<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event reported) - April 13, 1996
TEXAS UTILITIES COMPANY
(Exact name of registrant as specified in its charter)
TEXAS 1-3591 75-0705930
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1601 BRYAN STREET, ENERGY PLAZA, DALLAS, TEXAS 75201
(Address of principal executive offices)
Registrant's telephone number, including area code - (214) 812-4600
<PAGE> 2
ITEM 5. OTHER EVENTS
Texas Utilities Company, a Texas corporation (Company), ENSERCH
Corporation, a Texas corporation (ENSERCH), TXA, Inc., a newly formed Texas
corporation wholly owned by the Company (TXA), and TXB, Inc., a newly formed
Texas corporation 50% of the outstanding capital stock of which is owned by
ENSERCH and 50% of the outstanding capital stock of which is owned by the
Company (TXB), have entered into an Agreement and Plan of Merger, dated as of
April 13, 1996 (the Merger Agreement), providing for a strategic business
combination of ENSERCH and the Company (the Merger). The Merger, which was
unanimously approved by the Boards of Directors of ENSERCH and the Company,
would be preceded by the spinoff of ENSERCH's 83.4% interest in ENSERCH
Exploration, Inc., a Texas corporation (EEX), and certain other assets, to the
shareholders of ENSERCH (the Distribution). Certain matters pertaining to the
Distribution will be set forth in a Distribution Agreement and a Tax Allocation
Agreement, each to be entered into among the Company, ENSERCH, EEX and Lone
Star Energy Company, another ENSERCH wholly owned subsidiary. The consummation
of the Merger is subject to a favorable IRS ruling that the Distribution will
qualify as a tax-free distribution, the receipt of opinions of counsel that the
Merger will qualify as a tax-free reorganization, the effectiveness of a
registration statement to be filed by the Company in respect of its common
stock to be issued in the Merger, the approval of such shares of common stock
for listing on the New York Stock Exchange and certain regulatory approvals.
The closing is expected to occur in late 1996.
In the Merger, TXA will merge with and into ENSERCH and ENSERCH will
become a wholly owned subsidiary of the Company. Alternatively, under certain
circumstances, the Merger Agreement would be amended as appropriate to effect
the transaction by the merger of two newly formed, wholly owned subsidiaries of
TXB with and into ENSERCH and the Company, respectively, with the result that
ENSERCH and the Company each would become wholly owned subsidiaries of TXB.
In the Merger, each outstanding share of common stock, par value $4.45
per share, of ENSERCH (ENSERCH Common Stock) will be converted into the right
to receive that number (the Ratio) of shares of TUC common stock, no par value
(TUC Common Stock), equal to the quotient obtained by dividing $8.00 by the
average closing sales price of a share of TUC Common Stock over a 15
consecutive trading day period preceding the fifth trading day prior to the
effective time of the Merger (the Average TUC Price), provided that the Average
TUC Price will be deemed to be not less than $35 5/8 and not more than $43 5/8.
The Merger Agreement provides, with respect to certain outstanding
ENSERCH debt, that ENSERCH and the Company will cooperate with each other in
maintaining, and that the Company will take such actions as are necessary to
meet the quantitative parameters necessary for ENSERCH to maintain, the ratings
on such debt by at least two nationally recognized rating agencies at their
current levels.
The Merger Agreement contains customary representations and warranties
on the part of ENSERCH and the Company, and the consummation of the Merger is
subject to customary closing conditions, including, without limitation,
approval by the shareholders of ENSERCH, the receipt of all necessary
governmental approvals and the making of all required governmental filings.
Each of ENSERCH and the Company has the opportunity to terminate the Merger
Agreement by notice
<PAGE> 3
delivered no later than May 4, 1996, if it uncovers information amounting to a
material adverse change in the business or prospects of the other party as
compared to the information disclosed prior to the execution of the Merger
Agreement.
The Merger Agreement also may be terminated by either ENSERCH or the
Company if the Merger is not consummated by March 31, 1997, provided that such
termination date will be extended to September 30, 1997, if all conditions to
closing of the Merger, other than the receipt of certain regulatory approvals,
are capable of being satisfied on March 31, 1997.
If the Merger Agreement is terminated under circumstances involving a
third-party tender offer or business combination proposal with respect to
ENSERCH or the Company, as the case may be, and such offer or proposal has not
been rejected by the Board of Directors of the target company and withdrawn by
the third party, then the Merger Agreement provides for the payment by the
target party of a termination fee in the amount of $42.5 million (the
"Termination Fee"), which includes out-of-pocket expenses and the value as of
the date of termination of the Stock Option described hereafter.
Concurrently with signing the Merger Agreement, ENSERCH and the
Company entered into a stock option agreement (the Stock Option Agreement)
granting the Company an irrevocable option to purchase up to 3,363,570 shares
of ENSERCH Common Stock (the Stock Option), which is equal to 4.9% of the
shares of ENSERCH Common Stock outstanding as of March 31, 1996, at a price per
share of $16 3/8, if any of the circumstances which trigger payment of the
Termination Fee occurs. The issuance of any stock upon the exercise of the
Stock Option is subject to any required regulatory approvals. If the Stock
Option becomes exercisable, the Company may require ENSERCH to repurchase from
the Company all or any portion of the Stock Option, or any shares acquired by
the Company upon the exercise thereof, at a price to be calculated as specified
in the Stock Option Agreement.
The descriptions of the Merger Agreement, and the Stock Option
Agreement entered into in connection therewith, set forth herein do not purport
to be complete and are qualified in their entirety by the provisions of the
Merger Agreement and the Stock Option Agreement.
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
2(a) - Agreement and Plan of Merger, dated as of
April 13, 1996.
2(b) - Stock Option Agreement, dated as of April 13,
1996.
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEXAS UTILITIES COMPANY
By: /s/ Peter B. Tinkham
------------------------------
Peter B. Tinkham
Treasurer and Assistant Secretary
Date: April 19, 1996
<PAGE> 6
INDEX TO EXHIBITS
<TABLE>
Exhibit No. Description
- ----------- -----------
<S> <C>
2(a) - Agreement and Plan of Merger, dated as of April 13, 1996.
2(b) - Stock Option Agreement, dated as of April 13, 1996.
</TABLE>
<PAGE> 1
EXHIBIT 2(a)
AGREEMENT AND PLAN OF MERGER
AMONG
ENSERCH CORPORATION
TEXAS UTILITIES COMPANY
TXA, INC.
AND
TXB, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
Section 2.2 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
Section 2.3 Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
Section 2.4 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
Section 2.5 Effects of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
Section 3.1 Effect of Merger on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
Section 3.2 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
Section 4.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
Section 5.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
Section 5.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
Section 5.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
Section 5.4 Authority; Non-Contravention;
Statutory Approvals; Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
Section 5.5 Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20 -
Section 5.6 Absence of Certain Changes or Events;
Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
Section 5.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
Section 5.8 Registration Statement and Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
Section 5.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
Section 5.10 Employee Matters; ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
Section 5.11 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
</TABLE>
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<TABLE>
<S> <C> <C>
Section 5.12 Regulation as a Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
Section 5.13 Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
Section 5.14 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
Section 5.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
Section 5.16 Ownership of TUC Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
Section 6.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
Section 6.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
Section 6.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
Section 6.4 Authority; Non-Contravention;
Statutory Approvals; Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
Section 6.5 Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
Section 6.6 Absence of Certain Changes or Events;
Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
Section 6.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
Section 6.8 Registration Statement and Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
Section 6.9 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
Section 6.10 Employee Matters; ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
Section 6.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
Section 6.12 Regulation as a Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
Section 6.13 Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
Section 6.14 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
Section 6.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
</TABLE>
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<TABLE>
<S> <C> <C>
Section 6.16 Ownership of Enserch Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
Section 6.17 TXA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
Section 6.18 NRC Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 44 -
Section 7.1 Ordinary Course of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 44 -
Section 7.2 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
Section 7.3 Issuance of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
Section 7.4 Charter Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
Section 7.5 No Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
Section 7.6 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
Section 7.7 No Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
Section 7.8 Transfer of Assets to the Distribution Subsidiaries . . . . . . . . . . . . . . . . . . . . . . - 47 -
Section 7.9 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
Section 7.10 Compensation, Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
Section 7.11 1935 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
Section 7.12 Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
Section 7.13 Tax-Free Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
Section 7.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
Section 7.15 Cooperation, Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Section 7.16 Rate Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Section 7.17 Third-Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Section 7.18 Tax-Exempt Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Section 7.19 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
</TABLE>
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<TABLE>
<S> <C> <C>
Section 7.20 Certain Information Relating to Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Section 7.21 Certain Restrictions in Respect of TUC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Section 8.1 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
Section 8.2 Proxy Statement and Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52 -
Section 8.3 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53 -
Section 8.4 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
Section 8.5 Directors' and Officers' Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 55 -
Section 8.6 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 56 -
Section 8.7 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 57 -
Section 8.8 Rule 145 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 57 -
Section 8.9 Employment Agreement Consultation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 57 -
Section 8.10 Stock Option and Bonus Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 58 -
Section 8.11 No Solicitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 59 -
Section 8.12 Transition Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 60 -
Section 8.13 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 60 -
Section 8.14 Employee Benefit Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 60 -
Section 8.15 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 60 -
Section 8.16 Covenant to Satisfy Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 61 -
Section 9.1 Conditions to Each Party's Obligation
to Effect the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 62 -
Section 9.2 Conditions to Obligation of Enserch
to Effect the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 63 -
</TABLE>
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<TABLE>
<S> <C> <C>
Section 9.3 Conditions to Obligation of
TUC to Effect the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 64 -
Section 10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 65 -
Section 10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 68 -
Section 10.3 Certain Damages, Payments and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 69 -
Section 10.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 71 -
Section 10.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 71 -
Section 11.1 Non-Survival of Representations,
Warranties, Covenants and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 72 -
Section 11.2 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 72 -
Section 11.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 72 -
Section 11.4 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 73 -
Section 11.5 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 74 -
Section 11.6 Counterparts; Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 74 -
Section 11.7 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 74 -
Section 11.8 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 74 -
Section 11.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 74 -
</TABLE>
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<PAGE> 7
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 13, 1996 (this
"Agreement"), by and among ENSERCH Corporation, a corporation formed under the
laws of the State of Texas ("Enserch"), Texas Utilities Company, a corporation
formed under the laws of the State of Texas ("TUC"), TXA, Inc., a wholly owned
transitory subsidiary of TUC formed under the laws of the State of Texas
("TXA"), and TXB, Inc., a corporation formed under the laws of the State of
Texas ("TXB"), 50% of whose outstanding capital stock is owned by TUC and 50%
of whose outstanding capital stock is owned by Enserch.
WHEREAS, TUC and Enserch have determined to engage in a strategic
business combination;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
Enserch and TUC have approved the merger of TXA with and into Enserch whereby
the Common Stock of Enserch will be converted into and exchanged for Common
Stock of TUC and Enserch will become a wholly owned subsidiary of TUC, (or in
certain circumstances described herein, two wholly owned, newly formed
subsidiaries of TXB will merge with and into TUC and Enserch, respectively, and
TUC and Enserch will become thereby wholly owned subsidiaries of TXB) all
pursuant to the terms and conditions set forth in this Agreement and, the Board
of Directors of Enserch has approved the execution and delivery of the Enserch
Stock Option Agreement dated as of the date hereof between Enserch and TUC (the
"Enserch Option");
WHEREAS, it is a condition to such merger that the Preliminary Merger
(as hereinafter defined) shall have occurred, and the stock of Lone Star Energy
Company, a Texas corporation ("LSEC"), a wholly owned subsidiary of Enserch,
shall have been distributed to the shareholders of Enserch prior to the Merger
(the "Distribution"), in accordance with the terms of the distribution
agreement to be entered into among Enserch, LSEC and Enserch Exploration, Inc.
a wholly owned Subsidiary of Enserch ("EEX") and TUC substantially in the form
attached hereto as Exhibit A (the "Distribution Agreement").
WHEREAS, for federal income tax purposes, it is intended that (a) the
Merger will be a reorganization described in Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder or that the Alternative Mergers (as hereinafter defined) will result
in exchanges described in Section 351 of the Code, and (b) the Distribution
shall qualify as a tax-free distribution within the meaning of Section 355 of
the Code.
<PAGE> 8
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NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
"Articles of Merger" shall have the meaning set forth in Section 2.2.
"Barr Devlin" shall have the meaning set forth in Section 6.14.
"Business Combination" shall have the meaning set forth in Section
10.1(e).
"Certificates" shall have the meaning set forth in Section 3.2(b).
"Closing" and "Closing Date" shall have the meaning set forth in
Section 4.1.
"Confidentiality Agreement" shall have the meaning set forth in
Section 7.20.
"Converted Shares" shall have the meaning set forth in Section 3.2(b).
"Disclosure Schedules" shall mean the Enserch Disclosure Schedule and
the TUC Disclosure Schedule, collectively.
"Distribution Subsidiaries" shall mean EEX and LSEC and their
respective Subsidiaries and Joint Ventures.
"Due Diligence Period" shall have the meaning set forth in Section
8.6.
"Effective Time" shall have the meaning set forth in Section 2.2.
"Enserch Benefit Plan" shall have the meaning set forth in Section
5.10(a)(ii).
"Enserch 1996 Budget" shall have the meaning set forth in Section 7.5.
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"Enserch 1997 Budget" shall have the meaning set forth in Section 7.5.
"Enserch Common Stock" shall mean the common stock, par value $4.45
per share, of Enserch.
"Enserch Convertible Debentures" shall mean the issued and outstanding
6 3/8% Convertible Subordinated Debentures Due 2002 issued by Enserch.
"Enserch Disclosure Schedule" shall have the meaning set forth in
Section 8.6(a)(ii).
"Enserch ERISA Affiliate" shall have the meaning set forth in Section
5.10(a)(i)(D).
"Enserch Financial Statements" shall have the meaning set forth in
Section 5.5(d).
"Enserch Material Adverse Effect" shall mean a material adverse
effect on the business, operations, properties, assets, condition (financial or
otherwise), prospects or results of operations of Enserch and its Subsidiaries
taken as a whole or on the consummation of the transactions contemplated by
this Agreement; provided that an Enserch Material Adverse Effect shall not
include any adverse effect resulting from a failure to obtain the consent of
the holders of the Enserch Notes to the transactions contemplated by this
Agreement.
"Enserch Notes" shall mean: (i) the issued and outstanding 8% Notes
Due 1997, 8 7/8% Notes Due 2001, 7% Notes Due 1999, 6 3/8% Notes Due 2004, 7
1/8% Notes Due 2005 issued by Enserch under the Indenture, dated as of February
15, 1992 between Enserch and The First National Bank of Chicago, as Trustee;
(ii) the Enserch Convertible Debentures; and (iii) the 9.06% Adjusting Rate
Senior Notes issued by Enserch pursuant to the Note Agreement, dated as of
January 12, 1990, between Enserch and the Prudential Insurance Company of
America, Pruco Life Insurance Company, Prudential Property and Casualty
Insurance Company, and Prudential Reinsurance Company.
"Enserch Pension Benefit Plans" shall have the meaning set forth in
Section 5.10(a)(i)(D).
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"Enserch Preferred Stock" shall mean the (i) adjustable rate
cumulative preferred stock, series E ("Series E Preferred Stock"), and (ii)
adjustable rate cumulative preferred stock, series F ("Series F Preferred
Stock"), of Enserch.
"Enserch Required Consents" shall have the meaning set forth in
Section 5.4(b)(iii).
"Enserch Required Statutory Approvals" shall have the meaning set
forth in Section 5.4(c).
"Enserch Rights" shall mean all of the outstanding rights to purchase
Enserch Common Stock pursuant to the Rights Agreement dated as of March 26,
1996.
"Enserch SEC Reports" shall have the meaning set forth in Section
5.5(b).
"Enserch Shareholders' Approval" shall have the meaning set forth in
Section 5.13.
"Enserch Special Meeting" shall have the meaning set forth in Section
8.4(a)(i).
"Enserch Trust" shall have the meaning set forth in Section
3.2(d)(iii).
"Environmental Claims" shall mean, with respect to any person, (A)
any and all administrative, regulatory or judicial actions, suits, demands,
demand letters, directives, claims, liens, investigations, proceedings or
notices of noncompliance or violation in writing by or from any person or
entity (including any Governmental Authority), or (B) any oral information
provided by a Governmental Authority that written action of the type described
in the foregoing clause is in process, which (in case of either (A) or (B))
alleges potential liability (including, without limitation, potential liability
for enforcement, investigatory costs, cleanup costs, governmental response
costs, removal costs, remedial costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from (a) the presence, or Release or threatened Release into the environment,
of any Hazardous Materials at any location, whether or not owned, operated,
leased or managed by Enserch or any of its Subsidiaries or Joint Ventures (for
purposes of Section 5.11) or by TUC or any of its Subsidiaries or Joint
Ventures (for purposes of Section 6.11), (b) circumstances forming the basis of
any violation, or alleged violation, of any Environmental Law or (c) any and
all claims by any third party seeking damages, contribution, indemnification,
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cost recovery, compensation or injunctive relief resulting from the presence or
Release of any Hazardous Materials.
"Environmental Laws" shall mean all federal, state and local laws,
rules, regulations and guidances relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including, without
limitation, laws and regulations relating to Releases or threatened Releases of
Hazardous Materials or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
"Environmental Permits" shall have the meaning set forth in Section
5.11(b).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Excess Shares" shall have the meaning set forth in Section
3.2(d)(ii).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" shall have the meaning set forth in Section 3.2(a).
"FERC" shall mean the Federal Energy Regulatory Commission.
"Final Order" shall mean action by the relevant regulatory authority
(or in the case of the Texas Railroad Commission Review, satisfaction of any
one of (i) through (v) of the definition thereof) set that has not been
reversed, stayed, enjoined, set aside, annulled or suspended, with respect to
which any waiting period prescribed by law before the transactions contemplated
hereby may be consummated has expired, and as to which all conditions to the
consummation of such transactions prescribed by law, regulation or order have
been satisfied, and as to which all opportunities for rehearing are exhausted
(whether or not any appeal thereof is pending).
"GAAP" shall mean generally accepted accounting principles.
"Governmental Authority" shall mean any court, governmental or
regulatory body (including a stock exchange or other self-regulatory body) or
authority, domestic or foreign.
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"Hazardous Materials" shall mean (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, and transformers or other equipment
that contain dielectric fluid containing polychlorinated biphenyls, (b) any
chemicals, materials or substances which are now defined as or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", or words of similar import, under any
Environmental Law and (c) any other chemical, material, substance or waste,
exposure to which is now prohibited, limited or regulated under any
Environmental Law in a jurisdiction in which Enserch or any of its Subsidiaries
or Joint Ventures operates (for purposes of Section 5.11) or in which TUC or
any of its Subsidiaries or Joint Ventures operates (for purposes of Section
6.11).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Joint Venture" shall mean, with respect to any person, any
corporation or other entity (including partnerships and other business
associations and joint ventures) in which such person or one or more of its
Subsidiaries owns an equity interest that is less than a majority of any class
of the outstanding voting securities or equity, other than equity interests
held for passive investment purposes that are less than 5% of any class of the
outstanding voting securities or equity.
"Merger Sub A" shall have the meaning set forth in Section 2.1(b)(i).
"Merger Sub B" shall have the meaning set forth in Section 2.1(b)(i).
"Morgan Stanley" shall have the meaning set forth in Section 5.14.
"1935 Act" shall mean the Public Utility Holding Company Act of 1935,
as amended.
"NRC Actions" shall have the meanings set forth in Section 6.18.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Option Value" shall have the meaning set forth in Section 10.3(d).
"Out-of-Pocket Expenses" shall have the meaning set forth in Section
10.3(a).
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"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Power Act" shall mean the Federal Power Act.
"Preliminary Merger" shall have the meaning set forth in Section 8.15
(a).
"Proxy Statement" shall have the meaning set forth in Section
5.8(a)(ii).
"Proxy/Registration Statement" shall have the meaning set forth in
Section 8.2(a)(i).
"Ratio" shall have the meaning set forth in Section 3.1(b).
"Registration Statement" shall have the meaning set forth in Section
5.8(a)(i).
"Release" shall mean any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, subsurface, surface water, groundwater or property.
"Representatives" shall have the meaning set forth in Section 8.1.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shareholder Disapproval" shall have the meaning set forth in Section
10.3(b)(i)(B).
"Stock Option Adjustment" means an amount determined as follows: (i)
as of the fifth trading day prior to the Effective Time, ("Calculation Date"),
a calculation will be made of the sum of the cash payments made in respect of
the exercise of Enserch stock options between the date of signing this
Agreement and such date; and (ii) from such amount shall be subtracted the
value of the TUC Common Stock determined using the Average TUC Price that would
have been received by such option holders had they held the Enserch shares
after the Distribution. The Stock Option Adjustment shall be equal to such
difference divided by the number of outstanding shares of Enserch Common Stock
to be converted and exchanged into TUC Common Stock pursuant to Section 3.1(b).
"Stock Plan" shall have the meaning set forth in Section 8.10.
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"Subsidiary" shall mean, with respect to any person, any corporation
or other entity (including partnerships and other business associations) in
which a person directly or indirectly owns at least a majority of the
outstanding voting securities or other equity interests having the power, under
ordinary circumstances, to elect a majority of the directors, or otherwise to
direct the management and policies, of such corporation or other entity.
"Surviving Corporation" shall have the meaning set forth in Section
2.1(a).
"Takeover Proposal" shall mean any tender or exchange offer, proposal
for a merger, consolidation or other business combination involving Enserch,
TUC or any of their respective material Subsidiaries, or any proposal or offer
to acquire in any manner a substantial equity interest in, or a substantial
portion of the assets of, Enserch, TUC or any of their respective material
Subsidiaries, other than pursuant to the transactions contemplated by this
Agreement.
"Target Party" shall have the meaning set forth in Section
10.3(b)(ii).
"Task Force" shall have the meaning set forth in Section 8.12(a).
"Taxes" shall mean any federal, state, county, local or foreign taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, sales and use, ad valorem, transfer, gains, profits,
excise, franchise, real and personal property, gross receipts, capital stock,
production, business and occupation, disability, employment, payroll, license,
estimated, stamp, custom duties, severance or withholding taxes or charges
imposed by any governmental entity, and includes any interest and penalties
(civil or criminal) on or additions to any such taxes, charges, fees, levies or
other assessments, and any expenses incurred in connection with the
determination, settlement or litigation of any liability for any of the
foregoing.
"Tax Return" shall mean any report, return or other information
required to be supplied to a governmental entity with respect to Taxes,
including, where permitted or required, combined or consolidated returns for
any group of entities that includes Enserch or any of its Subsidiaries on the
one hand, or TUC or any of its Subsidiaries on the other hand.
"Texas Law" shall mean the Texas Business Corporation Act.
"Texas Railroad Commission Review" shall mean any one of the following
with regard to the Merger: (i) a Final Order by the Texas Railroad
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Commission finding that the Transaction is in the public interest; (ii) a Final
Order declining jurisdiction over the transaction by the Texas Railroad
Commission; (iii) a determination by the Texas Railroad Commission that an
Investigation associated with the Merger is not necessary; (iv) the issuance of
a letter by the Texas Railroad Commission stating that, at a minimum, it does
not oppose the Merger or (v) the taking of no action to docket or otherwise
consider the Merger by the Texas Railroad Commission by the time that all
requirements set forth in Section 9.1 (e) have been obtained.
"TUC Benefit Plan" shall mean any "employee pension benefit plan" or
"employee welfare benefit plan" as defined in ERISA, of TUC.
"TUC Common Stock" shall mean the common stock, no par value per
share, of TUC.
"TUC Disclosure Schedule" shall have the meaning set forth in Section
8.6(a)(i).
"TUC Financial Statements" shall have the meaning set forth in Section
6.5(d).
"TUC Material Adverse Effect" shall mean a material adverse effect on
the business, operations, properties, assets, condition (financial or
otherwise), prospects or results of operations of TUC and its Subsidiaries
taken as a whole or on the consummation of the transactions contemplated by
this Agreement.
"TUC Pension Benefit Plan" shall have the meaning set forth in Section
6.10.
"TUC Required Consents" shall have the meaning set forth in Section
6.4(b)(iii).
"TUC Required Statutory Approvals" shall have the meaning set forth in
Section 6.4(c).
"TUC SEC Reports" shall have the meaning set forth in Section 6.5(b).
