary or their
respective businesses or Assets, or the transactions contemplated by
this Merger Agreement, at
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law or in equity, or before or by any court, arbitrator or
Governmental Entity, domestic or foreign. Neither the Company nor any
Subsidiary is: (i) operating under or subject to any order, award,
writ, injunction, decree or judgment of any court, arbitrator or
Governmental Entity other than regulations and orders imposed upon the
Subsidiaries by the PUC and the FCC as telecommunications utilities,
or (ii) in default with respect to any order, award, writ, injunction,
decree or judgment of any court, arbitrator or Governmental Entity.
(b) Except as set forth in Section 3.11(b) of the Company
Disclosure Schedule, neither the Company nor any Subsidiary is
currently involved in, or to the Knowledge of the Company or any
Subsidiary, reasonably anticipates any dispute with, any of its
current or former employees, agents, brokers, distributors, vendors,
customers, business consultants, franchisees, franchisors,
representatives or independent contractors (or any current or former
employees of any of the foregoing Persons) affecting the business or
Assets of the Company or any Subsidiary, except for any such dispute
that, if resolved adversely to the Company or any Subsidiary, would
not have a Company Material Adverse Effect.
SECTION 3.12. DEBT INSTRUMENTS.
Section 3.12 of the Company Disclosure Schedule lists all material
mortgages, indentures, notes, guarantees and other Agreements for or relating
to borrowed money (including, without limitation, conditional sales agreements
and capital leases) to which the Company or any Subsidiary is a party or which
have been assumed by the Company or any Subsidiary or to which any Assets of
the Company or any Subsidiary are subject. To the Knowledge of the Company (i)
the Company and the Subsidiaries have performed all the material obligations
required to be performed by any of them to date under any of the foregoing, and
(ii) are not in default in any material respect under any of the foregoing, and
(iii) there has not occurred any event which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute such a default.
SECTION 3.13. LEASES.
Section 3.13 of the Company Disclosure Schedule lists all material
leases and other Agreements under which the Company or any Subsidiary is lessee
or lessor of any Asset, or holds, manages or operates any Asset owned by any
third party, or under which any Asset owned by the Company or by any Subsidiary
is held, operated or managed by a third party. To the Knowledge of the
Company: (i) the Company and the Subsidiaries are the owners and holders of
all the leasehold estates purported to be granted to them by the Documents
listed in Section 3.13 of the Company Disclosure Schedule, (ii) each such lease
and other Agreement is in full force and effect and constitutes a legal, valid
and binding obligation of, and is legally enforceable against, the respective
parties thereto and grants the leasehold estate it purports to grant free and
clear of all Encumbrances, (iii) the Company and the Subsidiaries have in all
respects performed all material obligations thereunder required to be performed
by any of them to date, (iv) no party to any such Agreement or arrangement is
in default in any material respect under any of the foregoing, and there has
not occurred any event which (whether with or without notice, lapse of time or
the happening or occurrence of any other event) would constitute such a
default, and (v) all of the Assets subject to such leases and other Agreements
are in a condition adequate for the uses to which they are currently being
used.
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SECTION 3.14. OTHER AGREEMENTS; NO DEFAULT.
(a) Section 3.14(a) of the Company Disclosure Schedule
lists each material Agreement to which the Company or any Subsidiary
is a party or by which the Company or any Subsidiary is bound, and
which is:
(i) an Agreement for the employment of any
director, officer, salaried employee, consultant or
independent contractor, or providing for severance payments to
any such director, officer, salaried employee, consultant or
independent contractor;
(ii) a license Agreement or distributor, dealer,
sales representative, sales agency, advertising, property
management or brokerage Agreement involving an annual payment
in excess of $50,000;
(iii) an Agreement with any labor organization or
other collective bargaining unit;
(iv) an Agreement for the future purchase or lease
of materials, supplies, services, merchandise, equipment or
other Assets involving payments of more than $250,000 over its
remaining term (including, without limitation, periods covered
by any option to renew by either party);
(v) a profit-sharing, bonus, incentive
compensation, deferred compensation, stock option, severance
pay, stock purchase, employee benefit, insurance,
hospitalization, pension, retirement or other similar plan or
Agreement;
(vi) an Agreement for the sale of any of its
material Assets or the grant of any preferential rights to
purchase any of its material Assets or rights, other than in
the Ordinary Course of Business;
(vii) an Agreement that contains any provisions
requiring the Company or any Subsidiary to indemnify any other
party;
(viii) a joint venture Agreement or other Agreement
involving the sharing of revenues or profits;
(ix) an Agreement with an Affiliate of the Company
or any Subsidiary;
(x) an Agreement (including, without limitation,
an Agreement not to compete or an exclusivity Agreement) that
reasonably could be interpreted to impose any restriction on
the business or operations of the Company or any Subsidiary,
or any of their respective Affiliates, prior to the Effective
Time, or on the business or operations of Acquiror or any of
its Affiliates after the Effective Time;
(xi) an Agreement with any Governmental Entity,
except tariffs and filings of public record with the PUC or
the FCC;
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(xii) an Agreement with any customer of the Company
or any Subsidiary that was billed an aggregate of $1 million
during the year ended December 31, 1996 or $500,000 during the
period from January 1, 1997 through the date of this Merger
Agreement;
(xiii) any other Agreement (A) that is material to
the Company and the Subsidiaries, taken as a whole, or to the
conduct of their businesses or operations, or (B) the absence
of which would have a Company Material Adverse Effect, (the
foregoing Agreements referred to herein as the "Company
Contracts"). To the Knowledge of the Company, the Company has
made available to Acquiror true and complete copies of each
written Company Contract (including any amendments thereto)
and a written summary of the material terms of each oral
Company Contract.
(b) To the Knowledge of the Company: (i) each Company
Contract is in full force and effect and constitutes a legal, valid
and binding obligation of, and is legally enforceable against, the
respective parties thereto, (ii) all necessary approvals of any
Governmental Entity with respect thereto have been obtained, (iii) all
necessary filings or registrations therefor have been made, and there
are no outstanding disputes thereunder and, to the Knowledge of the
Company, no threatened cancellation or termination thereof, (iv) the
Company and the Subsidiaries have performed all material obligations
thereunder required to be performed by any of them to date, (v) no
party is in default in any material respect under any of the Company
Contracts, and there has not occurred any event which (whether with or
without notice, lapse of time or the happening or occurrence of any
other event) would constitute such a default, (vi) except as
specifically described in Section 3.14(a) of the Company Disclosure
Schedule, there has been no material written or oral modification or
amendment to any Company Contract and, to the Knowledge of the
Company, there are no reasonably expected material changes to any
Company Contract, and (vii) at the Closing, the Company shall deliver
to Acquiror an updated Section 3.14(a) to the Company Disclosure
Schedule in accordance with the provisions of Section 6.04.
SECTION 3.15. LABOR RELATIONS.
Section 3.15(a) of the Company Disclosure Schedule lists all
collective bargaining or other labor Agreements to which the Company or any
Subsidiary is a party. There are no strikes, work stoppages, union
organization efforts, arbitrations, grievances or other controversies pending,
threatened or reasonably anticipated between the Company or any Subsidiary and
(a) any current or former employees of the Company or of any Subsidiary or (b)
any union or other collective bargaining unit representing such employees. The
Company and the Subsidiaries have complied and are in compliance with all Laws
relating to employment or the workplace, including, without limitation, Laws
relating to wages, hours, collective bargaining, safety and health, work
authorization, equal employment opportunity, employment discrimination,
immigration, withholding, unemployment compensation, worker's compensation,
employee privacy and right to know, except where the failure so to comply would
not have a Company Material Adverse Effect. Except as set forth in Section
3.15(b) of the Company Disclosure Schedule, neither the Company nor any
Subsidiary has been notified by any Governmental Agency, counsel to any
claimant, or any other Person of any unresolved violation or alleged violation
of any Law relating to employment, equal employment opportunity, civil or human
rights, or employment discrimination generally. Except as set forth in Section
3.15(c) to the Company Disclosure Schedule, there are no employment Agreements
between the Company or any Subsidiary and any of their respective employees, or
professional service Agreements relating to the businesses and Assets of the
Company or of any Subsidiary. Except as set forth in Section 3.15(d) to the
Company Disclosure Schedule, the consummation of the transactions contemplated
hereby will not cause Acquiror, the Surviving Corporation, the
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Company or any Subsidiary to incur or suffer any liability relating to, or
obligation to pay, severance, termination or other payments to any Person,
except that no warranty is made as any customary payments historically made by
the Company which would normally result from a termination and are made because
of a voluntary or involuntary termination of employment because of the
consummation of the transactions contemplated hereby.
SECTION 3.16. PENSION AND BENEFIT PLANS.
(a) Except as set forth in Section 3.16(a) to the Company
Disclosure Schedule, neither the Company nor any Subsidiary (i)
maintains or has during the past six (6) years maintained any Plan or
Other Arrangement, (ii) is or has during the past six (6) years been a
party to any Plan or Other Arrangement or (iii) has obligations under
any Plan or Other Arrangement.
(b) The Company has furnished to Acquiror true and
complete copies of each of the following Documents: (i) the Documents
setting forth the current terms of each Plan; (ii) all current related
trust Agreements or annuity Agreements (and any other current funding
Document) for each Plan; (iii) for the three most recent plan years,
all annual reports (Form 5500 series), including all schedules and
attachments thereto, and summary annual reports, on each Plan; (iv)
the current summary plan description and subsequent summaries of
material modifications for each Title I Plan, and all administrative
policies or procedures relating to each Plan; (v) all Documents
relating to or describing any funding deficiencies or under funding of
any Plan subject to Title IV of ERISA; (vi) all correspondence with or
from the DOL on any Plan during the last three (3) years, and all DOL
opinions on any Plan; (vii) all correspondence with or from the PBGC
on any Plan during the past three (3) years; (viii) all correspondence
with or from the IRS on any Plan during the past three (3) years, and
all IRS rulings, opinions or technical advice relating to any Plan and
the current IRS determination letter issued with respect to each
Qualified Plan; (ix) all current Agreements with service providers or
fiduciaries for providing services on behalf of any Plan; and (x) all
reports or similar documents prepared in connection with any internal
audits or studies of any Plan during the last three (3) years. For
each Other Arrangement, the Company has furnished to Acquiror true and
complete copies of each Agreement or other Document setting forth or
explaining the current terms of the Other Arrangement, all related
trust agreements or other funding Documents (including, without
limitation, insurance contracts, certificates of deposit, money market
accounts, etc.), all significant employee communications, all
correspondence or other submissions with any Governmental Entity
exchanged or made during the past three (3) years, and all current
Agreements with service providers or fiduciaries for providing
services on behalf of any Other Arrangement.
(c) No Plan is a Multiemployer Plan.
(d) No Plan is an ESOP.
(e) The funding method used under each Minimum-Funding
Plan does not violate the funding requirements in Title I, Subtitle B,
Part 3, of ERISA. For each Defined Benefit Plan , the Company has
furnished to Acquiror a true and complete copy of the actuarial
valuation reports issued by the actuaries of that Defined Benefit Plan
for the three (3) most recent plan years, setting forth: (i) the
actuarial present value (based upon the same actuarial assumptions as
were used for that period for funding purposes) of all vested and
nonvested accrued benefits under that Defined Benefit Plan; (ii) the
actuarial present value (based upon the same actuarial assumptions,
other than turnover assumptions, as were used for that period for
funding purposes) of vested benefits under that Defined Benefit Plan;
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(iii) the net fair market value of that Defined Benefit Plan's Assets;
and (iv) a detailed description of the funding method used under that
Defined Benefit Plan.
(f) No "accumulated funding deficiency" as defined in
Section 302(a)(2) of ERISA or Section 412 of the Code, whether or not
waived, and no "unfunded current liability" as determined under
Section 412(l) of the Code exists with respect to any Minimum-Funding
Plan. No security is required under Section 401(a)(29) of the Code as
to any Minimum-Funding Plan. Section 3.16(f) of the Company
Disclosure Schedule sets forth all unpaid obligations and liabilities
of the Company and the Subsidiaries to provide contributions currently
due with respect to any Minimum-Funding Plan.
(g) Section 3.16(g) of the Disclosure Schedule sets forth
the contributions that (i) the Company or any Subsidiary has promised
or is otherwise obligated to make under each Individual Account Plan
that is a Statutory-Waiver Plan and (ii) are due and unpaid as of the
date of this Merger Agreement.
(h) The Company and the Subsidiaries have made all
contributions and other payments required by and due under the terms
of each Plan and Other Arrangement and, except as set forth in Section
3.16(h) of the Company Disclosure Schedule, have taken no action
during the past three (3) years (other than actions required by Law)
relating to any Plan or Other Arrangement that will increase
Acquiror's, the Surviving Corporation's, the Company's or any
Subsidiary's obligation under any Plan or Other Arrangement.
(i) Section 3.16(i) of the Company Disclosure Schedule
sets forth a list of all Qualified Plans. Except as disclosed in
Section 3.16(i) of the Company Disclosure Schedule, to the Company's
Knowledge, all Qualified Plans and any related trust Agreements or
annuity Agreements (or any other funding Document) comply and have
complied (in form and administration) with ERISA, the Code (including,
without limitation, the requirements for Tax qualification described
in Section 401 thereof), and all other Laws in all material respects.
The trusts established under such Plans are exempt from federal income
taxes under Section 501(a) of the Code. The Company and the
Subsidiaries have received determination letters issued by the IRS
with respect to each Qualified Plan as currently in effect, and the
Company has furnished to Acquiror true and complete copies of the most
recent determination letter for each Qualified Plan. To the Knowledge
of the Company: (i) all statements made by or on behalf of the Company
or any Subsidiary to the IRS in connection with applications for such
determination letters with respect to each Qualified Plan were true
and complete when made and continue to be true and complete and, (ii)
nothing has occurred since the date of the most recent applicable
determination letter that would adversely affect the tax-qualified
status of any Qualified Plan.
(j) To the Company's Knowledge, the Company and the
Subsidiaries have complied in all material respects with all
applicable provisions of the Code, ERISA, the National Labor Relations
Act, Title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act, the Fair Labor Standards Act, the Securities Act,
the Exchange Act , and all other Laws, orders or assessments
pertaining to the Plans, Other Arrangements and other employee or
employment related benefits. Neither the Company nor any Subsidiary
has any material liability for any delinquent contributions within the
meaning of Section 515 of ERISA (including, without limitation,
related attorneys' fees, costs, liquidated damages and interest) or
for any arrearages of wages. The Company has no Knowledge of pending
unfair labor practice charges, contract grievances under any
collective bargaining agreement, other administrative charges, claims,
grievances or lawsuits before any Court, arbiter or Governmental
Entity
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relating to any Plan or Other Arrangement, and to the Knowledge of the
Company there exists no fact that is reasonably likely to give rise to
such a claim, charge, grievance or suit.
(k) To the Company's Knowledge, none of the Company, any
Subsidiary or any of the Plans has engaged in any violation of Section
406(a) or 406(b) of ERISA for which no exemption exists under Section
408 of ERISA or any "prohibited transactions" (as such term is defined
in Section 4975(c)(1) of the Code), for which no exemption exists
under Section 4975(c)(2) or 4975(d) of the Code. Neither the Company
nor any Subsidiary, fiduciary or party-in-interest has requested a
prohibited transaction exemption with respect to any Plan, nor is the
Company or any Subsidiary aware of any circumstance pursuant to which
such a request is being contemplated or may be made.
(l) The Company and the Subsidiaries have paid all
premiums (and interest charges and penalties for late payment, if
applicable) due to the PBGC for each Defined Benefit Plan. The
Company has reflected (or shall reflect) in each of the Financial
Statements the current value of such premium obligation that is
accrued and unsatisfied as of the date of each such Financial
Statement. Section 3.16(l) of the Company Disclosure Schedule, sets
forth the amount of all such unpaid premium obligations (including,
without limitation, proportionate partial accruals for the current
year). Other than being required to make premium payments when due,
no liability to the PBGC has been incurred by the Company or by any
Common Control Entity. During the past three years, no filing has
been made by, or required of, the Company or any Common Control Entity
with the PBGC, the PBGC has not started any proceeding to terminate
any Defined Benefit Plan that was or is maintained or wholly or
partially funded by the Company or any Common Control Entity, and to
the Knowledge of the Company no fact exists that is reasonably likely
to permit the PBGC to begin such a proceeding. Neither the Company
nor any Common Control Entity has, or will have as a result of the
transactions contemplated hereby, (i) withdrawn as a substantial
employer so as to become subject to Section 4063 of ERISA; or (ii)
ceased making contributions to any Pension Plan that is subject to
Section 4064(a) of ERISA to which the Company or any Common Control
Entity made contributions during the past five years.
(m) Section 3.16(m) of the Company Disclosure Schedule
identifies any terminated Plan or Other Arrangement that covered any
current or former employees of the Company or any Subsidiary, and any
other Plan that has been terminated, during the past three (3) years.
The Company has furnished to Acquiror true and complete copies of all
filings with any Governmental Entity, employee communications, board
minutes and all other Documents relating to each such Plan and Other
Arrangement termination. Except as disclosed in Section 3.16(m) of
the Company Disclosure Schedule, all liabilities and obligations of
the Company and Subsidiaries arising out of, or relating to, each such
termination, have been fully satisfied in all material respects.
(n) Except as set forth in Section 3.16(n) of the Company
Disclosure Schedule, no Plan or Other Arrangement, individually or
collectively, provides for any payment by the Company or any
Subsidiary to any employee or independent contractor that is not
deductible under Section 162(a)(1) or 404 of the Code or that is, or
may be, an "excess parachute payment" pursuant to Section 280G of the
Code.
(o) Except as disclosed in Schedule 3.16(o) of the
Company Disclosure Schedule, no Plan has, within the past three (3)
years, experienced a "reportable event" (as such term is defined in
Section 4043(b) of ERISA) whether or not such event is subject to an
administrative or statutory waiver from the reporting requirement.
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(p) No Plan is a "qualified foreign plan" (as such term
is defined in Section 404A(e) of the Code), and no Plan is subject to
the Laws of any jurisdiction other than the United States of America
or one of its political subdivisions.
(q) The Company and the Subsidiaries have timely filed
and the Company has made available to Acquiror true and complete
copies of each Form 5330 (Return of Excise Taxes Related to Employee
Benefit Plans) that the Company or any Subsidiary filed on any Plan
during the past three (3) years. To the Company's Knowledge, the
Company and the Subsidiaries have no liability for Taxes required to
be reported on Form 5330.
(r) Section 3.16(r) of the Company Disclosure Schedule
lists all funded Welfare Plans that provide benefits to current or
former employees of the Company or any Subsidiary, or to their
beneficiaries. The funding under each Welfare Plan does not exceed
and has not exceeded the limitations under Sections 419A(b) and
419A(c) of the Code. To the Company's Knowledge, the Company and the
Subsidiaries are not subject to taxation on the income of any Welfare
Plan's welfare benefit fund (as such term is defined in Section 419(e)
of the Code) under Section 419A(g) of the Code.
(s) Section 3.16(s) of the Company Disclosure Schedule
(i) identifies all post-retirement medical, life insurance or other
benefits promised, provided or otherwise due now or in the future to
current, former or retired employees of the Company or any Subsidiary,
(ii) identifies the method of funding (including, without limitation,
any individual accounting) for all such benefits, (iii) discloses the
funded status of the Plans providing or promising such benefits, and
(iv) sets forth the method of accounting for such benefits to any key
employees (as defined in Section 416(i) of the Code) of the Company or
any Subsidiary.
(t) All Welfare Plans and the related trusts that are
subject to Section 4980B(f) of the Code and Sections 601 through 607
of ERISA comply in all material respects with and have been
administered in compliance with the health care continuation-coverage
requirements for tax-favored status under Section 4980B(f) of the Code
(formerly Section 162(k) of the Code), Sections 601 through 607 of
ERISA, and all proposed or final regulations under Section 162 of the
Code explaining those requirements.
(u) To the Knowledge of the Company, the Company and the
Subsidiaries have (i) filed or caused to be filed all returns and
reports on the Plans that they are required to file and (ii) paid or
made adequate provision for all fees, interest, penalties, assessments
or deficiencies that have become due pursuant to those returns or
reports or pursuant to any assessment or adjustment that has been made
relating to those returns or reports. To the Knowledge of the Company,
all other fees, interest, penalties and assessments that are due and
payable by or for the Company or any Subsidiary with respect to any
Plan have been timely reported, fully paid and discharged. There are
no unpaid fees, penalties, interest or assessments due from the
Company or any Subsidiary or from any other Person that are or could
become an Encumbrance on any Asset of the Company or any Subsidiary
and would have a Company Material Adverse Effect. To the Knowledge of
the Company, the Company and the Subsidiaries have collected or
withheld all amounts that are required to be collected or withheld by
them to discharge their obligations with respect to each Plan, and all
of those amounts have been paid to the appropriate Governmental Entity
or set aside in appropriate accounts for future payment when due.
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SECTION 3.17. TAXES AND TAX MATTERS.
