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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 13, 1996
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ENSERCH CORPORATION
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Exact name of registrant as specified in its charter)
Texas 1-3183 75-0399066
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) file number) Identification No.)
ENSERCH Center
300 South St. Paul Street
Dallas, Texas 75201-5598
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(Address of principal (Zip code)
executive office)
Registrant's telephone number, including area code (214) 651-8700
--------------
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events
ENSERCH Corporation, a Texas corporation ("ENSERCH"), Texas
Utilities Company, a Texas corporation ("TUC"), TXA, Inc., a
newly formed Texas corporation wholly owned by TUC ("TXA"), and
TXB, Inc., a Texas corporation 50% of the outstanding capital
stock of which is owned by ENSERCH and 50% of the outstanding
capital stock of which is owned by TUC ("TXB"), have entered into
an Agreement and Plan of Merger, dated as of April 13, 1996 (the
"Merger Agreement"), providing for a strategic business
combination of ENSERCH and TUC (the "Merger"). The Merger, which
was approved by the Boards of Directors of ENSERCH and TUC, would
be preceded by the spinoff of ENSERCH's 83.4% interest in Enserch
Exploration, Inc., a Texas corporation ("EEX"), and certain other
assets to the shareholders of ENSERCH (the "Distribution"). The
consummation of the Merger is subject to a favorable IRS ruling
and certain regulatory approvals. The closing is expected to
occur in late 1996 or early 1997.
In the Merger, TXA will merge with and into ENSERCH and
ENSERCH will become a wholly owned subsidiary of TUC.
Alternatively, under certain circumstances, the Merger Agreement
would be amended as appropriate to effect the transaction by the
merger of two newly formed, wholly owned subsidiaries of TXB with
and into ENSERCH and TUC, respectively, with the result that
ENSERCH and TUC each would become wholly owned subsidiaries of
TXB.
The Merger Agreement, the Press Release, dated April 15,
1996, issued in connection with the announcement of the Merger,
and the related Stock Option Agreement (as defined below) are
filed as exhibits to this report and are incorporated herein by
reference. The descriptions of the Merger Agreement and the
Stock Option Agreement set forth herein do not purport to be
complete and are qualified in their entirety by the provisions of
the Merger Agreement and the Stock Option Agreement.
To effect the Distribution, immediately prior to the
effective time of the Merger, EEX will be merged (the
"Preliminary Merger") into Lone Star Energy Company, a Texas
corporation wholly owned by ENSERCH ("LSEC"), and the shares of
capital stock of LSEC held by ENSERCH will then be distributed to
the shareholders of ENSERCH. Certain matters pertaining to the
Distribution will be set forth in a Distribution Agreement and a
Tax Allocation Agreement, each to be entered into by and among
ENSERCH, LSEC, EEX and TUC, the forms of which are attached as
Exhibits A and B, respectively, to the Merger Agreement.
In the Merger, each outstanding share of common stock, par
value $4.45 per share ("ENSERCH Common Stock"), of ENSERCH will
be converted into the right to receive that number (the "Ratio")
of shares of TUC common stock, no par value ("TUC Common Stock"),
equal to the quotient obtained by dividing $8.00 by the average
closing sales price of the TUC Common Stock over a 15 consecutive
trading day period preceding the fifth trading day prior to the
effective time of the Merger (the "Average TUC Price"), provided
that the Average TUC Price will be deemed to be not less than
$35 5/8 and not more than $43 5/8.
The Merger Agreement provides, with respect to certain
outstanding ENSERCH debt, that ENSERCH and TUC will cooperate
with each other in maintaining, and that TUC will take such
actions as are necessary to meet the quantitative parameters
necessary for ENSERCH to maintain, the ratings on such debt by at
least two nationally recognized rating agencies at their current
levels.
The Merger Agreement contains customary representations and
warranties on the part of ENSERCH and TUC, and the consummation
of the Merger is subject to customary closing conditions,
including, without limitation, approval by the shareholders of
ENSERCH, the receipt of all necessary governmental approvals and
the making of all required governmental filings (including the
approval of the Securities and Exchange Commission under the
Public Utilities Holding Companies Act of 1935, and the filing of
the requisite notifications with the Federal Trade Commission and
with the Department of Justice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the
expiration of applicable waiting periods thereunder), and any one
of several specified actions by the Texas Railroad Commission.
The Merger also is subject to (i) the receipt from the Internal
Revenue Service of a ruling that the Distribution will qualify as
a tax-free distribution and the receipt of opinions of counsel
that the Merger will qualify as a tax-free reorganization, (ii)
the effectiveness of the registration statement to be filed by
TUC in respect of the TUC Common Stock to be issued in the
Merger, and (iii) the approval of the shares of TUC Common Stock
for listing on the New York Stock Exchange. (See Article IX of
the Merger Agreement).
The Merger Agreement contains covenants regarding the
activities of the parties pending the consummation of the Merger.
These covenants in respect of ENSERCH do not extend to LSEC, EEX
and their respective subsidiaries. Generally, each of ENSERCH
and TUC must conduct its business in the ordinary course
consistent with past practice. In addition, with respect to
ENSERCH, the Merger Agreement prohibits any increase of dividends
and imposes restrictions on amendments to its charter documents,
acquisitions, capital expenditures, dispositions, incurrence of
indebtedness and the modification of employee compensation and
benefits arrangements. (See Article VII of the Merger
Agreement.)
ENSERCH and TUC each are afforded a period of 21 days
following the execution of the Merger Agreement to conduct a due
diligence investigation. Each of ENSERCH and TUC has the
opportunity to terminate the Merger Agreement by notice delivered
no later than May 4, 1996, if it uncovers information amounting
to a material adverse change in the business or prospects of the
other party as compared to the information disclosed prior to the
execution of the Merger Agreement.
The Merger Agreement also may be terminated (1) by mutual
consent of ENSERCH and TUC, (2) by either ENSERCH or TUC if the
Merger is not consummated by March 31, 1997, provided that such
termination date will be extended to September 30, 1997, if all
conditions to closing of the Merger, other than the receipt of
certain regulatory approvals, are capable of being satisfied on
March 31, 1997, (3) by either ENSERCH or TUC if the shareholders
of ENSERCH fail to approve the Merger, (4) if any federal or
state law or court order prohibits the Merger, (5) by either
ENSERCH or TUC as a result of a third-party tender offer or
business combination proposal which the Board of Directors of
such party in good faith and based upon the advice of counsel
determines to accept after negotiations with the other party to
make adjustments in the terms of the Merger Agreement as would
enable the Merger to proceed, (6) by the non-breaching party if
there exists a material breach of representation, warranty,
covenant or agreement under the Merger Agreement and such breach
is not remedied within 20 days after notice from the other party,
or (7) by either ENSERCH or TUC if the Board of Directors of the
other party withdraws or adversely modifies its recommendation in
respect of the Merger.
In the event the Merger Agreement is terminated as described
in clause (6) or (7) of the preceding paragraph, the breaching
party or the party whose Board of Directors has withdrawn or
modified its recommendation is required to pay to the other, as
liquidated damages, the out-of-pocket expenses incurred by the
other party in connection with the Merger in an amount up to $15
million, except that if the termination occurs as the result of a
willful breach, the non-breaching party may pursue any other
remedies available to it at law or in equity. Moreover, if (i)
the Merger Agreement is terminated (a) as a result of a failure
to obtain the approval of the shareholders of ENSERCH or a
failure by ENSERCH to pursue such approval or (b) as described in
clauses (5) or (7) of the previous paragraph, and (ii) at the
time of such termination (or prior to shareholder disapproval)
there is a third-party tender offer or business combination
proposal with respect to ENSERCH or TUC, as the case may be, and
such offer or proposal has not been rejected by the Board of
Directors of the target company of the offer or proposal and
withdrawn by the third party, then the Merger Agreement provides
for the payment by the target party of a termination fee in the
amount of $42.5 million (the "Termination Fee"), which includes
out-of-pocket expenses and the value as of the date of
termination of the Stock Option (as defined below). (See Article
10 of the Merger Agreement.)
Concurrently with the Merger Agreement, ENSERCH and TUC have
entered into a stock option agreement (the "Stock Option
Agreement") granting TUC an irrevocable option to purchase up to
3,363,570 shares of ENSERCH Common Stock (the "Stock Option"),
which is equal to 4.9% of the shares of ENSERCH Common Stock
outstanding as of March 31, 1996, at a price per share of $16 3/8,
if any of the circumstances which trigger payment of the
Termination Fee occurs. The issuance of any stock upon the
exercise of the Stock Option is subject to any required
regulatory approvals. If the Stock Option becomes exercisable,
TUC may require that ENSERCH repurchase from TUC all or any
portion of the Stock Option, or any shares acquired by TUC upon
the exercise thereof, at a price to be calculated as specified in
the Stock Option Agreement. (See the Stock Option Agreement.)
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Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit No. Description of Exhibit Reference
2.1 Agreement and Plan of
Merger dated as of
April 13, 1996 (1) . . . . . .Filed herewith.
2.2 Stock Option Agreement
dated as of April 13,
1996 . . . . . . . . . . . . .Filed herewith.
99 News Release of ENSERCH
Corporation dated
April 15, 1996 . . . . . . . .Filed herewith.
(1) The registrant agrees to furnish supplementally any omitted
exhibits or schedules to the Commission upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
ENSERCH CORPORATION
(Registrant)
Date: April 17, 1996 By: /s/ J. W. Pinkerton
-----------------------------
J. W. Pinkerton
Vice President and Controller
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
ENSERCH CORPORATION
TEXAS UTILITIES COMPANY
TXA, INC.
AND
TXB, INC.
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TABLE OF CONTENTS
Section 2.1 The Merger...............................- 10 -
Section 2.2 Effective Time of the Merger.............- 11 -
Section 2.3 Articles of Incorporation................- 11 -
Section 2.4 Bylaws...................................- 11 -
Section 2.5 Effects of Merger........................- 11 -
Section 3.1 Effect of Merger on Capital Stock........- 11 -
Section 3.2 Exchange of Certificates.................- 13 -
Section 4.1 Closing..................................- 16 -
Section 5.1 Organization and Qualification...........- 16 -
Section 5.2 Subsidiaries.............................- 16 -
Section 5.3 Capitalization...........................- 17 -
Section 5.4 Authority; Non-Contravention;
Statutory Approvals; Compliance..........- 18 -
Section 5.5 Reports and Financial Statements.........- 20 -
Section 5.6 Absence of Certain Changes or Events;
Absence of Undisclosed Liabilities.......- 21 -
Section 5.7 Litigation...............................- 22 -
Section 5.8 Registration Statement and Proxy
Statement................................- 22 -
Section 5.9 Tax Matters..............................- 23 -
Section 5.10 Employee Matters; ERISA..................- 23 -
Section 5.11 Environmental Protection.................- 31 -
Section 5.12 Regulation as a Utility..................- 33 -
Section 5.13 Vote Required............................- 33 -
Section 5.14 Opinion of Financial Advisor.............- 33 -
Section 5.15 Insurance................................- 33 -
Section 5.16 Ownership of TUC Common Stock............- 33 -
Section 6.1 Organization and Qualification...........- 34 -
Section 6.2 Subsidiaries.............................- 34 -
Section 6.3 Capitalization...........................- 35 -
Section 6.4 Authority; Non-Contravention;
Statutory Approvals; Compliance..........- 35 -
Section 6.5 Reports and Financial Statements.........- 37 -
Section 6.6 Absence of Certain Changes or Events;
Absence of Undisclosed Liabilities.......- 38 -
Section 6.7 Litigation...............................- 39 -
Section 6.8 Registration Statement and Proxy
Statement................................- 39 -
Section 6.9 Tax Matters..............................- 40 -
Section 6.10 Employee Matters; ERISA..................- 40 -
Section 6.11 Environmental Matters....................- 41 -
Section 6.12 Regulation as a Utility..................- 42 -
Section 6.13 Vote Required............................- 42 -
Section 6.14 Opinion of Financial Advisor.............- 42 -
Section 6.15 Insurance................................- 42 -
Section 6.16 Ownership of Enserch Common Stock........- 43 -
Section 6.17 TXA......................................- 43 -
Section 6.18 NRC Actions..............................- 43 -
Section 7.1 Ordinary Course of Business..............- 44 -
Section 7.2 Dividends................................- 44 -
Section 7.3 Issuance of Securities...................- 45 -
Section 7.4 Charter Documents........................- 45 -
Section 7.5 No Acquisitions..........................- 46 -
Section 7.6 Capital Expenditures.....................- 46 -
Section 7.7 No Dispositions..........................- 46 -
Section 7.8 Transfer of Assets to the Distribution
Subsidiaries.............................- 46 -
Section 7.9 Indebtedness.............................- 46 -
Section 7.10 Compensation, Benefits...................- 47 -
Section 7.11 1935 Act.................................- 47 -
Section 7.12 Accounting...............................- 48 -
Section 7.13 Tax-Free Status..........................- 48 -
Section 7.14 Insurance................................- 48 -
Section 7.15 Cooperation, Notification................- 48 -
Section 7.16 Rate Matters.............................- 49 -
Section 7.17 Third-Party Consents.....................- 49 -
Section 7.18 Tax-Exempt Status........................- 49 -
Section 7.19 Permits..................................- 49 -
Section 7.20 Certain Information Relating to
Customers................................- 49 -
Section 7.21 Certain Restrictions in Respect of TUC...- 50 -
Section 8.1 Access to Information....................- 50 -
Section 8.2 Proxy Statement and Registration
Statement................................- 51 -
Section 8.3 Regulatory Matters.......................- 53 -
Section 8.4 Shareholder Approval.....................- 54 -
Section 8.5 Directors' and Officers' Indemnification.- 54 -
Section 8.6 Disclosure Schedules.....................- 55 -
Section 8.7 Public Announcements.....................- 56 -
Section 8.8 Rule 145 Affiliates......................- 57 -
Section 8.9 Employment Agreement Consultation........- 57 -
Section 8.10 Stock Option and Bonus Plans.............- 57 -
Section 8.11 No Solicitations.........................- 58 -
Section 8.12 Transition Management....................- 59 -
Section 8.13 Expenses.................................- 60 -
Section 8.14 Employee Benefit Matters................ - 60 -
Section 8.15 Other Agreements.........................- 60 -
Section 8.16 Covenant to Satisfy Conditions...........- 61 -
Section 9.1 Conditions to Each Party's Obligation
to Effect the Merger.....................- 61 -
Section 9.2 Conditions to Obligation of Enserch
to Effect the Merger.....................- 62 -
Section 9.3 Conditions to Obligation of
TUC to Effect the Merger.................- 63 -
Section 10.1 Termination..............................- 65 -
Section 10.2 Effect of Termination....................- 68 -
Section 10.3 Certain Damages, Payments and Expenses...- 68 -
Section 10.4 Amendment................................- 70 -
Section 10.5 Waiver...................................- 71 -
Section 11.1 Non-Survival of Representations,
Warranties, Covenants and Agreements.....- 71 -
Section 11.2 Brokers..................................- 71 -
Section 11.3 Notices..................................- 72 -
Section 11.4 Miscellaneous............................- 73 -
Section 11.5 Interpretation...........................- 73 -
Section 11.6 Counterparts; Effect.....................- 73 -
Section 11.7 Parties in Interest......................- 73 -
Section 11.8 Specific Performance.....................- 74 -
Section 11.9 Further Assurances.......................- 74 -
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 13,
1996 (this "Agreement"), by and among ENSERCH Corporation, a
corporation formed under the laws of the State of Texas
("Enserch"), Texas Utilities Company, a corporation formed
under the laws of the State of Texas ("TUC"), TXA, Inc., a
wholly owned transitory subsidiary of TUC formed under the
laws of the State of Texas ("TXA"), and TXB, Inc., a
corporation formed under the laws of the State of Texas
("TXB"), 50% of whose outstanding capital stock is owned by
TUC and 50% of whose outstanding capital stock is owned by
Enserch.
WHEREAS, TUC and Enserch have determined to engage in a
strategic business combination;
WHEREAS, in furtherance thereof, the respective Boards
of Directors of Enserch and TUC have approved the merger of
TXA with and into Enserch whereby the Common Stock of Enserch
will be converted into and exchanged for Common Stock of TUC
and Enserch will become a wholly owned subsidiary of TUC, (or
in certain circumstances described herein, two wholly owned,
newly formed subsidiaries of TXB will merge with and into TUC
and Enserch, respectively, and TUC and Enserch will become
thereby wholly owned subsidiaries of TXB) all pursuant to the
terms and conditions set forth in this Agreement and, the
Board of Directors of Enserch has approved the execution and
delivery of the Enserch Stock Option Agreement dated as of
the date hereof between Enserch and TUC (the "Enserch
Option");
WHEREAS, it is a condition to such merger that the
Preliminary Merger (as hereinafter defined) shall have
occurred, and the stock of Lone Star Energy Company, a Texas
corporation ("LSEC"), a wholly owned subsidiary of Enserch,
shall have been distributed to the shareholders of Enserch
prior to the Merger (the "Distribution"), in accordance with
the terms of the distribution agreement to be entered into
among Enserch, LSEC and Enserch Exploration, Inc. a wholly
owned Subsidiary of Enserch ("EEX") and TUC substantially in
the form attached hereto as Exhibit A (the "Distribution
Agreement").
WHEREAS, for federal income tax purposes, it is
intended that (a) the Merger will be a reorganization
described in Section 368(a)(1)(B) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations
thereunder or that the Alternative Mergers (as hereinafter
defined) will result in exchanges described in Section 351 of
the Code, and (b) the Distribution shall qualify as a tax-free
distribution within the meaning of Section 355 of the
Code.
NOW, THEREFORE, in consideration of the premises and
the representations, warranties, covenants and agreements
contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall
have the following meanings:
"Articles of Merger" shall have the meaning set forth
in Section 2.2.
"Barr Devlin" shall have the meaning set forth in
Section 6.14.
"Business Combination" shall have the meaning set forth
in Section 10.1(e).
"Certificates" shall have the meaning set forth in
Section 3.2(b).
"Closing" and "Closing Date" shall have the meaning set
forth in Section 4.1.
"Confidentiality Agreement" shall have the meaning set
forth in Section 7.20.
"Converted Shares" shall have the meaning set forth in
Section 3.2(b).
"Disclosure Schedules" shall mean the Enserch
Disclosure Schedule and the TUC Disclosure Schedule,
collectively.
"Distribution Subsidiaries" shall mean EEX and LSEC and
their respective Subsidiaries and Joint Ventures.
"Due Diligence Period" shall have the meaning set forth
in Section 8.6.
"Effective Time" shall have the meaning set forth in
Section 2.2.
"Enserch Benefit Plan" shall have the meaning set forth
in Section 5.10(a)(ii).
"Enserch 1996 Budget" shall have the meaning set forth
in Section 7.5.
"Enserch 1997 Budget" shall have the meaning set forth
in Section 7.5.
"Enserch Common Stock" shall mean the common stock, par
value $4.45 per share, of Enserch.
"Enserch Convertible Debentures" shall mean the issued
and outstanding 6 3/8% Convertible Subordinated Debentures
Due 2002 issued by Enserch.
"Enserch Disclosure Schedule" shall have the meaning
set forth in Section 8.6(a)(ii).
"Enserch ERISA Affiliate" shall have the meaning set
forth in Section 5.10(a)(i)(D).
"Enserch Financial Statements" shall have the meaning
set forth in Section 5.5(d).
"Enserch Material Adverse Effect" shall mean a
material adverse effect on the business, operations,
properties, assets, condition (financial or otherwise),
prospects or results of operations of Enserch and its
Subsidiaries taken as a whole or on the consummation of the
transactions contemplated by this Agreement; provided that an
Enserch Material Adverse Effect shall not include any adverse
effect resulting from a failure to obtain the consent of the
holders of the Enserch Notes to the transactions contemplated
by this Agreement.
"Enserch Notes" shall mean: (i) the issued and
outstanding 8% Notes Due 1997, 8 7/8% Notes Due 2001, 7%
Notes Due 1999, 6 3/8% Notes Due 2004, 7 1/8% Notes Due 2005
issued by Enserch under the Indenture, dated as of February
15, 1992 between Enserch and The First National Bank of
Chicago, as Trustee; (ii) the Enserch Convertible Debentures;
and (iii) the 9.06% Adjusting Rate Senior Notes issued by
Enserch pursuant to the Note Agreement, dated as of January
12, 1990, between Enserch and the Prudential Insurance
Company of America, Pruco Life Insurance Company, Prudential
Property and Casualty Insurance Company, and Prudential
Reinsurance Company.
"Enserch Pension Benefit Plans" shall have the meaning
set forth in Section 5.10(a)(i)(D).
"Enserch Preferred Stock" shall mean the (i) adjustable
rate cumulative preferred stock, series E ("Series E
Preferred Stock"), and (ii) adjustable rate cumulative
preferred stock, series F ("Series F Preferred Stock"), of
Enserch.
"Enserch Required Consents" shall have the meaning set
forth in Section 5.4(b)(iii).
"Enserch Required Statutory Approvals" shall have the
meaning set forth in Section 5.4(c).
"Enserch Rights" shall mean all of the outstanding
rights to purchase Enserch Common Stock pursuant to the
Rights Agreement dated as of March 26, 1996.
"Enserch SEC Reports" shall have the meaning set forth
in Section 5.5(b).
"Enserch Shareholders' Approval" shall have the meaning
set forth in Section 5.13.
"Enserch Special Meeting" shall have the meaning set
forth in Section 8.4(a)(i).
"Enserch Trust" shall have the meaning set forth in
Section 3.2(d)(iii).
"Environmental Claims" shall mean, with respect to any
person, (A) any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of
noncompliance or violation in writing by or from any person
or entity (including any Governmental Authority), or (B) any
oral information provided by a Governmental Authority that
written action of the type described in the foregoing clause
is in process, which (in case of either (A) or (B)) alleges
potential liability (including, without limitation, potential
liability for enforcement, investigatory costs, cleanup
costs, governmental response costs, removal costs, remedial
costs, natural resources damages, property damages, personal
injuries, or penalties) arising out of, based on or resulting
from (a) the presence, or Release or threatened Release into
the environment, of any Hazardous Materials at any location,
whether or not owned, operated, leased or managed by Enserch
or any of its Subsidiaries or Joint Ventures (for purposes of
Section 5.11) or by TUC or any of its Subsidiaries or Joint
Ventures (for purposes of Section 6.11), (b) circumstances
forming the basis of any violation, or alleged violation, of
any Environmental Law or (c) any and all claims by any third
party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from
the presence or Release of any Hazardous Materials.
"Environmental Laws" shall mean all federal, state and
local laws, rules, regulations and guidances relating to
pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including,
without limitation, laws and regulations relating to Releases
or threatened Releases of Hazardous Materials or otherwise
relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of
Hazardous Materials.
"Environmental Permits" shall have the meaning set
forth in Section 5.11(b).
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"Excess Shares" shall have the meaning set forth in
Section 3.2(d)(ii).
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
"Exchange Agent" shall have the meaning set forth in
Section 3.2(a).
"FERC" shall mean the Federal Energy Regulatory
Commission.
"Final Order" shall mean action by the relevant
regulatory authority (or in the case of the Texas Railroad
Commission Review, satisfaction of any one of (i) through (v)
of the definition thereof) set that has not been reversed,
stayed, enjoined, set aside, annulled or suspended, with
respect to which any waiting period prescribed by law before
the transactions contemplated hereby may be consummated has
expired, and as to which all conditions to the consummation
of such transactions prescribed by law, regulation or order
have been satisfied, and as to which all opportunities for
rehearing are exhausted (whether or not any appeal thereof is
pending).
"GAAP" shall mean generally accepted accounting
principles.
"Governmental Authority" shall mean any court, govern-
mental or regulatory body (including a stock exchange or
other self-regulatory body) or authority, domestic or
foreign.
"Hazardous Materials" shall mean (a) any petroleum or
petroleum products, radioactive materials, asbestos in any
form that is or could become friable, urea formaldehyde foam
insulation, and transformers or other equipment that contain
dielectric fluid containing polychlorinated biphenyls, (b)
any chemicals, materials or substances which are now defined
as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely
hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", or words of similar import,
under any Environmental Law and (c) any other chemical,
material, substance or waste, exposure to which is now
prohibited, limited or regulated under any Environmental Law
in a jurisdiction in which Enserch or any of its Subsidiaries
or Joint Ventures operates (for purposes of Section 5.11) or
in which TUC or any of its Subsidiaries or Joint Ventures
operates (for purposes of Section 6.11).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"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 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.
"Merger Sub A" shall have the meaning set forth in
Section 2.1(b)(i).
"Merger Sub B" shall have the meaning set forth in
Section 2.1(b)(i).
"Morgan Stanley" shall have the meaning set forth in
Section 5.14.
"1935 Act" shall mean the Public Utility Holding
Company Act of 1935, as amended.
"NRC Actions" shall have the meanings set forth in
Section 6.18.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Option Value" shall have the meaning set forth in
Section 10.3(d).
"Out-of-Pocket Expenses" shall have the meaning set
forth in Section 10.3(a).
"PBGC" shall mean the Pension Benefit Guaranty
Corporation.
"Power Act" shall mean the Federal Power Act.
"Preliminary Merger" shall have the meaning set forth
in Section 8.15 (a).
"Proxy Statement" shall have the meaning set forth in
Section 5.8(a)(ii).
"Proxy/Registration Statement" shall have the meaning
set forth in Section 8.2(a)(i).
"Ratio" shall have the meaning set forth in Section
3.1(b).
"Registration Statement" shall have the meaning set
forth in Section 5.8(a)(i).
"Release" shall mean any release, spill, emission,
leaking, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the atmosphere, soil, subsurface,
surface water, groundwater or property.
"Representatives" shall have the meaning set forth in
Section 8.1.
"Securities Act" shall mean the Securities Act of 1933,
as amended.
"Shareholder Disapproval" shall have the meaning set
forth in Section 10.3(b)(i)(B).
"Stock Option Adjustment" means an amount determined as
follows: (i) as of the fifth trading day prior to the
Effective Time, ("Calculation Date"), a calculation will be
made of the sum of the cash payments made in respect of the
exercise of Enserch stock options between the date of signing
this Agreement and such date; and (ii) from such amount shall
be subtracted the value of the TUC Common Stock determined
using the Average TUC Price that would have been received by
such option holders had they held the Enserch shares after
the Distribution. The Stock Option Adjustment shall be equal
to such difference divided by the number of outstanding
shares of Enserch Common Stock to be converted and exchanged
into TUC Common Stock pursuant to Section 3.1(b).
"Stock Plan" shall have the meaning set forth in
Section 8.10.
"Subsidiary" shall mean, with respect to any person,
any corporation or other entity (including partnerships and
other business associations) in which a person directly or
indirectly owns at least a majority of the outstanding voting
securities or other equity interests having the power, under
ordinary circumstances, to elect a majority of the directors,
or otherwise to direct the management and policies, of such
corporation or other entity.
"Surviving Corporation" shall have the meaning set
forth in Section 2.1(a).
"Takeover Proposal" shall mean any tender or exchange
offer, proposal for a merger, consolidation or other business
combination involving Enserch, TUC or any of their respective
material Subsidiaries, or any proposal or offer to acquire in
any manner a substantial equity interest in, or a substantial
portion of the assets of, Enserch, TUC or any of their
respective material Subsidiaries, other than pursuant to the
transactions contemplated by this Agreement.
"Target Party" shall have the meaning set forth in
Section 10.3(b)(ii).
"Task Force" shall have the meaning set forth in
Section 8.12(a).
"Taxes" shall mean any federal, state, county, local or
foreign taxes, charges, fees, levies or other assessments,
including, without limitation, all net income, gross income,
sales and use, ad valorem, transfer, gains, profits, excise,
franchise, real and personal property, gross receipts,
capital stock, production, business and occupation,
disability, employment, payroll, license, estimated, stamp,
custom duties, severance or withholding taxes or charges
imposed by any governmental entity, and includes any interest
and penalties (civil or criminal) on or additions to any such
taxes, charges, fees, levies or other assessments, and any
expenses incurred in connection with the determination,
settlement or litigation of any liability for any of the
foregoing.
"Tax Return" shall mean any report, return or other
information required to be supplied to a governmental entity
with respect to Taxes, including, where permitted or
required, combined or consolidated returns for any group of
entities that includes Enserch or any of its Subsidiaries on
the one hand, or TUC or any of its Subsidiaries on the other
hand.
"Texas Law" shall mean the Texas Business Corporation
Act.