"Violation" shall have the meaning set forth in Section 5.4(b).
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ARTICLE II
THE MERGER
Section 2.1 (a) The Merger. Upon the terms and subject to
the conditions of this Agreement, TXA shall be merged with and into Enserch in
accordance with the provisions of Sections 5.01 and 5.03 of Texas Law (the
"Merger"). The separate corporate existence of TXA shall thereupon cease, and
Enserch shall be the surviving corporation in the Merger and shall continue its
existence under the laws of the State of Texas (the "Surviving Corporation").
(b) The Alternative Mergers. Notwithstanding Section 2.1(a), if
(i) by the sixtieth day following the date of execution of this Agreement, TUC
is unable to obtain an opinion of counsel, reasonably satisfactory to Enserch
(which opinion will be based upon an arrangement for the modification or
acquisition of the Enserch Preferred Stock that will be accomplished on or
before the Closing Date), that the Merger will qualify as a tax-free
reorganization within the meaning of Section 368(a)(1)(B) of the Code, or (ii)
by the ninetieth day following the date of execution of this Agreement, TUC is
unable to accomplish such arrangements for the modification or acquisition of
the Enserch Preferred Stock, then upon the terms and subject to the conditions
of this Agreement:
(i) TUC and Enserch shall cause the following
corporations to be organized: (a) Merger Sub A ("Merger Sub A"), a
transitory corporation organized under the laws of the State of Texas,
the authorized capital stock of which shall initially consist of 100
shares of common stock, no par value, which shall be issued to TXB,
and (b) Merger Sub B ("Merger Sub B"), a transitory corporation
organized under the laws of the state of Texas, the authorized capital
stock of which shall initially consist of 100 shares of common stock,
no par value, which shall be issued to TXB; and
(ii) Merger Sub A shall be merged with and into TUC in
accordance with the applicable provisions of Texas Law and TUC shall
be the surviving corporation and Merger Sub B shall be merged with and
into Enserch in accordance with the applicable provisions of Texas Law
and Enserch shall be the surviving corporation (together, the
"Alternative Mergers"). As a result of the Alternative Mergers, TUC
and Enserch shall become subsidiaries of TXB, and each share of TUC
Common Stock shall be converted into and exchanged for the right to
receive one share of TXB common stock and each share of Enserch
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Common Stock shall be converted into and exchanged for the right to
receive a number of shares of TXB common stock equal to the Ratio. If
necessary, in order to effect the Alternative Mergers, the parties
hereto agree to execute an appropriate amendment to this Agreement.
In such event, tax opinions under Section 351 of the Code shall be
substituted for opinions under Section 368 (a)(1)(B) of the Code where
called for herein.
Section 2.2 Effective Time of the Merger. The parties
acknowledge that it is their mutual desire and intent to consummate the Merger
as soon as practicable after the date hereof. Accordingly, the parties shall
use all reasonable efforts to bring about the satisfaction as soon as
practicable of all the conditions specified in Article IX and otherwise to
effect the consummation of the Merger as soon as practicable. Subject to the
terms hereof, as soon as practicable after all of the conditions set forth in
Article IX shall have been satisfied or waived, the parties hereto will cause
the Merger to be consummated by the filing with the Secretary of State of the
State of Texas, in accordance with the Texas Law, of articles of merger (the
"Articles of Merger") in such form as is required by, and executed in
accordance with, the relevant provisions of applicable law. The Merger shall
become effective at such time (the "Effective Time") as the Secretary of State
of the State of Texas shall, upon such filing of the Articles of Merger, issue
a certificate of merger in respect of the Merger.
Section 2.3 Articles of Incorporation. The Articles of
Incorporation of Enserch as in effect at the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation, until duly amended.
Section 2.4 Bylaws. The Bylaws of Enserch as in effect at the
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended.
Section 2.5 Effects of Merger. The Merger shall have the effects
set forth in Section 5.06 of Texas Law.
ARTICLE III
EXCHANGE OF SHARES
Section 3.1 Effect of Merger on Capital Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
of any capital stock of Enserch, TUC or TXA:
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(a) Cancellation of Certain Enserch Common Stock and Enserch
Rights. Each share of Enserch Common Stock (and the accompanying Enserch
Rights), if any, that is owned by TUC or any of its Subsidiaries, owned or held
in treasury by Enserch, or owned by any of Enserch's Subsidiaries shall be
canceled and cease to exist.
(b) Conversion of Certain Enserch Common Stock. Each issued and
outstanding share of Enserch Common Stock (and the accompanying Enserch Rights)
(other than shares of Enserch Common Stock canceled pursuant to Section
3.1(a)), together with any outstanding Enserch Rights with respect thereto
shall be converted into and exchanged for the right to receive such number of
share(s) or fraction of a share (rounded to the nearest 1/1000th) (the "Ratio")
of duly authorized, validly issued, fully paid and nonassessable TUC Common
Stock equal to the quotient obtained by dividing $8.00 by the average of the
closing sales prices of TUC Common Stock as reported in the New York Stock
Exchange- Consolidated Transactions Tape on each of the 15 consecutive trading
days preceding the fifth trading day prior to the Effective Time (the "Average
TUC Price"), provided that notwithstanding the actual Average TUC Price, the
Average TUC Price shall be deemed to be not less than $35 5/8 nor more than $43
5/8. Upon such conversion and exchange, all such shares of Enserch Common
Stock (and the accompanying Enserch Rights) shall be canceled and cease to
exist, and the holder of a certificate representing such shares shall cease to
have any rights with respect thereto, except the right to receive the number of
whole shares of TUC Common Stock to be issued in consideration therefor and any
cash in lieu of fractional shares of TUC Common Stock upon the surrender of
such certificate in accordance with Section 3.2.
(c) Enserch Preferred Stock Unchanged. Each share of Enserch
Preferred Stock outstanding at the Effective Time shall be unchanged in and
shall remain outstanding after the Merger.
(d) Enserch Convertible Debentures. Each outstanding Enserch
Convertible Debenture shall remain outstanding following the Merger. Enserch
shall take such action as may be necessary so that, after the Effective Time of
the Merger, the Enserch Convertible Debentures shall be convertible in
accordance with their terms only for TUC Common Stock. TUC shall authorize and
reserve for issuance, or otherwise provide, a sufficient number of shares of
TUC Common Stock for delivery upon such conversion of the then-outstanding
Enserch Convertible Debentures.
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(e) Conversion of TXA Capital Stock. Each share of TXA capital
stock outstanding at the Effective Time shall be converted into one share of
Enserch Common Stock.
Section 3.2 Exchange of Certificates.
(a) Deposit with Exchange Agent. As soon as practicable after the
Effective Time, TUC shall deposit with a bank or trust company mutually
agreeable to Enserch and TUC (the "Exchange Agent") certificates representing
shares of TUC Common Stock required to effect the exchanges referred to in
Section 3.1(b).
(b) Exchange Procedures. As soon as practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates that, immediately prior to the Effective Time,
represented outstanding shares of Enserch Common Stock (collectively, the
"Certificates") that were converted (collectively, the "Converted Shares") into
the right to receive shares of TUC Common Stock pursuant to Section 3.1(b), (i)
a form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to any Certificate shall pass, only upon
actual delivery of such Certificate to the Exchange Agent) and (ii)
instructions for use in effecting the surrender of Certificates in exchange for
certificates representing shares of TUC Common Stock. Upon surrender of a
Certificate to the Exchange Agent (or to such other agent or agents as may be
appointed by agreement of TUC and Enserch), together with a duly executed
letter of transmittal and such other documents as the Exchange Agent shall
require, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing the number of whole shares of TUC
Common Stock that such holder has the right to receive pursuant to the
provisions of this Article III. In the event of a transfer of ownership of
Converted Shares that is not registered in the transfer records of Enserch, a
certificate representing the proper number of shares of TUC Common Stock may be
issued to the transferee if the Certificate representing such Converted Shares
is presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence satisfactory to the Exchange
Agent that any applicable stock transfer taxes have been paid. If any
Certificate shall have been lost, stolen, mislaid or destroyed, then upon
receipt of (x) an affidavit of that fact from the holder claiming such
Certificate to be lost, mislaid, stolen or destroyed, (y) such bond, security
or indemnity as TUC or the Exchange Agent may reasonably require, and (z) any
other documentation necessary to evidence and effect the bona fide exchange
thereof, the Exchange Agent shall issue to such holder a certificate
representing the number of shares of TUC Common Stock into which the shares
represented by such lost, stolen,
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mislaid or destroyed Certificate shall have been converted. Until surrendered
as contemplated by this Section 3.2, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender a certificate representing shares of TUC Common Stock and cash in
lieu of any fractional shares of TUC Common Stock as contemplated by this
Section 3.2.
(c) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective Time with
respect to TUC Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Certificate with respect to the
shares of TUC Common Stock represented thereby, and no cash payment in lieu of
fractional shares shall be made to any such holder pursuant to Section 3.2(d),
until the holder of record of such Certificate shall surrender such Certificate
as contemplated by Section 3.2(b). Subject to the effect of unclaimed
property, escheat and other applicable laws, following surrender of any such
Certificate there shall be paid to the holder of the certificates representing
whole shares of TUC Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender or as soon thereafter as may be practicable,
the amount of any cash payable in lieu of a fractional share of TUC Common
Stock to which such holder is entitled pursuant to Section 3.2(d) and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole number of shares of
TUC Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole number of shares of TUC Common Stock.
(d) No Fractional Securities.
(i) No certificates or scrip representing fractional
shares of TUC Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
TUC.
(ii) As promptly as practicable following the Effective
Time, the Exchange Agent shall determine the excess of (x) the number
of full shares of TUC Common Stock delivered to the Exchange Agent by
TUC pursuant to Section 3.2(a) over (y) the aggregate number of whole
shares of TUC Common Stock to be issued pursuant to Section 3.1, such
excess being herein called the "Excess Shares." As soon after the
Effective Time as practicable, the Exchange Agent, as agent for the
holders of Enserch Common Stock, shall sell the Excess Shares at then
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prevailing prices on the NYSE, all in the manner provided in paragraph
(iii) of this Section 3.2(d).
(iii) The sale of the Excess Shares by the Exchange Agent
shall be executed on the NYSE through one or more member firms of the
NYSE and shall be executed in round lots to the extent practicable.
Until the net proceeds of such sale or sales have been distributed to
the holders of Enserch Common Stock, the Exchange Agent shall hold
such proceeds in trust for the holders of Enserch Common Stock (the
"Enserch Trust"). TUC shall pay all commissions, transfer taxes and
other out-of-pocket transaction costs, including the expenses and
compensation, of the Exchange Agent incurred in connection with such
sale of the Excess Shares. The Exchange Agent shall determine the
portion of the Enserch Trust to which each holder of Enserch Common
Stock is entitled.
(iv) As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Enserch Common Stock
in lieu of any fractional share interests, the Exchange Agent shall
distribute such amounts to such holders of Enserch Common Stock in
accordance with this Section 3.2.
(e) Closing of Transfer Books. From and after the Effective Time,
the stock transfer books of Enserch shall be closed and no transfer of any
Enserch Common Stock shall thereafter be made. If after the Effective Time any
Certificates are presented to the TUC transfer agent for registration of
transfer, they shall be canceled and exchanged for certificates representing
the number of whole shares of TUC Common Stock and the cash amount, if any,
determined in accordance with this Article III.
(f) Termination of Duties of Exchange Agent. Any certificates
representing TUC Common Stock deposited with the Exchange Agent pursuant to
Section 3.2(a) and not exchanged within one year after the Effective Time
pursuant to this Section 3.2 shall be returned by the Exchange Agent to TUC,
which shall thereafter act as Exchange Agent. All funds held by the Exchange
Agent for payment to the holders of unsurrendered Certificates and unclaimed at
the end of one year from the Effective Time shall be returned to TUC, whereupon
any holder of unsurrendered Certificates shall look as a general unsecured
creditor only to TUC for payment of any funds to which such holder may be
entitled, subject to applicable law. TUC shall not be liable to any person for
such shares or funds delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
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Section 3.3 Adjustments to Prevent Dilution. Subject to the
requirements of Article VII hereof, in the event that prior to the Effective
Time there is a change in the number of issued and outstanding shares of TUC
Common Stock or shares of Enserch Common Stock convertible or exchangeable into
TUC Common Stock in the Merger as a result of a reclassification subdivision,
recapitalization, combination, exchange, stock split (including reverse stock
split), stock dividend or distribution or other similar transaction, the Ratio
shall be equitably adjusted to eliminate the effects of such event.
ARTICLE IV
THE CLOSING
Section 4.1 Closing. The closing of the Merger (the "Closing")
shall take place at the offices of Worsham, Forsythe & Wooldridge, L.L.P., 1601
Bryan Street, 30th Floor, Dallas, Texas 75201 at 10:00 a.m., local time, on
the second business day immediately following the date on which the last of the
conditions set forth in Article IX is fulfilled or waived, or at such other
time and date and place as Enserch and TUC shall mutually agree (the "Closing
Date").
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ENSERCH
Enserch represents and warrants to TUC as follows:
Section 5.1 Organization and Qualification. Enserch is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Texas, and each of Enserch' Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each of Enserch and its Subsidiaries has all
requisite corporate power and authority, and is duly authorized by all
necessary regulatory approvals and orders, to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted, and
is duly qualified and in good standing to do business in each jurisdiction in
which the nature of its business or the ownership or leasing of its assets and
properties makes such qualification necessary, other than such failures which,
when taken together with all other such failures, will not have an Enserch
Material Adverse Effect.
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Section 5.2 Subsidiaries.
(a) Section 5.2 of the Enserch Disclosure Schedule sets forth a
list as of the date hereof of all Subsidiaries and Joint Ventures (with the
exception of EEX Joint Ventures involving oil and gas operating agreements) of
Enserch, including the name of each such entity and the state or jurisdiction
of its incorporation.
(b) Except as set forth in Section 5.2 of the Enserch Disclosure
Schedule, none of the entities listed in such Section 5.2 is a "public utility
company", a "holding company", a "subsidiary company" or an "affiliate" of any
public utility company within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8)
or 2(a)(11) (A) of the 1935 Act, respectively.
(c) Except as set forth in Section 5.2 of the Enserch Disclosure
Schedule, all of the issued and outstanding shares of capital stock of each
Subsidiary of Enserch are validly issued, fully paid, nonassessable and free of
preemptive rights and are owned directly or indirectly by Enserch free and
clear of any liens, claims, encumbrances, security interests, equities, charges
and options of any nature whatsoever, and there are no outstanding
subscriptions, options, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement, obligating any such Subsidiary to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of its
capital stock or obligating it to grant, extend or enter into any such
agreement or commitment.
Section 5.3 Capitalization.
(a) As of the date hereof, the authorized capital stock of Enserch
consists of 100,000,000 shares of common stock, 2,000,000 shares of preferred
stock and 2,000,000 shares of voting preference stock.
(b) As of the close of business on March 31, 1996, (i) 68,644,284
shares of Enserch Common Stock, (ii) 100,000 shares of Enserch Series E
Preferred Stock, (iii) 75,000 shares of Enserch Series F Preferred Stock and
(iv) no shares of voting preference stock of Enserch were issued and
outstanding.
(c) All of the issued and outstanding shares of the capital stock
of Enserch are validly issued, fully paid, nonassessable and free of preemptive
rights.
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(d) Except for the Enserch Option, the Enserch Convertible
Debentures, the Enserch Rights and as set forth in Section 5.3(a) of the
Enserch Disclosure Schedule, there are no outstanding subscriptions, options,
calls, contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating Enserch to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of Enserch or
obligating Enserch to grant, extend or enter into any such agreement or
commitment.
Section 5.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority.
(i) Enserch has all requisite power and authority to
enter into this Agreement and, subject to the Enserch Shareholders'
Approval and the Enserch Required Statutory Approvals, to consummate
the transactions contemplated hereby.
(ii) The execution and delivery of this Agreement and,
subject to obtaining the Enserch Shareholders' Approval, the
consummation by Enserch of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Enserch.
(iii) This Agreement has been duly and validly executed and
delivered by Enserch and, assuming the due authorization, execution
and delivery hereof by TUC, TXA and TXB, constitutes a valid and
binding obligation of Enserch, enforceable against Enserch in
accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or other
similar laws affecting the enforcement of creditors' rights generally,
and except that the availability of equitable remedies, including
specific performance, may be subject to the discretion of any court
before which any proceedings may be brought.
(iv) The Enserch Option has been duly and validly executed
and delivered by Enserch and, assuming the due authorization,
execution and delivery thereof by TUC, constitutes a valid and binding
obligation of Enserch, enforceable against Enserch in accordance with
its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or other similar
laws
<PAGE> 25
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affecting the enforcement of creditors' rights generally, and except
that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before
which any proceedings may be brought.
(b) Non-Contravention. Except as set forth in Section 5.4(b) of
the Enserch Disclosure Schedule, the execution and delivery of this Agreement
and the Enserch Option by Enserch do not, and the consummation of the
transactions contemplated hereby and thereby will not, violate, conflict with
or result in a breach of any provision of, or constitute a default (with or
without notice or lapse of time or both) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets (any such
violation, conflict, breach, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") of, Enserch or any of its
Subsidiaries or, to the knowledge of Enserch, any of its Joint Ventures, under
any provisions of
(i) the articles of incorporation, bylaws or similar
governing documents of Enserch or any of its Subsidiaries or Joint
Ventures,
(ii) subject to obtaining the Enserch Required Statutory
Approvals and the receipt of the Enserch Shareholders' Approval, any
statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any Governmental Authority
applicable to Enserch or any of its Subsidiaries or Joint Ventures or
any of their respective properties or assets, or
(iii) subject to obtaining the third-party consents or
other approvals set forth in Section 5.4(b) of the Enserch Disclosure
Schedule (the "Enserch Required Consents"), any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any
kind to which Enserch or any of its Subsidiaries or Joint Ventures is
now a party or by which it or any of its properties or assets may be
bound or affected,
excluding from the foregoing clauses (ii) and (iii) such Violations as would
not, in the aggregate, reasonably likely have an Enserch Material Adverse
Effect.
<PAGE> 26
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(c) Statutory Approvals. Except as set forth in Section 5.4(c) of
the Enserch Disclosure Schedule, no declaration, filing or registration with,
or notice to or authorization, consent or approval of any Governmental
Authority is necessary for the execution and delivery of this Agreement by
Enserch or the consummation by Enserch of the transactions contemplated hereby,
the failure to obtain, make or give which would reasonably likely have an
Enserch Material Adverse Effect (the "Enserch Required Statutory Approvals"),
it being understood that references in this Agreement to "obtaining" such
Enserch Required Statutory Approvals shall mean making such declarations,
filings or registrations; giving such notice; obtaining such consents or
approvals; and having such waiting periods expire as are necessary to avoid a
violation of law.
(d) Compliance.
(i) Except as set forth in Section 5.4(d) or 5.11 of the
Enserch Disclosure Schedule or as disclosed in the Enserch SEC
Reports, neither Enserch nor any of its Subsidiaries nor, to the
knowledge of Enserch, any of its Joint Ventures is in violation of or
under investigation with respect to, or has been given notice or been
charged with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any
applicable environmental law, ordinance or regulation) of any
Governmental Authority, except for violations that do not have, and,
would not reasonably likely have, an Enserch Material Adverse Effect.
(ii) Except as set forth in Section 5.4(d) or 5.11 of the
Enserch Disclosure Schedule, Enserch, its Subsidiaries and, to the
knowledge of Enserch, its Joint Ventures have all permits, licenses,
franchises and other governmental authorizations, consents and
approvals necessary to conduct their respective businesses as
currently conducted, except those the failure to obtain which would
not reasonably likely have an Enserch Material Adverse Effect.
Section 5.5 Reports and Financial Statements.
(a) Since January 1, 1991, the filings required to be made by
Enserch and its Subsidiaries under the Securities Act, the Exchange Act or
under Texas laws and regulations administered by the Texas Railroad Commission
have been filed with the SEC or the Texas Railroad Commission, respectively, as
required by each such law or regulation, including all forms, statements,
reports, agreements and all documents, exhibits, amendments and supplements
appertaining thereto, and Enserch and its Subsidiaries have
<PAGE> 27
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complied in all material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder.
(b) Enserch has made available to TUC a true and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by Enserch or any of its Subsidiaries with the SEC since January 1, 1991
(such documents as filed, and any and all amendments thereto, the "Enserch SEC
Reports").
(c) The Enserch SEC Reports, including without limitation any
financial statements or schedules included therein, at the time filed, and all
forms, reports or other documents filed by Enserch with the SEC after the date
hereof, did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were or will be made, not misleading.
(d) The audited consolidated financial statements and unaudited
interim financial statements of Enserch included in the Enserch SEC Reports
(collectively, the "Enserch Financial Statements") have been prepared, and the
audited consolidated financial statements and unaudited interim financial
statements of Enserch included in all forms, reports, or other documents filed
by Enserch with the SEC after the date hereof will be prepared, in accordance
with GAAP applied on a consistent basis (except as may be indicated therein or
in the notes thereto and except with respect to unaudited statements as
permitted by Form 10-Q) and fairly present in all material respects the
financial position of Enserch as of the respective dates thereof or the results
of operations and cash flows for the respective periods then ended, as the case
may be, subject, in the case of the unaudited interim financial statements, to
normal, recurring audit adjustments.
(e) True, accurate and complete copies of the Articles of
Incorporation and Bylaws of Enserch, as in effect on the date hereof, have been
delivered to TUC.
Section 5.6 Absence of Certain Changes or Events; Absence of
Undisclosed Liabilities.
(a) Except as set forth in the Enserch SEC Reports or Section 5.6
of the Enserch Disclosure Schedule, from December 31, 1995 through the date
hereof Enserch and each of its Subsidiaries has conducted its business only in
the ordinary course of business consistent with past practice and there has not
<PAGE> 28
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been, and no fact or condition exists that would reasonably likely have, an
Enserch Material Adverse Effect.
(b) Neither Enserch nor any of its Subsidiaries has any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of a nature required by GAAP to be reflected in a consolidated corporate
balance sheet, except liabilities, obligations or contingencies (i) that are
accrued or reserved against in the consolidated financial statements of Enserch
or reflected in the notes thereto for the year ended December 31, 1995, or (ii)
that were incurred after December 31, 1995 in the ordinary course of business
and would not reasonably likely have an Enserch Material Adverse Effect.
Section 5.7 Litigation. Except as set forth in the Enserch SEC
Reports or as set forth in Section 5.7 or 5.11 of the Enserch Disclosure
Schedule, there are no claims, suits, actions or proceedings, pending or, to
the knowledge of Enserch, threatened, nor are there, to the knowledge of
Enserch, any investigations or reviews pending or threatened against, relating
to or affecting Enserch or any of its Subsidiaries or Joint Ventures, or
judgments, decrees, injunctions, rules or orders of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
applicable to Enserch or any of its Subsidiaries or Joint Ventures, that would
reasonably likely have an Enserch Material Adverse Effect.
Section 5.8 Registration Statement and Proxy Statement.
(a) None of the information supplied or to be supplied by or on
behalf of Enserch for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed
with the SEC by TUC in connection with the issuance of shares of
capital stock of TUC in the Merger (the "Registration Statement")
will, at the time the Registration Statement becomes effective under
the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact with respect to Enserch or its
Subsidiaries required to be stated therein or necessary to make the
statements therein with respect to Enserch or its Subsidiaries not
misleading, and
(ii) the proxy statement in definitive form relating to
the meeting of the shareholders of Enserch to be held in connection
with the Merger and the prospectus relating to the TUC capital stock
to be issued in the Merger (the "Proxy Statement") will, at the date
mailed to such shareholders and, as the same may be amended or
supplemented, at the time of such meeting, contain any untrue
<PAGE> 29
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statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(b) Each of the Registration Statement and the Proxy Statement,
as of such respective dates, will comply as to form in all material respects
with the applicable provisions of the Securities Act and the Exchange Act and
the rules and regulations thereunder.
Section 5.9 Tax Matters.
(a) Except as set forth on Section 5.9(a) of the Enserch
Disclosure Schedule, Enserch and each of its Subsidiaries has filed (i) within
the time and in the manner prescribed by law, all required income Tax Returns,
Texas franchise Tax Returns and other Tax Returns calculated on or with
reference to income, profits, earnings or gross receipts and all other Tax
Returns required to be filed that would report a material amount of Tax, (ii)
paid all Taxes that are shown on such Tax Returns as due and payable within the
time and in the manner prescribed by law except for those being contested in
good faith and for which adequate reserves have been established, and (iii)
paid all Taxes otherwise required to be paid.