(a) The Company and the Subsidiaries have (or, in the
case of Company Tax Returns becoming due after the date hereof and
before the Effective Time, will have prior to the Effective Time) duly
filed all Company Tax Returns required to be filed by the Company and
the Subsidiaries since January 1, 1989 at or before the Effective Time
with respect to all applicable material Taxes. No material penalties
or other charges are or will become due with respect to any such
Company Tax Returns as the result of the late filing thereof. All
such Company Tax Returns are (or, in the case of returns becoming due
after the date hereof and before the Effective Time, will be) true and
complete in all material respects. The Company and the Subsidiaries:
(i) have paid all Taxes due or claimed to be due by any Taxing
authority in connection with any such Company Tax Returns (without
regard to whether or not such Taxes are shown as due on such Company
Tax Returns); or (ii) have established (or, in the case of amounts
becoming due after the date hereof, prior to the Effective Time will
have paid or established) in the Financial Statements adequate
reserves (in conformity with GAAP consistently applied) for the
payment of such Taxes. The amounts set up as reserves for Taxes in
the Financial Statements are sufficient for the payment of all unpaid
Taxes, whether or not such Taxes are disputed or are yet due and
payable, for or with respect to the applicable period, and for which
the Company or any Subsidiary may be liable in its own right
(including, without limitation, by reason of being a member of the
same affiliated group) or as a transferee of the Assets of, or
successor to, any Person.
(b) Neither the Company nor any Subsidiary, either in its
own right (including, without limitation, by reason of being a member
of the same affiliated group) or as a transferee, has or at the
Effective Time will have any material liability for Taxes payable for
or with respect to any periods prior to and including the Effective
Time in excess of the amounts actually paid prior to the Effective
Time or reserved for in the Financial Statements, except for any Taxes
due in connection with the Merger.
(c) Except as set forth in Section 3.17(c) of the Company
Disclosure Schedule, all federal and Texas Company Tax Returns have
been examined by the relevant Taxing authorities, or closed without
audit by applicable Law, and all deficiencies proposed as a result of
such examinations have been paid or settled, for all taxable years
prior to and including the taxable year ended December 31, 1992.
Except as set forth in Section 3.17(c) of the Company Disclosure
Schedule, there is no action, suit, proceeding, audit, investigation
or claim pending or, to the Knowledge of the Company or any
Subsidiary, threatened in respect of any Taxes for which the Company
or any Subsidiary is or may become liable, nor has any deficiency or
claim for any such Taxes been proposed, asserted or, to the Knowledge
of the Company or any Subsidiary, threatened. Except as set forth in
Section 3.17(c) of the Company Disclosure Schedule, neither the
Company nor any Subsidiary has consented to any waivers or extensions
of any statute of limitations with respect to any taxable year of the
Company or any Subsidiary. Except as set forth in Section 3.17(c) of
the Company Disclosure Schedule, there is no Agreement, waiver or
consent providing for an extension of time with respect to the
assessment or collection of any Taxes against the Company or any
Subsidiary, and no power of attorney granted by the Company or any
Subsidiary with respect to any Tax matters is currently in force.
(d) The Company has furnished to Acquiror true and
complete copies of all Company Tax Returns and all written
communications with any Governmental Entity relating to any such
Company Tax Returns or to any deficiency or claim proposed or
asserted, irrespective of the outcome of such matter, but only to the
extent such items relate to Tax years (i) which are subject to an
audit,
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investigation, examination or other proceeding, or (ii) with respect
to which the statute of limitations has not expired.
(e) Section 3.17(e) of the Company Disclosure Schedule
sets forth (i) all federal Tax elections that currently are in effect
with respect to the Company or any Subsidiary, and (ii) all elections
for purposes of foreign, state or local Taxes and all consents or
Agreements for purposes of federal, foreign, state or local Taxes in
each case that reasonably could be expected to affect or be binding
upon the Surviving Corporation or any Subsidiary or their respective
Assets or operations after the Effective Time. Section 3.17(e) of the
Company Disclosure Schedule sets forth all changes in accounting
methods for Tax purposes made, agreed to, requested or required with
respect to the Company or any of the Subsidiaries since January 1,
1994.
(f) Except for the Cellular Partnerships and except as
set forth in Section 3.17(f) of the Company Disclosure Schedule,
neither the Company nor any Subsidiary (i) is or has, since January 1,
1989, been a partner in a partnership or an owner of an interest in an
entity treated as a partnership for federal income Tax purposes; (ii)
since January 1, 1989, has executed or filed with the IRS any consent
to have the provisions of Section 341(f) of the Code apply to it;
(iii) is subject to Section 999 of the Code; (iv) is a passive foreign
investment company as defined in Section 1296(a) of the Code; or (v)
is a party to an Agreement relating to the sharing, allocation or
payment of, or indemnity for, Taxes (other than an Agreement the only
parties to which are the Company and the Subsidiaries).
(g) The Company has no Knowledge of, and believes that
there does not exist, any plan or intention on the part of the Company
Shareholders (a "Shareholder Plan") to engage in a sale, exchange,
transfer, distribution (including, without limitation, a distribution
by a partnership to its partners or by a corporation to its
shareholders), pledge, disposition or any other transaction which
results in a reduction in the risk of ownership or a direct or
indirect disposition (a "Sale") of a number of the shares of Acquiror
Common Stock that are to be issued to such Company Shareholders in the
Merger, which would reduce the Company Shareholders' ownership of
Acquiror Common Stock to a number of shares having an aggregate fair
market value, as of the Effective Time, of less than fifty percent
(50%) of the aggregate fair market value, immediately prior to the
Merger, of all outstanding Company Common Shares. For purposes of
this paragraph, (i) Company Common Shares with respect to which a
Company Shareholder receives consideration in the Merger other than
Acquiror Common Stock (including, without limitation, cash received
pursuant to the exercise of dissenters' rights or in lieu of
fractional shares of Acquiror Common Stock) and/or (ii) Company Common
Shares with respect to which a Sale occurs prior to and in
contemplation of the Merger, shall be considered outstanding Company
Common Shares exchanged for Acquiror Common Stock in the Merger and
then disposed of pursuant to a Shareholder Plan. As a condition to
Closing as provided in Section 7.01(e) herein the Company will obtain
from Company Shareholders who hold in the aggregate at least 50% of
the outstanding Company Common Shares at the Effective Time a written
statement confirming that such Company Shareholders have at the time
of the statement no plan or intention to engage in a Sale of the
Acquiror Common Stock received in the Merger and that they will advise
the Company if their plans or intentions change prior to the Effective
Time.
SECTION 3.18. ACCESS LINES; CUSTOMERS.
(a) Section 3.18(a) of the Company Disclosure Schedule
sets forth as of July 31, 1997, or other recent date as the Company
and Acquiror may agree to, the approximate number of (i) access lines
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for local network service, (ii) network access customers for switched
access or special access services, (iii) long distance service
customers, (iv) voice mail service customers, (v) Internet access
customers and (vi) all other customer classifications of the Company,
the Subsidiaries and the Cellular Partnerships.
(b) Except as set forth in Section 3.18(b) of the Company
Disclosure Schedule, to the Knowledge of the Company, the
relationships of the Company, the Subsidiaries and the Cellular
Partnerships with their respective Material Customers are good
commercial working relationships. Except as set forth in Section
3.18(b) of the Company Disclosure Schedule, during the twelve (12)
months prior to the date of this Merger Agreement, no Material
Customer of the Company or any Subsidiary has canceled or otherwise
terminated its relationship with the Company or any Subsidiary.
SECTION 3.19. CERTAIN BUSINESS PRACTICES.
To the Knowledge of Company, neither the Company nor the Subsidiaries
nor any Cellular Partnership nor the officers, directors, employees or agents
of the Company, any Subsidiary or any Cellular Partnership (or shareholders,
distributors, representatives or other persons acting on the express, implied
or apparent authority of the Company, any Subsidiary, or any Cellular
Partnership) have paid, given or received or have offered or promised to pay,
give or receive, any bribe or other unlawful, questionable payment of money or
other thing of value, any unlawful extraordinary discount, or any other
unlawful inducement, to or from any Person or Governmental Entity in the United
States or elsewhere in connection with or in furtherance of the business of the
Company, any Subsidiary or any Cellular Partnership (including, without
limitation, any offer, payment or promise to pay money or other thing of value
(a) to any foreign official or political party (or official thereof) for the
purposes of influencing any act, decision or omission in order to assist the
Company, any Subsidiary or any Cellular Partnership in obtaining business for
or with, or directing business to, any Person, or (b) to any Person, while
knowing that all or a portion of such money or other thing of value will be
offered, given or promised to any such official or party for such purposes).
The business of the Company, the Subsidiaries and, to the Knowledge of the
Company, the Cellular Partnerships is not in any manner dependent upon the
making or receipt of such payments, discounts or other inducements.
SECTION 3.20. INSURANCE.
Section 3.20 of the Company Disclosure Schedule, lists and briefly
describes all policies of Asset, fire, hazard, casualty, liability, life,
worker's compensation and other forms of insurance of any kind owned or held by
the Company or any Subsidiary. All such policies: (a) are with insurance
companies reasonably believed by the Company to be financially sound and
reputable; (b) are in full force and effect; (c) are sufficient for compliance
by the Company and by each Subsidiary with all requirements of Law and of all
Agreements to which the Company or any Subsidiary is a party; (d) are valid and
outstanding policies enforceable against the insurer; (e) insure against risks
of the kind believed by the Company to be customarily insured against and in
amounts believed by the Company to be adequate to insure sufficiently against
such risks, and in the opinion of Company to provide adequate insurance
coverage for the businesses and Assets of the Company and the Subsidiaries; and
(f) provide that they will remain in full force and effect at least through the
Effective Time, except as set forth in Section 6.13.
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SECTION 3.21. POTENTIAL CONFLICTS OF INTEREST.
Except as set forth in Section 3.21 of the Company Disclosure
Schedule, to the Knowledge of the Company, neither any present nor former
director, officer, or employee with a salary in excess of $100,000 of the
Company or any Subsidiary, nor any Affiliate of such director, officer or
employee:
(a) owns, directly or indirectly, any interest in (except
for holdings in securities that are listed on a national securities
exchange, quoted on a national automated quotation system or regularly
traded in the over-the-counter market, where such holdings are not in
excess of two percent (2%) of the outstanding class of such securities
and are held solely for investment purposes), or is a shareholder,
partner, other holder of equity interests, director, officer,
employee, consultant or agent of any Person that is a competitor,
lessor, lessee or customer of, or supplier of goods or services to,
the Company or any Subsidiary, except where the value to such
individual of any such arrangement with the Company or any Subsidiary
has been less than $60,000 in the last twelve (12) months;
(b) owns, directly or indirectly, in whole or in part,
any Assets with a fair market value of $60,000 or more which the
Company or any Subsidiary currently uses in its business;
(c) has any cause of action or other suit, action or
claim whatsoever against, or owes any amount to, the Company or any
Subsidiary, except for claims arising in the Ordinary Course of
Business from any such Person's service to the Company or any
Subsidiary as a director, officer or employee;
(d) has sold or leased to, or purchased or leased from,
the Company or any Subsidiary any Assets for consideration in excess
of $60,000 in the aggregate since January 1, 1994;
(e) is a party to any Agreement pursuant to which the
Company or any Subsidiary provides office space to any such Person, or
provides services of any nature to any such Person, other than in the
Ordinary Course of Business in connection with the employment of such
Person by the Company or any Subsidiary; or
(f) has, since January 1, 1994, engaged in any other
material transaction with the Company or any Subsidiary involving in
excess of $60,000, other than (i) in the Ordinary Course of Business
in connection with the employment of such Person by the Company or any
Subsidiary, and (ii) dividends, distributions and stock issuances to
all common and preferred shareholders (as applicable) on a pro rata
basis.
SECTION 3.22. RECEIVABLES.
The accounts receivable of the Company and the Subsidiaries shown on
the Audited Balance Sheets and the Unaudited Balance Sheets, or thereafter
acquired by any of them, arose in the Ordinary Course of Business and represent
amounts owed by an account debtor for goods sold or services rendered by the
Company and the Subsidiaries, and the allowance for doubtful accounts shown on
such Audited Balance Sheets and Unaudited Balance Sheets was established in
accordance with past practice, and, in the reasonable judgment of the Company,
should be sufficient for such purposes.
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SECTION 3.23. REAL PROPERTY.
(a) Section 3.23(a) of the Company Disclosure Schedule
lists all the material Real Property, specifying the owner of each
parcel thereof, and all Real Property of the Company is suitable and
adequate for the uses for which it is currently being used.
(b) Except as set forth in Section 3.23(b) of the Company
Disclosure Schedule, the Company and the Subsidiaries are the sole
owners of good, valid, fee simple, and indefeasible title to the
material Real Property listed in Section 3.23(a) of the Company
Disclosure Schedule respectively owned by them, including, without
limitation, all buildings, structures, fixtures and improvements
thereon, in each case free and clear of all Encumbrances and title
defects except for Encumbrances and title defects that would not have
a Company Material Adverse Effect.
(c) All buildings, structures, fixtures and other
improvements on the Real Property are fit for the uses to which they
are currently devoted. All such buildings, structures, fixtures and
improvements on the Real Property conform in all material respects to
all Laws, except for any such non-conformance that would not have a
Company Material Adverse Effect.
(d) To the Company's Knowledge (i) none of the material
Real Property listed in Schedule 3.23(a) of the Company Disclosure
Schedule is subject to any Agreement or other restriction of any
nature whatsoever (recorded or unrecorded) preventing or limiting the
Company's or any Subsidiary's right to use it in the manner in which
it is currently being used, and (ii) except as set forth in Section
3.23(d) of the Company Disclosure Schedule, none of such Real Property
is subject to any Agreement preventing or limiting the Company's or
any Subsidiary's right to convey it.
(e) No portion of the Real Property or any building,
structure, fixture or improvement thereon is the subject of any
condemnation, eminent domain or inverse condemnation proceeding
currently instituted or pending, and neither the Company nor any
Subsidiary has any Knowledge that any of the foregoing are, or will
be, the subject of any such proceeding.
(f) The Real Property has access to adequate electric,
gas, water, sewer and telephone lines, all of which are adequate for
the uses to which the Real Property is currently devoted.
SECTION 3.24. BOOKS AND RECORDS.
The books of account, stock records, minute books and other corporate
and financial records of the Company are complete and correct in all material
respects and have been maintained in accordance with good business practices
and applicable regulatory requirements, and the matters contained therein are
appropriately and accurately reflected in all material respects in the
Financial Statements.
SECTION 3.25. ASSETS.
Except as set forth in Section 3.25 of the Company Disclosure
Schedule, the Company and the Subsidiaries have valid and indefeasible title to
all material Assets respectively owned by them, including, without limitation,
all material Assets reflected in the Audited Balance Sheets and in the
Unaudited Balance Sheets and all material Assets purchased by the Company or by
any Subsidiary since December 31, 1996 (except for Assets reflected in such
Audited Balance Sheets and Unaudited Balance Sheets or acquired since December
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31, 1996 which have been sold or otherwise disposed of in the Ordinary Course
of Business), free and clear of all Encumbrances, except for Encumbrances that
are reflected on the Unaudited Balance Sheets or Encumbrances that would not
have a Company Material Adverse Effect. Except as set forth in Section 3.25 of
the Company Disclosure Schedule, to the Company's Knowledge, all material
personal property of the Company and the Subsidiaries is in a condition
adequate for the uses for which it is currently being used.
SECTION 3.26. NO INFRINGEMENT OR CONTEST.
Section 3.26 of the Company Disclosure Schedule sets forth all
material (i) trademarks, service marks, trade names, trade styles and all
registrations or applications therefor, (ii) patents, inventions and all
registrations or applications therefor, (iii) Company developed software or
licensed software used by the Company or any Subsidiary, and (iv) Agreements to
which the Company or any Subsidiary is a party, either as licensee or licensor,
relating to any of the foregoing, in each case owned, licensed or used by the
Company or any Subsidiary (including specification of whether each such item
listed is owned, licensed or used by the Company or any Subsidiary). With
respect to the material Intellectual Property that is owned by the Company or
any Subsidiary, the Company and the Subsidiaries have the right to enforce
their proprietary rights thereto. With respect to the Intellectual Property
that is licensed to the Company or any Subsidiary, such Intellectual Property
can be used by the Company and the Subsidiaries in their respective businesses
as currently conducted by them in accordance with the terms and conditions of
such licenses. As used in the businesses of the Company and the Subsidiaries
as currently conducted, none of the Company's or any Subsidiary's Intellectual
Property infringes or misappropriates or otherwise violates any Intellectual
Property of any other Person, nor to the Knowledge of Company, is the Company
or any Subsidiary otherwise in the conduct of their respective businesses
infringing upon, or alleged to be infringing upon, any Intellectual Property of
any other Person. Except as set forth in Section 3.26 of the Company
Disclosure Schedule, to the Company's Knowledge, the Company and the
Subsidiaries own or possess adequate rights to use all Intellectual Property
materially necessary to the conduct of the respective businesses of the Company
and the Subsidiaries as currently conducted.
SECTION 3.27. BOARD RECOMMENDATION.
At a meeting duly called and held in compliance with Texas Law, the
Board of Directors of the Company has adopted a resolution approving and
adopting this Merger Agreement and the transactions contemplated hereby and
recommending approval and adoption of this Merger Agreement and the
transactions contemplated hereby by the Company Shareholders.
SECTION 3.28. VOTE REQUIRED.
The affirmative vote of the holders of two-thirds of the outstanding
Company Common Shares is the only vote of the holders of any class or series of
capital stock of the Company necessary to approve the transactions contemplated
by this Merger Agreement.
SECTION 3.29. BANKS; ATTORNEYS-IN-FACT.
Section 3.29 of the Company Disclosure Schedule sets forth a complete
list showing the name of each bank or other financial institution in which the
Company or any Subsidiary has accounts (including a description of the names of
all Persons authorized to draw thereon or to have access thereto). Such list
also shows the name of each Person holding a power of attorney from the Company
or any Subsidiary and a brief description thereof.
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SECTION 3.30. VOTING AGREEMENTS.
A Voting Agreement and Irrevocable Proxy in the form attached hereto
as Exhibit "A" has been executed and delivered to Acquiror on or prior to the
date of this Merger Agreement from each member of the Board of Directors of the
Company that voted in favor of this Merger Agreement.
SECTION 3.31. BROKERS.
No broker, finder or investment banker (other than Daniel &
Associates) is entitled to any brokerage, finder's or other fee or commission
in connection with the transactions contemplated by this Merger Agreement based
upon arrangements made by or on behalf of the Company or any Subsidiary. Prior
to the date of this Merger Agreement, the Company has furnished to Acquiror a
complete and correct copy of all Agreements between the Company and Daniel &
Associates pursuant to which such firm will be entitled to any payment relating
to the transactions contemplated by this Merger Agreement.
SECTION 3.32. ENVIRONMENTAL MATTERS.
(a) The Company and each of the Subsidiaries has complied
and is in compliance with, and the Real Property and all improvements
thereon are in compliance with, all Environmental Laws, except where
the failure so to comply would not have a Company Material Adverse
Effect.
(b) Except as set forth in Section 3.32(b) of the Company
Disclosure Schedule, to the Knowledge of the Company, there are no
pending or threatened actions, suits, claims, legal proceedings or
other proceedings based on, and none of the Company, any Subsidiary or
any Cellular Partnership has received since January 1, 1992 any formal
or informal notice of any complaint, order, directive, citation,
notice of responsibility, notice of potential responsibility, or
information request from any Governmental Entity or any other Person
or knows any fact(s) which form the basis for any such actions or
notices arising out of or attributable to: (i) the current or past
presence at any part of the Real Property of Hazardous Materials or
any substances that pose a hazard to human health or an impediment to
working conditions; (ii) the current or past release or threatened
release into the environment from the Real Property (including,
without limitation, into any storm drain, sewer, septic system or
publicly owned treatment works) of any Hazardous Materials or any
substances that pose a hazard to human health or an impediment to
working conditions; (iii) the off-site disposal of Hazardous Materials
originating on or from the Real Property or the businesses or Assets
of the Company, any Subsidiary or any Cellular Partnership; (iv) any
facility operations, procedures or designs of the Company, any
Subsidiary or any Cellular Partnership which do not conform to
requirements of the Environmental Laws; or (v) any violation of
Environmental Laws at any part of the Real Property or otherwise
arising from the Company's, any Subsidiary's or any Cellular
Partnership's activities, or the activities of the Company's or any
Subsidiary's predecessors in title, or the activities of any Person
whose liability has or may have been retained or assumed contractually
or by operation of Law by the Company, any Subsidiary or any Cellular
Partnership, involving Hazardous Materials.
(c) To the Company's Knowledge, except as set forth in
Section 3.32(c) of the Company Disclosure Schedule, the Company and
the Subsidiaries and the Cellular Partnerships, have been duly issued,
and currently have and will maintain through the Effective Time, all
Licenses required under any Environmental Law. A true and complete
list of such Licenses, all of which are valid and in full force and
effect, is set out in Section 3.32(c) of the Company Disclosure
Schedule. Except in accordance with
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such permits, licenses, certificates and approvals or as described in
Section 3.32(c) of the Company Disclosure Schedule, to the Company's
Knowledge, there has been no Hazardous Discharge or discharge of any
other material regulated by such Licenses.
(d) Except as set forth in Section 3.32(d) of the Company
Disclosure Schedule, to the Company's Knowledge, the Real Property
contains no underground storage tanks, or underground piping
associated with such tanks, used currently or in the past for the
storage, throughput or other management of Hazardous Materials.
SECTION 3.33. DISCLOSURE.
No representation or warranty by the Company in this Merger Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary in order to make the statements
contained therein, in light of the circumstances under which made, not
misleading. None of the information supplied or to be supplied by or on behalf
of the Company for inclusion in the Registration Statement will, at the time
the Registration Statement becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which made, not misleading.
SECTION 3.34. COMPANY SHAREHOLDERS.
Section 3.34 of the Company Disclosure Schedule lists all holders of
record of Company Common Shares showing their addresses of record.
SECTION 3.35. DIRECTORS AND OFFICERS.