"Texas Railroad Commission Review" shall mean any one
of the following with regard to the Merger: (i) a Final
Order by the Texas Railroad Commission finding that the
Transaction is in the public interest; (ii) a Final Order
declining jurisdiction over the transaction by the Texas
Railroad Commission; (iii) a determination by the Texas
Railroad Commission that an Investigation associated with the
Merger is not necessary; (iv) the issuance of a letter by the
Texas Railroad Commission stating that, at a minimum, it does
not oppose the Merger or (v) the taking of no action to
docket or otherwise consider the Merger by the Texas Railroad
Commission by the time that all requirements set forth in
Section 9.1 (e) have been obtained.
"TUC Benefit Plan" shall mean any "employee pension
benefit plan" or "employee welfare benefit plan" as defined
in ERISA, of TUC.
"TUC Common Stock" shall mean the common stock, no par
value per share, of TUC.
"TUC Disclosure Schedule" shall have the meaning set
forth in Section 8.6(a)(i).
"TUC Financial Statements" shall have the meaning set
forth in Section 6.5(d).
"TUC Material Adverse Effect" shall mean a material
adverse effect on the business, operations, properties,
assets, condition (financial or otherwise), prospects or
results of operations of TUC and its Subsidiaries taken as a
whole or on the consummation of the transactions contemplated
by this Agreement.
"TUC Pension Benefit Plan" shall have the meaning set
forth in Section 6.10.
"TUC Required Consents" shall have the meaning set
forth in Section 6.4(b)(iii).
"TUC Required Statutory Approvals" shall have the
meaning set forth in Section 6.4(c).
"TUC SEC Reports" shall have the meaning set forth in
Section 6.5(b).
"Violation" shall have the meaning set forth in Section
5.4(b).
ARTICLE II
THE MERGER
Section 2.1 (a) The Merger. Upon the terms and
subject to the conditions of this Agreement, TXA shall be
merged with and into Enserch in accordance with the
provisions of Sections 5.01 and 5.03 of Texas Law (the
"Merger"). The separate corporate existence of TXA shall
thereupon cease, and Enserch shall be the surviving
corporation in the Merger and shall continue its existence
under the laws of the State of Texas (the "Surviving
Corporation").
(b) The Alternative Mergers. Notwithstanding Section
2.1(a), if (i) by the sixtieth day following the date of
execution of this Agreement, TUC is unable to obtain an
opinion of counsel, reasonably satisfactory to Enserch (which
opinion will be based upon an arrangement for the
modification or acquisition of the Enserch Preferred Stock
that will be accomplished on or before the Closing Date),
that the Merger will qualify as a tax-free reorganization
within the meaning of Section 368(a)(1)(B) of the Code, or
(ii) by the ninetieth day following the date of execution of
this Agreement, TUC is unable to accomplish such arrangements
for the modification or acquisition of the Enserch Preferred
Stock, then upon the terms and subject to the conditions of
this Agreement:
(i) TUC and Enserch shall cause the following
corporations to be organized: (a) Merger Sub A
("Merger Sub A"), a transitory corporation organized
under the laws of the State of Texas, the authorized
capital stock of which shall initially consist of 100
shares of common stock, no par value, which shall be
issued to TXB, and (b) Merger Sub B ("Merger Sub B"), a
transitory corporation organized under the laws of the
state of Texas, the authorized capital stock of which
shall initially consist of 100 shares of common stock,
no par value, which shall be issued to TXB; and
(ii) Merger Sub A shall be merged with and into
TUC in accordance with the applicable provisions of
Texas Law and TUC shall be the surviving corporation
and Merger Sub B shall be merged with and into Enserch
in accordance with the applicable provisions of Texas
Law and Enserch shall be the surviving corporation
(together, the "Alternative Mergers"). As a result of
the Alternative Mergers, TUC and Enserch shall become
subsidiaries of TXB, and each share of TUC Common Stock
shall be converted into and exchanged for the right to
receive one share of TXB common stock and each share of
Enserch Common Stock shall be converted into and
exchanged for the right to receive a number of shares
of TXB common stock equal to the Ratio. If necessary,
in order to effect the Alternative Mergers, the parties
hereto agree to execute an appropriate amendment to
this Agreement. In such event, tax opinions under
Section 351 of the Code shall be substituted for
opinions under Section 368 (a)(1)(B) of the Code where
called for herein.
Section 2.2 Effective Time of the Merger. The parties
acknowledge that it is their mutual desire and intent to
consummate the Merger as soon as practicable after the date
hereof. Accordingly, the parties shall use all reasonable
efforts to bring about the satisfaction as soon as
practicable of all the conditions specified in Article IX and
otherwise to effect the consummation of the Merger as soon as
practicable. Subject to the terms hereof, as soon as
practicable after all of the conditions set forth in Article
IX shall have been satisfied or waived, the parties hereto
will cause the Merger to be consummated by the filing with
the Secretary of State of the State of Texas, in accordance
with the Texas Law, of articles of merger (the "Articles of
Merger") in such form as is required by, and executed in
accordance with, the relevant provisions of applicable law.
The Merger shall become effective at such time (the
"Effective Time") as the Secretary of State of the State of
Texas shall, upon such filing of the Articles of Merger,
issue a certificate of merger in respect of the Merger.
Section 2.3 Articles of Incorporation. The Articles of
Incorporation of Enserch as in effect at the Effective Time
shall be the Articles of Incorporation of the Surviving
Corporation, until duly amended.
Section 2.4 Bylaws. The Bylaws of Enserch as in effect
at the Effective Time shall be the Bylaws of the Surviving
Corporation, until duly amended.
Section 2.5 Effects of Merger. The Merger shall have
the effects set forth in Section 5.06 of Texas Law.
ARTICLE III
EXCHANGE OF SHARES
Section 3.1 Effect of Merger on Capital Stock. At the
Effective Time, by virtue of the Merger and without any
action on the part of any holder of any capital stock of
Enserch, TUC or TXA:
(a) Cancellation of Certain Enserch Common Stock and
Enserch Rights. Each share of Enserch Common Stock (and the
accompanying Enserch Rights), if any, that is owned by TUC or
any of its Subsidiaries, owned or held in treasury by
Enserch, or owned by any of Enserch's Subsidiaries shall be
canceled and cease to exist.
(b) Conversion of Certain Enserch Common Stock. Each
issued and outstanding share of Enserch Common Stock (and the
accompanying Enserch Rights) (other than shares of Enserch
Common Stock canceled pursuant to Section 3.1(a)), together
with any outstanding Enserch Rights with respect thereto
shall be converted into and exchanged for the right to
receive such number of share(s) or fraction of a share
(rounded to the nearest 1/1000th) (the "Ratio") of duly
authorized, validly issued, fully paid and nonassessable TUC
Common Stock equal to the quotient obtained by dividing $8.00
by the average of the closing sales prices of TUC Common
Stock as reported in the New York Stock Exchange-Consolidated
Transactions Tape on each of the 15 consecutive trading days
preceding the fifth trading day prior to the Effective Time
(the "Average TUC Price"), provided that notwithstanding the
actual Average TUC Price, the Average TUC Price shall be
deemed to be not less than $35 5/8 nor more than $43 5/8.
Upon such conversion and exchange, all such shares of Enserch
Common Stock (and the accompanying Enserch Rights) shall be
canceled and cease to exist, and the holder of a certificate
representing such shares shall cease to have any rights with
respect thereto, except the right to receive the number of
whole shares of TUC Common Stock to be issued in
consideration therefor and any cash in lieu of fractional
shares of TUC Common Stock upon the surrender of such
certificate in accordance with Section 3.2.
(c) Enserch Preferred Stock Unchanged. Each share
of Enserch Preferred Stock outstanding at the Effective Time
shall be unchanged in and shall remain outstanding after the
Merger.
(d) Enserch Convertible Debentures. Each outstanding
Enserch Convertible Debenture shall remain outstanding
following the Merger. Enserch shall take such action as may
be necessary so that, after the Effective Time of the Merger,
the Enserch Convertible Debentures shall be convertible in
accordance with their terms only for TUC Common Stock. TUC
shall authorize and reserve for issuance, or otherwise
provide, a sufficient number of shares of TUC Common Stock
for delivery upon such conversion of the then-outstanding
Enserch Convertible Debentures.
(e) Conversion of TXA Capital Stock. Each share of
TXA capital stock outstanding at the Effective Time shall be
converted into one share of Enserch Common Stock.
Section 3.2 Exchange of Certificates.
(a) Deposit with Exchange Agent. As soon as
practicable after the Effective Time, TUC shall deposit with
a bank or trust company mutually agreeable to Enserch and TUC
(the "Exchange Agent") certificates representing shares of
TUC Common Stock required to effect the exchanges referred to
in Section 3.1(b).
(b) Exchange Procedures. As soon as practicable
after the Effective Time, the Exchange Agent shall mail to
each holder of record of a certificate or certificates that,
immediately prior to the Effective Time, represented
outstanding shares of Enserch Common Stock (collectively,
the "Certificates") that were converted (collectively, the
"Converted Shares") into the right to receive shares of TUC
Common Stock pursuant to Section 3.1(b), (i) a form of letter
of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to any Certificate shall
pass, only upon actual delivery of such Certificate to the
Exchange Agent) and (ii) instructions for use in effecting
the surrender of Certificates in exchange for certificates
representing shares of TUC Common Stock. Upon surrender of a
Certificate to the Exchange Agent (or to such other agent or
agents as may be appointed by agreement of TUC and Enserch),
together with a duly executed letter of transmittal and such
other documents as the Exchange Agent shall require, the
holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing the number of
whole shares of TUC Common Stock that such holder has the
right to receive pursuant to the provisions of this Article
III. In the event of a transfer of ownership of Converted
Shares that is not registered in the transfer records of
Enserch, a certificate representing the proper number of
shares of TUC Common Stock may be issued to the transferee if
the Certificate representing such Converted Shares is
presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence
satisfactory to the Exchange Agent that any applicable stock
transfer taxes have been paid. If any Certificate shall have
been lost, stolen, mislaid or destroyed, then upon receipt of
(x) an affidavit of that fact from the holder claiming such
Certificate to be lost, mislaid, stolen or destroyed, (y)
such bond, security or indemnity as TUC or the Exchange Agent
may reasonably require, and (z) any other documentation
necessary to evidence and effect the bona fide exchange
thereof, the Exchange Agent shall issue to such holder a
certificate representing the number of shares of TUC Common
Stock into which the shares represented by such lost, stolen,
mislaid or destroyed Certificate shall have been converted.
Until surrendered as contemplated by this Section 3.2, each
Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such
surrender a certificate representing shares of TUC Common
Stock and cash in lieu of any fractional shares of TUC Common
Stock as contemplated by this Section 3.2.
(c) Distributions with Respect to Unexchanged Shares.
No dividends or other distributions declared or made after
the Effective Time with respect to TUC Common Stock with a
record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the
shares of TUC Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be made to any
such holder pursuant to Section 3.2(d), until the holder of
record of such Certificate shall surrender such Certificate
as contemplated by Section 3.2(b). Subject to the effect of
unclaimed property, escheat and other applicable laws,
following surrender of any such Certificate there shall be
paid to the holder of the certificates representing whole
shares of TUC Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender or as
soon thereafter as may be practicable, the amount of any cash
payable in lieu of a fractional share of TUC Common Stock to
which such holder is entitled pursuant to Section 3.2(d) and
the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect
to such whole number of shares of TUC Common Stock, and (ii)
at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective
Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole number of shares
of TUC Common Stock.
(d) No Fractional Securities.
(i) No certificates or scrip representing
fractional shares of TUC Common Stock shall be issued
upon the surrender for exchange of Certificates, and
such fractional share interests will not entitle the
owner thereof to vote or to any rights of a stockholder
of TUC.
(ii) As promptly as practicable following the
Effective Time, the Exchange Agent shall determine the
excess of (x) the number of full shares of TUC Common
Stock delivered to the Exchange Agent by TUC pursuant
to Section 3.2(a) over (y) the aggregate number of
whole shares of TUC Common Stock to be issued pursuant
to Section 3.1, such excess being herein called the
"Excess Shares." As soon after the Effective Time as
practicable, the Exchange Agent, as agent for the
holders of Enserch Common Stock, shall sell the Excess
Shares at then prevailing prices on the NYSE, all in
the manner provided in paragraph (iii) of this Section
3.2(d).
(iii) 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 Enserch Common Stock, the
Exchange Agent shall hold such proceeds in trust for
the holders of Enserch Common Stock (the "Enserch
Trust"). TUC shall pay all commissions, transfer taxes
and other out-of-pocket transaction costs, including
the expenses and compensation, of the Exchange Agent
incurred in connection with such sale of the Excess
Shares. The Exchange Agent shall determine the portion
of the Enserch Trust to which each holder of Enserch
Common Stock is entitled.
(iv) As soon as practicable after the
determination of the amount of cash, if any, to be paid
to holders of Enserch Common Stock in lieu of any
fractional share interests, the Exchange Agent shall
distribute such amounts to such holders of Enserch
Common Stock in accordance with this Section 3.2.
(e) Closing of Transfer Books. From and after the
Effective Time, the stock transfer books of Enserch shall be
closed and no transfer of any Enserch Common Stock shall
thereafter be made. If after the Effective Time any
Certificates are presented to the TUC transfer agent for
registration of transfer, they shall be canceled and
exchanged for certificates representing the number of whole
shares of TUC Common Stock and the cash amount, if any,
determined in accordance with this Article III.
(f) Termination of Duties of Exchange Agent. Any
certificates representing TUC Common Stock deposited with the
Exchange Agent pursuant to Section 3.2(a) and not exchanged
within one year after the Effective Time pursuant to this
Section 3.2 shall be returned by the Exchange Agent to TUC,
which shall thereafter act as Exchange Agent. All funds held
by the Exchange Agent for payment to the holders of
unsurrendered Certificates and unclaimed at the end of one
year from the Effective Time shall be returned to TUC,
whereupon any holder of unsurrendered Certificates shall look
as a general unsecured creditor only to TUC for payment of
any funds to which such holder may be entitled, subject to
applicable law. TUC shall not be liable to any person for
such shares or funds delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
Section 3.3 Adjustments to Prevent Dilution. Subject
to the requirements of Article VII hereof, in the event that
prior to the Effective Time there is a change in the number
of issued and outstanding shares of TUC Common Stock or
shares of Enserch Common Stock convertible or exchangeable
into TUC Common Stock in the Merger as a result of a
reclassification subdivision, recapitalization, combination,
exchange, stock split (including reverse stock split), stock
dividend or distribution or other similar transaction, the
Ratio shall be equitably adjusted to eliminate the effects of
such event.
ARTICLE IV
THE CLOSING
Section 4.1 Closing. The closing of the Merger (the
"Closing") shall take place at the offices of Worsham,
Forsythe & Wooldridge, L.L.P., 1601 Bryan Street, 30th Floor,
Dallas, Texas 75201 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 IX is fulfilled or
waived, or at such other time and date and place as Enserch
and TUC shall mutually agree (the "Closing Date").
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ENSERCH
Enserch represents and warrants to TUC as follows:
Section 5.1 Organization and Qualification. Enserch is
a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas, and each of
Enserch' Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each of Enserch and its
Subsidiaries has all requisite corporate power and authority,
and is duly authorized by all necessary regulatory approvals
and orders, to own, lease and operate its assets and
properties and to carry on its business as it is now being
conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its
business or the ownership or leasing of its assets and
properties makes such qualification necessary, other than
such failures which, when taken together with all other such
failures, will not have an Enserch Material Adverse Effect.
Section 5.2 Subsidiaries.
(a) Section 5.2 of the Enserch Disclosure Schedule
sets forth a list as of the date hereof of all Subsidiaries
and Joint Ventures (with the exception of EEX Joint Ventures
involving oil and gas operating agreements) of Enserch,
including the name of each such entity and the state or
jurisdiction of its incorporation.
(b) Except as set forth in Section 5.2 of the Enserch
Disclosure Schedule, none of the entities listed in such
Section 5.2 is a "public utility company", a "holding
company", a "subsidiary company" or an "affiliate" of any
public utility company within the meaning of Section 2(a)(5),
2(a)(7), 2(a)(8) or 2(a)(11) (A) of the 1935 Act,
respectively.
(c) Except as set forth in Section 5.2 of the Enserch
Disclosure Schedule, all of the issued and outstanding shares
of capital stock of each Subsidiary of Enserch are validly
issued, fully paid, nonassessable and free of preemptive
rights and are owned directly or indirectly by Enserch free
and clear of any liens, claims, encumbrances, security
interests, equities, charges and options of any nature
whatsoever, and there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other
agreement, obligating any such Subsidiary to issue, deliver
or sell, or cause to be issued, delivered or sold, additional
shares of its capital stock or obligating it to grant, extend
or enter into any such agreement or commitment.
Section 5.3 Capitalization.
(a) As of the date hereof, the authorized capital
stock of Enserch consists of 100,000,000 shares of common
stock, 2,000,000 shares of preferred stock and 2,000,000
shares of voting preference stock.
(b) As of the close of business on March 31, 1996,
(i) 68,644,284 shares of Enserch Common Stock, (ii) 100,000
shares of Enserch Series E Preferred Stock, (iii) 75,000
shares of Enserch Series F Preferred Stock and (iv) no shares
of voting preference stock of Enserch were issued and
outstanding.
(c) All of the issued and outstanding shares of the
capital stock of Enserch are validly issued, fully paid,
nonassessable and free of preemptive rights.
(d) Except for the Enserch Option, the Enserch
Convertible Debentures, the Enserch Rights and as set forth
in Section 5.3(a) of the Enserch Disclosure Schedule, there
are no outstanding subscriptions, options, calls, contracts,
voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating Enserch
to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of Enserch or
obligating Enserch to grant, extend or enter into any such
agreement or commitment.
Section 5.4 Authority; Non-Contravention; Statutory
Approvals; Compliance.
(a) Authority.
(i) Enserch has all requisite power and
authority to enter into this Agreement and, subject to
the Enserch Shareholders' Approval and the Enserch
Required Statutory Approvals, to consummate the
transactions contemplated hereby.
(ii) The execution and delivery of this
Agreement and, subject to obtaining the Enserch
Shareholders' Approval, the consummation by Enserch of
the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the
part of Enserch.
(iii) This Agreement has been duly and validly
executed and delivered by Enserch and, assuming the due
authorization, execution and delivery hereof by TUC,
TXA and TXB, constitutes a valid and binding obligation
of Enserch, enforceable against Enserch in accordance
with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent
conveyance or other similar laws affecting the
enforcement of creditors' rights generally, and except
that the availability of equitable remedies, including
specific performance, may be subject to the discretion
of any court before which any proceedings may be
brought.
(iv) The Enserch Option has been duly and
validly executed and delivered by Enserch and, assuming
the due authorization, execution and delivery thereof
by TUC, constitutes a valid and binding obligation of
Enserch, enforceable against Enserch in accordance with
its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent
conveyance or other similar laws affecting the
enforcement of creditors' rights generally, and except
that the availability of equitable remedies, including
specific performance, may be subject to the discretion
of any court before which any proceedings may be
brought.
(b) Non-Contravention. Except as set forth in
Section 5.4(b) of the Enserch Disclosure Schedule, the
execution and delivery of this Agreement and the Enserch
Option by Enserch do not, and the consummation of the
transactions contemplated hereby and thereby will not,
violate, conflict with or result in a breach of any provision
of, or constitute a default (with or without notice or lapse
of time or both) under, or result in the termination of, or
accelerate the performance required by, or result in a right
of termination, cancellation or acceleration of any
obligation or the loss of a material benefit under, or result
in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets (any such
violation, conflict, breach, default, right of termination,
cancellation or acceleration, loss or creation, a
"Violation") of, Enserch or any of its Subsidiaries or, to
the knowledge of Enserch, any of its Joint Ventures, under
any provisions of
(i) the articles of incorporation, bylaws or
similar governing documents of Enserch or any of its
Subsidiaries or Joint Ventures,
(ii) subject to obtaining the Enserch Required
Statutory Approvals and the receipt of the Enserch
Shareholders' Approval, any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any Governmental Authority
applicable to Enserch or any of its Subsidiaries or
Joint Ventures or any of their respective properties or
assets, or
(iii) subject to obtaining the third-party
consents or other approvals set forth in Section 5.4(b)
of the Enserch Disclosure Schedule (the "Enserch
Required Consents"), any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument,
obligation or agreement of any kind to which Enserch or
any of its Subsidiaries or Joint Ventures is now a
party or by which it or any of its properties or assets
may be bound or affected,
excluding from the foregoing clauses (ii) and (iii) such
Violations as would not, in the aggregate, reasonably likely
have an Enserch Material Adverse Effect.
(c) Statutory Approvals. Except as set forth in
Section 5.4(c) of the Enserch Disclosure Schedule, no
declaration, filing or registration with, or notice to or
authorization, consent or approval of any Governmental
Authority is necessary for the execution and delivery of this
Agreement by Enserch or the consummation by Enserch of the
transactions contemplated hereby, the failure to obtain, make
or give which would reasonably likely have an Enserch
Material Adverse Effect (the "Enserch Required Statutory
Approvals"), it being understood that references in this
Agreement to "obtaining" such Enserch Required Statutory
Approvals shall mean making such declarations, filings or
registrations; giving such notice; obtaining such consents or
approvals; and having such waiting periods expire as are
necessary to avoid a violation of law.
(d) Compliance.
(i) Except as set forth in Section 5.4(d) or
5.11 of the Enserch Disclosure Schedule or as disclosed
in the Enserch SEC Reports, neither Enserch nor any of
its Subsidiaries nor, to the knowledge of Enserch, 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,
statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable
environmental law, ordinance or regulation) of any
Governmental Authority, except for violations that do
not have, and, would not reasonably likely have, an
Enserch Material Adverse Effect.
(ii) Except as set forth in Section 5.4(d) or
5.11 of the Enserch Disclosure Schedule, Enserch, its
Subsidiaries and, to the knowledge of Enserch, 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 Enserch Material Adverse Effect.
Section 5.5 Reports and Financial Statements.
(a) Since January 1, 1991, the filings required to be
made by Enserch and its Subsidiaries under the Securities
Act, the Exchange Act or under Texas laws and regulations
administered by the Texas Railroad Commission have been filed
with the SEC or the Texas Railroad Commission, respectively,
as required by each such law or regulation, including all
forms, statements, reports, agreements and all documents,
exhibits, amendments and supplements appertaining thereto,
and Enserch and its Subsidiaries have complied in all
material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder.
(b) Enserch has made available to TUC a true and
complete copy of each report, schedule, registration
statement and definitive proxy statement filed by Enserch or
any of its Subsidiaries with the SEC since January 1, 1991
(such documents as filed, and any and all amendments thereto,
the "Enserch SEC Reports").
(c) The Enserch SEC Reports, including without
limitation any financial statements or schedules included
therein, at the time filed, and all forms, reports or other
documents filed by Enserch with the SEC after the date
hereof, did not and will not contain any untrue statement of
a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
or will be made, not misleading.
(d) The audited consolidated financial statements and
unaudited interim financial statements of Enserch included in
the Enserch SEC Reports (collectively, the "Enserch Financial
Statements") have been prepared, and the audited consolidated
financial statements and unaudited interim financial
statements of Enserch included in all forms, reports, or
other documents filed by Enserch with the SEC after the date
hereof will be prepared, in accordance with GAAP applied on a
consistent basis (except as may be indicated therein or in
the notes thereto and except with respect to unaudited
statements as permitted by Form 10-Q) and fairly present in
all material respects the financial position of Enserch as of
the respective dates thereof or the results of operations and
cash flows for the respective periods then ended, as the case
may be, subject, in the case of the unaudited interim
financial statements, to normal, recurring audit adjustments.
(e) True, accurate and complete copies of the
Articles of Incorporation and Bylaws of Enserch, as in effect
on the date hereof, have been delivered to TUC.
Section 5.6 Absence of Certain Changes or Events;
Absence of Undisclosed Liabilities.
(a) Except as set forth in the Enserch SEC Reports or
Section 5.6 of the Enserch Disclosure Schedule, from December
31, 1995 through the date hereof Enserch and each of its
Subsidiaries has conducted its business only in the ordinary
course of business consistent with past practice and there
has not been, and no fact or condition exists that would
reasonably likely have, an Enserch Material Adverse Effect.
(b) Neither Enserch 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 (i) that are
accrued or reserved against in the consolidated financial
statements of Enserch or reflected in the notes thereto for
the year ended December 31, 1995, or (ii) that were incurred
after December 31, 1995 in the ordinary course of business
and would not reasonably likely have an Enserch Material
Adverse Effect.
Section 5.7 Litigation. Except as set forth in the
Enserch SEC Reports or as set forth in Section 5.7 or 5.11 of
the Enserch Disclosure Schedule, there are no claims, suits,
actions or proceedings, pending or, to the knowledge of
Enserch, threatened, nor are there, to the knowledge of
Enserch, any investigations or reviews pending or threatened
against, relating to or affecting Enserch 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 Enserch or any of its
Subsidiaries or Joint Ventures, that would reasonably likely
have an Enserch Material Adverse Effect.
Section 5.8 Registration Statement and Proxy Statement.
(a) None of the information supplied or to be
supplied by or on behalf of Enserch for inclusion or
incorporation by reference in
(i) the registration statement on Form S-4 to
be filed with the SEC by TUC in connection with the
issuance of shares of capital stock of TUC in the
Merger (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 with
respect to Enserch or its Subsidiaries required to be
stated therein or necessary to make the statements
therein with respect to Enserch or its Subsidiaries not
misleading, and
(ii) the proxy statement in definitive form
relating to the meeting of the shareholders of Enserch
to be held in connection with the Merger and the
prospectus relating to the TUC capital stock to be
issued in the Merger (the "Proxy Statement") will, at
the date mailed to such shareholders and, as the same
may be amended or supplemented, at the time of such
meeting, contain any untrue statement of a material
fact or omit to state any material fact necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not
misleading.
(b) Each of the Registration Statement and the Proxy
Statement, as of such respective dates, will comply as to
form in all material respects with the applicable provisions
of the Securities Act and the Exchange Act and the rules and
regulations thereunder.
Section 5.9 Tax Matters.
(a) Except as set forth on Section 5.9(a) of the
Enserch Disclosure Schedule, Enserch and each of its
Subsidiaries has filed (i) 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 Taxes otherwise required
to be paid.
(b) Except as set forth on Section 5.9(b) of the
Enserch Disclosure Schedule, as of the date hereof, there are
no claims, assessments, audits or administrative or court
proceedings pending against Enserch or any of its
Subsidiaries for any alleged deficiency in Tax, and none of
Enserch 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) Enserch has established adequate accruals for
Taxes and for any liability for deferred Taxes in the Enserch
Financial Statements in accordance with GAAP.
Section 5.10 Employee Matters; ERISA.
(a) Benefit Plans.
(i) Section 5.10(a) of the Enserch Disclosure
Schedule contains a true and complete list, as of the
date hereof, of:
(A) each "employee benefit plan" within
the meaning of Section 3(3) of ERISA that has
been adopted, approved, or implemented by Enserch
or any of its Subsidiaries or any Enserch ERISA
Affiliate (including any such plan that has been
terminated before the date hereof, if Enserch or
any of its Subsidiaries could have statutory or
contractual liability with respect to the plan on
or after the date hereof); and each similar plan,
program, policy, or arrangement maintained for
non-employee directors or other non-employees who
have provided services to Enserch or any of its
Subsidiaries;
(B) each plan, program, policy, or
arrangement not listed in (A) above that provides
for bonuses, profit-sharing, incentive
compensation, deferred compensation, equity-based
compensation (including stock options, restricted
stock, stock appreciation rights, performance
units, and dividend equivalents), holiday pay,
vacation pay, severance pay, sick pay, disability
benefits, dependent care benefits, flexible
benefits (including any cafeteria plan governed
by Section 125 of the Code), paid or unpaid leave
(including sick leave, parental leave, military
leave, and bereavement leave), tuition
assistance, relocation or any similar type of
benefits, that has been adopted, approved, or
implemented by Enserch or any of its Subsidiaries
(including any such plan, program, policy, or
arrangement that has been terminated before the
date hereof, if Enserch or any of its
Subsidiaries could have statutory or contractual
liability with respect to the arrangement on or
after the date hereof);
(C) each employment contract, severance
contract, parachute agreement, or other personal
service contract or arrangement with or covering
a current or former officer or director of
Enserch or any of its Subsidiaries; and any other
employment contracts, severance contracts,
parachute agreements, or personal service
contracts or arrangements covering current or
former employees or independent contractors with
respect to which (individually or in the
aggregate) Enserch or any of its Subsidiaries is
reasonably likely to have liability on or after
the date hereof that could give rise to an
Enserch Material Adverse Effect; and
(D) each "employee pension benefit plan"
(within the meaning of ERISA Section 3(2))
subject to Title IV of ERISA or the minimum
funding requirements of ERISA Section 302
(whether or not included in (A) above) maintained
or contributed to by Enserch or any entity
required to be aggregated therewith pursuant to
Code Section 414(b) or (c) (a "Enserch ERISA
Affiliate") at any time during the six calendar
year period immediately preceding the date hereof
(collectively, the "Enserch Pension Benefit
Plans");
(ii) For purposes of this Agreement, "Enserch
Benefit Plan" shall mean each benefit plan, program,
policy, contract and arrangement described in
subsections (i)(A), (B) and (C) above (whether or not
terminated).