(b) Except as set forth on Section 5.9(b) of the Enserch
Disclosure Schedule, as of the date hereof, there are no claims, assessments,
audits or administrative or court proceedings pending against Enserch or any of
its Subsidiaries for any alleged deficiency in Tax, and none of Enserch or any
of its Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(c) Enserch has established adequate accruals for Taxes and for
any liability for deferred Taxes in the Enserch Financial Statements in
accordance with GAAP.
Section 5.10 Employee Matters; ERISA.
(a) Benefit Plans.
(i) Section 5.10(a) of the Enserch Disclosure Schedule
contains a true and complete list, as of the date hereof, of:
(A) each "employee benefit plan" within the
meaning of Section 3(3) of ERISA that has been adopted,
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approved, or implemented by Enserch or any of its Subsidiaries
or any Enserch ERISA Affiliate (including any such plan that
has been terminated before the date hereof, if Enserch or any
of its Subsidiaries could have statutory or contractual
liability with respect to the plan on or after the date
hereof); and each similar plan, program, policy, or
arrangement maintained for non-employee directors or other
non-employees who have provided services to Enserch or any of
its Subsidiaries;
(B) each plan, program, policy, or arrangement
not listed in (A) above that provides for bonuses,
profit-sharing, incentive compensation, deferred compensation,
equity-based compensation (including stock options, restricted
stock, stock appreciation rights, performance units, and
dividend equivalents), holiday pay, vacation pay, severance
pay, sick pay, disability benefits, dependent care benefits,
flexible benefits (including any cafeteria plan governed by
Section 125 of the Code), paid or unpaid leave (including sick
leave, parental leave, military leave, and bereavement leave),
tuition assistance, relocation or any similar type of
benefits, that has been adopted, approved, or implemented by
Enserch or any of its Subsidiaries (including any such plan,
program, policy, or arrangement that has been terminated
before the date hereof, if Enserch or any of its Subsidiaries
could have statutory or contractual liability with respect to
the arrangement on or after the date hereof);
(C) each employment contract, severance contract,
parachute agreement, or other personal service contract or
arrangement with or covering a current or former officer or
director of Enserch or any of its Subsidiaries; and any other
employment contracts, severance contracts, parachute
agreements, or personal service contracts or arrangements
covering current or former employees or independent
contractors with respect to which (individually or in the
aggregate) Enserch or any of its Subsidiaries is reasonably
likely to have liability on or after the date hereof that
could give rise to an Enserch Material Adverse Effect; and
(D) each "employee pension benefit plan" (within
the meaning of ERISA Section 3(2)) subject to Title IV of
ERISA or the minimum funding requirements of ERISA Section 302
(whether or not included in (A) above) maintained
<PAGE> 31
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or contributed to by Enserch or any entity required to be
aggregated therewith pursuant to Code Section 414(b) or (c) (a
"Enserch ERISA Affiliate") at any time during the six calendar
year period immediately preceding the date hereof
(collectively, the "Enserch Pension Benefit Plans");
(ii) For purposes of this Agreement, "Enserch Benefit
Plan" shall mean each benefit plan, program, policy, contract and
arrangement described in subsections (i)(A), (B) and (C) above
(whether or not terminated).
(iii) With respect to each Enserch Benefit Plan and Enserch
Pension Benefit Plan, Section 5.10(a) of the Enserch Disclosure
schedule fully and accurately identifies the source or sources of
benefit payments under the plan (including, where applicable, the
identity of any trust (whether or not a grantor trust), insurance
contract, custodial account, agency agreement, or other arrangement
that holds the assets of, or serves as a funding vehicle or source of
benefits for, such Enserch Benefit Plan or Enserch Pension Benefit
Plan.
(b) Contributions. Except with respect to those exceptions in
existence as of the date hereof and set forth in Section 5.10(b) of the Enserch
Disclosure Schedule, all material contributions and other material payments
required to have been made by Enserch or any of its Subsidiaries or any Enserch
ERISA Affiliate pursuant to any Enserch Benefit Plan or Enserch Pension Benefit
Plan (or to any person pursuant to the terms thereof) have been timely made or
the amount of such payment or contribution obligation has been reflected in the
Enserch Financial Statements.
(c) Qualification; Compliance. Except as set forth in Section
5.10(c) of the Enserch Disclosure Schedule:
(i) Each Enserch Benefit Plan and Enserch Pension Benefit
Plan that is intended to be "qualified" within the meaning of Code
Section 401(a) currently meets all material requirements under the
Code and has received a favorable determination letter from the IRS to
such effect, or application for such a determination has been made
prior to the expiration of the applicable remedial amendment period
and Enserch agrees to make such plan amendments as the IRS may require
in order to issue a favorable determination letter.
(ii) Enserch and each of its Subsidiaries are in
compliance with, and each Enserch Benefit Plan and Enserch Pension
Benefit Plan
<PAGE> 32
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is and has been operated in compliance with, all applicable laws,
rules and regulations governing such plan, including, without
limitation, ERISA and the Code, except for violations that would not
be reasonably likely to have an Enserch Material Adverse Effect.
(iii) To the knowledge of Enserch, no individual or entity
has engaged in any transaction with respect to any Enserch Benefit
Plan or any Enserch Pension Benefit Plan as a result of which any such
plan, Enserch or any of its Subsidiaries could reasonably expect to be
subject to liability pursuant to ERISA Section 409 or Section 502, or
subject to an excise tax pursuant to Code Section 4975, which would
in either case be reasonably likely to have an Enserch Material
Adverse Effect.
(iv) To the knowledge of Enserch,
(A) no Enserch Benefit Plan or Enserch Pension
Benefit Plan is subject to any ongoing audit, investigation,
or other administrative proceeding of the Internal Revenue
Service, the Department of Labor, or any other federal, state,
or local governmental entity, and
(B) no Enserch Benefit Plan is the subject of any
pending application for administrative relief under any
voluntary compliance program of any governmental entity
(including, without limitation, the Internal Revenue Service's
Voluntary Compliance Resolution Program or Walk-in Closing
Agreement Program, or the Department of Labor's Delinquent
Filer Voluntary Compliance Program).
(d) Liabilities. Except as set forth in Section 5.10(d) of the
Enserch Disclosure Schedule, with respect to the Enserch Pension Benefit Plans,
individually and in the aggregate, no termination or partial termination of any
Enserch Pension Benefit Plan or other event has occurred, and, to the knowledge
of Enserch, there exists no condition or set of circumstances, that could
subject Enserch, any of its Subsidiaries or any Enserch ERISA Affiliate to any
liability arising under the Code, ERISA, or any other applicable law
(including, without limitation, any liability to or under any such plan or to
the PBGC, or under any indemnity agreement to which Enserch, any of its
Subsidiaries, or any Enserch ERISA Affiliate is a party, which liability would
be reasonably likely to have an Enserch Material Adverse Effect (excluding
liability for benefit claims and funding obligations payable in the ordinary
<PAGE> 33
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course and liability for PBGC insurance premiums payable in the ordinary
course).
(e) Welfare Plans. Except as set forth in Section 5.10(e) of the
Enserch Disclosure Schedule, no Enserch Benefit Plan that is a "welfare plan"
(within the meaning of ERISA Section 3(1)) provides benefits for any retired or
former employees (other than as required pursuant to ERISA Section 601).
(f) Documents Made Available. Enserch has made available to TUC a
true and correct copy of each collective bargaining agreement to which Enserch
is a party or under which Enserch has obligations; and, with respect to each
Enserch Benefit Plan and each Enserch Pension Benefit Plan, Enserch has made
available to TUC a true and correct copy of each of the following, as
applicable:
(i) the current plan document (including all amendments
adopted since the most recent restatement) and its most recently
prepared summary plan description and all summaries of material
modifications prepared since the most recent summary plan description,
(ii) annual reports or Code Section 6039D information
returns (IRS Form 5500 Series), including financial statements for the
last three years,
(iii) each related trust agreement, insurance contract,
service provider contract or investment management agreement
(including all amendments to each such document),
(iv) the most recent IRS determination letter with respect
to the qualified status under Code Section 401(a) of such plan, and
(v) actuarial reports or valuations for the last three
years.
(g) Payments Resulting From Merger. Other than as set forth in
Section 5.10(g) of the Enserch Disclosure Schedule, the consummation or
announcement of any transaction contemplated by this agreement will not (either
alone or upon the occurrence of any additional or further acts or events)
result in any
(i) payment (whether of severance pay or otherwise)
becoming due from TUC or Enserch or any of its Subsidiaries to any
<PAGE> 34
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current or former officer or director thereof or to the trustee under
any "rabbi trust" or other funding arrangement,
(ii) benefit under any Enserch Benefit Plan being
established or becoming accelerated, vested or payable, except for a
payment or benefit that would have been payable under the same terms
and conditions without regard to the transactions contemplated by this
Agreement, or
(iii) payment (whether of severance pay or otherwise)
becoming due from TUC or Enserch or any of its Subsidiaries to any
current or former employee of Enserch below the level of officer which
such payments aggregated for such employees and former employees as a
group would be reasonably likely to have an Enserch Material Adverse
Effect.
(h) Funded Status of Plans. Except as set forth in Section
5.10(h) of the Enserch Disclosure Schedule, (i) each Enserch Pension Benefit
Plan has assets that, as of the date hereof, have a fair market value equal to
or exceeding the present value of the accrued benefit obligations thereunder on
a termination basis, as of the date hereof, based on the actuarial methods,
tables and assumptions theretofore utilized by such plan's actuary in preparing
such plan's most recently prepared actuarial valuation report, except to the
extent that applicable law would require the use of different actuarial
assumptions if such plan was to be terminated as of the date hereof, and (ii)
no Enserch Pension Benefit Plan has incurred any "accumulated funding
deficiency" (within the meaning of ERISA Section 302).
(i) Multiemployer Plans.
(i) Except as set forth in Section 5.10(i) of the Enserch
Disclosure Schedule, no Enserch Benefit Plan is or was a
"multiemployer plan" (within the meaning of ERISA Section 4001(a)(3)),
a multiple employer plan described in Code Section 413(c), or a
"multiple employer welfare arrangement" (within the meaning of ERISA
Section 3(40)); and none of Enserch, any Subsidiary thereof or any
Enserch ERISA Affiliate has been obligated to contribute to, or
otherwise has or has had any liability with respect to, any
multiemployer plan, multiple employer plan, or multiple employer
welfare arrangement.
(ii) With respect to any Enserch Benefit Plan or Enserch
Pension Benefit Plan that is listed in Section 5.10(i) of the Enserch
<PAGE> 35
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Disclosure Schedule as a multiemployer plan, none of Enserch, any
Subsidiary thereof or any Enserch ERISA Affiliate has made or incurred
a "complete withdrawal" or a "partial withdrawal," as such
terms are defined in ERISA Sections 4203 and 4205, therefrom at any
time during the six calendar year period immediately preceding the
date of this Agreement and the transactions contemplated by the
Agreement will not, in and of themselves, give rise to such a
"complete withdrawal" or "partial withdrawal."
(j) Modification or Termination of Plans. Except as set forth in
Section 5.10(j) of the Enserch Disclosure Schedule or as permitted under
Section 7.10:
(i) neither Enserch nor any Subsidiary of Enserch is
subject to any legal, contractual, equitable or other obligation to
establish as of any date any employee benefit plan of any nature,
including (without limitation) any pension, profit sharing, welfare,
post-retirement welfare, stock option, stock or cash award,
non-qualified deferred compensation or executive compensation plan,
policy or practice; and
(ii) Enserch or one or more of its Subsidiaries or any
Enserch ERISA Affiliate have the right to, in any manner, and without
he consent of any employee, beneficiary or dependent, employees'
organization or other person, terminate, modify or amend any Enserch
Benefit Plan or Enserch Pension Benefit Plan (or its participation in
any such Enserch Benefit Plan or Enserch Pension Benefit Plan) at any
time sponsored, maintained or contributed to by Enserch or any of its
Subsidiaries or any Enserch ERISA Affiliate, effective as of any date
before, on or after the Effective Time except to the extent that any
retroactive amendment would be prohibited by ERISA Section 204(g) or
would adversely affect a vested accrued benefit or a previously
granted award under any such Plan not subject to ERISA Section 204(g).
(k) Reportable Events; Claims. Except as set forth in Section
5.10(k) of the Enserch Disclosure Schedule:
(i) no event constituting a "reportable event" (within
the meaning of ERISA Section 4043(c)), for which the 30-day notice
requirement or penalty has not been waived by the PBGC, has occurred
with respect to any Enserch Pension Benefit Plan, and
<PAGE> 36
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(ii) no liability, claim, action or litigation has been
made, commenced or, to the knowledge of Enserch, threatened, by or
against Enserch or any of its Subsidiaries or any Enserch ERISA
Affiliate with respect to any Enserch Benefit Plan or any Enserch
Pension Benefit Plan (other than for benefits or PBGC premiums payable
in the ordinary course)
that would reasonably likely have an Enserch Material Adverse Effect.
(l) Labor Agreements. Except as set forth in the Enserch SEC
Reports or as set forth in Section 5.10(l) of the Enserch Disclosure Schedule:
(i) neither Enserch nor any of its Subsidiaries is a
party to any collective bargaining agreement or other current labor
agreement with any labor union or organization. There is no current
union representation question involving employees of Enserch or any of
its Subsidiaries, nor does Enserch or any of its Subsidiaries know of
any activity or proceeding of any labor organization (or
representative thereof) or employee group (or representative thereof)
to organize any such employees;
(ii) there is no unfair labor practice charge or grievance
arising out of a collective bargaining agreement or other grievance
procedure against Enserch or any of its Subsidiaries pending, or to
the knowledge of Enserch or any of its Subsidiaries, threatened, that
has, or would be reasonably likely to have, an Enserch Material
Adverse Effect;
(iii) there is no complaint, lawsuit or proceeding in any
forum by or on behalf of any present or former employee, any applicant
for employment or classes of the foregoing alleging breach of any
express or implied contract of employment, any law or regulation
governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the
employment relationship against Enserch or any of its Subsidiaries
pending, or to the knowledge of Enserch or any of its Subsidiaries,
threatened, that has, or would be reasonably likely to have, an
Enserch Material Adverse Effect;
(iv) there is no strike, dispute, slowdown, work stoppage
or lockout pending, or to the knowledge of Enserch or any of its
Subsidiaries, threatened, against or involving Enserch or any of its
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Subsidiaries that has, or would be reasonably likely to have, an
Enserch Material Adverse Effect;
(v) Enserch and each of its Subsidiaries are in
compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages, hours
of work and occupational safety and health, except for non-compliance
that does not have, and would not be reasonably likely to have, an
Enserch Material Adverse Effect; and
(vi) there is no proceeding, claim, suit, action or
governmental investigation pending or, to the knowledge of Enserch or
any of its Subsidiaries, threatened, in respect to which any current
or former director, officer, employee or agent of Enserch or any of
its Subsidiaries is or may be entitled to claim indemnification from
Enserch or any of its Subsidiaries pursuant to their respective
articles of incorporation or by-laws, as provided in the
indemnification agreements listed on Section 5.10(l) of the Enserch
Disclosure Schedule or pursuant to applicable Texas or other law that
has, or would be reasonably likely to have, an Enserch Material
Adverse Effect.
Section 5.11 Environmental Protection.
(a) Compliance.
(i) Except as set forth in the Enserch SEC Reports or in
Section 5.11(a) of the Enserch Disclosure Schedule, Enserch and each
of its Subsidiaries is in compliance with all applicable Environmental
Laws (as hereinafter defined), except where the failure to be so in
compliance would not reasonably likely have an Enserch Material
Adverse Effect.
(ii) Except as set forth in the Enserch SEC Reports or in
Section 5.11(a) of the Enserch Disclosure Schedule, neither Enserch
nor any of it Subsidiaries has received any written communication from
any person or Governmental Authority that alleges that Enserch or any
of its Subsidiaries is not in compliance with applicable Environmental
Laws, except where the failure to be so in compliance would not
reasonably likely have an Enserch Material Adverse Effect.
(b) Environmental Permits. Except as set forth in the Enserch SEC
Reports or in Section 5.11(b) of the Enserch Disclosure Schedule, Enserch and
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each of its Subsidiaries has obtained or applied for all environmental, health
and safety permits and authorizations (collectively, "Environmental Permits")
necessary for the construction of their facilities and the conduct of their
operations, and all such permits are in good standing or, where applicable, a
renewal application has been timely filed, is pending and agency approval is
expected to be obtained, and Enserch and its Subsidiaries are in compliance
with all terms and conditions of all such Environmental Permits and are not
required to make any expenditure in order to obtain or renew any Environmental
Permits, except where the failure to obtain or be in compliance with such
Environmental Permits and the requirement to make such expenditures would not
reasonably likely have an Enserch Material Adverse Effect.
(c) Environmental Claims. Except as set forth in the Enserch SEC
Reports or Section 5.11(c) of the Enserch Disclosure Schedule, there is no
Environmental Claim (as hereinafter defined) pending, or to the knowledge of
Enserch and its Subsidiaries, threatened
(i) against Enserch or any of its Subsidiaries or Joint
Ventures,
(ii) against any person or entity whose liability for any
Environmental Claim Enserch or any of its Subsidiaries or Joint
Ventures has or may have retained or assumed either contractually or
by operation of law, or
(iii) against any real or personal property or operations
that Enserch or any of its Subsidiaries or Joint Ventures owns, leases
or manages, in whole or in part,
that, if adversely determined, would be reasonably likely to have an Enserch
Material Adverse Effect.
(d) Releases. Except as set forth in the Enserch SEC Reports or
Section 5.11(c) or 5.11(d) of the Enserch Disclosure Schedule, Enserch has no
knowledge of any Release of any Hazardous Material that would be reasonably
likely to form the basis of any Environmental Claim against Enserch or any
Subsidiaries or Joint Ventures of Enserch, or against any person or entity
whose liability for any Environmental Claim Enserch or any Subsidiaries or
Joint Ventures of Enserch has or may have retained or assumed either
contractually or by operation of law, except for Releases of Hazardous
Materials the liability for which would not reasonably likely have an Enserch
Material Adverse Effect.
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(e) Predecessors. Except as set forth in Section 5.11(e) of the
Enserch Disclosure Schedule, Enserch has no knowledge, with respect to any
predecessor of Enserch or any Subsidiary or Joint Venture of Enserch, of any
Environmental Claims pending or threatened, or of any Release of Hazardous
Materials that would be reasonably likely to form the basis of any
Environmental Claims that would have, or that would reasonably likely have, an
Enserch Material Adverse Effect.
(f) Disclosure. Enserch has disclosed to TUC all material facts
that Enserch reasonably believes form the basis of an Enserch Material Adverse
Effect arising from the cost of pollution control equipment currently required
or known to be required in the future, current remediation costs or remediation
costs known to be required in the future, or any other environmental matter
affecting Enserch or its Subsidiaries that would have, or that would reasonably
likely have, an Enserch Material Adverse Effect.
Section 5.12 Regulation as a Utility.
(a) Enserch is regulated as a gas utility in the State of Texas
and in no other state. No Subsidiary or affiliate of Enserch is subject to
regulation as a gas utility or a public utility in the State of Texas.
(b) Except as set forth in Section 5.12 of the Enserch Disclosure
Schedule, neither Enserch nor any subsidiary company or affiliate of Enserch is
subject to regulation as a public utility or public service company (or similar
designation) by any other state in the United States or by any foreign country.
(c) As used in this Section 5.12 and in Section 6.12, the terms
"subsidiary company" and "affiliate" shall have the respective meanings
ascribed to them in the 1935 Act.
Section 5.13 Vote Required. The approval of the Merger by the
holders of at least two-thirds of the outstanding shares of Enserch Common
Stock (the "Enserch Shareholders' Approval") is the only vote of the holders
of any class or series of the capital stock of Enserch required to approve this
Agreement, the Merger and the other transactions contemplated hereby.
Section 5.14 Opinion of Financial Advisor. Enserch has received
the opinion of Morgan Stanley & Co. ("Morgan Stanley"), dated the date hereof,
to the effect that, as of the date hereof, the Ratio is fair from a financial
point of view to the holders of Enserch Common Stock.
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Section 5.15 Insurance. Except as set forth in Section 5.15 of
the Enserch Disclosure Schedule, each of Enserch and each of its Subsidiaries
(since its acquisition) is, and has been continuously since January 1, 1991,
insured in such amounts and against such risks and losses as are customary for
companies conducting the respective businesses conducted by Enserch and its
Subsidiaries during such time period. Except as set forth in Section 5.15 of
the Enserch Disclosure Schedule, neither Enserch nor any of its Subsidiaries
has received any notice of cancellation or termination with respect to any
material insurance policy thereof. All material insurance policies of Enserch
and its Subsidiaries are valid and enforceable policies.
Section 5.16 Ownership of TUC Common Stock. Enserch does not
"beneficially own" (as such term is defined in Rule 13d-3 under the Exchange
Act) any shares of TUC Common Stock.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF TUC
TUC represents and warrants to Enserch as follows:
Section 6.1 Organization and Qualification. TUC is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas, and each of TUC's Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdictions of
incorporation. Each of TUC and its Subsidiaries has requisite corporate power
and authority, and is duly authorized by all necessary regulatory approvals and
orders, to own, lease and operate its assets and properties and to carry on its
business as it is now being conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its assets and properties makes such
qualification necessary, other than such failures which, when taken together
with all other such failures, will not have a TUC Material Adverse Effect.
Section 6.2 Subsidiaries.
(a) Section 6.2 of the TUC Disclosure Schedule sets forth a
description as of the date hereof of all Subsidiaries and Joint Ventures of
TUC, including the name of each such entity, the state or jurisdiction of its
incorporation, a brief description of the principal line or lines of business
conducted by each such entity and TUC's interest therein.
<PAGE> 41
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(b) Except as set forth in Section 6.2 of the TUC Disclosure
Schedule, none of the entities listed in Section 6.2 is a "public utility
company", a "holding company", a "subsidiary company" or an "affiliate" of any
public utility company within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8)
or 2(a)(11)(A) of the 1935 Act, respectively.
(c) Except as set forth in Section 6.2 of the TUC Disclosure
Schedule, all of the issued and outstanding shares of capital stock of each
Subsidiary of TUC are validly issued, fully paid, nonassessable and free of
preemptive rights and are owned directly or indirectly by TUC free and clear of
any liens, claims, encumbrances, security interests, equities, charges and
options of any nature whatsoever, and there are no outstanding subscriptions,
options, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating any such Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of its capital stock
or obligating it to grant, extend or enter into any such agreement commitment.
Section 6.3 Capitalization.
(a) As of the date hereof, the authorized capital stock of TUC
consists of 500,000,000 shares of TUC Common Stock and 50,000,000 shares of TUC
serial preference stock, par value $25 per share.
(b) As of the close of business on March 18, 1996, (i) 225,841,037
shares of TUC Common Stock, and (ii) no shares of TUC serial preference stock,
par value $25 per share were issued and outstanding.
(c) All of the issued and outstanding shares of the capital stock
of TUC are validly issued, fully paid, nonassessable and free of preemptive
rights. The shares of Common Stock of TUC to be issued to Enserch'
shareholders in connection with the Merger will, when issued, be validly
issued, fully paid, nonassessable and free of preemptive rights.
(d) Except as set forth in Section 6.3(a) of the TUC Disclosure
Schedule, there are no outstanding subscriptions, options, calls, contracts,
voting trusts, proxies or other understandings, restrictions, arrangements,
rights or warrants, including any right of or exchange under any outstanding
security, instrument or other agreement, obligating TUC to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the
capital stock of TUC to grant, extend or enter into any such agreement or
commitment.
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Section 6.4 Authority; Non-Contravention; Statutory Approvals; Compliance.
(a) Authority.
(i) TUC has all requisite power and authority to enter
into this Agreement and, subject to the TUC Required Statutory
Approvals to consummate the transactions contemplated hereby.
(ii) The execution and delivery of this Agreement and the
consummation by TUC of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of TUC.
(iii) This Agreement has been duly and validly executed and
delivered by TUC and, assuming the due authorization, execution and
delivery hereof by Enserch, TXA and TXB constitutes the valid and
binding obligation of TUC, enforceable against TUC in accordance with
its terms, except as would be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or other similar
laws affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including specific
performance, may be subject to the discretion of any court before
which any proceeding therefor may be brought.