Section 3.35 of the Company Disclosure Schedule lists all current
directors and officers of the Company and the Subsidiaries, showing each such
person's name, positions, and annual remuneration, bonuses and fringe benefits
paid by the Company or any Subsidiary for the current fiscal year and the most
recently completed fiscal year.
SECTION 3.36. COPIES OF DOCUMENTS.
True and complete copies of all Documents listed in the Company
Disclosure Schedule have been made available to Acquiror.
SECTION 3.37. OPERATION OF THE COMPANY'S BUSINESS.
(a) Section 3.37(a) of the Company Disclosure Schedule
sets forth all complaints filed with the FCC or the PUC regarding
"slamming" (as such term is understood in the telephone industry) or
other allegations with respect to the Company, any Subsidiary or any
of their respective employees, resellers, agents or representatives
since January 1, 1996; and
(b) Section 3.37(b) of the Company Disclosure Schedule
sets forth all material filings by the Company or any Subsidiary and,
to the Knowledge of the Company, by any Cellular Partnership, with the
FCC, the PUC or the FAA since January 1, 1996.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR AND ACQUIROR SUB
Except as specifically set forth in the Disclosure Schedule to be
delivered by Acquiror and Acquiror Sub to the Company in accordance with the
provisions of Section 6.04 (the "Acquiror Disclosure Schedule"), Acquiror and
Acquiror Sub hereby jointly and severally represent and warrant (which
representation and warranty shall be deemed to include the disclosure with
respect thereto so specified in the Acquiror Disclosure Schedule) to the
Company as set forth below, in each case as of the date of this Merger
Agreement. With respect to each representation and warranty set forth in this
Article IV, (i) each reference herein to "Subsidiary" or "Subsidiaries" shall
be deemed to include the ENSERCH Subsidiaries except that each such
representation and warranty as to the ENSERCH Subsidiaries shall be deemed to
be made only to the Knowledge of the Acquiror and not otherwise and (ii) each
reference herein to "Acquiror Benefit Plan" shall be deemed to include such
plans sponsored by ENSERCH Corporation except that each such representation and
warranty to such plans shall be deemed to be made only to the Knowledge of the
Acquiror and not otherwise.
SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
Each of Acquiror and Acquiror Sub is a corporation duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation or organization, and has the full and unrestricted corporate
power and authority to own, operate and lease its Assets, and to carry on its
business as currently conducted Acquiror is duly qualified to conduct business
as a foreign corporation and is in good standing in the states, countries and
territories in which the nature of the business conducted by it or the
character of the Assets owned, leased or otherwise held by it makes such
qualification necessary, except where the absence of such qualification as a
foreign corporation would not have an Acquiror Material Adverse Effect.
SECTION 4.02. ARTICLES OF INCORPORATION AND BYLAWS.
Acquiror has furnished to the Company a true and complete copy of the
Amended and Restated Articles of Incorporation of Acquiror and the articles of
incorporation of Acquiror Sub, as currently in effect, certified as of a recent
date by the Secretary of State (or comparable Governmental Entity) of their
respective jurisdictions of incorporation, and a true and complete copy of the
Amended and Restated Bylaws of Acquiror and the bylaws of Acquiror Sub, as
currently in effect, certified by their respective corporate secretaries. Such
certified copies are attached as exhibits to, and constitute an integral part
of, the Acquiror Disclosure Schedule.
SECTION 4.03. AUTHORITY; BINDING OBLIGATION.
Each of Acquiror and Acquiror Sub has the full and unrestricted
corporate power and authority to execute and deliver this Merger Agreement and
to carry out the transactions contemplated hereby. The execution and delivery
by Acquiror and Acquiror Sub of this Merger Agreement and all other Documents
contemplated hereby, and the consummation by Acquiror and Acquiror Sub of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Acquiror or Acquiror Sub are necessary to authorize this Merger Agreement and
the other Documents contemplated hereby, or to consummate the transactions
contemplated hereby and thereby. This Merger Agreement has been duly executed
and delivered by Acquiror and Acquiror Sub and constitutes a legal, valid and
binding obligation of Acquiror and Acquiror Sub in accordance with its terms,
except as such enforceability may be subject to the effect
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of any applicable bankruptcy, insolvency fraudulent conveyance, reorganization,
moratorium or other Laws affecting creditors' rights generally and subject to
the effect of general equitable principles (whether considered in a proceeding
in equity or at law).
SECTION 4.04. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution, delivery and performance by Acquiror
and Acquiror Sub of this Merger Agreement and all other Documents
contemplated hereby, the fulfillment of and compliance with the
respective terms and provisions hereof and thereof, and the
consummation by Acquiror and Acquiror Sub of the transactions
contemplated hereby and thereby, do not and will not: (i) conflict
with, or violate any provision of, the Amended and Restated Articles
of Incorporation or the Amended and Restated Bylaws of Acquiror, or
the articles of incorporation or bylaws of Acquiror Sub; or (ii)
subject to obtaining the consents, approvals, authorizations and
permits of, and making filings with or notifications to, the
applicable Governmental Entity pursuant to the applicable
requirements, if any, of the Securities Act, Blue Sky Laws, the HSR
Act, the Communications Act, the Federal Aviation Act, applicable
state utilities Laws and applicable municipal franchise Laws, and the
filing and recordation of the Articles of Merger as required by Texas
Law, conflict with or violate any Law applicable to Acquiror or
Acquiror Sub, or any of their respective Assets; (iii) conflict with,
result in any breach of, constitute a default (or an event that with
notice or lapse of time or both would become a default) under any
Agreement to which Acquiror or Acquiror Sub, is a party or by which
Acquiror or Acquiror Sub, or any of their respective Assets, may be
bound; or (iv) result in or require the creation or imposition of, or
result in the acceleration of, any indebtedness or any Encumbrance of
any nature upon, or with respect to, Acquiror or Acquiror Sub, or any
of the Assets of Acquiror or Acquiror Sub; except for any such
conflict or violation described in clause (ii), any such conflict,
breach or default described in clause (iii), or any such creation,
imposition or acceleration described in clause (iv) that would not
have an Acquiror Material Adverse Effect.
(b) Except as set forth in Section 4.04(b) of the
Acquiror Disclosure Schedule, the execution, delivery and performance
by Acquiror and Acquiror Sub of this Merger Agreement and all other
Documents contemplated hereby, the fulfillment of and compliance with
the respective terms and provisions hereof and thereof, and the
consummation by Acquiror and Acquiror Sub of the transactions
contemplated hereby and thereby, do not and will not: (i) require any
consent, approval, authorization or permit of, or filing with or
notification to, any Person not party to this Merger Agreement, except
(A) pursuant to the applicable requirements, if any, of the Securities
Act, Blue Sky Laws, the HSR Act, the Communications Act, the Federal
Aviation Act, applicable state utilities Laws and applicable municipal
franchise Laws, and (B) the filing and recordation of the Articles of
Merger as required by Texas Law; or (ii) result in or give rise to any
penalty, forfeiture, Agreement termination, right of termination,
amendment or cancellation, or restriction on business operations of
Acquiror or the Surviving Corporation.
SECTION 4.05. NO PRIOR ACTIVITIES OF ACQUIROR SUB.
Acquiror Sub (i) was formed solely for the purpose of engaging in the
transactions contemplated by this Merger Agreement, (ii) has no assets except
the nominal capital required for incorporation under Texas Law, and (iii) has
engaged in no other business activities and has conducted its operations only
as contemplated hereby.
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SECTION 4.06. BROKERS.
No broker or finder or investment banker (other than Communications
Capital Partners, LLC and Salomon Brothers Inc) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of Acquiror.
SECTION 4.07. SEC DOCUMENTS.
Acquiror has filed all required reports, schedules, forms, statements
and other Documents with the SEC since January 1, 1991 (including the
Post-Signing SEC Documents, the "Acquiror SEC Documents"). As of their
respective dates, the Acquiror SEC Documents complied or, in the case of the
Post-Signing SEC Documents, will comply as to form in all material respects
with the applicable requirements of the Securities Act or the Exchange Act, as
the case may be, and none of the Acquiror SEC Documents contained or, in the
case of the Post-Signing SEC Documents, will contain, any untrue statement of a
material fact or omitted or, in the case of the Post-Signing SEC Documents,
will omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of Acquiror
included in the Acquiror SEC Documents comply or, in the case of the
Post-Signing SEC Documents, will comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been or, in the case of the Post-Signing
SEC Documents, will have been prepared in accordance with GAAP (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of
Acquiror and its consolidated subsidiaries as of the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
SECTION 4.08. ACQUIROR COMMON STOCK.
The Acquiror Common Stock, when issued and delivered to the Company
Shareholders pursuant to the Merger, will be duly authorized, validly issued,
fully paid and nonassessable, and will have been approved for listing on the
New York Stock Exchange.
SECTION 4.09. CAPITALIZATION.
The authorized capital stock of Acquiror consists of (a) 500,000,000
shares of Acquiror Common Stock, of which, as of August 5, 1997: (i)
240,510,829 shares were issued and outstanding, all of which were duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights; (ii) no shares were held in the treasury of Acquiror; (iii) an
aggregate of approximately 9,400,000 shares were reserved for issuance pursuant
to employee and other plans of Acquiror, and (iv) an aggregate of 2,900,000
shares were reserved for issuance pursuant to the conversion of ENSERCH's 6
3/8% Convertible Subordinated Debentures due 2002; and (b) 50,000,000 shares of
serial preferred stock, without par value, of which: (i) no shares are issued
and outstanding; and (ii) no shares are held in the treasury of Acquiror.
Except for rights pursuant to plans and debentures included in clauses (a)(iii)
and (a)(iv) above, as of August 5, 1997, there were no outstanding securities
convertible into or exchangeable for capital stock or any other securities of
Acquiror, and no outstanding options, rights (preemptive or otherwise), or
warrants to purchase or to subscribe for any shares of such capital stock or
other securities of Acquiror. Except as set forth in Section 4.09(a) of the
Acquiror Disclosure Schedule and except for Agreements relating to the plans
and debentures specified in clauses (a)(iii) and (a)(iv) above, there are no
outstanding Agreements to which Acquiror is a party affecting or relating to
the voting, issuance, purchase, redemption, registration, repurchase or
transfer of capital stock or any other securities
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of Acquiror, except as contemplated hereunder. Each of the outstanding shares
of Acquiror Common Stock was issued in compliance with all applicable federal
and state Laws concerning the issuance of securities.
SECTION 4.10. COMPLIANCE.
(a) Except as set forth in Section 4.10(a) of the
Acquiror Disclosure Schedule or as disclosed in the Acquiror SEC
Documents, neither Acquiror nor any of its Subsidiaries nor, to the
Knowledge of Acquiror, any of its Joint Ventures, is in violation of
or under investigation with respect to, or has been given notice or
been charged with any violation of, any Law, exception for violations
that do not have, and, would not reasonably likely have, an Acquiror
Material Adverse Effect.
(b) Except as set forth in Section 4.10(b) of the
Acquiror Disclosure Schedule, Acquiror, its Subsidiaries and, to the
Knowledge of Acquiror, its Joint Ventures have all permits, licenses,
franchises and other governmental authorizations, consents and
approvals necessary to conduct their respective businesses as
currently conducted, except those the failure to obtain which would
not reasonably likely have an Acquiror Material Adverse Effect.
SECTION 4.11. ABSENCE OF CERTAIN CHANGES OR EVENTS; ABSENCE OF
UNDISCLOSED LIABILITIES.
(a) Except as set forth in the Acquiror SEC Documents or
Section 4.11 of the Acquiror Disclosure Schedule, no fact or condition
exists that would reasonably likely have, an Acquiror Material Adverse
Effect.
(b) Except as set forth in the Acquiror SEC Documents,
neither Acquiror nor any of its Subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of a
nature required by GAAP to be reflected in a consolidated corporate
balance sheet, except liabilities, obligations or contingencies that
are accrued or reserved against in the consolidated financial
statements of Acquiror or reflected in the notes thereto for the year
ended December 31, 1996, or that were incurred after December 31, 1996
and would not reasonably likely have an Acquiror Material Adverse
Effect.
SECTION 4.12. LITIGATION.
Except as set forth in the Acquiror SEC Documents or as set forth in
Section 4.12 of the Acquiror Disclosure Schedule, there are no claims, suits,
actions or proceedings, pending or, to the Knowledge of Acquiror, threatened,
nor are there, to the Knowledge of Acquiror, any investigations or reviews
pending or threatened against, relating to or affecting Acquiror or any of its
Subsidiaries or Joint Ventures, or judgments, decrees, injunctions, rules or
orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to Acquiror or any of
its Subsidiaries or Joint Ventures, that would have, or would reasonably likely
have, an Acquiror Material Adverse Effect.
SECTION 4.13. REGISTRATION STATEMENT.
(a) None of the information supplied or to be supplied by
or on behalf of Acquiror for inclusion or incorporation by reference
in the Registration Statement will, at the time the Registration
Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which made, not
misleading.
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(b) The Registration Statement as of its date will comply
as to form in all material respects with the applicable provisions of
the Securities Act and the rules and regulations thereunder.
SECTION 4.14. TAX MATTERS.
(a) Except as set forth on Schedule 4.14 of the Acquiror
Disclosure Schedule, Acquiror and each of its Subsidiaries has (i)
filed within the time and in the manner prescribed by law, all
required income Tax Returns, Texas franchise Tax Returns and other Tax
Returns calculated on or with reference to income, profits, earnings
or gross receipts and all other Tax Returns required to be filed that
would report a material amount of Tax, (ii) paid all Taxes that are
shown on such Tax Returns as due and payable within the time and in
the manner prescribed by law except for those being contested in good
faith and for which adequate reserves have been established, and (iii)
paid all applicable material Taxes otherwise required to be paid.
(b) Except as set forth on Schedule 4.14(b) of the
Acquiror Disclosure Schedule, as of the date hereof there are no
claims, assessments, audits or administrative or court proceedings
pending against Acquiror or any of its Subsidiaries for any alleged
deficiency in Tax, and none of Acquiror or any of its Subsidiaries has
executed any outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or
Tax Returns.
(c) Acquiror has established adequate accruals for Taxes
and for any liability for deferred Taxes in the Acquiror Financial
Statements in accordance with GAAP.
SECTION 4.15. EMPLOYEE MATTERS; ERISA.
Except as disclosed in the Acquiror SEC Documents or Section 4.15 of
the Acquiror Disclosure Schedule and except as would not, individually or in
the aggregate, be reasonably expected to result in an Acquiror Material Adverse
Effect:
(a) Each Acquiror Benefit Plan that is an "employee
pension benefit plan" as defined in Section 3(2) of ERISA and is
intended to be "qualified" within the meaning of Code Section 401(a)
("Acquiror Pension Benefit Plan") and each trust under each such
Acquiror Pension Benefit Plan which is intended to be exempt from
federal income taxation under Code Section 501, has received a
favorable determination letter from the IRS to such effect, or is the
subject of a previously submitted and currently pending application
for an IRS determination. Acquiror has operated each Acquiror Benefit
Plan in material compliance with all applicable laws, rules and final
regulations governing such plans, including ERISA and the Code.
(b) All material contributions required to have been made
to the Acquiror Benefit Plans prior to the date hereof have been made.
(c) Acquiror has not incurred any liability under Title
IV of ERISA relating to the termination of any Acquiror Pension
Benefit Plan.
(d) Except as set forth in Section 4.15(d) of the
Acquiror Disclosure Schedule, (i) no "Reportable Event," as defined in
ERISA, has occurred with respect to any of the Acquiror Benefit Plans
for which the 30- day notice requirement or penalty has not been
waived by the PBGC; (ii) there are no pending claims (other than
routine claims for benefits or claims pursuant to domestic relations
orders) or lawsuits which have been asserted or instituted against the
assets of any of the trusts under the Plans
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by present or former participants, their present or former spouses,
their beneficiaries, the Department of Labor, the Internal Revenue
Service or any other party; and (iii) Acquiror has not engaged in any
prohibited transactions with respect to any Acquiror Benefit Plan, any
or all of which would reasonably likely have an Acquiror Material
Adverse Effect.
SECTION 4.16. ENVIRONMENTAL MATTERS.
Except as disclosed in the Acquiror SEC Documents and except as would
not, individually or in the aggregate, be reasonably expected to result in an
Acquiror Material Adverse Effect, (i) Acquiror and its Subsidiaries are in
compliance with all applicable Environmental Laws and the terms and conditions
of all applicable Environmental Permits, (ii) there are no Environmental Claims
against the Acquiror or any of its Subsidiaries, and (iii) no Hazardous
Materials have been released, discharged or disposed of on any of the
properties owned or occupied by Acquiror or its Subsidiaries in any manner or
quantity which requires investigation, assessment, monitoring, remediation or
cleanup under current applicable Environmental Laws.
SECTION 4.17. REGULATION AS A UTILITY.
(a) Acquiror is a public utility holding company as
defined in the PUHCA exempt from all provisions of the PUHCA, except
section 9(a)(2), by order of the SEC pursuant to section 3(a)(1) of
the PUHCA. Texas Utilities Electric Company, a Subsidiary of Acquiror
is regulated as a public utility in the State of Texas and in no other
state and Texas Utilities Fuel Company and ENSERCH Corporation,
Subsidiaries of Acquiror, are regulated as gas utilities in the State
of Texas and in no other state.
SECTION 4.18. INSURANCE.
(a) Except as set forth in Section 4.18(a) of the
Acquiror Disclosure Schedule, Acquiror and each of its Subsidiaries is
insured in such amounts and against such risks and losses believed by
Acquiror to be customary for companies conducting the respective
businesses conducted by Acquiror and its Subsidiaries during such time
period.
(b) Except as set forth in Section 4.18(b) of the
Acquiror Disclosure Schedule, neither Acquiror nor any of its
Subsidiaries has received any notice of cancellation or termination,
currently in effect, with respect to any material insurance policy
thereof.
(c) All material insurance policies of Acquiror and its
Subsidiaries are valid and enforceable policies.
SECTION 4.19. NRC ACTIONS.
Except as set forth in Section 4.19 of the Acquiror Disclosure
Schedule, Acquiror is not in violation of, is not under investigation with
respect to, has not been given notice of or been charged with any actual or
potential violation of, and is not the subject of any ongoing proceeding,
inquiry, special inspection, diagnostic evaluation or other Nuclear Regulatory
Commission action (including rulemakings of general application that may affect
the conduct of Acquiror's business regarding the Comanche Peak Nuclear Power
Plant) of which Acquiror has actual Knowledge under the Atomic Energy Act, any
applicable regulations thereunder or the terms and conditions of any license
granted to Acquiror regarding the Comanche Peak Nuclear Power Plant
(collectively, "NRC Actions"), which NRC Actions would have, or Acquiror
reasonably believes would reasonably likely have, an Acquiror Material Adverse
Effect.
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ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.01. CONDUCT OF BUSINESS OF THE COMPANY.
The Company hereby covenants and agrees that, from the date of this
Merger Agreement until the Effective Time, the Company, unless otherwise
expressly contemplated by this Merger Agreement or consented to in writing by
Acquiror, will, and will cause the Subsidiaries to and, to the extent, and only
to the extent, such action is permitted by law and the partnership agreements
and will not cause the Company or its Subsidiary, as the case may be, to become
or be treated as a general partner rather than a limited partner, will endeavor
to cause the Cellular Partnerships to, carry on their respective businesses
only in the Ordinary Course of Business, use their respective best efforts to
preserve intact their business organizations and Assets, maintain their rights
and franchises, retain the services of their officers and key employees and
maintain their relationships with customers, suppliers, licensors, licensees
and others having business dealings with them, and use their respective best
efforts to keep in full force and effect liability insurance and bonds
comparable in amount and scope of coverage to that currently maintained.
