TELETOUCH COMMUNICATIONS INC, SB-2, 1997-01-03

TELETOUCH COMMUNICATIONS INC
SB-2, 1997-01-03
RADIOTELEPHONE COMMUNICATIONS

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<PAGE>

As filed with the Securities and Exchange Commission on January 3, 1997
REGISTRATION NO. 333-15527
==========================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------

PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------------------------
TELETOUCH COMMUNICATIONS, INC.
(Name of small business issuer in its charter)

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<S> <C> <C>
DELAWARE 4812 75-2556090
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code No.) Identification Number)
</TABLE>

110 North College, Suite 200, Tyler, Texas 75702 (903) 595-8800
(Address and telephone number of registrant's principal executive offices)
----------------------------------
Robert M. McMurrey, Chief Executive Officer
Teletouch Communications, Inc.
1000 Louisiana, Suite 600, Houston, Texas 77002
(713) 951-0300
(Name, address and telephone number of agent for service)

Copies to:
----------
Ralph V. De Martino, Esquire
De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036-2492
Phone: (202) 659-0494
-------------------------------------
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of the registration statement.

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
-
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] _______________

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _______________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
==========================================================================================================================
Title of each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Aggregate Offering Amount of
Registered Registered Per Unit Price Registration Fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 447,500 (1) $1.813 (2) $811,318 $245.85
- --------------------------------------------------------------------------------------------------------------------------
Benchmark Warrants to Purchase
Common Stock 400,000 -- 0 0.00
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, underlying Benchmark
Warrants 400,000 0.50 (3) 200,000 60.61
- --------------------------------------------------------------------------------------------------------------------------
Underwriters' Warrants 200,000 -- 0 0.00
- --------------------------------------------------------------------------------------------------------------------------
Common Stock underlying 200,000 5.60 (3) 1,120,000 339.39
Underwriters' Warrants
- --------------------------------------------------------------------------------------------------------------------------
Class UW Warrants 200,000 -- 0 0.00
- --------------------------------------------------------------------------------------------------------------------------
Modified Class A Warrants 200,000 0.10 (3) 20,000 6.06
underlying Class UW Warrants
- --------------------------------------------------------------------------------------------------------------------------
Common Stock underlying Modified 200,000 6.30 (3) 1,260,000 381.82
Class A Warrants
- --------------------------------------------------------------------------------------------------------------------------
Registration Fee (4): $1,033.73
==========================================================================================================================
(cover continued on overleaf)
</TABLE>
<PAGE>

(1) Represents shares issued and outstanding.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c). The proposed offering price is based upon
$1.813, which is the average of the high and low bid prices reported on
NASDAQ on December 23, 1996.
(3) Represents the consideration payable to the Company to obtain or exercise
such security, as the case may be. Pursuant to Rule 416 under the
Securities Act of 1933, as amended, this Registration Statement covers any
additional shares of Common Stock which may become issuable by reason of
the antidilution provisions of such Warrants.
(4) Of such amount, $893.25 was previously paid.

-------------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>

PROSPECTUS

TELETOUCH COMMUNICATIONS, INC.

447,500 shares of outstanding Common Stock
400,000 Benchmark Warrants, 200,000 Underwriters' Warrants,
Class UW Warrants to purchase 200,000 Modified Class A Warrants,
and 800,000 shares of Common Stock issuable upon exercise of Warrants

This Prospectus relates to the offer and sale by the holders thereof of
447,500 shares (the "Shares") of common stock, par value $.001 per share (the
"Common Stock") issued by Teletouch Communications, Inc., a Delaware corporation
(the "Company") and the offer and sale of 400,000 warrants to purchase Common
Stock (the "Benchmark Warrants") issued to Benchmark Equity Group, Inc.
("Benchmark") in August 1994. In addition, this Prospectus relates to the resale
of warrants, as described below, issued to certain underwriters ("Underwriters")
of the Company's initial public offering (the "IPO"). In December 1994, the
Company issued 2,300,000 shares of Common Stock and 2,300,000 Class A Common
Stock Purchase Warrants ("Class A Warrants") in connection with the IPO. Also in
connection with the IPO the Company issued to the IPO underwriters
("Underwriters") warrants (the "Underwriters' Warrants") to purchase an
aggregate of 200,000 shares of Common Stock at an exercise price of $5.60 per
share, and warrants (the "Class UW Warrants") to purchase, at a price of $.10
per warrant, 200,000 warrants (the "Modified Class A Warrants"), each of which
entitles the holder to purchase one share of Common Stock on the same terms and
conditions as the Class A Warrants offered to the public in the IPO, except that
the exercise price of each Modified Class A Warrant shall be $6.30 per share.
This Prospectus further relates to the resale of the Underwriters' Warrants and
the Class UW Warrants, the offer and sale of the Modified Class A Warrants
and/or the offer and sale of up to 800,000 shares of Common Stock (the "Warrant
Shares") to subsequent holders, if any, of the Benchmark Warrants, the
Underwriters' Warrants, the Class UW Warrants and/or Modified Class A Warrants,
upon exercise thereof by any such subsequent holder. The Benchmark Warrants,
Underwriters' Warrants, Class UW Warrants and Modified Class A Warrants are
referred to collectively hereinafter as the "Registered Warrants". The Shares,
Registered Warrants and Warrant Shares are referred to collectively hereinafter
as the "Securities." Holders of the outstanding shares of Common Stock may be
referred to hereinafter as "Selling Stockholders" and such holders together with
the holders of the Registered Warrants and/or the Warrant Shares may be referred
to hereinafter as the "Selling Securityholders."

On December 23, 1996, the closing sale price of the Company's Common Stock
as reported by the NASDAQ SmallCap Market ("NASDAQ") on such date was
$1.875.

The Shares and Registered Warrants offered by this Prospectus may be sold
from time to time by the Selling Securityholders. No underwriting arrangements
have been entered into by the Selling Securityholders. The distribution of the
Securities by the Selling Securityholders may be effected in one or more
transactions that may take place on the over-the-counter market including
ordinary broker's transactions, privately negotiated transactions or through
sales to one or more dealers for resale of such securities as principals at
market prices prevailing at the time of sale at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with sales of such Securities.

The Selling Securityholders and intermediaries through whom such securities
are sold may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended (the "Securities Act") with respect to the securities
offered and any profits realized or commission received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act. The Company will receive the proceeds, if any, from the exercise
of the Registered Warrants but will not receive any of the proceeds from the
resale of the Registered Warrants or the sale of the Shares or Warrant Shares by
Selling Securityholders. See "Use of Proceeds." Up to $25,000 of all costs
incurred in the registration of the Shares offered hereby will be borne by
certain of the Selling Stockholders; all costs in excess of $25,000 will be
borne by the Company. See "Selling Securityholders."

AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" COMMENCING ON PAGE 5.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

The date of this Prospectus is ___________, 1996

<PAGE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith, files reports, proxy statements and other information including
annual and quarterly reports on Forms 10-KSB and 10-QSB (File No. 0-24992) (the
"1934 Act Filings") with the Securities and Exchange Commission (the
"Commission"). The Company filed with the Commission in Washington, D.C. a
Registration Statement on Form SB-2 under the Securities Act of 1933, as amended
(the "Securities Act), with respect to the securities described herein. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information about the Company
and the securities described herein, reference is made to the Registration
Statement and to the exhibits filed therewith. The statements contained in this
Prospectus with respect to the contents of any agreement or other document
referred to herein are not necessarily complete and, in each instance, reference
is made to a copy of such agreement or document as filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
reference to the provisions of the relevant documents. The Registration
Statement, including the exhibits thereto, and the Company's 1934 Act Filings
may be inspected at: (i) the public reference facilities of the Commission
located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549; and (ii) the offices of the Commission located at Citicorp Center, 500
West Madison Street, Room 1400, Chicago, Illinois 60661, and the offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material may also be obtained upon request and payment of
the appropriate fee from the Public Reference Section of the Commission located
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
In addition, the Commission maintains a website on the Internet that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's website is http://www.sec.gov.

Securities of the Company are also listed on the Boston Stock Exchange.
Reports and other information relating to the Company may be inspected at the
Boston Stock Exchange, Listing Department, One Boston Place, Boston,
Massachusetts 02108.

The Company will provide without charge to each person who receives this
Prospectus, upon written or oral request of such person, a copy of any
information which has been incorporated by reference herein (not including
exhibits to the information incorporated by reference unless the exhibits are
themselves specifically incorporated by reference). Such requests should be
made to Teletouch Communications, Inc., 110 North College, Suite 200, Tyler,
Texas 75702, Attention: Chief Financial Officer, (800) 943-0034.

2
<PAGE>

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements and notes thereto appearing elsewhere in this Prospectus. Unless
otherwise indicated, all share and per share amounts set forth hereinafter have
been adjusted to reflect a 1:1 stock exchange which occurred in connection with
the October 1994 merger of Teletouch Corporation, a Texas corporation, with and
into the Company (as defined below). Each prospective investor is urged to read
this Prospectus in its entirety.

THE COMPANY

Teletouch Communications, Inc. (the "Company" or "Teletouch") or one of its
several predecessors, has operated paging, two-way mobile communications
services and telemessaging services in its home market of east Texas for over 30
years. The Company provides regional paging in east and central Texas. Upon
the completion of its initial public offering ("IPO") in December 1994, the
Company acquired Beepers Plus of Jackson, Beepers Plus of Nashville, Inc. and
Beepers Plus of Memphis, Inc. (collectively, "Beepers Plus") and Waco
Communications, Inc. ("WCI" or the "Waco System"). On August 3, 1995 the
Company acquired substantially all of the assets and certain liabilities of
Dial-A-Page, Inc. ("Dial" or the "Dial System"). The Beepers Plus acquisition
enables the Company to provide regional paging coverage in the Tennessee markets
of Memphis and Nashville and in Jackson, Mississippi. The Dial acquisition
enables the Company to provide paging coverage in several states including
Arkansas, Louisiana, Mississippi, Missouri, Alabama, Texas and Florida.
Subsequent to the close of the Company's fiscal year on May 31, 1996, the
Company purchased the outstanding common stock of two paging companies and
substantially all the assets of three additional paging companies. These
acquisitions expanded the Company's coverage in Louisiana, Oklahoma and Texas.
The Company has experienced significant growth both internally and through its
acquisitions since December 1994. Pagers in service have increased from 8,500
at May 31, 1994 to approximately 275,000 at August 31, 1996.

THE OFFERING
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<S> <C>
COMMON STOCK OFFERED BY THE
SELLING STOCKHOLDERS.................. 447,500 Shares

BENCHMARK WARRANTS....................... 400,000 Benchmark Warrants

UNDERWRITERS' WARRANTS................... 200,000 Underwriters' Warrants

CLASS UW WARRANTS........................ 200,000 Class UW Warrants

MODIFIED CLASS A WARRANTS................ 200,000 Modified Class A Warrants

WARRANT SHARES ISSUABLE UPON
EXERCISE OF BENCHMARK WARRANTS,
UNDERWRITERS WARRANTS, AND MODIFIED
CLASS A WARRANTS........................ 800,000 Warrant Shares
</TABLE>
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3
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COMMON STOCK OUTSTANDING:

BEFORE THE OFFERING 6,347,416 shares(1)

AFTER THE OFFERING 6,347,416 shares(1)

RISK FACTORS An investment in the Securities offered
hereby is highly speculative and involves
substantial risks including financial
condition and leverage, possible need for
additional capital, competition,
technological change, potential difficulties
in implementing acquisition strategy,
dependence on management and government
regulation. See "Risk Factors."

USE OF PROCEEDS The Shares subject hereto have been
previously issued to and are being offered for sale
by the Selling Stockholders and the Warrant Shares
will be issued to the holders of the Registered
Warrants upon the exercise thereof. Consequently,
the Company will not receive any of the proceeds
from the offer and sale of such shares by Selling
Stockholders. The Registered Warrants have been
previously issued to and are being offered for sale
by the holders thereof. The Company will receive
the proceeds, if any, from the exercise of the
Registered Warrants which will be used for working
capital purposes. See "Use of Proceeds."

STOCK SYMBOLS:

NASDAQ SMALLCAP MARKET TELL
BOSTON STOCK EXCHANGE TEL
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(1) Assumes no issuance of shares underlying outstanding options and warrants,
including (i) an aggregate of 320,000 shares underlying outstanding options
pursuant to the Company's stock option plan; (ii) 3,991,260 shares
underlying warrants issued to the Continental Illinois Venture Corporation
("CIVC") and certain other parties both related to and unrelated to CIVC
(collectively, the "CIVC Investors") in August 1995; (iii) 575,000 shares
underlying warrants (including Benchmark Warrants) issued to certain
consultants; (iv) 400,000 shares underlying the Underwriters' Warrants and
Modified Class A Warrants issued or issuable to the underwriters of the
Company's initial public offering and/or their designees; (v) 2,300,000
shares underlying warrants sold to the public in the Company's initial
public offering; (vi) approximately 4,300,000 shares issuable upon
conversion of the Series A Preferred Stock and (vi) up to 3,703,134 shares
issuable upon conversion of the Series B Preferred Stock. See "Description
of Securities."
- --------------------------------------------------------------------------------

4
<PAGE>

RISK FACTORS

The purchase of the Securities offered hereby involves a high degree of
risk. Prospective purchasers should carefully consider the following risk
factors, as well as other matters set forth elsewhere in this Prospectus, before
deciding whether to invest in the Securities.

NET LOSS; FINANCIAL CONDITION AND LEVERAGE; POSSIBLE NEED FOR ADDITIONAL CAPITAL

The Company incurred a net loss of $4,820,000 in fiscal 1996, and
$5,969,000 in the quarter ended August 31, 1996 largely due to increased
depreciation, amortization, interest expense associated with the acquisitions
and the early retirement of debt. These losses have resulted in the Company
having an accumulated deficit of $12,276,000 at August 31, 1996. The Company
expects losses to continue for the foreseeable future due to depreciation,
amortization and interest expense.

The Company had stockholders' equity of $12,595,000 and a negative net
tangible book value of $52,445,000 at August 31, 1996. Largely as a consequence
of the incurrence of the Credit Facility (as defined hereafter), the Company
also had long-term indebtedness of $76,681,000 at such date. Consequently, the
Company is significantly leveraged. The Company anticipates, however, that
internally generated funds together with funds available under its line of
credit will be sufficient to fund the cash requirements (including debt service)
of the Company for the next 12 months. However, in the event that cash
generated from operations is less than anticipated or operating or other costs
are more than anticipated, the Company may require additional capital to meet
its cash requirements; there can be no assurance such capital will be available,
or if available, that it will be obtainable on terms favorable to the Company.
The Company's business strategy contemplates that the Company continue to
consider expansion of its operations through the acquisition of complementary
paging companies. The Company may be required to raise substantial additional
capital in order to effect any such acquisitions and/or to issue equity or
convertible securities. There can be no assurance that any such financing would
be available on acceptable terms or that the issuance of securities in that
connection would not be highly dilutive to existing stockholders. See "Risk
Factors - Potential Difficulty in Implementing Acquisition Strategy" and
"Management's Discussion and Analysis."

RESTRICTIONS IMPOSED BY DEBT FINANCING

In connection with the Beepers Plus Acquisition (as defined hereafter)
FINOVA Capital Corporation (formerly Greyhound Financial Corp.) provided the
Company with a $19,500,000 (subsequently increased to $55,000,000 in connection
with the Dial acquisition) term loan (the "FINOVA Loan"). The terms of such debt
financing subjected the Company to a variety of affirmative and negative
covenants. In July 1996, the Company entered into a new credit facility with a
group of lenders led by Chase Manhattan Bank which provides for new loans in an
amount not to exceed $95,000,000 (the "Credit Facility"). Funding from the
Credit Facility was used to repay the FINOVA loan in July 1996 along with a $1
million prepayment penalty.

5
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The terms of the Credit Facility require the maintenance of certain specified
financial and operating covenants, provide for restrictions on capital
expenditures and future acquisitions, prohibit any payments on the Junior
Subordinated Notes or the payment of dividends. The Credit Facility also
restricts transactions between the Company and affiliates and prohibits "changes
in control" of the Company. "Changes in control" is deemed to include the
failure of Mr. McMurrey, the Chairman and Chief Executive Officer, or Mr.
Higginbotham, the President and Chief Operating Officer, to devote substantially
all of their business time and efforts to the management of the Company (unless
replaced within 120 days by an individual reasonably acceptable to the lender)
or reduction of the aggregate percentage of the Company's outstanding voting
stock held by Messrs. McMurrey, Higginbotham and CIVC Investors (as defined
hereafter) below 50.1%.

In the event that the Company is unable to comply with such covenants or
ratios, the Company's senior lender would have the right to declare the debt
financing to be in default and to enforce its security interest in all of the
Company's assets. The Company anticipates, however, that internally generated
funds will be sufficient to enable the Company to comply with the financial
covenants imposed by the Credit Facility during the next 12 months. However, in
the event that cash generated from operations is less than anticipated or
operating or other costs are more than anticipated, the Company may require
additional capital to maintain compliance with its financial covenants; there
can be no assurance such capital will be available, or if available, that it
will be obtainable on terms favorable to the Company. See "Management's
Discussion and Analysis."

COMPETITION

The Company faces considerable competition in all of its businesses. Many
of the Company's competitors, which include regional and national paging and
telecommunications companies, possess significantly greater financial, technical
and other resources than the Company. There can be no assurance that additional
competitors will not enter markets served by the Company or that existing
competitors will not expand their businesses. In addition, competitive pressures
prevalent in the paging industry have contributed to industry-wide trends of
declining average monthly revenue per pager and declining pager equipment sales
prices and margins. See "Management's Discussion and Analysis" and "Business--
Competition."

TECHNOLOGICAL CHANGE

A variety of wireless two-way communication technologies, such as cellular
telephones, currently are in use or under development. Although such
technologies currently are higher priced than paging service or not yet
commercially available, technological improvements could result in increased
capacity and efficiency for wireless two-way communication and, accordingly,
could result in increased competition for the Company. A significant reduction
in cellular telephone usage charges could have a material adverse affect on
paging service providers such as the Company. In addition, future technological
advances in the telecommunications industry may result in alternative services
or products that could compete with the paging services currently provided by
the Company. Technological change also may

6
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affect the value of the pagers owned by the Company and leased to its
subscribers. If the Company's subscribers requested more technologically
advanced pagers, the Company could incur additional capital expenditures if it
were required to replace the pagers leased to its subscribers within a short
period of time. There can be no assurance that the Company would not be
adversely affected in the event of such technological changes. See "Business--
Competition."

SUBSCRIBER TURNOVER

The results of operations of paging service providers such as the Company
are significantly affected by subscriber cancellations. In order to realize net
growth, disconnected users must be replaced and new users must be added.
However, the sales and marketing costs associated with attracting new
subscribers can be substantial relative to the costs of providing service to
existing customers. An increase in its subscriber cancellation rate may
adversely affect the Company's results of operations and cash flows. See
"Management's Discussion and Analysis."

POTENTIAL FOR CHANGE IN REGULATORY ENVIRONMENT; LIMITATION ON FOREIGN OWNERSHIP

Many aspects of the mobile communications industry in which the Company
operates, including the obtaining of new licenses and the transfer of existing
licenses and other operating authorities, are subject to regulation by the
Federal Communications Commission ("FCC") and, in certain instances, by state
regulatory authorities. The FCC has allocated additional radio spectrum that is
being used by competitors to provide new forms of two-way paging services as
well as traditional one-way paging. In addition, several states (including
Arkansas and Louisiana) within which the Company currently operates have
recently petitioned the FCC for permission to re-regulate the provision of
paging services within their borders. There can be no assurance that the FCC or
the various states will not, at any time, adopt new regulations, allocate
additional radio spectrum for competing businesses or take other actions that
would have a direct or indirect adverse effect on the business of the Company.
See "Business--Competition" and "Business--Regulation."

Effective February 8, 1996, the FCC imposed a freeze on the filing of all
applications for paging channels, for an indefinite period of time.
Contemporaneously, the FCC issued a notice of expedited rulemaking to decide
interim processing rules during the freeze and a notice of proposed rulemaking
contemplating a change in the manner in which the licensing of paging
frequencies is effected. The FCC proposes to utilize market area licensing,
i.e., to auction off paging channels based on Rand-McNally Major Trading Areas
("MTAs") which can be quite large, for instance as large or larger than an
entire state. Market area licensing, if adopted as proposed, could potentially
represent a risk to all existing paging operators. Under this proposal, paging
operators, such as the Company, may continue operations in existing areas as
long as they satisfy the terms of the FCC licenses and regulations. However, to
the extent that a paging operator such as the Company fails to successfully bid
for its MTAs, then its system may suffer degradation. Specifically, in the
event that the operator loses a transmitter site or a transmitter site is not
operational for ninety (90) or more continuous days,

7
<PAGE>

the operator may lose the authority to operate that portion of its system, and
the area will automatically revert to the auction winner. Such a licensing
system, if adopted as proposed, may also impair the ability of an existing
operator that is not an auction winner in the subject MTA(s), in that such
operator may not be able to improve existing transmission services or add
transmitters in its existing geographic service area. Conversely, if an existing
operator is the winning bidder in the MTA in which it operates, while this would
involve additional cost, it could have a positive effect by eliminating the
threat of competitive filings with the FCC for the same frequency spectrum.

The Communications Act of 1934, as amended (the "Communications Act"), also
limits foreign ownership of entities that hold certain licenses from the FCC.
Because the Company holds such licenses from the FCC, no more than 20% of the
Company's stock can be owned or voted by foreign nationals or their
representatives, a foreign government or its representative, or a foreign
corporation. The Company believes that, as of the date of this Prospectus, none
of the Company's outstanding shares are owned or are voted by foreign persons.
The Company's Certificate of Incorporation permits the redemption of shares of
the Company's capital stock from stockholders where necessary to protect the
Company's regulatory licenses. In the event that the Company seeks to redeem any
of its shares in such a circumstance, the Company could be delayed or precluded
from doing so by the need to obtain the consent of a lender (as required by the
Debt Financing) or because of state corporate law restrictions on the redemption
of shares when a corporation's capital is impaired. The failure to promptly
redeem such shares could jeopardize the Company's FCC licenses. See "Business--
Regulation" and "Description of Securities."

POTENTIAL DIFFICULTIES IN IMPLEMENTING ACQUISITION STRATEGY

No Assurance That Additional Acquisitions Will Be Consummated. A principal
component of the Company's business strategy has been to acquire complimentary
paging companies. As of the date of this Prospectus, the Company has purchased
the common stock of two paging companies and substantially all of the paging
assets of three additional paging companies (the "Fiscal Year 1997
Acquisitions"). However, there can be no assurance that the Company will be
able to identify and acquire businesses that will prove to be profitable for the
Company. If no additional acquisitions are consummated the Company's future
growth would be limited to that which could be achieved through internal growth.
See "Management's Discussion and Analysis," and "Business--Business Strategy."

No Assurance That Future Acquisition-Related Financing Will Be Obtained. It
is likely that any future acquisitions would require financing through the
issuance by the Company of equity or debt securities or through secured
borrowing arrangements. In connection with its continual evaluation of potential
acquisition candidates, the Company continually engages in discussions with
potential sources of financing for such acquisitions. In July 1996, the Company
entered into an agreement with a group of lenders to provide new loans in
amounts up to $95 million ("Credit Facility"). As of October 31, 1996, $66.8
million of the Credit Facility had been funded and $28.2 million is available
for future funding. However, there can

8
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be no assurance that the Company would be able to obtain the consent of its
lenders to any future acquisitions and related financing or that the existence
of the first priority security interest securing the Credit Facility would not
make it more difficult for the Company to obtain such financing. See
"Management's Discussion and Analysis."

Additional Dilution and Restrictive Covenants May Be Associated With Future
Acquisitions. To the extent that the Company issues equity or convertible debt
securities in connection with future acquisitions, the equity interest of its
then current stockholders could be significantly diluted. The Credit Facility
contains various restrictive covenants, including prohibitions on the incurrence
of additional indebtedness and payment of dividends or other distributions to
stockholders. If the Company obtains additional debt financing in connection
with any future acquisitions, the Company may thereby become subject to
additional restrictive covenants as well as become more leveraged. See
"Management's Discussion and Analysis."

FCC Regulation of Acquisitions. The Communications Act requires prior
approval from the FCC for the assignment of any radio license or the transfer of
control of any entity holding such license in connection with an acquisition of
a paging company. See "Business--Regulation."

Unforeseen Difficulties May Arise or Contingent Liabilities May Be
Associated With Acquisitions. The process of integrating acquired businesses
into the Company's operations may result in unforeseen difficulties and may
require a disproportionate amount of management's attention and the Company's
resources. In connection with acquisitions, the Company could become subject to
significant contingent liabilities arising from the activities of the acquired
businesses to the extent the Company assumes, or an acquired entity becomes
liable for, unknown or contingent liabilities or in the event that such
liabilities are imposed on the Company under theories of successor liability.

ACQUISITIONS CAN BE CONSUMMATED WITHOUT PRIOR STOCKHOLDER REVIEW OR APPROVAL

Generally speaking, under current laws applicable to the Company and under
current NASDAQ rules, the Company will be able to execute and consummate
acquisitions of other businesses without prior stockholder review of financial
statements or other information concerning the business to be acquired.
Moreover, stockholders of the Company typically will not have the opportunity to
vote upon acquisitions proposed to be consummated by the Company.

ABSENCE OF DIVIDENDS ON COMMON STOCK

The Company has not paid and does not anticipate paying any cash dividends
on its Common Stock in the foreseeable future, but instead intends to retain all
working capital and earnings, if any, for use in the Company's business
operations and in the expansion of its business. In addition, the payment of
dividends on the Common Stock is prohibited by the terms of the Credit Facility.
See "Dividend Policy."

9
<PAGE>

RELIANCE ON KEY MANAGEMENT PERSONNEL

The Company's future success is dependent upon the continued employment of
its senior management. The Company relies upon the services of Robert McMurrey
as Chief Executive Officer and of G. David Higginbotham as President. Messrs.
McMurrey and Higginbotham have entered into employment agreements with the
Company for terms expiring in August 1998. Both agreements include provisions
restricting the ability of the respective officers to compete with the Company
during any period in which salary or severance payments are payable thereunder
and for one year thereafter. Given the importance of its senior management, the
Company maintains $1,000,000 of key person life insurance on the life of each of
Mr. McMurrey and Mr. Higginbotham and has agreed to keep in effect at least
$500,000 of such insurance at least through December 29, 1997. See "Management"
and "Executive Compensation--Employment Agreements." The Credit Facility
prohibits "changes in control" of the Company, which are defined to exist if
either Mr. McMurrey or Mr. Higginbotham cease to devote substantially all of
their business time and efforts to the management of the Company (unless
replaced within 120 days by an individual reasonably acceptable to the lender)
or if Messrs. McMurrey and Higginbotham together with CIVC cease to own and
control in the aggregate at least 50.1% of the capital stock of the Company.