(iv) the Enserch Option has been duly and validly executed
and delivered by TUC and, assuming the due authorization, execution
and delivery thereof by Enserch, constitutes a valid and binding
obligation of TUC, enforceable against TUC in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or other similar laws affecting
the enforcement of creditors' rights generally, and except that the
availability of equitable remedies, including specific performance,
may be subject to the discretion of any court before which any
proceedings may be brought.
(b) Non-Contravention. Except as set forth in Section 6.4(b) of
the TUC Disclosure Schedule, the execution and delivery of this Agreement and
the Enserch Option by TUC do not, and the consummation of the transactions
contemplated hereby will not, result in any Violation by TUC or any of its
Subsidiaries or, to the knowledge of TUC, any of its Joint Ventures, under any
provisions of
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(i) the articles of incorporation, bylaws or similar
governing documents of TUC or any of its Subsidiaries or Joint
Ventures,
(ii) subject to obtaining the TUC Required Statutory
Approvals, any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any Governmental
Authority applicable to TUC or any of its Subsidiaries or Joint
Ventures or any of their respective properties or assets, or
(iii) subject to obtaining the third-party consents or
other approvals set forth in Section 6.4(b) of the TUC Disclosure
Schedule (the "TUC Required Consents"), any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any
kind to which TUC or any of its Subsidiaries or Joint Ventures is now
a party or by which it or any of its properties or assets may be bound
or affected,
excluding from the foregoing clauses (ii) and (iii) such Violations as would
not, in the aggregate, reasonably likely have a TUC Material Adverse Effect.
(c) Statutory Approvals. Except as set forth in Section 6.4(c) of
the TUC Disclosure Schedule, no declaration, filing or registration with, or
notice to or authorization, consent or approval of any Governmental Authority
is necessary for the execution and delivery of this Agreement by TUC or the
consummation by TUC of the transactions contemplated hereby, the failure to
obtain, make or give which would reasonably likely have a TUC Material Adverse
Effect (the "TUC Required Statutory Approvals"), it being understood that
references in this Agreement to "obtaining" such TUC Required Statutory
Approvals shall mean making such declarations, filings or registrations; giving
such notice; obtaining such consents or approvals; and having such waiting
periods expire as are necessary to avoid a violation of law.
(d) Compliance.
(i) Except as set forth in Section 6.4(d) of the TUC
Disclosure Schedule or as disclosed in the TUC SEC Reports, neither
TUC nor any of its Subsidiaries nor, to the knowledge of TUC, any of
its Joint Ventures, is in violation of or under investigation with
respect to, or has been given notice or been charged with any
violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental
law, ordinance or regulation) of any Governmental Authority, except
for violations that
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do not have, and, would not reasonably likely have, a TUC Material
Adverse Effect.
(ii) Except as set forth in Section 6.4(d) of the TUC
Disclosure Schedule, TUC, its Subsidiaries and, to the knowledge of
TUC, its Joint Ventures have all permits, licenses, franchises and
other governmental authorizations, consents and approvals necessary to
conduct their respective businesses as currently conducted, except
those the failure to obtain which would not reasonably likely have a
TUC Material Adverse Effect.
Section 6.5 Reports and Financial Statements.
(a) Since January 1, 1991, the filings required to be made by TUC
and its Subsidiaries under the Securities Act, the Exchange Act, applicable
Texas laws and regulations administered by the Public Utility Commission of
Texas and the Texas Railroad Commission, or the 1935 Act have been filed with
the SEC, the Texas Public Utility Commission, the Texas Railroad Commission or
the Nuclear Regulatory Commission, respectively, as required by each such law
or regulation, including all forms, statements, reports, agreements and all
documents, exhibits, amendments and supplements appertaining thereto, and TUC
and its Subsidiaries have complied in all material respects with all applicable
requirements of the appropriate act and the rules and regulations thereunder.
(b) TUC has made available to Enserch a true and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by TUC with the SEC since January 1, 1991 (such documents as filed, and
any and all amendments thereto, the "TUC SEC Reports").
(c) The TUC SEC Reports, including without limitation any
financial statements or schedules included therein, at the time filed, and all
forms, reports or other documents filed by TUC with the SEC after the date
hereof, did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(d) The audited consolidated financial statements and unaudited
interim financial statements of TUC included in the TUC SEC Reports
(collectively, the "TUC Financial Statements") have been prepared, and the
audited consolidated financial statements and unaudited interim financial
statements of TUC as included in all forms, reports or other documents filed
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with the SEC after the date hereof will be prepared in accordance with GAAP
applied on a consistent basis (except as may be indicated therein or in the
notes thereto and except with respect to unaudited statements as permitted by
Form 10-Q) and fairly present in all material respects the financial position
of TUC as of the respective dates thereof or the results of operations and cash
flows for the respective periods then ended, as the case may be, subject, in
the case of the unaudited interim financial statements, to normal, recurring
audit adjustments.
(e) True, accurate and complete copies of the Articles of
Incorporation and Bylaws of TUC, as in effect on the date hereof, have been
delivered to Enserch.
Section 6.6 Absence of Certain Changes or Events; Absence of
Undisclosed Liabilities.
(a) Except as set forth in the TUC SEC Reports or Section 6.6 of
the TUC Disclosure Schedule, from December 31, 1995 through the date hereof TUC
and each of its Subsidiaries has conducted its business only in the ordinary
course of business consistent with past practice and there has not been, and no
fact or condition exists, that would reasonably likely have, a TUC Material
Adverse Effect.
(b) Neither TUC nor any of its Subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected in a consolidated corporate balance sheet,
except liabilities, obligations or contingencies that are accrued or reserved
against in the consolidated financial statements of TUC or reflected in the
notes thereto for the year ended December 31, 1995, or that were incurred after
December 31, 1995 in the ordinary course of business and would not reasonably
likely have a TUC Material Adverse Effect.
Section 6.7 Litigation. Except as set forth in the TUC SEC
Reports or as set forth in Section 6.7 of the TUC Disclosure Schedule, there
are no claims, suits, actions or proceedings, pending or, to the knowledge of
TUC, threatened, nor are there, to the knowledge of TUC, any investigations or
reviews pending or threatened against, relating to or affecting TUC or any of
its Subsidiaries or Joint Ventures, or judgments, decrees, injunctions, rules
or orders of any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator applicable to TUC or any of its
Subsidiaries or Joint Ventures, that would have, or would reasonably likely
have, a TUC Material Adverse Effect.
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Section 6.8 Registration Statement and Proxy Statement.
(a) None of the information supplied or to be supplied by or on
behalf of TUC for inclusion or incorporation by reference in
(i) the Registration Statement will, at the time the
Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and
(ii) the Proxy Statement will, at the date mailed to the
shareholders of Enserch and, as the same may be amended or
supplemented, at the time of the meeting of such shareholders to be
held in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact with respect to TUC
or its Subsidiaries necessary in order to make the statements therein
with respect to TUC or its Subsidiaries, in light of the circumstances
under which they are made, not misleading.
(b) Each of the Registration Statement and the Proxy Statement,
as of such respective dates, will comply as to form in all material respects
with the applicable provisions of the Securities Act and the Exchange Act and
the rules and regulations thereunder.
Section 6.9 Tax Matters.
(a) Except as set forth on Schedule 6.9(a) of the TUC Disclosure
Schedule, TUC and each of its Subsidiaries has filed (i) within the time and in
the manner prescribed by law, all required income Tax Returns, Texas franchise
Tax Returns and other Tax Returns calculated on or with reference to income,
profits, earnings or gross receipts and all other Tax Returns required to be
filed that would report a material amount of Tax, (ii) paid all Taxes that are
shown on such Tax Returns as due and payable within the time and in the manner
prescribed by law except for those being contested in good faith and for which
adequate reserves have been established, and (iii) paid all Taxes otherwise
required to be paid.
(b) Except as set forth on Schedule 6.9(b) of the TUC Disclosure
Schedule, as of the date hereof, there are no claims, assessments, audits or
administrative or court proceedings pending against TUC or any of its
Subsidiaries for any alleged deficiency in Tax, and none of TUC or any of its
Subsidiaries has executed any outstanding waivers or comparable consents
<PAGE> 47
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regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns.
(c) TUC has established adequate accruals for Taxes and for any
liability for deferred Taxes in the TUC Financial Statements in accordance with
GAAP.
Section 6.10 Employee Matters; ERISA.
Except as disclosed in the TUC SEC Reports or Section 6.10 of the TUC
Disclosure Schedule and except as would not, individually or in the aggregate,
be reasonably expected to result in a TUC Material Adverse Effect:
(a) Each TUC Benefit Plan that is an "employee pension benefit
plan" as defined in Section 3(2) of ERISA and is intended to be "qualified"
within the meaning of Code Section 401(a) ("TUC Pension Benefit Plan") and each
trust under each such TUC Pension Benefit Plan which is intended to be exempt
from federal income taxation under Code Section 501, has received a favorable
determination letter from the IRS to such effect, or is the subject of a
previously submitted and currently pending application for an IRS
determination. TUC has operated each TUC Benefit Plan in material compliance
with all applicable laws, rules and final regulations governing such plans,
including ERISA and the Code.
(b) All material contributions required to have been made to the
TUC Benefit Plans prior to the date hereof have been made. As of the date
hereof, each TUC Pension Benefit Plan which is subject to the funding
requirements of Code Section 412, has assets that have a fair market value
equal to or exceeding the present value of the accrued benefit obligations
thereunder on a termination basis, based on the actuarial methods, tables and
assumptions theretofore utilized by such plan's actuary in preparing such
plan's most recently prepared actuarial valuation report.
(c) TUC has not incurred any liability to the PBGC (other than
liability for insurance premium payments payable thereto).
(d) Except as set forth in Section 6.10(d) of the TUC Disclosure
Schedule, (i) no "Reportable Event," as defined in ERISA, has occurred with
respect to any of the TUC Benefit Plans for which the 30-day notice requirement
or penalty has not been waived by the PBGC; (ii) there are no pending claims
(other than routine claims for benefits or claims pursuant to domestic
relations orders) or lawsuits which have been asserted or instituted against
the assets of any of the trusts under the Plans by present or former
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participants, their present or former spouses, their beneficiaries, the
Department of Labor, the Internal Revenue Service or any other party; and
(iii) TUC has not engaged in any prohibited transactions with respect to any
TUC Benefit Plan, any or all of which would reasonably likely have a TUC
Material Adverse Effect.
Section 6.11 Environmental Matters. Except as disclosed in the
TUC SEC Reports and except as would not, individually or in the aggregate, be
reasonably expected to result in a TUC Material Adverse Effect, (i) TUC and its
Subsidiaries are in compliance with all applicable Environmental Laws and the
terms and conditions of all applicable Environmental Permits, (ii) there are no
Environmental Claims against the Company or any of its Subsidiaries, and (iii)
no Hazardous Materials have been released, discharged or disposed of on any of
the properties owned or occupied by TUC or its Subsidiaries in any manner or
quantity which requires investigation, assessment, monitoring, remediation or
cleanup under currently applicable Environmental Laws.
Section 6.12 Regulation as a Utility.
(a) TUC is a public utility holding company as defined in the 1935
Act exempt from all provisions of the 1935 Act, except section 9(a)(2), by
order of the SEC pursuant to section 3(a)(1) of the 1935 Act. Texas Utilities
Electric Company, a Subsidiary of TUC, is regulated as a public utility in the
State of Texas and in no other state and Texas Utilities Fuel Company, a
Subsidiary of TUC, is regulated as a gas utility in the State of Texas and in
no other state. Neither TUC nor any other Subsidiary or affiliate of TUC is
regulated as a public utility or a gas utility in the State of Texas.
(b) Except as set forth in Section 6.11 of the TUC Disclosure
Schedule, neither TUC nor any subsidiary company or affiliate of TUC is subject
to regulation as a public utility or public service company (or similar
designation) by any other state in the United States or by any foreign country.
Section 6.13 Vote Required. No vote by the holders of TUC Common
Stock is required to approve this Agreement, the Merger or the other
transactions contemplated hereby, except to the extent that the Alternative
Merger would require the approval of TUC's shareholders under Texas law and
TUC's Articles of Incorporation.
Section 6.14 Opinion of Financial Advisor. TUC has received the
opinion of Barr Devlin & Co. Incorporated ("Barr Devlin"), as of the date
hereof, to the effect that, as of the date hereof, the Ratio is fair to the
holders of TUC Common Stock.
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Section 6.15 Insurance.
(a) Except as set forth in Section 6.15 of the TUC Disclosure
Schedule, TUC and each of its Subsidiaries is, and has been continuously since
January 1, 1991, insured in such amounts and against such risks and losses as
are customary for companies conducting the respective businesses conducted by
TUC and its Subsidiaries during such time period.
(b) Except as set forth in Section 6.15 of the TUC Disclosure
Schedule, neither TUC nor any of its Subsidiaries has received any notice of
cancellation or termination with respect to any material insurance policy
thereof.
(c) All material insurance policies of TUC and its Subsidiaries
are valid and enforceable policies.
Section 6.16 Ownership of Enserch Common Stock. TUC does not
"beneficially own" (as such term is defined in Rule 13d-3 under the Exchange
Act) any shares of Enserch Common Stock.
Section 6.17 TXA. TXA is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. TXA was
organized solely for the purpose of participating in the Merger. TXA has no
assets other than cash contributed to TXA by TUC in order to satisfy minimum
state capitalization requirements. TXA has not incurred directly or indirectly
any liabilities or obligations, except those incurred in connection with
negotiation of this Agreement and consummation of the transactions contemplated
hereby. TXA's authorized capital stock consists of 1,000 shares of Common
Stock, no par value, all of which are validly issued and outstanding, fully
paid and non assessable and free of preemptive rights and are owned by TUC free
and clear of all liens, claims and encumbrances. TXA has all requisite power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation by TXA of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of TXA. This Agreement
has been duly and validly executed and delivered by TXA, and assuming the due
authorization, execution and delivery hereof by Enserch, TUC and TXB,
constitutes valid and binding obligations of TXA, enforceable against TXA in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally, and except that the
availability of equitable remedies, including specific performance, may be
subject to the discretion of
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any court before which any proceedings may be brought. Except as set forth in
Section 6.17 of the TUC Disclosure Schedule, no declaration, filing or
registration with, or notice to or authorization, consent or approval of any
Governmental Authority is necessary for the execution and delivery of this
Agreement by TXA or the consummation by TXA of the transaction contemplated
hereby.
Section 6.18 NRC Actions. Except as set forth in Section 6.18 of
the TUC Disclosure Schedule, TUC is not in violation of, is not under
investigation with respect to, has not been given notice of or been charged
with any actual or potential violation of, and is not the subject to any
ongoing proceeding, inquiry, special inspection, diagnostic evaluation or other
Nuclear Regulatory Commission action (including rulemakings of general
application that may affect the conduct of TUC's business regarding the
Comanche Peak Nuclear Power Plant) of which TUC has actual knowledge under the
Atomic Energy Act, any applicable regulations thereunder or the terms and
conditions of any license granted to TUC regarding the Comanche Peak Nuclear
Power Plant (collectively, "NRC Actions"), which NRC Actions would have, or TUC
reasonably believes would reasonably likely have, a TUC Material Adverse
Effect.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, Enserch shall, and shall cause its Subsidiaries
to, and TUC shall, and shall cause its Subsidiaries to, comply with the
provisions of this Article VII to the extent applicable to each of them,
provided however, that the provisions of this Article VII shall not apply to
the Distribution Subsidiaries and Enserch shall not be obligated to cause the
Distribution Subsidiaries to comply with the obligations of this Article VII.
Section 7.1 Ordinary Course of Business. Enserch shall, and
shall cause its Subsidiaries to, and TUC shall, and shall cause its
Subsidiaries to, conduct their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted and
use all commercially reasonable efforts to preserve their respective business
organizations and goodwill, preserve the goodwill and relationships with
customers, suppliers, distributors and others having business dealings with
them and, subject to prudent management of workforce needs and ongoing
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programs currently in force, keep available the services of their present
officers and employees.
Section 7.2 Dividends. Enserch shall not, nor shall it permit
any of its Subsidiaries to:
(a) declare or pay any dividends or make other distributions in
respect of any of their capital stock other than to Enserch or its Subsidiaries
and other than
(i) stated dividends on the respective series of Enserch
Preferred Stock,
(ii) regular quarterly dividends on the Enserch Common
Stock with usual record and payment dates not, during any calendar
year, in excess of $.05 per quarter, and
(iii) as provided for in Article VIII hereof to consummate
the transactions contemplated hereby.
(b) split, combine or reclassify any of their capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of, or in substitution for, shares of their capital stock; or
(c) redeem, repurchase or otherwise acquire any shares of their
capital stock, other than
(i) redemptions, purchases or acquisitions permitted by
the respective terms of any series of preferred stock,
(ii) in connection with refunding of preferred stock with
preferred stock or debt at a lower cost of funds,
(iii) intercompany acquisitions of capital stock, or
(iv) in connection with the administration of employee
benefit and dividend reinvestment plans as in effect on the date
hereof in the ordinary course of the operation of such plans.
Section 7.3 Issuance of Securities. Enserch shall not, and shall
not permit, any of its Subsidiaries to, issue, agree to issue, deliver or sell,
or authorize or propose the issuance, delivery or sale of, any shares of their
capital stock or any class or any securities convertible into or exchangeable
for, or any
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rights, warrants or options to acquire, any such shares or convertible or
exchangeable securities except for:
(a) the issuance of capital stock upon the conversion of the
Enserch Convertible Debentures,
(b) the issuance of common stock or other securities by Enserch
pursuant to the plans and arrangements listed on Section 7.3 of the Enserch
Disclosure Schedule, in each case in the ordinary course of the operation of
such plans and arrangements in accordance with their current terms,
(c) issuances by a wholly owned Subsidiary of its capital stock to
a direct or indirect parent.
Section 7.4 Charter Documents. Enserch shall not amend or
propose to amend its articles of incorporation or bylaws in any way adverse to
TUC, except to the extent that any document setting forth the terms of a series
of preferred stock permitted to be issued in accordance with this Article VII
constitutes an amendment to the articles of incorporation.
Section 7.5 No Acquisitions. Enserch shall not, nor shall it
permit any of its Subsidiaries to, acquire, or publicly propose to acquire, or
agree to acquire, by merger or consolidation, by purchase or otherwise, a
substantial equity interest in or a substantial portion of the assets of any
business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire any
assets, except as contemplated in the 1996 capital spending and investment
budget for Enserch and its Subsidiaries of $134 million (the "Enserch 1996
Budget") or as contemplated in the 1997 capital spending and investment budget
for Enserch and its Subsidiaries which budget shall be of a similar nature as
the Enserch 1996 Budget, the amount of which budget shall be approved with the
consent of TUC, which consent shall not unreasonably be withheld (the "Enserch
1997 Budget"). TUC acknowledges that Enserch is negotiating for the
acquisition of a 10% interest in a joint venture that will construct a gas
distribution system in Santiago, Chile, and will not unreasonably withhold its
consent to such sale.
Section 7.6 Capital Expenditures. Except as required by law,
Enserch shall not, nor shall it permit any of its Subsidiaries to, make any
capital expenditures, except for normal extensions to or replacements of
properties in the ordinary course of business consistent with prior practice
and those contemplated in the Enserch 1996 Budget or in the Enserch 1997
Budget.
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Section 7.7 No Dispositions. Enserch shall not, nor shall it
permit any of its Subsidiaries, to, sell, lease, license, encumber or otherwise
dispose of any assets that are material, except for normal extensions to or
replacements of properties in the ordinary course of business consistent with
prior practice and those contemplated in the Enserch 1996 Budget or in the
Enserch 1997 Budget and except for property subleased by EEX.
Section 7.8 Transfer of Assets to the Distribution Subsidiaries.
Except as otherwise consented to in writing by TUC, Enserch will not, and will
not permit any of its Subsidiaries to, sell, lease, license or otherwise
transfer to any of the Distribution Subsidiaries any assets that are material,
in the aggregate, to Enserch and its Subsidiaries (other than the Distribution
Subsidiaries) taken as a whole. TUC acknowledges that Enserch is considering
the sale of Enserch Development Corporation and agrees that it will not
unreasonably withhold its consent to such sale.
Section 7.9 Indebtedness. Enserch shall not, nor shall it permit
any of its Subsidiaries to, incur or guarantee any indebtedness (including any
debt borrowed or guaranteed or otherwise assumed, including, without
limitation, the issuance of debt securities), except for:
(a) short-term indebtedness in the ordinary course of business
consistent with past practice,
(b) long-term indebtedness in connection with the refinancing of
existing indebtedness either at its stated maturity or at a lower cost of
funds,
(c) additional long-term indebtedness aggregating not more than
$125 million, or
(d) in connection with the refunding of preferred stock as
permitted in Section 7.2.
Section 7.10 Compensation, Benefits. Except as set forth on
Schedule 7.10 of the Enserch Disclosure Schedule, as may be required by
applicable law or as contemplated by this Agreement, Enserch shall not, nor
shall it permit any of its Subsidiaries to, enter into, adopt or amend or
increase the amount of or accelerate the payment or vesting of any benefit or
amount payable under any employee benefit plan or any other contract,
agreement, commitment, arrangement, plan or policy maintained by, contributed
to or entered into by Enserch or any of its Subsidiaries, or increase, or enter
into any contract, agreement, commitment or arrangement to increase in any
manner, the compensation or fringe benefits, or otherwise to extend, expand or
enhance
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the engagement, employment or any related rights, of any director, officer or
other employee of Enserch or any of its Subsidiaries, except for normal
increases in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to Enserch or any of its Subsidiaries, or enter into or
amend any employment, severance, or special pay arrangement with respect to the
termination of employment or other similar contract, agreement or arrangement
with any director or officer or other employee other than in the ordinary
course of business consistent with past practice.
Section 7.11 1935 Act. Except as required or contemplated by this
Agreement:
(a) Enserch shall not, nor shall Enserch permit any of its
Subsidiaries to, engage in any activities that cause it to become a "holding
company" under the 1935 Act;
(b) TUC shall not, nor shall TUC permit any of its Subsidiaries
to, engage in any activities that cause it to lose its exemption from
registration as a "holding company" under the 1935 Act; and
(c) no party shall, nor shall any party permit any of its
Subsidiaries to, engage in any activities that would require the approval of
the SEC under Section 9(a)(2) of the 1935 Act, except for the transactions
contemplated by this Agreement.
Section 7.12 Accounting. No party shall, nor shall any party
permit any of its Subsidiaries to, make any changes in its or their accounting
methods, except as required by law, rule, regulation or GAAP.
Section 7.13 Tax-Free Status. No party shall, nor shall any party
permit any of its Subsidiaries to, take any actions that would, or would be
reasonably likely to, adversely affect the status of the Merger as a tax-free
reorganization under Code Section 368(a)(1)(B) or the status of the Alternative
Mergers as tax-free transactions under Section 351 of the Code.
Section 7.14 Insurance. Enserch shall, and shall cause its
Subsidiaries to, and TUC shall, and shall cause its Subsidiaries to, maintain
with financially responsible insurance companies (or through self-insurance not
inconsistent with such party's past practice) insurance in such amounts and
against such risks and losses as are customary for companies engaged in the
same industry and such other businesses as conducted by such party and its
Subsidiaries.
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Section 7.15 Cooperation, Notification. Each of Enserch and TUC
shall and shall cause its Subsidiaries (directly or acting through its parent
company representative) to:
(a) confer on a regular and frequent basis with one or more
representatives of the other party to discuss material operational matters and
the general status of its ongoing operations,
(b) promptly notify the other party of any significant changes in
its business, properties, assets, condition (financial or otherwise), prospects
or results of operations,
(c) advise the other party of any change or event that has had or,
to the knowledge of such party, would reasonably likely have an Enserch
Material Adverse Effect or a TUC Material Adverse Effect, and
(d) consult with each other prior to making any filings with any
state or federal court, administrative agency, commission or other Governmental
Authority in connection with this Agreement and the transactions contemplated
hereby, and promptly after each such filing provide the other with a copy
thereof.
Section 7.16 Rate Matters.