Without limiting the generality of the foregoing, except as otherwise expressly
contemplated by this Merger Agreement, from the date of this Merger Agreement
until the Effective Time the Company shall not, and shall not permit any of the
Subsidiaries to:
(a) (i) increase in any manner the compensation or fringe
benefits of, or pay any bonus or other form of special compensation
to, any director, officer or employee, except for (A) increases or
bonuses in the Ordinary Course of Business to employees who are not
directors or officers, (B) customary year-end bonuses to officers in
accordance with amounts provided for in the Company's 1997 budget, and
(C) Bonuses; (ii) grant any severance or termination pay (other than
pursuant to the normal severance, change-in-control, or similar policy
of the Company or any Subsidiary in effect on the date of this Merger
Agreement) to, or enter into any severance, change-in-control or
similar Agreement with, any director, officer or employee, or enter
into any employment Agreement with any director, officer or employee;
(iii) establish, adopt, enter into or amend any Plan or Other
Arrangement, except as may be required to comply with applicable Law;
(iv) pay any benefit not required to be paid under any Plan, Agreement
or Other Arrangement; (v) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Plan or Other
Arrangement (including the grant of stock options, stock appreciation
rights, stock-based or stock-related awards, performance units, or the
removal or acceleration of existing restrictions or vesting criteria
in any Plan or Other Arrangement or Agreement or awards made
thereunder), except for grants in the Ordinary Course of Business; or
(vi) except as set forth in Schedule 5.01(a), take any action to fund
or in any other way secure the payment of compensation or benefits
under any Agreement, Plan or Other Arrangement;
(b) declare, set aside or pay any dividend on, or make
any other distribution in respect of, outstanding shares of capital
stock of Company or any of its Subsidiaries except for the following:
(i) if the Effective Time has not occurred prior
to the scheduled date for payment of the dividend in question,
the regular quarterly cash dividends in an amount not to
exceed $0.34 per quarter per Company Common Share scheduled to
be paid to Company Shareholders on September 15, 1997, and
December 15, 1997, and the special cash dividend in an amount
not to exceed $0.12 per Company Common Share scheduled to be
paid to Company Shareholders on December 1, 1997,
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(ii) if the Effective Time has not occurred prior
to the scheduled date for payment of the dividend in question,
the regular quarterly cash dividend in an amount not to exceed
$0.34 per quarter per Company Common Share that are provided
for in the budget of the Company for the year beginning
January 1, 1998, and are scheduled to be paid March 15, 1998,
June 15, 1998, September 15, 1998, and December 15, 1998, and
the special cash dividend in an amount not to exceed $0.12 per
Company Common Share that is provided for in the budget of the
Company for the year beginning January 1, 1998, and is
scheduled to be paid December 1, 1998, and
(iii) dividends and other distributions to the
Company and its directly or indirectly wholly-owned
Subsidiaries.
provided, however, with respect to provisions (i) and (ii) of this
provision (b), in the event that the Effective Time is going to occur
at a time which would cause the Company Shareholders to not receive
the quarterly dividend of either the Company or Acquiror for such
quarter, then the Company, prior to the Effective Time, may declare
and pay its regular $0.34 quarterly dividend for such calendar quarter
and any $0.12 special dividend for December that would have been paid
in that calendar quarter;
(c) (i) redeem, purchase or otherwise acquire any shares
of capital stock of the Company or any Subsidiary or any securities or
obligations convertible into or exchangeable for any shares of capital
stock of the Company or any Subsidiary, or any options, warrants or
conversion or other rights to acquire any shares of capital stock of
the Company or any Subsidiary or any such securities or obligations,
or any other securities thereof; (ii) effect any reorganization or
recapitalization; or (iii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for,
shares of its capital stock;
(d) issue, deliver, award, grant or sell, or authorize
the issuance, delivery, award, grant or sale (including the grant of
any limitations in voting rights or other Encumbrances) of, any shares
of any class of its capital stock (including shares held in treasury),
any securities convertible into or exercisable or exchangeable for any
such shares, or any rights, warrants or options to acquire, any such
shares, or amend or otherwise modify the terms of any such rights,
warrants or options the effect of which shall be to make such terms
more favorable to the holders thereof;
(e) acquire or agree to acquire, by merger,
consolidation, purchase or otherwise, an equity interest in or a
portion of the Assets of any business or corporation, partnership,
association or other business organization or division thereo, or
otherwise acquire or agree to acquire any Assets of any other Person,
except for the purchase of Assets from suppliers or vendors in the
Ordinary Course of Business and except as contemplated in the current
budgets of the Company and its Subsidiaries and if the Effective Time
does not occur prior to January 1, 1998, the budgets of Company and
its Subsidiaries for the year beginning January 1, 1998);
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise subject to any Encumbrance or otherwise dispose of, or agree
to sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of: (i) any of the Equity Investments or (ii) any other
material Assets except for normal dispositions, extensions to or
replacements of Assets in the Ordinary Course of Business consistent
with prior practice and those contemplated in the current budgets of
Company and its Subsidiaries and, if the Effective Time does not occur
prior to January 1, 1998, the budgets of Company and its Subsidiaries
for the year beginning January 1, 1998;
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(g) adopt any amendments to its articles of
incorporation, bylaws or other comparable charter or organizational
documents;
(h) make or rescind any express or deemed election
relating to Taxes, settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or
controversy relating to Taxes, or change any of its methods of
reporting income or deductions for federal income tax purposes from
those employed in the preparation of the federal income tax returns
for the taxable year ending December 31, 1995, except in either case
as may be required by Law, the IRS or GAAP;
(i) make or agree to make any new capital expenditure or
expenditures which are not included in the Company's current capital
budget, a copy of which has been furnished to Acquiror (and, if the
Effective Time has not occurred prior to January 1, 1998, the
Company's capital budget for 1998, a copy of which has been furnished
to Acquiror), and which are, individually, in excess of $50,000 or, in
the aggregate, in excess of $500,000; provided, however, that the
Company agrees not to allow any material deterioration of its system
and in any event to make capital expenditures in an average monthly
amount of not less than $1,000,000 during each calendar month such
average to be calculated for the period from July 1, 1997, to the
Effective Time;
(j) (i) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another Person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Company or any Subsidiary, guarantee any debt
securities of another Person, enter into any "keep well" or other
Agreement to maintain any financial statement condition of another
Person or enter into any Agreement having the economic effect of any
of the foregoing, except for short-term borrowings incurred in the
Ordinary Course of Business, or (ii) except capital contributions to
Cellular Partnerships that are required by the Cellular Partnerships,
make any loans, advances or capital contributions to, or investments
in, any other Person other than intra-group loans, advances, capital
contributions or investments between or among the Company and any of
its wholly owned Subsidiaries;
(k) pay, discharge, settle or satisfy any material
claims, liabilities or obligations (whether absolute or contingent,
matured or unmatured, known or unknown), other than the payment,
discharge or satisfaction, in the Ordinary Course of Business or in
accordance with their terms, of liabilities (i) reflected or reserved
against in, or contemplated by, the most recent Financial Statement,
(ii) incurred in the Ordinary Course of Business, or (iii) associated
with the Transaction Costs, or waive any material benefits of, or
agree to modify in any material respect, any confidentiality,
standstill or similar Agreements to which the Company or any
Subsidiary is a party;
(l) except in the Ordinary Course of Business, waive,
release or assign any rights or claims, or modify, amend or terminate
any Agreement to which the Company or any Subsidiary is a party;
(m) make any material change in any method of accounting
or accounting practice or policy other than those required by
applicable Laws or GAAP;
(n) make any filing, other than in the Ordinary Course of
Business, to change its rates on file or otherwise with any
Governmental Entity that could have a material adverse effect on the
benefits associated with the business combination provided herein;
(o) take any action or fail to take any action which
could reasonably be expected to have a Company Material Adverse Effect
prior to or after the Effective Time or that could reasonably be
expected to adversely effect the ability of the Company or any
Subsidiary prior to the Effective Time,
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or Acquiror or any of its subsidiaries after the Effective Time, to
obtain consents of third parties or approvals of Governmental Entities
required to consummate the transactions contemplated in this Merger
Agreement; or
(p) authorize, or commit or agree to do any of the
foregoing.
SECTION 5.02. OTHER ACTIONS.
The Company and Acquiror shall not, and shall not permit any of their
respective Affiliates to, take any action that would, or that could reasonably
be expected to, result in (a) any of the representations and warranties of such
party set forth in this Merger Agreement becoming untrue, or (b) any of the
conditions to the Merger set forth in Article VII not being satisfied.
SECTION 5.03. CERTAIN TAX MATTERS.
From the date hereof until the Effective Time, the Company and the
Subsidiaries (a) will accurately prepare and timely file with the relevant
Taxing authority all Company Tax Returns ("Post-Signing Returns") required to
be filed, (b) will timely pay all Taxes due and payable with respect to such
Post-Signing Returns, (c) will pay or otherwise make adequate provision for all
Taxes payable by the Company and the Subsidiaries for which no Post-Signing
Return is due prior to the Effective Time, and (d) will promptly notify
Acquiror of any action, suit, proceeding, claim or audit pending against or
with respect to the Company or any in respect of any Taxes.
SECTION 5.04. ACCESS AND INFORMATION.
For so long as this Merger Agreement is in effect, the Company shall,
and shall cause each Subsidiary to, and shall request each Cellular Partnership
to, (a) afford to Acquiror and its officers, employees, accountants,
consultants, legal counsel and other representatives reasonable access during
normal business hours to all of their respective properties, Agreements, books,
records and personnel and (b) furnish promptly to Acquiror (i) a copy of each
Document filed with, or received from any Governmental Entity and (ii) all
other information concerning their respective businesses, operations,
prospects, conditions (financial or otherwise), Assets, liabilities and
personnel as Acquiror and its representatives may reasonably request. Without
limiting the foregoing, the Company shall, and shall cause each Subsidiary to,
and request each Cellular Partnership to, confer on a regular and frequent
basis with one or more representatives of Acquiror to discuss operational
matters and the status of its ongoing operations. The Company will allow the
accounting firm of Deloitte & Touche, LLP to have reasonable and timely access
to the Company's books, records and personnel prior to the Closing Date to
verify the computations by Company officers for purposes of verifying the
Closing Schedules; provided, however, neither Company nor any of its
Subsidiaries nor any Cellular Partnership shall be required, by this Section
5.04 or any other provision of this Agreement, to provide access to or furnish
anything that would constitute a waiver of the attorney-client or any other
privilege or right of privacy or that is not reasonably necessary to the
performance of its obligations in connection with the transactions contemplated
by this Agreement.
SECTION 5.05. NO SOLICITATION.
(a) The Company shall, and shall cause each of its
subsidiaries to and shall use its best efforts to cause all of the
directors, officers, employees, representatives and agents of Company
and each of its Subsidiaries to, immediately cease any discussions or
negotiations with any Person that may be ongoing with respect to a
Competing Transaction (as defined in this Section 5.05 below). The
Company shall not, and shall cause the Subsidiaries not to, initiate,
solicit or encourage (including by way of
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furnishing information or assistance), or take any other action to
facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into discussions or furnish any information or
negotiate with any Person or otherwise cooperate in any way in
furtherance of such inquiries or to obtain a Competing Transaction, or
agree to or endorse any Competing Transaction, or authorize any of the
directors, officers, employees, agents or representatives of the
Company or any Subsidiary to take any such action, and the Company
shall, and shall cause the Subsidiaries to, direct and instruct and
use its or their best efforts to cause the directors, officers,
employees, agents and representatives of the Company and the
Subsidiaries (including, without limitation, any investment banker,
financial advisor, attorney or accountant retained by the Company or
any Subsidiary) not to take any such action, and the Company shall,
and shall use its best efforts to cause all of the directors,
officers, employees, agents, investment brokers, financial advisors,
attorneys, accountants and other representatives to, promptly notify
Acquiror if any such inquiries or proposals are received by the
Company or any Subsidiary, and the Company shall promptly inform
Acquiror as to the material terms of such inquiry or proposal and, if
in writing, promptly deliver or cause to be delivered to Acquiror a
copy of such inquiry or proposal, and the Company shall keep Acquiror
informed, on a current basis, of the nature of any such inquiries and
the status and terms of any such proposals. For purposes of this
Merger Agreement, "Competing Transaction" shall mean any of the
following involving the Company or the Subsidiaries (other than the
transactions contemplated by this Merger Agreement): (i) any merger,
consolidation, share exchange, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of ten percent (10%) or more of the
Assets of the Company and the Subsidiaries, taken as a whole, or
issuance of ten percent (10%) or more of the outstanding voting
securities of the Company or any Subsidiary in a single transaction or
series of transactions; (iii) any tender offer or exchange offer for
ten percent (10%) or more of the outstanding shares of capital stock
of the Company or any Subsidiary or the filing of a registration
statement under the Securities Act in connection therewith; (iv) any
solicitation of proxies in opposition to approval by the Company
Shareholders of the Merger; (v) any Person shall have acquired
beneficial ownership or the right to acquire beneficial ownership of,
or any "group" (as such term is defined under Section 13(d) of the
Exchange Act) shall have been formed which beneficially owns or has
the right to acquire beneficial ownership of, ten percent (10%) or
more of the then outstanding shares of capital stock of the Company or
any Subsidiary; or (vi) any Agreement to, or public announcement by
the Company or any other Person of a proposal, plan or intention to,
do any of the foregoing; provided, however, provisions (iii) and (v)
above shall not apply to the thirty-seven percent (37%) of the capital
stock of East Texas Fiber Line Incorporated, presently owned by Eastex
Celco Company, Inc.
(b) Notwithstanding anything in this Section 5.05 to the
contrary, unless this Merger Agreement and the Merger shall have been
approved and adopted by the requisite vote of the Company
Shareholders, the Company may, to the extent that the Board of
Directors of the Company determines in good faith, based on the
written advice of outside legal counsel, that a failure to do so would
reasonably be expected to result in a breach of its fiduciary duties
under applicable law, participate in discussions or negotiations with,
furnish information to, and afford access to the Assets, books and
records of the Company and its Subsidiaries to any person or entity in
connection with a possible Competing Transaction.
(c) The provisions of this Section 5.05 shall continue in
effect for a period of six months following the termination of this
Merger Agreement.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. MEETING OF SHAREHOLDERS.
The Company shall promptly after the effective date of the
Registration Statement take all action necessary in accordance with Texas Law
and its articles of incorporation and bylaws to convene a meeting of the
Company Shareholders to consider the Merger (the "Company Shareholders'
Meeting"), and the Company shall consult with Acquiror in connection therewith,
provided, however, that it shall be a condition to the mailing of any notice or
other materials to the Company Shareholders that the Company shall have
received an opinion from Daniels & Associates, dated on or about the date of
such notice and materials, to the effect that as of the date thereof the Common
Share Exchange Ratio is fair from a financial point of view to the Company
Shareholders. The Company shall deliver to each Company Shareholder the
Acquiror Information prior to the Company Shareholders' Meeting. Prior to the
distribution thereof to the Company Shareholders, the Company shall make
available to Acquiror all Documents to be distributed to the Company
Shareholders in connection with the solicitation of shareholder approval of the
Merger, and shall only distribute Documents which Acquiror has approved in
advance, such approval not to be unreasonably withheld. The Company shall take
all actions reasonably necessary or advisable to secure the vote or consent of
the Company Shareholders required by Texas Law to approve the Merger. The
approval of this Merger Agreement by the Company Shareholders shall constitute
approval by Company Shareholders of the Bonuses to certain officers and other
employees of the Company and its Subsidiaries that are to be approved by the
Company Board of Directors in a meeting held prior to the meeting of the
Company Shareholders at which this Merger Agreement is voted upon.
SECTION 6.02. APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) Upon the terms and subject to the conditions set
forth in this Merger Agreement, the Company and Acquiror shall use all
reasonable efforts to take, or cause to be taken, all appropriate
action, and do, or cause to be done, and to assist and cooperate with
the other parties in doing all things necessary, proper or advisable
under applicable Law or otherwise to consummate and make effective the
transactions contemplated by this Merger Agreement as promptly as
practicable, including (i) executing and delivering any additional
instruments necessary, proper or advisable to consummate the
transactions contemplated by, and to carry out fully the purposes of,
this Merger Agreement, (ii) obtaining from any Governmental Entities
any Licenses required to be obtained or made by Acquiror or the
Company or any of their subsidiaries in connection with the
authorization, execution and delivery of this Merger Agreement and the
consummation of the transactions contemplated herein, including,
without limitation, the Merger, and (iii) making all necessary
filings, and thereafter make any other required submissions, with
respect to this Merger Agreement and the Merger required under (A) the
Securities Act and any other applicable federal or state securities
Laws, (B) the HSR Act and (C) any other applicable Law; provided that
Acquiror and the Company shall cooperate with each other in connection
with the making of all such filings, including providing copies of all
such Documents to the non- filing party and its advisors prior to
filing and, if requested, accepting all reasonable additions,
deletions or changes suggested in connection therewith. The Company
and Acquiror shall furnish to each other all information required for
any application or other filing to be made pursuant to the rules and
regulations of any applicable Law in connection with the transactions
contemplated by this Merger Agreement.
(b) (i) The Company and Acquiror shall give (or shall
cause their respective subsidiaries to give) any notices to third
parties, and use, and cause their respective subsidiaries to use, all
reasonable efforts to obtain any third party consents, approvals or
waivers (A) necessary, proper or advisable to
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consummate the transactions contemplated in this Merger Agreement, (B)
disclosed or required to be disclosed in the Company Disclosure
Schedule or the Acquiror Disclosure Schedule, as the case may be, or
(C) required to prevent a Company Material Adverse Effect from
occurring prior to or after the Effective Time or an Acquiror Material
Adverse Effect from occurring after the Effective Time.
(ii) In the event that any party shall fail to
obtain any third party consent, approval or waiver described in
subsection (b)(i) above, such party shall use all reasonable efforts,
and shall take any such actions reasonably requested by the other
parties hereto, to minimize any adverse effect upon the Company and
Acquiror, their respective subsidiaries, and their respective
businesses resulting, or which could reasonably be expected to result
after the Effective Time, from the failure to obtain such consent,
approval or waiver.
(c) From the date of this Merger Agreement until the
Effective Time, the Company and Acquiror shall promptly notify each
other in writing of any pending or, to the Knowledge of the Company or
Acquiror (or their respective subsidiaries), threatened action,
proceeding or investigation by any Governmental Entity or any other
Person (i) challenging or seeking damages in connection with the
Merger or the conversion of the Company Capital Stock into Acquiror
Common Stock pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right
of Acquiror or its subsidiaries to own or operate all or any portion
of the businesses or Assets of the Company or any Subsidiary. The
Company and Acquiror shall cooperate with each other in defending any
such action, proceeding or investigation, including seeking to have
any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed.
(d) The Company shall not, nor shall the Company permit
any of its Subsidiaries to, engage in any activities that (i) would
cause it to become a "holding company," a "public utility company," a
"subsidiary company" or an "affiliate" of any public utility company
within the meaning of PUHCA, or (ii) would require the approval of the
SEC under Section 9(a)(2) of PUHCA.
SECTION 6.03. LETTERS OF ACCOUNTANTS.
The Company shall use its best efforts to cause to be delivered to
Acquiror a "cold comfort" letter of Axley & Rode LLP, its independent public
accountant, dated as of the Effective Time, and addressed to Acquiror,
reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as those
contemplated by this Merger Agreement.
SECTION 6.04. DISCLOSURE SCHEDULES; UPDATED DISCLOSURES; BREACHES.
(a) Within seven business days after the date of this
Merger Agreement, (i) Acquiror shall deliver to the Company the
Acquiror Disclosure Schedule and (ii) the Company shall deliver to
Acquiror the Company Disclosure Schedule. The Disclosure Schedules,
when so delivered, shall constitute an integral part of this Merger
Agreement and shall modify or otherwise affect the respective
representations, warranties, covenants or agreements of the parties
hereto contained herein to the extent that such representations,
warranties, covenants or agreements expressly refer to the Disclosure
Schedules. Any and all statements, representations, warranties or
disclosures set forth in the Disclosures Schedule shall be deemed to
have been made on and as of the date of this Merger Agreement so that
the execution and delivery of this Merger Agreement without the
Company Disclosure Schedule or the Acquiror Disclosure Schedule shall
not be construed to cause Company or the Acquiror, as the case may be,
to be in breach of any of the terms and conditions of this Merger
Agreement.
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(b) From and after the date of this Merger Agreement
until the Effective Time, each party hereto shall promptly notify the
other parties hereto by written update to its Disclosure Schedule of
(i) any representation or warranty made by it in connection with this
Merger Agreement becoming untrue or inaccurate in any material
respect, (ii) the occurrence, or non-occurrence, of any event the
occurrence, or non-occurrence, of which would be likely to cause any
condition to the obligations of any party to effect the Merger and the
other transactions contemplated by this Merger Agreement not to be
satisfied, or (iii) the failure of the Company or Acquiror, as the
case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it pursuant to this
Merger Agreement which would be likely to result in any condition to
the obligations of any party to effect the Merger and the other
transactions contemplated by this Merger Agreement not to be
satisfied; provided, however, that the delivery of any notice pursuant
to this Section 6.04 shall not cure any breach of any representation
or warranty requiring disclosure of such matter prior to the date of
this Merger Agreement or otherwise limit or affect the rights and
remedies available hereunder to the party receiving such notice. The
Company shall deliver to Acquiror supplements to Sections 3.10 and
3.14(a) of the Company Disclosure Schedule as of the Closing Date,
solely to reflect material events occurring between the date of this
Merger Agreement and the Closing Date, or shall have notified Acquiror
that no changes to such Sections of the Company Disclosure Schedule
are required.
(c) Information disclosed by Company pursuant to the
Company Disclosure Schedule and by the Acquiror pursuant to the
Acquiror Disclosure Schedule shall be subject to the terms of the
Confidentiality Agreement.
SECTION 6.05. PUBLIC ANNOUNCEMENTS.
Acquiror and the Company shall consult with each other before issuing
or making, and shall give each other the opportunity to review and comment
upon, any press release or other public statement with respect to the Merger
and the other transactions contemplated in this Merger Agreement, and shall not
issue any such press release or make any such public statement prior to such
consultation, except, in the case of Acquiror, as may be required by Law or any
listing agreement with any securities exchange.
SECTION 6.06. EMPLOYEE MATTERS.
(a) Acquiror shall offer Employment Agreements to each of
the Key Employees (other than Mr. G.I. Ross), each of which shall
provide for such person's employment within the Texas Utilities
Company System for a term of no less than two years and include such
other provisions as Acquiror may determine. Acquiror shall offer Mr.
G.I. Ross an Employment/Consulting Agreement which will provide for
his employment by the Company until his retirement on March 1, 1999,
and thereafter provide for his engagement as a consultant to the
Company for an additional three year term, all on such terms as
Acquiror may determine.
(b) The Surviving Corporation shall determine promptly
after the Effective Time whether to continue or terminate the
Company's Directors' Deferred Fee Plan in accordance with its terms.
(c) The Surviving Corporation shall maintain the
Company's Management Security Plan (or a plan providing for a
reasonably equivalent level of benefits, including vesting) for a
period of no less than two years after the Effective Time.
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SECTION 6.07. ACQUIROR INFORMATION.
Acquiror shall provide to the Company and its attorneys, accountants
and other representatives all information reasonably requested by any such
Person in connection with the preparation of a disclosure document to be
utilized in the solicitation of proxies in favor of the Merger from the Company
Shareholders.
SECTION 6.08. OBLIGATIONS OF ACQUIROR SUB.
Acquiror shall take all action necessary to cause Acquiror Sub to
perform its obligations under this Merger Agreement and to consummate the
Merger on the terms and conditions set forth in this Merger Agreement.