UNREGISTERED PROPRIETARY RIGHTS--TRADEMARKS AND TRADENAMES

The Company uses several unregistered trademarks and tradenames in its
business, including Teletouch, a tradename the Company has used for ten years.
The Company has applied for Federal registration of the Teletouch trademark.
There can be no assurance that any such applications would be approved and/or
that the right to the use of such trademarks outside of their respective current
area of usage will not be claimed by others.

SHARES ELIGIBLE FOR FUTURE SALE

As of the date hereof, 6,347,416 shares of Common Stock are outstanding of
which 3,822,191 (including the 447,500 Shares which are the subject of this
Prospectus) are deemed to be "restricted securities" as that term is defined in
Rule 144, promulgated under the Securities Act.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons who may be deemed to be
"affiliates" of the Company as that term is defined under the Securities Act, as
entitled to sell within any three-month period a number of restricted shares
beneficially owned for at least two years if that number does not exceed the
greater of (i) one percent of the then outstanding Common Stock (63,474 shares
as of the date hereof) or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of sale, notice and
the availability of current public information about the Company. However, a
person who is not an affiliate and who has beneficially owned such shares for at
least three years is entitled to sell such shares without regard to the volume
or other resale requirements. As of the date hereof, 2,300,000 restricted shares
of

10
<PAGE>

Common Stock are available for sale pursuant to Rule 144. No predictions can
be made as to the effect, if any, that sales of the Common Stock or the
availability of Common Stock for sale will have on the market price of the
Common Stock prevailing from time to time. Nevertheless, the foregoing could
adversely affect prevailing market prices.

Prior to the Company's December 1994 initial public offering (the "IPO"),
there was no public market for the Common Stock or other securities of the
Company. Sales of substantial amounts of shares of Common Stock, pursuant to
Rule 144 or otherwise, could adversely affect the market price of the Common
Stock and may make it more difficult for the Company to sell equity securities
in the future at a time and price that it deems appropriate.

FUTURE ISSUANCES OF STOCK BY THE COMPANY; POTENTIAL ANTI-TAKEOVER EFFECT OF
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS

As of the date hereof, the Company has 25,000,000 shares of Common Stock
authorized, of which 6,347,416 shares of Common Stock are issued and
outstanding, and an additional 15,669,000 shares have been reserved for specific
purposes. The Company also has 5,000,000 shares of preferred stock, $.001 par
value per share (the "Preferred Stock") authorized, of which 15,000 shares have
been designated and issued as Series A 14% Cumulative Preferred Stock ("Series A
Preferred") and Series B Preferred Stock ("Series B Preferred"), of which
617,189 shares have been designated and 130,930 shares have been issued. The
balance of the Company's authorized shares of Common Stock and the Preferred
Stock are not reserved for any purpose and may be issued without any action or
approval by the Company's stockholders. Pursuant to the Company's Certificate
of Incorporation, the Board of Directors has the authority to issue such shares
of Preferred Stock without further action by the stockholders in one or more
series having such preferences, rights and other provisions as the Board of
Directors may designate in providing for the issuance of such series.
Accordingly, the Board of Directors may, without shareholder approval, issue
shares of Preferred Stock with dividends, liquidation, conversion, voting or
other rights which could adversely affect the voting power or other rights of
the holders of the Company's Common Stock. Although there are no present plans,
agreements or undertakings with respect to the Company's issuance of any shares
of such stock, or related convertible securities, other than as disclosed in
this Prospectus, the issuance of any of such securities by the Company,
including the issuance of the Common or Preferred Stock, could have anti-
takeover effects insofar as they could be used as a method of discouraging,
delaying or preventing a change in control of the Company. Such issuances could
also dilute the public ownership of the Company. Given that the Company is
authorized to issue more stock, there can be no assurance that the Company will
not do so. In addition, a stockholder's pro rata ownership interest in the
Company may be reduced to the extent of the exercise of other outstanding
warrants and options. See "Capitalization" and "Description of Securities."

The Company's Certificate of Incorporation and By-Laws also contain other
provisions which may discourage certain transactions which involve an actual or
threatened change in control of the Company. These provisions include a
"classified" or "staggered" board of directors. See "Management" and
"Description of Securities." As permitted by the Delaware

11
<PAGE>

General Corporation Law, the Company's Certificate of Incorporation provides
that a director of the Company will not be personally liable to the Company or
its stockholders for monetary damages for breach of the fiduciary duty of care
as a director, except under certain circumstances including a breach of the
director's duty of loyalty to the Company or its stockholders or any transaction
from which the director derived an improper personal benefit. See "Management--
Indemnification of Directors and Officers."

The Company has expressly not opted out of, and is therefore subject to,
Section 203 of the Delaware General Corporation Law regulating "business
combinations" between Delaware corporations and "interested stockholders"
(defined generally as persons who have acquired 15% of a corporation's stock).
Under this provision, a corporation subject to Section 203 may not engage in any
business combination with any interested stockholder for a period of three years
from the date such person became an interested stockholder unless certain
conditions are satisfied. This provision may also have the effect of delaying
or preventing a change in control of the Company. See "Description of
Securities."

NO ASSURANCE OF CONTINUED PUBLIC MARKET OR NASDAQ LISTING; PENNY STOCK
REGULATIONS

There has been a public market for the Company's Common Stock only since
December 1994, and there can be no assurance that a regular trading market for
the Common Stock will be sustained. If for any reason the Common Stock is not
eligible for continued listing or a public trading market does not develop,
purchasers of the Shares may have difficulty selling their Shares should they
desire to do so.

The Company's Common Stock is listed on each of NASDAQ and the Boston Stock
Exchange ("BSE"). Under the rules of the National Association of Securities
Dealers, Inc. ("NASD"), in order to qualify for continued listing, a company,
among other things, must have $2,000,000 in total assets, $1,000,000 in total
capital and surplus, $1,000,000 in market value of public float and a minimum
bid price of $1.00 per share. The BSE has similar listing and maintenance
requirements, although its numerical thresholds are generally lower than
NASDAQ's. There can be no assurance, however, that the Company will be able to
satisfy the requirements for continued quotation on NASDAQ and the BSE or that
such requirements will not be amended by the exchanges, If the Common Stock is
not listed on NASDAQ or the BSE, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the Shares.

In addition, if the Common Stock was not listed on NASDAQ and the BSE, it
would become subject to the Commission's "penny stock" rules. These regulations
define a "penny stock" to be any equity security that has a market price (as
defined) of less than $5.00 per share, subject to certain exceptions, including
securities listed on NASDAQ or the BSE. For any transaction involving a penny
stock, unless exempt, these rules require the delivery, prior to the
transaction, of a disclosure schedule prepared by the Commission relating to the
penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered underwriter, current
quotations for the securities, information on the limited market in penny stocks
and, if the broker-dealer is the sole marketmaker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the market.

12
<PAGE>

In addition, the broker-dealer must obtain a written acknowledgment from the
customer that such disclosure information was provided and must retain such
acknowledgment for at least three years. Monthly statements must be sent
disclosing current price information for the penny stock held in the account.
The penny stock rules also require that broker-dealers engaging in a transaction
in a penny stock make a special suitability determination for the purchaser and
receive the purchaser's written consent to the transaction prior to the
purchase.

These rules may materially and adversely affect the liquidity for the
market of the Company's securities by restricting the ability of broker-dealers
to sell the Company's securities and the ability of holders of such securities
to obtain accurate price quotations. Such rules may therefore impede the ability
of subsequent holders (including, specifically, the purchasers in this Offering)
of the Common Stock to sell such securities in the secondary market.

DILUTIVE IMPACT OF OUTSTANDING OPTIONS AND WARRANTS

In connection with the IPO, (i) the Company sold to the public 2,300,000
Common Stock Purchase Warrants, exercisable at $4.50 per warrant, and (ii) sold
to the IPO underwriters, for nominal consideration, warrants to purchase up to
an aggregate of 200,000 shares of Common Stock at a price of $5.60 per share and
warrants to purchase, at a price of $.10 per warrant, 200,000 additional
warrants, each of which bears the right to purchase a share of Common Stock at a
price of $6.30 per share. The IPO underwriters' warrants will be exercisable
through December 31, 1999. Also outstanding are (a) warrants to purchase
400,000(the Benchmark Warrants), 75,000 and 100,000 shares of Common Stock, at
exercise prices of $.50 per share, $6.00 per share and $5.04 per share,
respectively, issued to certain consultants; (b) an aggregate of 320,000 options
granted pursuant to the Company's stock option plan, at exercise prices ranging
from $2.88 to $4.50 per share; (c) warrants to purchase 3,991,260 shares of
Common Stock at an exercise price of $.01 per share, issued to the CIVC
investors in August 1995; (d) approximately 4,300,000 shares issuable upon
conversion of the Series A Preferred Stock and (e) up to 3,703,134 shares
issuable upon conversion of the Series B Preferred Stock. The holders of such
options, warrants and convertible securities have the opportunity to profit from
a rise in the market price of the Common Stock, if any, without assuming the
risk of ownership, with a resulting dilution in the interest of other
shareholders. The Company may find it more difficult to raise additional equity
capital if it should be needed for the business of the Company while such
options and warrants are outstanding. At any time at which the holders thereof
might be expected to exercise them, the Company would probably be able to obtain
additional capital on terms more favorable than those provided by such options
and warrants. The holders of such options, warrants and convertible securities
have the right to require registration under the Securities Act of the shares of
Common Stock that are issuable upon exercise of such options, warrants and
convertible securities and have certain "piggy-back" registration rights. The
cost to the Company of effecting any such registration may be substantial.
Furthermore, the IPO underwriters may be precluded in accordance with the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), from
engaging in market making activities for up to nine days prior to and during the
period in which it is engaged in the exercise of or sale of their warrants.

13
<PAGE>

CURRENT PROSPECTUS REQUIREMENT; BLUE SKY RESTRICTIONS ON EXERCISE OF WARRANTS

The holder or holders of the Registered Warrants will have the right to
sell or exercise such warrants, absent any exemption from registration, only if
a current prospectus relating to such securities and/or the shares underlying
such securities is then in effect and only if such securities are qualified for
sale or exempt under applicable state securities or "blue sky" laws of the
states in which the holder or holders of such warrants reside. There can be no
assurance that the Company will be able to keep this Prospectus or any
prospectus covering any such securities current, although the Company will use
its best efforts to do so. Also, certain exemptions in the blue sky laws of
certain states may permit the holders of such warrants to transfer the warrants
or holders thereof may move to states in which the shares underlying such
warrants are not registered or qualified during the period such warrants are
exercisable. The Company may decide not to seek or may be unable to obtain
qualification of the issuance of such Common Stock in all of the states in which
the ultimate holders of the Registered Warrants reside. In such event, the
warrants may expire and have no value if the Registered Warrants cannot be
exercised.

THE COMPANY

The Company was formed in July 1994 as the wholly-owned subsidiary of
Teletouch Corporation ("Teletouch-Texas"). Teletouch-Texas, or one of its
several predecessors, has operated paging, two-way mobile communications
services and telemessaging services in east Texas for over 30 years. Prior to
the Company's initial public offering in December 1994 (the "IPO"), Teletouch-
Texas was merged with and into the Company in order to reincorporate in the
State of Delaware. Unless otherwise indicated, references herein to the Company
or Teletouch include Teletouch-Texas and the Company's various predecessors.

The Company's principal predecessor was Southern Communications, Inc.
("Southern"), which was founded in 1967 to provide FCC-licensed paging and
mobile telephone services. In 1977 the founder of Southern formed G.E.T.
Corporation, which then acquired Southern, Commercial Communications, Inc., a
two-way mobile radio services provider founded in 1963, and Answering Services
of Tyler, Inc., an answering service business begun in 1953. In 1981 G.E.T.
Corporation acquired the assets of East Texas Communications, Inc., a provider
of paging, two-way mobile radio and mobile telephone services based in Longview,
Texas. In 1984 80% of the stock of G.E.T. Corporation was acquired by Rainbow
Resources, Inc. ("Rainbow Resources") (a corporation wholly-owned by Robert
McMurrey, the Chairman and Chief Executive Officer of the Company). At the time
of the acquisition by Rainbow Resources, David Higginbotham (the President of
the Company) held 20% of the outstanding shares of G.E.T. Corporation. After
the 1984 transaction with Rainbow Resources, G.E.T. Corporation changed its name
to Teletouch Corporation. Upon the completion of the IPO, it acquired Beepers
Plus of Jackson, Beepers Plus of Nashville, Inc. and Beepers Plus of Memphis,
Inc. (collectively, "Beepers Plus") and Waco Communications, Inc. ("WCI" or the
"Waco System"). On August 3, 1995 the Company acquired substantially all of the
assets and certain liabilities (the "Dial System") of Dial-A-Page, Inc.
("Dial"). Subsequent to the end of the 1996 fiscal year, the Company purchased
the outstanding common

14
<PAGE>

stock of two paging companies and substantially all of the paging assets of
three additional paging companies which have increased the Company's regional
coverage in Oklahoma, Texas and Louisiana. See "Business."

USE OF PROCEEDS

The Shares and Registered Warrants subject hereto have been previously
issued to and are being offered for sale by the Selling Securityholders. The
Company will receive the proceeds, if any, from the exercise of the Registered
Warrants but will not receive any of the proceeds from the resale of the
Registered Warrants or the sale of the Shares or Warrant Shares by Selling
Securityholders. Proceeds from the exercise of the Registered Warrants will be
used for working capital purposes.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of August
31, 1996 (in thousands).

<TABLE>
Long-term obligations:
<S> <C>
Long-term debt $ 76,681
--------
Total long-term obligations 76,681
Stockholders' equity:
Preferred Stock, $0.001 par value; 5,000,000 shares authorized;
15,000 shares of Series A Cumulative Preferred outstanding - 0 -
130,930 shares of Series B Preferred outstanding - 0 -

Common Stock, $0.001 par value; 25,000,000
shares authorized, 6,347,416 shares outstanding 6

Additional paid-in capital 24,865
Accumulated deficit (12,276)
--------
Total stockholders' equity 12,595
--------
Total capitalization $ 89,276
========
</TABLE>

The sale of shares offered by this Prospectus will not have a material
effect on the capitalization of the Company.

15
<PAGE>

DIVIDEND POLICY

The Company has never paid and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. As of September 30,
1996, the Company has outstanding $15,000,000 in initial liquidation value of
Series A Preferred Stock. Dividends on the Series A Preferred Stock accrue at
14% per annum. Such dividends may be paid in kind by the issuance of additional
securities. Cash payment of any dividends on the Company's Common Stock or
Preferred Stock, and the redemption of the Preferred Stock, are prohibited under
the terms of the Credit Facility. See "Management's Discussion and Analysis."
The Company intends to retain all earnings for use in the Company's business
operations and in the expansion of its business.

MANAGEMENT'S DISCUSSION AND ANALYSIS

This discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto of Teletouch Communications,
Inc., included elsewhere in this Prospectus.

Certain statements contained herein are not based on historical facts, but
are forward- looking statements that are based on numerous assumptions about
future conditions that could not prove to be accurate. Actual events,
transactions and results may materially differ from the anticipated events,
transactions or results described in such statements. The Company's ability to
consummate such transactions and achieve such events or results is subject to
certain risks and uncertainties. Such risks and uncertainties include, but are
not limited to, the existence of demand for and acceptance of the Company's
products and services, regulatory approvals and developments, economic
conditions, the impact of competition and pricing, results of financing efforts
and other factors affecting the Company's business that are beyond the Company's
control. The Company undertakes no obligation and does not intend to update,
revise or otherwise publicly release the results of any revisions to these
forward-looking statements that may be made to reflect future events or
circumstances.

The Company is a leading provider of wireless messaging services, primarily
paging services, in non-major metropolitan areas and communities in the
southeast United States. As of August 31, 1996 the Company had approximately
275,000 pagers in service. The Company derives the majority of its revenues from
fixed periodic fees, not dependent on usage, charged to subscribers for paging
services. As long as a subscriber remains on service, operating results benefit
from the recurring payments of the fixed periodic fees without incurring
additional selling expenses or other fixed costs. Due to the growth from the
completion of the acquisitions discussed below, the Company's results of
operations for prior periods may not be indicative of future performance.

16
<PAGE>

ACQUISITIONS

In August 1995, the Company purchased substantially all of the non-cash
assets and assumed selected liabilities of Dial-A-Page, Inc. ("Dial") for a
purchase price of approximately $49.4 million (the "Dial Acquisition"). Of the
total purchase price, for financial reporting purposes, approximately $14.2
million was allocated to property, plant and equipment, $0.5 million to accounts
receivable, $15.5 million to FCC licenses, $13.8 million to subscriber bases,
$0.1 million to non-compete, $1.2 million to current liabilities, and $0.1
million to other current assets, with the remaining amount allocated to
goodwill. To complete the Dial Acquisition, and to provide additional working
capital, the Company completed the private placement of $25 million of debt and
equity securities with Continental Illinois Venture Corporation ("CIVC") and
certain other parties both related and unrelated to CIVC (together with CIVC,
the "CIVC Investors"), and $35 million in additional senior financing from its
existing senior lender, FINOVA Capital Corporation (the "FINOVA Loan"). In July
1996, the FINOVA Loan was repaid with proceeds from the Credit Facility.

During the first quarter of fiscal year 1997, the Company completed the
acquisition of all of the stock of Russell's Communication, Inc., d.b.a.
LaPageCo ("LaPageCo") and AACS Communications, Inc. ("AACS") for cash
consideration of approximately $2.3 million and $1.9 million, respectively. In
addition, the Company acquired substantially all of the assets of Warren
Communications, Inc. ("Warren"), for cash consideration of approximately $5.1
million and Dave Fant Company, d.b.a. Oklahoma Radio Systems ("ORS") for cash
consideration of approximately $2.1 million. The consideration paid for these
acquisitions was obtained from available capacity under the Credit Facility.

Each of these acquisitions have been accounted for using the purchase
method of accounting. Of the total purchase price for these acquisitions, for
financial reporting purposes, the preliminary allocation will be approximately
$0.9 million to property, plant and equipment, $0.2 million to accounts
receivable, $0.2 million to inventory and other assets, $4.0 to FCC licenses,
$3.6 million to subscriber bases, $0.4 million to non-compete, with the
remaining amount allocated to goodwill.

FINANCIAL CONDITION

The primary sources of capital for the Company prior to the IPO in December
1994 were cash flow from operations and vendor financing. Subsequent to the
IPO, the Company has been able to raise financing from several sources as a
means to fund the Completed Acquisitions and working capital needs. In addition
to the financing proceeds, cash provided by operations increased to $3.3 million
in fiscal year 1996 from $0.3 million and $0.4 million in fiscal years 1995 and
1994, respectively. The increase in cash provided from operations is primarily
due to the cash flow provided from the Completed Acquisitions. However, the
Company needed to utilize additional funds available from the Credit Facility to
fund the Fiscal Year 1997 Acquisitions.

17
<PAGE>

In August 1995, in order to complete the Dial Acquisition, and to provide
additional working capital, the Company completed the private placement of $25
million of debt and equity securities with the CIVC Investors, and $35 million
in additional senior financing from its' existing senior lender, FINOVA. The
Company incurred financing costs and professional fees incident to the Dial
Acquisition, and the related financings, of approximately $5.5 million. The
CIVC Investors purchased 15,000 shares, with an initial liquidation value of $15
million, of the Series A Preferred Stock and $10 million of the Subordinated
Notes due in fiscal year 2003. Dividends on the Series A Preferred Stock accrue
at the rate of 14% per annum. Each share of Series A Preferred will become
convertible into common stock based on a stated formula after August 3, 2003.
The CIVC Investors also received warrants, exercisable at a nominal price, to
purchase 5,065,951 shares of Teletouch common stock and 617,189 shares of Series
B Preferred Stock. Each share of Series B Preferred Stock will become
convertible into six shares of Common Stock after two years or earlier upon the
occurrence of an event of default as specified by the purchase agreement. CIVC
will have the right, after two years, to require that its securities be
registered for public sale.

During fiscal year 1996, the holders exercised an aggregate of 1,074,691
Common Stock Purchase Warrants and 130,930 Series B Preferred Stock Purchase
Warrants. The Series A Preferred Stock and the Series B Preferred Stock are
non-voting except as to the merger or consolidation with another entity or
entities, or the sale of substantially all of the assets of the Company.

During fiscal year 1995, the Company entered into an agreement with FINOVA
that provided for borrowings of $19.95 million. In August 1995, in conjunction
with the Dial Acquisition, the Company modified the terms and extended the
existing agreement with FINOVA to provide for total borrowings of $55 million
(the "FINOVA Loan"). The FINOVA Loan bore interest, at the Company's
designation, at a floating rate of either the prime rate plus 2% or the London
Interbank Offering Rate ("LIBOR") plus 4% and was secured by substantially all
of the assets of the Company and its subsidiaries. At May 31, 1996 the weighted
average interest rate payable on the FINOVA Loans was 9.315%. In conjunction
with the FINOVA Loan, the Company entered into an interest rate protection
agreement which protected the Company on a portion of the debt against future
LIBOR rate increases above 8.875% to 7.625% over the term of the loan. Although
the FINOVA Loan required principal repayments beginning in April 1997, all of
the notes payable have been classified as long-term at May 31, 1996 as the
Company repaid the FINOVA Loan in July 1996 with the proceeds from a new long-
term financing arrangement.

18
<PAGE>

costs associated with the FINOVA Loan of approximately $2.6 million have been
recorded as an extraordinary expense. Direct costs incurred in connection with
obtaining the Credit Facility of approximately $2.9 million have been deferred
and are being amortized, using the effective interest rate method, over the term
of the loan.

The Credit Facility bears interest, at the Company's designation, at a
floating rate of either the prime rate plus 1% to 2% or LIBOR plus 2% to 3%
depending on the leverage ratio of the Company and is secured by substantially
all of the assets of the Company and its subsidiaries. Borrowings under the
Credit Facility require that the principal be repaid in escalating quarterly
installments beginning in February 1998 and ending in fiscal year 2004. The
terms require that the Company obtain an interest rate protection agreement,
within one hundred and twenty days of closing, to protect at least 50% of the
commitments against fluctuations in the three-month LIBOR rate for a period of
at least three years. In addition, the terms require the maintenance of certain
specified financial and operating covenants, provide for restrictions on capital
expenditures and future acquisitions, prohibit any payments on the Junior
Subordinated Notes or the payment of dividends. The Company believes that the
availability under the Credit Facility, and cash flow from operations, will be
sufficient to fund working capital needs for the next twelve months.

As a consequence of the Completed Acquisitions and the Fiscal Year 1997
Acquisitions, and related financing, most of the Company's balance sheet items
at August 31, 1996 and May 31, 1996 have significantly increased from their
respective levels at May 31, 1995. As of August 31, 1996 and May 31, 1996, the
Company's cash balance was $2.7 million and $1.0 million, respectively, as
compared to $0.7 million at May 31, 1995.

The Company's paging operations require capital investment to procure
pagers and to acquire paging infrastructure equipment to support the Company's
growth. The Company's net capital expenditures amount to $3.1 million, $0.6
million and $0.2 million for fiscal 1996, 1995 and 1994, respectively. The
increase in fiscal year 1996 was primarily due to the upgrading of the
infrastructure of the Completed Acquisitions as well as increased need for
pagers to support the growth of pagers in service. Management anticipates
capital expenditures for the Company to continue to increase as the Company
continues to improve its infrastructure. These expenditures will be paid for
with cash generated from operations and borrowings under the unused portion of
the Credit Facility.

During the first quarter of fiscal year 1997, the Company acquired the
outstanding common stock of two paging companies and substantially all of the
paging assets of three additional paging companies (collectively, the "Fiscal
Year 1997 Acquisitions") for an aggregate purchase price of approximately $11.4
million. The consideration paid for the Fiscal Year 1997 Acquisitions is
subject to adjustment based on actual financial performance.

In April 1996, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with a wholly owned subsidiary of ProNet, Inc.
("ProNet") that provided for the Company to be merged with and into ProNet. In
July 1996, the Company and ProNet mutually agreed to terminate the transaction.
The Company incurred approximately

19
<PAGE>

$627,000 of costs during 1996, and $522,000 in the first quarter of fiscal year
1997, associated with this transaction, and other acquisitions that the Company
has elected not to pursue, which have been charged to general and administrative
expense as incurred.

In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets' carrying amount. The Company
has adopted Statement 121 in the first quarter of fiscal year 1997 and has
determined that no material impairment loss has occurred.

In October 1995, the FASB issued Statement No. 123, "Accounting for Stock
Based Compensation") ("FASB 123") which establishes an alternative method of
accounting for stock based compensation to the method set forth in Accounting
Principles Board Opinion No. 25 ("APB 25"). FASB 123 encourages, but does not
require, adoption of a fair value based method of accounting for stock options
and similar equity instruments granted to employees. The Company plans to
continue to account for such grants under the provisions of APB 25.

20
<PAGE>

RESULTS OF OPERATIONS

FOR THE THREE MONTH PERIODS ENDED AUGUST 31, 1996 AND 1995
- ----------------------------------------------------------

The following table presents certain items from the Company's condensed
consolidated statements of operations, certain unaudited pro forma information,
and certain other information for the periods indicated. The pro forma
information presents results of the operations of the Company as if the Dial
Acquisition and the acquisitions of LaPageCo, AACS, Warren, and ORS
(collectively, "the Fiscal Year 1997 Acquisitions") and the related financing,
had occurred at the beginning of each period presented.

<TABLE>
<CAPTION>
Pro forma
Three Months ended Three Months ended
August 31, August 31,
----------------------------- ----------------------------
1996 1995 1996 1995
-------------- ------------- ------------- -------------
(in thousands, except pagers, ARPU and per share amounts)
<S> <C> <C> <C> <C>
Net revenue $ 8,276 $ 4,501 $ 9,172 $ 8,058
Operating income (loss) $ (570) (42) (366) 301
Loss before extraordinary item $ (2,401) $ (724) $ (2,184) $ (1,136)
Loss per share before extraordinary item $ (0.47) $ (0.17) $ (0.44) $ (0.32)
EBITDA (1)(2) $ 2,917 $ 1,437 $ 3,400 $ 3,124
Pagers in service at end of period 275,000 173,000 275,000 232,500
Average revenue per unit ("ARPU") $ 11.77 $ 13.93 $ 11.51 $ 12.22
</TABLE>
______________________________

(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a standard measure of financial performance in the
paging industry. However, EBITDA is not a measure defined in generally
accepted accounting principles ("GAAP") and should not be construed as an
alternative to operating income or cash flows from operating activities as
determined in accordance with GAAP. EBITDA is, however, one of the
primary financial measures by which the Company's covenants are calculated
under the agreements governing the Company's indebtedness.