(a) Except as set forth in Section 7.16 of the Enserch Disclosure
Schedule, Enserch shall not make, or permit any Subsidiary to make any filing
to change its rates on file with any Governmental Authority that could have a
material adverse effect on the benefits associated with the business
combination provided herein.
(b) Except as set forth in Section 7.16 of the TUC Disclosure
Schedule, TUC shall not make, or permit any Subsidiary to make any filing to
change its rates on file with any Governmental Authority that could have a
material adverse effect on the benefits associated with the business
combination provided herein.
Section 7.17 Third-Party Consents. Each of Enserch and TUC,
respectively, shall, and shall cause its Subsidiaries to, use all commercially
reasonable efforts to obtain all Enserch Required Consents or TUC Required
Consents, as the case may be. Each party shall promptly notify the other party
of any failure or prospective failure to obtain any such consents and, if
requested by the other party, shall provide to the other party copies of all
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Enserch Required Consents or TUC Required Consents, as the case may be,
obtained by such party.
Section 7.18 Tax-Exempt Status. No party shall, nor shall any
party permit any Subsidiary to, take any action that would likely jeopardize
the exclusion from gross income, for purposes of federal income taxation, of
the interest on the outstanding revenue bonds issued for the benefit of Enserch
or TUC, as the case may be, which qualify on the date hereof under Code Section
142(a) as "exempt facility bonds" or as tax-exempt industrial development bonds
under Section 103(b)(4) of the Internal Revenue Code of 1954, as amended prior
to the Tax Reform Act of 1986.
Section 7.19 Permits. Each of Enserch and TUC shall use
commercially reasonable efforts to maintain in effect all existing material
permits pursuant to which such party operates.
Section 7.20 Certain Information Relating to Customers. Without
limiting the application of the Confidentiality Agreement, dated April 1, 1996,
between Enserch and TUC (the "Confidentiality Agreement") no party shall, nor
shall any party permit any of its Subsidiaries to, use any Information (as
defined in the Confidentiality Agreement) in connection with any solicitation,
inquiry, proposal, arrangement, understanding or agreement with any person
relating to the provision of electric or gas utility service by Enserch or any
of its Subsidiaries, on the one hand, or TUC or any of its Subsidiaries, on the
other hand, to commercial and industrial customers in the service territory of
the other party.
Section 7.21 Certain Restrictions in Respect of TUC.
(a) Dividends; Changes in Stock. TUC shall not (i) engage in any
material repurchase at a premium, recapitalization, restructuring or
reorganization with respect to its capital stock, including, without
limitation, by way of any extraordinary dividends on or other extraordinary
distributions in respect of any of its capital stock, or (ii) amend any
material term or provision of the TUC Common Stock.
(b) Material Acquisitions. TUC shall not, and shall not permit
any of its Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of or
equity in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets if the entering into of a
definitive agreement relating to or the consummation of such acquisition,
merger or consolidation would (A)
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impose any material delay in the obtaining of, or significantly increase the
risk of not obtaining, any authorizations, consents, orders, declarations or
approvals of any Governmental Authority necessary to consummate the Merger or
the expiration or termination of any applicable waiting period, (B)
significantly increase the risk of any Governmental Authority entering an order
prohibiting the consummation of the Merger or (C) significantly increase the
risk of not being able to remove any such order on appeal or otherwise.
(c) Other Actions. TUC shall not, and shall not permit any of its
Subsidiaries to, take or fail to take any other action which would reasonably
be expected to prevent or materially impede, interfere with or delay the
Merger.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Access to Information.
(a) Upon reasonable notice, each of Enserch and TUC shall, and
shall cause its Subsidiaries to, afford to the officers, directors, employees,
accountants, counsel, investment bankers, financial advisors, consultants and
other representatives of the other (collectively, "Representatives") reasonable
access, during normal business hours throughout the period prior to the
Effective Time, to all of its properties, books, contracts, commitments and
records (including, but not limited to, Tax Returns) and, during such period,
each shall, and shall cause its Subsidiaries to, furnish promptly to the other:
(i) a copy of each report, schedule and other document
filed by it or any of its Subsidiaries with the SEC and any other
document pertaining to the transactions contemplated hereby filed with
any Governmental Authority that is not filed as an exhibit to an SEC
filing or described in an SEC filing, and
(ii) all information concerning itself, its Subsidiaries,
directors, officers and shareholders and such matters as may be
reasonably requested by the other party in connection with any
filings, applications or approvals required or contemplated by this
Agreement.
(b) Without limiting the application of the Confidentiality
Agreement, all documents and information furnished pursuant to Section 8.1(a)
(ii) shall be subject to the Confidentiality Agreement.
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Section 8.2 Proxy Statement and Registration Statement.
(a) Preparation and Filing.
(i) As promptly as reasonably practicable after the date
hereof, the parties shall prepare and file with the SEC the
Registration Statement and the Proxy Statement (together the
"Proxy/Registration Statement").
(ii) The parties shall take such actions as may be
reasonably required to cause the Registration Statement to be declared
effective under the Securities Act as promptly as practicable after
such filing.
(iii) The parties shall also take such action as may be
reasonably required to cause the shares of TUC Common Stock issuable
in connection with the Merger to be registered or to obtain an
exemption from registration under applicable state "blue sky" or
securities laws; provided, however, that neither Enserch nor TUC shall
be required to register or qualify as a foreign corporation or to take
any other action that would subject it to general service of process
in any jurisdiction in which it will not, following the Merger, be so
subject.
(iv) Each of the parties shall furnish all information
concerning itself that is required or customary for inclusion in the
Proxy/Registration Statement.
(v) No representation, covenant or agreement contained in
this Agreement is made by any party hereto with respect to information
supplied by any other party hereto for inclusion in the
Proxy/Registration Statement.
(vi) The Proxy/Registration Statement shall comply as to
form in all material respects with the Securities Act, the Exchange
Act and the rules and regulations thereunder.
(vii) The parties shall take such action as may be
reasonably required to cause the shares of TUC Common Stock issuable
in the Merger to be approved for listing on the NYSE.
(b) Letter of TUC's Accountants. Following receipt by Deloitte &
Touche, L.L.P., TUC's independent auditors, of an appropriate request from
Enserch pursuant to SAS No. 72, TUC shall use best efforts to cause to be
delivered to Enserch a letter of Deloitte & Touche, L.L.P., dated a date within
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two business days before the effective date of the Registration Statement, and
addressed to Enserch, in form and substance reasonably satisfactory to Enserch
and customary in scope and substance for "cold comfort" letters delivered by
independent public accountants in connection with registration statements and
proxy statements similar to the Proxy/Registration Statement.
(c) Letter of Enserch' Accountants. Following receipt by Deloitte
& Touche, L.L.P., Enserch' independent auditors, of an appropriate request from
TUC pursuant to SAS No. 72, Enserch shall use best efforts to cause to be
delivered to TUC a letter of Deloitte & Touche, L.L.P., dated a date within two
business days before the effective date of the Registration Statement, and
addressed to TUC, in form and substance reasonably satisfactory to TUC and
customary in scope and substance for "cold comfort" letters delivered by
independent public accountants in connection with registration statements and
proxy statements similar to the Proxy/Registration Statement.
(d) Fairness Opinions. It shall be a condition to the mailing of
the Proxy Statement to the shareholders of Enserch and to the obligation of TUC
to request effectiveness of the Registration Statement that (i) Enserch shall
have received an opinion from Morgan Stanley, dated the date of the Proxy
Statement, to the effect that, as of the date thereof, the Ratio is fair from a
financial point of view to the holders of Enserch Common Stock, and (ii) TUC
shall have received an opinion from Barr Devlin, dated the date of the
Registration Statement, to the effect that, as of the date thereof, the Ratio
is fair from a financial point of view to the holders of TUC Common Stock.
Section 8.3 Regulatory Matters.
(a) HSR Filings. Each party hereto shall file or cause to be
filed with the Federal Trade Commission and the Department of Justice any
notifications required to be filed by their respective "ultimate parent"
companies under the HSR Act, and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby, and shall
respond promptly to any requests for additional information made by either of
such agencies.
(b) Tax Ruling. TUC and Enserch each hereby agree to cooperate
with the other party and to use its best efforts to file a request as soon as
practicable, and in no event later than 60 days after the signing of this
Agreement, to obtain the tax ruling contemplated by Section 9.1(g) of this
Agreement.
(c) Other Regulatory Approvals.
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(i) Each party hereto shall cooperate and use its best
efforts promptly to prepare and file all necessary permits, consents,
approvals and authorizations of all Governmental Authorities and all
other persons necessary or advisable to consummate the transactions
contemplated by this Agreement, including, without limitation, the TUC
Required Statutory Approvals, the Enserch Required Statutory
Approvals, and the Texas Railroad Commission Review except to the
extent that TUC, in its sole discretion, waives the requirement of the
Texas Railroad Commission Review. Further, regarding the Texas
Railroad Commission Review, it is agreed that the parties will, within
30 days of execution of this Agreement, report the transaction to the
Texas Railroad Commission and jointly request that the Texas Railroad
Commission enter an order determining that this transaction is in the
public interest.
(ii) Enserch shall have the right to review and approve in
advance all characterizations of the information relating to Enserch,
on the one hand, and TUC shall have the right to review and approve in
advance all characterizations of the information relating to TUC, on
the other hand, in either case, which appear in any filing made in
connection with the transactions contemplated by this Agreement or the
Merger.
(iii) TUC and Enserch shall each consult with the other
with respect to the obtaining of all such necessary or advisable
permits, consents, approvals and authorizations of Governmental
Authorities.
Section 8.4 Shareholder Approval.
(a) Approval of Enserch Shareholders. Enserch shall, as promptly
as reasonably practicable after the date hereof
(i) take all steps reasonably necessary to duly call,
give notice of, convene and hold a special meeting of its shareholders
(the "Enserch Special Meeting") for the purpose of securing the
Enserch Shareholders' Approval,
(ii) distribute to its shareholders the Proxy Statement in
accordance with applicable federal and state law and its Articles of
Incorporation and Bylaws,
(iii) recommend to its shareholders the approval of the
Merger, this Agreement and the transactions contemplated hereby, and
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(iv) cooperate and consult with TUC with respect to each
of the foregoing matters, provided, that nothing contained in this
Section 8.4(a) shall require the Board of Directors of Enserch to take
any action or refrain from taking any action that such Board
determines in good faith with written advice of counsel could
reasonably be expected to result in a breach of its fiduciary duties
under applicable law.
(b) Fairness Opinions Not Withdrawn. It shall be a condition to
the obligation of Enserch to hold the Enserch Special Meeting that the opinion
of Morgan Stanley referred to in Section 8.2(d)(i) shall not have been
withdrawn.
Section 8.5 Directors' and Officers' Indemnification.
(a) Indemnification. To the fullest extent not prohibited by law,
TUC agrees that for a period of six (6) years after the Effective Time, all
rights to indemnification existing as of the Effective Time in favor of the
current and former directors, officers and employees of Enserch and its
Subsidiaries (at the Effective Time) (each an "Indemnified Party") as provided
for in their respective Articles of Incorporation or Bylaws shall continue in
full force and effect. After the Effective Time, TUC will consent to the
establishment by Enserch and its Subsidiaries of such additional
indemnification arrangements in favor of Enserch' and its Subsidiaries'
directors and officers as may be necessary so that they will have the benefit
of the maximum indemnification arrangements available to the directors and
officers of TUC for all events or actions occurring subsequent to the Effective
Time.
(b) Insurance. For a period of six (6) years after the Effective
Time, TUC shall cause to be maintained in effect the policies of directors' and
officers' liability insurance maintained by Enserch and its Subsidiaries (at
the Effective Time) provided that TUC may substitute therefor policies of at
least the same coverage containing terms that are no less advantageous with
respect to matters occurring prior to the Effective Time to the extent such
liability insurance can be maintained annually at a cost to TUC not greater
than 200 percent of the current aggregate annual premiums for the policies
currently maintained by Enserch and its Subsidiaries for its directors' and
officers' liability insurance; provided, further, that if such insurance cannot
be so maintained or obtained at such cost, TUC shall maintain or obtain as much
of such insurance for Enserch and its Subsidiaries as can be so maintained or
obtained at a cost equal to 200 percent of the current annual premium for
directors' and officers' liability insurance.
(c) Successors. In the event that TUC, Enserch or any of its
Subsidiaries or any of their respective successors or assigns.
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(i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or
(ii) transfers all or substantially all of its properties
and assets to any person,
then and in each such case, proper provision shall be made so that such
successors and assigns shall assume the obligations set forth in this Section
8.5.
(d) The provisions of this Section 8.5 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives.
Section 8.6 Disclosure Schedules.
(a) On or prior to the date of this Agreement, TUC shall have
delivered to Enserch Section 6.4(c) of the TUC Disclosure Schedule (as defined
below) and Enserch shall have delivered to TUC Section 5.4(c) of the Enserch
Disclosure Schedule (as defined below).
(b) Within seven days following the date of execution of this
Agreement, (i) TUC shall deliver to Enserch all schedules required to be
delivered by it in connection with this Agreement (the "TUC Disclosure
Schedule") other than Section 6.4(c) of the TUC Disclosure Schedule and (ii)
Enserch shall deliver to TUC all schedules required to be delivered by it in
connection with this Agreement (the "Enserch Disclosure Schedule,") other than
Section 5.4(c) of the Enserch Disclosure Schedule and for a period of 21 days
following the date of execution of this Agreement (the "Due Diligence Period"),
each of TUC and Enserch shall provide to the other party and its
Representatives access pursuant to Section 8.1 in order for the other party to
complete its due diligence investigation of the party providing access pursuant
to Section 8.1. Either TUC or Enserch may terminate this Agreement during the
Due Diligence Period in the manner contemplated by Section 10.1(i) (in the case
of a termination by TUC) or Section 10.1(j) (in the case of a termination by
Enserch): provided, however, that it is expressly understood and agreed that if
neither TUC nor Enserch terminates this Agreement pursuant to and in
accordance with the provisions of Sections 10.1(i) or 10.1(j), as the case may
be, then TUC may not thereafter assert a failure of the condition set forth in
Sections 9.2(b) or (d) or terminate the Agreement pursuant to Section
10.1(h)(i) and Enserch may not thereafter assert a failure of the condition set
forth in Sections 9.3(b) or (d) or terminate the Agreement pursuant to Section
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10.1(g)(i), based on any information uncovered by it or provided to it during
the Due Diligence Period.
(c) The Disclosure Schedules, when so delivered, shall constitute
an integral part of this Agreement and shall modify or otherwise affect the
respective representations, warranties, covenants or agreements of the parties
hereto contained herein to the extent that such representations, warranties,
covenants or agreements expressly refer to the Disclosure Schedules.
(d) Any and all statements, representations warranties or
disclosures set forth in the Disclosure Schedules shall be deemed to have been
made on and as of the date of this Agreement.
(e) Without limiting the application of the Confidentiality
Agreement, the parties shall use their best efforts to keep the Disclosure
Schedules confidential.
Section 8.7 Public Announcements. TUC and Enserch shall
cooperate with each other in the development and distribution of all news
releases and other public information disclosures with respect to this
Agreement or any of the transactions contemplated hereby and shall not issue
any public announcement or statement prior to consultation with the other
party, however, each party recognizes the other party's obligations imposed by
law or any applicable national securities exchange, and will endeavor to
accommodate such obligations.
Section 8.8 Rule 145 Affiliates. Enserch shall identify in a
letter to TUC all persons who are, at the Closing Date, "affiliates" of Enserch
as such term is used in Rule 145 under the Securities Act. Enserch shall use
its reasonable efforts to cause its affiliates to deliver to TUC on or prior to
the Closing Date a written agreement to the effect that:
(i) any future disposition by such person of any TUC
Common Stock such person receives as the result of the Merger will be
accomplished in accordance with Rule 145(d) under the Securities Act;
and
(ii) such person agrees that appropriate legends shall be
placed upon the certificates evidencing ownership of the TUC Common
Stock that such person receives as a result of the Merger.
Section 8.9 Employment Agreement Consultation. Enserch and TUC
shall consult with each other prior to entering into, or amending, any
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individual employment or severance agreements after the date hereof as
contemplated or permitted in accordance with Section 7.10. Each of Enserch and
TUC shall promptly furnish to the other, upon reasonable request by the other,
detailed information, together with underlying documentation, with respect to
all such existing or proposed individual employment or severance agreements or
amendments thereto.
Section 8.10 Stock Option and Bonus Plans.
The following provisions shall apply to each stock option plan, stock
bonus plan and similar plans of Enserch under which the delivery of Enserch
Common Stock is required to be used for purposes of the payment of benefits,
grant of awards or exercise of options (each a "Stock Plan", and all of which
are described on Section 8.10 of the Enserch Disclosure Section):
(a) (i) Enserch shall take such action as may be
necessary so that from and after the date hereof, no further
grants of stock, options, or other rights shall be made under
any Stock Plan, and after the Effective Time, outstanding
options to purchase shares of Enserch Common Stock shall be
exercisable to purchase a number of shares of TUC Common Stock
as may be determined by applying the Ratio set forth in
Article III hereof; and
(ii) TUC shall
(A) to the extent required under applicable SEC
rules, take all corporate action necessary or appropriate to
obtain shareholder approval at an annual meeting selected by
TUC with respect to such Stock Plan to the extent such
approval is required to enable such Stock Plan to comply with
Rule 16b-3 promulgated under the Exchange Act,
(B) reserve for issuance under such Stock Plan or
otherwise provide a sufficient number of shares of TUC Common
Stock for delivery upon exercise of options under such Stock
Plan which are outstanding on the date hereof, and
(C) as soon as practicable after the Effective
Time, file one or more registration statements under the
Securities Act with respect to the shares of TUC Common Stock
issuable upon the exercise of currently outstanding options
under such Stock Plan to the extent such filing is required
under applicable
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law and use its best efforts to maintain the effectiveness of
such registration statement(s) (and the current status of the
prospectuses contained therein or related thereto) so long as
such options remain outstanding.
(b) To the extent that the change in any Stock Plan from options
exercisable in Enserch Common Stock to options exercisable in TUC Common Stock
does not adequately reflect the economic effect of the fluctuations in the
value of EEX Common Stock, TUC will appropriately adjust the terms of such
Stock Plan in an equitable manner which does not impair the value of the rights
of the option holder or result in neither a net financial benefit nor detriment
to TUC.
Section 8.11 No Solicitations.
(a) No party hereto shall, and each such party shall cause its
Subsidiaries not to, permit any of its Representatives to, and shall use its
best efforts to cause such persons not to, directly or indirectly, initiate,
solicit or encourage, or take any action to facilitate the making of any offer
or proposal that constitutes or is reasonably likely to lead to any Takeover
Proposal, or, in the event of any unsolicited Takeover Proposal, engage in
negotiations or provide any confidential information or data to any person
relating to any Takeover Proposal.
(b) Enserch and TUC shall notify the other orally and in writing
of any such inquiries, offers or proposals (including, without limitation, the
terms and conditions of any such proposal and the identity of the person making
it) within 24 hours of the receipt thereof and shall give the other ten days'
advance notice of any agreement to be entered into with or any information to
be supplied to any person making such inquiry, offer or proposal.
(c) Each party hereto shall immediately cease and cause to be
terminated all existing discussions and negotiations, if any, with any other
persons conducted heretofore with respect to any Takeover Proposal.
(d) Notwithstanding anything in this Section 8.11 to the contrary,
unless the Enserch Shareholders' Approval has been obtained, Enserch or TUC
may, to the extent that the Board of Directors of such party determines in good
faith with the written advice of outside counsel that a failure to do so could
reasonably be expected to result in a breach of its fiduciary duties under
applicable law, participate in discussions or negotiations with, furnish
information to, and afford access to the properties, books and records of such
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party and its Subsidiaries to any person in connection with a possible Takeover
Proposal with respect to such party by such person.
Section 8.12 Transition Management.
(a) As promptly as practicable after the date hereof, TUC and
Enserch shall create a special transition management task force (the "Task
Force") that shall be comprised of representatives from each of the primary
business functions of each company.
(b) The functions of the Task Force shall include (i) to serve as a
conduit for the flow of information and documents between the companies and
their Subsidiaries as contemplated by Section 7.15, (ii) to review and evaluate
proposed exceptions to the restrictions on the conduct of business pending the
Merger set forth in Article VII, and (iii) development of regulatory plans and
proposals, corporate organizational and management plans, workforce combination
proposals, and such other matters as they deem appropriate.
(c) From time to time, the Task Force shall report its findings to
the Chief Executive Officers of Enserch and TUC, each of whom shall report on
such matters as he shall deem appropriate to his respective board.
Section 8.13 Expenses. Subject to Section 10.3, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
that those expenses incurred in connection with printing the Proxy/Registration
Statement, as well as the filing fee relating thereto, shall be shared equally
by TUC and Enserch.
Section 8.14 Employee Benefit Matters.
Following the Closing, TUC shall cause Enserch to maintain the level
of benefits provided to the employees and all former employees of Enserch and
its Subsidiaries that is in effect as of the date hereof (other than benefits
under any Stock Plan) until TUC shall provide benefits to such employees and
former employees on a basis consistent with the provision of benefits provided
otherwise to other employees and former employees within the TUC system.
Section 8.15 Other Agreements.
(a) Prior to the Closing, Enserch will take all action necessary
to effect the Distribution pursuant to the terms of the Distribution Agreement,
including, without limitation, entering into the Distribution Agreement and
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voting its shares of LSEC and EEX in favor of the Merger of EEX with and into
LSEC (the "Preliminary Merger") and the other transactions contemplated by the
Distribution Agreement. Enserch shall take all reasonable actions necessary to
comply promptly with all legal requirements that may be imposed on it with
respect to the Distribution, unless Enserch determines in good faith after
receipt of written advice of outside counsel that the Distribution would result
in a substantive violation of applicable Texas law relating to corporate
distributions and Texas and federal laws relating to fraudulent conveyances or
transfers.
(b) Tax Allocation Agreement. Prior to the Closing Time, Enserch
and LSEC will enter into the Tax Allocation Agreement substantially in the form
attached hereto as Exhibit B with such amendments as consented to in writing by
TUC (the "Tax Allocation Agreement").
(c) Enserch Notes. TUC and Enserch each hereby agree to
cooperate with the other party and Enserch will use its reasonable best efforts
to maintain, and TUC shall take such actions as are necessary to meet the
quantitative parameters necessary for Enserch to maintain the rating issued by
two Nationally Recognized Statistical Rating Organizations (as defined in Rule
15c-3 of the Exchange Act) of the Enserch Notes at or above their present
level.
Section 8.16 Covenant to Satisfy Conditions.
(a) Each of Enserch and TUC shall take all reasonable actions
necessary to comply promptly with all legal requirements that may be imposed on
it with respect to this Agreement.
(b) Subject to the terms and conditions hereof, and taking into
account the circumstances and giving due weight to the materiality of the
matter involved or the action required, Enserch and TUC shall each use its best
efforts to take or cause to be taken all actions, and to do or cause to be done
all things, necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the Merger and the other
transactions contemplated hereby (subject to the vote of Enserch' shareholders
described in Sections 5.13), including fully cooperating with the other in
obtaining the Enserch Required Statutory Approvals, the TUC Required Statutory
Approvals and all other approvals and authorizations of any Governmental
Authorities necessary or advisable to consummate the transactions contemplated
hereby.
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ARTICLE IX
CONDITIONS
Section 9.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions, except, to the extent permitted by applicable law, that such
conditions may be waived in writing pursuant to Section 10.5:
(a) Shareholder Approval. The Enserch Shareholders' Approval
shall have been obtained.
(b) No Injunction. No temporary restraining order or preliminary
or permanent injunction or other order by any federal or state court preventing
consummation of the Merger shall have been issued and continue in effect, and
the Merger and the other transactions contemplated hereby shall not have been
prohibited under any applicable federal or state law or regulation.
(c) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act, and
no stop order suspending such effectiveness shall have been issued and remain
in effect.
(d) Listing of Shares. The shares of TUC Common Stock issuable in
the Merger pursuant to Article III shall have been approved for listing on the
NYSE upon official notice of issuance.