(iii) With respect to each Enserch Benefit Plan
and Enserch Pension Benefit Plan, Section 5.10(a) of
the Enserch Disclosure schedule fully and accurately
identifies the source or sources of benefit payments
under the plan (including, where applicable, the
identity of any trust (whether or not a grantor trust),
insurance contract, custodial account, agency
agreement, or other arrangement that holds the assets
of, or serves as a funding vehicle or source of
benefits for, such Enserch Benefit Plan or Enserch
Pension Benefit Plan.
(b) Contributions. Except with respect to those
exceptions in existence as of the date hereof and set forth
in Section 5.10(b) of the Enserch Disclosure Schedule, all
material contributions and other material payments required
to have been made by Enserch or any of its Subsidiaries or
any Enserch ERISA Affiliate pursuant to any Enserch Benefit
Plan or Enserch Pension Benefit Plan (or to any person
pursuant to the terms thereof) have been timely made or the
amount of such payment or contribution obligation has been
reflected in the Enserch Financial Statements.
(c) Qualification; Compliance. Except as set forth
in Section 5.10(c) of the Enserch Disclosure Schedule:
(i) Each Enserch Benefit Plan and Enserch
Pension Benefit Plan that is intended to be "qualified"
within the meaning of Code Section 401(a) currently
meets all material requirements under the Code and has
received a favorable determination letter from the IRS
to such effect, or application for such a determination
has been made prior to the expiration of the applicable
remedial amendment period and Enserch agrees to make
such plan amendments as the IRS may require in order to
issue a favorable determination letter.
(ii) Enserch and each of its Subsidiaries are in
compliance with, and each Enserch Benefit Plan and
Enserch Pension Benefit Plan is and has been operated
in compliance with, all applicable laws, rules and
regulations governing such plan, including, without
limitation, ERISA and the Code, except for violations
that would not be reasonably likely to have an Enserch
Material Adverse Effect.
(iii) To the knowledge of Enserch, no individual
or entity has engaged in any transaction with respect
to any Enserch Benefit Plan or any Enserch Pension
Benefit Plan as a result of which any such plan,
Enserch or any of its Subsidiaries could reasonably
expect to be subject to liability pursuant to ERISA
Section 409 or Section 502, or subject to an excise tax
pursuant to Code Section 4975, which would in either
case be reasonably likely to have an Enserch Material
Adverse Effect.
(iv) To the knowledge of Enserch,
(A) no Enserch Benefit Plan or Enserch
Pension Benefit Plan is subject to any ongoing
audit, investigation, or other administrative
proceeding of the Internal Revenue Service, the
Department of Labor, or any other federal, state,
or local governmental entity, and
(B) no Enserch Benefit Plan is the
subject of any pending application for
administrative relief under any voluntary
compliance program of any governmental entity
(including, without limitation, the Internal
Revenue Service's Voluntary Compliance Resolution
Program or Walk-in Closing Agreement Program, or
the Department of Labor's Delinquent Filer
Voluntary Compliance Program).
(d) Liabilities. Except as set forth in Section
5.10(d) of the Enserch Disclosure Schedule, with respect to
the Enserch Pension Benefit Plans, individually and in the
aggregate, no termination or partial termination of any
Enserch Pension Benefit Plan or other event has occurred,
and, to the knowledge of Enserch, there exists no condition
or set of circumstances, that could subject Enserch, any of
its Subsidiaries or any Enserch ERISA Affiliate to any
liability arising under the Code, ERISA, or any other
applicable law (including, without limitation, any liability
to or under any such plan or to the PBGC, or under any
indemnity agreement to which Enserch, any of its
Subsidiaries, or any Enserch ERISA Affiliate is a party,
which liability would be reasonably likely to have an Enserch
Material Adverse Effect (excluding liability for benefit
claims and funding obligations payable in the ordinary course
and liability for PBGC insurance premiums payable in the
ordinary course).
(e) Welfare Plans. Except as set forth in Section
5.10(e) of the Enserch Disclosure Schedule, no Enserch
Benefit Plan that is a "welfare plan" (within the meaning of
ERISA Section 3(1)) provides benefits for any retired or
former employees (other than as required pursuant to ERISA
Section 601).
(f) Documents Made Available. Enserch has made
available to TUC a true and correct copy of each collective
bargaining agreement to which Enserch is a party or under
which Enserch has obligations; and, with respect to each
Enserch Benefit Plan and each Enserch Pension Benefit Plan,
Enserch has made available to TUC a true and correct copy of
each of the following, as applicable:
(i) the current plan document (including all
amendments adopted since the most recent restatement)
and its most recently prepared summary plan description
and all summaries of material modifications prepared
since the most recent summary plan description,
(ii) annual reports or Code Section 6039D
information returns (IRS Form 5500 Series), including
financial statements for the last three years,
(iii) each related trust agreement, insurance
contract, service provider contract or investment man-
agement agreement (including all amendments to each
such document),
(iv) the most recent IRS determination letter
with respect to the qualified status under Code Section
401(a) of such plan, and
(v) actuarial reports or valuations for the
last three years.
(g) Payments Resulting From Merger. Other than as
set forth in Section 5.10(g) of the Enserch Disclosure
Schedule, the consummation or announcement of any transaction
contemplated by this agreement will not (either alone or upon
the occurrence of any additional or further acts or events)
result in any
(i) payment (whether of severance pay or
otherwise) becoming due from TUC or Enserch or any of
its Subsidiaries to any current or former officer or
director thereof or to the trustee under any "rabbi
trust" or other funding arrangement,
(ii) benefit under any Enserch Benefit Plan
being established or becoming accelerated, vested or
payable, except for a payment or benefit that would
have been payable under the same terms and conditions
without regard to the transactions contemplated by this
Agreement, or
(iii) payment (whether of severance pay or
otherwise) becoming due from TUC or Enserch or any of
its Subsidiaries to any current or former employee of
Enserch below the level of officer which such payments
aggregated for such employees and former employees as a
group would be reasonably likely to have an Enserch
Material Adverse Effect.
(h) Funded Status of Plans. Except as set forth in
Section 5.10(h) of the Enserch Disclosure Schedule, (i) each
Enserch Pension Benefit Plan has assets that, as of the date
hereof, have a fair market value equal to or exceeding the
present value of the accrued benefit obligations thereunder
on a termination basis, as of the date hereof, based on the
actuarial methods, tables and assumptions theretofore
utilized by such plan's actuary in preparing such plan's most
recently prepared actuarial valuation report, except to the
extent that applicable law would require the use of different
actuarial assumptions if such plan was to be terminated as of
the date hereof, and (ii) no Enserch Pension Benefit Plan has
incurred any "accumulated funding deficiency" (within the
meaning of ERISA Section 302).
(i) Multiemployer Plans.
(i) Except as set forth in Section 5.10(i) of
the Enserch Disclosure Schedule, no Enserch Benefit
Plan is or was a "multiemployer plan" (within the
meaning of ERISA Section 4001(a)(3)), a multiple
employer plan described in Code Section 413(c), or a
"multiple employer welfare arrangement" (within the
meaning of ERISA Section 3(40)); and none of Enserch,
any Subsidiary thereof or any Enserch ERISA Affiliate
has been obligated to contribute to, or otherwise has
or has had any liability with respect to, any
multiemployer plan, multiple employer plan, or multiple
employer welfare arrangement.
(ii) With respect to any Enserch Benefit Plan or
Enserch Pension Benefit Plan that is listed in Section
5.10(i) of the Enserch Disclosure Schedule as a
multiemployer plan, none of Enserch, any Subsidiary
thereof or any Enserch ERISA Affiliate has made or
incurred a "complete withdrawal" or a "partial
withdrawal," as such terms are defined in ERISA
Sections 4203 and 4205, therefrom at any time during
the six calendar year period immediately preceding the
date of this Agreement and the transactions
contemplated by the Agreement will not, in and of
themselves, give rise to such a "complete withdrawal"
or "partial withdrawal."
(j) Modification or Termination of Plans. Except as
set forth in Section 5.10(j) of the Enserch Disclosure
Schedule or as permitted under Section 7.10:
(i) neither Enserch nor any Subsidiary of
Enserch is subject to any legal, contractual, equitable
or other obligation to establish as of any date any
employee benefit plan of any nature, including (without
limitation) any pension, profit sharing, welfare, post-
retirement welfare, stock option, stock or cash award,
non-qualified deferred compensation or executive
compensation plan, policy or practice; and
(ii) Enserch or one or more of its Subsidiaries
or any Enserch ERISA Affiliate have the right to, in
any manner, and without he consent of any employee,
beneficiary or dependent, employees' organization or
other person, terminate, modify or amend any Enserch
Benefit Plan or Enserch Pension Benefit Plan (or its
participation in any such Enserch Benefit Plan or
Enserch Pension Benefit Plan) at any time sponsored,
maintained or contributed to by Enserch or any of its
Subsidiaries or any Enserch ERISA Affiliate, effective
as of any date before, on or after the Effective Time
except to the extent that any retroactive amendment
would be prohibited by ERISA Section 204(g) or would
adversely affect a vested accrued benefit or a
previously granted award under any such Plan not
subject to ERISA Section 204(g).
(k) Reportable Events; Claims. Except as set forth
in Section 5.10(k) of the Enserch Disclosure Schedule:
(i) no event constituting a "reportable event"
(within the meaning of ERISA Section 4043(c)), for
which the 30-day notice requirement or penalty has not
been waived by the PBGC, has occurred with respect to
any Enserch Pension Benefit Plan, and
(ii) no liability, claim, action or litigation
has been made, commenced or, to the knowledge of
Enserch, threatened, by or against Enserch or any of
its Subsidiaries or any Enserch ERISA Affiliate with
respect to any Enserch Benefit Plan or any Enserch
Pension Benefit Plan (other than for benefits or PBGC
premiums payable in the ordinary course)
that would reasonably likely have an Enserch Material Adverse
Effect.
(l) Labor Agreements. Except as set forth in the
Enserch SEC Reports or as set forth in Section 5.10(l) of the
Enserch Disclosure Schedule:
(i) neither Enserch nor any of its Subsidiaries
is a party to any collective bargaining agreement or
other current labor agreement with any labor union or
organization. There is no current union representation
question involving employees of Enserch or any of its
Subsidiaries, nor does Enserch or any of its
Subsidiaries know of any activity or proceeding of any
labor organization (or representative thereof) or
employee group (or representative thereof) to organize
any such employees;
(ii) there is no unfair labor practice charge or
grievance arising out of a collective bargaining
agreement or other grievance procedure against Enserch
or any of its Subsidiaries pending, or to the knowledge
of Enserch or any of its Subsidiaries, threatened, that
has, or would be reasonably likely to have, an Enserch
Material Adverse Effect;
(iii) there is no complaint, lawsuit or
proceeding in any forum by or on behalf of any present
or former employee, any applicant for employment or
classes of the foregoing alleging breach of any express
or implied contract of employment, any law or
regulation governing employment or the termination
thereof or other discriminatory, wrongful or tortious
conduct in connection with the employment relationship
against Enserch or any of its Subsidiaries pending, or
to the knowledge of Enserch or any of its Subsidiaries,
threatened, that has, or would be reasonably likely to
have, an Enserch Material Adverse Effect;
(iv) there is no strike, dispute, slowdown, work
stoppage or lockout pending, or to the knowledge of
Enserch or any of its Subsidiaries, threatened, against
or involving Enserch or any of its Subsidiaries that
has, or would be reasonably likely to have, an Enserch
Material Adverse Effect;
(v) Enserch and each of its Subsidiaries are in
compliance with all applicable laws respecting
employment and employment practices, terms and
conditions of employment, wages, hours of work and
occupational safety and health, except for non-compliance
that does not have, and would not be
reasonably likely to have, an Enserch Material Adverse
Effect; and
(vi) there is no proceeding, claim, suit, action
or governmental investigation pending or, to the
knowledge of Enserch or any of its Subsidiaries,
threatened, in respect to which any current or former
director, officer, employee or agent of Enserch or any
of its Subsidiaries is or may be entitled to claim
indemnification from Enserch or any of its Subsidiaries
pursuant to their respective articles of incorporation
or by-laws, as provided in the indemnification
agreements listed on Section 5.10(l) of the Enserch
Disclosure Schedule or pursuant to applicable Texas or
other law that has, or would be reasonably likely to
have, an Enserch Material Adverse Effect.
Section 5.11 Environmental Protection.
(a) Compliance.
(i) Except as set forth in the Enserch SEC
Reports or in Section 5.11(a) of the Enserch Disclosure
Schedule, Enserch and each of its Subsidiaries is in
compliance with all applicable Environmental Laws (as
hereinafter defined), except where the failure to be so
in compliance would not reasonably likely have an
Enserch Material Adverse Effect.
(ii) Except as set forth in the Enserch SEC
Reports or in Section 5.11(a) of the Enserch Disclosure
Schedule, neither Enserch nor any of it Subsidiaries
has received any written communication from any person
or Governmental Authority that alleges that Enserch or
any of its Subsidiaries is not in compliance with
applicable Environmental Laws, except where the failure
to be so in compliance would not reasonably likely have
an Enserch Material Adverse Effect.
(b) Environmental Permits. Except as set forth in
the Enserch SEC Reports or in Section 5.11(b) of the Enserch
Disclosure Schedule, Enserch and each of its Subsidiaries has
obtained or applied for all environmental, health and safety
permits and authorizations (collectively, "Environmental
Permits") necessary for the construction of their facilities
and the conduct of their operations, and all such permits are
in good standing or, where applicable, a renewal application
has been timely filed, is pending and agency approval is
expected to be obtained, and Enserch and its Subsidiaries are
in compliance with all terms and conditions of all such
Environmental Permits and are not required to make any
expenditure in order to obtain or renew any Environmental
Permits, except where the failure to obtain or be in
compliance with such Environmental Permits and the
requirement to make such expenditures would not reasonably
likely have an Enserch Material Adverse Effect.
(c) Environmental Claims. Except as set forth in the
Enserch SEC Reports or Section 5.11(c) of the Enserch
Disclosure Schedule, there is no Environmental Claim (as
hereinafter defined) pending, or to the knowledge of Enserch
and its Subsidiaries, threatened
(i) against Enserch or any of its Subsidiaries
or Joint Ventures,
(ii) against any person or entity whose
liability for any Environmental Claim Enserch or any of
its Subsidiaries or Joint Ventures has or may have
retained or assumed either contractually or by
operation of law, or
(iii) against any real or personal property or
operations that Enserch or any of its Subsidiaries or
Joint Ventures owns, leases or manages, in whole or in
part,
that, if adversely determined, would be reasonably likely to
have an Enserch Material Adverse Effect.
(d) Releases. Except as set forth in the Enserch SEC
Reports or Section 5.11(c) or 5.11(d) of the Enserch
Disclosure Schedule, Enserch has no knowledge of any Release
of any Hazardous Material that would be reasonably likely to
form the basis of any Environmental Claim against Enserch or
any Subsidiaries or Joint Ventures of Enserch, or against any
person or entity whose liability for any Environmental Claim
Enserch or any Subsidiaries or Joint Ventures of Enserch has
or may have retained or assumed either contractually or by
operation of law, except for Releases of Hazardous Materials
the liability for which would not reasonably likely have an
Enserch Material Adverse Effect.
(e) Predecessors. Except as set forth in Section
5.11(e) of the Enserch Disclosure Schedule, Enserch has no
knowledge, with respect to any predecessor of Enserch or any
Subsidiary or Joint Venture of Enserch, of any Environmental
Claims pending or threatened, or of any Release of Hazardous
Materials that would be reasonably likely to form the basis
of any Environmental Claims that would have, or that would
reasonably likely have, an Enserch Material Adverse Effect.
(f) Disclosure. Enserch has disclosed to TUC all
material facts that Enserch reasonably believes form the
basis of an Enserch Material Adverse Effect arising from the
cost of pollution control equipment currently required or
known to be required in the future, current remediation costs
or remediation costs known to be required in the future, or
any other environmental matter affecting Enserch or its
Subsidiaries that would have, or that would reasonably likely
have, an Enserch Material Adverse Effect.
Section 5.12 Regulation as a Utility.
(a) Enserch is regulated as a gas utility in the
State of Texas and in no other state. No Subsidiary or
affiliate of Enserch is subject to regulation as a gas
utility or a public utility in the State of Texas.
(b) Except as set forth in Section 5.12 of the
Enserch Disclosure Schedule, neither Enserch nor any
subsidiary company or affiliate of Enserch is subject to
regulation as a public utility or public service company (or
similar designation) by any other state in the United States
or by any foreign country.
(c) As used in this Section 5.12 and in Section 6.12,
the terms "subsidiary company" and "affiliate" shall have the
respective meanings ascribed to them in the 1935 Act.
Section 5.13 Vote Required. The approval of the
Merger by the holders of at least two-thirds of the
outstanding shares of Enserch Common Stock (the "Enserch
Shareholders' Approval") is the only vote of the holders of
any class or series of the capital stock of Enserch required
to approve this Agreement, the Merger and the other
transactions contemplated hereby.
Section 5.14 Opinion of Financial Advisor.
Enserch has received the opinion of Morgan Stanley & Co.
("Morgan Stanley"), dated the date hereof, to the effect
that, as of the date hereof, the Ratio is fair from a
financial point of view to the holders of Enserch Common
Stock.
Section 5.15 Insurance. Except as set forth in
Section 5.15 of the Enserch Disclosure Schedule, each of
Enserch and each of its Subsidiaries (since its acquisition)
is, and has been continuously since January 1, 1991, insured
in such amounts and against such risks and losses as are
customary for companies conducting the respective businesses
conducted by Enserch and its Subsidiaries during such time
period. Except as set forth in Section 5.15 of the Enserch
Disclosure Schedule, neither Enserch nor any of its
Subsidiaries has received any notice of cancellation or
termination with respect to any material insurance policy
thereof. All material insurance policies of Enserch and its
Subsidiaries are valid and enforceable policies.
Section 5.16 Ownership of TUC Common Stock.
Enserch does not "beneficially own" (as such term is defined
in Rule 13d-3 under the Exchange Act) any shares of TUC
Common Stock.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF TUC
TUC represents and warrants to Enserch as follows:
Section 6.1 Organization and Qualification. TUC is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Texas, and each of
TUC's Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its
jurisdictions of incorporation. Each of TUC and its
Subsidiaries has requisite corporate power and authority, and
is duly authorized by all necessary regulatory approvals and
orders, to own, lease and operate its assets and properties
and to carry on its business as it is now being conducted,
and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the
ownership or leasing of its assets and properties makes such
qualification necessary, other than such failures which, when
taken together with all other such failures, will not have a
TUC Material Adverse Effect.
Section 6.2 Subsidiaries.
(a) Section 6.2 of the TUC Disclosure Schedule sets
forth a description as of the date hereof of all Subsidiaries
and Joint Ventures of TUC, including the name of each such
entity, the state or jurisdiction of its incorporation, a
brief description of the principal line or lines of business
conducted by each such entity and TUC's interest therein.
(b) Except as set forth in Section 6.2 of the TUC
Disclosure Schedule, none of the entities listed in Section
6.2 is a "public utility company", a "holding company", a
"subsidiary company" or an "affiliate" of any public utility
company within the meaning of Section 2(a)(5), 2(a)(7),
2(a)(8) or 2(a)(11)(A) of the 1935 Act, respectively.
(c) Except as set forth in Section 6.2 of the TUC
Disclosure Schedule, all of the issued and outstanding shares
of capital stock of each Subsidiary of TUC are validly
issued, fully paid, nonassessable and free of preemptive
rights and are owned directly or indirectly by TUC free and
clear of any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever, and
there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under
any outstanding security, instrument or other agreement,
obligating any such Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of
its capital stock or obligating it to grant, extend or enter
into any such agreement commitment.
Section 6.3 Capitalization.
(a) As of the date hereof, the authorized capital
stock of TUC consists of 500,000,000 shares of TUC Common
Stock and 50,000,000 shares of TUC serial preference stock,
par value $25 per share.
(b) As of the close of business on March 18, 1996,
(i) 225,841,037 shares of TUC Common Stock, and (ii) no
shares of TUC serial preference stock, par value $25 per
share were issued and outstanding.
(c) All of the issued and outstanding shares of the
capital stock of TUC are validly issued, fully paid,
nonassessable and free of preemptive rights. The shares of
Common Stock of TUC to be issued to Enserch' shareholders in
connection with the Merger will, when issued, be validly
issued, fully paid, nonassessable and free of preemptive
rights.
(d) Except as set forth in Section 6.3(a) of the TUC
Disclosure Schedule, there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other
understandings, restrictions, arrangements, rights or
warrants, including any right of or exchange under any
outstanding security, instrument or other agreement,
obligating TUC to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of the capital
stock of TUC to grant, extend or enter into any such
agreement or commitment.
Section 6.4 Authority; Non-Contravention; Statutory
Approvals; Compliance.
(a) Authority.
(i) TUC has all requisite power and authority
to enter into this Agreement and, subject to the TUC
Required Statutory Approvals to consummate the
transactions contemplated hereby.
(ii) The execution and delivery of this
Agreement and the consummation by TUC of the
transactions contemplated hereby have been duly
authorized by all necessary corporate action on the
part of TUC.
(iii) This Agreement has been duly and validly
executed and delivered by TUC and, assuming the due
authorization, execution and delivery hereof by
Enserch, TXA and TXB constitutes the valid and binding
obligation of TUC, enforceable against TUC in
accordance with its terms, except as would be limited
by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance or other similar laws affecting
the enforcement of creditors' rights generally and
except that the availability of equitable remedies,
including specific performance, may be subject to the
discretion of any court before which any proceeding
therefor may be brought.
(iv) the Enserch Option has been duly and
validly executed and delivered by TUC and, assuming the
due authorization, execution and delivery thereof by
Enserch, constitutes a valid and binding obligation of
TUC, enforceable against TUC in accordance with its
terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent
conveyance or other similar laws affecting the
enforcement of creditors' rights generally, and except
that the availability of equitable remedies, including
specific performance, may be subject to the discretion
of any court before which any proceedings may be
brought.
(b) Non-Contravention. Except as set forth in
Section 6.4(b) of the TUC Disclosure Schedule, the execution
and delivery of this Agreement and the Enserch Option by TUC
do not, and the consummation of the transactions contemplated
hereby will not, result in any Violation by TUC or any of its
Subsidiaries or, to the knowledge of TUC, any of its Joint
Ventures, under any provisions of
(i) the articles of incorporation, bylaws or
similar governing documents of TUC or any of its
Subsidiaries or Joint Ventures,
(ii) subject to obtaining the TUC Required
Statutory Approvals, any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ,
permit or license of any Governmental Authority
applicable to TUC or any of its Subsidiaries or Joint
Ventures or any of their respective properties or
assets, or
(iii) subject to obtaining the third-party
consents or other approvals set forth in Section 6.4(b)
of the TUC Disclosure Schedule (the "TUC Required Con-
sents"), any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or
agreement of any kind to which TUC or any of its
Subsidiaries or Joint Ventures is now a party or by
which it or any of its properties or assets may be
bound or affected,
excluding from the foregoing clauses (ii) and (iii) such
Violations as would not, in the aggregate, reasonably likely
have a TUC Material Adverse Effect.
(c) Statutory Approvals. Except as set forth in
Section 6.4(c) of the TUC Disclosure Schedule, no
declaration, filing or registration with, or notice to or
authorization, consent or approval of any Governmental
Authority is necessary for the execution and delivery of this
Agreement by TUC or the consummation by TUC of the
transactions contemplated hereby, the failure to obtain, make
or give which would reasonably likely have a TUC Material
Adverse Effect (the "TUC Required Statutory Approvals"), it
being understood that references in this Agreement to
"obtaining" such TUC Required Statutory Approvals shall mean
making such declarations, filings or registrations; giving
such notice; obtaining such consents or approvals; and having
such waiting periods expire as are necessary to avoid a
violation of law.
(d) Compliance.
(i) Except as set forth in Section 6.4(d) of
the TUC Disclosure Schedule or as disclosed in the TUC
SEC Reports, neither TUC nor any of its Subsidiaries
nor, to the knowledge of TUC, 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, statute, order,
rule, regulation, ordinance or judgment (including,
without limitation, any applicable environmental law,
ordinance or regulation) of any Governmental Authority,
except for violations that do not have, and, would not
reasonably likely have, a TUC Material Adverse Effect.
(ii) Except as set forth in Section 6.4(d) of
the TUC Disclosure Schedule, TUC, its Subsidiaries and,
to the knowledge of TUC, 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 a TUC Material Adverse
Effect.
Section 6.5 Reports and Financial Statements.
(a) Since January 1, 1991, the filings required to be
made by TUC and its Subsidiaries under the Securities Act,
the Exchange Act, applicable Texas laws and regulations
administered by the Public Utility Commission of Texas and
the Texas Railroad Commission, or the 1935 Act have been
filed with the SEC, the Texas Public Utility Commission, the
Texas Railroad Commission or the Nuclear Regulatory
Commission, respectively, as required by each such law or
regulation, including all forms, statements, reports,
agreements and all documents, exhibits, amendments and
supplements appertaining thereto, and TUC and its
Subsidiaries have complied in all material respects with all
applicable requirements of the appropriate act and the rules
and regulations thereunder.
(b) TUC has made available to Enserch a true and
complete copy of each report, schedule, registration
statement and definitive proxy statement filed by TUC with
the SEC since January 1, 1991 (such documents as filed, and
any and all amendments thereto, the "TUC SEC Reports").
(c) The TUC SEC Reports, including without limitation
any financial statements or schedules included therein, at
the time filed, and all forms, reports or other documents
filed by TUC with the SEC after the date hereof, did not and
will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The audited consolidated financial statements and
unaudited interim financial statements of TUC included in the
TUC SEC Reports (collectively, the "TUC Financial
Statements") have been prepared, and the audited consolidated
financial statements and unaudited interim financial
statements of TUC as included in all forms, reports or other
documents filed with the SEC after the date hereof will be
prepared in accordance with GAAP applied on a consistent
basis (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as
permitted by Form 10-Q) and fairly present in all material
respects the financial position of TUC as of the respective
dates thereof or the results of operations and cash flows for
the respective periods then ended, as the case may be,
subject, in the case of the unaudited interim financial
statements, to normal, recurring audit adjustments.
(e) True, accurate and complete copies of the
Articles of Incorporation and Bylaws of TUC, as in effect on
the date hereof, have been delivered to Enserch.
Section 6.6 Absence of Certain Changes or Events;
Absence of Undisclosed Liabilities.
(a) Except as set forth in the TUC SEC Reports or
Section 6.6 of the TUC Disclosure Schedule, from December 31,
1995 through the date hereof TUC and each of its Subsidiaries
has conducted its business only in the ordinary course of
business consistent with past practice and there has not
been, and no fact or condition exists, that would reasonably
likely have, a TUC Material Adverse Effect.
(b) Neither TUC 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
TUC or reflected in the notes thereto for the year ended
December 31, 1995, or that were incurred after December 31,
1995 in the ordinary course of business and would not
reasonably likely have a TUC Material Adverse Effect.
Section 6.7 Litigation. Except as set forth in the TUC
SEC Reports or as set forth in Section 6.7 of the TUC
Disclosure Schedule, there are no claims, suits, actions or
proceedings, pending or, to the knowledge of TUC, threatened,
nor are there, to the knowledge of TUC, any investigations or
reviews pending or threatened against, relating to or
affecting TUC 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
TUC or any of its Subsidiaries or Joint Ventures, that would
have, or would reasonably likely have, a TUC Material Adverse
Effect.
Section 6.8 Registration Statement and Proxy Statement.
(a) None of the information supplied or to be
supplied by or on behalf of TUC for inclusion or
incorporation by reference in
(i) 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 not misleading, and
(ii) the Proxy Statement will, at the date
mailed to the shareholders of Enserch and, as the same
may be amended or supplemented, at the time of the
meeting of such shareholders to be held in connection
with the Merger, contain any untrue statement of a
material fact or omit to state any material fact with
respect to TUC or its Subsidiaries necessary in order
to make the statements therein with respect to TUC or
its Subsidiaries, in light of the circumstances under
which they are made, not misleading.