SECTION 6.09. UNAUDITED FINANCIAL INFORMATION.
The Company will cause to be prepared and will furnish to Acquiror as
promptly as possible an unaudited consolidated balance sheet of the Company and
the Subsidiaries as of the last day of each month ending after July 31, 1997
and the unaudited consolidated statements of income and cash flows of the
Company and the Subsidiaries for the one- month periods then ended. The
Company will ensure that such Unaudited Statements are complete and correct in
all material respects, have been prepared in accordance with the books and
records of the Company and the Subsidiaries, and present fairly the
consolidated financial position of the Company and the Subsidiaries and their
consolidated results of operations and cash flows as of and for the respective
dates and time periods in accordance with GAAP applied on a basis consistent
with prior accounting periods, except as noted thereon and subject to normal
and recurring year-end adjustments which are not expected to be material in
amount.
SECTION 6.10. RULE 145 AFFILIATES.
The Company shall identify in a letter to Acquiror all persons who are
"affiliates" of the Company (as such term is used in Rule 145 under the
Securities Act.). The Company shall use its best efforts to cause each such
person to deliver to the Company on or prior to the Closing Date a written
agreement to the effect that:
(i) any further disposition by such person of any
Acquiror Common Stock such person receives as a result of the Merger
will be accomplished in accordance with Rule 145 under the Securities
Act; and
(ii) such person agrees that appropriate stop transfer
instructions may be established with respect to and, if requested by
Acquiror, appropriate legend may be placed on, the certificates
evidencing ownership of Acquiror Common Stock that such person
receives as a result of the Merger.
SECTION 6.11. ENVIRONMENTAL MATTERS.
(a) The Company will provide access to Acquiror to all
information in the possession, custody, or control of the Company or
any Subsidiary that pertains to the environmental history of the Real
Property and the operations of the Company, the Subsidiaries and the
Cellular Partnerships.
(b) The Company will promptly furnish to Acquiror written
notice of any Hazardous Discharge or of any actions or notices
described in Section 3.33(b).
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(c) The Company will permit Acquiror, at Acquiror's
expense, to cause to be prepared and delivered to Acquiror, with a
copy to the Company, prior to the Closing Date (i) a Phase I
environmental report on each parcel of the Real Property designated by
Acquiror and (ii), if recommended under the Phase I environmental
report and so requested by Acquiror, a Phase II environmental report,
in each case prepared by an environmental consultant acceptable to
Acquiror (the "Environmental Reports"). If any such Environmental
Report discloses the occurrence of any Hazardous Discharge, the
presence of any Hazardous Materials or the risk of contamination from
any off-site Hazardous Materials, such Environmental Report shall
include an estimate of the cost of any related remediation reasonably
anticipated by the environmental consultant.
SECTION 6.12. ACQUIROR SEC DOCUMENTS.
Acquiror will file with the SEC all reports, schedules, forms,
statements and other Documents required to be filed after the date of this
Merger Agreement but before the Effective Time (the "Post-Signing SEC
Documents").
SECTION 6.13 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) Acquiror agrees, for the entire period from the
Effective Time until at least six (6) years after the Effective Time,
to cause the Surviving Corporation and the presently existing
Subsidiaries of Company and their successors (each an "Indemnitor"),
to the fullest extent permitted by law, including without limitation
Article 2.02-1 of the Texas Business Corporation Act, to include and
maintain in its articles of incorporation and bylaws, (i)
indemnification provisions for each of the present and former officers
and directors of Indemnitor and its predecessor entity, if any, (and
each of the present and former officers and directors of Subsidiaries
of the Company which was serving, or is serving, in such position at
the request of Indemnitor), indemnifying each of them from all claims,
losses, judgments, penalties, fines, settlements and expenses actually
incurred by such officer or director in connection with a proceeding,
as presently defined in Article 2.02-1 of the Texas Business
Corporation Act, and (ii) provisions requiring reasonable expenses
incurred by such officer or director in connection with such
proceeding to be paid or reimbursed by Indemnitor as incurred by such
officer or director. Promptly after the Effective Time, Acquiror
agrees to cause the Surviving Corporation and the Subsidiaries of
Company, each to establish any such additional indemnification
arrangements in favor of its present and former officers and directors
as may be necessary so that each of them will continue to have the
benefit of the indemnification arrangements available to directors and
officers of the Surviving Corporation and its Subsidiaries for all
events or actions occurring subsequent to the Effective Time.
(b) For a period of six (6) years after the Effective
Time, Acquiror shall cause the Surviving Corporation and the
Subsidiaries of the Company to maintain in effect, with respect to
events occurring prior to the Effective Time, the policies of
directors' and officers' liability insurance maintained in effect by
them at the Effective Time, provided that they or Acquiror may
substitute therefor policies of at least the same coverage containing
terms that are no less advantageous to the extent such liability
insurance can be maintained annually at a cost to them not greater
than 200% of the current aggregate premiums for the policies currently
maintained by them for their directors' and officers' liability
insurance; provided, further, that if such insurance cannot be so
maintained or obtained at such cost, they shall maintain or obtain as
much of such insurance as can be so maintained or obtained at a cost
equal to 200% of the current annual premium for directors' and
officers' liability insurance.
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ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.01. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
MERGER AGREEMENT.
The respective obligations of each party to effect the Merger and the
other transactions contemplated herein shall be subject to the satisfaction at
or prior to the Effective Time of the following conditions, any or all of which
may be waived by agreement of Acquiror and the Company, in whole or in part, to
the extent permitted by applicable Law:
(a) Shareholder Approval. This Merger Agreement and the
Merger shall have been approved and adopted by the requisite vote of
the Company Shareholders.
(b) No Order. No Governmental Entity or federal or state
court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, judgment, injunction, stop order or other
order (whether temporary, preliminary or permanent), in any case which
is in effect and which provides damages in the event of or prevents or
prohibits consummation of the Merger; provided, however, that each of
the parties shall use their best efforts to cause any such decree,
judgment, injunction or other order to be vacated or lifted.
(c) HSR Act. The applicable waiting period, together
with any extensions thereof, under the HSR Act shall have expired or
been terminated.
(d) Other Approvals. All consents, waivers, approvals
and authorizations required to be obtained, and all filings or notices
required to be made, by Acquiror and the Company prior to consummation
of the transactions contemplated in this Merger Agreement (other than
the filing of the Articles of Merger in accordance with Texas Law)
shall have been obtained from and made with all required Governmental
Entities, except for such consents, waivers, approvals or
authorizations which the failure to obtain, or such filings or notices
which the failure to make, would not have a Company Material Adverse
Effect or an Acquiror Material Adverse Effect or be reasonably likely
to subject the Company, any Subsidiary, Acquiror, Acquiror Sub or any
of their respective directors or officers to criminal liability or
substantial penalties.
(e) Tax Opinion. The Company and Acquiror shall have
received an opinion of Reid & Priest LLP, special counsel to the
Acquiror, in form and substance satisfactory to each of them and
addressed to each of them and upon which the Company Shareholders may
rely, dated the Closing Date, which opinion may be based on
appropriate representations of the Company and Acquiror and the
representations of certain Company Shareholders as set forth in
Section 3.17(g) hereof, in form and substance satisfactory to such
counsel, to the effect that the Merger will be a tax-free transaction
described in Code Section 368 and that the Company and the Company
Shareholders who exchange their shares solely for Acquiror Common
Stock will recognize no gain or loss for federal income tax purposes
as a result of the consummation of the Merger.
(f) Registration and Listing of Shares. The offer and
sale of the shares of Acquiror Common Stock issuable in the Merger
shall be the subject of an effective registration statement under the
Securities Act. The shares of Acquiror Common Stock issuable in the
Merger shall have been approved for listing on the NYSE upon official
notice of issuance.
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(g) No Challenge. There shall not be pending any action,
proceeding or investigation by any Governmental Entity (i) challenging
or seeking material damages in connection with the Merger or the
conversion of Company Common Shares into Acquiror Common Stock
pursuant to the Merger, or seeking to place limitations on the
ownership of shares of Company Common Shares (or shares of common
stock of the Surviving Corporation) by Acquiror or Acquiror Sub, (ii)
seeking to restrain or prohibit the consummation of the Merger or
otherwise limit the right of the Company, any Subsidiary, Acquiror or
any of its subsidiaries to own or operate all or any portion of the
business or Assets of the Company and the Subsidiaries or (iii) which
otherwise is likely to have a Company Material Adverse Effect or an
Acquiror Material Adverse Effect.
SECTION 7.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR AND
ACQUIROR SUB.
The obligations of Acquiror and Acquiror Sub to effect the Merger and
the other transactions contemplated herein are also subject to the satisfaction
at or prior to the Effective Time of the following conditions, any or all of
which may be waived by Acquiror, in whole or in part, to the extent permitted
by applicable Law:
(a) Representations and Warranties. Subject to Section
6.04(a) of this Merger Agreement and except as otherwise contemplated
in this Agreement, each of the representations and warranties of the
Company contained in this Merger Agreement shall be true and correct
in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects
giving effect to such standard) as of the date of this Merger
Agreement and as of the Effective Time as though made as of the
Effective Time, except that those representations and warranties which
expressly address matters only as of a particular date shall remain
true and correct in all material respects (except that where any
statement in a representation or warranty expressly includes a
standard of materiality, such statement shall be true and correct in
all respects giving effect to such standard) as of such date, and
except (A) for changes contemplated by this Merger Agreement or (B)
for, in a representation and warranty that does not expressly include
a standard of materiality, any untrue or incorrect statements therein
that, considered in the aggregate, do not indicate a Company Material
Adverse Effect. Acquiror shall have received a certificate of the
chief executive officer and chief financial officer of the Company to
the effect of the foregoing.
(b) Updated Company Disclosure Schedule. The revised
versions of the Company Disclosure Schedule delivered to Acquiror
pursuant to Section 6.04 shall not disclose any Company Material
Adverse Effect.
(c) Agreements and Covenants. The Company shall have
performed or complied in all material respects with all agreements and
covenants required by this Merger Agreement to be performed or
complied with by it on or prior to the Effective Time. Acquiror shall
have received a certificate of the chief executive officer and chief
financial officer of the Company to that effect.
(d) Consents Under Agreements. The Company or the
appropriate Subsidiary shall have obtained the consent or approval of
each Person whose consent or approval shall be required in connection
with the Merger under all Agreements to which the Company or any
Subsidiary is a party, except where the failure to obtain any such
consents or approvals, considered in the aggregate, would not have a
Company Material Adverse Effect or an Acquiror Material Adverse
Effect.
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(e) Opinion of Counsel. Acquiror shall have received
from Naman, Howell, Smith & Lee, a professional corporation, counsel
to the Company, an opinion dated the Closing Date, in form and
substance reasonably satisfactory to Acquiror, and containing such
qualifications as counsel shall reasonably deem appropriate under the
circumstances.
(f) Dissenters. No more than five percent (5%) of the
Company Common Shares issued and outstanding immediately prior to the
Effective Time shall be Dissenting Shares.
(g) Accountant Letters. Acquiror shall have received
from the Company a "cold comfort" letter of Axley & Rode LLP, dated
the Effective Time and addressed to Acquiror, reasonably customary in
scope and substance for letters delivered by independent public
accountants in connection with transactions such as those contemplated
by this Merger Agreement.
(h) Employment/Consulting Agreements. Acquiror shall
have received from at least eight of the Key Employees a signed
Employment Agreement (or, in the case of Mr. G.I. Ross, an Employment
and Consulting Agreements) in form and substance reasonably acceptable
to Acquiror.
(i) Company Material Adverse Effect. Since December
31,1996, there shall not have occurred a Company Material Adverse
Effect (or any development that, insofar as reasonably can be
foreseen, is likely to result in any Company Material Adverse Effect).
(j) Environmental Matters. The Environmental Reports, if
any, shall indicate that the Real Property does not contain any
Hazardous Materials and is not subject to any risk of contamination
from any off- site Hazardous Materials, except to the extent that the
presence of any such Hazardous Materials or the risk of such
contamination would not have a Company Material Adverse Effect or an
Acquiror Material Adverse Effect.
SECTION 7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY.
The obligations of the Company to effect the Merger and the other
transactions contemplated herein are also subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which
may be waived by the Company, in whole or in part, to the extent permitted by
applicable Law:
(a) Representations and Warranties. Each of the
representations and warranties of Acquiror contained in this Merger
Agreement shall be true and correct as of the date of this Merger
Agreement and shall be true and correct in all material respects
(except that where any statement in a representation or warranty
expressly includes a standard of materiality, such statement shall be
true and correct in all respects giving effect to such standard) as of
the Effective Time as though made as of the Effective Time, except
that those representations and warranties which expressly address
matters only as of a particular date shall remain true and correct in
all material respects (except that where any statement in a
representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects
giving effect to such standard) as of such date, and except (A) for
changes permitted or contemplated by this Merger Agreement or (B) in a
representation and warranty that does not expressly include a standard
of materiality, any untrue or incorrect statements therein that,
considered in the aggregate, do not indicate an Acquiror Material
Adverse Effect. The Company shall have received a certificate of an
executive officer of Acquiror to that effect.
(b) Agreements and Covenants. Acquiror shall have
performed or complied in all material respects with all agreements and
covenants required by this Merger Agreement to be performed or
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complied with by it on or prior to the Effective Time. The Company
shall have received a certificate of an executive officer of Acquiror
to that effect.
(c) Opinion of Counsel. The Company shall have received
from Worsham, Forsythe & Wooldridge, L.L.P., an opinion dated the
Closing Date, in form and substance reasonably satisfactory to the
Company, and containing such qualifications as counsel shall
reasonably deem appropriate under the circumstances.
(d) Fairness Opinion. The Company shall have received
from Daniels & Associates the opinion described in Section 6.01
hereof.
(e) Acquiror Material Adverse Effect. Since December 31,
1996, there shall not have occurred an Acquiror Material Adverse
Effect (or any development that, insofar as reasonably can be
foreseen, is likely to result in any Acquiror Material Adverse
Effect).
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION.
This Merger Agreement may be terminated at any time (except where
otherwise indicated) prior to the Effective Time, whether before or after
approval of this Merger Agreement and the Merger by the Company Shareholders:
(a) by mutual written consent of Acquiror and the
Company;
(b) by Acquiror, if (i) there shall have been any
material breach by Company of any representation or warranty of
Company contained in this Merger Agreement, or any material breach by
Company of any covenant or agreement of Company contained in this
Merger Agreement, (ii) such breach shall not have been remedied by
Company within twenty (20) days after receipt by Company of notice in
writing from Acquiror, specifying the nature of such breach and
requesting that it be remedied and (iii) such breach either is
reasonably likely to result in a material diminution of the benefit
expected to be derived by Acquiror as a result of the transactions
contemplated by this Merger Agreement or is reasonably likely to have
a Company Material Adverse Effect;
(c) by the Company, if (i) there shall have been any
material breach by Acquiror of any representation or warranty of
Acquiror contained in this Merger Agreement, or any material breach by
Acquiror of any covenant or agreement of Acquiror contained in this
Merger Agreement, (ii) such breach shall not have been remedied by
Acquiror within twenty (20) days after receipt by Acquiror of notice
in writing from Company, specifying the nature of such breach and
requesting that it be remedied and (iii) such breach either is
reasonably likely to result in a material diminution of the benefits
expected to be derived by Company Shareholders as a result of the
transactions contemplated by this Merger Agreement or is reasonably
likely to have an Acquiror Material Adverse Effect;
(d) by Acquiror, within forty-five (45) days after the
date the Company delivers the Company Disclosure Schedule to Acquiror
pursuant to Section 6.04(a), upon Acquiror's determination, based on
its due diligence investigation and review of the Company and the
Subsidiaries and the
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Company Disclosure Schedule, that (i) there has been, or is reasonably
likely to be, a material diminution of the benefits expected to be
derived by Acquiror as a result of the transactions contemplated by
this Merger Agreement or (ii) a development has occurred or
information has been disclosed or discovered, that has, or is
reasonably likely to have, a Company Material Adverse Effect;
(e) by either Acquiror or the Company if any decree,
permanent injunction, judgment, order or other action by any court of
competent jurisdiction or any Governmental Entity preventing or
prohibiting consummation of the Merger shall have become final and
non-appealable;
(f) by either Acquiror or the Company if the Merger
Agreement shall fail to receive the requisite vote for approval and
adoption by the Company Shareholders at the Company Shareholders'
Meeting;
(g) by either Acquiror or the Company if the Merger shall
not have been consummated by December 31, 1997; provided, however,
that this Merger Agreement may be extended not more than one hundred
eighty (180) days by Acquiror by written notice to the Company if the
Merger shall not have been consummated as a direct result of (1) the
Company having failed by such date to receive the regulatory approvals
or consents required to be obtained by the Company with respect to the
Merger from the FCC, or (2) the failure of the Company or Acquiror to
successfully resolve any challenge to the transactions contemplated by
this Merger Agreement by the Federal Trade Commission or the
Department of Justice; provided further, that the right to terminate
this Merger Agreement under this Section 8.01(g) shall not be
available (i) to Acquiror, where Acquiror's willful failure to fulfill
any obligation under this Merger Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before
such date, or (ii) to the Company, where the Company's willful failure
to fulfill any obligation under this Merger Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur
on or before such date; or
(h) by Company upon two days' prior notice to Acquiror
if, as a result of a Competing Transaction by a party other than
Acquiror or any of its affiliates, the Board of Directors of the
Company determines in good faith that the fiduciary obligations of
such directors under applicable law require that such Competing
Transaction be accepted; provided, however, that
(i) the Board of Directors of Company shall have
been advised in writing by outside counsel that,
notwithstanding a binding commitment to consummate an
agreement of the nature of this Merger Agreement entered into
in the proper exercise of their applicable fiduciary duties,
such fiduciary duties would also require the directors to
reconsider such commitment as a result of such Competing
Transaction, and
(ii) prior to any such termination, Company shall,
and shall cause its respective financial and legal advisors
to, negotiate with Acquiror to make such adjustments in the
terms and conditions of this Merger Agreement as would enable
Company to proceed with the transactions contemplated herein.
SECTION 8.02. EFFECT OF TERMINATION.
In the event of termination of this Merger Agreement by either
Acquiror or the Company as provided in Section 8.01, this Merger Agreement
shall forthwith become void and there shall be no liability or obligation on
the part of Acquiror, Acquiror Sub or the Company or any of their respective
directors or officers except (i) as
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set forth in Sections 5.05, 6.04(c), 8.03 and 9.01 hereof, and (ii) Sections
5.05, 8.02, 8.03, 9.01, and 9.02 shall remain in full force and effect and
survive any termination of this Merger Agreement.
SECTION 8.03. EXPENSES.
(a) Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Merger Agreement and the
transactions contemplated hereby shall be paid by the party incurring
such expense, except as provided in Section 8.03(b) and Section
8.03(c) below.
(b) If this Merger Agreement is terminated pursuant to
Section 8.01(b) and the breach by Company was not the result of a
willful failure of the Company to fulfill any obligation under this
Merger Agreement, then the Company shall promptly reimburse Acquiror
for its out-of-pocket costs and expenses incurred in connection with
this Merger Agreement and the transactions contemplated hereby in an
aggregate amount not to exceed $750,000.
(c) If this Merger Agreement is terminated pursuant to
Section 8.01(c) and the breach by Acquiror was not the result of a
willful failure of Acquiror to fulfill any obligation under this
Merger Agreement then Acquiror shall promptly reimburse Company for
its out-of-pocket costs and expenses incurred in connection with this
Merger Agreement and the transactions contemplated hereby in an
aggregate amount not to exceed $750,000.
(d) If this Merger Agreement is terminated by the Company
pursuant to Section 8.01(c) or Section 8.01(g) and the willful failure
of Acquiror to fulfill any obligation under this Merger Agreement has
been the cause of, or resulted in, such termination, then Acquiror
shall promptly pay to the Company a termination fee of $19,000,000.
(e) If this Merger Agreement is terminated by Acquiror
pursuant to Section 8.01(b) or Section 8.01(g) and the willful failure
of the Company to fulfill any obligation under this Merger Agreement
has been the cause of, or resulted in, such termination, then the
Company shall promptly pay to Acquiror a termination fee of
$19,000,000.
(f) If this Merger Agreement is terminated for any reason
and the Company has breached Section 5.05 of the Merger Agreement,
then the Company shall promptly pay to Acquiror a termination fee of
$19,000,000.
(g) If this Merger Agreement is terminated by Company
pursuant to Section 8.01(h), then the Company shall promptly pay to
Acquiror a termination fee of $19,000,000.
(h) If the Company enters into a binding agreement with
respect to any Competing Transaction within six months after the
termination of this Merger Agreement for any reason other than Section
8.01(a) or Section 8.01(c), then the Company shall promptly pay to
Acquiror a termination fee of $19,000,000.
(i) The remedies identified in subsections (b) through
(h) of this Section 8.3 are alternatives and the application of one of
these remedies shall be exclusive and shall preclude the application
of the other remedies in this Section 8.03, except that the
application of the remedies in subsection (b) shall not preclude the
application of either subsection (f) or subsection (h). The parties
agree that the agreements contained in this Section 8.03 are an
integral part of the transactions contemplated by this Merger
Agreement and constitute liquidated damages and not a penalty.
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SECTION 8.04. AMENDMENT.
This Merger Agreement may be amended by the parties hereto at any time
prior to the Effective Time; provided, however, that, after approval of the
Merger by the Company Shareholders, no amendment may be made which would reduce
the amount or change the type of consideration into which each share of Company
Capital Stock shall be converted pursuant to this Merger Agreement upon
consummation of the Merger. This Merger Agreement may not be amended except by
an instrument in writing signed by the parties hereto.