(e) Statutory Approvals. The TUC Required Statutory
Approvals, the Enserch Required Statutory Approvals, and the Texas Railroad
Commission Review, unless waived by TUC in accordance with the provisions of
Section 8.3(c)(i), and any clearance under the HSR Act or matters related
thereto shall have been obtained at or prior to the Effective Time, any such
approvals (or in the case of the Texas Railroad Commission Review, the
satisfaction of any one of (i) through (v) of the definition thereof) shall
have become or resulted in Final Orders at or prior to the Effective Time, and
no such Final Order shall impose terms or conditions that would have, or would
be reasonably likely to have, a material adverse effect on the business,
operations, properties, assets, condition (financial or otherwise), prospects
or results of operations of Enserch and its Subsidiaries taken as a whole (in
the case of the obligation of TUC to effect the Merger) or of TUC and its
Subsidiaries taken as a whole and determined as if the Merger had taken place
(in the case of the obligation of Enserch to effect the Merger).
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(f) Consummation of the Distribution. The Preliminary Merger shall
have been completed and the Distribution shall have become effective in
accordance with the terms of the Distribution Agreement and each of the
agreements contemplated thereby.
(g) Tax Ruling. (i) The Internal Revenue Service shall
have issued and not revoked a ruling (the "Ruling") reasonably
satisfactory to Enserch and TUC to the effect that the Distribution
will result in no taxable gain to Enserch or its shareholders.
Reasonable satisfaction shall include the right to receive a
reasonably satisfactory opinion of counsel on the transaction upon
which the Ruling is contingent.
(ii) TUC shall have received a reasonably satisfactory
representation of Enserch that no material tax liability will be
incurred by Enserch as a result of the Distribution notwithstanding
the tax-free nature of the Distribution.
(h) Tax Allocation Agreement. The Tax Allocation Agreement shall
have become effective in accordance with its terms.
Section 9.2 Conditions to Obligation of Enserch to Effect the
Merger. The obligation of Enserch to effect the Merger shall be further
subject to the satisfaction, on or prior to the Closing Date, of the following
conditions, except as may be waived by Enserch in writing pursuant to Section
10.5:
(a) Performance of Obligations of TUC. TUC shall have performed
in all material respects its agreements and covenants contained in or
contemplated by this Agreement required to be performed by it at or prior to
the Effective Time.
(b) Representations and Warranties. The representations and
warranties of TUC set forth in this Agreement shall be true and correct in all
material respects as of the date hereof and as of the Closing Date as if made
on and as of the Closing Date, except as otherwise contemplated by this
Agreement.
(c) Closing Certificates. Enserch shall have received a
certificate signed by the Chief Executive Officer and Chief Financial Officer
of TUC, dated the Closing Date, to the effect that, to each such officer's
knowledge, the conditions set forth in Sections 9.2(a) and (b) have been
satisfied.
(d) TUC Material Adverse Effect. No TUC Material Adverse Effect
shall have occurred and there shall exist no fact or circumstance that
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would have, or would be reasonably likely to have, a TUC Material Adverse
Effect.
(e) Tax Opinion. Enserch shall have received an opinion of
counsel, in form and substance satisfactory to Enserch, dated the Closing Date,
which opinion may be based on appropriate representations of Enserch and TUC,
in form and substance reasonably satisfactory to such counsel, to the effect
that the Merger will be a tax-free reorganization under Code Section
368(a)(1)(B) and that Enserch and the shareholders of Enserch who exchange
their shares solely for stock of TUC will recognize no gain or loss for federal
income tax purposes as a result of the consummation of the Merger.
(f) TUC Required Consents. The TUC Required Consents shall have
been obtained except those that in the aggregate would not result in and would
not reasonably be likely to result in a TUC Material Adverse Effect.
Section 9.3 Conditions to Obligation of TUC to Effect the Merger.
The obligation of TUC to effect the Merger shall be further subject to the
satisfaction, on or prior to the Closing Date, of the following conditions,
except as may be waived by TUC in writing pursuant to Section 10.5:
(a) Performance of Obligations of Enserch. Enserch shall have
performed in all material respects its agreements and covenants contained in or
contemplated by this Agreement required to be performed by it at or prior to
the Effective Time.
(b) Representations and Warranties. The representations and
warranties of Enserch set forth in this Agreement shall be true and correct in
all material respects as of the date hereof and as of the Closing Date as if
made on and as of the Closing Date, except as otherwise contemplated by this
Agreement.
(c) Closing Certificates. TUC shall have received a certificate
signed by the Chief Executive Officer and Chief Financial Officer of Enserch,
dated the Closing Date, to the effect that, to each such officer's knowledge,
the conditions set forth in Sections 9.3(a) and (b) have been satisfied.
(d) Enserch Material Adverse Effect. No Enserch Material Adverse
Effect shall have occurred and there shall exist no fact or circumstance that
would have, or would be reasonably likely to have, an Enserch Material Adverse
Effect, provided that for purposes of this Section 9.3(d), the Distribution
Subsidiaries shall not be taken into account in determining an Enserch Material
Adverse Effect.
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(e) Tax Opinion. TUC shall have received an opinion of counsel,
in form and substance satisfactory to TUC, dated the Closing Date, which
opinion may be based on appropriate representations of Enserch and TUC, in form
and substance reasonably satisfactory to such counsel, to the effect that the
Merger will be a tax-free reorganization under Code Section 368(a)(1)(B) and
that TUC will recognize no gain or loss for federal income tax purposes as a
result of the consummation of the Merger.
(f) Enserch Required Consents. The Enserch Required Consents
shall have been obtained except those that in the aggregate would not result in
and would not reasonably be likely to result in an Enserch Material Adverse
Effect, provided, however, that for purposes of this Section 9.3(f), the
consent of the holders of the Enserch Notes shall not constitute an Enserch
Required Consent.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination. This Agreement may be terminated and
the Merger abandoned at any time prior to the Closing Date, whether before or
after approval by the shareholders of the respective parties hereto
contemplated by this Agreement:
(a) by mutual written consent of the Boards of Directors of TUC
and Enserch;
(b) by Enserch or TUC, by written notice to the other, if the
Effective Time shall not have occurred on or before March 31, 1997; provided,
however, that such date shall automatically be changed to September 30, 1997
if, on March 31, 1997:
(i) the conditions set forth in Sections 9.1(e) and (g)
have not been satisfied or waived;
(ii) the other conditions to the consummation of the
transactions contemplated hereby are then capable of being satisfied;
and
(iii) any approvals required by Sections 9.1(e) and (g)
that have not yet been obtained are being pursued with diligence;
provided, further, that the right to terminate this Agreement under
this Section
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10.1(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before the
termination date;
(c) by Enserch or TUC, by written notice to the other party if
the Enserch Shareholders' Approval shall not have been obtained at a duly held
Enserch Special Meeting, including any adjournments thereof;
(d) by Enserch or TUC, if any state or federal law, order, rule or
regulation is adopted or issued, that has the effect, as supported by the
written opinion of outside counsel for such party, of prohibiting the Merger,
or by Enserch or TUC, if any court of competent jurisdiction in the United
States or any State shall have issued an order, judgment or decree permanently
restraining, enjoining or otherwise prohibiting the Merger, and such order,
judgment or decree shall have become final and nonappealable;
(e) by Enserch, upon two days' prior notice to TUC, if, as a
result of a tender offer or any written offer or proposal with respect to a
merger, sale of a material portion of its assets or other business combination
(each, a "Business Combination"), in each case by a party other than TUC or any
of its affiliates (provided, however, that the Distribution pursuant to the
Distribution Agreement and related transactions shall not be deemed to be a
Business Combination), the Board of Directors of Enserch determines in good
faith that the fiduciary obligations of such directors under applicable law
require that such tender offer or other written offer or proposal be accepted;
provided, however, that
(i) the Board of Directors of Enserch shall have been
advised in writing by outside counsel that, notwithstanding a binding
commitment to consummate an agreement of the nature of this Agreement
entered into in the proper exercise of their applicable fiduciary
duties, such fiduciary duties would also require the directors to
reconsider such commitment as a result of such tender offer or such
written offer or proposal, and
(ii) prior to any such termination, Enserch shall, and
shall cause its respective financial and legal advisors to, negotiate
with TUC to make such adjustments in the terms and conditions of this
Agreement as would enable Enserch to proceed with the transactions
contemplated herein;
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(f) by TUC, upon two days' prior notice to Enserch, if, as a
result of a tender offer or any written offer or proposal with respect to a
Business Combination, in each case by a party other than Enserch or any of its
affiliates, the Board of Directors of TUC determines in good faith that the
fiduciary obligations of such directors under applicable law require that such
tender offer or other written offer or proposal be accepted; provided, however,
that
(i) the Board of Directors of TUC shall have been advised
in writing by outside counsel that, notwithstanding a binding
commitment to consummate an agreement of the nature of this Agreement
entered into in the proper exercise of their applicable fiduciary
duties, such fiduciary duties would also require the directors to
reconsider such commitment as a result of such tender offer or such
written offer or proposal, and
(ii) prior to any such termination, TUC shall, and shall
cause its respective financial and legal advisors to, negotiate with
Enserch to make such adjustments in the terms and conditions of this
Agreement as would enable TUC to proceed with the transactions
contemplated herein;
(g) by Enserch, by written notice to TUC, if
(i) there shall have been any material breach of any
representation or warranty, or any material breach of any covenant or
agreement, of TUC hereunder, and such breach shall not have been
remedied within twenty (20) days after receipt by TUC of notice in
writing from Enserch, specifying the nature of such breach and
requesting that it be remedied, or
(ii) the Board of Directors of TUC shall withdraw or
modify in any manner materially adverse to Enserch its approval or
recommendation of this Agreement or the Merger or resolve to take such
action; or
(h) by TUC, by written notice to Enserch, if
(i) there shall have been any material breach of any
representation or warranty, or any material breach of any covenant or
agreement, of Enserch hereunder, and such breach shall not have been
remedied within twenty (20) days after receipt by Enserch of notice in
writing from TUC, specifying the nature of such breach and requesting
that it be remedied, or
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(ii) the Board of Directors of Enserch shall withdraw or
modify in any manner materially adverse to TUC its approval or
recommendation of this Agreement or the Merger or resolve to take such
action.
(i) by TUC by written notice (which notice shall specify TUC's
reasons in reasonable detail) delivered to Enserch prior to 5:00 p.m. on May 4,
1996, if (A) TUC in the due diligence investigation contemplated by Section
8.6 shall uncover, or the Enserch Disclosure Schedules delivered to TUC
subsequent to the date of this Agreement shall disclose, information that, as
of the date of this Agreement, has not been previously disclosed in an Enserch
SEC Report or that has not previously been disclosed by Enserch or any of its
Representatives to TUC and (B) such information in the aggregate reflects a
material adverse change in the business, operations, properties, assets,
condition (financial or otherwise), prospects or results of operations of
Enserch and its Subsidiaries taken as a whole, as compared to the information
that was disclosed in an Enserch SEC Report or by Enserch or any of its
Representatives to TUC prior to the date of this Agreement, or
(j) by Enserch by written notice (which notice shall specify
Enserch' reasons in reasonable detail) delivered to TUC prior to 5:00 p.m. on
May 4, 1996, if (A) Enserch in the due diligence investigation contemplated by
Section 8.6 shall uncover, or the TUC Disclosure Schedules delivered to Enserch
subsequent to the date of this Agreement shall disclose, information that, as
of the date of this Agreement, has not been previously disclosed in a TUC SEC
Report or that has not previously been disclosed by TUC or any of its
Representatives to Enserch and (B) such information in the aggregate reflects a
material adverse change in the business, operations, properties, assets,
condition (financial or otherwise), prospects or results of operations of TUC
and its Subsidiaries taken as a whole, as compared to the information that was
disclosed in a TUC SEC Report or by TUC or any of its Representatives to
Enserch prior to the date of this Agreement.
Section 10.2 Effect of Termination. In the event of termination
of this Agreement by either TUC or Enserch pursuant to Section 10.1, there
shall be no liability on the part of either TUC or Enserch or their respective
officers or directors hereunder, except that
(i) Section 7.20, Section 8.1(b), Section 8.6(d), Section
8.13, Section 10.3 and Section 11.2 shall survive and
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(ii) no such termination shall relieve any party from
liability by reason of any willful breach of any agreement,
representation, warranty or covenant contained in this Agreement.
Section 10.3 Certain Damages, Payments and Expenses.
(a) Damages Payable Upon Termination for Breach or Withdrawal of
Approval. If this Agreement is terminated pursuant to Sections 10.1(g)(i) or
(ii) or Sections 10.1(h)(i) or (ii) (breach of representation, warranty,
covenant or agreement or withdrawal of board recommendation), then the
breaching party or party whose board has withdrawn its recommendation shall
promptly (but not later than five business days after receipt of notice that
the amount is due from the other party) pay to the other party, as liquidated
damages, an amount in cash equal to the of out-of-pocket expenses and fees
incurred by the other party arising out of, in connection with or related to
the Merger or the transactions contemplated by this Agreement not in excess of
$15 million ("Out-of-Pocket Expenses"), provided, however, that if this
Agreement is terminated by a party as a result of a willful breach of a
representation, warranty, covenant or agreement by the other party, the
non-breaching party may pursue any remedies available to it at law or in equity
and shall, in addition to the amount of Out-of-Pocket Expenses set forth above,
be entitled to recover such additional amounts as such non-breaching party may
be entitled to receive at law or in equity.
(b) Other Termination Payments. If this Agreement
(i) is terminated
(A) pursuant to Sections 10.1(e) or 10.1(f)
(fiduciary out),
(B) pursuant to Section 10.1(c) (failure to
obtain shareholder approval), following a failure of the
shareholders of Enserch to grant the necessary approval
described in Section 5.13 (a "Shareholder Disapproval"),
(C) as a result of a material breach of Section
8.4 (approval of shareholders), or
(D) pursuant to Section 10.1(g)(ii) or Section
10.1(h)(ii) (board withdrawal of approval)
and
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(ii) with respect to any termination referred to in clause
(i)(A), (C) or (D) above, at the time of such termination (or, in the
case of any termination referred to in clause (i)(B) above, prior to
the Enserch Special Meeting), there shall have been a third-party
tender offer for shares of, or a third-party offer or proposal with
respect to a Business Combination involving Enserch and TUC (as the
case may be, the "Target Party") or the affiliates thereof which, at
the time of such termination (or of the meeting of Enserch's
shareholders) shall not have been (x) rejected by the Target Party and
its Board of Directors and (y) withdrawn by the third-party,
then Target Party shall pay the other party a termination fee equal to the
difference between $42.5 million and the Out- of-Pocket Expenses incurred by
the other party.
(c) Expenses.
(i) The parties agree that the agreements contained in
this Section 10.3 are an integral part of the transactions
contemplated by this Agreement and constitute liquidated damages and
not a penalty.
(ii) If one party fails to promptly pay to the other any
amounts due under this Section 10.3, such defaulting party shall pay
the costs and expenses (including reasonable legal fees and expenses)
in connection with any action, including the filing of any lawsuit or
other legal action, taken to collect payment, together with interest
on the amount of any unpaid fee at the publicly announced prime rate
of Citibank, N.A. in effect from time to time from the date such fee
was required to be paid.
(d) Limitation of Fees. Notwithstanding anything herein to the
contrary, (i) the aggregate amount payable by TUC and its affiliates pursuant
to Section 10.3(a) and Section 10.3(b) shall not exceed $42.5 million and (ii)
the aggregate payable by Enserch and its affiliates pursuant to Section
10.3(a), Section 10.3(b) and the terms of the Enserch Stock Option Agreement
shall not exceed $42.5 million. For purposes of this Section 10.3(d), the
amount payable pursuant to the terms of the Enserch Option shall be the amount
that would be paid pursuant to Section 7 (a) thereof determined as if TUC had
exercised the "put" of the entire Enserch Option on the Termination Date
("Option Value"). If the sum of the aggregate amount payable by Enserch and
its affiliates pursuant to Sections 10.3(a) and (b) and the Option Value
exceeds $42.5 million, (i) TUC's Out of Pocket Expenses shall be paid in full
and the amount payable pursuant to Section 10.3(b) and the Option Value shall
be
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reduced in equal amounts so that such aggregate amount shall be equal to $42.5
million (provided, however, that the Option Value shall not be reduced below
the Option Value which would result if the number of shares covered by the
Enserch Option was 10,000 shares and, in such case, the amount payable pursuant
to Section 10.3(b) shall be reduced by the amount otherwise allocable to the
Option Value) and (ii) and the number of shares purchasable upon the exercise
of the Enserch Option shall be correspondingly reduced as provided in the
Enserch Option Agreement.
Section 10.4 Amendment.
(a) This Agreement may be amended by the parties hereto pursuant
to action of their respective Boards of Directors, at any time before or after
approval hereof by the shareholders of Enserch and prior to the Effective Time,
but after such approvals, no such amendment shall
(i) alter or change the amount or kind of shares, to be
received or exchanged for or on conversion of any class or series of
capital stock of either corporation as provided under Article II, or
(ii) alter or change any of the terms and conditions of
this Agreement if any of the alterations or changes, alone or in the
aggregate, would materially and adversely affect the rights of holders
of TUC Common Stock or the Enserch Common Stock.
(b) This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
Section 10.5 Waiver. At any time prior to the Effective Time, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed by a duly authorized officer of such party.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Non-Survival of Representations, Warranties,
Covenants and Agreements. All representations, warranties, covenants and
agreements in this Agreement shall not survive the Merger, except the covenants
and agreements contained in this Section 11.1 and in Article III (Exchange of
Shares), Section 8.1(b) (Access to Information), Section 8.5 (Directors' and
Officers Indemnification), Section 8.10 (Incentive, Stock and Other Plans),
Section 8.14 (Employee Benefit Matters), Section 8.15(c) (Enserch Notes),
Section 10.3 (Certain Damages, Payments and Expenses) and Section 11.7 (Parties
In Interest), each of which shall survive in accordance with its terms.
Section 11.2 Brokers.
(a) TUC represents and warrants that, except for Barr Devlin, no
broker, finder or investment bank is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
TUC.
(b) Enserch represents and warrants that, except for Morgan
Stanley, no broker, finder or investment bank is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Enserch.
Section 11.3 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given (a) if delivered
personally, or (b) if sent by overnight courier service (receipt confirmed in
writing), or (c) if delivered by facsimile transmission (with receipt
confirmed), or (d) five (5) days after being mailed by registered or certified
mail (return receipt requested) to the parties, in each case to the following
addresses (or at such other address for a party as shall be specified by like
notice):
(i) if to TUC:
Worsham, Forsythe & Wooldridge, L.L.P.
1601 Bryan St., 30th Floor
Dallas, Texas 75201
Attention: Robert A. Wooldridge, Esq.
Fax: (214) 880-0011
<PAGE> 79
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with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, N.Y. 10019
Attention: Douglas W. Hawes, Esq.
Fax: (212) 424-8500
(ii) if to Enserch:
Enserch Corporation
300 South St. Paul
Dallas, Texas 75201-5598
Attention: William T. Satterwhite, Esq.
Senior Vice-President and General Counsel
Fax: (214) 573-3430
with a copy to:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C.
Attention: David N. Brown, Esq.
Fax: (202) 662-6291
Section 11.4 Miscellaneous.
(a) This Agreement, including the documents and instruments
referred to herein, (i) constitutes the entire agreement and supersedes all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof other than
the Confidentiality Agreement, (ii) shall not be assigned by operation of law
or otherwise, and (iii) shall be governed by and construed in accordance with
the laws of the State of Texas applicable to contracts executed in and to be
fully performed in such State, without giving effect to its conflicts of laws
statutes, rules or principles.
(b) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect. The
parties hereto shall negotiate in good faith to replace any provision of this
Agreement so held invalid or unenforceable with a valid provision that is as
similar as possible in substance to the invalid or unenforceable provision.
<PAGE> 80
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Section 11.5 Interpretation. When reference is made in this
Agreement to Articles, Sections or Exhibits, such reference shall be to an
Article, Section or Exhibit of this Agreement, as the case may be, unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes", or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation." Whenever "or" is used in this
Agreement it shall be construed in the nonexclusive sense.
Section 11.6 Counterparts; Effect. This Agreement may be executed
in one or more counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same agreement.
Section 11.7 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and, except for
rights of Indemnified Parties and their heirs and representatives as set forth
in Section 8.5, nothing in this Agreement, express or implied, is intended to
confer upon any person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
Section 11.8 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
Section 11.9 Further Assurances. Each party hereto shall execute
such further documents and instruments and take such further actions as may
reasonably be requested by any other party hereto in order to consummate the
Merger in accordance with the terms hereof.
<PAGE> 81
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IN WITNESS WHEREOF, Enserch, TUC, TXA and TXB have caused this
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first written above.
ENSERCH CORPORATION
By: /s/ D. W. BIEGLER
---------------------------------
Name: D. W. Biegler
Title: Chairman and Chief
Executive Officer
TEXAS UTILITIES COMPANY
By: /s/ ERLE NYE
---------------------------------
Name: Erle Nye
Title: President and Chief
Executive
TXA, INC.
By: /s/ H. JARRELL GIBBS
---------------------------------
Name: H. Jarrell Gibbs
Title: President
TXB, INC.
By: /s/ H. JARRELL GIBBS
---------------------------------
Name: H. Jarrell Gibbs
Title: President
<PAGE> 82
AGREEMENT AND PLAN
OF
DISTRIBUTION
AMONG
ENSERCH CORPORATION
ENSERCH EXPLORATION, INC.
LONE STAR ENERGY COMPANY
AND
TEXAS UTILITIES COMPANY
<PAGE> 83
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1 Terms of Preliminary Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2 Allocation of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3 Transition Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4 Mechanics of Spin-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.5 Timing of Spin-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.1 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 4.1 Transaction Relating to the Spin-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.2 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 5.1 Representations and Warranties of Enserch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 5.2 Representations and Warranties of LSEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 6.1 Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7.1 Tax Allocation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7.2 Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7.3 Conditions to Merger Satisfied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7.4 Registration of Spinco Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7.5 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 8.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 8.2 Termination of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.3 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
i
<PAGE> 84
<TABLE>
<S> <C> <C>
Section 9.1 Nonsolicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 10.2 Amendment and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 11.1 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 11.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 11.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 11.4 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 11.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 11.6 Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
ii
<PAGE> 85
AGREEMENT AND PLAN OF DISTRIBUTION
AGREEMENT AND PLAN OF DISTRIBUTION, dated as of _________, 1996
("Agreement"), among Enserch Corporation, a Texas corporation ("Enserch"),
Enserch Exploration, Inc., a Texas corporation ("EEX"), Lone Star Energy
Company, a Texas corporation ("LSEC"), and Texas Utilities Company, a Texas
corporation ("TUC").
RECITALS
WHEREAS, Enserch, TUC and TXA, Inc., ("TXA") a wholly owned subsidiary
of TUC, and TXB, Inc., a company owned 50% by TUC and 50% by Enserch ("TXB")
have entered into an Agreement and Plan of Merger, dated as of April 13, 1996
(the "Merger Agreement"), providing for the Merger (as defined in the Merger
Agreement) of TXA with and into Enserch, or in the alternative the merger of a
wholly owned subsidiary of TXB with and into TUC and the Merger of a separate
wholly owned subsidiary of TXB with and into Enserch;
WHEREAS, it is a condition to the Merger that EEX will merge with and
into LSEC in a reorganization described in Section 368(a) of the Internal
Revenue Code (the "Preliminary Merger").
WHEREAS, as a further condition to the Merger, immediately prior to
the Effective Time (as defined in Section 2.2 of the Merger Agreement) of the
Merger, subject to the satisfaction or waiver of the conditions set forth in
Article VII of this Agreement, the Board of Directors of Enserch expects to
make a distribution (the "Spin Off") in accordance with Article 2.38 of the
Texas Business Corporation Act ("Texas Law") to the holders of Common Stock of
Enserch, par value $4.45 per share (the "Enserch Common Stock"), on a pro rata
basis, all of the then outstanding shares of Common Stock (the "Spinco Common
Stock"), par value $1.00 per share, of LSEC as the survivor of the Preliminary
Merger ("Spinco"); and
WHEREAS, the purpose of the Spin-Off is to make possible the Merger by
divesting Enserch of EEX, and LSEC.
WHEREAS, this Agreement sets forth or provides for certain agreements
among Enserch, TUC and LSEC in consideration of the separation of the ownership
of Spinco.
NOW, THEREFORE, in consideration of the premises, and of the
respective representations, warranties, covenants and agreements set forth
herein the parties hereto hereby agree as follows:
<PAGE> 86
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
As used in this Distribution Agreement, the following terms shall have
the following meanings:
"Transfer Agent" shall mean the transfer agent for Enserch Common
Stock.