(b) Each of the Registration Statement and the Proxy
Statement, as of such respective dates, will comply as to
form in all material respects with the applicable provisions
of the Securities Act and the Exchange Act and the rules and
regulations thereunder.
Section 6.9 Tax Matters.
(a) Except as set forth on Schedule 6.9(a) of the TUC
Disclosure Schedule, TUC and each of its Subsidiaries has
filed (i) 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 Taxes otherwise required to be paid.
(b) Except as set forth on Schedule 6.9(b) of the TUC
Disclosure Schedule, as of the date hereof, there are no
claims, assessments, audits or administrative or court
proceedings pending against TUC or any of its Subsidiaries
for any alleged deficiency in Tax, and none of TUC 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) TUC has established adequate accruals for Taxes
and for any liability for deferred Taxes in the TUC Financial
Statements in accordance with GAAP.
Section 6.10 Employee Matters; ERISA.
Except as disclosed in the TUC SEC Reports or Section
6.10 of the TUC Disclosure Schedule and except as would not,
individually or in the aggregate, be reasonably expected to
result in a TUC Material Adverse Effect:
(a) Each TUC 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) ("TUC Pension Benefit Plan") and each trust
under each such TUC 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. TUC has operated each TUC 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 TUC Benefit Plans prior to the date hereof have
been made. As of the date hereof, each TUC Pension Benefit
Plan which is subject to the funding requirements of Code
Section 412, has assets that have a fair market value equal
to or exceeding the present value of the accrued benefit
obligations thereunder on a termination basis, based on the
actuarial methods, tables and assumptions theretofore
utilized by such plan's actuary in preparing such plan's most
recently prepared actuarial valuation report.
(c) TUC has not incurred any liability to the PBGC
(other than liability for insurance premium payments payable
thereto).
(d) Except as set forth in Section 6.10(d) of the TUC
Disclosure Schedule, (i) no "Reportable Event," as defined in
ERISA, has occurred with respect to any of the TUC 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 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) TUC has not engaged in any
prohibited transactions with respect to any TUC Benefit
Plan, any or all of which would reasonably likely have a TUC
Material Adverse Effect.
Section 6.11 Environmental Matters. Except as
disclosed in the TUC SEC Reports and except as would not,
individually or in the aggregate, be reasonably expected to
result in a TUC Material Adverse Effect, (i) TUC 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 Company 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 TUC or its Subsidiaries in any manner or
quantity which requires investigation, assessment,
monitoring, remediation or cleanup under currently applicable
Environmental Laws.
Section 6.12 Regulation as a Utility.
(a) TUC is a public utility holding company as
defined in the 1935 Act exempt from all provisions of the
1935 Act, except section 9(a)(2), by order of the SEC
pursuant to section 3(a)(1) of the 1935 Act. Texas Utilities
Electric Company, a Subsidiary of TUC, is regulated as a
public utility in the State of Texas and in no other state
and Texas Utilities Fuel Company, a Subsidiary of TUC, is
regulated as a gas utility in the State of Texas and in no
other state. Neither TUC nor any other Subsidiary or
affiliate of TUC is regulated as a public utility or a gas
utility in the State of Texas.
(b) Except as set forth in Section 6.11 of the TUC
Disclosure Schedule, neither TUC nor any subsidiary company
or affiliate of TUC is subject to regulation as a public
utility or public service company (or similar designation) by
any other state in the United States or by any foreign
country.
Section 6.13 Vote Required. No vote by the holders
of TUC Common Stock is required to approve this Agreement,
the Merger or the other transactions contemplated hereby,
except to the extent that the Alternative Merger would
require the approval of TUC's shareholders under Texas law
and TUC's Articles of Incorporation.
Section 6.14 Opinion of Financial Advisor. TUC
has received the opinion of Barr Devlin & Co. Incorporated
("Barr Devlin"), as of the date hereof, to the effect that,
as of the date hereof, the Ratio is fair to the holders of
TUC Common Stock.
Section 6.15 Insurance.
(a) Except as set forth in Section 6.15 of the TUC
Disclosure Schedule, TUC and each of its Subsidiaries is, and
has been continuously since January 1, 1991, insured in such
amounts and against such risks and losses as are customary
for companies conducting the respective businesses conducted
by TUC and its Subsidiaries during such time period.
(b) Except as set forth in Section 6.15 of the TUC
Disclosure Schedule, neither TUC nor any of its Subsidiaries
has received any notice of cancellation or termination with
respect to any material insurance policy thereof.
(c) All material insurance policies of TUC and its
Subsidiaries are valid and enforceable policies.
Section 6.16 Ownership of Enserch Common Stock.
TUC does not "beneficially own" (as such term is defined in
Rule 13d-3 under the Exchange Act) any shares of Enserch
Common Stock.
Section 6.17 TXA. TXA is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Texas. TXA was organized solely for the
purpose of participating in the Merger. TXA has no assets
other than cash contributed to TXA by TUC in order to satisfy
minimum state capitalization requirements. TXA has not
incurred directly or indirectly any liabilities or
obligations, except those incurred in connection with
negotiation of this Agreement and consummation of the
transactions contemplated hereby. TXA's authorized capital
stock consists of 1,000 shares of Common Stock, no par value,
all of which are validly issued and outstanding, fully paid
and non assessable and free of preemptive rights and are
owned by TUC free and clear of all liens, claims and
encumbrances. TXA has all requisite power and authority to
enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement and the consummation by TXA of the transactions
contemplated hereby have been duly authorized by all
necessary corporate action on the part of TXA. This Agreement
has been duly and validly executed and delivered by TXA, and
assuming the due authorization, execution and delivery hereof
by Enserch, TUC and TXB, constitutes valid and binding
obligations of TXA, enforceable against TXA in accordance
with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance
or other similar laws affecting the enforcement of creditors'
rights generally, and except that the availability of
equitable remedies, including specific performance, may be
subject to the discretion of any court before which any
proceedings may be brought. Except as set forth in Section
6.17 of the TUC Disclosure Schedule, no declaration, filing
or registration with, or notice to or authorization, consent
or approval of any Governmental Authority is necessary for
the execution and delivery of this Agreement by TXA or the
consummation by TXA of the transaction contemplated hereby.
Section 6.18 NRC Actions. Except as set forth in
Section 6.18 of the TUC Disclosure Schedule, TUC 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 to 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 TUC's business regarding the Comanche Peak
Nuclear Power Plant) of which TUC has actual knowledge under
the Atomic Energy Act, any applicable regulations thereunder
or the terms and conditions of any license granted to TUC
regarding the Comanche Peak Nuclear Power Plant
(collectively, "NRC Actions"), which NRC Actions would have,
or TUC reasonably believes would reasonably likely have, a
TUC Material Adverse Effect.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
After the date hereof and prior to the Effective Time
or earlier termination of this Agreement, Enserch shall, and
shall cause its Subsidiaries to, and TUC shall, and shall
cause its Subsidiaries to, comply with the provisions of this
Article VII to the extent applicable to each of them,
provided however, that the provisions of this Article VII
shall not apply to the Distribution Subsidiaries and Enserch
shall not be obligated to cause the Distribution Subsidiaries
to comply with the obligations of this Article VII.
Section 7.1 Ordinary Course of Business. Enserch
shall, and shall cause its Subsidiaries to, and TUC shall,
and shall cause its Subsidiaries to, conduct their respective
businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and use
all commercially reasonable efforts to preserve their
respective business organizations and goodwill, preserve the
goodwill and relationships with customers, suppliers,
distributors and others having business dealings with them
and, subject to prudent management of workforce needs and
ongoing programs currently in force, keep available the
services of their present officers and employees.
Section 7.2 Dividends. Enserch shall not, nor shall it
permit any of its Subsidiaries to:
(a) declare or pay any dividends or make other
distributions in respect of any of their capital stock other
than to Enserch or its Subsidiaries and other than
(i) stated dividends on the respective series
of Enserch Preferred Stock,
(ii) regular quarterly dividends on the Enserch
Common Stock with usual record and payment dates not,
during any calendar year, in excess of $.05 per
quarter, and
(iii) as provided for in Article VIII hereof to
consummate the transactions contemplated hereby.
(b) split, combine or reclassify any of their 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 their capital stock; or
(c) redeem, repurchase or otherwise acquire any
shares of their capital stock, other than
(i) redemptions, purchases or acquisitions
permitted by the respective terms of any series of
preferred stock,
(ii) in connection with refunding of preferred
stock with preferred stock or debt at a lower cost of
funds,
(iii) intercompany acquisitions of capital stock,
or
(iv) in connection with the administration of
employee benefit and dividend reinvestment plans as in
effect on the date hereof in the ordinary course of the
operation of such plans.
Section 7.3 Issuance of Securities. Enserch shall not,
and shall not permit, any of its Subsidiaries to, issue,
agree to issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of their capital
stock or any class or any securities convertible into or
exchangeable for, or any rights, warrants or options to
acquire, any such shares or convertible or exchangeable
securities except for:
(a) the issuance of capital stock upon the conversion
of the Enserch Convertible Debentures,
(b) the issuance of common stock or other securities
by Enserch pursuant to the plans and arrangements listed on
Section 7.3 of the Enserch Disclosure Schedule, in each case
in the ordinary course of the operation of such plans and
arrangements in accordance with their current terms,
(c) issuances by a wholly owned Subsidiary of its
capital stock to a direct or indirect parent.
Section 7.4 Charter Documents. Enserch shall not amend
or propose to amend its articles of incorporation or bylaws
in any way adverse to TUC, except to the extent that any
document setting forth the terms of a series of preferred
stock permitted to be issued in accordance with this Article
VII constitutes an amendment to the articles of
incorporation.
Section 7.5 No Acquisitions. Enserch shall
not, nor shall it permit any of its Subsidiaries
to, acquire, or publicly propose to acquire, or
agree to acquire, by merger or consolidation, by
purchase or otherwise, a substantial equity
interest in or a substantial portion of the assets
of any business or any corporation, partnership,
association or other business organization or
division thereof or otherwise acquire or agree to
acquire any assets, except as contemplated in the
1996 capital spending and investment budget for
Enserch and its Subsidiaries of $134 million (the
"Enserch 1996 Budget") or as contemplated in the
1997 capital spending and investment budget for
Enserch and its Subsidiaries which budget shall be
of a similar nature as the Enserch 1996 Budget, the
amount of which budget shall be approved with the
consent of TUC, which consent shall not
unreasonably be withheld (the "Enserch 1997
Budget"). TUC acknowledges that Enserch is
negotiating for the acquisition of a 10% interest
in a joint venture that will construct a gas
distribution system in Santiago, Chile, and will
not unreasonably withhold its consent to such sale.
Section 7.6 Capital Expenditures. Except
as required by law, Enserch shall not, nor shall it
permit any of its Subsidiaries to, make any capital
expenditures, except for normal extensions to or
replacements of properties in the ordinary course
of business consistent with prior practice and
those contemplated in the Enserch 1996 Budget or in
the Enserch 1997 Budget.
Section 7.7 No Dispositions. Enserch shall
not, nor shall it permit any of its Subsidiaries,
to, sell, lease, license, encumber or otherwise
dispose of any assets that are material, except for
normal extensions to or replacements of properties
in the ordinary course of business consistent with
prior practice and those contemplated in the
Enserch 1996 Budget or in the Enserch 1997 Budget
and except for property subleased by EEX.
Section 7.8 Transfer of Assets to the
Distribution Subsidiaries. Except as otherwise
consented to in writing by TUC, Enserch will not,
and will not permit any of its Subsidiaries to,
sell, lease, license or otherwise transfer to any
of the Distribution Subsidiaries any assets that
are material, in the aggregate, to Enserch and its
Subsidiaries (other than the Distribution
Subsidiaries) taken as a whole. TUC acknowledges
that Enserch is considering the sale of Enserch
Development Corporation and agrees that it will not
unreasonably withhold its consent to such sale.
Section 7.9 Indebtedness. Enserch shall
not, nor shall it permit any of its Subsidiaries
to, incur or guarantee any indebtedness (including
any debt borrowed or guaranteed or otherwise
assumed, including, without limitation, the
issuance of debt securities), except for:
(a) short-term indebtedness in the ordinary
course of business consistent with past practice,
(b) long-term indebtedness in connection with
the refinancing of existing indebtedness either at
its stated maturity or at a lower cost of funds,
(c) additional long-term indebtedness
aggregating not more than $125 million, or
(d) in connection with the refunding of
preferred stock as permitted in Section 7.2.
Section 7.10 Compensation, Benefits. Except as
set forth on Schedule 7.10 of the Enserch Disclosure
Schedule, as may be required by applicable law or as contem-
plated by this Agreement, Enserch shall not, nor shall it
permit any of its Subsidiaries to, enter into, adopt or amend
or increase the amount of or accelerate the payment or
vesting of any benefit or amount payable under any employee
benefit plan or any other contract, agreement, commitment,
arrangement, plan or policy maintained by, contributed to or
entered into by Enserch or any of its Subsidiaries, or
increase, or enter into any contract, agreement, commitment
or arrangement to increase in any manner, the compensation or
fringe benefits, or otherwise to extend, expand or enhance
the engagement, employment or any related rights, of any
director, officer or other employee of Enserch or any of its
Subsidiaries, except for normal increases in the ordinary
course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits
or compensation expense to Enserch or any of its
Subsidiaries, or enter into or amend any employment,
severance, or special pay arrangement with respect to the
termination of employment or other similar contract,
agreement or arrangement with any director or officer or
other employee other than in the ordinary course of business
consistent with past practice.
Section 7.11 1935 Act. Except as required or
contemplated by this Agreement:
(a) Enserch shall not, nor shall Enserch permit any
of its Subsidiaries to, engage in any activities that cause
it to become a "holding company" under the 1935 Act;
(b) TUC shall not, nor shall TUC permit any of its
Subsidiaries to, engage in any activities that cause it to
lose its exemption from registration as a "holding company"
under the 1935 Act; and
(c) no party shall, nor shall any party permit any of
its Subsidiaries to, engage in any activities that would
require the approval of the SEC under Section 9(a)(2) of the
1935 Act, except for the transactions contemplated by this
Agreement.
Section 7.12 Accounting. No party shall, nor
shall any party permit any of its Subsidiaries to, make any
changes in its or their accounting methods, except as
required by law, rule, regulation or GAAP.
Section 7.13 Tax-Free Status. No party shall, nor
shall any party permit any of its Subsidiaries to, take any
actions that would, or would be reasonably likely to,
adversely affect the status of the Merger as a tax-free
reorganization under Code Section 368(a)(1)(B) or the status
of the Alternative Mergers as tax-free transactions under
Section 351 of the Code.
Section 7.14 Insurance. Enserch shall, and shall
cause its Subsidiaries to, and TUC shall, and shall cause its
Subsidiaries to, maintain with financially responsible
insurance companies (or through self-insurance not
inconsistent with such party's past practice) insurance in
such amounts and against such risks and losses as are
customary for companies engaged in the same industry and such
other businesses as conducted by such party and its
Subsidiaries.
Section 7.15 Cooperation, Notification. Each of
Enserch and TUC shall and shall cause its Subsidiaries
(directly or acting through its parent company
representative) to:
(a) confer on a regular and frequent basis with one
or more representatives of the other party to discuss
material operational matters and the general status of its
ongoing operations,
(b) promptly notify the other party of any
significant changes in its business, properties, assets,
condition (financial or otherwise), prospects or results of
operations,
(c) advise the other party of any change or event
that has had or, to the knowledge of such party, would
reasonably likely have an Enserch Material Adverse Effect or
a TUC Material Adverse Effect, and
(d) consult with each other prior to making any
filings with any state or federal court, administrative
agency, commission or other Governmental Authority in
connection with this Agreement and the transactions
contemplated hereby, and promptly after each such filing
provide the other with a copy thereof.
Section 7.16 Rate Matters.
(a) Except as set forth in Section 7.16 of the Enserch
Disclosure Schedule, Enserch shall not make, or permit any
Subsidiary to make any filing to change its rates on file
with any Governmental Authority that could have a material
adverse effect on the benefits associated with the business
combination provided herein.
(b) Except as set forth in Section 7.16 of the TUC
Disclosure Schedule, TUC shall not make, or permit any
Subsidiary to make any filing to change its rates on file
with any Governmental Authority that could have a material
adverse effect on the benefits associated with the business
combination provided herein.
Section 7.17 Third-Party Consents. Each of
Enserch and TUC, respectively, shall, and shall cause its
Subsidiaries to, use all commercially reasonable efforts to
obtain all Enserch Required Consents or TUC Required
Consents, as the case may be. Each party shall promptly
notify the other party of any failure or prospective failure
to obtain any such consents and, if requested by the other
party, shall provide to the other party copies of all Enserch
Required Consents or TUC Required Consents, as the case may
be, obtained by such party.
Section 7.18 Tax-Exempt Status. No party shall,
nor shall any party permit any Subsidiary to, take any action
that would likely jeopardize the exclusion from gross income,
for purposes of federal income taxation, of the interest on
the outstanding revenue bonds issued for the benefit of
Enserch or TUC, as the case may be, which qualify on the date
hereof under Code Section 142(a) as "exempt facility bonds"
or as tax-exempt industrial development bonds under Section
103(b)(4) of the Internal Revenue Code of 1954, as amended
prior to the Tax Reform Act of 1986.
Section 7.19 Permits. Each of Enserch and TUC
shall use commercially reasonable efforts to maintain in
effect all existing material permits pursuant to which such
party operates.
Section 7.20 Certain Information Relating to
Customers. Without limiting the application of the
Confidentiality Agreement, dated April 1, 1996, between
Enserch and TUC (the "Confidentiality Agreement") no party
shall, nor shall any party permit any of its Subsidiaries to,
use any Information (as defined in the Confidentiality
Agreement) in connection with any solicitation, inquiry,
proposal, arrangement, understanding or agreement with any
person relating to the provision of electric or gas utility
service by Enserch or any of its Subsidiaries, on the one
hand, or TUC or any of its Subsidiaries, on the other hand,
to commercial and industrial customers in the service
territory of the other party.
Section 7.21 Certain Restrictions in Respect of
TUC.
(a) Dividends; Changes in Stock. TUC shall not (i)
engage in any material repurchase at a premium,
recapitalization, restructuring or reorganization with
respect to its capital stock, including, without limitation,
by way of any extraordinary dividends on or other
extraordinary distributions in respect of any of its capital
stock, or (ii) amend any material term or provision of the
TUC Common Stock.
(b) Material Acquisitions. TUC shall not, and shall
not permit any of its Subsidiaries to, acquire or agree to
acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership,
association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets
if the entering into of a definitive agreement relating to or
the consummation of such acquisition, merger or consolidation
would (A) impose any material delay in the obtaining of, or
significantly increase the risk of not obtaining, any
authorizations, consents, orders, declarations or approvals
of any Governmental Authority necessary to consummate the
Merger or the expiration or termination of any applicable
waiting period, (B) significantly increase the risk of any
Governmental Authority entering an order prohibiting the
consummation of the Merger or (C) significantly increase the
risk of not being able to remove any such order on appeal or
otherwise.
(c) Other Actions. TUC shall not, and shall not
permit any of its Subsidiaries to, take or fail to take any
other action which would reasonably be expected to prevent or
materially impede, interfere with or delay the Merger.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Access to Information.
(a) Upon reasonable notice, each of Enserch and TUC
shall, and shall cause its Subsidiaries to, afford to the
officers, directors, employees, accountants, counsel,
investment bankers, financial advisors, consultants and other
representatives of the other (collectively, "Representa-
tives") reasonable access, during normal business hours
throughout the period prior to the Effective Time, to all of
its properties, books, contracts, commitments and records
(including, but not limited to, Tax Returns) and, during such
period, each shall, and shall cause its Subsidiaries to,
furnish promptly to the other:
(i) a copy of each report, schedule and other
document filed by it or any of its Subsidiaries with
the SEC and any other document pertaining to the
transactions contemplated hereby filed with any
Governmental Authority that is not filed as an exhibit
to an SEC filing or described in an SEC filing, and
(ii) all information concerning itself, its
Subsidiaries, directors, officers and shareholders and
such matters as may be reasonably requested by the
other party in connection with any filings,
applications or approvals required or contemplated by
this Agreement.
(b) Without limiting the application of the
Confidentiality Agreement, all documents and information
furnished pursuant to Section 8.1(a) (ii) shall be subject to
the Confidentiality Agreement.
Section 8.2 Proxy Statement and Registration Statement.
(a) Preparation and Filing.
(i) As promptly as reasonably practicable after
the date hereof, the parties shall prepare and file
with the SEC the Registration Statement and the Proxy
Statement (together the "Proxy/Registration
Statement").
(ii) The parties shall take such actions as may
be reasonably required to cause the Registration
Statement to be declared effective under the Securities
Act as promptly as practicable after such filing.
(iii) The parties shall also take such action as
may be reasonably required to cause the shares of TUC
Common Stock issuable in connection with the Merger to
be registered or to obtain an exemption from
registration under applicable state "blue sky" or
securities laws; provided, however, that neither
Enserch nor TUC shall be required to register or
qualify as a foreign corporation or to take any other
action that would subject it to general service of
process in any jurisdiction in which it will not,
following the Merger, be so subject.
(iv) Each of the parties shall furnish all
information concerning itself that is required or
customary for inclusion in the Proxy/Registration
Statement.
(v) No representation, covenant or agreement
contained in this Agreement is made by any party hereto
with respect to information supplied by any other party
hereto for inclusion in the Proxy/Registration
Statement.
(vi) The Proxy/Registration Statement shall
comply as to form in all material respects with the
Securities Act, the Exchange Act and the rules and
regulations thereunder.
(vii) The parties shall take such action as may
be reasonably required to cause the shares of TUC
Common Stock issuable in the Merger to be approved for
listing on the NYSE.
(b) Letter of TUC's Accountants. Following receipt
by Deloitte & Touche, L.L.P., TUC's independent auditors, of
an appropriate request from Enserch pursuant to SAS No. 72,
TUC shall use best efforts to cause to be delivered to
Enserch a letter of Deloitte & Touche, L.L.P., dated a date
within two business days before the effective date of the
Registration Statement, and addressed to Enserch, in form and
substance reasonably satisfactory to Enserch and customary in
scope and substance for "cold comfort" letters delivered by
independent public accountants in connection with
registration statements and proxy statements similar to the
Proxy/Registration Statement.
(c) Letter of Enserch' Accountants. Following
receipt by Deloitte & Touche, L.L.P., Enserch' independent
auditors, of an appropriate request from TUC pursuant to SAS
No. 72, Enserch shall use best efforts to cause to be
delivered to TUC a letter of Deloitte & Touche, L.L.P., dated
a date within two business days before the effective date of
the Registration Statement, and addressed to TUC, in form and
substance reasonably satisfactory to TUC and customary in
scope and substance for "cold comfort" letters delivered by
independent public accountants in connection with
registration statements and proxy statements similar to the
Proxy/Registration Statement.
(d) Fairness Opinions. It shall be a condition to
the mailing of the Proxy Statement to the shareholders of
Enserch and to the obligation of TUC to request effectiveness
of the Registration Statement that (i) Enserch shall have
received an opinion from Morgan Stanley, dated the date of
the Proxy Statement, to the effect that, as of the date
thereof, the Ratio is fair from a financial point of view to
the holders of Enserch Common Stock, and (ii) TUC shall have
received an opinion from Barr Devlin, dated the date of the
Registration Statement, to the effect that, as of the date
thereof, the Ratio is fair from a financial point of view to
the holders of TUC Common Stock.
Section 8.3 Regulatory Matters.
(a) HSR Filings. Each party hereto shall file or
cause to be filed with the Federal Trade Commission and the
Department of Justice any notifications required to be filed
by their respective "ultimate parent" companies under the HSR
Act, and the rules and regulations promulgated thereunder
with respect to the transactions contemplated hereby, and
shall respond promptly to any requests for additional
information made by either of such agencies.
(b) Tax Ruling. TUC and Enserch each hereby agree to
cooperate with the other party and to use its best efforts to
file a request as soon as practicable, and in no event later
than 60 days after the signing of this Agreement, to obtain
the tax ruling contemplated by Section 9.1(g) of this
Agreement.
(c) Other Regulatory Approvals.
(i) Each party hereto shall cooperate and use
its best efforts promptly to prepare and file all
necessary permits, consents, approvals and
authorizations of all Governmental Authorities and all
other persons necessary or advisable to consummate the
transactions contemplated by this Agreement, including,
without limitation, the TUC Required Statutory
Approvals, the Enserch Required Statutory Approvals,
and the Texas Railroad Commission Review except to the
extent that TUC, in its sole discretion, waives the
requirement of the Texas Railroad Commission Review.
Further, regarding the Texas Railroad Commission
Review, it is agreed that the parties will, within 30
days of execution of this Agreement, report the
transaction to the Texas Railroad Commission and
jointly request that the Texas Railroad Commission
enter an order determining that this transaction is in
the public interest.
(ii) Enserch shall have the right to review and
approve in advance all characterizations of the
information relating to Enserch, on the one hand, and
TUC shall have the right to review and approve in
advance all characterizations of the information
relating to TUC, on the other hand, in either case,
which appear in any filing made in connection with the
transactions contemplated by this Agreement or the
Merger.
(iii) TUC and Enserch shall each consult with the
other with respect to the obtaining of all such
necessary or advisable permits, consents, approvals and
authorizations of Governmental Authorities.
Section 8.4 Shareholder Approval.
(a) Approval of Enserch Shareholders. Enserch shall,
as promptly as reasonably practicable after the date hereof
(i) take all steps reasonably necessary to duly
call, give notice of, convene and hold a special
meeting of its shareholders (the "Enserch Special
Meeting") for the purpose of securing the Enserch
Shareholders' Approval,
(ii) distribute to its shareholders the Proxy
Statement in accordance with applicable federal and
state law and its Articles of Incorporation and Bylaws,
iii) recommend to its shareholders the approval
of the Merger, this Agreement and the transactions
contemplated hereby, and
(iv) cooperate and consult with TUC with respect
to each of the foregoing matters, provided, that
nothing contained in this Section 8.4(a) shall require
the Board of Directors of Enserch to take any action or
refrain from taking any action that such Board
determines in good faith with written advice of counsel
could reasonably be expected to result in a breach of
its fiduciary duties under applicable law.
(b) Fairness Opinions Not Withdrawn. It shall be a
condition to the obligation of Enserch to hold the Enserch
Special Meeting that the opinion of Morgan Stanley referred
to in Section 8.2(d)(i) shall not have been withdrawn.
Section 8.5 Directors' and Officers' Indemnification.
(a) Indemnification. To the fullest extent not
prohibited by law, TUC agrees that for a period of six (6)
years after the Effective Time, all rights to indemnification
existing as of the Effective Time in favor of the current and
former directors, officers and employees of Enserch and its
Subsidiaries (at the Effective Time) (each an "Indemnified
Party") as provided for in their respective Articles of
Incorporation or Bylaws shall continue in full force and
effect. After the Effective Time, TUC will consent to the
establishment by Enserch and its Subsidiaries of such
additional indemnification arrangements in favor of Enserch'
and its Subsidiaries' directors and officers as may be
necessary so that they will have the benefit of the maximum
indemnification arrangements available to the directors and
officers of TUC for all events or actions occurring
subsequent to the Effective Time.
(b) Insurance. For a period of six (6) years after
the Effective Time, TUC shall cause to be maintained in
effect the policies of directors' and officers' liability
insurance maintained by Enserch and its Subsidiaries (at the
Effective Time) provided that TUC may substitute therefor
policies of at least the same coverage containing terms that
are no less advantageous with respect to matters occurring
prior to the Effective Time to the extent such liability
insurance can be maintained annually at a cost to TUC not
greater than 200 percent of the current aggregate annual
premiums for the policies currently maintained by Enserch and
its Subsidiaries for its directors' and officers' liability
insurance; provided, further, that if such insurance cannot
be so maintained or obtained at such cost, TUC shall maintain
or obtain as much of such insurance for Enserch and its
Subsidiaries as can be so maintained or obtained at a cost
equal to 200 percent of the current annual premium for
directors' and officers' liability insurance.
(c) Successors. In the event that TUC, Enserch or any
of its Subsidiaries or any of their respective successors or
assigns.
(i) consolidates with or merges into any other
person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger,
or
(ii) transfers all or substantially all of its
properties and assets to any person,
then and in each such case, proper provision shall be made so
that such successors and assigns shall assume the obligations
set forth in this Section 8.5.
(d) The provisions of this Section 8.5 are intended
to be for the benefit of, and shall be enforceable by, each
Indemnified Party, his or her heirs and his or her
representatives.
Section 8.6 Disclosure Schedules.
(a) On or prior to the date of this Agreement, TUC
shall have delivered to Enserch Section 6.4(c) of the TUC
Disclosure Schedule (as defined below) and Enserch shall have
delivered to TUC Section 5.4(c) of the Enserch Disclosure
Schedule (as defined below).