(2) As discussed below, in July 1996 the Company and ProNet, Inc. mutually
agreed to terminate a previously announced agreement to merge the Company
with a subsidiary of ProNet. In addition, the Company elected not to
complete certain other acquisitions that it had been pursuing. The actual
and proforma EBITDA for the three months ended August 31, 1996 shown above
excludes $522,000 of non-recurring costs associated with these
terminations.

Net Revenue: The historical net revenue of the Company has increased to
-----------
$8.3 million in the first three months of fiscal year 1997 from $4.5 million in
the first three months of fiscal year 1996. This increase is due primarily to
the increase in the pagers in service resulting from the Fiscal Year 1997
Acquisitions as well as greater market penetration in the Company's existing
markets. Pagers in service increased to approximately 275,000 at August 31, 1996
as compared to 173,000 at August 31, 1995. The Fiscal Year 1997 Acquisitions
represented approximately 72,000 of this increase. The Company believes that
internal growth due to further penetration of its existing markets will
continue.

21
<PAGE>

The impact on net revenue of the increase in pagers in service is partially
offset by the decline in average revenue per unit ("ARPU"). ARPU for the three
months ended August 31, 1996 was $11.77 as compared to $13.93 for the three
months ended August 31, 1995. This decline in ARPU is due to increased
competition in the Company's markets as well as an increase in the number of
paging units sold to paging resellers. Paging resellers are businesses that buy
airtime at wholesale prices from the Company and sell the service to
subscribers. While the wholesale price to the reseller is lower than the price
the Company charges directly to its customers, the reseller bears the cost of
acquiring, billing, collecting and servicing the subscribers. Prior to the
Fiscal Year 1997 Acquisitions, approximately 16% of the Company's paging units
were sold through resellers, as of August 31, 1996 approximately 34% of the
Company's paging units are sold through resellers. The Company expects to see
the ARPU continue to decline as the competition continues to pursue customers in
its marketplace, generally resulting in new customers being added at a lower
ARPU than the Company's existing ARPU in that market. In addition, the higher
percentage of units sold through resellers in the Fiscal Year 1997 Acquisitions
as compared to the percentage sold through resellers by the Company prior to
these acquisitions, will also result in an overall reduction of the ARPU.
However, while there can be no assurance, the Company expects that the growth in
units in service will increase sufficiently to offset this decline in ARPU.

Expenses, excluding depreciation and amortization: Operating expenses,
-------------------------------------------------
excluding depreciation and amortization, were $5.9 million, 71% of net revenue,
in the first three months of fiscal year 1997 as compared to $3.1 million, 68%
of net revenue in the first three months of fiscal year 1996. The increased
costs are primarily due to the inclusion of operating results of the Dial
Acquisition for three full months in fiscal year 1997 as compared to only one
month in fiscal year 1996 and one month of expenses in fiscal year 1997 for the
Fiscal Year 1997 Acquisitions. In addition, $0.5 million of non-recurring costs
are included in general and administrative expenses for the three months ended
August 31, 1996 related to costs incurred in connection with a now terminated
proposed merger with ProNet, Inc. ("ProNet") and certain other proposed
acquisitions that the Company will not be pursuing. Excluding the impact of
these non-recurring costs, operating expenses for the first three months of
fiscal year 1997 were $5.4 million, 65% of net revenues. The decrease as a
percentage of net revenue is due to fixed costs being spread over an increased
customer base. On a proforma basis, assuming the Fiscal Year 1997 Acquisitions
and the Dial Acquisition had occurred at the beginning of the respective
periods, these expenses increased to $6.3 million, 69% of proforma net revenue,
($5.8 million and 63% excluding the costs associated with the terminated ProNet
merger and other acquisitions) for the first three months of fiscal year 1997 as
compared to $4.9 million, 61% of proforma net revenue, in the first three months
of fiscal year 1996. The increase as a percentage of proforma net revenue is
primarily due to the increased costs associated with a much larger, publicly
traded, company. Many of these costs, including increased general and
administrative salaries and other costs, are incurred early in the growth
process. Accordingly, although the actual costs are expected to continue to
increase, the Company expects them to decrease as a percentage of net revenue as
the company continues to grow.

22
<PAGE>

Depreciation and amortization: Depreciation and amortization expense
-----------------------------
increased to $3.0 million in the first three months of fiscal year 1997 from
$1.5 million in the first three months of fiscal years 1996. The increase is
due primarily to the increased amortization of intangible assets resulting from
the Dial Acquisition and the Fiscal Year 1997 Acquisitions. The Company expects
that this expense will continue to increase in the near term as the amortization
related to the Dial Acquisition and the Fiscal Year 1997 Acquisitions are
included in the results of operations for a full year.

Interest Expense: Interest expense increased to $2.0 million in the first
----------------
three months of fiscal year 1997 from $1.0 million in the first three months of
fiscal years. This increase is due to the increased debt incurred by the
Company in connection with the Fiscal Year 1997 Acquisitions and the Dial
Acquisition as well as the financing of the costs associated with obtaining the
Credit Facility. The Credit Facility terms provide for lower interest rates than
the FINOVA Loan; however, due to the increased amount borrowed, the interest
expense for fiscal year 1997 will be greater than the amounts incurred in fiscal
year 1996.

Income tax benefit: For fiscal year 1997 the Company estimates the
------------------
effective tax benefit rate will be 6.1% as compared to 31.3% for fiscal year
1996. The decrease is due to the recording of a valuation allowance against
deferred tax assets which are not likely to be realized. Specifically, the
Company's carryforwards expire at specific future dates and utilization of
certain carryforwards is limited to specific amounts each year. However, due to
the uncertain nature of their ultimate realization the Company has established a
significant valuation allowance against these carryforward benefits and will
recognize benefits only as reassessment demonstrates they are realizable.
Realization is entirely dependent upon future earnings. While the need for this
valuation allowance is subject to periodic review, if the allowance is reduced,
the tax benefits of the carryforwards will be recorded in future operations as a
reduction of the Company's income tax expense.

Extraordinary Item: In July 1996, the Company repaid its outstanding notes
------------------
payable to FINOVA Capital Corporation ("FINOVA") with the proceeds of the Credit
Facility. As a result of this prepayment of the FINOVA Loan, the Company
incurred a prepayment penalty of $1.0 million. The prepayment penalty, and
unamortized deferred loan costs associated with the FINOVA Loan of approximately
$2.6 million, were recorded as an extraordinary item. As discussed above, the
Company has recorded a significant valuation allowance against tax assets which
are not likely to be realized. Accordingly, the Company has not recognized any
tax benefit associated with this extraordinary item.

EBITDA: EBITDA increased to $2.4 million, 29% of net revenue, ($2.9
------
million, 35% of net revenue, excluding the $0.5 million of costs associated with
the terminated ProNet merger and other terminated acquisitions) in the first
three months of fiscal year 1997 from $1.4 million, 32% of net revenue, in the
first three months of fiscal year 1996. On a proforma basis, assuming the Fiscal
Year 1997 Acquisitions and the Dial Acquisition had occurred at the beginning of
the respective periods, EBITDA increased to $2.9 million, 31% of proforma net

23
<PAGE>

revenue, ($3.4 million and 37% excluding the costs associated with the
terminated ProNet merger and other acquisitions) for the first three months of
fiscal year 1997 as compared to $3.1 million, 39% of proforma net revenue, in
the first three months of fiscal year 1996. The decrease in proforma EBITDA as a
percentage of net revenue is due to the impact of the increased costs associated
with running a larger, publicly traded, company as discussed above. In addition,
these margins are impacted by the declining ARPU discussed above. The Company
expects that this margin will stabilize in the near term as the impact of
declining ARPU is offset by increased revenue from increasing pagers in service
and lower operating expenses as a percentage of net revenue.

FISCAL YEARS ENDED MAY 31, 1996, 1995 AND 1994
- ----------------------------------------------

The following table presents certain items from the Company's consolidated
statements of operations, certain unaudited pro forma information, and certain
other information for the periods indicated. The pro forma information presents
results of operations of the Company as if the acquisitions of Dial, Beepers
Plus and Waco, (collectively, the "Completed Acquisitions") and the related
financing, had occurred at the beginning of each period presented. The pro
forma information does not include the impact of the Fiscal Year 1997
Acquisitions.

<TABLE>
<CAPTION>
Pro forma
Year ended May 31, Year ended May 31,
---------------------- ------------------------
1996 1995 1996 1995
---- ---- ---- ----
(in thousands, except pagers, ARPU and per share amounts)
<S> <C> <C> <C> <C>
Net revenue $ 27,046 $ 6,590 $ 29,820 $ 25,360
Operating expenses 27,646 6,692 30,136 24,774
-------- ------- -------- --------
Operating income (loss) (600) (102) (316) 586
Interest expense, net (6,421) (1,626) (7,228) (7,842)
Other income (loss) -- 103 -- (5)
-------- ------- -------- --------
Loss before income taxes (7,021) (1,625) (7,544) (7,261)
Income tax benefit (2,201) (188) (2,367) (2,440)
-------- ------- -------- --------
Net loss $ (4,820) $(1,437) $ (5,177) $ (4,821)
======== ======= ======== ========
Loss per share $ (1.15) $ (0.39) $ (1.26) $ (1.53)
======== ======= ======== ========
EBITDA (1)(2) $ 9,337 $ 1,720 $ 10,615 $ 10,161
======== ======= ======== ========
Pagers in service at end of period 195,500 68,500 195,500 163,700
======== ======= ======== ========
Average revenue per unit ("ARPU") $ 13.56 $ 14.35 $ 13.57 $ 14.59
======== ======= ======== ========
</TABLE>

_____________________
(1) EBITDA represents earnings before other income (expense), taxes,
depreciation and amortization. EBITDA is a standard measure of financial
performance in the paging industry. However, EBITDA is not a measure
defined in generally accepted accounting principles ("GAAP") and should not
be construed as an alternative to operating income or cash flows from
operating activities as determined in accordance with GAAP. EBITDA is,
however, one of the primary financial measures by which the Company's
covenants are calculated under the agreements governing the Company's
indebtedness.

(2) As discussed below, in July 1996 the Company and ProNet, Inc. mutually
agreed to terminate a previously announced agreement to merge the Company
with a subsidiary of ProNet. The actual and proforma EBITDA for fiscal year
1996 shown above excludes $627,000 of non-recurring costs associated with
the ProNet agreement.

24
<PAGE>

Net Revenue: The historical net revenue of the Company has increased to
-----------
$27.0 million in fiscal year 1996 from $6.6 million and $2.5 million in fiscal
years 1995 and 1994, respectively. These increases are due primarily to the
increase in the pagers in service resulting from the Completed Acquisitions as
well as greater market penetration in the Company's existing markets. Pagers in
service increased to 195,500 at May 31, 1996 as compared to 68,500 and 8,300 at
May 31, 1995 and May 31, 1994, respectively. Of these increases, the Beepers
Plus and Waco Acquisitions represented 45,000 additional pagers in December 1994
and the Dial Acquisition represented 96,000 additional pagers in August 1995.

The impact on net revenue of the increase in pagers in service is partially
offset by the decline in average revenue per unit ("ARPU"). ARPU for the year
ended May 31, 1996 was $13.56 as compared with $14.35 and $18.00 for the years
ended May 31, 1995 and May 31, 1994, respectively. This decline in ARPU is due
to increased competition in the Company's markets as well as an increase in the
number of paging units sold to paging resellers. Paging resellers are
businesses that buy airtime at wholesale prices from the Company and sell the
service to subscribers. While the wholesale price to the reseller is lower than
the price the Company charges directly to its customers, the reseller bears the
cost of acquiring, billing, collecting and servicing the subscribers. At May
31, 1996 approximately 16% of the Company's paging units were sold through
resellers.

Operating Expenses, excluding depreciation and amortization: Operating
-----------------------------------------------------------
expenses, excluding depreciation and amortization, were: $18.3 million, 68% of
net revenue, for fiscal year 1996; $4.9 million, 74% of net revenue, for fiscal
year 1995; and $1.9 million, 76% of net revenue, for fiscal year 1994. The
increased costs are primarily due to the inclusion of operating results of the
Completed Acquisitions from the dates of those acquisitions. In addition, $0.6
million of non-recurring costs are included in general and administrative
expenses for the year ended May 31, 1996 related to costs incurred in connection
with a now terminated proposed merger with ProNet, Inc. The decrease as a
percentage of net revenue is due to fixed costs being spread over an increased
customer base. On a proforma basis, assuming the Completed Acquisitions had
occurred at the beginning of the respective fiscal year, these expenses
increased to $19.8 million, 66% of proforma net revenue, ($19.2 million and 64%
excluding the costs associated with the terminated ProNet merger) in fiscal year
1996 as compared with $15.2 million, 60% of proforma net revenue, in fiscal year
1995. The increase as a percentage of proforma net revenue is primarily due to
the increased costs associated with a much larger, publicly traded company.
Many of these costs, including increased general and administrative salaries and
other costs, are incurred early in the growth process.

Depreciation and amortization: Depreciation and amortization expense
-----------------------------
increased to $9.3 million in fiscal year 1996 from $1.8 million and $0.3 million
is fiscal years 1995 and 1994, respectively. The increase was due primarily to
the increased amortization of intangible assets resulting from the Completed
Acquisitions.

25
<PAGE>

Interest Expense: Interest expense increased to $6.4 million in fiscal
----------------
year 1996 from $1.6 million and $0.1 million is fiscal years 1995 and 1994,
respectively. This increase is due to the increased debt incurred by the Company
in connection with the Completed Acquisitions. As discussed below, subsequent to
May 31, 1996, the Company entered into the Credit Facility with a group of
lenders led by Chase Manhattan Bank. The Credit Facility terms provide for lower
interest rates than the senior notes from FINOVA.

Income tax benefit: At May 31, 1996, the Company had a net operating loss
------------------
carryforward of approximately $4.7 million that will begin to expire in 2010.
For fiscal years 1996, the Company's effective tax benefit rate was 31.3% as
compared to 11.6% and 15.6% in fiscal year 1995 and 1994, respectively. The
primary differences between the statutory income tax benefit rate and the
effective rate in the Company's historical financial statements is non-
deductible amortization of intangibles related to the Completed Acquisitions,
non-deductible interest expense on a convertible note in fiscal 1995 and
compensation for consulting services in fiscal year 1994.

EBITDA: EBITDA increased to $8.7 million, 32% of net revenue, ($9.3
------
million, 34% of net revenue, excluding the $0.6 million of costs associated with
the terminated ProNet merger) in fiscal year 1996 from $1.7 million, 26% of net
revenue, in fiscal year 1995 and $0.6 million, 24% of net revenue, in fiscal
year 1994. On a proforma basis, assuming the Completed Acquisitions had occurred
at the beginning of the respective fiscal year, EBITDA was $10.0 million, 34% of
proforma net revenue, ($10.6 million and 36% excluding the costs associated with
the terminated ProNet merger) in fiscal year 1996 as compared to $10.2 million,
40% of net revenue, in fiscal year 1995. The decrease in proforma EBITDA as a
percentage of net revenue is due to the impact of the increased costs associated
with running a larger, publicly traded company, as discussed above. In addition,
these margins are impacted by the declining ARPU discussed above.

26
<PAGE>

BUSINESS

GENERAL

Teletouch Communications, Inc. (the "Company" or "Teletouch") was formed in
July 1994 and is headquartered in Tyler, Texas. Teletouch, or one of its
several predecessors, has operated paging, two-way mobile communications
services and telemessaging services in east Texas for over 30 years. Unless
otherwise indicated, references herein to the Company or Teletouch include
Teletouch-Texas and the Company's various predecessors.

The Company provides paging services in non-major metropolitan areas and
communities. Currently the Company provides services in Alabama, Arkansas,
Louisiana, Mississippi, Missouri, Oklahoma, Texas and Tennessee. The Company
has 38 sales offices in 8 states. Through intercarrier arrangements the Company
provides additional coverage on the east coast of the United States from
Washington DC to Florida and selected other parts of the north and north east.

The Company has experienced significant growth both internally and through
acquisitions. At August 31, 1996 the Company had approximately 275,000 pagers in
service as compared to approximately 195,000, 68,500 and 8,500 at May 31, 1996,
1995 and 1994, respectively. For fiscal year 1996 the Company had net revenues
of $27.0 million as compared to $6.6 million and $2.5 million in fiscal years
1995 and 1994, respectively.

The Company's strategy is to continue to expand within its existing
marketplaces as well as by acquiring additional regional paging companies that
serve adjacent markets, generally consisting of smaller metropolitan and non-
metropolitan markets. The Company also considers acquisitions of other paging
companies that also cover larger metropolitan markets provided that they service
markets that are strategically located near its existing markets. The Company
believes that the smaller metropolitan and non-metropolitan markets have been
relatively ignored by the larger companies in the paging industry and therefore
provide for greater growth potential for paging and related services. By
combining its business with other similar companies, the Company believes it can
achieve improved operating results of the combined businesses by consolidating
administrative functions, taking advantage of economies of scale and, sharing
common frequencies to offer customers paging coverage over a wider area on the
Company's own system. By reducing overhead costs, expanding sales, and focusing
on secondary markets, the Company believes that it can improve its pager service
operating margins while achieving continued pager unit and revenue growth.

ACQUISITIONS

In December 1994, the Company acquired substantially all of the assets and
liabilities of Beepers Plus of Jackson Partnership and the stock of Beepers Plus
of Memphis, Inc., and Beepers Plus of Nashville (collectively "Beepers Plus")
for approximately $20.7 million. In addition, in December 1994, the Company
acquired substantially all of the non-cash assets and

27
<PAGE>

assumed certain liabilities of Waco Communications, Inc. ("WACO") for
approximately $2.9 million. In August, 1995 the Company purchased substantially
all of the non-cash assets and assumed selected liabilities of Dial-A-Page, Inc.
("Dial") for a purchase price of approximately $49.4 million (the "Dial
Acquisition"). These acquisitions have been financed with the proceeds from the
Company's Initial Public Offering in December 1994, the private placement of $25
million of debt and equity securities and the proceeds from additional senior
debt. Together, the Beepers Plus, Waco and Dial acquisitions added approximately
141,000 subscribers to the Company's subscriber base. For further discussion of
these acquisitions, see "Management's Discussion and Analysis - Acquisitions".

During the first quarter of fiscal year 1997, the Company completed the
acquisition of the outstanding common stock of two paging companies and
substantially all of the paging assets of three additional paging companies
(collectively, "the Fiscal Year 1997 Acquisitions"). The consideration paid for
these acquisitions was obtained from available capacity under the Credit
Facility.

INDUSTRY BACKGROUND

The paging industry has been in existence since 1949 when the Federal
Communications Commission ("FCC") allocated a group of radio frequencies for use
in providing one-way and two-way mobile communications services. Throughout its
history, the paging industry has been characterized by consolidation,
substantial growth and technological change. Historically, the paging industry
has been highly fragmented, with a large number of small, local operators. The
industry grew slowly as the quality and reliability of equipment gradually
improved and consumers began to perceive the benefits of mobile communications.
Many of the firms that entered the paging business during the first two decades
of the industry did so as a complement to their existing telephone answering
service or two-way radio communications sales and service businesses. Further
improvements in equipment reliability and cost-effective technological
innovations helped to accelerate the use of paging services in the 1970s.

Some of the most significant developments in the industry occurred in the
1980s. The digital display pager was introduced, which quickly supplanted tone
and voice pagers as the most popular paging product. In 1982 the FCC allocated
additional frequencies, which expanded the capacity of the industry and allowed
new market entrants in markets where additional frequencies were previously
unavailable.

28
<PAGE>

Although the growth rate of the paging industry is difficult to determine
precisely, management estimates that the number of pagers in service has been
grown since 1990 at an annual rate of nearly 20% and will continue to grow at an
annual rate of approximately 15% for the next five years. Sources estimate that
at the end of 1995 there were approximately 30 million pagers in service in the
United States and that there will be at least 60 million units in service by the
year 2000. Factors generally considered contributing to this expected growth
include: (i) increased mobility of the general population; (ii) a continued
movement towards a service based economy; (iii) general increase in awareness of
the benefits of mobile communications; (iv) the relatively high costs of other
mobile communications services such as cellular telephone service; and (v)
technological advances in paging equipment and services.

Three types of carriers have emerged in the paging industry: (i) large
national paging companies; (ii) regional carriers, including Teletouch, that
operate in regional markets such as several contiguous states in one geographic
region of the United States but can offer subscribers service outside of the
subscriber's home region through a national network of interconnections between
the subscriber's own provider, a national firm and other regional providers; and
(iii) small, single market operators.

PAGING OPERATIONS

Paging provides a one-way communications link to a paging service
subscriber within the paging service coverage area. Each subscriber is assigned
a distinct telephone number or personal identification number that a caller
dials to activate the subscriber's pager. When a telephone call for a subscriber
is received at the Company's computerized paging control terminals, a radio
signal is transmitted to the subscriber's pager which then causes the pager to
emit a voice signal, a tone or a vibration to alert the subscriber. Depending
upon the type of pager in use, the paging subscriber may respond directly to the
message from information displayed on the pager or by calling his or her home,
office or voice mail system to receive the message. The advantage of paging over
a conventional telephone service is that the pager's reception is not restricted
to a single location, and its advantage over a cellular telephone is that a
pager is smaller, has a longer battery life and, most importantly, is
substantially less expensive to use. Some cellular subscribers use a pager in
conjunction with their cellular telephone to screen incoming calls and to lower
the expense of their cellular telephone service.

The Company currently provides four basic types of paging services: tone-
only, numeric digital display, alphanumeric display (all of which can be used in
conjunction with the Company's voice mail services) and tone-plus-voice. In
each case, the subscriber carries a pocket-sized radio receiver, i.e., a pager,
that is preset to monitor a designated radio frequency. A subscriber's pager is
activated by radio signals emitted by the transmitters. In the case of tone-
only service, the subscriber's receiver, when activated, produces an audible
"beep" sound or vibration, alerting the subscriber to call home, the office or
some other predetermined location. With tone-plus-voice service, the pager
emits a beeping sound plus a brief voice message. A numerical digital display
pager permits a caller to transmit to the

29
<PAGE>

subscriber a message that may consist of an area code and telephone number or
other numerical information consisting of up to 12 digits. Alphanumeric display
service allows subscribers to receive and store messages consisting of both
numbers and letters.

Digital display paging service, which was introduced around 1980, has in
recent years grown at a faster rate than tone-only or tone-plus-voice service.
Today the vast majority of the pagers in service are digital display.
Alphanumeric display pagers, which were introduced in the mid-1980s, constitute
a small but increasing portion of the Company's subscriber base.

The Company also offers paging subscribers voice mail messaging services.
When a subscriber uses voice mail in conjunction with paging service and a
recorded message is left by a caller, the paging subscriber is automatically
notified through a page alert. Voice mail employs a sophisticated computer
technology that enables the customer to receive digitally recorded voice
messages 24 hours a day wherever he or she is by accessing the voice mail system
via any touch-tone telephone. The Company's voice mail systems provide complete
message privacy, allow for personalized message greetings and enable voice
messages to be sent to a large group of people simultaneously.

The paging industry has traditionally distributed its services through
direct marketing and sales activities. In recent years, additional channels of
distribution have evolved, including: (i) carrier-operated stores; (ii)
resellers, who purchase paging services on a wholesale basis from carriers and
resell those services on a retail basis to their own customers; (iii) agents who
solicit customers for carriers and are compensated on a commission basis; and
(iv) retail outlets that often sell a variety of merchandise, including pagers
and other telecommunications equipment. While most paging subscribers
traditionally have been business users, industry observers believe that pager
use among consumers has increased significantly in recent years. In addition,
paging subscribers have increasingly chosen to purchase rather than lease their
pagers. The Company expects that these trends will continue.

SOURCES OF SYSTEM EQUIPMENT AND PAGERS

The Company does not manufacture any of the pagers or related transmitting
and computerized paging terminal equipment used in the Company's paging
operations. The equipment used in the Company's paging operations, including
pagers, is available for purchase from multiple sources, and the Company
anticipates that pagers and paging equipment will continue to be available to
the Company in the foreseeable future, consistent with normal manufacturing and
delivery lead times. Because of the high degree of compatibility among different
models of transmitters, computers and other paging and voice mail equipment
manufactured by suppliers, the Company's paging networks are not dependent upon
any single source of such equipment. The Company continually evaluates new
developments in technology in connection with the design and enhancement of its
paging and voice mail systems and selection of products to be offered to
subscribers. The Company currently purchases the majority of its pagers, from
Motorola, its transmitters from two

30
<PAGE>

competing sources and its paging terminals from Glenayre, a manufacturer of
mobile communications equipment.

THE COMPANY'S PRODUCTS AND MARKETS

The Company's products are wireless communications services, primarily
paging and telemessaging services, including voice mail. The Company is licensed
by the FCC to transmit numeric, alphanumeric, voice and tone-only messages to
pagers it either sells or rents to customers.

The Company's customers include various size companies with field sales and
service operations, individuals in occupations requiring substantial mobility
and the need to receive timely information, and a rapidly expanding base of
individual consumers who use pagers to stay in touch with friends and family.
Some of the Company's customers use pagers rather than home telephones as their
primary means of communication. These customers often respond to pages using
pay phones and the telephones of friends and family.

The Company's sales strategy is to concentrate on smaller business accounts
and individuals who value continuity, quality and personal service. In recent
years the Company has increasingly emphasized pager sales as compared to
rentals. Customers buying pagers and paying only for service (wireless message
transmission) tend to be less likely to leave the Company for a competitor
because doing so often requires that the frequency of the pager, as well as the
pager's telephone number, must be changed. The Company has the ability to offer
a high level of technical support and provides a full range of dependable
communications services with personal service.