SECTION 8.05. EXTENSION; WAIVER.
At any time prior to the Effective Time, the parties hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any Document delivered pursuant hereto and
(c) subject to the proviso of Section 8.04, waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall
be valid if set forth in an instrument in writing signed by the party or
parties to be bound thereby. The failure of any party to assert any of its
rights under this Merger Agreement or otherwise shall not constitute a waiver
of such rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.
None of the representations, warranties, covenants and agreements in
this Merger Agreement shall survive the Effective Time, except the covenants
and agreements contained in this Section 9.01, Articles I and II, Section
6.06(b) and (c), Section 6.13, Section 8.03(a) and Section 9.07, each of which
shall survive in accordance with its terms.
SECTION 9.02. NOTICES.
All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made as of
the date delivered, mailed or transmitted if delivered personally, mailed by
registered or certified mail (postage prepaid, return receipt requested) or
sent by overnight courier (providing proof of delivery) to the parties at the
following addresses or sent by electronic transmission to the following
telecopier numbers (or at such other address or telecopy number for a party as
shall be specified by like notice):
(a) If to Acquiror or Acquiror Sub:
Texas Utilities Company
Energy Plaza
1601 Bryan Street
Dallas, Texas 75201
Telecopier No.: (214) 812-6787
Attention: Herbert H. Zureich, Jr.
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With a copy (which shall not constitute notice) to:
Worsham, Forsythe & Wooldridge, L.L.P.
Energy Plaza, 30th Floor
1601 Bryan Street
Dallas, Texas 75201
Telecopier No.: (214) 880-001
Attention: Robert A. Wooldridge, Esq.
(b) If to the Company:
Lufkin-Conroe Communications Co.
321 N. First
Lufkin, Texas 75902
Telecopier No.: (409) 637-2591
Attention: G.I. Ross
With a copy (which shall not constitute notice) to:
Naman, Howell, Smith & Lee, A Professional Corporation
Texas Center, P. O. Box 1470
Waco, Texas 76703-1470
Telecopier No.: (254) 754-6331
Attention: Rex Whitaker, Esq.
SECTION 9.03. HEADINGS.
The headings contained in this Merger Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Merger Agreement.
SECTION 9.04. SEVERABILITY.
If any term or other provision of this Merger Agreement is invalid,
illegal or incapable of being enforced by any rule of Law or public policy, all
other conditions and provisions of this Merger Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Merger Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner
to the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 9.05. ENTIRE AGREEMENT.
This Merger Agreement (together with the Exhibits, Schedules, the
Company Disclosure Schedule and the Acquiror Disclosure Schedule and the other
Documents delivered pursuant hereto) and the Confidentiality Agreement
constitute the entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other Person any
rights or remedies hereunder.
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SECTION 9.06. ASSIGNMENT.
This Merger Agreement shall not be assigned by operation of Law or
otherwise.
SECTION 9.07. PARTIES IN INTEREST.
This Merger Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Merger Agreement, express or
implied, other than the right to receive the consideration payable in the
Merger pursuant to Article II, is intended to or shall confer upon any other
Person any right, benefit or remedy of any nature whatsoever under or by reason
of this Merger Agreement.
SECTION 9.08. MUTUAL DRAFTING.
Each party hereto has participated in the drafting of this Merger
Agreement, which each party acknowledges is the result of extensive
negotiations between the parties.
SECTION 9.09. GOVERNING LAW.
This Merger Agreement shall be governed by, and construed in
accordance with, the Laws of the State of Texas, regardless of the Laws that
might otherwise govern under applicable principles of conflicts of law.
SECTION 9.10. COUNTERPARTS.
This Merger Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed and delivered shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 9.11. FURTHER ASSURANCES.
Each party hereto shall execute such further documents and instruments
and take such further actions as may reasonably be requested by any other party
hereto in order to consummate the Merger in accordance with the terms hereof.
ARTICLE X
DEFINITIONS
For purposes of this Merger Agreement, the following terms, and the
singular and plural thereof, shall have the meanings set forth below:
"Acquiror" is defined in the Preamble to this Merger Agreement.
"Acquiror Benefit Plan" shall mean any "employee pension benefit plan"
or "employee welfare benefit plan," as defined in ERISA, of Acquiror.
"Acquiror Common Stock" is defined in Section 2.01.
"Acquiror Disclosure Schedule" is defined in Article IV.
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"Acquiror Information" means (a) Acquiror's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, (b) Acquiror's definitive proxy
statement dated April 4, 1997 and (c) Acquiror's quarterly report on Form 10-Q
for the period ending March 31, 1997.
"Acquiror Material Adverse Effect" means any event, change or effect
that, individually or when taken together with all other such events, changes
or effects, is or is reasonably likely to be materially adverse to the
business, operations, condition (financial or otherwise), prospects, results of
operation, assets or liabilities of the Acquiror and its Subsidiaries, taken as
a whole.
"Acquiror Sub" is defined in the Preamble to this Merger Agreement.
"Affiliate" means with respect to a person or entity, any person or
entity which directly or indirectly, through one or more intermediaries,
Controls, is Controlled by, or is under common Control with such person or
entity.
"Agreement" means any enforceable contracts, leases, promissory notes,
covenants, easements, rights of way, commitments, arrangements and
understandings, whether written or oral.
"Articles of Merger" is defined in Section 1.02.
"Assets" means assets of every kind and everything that is or may be
available for the payment of liabilities (whether inchoate, tangible or
intangible), including, without limitation, real and personal property.
"Audited Balance Sheets" is defined in Section 3.08(a).
"Audited Statements" is defined in Section 3.08(a).
"Business Day" means a day other than a Saturday, a Sunday or any
other day on which commercial banks in the State of Texas are authorized or
obligated to be closed.
"Blue Sky Laws" means state securities or blue sky laws and the rules
and regulations thereunder.
"Bonuses" shall mean bonuses not paid in the Ordinary Course of
Business and in addition to those described in Section 5.01(a) (i)(A) or (B)
and which (i) in the aggregate do not exceed $5,000,000 and (ii) are approved
by the Board of Directors of the Company after non-binding consultation with
Acquiror.
"Cellular Partnerships" is defined in Section 3.02.
"Certificates" is defined in Section 2.02(b).
"Closing" is defined in Section 2.05.
"Closing Schedules" is defined in Section 2.01(e).
"Closing Date" is defined in Section 2.05.
"Code" is defined in the Preamble to this Merger Agreement.
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"Common Control Entity" means any trade or business under common
control (as such term is defined in Section 414(b) or 414(c) of the Code) with
the Company or any Subsidiary.
"Common Share Exchange Ratio" is defined in Section 2.01(a).
"Common Share Numerator" is defined in Section 2.01(a).
"Communications Act" means the Communications Act of 1934, as amended
by the Telecommunications Act of 1996, and all Laws promulgated pursuant
thereto or in connection therewith.
"Company" is defined in the Preamble to this Merger Agreement.
"Company Common Shares" is defined in Section 2.01(a).
"Company Contracts" is defined in Section 3.14(a).
"Company Disclosure Schedule" is defined in Article III.
"Company Licenses" is defined in Section 3.07(a).
"Company Material Adverse Effect" means any event, change or effect
that, individually or when taken together with all other such events, changes
or effects, is or is reasonably likely to be materially adverse to the
business, operations, condition (financial or otherwise), prospects, results of
operation, assets or liabilities of the Company and the Subsidiaries, taken as
a whole.
"Company Shareholders" is defined in Section 3.04.
"Company Shareholders' Meeting" is defined in Section 6.01.
"Company Tax Returns" means all Tax Returns required to be filed by
the Company or any of the Subsidiaries (without regard to extensions of time
permitted by law or otherwise).
"Competing Transaction" is defined in Section 5.05(a).
"Confidentiality Agreement" means the Confidentiality Agreement, dated
November 22, 1996, between Acquiror and the Company.
"Control" (including the terms "Controlled by" and "under common
Control with") means, as used with respect to any Person, possession, directly
or indirectly or as a trustee or executor, of power to direct or cause the
direction of management or policies of such Person (whether through ownership
of voting securities, as trustee or executor, by Agreement or otherwise).
"Defined Benefit Plan" means a Plan that is or was a "defined benefit
plan" as such term is defined in Section 3(35) of ERISA.
"Dissenting Shareholder" is defined in Section 2.04.
"Dissenting Shares" is defined in Section 2.01(a).
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"Documents" means any paper or other material (including, without
limitation, computer storage media) on which is recorded (by letters, numbers
or other marks) information that may be evidentially used, including, without
limitation, legal opinions, mortgages, indentures, notes, instruments, leases,
Agreements, insurance policies, administrative policies or procedures, reports,
studies, financial statements (including, without limitation, the notes
thereto), other written information, schedules, certificates, charts, maps,
plans, photographs, letters, memoranda and all similar materials.
"DOL" means the United States Department of Labor and its successors.
"Effective Time" is defined in Section 1.02.
"Encumbrance" means any mortgage, lien, pledge, security interest,
deed of trust, option or other material restriction on a material right of
ownership, other than: (i) Taxes not yet due or the validity of which is being
contested in good faith by appropriate proceedings, and as to which the Company
shall, if appropriate under GAAP, have set aside on its books and records
adequate reserves; (ii) deposits under workmen's compensation, unemployment
insurance, social security and other similar Laws, or to secure the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure indemnity, performance or other similar bonds for the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure statutory obligations or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the Ordinary Course of
Business; (iii) liens securing claims or demands of mechanics or materialmen;
(iv) liens which arise by operation of Law; (v) zoning restrictions, easements,
licenses, covenants and other restrictions affecting the use of the Real
Property; and (vi) liens securing purchase money security interests.
"ENSERCH Subsidiaries" means ENSERCH Corporation and the Subsidiaries
thereof.
"Environmental Laws" means any Laws (including, without limitation,
the Comprehensive Environmental Response, Compensation, and Liability Act),
including any plans, other criteria, or guidelines promulgated pursuant to such
Laws, now or hereafter in effect relating to Hazardous Materials generation,
production, use, storage, treatment, transportation, handling, management or
disposal, or noise control, or the protection of human health or the
environment.
"Environmental Reports" is defined in Section 6.12.
"Equity Investments" means the 32,917 shares of common stock of
Champion International Corp. and the 208,930 shares of common stock, 105 shares
of Series A Preferred Stock, and $315,000 principal amount of convertible
debentures of USTN Holdings, Inc. held by the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"ESOP" means an "employee stock ownership plan" as such term is
defined in Section 407(d)(6) of ERISA or Section 4975(e)(7) of the Code.
"Excess Shares" is defined in Section 2.02(e).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and all Laws promulgated pursuant thereto or in connection therewith.
"Exchange Agent" is defined in Section 2.02(a).
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"Exchange Fund" is defined in Section 2.02(a).
"FAA" means the United States Federal Aviation Administration and its
successors.
"FCC" means the United States Federal Communications Commission and
its successors.
"Federal Aviation Act" means the Federal Aviation Act of 1958, as
amended, and all Laws promulgated pursuant thereto or in connection therewith.
"Financial Statements" is defined in Section 3.08(a).
"GAAP" means United States generally accepted accounting principles.
"Governmental Entities" means any governmental, quasi-governmental or
regulatory authority, whether domestic or foreign.
"Group" is defined in Section 5.05(a).
"Hazardous Discharge" means any actual or threatened emission, spill,
release or discharge (whether on Real Property, on property adjacent to the
Real Property, or at any other location or disposal site) into or upon the air,
soil or improvements, surface water or groundwater, or the sewer, septic
system, or waste treatment, storage or disposal systems servicing the Real
Property, in each case of Hazardous Materials used, stored, generated, treated
or disposed of at the Real Property.
"Hazardous Materials" means any wastes, substances or materials
(whether solids, liquids or gases) that are deemed hazardous, toxic, pollutants
or contaminants, including, without limitation, substances defined as
"hazardous wastes," "hazardous substances," "toxic substances," "radioactive
materials," or other similar designations in, or otherwise subject to
regulation under, any Environmental Laws. "Hazardous Materials" includes,
without limitation, polychlorinated biphenyls (PCBs), asbestos, lead-based
paints, and petroleum and petroleum products (including, without limitation,
crude oil or any fraction thereof).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and all Laws promulgated pursuant thereto or in connection
therewith.
"Indemnitor" is defined in Section 6.13(a).
"Individual Account Plan" means a Plan that is or was an "individual
account plan" as such term is defined in Section 3(34) of ERISA.
"Intellectual Property" means (i) all fictitious business names,
trademarks, service marks, trade names, trade styles, brands, private labels,
copyrights and all registrations or applications therefor, (ii) all patents,
inventions, discoveries, industrial models, processes, designs and all
registrations or applications therefor, (iii) all trade secrets, know-how and
other technical data, (iv) all general intangibles of like nature, and (v) all
Agreements relating to any of the foregoing.
"IRS" means the United States Internal Revenue Service and its
successors.
"Joint Venture" shall mean, with respect to any Person, any
corporation or other entity (including partnerships and other business
associations and joint ventures) in which such Person or one or more of its
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Subsidiaries owns an equity interest that is less than a majority of any class
of the outstanding voting securities or equity, other than equity interests
held for passive investment purposes that are less than 5% of any class of the
outstanding voting securities or equity.
"Key Employees" means the eleven officers of the Company or its
Subsidiaries on the date of this Merger Agreement.
"Knowledge" means actual conscious awareness of the matter in
question. A statement which is qualified by the phrase "to the Knowledge of
the Company" or "to the Company's Knowledge" means that no officer of the
Company or any of its Subsidiaries has Knowledge of the incorrectness of the
statement. A statement which is qualified by the phrase "to the Knowledge of
Acquiror" or "to Acquiror's Knowledge," means that no officer of the Acquiror
or any of its Subsidiaries has Knowledge of the incorrectness of the statement.
"Laws" means all foreign, federal, state and local statutes, laws,
ordinances, regulations, rules, resolutions, orders, tariffs, determinations,
writs, injunctions, awards (including, without limitation, awards of any
arbitrator), judgments and decrees applicable to the specified Person and to
the businesses and Assets thereof (including, without limitation, Laws relating
to securities registration and regulation; the sale, leasing, ownership or
management of real property; employment practices, terms and conditions, and
wages and hours; building standards, land use and zoning; safety, health and
fire prevention; and environmental protection, including Environmental Laws).
"License" means any franchise, grant, authorization, license, tariff,
permit, easement, variance, exemption, consent, certificate, approval or order
of any Governmental Entity.
"Material Customer" means the ten largest customers of the Company or
any Subsidiary determined by the revenues of the Company and any Subsidiary
during the twelve month period prior to the date of this Merger Agreement.
"Merger" is defined in the Preamble to this Merger Agreement.
"Merger Agreement" is defined in the Preamble to this Merger
Agreement.
"Minimum-Funding Plan" means a Pension Plan that is subject to Title
I, Subtitle B, Part 3, of ERISA (concerning "funding").
"Multiemployer Plan" means a "multiemployer plan" as such term is
defined in Section 3(37) of ERISA.
"NRC Actions" is defined in Section 4.19.
"NYSE" means the New York Stock Exchange.
"Other Arrangement" means a benefit program or practice providing for
bonuses, incentive compensation, vacation pay, severance pay, insurance,
restricted stock, stock options, employee discounts, company cars, tuition
reimbursement or any other perquisite or benefit (including, without
limitation, any fringe benefit under Section 132 of the Code) to employees,
officers or independent contractors that is not a Plan.
"Ordinary Course of Business" means ordinary course of business
consistent with past practices and prudent business operations.
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"PBGC" means the Pension Benefit Guaranty Corporation or its
successors.
"Pension Plan" means an "employee pension benefit plan" as such term
is defined in Section 3(2) of ERISA.
"Person" means an individual, corporation, partnership, joint venture,
trust, unincorporated organization or other entity, or a Governmental Entity.
"Plan" means any plan, program or arrangement, whether or not written,
that is or was an "employee benefit plan" as such term is defined in Section
3(3) of ERISA and (a) which was or is established or maintained by the Company
or any Subsidiary; (b) to which the Company or any Subsidiary contributed or
was obligated to contribute or to fund or provide benefits; or (c) which
provides or promises benefits to any person who performs or who has performed
services for the Company or any Subsidiary and because of those services is or
has been (i) a participant therein or (ii) entitled to benefits thereunder.
"Post-Signing Returns" is defined in Section 5.03.
"Post-Signing SEC Documents" is defined in Section 6.13.
"PUC" means the Public Utility Commission of Texas and its successors.
"PUHCA" is defined in Section 3.02.
"Qualified Plan" means a Pension Plan that satisfies, or is intended
by the Company to satisfy, the requirements for Tax qualification described in
Section 401 of the Code.
"Real Property" means the real property (other than easements and
rights of way) owned or used by the Company and the Subsidiaries as of December
31, 1996, and any additional real property (other than easements and rights of
way) owned or used since that date.
"Registration Statement" shall be that Form S-4 filed with the SEC for
purposes of registering the Acquiror Common Stock to be received by Company
Shareholders as provided in Section 2.01(a).
"Sale" is defined in Section 3.17(g).
"SEC" means the United States Securities and Exchange Commission and
Its successors.
"Securities Act" means the Securities Act of 1933, as amended, and all
Laws promulgated pursuant thereto or in connection therewith.
"Shareholder Plan" is defined in Section 3.17(g).
"Statutory-Waiver Plan" means a Pension Plan that is not subject to
Title I, Subtitle B, Part 3, of ERISA (concerning "funding").
"Subsidiary" means a corporation, partnership, joint venture or other
entity of which the entity in question or the Company, or the Acquiror in the
case of Article IV, owns, directly or indirectly, at least 50% of the
outstanding securities or other interests the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body or otherwise exercise Control of such entity.
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"Surviving Corporation" is defined in Section 1.01.
"Taxes" means all federal, state, local and foreign taxes (including,
without limitation, income, profit, franchise, sales, use, real property,
personal property, ad valorem, excise, employment, social security and wage
withholding taxes) and installments of estimated taxes, assessments,
deficiencies, levies, imports, duties, license fees, registration fees,
withholdings, or other similar charges of every kind, character or description
imposed by any Governmental Entity, and any interest, penalties or additions to
tax imposed thereon or in connection therewith.
"Tax Returns" means all federal, state, local, foreign and other
applicable returns, declarations, reports and information statements with
respect to Taxes required to be filed with the IRS or any other Governmental
Entity or Tax authority or agency, including, without limitation, consolidated,
combined and unitary tax returns.
"Texas Law" is defined in the Preamble to this Merger Agreement.
"Title I Plan" means a Plan that is subject to Title I of ERISA.
"Transaction Costs" is defined in Section 2.01(e)(ii).
"Unaudited Balance Sheets" is defined in Section 3.08(a).
"Unaudited Statements" is defined in Section 3.08(a).
"Welfare Plan" means an "employee welfare benefit plan" as such term
is defined in Section 3(1) of ERISA.
IN WITNESS WHEREOF, Acquiror, Acquiror Sub and the Company have caused
this Merger Agreement to be executed and delivered as of the date first written
above.
TEXAS UTILITIES COMPANY
By: /s/ H. Jarrell Gibbs
-------------------------------
Name: H. Jarrell Gibbs
Title: Vice Chairman
TUCOM ACQUISITION CO.
By: /s/ Herbert H. Zureich, Jr.
-------------------------------
Name: Herbert H. Zureich, Jr.
Title: Executive Vice President
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LUFKIN-CONROE COMMUNICATIONS CO.
By: /s/ G. I. Ross
-------------------------------
Name: G. I. Ross
Title: President
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ANNEX B
October , 1997
Board of Directors
Lufkin-Conroe Communications Co.
Post Office Box 909
Lufkin, TX 75901-0909
Members of the Board:
Lufkin Conroe Communications Co. ("LCC") and Texas Utilities Company ("TU")
propose to enter into an Agreement and Plan of Merger, dated as of August 23,
1997 (the "Plan of Merger"), providing for TUCOM Acquisition Co., a
wholly-owned subsidiary of TU, to be merged with and into LCC (the "Merger").
Pursuant to the terms of the Plan of Merger, each share of LCC common stock
which is issued and outstanding immediately prior to the Merger shall be
converted into a number of shares of TU's common stock (the "Common Share
Exchange Ratio"), to be determined by dividing $53.274 (1) by the average
closing sales price of TU common stock, as reported on the NYSE Consolidated
Transactions Tape on each of the 20 consecutive trading days preceding the
tenth trading day prior to the effective date of the Merger (the "Average TU
Price"). However, if the actual Average TU Price is less than $31.00, then the
Average TU Price shall be deemed to be $31.00, and if the actual Average TU
Price is greater than $37.00, then the Average TU Price shall be deemed to be
$37.00. LCC and TU intend to treat the Merger as a qualified tax-free
reorganization under the provisions of Section 368(a) of the United States
Internal Revenue Code of 1986. The Merger is expected to be considered at a
special meeting of the shareholders of LCC and to be consummated shortly
thereafter if the Merger is approved by LCC's shareholders at such meeting.
You have asked us to confirm our previous oral opinion that the Common Share
Exchange Ratio pursuant to the Plan of Merger is fair from a financial point of
view to LCC shareholders.
In arriving at the opinion set forth below, we have, among other things, done
the following:
(1) Reviewed a copy of the Plan of Merger dated August 23, 1997;
(2) Reviewed TU's Registration Statement on Form S-4, including the Joint
Proxy Statement/ Prospectus of LCC and TU;
- ----------------------------
(1) This equity value may be adjusted to certain provisions as provided for
in the Merger Agreement. The $53.247 value per share amount is determined by
dividing $320.0 million by 6,006,696 outstanding LCC shares.