(b) Within seven days following the date of execution
of this Agreement, (i) TUC shall deliver to Enserch all
schedules required to be delivered by it in connection with
this Agreement (the "TUC Disclosure Schedule") other than
Section 6.4(c) of the TUC Disclosure Schedule and (ii)
Enserch shall deliver to TUC all schedules required to be
delivered by it in connection with this Agreement (the
"Enserch Disclosure Schedule,") other than Section 5.4(c) of
the Enserch Disclosure Schedule and for a period of 21 days
following the date of execution of this Agreement (the "Due
Diligence Period"), each of TUC and Enserch shall provide to
the other party and its Representatives access pursuant to
Section 8.1 in order for the other party to complete its due
diligence investigation of the party providing access
pursuant to Section 8.1. Either TUC or Enserch may terminate
this Agreement during the Due Diligence Period in the manner
contemplated by Section 10.1(i) (in the case of a termination
by TUC) or Section 10.1(j) (in the case of a termination by
Enserch): provided, however, that it is expressly understood
and agreed that if neither TUC nor Enserch terminates this
Agreement pursuant to and in accordance with the provisions
of Sections 10.1(i) or 10.1(j), as the case may be, then TUC
may not thereafter assert a failure of the condition set
forth in Sections 9.2(b) or (d) or terminate the Agreement
pursuant to Section 10.1(h)(i) and Enserch may not thereafter
assert a failure of the condition set forth in Sections
9.3(b) or (d) or terminate the Agreement pursuant to Section
10.1(g)(i), based on any information uncovered by it or
provided to it during the Due Diligence Period.
(c) The Disclosure Schedules, when so delivered,
shall constitute an integral part of this 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.
(d) Any and all statements, representations
warranties or disclosures set forth in the Disclosure
Schedules shall be deemed to have been made on and as of the
date of this Agreement.
(e) Without limiting the application of the
Confidentiality Agreement, the parties shall use their best
efforts to keep the Disclosure Schedules confidential.
Section 8.7 Public Announcements. TUC and Enserch
shall cooperate with each other in the development and
distribution of all news releases and other public
information disclosures with respect to this Agreement or any
of the transactions contemplated hereby and shall not issue
any public announcement or statement prior to consultation
with the other party, however, each party recognizes the
other party's obligations imposed by law or any applicable
national securities exchange, and will endeavor to
accommodate such obligations.
Section 8.8 Rule 145 Affiliates. Enserch shall
identify in a letter to TUC all persons who are, at the
Closing Date, "affiliates" of Enserch as such term is used in
Rule 145 under the Securities Act. Enserch shall use its
reasonable efforts to cause its affiliates to deliver to TUC
on or prior to the Closing Date a written agreement to the
effect that:
(i) any future disposition by such person of
any TUC Common Stock such person receives as the result
of the Merger will be accomplished in accordance with
Rule 145(d) under the Securities Act; and
(ii) such person agrees that appropriate legends
shall be placed upon the certificates evidencing
ownership of the TUC Common Stock that such person
receives as a result of the Merger.
Section 8.9 Employment Agreement Consultation. Enserch
and TUC shall consult with each other prior to entering into,
or amending, any individual employment or severance
agreements after the date hereof as contemplated or permitted
in accordance with Section 7.10. Each of Enserch and TUC
shall promptly furnish to the other, upon reasonable request
by the other, detailed information, together with underlying
documentation, with respect to all such existing or proposed
individual employment or severance agreements or amendments
thereto.
Section 8.10 Stock Option and Bonus Plans.
The following provisions shall apply to each stock
option plan, stock bonus plan and similar plans of Enserch
under which the delivery of Enserch Common Stock is required
to be used for purposes of the payment of benefits, grant of
awards or exercise of options (each a "Stock Plan", and all
of which are described on Section 8.10 of the Enserch
Disclosure Section):
(a) (i) Enserch shall take such action as
may be necessary so that from and after the date
hereof, no further grants of stock, options, or
other rights shall be made under any Stock Plan,
and after the Effective Time, outstanding
options to purchase shares of Enserch Common
Stock shall be exercisable to purchase a number
of shares of TUC Common Stock as may be
determined by applying the Ratio set forth in
Article III hereof; and
(ii) TUC shall
(A) to the extent required under
applicable SEC rules, take all corporate action
necessary or appropriate to obtain shareholder
approval at an annual meeting selected by TUC
with respect to such Stock Plan to the extent
such approval is required to enable such Stock
Plan to comply with Rule 16b-3 promulgated under
the Exchange Act,
(B) reserve for issuance under such Stock
Plan or otherwise provide a sufficient number of
shares of TUC Common Stock for delivery upon
exercise of options under such Stock Plan which
are outstanding on the date hereof, and
(C) as soon as practicable after the
Effective Time, file one or more registration
statements under the Securities Act with respect
to the shares of TUC Common Stock issuable upon
the exercise of currently outstanding options
under such Stock Plan to the extent such filing
is required under applicable law and use its best
efforts to maintain the effectiveness of such
registration statement(s) (and the current status
of the prospectuses contained therein or related
thereto) so long as such options remain
outstanding.
(b) To the extent that the change in any Stock Plan
from options exercisable in Enserch Common Stock to options
exercisable in TUC Common Stock does not adequately reflect
the economic effect of the fluctuations in the value of EEX
Common Stock, TUC will appropriately adjust the terms of such
Stock Plan in an equitable manner which does not impair the
value of the rights of the option holder or result in neither
a net financial benefit nor detriment to TUC.
Section 8.11 No Solicitations.
(a) No party hereto shall, and each such party shall
cause its Subsidiaries not to, permit any of its
Representatives to, and shall use its best efforts to cause
such persons not to, directly or indirectly, initiate,
solicit or encourage, or take any action to facilitate the
making of any offer or proposal that constitutes or is
reasonably likely to lead to any Takeover Proposal, or, in
the event of any unsolicited Takeover Proposal, engage in
negotiations or provide any confidential information or data
to any person relating to any Takeover Proposal.
(b) Enserch and TUC shall notify the other orally and
in writing of any such inquiries, offers or proposals
(including, without limitation, the terms and conditions of
any such proposal and the identity of the person making it)
within 24 hours of the receipt thereof and shall give the
other ten days' advance notice of any agreement to be entered
into with or any information to be supplied to any person
making such inquiry, offer or proposal.
(c) Each party hereto shall immediately cease and
cause to be terminated all existing discussions and
negotiations, if any, with any other persons conducted
heretofore with respect to any Takeover Proposal.
(d) Notwithstanding anything in this Section 8.11 to
the contrary, unless the Enserch Shareholders' Approval has
been obtained, Enserch or TUC may, to the extent that the
Board of Directors of such party determines in good faith
with the written advice of outside counsel that a failure to
do so could 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 properties, books and records of such
party and its Subsidiaries to any person in connection with a
possible Takeover Proposal with respect to such party by such
person.
Section 8.12 Transition Management.
(a) As promptly as practicable after the date hereof,
TUC and Enserch shall create a special transition management
task force (the "Task Force") that shall be comprised of
representatives from each of the primary business functions
of each company.
(b) The functions of the Task Force shall include (i)
to serve as a conduit for the flow of information and
documents between the companies and their Subsidiaries as
contemplated by Section 7.15, (ii) to review and evaluate
proposed exceptions to the restrictions on the conduct of
business pending the Merger set forth in Article VII, and
(iii) development of regulatory plans and proposals,
corporate organizational and management plans, workforce
combination proposals, and such other matters as they deem
appropriate.
(c) From time to time, the Task Force shall report
its findings to the Chief Executive Officers of Enserch and
TUC, each of whom shall report on such matters as he shall
deem appropriate to his respective board.
Section 8.13 Expenses. Subject to Section 10.3,
all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses, except that those
expenses incurred in connection with printing the Proxy/Registration
Statement, as well as the filing fee relating
thereto, shall be shared equally by TUC and Enserch.
Section 8.14 Employee Benefit Matters.
Following the Closing, TUC shall cause Enserch to
maintain the level of benefits provided to the employees and
all former employees of Enserch and its Subsidiaries that is
in effect as of the date hereof (other than benefits under
any Stock Plan) until TUC shall provide benefits to such
employees and former employees on a basis consistent with the
provision of benefits provided otherwise to other employees
and former employees within the TUC system.
Section 8.15 Other Agreements.
(a) Prior to the Closing, Enserch will take all
action necessary to effect the Distribution pursuant to the
terms of the Distribution Agreement, including, without
limitation, entering into the Distribution Agreement and
voting its shares of LSEC and EEX in favor of the Merger of
EEX with and into LSEC (the "Preliminary Merger") and the
other transactions contemplated by the Distribution
Agreement. Enserch shall take all reasonable actions
necessary to comply promptly with all legal requirements that
may be imposed on it with respect to the Distribution, unless
Enserch determines in good faith after receipt of written
advice of outside counsel that the Distribution would result
in a substantive violation of applicable Texas law relating
to corporate distributions and Texas and federal laws
relating to fraudulent conveyances or transfers.
(b) Tax Allocation Agreement. Prior to the Closing
Time, Enserch and LSEC will enter into the Tax Allocation
Agreement substantially in the form attached hereto as
Exhibit B with such amendments as consented to in writing by
TUC (the "Tax Allocation Agreement").
(c) Enserch Notes. TUC and Enserch each hereby
agree to cooperate with the other party and Enserch will use
its reasonable best efforts to maintain, and TUC shall take
such actions as are necessary to meet the quantitative
parameters necessary for Enserch to maintain the rating
issued by two Nationally Recognized Statistical Rating
Organizations (as defined in Rule 15c-3 of the Exchange Act)
of the Enserch Notes at or above their present level.
Section 8.16 Covenant to Satisfy Conditions.
(a) Each of Enserch and TUC shall take all reasonable
actions necessary to comply promptly with all legal
requirements that may be imposed on it with respect to this
Agreement.
(b) Subject to the terms and conditions hereof, and
taking into account the circumstances and giving due weight
to the materiality of the matter involved or the action
required, Enserch and TUC shall each use its best efforts to
take or cause to be taken all actions, and to do or cause to
be done all things, necessary, proper or advisable under
applicable laws and regulations to consummate and make
effective the Merger and the other transactions contemplated
hereby (subject to the vote of Enserch' shareholders
described in Sections 5.13), including fully cooperating with
the other in obtaining the Enserch Required Statutory
Approvals, the TUC Required Statutory Approvals and all other
approvals and authorizations of any Governmental Authorities
necessary or advisable to consummate the transactions
contemplated hereby.
ARTICLE IX
CONDITIONS
Section 9.1 Conditions to Each Party's Obligation to
Effect the Merger. The respective obligations of each party
to effect the Merger shall be subject to the satisfaction on
or prior to the Closing Date of the following conditions,
except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to Section 10.5:
(a) Shareholder Approval. The Enserch Shareholders'
Approval shall have been obtained.
(b) No Injunction. No temporary restraining order or
preliminary or permanent injunction or other order by any
federal or state court preventing consummation of the Merger
shall have been issued and continue in effect, and the Merger
and the other transactions contemplated hereby shall not have
been prohibited under any applicable federal or state law or
regulation.
(c) Registration Statement. The Registration
Statement shall have become effective in accordance with the
provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and
remain in effect.
(d) Listing of Shares. The shares of TUC Common
Stock issuable in the Merger pursuant to Article III shall
have been approved for listing on the NYSE upon official
notice of issuance.
(e) Statutory Approvals. The TUC Required
Statutory Approvals, the Enserch Required Statutory
Approvals, and the Texas Railroad Commission Review, unless
waived by TUC in accordance with the provisions of Section
8.3(c)(i), and any clearance under the HSR Act or matters
related thereto shall have been obtained at or prior to the
Effective Time, any such approvals (or in the case of the
Texas Railroad Commission Review, the satisfaction of any one
of (i) through (v) of the definition thereof) shall have
become or resulted in Final Orders at or prior to the
Effective Time, and no such Final Order shall impose terms or
conditions that would have, or would be reasonably likely to
have, a material adverse effect on the business, operations,
properties, assets, condition (financial or otherwise),
prospects or results of operations of Enserch and its
Subsidiaries taken as a whole (in the case of the obligation
of TUC to effect the Merger) or of TUC and its Subsidiaries
taken as a whole and determined as if the Merger had taken
place (in the case of the obligation of Enserch to effect the
Merger).
(f) Consummation of the Distribution. The Preliminary
Merger shall have been completed and the Distribution shall
have become effective in accordance with the terms of the
Distribution Agreement and each of the agreements
contemplated thereby.
(g) Tax Ruling. (i) The Internal Revenue
Service shall have issued and not revoked a ruling (the
"Ruling") reasonably satisfactory to Enserch and TUC to
the effect that the Distribution will result in no
taxable gain to Enserch or its shareholders.
Reasonable satisfaction shall include the right to
receive a reasonably satisfactory opinion of counsel on
the transaction upon which the Ruling is contingent.
(ii) TUC shall have received a reasonably
satisfactory representation of Enserch that no material
tax liability will be incurred by Enserch as a result
of the Distribution notwithstanding the tax-free nature
of the Distribution.
(h) Tax Allocation Agreement. The Tax Allocation
Agreement shall have become effective in accordance with its
terms.
Section 9.2 Conditions to Obligation of Enserch to
Effect the Merger. The obligation of Enserch to effect the
Merger shall be further subject to the satisfaction, on or
prior to the Closing Date, of the following conditions,
except as may be waived by Enserch in writing pursuant to
Section 10.5:
(a) Performance of Obligations of TUC. TUC shall
have performed in all material respects its agreements and
covenants contained in or contemplated by this Agreement
required to be performed by it at or prior to the Effective
Time.
(b) Representations and Warranties. The
representations and warranties of TUC set forth in this
Agreement shall be true and correct in all material respects
as of the date hereof and as of the Closing Date as if made
on and as of the Closing Date, except as otherwise
contemplated by this Agreement.
(c) Closing Certificates. Enserch shall have
received a certificate signed by the Chief Executive Officer
and Chief Financial Officer of TUC, dated the Closing Date,
to the effect that, to each such officer's knowledge, the
conditions set forth in Sections 9.2(a) and (b) have been
satisfied.
(d) TUC Material Adverse Effect. No TUC Material
Adverse Effect shall have occurred and there shall exist no
fact or circumstance that would have, or would be reasonably
likely to have, a TUC Material Adverse Effect.
(e) Tax Opinion. Enserch shall have received an
opinion of counsel, in form and substance satisfactory to
Enserch, dated the Closing Date, which opinion may be based
on appropriate representations of Enserch and TUC, in form
and substance reasonably satisfactory to such counsel, to the
effect that the Merger will be a tax-free reorganization
under Code Section 368(a)(1)(B) and that Enserch and the
shareholders of Enserch who exchange their shares solely for
stock of TUC will recognize no gain or loss for federal
income tax purposes as a result of the consummation of the
Merger.
(f) TUC Required Consents. The TUC Required Consents
shall have been obtained except those that in the aggregate
would not result in and would not reasonably be likely to
result in a TUC Material Adverse Effect.
Section 9.3 Conditions to Obligation of TUC to Effect
the Merger. The obligation of TUC to effect the Merger shall
be further subject to the satisfaction, on or prior to the
Closing Date, of the following conditions, except as may be
waived by TUC in writing pursuant to Section 10.5:
(a) Performance of Obligations of Enserch. Enserch
shall have performed in all material respects its agreements
and covenants contained in or contemplated by this Agreement
required to be performed by it at or prior to the Effective
Time.
(b) Representations and Warranties. The
representations and warranties of Enserch set forth in this
Agreement shall be true and correct in all material respects
as of the date hereof and as of the Closing Date as if made
on and as of the Closing Date, except as otherwise
contemplated by this Agreement.
(c) Closing Certificates. TUC shall have received a
certificate signed by the Chief Executive Officer and Chief
Financial Officer of Enserch, dated the Closing Date, to the
effect that, to each such officer's knowledge, the conditions
set forth in Sections 9.3(a) and (b) have been satisfied.
(d) Enserch Material Adverse Effect. No Enserch
Material Adverse Effect shall have occurred and there shall
exist no fact or circumstance that would have, or would be
reasonably likely to have, an Enserch Material Adverse
Effect, provided that for purposes of this Section 9.3(d),
the Distribution Subsidiaries shall not be taken into account
in determining an Enserch Material Adverse Effect.
(e) Tax Opinion. TUC shall have received an opinion
of counsel, in form and substance satisfactory to TUC, dated
the Closing Date, which opinion may be based on appropriate
representations of Enserch and TUC, in form and substance
reasonably satisfactory to such counsel, to the effect that
the Merger will be a tax-free reorganization under Code
Section 368(a)(1)(B) and that TUC will recognize no gain or
loss for federal income tax purposes as a result of the
consummation of the Merger.
(f) Enserch Required Consents. The Enserch Required
Consents shall have been obtained except those that in the
aggregate would not result in and would not reasonably be
likely to result in an Enserch Material Adverse Effect,
provided, however, that for purposes of this Section 9.3(f),
the consent of the holders of the Enserch Notes shall not
constitute an Enserch Required Consent.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination. This Agreement may be
terminated and the Merger abandoned at any time prior to the
Closing Date, whether before or after approval by the
shareholders of the respective parties hereto contemplated by
this Agreement:
(a) by mutual written consent of the Boards of
Directors of TUC and Enserch;
(b) by Enserch or TUC, by written notice to the
other, if the Effective Time shall not have occurred on or
before March 31, 1997; provided, however, that such date
shall automatically be changed to September 30, 1997 if, on
March 31, 1997:
(i) the conditions set forth in Sections 9.1(e)
and (g) have not been satisfied or waived;
(ii) the other conditions to the consummation of
the transactions contemplated hereby are then capable
of being satisfied; and
(iii) any approvals required by Sections 9.1(e)
and (g) that have not yet been obtained are being
pursued with diligence; provided, further, that the
right to terminate this Agreement under this Section
10.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before the
termination date;
(c) by Enserch or TUC, by written notice to the other
party if the Enserch Shareholders' Approval shall not have
been obtained at a duly held Enserch Special Meeting,
including any adjournments thereof;
(d) by Enserch or TUC, if any state or federal law,
order, rule or regulation is adopted or issued, that has the
effect, as supported by the written opinion of outside
counsel for such party, of prohibiting the Merger, or by
Enserch or TUC, if any court of competent jurisdiction in the
United States or any State shall have issued an order,
judgment or decree permanently restraining, enjoining or
otherwise prohibiting the Merger, and such order, judgment or
decree shall have become final and nonappealable;
(e) by Enserch, upon two days' prior notice to TUC,
if, as a result of a tender offer or any written offer or
proposal with respect to a merger, sale of a material portion
of its assets or other business combination (each, a
"Business Combination"), in each case by a party other than
TUC or any of its affiliates (provided, however, that the
Distribution pursuant to the Distribution Agreement and
related transactions shall not be deemed to be a Business
Combination), the Board of Directors of Enserch determines in
good faith that the fiduciary obligations of such directors
under applicable law require that such tender offer or other
written offer or proposal be accepted; provided, however,
that
(i) the Board of Directors of Enserch shall
have been advised in writing by outside counsel that,
notwithstanding a binding commitment to consummate an
agreement of the nature of this 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 tender offer or such written offer or proposal,
and
(ii) prior to any such termination, Enserch
shall, and shall cause its respective financial and
legal advisors to, negotiate with TUC to make such
adjustments in the terms and conditions of this
Agreement as would enable Enserch to proceed with the
transactions contemplated herein;
(f) by TUC, upon two days' prior notice to Enserch,
if, as a result of a tender offer or any written offer or
proposal with respect to a Business Combination, in each case
by a party other than Enserch or any of its affiliates, the
Board of Directors of TUC determines in good faith that the
fiduciary obligations of such directors under applicable law
require that such tender offer or other written offer or
proposal be accepted; provided, however, that
(i) the Board of Directors of TUC shall have
been advised in writing by outside counsel that,
notwithstanding a binding commitment to consummate an
agreement of the nature of this 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 tender offer or such written offer or proposal,
and
(ii) prior to any such termination, TUC shall,
and shall cause its respective financial and legal
advisors to, negotiate with Enserch to make such
adjustments in the terms and conditions of this
Agreement as would enable TUC to proceed with the
transactions contemplated herein;
(g) by Enserch, by written notice to TUC, if
(i) there shall have been any material breach
of any representation or warranty, or any material
breach of any covenant or agreement, of TUC hereunder,
and such breach shall not have been remedied within
twenty (20) days after receipt by TUC of notice in
writing from Enserch, specifying the nature of such
breach and requesting that it be remedied, or
(ii) the Board of Directors of TUC shall
withdraw or modify in any manner materially adverse to
Enserch its approval or recommendation of this
Agreement or the Merger or resolve to take such action;
or
(h) by TUC, by written notice to Enserch, if
(i) there shall have been any material breach
of any representation or warranty, or any material
breach of any covenant or agreement, of Enserch
hereunder, and such breach shall not have been remedied
within twenty (20) days after receipt by Enserch of
notice in writing from TUC, specifying the nature of
such breach and requesting that it be remedied, or
(ii) the Board of Directors of Enserch shall
withdraw or modify in any manner materially adverse to
TUC its approval or recommendation of this Agreement or
the Merger or resolve to take such action.
(i) by TUC by written notice (which notice shall
specify TUC's reasons in reasonable detail) delivered to
Enserch prior to 5:00 p.m. on May 4, 1996, if (A) TUC in the
due diligence investigation contemplated by Section 8.6 shall
uncover, or the Enserch Disclosure Schedules delivered to TUC
subsequent to the date of this Agreement shall disclose,
information that, as of the date of this Agreement, has not
been previously disclosed in an Enserch SEC Report or that
has not previously been disclosed by Enserch or any of its
Representatives to TUC and (B) such information in the
aggregate reflects a material adverse change in the business,
operations, properties, assets, condition (financial or
otherwise), prospects or results of operations of Enserch and
its Subsidiaries taken as a whole, as compared to the
information that was disclosed in an Enserch SEC Report or by
Enserch or any of its Representatives to TUC prior to the
date of this Agreement, or
(j) by Enserch by written notice (which notice shall
specify Enserch' reasons in reasonable detail) delivered to
TUC prior to 5:00 p.m. on May 4, 1996, if (A) Enserch in the
due diligence investigation contemplated by Section 8.6 shall
uncover, or the TUC Disclosure Schedules delivered to Enserch
subsequent to the date of this Agreement shall disclose,
information that, as of the date of this Agreement, has not
been previously disclosed in a TUC SEC Report or that has not
previously been disclosed by TUC or any of its
Representatives to Enserch and (B) such information in the
aggregate reflects a material adverse change in the business,
operations, properties, assets, condition (financial or
otherwise), prospects or results of operations of TUC and its
Subsidiaries taken as a whole, as compared to the information
that was disclosed in a TUC SEC Report or by TUC or any of
its Representatives to Enserch prior to the date of this
Agreement.
Section 10.2 Effect of Termination. In the event
of termination of this Agreement by either TUC or Enserch
pursuant to Section 10.1, there shall be no liability on the
part of either TUC or Enserch or their respective officers or
directors hereunder, except that
(i) Section 7.20, Section 8.1(b), Section
8.6(d), Section 8.13, Section 10.3 and Section 11.2
shall survive and
(ii) no such termination shall relieve any party
from liability by reason of any willful breach of any
agreement, representation, warranty or covenant
contained in this Agreement.
Section 10.3 Certain Damages, Payments and
Expenses.
(a) Damages Payable Upon Termination for Breach or
Withdrawal of Approval. If this Agreement is terminated
pursuant to Sections 10.1(g)(i) or (ii) or Sections
10.1(h)(i) or (ii) (breach of representation, warranty,
covenant or agreement or withdrawal of board recommendation),
then the breaching party or party whose board has withdrawn
its recommendation shall promptly (but not later than five
business days after receipt of notice that the amount is due
from the other party) pay to the other party, as liquidated
damages, an amount in cash equal to the of out-of-pocket
expenses and fees incurred by the other party arising out of,
in connection with or related to the Merger or the
transactions contemplated by this Agreement not in excess of
$15 million ("Out-of-Pocket Expenses"), provided, however,
that if this Agreement is terminated by a party as a result
of a willful breach of a representation, warranty, covenant
or agreement by the other party, the non-breaching party may
pursue any remedies available to it at law or in equity and
shall, in addition to the amount of Out-of-Pocket Expenses
set forth above, be entitled to recover such additional
amounts as such non-breaching party may be entitled to
receive at law or in equity.
(b) Other Termination Payments. If this Agreement
(i) is terminated
(A) pursuant to Sections 10.1(e) or
10.1(f) (fiduciary out),
(B) pursuant to Section 10.1(c) (failure
to obtain shareholder approval), following a
failure of the shareholders of Enserch to grant
the necessary approval described in Section 5.13
(a "Shareholder Disapproval"),
(C) as a result of a material breach of
Section 8.4 (approval of shareholders), or
(D) pursuant to Section 10.1(g)(ii) or
Section 10.1(h)(ii) (board withdrawal of
approval)
and
(ii) with respect to any termination referred to
in clause (i)(A), (C) or (D) above, at the time of such
termination (or, in the case of any termination
referred to in clause (i)(B) above, prior to the
Enserch Special Meeting), there shall have been a
third-party tender offer for shares of, or a third-party
offer or proposal with respect to a Business
Combination involving Enserch and TUC (as the case may
be, the "Target Party") or the affiliates thereof
which, at the time of such termination (or of the
meeting of Enserch's shareholders) shall not have been
(x) rejected by the Target Party and its Board of
Directors and (y) withdrawn by the third-party,
then Target Party shall pay the other party a termination fee
equal to the difference between $42.5 million and the Out-of-Pocket
Expenses incurred by the other party.
(c) Expenses.
(i) The parties agree that the agreements
contained in this Section 10.3 are an integral part of
the transactions contemplated by this Agreement and
constitute liquidated damages and not a penalty.
(ii) If one party fails to promptly pay to the
other any amounts due under this Section 10.3, such
defaulting party shall pay the costs and expenses
(including reasonable legal fees and expenses) in
connection with any action, including the filing of any
lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any
unpaid fee at the publicly announced prime rate of
Citibank, N.A. in effect from time to time from the
date such fee was required to be paid.
(d) Limitation of Fees. Notwithstanding anything
herein to the contrary, (i) the aggregate amount payable by
TUC and its affiliates pursuant to Section 10.3(a) and
Section 10.3(b) shall not exceed $42.5 million and (ii) the
aggregate payable by Enserch and its affiliates pursuant to
Section 10.3(a), Section 10.3(b) and the terms of the Enserch
Stock Option Agreement shall not exceed $42.5 million. For
purposes of this Section 10.3(d), the amount payable pursuant
to the terms of the Enserch Option shall be the amount that
would be paid pursuant to Section 7 (a) thereof determined as
if TUC had exercised the "put" of the entire Enserch Option
on the Termination Date ("Option Value"). If the sum of the
aggregate amount payable by Enserch and its affiliates
pursuant to Sections 10.3(a) and (b) and the Option Value
exceeds $42.5 million, (i) TUC's Out of Pocket Expenses shall
be paid in full and the amount payable pursuant to Section
10.3(b) and the Option Value shall be reduced in equal
amounts so that such aggregate amount shall be equal to
$42.5 million (provided, however, that the Option Value shall
not be reduced below the Option Value which would result if
the number of shares covered by the Enserch Option was 10,000
shares and, in such case, the amount payable pursuant to
Section 10.3(b) shall be reduced by the amount otherwise
allocable to the Option Value) and (ii) and the number of
shares purchasable upon the exercise of the Enserch Option
shall be correspondingly reduced as provided in the Enserch
Option Agreement.
Section 10.4 Amendment.
(a) This Agreement may be amended by the parties
hereto pursuant to action of their respective Boards of
Directors, at any time before or after approval hereof by the
shareholders of Enserch and prior to the Effective Time, but
after such approvals, no such amendment shall
(i) alter or change the amount or kind of
shares, to be received or exchanged for or on
conversion of any class or series of capital stock of
either corporation as provided under Article II, or
(ii) alter or change any of the terms and
conditions of this Agreement if any of the alterations
or changes, alone or in the aggregate, would materially
and adversely affect the rights of holders of TUC
Common Stock or the Enserch Common Stock.
(b) This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties
hereto.