"Enserch Companies" shall mean Enserch and its subsidiaries.
ARTICLE II
MECHANICS OF SPIN-OFF
Section 2.1 Terms of Preliminary Merger. The Preliminary Merger
will be effected pursuant to the terms of an agreement and plan of merger (the
"Spinco Merger Agreement") to be entered into among EEX and LSEC in accordance
with the terms hereof and the Texas Business Corporation Act ("Texas Law").
Section 2.2 Allocation of Assets and Liabilities. When the
Preliminary Merger takes effect under Texas Law (the "Preliminary Effective
Time"), all of the assets and liabilities of EEX and LSEC (the "Merger
Parties") shall be allocated to and vested in Spinco as the surviving
corporation of the Preliminary Merger.
Section 2.3 Transition Matters. It is the intention of the
parties to separate the operations of the Enserch Companies and the Merger
Parties as soon as practicable following the Effective Time. To this end, the
Enserch Companies and the Merger Parties will take all commercially reasonable
steps to effectuate such separation, including the termination of all
contractual obligations, services guarantees and other financial accommodations
between the parties unless the continuation of such arrangements are approved
by TUC. Until such separation is effectuated, the parties agree as follows:
(a) Contracts
Contracts in existence between any of the Merger Parties and any of
the Enserch Companies on the Preliminary Effective Date will continue in
accordance with their terms, subject to amendment or termination to the extent
provided therein or as otherwise may occur.
2
<PAGE> 87
(b) Services
Services to the Merger Parties as have historically been provided by
the Enserch Companies to the Merger Parties shall be subject to continuation,
revision or termination in the discretion of each of the Enserch Companies and
the Merger Parties.
(c) Guaranties
Guaranties executed by an of the Enserch Companies on behalf of any of
the Merger Parties shall continue in effect to the extent the terms thereof are
applicable and enforceable and may otherwise be amended, modified or terminated
in the discretion of each of the Enserch Companies and the Merger Parties.
Section 2.4 Mechanics of Spin-Off.
The Spin-Off shall be effected by the distribution to each holder of
record of Enserch Common Stock, as of the close of the stock transfer books on
the record date designated by or pursuant to the authorization of the Board of
Directors of Enserch (the "Record Date"), of certificates representing one
share of Spinco Common Stock multiplied by the number of shares of Enserch
Common Stock held by such holder. No fractional shares of Spinco Common Stock
shall be distributed and cash shall be distributed in lieu of fractional shares
on a basis approved by the Board of Directors of Enserch.
Section 2.5 Timing of Spin-Off.
Immediately prior to the Effective Time, subject to the satisfaction
or waiver of the conditions set forth in Article VII, the Board of Directors of
Enserch shall formally declare the Spin-Off and pay it by delivery of
certificates for Spinco Common Stock to the Transfer Agent for delivery to the
holders entitled thereto. The Spin-Off shall be deemed to be effective upon
notification by the Company to the Transfer Agent that the Spin-Off has been
declared and that the Transfer Agent is authorized to proceed with the
distribution of Spinco Common Stock, which notification agrees to deliver
promptly following such declarations (the "Effective Time").
ARTICLE III
TAX SHARING AGREEMENT
Section 3.1 Tax Matters.
Prior to the Time of Distribution, the parties hereto shall execute
and deliver an Agreement relating to past and future tax sharing and certain
issues associated therewith in the form attached to the Merger Agreement as
Exhibit A (the "Tax Allocation Agreement").
3
<PAGE> 88
ARTICLE IV
CERTAIN TRANSACTIONS
Section 4.1 Transaction Relating to the Spin-Off.
Immediately prior to the Spin-Off Effective Time, the Preliminary
Merger shall be consummated. The consummation of the Preliminary Merger shall
be conditioned upon the closing of the Merger.
Section 4.2 Further Assurances.
(a) The parties agree that if after the Time of Distribution,
either party holds assets which by the terms hereof were intended to be
assigned and transferred to, or retained by, the other party, such party shall
promptly assign and transfer or cause to be assigned and transferred such
assets to the other party.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of Enserch.
Enserch represents and warrants to Spinco as follows:
(a) Organization
Enserch is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas and has all requisite corporate
power and authority to own and operate its properties and to carry on its
business as now being conducted.
(b) Authority
Enserch has all requisite power and authority to execute this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of Enserch. This Agreement has been duly executed and
delivered by Enserch and constitutes a legal, valid and binding obligation of
Enserch enforceable against it in accordance with its terms.
4
<PAGE> 89
(c) No Conflict
The execution, delivery and performance by Enserch of this Agreement
will not contravene, violate, result in a breach of or constitute a default
under (i) any provision of applicable law or of the articles of incorporation
or by- laws of Enserch, (ii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Enserch or any of its properties or
assets, or (iii) any Material Contract (as defined in the Merger Agreement) to
which Enserch is a party or by which Enserch or any of its properties is bound.
(d) Approvals
No consent, approval order, authorization of, or registration,
declaration or filing with, any Governmental Authority (as defined in the
Merger Agreement) is required in connection with the making or performance by
Enserch of this Agreement, subject to compliance with applicable securities
laws.
Section 5.2 Representations and Warranties of LSEC.
LSEC represents and warrants to Enserch and TUC as follows:
(a) Organization
LSEC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas and has all requisite corporate
power and authority to own and operate its properties and to carry on its
business as now being conducted.
(b) Authority
LSEC has all requisite power and authority to execute this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of LSEC. This Agreement has been duly executed and delivered by LSEC and
constitutes a legal, valid and binding obligation of LSEC enforceable against
it in accordance with its terms.
(c) No Conflict
The execution, delivery and performance by LSEC of this Agreement will
not contravene, violate, result in a breach of or constitute a default under
(i) any provision of applicable law or of the articles of incorporation or by-
laws of LSEC or (ii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to LSEC or any of its properties or assets, or (iii)
any Material Contract (as defined in the Merger Agreement) to which Enserch is
a party or by which Enserch or any of its properties is bound.
5
<PAGE> 90
(d) Approvals
No consent, approval order, authorization of, or registration,
declaration or filing with, any Governmental Authority (as defined in the
Merger Agreement) is required in connection with the making or performance by
LSEC of this Agreement, subject to compliance with applicable securities laws.
Section 5.3 Representations and Warranties of EEX.
EEX represents and warrants to Enserch and TUC as follows:
(a) Organization
EEX is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas and has all requisite corporate
power and authority to own and operate its properties and to carry on its
business as now being conducted.
(b) Authority
EEX has all requisite power and authority to execute this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of EEX, subject to shareholder approval. This Agreement has been duly
executed and delivered by EEX and constitutes a legal, valid and binding
obligation of EHI enforceable against it in accordance with its terms.
(c) No Conflict
The execution, delivery and performance by EEX of this Agreement will
not contravene, violate, result in a breach of or constitute a default under
(i) any provision of applicable law or of the articles of incorporation or by-
laws of EEX or (ii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to EEX or any of its properties or assets, or (iii)
any Material Contract (as defined in the Merger Agreement) to which Enserch is
a party or by which Enserch or any of its properties is bound.
(d) Approvals
No consent, approval order, authorization of, or registration,
declaration or filing with, any Governmental Authority (as defined in the
Merger Agreement) is required in connection with the making or performance by
EEX of this Agreement.
6
<PAGE> 91
ARTICLE VI
CERTAIN COVENANTS
Section 6.1 Certain Covenants.
(a) LSEC acknowledges that it will be allocated and vested in the
properties and assets of EEX in the Preliminary Merger without any
representation or warranty, in "as is" condition and on a "where is" basis.
(b) The reasonable expenses incurred by the Merger Parties in
connection with the Preliminary Merger and the Spin Off will be paid by
Enserch.
ARTICLE VII
CONDITIONS
The obligations of Enserch and LSEC to consummate the Spin-Off shall
be subject to the fulfillment of each of the following conditions:
Section 7.1 Tax Allocation Agreement.
The Tax Allocation Agreement shall have been executed and delivered by
each of Enserch and LSEC.
Section 7.2 Certain Transactions.
The Preliminary Merger shall have been successfully consummated.
Section 7.3 Conditions to Merger Satisfied.
Each condition to the closing of the Merger set forth in Article IX of
the Merger Agreement shall have been satisfied or waived.
Section 7.4 Registration of Spinco Shares.
Any registration statement filed by Spinco with the SEC pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in connection
with the issuance of Spinco Common Stock in the Spin-Off shall have become
effective under the Securities Act or Exchange Act, as applicable, and shall
not be the subject of any stop order or proceeding by the SEC seeking a stop
order.
7
<PAGE> 92
Section 7.5 Regulatory Approvals.
No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Spin-Off shall be
in effect (each party agreeing to use all reasonable efforts to have any such
order reversed or injunction lifted).
ARTICLE VIII
INDEMNIFICATION
Section 8.1 General.
(a) From and after the Effective Time, Spinco agrees to indemnify
and hold harmless TUC and Enserch (together the "TUC Parties") and their
respective directors, officers, employees, affiliates, agents and assigns, as
applicable, against any and all losses, as incurred, for or on account of or
arising from or in connection with or otherwise with respect to:
(i) any breach of or any inaccuracy in any representation
or warranty of Spinco, EEX or LSEC (collectively, the "Spinco
Entities") contained in this Agreement or the Tax Allocation Agreement
(collectively, the "Documents");
(ii) any breach or nonperformance of any covenant of the
Spinco Entities contained in the Documents whether to be performed
before or after the Effective Time;
(iii) the spun-off assets;
(iv) any regulatory or compliance violation that arises
out of events, actions or omissions to act of the Spinco Entities
occurring prior to the Effective Time;
(v) to the extent enforceable, claims of any
shareholders, directors, officers, employees or agents of the Spinco
Entities arising from the execution by the Spinco Entities of the
Documents and the consummation after the Effective Time of
transactions in accordance with the term of the Documents;
(vi) to the extent enforceable, any untrue statement or
alleged untrue statement of any material fact contained in the
Proxy/Registration Statement (as defined in the Merger Agreement), or
any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; but only in each case to the extent based upon information
with respect to the Spinco Entities furnished in writing by or on
behalf of the Spinco Entities, or at any time prior to the Effective
Time, Enserch expressly for use in the
8
<PAGE> 93
Proxy/Registration Statement; and
(vii) any liability arising (A) from a claim to enforce, or
to recover tort liability arising out of, any federal, state or local
law, rule or regulation relating to the protection of the environment
with respect to any facility, site, location or business (whether past
or present and whether active or inactive) owned, operated or leased
by the Spinco Entities prior to the Effective Time and (B) as a result
of conditions existing during or prior to the period of time such
facility, site, location or business was owned, operated or leased by
the Spinco Entities.
(b) TUC agrees to indemnify and hold harmless the Spinco Entities
and their respective directors, officers, employees, affiliates, agents and
assigns, as applicable, against any and all Losses, as incurred, for or on
account of or arising from or in connection with or otherwise with respect to:
(i) any breach of or inaccuracy in any representation or
warranty of TUC contained in any of the Documents;
(ii) any breach or nonperformance of any covenant of (A)
TUC contained in the Documents whether to be performed before or after
the Effective Time or (B) Enserch or any of its post spin-off
Subsidiaries contained in the Documents to be performed after the
Effective Time;
(iii) except for Losses as to which any of the TUC Parties
are entitled to indemnification pursuant to the terms of Section 1(a)
hereof, any liability arising from the assets of Enserch subsequent to
the Merger; and
(iv) any untrue statement or alleged untrue statement of
any material fact contained in the Proxy/Registration Statement, or
any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; but only in each case to the extent based upon information
with respect to the TUC Parties furnished in writing by or on behalf
of TUC or, at any time after the Effective Time, Enserch, expressly
for use in the Proxy/Registration Statement.
Section 8.2 Termination of Indemnification
The obligations to indemnify and hold harmless any party (a) pursuant
to Sections 8.1(a)(i) and (b)(i) shall terminate on the second anniversary of
the date hereof, (b) pursuant to Sections 8.1(a)(v) shall terminate on the
first anniversary of the date hereof and (c) pursuant to the other clauses of
Section 8.1(a), and (b) shall not terminate; provided, however, that such
obligations to indemnify and hold harmless shall not terminate with respect to
any item as to which the person to be indemnified shall have, before the
expiration of the applicable period, previously made a claim
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<PAGE> 94
by delivery a notice (pursuant to Section 8.3 hereof in the case of Third Party
Claims) specifically identifying such claim to the party providing the
indemnification.
Section 8.3 Procedure.
(a) Any party seeking any indemnification provided for under this
Agreement (the "Indemnified Party") in respect of, arising out of or involving
a claim made by any person against the Indemnified Party (a "Third Party
Claim"), shall notify in writing (and to the extent received, deliver copies of
all related notices and documents (inducing court papers) to the party from
whom indemnification is sought (the "Indemnifying Party") of the Third Party
Claim within fifteen Business Days after receipt by such Indemnified Party of
written notice of the Third Party Claim; provided, however, that failure to
give such notification shall not affect the indemnification provided hereunder
except to the extent the Indemnifying Party shall have been actually prejudiced
as a result of such failure (except that the Indemnifying Party shall not be
liable for any expenses incurred during the period in which the Indemnified
Party failed to give such notice if such Indemnified Party failed to give such
notice within the allotted fifteen Business Days). Thereafter, the Indemnified
Party shall deliver to the Indemnifying Party, within five Business Days' time
after the Indemnified Party's receipt thereof, copies of all other notices and
documents (including court papers) received by the Indemnified Party relating
to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnified Party,
the Indemnifying Party shall be entitled to participate in the defense thereof
and, if it so chooses (except as provided in Section 8.3(c)), to assume the
defense thereof with experienced counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party. Should the Indemnifying
Party so elect to assume the defense of a Third Party Claim, the Indemnifying
Party shall not be liable to the Indemnified Party for any legal expenses
(except as provided below and in Section 8.3(c)) subsequently incurred by the
Indemnified Party in connection with the defense thereof. Notwithstanding the
Indemnifying Party's election to assume the defense of such Third Party Claim,
the Indemnified Party shall have the right to employ separate counsel and to
participate in the defense of such action at its own expense; provided,
however, that the Indemnifying Party shall bear the reasonable fees, costs, and
expenses of such separate counsel if (i) the use of counsel chosen by the
Indemnifying Party to represent the Indemnified Party would present such
counsel with a conflict of interest that would preclude such counsel from
representing the Indemnified Party pursuant to legal canons of ethics or other
applicable law; (ii) the Indemnifying Party shall not have employed counsel
reasonably to the Indemnified Party to represent it within 30 days after notice
to the Indemnifying Party of the institution of such Third Party Claim or (iii)
the Indemnifying Party shall authorize the Indemnified Party to employ separate
counsel at the Indemnifying Party's expense. If the Indemnifying Party chooses
to defend or prosecute a Third Party Claim, each party hereto shall cooperate
in the defense or prosecution thereof. Such cooperation shall include the
retention and (upon the Indemnifying Party's request) the provision to the
Indemnifying Party of records and information which are reasonably relevant to
such Third Party Claim, and making employees available (subject to
reimbursement by the Indemnifying Party of actual expenses incurred therewith)
on a mutually convenient basis to provide additional information and
explanation of any
10
<PAGE> 95
material provided hereunder. If the Indemnifying Party chooses to defend or
prosecute any Third Party Claim, the Indemnified Party shall agree to any
settlement, compromise or discharge of such Third Party Claim which the
Indemnifying Party may recommend and which by its terms obligates the
Indemnifying Party to pay the full amount of the liability in connection with
such Third Party Claim and releases the Indemnified Party completely in
connection with such Third Party Claim. Whether or not the Indemnifying Party
shall have assumed the defense of a Third Party Claim, so long as the
Indemnifying Party acknowledges in writing its obligation to indemnify the
Indemnified Party with respect to the applicable claims, the Indemnified Party
shall not admit any liability with respect to, or settle, compromise or
discharge, such Third Party Claim without the Indemnifying Party's prior
written consent, which consent may not be withheld unless, in the Indemnifying
Party's good-faith judgment, such settlement, compromises or discharge is
unreasonable in light of such Third Party Claim against, and defenses available
to, the Indemnified Party.
(c) Notwithstanding anything set forth in Section 8.3 to the
contrary, in the event an Indemnified Party reasonably believes and so notifies
the Indemnifying Party in writing that the applicable claim, event if fully
indemnified for, is reasonably likely to have a material adverse effect on the
Indemnified Party's business, financial condition or results of operations,
then the Indemnifying Party shall not have the right to assume the defense of
such claim but shall have the right to employ separate counsel and to
participate in the defense of such action at its own expense. In such an
event, the Indemnified Party and its counsel shall consult, whenever reasonably
practicable, with the Indemnifying Party and its counsel with respect to the
status of the claim and any related litigation.
ARTICLE IX
NONSOLICITATION; PROPRIETARY INFORMATION
Section 9.1 Nonsolicitation.
(a) From and after the Effective Time, except as required by law,
neither Spinco nor any of its subsidiaries nor any of their respective
representatives shall, at any time, make use of, divulge or otherwise disclose,
directly or indirectly, any trade secret, confidential information or other
proprietary data (including any customer list employee data, record or
financial information constituting a trade secret) concerning Enserch including
without limitations, the business or policies of Enserch or any of its post
Effective Time Subsidiaries, other than information that is a Spun-Off Asset.
(b) Notwithstanding any other provision of this Agreement, it is
understood and agreed that the remedy of indemnity payments pursuant to Article
VIII and other remedies at law would be inadequate in the case of any breach of
the covenants contained in Section 9.1(a) and that each of TUC and Enserch
shall be entitled to equitable relief, including the remedy of specific
performance, with respect to any breach or attempted breach of such covenants.
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<PAGE> 96
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination
Notwithstanding anything to the contrary in this Agreement, this
Agreement may be terminated and the transactions contemplated hereby abandoned
at any time prior to the Closing by Enserch in the event the Merger Agreement
is terminated by any party thereto in accordance with the terms thereof.
Section 10.2 Amendment and Waivers.
This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto. By an instrument in writing,
the parties hereto may waive compliance by any other party with any term or
provision of this Agreement that such other party was or is obligated to comply
with or perform.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Counterparts.
For the convenience of the parties hereto, this Agreement may be
executed in separate counterparts, each such counterpart being deemed to be an
original instrument, and which counterparts shall together constitute the same
Agreement.
Section 11.2 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas, without reference to its conflicts of law
principles.
Section 11.3 Notices.
Any notice, request, instruction or other document to be given
hereunder by any party to any other party shall be in writing and shall be
deemed to have been duly given (i) on the first business day occurring on or
after the date of transmission if transmitted by facsimile, (ii) on the first
business day occurring on or after the date of delivery if delivered personally
or (iii) on the first business day following the date of dispatch if dispatched
by Federal Express or other next-day courier service. All notices hereunder
shall be given as set forth below, or pursuant to such other instructions as
may be designated in writing by the party to receive such notice:
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<PAGE> 97
If to any of the c/o Enserch Corporation
Enserch Companies: 300 South St. Paul
Dallas, Texas 75201-5598
Attention: William T. Satterwhite, Esq.
Senior Vice-President and General Counsel
Fax: (214) 573-3430
with a copy to:
Jackson & Walker, L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attention: Byron F. Egan, Esq.
Fax: (214) 953-5822
If to TUC: Worsham, Forsythe & Wooldridge, L.L.P.
1601 Bryan St., 30th Floor
Dallas, Texas 75201
Attention: Robert A. Wooldridge, Esq.
Fax: (214) 880-0011
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, N.Y. 10019
Attention: Douglas W. Hawes, Esq.
Fax: (212) 424-8500
Section 11.4 Captions.
All article, section and paragraph captions herein are for convenience
of reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
Section 11.5 Assignment.
Except as expressly provided herein, nothing contained in this
Agreement is intended to confer on any person or entity other than the parties
hereto and their respective successors and permitted assigns any benefit,
rights or remedies under or by reason of this Agreement, except that the
provisions of Article VIII hereof shall inure to the benefit of the persons
referred to therein.
Section 11.6 Survival of Representations.
The representations and warranties contained in this Agreement shall
survive the Closing.
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<PAGE> 98
IN WITNESS WHEREOF, this Distribution Agreement has been duly executed
and delivered by the duly authorized officers of the parties hereto as of the
date first written above.
ENSERCH CORPORATION
By:
-----------------------------
Name:
Title:
ENSERCH EXPLORATION, INC.
By:
-----------------------------
Name:
Title:
LONE STAR ENERGY COMPANY
By:
-----------------------------
Name:
Title:
TEXAS UTILITIES COMPANY
By:
-----------------------------
Name:
Title:
14
<PAGE> 99
TAX ALLOCATION AGREEMENT
DATED AS OF __________, 1996
AMONG
ENSERCH CORPORATION
AND
LONE STAR ENERGY CO.
ENSERCH EXPLORATION, INC.
TEXAS UTILITIES COMPANY
<PAGE> 100
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
2.1 Termination of Prior Tax Sharing Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Control of Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Cooperation and Record Retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Refunds of Income Taxes or Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Contests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 EEX Group Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Company Group and Parent Group Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Transfer and Distribution Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1. Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.2. Offsets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.3. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.4. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.5. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.7. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.8. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.9. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
i
<PAGE> 101
TAX ALLOCATION AGREEMENT
TAX ALLOCATION AGREEMENT (the "Agreement") dated as of __________,
1996, among Enserch Corporation, a Texas corporation (the "Company"), Lone Star
Energy Co., a Texas corporation ("Lone Star"), Enserch Exploration, Inc., a
Texas corporation and Texas Utilities Company, a Texas corporation ("Parent").
WHEREAS, the Company is currently the common parent of an affiliated
group of corporations (the "Old Company Group") within the meaning of Section
1502 of the Internal Revenue Code of 1986, as amended (the "Code") filing
consolidated, combined or unitary income tax returns ("Consolidated Returns"),
pursuant to which the Company and one or more other members of the Affiliated
Group pay Taxes (as defined herein) on a consolidated basis ("Consolidated
Taxes");
WHEREAS, on or about ___________, Enserch Exploration, Inc.,
transferred its assets and liabilities to Lone Star pursuant to a merger (the
"Preliminary Merger"), which merger was structured to be a tax-free
reorganization under Section 368(a) of the Code, and immediately thereafter
Lone Star changed its name to Enserch Exploration, Inc. ("EEX");
WHEREAS, immediately thereafter, the Company distributed the stock of
EEX to its shareholders ("Spinoff "), in a transaction intended to qualify as a
tax-free spin-off under Section 355 of the Code, pursuant to a distribution
agreement (the "Distribution Agreement");
WHEREAS, on the beginning of the first day after the date on which the
Spinoff occurs (the "Distribution Date:), EEX and its subsidiaries
(collectively, the "EEX Group"), will cease to be members of the Old Company
Group;
WHEREAS, immediately following Spinoff pursuant to an agreement
("Merger Agreement") between the Company and the Parent, the Company shall
become a first-tier subsidiary of Parent (the "Merger");
WHEREAS, the Company and EEX desire to allocate the liability for the
Taxes of members of the Old Company Group for any Tax Period (including short
Tax Periods and any portion of any Tax Period) which period (or portion) ends
on or before the Distribution Date (a "Pre-Distribution Tax Period") among the
members of the Old Company Group in a manner consistent with the various tax
allocation agreements and practices of the Old Company Group as in effect on
the Distribution Date, and to provide for certain other Tax-related matters;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows.
<PAGE> 102
ARTICLE I
CERTAIN DEFINITIONS
The following terms used herein shall have the meanings set forth
below (such terms used herein shall have the meanings set forth below (such
terms to be equally applicable to the singular and plural forms of the terms
defined or referred to below):
1.1. "Agreement" shall have the meaning set forth in the recitals
to this Agreement.
1.2. "Code" shall have the meaning set forth in the recitals to
this Agreement.
1.3. "Company" shall have the meaning set forth in the recitals to
this Agreement.
1.4. "Company Group" means the Company and any subsidiaries which
the Company continues to own following the Distribution that are eligible to
join in a consolidated tax return with the Company, together with the Company.
1.5 "Consolidated Return" shall have the meaning set forth in the
recitals to this Agreement.
1.6. "Consolidated Group" or "consolidated group" means an
affiliated group of corporations filing a consolidated federal income tax
return, as defined in Treasury Regulation Section 1.1502-1(h).