The Company markets its paging services in Texas under the Teletouch name,
Beepers Plus by Teletouch in the Tennessee markets of Memphis and Nashville and
Dial-A-Page by Teletouch in its other markets. In order to access the broadest
possible market, the Company utilizes multiple distribution channels including:
(i) Company operated sales offices, including malls and strip shopping centers,
that sell pagers to the consumer market; (ii) direct sales staff that
concentrate on business accounts; (iii) resellers, who purchase bulk paging
services from the Company and resell them to their own subscribers; and (iv) by
reselling other paging carriers' services when existing or potential customers
require paging service beyond the coverage of its own network.

COMPETITION

The Company experiences direct competition from one or more competitors in
all the locations in which it operates. Some of the Company's competitors have
greater financial resources than the Company. Competition for subscribers to the
Company's paging services is based primarily on the price and quality of
services offered and the geographic area covered.

31
<PAGE>

The Company believes that the price and quality of its services and its
geographic coverage areas within its markets generally compare favorably with
those of its competitors.

Although some of the competitors are small privately owned companies
serving only one market area, others are subsidiaries or divisions of larger
companies, such as telephone companies, that provide paging services in multiple
market areas. Among the Company's competitors are Arch Communications Group,
Inc., AT&T Wireless Messaging (formerly McCaw), Beepers Unlimited, Metrocall,
Inc., Mobilmedia Communications, Inc., and Paging Network, Inc.

Entities offering wireless two-way communications services, including
cellular services and specialized mobile radio services ("SMR"), also compete to
a certain extent with the Company's paging services. Cellular service is
generally more expensive than paging services and, where price is a
consideration and access to fixed wire communications (such as ordinary
telephones) is available, paging can compete successfully with or be an adjunct
to cellular systems. In addition, future technological advances and associated
regulatory changes in the telecommunications industry could create new services
or products competitive with the paging services currently provided by the
Company. Recently, Congress and the FCC approved several regulatory changes
aimed at encouraging such technological advances and new services. As of the
date hereof, the FCC has auctioned a range of frequencies for use in wireless
communications systems, including frequencies for future nationwide paging
systems and personal communications network systems. Personal communications
network technology could compete with the Company's paging services. There can
be no assurance that the Company would not be adversely affected in the event of
such technological developments or regulatory changes.

REGULATION

The Company's paging operations are subject to regulation by the FCC under
the Communications Act of 1934, as amended (the "Communications Act"), and may
be conducted only under licenses to use frequencies granted by the FCC to the
Company. In addition to authorizing the use of radio frequencies, FCC licenses
set forth the technical parameters, such as maximum power and tower height,
under which the Company is permitted to use those frequencies.

The FCC has recently adopted rules generally revising the classification of
licenses. Traditionally, the FCC has classified licensees as either Radio
Common Carrier licenses ("RCC") or Private Carrier Paging ("PCP") licenses.
Pursuant to the FCC's rules, all licensees will be classified either as
Commercial Mobile Radio Service licenses ("CMRS") or Private Mobile Radio
Services licensees. Those carriers, like the Company and its competitors, who
make service available to the public on a for-profit basis through
interconnection with the public switched telephone network are classified as
CMRS licensees. The FCC has also proposed new rules regarding the licensing of
non-nationwide paging frequencies such as those of the Company. The current
rules provide for the granting of non-

32
<PAGE>

nationwide paging frequencies on a transmitter-by-transmitter basis. Pursuant to
the proposed new rules, the FCC would grant non-nationwide paging frequencies on
a geographic area basis.

In addition, until recently, the RCC licenses held by the Company were
subject to rate and entry regulations in states that chose to impose tariff and
certification obligations whereas the PCP licenses were not subject to such
regulations. As a result of recent Congressional legislation, the regulatory
differences between RCCs and PCPs will be eliminated.

The FCC radio licenses granted to the Company are for varying terms of up
to 10 years, and renewal applications must be approved by the FCC. In the past,
FCC renewal applications have been routinely granted. Although there can be no
assurance that any future applications filed by the Company will be approved or
acted upon in a timely manner by the FCC, based on its experience to date, the
Company believes that such applications will continue to be approved.

The Company regularly applies to the FCC for authority to use additional
frequencies , to modify the technical parameters of existing facilities, to
expand its service territories, and to provide new services. The Communications
Act also requires prior FCC approval for acquisitions by the Company of radio
licenses held by other companies, as well as transfers of controlling interests
of any entities that hold radio licenses. Although there can be no assurance
that any such future applications filed by the Company will be approved or acted
upon in a timely manner by the FCC, the Company knows of no reason to believe
such applications would not be approved or granted. The FCC has determined that
certain modification applications may be subject to competitive bidding
("auction") procedures. Since these procedures are new to the paging industry,
the Company cannot predict their impact in its licensing practices.

The Communications Act requires the FCC to limit foreign ownership of
licenses. These foreign ownership restrictions limit the percentage of Company
stock that may be owned or voted, directly or indirectly, by aliens or their
representatives, a foreign government or its representatives, or a foreign
corporation.

The FCC has authority to restrict the operation of licensed radio
facilities or to revoke or modify such licenses. The FCC may adopt changes to
its radio licensing rules at any time. The FCC may impose fines for violations
of its rules. Under certain circumstances, the Company's license applications
may be deemed "mutually exclusive" with those of other paging companies (i.e.,
the grant of one application precludes the grant of another application), in
which case, the FCC would select between the mutually exclusive applicants. The
FCC has previously used lottery procedures to select between mutually exclusive
paging applications; however, recently the FCC, in response to a Congressional
mandate, began awarding certain new paging licenses by the auction process and
is now proposing to grant mutually exclusive CMRS paging applications by the
auction.

The FCC could change its rules or policies in a manner that could have a
material

33
<PAGE>

adverse effect on the Company's business. Such actions could affect the scope
and manner of the Company's services, or could lead to increased competition in
the paging industry. For example, the FCC was ordered by Congress to hold
auctions to award licenses for new personal communications services in 1994 (See
"Risk Factors: Potential for Change in Regulatory Environment; Limitation on
Foreign Ownership). These and other new mobile services could compete directly
or indirectly with the Company. In addition, from time to time, federal and
state legislators propose legislation that could affect the Company's business
either beneficially or adversely. The Company cannot predict the impact of such
legislative actions on its operations.

The foregoing description of certain regulatory factors does not purport to
be a complete summary of all present and proposed legislation and regulations
pertaining to the Company's operations.

EMPLOYEES

As of September 30, 1996, Teletouch had approximately 325 employees. The
majority of these individuals are marketing, servicing and clerical employees.
The Company considers its relationships with its employees to be satisfactory
and is not a party to any collective bargaining agreement.

LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceedings.

PROPERTY

As of the date hereof, the Company owned three office buildings and leased
48 additional locations in its market areas, including its executive offices in
Tyler, Texas. The Company also owned nine transmitter sites in Texas and the
transmitter broadcast towers on those sites. The Company leases transmitter
sites on commercial towers, buildings, and other fixed structures in
approximately 200 locations. The Company's leases are for various terms and
provide for monthly rental payments at various rates. The Company is obligated
to make total lease payments of approximately $0.9 million under its office
facility and tower site leases for the year ended May 31, 1997.

The Company believes that its facilities are adequate for its current needs
and that it will be able to obtain additional space as needed at reasonable
cost.

34
<PAGE>

MANAGEMENT

The directors and executive officers of the Company are as follows:

<TABLE>
<CAPTION>
Name Age Positions with the Company
- ---------------------- ------- ----------------------------------------------
<S> <C> <C>
Robert M. McMurrey 50 Chairman of the Board of Directors and Chief
Executive Officer
G. David Higginbotham 48 President, Chief Operating Officer and Director
Clifford E. McFarland 40 Director
Charles C. Green III 50 Director
Marcus D. Wedner 33 Director
Christopher J. Perry 41 Director
Michael Rosen 35 Executive Vice President, Chief Financial
Officer and Assistant Secretary
</TABLE>

Robert M. McMurrey has been Chief Executive Officer and a director of the
Company since 1984. He is also the President and Chief Executive Officer and
Director of Rainbow Resources, of which he is the sole stockholder. Through
Rainbow Resources, Mr. McMurrey acquired a controlling interest in the Company
in 1984. Also in 1984, Mr. McMurrey formed a corporation known as Jecca Towers
to own and operate telecommunications towers and SMR operations. At the time
Mr. McMurrey sold the assets of Jecca Towers to Motorola in 1989. Mr. McMurrey
was active in the oil and gas industry for over 30 years. Mr. McMurrey received
a B.S. Degree in Petroleum Engineering from the University of Texas in 1971.

G. David Higginbotham has been President, Chief Operating Officer and a
director of the Company since August 1993. He joined the Company in 1976 as a
technician, became general manager several years later, and Vice President -
Operations in 1984. Mr. Higginbotham established and operated his own radio
equipment service business in Jacksonville, Texas from 1969 to 1976.

Clifford E. McFarland has been a director of the Company since May 1995 and
is the President and a Managing Director of McFarland, Grossman & Company
("MGCO"), an investment bank in Houston, Texas. Prior to co-founding MGCO in
1991, Mr. McFarland was co-founder and Managing Director from 1986 to 1991 of
The Watkins Group, a Little Rock, Arkansas merchant banking firm. MGCO has from
time to time rendered investment banking services to the Company. See "Certain
Transactions." From 1988 to 1994 Mr. McFarland was Secretary and a Director of
Amerinet Corporation ("Amerinet"), a non-reporting, public company marketing
affinity credit cards. Amerinet ceased operations on March 15, 1990 and was
inactive thereafter. Amerinet made filings in bankruptcy court in early 1995 in
order to reorganize for merger with a private company.

Charles C. Green III has been a director of the Company since May 1995. He
became Vice Chairman and Chief Investment Officer in 1995 of Torch Energy
Advisors Incorporated

35
<PAGE>

("Torch"), a Houston based manager of oil and gas investments for domestic and
foreign institutional investors. He was President of Torch from 1994 to 1995 and
Executive Vice President from 1992 to 1994. From 1982 through 1992 Mr. Green was
President of Treptow Development Company, a real estate developer. Prior to that
he was with J.P. Morgan Investment Management for 13 years in New York and
London. Mr. Green is a director of Torch Royalty Company, an oil and gas company
and Vice President of Bellwether Exploration Company, an oil and gas exploration
company affiliated with Torch.

Marcus D. Wedner has been a director of the Company since August 1995
and has been a Managing Director of Continental Illinois Venture Corporation
("CIVC"), a venture capital investor, since 1992, prior to which he was a Vice
President of CIVC from 1990.

Christopher J. Perry has been a director of the Company since August 1995
and has been President and a Managing Director of CIVC since December 1994. From
1990 to 1994 Mr. Perry was a Managing Director and head of the Mezzanine
Investment Group, a division of Continental Bank.

Michael Rosen has been Executive Vice President, Chief Financial Officer
and Assistant Secretary since February 1996. From February 1995 through December
1995, Mr. Rosen was Vice President and Chief Financial Officer of Electrosource,
Inc., Austin, Texas. From April 1993 through February 1995, he was Vice
President and Chief Financial Officer of BDM Technologies, Inc., McLean,
Virginia and from August 1988 through April 1993, he held various senior
financial positions with ICF International, Inc., Fairfax Virginia. Mr. Rosen is
a certified public accountant.

All officers of the Company are elected to serve in such capacities until
the next annual meeting of the Board of Directors of the Company and until their
successors are duly elected and qualified.

The Company's Board of Directors is classified into three classes: Class I,
Class II and Class III. Each member of the Board of Directors serves for a term
of three years or until a successor has been elected and qualified. The
structure of the Board of Directors contemplates that the members of a single
class of the Board of Directors would be elected at each annual meeting of
shareholders. The classification of the Board of Directors, with staggered terms
of office, was implemented for the purpose of maintaining continuity of
management and of the Board of Directors.

The current directors are designated in each class as follows: Class I -
Robert M. McMurrey and Clifford E. McFarland; Class II - G. David Higginbotham
and Marcus D. Wedner; and Class III - Charles C. Green III and Christopher J.
Perry. Class I directors were re-elected at the annual meeting of shareholders
in January 1996; Class II directors are expected to stand for re-election at the
annual meeting of shareholders on November 12, 1996; and Class III directors are
standing for re-election at the annual meeting of shareholders in

36
<PAGE>

1997. Each member of the Board of Directors then elected will serve for a term
of three years or until a successor has been elected and qualified.

The underwriters of Teletouch's IPO have the right for a period of three
years after the effective date of the December 1994 IPO to designate one person
to be nominated as a member of the Board of Directors. No person has been so
designated as of the date hereof. Messrs. Wedner and Perry serve on the Board of
Directors as the designees of the CIVC Investors. See "Management's Discussion
and Analysis--Acquisitions" and "Management's Discussion and Analysis--Financial
Condition."

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of their capacity or status as directors and officers
provided that this provision shall not eliminate of limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) arising
under Section 174 of the Delaware general Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. The
Delaware General Corporation Law provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's by-laws, any
agreement, vote of shareholders or otherwise. The Company's Certificate of
Incorporation eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the Delaware General Corporation Law.

The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

The Company maintains a "claims made" directors' and officers' liability
insurance policy with a limit of coverage up to $5,000,000 and a maximum
deductible for each claim of $100,000.

Each of Messrs. Wedner and Perry are beneficiaries of an insurance policy
maintained by Bank of America, an affiliate of CIVC, which indemnifies employees
of Bank of America

37
<PAGE>

or its subsidiaries who serve as directors of companies in which Bank of America
or its subsidiaries have investments.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors established three standing committees in September
1995, namely, an Audit Committee, a Compensation Committee and an Executive
Committee.

The members of the Audit Committee are Christopher Perry and Cliff
McFarland. The Audit Committee's duties and responsibilities are to recommend
the selection of the independent public accountants for the Company to the Board
of Directors, to review the scope and cost of the audit, to review the
performance and procedures of the auditors, to review the final report of the
independent auditors, to be available for consultation to the independent
auditors, to review with the Company's Chief Financial Officer and independent
auditors corporate accounting practices and policies and financial controls, and
to perform all other such duties as the Board of Directors may from time to time
designate.

The members of the Compensation Committee are Charles C. Green III and
Marcus D. Wedner. The Compensation Committee's duties and responsibilities are
to review periodically the compensation of executive officers and other key
employees, to make recommendations as to bonuses and salaries, and to perform
all other such duties as the Board of Directors may from time to time designate.

The members of the Executive Committee are Robert M. McMurrey, G. David
Higginbotham and Marcus D. Wedner. The Executive Committee's duties and
responsibilities are to exercise the powers and authority of the Board of
Directors in the management of the business and affairs of the Company, to the
extent not assigned to other committees of the Board of Directors and to the
extent permitted by Delaware law and the By-Laws of the Company.

38
<PAGE>

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the aggregate cash compensation paid to the
Company's Chief Executive Officer and President for services rendered to the
Company during the fiscal years ended May 31, 1996, 1995 and 1994. Robert M.
McMurrey and G. David Higginbotham were the only executive officers who served
as such at the end of the last fiscal year who earned in excess of $100,000
during the fiscal years indicated.

<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------------------- ----------------------------------
Securities
Other Restricted Underlying
Name and Fiscal Annual Stock Options/
Principal Position Year Salary ($) Bonus ($)(1) Compensation ($) Awards ($)(2) SARs (#)
- ------------------ ------ ---------- ------------ ---------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert M. McMurrey, Chairman and CEO 1996 $157,346 $35,000 --- --- 25,000
1995 86,307 --- --- --- 100,000
1994 66,000 --- --- --- ---
G. David Higginbotham, President and COO 1996 $147,346 $33,000 --- --- 25,000
1995 77,752 --- --- --- 50,000
1994 61,431 --- --- --- ---
</TABLE>
______________________
(1) Bonus was for services provided during fiscal year 1996, but paid in fiscal
year 1997.

(2) The number and value of the aggregate restricted stock holdings for Mr.
McMurrey at the end of the last fiscal year, based on the closing bid price
of the Common Stock on NASDAQ on May 31, 1996, were 1,800,000 shares, held
in the name of Rainbow Resources, Inc., of which Mr. McMurrey is the sole
stockholder, with a value as of September 30, 1996 of $5,184,000 (without
giving effect to the consideration paid). The number and value of the
aggregate restricted stock holdings for Mr. Higginbotham at the end of the
last fiscal year, based on the closing bid price of the Common Stock on
Nasdaq on May 31, 1996, were 450,000 shares, with a value as of September
30, 1996 of $1,296,000 (without giving effect to the consideration paid).

STOCK OPTION PLAN

The Teletouch Corporation 1994 Stock Option and Appreciation Rights
Plan (the "Plan") was established in July 1994, which Plan was ratified and
approved by the Board of Directors and the stockholders of Teletouch Corporation
in July 1994; the rights and obligations under which Plan were assumed by the
Company effective as of the date of the Company's merger with Teletouch
Corporation. The Plan was amended and restated by the Board of Directors in
August 1995 and renamed the Teletouch Communications, Inc. 1994 Stock Option and
Appreciation Rights Plan (the "Stock Option Plan").

Pursuant to the Stock Option Plan, the Board of Directors or a stock
option committee established by the Board of Directors to administer the Stock
Option Plan determines the persons to whom options are granted, the number of
shares of Common Stock subject to each

39
<PAGE>

option, the period during which each option may be exercised and the option
price. The Stock Option Plan places restrictions on the grant of options to
persons who are, at the time of the grant, members of any such stock option
committee or, if no such committee is established, on the grant of options to
directors. With respect to incentive options, no option may be granted more than
ten years after the effective date of the Stock Option Plan or exercised more
than ten years after the date of grant (five years if the optionee owns more
than 10% of the Common Stock of the Company). Additionally, with respect to
incentive options, the option price may not be less than 100% of the fair market
value of the Common Stock on the date of the grant (110% if the optionee owns
more than 10% of the Common Stock of the Company). Subject to certain limited
exceptions, options may not be exercised unless, at the time of exercise, the
optionee is in the service of the Company. As of September 30, 1996, options to
purchase 320,000 shares of Common Stock are outstanding under the Stock Option
Plan, all of which were issued to executive officers and directors of the
Company. Options to be granted under the Stock Option Plan include options
pursuant to a formula by which each non-employee director shall be granted non-
qualified options to purchase 10,000 shares of Common Stock at their fair market
value upon such director's election to the Board. There are four non-employee
directors of the Company. Accordingly, on May 18, 1995 options to purchase
10,000 shares were issued to each of Messrs. Green and McFarland, exercisable at
$3.50 per share; and effective August 3, 1995, each of Messrs. Perry and Wedner
are entitled to receive options to purchase 10,000 shares of Common Stock,
exercisable at $4.50 per share.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information with respect to options
granted during the fiscal year ended May 31, 1996 to Robert M. McMurrey the
Chairman and Chief Executive Officer of the Company, and G. David Higginbotham,
the President and Chief Operation Officer of the Company as set forth above in
the Summary Compensation Table.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARS GRANTED EXERCISE OR EXPIRATION
NAME OPTIONS/SARS GRANTED TO EMPLOYEES IN FISCAL BASE PRICE ON DATE
(#) YEAR ($/SH)
- ---------------------- ---------------------- ---------------------- ------------- ------------
<S> <C> <C> <C> <C>
Robert M. McMurrey (1) 25,000 17.9% $4.00 08/06

G. David Higginbotham 25,000 17.9% $4.00 08/06
</TABLE>

(1) Pursuant to Mr. McMurrey's August 1995 employment agreement, the Company
issued to Mr. McMurrey options to purchase 25,000 shares of Common Stock at
an exercise price of $4.00 per share, which options will vest ratably over
five years.

40
<PAGE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES

The following table sets forth certain information with respect to: (i)
options exercised during the fiscal year ended May 31, 1996 by Robert M.
McMurrey, the Chief Executive Officer of the Company, and G. David Higginbotham,
the President and Chief Operation Officer of the Company as set forth above in
the Summary Compensation Table, and (ii) unexercised options held by Mr.
McMurrey at the end of the fiscal year ended May 31, 1996.

<TABLE>
<CAPTION>
Shares Number of Securities Underlying Value of Unexercised in the Money
Acquired On Value Unexercised Options/SARs Options/SARs at the Fiscal Year
Name Exercise (#) Realized ($) at Fiscal Year End (#) Ended May 31, 1996 ($)
---- ------------ ------------ ------------------------------- ----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. McMurrey 0 0 33,333 91,667 n/a $0
G. David Higginbotham 0 0 16,667 58,333 n/a $0
</TABLE>

EMPLOYMENT AGREEMENTS

In August 1995 the Company entered into employment agreements with Mr.
McMurrey, the Chairman of the Board and Mr. Higginbotham, the President and
Chief Operating Officer. Pursuant to the agreements, Mr. McMurrey and Mr.
Higginbotham are employed at a base salary of $175,000 and $165,000,
respectively, per annum for the first three years ending August 1998, and are
entitled to bonuses based on a performance formula.

The employment agreements permit the Company to terminate the employment of
the employee for "cause" or for any other reason, provided that in the latter
case the Company is obligated to continue the employee's base salary (at twice
the then current rate) for 12 months. The agreements require that Messrs.
McMurrey and Higginbotham devote substantially all of their business time to the
Company. Pursuant to the agreements, in August 1995, the Company issued to each
of Messrs. McMurrey and Higginbotham options to purchase 25,000 shares of Common
Stock, which are exercisable at a price of $4.00 per share and vest ratably over
five years (provided that the vesting of such options shall accelerate upon any
sale of the Company). The agreements also contain confidentiality and non-
competition provisions. In addition, the agreements provide for death benefits
and disability benefits and provide for the payment by the Company of any
expenses of the employee incurred in any successful proceeding to enforce
provisions of his employment agreement. See "Risk Factors--Reliance on Key
Management Personnel."

CONSULTING AND OTHER ARRANGEMENTS

On August 5, 1994 the Company entered into a Financial Advisory Agreement
(the "MGCO Agreement") with McFarland, Grossman & Company ("MGCO"). Clifford E.

41
<PAGE>

McFarland is President and a Managing Director of MGCO, and became a director of
the Company in May 1995. Pursuant to the terms of the MGCO Agreement, MGCO acted
as a financial advisor to assist the Company with certain acquisitions and
assisted in arranging a secured credit facility. For such services through
February 1995 MGCO was issued 20,000 shares of Common Stock and was paid an
aggregate of $720,000 ($500,000 in cash and $220,000 in a promissory note
bearing interest at 8% per annum, due in May 1996). MGCO received additional
indirect compensation from the Company through MGCO's arrangement with Newman
and Associates, Inc. ("Newman"), the private placement agent in the August 1995
private placement to the CIVC Investors. MGCO provided full and part time senior
level investment banking professionals to Newman during the period from February
1995 through August 3, 1995. MGCO's gross fees received from Newman for such
services were $500,000.

REMUNERATION OF DIRECTORS

To date, directors who are not employees of the Company have received no
compensation for attending meetings of the Board of Directors. All non-employee
directors are entitled to receive a one-time grant of options to purchase 10,000
shares of Common Stock upon election as a director. All directors are entitled
to reimbursement of reasonable travel and lodging expenses related to attending
meetings of the directors.

There are no standard arrangements or agreements to provide compensation to
directors for attending meetings of the Board of Directors. However, in April
1996, the Board of Directors authorized the payment of $25,000 each to Charles
C. Green III and Clifford E. McFarland for their services in connection with the
Special Committee of the Board of Directors.

CERTAIN TRANSACTIONS

On August 3, 1995 the Company completed a private placement of debt and
equity securities with Continental Illinois Venture Corporation ("CIVC") an
affiliate of Bank of America, under which CIVC, certain related parties and
other parties (the "CIVC Investors") provided the Company with $25 million in
financing in connection with the Dial Acquisition. In connection with the Dial
Acquisition, the Company designated 15,000 shares of its authorized preferred
stock as "Series A 14% Cumulative Preferred Stock" and 617,189 shares as "Series
B Preferred Stock." The CIVC Investors purchased $15 million in initial
liquidation value (or 15,000 shares) of Series A Preferred Stock and $10 million
of 14% Junior Subordinated Notes due in 2003 (the "Subordinated Notes").
Dividends on the Series A Preferred Stock and interest on the Subordinated Notes
accrue at the rate of 14% per annum. The following table sets forth the
respective portions of the total $25,000,000 investment made by the CIVC
Investors, and the securities issued to each:

42
<PAGE>

<TABLE>
<CAPTION>
INVESTOR TOTAL LIQUIDATION VALUE OF PRINCIPAL AMOUNT OF WARRANTS TO WARRANTS TO
INVESTMENT SERIES A PREFERRED SUBORDINATED PURCHASE COMMON PURCHASE SERIES B
STOCK PROMISSORY NOTE STOCK PREFERRED STOCK
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CIVC $19,696,600 $11,818,000 $ 7,878,600 3,991,260 486,259

CIVC Partners I 2,188,400 1,313,000 875,400 443,473 54,029

GM Holdings LLC 3,000,000 1,800,000 1,200,000 607,914 74,063

Other Investors 115,000 69,000 46,000 23,304 2,838

---------------------------------------------------------------------------------------------------------

Total $25,000,000 $15,000,000 $10,000,000 5,065,951 617,189
</TABLE>

Each share of Series A Preferred Stock has a liquidation value of $1,000.
Each share of Series B Preferred Stock will become convertible into six shares
of Common Stock after August 3, 1997, or earlier upon the occurrence of an event
of default as specified in the Purchase Agreement. Each of the CIVC Investors
besides CIVC has granted to CIVC an irrevocable proxy to vote such shares of
Common Stock underlying the Common Stock warrants as each CIVC Investor
acquired. Pursuant to such arrangement, CIVC may be deemed to be the beneficial
owner of all the shares of Common Stock underlying the 5,065,951 warrants issued
in the CIVC transaction. The CIVC Investors will have the right, after August 3,
1997, to require that its securities be registered for public sale. CIVC has the
right to designate up to three of seven members of the Company's Board of
Directors (four of seven after August 3, 1997, or sooner in the event of a
default under certain operating covenants). In respect of this right, on August
3, 1995 the Board was enlarged to six, and Marcus D. Wedner and Christopher J.
Perry, Managing Directors of CIVC, were designated by CIVC to fill two of the
three newly created Board seats. They were elected to the Board immediately
after the completion of the transactions. The Company had no relationship with
CIVC prior to entering into such transactions and entered into such transactions
following arms-length negotiations.

In connection with the August 1995 Dial Acquisition, the Company paid a
finder's fee to Benchmark in the amount of $551,060 and Benchmark paid a $51,600
note payable to the Company in respect of a stock subscription payable to the
Company.