Section 10.5 Waiver. At any time prior to the
Effective Time, the parties hereto may (i) extend the time
for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in
the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an
instrument in writing signed by a duly authorized officer of
such party.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Non-Survival of Representations,
Warranties, Covenants and Agreements. All representations,
warranties, covenants and agreements in this Agreement shall
not survive the Merger, except the covenants and agreements
contained in this Section 11.1 and in Article III (Exchange
of Shares), Section 8.1(b) (Access to Information), Section
8.5 (Directors' and Officers Indemnification), Section 8.10
(Incentive, Stock and Other Plans), Section 8.14 (Employee
Benefit Matters), Section 8.15(c) (Enserch Notes), Section
10.3 (Certain Damages, Payments and Expenses) and Section
11.7 (Parties In Interest), each of which shall survive in
accordance with its terms.
Section 11.2 Brokers.
(a) TUC represents and warrants that, except for Barr
Devlin, no broker, finder or investment bank is entitled to
any brokerage, finder's or other fee or commission in
connection with the Merger or the transactions contemplated
by this Agreement based upon arrangements made by or on
behalf of TUC.
(b) Enserch represents and warrants that, except for
Morgan Stanley, no broker, finder or investment bank is
entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made
by or on behalf of Enserch.
Section 11.3 Notices. All notices and other
communications hereunder shall be in writing and shall be
deemed given (a) if delivered personally, or (b) if sent by
overnight courier service (receipt confirmed in writing), or
(c) if delivered by facsimile transmission (with receipt
confirmed), or (d) five (5) days after being mailed by
registered or certified mail (return receipt requested) to
the parties, in each case to the following addresses (or at
such other address for a party as shall be specified by like
notice):
(i) if to TUC:
Worsham, Forsythe & Wooldridge, L.L.P.
1601 Bryan St., 30th Floor
Dallas, Texas 75201
Attention: Robert A. Wooldridge, Esq.
Fax: (214) 880-0011
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, N.Y. 10019
Attention: Douglas W. Hawes, Esq.
Fax: (212) 424-8500
(ii) if to Enserch:
Enserch Corporation
300 South St. Paul
Dallas, Texas 75201-5598
Attention: William T. Satterwhite, Esq.
Senior Vice-President and General
Counsel
Fax: (214) 573-3430
with a copy to:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C.
Attention: David N. Brown, Esq.
Fax: (202) 662-6291
Section 11.4 Miscellaneous.
(a) This Agreement, including the documents and
instruments referred to herein, (i) constitutes the entire
agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof other
than the Confidentiality Agreement, (ii) shall not be
assigned by operation of law or otherwise, and (iii) shall be
governed by and construed in accordance with the laws of the
State of Texas applicable to contracts executed in and to be
fully performed in such State, without giving effect to its
conflicts of laws statutes, rules or principles.
(b) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement,
which shall remain in full force and effect. The parties
hereto shall negotiate in good faith to replace any provision
of this Agreement so held invalid or unenforceable with a
valid provision that is as similar as possible in substance
to the invalid or unenforceable provision.
Section 11.5 Interpretation. When reference is
made in this Agreement to Articles, Sections or Exhibits,
such reference shall be to an Article, Section or Exhibit of
this Agreement, as the case may be, unless otherwise
indicated. The table of contents and headings contained in
this Agreement are for reference purposes and shall not
affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes", or
"including" are used in this Agreement, they shall be deemed
to be followed by the words "without limitation." Whenever
"or" is used in this Agreement it shall be construed in the
nonexclusive sense.
Section 11.6 Counterparts; Effect. This Agreement
may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
Section 11.7 Parties in Interest. This Agreement
shall be binding upon and inure solely to the benefit of each
party hereto, and, except for rights of Indemnified Parties
and their heirs and representatives as set forth in Section
8.5, nothing in this Agreement, express or implied, is
intended to confer upon any person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
Section 11.8 Specific Performance. The parties
hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the
parties hereto shall be entitled to an injunction or injunc-
tions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of
the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are
entitled at law or in equity.
Section 11.9 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.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Enserch, TUC, TXA and TXB have
caused this Agreement to be signed by their respective
officers thereunto duly authorized as of the date first
written above.
ENSERCH CORPORATION
By: /s/ D. W. Biegler
-------------------------
Name:
Title:
TEXAS UTILITIES COMPANY
By: /s/ Erle Nye
-------------------------
Name:
Title:
TXA, INC.
By: H. Jarrell Gibb
-------------------------
Name:
Title:
TXB, INC.
By: H. Jarrell Gibb
-------------------------
Name:
Title:
<PAGE>
<PAGE>
AGREEMENT AND PLAN
OF
DISTRIBUTION
AMONG
ENSERCH CORPORATION
ENSERCH EXPLORATION, INC.
LONE STAR ENERGY COMPANY
AND
TEXAS UTILITIES COMPANY
<PAGE>
<PAGE>
TABLE OF CONTENTS
Section 1.1 Definitions. . . . . . . . . .2
Section 2.1 Terms of Preliminary Merger. .2
Section 2.2 Allocation of Assets and
Liabilities. . . . . . . . . .2
Section 2.3 Transition Matters . . . . . .2
Section 2.4 Mechanics of Spin-Off. . . . .3
Section 2.5 Timing of Spin-Off . . . . . .3
Section 3.1 Tax Matters. . . . . . . . . .3
Section 4.1 Transaction Relating to
the Spin-Off . . . . . . . . .4
Section 4.2 Further Assurances . . . . . .4
Section 5.1 Representations and
Warranties of Enserch. . . . .4
Section 5.2 Representations and
Warranties of LSEC . . . . . .5
Section 6.1 Certain Covenants. . . . . . .7
Section 7.1 Tax Allocation Agreement . . .7
Section 7.2 Certain Transactions . . . . .7
Section 7.3 Conditions to Merger
Satisfied. . . . . . . . . . .7
Section 7.4 Registration of Spinco
Shares . . . . . . . . . . . .7
Section 7.5 Regulatory Approvals . . . . .8
Section 8.1 General. . . . . . . . . . . .8
Section 8.2 Termination of
Indemnification. . . . . . . .9
Section 8.3 Procedure. . . . . . . . . . 10
Section 9.1 Nonsolicitation. . . . . . . 11
Section 10.1 Termination. . . . . . . . . 12
Section 10.2 Amendment and Waivers. . . . 12
Section 11.1 Counterparts . . . . . . . . 12
Section 11.2 Governing Law. . . . . . . . 12
Section 11.3 Notices. . . . . . . . . . . 12
Section 11.4 Captions . . . . . . . . . . 13
Section 11.5 Assignment . . . . . . . . . 13
Section 11.6 Survival of Representations. 13
<PAGE>
<PAGE>
AGREEMENT AND PLAN OF DISTRIBUTION
AGREEMENT AND PLAN OF DISTRIBUTION, dated as of
_________, 1996 ("Agreement"), among Enserch Corporation, a
Texas corporation ("Enserch"), Enserch Exploration, Inc., a
Texas corporation ("EEX"), Lone Star Energy Company, a Texas
corporation ("LSEC"), and Texas Utilities Company, a Texas
corporation ("TUC").
RECITALS
WHEREAS, Enserch, TUC and TXA, Inc., ("TXA") a wholly
owned subsidiary of TUC, and TXB, Inc., a company owned 50% by
TUC and 50% by Enserch ("TXB") have entered into an Agreement
and Plan of Merger, dated as of April 13, 1996 (the "Merger
Agreement"), providing for the Merger (as defined in the Merger
Agreement) of TXA with and into Enserch, or in the alternative
the merger of a wholly owned subsidiary of TXB with and into
TUC and the Merger of a separate wholly owned subsidiary of TXB
with and into Enserch;
WHEREAS, it is a condition to the Merger that EEX will
merge with and into LSEC in a reorganization described in
Section 368(a) of the Internal Revenue Code (the "Preliminary
Merger").
WHEREAS, as a further condition to the Merger,
immediately prior to the Effective Time (as defined in Section
2.2 of the Merger Agreement) of the Merger, subject to the
satisfaction or waiver of the conditions set forth in Article
VII of this Agreement, the Board of Directors of Enserch
expects to make a distribution (the "Spin Off") in accordance
with Article 2.38 of the Texas Business Corporation Act ("Texas
Law") to the holders of Common Stock of Enserch, par value
$4.45 per share (the "Enserch Common Stock"), on a pro rata
basis, all of the then outstanding shares of Common Stock (the
"Spinco Common Stock"), par value $1.00 per share, of LSEC as
the survivor of the Preliminary Merger ("Spinco"); and
WHEREAS, the purpose of the Spin-Off is to make possible
the Merger by divesting Enserch of EEX, and LSEC.
WHEREAS, this Agreement sets forth or provides for
certain agreements among Enserch, TUC and LSEC in consideration
of the separation of the ownership of Spinco.
NOW, THEREFORE, in consideration of the premises, and of
the respective representations, warranties, covenants and
agreements set forth herein the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
As used in this Distribution Agreement, the following
terms shall have the following meanings:
"Transfer Agent" shall mean the transfer agent for
Enserch Common Stock.
"Enserch Companies" shall mean Enserch and its
subsidiaries.
ARTICLE II
MECHANICS OF SPIN-OFF
Section 2.1 Terms of Preliminary Merger. The Preliminary
Merger will be effected pursuant to the terms of an agreement
and plan of merger (the "Spinco Merger Agreement") to be
entered into among EEX and LSEC in accordance with the terms
hereof and the Texas Business Corporation Act ("Texas Law").
Section 2.2 Allocation of Assets and Liabilities. When
the Preliminary Merger takes effect under Texas Law (the
"Preliminary Effective Time"), all of the assets and
liabilities of EEX and LSEC (the "Merger Parties") shall be
allocated to and vested in Spinco as the surviving corporation
of the Preliminary Merger.
Section 2.3 Transition Matters. It is the intention of
the parties to separate the operations of the Enserch Companies
and the Merger Parties as soon as practicable following the
Effective Time. To this end, the Enserch Companies and the
Merger Parties will take all commercially reasonable steps to
effectuate such separation, including the termination of all
contractual obligations, services guarantees and other
financial accommodations between the parties unless the
continuation of such arrangements are approved by TUC. Until
such separation is effectuated, the parties agree as follows:
(a) Contracts
Contracts in existence between any of the Merger Parties
and any of the Enserch Companies on the Preliminary Effective
Date will continue in accordance with their terms, subject to
amendment or termination to the extent provided therein or as
otherwise may occur.
(b) Services
Services to the Merger Parties as have historically been
provided by the Enserch Companies to the Merger Parties shall
be subject to continuation, revision or termination in the
discretion of each of the Enserch Companies and the Merger
Parties.
(c) Guaranties
Guaranties executed by an of the Enserch Companies on
behalf of any of the Merger Parties shall continue in effect to
the extent the terms thereof are applicable and enforceable and
may otherwise be amended, modified or terminated in the
discretion of each of the Enserch Companies and the Merger
Parties.
Section 2.4 Mechanics of Spin-Off.
The Spin-Off shall be effected by the distribution to
each holder of record of Enserch Common Stock, as of the close
of the stock transfer books on the record date designated by or
pursuant to the authorization of the Board of Directors of
Enserch (the "Record Date"), of certificates representing one
share of Spinco Common Stock multiplied by the number of shares
of Enserch Common Stock held by such holder. No fractional
shares of Spinco Common Stock shall be distributed and cash
shall be distributed in lieu of fractional shares on a basis
approved by the Board of Directors of Enserch.
Section 2.5 Timing of Spin-Off.
Immediately prior to the Effective Time, subject to the
satisfaction or waiver of the conditions set forth in Article
VII, the Board of Directors of Enserch shall formally declare
the Spin-Off and pay it by delivery of certificates for Spinco
Common Stock to the Transfer Agent for delivery to the holders
entitled thereto. The Spin-Off shall be deemed to be effective
upon notification by the Company to the Transfer Agent that the
Spin-Off has been declared and that the Transfer Agent is
authorized to proceed with the distribution of Spinco Common
Stock, which notification agrees to deliver promptly following
such declarations (the "Effective Time").
ARTICLE III
TAX SHARING AGREEMENT
Section 3.1 Tax Matters.
Prior to the Time of Distribution, the parties hereto
shall execute and deliver an Agreement relating to past and
future tax sharing and certain issues associated therewith in
the form attached to the Merger Agreement as Exhibit A (the
"Tax Allocation Agreement").
ARTICLE IV
CERTAIN TRANSACTIONS
Section 4.1 Transaction Relating to the Spin-Off.
Immediately prior to the Spin-Off Effective Time, the
Preliminary Merger shall be consummated. The consummation of
the Preliminary Merger shall be conditioned upon the closing of
the Merger.
Section 4.2 Further Assurances.
(a) The parties agree that if after the Time of
Distribution, either party holds assets which by the terms
hereof were intended to be assigned and transferred to, or
retained by, the other party, such party shall promptly assign
and transfer or cause to be assigned and transferred such
assets to the other party.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of Enserch.
Enserch represents and warrants to Spinco as follows:
(a) Organization
Enserch 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 and
operate its properties and to carry on its business as now
being conducted.
(b) Authority
Enserch has all requisite power and authority to execute
this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary action on the part of Enserch.
This Agreement has been duly executed and delivered by Enserch
and constitutes a legal, valid and binding obligation of
Enserch enforceable against it in accordance with its terms.
(c) No Conflict
The execution, delivery and performance by Enserch of
this Agreement will not contravene, violate, result in a breach
of or constitute a default under (i) any provision of
applicable law or of the articles of incorporation or by-laws
of Enserch, (ii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Enserch or any of
its properties or assets, or (iii) any Material Contract (as
defined in the Merger Agreement) to which Enserch is a party or
by which Enserch or any of its properties is bound.
(d) Approvals
No consent, approval order, authorization of, or
registration, declaration or filing with, any Governmental
Authority (as defined in the Merger Agreement) is required in
connection with the making or performance by Enserch of this
Agreement, subject to compliance with applicable securities
laws.
Section 5.2 Representations and Warranties of LSEC.
LSEC represents and warrants to Enserch and TUC as
follows:
(a) Organization
LSEC 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 and
operate its properties and to carry on its business as now
being conducted.
(b) Authority
LSEC has all requisite power and authority to execute
this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary action on the part of LSEC.
This Agreement has been duly executed and delivered by LSEC and
constitutes a legal, valid and binding obligation of LSEC
enforceable against it in accordance with its terms.
(c) No Conflict
The execution, delivery and performance by LSEC of this
Agreement will not contravene, violate, result in a breach of
or constitute a default under (i) any provision of applicable
law or of the articles of incorporation or by-laws of LSEC or
(ii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to LSEC or any of its properties or
assets, or (iii) any Material Contract (as defined in the
Merger Agreement) to which Enserch is a party or by which
Enserch or any of its properties is bound.
(d) Approvals
No consent, approval order, authorization of, or
registration, declaration or filing with, any Governmental
Authority (as defined in the Merger Agreement) is required in
connection with the making or performance by LSEC of this
Agreement, subject to compliance with applicable securities
laws.
Section 5.3 Representations and Warranties of EEX.
EEX represents and warrants to Enserch and TUC as
follows:
(a) Organization
EEX 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 and operate
its properties and to carry on its business as now being
conducted.
(b) Authority
EEX has all requisite power and authority to execute this
Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary action on the part of EEX,
subject to shareholder approval. This Agreement has been duly
executed and delivered by EEX and constitutes a legal, valid
and binding obligation of EHI enforceable against it in
accordance with its terms.
(c) No Conflict
The execution, delivery and performance by EEX of this
Agreement will not contravene, violate, result in a breach of
or constitute a default under (i) any provision of applicable
law or of the articles of incorporation or by-laws of EEX or
(ii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to EEX or any of its properties or
assets, or (iii) any Material Contract (as defined in the
Merger Agreement) to which Enserch is a party or by which
Enserch or any of its properties is bound.
(d) Approvals
No consent, approval order, authorization of, or
registration, declaration or filing with, any Governmental
Authority (as defined in the Merger Agreement) is required in
connection with the making or performance by EEX of this
Agreement.
ARTICLE VI
CERTAIN COVENANTS
Section 6.1 Certain Covenants.
(a) LSEC acknowledges that it will be allocated and
vested in the properties and assets of EEX in the Preliminary
Merger without any representation or warranty, in "as is"
condition and on a "where is" basis.
(b) The reasonable expenses incurred by the Merger
Parties in connection with the Preliminary Merger and the Spin
Off will be paid by Enserch.
ARTICLE VII
CONDITIONS
The obligations of Enserch and LSEC to consummate the
Spin-Off shall be subject to the fulfillment of each of the
following conditions:
Section 7.1 Tax Allocation Agreement.
The Tax Allocation Agreement shall have been executed and
delivered by each of Enserch and LSEC.
Section 7.2 Certain Transactions.
The Preliminary Merger shall have been successfully
consummated.
Section 7.3 Conditions to Merger Satisfied.
Each condition to the closing of the Merger set forth in
Article IX of the Merger Agreement shall have been satisfied or
waived.
Section 7.4 Registration of Spinco Shares.
Any registration statement filed by Spinco with the SEC
pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), in connection with the issuance
of Spinco Common Stock in the Spin-Off shall have become
effective under the Securities Act or Exchange Act, as
applicable, and shall not be the subject of any stop order or
proceeding by the SEC seeking a stop order.
Section 7.5 Regulatory Approvals.
No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing
the consummation of the Spin-Off shall be in effect (each party
agreeing to use all reasonable efforts to have any such order
reversed or injunction lifted).
ARTICLE VIII
INDEMNIFICATION
Section 8.1 General.
(a) From and after the Effective Time, Spinco agrees to
indemnify and hold harmless TUC and Enserch (together the "TUC
Parties") and their respective directors, officers, employees,
affiliates, agents and assigns, as applicable, against any and
all losses, as incurred, for or on account of or arising from
or in connection with or otherwise with respect to:
(i) any breach of or any inaccuracy in any
representation or warranty of Spinco, EEX or LSEC
(collectively, the "Spinco Entities") contained in this
Agreement or the Tax Allocation Agreement (collectively,
the "Documents");
(ii) any breach or nonperformance of any covenant
of the Spinco Entities contained in the Documents whether
to be performed before or after the Effective Time;
(iii) the spun-off assets;
(iv) any regulatory or compliance violation that
arises out of events, actions or omissions to act of the
Spinco Entities occurring prior to the Effective Time;
(v) to the extent enforceable, claims of any
shareholders, directors, officers, employees or agents of
the Spinco Entities arising from the execution by the
Spinco Entities of the Documents and the consummation
after the Effective Time of transactions in accordance
with the term of the Documents;
(vi) to the extent enforceable, any untrue
statement or alleged untrue statement of any material
fact contained in the Proxy/Registration Statement (as
defined in the Merger Agreement), or any omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under
which they were made, not misleading; but only in each
case to the extent based upon information with respect to
the Spinco Entities furnished in writing by or on behalf
of the Spinco Entities, or at any time prior to the
Effective Time, Enserch expressly for use in the
Proxy/Registration Statement; and
(vii) any liability arising (A) from a claim to
enforce, or to recover tort liability arising out of, any
federal, state or local law, rule or regulation relating
to the protection of the environment with respect to any
facility, site, location or business (whether past or
present and whether active or inactive) owned, operated
or leased by the Spinco Entities prior to the Effective
Time and (B) as a result of conditions existing during or
prior to the period of time such facility, site, location
or business was owned, operated or leased by the Spinco
Entities.
(b) TUC agrees to indemnify and hold harmless the
Spinco Entities and their respective directors, officers,
employees, affiliates, agents and assigns, as applicable,
against any and all Losses, as incurred, for or on account of
or arising from or in connection with or otherwise with respect
to:
(i) any breach of or inaccuracy in any
representation or warranty of TUC contained in any of the
Documents;
(ii) any breach or nonperformance of any covenant
of (A) TUC contained in the Documents whether to be
performed before or after the Effective Time or (B)
Enserch or any of its post spin-off Subsidiaries
contained in the Documents to be performed after the
Effective Time;
(iii) except for Losses as to which any of the TUC
Parties are entitled to indemnification pursuant to the
terms of Section 1(a) hereof, any liability arising from
the assets of Enserch subsequent to the Merger; and
(iv) any untrue statement or alleged untrue
statement of any material fact contained in the
Proxy/Registration Statement, or any omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements
therein, in light of the circumstances under which they
were made, not misleading; but only in each case to the
extent based upon information with respect to the TUC
Parties furnished in writing by or on behalf of TUC or,
at any time after the Effective Time, Enserch, expressly
for use in the Proxy/Registration Statement.
Section 8.2 Termination of Indemnification
The obligations to indemnify and hold harmless any party
(a) pursuant to Sections 8.1(a)(i) and (b)(i) shall terminate
on the second anniversary of the date hereof, (b) pursuant to
Sections 8.1(a)(v) shall terminate on the first anniversary of
the date hereof and (c) pursuant to the other clauses of
Section 8.1(a), and (b) shall not terminate; provided, however,
that such obligations to indemnify and hold harmless shall not
terminate with respect to any item as to which the person to be
indemnified shall have, before the expiration of the applicable
period, previously made a claim by delivery a notice (pursuant
to Section 8.3 hereof in the case of Third Party Claims)
specifically identifying such claim to the party providing the
indemnification.
Section 8.3 Procedure.
(a) Any party seeking any indemnification provided for
under this Agreement (the "Indemnified Party") in respect of,
arising out of or involving a claim made by any person against
the Indemnified Party (a "Third Party Claim"), shall notify in
writing (and to the extent received, deliver copies of all
related notices and documents (inducing court papers) to the
party from whom indemnification is sought (the "Indemnifying
Party") of the Third Party Claim within fifteen Business Days
after receipt by such Indemnified Party of written notice of
the Third Party Claim; provided, however, that failure to give
such notification shall not affect the indemnification provided
hereunder except to the extent the Indemnifying Party shall
have been actually prejudiced as a result of such failure
(except that the Indemnifying Party shall not be liable for any
expenses incurred during the period in which the Indemnified
Party failed to give such notice if such Indemnified Party
failed to give such notice within the allotted fifteen Business
Days). Thereafter, the Indemnified Party shall deliver to the
Indemnifying Party, within five Business Days' time after the
Indemnified Party's receipt thereof, copies of all other
notices and documents (including court papers) received by the
Indemnified Party relating to the Third Party Claim.
(b) If a Third Party Claim is made against an
Indemnified Party, the Indemnifying Party shall be entitled to
participate in the defense thereof and, if it so chooses
(except as provided in Section 8.3(c)), to assume the defense
thereof with experienced counsel selected by the Indemnifying
Party and reasonably satisfactory to the Indemnified Party.
Should the Indemnifying Party so elect to assume the defense of
a Third Party Claim, the Indemnifying Party shall not be liable
to the Indemnified Party for any legal expenses (except as
provided below and in Section 8.3(c)) subsequently incurred by
the Indemnified Party in connection with the defense thereof.
Notwithstanding the Indemnifying Party's election to assume the
defense of such Third Party Claim, the Indemnified Party shall
have the right to employ separate counsel and to participate in
the defense of such action at its own expense; provided,
however, that the Indemnifying Party shall bear the reasonable
fees, costs, and expenses of such separate counsel if (i) the
use of counsel chosen by the Indemnifying Party to represent
the Indemnified Party would present such counsel with a
conflict of interest that would preclude such counsel from
representing the Indemnified Party pursuant to legal canons of
ethics or other applicable law; (ii) the Indemnifying Party
shall not have employed counsel reasonably to the Indemnified
Party to represent it within 30 days after notice to the
Indemnifying Party of the institution of such Third Party Claim
or (iii) the Indemnifying Party shall authorize the Indemnified
Party to employ separate counsel at the Indemnifying Party's
expense. If the Indemnifying Party chooses to defend or
prosecute a Third Party Claim, each party hereto shall
cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the
Indemnifying Party's request) the provision to the Indemnifying
Party of records and information which are reasonably relevant
to such Third Party Claim, and making employees available
(subject to reimbursement by the Indemnifying Party of actual
expenses incurred therewith) on a mutually convenient basis to
provide additional information and explanation of any material
provided hereunder. If the Indemnifying Party chooses to
defend or prosecute any Third Party Claim, the Indemnified
Party shall agree to any settlement, compromise or discharge of
such Third Party Claim which the Indemnifying Party may
recommend and which by its terms obligates the Indemnifying
Party to pay the full amount of the liability in connection
with such Third Party Claim and releases the Indemnified Party
completely in connection with such Third Party Claim. Whether
or not the Indemnifying Party shall have assumed the defense of
a Third Party Claim, so long as the Indemnifying Party
acknowledges in writing its obligation to indemnify the
Indemnified Party with respect to the applicable claims, the
Indemnified Party shall not admit any liability with respect
to, or settle, compromise or discharge, such Third Party Claim
without the Indemnifying Party's prior written consent, which
consent may not be withheld unless, in the Indemnifying Party's
good-faith judgment, such settlement, compromises or discharge
is unreasonable in light of such Third Party Claim against, and
defenses available to, the Indemnified Party.
(c) Notwithstanding anything set forth in Section 8.3
to the contrary, in the event an Indemnified Party reasonably
believes and so notifies the Indemnifying Party in writing that
the applicable claim, event if fully indemnified for, is
reasonably likely to have a material adverse effect on the
Indemnified Party's business, financial condition or results of
operations, then the Indemnifying Party shall not have the
right to assume the defense of such claim but shall have the
right to employ separate counsel and to participate in the
defense of such action at its own expense. In such an event,
the Indemnified Party and its counsel shall consult, whenever
reasonably practicable, with the Indemnifying Party and its
counsel with respect to the status of the claim and any related
litigation.
ARTICLE IX
NONSOLICITATION; PROPRIETARY INFORMATION
Section 9.1 Nonsolicitation.
(a) From and after the Effective Time, except as
required by law, neither Spinco nor any of its subsidiaries nor
any of their respective representatives shall, at any time,
make use of, divulge or otherwise disclose, directly or
indirectly, any trade secret, confidential information or other
proprietary data (including any customer list employee data,
record or financial information constituting a trade secret)
concerning Enserch including without limitations, the business
or policies of Enserch or any of its post Effective Time
Subsidiaries, other than information that is a Spun-Off Asset.
(b) Notwithstanding any other provision of this
Agreement, it is understood and agreed that the remedy of
indemnity payments pursuant to Article VIII and other remedies
at law would be inadequate in the case of any breach of the
covenants contained in Section 9.1(a) and that each of TUC and
Enserch shall be entitled to equitable relief, including the
remedy of specific performance, with respect to any breach or
attempted breach of such covenants.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination
Notwithstanding anything to the contrary in this
Agreement, this Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to
the Closing by Enserch in the event the Merger Agreement is
terminated by any party thereto in accordance with the terms
thereof.
Section 10.2 Amendment and Waivers.
This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto. By
an instrument in writing, the parties hereto may waive
compliance by any other party with any term or provision of
this Agreement that such other party was or is obligated to
comply with or perform.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Counterparts.
For the convenience of the parties hereto, this Agreement
may be executed in separate counterparts, each such counterpart
being deemed to be an original instrument, and which
counterparts shall together constitute the same Agreement.
Section 11.2 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without
reference to its conflicts of law principles.
Section 11.3 Notices.
Any notice, request, instruction or other document to be
given hereunder by any party to any other party shall be in
writing and shall be deemed to have been duly given (i) on the
first business day occurring on or after the date of
transmission if transmitted by facsimile, (ii) on the first
business day occurring on or after the date of delivery if
delivered personally or (iii) on the first business day
following the date of dispatch if dispatched by Federal Express
or other next-day courier service. All notices hereunder shall
be given as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to
receive such notice:
If to any of the c/o Enserch Corporation
Enserch Companies: 300 South St. Paul
Dallas, Texas 75201-5598
Attention: William T. Satterwhite, Esq.
Senior Vice-President and
General Counsel
Fax: (214) 573-3430
with a copy to:
Jackson & Walker, L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attention: Byron F. Egan, Esq.
Fax: (214) 953-5822
If to TUC: Worsham, Forsythe & Wooldridge, L.L.P.
1601 Bryan St., 30th Floor
Dallas, Texas 75201
Attention: Robert A. Wooldridge, Esq.
Fax: (214) 880-0011
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, N.Y. 10019
Attention: Douglas W. Hawes, Esq.
Fax: (212) 424-8500
Section 11.4 Captions.
All article, section and paragraph captions herein are
for convenience of reference only, do not constitute part of
this Agreement and shall not be deemed to limit or otherwise
affect any of the provisions hereof.
Section 11.5 Assignment.
Except as expressly provided herein, nothing contained in
this Agreement is intended to confer on any person or entity
other than the parties hereto and their respective successors
and permitted assigns any benefit, rights or remedies under or
by reason of this Agreement, except that the provisions of
Article VIII hereof shall inure to the benefit of the persons
referred to therein.
Section 11.6 Survival of Representations.
The representations and warranties contained in this
Agreement shall survive the Closing.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, this Distribution Agreement has been
duly executed and delivered by the duly authorized officers of
the parties hereto as of the date first written above.