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Board of Directors
Lufkin-Conroe Communications Co.
October ___, 1997
Page 2
(3) Reviewed the annual reports and related financial information for the
fiscal years ended December 31, 1996 and December 31, 1995, and the
most recently available related unaudited financial information
prepared by management of LCC and TU, respectively;
(4) Reviewed certain information relating to the business, earnings, cash
flow, assets and prospects of LCC and TU, furnished to us by
management of the respective companies;
(5) Conducted discussions with members of senior management of LCC and TU
regarding the business and prospects of LCC and TU, respectively;
(6) Reviewed minutes of meetings of the Board of Directors of LCC at which
the proposed Merger, or alternatives thereto, were discussed;
(7) Compared the results of operations of LCC with those of certain public
companies which we deemed to be reasonably similar to LCC;
(8) Reviewed the reported prices and trading activity for the common stock
of TU for the past 24 months;
(9) Performed a discounted cash flow analysis of LCC's five-year financial
projections for the periods ended December 31, 1997 through December
31, 2001;
(10) Compared the proposed financial terms of the Merger contemplated by
the Plan of Merger with the terms of certain other transactions which
we deemed to be relevant; and
(11) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary for purposes of our opinion.
In preparing our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information supplied or otherwise made
available to us by LCC and TU, respectively, and we have not independently
verified such information and/or made or obtained any independent evaluation or
appraisal of the assets of LCC or TU. With respect to the five-year financial
projections of LCC which we reviewed, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of LCC. This opinion does
not address the relative merits of any alternatives to the Merger which the
Board of Directors of LCC may have considered, the decision of the Board of
Directors of LCC to proceed with the Merger or the form of consideration being
received in the Merger. This opinion is necessarily based on market, economic,
financial and other conditions as in effect on, and the information made
available to us as of the date hereof.
Prior to our engagement to render a fairness opinion to LCC, we were separately
engaged by LCC to act as LCC's financial advisor and to assist in negotiations
with TU. We will receive a fee if the proposed Transaction with
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Board of Directors
Lufkin-Conroe Communications Co.
October ___, 1997
Page 3
TU is consummated. However, Daniels does not believe that this relationship
will in any way affect its ability to fairly and impartially render the opinion
set forth herein.
In rendering this opinion, we have not engaged to act as an agent or fiduciary
of, and, to the extent permitted by law, the Board of Directors has expressly
waived any duties or liabilities we may otherwise be deemed to have had to the
shareholders of LCC or any other third party.
It is understood that this letter is for the information of the Board of
Directors of LCC and may not be used for any other purpose without our prior
written consent, except that this opinion may be included in its entirety in
any filing made by LCC and/or TU with the Securities and Exchange Commission in
connection with the proposed Merger. In addition, we express no opinion and
make no recommendation as to how the shareholders of LCC should vote on the
Merger.
On the basis of and subject to the foregoing, we are of the opinion on the date
hereof that the Common Share Exchange Ratio pursuant to the Plan of Merger is
fair, from a financial point of view, to the shareholders of LCC.
Very truly yours,
DANIELS & ASSOCIATES, L.P.
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ANNEX C
ARTICLES 5.11, 5.12 AND 5.13 OF THE TEXAS
BUSINESS CORPORATION ACT RELATING TO THE
RIGHTS OF DISSENTING SHAREHOLDERS
ART. 5.11 RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN
CORPORATE ACTIONS
A. Any shareholder of a domestic corporation shall have the
right to dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act
and the shareholder holds shares of a class or series that was
entitled to vote thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not
including any pledge, mortgage, deed of trust or trust indenture
unless otherwise provided in the articles of incorporation) or all, or
substantially all, the property and assets, with or without good will,
of a corporation if special authorization of the shareholders is
required by this Act and the shareholders hold shares of a class or
series that was entitled to vote thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act
in which the shares of the corporation of the class or series held by
the shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in
which there is a single surviving or new domestic or foreign corporation, or
from any plan of exchange, if (1)the shares held by the shareholder are part of
a class or series, shares of which are on the record date fixed to determine
the shareholders entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange; (b) listed on the Nasdaq Stock
Market (or successor quotation system) or designated as a national market
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc., or successor entity; or (c) held of record by not
less than 2,000 holders; (2) the shareholder is not required by the terms of
the plan of merger or plan of exchange to accept for the shareholder's shares
any consideration that is different than the shareholder's shares any
consideration that is different than the consideration (other than cash in lieu
of fractional shares that the shareholder would otherwise be entitled to
receive to be provided to any other holder of shares of the same class or
series of shares held by such shareholder; and (3) the shareholder is not
required by the terms of the plan of merger of the plan of exchange to accept
for the shareholder's shares any consideration other than: (a) the shares of a
domestic or foreign corporation that, immediately after the effective time of
the merger or exchange, will be part of a class or series, shares of which are:
(i) listed, or authorized for listing upon official notice of issuance, on a
national securities exchange, (ii) approved for quotation as a national market
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc., or successor entity; or (iii) held of record by not
less than 2,000 holders; (b) cash in lieu of fractional shares otherwise
entitled to be received; or (c) any combination of the securities and cash
described in Subdivisions (a) and (b) of this subsection.
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ART. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATION
ACTIONS
A. Any shareholder of any domestic corporation who has the right
to dissent from any of the corporate actions referred to in Article 5.11 of
this Act may exercise that right to dissent only by complying with the
following procedures:
(1) (a) With respect to proposed corporate action that is
submitted to a vote of shareholders at a meeting, the
shareholder shall file with the corporation, prior to the
meeting, a written objection to the action, setting out that
the shareholder's right to dissent will be exercised if the
action is effective and giving the shareholder's address, to
which notice thereof shall be delivered or mailed in that
event. If the action is effected and the shareholder shall
not have voted in favor of the action, the corporation, in
the case of action other than a merger, or the surviving or
new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in
the case of a merger, shall, within ten (10) days after the
action is effected, deliver or mail to the shareholder
written notice that the action has been effected, and the
shareholder may, within ten (10) days from the delivery or
mailing of the notice, make written demand on the existing,
surviving or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of
the shareholder's shares. The fair value of the shares shall
be the value thereof as of the day immediately preceding the
meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state
the number and class of the shares owned by the shareholder
and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within
the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is
approved pursuant to Section A of Article 9.10 of this Act,
the corporation, in the case of action other than a merger,
and the surviving or new corporation (foreign or domestic) or
other entity that is liable to discharge the shareholder's
right of dissent, in the case of a merger, shall, within ten
(10) days after the date the action is effected, mail to each
shareholder of record as of the effective date of the action
notice of the fact and date of the action and that the
shareholder may exercise the shareholder's right to dissent
from the action. The notice shall be accompanied by a copy of
this Article and any articles or documents filed by the
corporation with the Secretary of State to effect the action.
If the shareholder shall not have consented to the taking of
the action, the shareholder may, within twenty (20) days after
the mailing of the notice, make written demand on the
existing, surviving, or new corporation (foreign or domestic)
or other entity, as the case may be, for payment of the fair
value of the shareholder's shares. The fair value of the
shares shall be the value thereof as of the date the written
consent authorizing the action was delivered to the
corporation pursuant to Section A of Article 9.10 of this Act,
excluding any appreciation or depreciation in anticipation of
the proposed action. The demand shall state the number and
class of shares owned by the dissenting shareholder and the
fair value of the shares as estimated by the shareholder. Any
shareholder failing to make demand within the twenty (20) day
period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing,
surviving, or new corporation (foreign or domestic) or other entity,
as the case may be, of a demand for payment made by a dissenting
shareholder in accordance with Subsection (1) of this Section, the
corporation (foreign or domestic) or other entity shall deliver or
mail to the shareholder a written notice that shall either set out
that the corporation (foreign or domestic) or other entity accepts the
amount claimed in the demand and agrees
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to pay that amount within ninety (90) days after the date on which the
action was effected, and, in the case of shares represented by
certificates, upon the surrender of the certificates duly endorsed, or
shall contain an estimate by the corporation (foreign or domestic) or
other entity of the fair value of the shares, together with an offer
to pay the amount of that estimate within ninety (90) days after the
date on which the action was effected, upon receipt of notice within
sixty (60) days after that date from the shareholder that the
shareholder agrees to accept that amount and, in the case of shares
represented by certificates, upon the surrender of the certificates
duly endorsed.
(3) If, within sixty (60) days after the date on which the
corporate action was effected, the value of the shares is agreed upon
between the shareholder and the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be,
payment for the shares shall be made within ninety (90) days after the
date on which the action was effected and, in the case of shares
represented by certificates, upon surrender of the certificates duly
endorsed. Upon payment of the agreed value, the shareholder shall
cease to have any interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on which
the corporate action was effected, the shareholder and the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may be,
do not so agree, then the shareholder or the corporation (foreign or domestic)
or other entity may, within sixty (60) days after the expiration of the sixty
(60) day period, file a petition in any court of competent jurisdiction in the
county in which the principal office of the domestic corporation is located,
asking for a finding and determination of the fair value of the shareholder's
shares. Upon the filing of any such petition by the shareholder, service of a
copy thereof shall be made upon the corporation (foreign or domestic) or other
entity, which shall, within ten (10) days after service, file in the office of
the clerk of the court in which the petition was filed a list containing the
names and addresses of all shareholders of the domestic corporation who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by the corporation (foreign or domestic) or
other entity. If the petition shall be filed by the corporation (foreign or
domestic) or other entity, the petition shall be accompanied by such a list.
The clerk of the court shall give notice of the time and place fixed for the
hearing of the petition by registered mail to the corporation (foreign or
domestic) or other entity and to the shareholders named on the list at the
addresses therein stated. The forms of the notices by mail shall be approved by
the court. All shareholders thus notified and the corporation (foreign or
domestic) or other entity shall thereafter be bound by the final judgment of
the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing, and
they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
powers and authority as may be conferred on Masters in Chancery by
the Rules of Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action
C-3
<PAGE> 140
from which the shareholder elected to dissent was effected to the date of such
judgment, to the shareholders entitled to payment. The judgment shall be
payable to the holders of uncertificated shares immediately but to the holders
of shares represented by certificates only upon, and simultaneously with, the
surrender to the existing, surviving, or new corporation (foreign or domestic)
or other entity, as the case may be, of duly endorsed certificates for those
shares. Upon payment of the judgment, the dissenting shareholders shall cease
to have any interest in those shares or in the corporation. The court shall
allow the appraisers a reasonable fee as court costs, and all court costs,
shall be allotted between the parties in the manner that the court determines
to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation
(foreign or domestic) or other entity, as the case may be, pursuant to the
payment of the agreed value of the share or pursuant to payment of the judgment
entered for the value of the shares, as in this Article provided, shall, in the
case of a merger, be treated as provided in the plan of merger and, in all
other cases, may be held and disposed of by the corporation as in the case of
other treasury shares.
F. The provisions of this Article shall not apply to a merger if, on
the date of the filing of the articles of merger, the surviving corporation is
the owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by
this Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action.
If the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ART. 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act shall not thereafter be
entitled to vote or exercise any other rights of a shareholder except the right
to receive payment for his shares pursuant to the provisions of those articles
and the right to maintain an appropriate action to obtain relief on the ground
that the corporate action would be or was fraudulent, and the respective shares
for which payment has been demanded shall not thereafter be considered
outstanding for the purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting
shareholder, the corporation shall make an appropriate notation thereof in its
shareholder records. Within twenty (20) days after demanding payment for his
shares in accordance with either Article 5.12 or 5.16 of this Act, each holder
of certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C-4
<PAGE> 141
C. Any shareholder who has demanded payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act may withdraw such
demand at any time before payment for his shares or before any petition has
been filed pursuant to Article 5.12 asking for a finding and determination of
the fair value of such shares, but no such demand may be withdrawn after such
payment has been made or, unless the corporation shall consent thereto, after
any such petition has been filed. If, however, such demand shall be withdrawn
as hereinbefore provided, or if pursuant to Section B of this Article the
corporation shall terminate the shareholder's rights under Article 5.12 or 5.16
of this Act, as the case may be, or if no petition asking for a finding and
determination of fair value of such shares by a court shall have been filed
within the time provided in Article 5.12 or 5.16 of this Act, as the case may
be, or if after the hearing of a petition filed pursuant to Article 5.12 or
5.16, the court shall determine that such shareholder is not entitled to the
relief provided by those articles, then, in any such case, such shareholder and
all persons claiming under him shall be conclusively presumed to have approved
and ratified the corporate action from which he dissented and shall be bound
thereby, the right of such shareholder to be paid the fair value of his shares
shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
C-5
<PAGE> 142
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS.
Item 20. Indemnification of Directors and Officers.
Article IX of the Restated Articles of Incorporation of the registrant
provides as follows:
"The Corporation shall reimburse or indemnify any former,
present, or future director, officer or employee of the Corporation, or
any person who may have served at its request as a director, officer or
employee of another corporation, or any former, present or future
director, officer or employee of the Corporation who shall have served
or shall be serving as an administrator, agent or fiduciary for the
Corporation or for another corporation at the request of the Corporation
(and his heirs, executors and administrators) for or against all
expenses and liabilities incurred by him or them, or imposed on him or
them, including, but not limited to, judgments, settlements, court costs
and attorneys' fees, in connection with, or arising out of, the defense
of any action, suit or proceeding in which he may be involved by reason
of his being or having been such director, officer or employee, except
with respect to matters as to which he shall be adjudged in such action,
suit or proceeding to be liable because he did not act in good faith, or
because of dishonesty or conflict of interest in the performance of his
duty.
"No former, present or future director, officer or employee of
the Corporation (or his heirs, executors and administrators) shall be
liable for any act, omission, step or conduct taken or had in good
faith, which is required, authorized or approved by an order or orders
issued pursuant to the Public Utility Holding Company Act of 1935, the
Federal Power Act, or any other federal or state statute regulating the
Corporation or its subsidiaries, or any amendments to any thereof. In
any action, suit or proceeding based on any act, omission, step or
conduct, as in this paragraph described, the provisions hereof shall be
brought to the attention of the court. In the event that the foregoing
provisions of this paragraph are found by the court not to constitute a
valid defense, each such director, officer or employee (and his heirs,
executors and administrators) shall be reimbursed for, or indemnified
against, all expenses and liabilities incurred by him or them, or
imposed on him or them, including, but not limited to, judgments,
settlements, court costs and attorneys' fees, in connection with, or
arising out of, any such action, suit or proceeding based on any act,
omission, step or conduct taken or had in good faith as in this
paragraph described.
"The foregoing rights shall not be exclusive of other rights to
which any such director, officer or employee (or his heirs, executors
and administrators) may otherwise be entitled under any bylaw,
agreement, vote of shareholders or otherwise, and shall be available
whether or not the director, officer or employee continues to be a
director, officer or employee at the time of incurring such expenses and
liabilities. In furtherance, and not in limitation of the foregoing
provisions of this Article IX, the Corporation may indemnify and may
insure any such persons to the fullest extent permitted by the Texas
Business Corporation Act, as amended from time to time, or the laws of
the State of Texas, as in effect from time to time."
Article 2.02-1 of the Texas Business Corporation Act permits the
Company, in certain circumstances, to indemnify any present or former
director, officer, employee or agent of the Company against judgments,
penalties, fines, settlements and reasonable expenses incurred in
connection with a proceeding in which any such person was, is or is
threatened to be, made a party by reason of holding such office or
position, but only to a limited extent for obligations resulting from a
proceeding in which the person is found liable on the basis that a
personal benefit was improperly received or in circumstances in which
the person is found liable in a derivative suit brought on behalf of the
Company.
Article X of the Restated Articles of Incorporation of the registrant
provides as follows:
II - 1
<PAGE> 143
"A director of the Corporation shall not be liable to the
Corporation or its shareholders for monetary damages for any act or
omission in the director's capacity as a director, except that this
provision does not eliminate or limit the liability of a director to the
extent the director is found liable for:
(a) a breach of the director's duty of loyalty to the
Corporation or its shareholders;
(b) an act or omission not in good faith that constitutes a
breach of duty of the director to the Corporation or an act or omission
that involves intentional misconduct or a knowing violation of the law;
(c) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action taken within
the scope of the director's office; or
(d) an act or omission for which the liability of the director
is expressly provided for by an applicable statute.
If the laws of the State of Texas are amended to authorize action
further eliminating or limiting the personal liability of directors,
then the liability of a director of the Corporation shall be eliminated
or limited to the fullest extent permitted by such laws as so amended.
Any repeal or modification of this Article X shall not adversely affect
any right of protection of a director of the Corporation existing at the
time of such repeal or modification."
Section 21 of the registrant's bylaws provides as follows:
"Section 21. Insurance, Indemnification and Other Arrangements.
Without further specific approval of the shareholders of the
Corporation, the Corporation may purchase, enter into, maintain or
provide insurance, indemnification or other arrangements for the benefit
of any person who is or was a director, officer, employee or agent of
the Corporation or is or was serving another entity at the request of
the Corporation as a director, officer, employee, agent or otherwise, to
the fullest extent permitted by the laws of the State of Texas,
including without limitation Art. 2.02-1 of the Texas Business
Corporation Act or any successor provision, against any liability
asserted against or incurred by any such person in any such capacity or
arising out of such person's service in such capacity whether or not the
Corporation would otherwise have the power to indemnify against any such
liability under the Texas Business Corporation Act. If the laws of the
State of Texas are amended to authorize the purchase, entering into,
maintaining or providing of insurance, indemnification or other
arrangements in the nature of those permitted hereby to a greater extent
than presently permitted, then the Corporation shall have the power and
authority to purchase, enter into, maintain and provide any additional
arrangements in such regard as shall be permitted from time to time by
the laws of the State of Texas without further approval of the
shareholders of the Corporation. No repeal or modification of such laws
or this Section 21 shall adversely affect any such arrangement or right
to indemnification existing at the time of such repeal or modification."
The registrant has entered into agreements with its directors
which provide, among other things, for their indemnification by the
registrant to the fullest extent permitted by Texas law, unless a final
adjudication establishes that the indemnitee's acts were committed in
bad faith, were the result of active and deliberate dishonesty or that
the indemnitee personally gained a financial profit to which the
indemnitee was not legally entitled. These agreements further provide,
under certain circumstances, for the advancement of expenses and the
implementation of other arrangements for the benefit of the indemnitee.
II - 2
<PAGE> 144
The registrant has insurance covering its expenditures which
might arise in connection with its lawful indemnification of its
directors and officers for their liabilities and expenses. Officers and
directors of the registrant also have insurance which insures them
against certain other liabilities and expenses.
Item 21. Exhibits.
<TABLE>
<CAPTION>
Previously Filed*
-----------------
With File As
Exhibit Number Exhibit
------- ------ -------
<S> <C> <C> <C> <C>
2 Agreement and Plan of Merger, dated as of August 23, 1997, by
and among TU, TU Sub and LCC (attached as Annex A).
4(a) 333-12391 3(a) -- Restated Articles of Incorporation of TU.
4(b) 333-32831 3(b) -- Bylaws, as amended, of TU.
5(a) and 8 -- Opinion of Reid & Priest LLP.
5(b) -- Opinion of Worsham, Forsythe & Wooldridge, L.L.P.
10(a) -- Form of Employment Agreements among certain officers of LCC and
TU, together with a schedule disclosing the names and salaries
of each LCC officer who has entered into such agreement.
15(a) -- Letter of Deloitte & Touche LLP re: unaudited interim financial
information.
15(b) -- Letter of Deloitte & Touche LLP re: unaudited interim financial
information.
23(a) -- Consent of Axley & Rode LLP.
23(b) -- Consent of Deloitte & Touche LLP.
23(c) -- Consent of Deloitte & Touche LLP.
23(d) -- Consent of Daniels & Associates , L.P.
23(e) -- Consents of Reid & Priest LLP and Worsham, Forsythe &
Wooldridge, L.L.P. are contained in Exhibits 5(a) and 8, and
5(b), respectively.
25 -- Power of Attorney (See Page II-6).
99(a) -- Form of Proxy to be used in connection with the Special Meeting
of Shareholders of LLC.
99(b) -- Opinion of Daniels & Associates, L.P. (attached as Annex B).
</TABLE>
II - 3
<PAGE> 145
Item 22. Undertakings.
(1) The undersigned registrant hereby undertakes as follows: that
prior to any public offering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any person
or party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
persons of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(5) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference in the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this form within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(6) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II - 4
<PAGE> 146
(7) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing,, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus, filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement.
Provided, however, That paragraphs (a)(i) and (a)(ii) do
not apply if the registration statement is on Form S-3, Form S-8
or Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(b) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II - 5
<PAGE> 147
POWER OF ATTORNEY
Each director and/or officer of the registrant whose signature appears
below hereby appoints the Agents for Service named in his registration
statement, and each of them severally, as his/her attorney-in-fact to sign in
his/her name and behalf, in any and all capacities stated below, and to file
with the Securities and Exchange Commission, any and all amendments, including
post-effective amendments, to this registration statement, and the registrant
hereby also appoints each such Agent for Service as its attorney-in-fact with
like authority to sign and file any such amendment in its name and behalf.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
and the State of Texas, on the 2nd day of October, 1997.