CIVC may be deemed to be a "parent" of the Company under the Exchange Act
by virtue of the exercisable and convertible securities of the Company either
registered in CIVC's name or for which CIVC holds irrevocable proxies. Further,
Robert M. McMurrey, the Company's Chairman and CEO, is the sole owner of Rainbow
Resources, which is the registered owner of approximately 28% of the Company's
outstanding Common Stock. Mr. McMurrey may also be deemed to be a "parent" of
the Corporation. For additional information relating to the percentage of voting
control and other basis of control by CIVC and Mr. McMurrey/Rainbow Resources,
see "Voting Securities, Principal Holders Thereof, and Management," the table
therein and footnotes 4, 8, 9 and 10 thereto.

Effective as of January 1994 the Company entered into a consulting
agreement with Benchmark Equity Group, Inc. ("Benchmark") whereby Benchmark
provided the Company with strategic advice related to the Company's overall
business strategy, possible

43
<PAGE>

acquisitions and sources of acquisition financing. Benchmark also agreed to
provide general business consulting services to the Company. In consideration
for these services, in January 1994 the Company agreed to issue to Benchmark
430,000 shares of Common Stock at $0.12 per share (a price based on the
Company's then current book value) and the Benchmark Warrant to purchase 400,000
shares at an exercise price of $.50 per share, which is currently exercisable,
and expires in January 2004. In connection with the issuance of these
securities, the Company granted Benchmark the right to require the Company, on
one occasion subsequent to 13 months after the consummation of the IPO, to
register such securities under the Securities Act, and also granted certain
"piggy-back" registration rights to Benchmark. The Company had no relationship
with Benchmark prior to entering into such agreement and entered into such
agreement following arms-length negotiations. In August 1994, at the Company's
request, Benchmark, which was then the beneficial owner of 16% of the Common
Stock, loaned the Company $200,000 to provide funds to pay various offering and
acquisition-related expenses. In consideration for such loan, Benchmark was
issued a $150,000 8% Promissory Note and a $50,000 4% Convertible Note, which
was convertible into 225,225 shares of Common Stock. The agreement to obtain
such loan from Benchmark was obtained following arms-length negotiations and the
terms of such loan are believed by the Company to be as favorable as could
reasonably have been obtained by the Company in an arms-length negotiation with
an unaffiliated party.

For a discussion of employment agreements with certain of the Company's
executive officers and directors, see "Executive Compensation--Employment
Agreements" and "Executive Compensation--Consulting and Other Arrangements."

44
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of September 30, 1996, certain
information with respect to stock ownership of (i) all persons known by the
Company to be beneficial owners of five percent or more of its outstanding
Common Stock, (ii) each of the Company's directors and named executive officers
and (iii) all directors and executive officers as a group.

<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage of Outstanding
of Beneficial Owner (1) Beneficially Shares of Common Stock
Owned Beneficially Owned
- ----------------------------- ------------------- -----------------------
<S> <C> <C>
Robert M. McMurrey (2)(3)(4) 1,871,666 29.2%
110 N. College, Suite 200
Tyler, TX 75702

David Higginbotham (2)(3)(5) 488,334 7.7%
110 N. College, Suite 200
Tyler, TX 75702

Clifford E. McFarland (3)(6) 19,000 *
McFarland, Grossman & Company
9821 Katy Freeway, Suite 500
Houston, TX 77024

Charles C. Green III (3)(7) 10,000 *
Torch Energy Advisors, Inc.
1221 Lamar, Suite 1600
Houston, TX 77010

Continental Illinois Venture Corporation (8) 5,065,951 49.0%
231 South La Salle Street
Chicago, IL 60697

Marcus D. Wedner (3)(9) 5,075,951 49.0%
Continental Illinois Venture Corporation
231 South La Salle Street
Chicago, IL 60697

Christopher J. Perry (3)(9) 5,075,951 49.0%
Continental Illinois Venture Corporation
231 South La Salle Street
Chicago, IL 60697

CIVC Partners I (10) 443,473 7.0%
c/o Continental Illinois Venture Corporation
231 South La Salle Street
Chicago, IL 60697
</TABLE>

45
<PAGE>

<TABLE>
<S> <C> <C>
GM Holdings, L.L.C. (11) 607,914 9.6%
201 Fourth Avenue North,
11th Floor
Nashville, TN 37219

All Executive Officers & 7,501,182 71.4%
Directors as a
Group (Seven Persons) (12)
</TABLE>
_____________________
* Denotes less than one percent.

(1) Unless otherwise noted, the Company believes that all of such shares are
owned of record by each individual named as beneficial owner and that such
individual has sole voting and dispositive power with respect to the shares
of Common Stock owned by each of them. Such person's percentage ownership
is determined by assuming that the options or convertible securities that
are held by such person, and which are exercisable within 60 days from the
date hereof, have been exercised or converted, as the case may be.

(2) Executive Officer.

(3) Director.

(4) Mr. McMurrey is the sole owner of the outstanding stock of Rainbow
Resources, which is the direct owner of 1,800,000 of such shares. Includes
71,666 shares underlying the currently exercisable portion of an option
issued to Mr. McMurrey. By virtue of Mr. McMurrey's ownership of Rainbow
Resources, he may be deemed to be a "parent" of the Company.

(5) Includes 38,334 shares underlying the currently exercisable portion of an
option issued to Mr. Higginbotham.

(6) Includes 10,000 shares underlying a stock option granted to Mr. McFarland.

(7) Represents shares underlying a stock option granted to Mr. Green.

(8) Includes 3,991,260 shares of Common Stock underlying a currently
exercisable warrant issued to Continental Illinois Venture Corporation
("CIVC"). Also includes 1,074,691 outstanding shares of Common Stock issued
to parties related to and not related to CIVC, for which CIVC holds or will
hold the voting rights. CIVC may be deemed to be the beneficial owner of
such additional shares pursuant to the rules of attribution of beneficial
ownership set forth in Rule 13d-3 under the Exchange Act. CIVC disclaims
beneficial ownership of such 1,074,691 shares of Common Stock. Does not
include the following other securities of the Company issued to CIVC: (a)
liquidation value of $11,818,000 (or 11,818 shares) of non-voting Series A
Preferred Stock (each share of Series A Preferred Stock is convertible into
Common Stock after August 3, 2003), (b) immediately exercisable warrants to
purchase 486,259 shares of non-voting Series B Preferred Stock, (each share
of Series B Preferred Stock is convertible into six shares of Common Stock
after August 3, 1997, or earlier upon the occurrence of an event of default
as specified in the Purchase Agreement) and (c) a 14% Junior Subordinated
Promissory Note in the principal amount of $7,878,600. CIVC may be deemed
to be a "parent" of the Company pursuant to the Exchange Act. See "Certain
Transactions."

(9) Includes 10,000 shares of Common Stock underlying stock options which each
of Messrs. Wedner and Perry are entitled to receive. The remaining holdings
represent shares of Common Stock issued or underlying currently exercisable
warrants issued to CIVC, of which each of Messrs. Wedner and Perry is a
Managing Director, and to certain related parties of CIVC

46
<PAGE>

(including CIVC Partners I, of which Messrs. Wedner and Perry are general
partners) and others. Because they hold voting control over (i) the
Company's securities owned by CIVC and (ii) the Company's securities
covered by proxies granted by others to CIVC, each of Messrs. Wedner and
Perry may be deemed to be the beneficial owner of such shares pursuant to
the rules of attribution of beneficial ownership set forth in Rule 13d-3
under the Exchange Act. See "Certain Transactions."

(10) Such shares are also included in the figure reported for CIVC in this
table, because CIVC holds the voting power, but not the dispositive power,
for such shares. CIVC may be deemed to be the beneficial owner of such
shares pursuant to the rules of attribution of beneficial ownership set
forth in Rule 13d-3 under the Exchange Act. Does not include the following
other securities of the Company issued to CIVC Partners I: (a) liquidation
value of $1,313,000 (or 1,313 shares) of Series A Preferred Stock; (b)
$875,400 in principal amount of the Subordinated Notes; and (c) 54,029
warrants to purchase shares of Teletouch non-voting Series B Preferred
Stock. Each of Messrs. Wedner and Perry is a general partner of CIVC
Partners I and each has voting control over the securities of the Company
held by CIVC Partners I.

(11) Represents shares of Common Stock underlying a currently exercisable
warrant issued to GM Holdings, L.L.C. Such shares are also included in the
figure reported for CIVC in this table, because CIVC holds the voting
power, but not the dispositive power, for such shares. CIVC may be deemed
to be the beneficial owner of such shares pursuant to the rules of
attribution of beneficial ownership set forth in Rule 13d-3 under the
Exchange Act. Does not include the following other securities of the
Company issued to GM Holdings, L.L.C.: (a) liquidation value of $1,800,000
(or 1,800 shares) of Series A Preferred Stock; (b) $1,200,000 in principal
amount of the Subordinated Notes; and (c) 74,063 warrants to purchase
shares of Teletouch non-voting Series B Preferred Stock.

(12) Includes 2,874,691 shares of Common Stock issued and outstanding, and
4,152,991 shares of Common Stock underlying exercisable warrants.

There are no agreements or other arrangements or understandings known to
the Company concerning the voting of the Common Stock of the Company or
otherwise concerning control of the Company which are not disclosed herein.
There are no pre-emptive rights applicable to the Company's securities.

47
<PAGE>

SELLING SECURITYHOLDERS

The following table assumes that each Selling Stockholder is offering for
sale Shares previously issued by the Company, and the other Selling
Securityholders are offering for sale the Registered Warrants and shares of
Common Stock issuable in the event of exercise thereof. The Selling
Securityholders will pay up to $25,000 in offering expenses in connection with
this offering. The Company has agreed to pay all expenses in excess of $25,000
in connection therewith (other than brokerage commissions and fees and expenses
of their respective counsel). None of the Selling Securityholders has ever held
any position with the Company or had any other material relationship with the
Company. See "Certain Transactions."

The following table sets forth the beneficial ownership of the Securities
by each person who is a Selling Securityholder. The Company will not receive any
proceeds from the sale of such securities by the Selling Securityholders.

<TABLE>
<CAPTION>
Common Stock
of Selling
NAME AND ADDRESS OF BENEFICIAL OWNER Securityholders Percent of Common Stock Owned
------------------------------------ --------------- -----------------------------
Prior to After
Offering Offering
-------- --------
<S> <C> <C> <C>
Michele Grimstad (1) 150,000 2.4% 0%
c/o Aintree Capital
201 4th Avenue North, 11th Floor
Nashville, TN 37219
- --------------------------------------------------------------------------------------
John Maggart (2) 200,000 3.1% 0%
c/o Aintree Capital
201 4th Avenue North, 11th Floor
Nashville, TN 37219
- --------------------------------------------------------------------------------------
GS Capital, L.L.C. (1) 100,000 1.6% 0%
c/o Carl Grimstad
Aintree Capital
201 4th Avenue North, 11th Floor
Nashville, TN 37219
- --------------------------------------------------------------------------------------
David McClellan (3) 200,000 3.1% 0%
c/o Aintree Capital
201 4th Avenue North, 11th Floor
Nashville, TN 37219
- --------------------------------------------------------------------------------------
Frank Keener (3) 25,000 * 0%
c/o Aintree Capital
201 4th Avenue North, 11th Floor
Nashville, TN 37219
- --------------------------------------------------------------------------------------
David G. Patterson, Jr. (3) 50,000 * 0%
c/o Aintree Capital
201 4th Avenue North, 11th Floor
Nashville, TN 37219
- --------------------------------------------------------------------------------------
David W. Wiley, Jr. (3) 75,000 1.2% 0%
c/o Aintree Capital
201 4th Avenue North, 11th Floor
Nashville, TN 37219
- --------------------------------------------------------------------------------------
Dickinson & Co. (4) 62,000 1.0% 0%
2425 East Camelback, Suite 530
Phoenix, AZ 85016
- --------------------------------------------------------------------------------------
T. Marshall Swartwood (4) 20,000 * 0%
2425 East Camelback, Suite 530
Phoenix, AZ 85016
- --------------------------------------------------------------------------------------
Glenn S. Cushman (4) 15,000 * 0%
2425 East Camelback, Suite 530
Phoenix, AZ 85016
- --------------------------------------------------------------------------------------
Thomas M. Swartwood (4) 15,000 * 0%
2425 East Camelback, Suite 530
Phoenix, AZ 85016
- --------------------------------------------------------------------------------------
Sanders Morris Mundy (4) 176,000 2.7% 0%
3100 Texas Commerce Tower
Houston, TX 77002
- --------------------------------------------------------------------------------------
Miriam Meshel (4) 11,200 * 0%
360 Evergreen Drive
Kentfield, CA 94904
- --------------------------------------------------------------------------------------
Thomas Souran (4) 15,120 * 0%
2 Woodland Drive
Great Notch, NJ 07424
- --------------------------------------------------------------------------------------
William Goble (4) 2,570 * 0%
128 Main Street
Port Monmouth, NJ 07758
- --------------------------------------------------------------------------------------
Joseph Princine (4) 2,570 * 0%
43 Farmbrook Road
Sparta, NJ 07871
- --------------------------------------------------------------------------------------
William Baquet (4) 53,250 * 0%
733 Third Avenue, Suite 700
New York, NY 10017
- --------------------------------------------------------------------------------------
Phyllis Henderson (4) 28,190 * 0%
17 Salem Road
Hicksville, NY 11801
- --------------------------------------------------------------------------------------
FINOVA Capital Corporation 47,500 * 0%
1850 N. Central Avenue
Phoenix, AZ 85004
- --------------------------------------------------------------------------------------
</TABLE>

* Less than one percent
(1) Does not include 607,914 shares of Common Stock issued to GM Holdings,
L.L.C. Carl Grimstad, the manager of GM Holdings, L.L.C., is Mrs.
Grimstad's son. See "Principal Stockholders." CIVC holds the voting power,
but not the dispositive power, for such shares. Also does not include the
following other securities of the Company issued to GM Holdings, L.L.C.,
(a) liquidation value of $1,800,000 (or 1,800 shares) of Series A Preferred
Stock; (b) $1,200,000 in principal amount of Subordinated Notes; and (c)
74,063 warrants to purchase shares of Teletouch non-voting Series B
Preferred Stock.
(2) Includes 50,000 shares underlying the Benchmark Warrants.
(3) Represents shares of Common Stock underlying the Benchmark Warrants.
(4) Represents shares of Common Stock underlying the Underwriters' Warrants.

<PAGE>

MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Prior to the Company's initial public offering in December 1994 there had
been no public market for the securities of the Company. As of December 21, 1994
the Company's securities were listed for quotation on the NASDAQ Small-Cap
Market ("NASDAQ") under the symbols: TELL and TELLW. As of December 21, 1994,
the Company's securities were listed for trading on the Boston Stock Exchange
("BSE") under the symbols TLL and TLLW. There can be no assurance that the
Company will be able to continue to satisfy the requirements for quotation on
NASDAQ or listing on BSE.

The following table sets forth, for the periods indicated, the reported
high and low bid and asked price quotations for the Common Stock and Class A
Warrants for the periods such securities were traded on NASDAQ. Such quotations
reflect inter-dealer prices, but do not include retail mark-ups, mark-downs, or
commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Class A Warrants
----------------- ------------------
Bid ($) Bid ($)
----------------- ------------------
Period of Quotation High Low High Low
- ----------------------------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Fiscal 1995: Third Quarter (1) 4-3/8 2-3/4 7/8 1/4
- -----------
Fourth Quarter 3-9/16 2-7/8 9/16 1/4

Fiscal 1996: First Quarter 4-3/4 3-1/4 1-3/22 11/32
- -----------
Second Quarter 4-1/16 2-7/8 13/16 1/2

Third Quarter 4 3-1/16 19/32 1/4

Fourth Quarter 6 3-3/4 1-1/8 13/32

Fiscal 1997: First Quarter 5 3/8 2 5/8 3/4 1/4
- -----------
Second Quarter 3-1/8 2-3/4 5/16 1/4
</TABLE>

__________________
(1) Reflects quotations commencing December 21, 1994 (the date of initial
quotation of the Common Stock and the Class A Warrants on NASDAQ).

As of the date hereof, there are 6,347,416 shares of Common Stock
outstanding and 2,300,000 Class A Warrants outstanding. As of December 23, 1996,
there were 40 holders of record of the Common Stock, in excess of 300 beneficial
holders and 14 holders of record of the Class A Warrants based upon information
furnished by Continental Stock Transfer & Trust Company, New York, New York, the
transfer agent for the Common Stock and the Class A Warrants. The number of
holders of record does not reflect the number of beneficial holders of the
Company's Common Stock or Class A Warrants for whom shares and warrants are held
by banks, brokerage firms and others. The closing bid and asked prices of the
Common Stock and the Class A Warrants as reported by NASDAQ on December 23, 1996
were: $1.875 and $2.00 per share of Common Stock, respectively; and $0.25 and
$0.25 per Class A Warrant, respectively.

49
<PAGE>

The Company has never paid and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. As of September 30,
1996, the Company has outstanding $15,000,000 in initial liquidation value of
Series A Preferred Stock. Dividends on the Series A Preferred Stock accrue at
14% per annum. Such dividends may be paid in kind by the issuance of additional
securities. Cash payment of any dividends on the Company's Common Stock, and the
redemption of the Preferred Stock, are prohibited so long as the Facility Credit
Facility is outstanding. See "Management's Discussion and Analysis." The Company
intends to retain all earnings for use in the Company's business operations and
in the expansion of its business.

DESCRIPTION OF SECURITIES

PREFERRED STOCK

The Certificate of Incorporation of the Company authorizes the issuance of
up to 5,000,000 shares of preferred stock, $.001 par value per share. The Board
of Directors is authorized to issue shares of preferred stock from time to time
in one or more series and, subject to the limitations contained in the
Certificate of Incorporation and any limitations prescribed by law, to establish
and designate any such series and to fix the number of shares and the relative
conversion rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences. If shares of preferred stock with
voting rights are issued by the Company, such issuance could affect the voting
rights of the holders of the Company's Common Stock by increasing the number of
outstanding shares having voting rights, and by the creation of class or series
voting rights. If the Board authorizes the issuance of shares of preferred stock
with conversion rights, the number of shares of Common Stock outstanding could
potentially be increased by up to the amount which the Company is authorized to
issue. In addition, issuance of preferred stock could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company and may adversely affect the rights of holders of Common Stock.
Also, preferred stock could have preferences over the Common Stock (and other
series of preferred stock) with respect to dividends and liquidation rights.

SERIES A PREFERRED STOCK

The Board of Directors has designated and authorized the issuance of 15,000
shares of Series A 14% Cumulative Preferred Stock ("Series A Preferred Stock"),
all of which are issued and outstanding. Each share of Series A Preferred Stock
has a liquidation preference of $1,000 per share. Each share of Series A
Preferred Stock entitles the holder thereof to receive cumulative dividends,
accrued daily, of 14% of the liquidation value per annum; provided, however,
that commencing on August 3, 2002, to the extent the Series A Preferred Stock
has not been redeemed, the dividend rate per annum shall increase from 14% to
16%. Dividends become payable and are accumulated on the last day of August,
November, February and May of each year, beginning August 31, 1995. Dividends
accrue on each share of Series A

50
<PAGE>

Preferred Stock whether or not earned or declared and whether or not there are
funds of the Company legally available for payment thereof. Except as otherwise
provided by law, shares of Series A Preferred Stock have no voting rights;
except that the holders of two-thirds of the Series A Preferred Stock then
outstanding must approve any merger, consolidation, sale of all or substantially
all of the assets, or the dissolution or liquidation of the Company.

The Series A Preferred Stock is subject to redemption by the Company at any
time, provided that it must redeem a minimum of $1,000,000 liquidation value at
a time, pro rata to the recordholders of the Series A Preferred Stock. No shares
of Series A Preferred Stock designated for redemption pursuant to any notice of
redemption shall be entitled to any dividends after the applicable redemption
date. On the redemption date, all rights of the holders of such shares as
stockholders of the Company by reason of the ownership of such shares shall
cease, except the right to receive the redemption price of such shares upon
presentation and surrender of the certificate representing such shares. No
Series A Preferred Stock designated for redemption shall be deemed to be
outstanding after the redemption date. The redemption price is $1,000.00 per
share of Series A Preferred Stock, plus the amount of any accrued and unpaid
dividends on such share on the date such redemption price is paid. Upon the
request of the holders of a majority of the Series A Preferred Stock then
outstanding, all of the Series A Preferred Stock outstanding shall be redeemed
by the Company. The demand for redemption of Series A Preferred Stock shall be
allowed upon the first to occur of (i) such time as the ratio of the Company's
consolidated debt to EBITDA for any period of 12 consecutive months is less than
2.0 and (ii) receipt by the Company of aggregate proceeds (less discounts and
commissions) during any period of 12 consecutive months of $30 million or more
from the sale of any series or class of the Company's capital stock.

Each share of Series A Preferred Stock is convertible at the option of the
holder thereof, after August 3, 2003, into shares of Common Stock. The number of
shares of Common Stock into which shares of Series A Preferred Stock are
convertible is derived by dividing (1) the sum of (A) the product of the number
of shares of Series A Preferred Stock to be converted and $1,000 plus (B) the
aggregate amount of accrued and unpaid dividends with respect to such shares of
Series A Preferred Stock by (2) the conversion price ("Conversion Price") then
in effect, which is adjustable. The initial and present Conversion Price is
$3.50. In no case shall the Conversion Price be greater than the fair market
price of the Common Stock determined at the time of conversion of the Series A
Preferred Stock.

In the event of the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company, and after payment or provision for
payment of the debts and other liabilities of the Company, the holders of the
Series A Preferred Stock shall be entitled to receive, for each share of Series
A Preferred Stock, $1,000.00 plus accrued and unpaid dividends to the
distribution date, prior to any payment or distribution to the holders of stock
ranking junior to the Series A Preferred Stock as to liquidation rights.

51
<PAGE>

SERIES B PREFERRED STOCK

The Board of Directors has designated and authorized the issuance of
617,189 shares of Series B Preferred Stock ("Series B Preferred Stock"), 130,930
of which are issued and outstanding. Each share of Series B Preferred Stock is
convertible at the option of the holder thereof, after August 3, 1997, into six
shares of Common Stock. In the event that the Company declares or pays any
dividends upon the Common Stock (whether payable in cash, securities or other
property) the Company shall also declare and pay to the holders of the Series B
Preferred Stock at the same time the dividends which would have been declared
and paid with respect to the Common Stock issuable had all of the outstanding
Series B Preferred Stock been converted immediately prior to the record date for
such dividend (disregarding for such purposes the prohibition on such conversion
prior to August 3, 1997). In the event that the Company grants, issues or sells
any options, convertible securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock ("Purchase Rights"), then each holder of Series B Preferred Stock
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon conversion
of such holder's Series B Preferred Stock. Except as otherwise provided by law,
shares of Series B Preferred Stock have no voting rights.

COMMON STOCK

The Company is authorized to issue 25,000,000 shares of Common Stock, $.001
par value per share, of which 6,347,416 shares are issued and outstanding as of
the date hereof. Each outstanding share of Common Stock is entitled to one vote
on all matters that may be voted upon by the owners thereof at meetings of the
stockholders. The holders of Common Stock (i) have equal ratable rights to
dividends from funds legally available therefrom when, as and if declared by the
Board of Directors of the Company; (ii) are entitled to share ratably in all of
the assets of the Company available for distribution to holders of Common Stock
upon liquidation, dissolution or winding up of the affairs of the Company; (iii)
do not have, except as described below, preemptive, subscription or conversion
rights, or redemption or sinking fund provisions applicable thereto; and (iv)
are entitled to one non-cumulative vote per share on all matters on which
stockholders may vote at all meetings of stockholders. The payment of dividends
are restricted by the terms of the current Debt Financing.

CLASS A WARRANTS

The Company issued 2,300,000 Class A Warrants in connection with the IPO.
Each Class A Warrant entitles the holder thereof to purchase one share of Common
Stock at an exercise price of $4.50 during an exercise period commencing on
December 21, 1994 and expiring five years thereafter.

The Company may at any time, and from time to time, extend the exercise
period of Class A Warrants, provided that written notice of such extension is
given to the Class A

52
<PAGE>

Warrant holders prior to the expiration date then in effect. Also, the Company
may reduce the exercise price of the Class A Warrants for limited periods or
through the end of the exercise period if deemed appropriate by the Board of
Directors of the Company. Notice of any reduction of the exercise price will be
given to the Class A Warrant holders. The Company does not presently contemplate
any extension of the exercise period nor any reduction in the exercise price of
the Class A Warrants.

The Class A Warrants are subject to price adjustment upon the occurrence of
certain events including subdivisions or combinations of the Common Stock.

Pursuant to applicable federal and state securities laws, holders of Class
A Warrants will not be able to exercise their Class A Warrants unless at the
time of exercise the Company has a current prospectus covering the shares of
Common Stock underlying the Class A Warrants.

The Class A Warrants were issued pursuant to the terms and conditions of a
Warrant Agreement by and between the Company and Continental Stock Transfer &
Trust Company.

BENCHMARK WARRANTS

On August 8, 1994 the Company issued the Benchmark Warrants which entitle
the holder thereof at any time or from time to time from and after April 1,
1995, but not later than January 31, 2004 to purchase from the Company 400,000
shares of Common Stock. The Benchmark Warrants are exercisable at a purchase
price of $0.50 per share, subject to adjustment. In connection with the issuance
of the Benchmark Warrants, the Company granted Benchmark pursuant to a
Registration Rights Agreement the right to require the Company, on one occasion
subsequent to 13 months after the consummation of the IPO, to register such
securities under the Securities Act, and also granted certain "piggy-back"
registration rights to Benchmark. Benchmark has made demand for registration
which in part resulted in the Company filing this Registration Statement, of
which this Prospectus is a part.

UNDERWRITERS' WARRANTS

In December 1994 the Company issued the Underwriters' Warrants as part of
the compensation of the Underwriters of the Company's IPO. The Underwriters
Warrants were issued for nominal consideration, and are exercisable for the
purchase of up to 200,000 shares of Common Stock at an exercise price of $5.60
per share. The Underwriters' Warrants are not redeemable by the Company, and
were restricted from exercise, sale, transfer, assignment or hypothecation,
except to officers of the Underwriters and members of the selling group and/or
their officers or partners, for a period of one year from the IPO closing.
Subsequent to their issuance, all of such Underwriters' Warrants were
transferred from the original holders thereof to officers and/or employees of
such original holders. The Underwriters' Warrants are exercisable until December
21, 1999. The Underwriters' Warrants contain anti-dilution and adjustment
provisions in the event of any merger, acquisition, recapitalization, split-up
of shares or stock dividend. In connection with the issuance of the
Underwriters' Warrants, the Company granted to the holders thereof the right to
require the Company, on two occasions (the first at the expense of the Company,
the second at the expense of the holders), to register such securities and the
underlying shares of Common Stock under the Securities Act, and also granted
certain "piggy-back" registration rights to such holders. The holders of the
Underwriters' Warrants have made demand for registration which in part resulted
in the Company filing the Registration Statement of which this Prospectus is a
part.