ENSERCH CORPORATION
By:
----------------------
Name:
Title:
ENSERCH EXPLORATION, INC.
By:
-----------------------
Name:
Title:
LONE STAR ENERGY COMPANY
By:
-----------------------
Name:
Title:
TEXAS UTILITIES COMPANY
By:
------------------------
Name:
Title:
<PAGE>
<PAGE>
TAX ALLOCATION AGREEMENT
Dated as of ____________, 1996
Among
ENSERCH CORPORATION
AND
LONE STAR ENERGY CO.
ENSERCH EXPLORATION, INC.
TEXAS UTILITIES COMPANY
<PAGE>
<PAGE>
TABLE OF CONTENTS
2.1 Termination of Prior Tax Sharing
Agreements . . . . . . . . . . . . . . 5
3.1 Control of Tax Matters . . . . . . . . 5
3.2 Cooperation and Record Retention . . . 6
4.1 Refunds of Income Taxes or Other Taxes 7
4.2 Contests . . . . . . . . . . . . . . . 7
5.1 EEX Group Income Taxes . . . . . . . . 7
5.2 Company Group and Parent Group
Income Taxes . . . . . . . . . . . . . 8
5.3 Transfer and Distribution Taxes. . . . 8
5.4 Other Taxes. . . . . . . . . . . . . . 8
6.1. Computations . . . . . . . . . . . . . 9
6.2. Offsets. . . . . . . . . . . . . . . . 10
6.3. Assignment . . . . . . . . . . . . . . 10
6.4. Survival . . . . . . . . . . . . . . . 10
6.5. Notices. . . . . . . . . . . . . . . . 10
6.6. Governing Law. . . . . . . . . . . . . 10
6.7. Entire Agreement . . . . . . . . . . . 10
6.8. Severability . . . . . . . . . . . . . 11
6.9. Headings . . . . . . . . . . . . . . . 11
6.10 Counterparts . . . . . . . . . . . . . 11
<PAGE>
<PAGE>
TAX ALLOCATION AGREEMENT
TAX ALLOCATION AGREEMENT (the "Agreement") dated as of
__________, 1996, among Enserch Corporation, a Texas
corporation (the "Company"), Lone Star Energy Co., a Texas
corporation ("Lone Star"), Enserch Exploration, Inc., a Texas
corporation and Texas Utilities Company, a Texas corporation
("Parent").
WHEREAS, the Company is currently the common parent of an
affiliated group of corporations (the "Old Company Group")
within the meaning of Section 1502 of the Internal Revenue Code
of 1986, as amended (the "Code") filing consolidated, combined
or unitary income tax returns ("Consolidated Returns"),
pursuant to which the Company and one or more other members of
the Affiliated Group pay Taxes (as defined herein) on a
consolidated basis ("Consolidated Taxes");
WHEREAS, on or about ___________, Enserch Exploration,
Inc., transferred its assets and liabilities to Lone Star
pursuant to a merger (the "Preliminary Merger"), which merger
was structured to be a tax-free reorganization under Section
368(a) of the Code, and immediately thereafter Lone Star
changed its name to Enserch Exploration, Inc. ("EEX");
WHEREAS, immediately thereafter, the Company distributed
the stock of EEX to its shareholders ("Spinoff "), in a
transaction intended to qualify as a tax-free spin-off under
Section 355 of the Code, pursuant to a distribution agreement
(the "Distribution Agreement");
WHEREAS, on the beginning of the first day after the date
on which the Spinoff occurs (the "Distribution Date:), EEX and
its subsidiaries (collectively, the "EEX Group"), will cease to
be members of the Old Company Group;
WHEREAS, immediately following Spinoff pursuant to an
agreement ("Merger Agreement") between the Company and the
Parent, the Company shall become a first-tier subsidiary of
Parent (the "Merger");
WHEREAS, the Company and EEX desire to allocate the
liability for the Taxes of members of the Old Company Group for
any Tax Period (including short Tax Periods and any portion of
any Tax Period) which period (or portion) ends on or before the
Distribution Date (a "Pre-Distribution Tax Period") among the
members of the Old Company Group in a manner consistent with
the various tax allocation agreements and practices of the Old
Company Group as in effect on the Distribution Date, and to
provide for certain other Tax-related matters;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereto agree as follows.
ARTICLE I
CERTAIN DEFINITIONS
The following terms used herein shall have the meanings
set forth below (such terms used herein shall have the meanings
set forth below (such terms to be equally applicable to the
singular and plural forms of the terms defined or referred to
below):
1.1. "Agreement" shall have the meaning set forth in the
recitals to this Agreement.
1.2. "Code" shall have the meaning set forth in the
recitals to this Agreement.
1.3. "Company" shall have the meaning set forth in the
recitals to this Agreement.
1.4. "Company Group" means the Company and any
subsidiaries which the Company continues to own following the
Distribution that are eligible to join in a consolidated tax
return with the Company, together with the Company.
1.5 "Consolidated Return" shall have the meaning set
forth in the recitals to this Agreement.
1.6. "Consolidated Group" or "consolidated group" means
an affiliated group of corporations filing a consolidated
federal income tax return, as defined in Treasury Regulation
Section 1.1502-1(h).
1.7. "Distribution" shall have the meaning set forth in
the Distribution Agreement.
1.8. "Distribution Agreement" shall have the meaning set
forth in the recitals to this Agreement.
1.9. "Distribution Date" shall have the meaning set
forth in the recitals to this Agreement.
1.10. "Effective Time" shall have the meaning set forth
in the Merger Agreement.
1.11. "Income Taxes" means any and all Taxes based upon
or measured by net income (including, without limitation, any
alternative minimum tax under Section 55 of the Code) imposed
by or payable to the U.S., or any state, county, local or
foreign government or any subdivision or agency thereof, and
such term shall include any interest (whether paid or
received), penalties or additions to tax attributable thereto.
1.12. "Income Tax Liabilities" means all liabilities for
Income Taxes, including liabilities for Income Taxes assumed by
a party pursuant to a contract.
1.13. "Indemnified Party" means the party that is
entitled to indemnification by another party pursuant to this
Agreement.
1.14. "Indemnifying Party" means the party that is
required to indemnify another party pursuant to this Agreement.
1.15. "Independent Accounting Firm" means a "big six"
independent accounting firm, jointly selected by the parties;
or, if the parties cannot agree on such accounting firm, EEX
and the Company shall each submit the name of a "big six"
independent accounting firm that does not at the time and has
not in the prior two years provided services to any member of
the EEX Group or the Company Group, and the "Independent
Accounting Firm" shall mean the firm selected by lot from these
two firms.
1.16. "Independent Law Firm" means a nationally-recognized
independent law firm, jointly selected by the
parties; or, if the parties cannot agree on such law firm, EEX
and the Company shall each submit the name of a nationally-recognized
independent law firm that does not at the time and
has not in the prior two years provided services to any member
of the EEX Group or the Company Group, and the "Independent Law
Firm" shall mean the firm selected by lot from these two firms.
1.17. "Information Return" means any report, return,
declaration or other information or filing (other than a Tax
Return) required to be supplied to any taxing authority or
jurisdiction.
1.18. "EEX Group" shall have the meaning set forth in the
recitals to this Agreement.
1.19. "Material Tax Election" means any election, change
in annual accounting period, change or adoption of any
accounting method, filing of any amended Tax Return, entering
into any closing agreement, settlement of any Tax claim or
Proceeding relating to any member of the Old Company Group or
the EEX Group, surrender of any right to claim a Refund, or
consent to any extension or waiver of the limitation period
applicable to any Tax claim or assessment.
1.20. "Merger" shall have the meaning set forth in the
recitals to this Agreement.
1.21. "Merger Agreement" shall have the meaning set forth
in the recitals to this Agreement.
1.22. "Old Company Group" shall have the meaning set
forth in the recitals to this Agreement.
1.23. "Other Taxes" means all Taxes other than Income
Taxes.
1.24. "Overpayment Rate" means the rate specified under
Section 6621 (a) (1) of the Code for overpayments of tax.
1.25. "Parent" shall have the meaning set forth in the
recitals to this Agreement.
1.26. "Parent Group" means the consolidated group of
which Parent or any successor is the "common parent" within the
meaning of Section 1504 of the Code and the Treasury
Regulations promulgated under Section 1502 of the Code and any
subsidiary of a member of such consolidated group.
1.27. "Post-Distribution Tax Period" means any Tax Period
ending after the Distribution Date.
1.28. "Pre-Distribution Tax Period" shall have the
meaning set forth in the recitals to this Agreement.
1.29. "Proceeding" means any audit or other examination,
judicial or administrative proceeding relating to liability for
or refunds or adjustments with respect to Other Taxes or Income
Taxes.
1.30. "Property Taxes" shall have the meaning set forth
in Section 3.2(a)(i) of this Agreement.
1.31. "Refund" means any refund of Income Taxes or Other
Taxes, including any reduction in liabilities for such taxes.
1.32. "Short Period" shall have the meaning set forth in
Section 3.1(a) of this Agreement.
1.33. "Spin-Off shall have the meaning set forth in the
recitals to this Agreement.
1.34. "Tax Period" means any twelve month period which
constitutes the taxable year of a party hereto.
1.35. "Tax Return" means any report, return, declaration
or other information or filing required to be supplied to any
taxing authority or jurisdiction with respect to Income Taxes
or Other Taxes, including, without limitation, any documents
with respect to or accompanying payments of estimated Income
Taxes or Other Taxes, or with respect to or accompanying
requests for the extension of time in which to file any such
report, return, declaration or other document.
1.36. "Taxes" means any and all taxes, levies or other
like assessments, charges or fees, including, without
limitation, any excise, real or personal property, gains,
sales, use, license, real estate or personal property transfer,
net worth, stock transfer, payroll, ad valorem and other
governmental taxes and any withholding obligation imposed by or
payable to the U.S., or any state, county, local or foreign
government or subdivision or agency thereof, and any interest
(whether paid or received), penalties or additions to tax
attributable thereto.
1.37. "Taxing Authorities" means any governmental
authority which imposes, or is responsible for the imposition
of, a Tax.
1.38. "Transfer" means any transfer of assets by a member
of the Old Company Group which occurs to effectuate the Spinoff
or the Merger and which may give rise to deferred intercompany
gain or gain pursuant to Code section 311(b).
ARTICLE II
TERMINATION OF PRIOR TAX SHARING AGREEMENTS
2.1 Termination of Prior Tax Sharing Agreements. This
AGREEMENT shall take effect on the Distribution Date and shall
supersede all other agreements, whether or not written, in
respect of any Income Taxes or Other Taxes between or among any
members of the Company Group, or their respective predecessors
or successors, except to the extent necessary to effectuate
section 4.1 and section 5.1 of this Agreement. All such
replaced agreements shall terminate as of the Distribution
Date, and any rights or obligations created thereunder thereby
shall be settled in the normal course.
ARTICLE III
RETURN PREPARATION, FILING AND PAYMENT OF TAXES
3.1 Control of Tax Matters.
(a) Return Preparation and Filing.
(i) Pre-Distribution Tax Period. EEX hereby
irrevocably designates, and agrees to cause each of its
subsidiaries to so designate, the Company as its agent to
take any and all actions, necessary or incidental to the
preparation of Consolidated Returns and the filing of
such Consolidated Returns and claims for Refunds or forms
relating to any Pre-Distribution Tax Period.
(ii) Short Period. For any Tax Period that begins
prior to the Distribution Date and ends on the
Distribution Date (a "Short Period") of the Company or
any of its subsidiaries that was a member of the Old
Company Group for any Pre-Distribution Tax Period,
Parent, will timely prepare and file (in a manner
consistent with past practice of the Company, unless
Parent reasonably determines that such practice is
inconsistent with the then existing state of the law)
with the appropriate Taxing Authorities all Consolidated
Returns required to be filed for such Short Period.
(iii) Separate Company Returns. Each company that
was a member of the Old Company Group shall be
responsible for filing all of its Tax Returns for the Tax
Period which includes the Distribution Date, other than
any Consolidated Returns for Short Periods.
3.2 Cooperation and Record Retention.
(a) EEX agrees to cooperate with the Company, and will
cause each of its subsidiaries to so cooperate, in a timely
manner consistent with existing practice in filing any return
consent contemplated by this Agreement. EEX also agrees to
take, and will cause the appropriate subsidiary to take, such
action or actions as the Company may reasonably request,
including but not limited to the filing of requests for the
extension of time within which to file Consolidated Returns,
and to cooperate in connection with any refund claim with
respect to any Pre-Distribution Tax Period. EEX further agrees
to furnish timely, and to cause each of its subsidiaries to so
furnish, the Company with any and all information reasonably
requested by the Company in order to carry out the provisions
of this Agreement. Without limiting the generality of the
foregoing sentence, EEX specifically agrees to provide to the
Company promptly, but in any event within 10 days of receipt
thereof, copies of any correspondence or notices received from
the Internal Revenue Service or any other Taxing authority with
respect to any Consolidated Return of the Old Company Group for
a Pre-Distribution Tax Period.
(b) The Company and EEX shall cooperate fully, as and
to the extent reasonably requested by the other party, in
connection with any Proceeding. Such cooperation shall include
the retention and (upon the other party's request) the
provision of records and information which are reasonably
relevant to any such Proceeding, and making employees available
on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.
The Company and EEX agree (i) to retain all books and records
with respect to Tax matters pertinent to the Old Company Group
and the EEX Group relating to any Pre-Distribution Tax Period,
and to abide by all record retention agreements entered into
with any Taxing Authority, and (ii) to give the other party
reasonable written notice prior to destroying or discarding any
such books and records and, if the other party so requests, the
Company or EEX, as the case may be, shall allow the requesting
party to take possession of such books and records. EEX
further acknowledges and agrees that any such books and records
necessary to establish the amount of any loss carried forward
shall be retained until the expiration of the statute of
limitations in respect of the year in which such loss is
utilized to reduce taxable income.
ARTICLE IV
REFUNDS AND CONTESTS
4.1 Refunds of Income Taxes or Other Taxes. The EEX
Group shall be entitled to all Refunds attributable to the EEX
Group, and the Parent Group shall be entitled to all Refunds
attributable to the Company Group or the Old Company Group
(other than those attributable to the EEX Group). For this
purpose, Refunds attributable to the EEX Group shall means
Refunds determined pursuant to the prior tax sharing agreement
between the Company and Enserch Exploration, Inc., which
agreement is attached hereto, and Refunds attributable to the
Old Company Group shall mean Refunds determined pursuant to
such tax sharing agreement (other than those attributable to
the EEX Group). A party receiving a Refund to which another
party is entitled pursuant to this AGREEMENT shall pay the
amount to which such other party is entitled within ten days
after the receipt of the Refund.
4.2 Contests.
(a) Except as provided below, in the event that any
deficiencies or Refund claims arise with respect to an Income
Tax Liability with respect to any Consolidated Return of the
Old Company Group for a Pre-Distribution Tax Period, the
Company shall control all proceedings with respect thereto. In
the event that any issue or issues are raised during such
proceedings that may result, directly or indirectly, in
deficiencies or refund claims related to Taxes that would be
required to be paid by the Company pursuant to this Agreement,
both EEX and Parent agree and acknowledge that the contest of
any such issue or issues shall be conducted jointly; provided,
however, all major decisions regarding the conduct of such
contest shall be made by Parent. EEX's right to indemnity
hereunder shall be conditioned on EEX's compliance with this
Agreement except that EEX shall be required to give notice to
Parent upon the receipt of oral or written notice by EEX from
any governmental authority or agent thereof of an issue that
may result in Taxes for which a claim for indemnity from
Parent, Company or EEX may be made, under this Agreement.
(b) EEX and the Company agree to cooperate in all
reasonable respects with respect to Tax deficiencies or Refund
claims described in Section 4.2 of this Agreement, which
cooperation shall include executing and filing such waivers,
consents, forms, court petitions, refund claims, complaints,
powers of attorney and other documents needed from time to time
in order to defend, prosecute or resolve such deficiencies or
claims.
ARTICLE V
INDEMNIFICATION FOR TAXES
5.1 EEX Group Income Taxes. The EEX Group shall pay,
and shall indemnify and hold the Parent Group harmless against,
(i) all Income Tax Liabilities of any member of the EEX Group
for all Tax Periods (including Tax Periods or portions thereof
during which any member of the EEX Group was a member of the
Old Company Group but excluding all Income Tax Liabilities
arising from the Transfer and Distribution as provided for in
Section 5.3 hereof) and (ii) all Income Tax Liabilities
incurred pursuant to Treasury Regulation Section 1.1502-6 or
any comparable state, local or other provision providing for
several liability as a result of any member of the EEX Group
having been a member of any consolidated, combined, unitary or
other group (other than the Old Company Group and the Parent
Group). For purposes of clause (i) of this section 5.1, the
Income Tax Liabilities of any member or members of the EEX
Group for any Pre-Distribution Tax Period shall be determined
pursuant to the prior tax sharing agreement between the Company
and Enserch Exploration, Inc., which agreement is attached
hereto.
5.2 Company Group and Parent Group Income Taxes. The
Parent Group shall pay, and shall indemnify and hold the EEX
Group harmless against, (i) all Income Tax Liabilities of any
member of the Old Company Group or the Parent Group (other than
Income Tax Liabilities of any member of the EEX Group for any
Tax Period) but excluding all Income Tax Liabilities arising
from the Transfer and Distribution as provided for in Section
5.3 hereof and (ii) all Income Tax Liabilities incurred
pursuant to Treasury Regulation Section 1.1502-6 or any
comparable state, local or other provision providing for
several liability as a result of any member of the Old Company
Group or the Parent Group (other than any member of the EEX
Group) having been a member of any other consolidated,
combined, unitary or other group. For purposes of clause (i)
of this section 5.2, the Income Tax Liabilities of any member
or members of the Old Company Group for any Pre-Distribution
Tax Period shall be determined pursuant to the prior tax
sharing agreement between the Company and Enserch Exploration,
Inc., which agreement is attached hereto.
5.3 Transfer and Distribution Taxes. Parent Group and
EEX Group shall pay, shall indemnify and hold the other
harmless for any Income Tax Liabilities arising from the
Transfer and the Distribution in excess of their proportionate
share as determined by the relative market values of their
respective equity on the Distribution Date. The proportionate
share of the Parent Group and the EEX Group of such Income Tax
Liabilities shall be determined as follows: (i) the
proportionate share of the Parent Group shall be the fraction
equal to the market value of the Company's equity on the
Distribution Date over the market value of the equity of the
Company and EEX on the Distribution Date, and (ii) the
proportionate share of the EEX Group shall be the fraction
equal to the market value of the equity of EEX on the
Distribution Date over the market value of the equity of EEX
and the Company on the Distribution Date; PROVIDED, HOWEVER,
that such indemnification shall be subject to revision as
necessitated by EEX's fiduciary obligation to its minority
shareholders.
5.4 Other Taxes. (a) The Parent Group shall pay, and
shall indemnify and hold the EEX Group harmless against, all
liabilities for all Other Taxes attributable to the income,
property or activities of any member of the Old Company Group
or the Parent Group (other than, in both cases, a member of the
EEX Group), including all Other Taxes, if any, arising from the
Transfer and the Distribution. Except as provided in the
preceding sentence, the EEX Group shall pay, and shall
indemnify and hold the Parent Group harmless against, all
liabilities for all Other Taxes attributable to the income,
property or activities of any member of the EEX Group.
(b) To the extent that the Indemnifying Party is
required to indemnify another party pursuant to this Article V,
the Indemnifying Party shall pay to the Indemnified Party, no
later than 10 days prior to the due date of the relevant Tax
Return or estimated Tax Return or 10 days after the
Indemnifying Party receives the Indemnified Party's
calculations, whichever occurs later, the amount that the
Indemnifying Party is required to pay the Indemnified Party.
The Indemnified Party shall submit its calculations of the
amount required to be paid pursuant to this Article V, showing
such calculations in sufficient detail so as to permit the
Indemnifying Party to understand the calculations. If the
Indemnifying Party disagrees with such calculations, it must
notify the Indemnified Party of its disagreement in writing
within 15 days of receiving such calculations. Any dispute
regarding such calculations shall be resolved in accordance
with this Agreement.
ARTICLE VI
GENERAL PROVISIONS
6.1. Computations.
Other than determinations of whether there are any
indemnity obligations under this Agreement, all computations or
recomputations of Income Tax Liability and all determinations,
computations or recomputations of any amount or any payment
(including, but not limited to, computations of the amount of
the Income Tax Liability, the amount or effect of any loss,
credit or deduction, the effect of a Federal statutory Tax rate
change for a taxable year, and the amount of any interest,
penalties or additions imposed with respect to any Income Tax)
with respect to any Consolidated Return shall be prepared by
the Company and submitted to EEX for its written approval. Any
disagreement as to such computations after submission to EEX by
the Company shall be resolved by a nationally recognized
accounting firm, with expertise in Tax, independent of each of
the parties hereto. Without limiting the foregoing, the
Company shall calculate the taxable income of the Old Company
Group in accordance with the existing and historic methodology
used by the Old Company Group in calculating taxable income of
the Old Company Group and submit such calculation to the Parent
in accordance with the provisions of this Section.
6.2. Offsets.
No payment shall be required to be made by either party
to the other pursuant to this Agreement to the extent that
there is an amount then due and payable under this Agreement to
the party that is to make such payment.
6.3. Assignment.
Neither this Agreement nor any of the rights, interest or
obligations under this Agreement shall be assigned, in whole or
in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties.
Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by,
the parties hereto and their respective successors and assigns.
6.4. Survival.
The provisions of this AGREEMENT shall survive the
effective date of the Merger and remain in full force until all
periods of limitations, including any extensions or waiver
periods, for all Tax Periods of the Company and EEX prior to or
including the effective date of the Merger have expired.
6.5. Notices.
Any notices, payments or other communications required by
this Agreement shall be made as provided in the notice section
of the Merger Agreement; however, copies of such notices,
payments or other communications shall, for both EEX and the
Company, be sent to the attention of the director of taxes.
6.6. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
6.7. Entire Agreement.
This Agreement (a) constitutes the entire agreement and
supersedes all prior agreement and understandings, both written
and oral, among the parties with respect to the subject matter
of this Agreement and (b) is not intended to confer upon any
person other than the parties hereto any rights or remedies.
The parties agree that to the extent the provisions of any
other agreements executed in connection with the Spinoff or the
Merger are inconsistent with the provisions hereof, the
provisions of this Agreement shall prevail.
6.8. Severability.
If any provision of this Agreement or the application of
any such provision to any person circumstances shall be held
invalid, illegal or unenforceable in any respect by a court of
competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof.
6.9. Headings.
The headings of the sections of this Agreement are
inserted for convenience only and shall not constitute a part
thereof or affect in any way the meaning or interpretation of
this Agreement.
6.10 Counterparts.
This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the date first above written.
ENSERCH CORPORATION
By:
-----------------------
Name:
Title:
LONE STAR ENERGY CO.
By:
-----------------------
Name:
Title:
ENSERCH EXPLORATION, INC.
By:
-----------------------
Name:
Title:
TEXAS UTILITIES CO.
By:
-----------------------
Name:
Title:
<PAGE>
EXHIBIT 2.2
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of April 13, 1996, (the
"Agreement") by and between Texas Utilities Company, a corporation formed
under the laws of the State of Texas ("TUC"), and ENSERCH Corporation, a
corporation formed under the laws of the State of Texas ("Enserch").
W I T N E S S E T H T H A T:
WHEREAS, concurrently with the execution and delivery of this Agreement,
Enserch, TUC, TXA, Inc., a wholly-owned subsidiary of TUC, and TXB, Inc., a
corporation formed under the laws of the State of Texas, entered into an
Agreement and Plan of Merger, dated as of April 13, 1996, (the "Merger
Agreement"), which provides, inter alia, upon the terms and subject to the
conditions thereof, for the merger of TXA, Inc. with and into Enserch or, in
certain circumstances, the merger of two newly formed, wholly-owned
subsidiaries of TXB, Inc. with and into TUC and Enserch respectively (in
either case, the "Merger").
WHEREAS, as a condition to TUC's willingness to enter into the Merger
Agreement, TUC has requested that Enserch agree, and Enserch has so agreed,
to grant to TUC an option with respect to certain shares of Enserch' common
stock, on the terms and subject to the conditions set forth herein;
NOW THEREFORE, to induce TUC to enter into the Merger Agreement, and in
consideration of the representations, warranties, covenants and agreements
contained herein, in the Merger Agreement, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Grant of Option.
(a) Subject to the receipt of all regulatory approvals and orders
required by applicable law, Enserch hereby grants TUC an irrevocable option
(the "Enserch Option") to purchase up to 3,363,570 shares, subject to
adjustment as provided in Section 11 (the "Enserch Shares"), of common stock,
par value $4.45 per share, of Enserch (the "Enserch Common Stock") (being 4.9%
of the number of shares of Enserch Common Stock outstanding as of March 31,
1996) in the manner set forth below, at a price (the "Exercise Price") per
Enserch Share of $16 3/8.
(b) The Exercise Price shall be payable, at TUC's option, as follows:
(i) in cash, or
(ii) subject to the receipt of all approvals of any Governmental
Authority required for Enserch to acquire, and TUC to issue, TUC Shares
(as defined below) from TUC, in shares of common stock, without par
value, of TUC ("TUC Shares"))
in either case in accordance with Section 4 hereof.
(c) Notwithstanding the foregoing, in no event shall the number of
Enserch Shares for which the Enserch Option is exercisable exceed 4.9% of the
number of issued and outstanding shares of Enserch Common Stock.
(d) As used herein, the "Fair Market Value" of any share shall be the
average of the daily closing sales price for such share on the New York Stock
Exchange (the "NYSE") during the ten NYSE trading days prior to the fifth NYSE
trading day preceding the date such Fair Market Value is to be determined.
(e) Capitalized terms used herein but not defined herein shall have
the meanings set forth in the Merger Agreement.
2. Exercise of Option.
(a) The Enserch Option may be exercised by TUC, in whole or in part,
at any time or from time to time after the Merger Agreement becomes terminable
by TUC under circumstances which could entitle TUC to a payment under Section
10.3(b) of the Merger Agreement, regardless of whether the Merger Agreement
is actually terminated or whether there occurs a closing of any Business
Combination involving a Target Party or a closing by which a Target Party
becomes a subsidiary (any such event by which the Merger Agreement becomes so
terminable by TUC being referred to herein as a "Trigger Event").
(b)(i) Enserch shall notify TUC promptly in writing of the
occurrence of any Trigger Event, it being understood that the giving of such
notice by Enserch shall not be a condition to the right of TUC to exercise the
Enserch Option.
(ii) In the event TUC wishes to exercise the Enserch Option, TUC
shall deliver to Enserch written notice (an "Exercise Notice")
specifying the total number of Enserch Shares it wishes to purchase.
(iii) Upon the giving by TUC to Enserch of the Exercise Notice and
the tender of the applicable aggregate Exercise Price, TUC, to the
extent permitted by law and Enserch's organizational documents, and
provided that the conditions to Enserch's obligations to issue the
Enserch Shares to TUC hereunder set forth in Section 3 have been
satisfied or waived, shall be deemed to be the holder of record of the
Enserch Shares issuable upon such exercise, notwithstanding that the
stock transfer book of Enserch shall then be closed or that certificates
representing such Enserch Shares shall not then be actually delivered
to TUC.
(iv) Each closing of a purchase of Enserch Shares (a "Closing")
shall occur at a place, on a date, and at a time designated by TUC in
an Exercise Notice delivered at least two business days prior to the
date of the Closing.
(c) The Enserch Option shall terminate upon the earliest to occur of:
(i) the Effective Time of the Merger;
(ii) the termination of the Merger Agreement pursuant to Section
10.1 thereof other than under circumstances which could entitle TUC to
a payment under Section 10.3(b) of the Merger Agreement; and
(iii) 180 days following any termination of the Merger Agreement
upon or during the continuance of a Trigger Event or, if at the
expiration of such 180 day period, the Enserch Option cannot be
exercised by reason of any applicable judgment, decree, order, law or
regulation, ten business days after such impediment to exercise shall
have been removed or shall have become final and not subject to appeal,
but in no event under this clause (iii) later than September 30, 1997.
(d) Notwithstanding the foregoing, the Enserch Option may not be
exercised if TUC is in breach of any of its representations or warranties, or
in material breach of any of its covenants or agreements, contained in this
Agreement or in the Merger Agreement.