TEXAS UTILITIES COMPANY
By: /s/ Erle Nye
---------------------------------------
(Erle Nye, Chairman of the Board and
Chief Executive)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C>
/s/ Erle Nye Principal Executive
- ------------------------------------------------------ Officer and Director
(Erle Nye, Chairman of the Board and Chief Executive)
/s/ Michael J. McNally Principal Financial
- ------------------------------------------------------ Officer
(Michael J. McNally, Executive Vice President and
Chief Financial Officer)
/s/ Marc D. Moseley Principal Accounting
- ------------------------------------------------------ Officer
(Marc D. Moseley, Acting Controller)
/s/ J.S. Farrington Director
- ------------------------------------------------------
(J.S. Farrington)
/s/ Bayard H. Friedman Director October 2, 1997
- ------------------------------------------------------
(Bayard H. Friedman)
/s/ William M. Griffin Director
- ------------------------------------------------------
(William M. Griffin)
/s/ Kerney Laday Director
- ------------------------------------------------------
(Kerney Laday)
/s/ Margaret N. Maxey Director
- ------------------------------------------------------
(Margaret N. Maxey)
/s/ James A. Middleton Director
- ------------------------------------------------------
(James A. Middleton)
/s/ J. E. Oesterreicher Director
- ------------------------------------------------------
(J.E. Oesterreicher)
/s/ Charles R. Perry Director
- ------------------------------------------------------
(Charles R. Perry)
Director
- ------------------------------------------------------
(Herbert H. Richardson)
</TABLE>
II - 6
<PAGE> 148
EXHIBIT INDEX
<TABLE>
<CAPTION>
Previously Filed*
-----------------
With File As
Exhibit Number Exhibit
------- ------ -------
<S> <C> <C> <C> <C>
2 Agreement and Plan of Merger, dated as of August 23, 1997, by
and among TU, TU Sub and LCC (attached as Annex A).
4(a) 333-12391 3(a) -- Restated Articles of Incorporation of TU.
4(b) 333-32831 3(b) -- Bylaws, as amended, of TU.
5(a) and 8 -- Opinion of Reid & Priest LLP.
5(b) -- Opinion of Worsham, Forsythe & Wooldridge, L.L.P.
10(a) -- Form of Employment Agreements among certain officers of LCC and
TU, together with a schedule disclosing the names and salaries
of each LCC officer who has entered into such agreement.
15(a) -- Letter of Deloitte & Touche LLP re: unaudited interim financial
information.
15(b) -- Letter of Deloitte & Touche LLP re: unaudited interim financial
information.
23(a) -- Consent of Axley & Rode LLP.
23(b) -- Consent of Deloitte & Touche LLP.
23(c) -- Consent of Deloitte & Touche LLP.
23(d) -- Consent of Daniels & Associates , L.P.
23(e) -- Consents of Reid & Priest LLP and Worsham, Forsythe &
Wooldridge, L.L.P. are contained in Exhibits 5(a) and 8, and
5(b), respectively.
25 -- Power of Attorney (See Page II-6).
99(a) -- Form of Proxy to be used in connection with the Special Meeting of
Shareholders of LLC.
99(b) -- Opinion of Daniels & Associates, L.P. (attached as Annex B).
</TABLE>
<PAGE> 1
EXHIBIT 5(a) AND 8
[Letterhead of Reid & Priest LLP]
212-603-2000
New York, New York
October 3, 1997
Texas Utilities Company
Energy Plaza
1601 Bryan Street
Dallas, Texas 75201
Ladies and Gentlemen:
Referring to the proposed issuance and delivery by Texas
Utilities Company (Company) of up to 10,325,000 shares of its common stock,
without par value (Stock) pursuant to the terms of the Agreement and Plan of
Merger, dated as of August 23, 1997 (Plan of Merger), by and among the Company,
TUCOM Acquisition Co. and Lufkin-Conroe Communications Co. (LCC), as
contemplated by the Registration Statement on Form S-4 to be filed by the
Company with the Securities and Exchange Commission (Commission) under the
Securities Act of 1933, as amended, on or about the date hereof (Registration
Statement), we are of the opinion that:
1. The Company is a corporation validly organized and
existing under the laws of the State of Texas.
2. All action necessary to make the Stock validly
issued, fully paid and nonassessable will have been taken when:
(a) the Stock shall be issued and delivered in
accordance with terms of the Plan of Merger; and
<PAGE> 2
Texas Utilities Company -2- October 3, 1997
(b) articles of merger shall have been duly filed
with the Secretary of State of the State of Texas in accordance with the Texas
Business Corporation Act as contemplated by the Plan of Merger and a
Certificate of Merger shall have been issued by such official.
3. The statements made in the Registration Statement
under the heading "THE MERGER -- Certain Federal Income Tax Consequences",
constitute an accurate general description of the material Federal income tax
consequences to holders of common stock of LCC. Such statements are conditioned
upon the receipt of certain representations from holders of LCC common stock
and from management of the Company and LCC.
We are members of the New York Bar and do not hold ourselves
out as experts on the laws of the State of Texas. As to all matters of Texas
law, we have with your consent relied upon the opinion of even date herewith
addressed to you by Worsham, Forsythe & Wooldridge, L.L.P. of Dallas, Texas.
We hereby consent to the use of our name in the Registration
Statement, and to the filing of this opinion with the Commission as an exhibit
to the Registration Statement.
Very truly yours,
REID & PRIEST LLP
<PAGE> 1
EXHIBIT 5(b)
[Letterhead of Worsham, Forsythe & Wooldridge, L.L.P.]
October 3, 1997
Texas Utilities Company
Energy Plaza
1601 Bryan Street
Dallas, Texas 75201
Ladies and Gentlemen:
Referring to the proposed issuance and delivery by Texas Utilities
Company (Company) of up to 10,325,000 shares of its common stock, without par
value (Stock) pursuant to the terms of the Agreement and Plan of Merger, dated
as of August 23, 1997 (Plan of Merger), by and among the Company, TUCOM
Acquisition Co. and Lufkin-Conroe Communications Co. (LCC), as contemplated by
the Registration Statement on Form S-4 to be filed by the Company with the
Securities and Exchange Commission (Commission) under the Securities Act of
1933, as amended, on or about the date hereof (Registration Statement), we are
of the opinion that:
1. The Company is a corporation validly organized and existing
under the laws of the State of Texas.
2. All action necessary to make the Stock validly issued, fully
paid and nonassessable will have been taken when:
(a) the Stock shall be issued and delivered in accordance
with terms of the Plan of Merger; and
<PAGE> 2
Texas Utilities Company
October 3, 1997
Page 2
(b) articles of merger shall have been duly filed with
the Secretary of State of the State of Texas in accordance with the
Texas Business Corporation Act as contemplated by the Plan of Merger
and a Certificate of Merger shall have been issued by such official.
We hereby consent to the use of our name as counsel in the
Registration Statement and as authority for certain of the statements contained
therein, and to the filing of this opinion with the Commission as an exhibit to
the Registration Statement.
Very truly yours,
WORSHAM, FORSYTHE
& WOOLDRIDGE, L.L.P.
By: /s/ T. A. Mack
-------------------------
A Partner
<PAGE> 1
EXHIBIT 10(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of this ______ day of _________,
1997, by and among Lufkin-Conroe Communications Co., a Texas corporation (the
"Company") and ________________ ("Executive") to be effective at, and only upon
the occurrence of, the Effective Time of the Merger (as such terms are defined
in the Merger Agreement herein described).
WHEREAS, Executive is an officer of the Company;
WHEREAS, in accordance with the terms of that certain Agreement and
Plan of Merger ("Merger Agreement"), dated as of August 23, 1997, by and among
Texas Utilities Company ("TU Company"), TUCOM Acquisition Co. ("Acquirer Sub"),
a wholly owned subsidiary of TU Company, and the Company, Acquirer Sub will be
merged with and into the Company with the Company continuing as the sole
surviving corporation of the Merger;
WHEREAS, as a result of the Merger, the Company will become a wholly
owned subsidiary of TU Company and will, therefore, be an affiliated company
within the Texas Utilities Company System (the "System");
WHEREAS, following the Effective Time of the Merger, the Company
wishes to retain the services of Executive;
THEREFORE, in consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
1. Employment. Executive shall continue to be employed by the
Company and Executive hereby agrees to remain in the employ of the Company for
the term provided for in paragraph 3 hereof, subject to the terms and
conditions set forth herein.
2. Position and Duties. During the term provided for in
paragraph 3 hereof, Executive shall serve as [Mr. G.I. Ross: the Chief
Executive Officer of the Company or in such other capacities] [all others: an
employee of the Company], and shall have such authority and responsibilities,
as may from time to time be assigned to Executive. Executive shall devote
substantially all of his working time and best efforts to the business and
affairs of the Company. If, in connection with Executive's employment
hereunder, his business location is moved, Executive shall be eligible for
relocation benefits comparable to relocation benefits as may be available to
other employees within the System. Executive understands further that, in
fulfilling his services hereunder, Executive may be required to perform
services for, or on behalf of, other affiliated entities within the System.
Such services may be performed on the basis of an intercompany transfer of
Executive's employment to the other System entity, or a secondment to the other
System entity, or on such other basis as the Company and the other System
entity may determine to be appropriate.
1
<PAGE> 2
3. Term. The term of this Agreement shall commence as of the
Effective Time of the Merger and continue [Mr. G.I. Ross: until March 1, 1999]
[all others: for two (2) years following the Effective Time](the "Term").[Mr.
G.I. Ross: Executive understands that his employment hereunder shall terminate
at the conclusion of the Term.] [all others: The parties currently contemplate
that Executive's employment with the Company may continue after the expiration
of the Term. Any such continued employment shall be on such terms and
conditions to which the parties agree.] If the Merger Agreement is terminated
or the Merger is not consummated for any reason whatsoever, this Agreement
shall not become effective and shall be null and void and of no force or effect
whatsoever.
4. Compensation and Benefits.
(a) Base Salary. As compensation for his services hereunder,
Executive shall initially receive a base salary of $_________ per
month, payable in equal installments at such periods as shall from
time to time be established as regular payroll periods. Executive's
base salary shall be subject to adjustment from time to time at the
discretion of the Company; provided that, during the Term hereof,
Executive's base salary shall not be less than
$----------.
(b) Incentive Bonus Pay. During the Term, Executive shall be
eligible to receive an annual performance-based cash bonus under the
Company's current bonus pay arrangement, or a substantially similar
arrangement, such bonus pay to be based on the satisfaction of certain
performance criteria determined by the board of directors of the
Company.
(c) Benefits. During the period of Executive's employment
with the Company, Executive shall be entitled to participate in all of
the Company's employee benefit plans, arrangements and fringe benefit
policies to the extent he is qualified to do so, subject to the terms,
conditions and limitations of such plans, arrangements and policies,
as they may be amended, altered or terminated from time to time.
During the Term, the Company shall maintain for Executive an overall
benefit package which, in the aggregate is not less than the aggregate
level of benefits being provided to Executive as of the effective date
of this Agreement. Nothing herein shall limit the Company's ability in
any way to amend, in whole or in part, or terminate, any employee
benefit plan, program or arrangement. For purposes of determining
Executive's eligibility to participate in any employee benefit plans,
arrangements or policies, Executive understands that, unless and until
such time as his employment is formally transferred to another entity
within the System, Executive is, and shall be treated as, an employee
of the Company and not of any other System entity.
5. Termination. In the event that: (a) the Company terminates
Executive's employment without Cause (as defined below) during the Term, or (b)
Executive terminates his employment with the Company during the Term as a
result of the Company's breach of an obligation hereunder, in
<PAGE> 3
addition to receiving any vested, accrued benefit to which he may be legally
entitled, Executive shall be entitled to receive, in a lump sum cash payment
within thirty (30) days following such termination, the full amount of the base
salary provided for in Section 4(a) above as if Executive remained in the
Company's employment throughout the Term. In the event that: (a) the Company
terminates Executive's employment during the Term for Cause, or (b) Executive
terminates his employment with the Company during the Term for any reason other
than a breach by the Company of an obligation hereunder, Executive shall be
entitled to receive the base salary provided for in Section 4(a) above through
the date of such termination or resignation, together with any vested, accrued
benefits to which he may be legally entitled. For purposes of this Agreement,
"Cause" shall mean Executive's (i) death, (ii) inability to perform his duties
and responsibilities hereunder on a consistent day-to-day basis by reason of a
physical or emotional disability, (iii) any action or failure to act on the
part of Executive which may result in material injury to the assets, business
prospects or reputation of the Company or System, including without limitation
a violation of Company or System policy or law, or (iv) failure to diligently
perform the duties and discharge the responsibilities assigned to him in
accordance with this Agreement.
6. Withholding. Any and all compensation provided for herein
shall be subject to all income tax withholding or similar requirements as may
be required pursuant to any law or governmental regulation or ruling.
7. Confidentiality and Nondisclosure. Executive understands and
agrees that, in the course of performing his duties hereunder, he will acquire
information of a proprietary and/or confidential nature relating to the
business of the Company and its affiliated entities within the System.
Executive hereby expressly agrees to maintain in strictest confidence and not
to use in any way (including without limitation in any future business
relationship of Executive), publish, disclose or authorize anyone else to use,
publish or disclose in any way, any such proprietary, confidential or other
non-public information or document. Upon the expiration or termination of this
Agreement, Executive shall promptly return to the Company any such information
or documentation. Executive agrees further that, in the event of his breach of
any of his obligations under this Section, monetary damages would be
insufficient to compensate the Company. Accordingly, Executive agrees that, in
the event of any such breach, the Company shall, in addition to any right or
remedy to which it may be entitled in law or in equity, be entitled to an
appropriate decree of specific performance, or any injunction restraining any
such breaching conduct or activity (without establishing the likelihood of
irreparable injury or posting bond or other security). Executive hereby
expressly waives, in any action brought to enforce this Section, any defense
that there exists an adequate remedy at law.
8. Effect of Prior Agreements. This Agreement contains the
entire understanding between the parties hereto and supersedes any prior
employment agreements, compensation plans or arrangements (written or oral)
between the Company or any predecessor of the Company and Executive, and any
such prior agreements, plans or arrangements shall be null and void as of the
Effective Time.
3
<PAGE> 4
9. General Provisions.
(a) Nonassignability. Neither this Agreement nor any right or
interest hereunder shall be assignable by Executive, his beneficiaries
or legal representatives without the prior written consent of the
Company. The rights and obligations of the Company hereunder may be
assigned to any other entity within the System if, and to the extent
that, Executive's employment hereunder is transferred to such other
System entity.
(b) No Attachment. Except as required by law, no right to
receive payments under this Agreement shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge,
pledge, or hypothecation or to garnishment, attachment, levy, or
similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to effect any such action shall be null,
void and of no effect.
(c) Binding Agreement. This Agreement shall be binding
upon, and inure to the benefit of, the Company and Executive and their
respective heirs, beneficiaries, personal representatives, successors
and permitted assigns.
(d) Amendment. This Agreement may not be modified or
amended except by an instrument in writing signed by the parties
hereto.
(e) Waiver. No term or condition of this Agreement shall
be deemed to have been waived except by written instrument signed by
the party charged with such waiver or estoppel. Each written waiver
shall operate only as to the specific term or condition waived and
shall not constitute a waiver of such term or condition for the future
or as to any act other than that specifically waived.
(f) Severability. If, for any reason, any term or
provision of this Agreement is held by a court of competent
jurisdiction to be invalid, such invalidity shall not affect any other
provision of this Agreement not held so invalid, and each such other
provision shall to the full extent consistent with law continue in
full force and effect.
(g) Headings. The headings of paragraphs herein are
included solely for convenience of reference and shall not control the
meaning or interpretation of any of the provisions of this Agreement.
(h) Governing Law. This Agreement has been executed and
delivered in the State of Texas, and its validity, interpretation,
performance, and enforcement shall be governed by the laws of said
State regardless of any conflict of law provisions.
EXECUTED effective as of the date and year first above written.
LUFKIN-CONROE COMMUNICATIONS CO.
By:
-----------------------------
4
<PAGE> 5
Title:
--------------------------
EXECUTIVE:
---------------------------------
5
<PAGE> 6
SCHEDULE FOR EMPLOYMENT AGREEMENTS
<TABLE>
<CAPTION>
Name of Executive Mo. Base Salary To Be
Inserted in Section 4
<S> <C>
G.I. Ross $ 29,583
Dale Green 13,917
Kenneth Whitton 13,167
Kirk Ross 10,000
Deborah Huffman 10,667
Michael Robinson 8,085
Russell Buras 7,250
Charles Redden 9,667
Michael Miller 7,800
Samuel Weaver 5,500
Jeffrey Swearingen 6,180
</TABLE>
6
<PAGE> 1
EXHIBIT 15(a)
Texas Utilities Company:
We have made reviews, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited condensed
consolidated interim financial information of Texas Utilities Company and
subsidiaries (presently known as Texas Energy Industries, Inc. ["the
Company"]), for the periods ended March 31, 1997 and 1996, and June 30, 1997
and 1996, as indicated in our reports dated May 8, 1997 and August 11, 1997,
respectively; because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our reports referred to above, which were included in the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997
and June 30, 1997, are being incorporated by reference in this Registration
Statement.
We also are aware that the aforementioned reports, pursuant to Rule 436(c)
under the Securities Act of 1933, are not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Dallas, Texas
October 2, 1997
<PAGE> 1
EXHIBIT 15(b)
Texas Utilities Company:
We have made reviews, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited interim condensed
consolidated financial information of ENSERCH Corporation and subsidiaries for
the periods ended March 31, 1997 and 1996 and June 30, 1997 and 1996, as
indicated in our reports dated May 7, 1997 and August 13, 1997, respectively;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our reports referred to above, which were included in the
Quarterly Reports on Form 10-Q of ENSERCH Corporation for the quarters ended
March 31, 1997 and June 30, 1997, are being incorporated by reference in this
Registration Statement.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Dallas, Texas
October 2, 1997
<PAGE> 1
EXHIBIT 23(a)
[AXLEY & RODE LLP LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
use of our report dated February 13, 1997, on the consolidated financial
statements of Lufkin-Conroe Communications Co. and Subsidiaries as of December
31, 1996 and 1995 and the operating statements for each of the years in the
three-year period ended December 31, 1996 and to all references to our firm
included in this Registration Statement on Form S-4 and related Prospectus of
Texas Utilities Company for the registration of up to 10,325,000 shares of its
common stock.
/s/ AXLEY & RODE LLP
-------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Lufkin, Texas
September 30, 1997
<PAGE> 1
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Texas Utilities Company on Form S-4 of our report dated March 12, 1997, on
Texas Utilities Company and subsidiaries (presently known as Texas Energy
Industries, Inc. ["the Company"]) which report includes an explanatory
paragraph concerning the Company's change during 1995 in its method of
accounting for the impairment of long lived assets and long lived assets to be
disposed of to conform with Statement of Financial Accounting Standards No.
121, appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and to the reference to us under the heading "Experts;
Legality of TU Common Stock" in the Proxy Statement/Prospectus which is part of
this Registration Statement.
DELOITTE & TOUCHE LLP
Dallas, Texas
October 2, 1997
<PAGE> 1
EXHIBIT 23(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Texas Utilities Company on Form S-4 of our report dated February 10, 1997, on
ENSERCH Corporation and subsidiaries (ENSERCH) appearing in ENSERCH's Annual
Report on Form 10-K for the year ended December 31, 1996 and to the reference
to us under the heading "Experts; Legality of TU Common Stock" in the Proxy
Statement/Prospectus which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Dallas, Texas
October 2, 1997
<PAGE> 1
EXHIBIT 23(d)
CONSENT OF DANIELS & ASSOCIATES, L.P.
We hereby consent to the use of our opinion, and to the description
thereof contained under the heading "THE MERGER - Opinion of Financial
Advisor," in the Proxy Statement/Prospectus of Lufkin-Conroe Communications
Co. and Texas Utilities Company included in this Registration Statement of
Texas Utilities Company and to all references to our firm included in or made a
part of this Registration Statement. In giving such consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules and regulations
adopted by the Securities and Exchange Commission thereunder.
DANIELS & ASSOCIATES, L.P.
Denver, Colorado
October 2, 1997
<PAGE> 1
EXHIBIT 99(a)
PROXY
LUFKIN-CONROE COMMUNICATIONS CO.
321 NORTH FIRST STREET
LUFKIN, TEXAS 75902
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Linwood D. Newman and Stephen T. Moore, and
each of them, Proxies with power to appoint a substitute, and hereby authorizes
them to represent and to vote all shares of Common Stock of Lufkin-Conroe
Communications Co. held of record by the undersigned on October ___, 1997, at
the Special Meeting of Shareholders of the Company to be held in the offices of
Lufkin-Conroe Telephone Exchange, Inc. at 321 North First Street, Lufkin,
Texas, on Saturday, November 15, 1997, and at any adjournments or postponements
thereof, and to vote, as directed on the reverse side of this card, on (i) the
Agreement and Plan of Merger ("Plan of Merger") described in the accompanying
Proxy Statement/Prospectus, (ii) a bonus to Mr. G.I. Ross described in the
Proxy Statement/Prospectus and, (iii) in their discretion, upon all such other
matters incident to the conduct of said meeting as may properly come before
said meeting or any adjournments or postponements thereof.
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR the Plan of Merger and
FOR the Bonus to Mr. Ross.
Please mark your vote by placing an "X" in the box which indicates your choice.
The Board of Directors recommends a vote FOR the Plan of Merger and a vote FOR
the Bonus to Mr. Ross.
APPROVAL OF PLAN OF MERGER: o FOR o AGAINST o ABSTAIN
APPROVAL OF BONUS FOR MR. ROSS: o FOR o AGAINST o ABSTAIN
Please sign names exactly as printed hereon. Joint owners should each sign. In
signing as attorney, administrator, executor, guardian, officer, partner or
trustee, please give full title as such. Receipt is acknowledged of the Notice
of Meeting and Proxy Statement/Prospectus.
Dated: , 1997
----------------
--------------------------------
Signature
--------------------------------
Signature (if held jointly)