CLASS UW WARRANTS AND MODIFIED CLASS A WARRANTS

In December 1994 the Company issued the Class UW Warrants along with the
Underwriters' Warrants. The Class UW Warrants are exercisable for $0.10 per
warrant, which enables the holders thereof to purchase Modified Class A
Warrants, exercisable for the purchase of up to 200,000 shares of Common Stock
at an exercise price of $6.30 per share. The Modified Class A Warrants are not
redeemable by the Company. Except for the exercise price and nonredemption
features, the Modified Class A Warrants are identical to the Class A Warrants
issued in the Company's IPO. Subsequent to their issuance, all of the Class UW
Warrants were transferred from the original holders thereof to officers and/or
employees of such original holders. In connection with the issuance of the Class
UW Warrants, the Company granted to the holders thereof the right to require the
Company, on two occasions (the first at the expense of the Company, the second
at the expense of the holders), to register such securities and the underlying
Modified Class A Warrants and underlying shares of Common Stock under the
Securities Act, and also granted certain "piggy-back" registration rights to
such holders. The holders of the Class UW Warrants have made demand for
registration which in part resulted in the Company filing the Registration
Statement of which this Prospectus is a part.

REDEMPTION PROVISIONS

Capital Stock. Under the Communications Act, not more than 20% of the
Company's capital stock may be owned of record by other than United States
citizens or entities. The Company's Certificate of Incorporation authorizes the
Board of Directors to redeem any of the Company's outstanding capital stock to
the extent necessary to prevent the loss or secure the reinstatement of any
license or franchise from any governmental agency. Such stock may be redeemed at
the lesser of (i) fair market value or (ii) such holder's purchase price (if the
stock was purchased within a year of such redemption). See "Business--
Regulation."

Class A Warrants. The outstanding Class A Warrants may be redeemed by the
Company upon 30 days' written notice at a price of $0.10 per Class A Warrant,
provided that the closing bid price of the Common Stock has been at least $5.625
for 15 consecutive trading

53
<PAGE>

days ending within five trading days prior to the date of the notice of
redemption. In the event a current prospectus is not available, the Class A
Warrants may not be exercisable and the Company will be precluded from redeeming
the Class A Warrants. Any Class A Warrant holder who does not exercise prior to
the redemption date, as set forth in the Company's notice of redemption, will
forfeit the right to purchase the Common Stock underlying the Class A Warrants
and after the redemption date or upon conclusion of the exercise period any
outstanding Class A Warrants will become void and be of no further force or
effect, unless extended by the Board of Directors of the Company.

REGISTRATION RIGHTS

Various parties have demand and piggy-back registration rights with respect
to their securities issued by the Company. The exercise of any of such
registration rights may result in dilution to the interest of the Company's
shareholders, hinder efforts by the Company to arrange future financing of the
Company and/or have an adverse effect on the market price of the Common Stock.

TRANSFER AND WARRANT AGENT

Continental Stock Transfer & Trust Company, New York, New York is the
Registrar and Transfer and Warrant Agent for the Company's securities.

BUSINESS COMBINATION PROVISIONS

The Company has expressly not opted out of, and is therefore subject to,
Section 203 of the Delaware General Corporation Law regulating "business
combinations" (which are defined to include a broad range of transactions)
between Delaware corporations and "interested stockholders" (defined as persons
who have acquired at least 15% of a corporation's stock). Under this provision,
a corporation subject to Section 203 may not engage in any business combination
with any interested stockholder for a period of three years from the date such
person became an interested stockholder unless certain conditions are satisfied.
Such provision may have the effect of delaying or preventing a change in control
of the Company. Section 203 contains provisions enabling a corporation to avoid
the statute's restrictions.

ANTI-TAKEOVER MEASURES

The Company's Certificate of Incorporation and By-Laws contain provisions
that could discourage potential takeover attempts and prevent shareholders from
changing the Company's management. The By-Laws provide for a classified Board of
Directors and that certain vacancies on the Board of Directors shall be filled
only by a majority of the remaining Directors then in office. See "Management."

In addition, the Company's By-Laws provide that no proposal by a
shareholder shall be presented for vote at a special or annual meeting of
shareholders unless such shareholder shall,

54
<PAGE>

not later than the close of business on the fifth day following the date on
which notice of the meeting is first given to shareholders, provide the Board of
Directors or the Secretary of the Company with written notice of intention to
present a proposal for action at the forthcoming meeting of shareholders, which
notice shall include the name and address of such shareholder, the number of
voting securities he holds of record and which he holds beneficially, the text
of the proposal to be presented at the meeting and a statement in support of the
proposal. Any shareholder may make any other proposal at an annual meeting or
special meeting of shareholders and the same may be discussed and considered,
but unless stated in writing and filed with the Board of Directors or the
Secretary prior to the date set forth hereinabove, such proposal shall be laid
over for action at an adjourned, special, or annual meeting of the shareholders
taking place 60 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors, and committees; but in connection with such reports, no new
business proposed by a shareholder (acting in such capacity) shall be acted upon
at such annual meeting unless stated and filed as described above.

PLAN OF DISTRIBUTION

The Shares, Registered Warrants and Warrant Shares subject hereto are being
offered for sale by the Selling Securityholders. Consequently, the Selling
Securityholders will receive the proceeds from the sale of such securities by
the Selling Securityholders pursuant to this Prospectus. The Company will
receive the proceeds, if any, from the exercise of the Registered Warrants. The
Securities may be sold to purchasers from time to time directly by and subject
to the discretion of the Selling Securityholders. The Selling Securityholders
may from time to time offer their respective securities for sale through
underwriters, dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of such securities for whom they may act as agents. The
Selling Securityholders and any underwriter, dealer or agent who participates in
the distribution of such Selling Securityholders' securities may be deemed to be
"underwriters" under the Securities Act and any profit on the sale of such
securities by any of them and any discounts, commissions or concessions received
by any such underwriters, dealers or agents may be deemed to be underwriting
compensation under the Securities Act.

At the time a particular offer of the Securities is made by or on the
behalf of a Selling Securityholder, a Prospectus and a Prospectus Supplement, to
the extent required, will be distributed which will set forth the number of
securities being offered and the terms of the offering, including the name or
names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for such securities purchased from the Selling Securityholders, any
discounts, commissions and other items constituting compensation from the
Selling Securityholders, any discounts, commissions or concessions allowed,
reallowed or paid to dealers, and the proposed selling price to the public.

55
<PAGE>

The Securities may be sold from time to time in one or more transactions:
(i) at an offering price which is fixed or which may vary from transaction to
transaction depending upon the time of sale, or (ii) at prices otherwise
negotiated at the time of sale. Such prices will be determined by the Selling
Securityholders or by agreement between the Selling Securityholders and their
underwriter.

In order to comply with the applicable securities laws, if any, of certain
states, the Securities will be offered or sold in such states through registered
or licensed brokers or dealers in those states. In addition, in certain states,
such securities may not be offered or sold unless they have been registered or
qualified for sale in such states or an exemption from such registration or
qualification requirement is available and is complied with.

Under applicable rules and regulations promulgated under the Exchange Act,
any person engaged in a distribution of securities may not simultaneously bid
for or purchase securities of the same class for a period of two business days
prior to the commencement of such distribution. In addition and without limiting
the foregoing, the Selling Securityholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation Rules 10b-5, 10b-6 and 10b-7, in connection with
transactions in the Shares during the effectiveness of the registration
statement of which this Prospectus is a part. All of the foregoing may affect
the marketability of such securities.

The Company has paid all of the expenses incident to the registration of
the foregoing securities (including registration pursuant to the securities laws
of certain states) other than: (i) the first $25,000 in expenses related to such
registration, which will be paid by the Selling Shareholders; (ii) any fees or
expenses of any counsel retained by any Selling Securityholder and any out-of-
pocket expenses incurred by any Selling Stockholder or any person retained by
any Selling Stockholder in connection with registration of the Securities; and
(iii) commissions, expenses, reimbursements and discounts of underwriters,
dealers or agents, if any.

56
<PAGE>

LEGAL MATTERS

Certain legal matters in connection with the registration of the securities
offered hereby will be passed upon for the Company by De Martino Finkelstein
Rosen & Virga, Washington, D.C.

EXPERTS

The consolidated financial statements of Teletouch Communications, Inc. at
May 31, 1996 and 1995, and for each of the three years in the period ended May
31, 1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.

57
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY

For the Three Month Period Ended August 31, 1996 (Unaudited)
- ------------------------------------------------------------

Condensed Consolidated Balance Sheets as of August 31, 1996 and May 31, 1996 F-2
Condensed Consolidated Statements of Operations for the three months ended
August 31, 1996 and August 31, 1995 F-3
Condensed Consolidated Statements of Cash Flow for the three months ended
August 31, 1996 and August 31, 1995 F-4
Notes to Condensed Consolidated Financial Statements F-5

For the Fiscal Year Ended May 31, 1996
- --------------------------------------

Report of Independent Auditors F-8
Consolidated Balance Sheets as of May 31, 1996 and May 31, 1995 F-9
Consolidated Statements of Operations for the fiscal years ended
May 31, 1996, 1995 and 1994 F-10
Consolidated Statements of Cash Flows for the fiscal years ended
May 31, 1996,1995 and 1994 F-11
Consolidated Statements of Shareholder's Equity F-12
Notes to Consolidated Financial Statements F-13
</TABLE>

F-1
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

August 31 May 31
1996 1996
----------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents............................. $ 2,663 $ 1,021
Accounts receivable, net.............................. 2,267 1,705
Inventory, net........................................ 3,721 3,498
Deferred income tax assets............................ 124 124
Prepaid expenses and other current assets............. 579 336
------- --------
9,354 6,684

PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation.......................................... 20,729 20,198

GOODWILL, INTANGIBLES AND OTHER ASSETS, net of
accumulated amortization.............................. 65,242 57,080
------- --------
$ 95,325 $ 83,962
======= ========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses................. $ 4,269 $ 3,562
Deferred revenue...................................... 1,196 981
------- --------
5,465 4,543

LONG-TERM DEBT.......................................... 76,681 60,115

COMMITMENTS AND CONTINGENCIES

DEFERRED INCOME TAXES................................... 584 740

STOCKHOLDERS' EQUITY:
Series A cumulative preferred stock, $.001 par value.. -- --
Series B preferred stock, $.001 par value............. -- --
Common stock, $.001 par value......................... 6 6
Additional paid-in capital............................ 24,865 24,865
Accumulated deficit................................... (12,276) (6,307)
Stock subscription receivable......................... -- --
------- --------
12,595 18,564
------- --------
$ 95,325 $ 83,962
======= ========
</TABLE>

See Accompanying Notes to Condensed Consolidated Financial Statements

F-2
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENDSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS - EXCEPT SHARES AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>

Three Months ended
August 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Pager sales and service revenue.................. $ 8,906 $ 4,921
Other sales and service revenue.................. 669 658
Cost of products sold............................ (1,299) (1,078)
--------- ---------
Net revenue 8,276 4,501

Expenses:
Operating....................................... 1,919 928
Selling......................................... 1,527 919
General and administrative...................... 1,913 1,217
Depreciation and amortization................... 2,965 1,479
Merger termination charges...................... 522 --
--------- ---------
Total expenses................................... 8,846 4,543
--------- ---------
Operating loss................................... (570) (42)

Interest expense, net............................ (1,987) (1,029)
--------- ---------

Loss before income taxes and extraordinary item.. (2,557) (1,071)
Income tax benefit............................... (156) (347)
--------- ---------

Loss before extraordinary item................... (2,401) (724)

Extraordinary item, early debt retirement........ (3,568) -
--------- ---------

Net loss......................................... (5,969) (724)
Preferred stock dividends........................ (596) (175)
--------- ---------

Loss applicable to common stock.................. $ (6,565) $ (899)
========= =========

Loss per share...................................
Loss before extraordinary item.................. $ (0.47) $ (0.17)
Extraordinary item.............................. (0.56) --
--------- ---------
Net loss per share.............................. $ (1.03) $ (0.17)
========= =========

Weighted Average Shares Outstanding 6,347,416 5,272,725
========= =========
</TABLE>

See Accompanying Notes to Condensed Consolidated Financial Statements

F-3
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>

Three Months Ended
August 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................... $ (5,969) $ (724)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on early retirement of debt......................... 3,568 --
Depreciation and amortization......................... 2,965 1,479
Non cash interest expense................................ 670 114
Deferred income taxes.................................... (156) (346)
Changes in operating assets and liabilities:
Accounts receivable, net................................ (343) (184)
Inventories............................................. (488) 166
Prepaid expenses and other current assets............. (99) 98
Accounts payable and accrued expenses................. 326 560
Deferred revenue........................................ 193 200
-------- --------

Net cash provided by operating activities.................. 667 1,363
-------- --------

INVESTING ACTIVITIES:
Capital expenditures, including pagers.................... (572) (124)
Acquisitions, net of cash acquired........................ (10,626) (50,600)
Deferred costs associated with pending acquisitions, net.. 6 --
Decrease in other assets.................................. -- (26)
-------- --------

Net cash used for investing activities..................... (11,192) (50,750)
-------- ---------

FINANCING ACTIVITIES:
Debt incurred in connection with acquisitions............. 10,626 35,194
Proceeds from new debt.................................... 57,173 --
Payments on long-term debt................................ (52,700) (9)
Payments to related parties............................... -- (7)
Debt issue costs.......................................... (2,932) --
Net proceeds from preferred stock and
common stock warrants.................................... -- 15,891
Proceeds from stock subscription receivable............... -- 52
-------- --------

Net cash provided by financing activities.................. 12,167 51,121
-------- --------

NET INCREASE IN CASH AND CASH EQUIVALENTS.................. 1,642 1,734
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 1,021 715
-------- --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 2,663 $ 2,449
======== ========
</TABLE>

See Accompanying Notes to Condensed Consolidated Financial Statements

F-4
<PAGE>

TELETOUCH COMMUNICATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE A - SIGNIFICANT ACCOUNTING POLICIES

The unaudited condensed consolidated financial statements of Teletouch
Communications, Inc., and its subsidiaries (the "Company") for the periods ended
August 31, 1996 and 1995 have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis. Significant
accounting policies followed by the Company were disclosed in the notes to the
financial statements included in the Company's Annual Report on Form 10-KSB for
the year ended May 31, 1996. The balance sheet at May 31, 1996 has been derived
from the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, the accompanying condensed consolidated financial statements contain
the material adjustments necessary to present fairly the financial position of
the Company at August 31, 1996 and May 31, 1996 and the results of its
operations and cash flows for the periods ended August 31, 1996 and 1995. All
such adjustments are of a normal recurring nature. Interim period results are
not necessarily indicative of the results to be achieved for the full year. The
financial statements for the periods ended August 31, 1996 and 1995 include the
results of operations for companies acquired by Teletouch from the effective
date of the acquisition, see Note B.

IMPAIRMENT OF LONG-LIVED ASSETS: In March 1995, the FASB issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recognized for
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows are not sufficient to recover the assets
carrying amount. The Company has adopted Statement 121 in the first quarter of
fiscal year 1997 and has determined that no material impairment loss has
occurred.

NOTE B - ACQUISITIONS

Each of these acquisitions have been accounted for using the purchase method of
accounting. Of the total purchase price for these acquisitions, for financial
reporting purposes, the preliminary allocation will be approximately $0.9
million to property, plant and equipment, $0.2 million to accounts receivable,
$0.2 million to inventory and other assets, $4.0 to FCC licenses, $3.6 million
to subscriber bases, $0.4 million to non-compete, with the remaining amount
allocated to goodwill.

The following unaudited pro forma summary financial information presents the
results of operations of the Company as if the acquisitions, and related
financing, had occurred at the beginning of each period presented. This summary
may not be indicative of what would have occurred had the acquisitions been made
as of these dates or of results which may occur in the future. The historical
financial statements used to prepare the summary reflect the acquisitions from
the effective date of the respective acquisition forward, using the purchase
method of accounting, based on the estimated fair values of assets purchased and
liabilities assumed.

F-5
<PAGE>

NOTE B - ACQUISITIONS (CONTINUED)

THREE MONTHS ENDED
AUGUST 31,
--------------------
(Unaudited)
1996 1995
------- -------
<S> <C> <C>
Net revenue................................... $ 9,172 $ 8,058
======= =======
Operating income (loss)....................... $ (366) $ 301
======= =======
Net loss before extraordinary item............ $(2,184) $(1,136)
======= =======
Extraordinary item............................ $(3,568) $ --
======= =======
Net Loss...................................... $(5,752) $(1,136)
======= =======
Loss per share:
Loss before extraordinary item............. $ (0.44) $ (0.32)
======= =======
Extraordinary item per share............... $ (0.56) $ --
======= =======
Net Loss per share......................... $ (1.00) $ (0.32)
======= =======
</TABLE>

NOTE C - GOODWILL, INTANGIBLES AND OTHER ASSETS

Goodwill, intangibles and other assets consist of the following:

<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1996 1996
--------- -------
(Unaudited)
<S> <C> <C>
Goodwill...................................... $22,417 $20,380
Subscriber bases.............................. 27,606 24,014
FCC licenses.................................. 19,670 15,600
Deferred acquisition costs.................... 597 998
Non-compete agreements........................ 650 300
Debt issue costs.............................. 3,467 3,795
Other......................................... 203 203
------- -------
74,610 65,290
Accumulated amortization......................... (9,368) (8,210)
------- -------
$65,242 $57,080
======= =======
</TABLE>

NOTE D - LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1996 1996
--------- -------
(Unaudited)
<S> <C> <C>
Notes Payable................................. $66,800 $50,700
Junior Subordinated Notes..................... 9,881 9,415
------- -------
$76,681 $60,115
======= =======
</TABLE>

F-6
<PAGE>

NOTE D - LONG-TERM DEBT (CONTINUED)

In July 1996, the Company entered into an agreement with a group of lenders, led
by Chase Manhattan Bank, to provide new loans in an amount not to exceed $95
million (the "Credit Facility"). As of August 31, 1996, $66.8 million of the
Credit Facility had been funded and $28.2 million is available for future
funding. The funding from the Credit Facility was used to repay notes payable to
FINOVA Capital Corporation (the "FINOVA Loan"), and to provide the financing
necessary to complete the acquisitions discussed in Note B. As a result of the
repayment of the FINOVA Loan, the Company was required to pay a $1 million
prepayment penalty to FINOVA Capital Corporation ("FINOVA"). The prepayment
penalty, and the unamortized deferred loan costs associated with the FINOVA Loan
of approximately $2.6 million, have been recorded as an extraordinary expense.
Direct costs incurred in connection with obtaining the Credit Facility of
approximately $2.9 million have been deferred and are being amortized, using the
effective interest rate method, over the term of the loan.

The Credit Facility bears interest, at the Company's designation, at a floating
rate of either the prime rate plus 1% to 2% or LIBOR plus 2% to 3% depending on
the leverage ratio of the Company and is secured by substantially all of the
assets of the Company and its subsidiaries. Borrowings under the Credit Facility
require that the principal be repaid in escalating quarterly installments
beginning in February 1998 and ending in fiscal year 2004. The terms require
that the Company obtain an interest rate protection agreement, within one
hundred and twenty days of closing, to protect at least 50% of the commitments
against fluctuations in the three-month LIBOR rate for a period of at least
three years. In addition, the terms require the maintenance of certain specified
financial and operating covenants, provide for restrictions on capital
expenditures and future acquisitions, prohibit any payments on the Junior
Subordinated Notes or the payment of dividends.

F-7
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Teletouch Communications, Inc. and subsidiaries

We have audited the accompanying consolidated balance sheets of Teletouch
Communications, Inc. and subsidiaries as of May 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended May 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Teletouch
Communications, Inc. and its subsidiaries at May 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 31, 1996, in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

Dallas, Texas
July 12, 1996, except for
Notes E and M as to which
the date is August 2, 1996.

F-8
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
May 31,
-------------------
1996 1995
-------- --------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 1,021 $ 715
Accounts receivable, net of allowance of $310 in 1996
and $379 in 1995............................................. 1,705 856
Inventory...................................................... 3,498 1,080
Federal income tax refund receivable........................... -- 122
Deferred income tax assets..................................... 124 148
Prepaid expenses and other current assets...................... 336 248
------- -------
6,684 3,169

PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $5,258 in 1996 and $2,064 in 1995.............. 20,198 6,619

GOODWILL, INTANGIBLES AND OTHER ASSETS, net of
accumulated amortization of $8,210 in 1996 and $1,830 in 1995.. 57,080 22,464
------- -------
$83,962 $32,252
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses.......................... $ 3,562 $ 1,670
Current portion of long-term debt.............................. -- 2,114
Deferred revenue............................................... 981 379
------- -------
4,543 4,163

LONG-TERM DEBT, less current portion............................. 60,115 17,765

COMMITMENTS AND CONTINGENCIES

DEFERRED INCOME TAXES............................................ 740 2,965

STOCKHOLDERS' EQUITY:
Series A cumulative preferred stock, $.001 par value........... -- --
Series B preferred stock, $.001 par value...................... -- --
Common stock, $.001 par value.................................. 6 5
Additional paid-in capital..................................... 24,865 8,893
Accumulated deficit............................................ (6,307) (1,487)
Stock subscription receivable.................................. -- (52)
------- -------
18,564 7,359
------- -------
$83,962 $32,252
======= =======
</TABLE>

See Accompanying Notes to Consolidated Financial Statements

F-9
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS - EXCEPT SHARES AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
Year ended May 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Pager sales and service revenue......................... $ 29,083 $ 6,608 $ 1,762
Other sales and service revenue......................... 2,642 2,066 1,503
Cost of products sold................................... (4,679) (2,084) (766)
---------- ---------- ----------
27,046 6,590 2,499

Costs and expenses:
Operating............................................ 6,011 1,357 920
Selling.............................................. 4,537 1,476 427
General and administrative........................... 7,788 2,037 545
Depreciation and amortization........................ 9,310 1,822 307
---------- ---------- ----------
Total costs and expenses................................ 27,646 6,692 2,199
---------- ---------- ----------
Operating income (loss)................................. (600) (102) 300

Interest expense, net................................... (6,421) (1,626) (143)

Consulting expenses associated with strategic planning.. -- -- (495)

Gain on sale of answering service....................... -- 103 -
---------- ---------- ----------

Loss before income taxes................................ (7,021) (1,625) (338)

Income tax expense (benefit)
Current.............................................. -- - 60
Deferred............................................. (2,201) (188) (113)
---------- ---------- ----------
(2,201) (188) (53)
---------- ---------- ----------

Net loss................................................ (4,820) (1,437) (285)
Preferred stock dividends............................... (1,837) -- --
---------- ---------- ----------

Loss applicable to common stock......................... $ (6,657) $ (1,437) $ (285)
========== ========== ==========

Loss per share.......................................... $(1.15) $( 0.39) $(0.09)
========== ========== ==========

Weighted Average Shares Outstanding..................... 5,790,522 3,686,704 3,295,225
========== ========== ==========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements

F-10
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
Year ended May 31,
-----------------------------
1996 1995 1994
--------- --------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $ (4,820) $ (1,437) $(285)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization........................... 9,310 1,822 307
Consulting expenses associated with strategic planning.. -- -- 495
Non cash interest expense............................... 1,999 614 --
Gain on sale of answering service....................... -- (103) --
Deferred income taxes................................... (2,201) (210) (112)
Changes in operating assets and liabilities:
Accounts receivable, net.............................. (328) (718) (69)
Inventories........................................... (1,759) (293) (23)
Prepaid expenses and other current assets............. (150) (342) 2
Accounts payable and accrued expenses................. 1,147 778 77
Deferred revenue....................................... 105 148 19
-------- -------- -----

Net cash provided by operating activities................... 3,303 259 411
-------- -------- -----

INVESTING ACTIVITIES:
Capital expenditures, including pagers.................. (3,124) (569) (140)
Acquisitions, net of cash acquired...................... (51,801) (23,317) --
Deferred costs associated with pending acquisitions..... (157) (689) --
Increase in other assets................................ -- (96) --
Payments received on long-term receivable............... -- 33 31
Net proceeds from sale of answering service............. -- 103 --
-------- -------- -----

Net cash used for investing activities.................... (55,082) (24,535) (109)
-------- -------- -----

FINANCING ACTIVITIES:
Debt incurred in connection with acquisitions........... 38,029 19,392 -
Proceeds from new debt.................................. 1,200 1,138 90
Payments on long-term debt.............................. (404) (1,841) (284)
Proceeds from related part.............................. -- 236 107
Payments to related parties............................. (7) (681) (221)
Debt issue costs........................................ (2,758) (702) --
Net proceeds from preferred stock and
common stock warrants.................................. 15,973 -- --
Proceeds from stock subscription receivable............. 52 -- --
Net proceeds from public offering....................... -- 7,388 --
-------- -------- -----

Net cash provided (used) by financing activities.......... 52,085 24,930 (308)
-------- -------- -----

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 306 654 (6)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......... 715 61 67
-------- -------- -----

CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $ 1,021 $ 715 $ 61
======== ======== =====
</TABLE>

See Accompanying Notes to Consolidated Financial Statements

F-11
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT NUMBER OF SHARES)

<TABLE>
<CAPTION>
Preferred Stock Additional Accumulated Stock
----------------------------------
Series A Series B Common Stock Paid-In Earnings Subscription
---------------- --------------- ------------------
Shares Amount Shares Amount Shares Amount Capital (Deficit) Receivable
------- ------ ------ ------ --------- ------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1993........ -- -- -- -- 2,250,000 $ 2 $ 172 $ 235 --

Net loss...................... -- -- -- -- -- -- -- (285) --
Issuance of common stock...... -- -- -- -- 430,000 1 546 -- $ (52)
------ ------ ------ ------ --------- ------ ------- ---------- -----------

Balance at May 31, 1994........ -- -- -- -- 2,680,000 3 718 (50) (52)

Net Loss...................... -- -- -- -- -- -- -- (1,437) --
Issuance of common stock in
Note conversion.............. -- -- -- -- 225,225 -- 51 -- --

Interest expense associated
with bridge financing and
convertible note............. -- -- -- -- -- -- 503 -- --
Issuance of common stock
through public offering...... -- -- -- -- 2,300,000 2 7,386 -- --
Issuance of common stock to
financial advisor............ -- -- -- -- 20,000 -- 45 -- --

Issuance of common stock
in lieu of financing
costs........................ -- -- -- -- 47,500 -- 190 -- --
------ ------ ------ ------ --------- ------ ------- ---------- ----------

Balance at May 31, 1995........ -- -- -- -- 5,272,725 5 8,893 (1,487) 52

Net Loss...................... -- -- -- -- -- -- -- (4,820) --
Payment of stock
subscription receivable...... -- -- -- -- -- -- -- -- 52

Issuance of Preferred Stock
and warrants in connection
with Dial Acquisition, net... 15,000 -- -- -- -- -- 15,961 -- --
Exercise of warrants.......... -- -- 130,930 -- 1,074,691 1 11 --
------ ------ ------- ------ --------- ------ ------- ---------- ----------

Balance at May 31, 1996........ 15,000 $ -- 130,930 $ -- 6,347,416 $ 6 $24,865 $(6,307) $ --
====== ====== ======= ====== ========= ====== ======= ========== ==========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements

F-12
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE A - SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Teletouch Communications, Inc. and its wholly-owned subsidiaries
(together, "the Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.

USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH EQUIVALENTS: Cash equivalents are recorded at cost, which approximates
market, and include investments in financial instruments having maturities of
three months or less at the time of purchase.

INVENTORIES: Inventories are carried at the lower of cost or market using the
first-in, first-out method and consist of pagers held for sale and spare parts
held for resale.

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded at
cost. Depreciation is computed using the straight-line method based on the
following estimated useful lives:

Pagers............................. 3 years
Paging infrastructure.............. 5-20 years
Building and improvements.......... 10-20 years
Other equipment.................... 5-10 years

INTANGIBLE ASSETS: Goodwill is recorded at cost and amortized over 25 years
using the straight-line method. Except for debt issue costs, other intangibles
are recorded at cost and amortized over periods ranging from 5 to 25 years,
computed on the straight-line-method. The Company defers costs incurred in
obtaining debt and amortizes, as additional interest expense, these costs over
the term of the related debt using the effective interest method. It is the
Company's policy to account for intangible assets at the lower of amortized cost
or estimated fair value. On an ongoing basis, management reviews the valuation
and amortization of such assets with consideration toward recovery through
future operating results at the current rate of amortization.

REVENUE RECOGNITION: Revenue is recognized as services are provided or the
product is delivered to customers. Billings to customers for services in
advance of providing such services are deferred and recognized as revenue as
services are provided. Deferred revenue will be recognized in the following
year, generally within three months

F-13
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES: Deferred income tax assets and liabilities are determined based
on differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences reverse.

Prior to July 1994 the Company was included in the consolidated federal income
tax return of its parent, Rainbow Resources, Inc. In accordance with an
informal arrangement with its former parent, the Company calculated its federal
income tax liability on a stand-alone basis and recognized the liability for
current income taxes as a payable to the consolidated group. Such amounts were
repaid under the terms of amounts due to related parties. Thus, the Company did
not make cash payments of federal income taxes directly to the Internal Revenue
Service prior to August 1994.

Subsequent to July 1994, the Company is no longer consolidated with Rainbow
Resources, Inc. for federal income tax reporting purposes and began filing its
own consolidated return. The Company made no cash payments for federal income
taxes during the period August 1994 to May 31, 1996.

EARNINGS (LOSS) PER SHARE: The computation of earnings (loss) per share is
based upon the weighted average number of common shares outstanding during the
period plus the dilutive effect of common shares contingently issuable,
primarily from stock options, exercise of warrants and convertible notes.
Common stock equivalents and other dilutive securities are excluded from the
computation of weighted average shares outstanding in periods when an operating
loss is reported as the effect is anti-dilutive.

The computation reflects additional dilution, anti-dilution in periods of
losses in fiscal years prior to the initial public offering of the Common Stock
of the Company ("the IPO"), see Note H, related to common stock and warrants
issued and stock options granted as though they were issued and outstanding
during all periods presented. For these securities, dilution arises when the
market price at the end of the period (assuming the use of the IPO price of $4
per share for all of fiscal 1994 and through December 29, 1994) is higher than
the exercise or option price of such securities.

SOURCES OF SUPPLY OF EQUIPMENT AND PAGERS: The Company does not manufacture
any of the transmitting, computer equipment or pagers used in providing its
paging services, but instead purchases such equipment and pagers from multiple
sources. The Company anticipates that such equipment and pagers will continue
to be available in the foreseeable future, subject to normal manufacturing and
delivery lead times. Because of the high degree of compatibility among
different models of transmitters, computers and other paging equipment
manufactured by multiple suppliers, the Company is able to design its systems
without depending upon any single source of equipment. The Company continuously
evaluates new developments in paging technology in connection with the design
and enhancement of its paging systems and the selection of products and services
to be offered to its subscribers.

F-14
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company currently purchases substantially all of its pagers from Motorola,
its transmitters from two competing sources and its paging terminals from
Glenayre, a manufacturer of mobile communications equipment.

CONCENTRATION OF CREDIT RISK: The Company provides paging services, primarily
in non-metropolitan areas and communities in the southeast United States, to
businesses and individual consumers in non-major metropolitan areas and
evaluations of its customers to determine individual customer credit risks and
has the ability to terminate services for nonpayment. Credit losses have been
within management's expectations.

FINANCIAL INSTRUMENTS: With the exception of its Junior Subordinated Notes,
management believes that the carrying value of its financial instruments
approximates fair value. It is not practicable to estimate the fair value of
the Junior Subordinated Notes given their unique characteristics and the
complexity involved in estimating their fair value.

RECLASSIFICATION: Certain items in the 1995 and 1994 financial statements
have been reclassified to conform with the 1996 presentation.

NEW ACCOUNTING PRONOUNCEMENTS: In the first quarter of fiscal year 1997, the
Company will adopt the FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of". Adoption of
this statement is not expected to have a material effect on the Company's
financial statements.

In October 1995, the FASB issued Statement No. 123, "Accounting for Stock
Based Compensation" ("FASB 123") which establishes an alternative method of
accounting for stock based compensation to the method set forth in Accounting
Principles Board Opinion No. 25 ("APB 25"). FASB 123 encourages, but does not
require, adoption of a fair valued based method of accounting for stock options
and similar equity instruments granted to employees. The Company plans to
continue to account for such grants under the provisions of APB 25.

F-15
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE B - ACQUISITIONS

In August 1995, the Company acquired substantially all of the non-cash
assets and assumed selected liabilities of Dial-A-Page, Inc. ("Dial") for a cash
purchase price of approximately $49.4 million (the "Dial Acquisition"). To
complete the Dial Acquisition, and to provide additional working capital, the
Company completed the private placement of $25 million of debt and equity
securities with Continental Illinois Venture Corporation ("CIVC") and certain
other parties both related and unrelated to CIVC (together with CIVC, the "CIVC
Investors"), see Note E and Note H, and $35 million in additional senior
financing from its' existing senior lender, FINOVA Capital Corporation
("FINOVA"), see Note E. The Company incurred financing costs and professional
fees incident to the Dial Acquisition, and the related financings, of
approximately $5.5 million. Of the total purchase price, for financial
reporting purposes, approximately $14.2 million has been allocated to property,
plant and equipment, $0.5 million to accounts receivable, $15.5 million to FCC
license, $13.8 million to subscriber bases, $0.1 million to non-compete, $1.2
million to current liabilities, and $0.1 million to other current assets, with
the remaining amount allocated to goodwill.

In December 1994, the Company acquired substantially all of the assets and
liabilities of Beepers Plus of Jackson Partnership and the stock of Beepers Plus
of Memphis, Inc., Beepers Plus of Nashville (collectively "Beepers Plus") for
approximately $20.7 million. In addition, in December 1994, the Company
acquired substantially all of the non-cash assets and assumed certain
liabilities of Waco Communications, Inc. ("WACO") for approximately $2.9
million. The acquisitions of Beepers Plus and WACO were financed with the
proceeds from the Company's IPO, see Note H below and a $19 million loan from
FINOVA.

Each of the acquisitions was accounted for using the purchase method of
accounting and the results of their operations are included in the statements of
operations since the respective acquisition date.

The following unaudited pro forma summary financial information presents the
results of operations of the Company as if the acquisitions and related
financing had occurred at the beginning of each period presented. This summary
may not be indicative of what would have occurred had the acquisitions been made
as of these dates or of results which may occur in the future. The historical
financial statements used to prepare the summary reflect the acquisitions from
the effective date of the respective acquisition forward, using the purchase
method of accounting, based on the estimated fair values of assets purchased and
liabilities assumed.

<TABLE>
<CAPTION>
YEARS ENDED
MAY 31,
-----------------
<S> <C> <C>
(Unaudited)
1996 1995
------- -------
Net revenue........................ $29,820 $25,360
======= =======
Operating income (loss)............ $ (316) $ 586
======= =======
Net loss........................... $(5,177) $(4,821)
======= =======
Loss per share..................... $ (1.26) $ (1.53)
======= =======
</TABLE>

F-16
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE C - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following :

Land............................................................. $ 200 $ 200
Pagers, including pagers held for lease.......................... 6,091 3,166
Paging Infrastructure............................................ 16,744 4,022
Buildings and improvements....................................... 522 422
Other equipment.................................................. 1,899 873
------- -------
25,456 8,683
Accumulated depreciation.......................................... (5,258) (2,064)
------- -------
$20,198 $ 6,619
======== =======
</TABLE>

NOTE D - GOODWILL, INTANGIBLES AND OTHER ASSETS

Goodwill, intangibles and other assets consist of the following :

<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Goodwill......................................................... $20,380 $11,985
Subscriber bases................................................. 24,014 10,216
FCC licenses..................................................... 15,600 84
Deferred acquisition costs....................................... 998 841
Non-compete agreements........................................... 300 200
Debt issue costs................................................. 3,795 954
Other............................................................ 203 14
------- -------
65,290 24,294
Accumulated amortization......................................... (8,210) (1,830)
------- -------
$57,080 $22,464
======= =======
</TABLE>

NOTE E - LONG-TERM DEBT

Long-term debt consists of the following :

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Notes Payable.................................................... $50,700 $19,648
Junior Subordinated Notes........................................ 9,415 --
Other............................................................ -- 231
------- -------
60,115 19,879
Less current portion............................................. -- 2,114
------- -------
$60,115 $17,765
======= =======
</TABLE>

F-17
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE E - LONG-TERM DEBT (CONTINUED)

NOTES PAYABLE. During fiscal year 1995, the Company entered into an
- --------------
agreement with FINOVA that provided for borrowings of $19.95 million. In August
1995, in conjunction with the Dial Acquisition, the Company modified the terms
and extended the existing agreement with FINOVA to provide for total borrowings
of $55 million ("the FINOVA Loan"). The FINOVA Loan bears interest, at the
Company's designation, at a floating rate of either the prime rate plus 2% or
the London Interbank Offering Rate ("LIBOR") plus 4% and is secured by
substantially all of the assets of the Company and its subsidiaries. At May 31,
1996 the weighted average interest rate payable on the FINOVA Loan was 9.315%.
In conjunction with the FINOVA Loan, the Company entered into an interest rate
protection agreement which protected the Company on a portion of the debt
against future LIBOR rate increases above 8.875% to 7.625% over the term of the
loan. Although the FINOVA Loan requires principal repayments beginning in April
1997, all of the notes payable have been classified as long-term as the Company
repaid the FINOVA Loan in July 1996 with the proceeds from a new long-term
financing arrangement.

In July 1996, the Company entered into an agreement with a group of lenders, led
by Chase Manhattan Bank, to provide new loans in an amount not to exceed $95
million (the "Credit Facility"). As of August 2, 1996, $65.5 million of the
Credit Facility had been funded and $30 million is available for future funding.
The funding from the Credit Facility was used to repay the FINOVA Loan, and will
provide the financing necessary to complete the acquisitions discussed in Note
M, and to provide additional working capital. As a result of the repayment of
the FINOVA Loan, the Company is required to pay a $1 million prepayment penalty
to FINOVA. The prepayment penalty and the unamortized deferred loan costs
associated with the FINOVA Loan of approximately $3.1 million will be recorded
as an extraordinary expense item in the first quarter of fiscal year 1997.
Direct costs incurred in connection with obtaining the Credit Facility of
approximately $2.9 million will be deferred and amortized, using the effective
interest rate method, over the term of the loan.

The Credit Facility bears interest, at the Company's designation, at a floating
rate of either the prime rate plus 1% to 2% or LIBOR plus 2% to 3% depending on
the leverage ratio of the Company and is secured by substantially all of the
assets of the Company and its subsidiaries. Borrowings under the Credit Facility
require that the principal be repaid in escalating quarterly installments
beginning in February 1998 and ending in fiscal year 2004. The terms require
that the Company obtain an interest rate protection agreement, within thirty
days of closing, to protect at least 50% of the commitments against fluctuations
in the three-month LIBOR rate for a period of at least three years. In
addition, the terms require the maintenance of certain specified financial and
operating covenants, provide for restrictions on capital expenditures and future
acquisitions, prohibit any payments on the Junior Subordinated Notes discussed
below or the payment of dividends.

F-18
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE E - LONG-TERM DEBT (CONTINUED)

JUNIOR SUBORDINATED NOTES. In August 1995, in connection with the Dial
- --------------------------
Acquisition, the Company borrowed $10 million of 14% Junior Subordinated Notes
("the Subordinated Notes") due in fiscal year 2003 from the CIVC Investors. The
Subordinated Notes were initially recorded, for financial reporting purposes, at
approximately $8 million. The terms of the Subordinated Notes require the
maintenance of certain specified financial and operating covenants and provide
for restrictions on capital expenditures and future acquisitions. Also see Note
H below.

OTHER DEBT. At May 31, 1995, the Company owed a consultant $220 related to work
- -----------
provided in connection with certain acquisitions. This amount was paid in full
in May 1996. The consultant became a director of the Company in May 1995.

MATURITIES Maturities of debt outstanding at May 31, 1996, based on the terms
- ----------
of the Credit Facility are as follows: 1997 - $0; 1998 - $5,250; 1999 - $8,750;
2000 - $10,500; 2001 - $10,500; thereafter - $25,700.

INTEREST. Cash paid for interest, including interest to related parties, during
- ---------
1996, 1995 and 1994 was approximately $4,239, $943, and $149, respectively.

NOTE F - INCOME TAXES

The liability method is used in accounting for income taxes. Under this method,
deferred income tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that are expected to be in effect
when the differences reverse.

The Company has a net operating loss carryforward of approximately $4.7 million
which is available to reduce future taxable income and will expire beginning in
2010.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred income tax liabilities and assets as of May 31, 1996
and 1995 follow:

F-19
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE F - INCOME TAXES (CONTINUED)

Deferred income tax liabilities
Depreciation and amortization methods.. $2,228 $3,069
Other.................................. 100 100
------ ------
Total deferred income tax liabilities..... 2,328 3,169
Deferred income tax assets:
Allowance for doubtful accounts........ 105 129
Inventory reserve...................... 19 19
Net operating loss carryforward........ 1,588 204
------ ------
Total deferred income tax assets.......... 1,712 352
------ ------
Net deferred income tax liability......... $ 616 $2,817
====== ======
</TABLE>

A reconciliation from the federal statutory income tax rate to the effective
income tax rate for the years 1996, 1995, and 1994 follows:

1996 1995 1994
------- ------- -------
<S> <C> <C> <C>

Statutory income tax rate (benefit)..................... (34.0)% (34.0)% (34.0)%
Expenses not deductible for tax purposes, primarily
amortization of intangible assets and nondeductible
interest expense on convertible note (1995) and
compensation for consulting services (1994).......... 2.3 % 15.5 % 17.9 %
Other................................................... 0.4 % 6.9 % 0.5 %
------ ------ ------
Effective income tax rate (benefit)..................... (31.3)% (11.6)% (15.6)%
====== ====== ======
</TABLE>

NOTE G - COMMITMENTS AND CONTINGENCIES

The Company leases buildings, transmission towers and equipment under
noncancelable operating leases. Rent expense was $1,501, $349, and $58 in 1996,
1995, and 1994, respectively. Future minimum rental commitments under
noncancelable leases are as follows:

<TABLE>
<S> <C>
1997.................. $ 888
1998.................. 635
1999.................. 478
2000.................. 327
2001.................. 222
2002 and thereafter... 428
------
$2,978
======
</TABLE>

F-20
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE G - COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company is party to various legal proceedings arising in the ordinary course
of business. The Company believes that there is no proceeding, either
threatening or pending, against the Company that could result in a material
adverse effect on the results of operations or financial condition of the
Company.

NOTE H - STOCKHOLDERS' EQUITY

CAPITAL STRUCTURE. In July 1994, the Teletouch Corporation's ("Predecessor's")
- ------------------
Articles of Incorporation were revised to modify the capital structure and to
approve a 1,499-for-1 common stock split. Also in July 1994, the Predecessor
formed a wholly-owned subsidiary, Teletouch Communications, Inc. ("the
Company"). All assets and liabilities of the Predecessor were merged into the
Company and each share of the outstanding common stock of the Predecessor was
exchanged for one share of the Company common stock. All share and per share
amounts have been retroactively restated to reflect the stock split of the
Predecessor.

The Company's authorized capital structure allows for the issuance of 25,000,000
shares of common stock with a $0.001 par value and 5,000,000 shares of preferred
stock with a $0.001 par value.

INITIAL PUBLIC OFFERING. On December 29, 1994, the Company consummated the
- ------------------------
initial public offering of its common stock and Redeemable Class A Common Stock
Purchase Warrants ("Class A Warrants" and together "the IPO"). In the IPO, the
Company issued 2,300,000 shares of common stock and 2,300,000 Class A Warrants
(including the securities sold under the underwriters' over-allotment option,
which closed in full on December 30, 1994), which were initially sold together
at an initial public offering price of $4.10. Each Class A Warrant carries the
right to purchase a share of common stock for $4.50 and may be redeemed by the
Company at $0.10 per warrant if the closing bid price of the common stock has
been at least $5.625 for 15 consecutive trading days. As of May 31, 1996, all
2,300,000 Class A Warrants remain outstanding. As part of the consideration to
the Underwriters for their services in connection with the public offering
described herein, the Company issued to the Underwriters, for nominal
consideration, the Underwriters' Warrants to purchase an aggregate of 200,000
shares of Common Stock at an exercise price of $5.60 per share and warrants to
purchase, at a price of $.10 per warrant, 200,000 warrants, each of which
entitles the holder to purchase one share of Common Stock on the same terms and
conditions as the Class A Warrants, except that the exercise price shall be
$6.30 per share. The Underwriters' Warrants are non-redeemable by the Company.
The Underwriters' Warrants are exercisable for a period of four years beginning
December 29, 1995. The Company received net proceeds of approximately $7.4
million from the IPO.

In conjunction with the IPO, the Company converted $0.05 million of a note
payable to a related party, see Note J below, into 225,225 shares of Common
Stock on December 29, 1994.

F-21
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE H - STOCKHOLDERS' EQUITY (CONTINUED)

DIAL ACQUISITION. In connection with the Dial Acquisition, see Note B, the
- -----------------
Company designated 15,000 shares of authorized preferred stock as "Series A 14%
Cumulative Preferred Stock" and 617,189 shares as "Series B Preferred Stock".
The CIVC Investors purchased 15,000 shares, with an initial liquidation value of
$15 million, of the Series A 14% Cumulative Preferred Stock (the "Series A
Preferred Stock") and the Subordinated Notes, see Note E. Dividends on the
Series A Preferred Stock accrue at the rate of 14% per annum. Each share of
Series A Preferred Stock will become convertible into common stock based on a
stated formula after August 3, 2003. As of May 31, 1996, the conversion of
Series A Preferred Stock would result in an estimated issuance of 4.3 million
shares of common stock. The CIVC Investors also received warrants, exercisable
at a nominal price, to purchase 5,065,951 shares of Teletouch common stock (the
"Common Stock Purchase Warrants") and 617,189 shares of Series B Preferred Stock
(the "Series B Preferred Stock Purchase Warrants"). Each share of Series B
Preferred Stock will become convertible into six shares of Common Stock after
two years or earlier upon the occurrence of an event of default as specified by
the purchase agreement. CIVC will have the right, after two years, to require
that its securities be registered for public sale.

During fiscal year 1996, the holders exercised an aggregate of 1,074,691 Common
Stock Purchase Warrants and 130,930 Series B Preferred Stock Purchase Warrants.
The Series A Preferred Stock and the Series B Preferred Stock are non-voting
except as to the merger or consolidation with another entity or entities, or the
sale of substantially all of the assets of the Company.

As discussed in Note E, the FINOVA Loan prohibited, and the Credit Facility
prohibits, the payment of dividends on the Series A Preferred Stock. At May 31,
1996, approximately $1.8 million of dividends were in arrears.

OTHER. The Company entered into a consulting arrangement in January 1994. As a
- ------
result of the agreement, approximately $0.5 million was charged to expense in
fiscal 1994. In addition, the arrangement provided for the issuance of common
stock (430,000 shares) at a subscription price of $0.12 per share and a warrant
to purchase common stock (400,000 shares) at $0.50 per share. (the "Consultant
Warrant") The Consultant Warrant expires in January 2004. The estimated fair
values in January 1994 assigned to the shares ($0.90 per share) and shares
underlying the Consultant Warrant ($0.90 per share) to be issued in excess of
the subscription or exercise price has been charged to expense with a
corresponding increase in common stock and additional paid-in capital of $0.5
million. Additionally, a stock subscription receivable of $0.05 million was
recorded for the shares issued in July 1994 and such amount was paid in full,
subsequent to May 31, 1995.

F-22
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE H - STOCKHOLDERS' EQUITY (CONTINUED)

The Company had a financial advisory agreement with its merger and acquisitions
financial advisor related to services provided in connection with the
acquisition of Waco Communications, Inc. and Beepers Plus (Memphis, Nashville
and Jackson). This agreement provided for the payment of approximately $0.1
million and the issuance of 20,000 shares of the Company's common stock relating
to the purchase of Waco Communications, Inc. A fee of approximately $0.2 million
also was paid to the financial advisor upon the acquisition of Beepers Plus. In
addition, the financial advisor was paid a loan fee of 2%, or $0.4 million.
Based upon the terms of the financial advisory agreement, $0.5 million of the
total amount payable to the financial advisor was paid at the closing of the
acquisitions and the remaining $0.2 million was paid under the terms of an 8%
promissory note in May 1996. The Company's merger and acquisitions financial
advisor has previously provided valuation services to the Company relating to
its common stock.

COMMON STOCK RESERVED. Approximately 15.7 million shares of common stock are
- ----------------------
reserved for future issuance at May 31, 1996, as follows:

<TABLE>
<S> <C>
Conversion of Series A Preferred Stock 4,286
Common Stock Purchase Warrants 3,991
Conversion of Series B Preferred Stock 3,708
Class A Warrants 2,300
Underwriters' Warrants 400
Consultant Warrant 400
1994 Stock Option and Stock Appreciation Rights Plan 400
Other option 175
------
15,660
======
</TABLE>

NOTE I - STOCK OPTIONS

The Company's 1994 Stock Option and Stock Appreciation Rights Plan (the "1994
Plan") was adopted in July 1994 by the Company, and provides for the granting of
incentive and non-incentive stock options and stock appreciation rights to
officers, directors, employees and consultants to purchase not more than an
aggregate of 400,000 shares of Common Stock. The Company's Board of Directors
administers the Plan and has authority to determine the optionees to whom awards
will be made, the terms of vesting and forfeiture, amount of the awards and
other terms. Under the terms of the Plan, the option price approved by the Board
of Directors shall not be less than the fair market value of the common stock at
date of grant. At May 31, 1996, there were 91,916 options were exercisable.

F-23
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE I - STOCK OPTIONS (CONTINUED)

Stock option activity has been as follows:

<TABLE>
<CAPTION>
Number of Exercise Price
Shares Per Share
---------- --------------
<S> <C> <C>
Options outstanding at May 31, 1994 -- --
Options granted to officers............ 160,000 $ 3.00
Options granted to directors........... 20,000 $ 4.50
------- -------------

Options outstanding at May 31, 1995......... 180,000 $3.00 - $4.50
Options granted to officers............ 120,000 $3.38 - $4.00
Options granted to directors........... 20,000 $ 3.50
Options forfeited...................... (10,000) $ 3.00
------- -------------

Options outstanding at May 31, 1996....... 310,000 $3.00 - $4.50
======= =============
</TABLE>

Under the terms of a contractual agreement, the Company has granted options to
acquire 75,000 shares of common stock, exercisable at a price of $6.00, to a
company that provided investor and public relations services. In addition,
options to acquire 100,000 shares of common stock, exercisable at a price of
$5.04, were granted to an officer of that company.

NOTE J - RELATED PARTY TRANSACTIONS

During fiscal year 1995, the Company paid approximately $0.007 million to
Rainbow Resources, Inc., primarily for prior federal income tax liabilities. In
addition, the Company paid $0.5 million, issued 20,000 shares of common stock,
and had a note payable at May 31, 1995 of $0.2 million to a financial advisor
for services related to certain acquisitions. At the time the services were
rendered the advisor was not a related party; however, in May 1995 the advisor
became a director of the Company.

In conjunction with the IPO, the Company obtained $0.2 million in bridge
financing from a related party with an option to convert a portion of the note
into Common Stock. Based on the nature of bridge financing, the interest rates
of 8% and 4%, may not be reflective of the effective market rate of interest
when considering the conversion feature and terms. Accordingly, $0.5 million was
charged to interest expense during fiscal year 1995, which takes into
consideration the estimated fair value of the Company's common stock on the date
the notes were issued. $0.15 million of the bridge financing was repaid and
$0.05 million was converted into 225,225 shares of Common Stock on December 29,
1994.

F-24
<PAGE>

TELETOUCH COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE K - PENSION PLAN

Effective October 1995, the Company began sponsoring a defined contribution
retirement plan covering substantially all of its employees. Employees who have
completed one year of continuous service with the Company, or an acquired
company, and are at least 21 years of age are eligible to participate. Eligible
employees may contribute up to a maximum of 16% of their earnings. The Company
pays the administrative fees of the plan and may choose to contribute; however,
the Company is not obligated to make any contributions. No contributions were
made in fiscal year 1996.