3. Conditions to Closing. The obligation of Enserch to issue the
Enserch Shares to TUC hereunder is subject to the conditions that
(a) all waiting periods, if any, under the HSR Act applicable to the
issuance of the Enserch Shares hereunder shall have expired or have been
terminated;
(b) the Enserch Shares, and any TUC Shares which are issued in payment
of the Exercise Price, shall have been approved for listing on the NYSE upon
official notice of issuance;
(c) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal, state or local
Governmental Authority, if any, required in connection with the issuance and
acquisition of the Enserch Shares hereunder shall have been obtained or made,
including, without limitation, any required approval of the SEC under Sections
9 and 10 of the 1935 Act, any required approval of the Texas Railroad
Commission or the Texas Public Utilities Commission, as the case may be, of
(i) the issuance of the Enserch Shares by Enserch (ii) the acquisition of
Enserch Shares by TUC and (iii) the acquisition by Enserch of the TUC Shares
constituting the Exercise Price hereunder; and
(d) no preliminary or permanent injunction or other order by any court
of competent jurisdiction prohibiting or otherwise restraining such issuance
shall be in effect.
The conditions set forth in paragraph (b) above may be waived by Enserch, in
the case of TUC Shares, and by TUC, in the case of Enserch Shares, in the sole
discretion of the waiving party.
4. Closing. At any Closing,
(a) Enserch shall deliver to TUC or its designee a single certificate
in definitive form representing the number of Enserch Shares designated by TUC
in its Exercise Notice, such certificate to be registered in the name of TUC
and to bear the legend set forth in Section 12; and
(b) TUC shall deliver to Enserch the aggregate price for the Enserch
Shares so designated and being purchase by
(i) wire transfer of immediately available funds or certified
check or bank check, or
(ii) subject to the conditions in Section 1(b)(ii), a certificate
or certificates representing the number of TUC Shares being issued by
TUC in consideration thereof, determined in accordance with Section
4(c).
(c) In the event that TUC issues TUC Shares to Enserch in
consideration of Enserch Shares pursuant to Section 4(b)(ii), the number of
TUC Shares to be so issued shall be equal to the quotient obtained by
dividing:
(i) the product of (x) the number of Enserch Shares with respect
to which the Enserch Option is being exercised and (y) the Exercise
Price, by
(ii) the Fair Market Value of the TUC Shares as of the date
immediately preceding the date the Exercise Notice is delivered to
Enserch.
(d) Enserch shall pay all expenses, and any and all United States
Federal, state and local taxes, and other chargers that may be payable in
connection with the preparation, issue and delivery of stock certificates
under this Section 4.
5. Representations and Warranties of Enserch. Enserch represents and
warrants to TUC that
(a) Subject to any required regulatory approvals, Enserch has the
corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder, subject in the case of the repurchase of the
Enserch Shares pursuant to Section 7(a) to applicable law and the provisions
of Enserch' Articles of Incorporation, as amended (the "Enserch Articles");
(b) this Agreement has been duly and validly executed and delivered
by Enserch, and assuming the due authorization, execution and delivery hereby
by TUC, constitutes a valid and binding obligation of Enserch, enforceable
against Enserch in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization or
other similar laws affecting the enforcement of creditors' rights generally,
and except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before which any
proceeding therefor may be brought;
(c) Enserch has taken all necessary corporate action to authorize and
reserve for issuance and to permit it to issue, upon exercise of the Enserch
Option, and at all times from the date hereof through the expiration of the
Enserch Option will have reserved 3,363,570 authorized and unissued Enserch
Shares, such amount being subject to adjustment as provided in Section 11, all
of which, upon their issuance and delivery in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable;
(d) upon delivery of the Enserch Shares to TUC upon the exercise of
the Enserch Option, TUC will acquire the Enserch Shares free and clear of all
claims, liens, charges, encumbrances and security interests of any nature
whatsoever;
(e) except as described in Section 5.4(b) of the Enserch Disclosure
Schedule to the Merger Agreement, the execution and delivery of this Agreement
by Enserch does not, and, subject to compliance with applicable law and the
Enserch Articles with respect to the repurchase of the Enserch Shares pursuant
to Section 7(a), the consummation by Enserch of the transactions contemplated
hereby will not violate, conflict with, or result in a breach of any provision
of, or constitute a default (with or without notice or a lapse of time, or
both) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination, cancellation, or
acceleration of any obligation or the loss of a material benefit under, or the
creation of a lien, pledge, security interest or other encumbrance on assets
(any such conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, hereinafter a "Violation") of Enserch or any
of its Subsidiaries, pursuant to
(i) any provision of the Enserch Articles or the Bylaws of
Enserch,
(ii) any provision of any material loan or credit agreement,
note, mortgage, indenture, lease, Enserch benefit plan or other
agreement, obligation, instrument, permit, concession, franchise,
license of Enserch or its Subsidiaries or to which any of them is a
party (any of the foregoing in effect on the date hereof being referred
to as a "Material Contract"), or
(iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Enserch or its properties or assets,
which Violation, in the case of each of clauses (ii) and (iii), could
reasonably be expected to have a Enserch Material Adverse Effect (except that
no representation or warranty is given concerning any Violation of a Material
Contract with respect to the repurchase of Enserch Shares pursuant to Section
7(a));
(f) except as described in Section 5.4(c) of the Enserch Disclosure
Schedule to the Merger Agreement or Section 3 hereof, the execution and
delivery of this Agreement by Enserch does not, and the performance of this
Agreement by Enserch will not, require any consent, approval, authorization
or permit or filing with or notification to, any Governmental Authority;
(g) none of Enserch, any of its affiliates or anyone acting on its or
their behalf, has issued, sold or offered any security of Enserch to any
person under circumstances that would cause the issuance and sale of Enserch
Shares, as contemplated by this Agreement, to be subject to the registration
requirements of the Securities Act as in effect on the date hereof, and,
assuming the representations and warranties of TUC contained in Section 6(g)
are true and correct, the issuance, sale and delivery of the Enserch Shares
hereunder would be exempt from the registration and prospectus delivery
requirements of the Securities Act, as in effect on the date hereof (and
Enserch shall not take any action which would cause the issuance, sale, and
delivery of Enserch Shares hereunder not to be exempt from such requirements);
and
(h) any TUC Shares acquired pursuant to this Agreement will be
acquired for Enserch' own account, for investment purposes only, and will not
be acquired by Enserch with a view to the public distribution thereof in
violation of nay applicable provision of the Securities Act.
6. Representations and Warranties of TUC. TUC represents and warrants
to Enserch that
(a) TUC has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder;
(b) this Agreement has been duly and validly executed and delivered
by TUC, and assuming the due authorization, execution and delivery hereof,
constitutes a valid and binding obligation of TUC, enforceable against TUC in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, or other similar laws affecting the enforcement
of creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, may be subject to the discretion of
any court before which any proceeding may be brought:
(c) prior to any delivery of TUC Shares in consideration of the
purchase of Enserch Shares pursuant hereto, TUC will have taken all necessary
corporate action to authorize for issuance and to permit it to issue such TUC
Shares, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable;
(d) upon any delivery of such TUC Shares to Enserch in consideration
of the purchase of Enserch Shares pursuant hereto, Enserch will acquire the
TUC Shares free and clear of all claims, liens, charges, encumbrances and
security interest of any nature whatsoever;
(e) except as described in Section 6.4(b) of the TUC Disclosure
Schedule to the Merger Agreement, the execution and delivery of this Agreement
by TUC does not, and the consummation by TUC of the transactions contemplated
hereby will not, violate, conflict with, or result in the breach of any
provision of, or constitute a default (with or without notice or a lapse of
time, or both) under, or result in any Violation by TUC or any of its
subsidiaries, pursuant to
(i) any provision of the Articles of Incorporation or Bylaws of
TUC,
(ii) any provisions of any loan or credit agreement, note,
mortgage, indenture, lease, TUC benefit plan or other agreement,
obligation, instrument, permit, concession, franchise, license of TUC
or any of its subsidiaries or to which any of them is a party, or
(iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to TUC or its properties or assets,
which Violation, in the case of each of clauses (ii) or (iii) would have a TUC
Material Adverse Effect;
(f) except as described in Section 6.4(c) of the TUC Disclosure
Schedule to the Merger Agreement or Section 3 hereof, the execution and
delivery of this Agreement by TUC does not, and the consummation by TUC of the
transactions contemplated hereby will not, require any consent, approvals
authorization or permit of, or filing with or notification to, any
Governmental Authority; and
(g) any Enserch Shares acquired upon exercise of the Enserch Option
will be acquired for TUC's own account, for investment purposes only and will
not be, and the Enserch Option is not being, acquired by TUC with a view to
the public distribution thereof, in violation of any applicable provision of
the Securities Act.
7. Certain Repurchases.
(a) TUC "Put". At the request of TUC by written notice (x) at any
time during which the Enserch Option is exercisable pursuant to Section 2 (the
"Repurchase Period"), Enserch (or any successor entity thereof) shall, if
permitted by applicable law, the Enserch Articles and Bylaws and Enserch's
Material Contracts (but notwithstanding any insufficiency in the number of
Enserch Shares authorized for issuance upon the exercise of the Enserch
Option), repurchase from TUC all or any portion of the Enserch Option, at the
price set forth in subparagraph (i) below, or, (y) at any time prior to March
31, 1997 (provided that such date shall have extended to September 30, 1997
under the circumstances where the date after which either party may terminate
the Merger Agreement pursuant to Section 10.1(b) of the Merger Agreement has
been extended to September 30, 1997), Enserch (or any successor entity
thereof) shall, if permitted by applicable law, the Enserch Articles and
Enserch's Material Contracts, repurchase from TUC all or any portion of the
Enserch Shares purchased by TUC pursuant to the Enserch Option, at the price
set forth in subparagraph (ii) below:
(i) the difference between the "Market/Offer Price" (as defined
below) for shares of Enserch Common Stock as of the date TUC gives
notice of its intent to exercise its rights under this Section 7 and the
Exercise Price, multiplied by the number of Enserch Shares purchasable
pursuant to the Enserch Option (or portion thereof with respect to which
TUC is exercising its rights under this Section 7), but only if the
Market/Offer Price is greater than the Exercise Price. For purposes of
this subparagraph (i), "Market/Offer Price" shall mean, as of any date,
the higher of (x) the price per share offered as of such date pursuant
to any tender or exchange offer or other offer with respect to a
Business Combination involving Enserch as the Target Party which was
made prior to such date and not terminated or withdrawn as of such date
and (y) the Fair Market Value of Enserch Common Stock as of such date.
(ii) the product of (x) the sum of (A) the Exercise Price paid
by TUC per Enserch Share acquired pursuant to the Enserch Option, and
(B) the difference between the "Offer Price" (as defined below) and the
Exercise Price, but only if the Offer Price is greater than the Exercise
Price, and (y) the number of Enserch Shares so to be repurchased
pursuant to this Section 8. For purposes of this clause (ii), the "Offer
Price" shall be the highest price per share offered pursuant to a tender
or exchange offer or other Business Combination offer involving Enserch
as the Target party during the Repurchase Period prior to the delivery
by TUC of a notice of repurchase.
(b) Redelivery of TUC Shares. If TUC shall have previously elected to
purchase Enserch Shares pursuant to the exercise of the Enserch Option by the
issuance and delivery of TUC Shares, then Enserch shall, if so requested by
TUC, in fulfillment of its obligation pursuant to Section 7(a)(y) (that is,
with respect to the Exercise Price only and without limitation to its
obligation to pay additional consideration under clause (B) of Section
7(a)(ii)(x)), redeliver the certificates for such TUC Shares to TUC, free and
clear of all liens, claims, charges and encumbrances of any kind or nature
whatsoever; provided, however, that if at any time less than all of the
Enserch Shares so purchased by TUC pursuant to the Enserch Option are to be
repurchased by Enserch pursuant to Section 7(a)(y), then (i) Enserch shall be
obligated to redeliver to TUC the same proportion of such TUC Shares as the
number of Enserch Shares that Enserch is then obligated to repurchase bears
to the number of Enserch Shares acquired by TUC upon exercise of the Enserch
Option and (ii) TUC shall issue to Enserch new certificates representing those
TUC Shares which are not due to be redelivered to TUC pursuant to this Section
7(b) to the extent that excess TUC Shares are included in the certificates
redelivered to TUC by Enserch.
(c) Payment and Redelivery of Enserch Options or Shares. In the event
TUC exercises its rights under this Section 7, Enserch shall, within ten
business days thereafter, pay the required amount to TUC in immediately
available funds and TUC shall surrender to Enserch the Enserch Option or the
certificate or certificates evidencing the Enserch Shares purchased by TUC
pursuant hereto, and TUC shall warrant that it owns the Enserch Option or such
shares and that the Enserch Option or such shares are then free and clear of
all liens, claims, damages, charges and encumbrances of any kind or nature
whatsoever.
(d) TUC "Call". If TUC has elected to purchase Enserch Shares pursuant
to the exercise of the Enserch Option by the issuance and delivery of TUC
Shares, notwithstanding that TUC may no longer hold any such Enserch Shares
or that TUC elects not to exercise its other rights under this Section 7, TUC
may require, at any time or from time to time prior to March 31, 1997
(provided that such date shall be extended to September 30, 1997 under the
circumstances where the date after which either party may terminate the Merger
Agreement pursuant to Section 10.1(b) of the Merger Agreement has been
extended to September 30, 1997), Enserch to sell to TUC any such TUC Shares
at the price attributed to such TUC Shares pursuant to Section 4 plus interest
at the rate of 8.75% per annum on such amount from the Closing Date relating
to the exchange of such TUC Shares pursuant to Section 4 to the Closing Date
under this Section 7(d) less any dividends on such TUC Shares paid during such
period or declared and payable to shareholders of record on a date during such
period.
(e) Repurchase Price Reduced at TUC's Option. In the event the
repurchase price specified in Section 7(a) would subject the purchase of the
Enserch Option or the Enserch Shares purchased by TUC pursuant to the Enserch
Option to a vote of the shareholders of Enserch pursuant to applicable law or
the Enserch Articles, then TUC may, at its election, reduce the repurchase
price to an amount which would permit such repurchase without the necessity
for such a shareholder vote.
8. Voting of Shares. Following the date hereof and prior to the
fifth anniversary of the date hereof (the "Expiration Date"), each party shall
vote any shares of capital stock of the other party acquired by such party
pursuant to this Agreement ("Restricted Shares"), including any TUC Shares
issued pursuant to Section 1(b), or otherwise beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), by such party on each matter submitted to
a vote of shareholders of such other party for and against such matter in the
same proportion as the vote of all other shareholders of such other party are
voted (whether by proxy or otherwise) for and against such matter.
9. Restrictions on Transfer.
(a) Restrictions on Transfer. Prior to the Expiration Date, neither
party shall, directly or indirectly, by operation of law or otherwise, sell,
assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 7, or
(ii) in accordance with Section 7(b) or Section 10.
(b) Permitted Sales. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or exchange
offer that has been approved or recommended, or otherwise determined to be
fair to and in the best interests of the shareholders of the other party, by
a majority of the members of the Board of Directors of such other party, which
majority shall include a majority of directors who were directors prior to the
announcement of such tender or exchange offer.
10. Registration Rights.
(a) Following the termination of the Merger Agreement, either party
hereto that owns Restricted Shares (a "Designated Holder") may by written
notice (the "Registration Notice") to the other party (the "Registrant")
request the Registrant to register under the Securities Act all or any part
of the Restricted Shares beneficially owned by such Designated Holder (the
"Registrable Securities") pursuant to a bona fide firm commitment underwritten
public offering, in which the Designated Holder and the underwriters shall
effect as wide a distribution of such Registrable Securities as is reasonably
practicable and shall use their best efforts to prevent any person (including
any Group (as used in Rule 13d-5 under the Exchange Act)) and its affiliates
from purchasing through such offering Restricted Shares representing more than
1% of the outstanding shares of common stock of the Registrant on a fully
diluted basis (a "Permitted Offering").
(b) The Registration Notice shall include a certificate executed by
the Designated Holder and its proposed managing underwriter, which underwriter
shall be an investment banking firm of nationally recognized standing (the
"Manager"), stating that
(i) they have a good faith intention to commerce promptly a
Permitted Offering, and
(ii) the Manager in good faith believes that, based on the then-
prevailing market conditions, it will be able to sell the Registrable
Securities at a per share price equal to at least 80% of the then Fair
Market Value of such shares.
(c) The Registrant (and/or any person designated by the Registrant)
shall thereupon have the option exercisable by written notice delivered to the
Designated Holder within ten business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities proposed to be so sold for cash at a price (the "Option
Price") equal to the product of (i) the number of Registrable Securities to
be so purchased by the Registrant and (ii) the then Fair Market Value of such
shares.
(d) Any purchase of Registrable Securities by the Registrant (or its
designee) under Section 11(c) shall take place at a closing to be held at the
principal executive offices of the Registrant or at the offices of its counsel
at any reasonable date and time designated by the Registrant and/or such
designee in such notice within twenty business days after delivery of such
notice, and any payment for the shares to be so purchased shall be made by
delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option pursuant
to this Section 10 with respect to all Registrable Securities, it shall use
its best efforts to effect, as promptly as practicable, the registration under
the Securities Act of the unpurchased Registrable Securities proposed to be
so sold; provided, however, that
(i) neither party shall be entitled to demand more than an
aggregate of two effective registration statements hereunder, and
(ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed 40 days
after such request in the case of clause (A) below or 90 days in the
case of clauses (B) and (C) below) when
(A) the Registrant is in possession of material non-public
information which it reasonably believes would be
detrimental to be disclosed at such time and, in the opinion of
counsel to the Registrant, such information would be required to
be disclosed if a registration statement were filed at that time;
(B) the Registrant is required under the Securities Act
to include audited financial statements for any period in such
registration statement and such financial statements are not yet
available for inclusion in such registration statement; or
(C) the Registrant determines, in its reasonable judgment,
that such registration would interfere with any financing,
acquisition or other material transaction involving the Registrant
or any of its affiliates.
(f) The Registrant shall use its reasonable best efforts to cause any
Registrable Securities registered pursuant to this Section 10 to be qualified
for sale under the securities or Blue Sky law of such jurisdictions as the
Designated Holder may reasonably request and shall continue such registration
or qualification in effect in such jurisdiction; provided, however, that the
Registrant shall not be required to qualify to do business in, or consent to
general service of process in, any jurisdiction by reason of this provision.
(g) The registration rights set forth in this Section 10 are subject
to the condition that the Designated Holder shall provide the Registrant with
such information with respect to such holder's Registrable Securities, the
plans for the distribution thereof, and such other information with respect
to such holder as, in the reasonable judgment of counsel for the Registrant,
is necessary to enable the Registrant to include in such registration
statement all material facts required to be disclosed with respect to a
registration thereunder.
(h) A registration effected under this Section 10 shall be effected
at the Registrant's expense, except for underwriting discounts and commissions
and the fees and these of counsel to the Designated Holder, and the Registrant
shall provide to the underwriters such documentation (including certificates,
opinions of counsel and "comfort" letters from auditors) as is customary in
connection with underwritten public offerings as such underwriters may
reasonably require.
(i) In connection with any registration effected under this Section
10, the parties agree
(i) to indemnify each other and the underwriters in the
customary manner;
(ii) to enter into an underwriting agreement in form and
substance customary for transactions of such type with the Manager and
the other underwriters participating in such offering, and
(iii) to take all further actions which shall be reasonably
necessary to effect such registration and sale (including if the Manager
deems it necessary, participating in road-show presentations).
(j) The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 10 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such
offering.
11. Adjustment of Number of Enserch Shares.
(a) Without limitation to any restrictions on Enserch contained in
this Agreement or in the Merger Agreement, in the event of any change in
Enserch Common Stock by reason of stock dividends, splitups, mergers (other
than the Merger), recapitalizations, combinations, exchange of shares or the
like, the type and number of shares or securities subject to the Enserch
Option, and the purchase price per share provided in Section 1, shall be
adjusted appropriately to restore to TUC its rights hereunder, including the
right to purchase from Enserch (or its successors) shares of Enserch Common
Stock (or such other shares or securities into which Enserch Common Stock has
been so changed) representing 4.9% of the outstanding Enserch Common Stock for
the aggregate Exercise Price calculated as of the date of this Agreement as
provided in Section 1.
(b) If, as a result of the application of the limitations on payments
contained in Section 10.3(d) of the Merger Agreement, the maximum payment upon
the "put" of the entire Enserch Option under Section 7(a) of this Agreement
is limited, the number of Enserch Shares shall be reduced to the maximum
number of Enserch Shares that would, if the "put" of the Enserch Option
provided in Section 7(a) of this Agreement were exercised on the Termination
Date (as defined in the Merger Agreement), result in such maximum payment as
so limited.
12. Restrictive Legends. Each certificate representing shares of
Enserch Common Stock issued to TUC hereunder, and TUC Shares, if any,
delivered to Enserch at a Closing, shall include a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES OR BLUE SKY LAWS, AN D MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION
IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN THE ENSERCH STOCK OPTION
AGREEMENT, DATED AS OF APRIL 13, 1996, A COPY OF WHICH MAY BE
OBTAINED FROM THE ISSUER UPON REQUEST.
It is understood and agreed that:
(i) the reference to the resale restrictions of the Securities
Act and state securities or Blue Sky laws in the above legend shall be
removed by delivery of substitute certificate(s) without such reference
if TUC or Enserch, as the case may be, shall have delivered to the other
party a copy of a letter from the staff of the SEC, or an opinion of
counsel, in form and substance satisfactory to the other party, to the
effect that such legend is not required for purposes of the Securities
Act or such laws;
(ii) the reference to the provisions to this Agreement in the
above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in
compliance with the provisions of this Agreement and under circumstances
that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied.
In addition, such certificates shall bear any other legend as may be required
by law. Certificates representing shares should in a registered public
offering pursuant to Section 10 shall not be required to bear the legend set
forth in this Section 12.
13. Binding Effect; No Assignment; No Third Party Beneficiaries. (a)
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
(b) Except as expressly provided for in this Agreement, neither this
Agreement nor the rights or obligations of either party hereto are assignable,
except by operation of law, or with the written consent of the other party.
(c) Nothing contained in this Agreement, express or implied, is
intended to confer upon any person other than the parties hereto and their
respective permitted assigns any rights or remedies of any nature whatsoever
by reason of this Assignment.
(d) Any Restricted Shares sold by a party in compliance with the
provision of Section 10 shall, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement, unless and
until such party shall repurchase or otherwise become the beneficial owner of
such shares, and any transferee of such shares shall to be entitled to the
registration rights of such party.
14. Specific Performance. The parties hereto agree that irreparable
harm would occur in the event that any of the provision of this Agreement were
not performed in accordance with their specified terms or were otherwise
breached. It is accordingly agreed that the parties hereto shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
Untied States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or equity.
15. Validity. (a) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of the other provisions of this Agreement, which shall remain in full force
and effect.
(b) In the event any court or other competent authority holds any
provision of this Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the execution and delivery of an
amendment to this Agreement in order, as nearly as possible, to effectuate,
to the extent permitted by law, the intent of the parties hereto with respect
to such provision and the economic effects thereof.
(c) If for any reason any such court or regulatory agency determines
that TUC is not permitted to acquire, or Enserch is not permitted to
repurchase pursuant to Section 8, the full number of shares of Enserch Common
Stock provided in Section 1 hereof (as the same may be adjusted), it is the
express intention of Enserch to allow TUC to acquire or to require Enserch to
repurchase such lesser number of shares as may be permissible without any
amendment or modification hereof.
(d) Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null, void
or unenforceable, or order any party to take any action inconsistent
therewith, or not take any action required herein, the other party shall not
be entitled to specific performance of such provisions or part hereof or to
any other remedy, including but not limited to money damages, for breach
hereof or of any other provision of this Agreement or part hereof as the
result of such holding or order.
16. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if (a) delivered personally, or (b) if
sent by overnight courier service (receipt confirmed in writing), or (c) if
delivered by facsimile transmission (with receipt confirmed), or (d) five days
after being mailed by registered or certified mail (return receipt requested)
to the parties in each case to the following addresses (or at such other
address for a party as shall be specified by like notice):
A. If to TUC to:
By Mail:
and Hand: Worsham, Forsythe & Wooldridge, L.L.P.
1601 Bryan Street, 30th Floor
Dallas, Texas 75201
Attention: Robert A. Wooldridge, Esq.
with a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, N.Y. 10019
Attention: Douglas W. Hawes, Esq.
B. If to Enserch to:
By Mail:
and Hand: Enserch Corporation
300 South St. Paul
Dallas, Texas
Attention: William T. Satterwhite, Esq.
with a copy to: Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044
Attention: David Brown, Esq.
17. Governing Law; Choice of Forum. This Agreement shall be governed
by and construed in accordance with the laws of the State of Texas applicable
to agreements made and to be performed entirely within such State and without
regard to its choice of law principles.
18. Interpretation.
(a) When reference is made in this Agreement to Articles, Sections or
Exhibits, such reference shall be to an Article, Section or Exhibit of this
Agreement, as the case may be, unless otherwise indicated.
(b) The table of contents and heading contained in this Agreement are
for reference purposes and shall not affect in any way the meaning or
interpretation of the Agreement.
(c) Whenever the words "include," "includes," or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
(d) Whenever "or" is used in this Agreement it shall be construed in
the nonexclusive sense.
19. Counterparts; Effect. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
20. Amendments; Waiver. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of
a waiver, by an instrument signed on behalf of the party waiving compliance.
21. Extension of Time Periods. The time periods for exercise of
certain rights under Sections 2, 6 and 7 shall be extended:
(a) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and for the expiration of all statutory waiting
periods; and
(b) to the extent necessary to avoid any liability under Section 16(b)
of the Exchange Act by reason of such exercise.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written
ENSERCH CORPORATION
By: /s/ D. W. Biegler
---------------------------------
Name:
Title:
TEXAS UTILITIES COMPANY
By: /s/ Erle Nye
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT 99
ENSERCH Corporation News Release
300 South St. Paul
Dallas, Texas 75201-5598
---------------------------------------------------------------------------
ENSERCH CORPORATION AND TEXAS UTILITIES
REACH AGREEMENT TO COMBINE COMPANIES
DALLAS, TEXAS (April 15, 1996)--ENSERCH Corporation (NYSE--ENS) and
Texas Utilities (NYSE--TXU) have entered into a definitive agreement to
combine the two companies. Under the terms of the agreement approved by
both companies' Boards of Directors, Lone Star Gas and Lone Star Pipeline,
the local distribution and pipeline companies of ENSERCH, and other
businesses, will be merged into Texas Utilities. Texas Utilities will
acquire the ENSERCH companies for $1.7 billion, composed of approximately
$550 million of TXU common stock and approximately $1.15 billion of net
debt and preferred stock.
The 83%-owned subsidiary of ENSERCH, Enserch Exploration, Inc. (NYSE--EEX),
will be spun off to shareholders of ENS prior to the merger. Based
on shares of ENS and EEX presently outstanding, each share of ENS will
receive approximately 1.5 shares of EEX in the spin-off.
Within a range of a 10% variation above or below the April 12 closing
price of TXU common stock, the ENSERCH shareholder will receive sufficient
shares of TXU common stock to provide $8.00 of value. Above or below the
10% threshold, the value received will move up or down with the price of
TXU common stock. The value of EEX shares to be received, estimated based
on EEX's Friday's closing price to be approximately $15.68 per ENS share,
and the value of the TXU shares to be received represent a total estimated
value of $23.68 per share, a gain of 45% over the Friday closing price of
ENS. The final value can not be determined until closing.
"This transaction is the culmination of a strategic plan to enhance
shareholder value which the Corporation's Board of Directors has been
actively pursuing for some time. The value today of EEX and TXU shares to
be received by ENS shareholders represents a substantial premium above the
market's prior perception of ENSERCH value. The important aspects of this
transaction are that the full upside potential of ENSERCH's ownership
interest in EEX is preserved for our shareholders and the value previously
unrecognized by the stock market is unlocked," said David W. Biegler,
chairman, president and chief executive officer of ENSERCH. "Deregulation
of the natural gas industry and the convergence of energy markets make the
combination of our two firms a natural fit," he added.
The agreement is subject to approval by shareholders and the
Securities and Exchange Commission, a filing with the Railroad Commission
of Texas and Hart-Scott-Rodino clearance. Approvals by the Public Utility
Commission of Texas and the Federal Energy Regulatory Commission are not
required. The agreement is subject to a favorable ruling as to the tax-free
nature of the spin-off of EEX shares.
Each party has a 21-day period to complete its due diligence review.
In connection with entering into the merger agreement, ENS has granted TXU
an option to purchase 4.9% of its outstanding common stock at an exercise
price of $16.375 per share exercisable under certain circumstances in the
event the transaction does not proceed as agreed.
ENSERCH Corporation is an integrated natural gas company. Enserch
Exploration, Inc. is a natural gas and oil exploration and production
company with activities focused in Texas and the Gulf of Mexico.