NOTE L - SALE OF OPERATIONS

In June 1994, the Company sold its telephone answering service operations to an
unrelated party for $0.15 million and recognized a pre-tax gain of approximately
$0.1 million. Revenues and operating expense associated with these operations
for the year ending May 31, 1994 were approximately $0.3 million and $0.3
million, respectively. Revenues and operating expenses for the year ended May
31, 1995 were not material.

NOTE M - SUBSEQUENT EVENTS

During the fourth quarter of fiscal year 1996, the Company executed definitive
agreements to purchase the outstanding common stock of two paging companies and
substantially all of the paging assets of five additional paging companies
(collectively, "the Pending Acquisitions") for an aggregate purchase price of
approximately $32.1 million. The Pending Acquisitions are expected to close
during the first half of fiscal year 1997 and are subject to various conditions
including due diligence, approval by the Board of Directors of the Company and
FCC, Regulatory and other third-party approvals, including approval of CIVC. The
purchase prices for the Pending Acquisitions are subject to adjustment based on
actual financial performance. As of May 31, 1996, the Pending Acquisitions
collectively had approximately 125,000 (unaudited) pagers in service and $4.7
million (unaudited) of total assets. For the year ended December 31, 1995, the
Pending Acquisitions collectively had approximately $7.8 million (unaudited) of
revenue and $3.1 million (unaudited) of operating income.

In April 1996 the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") with a wholly owned subsidiary of ProNet, Inc. ("ProNet")
that provided for the Company to be merged with and into ProNet. In July 1996,
the Company and ProNet mutually agreed to terminate the transaction. The Company
incurred approximately $0.6 million of costs during 1996 associated with this
transaction which have been charged to general and administrative expense as
incurred.

F-25
<PAGE>

================================================================================

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR A SOLICITATION IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR THE FACTS
HEREIN SET FORTH SINCE THE DATE HEREOF.

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
----
<S> <C>
PROSPECTUS SUMMARY 3
RISK FACTORS 5
THE COMPANY 14
USE OF PROCEEDS 15
CAPITALIZATION 15
DIVIDEND POLICY 16
MANAGEMENT'S DISCUSSION
AND ANALYSIS 16
BUSINESS 27
MANAGEMENT 35
EXECUTIVE COMPENSATION 39
CERTAIN TRANSACTIONS 42
PRINCIPAL STOCKHOLDERS 45
SELLING SECURITYHOLDERS 48
MARKET FOR COMMON STOCK
AND RELATED SHAREHOLDER
MATTERS 49
DESCRIPTION OF SECURITIES 50
PLAN OF DISTRIBUTION 55
LEGAL MATTERS 57
EXPERTS57
INDEX TO FINANCIAL STATEMENTS F-1
</TABLE>

447,500 shares of outstanding Common Stock
400,000 Benchmark Warrants
200,000 Underwriters' Warrants,
Class UW Warrants to purchase
200,000 Modified Class A Warrants,
and 800,000 shares of Common Stock
issuable upon exercise of Warrants

TELETOUCH
COMMUNICATIONS, INC.

______________

PROSPECTUS

______________

_____________, 1996
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of shareholders or otherwise.

Article Seven of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.

INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE COMPANY
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE

Other Arrangements
- ------------------

The Company maintains a "claims made" officers and directors liability
insurance policy with coverage limits of $5,000,000 and a maximum $1000,000
deductible amount for each claim.

II-1
<PAGE>

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The estimated expenses to be incurred by the Company ($25,000 of which will
be paid by the Selling Stockholders) in connection with the issuance and
distribution of the securities being registered, other than underwriting
discounts and commissions, are estimated as follows:
<TABLE>
<S> <C>
SEC Registration Fee $ 1,033.73
Blue Sky Fees and Expenses 1,000.00
Printing and Engraving Expenses 500.00
Registrant's Counsel Fees and Expenses 10,000.00
Accountant's Fees and Expenses 10,000.00
Miscellaneous Expenses 3,000.00
----------
Estimated Total $25,533.73
==========
</TABLE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

The Registrant has issued the following securities during the past three
years:

The Company was incorporated pursuant to the laws of the State of Delaware
on July 19, 1994 at which time ten shares of its Common Stock were issued to
Teletouch-Texas. Pursuant to a certain Agreement and Plan of Merger, dated as of
July 27, 1994, during October 1994 Teletouch-Texas was merged with and into the
Company, at which time the Company issued an aggregate of 2,680,000 shares to
stockholders of Teletouch-Texas in exchange for their 2,680,000 shares of
Teletouch-Texas.

In August 1994, Teletouch-Texas issued 430,000 shares of its Common Stock
and a warrant to purchase 400,000 shares of Common Stock at an exercise price of
$0.50 per share, to Benchmark Equity Group, Inc., for an aggregate purchase
price of $51,610.

In August 1994 as part of a bridge financing, Teletouch-Texas issued to
Benchmark an 8% Promissory Note in the principal amount of $150,000 and a 4%
Convertible Note in the principal amount of $50,000, in consideration of a loan
to Teletouch-Texas in the amount of $200,000.

In August 1994, Teletouch-Texas agreed to issue 20,000 shares of Common
Stock to MGCO, a merger and acquisitions advisor to the Company, in
consideration of services to be performed by such firm in connection with the
Waco Acquisition.

The Company engaged Sovran Financial Corp. ("SFC"), an unaffiliated
Florida-based company, to provide investor and public relations services for the
Company subsequent to the IPO. In consideration for providing such services, SFC
was entitled to receive a monthly retainer and an option to be issued to Richard
Dwyer (the "Dwyer Option") to purchase 75,000 shares of Common Stock,
exercisable at a price of $6.00 per share, exercisable 70 days after the
consummation of the IPO and vesting as to 12,500 shares upon one month after
issuance with the balance vesting ratably over the subsequent 11 months with any
unvested portions of

II-2
<PAGE>

the Dwyer Option forfeited upon the termination of SFC's agreement with the
Company. In addition, SFC was entitled under the agreement to receive options to
purchase 100,000 shares of Common Stock for a period of five years if, during
the term of the Agreement, the Company's total assets exceeded $45 million. Such
option was to be exercisable commencing 90 days after the grant of the option at
an exercise price of 120% of the fair market value (as defined in the agreement)
of the Common Stock, or $5.04. In October 1995, the Company terminated its
arrangement with SFC.

On August 3, 1995, Teletouch completed a private placement of debt and
equity securities with Continental Illinois Venture Corporation ("CIVC") an
affiliate of Bank of America, under which CIVC, certain related parties and
other parties (the "CIVC Investors") provided Teletouch with $25 million in
financing in connection with the Dial Acquisition. In connection with the Dial
Acquisition, the Company designated 15,000 shares of its authorized preferred
stock as "Series A 14% Cumulative Preferred Stock" and 617,189 shares as "Series
B Preferred Stock." The CIVC Investors purchased $15 million in initial
liquidation value (or 15,000 shares) of Series A Preferred Stock and $10 million
of 14% Junior Subordinated Notes due in 2003 (the "Subordinated Notes").
Dividends on the Series A Preferred Stock and interest on the Subordinated Notes
will each accrue at the rate of 14% per annum. The following table sets forth
the respective portions of the total $25,000,000 investment made by the CIVC
Investors, and the securities issued to each:

Investor Total Liquidation Value of Principal Amount of Warrants to Warrants to
Investment Series A Preferred Subordinated Purchase Common Purchase Series B
Stock Promissory Note Stock Preferred Stock
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CIVC $19,696,600 $11,818,000 $ 7,878,600 3,991,260 486,259
CIVC Partners I 2,188,400 1,313,000 875,400 443,473 54,029
GM Holdings LLC 3,000,000 1,800,000 1,200,000 607,914 74,063
Other Investors 115,000 69,000 46,000 23,304 2,838
---------------------------------------------------------------------------------------------------------
Total $25,000,000 $15,000,000 $10,000,000 5,065,951 617,189
</TABLE>

Each share of Series A Preferred Stock has a liquidation value of $1,000.
Each share of Series B Preferred Stock will become convertible into six shares
of Common Stock after August 3, 1997, or earlier upon the occurrence of an event
of default as specified in the Purchase Agreement. Each of the CIVC Investors
except CIVC has granted to CIVC an irrevocable proxy to vote such shares of
Common Stock underlying the Common Stock warrants acquired by each CIVC
Investor. Pursuant to such arrangement, CIVC may be deemed to be the beneficial
owner of all the shares of Common Stock underlying the 5,065,951 warrants issued
in the CIVC transaction. Subsequent to August 3, 1995, 130,259 Warrants to
Purchase Series B Preferred Stock and 1,074,691 Warrants to Purchase Common
Stock have been exercised by the holders thereof, pursuant to which the Company
issued 130,259 Series B Shares and 1,074,691 shares of Common Stock. The CIVC
Investors will have the right, after August 3, 1997, to require that its
securities be registered for public sale. CIVC has the right to designate up to
three of seven members of Teletouch's Board of Directors (four of seven after
August 3, 1997, or sooner in the event of a default under certain operating
covenants). In

II-3
<PAGE>

respect of this right, on August 3, 1995 the Teletouch Board was
enlarged to seven, and Marcus D. Wedner and Christopher J. Perry, Managing
Directors of CIVC, were designated by CIVC to fill two of the three newly
created Board seats. They were elected to the Teletouch Board immediately after
the completion of the transactions. The Company had no relationship with CIVC
prior to entering into such transactions and entered into such transactions
following arms-length negotiations.

In December 1994 in connection with certain debt financing, the Company
issued 47,500 shares of Common Stock to FINOVA in lieu of $190,000 of the fee
that would otherwise have been payable in cash at closing.

The Company believes that the transactions set forth above were exempt from
registration with the Commission pursuant to Section 4(2) of the Securities Act
as transactions by an issuer not involving any public offering. No broker-dealer
or underwriter was involved in the foregoing transactions. All certificates
representing the securities issued and currently outstanding by the Registrant
herein have been or will be appropriately legended.

ITEM 27. EXHIBITS.

(a) Exhibits.

Exhibit
Number Title of Exhibit
------ ----------------

1.2 /(3)/ Amendment dated April 24, 1995 to the Underwriting
Agreement dated December 21, 1994.

2.1 /(4)/ Agreement and Plan of Merger dated July 27, 1994 between
Teletouch Corporation and Teletouch Communications, Inc.

2.2(a) /(4)/ Asset Purchase Agreement dated as of July 20, 1994 between
Teletouch Corporation and Waco Communications, Inc.

2.2(b) /(1)/ Amendment No. 1 dated as of December 27, 1994 to Asset
Purchase Agreement between Teletouch Corporation and Waco
Communications, Inc.

2.3(a) /(4)/ Stock and Asset Purchase Agreement dated as of September
22, 1994 by and among Teletouch Corporation and Beepers
Plus of Jackson and the shareholders of Beepers Plus of
Memphis, Inc. and Beepers Plus of Nashville, Inc.

II-4
<PAGE>

Exhibit
Number Title of Exhibit
------ ----------------

2.3(b) /(4)/ Amendment No. 1 dated as of November 15, 1994 to Stock
and Asset Purchase Agreement by and among Teletouch
Corporation and Beepers Plus of Jackson and the
shareholders of Beepers Plus of Memphis, Inc. and Beepers
Plus of Nashville, Inc.

2.4(a) /(2)/ Asset Purchase Agreement dated February 16, 1995 between
Teletouch Communications, Inc. and Dial-A-Page, Inc.,
incorporated herein by reference from Exhibit 1 to the
Company's Current Report on Form 8-K filed on February
21, 1995 (File No. 0-24992).

2.4(b) /(3)/ First Amendment to Asset Purchase Agreement dated as of
March 24, 1995 between Teletouch Communications, Inc. and
Dial-A-Page, Inc.

2.4(c) /(3)/ Second Amendment to Asset Purchase Agreement dated as of
August 2, 1995 between Teletouch Communications, Inc. and
Dial-A-Page, Inc.

2.5(c) /(8)/ Stock Purchase Agreement by and among Teletouch
Communications, Inc. as Buyer and the Shareholders of
Russell's Communication, Inc. (d/b/a Louisiana Paging &
Communications Co.) as Sellers dated May 13, 1996.

2.6 /(8)/ Asset Purchase Agreement by and among Teletouch
Communications, Inc. as Buyer and Warren Communications,
Inc. as Sellers dated April 2, 1996.

2.7 /(8)/ Asset Purchase Agreement by and among Teletouch
Communications, Inc. as Buyer and Dave Fant Company
(d/b/a Oklahoma Radio Systems) and David W. Fant as
Sellers dated April 11, 1996.

2.8 /(8)/ Stock Purchase Agreement by and among Teletouch
Communications, Inc. as Buyer and the Shareholders of
AACS Communications, Inc. as Sellers dated April 41,
1996.

3.1 /(5)/ Certificate of Incorporation of Teletouch Communications,
Inc. and all Amendments to Certificate of Incorporation.

3.2 /(3)/ Bylaws of Teletouch Communications, Inc., as amended July
31, 1995.

3.3 /(3)/ Certificate of Designation, Preferences and Rights of
Class A and Class B Preferred Stock.

II-5
<PAGE>

Exhibit
Number Title of Exhibit
------ ----------------

4.1 /(4)/ Specimen Common Stock Certificate.

4.2 /(4)/ Form of Underwriter's Warrant.

4.3 /(3)/ Form of Series A Preferred Stock Certificate.

4.4 /(3)/ Form of Common Stock Purchase Warrant issued to Continental
Illinois Venture Corporation ("CIVC") et al. on August 3,
-- --
1995.

4.5 /(3)/ Form of Series B Preferred Stock Purchase Warrant issued to
CIVC et al. on August 3, 1995.
-- --

4.6 /(3)/ Form of 14% Junior Subordinated Note issued to CIVC et al.
-- --
on August 3, 1995.

4.7 /(7)/ Registration Rights Agreement Dated September 26, 1995 by
and among the Company, Michele Grimstad and John Maggart.

5.1 /(9)/ Opinion of De Martino Finkelstein Rosen & Virga

10.1 /(4)/ * Employment Agreement between the Company and Robert McMurrey
dated July 19, 1994.

10.1(b) /(3)/* Form of employment agreement between Robert McMurrey and
Teletouch Communications, Inc. dated August 1, 1995.

10.2 /(4)/ * Employment Agreement between the Company and David
Higginbotham dated July 19, 1994.

10.2(b) /(3)/* Form of employment agreement between David Higginbotham and
Teletouch Communications, Inc. dated August 1, 1995.

10.3 /(4)/ * 1994 Stock Option and Appreciation Rights Plan.

10.4 /(4)/ Form of 8% Promissory Note payable to Benchmark Equity
Group, Inc.

10.5 /(4)/ Form of 4% Convertible Note payable to Benchmark Equity
Group, Inc.

10.7 /(4)/ Consulting Agreement dated as of July 29, 1994 between
Teletouch Corporation and Benchmark Equity Group, Inc.

II-6
<PAGE>

Exhibit
Number Title of Exhibit
------ ----------------

10.8 /(4)/ Common Stock Purchase Warrant dated August 8, 1994 issued to
Benchmark Equity Group, Inc.

10.9 /(4)/ Registration Rights Agreement dated as of August 8, 1994
between Teletouch Corporation and Benchmark Equity Group,
Inc.

10.10(a) /(4)/ Letter dated September 13, 1994 from Greyhound Financial
Corporation to the Company.

10.10(b) /(1)/ Loan Agreement dated as of December 29, 1994 among the
Company, its subsidiaries and Greyhound Financial
Corporation.

10.10(c) /(1)/ Stock Pledge Agreement dated as of December 29, 1994 between
the Company and Greyhound Financial Corporation.

10.10(d) /(1)/ Security Agreement dated as of December 29, 1994 between the
Company and Greyhound Financial Corporation.

10.10(e) /(3)/ Amended and Restated Loan Agreement between Teletouch
Communications, Inc. et al. and FINOVA Capital Corporation
-- ---
(formerly Greyhound Financial Corporation), dated as of
August 3, 1995.

10.10(f) /(3)/ Note, in principal amount of $55,000,000, made by Teletouch
Communications, Inc. et al. in favor of FINOVA Capital
-- ---
Corporation (formerly Greyhound Financial Corporation),
dated August 3, 1995.

10.11 /(7)/ Credit Agreement dated as of July 24, 1996 between Teletouch
Corporation and The Chase Manhattan Bank, as administrative
agent for the Lenders.

10.12 /(4)/ Financial Advisory Agreement dated August 5, 1994 between
the Company and McFarland, Grossman & Company, as amended.

10.13 /(3)/ Stockholders Agreement dated August 3, 1995 among Teletouch
Communications, Inc. and CIVC et al.
-- ---

10.13(a) /(3)/ Subordinated Note, Preferred Stock and Warrant Purchase
Agreement dated as of June 15, 1995 between Teletouch
Communications, Inc. and CIVC.

II-7
<PAGE>

Exhibit
Number Title of Exhibit
------ ----------------
10.13(b) /(3)/ Amended and Restated Subordinated Note, Preferred Stock and
Warrant Purchase Agreement dated as of August 3, 1995 among
Teletouch Communications, Inc. and CIVC et al.
-- ---

10.13(c) /(3)/ Form of Plan of Divestiture of CIVC, dated August 3, 1995.

10.14 /(3)/ Registration Agreement dated August 3, 1995 among Teletouch
Communications, Inc. and CIVC et al.
-- ---

10.15 /(1)/ Registration Rights Agreement dated as of December 29, 1994
between the Company and Greyhound Financial Corporation.

10.16 /(3)/ Warrant Agreement dated August 3, 1995 among Teletouch
Communications, Inc. and CIVC.

10.17 /(3)/ Consulting Agreement dated as of August 3, 1995 between
Teletouch Communications, Inc. and Michael E. Wilkins.

10.18 /(3)/ Consulting Agreement dated as of August 3, 1995 between
Teletouch Communications, Inc. and James H. Johnson, Jr.

10.19 /(3)/ Noncompetition Agreement dated as of August 3, 1995, among
Teletouch Communications, Inc., Mr. Wilkins and Mr. Johnson.

10.20 /(8)/ Noncompetition Agreement by and between Teletouch
Communications, Inc. and the former Shareholders of
Russell's Communication, Inc. (d/b/a Louisiana Paging &
Communications Co.)

10.21 /(8)/ Noncompetition Agreement by and between Teletouch
Communications, Inc. and the former Shareholders of Warren
Communication, Inc.

10.22 /(8)/ Noncompetition Agreement by and between Teletouch
Communications, Inc., Dave Fant Company and David W. Fant,
the sole shareholder of Dave Fant Company.

10.23 /(8)/ Noncompetition Agreement by and between Teletouch
Communications, Inc. and the former shareholders of AACS
Communications, Inc.

10.24 /(3)/ Lease Agreement dated August 3, 1995 between Teletouch
Communications, Inc. and Antenna Site Management, Inc.

II-8
<PAGE>

Exhibit
Number Title of Exhibit
------ ----------------

10.25 /(3)/ Teletouch Amendment to Security Agreement (dated December 29,
1994), between Teletouch Communications, Inc. and FINOVA
Capital Corporation, dated August 3, 1995.

10.26 /(3)/ Dial-A-Page Collateral Assignment of Leases, between Teletouch
Communications, Inc. and FINOVA Capital Corporation, dated
August 3, 1995.

10.27 /(3)/ Aircraft Mortgage and Security Agreement, between Pager
Airlines, Inc. and FINOVA Capital Corporation, dated August 3,
1995.

10.28 /(3)/ Guaranty, made by Pager Airlines, Inc. for the benefit of
FINOVA Capital Corporation, dated August 3, 1995.

10.29 /(3)/ Security Agreement, between Pager Airlines, Inc. and FINOVA
Capital Corporation, dated August 3, 1995.

10.30 /(3)/ Stock Pledge Agreement, between Teletouch Communications, Inc.
and FINOVA Capital Corporation, dated August 3, 1995.

11 /(7)(8)/ Statement re Computation of Per Share Earnings (Loss).

21 /(7)/ Subsidiaries of the Company.

23.1 /(9)/ Consent of De Martino Finkelstein Rosen & Virga, included in
the Opinion of Counsel filed as Exhibit 5.1.

23.2 /(9)/ Consents of Ernst & Young LLP.
____________________
* Denotes a management contract or compensatory plan or arrangement.
(1) Incorporated herein by reference to the Company's Current Report on Form
8-K filed on January 10, 1995 (File No. 0-24992).
(2) Incorporated herein by reference to the Company's Current Report on Form
8-K filed on February 21, 1995 (File No. 0-24992).
(3) Incorporated herein by reference to the Company's Current Report on Form
8-K filed on August 18, 1995 (File No. 0-24992).
(4) Incorporated herein by reference to the Company's Registration Statement
on Form SB-2 (File No. 33-82912).
(5) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended May 31, 1995 (File No. 0-24992).
(6) Incorporated herein by reference to the Company's Current Report on Form
8-K filed on October 2, 1995 (File No. 0-24992).
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended May 31, 1996 (File No. 0-24992).

II-9
<PAGE>

(8) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 31, 1996 (File No. 0-24992).
(9) Filed herewith.

(b) Financial Statement Schedules.

Financial statement schedules are not submitted because they are not
applicable or not required or because the required information is
included in the financial statements or notes thereto included elsewhere
herein.

ITEM 28. UNDERTAKINGS

(a) Rule 415 Offering.
-----------------

The undersigned Registrant will:

(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:

(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;

(ii) Reflect in the prospectus any facts or events which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and

(iii) Include any additional or changed material information on the plan
of distribution.

(2) For determining liability under the Securities Act treat each post-
effective amendment as a new registration statement of the Securities
offered, and the offering of the Securities at that time to be the
initial bona fide offering.

(3) File a post-effective amendment to remove from registration any of the
Securities that remain unsold at the end of the offering.

(e) Indemnification.
---------------

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 22 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the

II-10
<PAGE>

Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
Securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

(f) Rule 430A.
---------

The undersigned Registrant will:

(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the small business issuer under Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared it
effective.

(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the Securities offered in the Registration
Statement, and that offering of the Securities at that time as the
initial bona fide offering of those Securities.

II-11
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and has authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Houston, State of Texas, on November 1, 1996.

TELETOUCH COMMUNICATIONS, INC.

By: /s/ Robert M. McMurrey
----------------------
Robert M. McMurrey, Chief Executive Officer

In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities and on the dates stated.

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s Robert M. McMurrey Chairman and Chief Executive December 31, 1996
- ---------------------------------
Robert M. McMurrey Officer

/s G. David Higginbotham President, Chief Operating December 31, 1996
- ---------------------------------
G. David Higginbotham Officer and Director

/s Michael Rosen Executive Vice President, December 31, 1996
- ---------------------------------
Michael Rosen Chief Financial Officer and
Assistant Secretary

/s Charles C. Green III Director December 31, 1996
- ---------------------------------
Charles C. Green III

/s Clifford E. McFarland Director December 31, 1996
- ---------------------------------
Clifford E. McFarland

/s Marcus D. Wedner Director December 31, 1996
- ---------------------------------
Marcus D. Wedner

/s Christopher J. Perry Director December 31, 1996
- ---------------------------------
Christopher J. Perry
</TABLE>
II-12

<PAGE>

Exhibit 5.1

December 31, 1996

Board of Directors
Teletouch Communications, Inc.
110 North College, Suite 200
Tyler, Texas 75702

Re: Registration Statement on Form SB-2
-----------------------------------

Gentlemen:

We have acted as counsel for Teletouch Communications, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company of a registration statement (the "Registration Statement") on
Form SB-2 under the Securities Act of 1933, as amended, relating to the offer
and sale of 447,500 shares (the "Shares") of common stock, $.001 par value
(the "Common Stock") by selling stockholders, the reoffer and resale of
800,000 warrants (the "Registered Warrants") to purchase up to 800,000 shares
of Common Stock issued to the holders thereof, and the offer and sale of
800,000 shares of Common Stock issuable upon exercise of the Registered
Warrants (the "Warrant Shares"). Capitalized terms used herein but not
otherwise defined shall have the meanings attributed to them in the
Prospectus contained in Part I of the Registration Statement.

We have examined the Certificate of Incorporation and By-Laws of the
Company, the minutes of the various meetings and consents of the Board of
Directors of the Company, the certificates representing the Common Stock and
the Registered Warrants, originals or copies of all such records of the
Company, agreements, certificates of public officials, certificates of
officers and representatives of the Company and others, and such other
documents, certificates, records, authorizations, proceedings, statutes and
judicial decisions as we have deemed necessary to form the basis of the
opinion expressed below. In such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals and the conformity to originals of all documents submitted to us as
copies thereof. As to various questions of fact material to such Opinion, we
have relied upon statements and certificates of officers and representatives
of the Company and others.
<PAGE>

Teletouch Communications, Inc.
December 31, 1996
Page 2

Based upon the foregoing, we are of the opinion that:

1. The Shares, when sold in accordance with the prospectus forming a
part of the Registration Statement (the "Prospectus"), will be legally
issued, fully paid and nonassessable.

2. The Registered Warrants and Underwriters Warrants are legally issued,
fully paid and nonassessable.

3. The Warrant Shares issuable upon exercise of the Registered Warrants
have been duly authorized and reserved for issuance and, when issued in
accordance with the terms of the Registered Warrants, will be legally issued,
fully paid and nonassessable.

We hereby consent to be named in the Registration Statement and the
Prospectus as attorneys who have passed upon legal matters in connection with
the offering of the securities offered thereby under the caption "Legal
Matters."

We further consent to your filing a copy of this opinion as an exhibit
to the Registration Statement.

De Martino Finkelstein Rosen & Virga

<PAGE>

Exhibit 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated July 12, 1996 (except for Notes E and M, as to which the
date is August 2, 1996) in the Registration Statement (Form SB-2 No. 333-15527)
and related Prospectus of Teletouch Communications, Inc. for the registration of
447,500 shares of its common stock; 400,000 Benchmark Warrants to purchase
common stock and 400,000 shares of common stock issuable upon the exercise of
the Benchmark Warrants; 200,000 Underwriters' Warrants to purchase common stock
and 200,000 shares of common stock issuable upon the exercise of the
Underwriters' Warrants; 200,000 Class UW Warrants to purchase Modified Class A
Warrants, 200,000 Modified Class A Warrants issuable upon the exercise of Class
UW Warrants and 200,000 shares of common stock issuable upon the exercise of
Modified Class A Warrants.

Ernst & Young LLP

Dallas, Texas

December 31, 1996