1.7. "Distribution" shall have the meaning set forth in the
Distribution Agreement.
1.8. "Distribution Agreement" shall have the meaning set forth in
the recitals to this Agreement.
1.9. "Distribution Date" shall have the meaning set forth in the
recitals to this Agreement.
1.10. "Effective Time" shall have the meaning set forth in the
Merger Agreement.
1.11. "Income Taxes" means any and all Taxes based upon or measured
by net income (including, without limitation, any alternative minimum tax under
Section 55 of the Code) imposed by or payable to the U.S., or any state,
county, local or foreign government or any subdivision or agency thereof, and
such term shall include any interest (whether paid or received), penalties or
additions to tax attributable thereto.
1.12. "Income Tax Liabilities" means all liabilities for Income
Taxes, including liabilities for Income Taxes assumed by a party pursuant to a
contract.
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<PAGE> 103
1.13. "Indemnified Party" means the party that is entitled to
indemnification by another party pursuant to this Agreement.
1.14. "Indemnifying Party" means the party that is required to
indemnify another party pursuant to this Agreement.
1.15. "Independent Accounting Firm" means a "big six" independent
accounting firm, jointly selected by the parties; or, if the parties cannot
agree on such accounting firm, EEX and the Company shall each submit the name
of a "big six" independent accounting firm that does not at the time and has
not in the prior two years provided services to any member of the EEX Group or
the Company Group, and the "Independent Accounting Firm" shall mean the firm
selected by lot from these two firms.
1.16. "Independent Law Firm" means a nationally-recognized
independent law firm, jointly selected by the parties; or, if the parties
cannot agree on such law firm, EEX and the Company shall each submit the name
of a nationally-recognized independent law firm that does not at the time and
has not in the prior two years provided services to any member of the EEX Group
or the Company Group, and the "Independent Law Firm" shall mean the firm
selected by lot from these two firms.
1.17. "Information Return" means any report, return, declaration or
other information or filing (other than a Tax Return) required to be supplied
to any taxing authority or jurisdiction.
1.18. "EEX Group" shall have the meaning set forth in the recitals
to this Agreement.
1.19. "Material Tax Election" means any election, change in annual
accounting period, change or adoption of any accounting method, filing of any
amended Tax Return, entering into any closing agreement, settlement of any Tax
claim or Proceeding relating to any member of the Old Company Group or the EEX
Group, surrender of any right to claim a Refund, or consent to any extension or
waiver of the limitation period applicable to any Tax claim or assessment.
1.20. "Merger" shall have the meaning set forth in the recitals to
this Agreement.
1.21. "Merger Agreement" shall have the meaning set forth in the
recitals to this Agreement.
1.22. "Old Company Group" shall have the meaning set forth in the
recitals to this Agreement.
1.23. "Other Taxes" means all Taxes other than Income Taxes.
3
<PAGE> 104
1.24. "Overpayment Rate" means the rate specified under Section 6621
(a) (1) of the Code for overpayments of tax.
1.25. "Parent" shall have the meaning set forth in the recitals to
this Agreement.
1.26. "Parent Group" means the consolidated group of which Parent or
any successor is the "common parent" within the meaning of Section 1504 of the
Code and the Treasury Regulations promulgated under Section 1502 of the Code
and any subsidiary of a member of such consolidated group.
1.27. "Post-Distribution Tax Period" means any Tax Period ending
after the Distribution Date.
1.28. "Pre-Distribution Tax Period" shall have the meaning set forth
in the recitals to this Agreement.
1.29. "Proceeding" means any audit or other examination, judicial or
administrative proceeding relating to liability for or refunds or adjustments
with respect to Other Taxes or Income Taxes.
1.30. "Property Taxes" shall have the meaning set forth in Section
3.2(a)(i) of this Agreement.
1.31. "Refund" means any refund of Income Taxes or Other Taxes,
including any reduction in liabilities for such taxes.
1.32. "Short Period" shall have the meaning set forth in Section
3.1(a) of this Agreement.
1.33. "Spin-Off shall have the meaning set forth in the recitals to
this Agreement.
1.34. "Tax Period" means any twelve month period which constitutes
the taxable year of a party hereto.
1.35. "Tax Return" means any report, return, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction with respect to Income Taxes or Other Taxes, including, without
limitation, any documents with respect to or accompanying payments of estimated
Income Taxes or Other Taxes, or with respect to or accompanying requests for
the extension of time in which to file any such report, return, declaration or
other document.
1.36. "Taxes" means any and all taxes, levies or other like
assessments, charges or fees, including, without limitation, any excise, real
or personal property, gains, sales, use,
4
<PAGE> 105
license, real estate or personal property transfer, net worth, stock transfer,
payroll, ad valorem and other governmental taxes and any withholding obligation
imposed by or payable to the U.S., or any state, county, local or foreign
government or subdivision or agency thereof, and any interest (whether paid or
received), penalties or additions to tax attributable thereto.
1.37. "Taxing Authorities" means any governmental authority which
imposes, or is responsible for the imposition of, a Tax.
1.38. "Transfer" means any transfer of assets by a member of the Old
Company Group which occurs to effectuate the Spinoff or the Merger and which
may give rise to deferred intercompany gain or gain pursuant to Code section
311(b).
ARTICLE II
TERMINATION OF PRIOR TAX SHARING AGREEMENTS
2.1 Termination of Prior Tax Sharing Agreements. This AGREEMENT
shall take effect on the Distribution Date and shall supersede all other
agreements, whether or not written, in respect of any Income Taxes or Other
Taxes between or among any members of the Company Group, or their respective
predecessors or successors, except to the extent necessary to effectuate
section 4.1 and section 5.1 of this Agreement. All such replaced agreements
shall terminate as of the Distribution Date, and any rights or obligations
created thereunder thereby shall be settled in the normal course.
ARTICLE III
RETURN PREPARATION, FILING AND PAYMENT OF TAXES
3.1 Control of Tax Matters.
(a) Return Preparation and Filing.
(i) Pre-Distribution Tax Period. EEX hereby irrevocably
designates, and agrees to cause each of its subsidiaries to so
designate, the Company as its agent to take any and all actions,
necessary or incidental to the preparation of Consolidated Returns
and the filing of such Consolidated Returns and claims for Refunds or
forms relating to any Pre-Distribution Tax Period.
(ii) Short Period. For any Tax Period that begins prior to
the Distribution Date and ends on the Distribution Date (a "Short
Period") of the Company or any of its subsidiaries that was a member
of the Old Company Group for any Pre-Distribution
5
<PAGE> 106
Tax Period, Parent, will timely prepare and file (in a manner
consistent with past practice of the Company, unless Parent reasonably
determines that such practice is inconsistent with the then existing
state of the law) with the appropriate Taxing Authorities all
Consolidated Returns required to be filed for such Short Period.
(iii) Separate Company Returns. Each company that was a
member of the Old Company Group shall be responsible for filing all of
its Tax Returns for the Tax Period which includes the Distribution
Date, other than any Consolidated Returns for Short Periods.
3.2 Cooperation and Record Retention.
(a) EEX agrees to cooperate with the Company, and will cause each
of its subsidiaries to so cooperate, in a timely manner consistent with
existing practice in filing any return consent contemplated by this Agreement.
EEX also agrees to take, and will cause the appropriate subsidiary to take,
such action or actions as the Company may reasonably request, including but not
limited to the filing of requests for the extension of time within which to
file Consolidated Returns, and to cooperate in connection with any refund claim
with respect to any Pre-Distribution Tax Period. EEX further agrees to furnish
timely, and to cause each of its subsidiaries to so furnish, the Company with
any and all information reasonably requested by the Company in order to carry
out the provisions of this Agreement. Without limiting the generality of the
foregoing sentence, EEX specifically agrees to provide to the Company promptly,
but in any event within 10 days of receipt thereof, copies of any
correspondence or notices received from the Internal Revenue Service or any
other Taxing authority with respect to any Consolidated Return of the Old
Company Group for a Pre- Distribution Tax Period.
(b) The Company and EEX shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with any
Proceeding. Such cooperation shall include the retention and (upon the other
party's request) the provision of records and information which are reasonably
relevant to any such Proceeding, and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company and EEX agree (i) to retain all books
and records with respect to Tax matters pertinent to the Old Company Group and
the EEX Group relating to any Pre-Distribution Tax Period, and to abide by all
record retention agreements entered into with any Taxing Authority, and (ii) to
give the other party reasonable written notice prior to destroying or
discarding any such books and records and, if the other party so requests, the
Company or EEX, as the case may be, shall allow the requesting party to take
possession of such books and records. EEX further acknowledges and agrees that
any such books and records necessary to establish the amount of any loss
carried forward shall be retained until the expiration of the statute of
limitations in respect of the year in which such loss is utilized to reduce
taxable income.
6
<PAGE> 107
ARTICLE IV
REFUNDS AND CONTESTS
4.1 Refunds of Income Taxes or Other Taxes. The EEX Group shall
be entitled to all Refunds attributable to the EEX Group, and the Parent Group
shall be entitled to all Refunds attributable to the Company Group or the Old
Company Group (other than those attributable to the EEX Group). For this
purpose, Refunds attributable to the EEX Group shall means Refunds determined
pursuant to the prior tax sharing agreement between the Company and Enserch
Exploration, Inc., which agreement is attached hereto, and Refunds attributable
to the Old Company Group shall mean Refunds determined pursuant to such tax
sharing agreement (other than those attributable to the EEX Group). A party
receiving a Refund to which another party is entitled pursuant to this
AGREEMENT shall pay the amount to which such other party is entitled within ten
days after the receipt of the Refund.
4.2 Contests.
(a) Except as provided below, in the event that any deficiencies
or Refund claims arise with respect to an Income Tax Liability with respect to
any Consolidated Return of the Old Company Group for a Pre-Distribution Tax
Period, the Company shall control all proceedings with respect thereto. In the
event that any issue or issues are raised during such proceedings that may
result, directly or indirectly, in deficiencies or refund claims related to
Taxes that would be required to be paid by the Company pursuant to this
Agreement, both EEX and Parent agree and acknowledge that the contest of any
such issue or issues shall be conducted jointly; provided, however, all major
decisions regarding the conduct of such contest shall be made by Parent. EEX's
right to indemnity hereunder shall be conditioned on EEX's compliance with this
Agreement except that EEX shall be required to give notice to Parent upon the
receipt of oral or written notice by EEX from any governmental authority or
agent thereof of an issue that may result in Taxes for which a claim for
indemnity from Parent, Company or EEX may be made, under this Agreement.
(b) EEX and the Company agree to cooperate in all reasonable
respects with respect to Tax deficiencies or Refund claims described in Section
4.2 of this Agreement, which cooperation shall include executing and filing
such waivers, consents, forms, court petitions, refund claims, complaints,
powers of attorney and other documents needed from time to time in order to
defend, prosecute or resolve such deficiencies or claims.
ARTICLE V
INDEMNIFICATION FOR TAXES
7
<PAGE> 108
5.1 EEX Group Income Taxes. The EEX Group shall pay, and shall
indemnify and hold the Parent Group harmless against, (i) all Income Tax
Liabilities of any member of the EEX Group for all Tax Periods (including Tax
Periods or portions thereof during which any member of the EEX Group was a
member of the Old Company Group but excluding all Income Tax Liabilities
arising from the Transfer and Distribution as provided for in Section 5.3
hereof) and (ii) all Income Tax Liabilities incurred pursuant to Treasury
Regulation Section 1.1502-6 or any comparable state, local or other provision
providing for several liability as a result of any member of the EEX Group
having been a member of any consolidated, combined, unitary or other group
(other than the Old Company Group and the Parent Group). For purposes of
clause (i) of this section 5.1, the Income Tax Liabilities of any member or
members of the EEX Group for any Pre-Distribution Tax Period shall be
determined pursuant to the prior tax sharing agreement between the Company and
Enserch Exploration, Inc., which agreement is attached hereto.
5.2 Company Group and Parent Group Income Taxes. The Parent Group
shall pay, and shall indemnify and hold the EEX Group harmless against, (i) all
Income Tax Liabilities of any member of the Old Company Group or the Parent
Group (other than Income Tax Liabilities of any member of the EEX Group for any
Tax Period) but excluding all Income Tax Liabilities arising from the Transfer
and Distribution as provided for in Section 5.3 hereof and (ii) all Income Tax
Liabilities incurred pursuant to Treasury Regulation Section 1.1502-6 or any
comparable state, local or other provision providing for several liability as a
result of any member of the Old Company Group or the Parent Group (other than
any member of the EEX Group) having been a member of any other consolidated,
combined, unitary or other group. For purposes of clause (i) of this section
5.2, the Income Tax Liabilities of any member or members of the Old Company
Group for any Pre-Distribution Tax Period shall be determined pursuant to the
prior tax sharing agreement between the Company and Enserch Exploration, Inc.,
which agreement is attached hereto.
5.3 Transfer and Distribution Taxes. Parent Group and EEX Group
shall pay, shall indemnify and hold the other harmless for any Income Tax
Liabilities arising from the Transfer and the Distribution in excess of their
proportionate share as determined by the relative market values of their
respective equity on the Distribution Date. The proportionate share of the
Parent Group and the EEX Group of such Income Tax Liabilities shall be
determined as follows: (i) the proportionate share of the Parent Group shall be
the fraction equal to the market value of the Company's equity on the
Distribution Date over the market value of the equity of the Company and EEX on
the Distribution Date, and (ii) the proportionate share of the EEX Group shall
be the fraction equal to the market value of the equity of EEX on the
Distribution Date over the market value of the equity of EEX and the Company on
the Distribution Date; PROVIDED, HOWEVER, that such indemnification shall be
subject to revision as necessitated by EEX's fiduciary obligation to its
minority shareholders.
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5.4 Other Taxes. (a) The Parent Group shall pay, and shall
indemnify and hold the EEX Group harmless against, all liabilities for all
Other Taxes attributable to the income, property or activities of any member of
the Old Company Group or the Parent Group (other than, in both cases, a member
of the EEX Group), including all Other Taxes, if any, arising from the Transfer
and the Distribution. Except as provided in the preceding sentence, the EEX
Group shall pay, and shall indemnify and hold the Parent Group harmless
against, all liabilities for all Other Taxes attributable to the income,
property or activities of any member of the EEX Group.
(b) To the extent that the Indemnifying Party is required to
indemnify another party pursuant to this Article V, the Indemnifying Party
shall pay to the Indemnified Party, no later than 10 days prior to the due date
of the relevant Tax Return or estimated Tax Return or 10 days after the
Indemnifying Party receives the Indemnified Party's calculations, whichever
occurs later, the amount that the Indemnifying Party is required to pay the
Indemnified Party. The Indemnified Party shall submit its calculations of the
amount required to be paid pursuant to this Article V, showing such
calculations in sufficient detail so as to permit the Indemnifying Party to
understand the calculations. If the Indemnifying Party disagrees with such
calculations, it must notify the Indemnified Party of its disagreement in
writing within 15 days of receiving such calculations. Any dispute regarding
such calculations shall be resolved in accordance with this Agreement.
ARTICLE VI
GENERAL PROVISIONS
6.1. Computations.
Other than determinations of whether there are any indemnity
obligations under this Agreement, all computations or recomputations of Income
Tax Liability and all determinations, computations or recomputations of any
amount or any payment (including, but not limited to, computations of the
amount of the Income Tax Liability, the amount or effect of any loss, credit or
deduction, the effect of a Federal statutory Tax rate change for a taxable
year, and the amount of any interest, penalties or additions imposed with
respect to any Income Tax) with respect to any Consolidated Return shall be
prepared by the Company and submitted to EEX for its written approval. Any
disagreement as to such computations after submission to EEX by the Company
shall be resolved by a nationally recognized accounting firm, with expertise in
Tax, independent of each of the parties hereto. Without limiting the
foregoing, the Company shall calculate the taxable income of the Old Company
Group in accordance with the existing and historic methodology used by the Old
Company Group in calculating taxable income of the Old Company Group and submit
such calculation to the Parent in accordance with the provisions of this
Section.
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6.2. Offsets.
No payment shall be required to be made by either party to the other
pursuant to this Agreement to the extent that there is an amount then due and
payable under this Agreement to the party that is to make such payment.
6.3. Assignment.
Neither this Agreement nor any of the rights, interest or obligations
under this Agreement shall be assigned, in whole or in part, by operation of
law or otherwise by any of the parties without the prior written consent of the
other parties. Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by, the parties
hereto and their respective successors and assigns.
6.4. Survival.
The provisions of this AGREEMENT shall survive the effective date of
the Merger and remain in full force until all periods of limitations, including
any extensions or waiver periods, for all Tax Periods of the Company and EEX
prior to or including the effective date of the Merger have expired.
6.5. Notices.
Any notices, payments or other communications required by this
Agreement shall be made as provided in the notice section of the Merger
Agreement; however, copies of such notices, payments or other communications
shall, for both EEX and the Company, be sent to the attention of the director
of taxes.
6.6. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
6.7. Entire Agreement.
This Agreement (a) constitutes the entire agreement and supersedes all
prior agreement and understandings, both written and oral, among the parties
with respect to the subject matter of this Agreement and (b) is not intended to
confer upon any person other than the parties hereto any rights or remedies.
The parties agree that to the extent the provisions of any other agreements
executed in connection with the Spinoff or the Merger are inconsistent with the
provisions hereof, the provisions of this Agreement shall prevail.
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6.8. Severability.
If any provision of this Agreement or the application of any such
provision to any person circumstances shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof.
6.9. Headings.
The headings of the sections of this Agreement are inserted for
convenience only and shall not constitute a part thereof or affect in any way
the meaning or interpretation of this Agreement.
6.10 Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
ENSERCH CORPORATION
By:
-------------------------
Name:
Title:
LONE STAR ENERGY CO.
By:
-------------------------
Name:
Title:
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<PAGE> 112
ENSERCH EXPLORATION, INC.
By:
-------------------------
Name:
Title:
TEXAS UTILITIES CO.
By:
-------------------------
Name:
Title:
12
<PAGE> 113
TUC DISCLOSURE SCHEDULE
Section 6.4(b)
None, except consents under certain credit and financing agreements
potentially required for the Alternative Merger.
Section 6.4(c)
1. Hart-Scott-Rodino clearance
2. Effectiveness of Registration Statement or, in the Alternative
Merger only, the Joint Proxy/Registration Statement
3. Approval of the Securities and Exchange Commission under the
1935 Act
4. Texas Railroad Commission Review
5. Texas Secretary of State
6. Nuclear Regulatory Commission Approval potentially required
for the Alternative Merger
<PAGE> 114
Section 5.4(c)
1. Hart-Scott-Rodino clearance
2. Compliance with the Securities Act and the Exchange Act in connection
with the Preliminary Merger, the Distribution and the Merger or the
Alternative Mergers.
3. Approval of the Securities and Exchange Commission under the 1935 Act
4. Texas Railroad Commission Review
5. Texas Secretary of State
<PAGE> 1
EXHIBIT 2(b)
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of April 13, 1996, (the
"Agreement") by and between Texas Utilities Company, a corporation formed under
the laws of the State of Texas ("TUC"), and ENSERCH Corporation, a corporation
formed under the laws of the State of Texas ("Enserch").
W I T N E S S E T H T H A T:
WHEREAS, concurrently with the execution and delivery of this
Agreement, Enserch, TUC, TXA, Inc., a wholly- owned subsidiary of TUC, and
TXB, Inc., a corporation formed under the laws of the State of Texas, entered
into an Agreement and Plan of Merger, dated as of April 13, 1996, (the "Merger
Agreement"), which provides, inter alia, upon the terms and subject to the
conditions thereof, for the merger of TXA, Inc. with and into Enserch or, in
certain circumstances, the merger of two newly formed, wholly-owned
subsidiaries of TXB, Inc. with and into TUC and Enserch respectively (in either
case, the "Merger").
WHEREAS, as a condition to TUC's willingness to enter into the Merger
Agreement, TUC has requested that Enserch agree, and Enserch has so agreed, to
grant to TUC an option with respect to certain shares of Enserch' common stock,
on the terms and subject to the conditions set forth herein;
NOW THEREFORE, to induce TUC to enter into the Merger Agreement, and
in consideration of the representations, warranties, covenants and agreements
contained herein, in the Merger Agreement, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Grant of Option.
(a) Subject to the receipt of all regulatory approvals and orders
required by applicable law, Enserch hereby grants TUC an irrevocable option
(the "Enserch Option") to purchase up to 3,363,570 shares, subject to
adjustment as provided in Section 11 (the "Enserch Shares"), of common stock,
par value $4.45 per share, of Enserch (the "Enserch Common Stock") (being 4.9%
of the number of shares of Enserch Common Stock outstanding as of March 31,
1996) in the manner set forth below, at a price (the "Exercise Price") per
Enserch Share of $16 3/8.
(b) The Exercise Price shall be payable, at TUC's option, as
follows:
(i) in cash, or
(ii) subject to the receipt of all approvals of any
Governmental Authority required for Enserch to acquire, and TUC to
issue, TUC Shares (as defined below) from TUC, in shares of common
stock, without par value, of TUC ("TUC Shares"))
in either case in accordance with Section 4 hereof.
<PAGE> 2
(c) Notwithstanding the foregoing, in no event shall the number of
Enserch Shares for which the Enserch Option is exercisable exceed 4.9% of the
number of issued and outstanding shares of Enserch Common Stock.
(d) As used herein, the "Fair Market Value" of any share shall be
the average of the daily closing sales price for such share on the New York
Stock Exchange (the "NYSE") during the ten NYSE trading days prior to the fifth
NYSE trading day preceding the date such Fair Market Value is to be determined.
(e) Capitalized terms used herein but not defined herein shall
have the meanings set forth in the Merger Agreement.
2. Exercise of Option.
(a) The Enserch Option may be exercised by TUC, in whole or in
part, at any time or from time to time after the Merger Agreement becomes
terminable by TUC under circumstances which could entitle TUC to a payment
under Section 10.3(b) of the Merger Agreement, regardless of whether the Merger
Agreement is actually terminated or whether there occurs a closing of any
Business Combination involving a Target Party or a closing by which a Target
Party becomes a subsidiary (any such event by which the Merger Agreement
becomes so terminable by TUC being referred to herein as a "Trigger Event").
(b)(i) Enserch shall notify TUC promptly in writing of the occurrence
of any Trigger Event, it being understood that the giving of such notice by
Enserch shall not be a condition to the right of TUC to exercise the Enserch
Option.
(ii) In the event TUC wishes to exercise the Enserch
Option, TUC shall deliver to Enserch written notice (an "Exercise
Notice") specifying the total number of Enserch Shares it wishes to
purchase.
(iii) Upon the giving by TUC to Enserch of the Exercise
Notice and the tender of the applicable aggregate Exercise Price, TUC,
to the extent permitted by law and Enserch's organizational documents,
and provided that the conditions to Enserch's obligations to issue the
Enserch Shares to TUC hereunder set forth in Section 3 have been
satisfied or waived, shall be deemed to be the holder of record of the
Enserch Shares issuable upon such exercise, notwithstanding that the
stock transfer book of Enserch shall then be closed or that
certificates representing such Enserch Shares shall not then be
actually delivered to TUC.
(iv) Each closing of a purchase of Enserch Shares (a
"Closing") shall occur at a place, on a date, and at a time designated
by TUC in an Exercise Notice delivered at least two business days
prior to the date of the Closing.
(c) The Enserch Option shall terminate upon the earliest to occur
of:
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<PAGE> 3
(i) the Effective Time of the Merger;
(ii) the termination of the Merger Agreement pursuant to
Section 10.1 thereof other than under circumstances which could
entitle TUC to a payment under Section 10.3(b) of the Merger
Agreement; and
(iii) 180 days following any termination of the Merger
Agreement upon or during the continuance of a Trigger Event or, if at
the expiration of such 180 day period, the Enserch Option cannot be
exercised by reason of any applicable judgment, decree, order, law or
regulation, ten business days after such impediment to exercise shall
have been removed or shall have become final and not subject to
appeal, but in no event under this clause (iii) later than September
30, 1997.
(d) Notwithstanding the foregoing, the Enserch Option may not be
exercised if TUC is in breach of any of its representations or warranties, or
in material breach of any of its covenants or agreements, contained in this
Agreement or in the Merger Agreement.
3. Conditions to Closing. The obligation of Enserch to issue the
Enserch Shares to TUC hereunder is subject to the conditions that
(a) all waiting periods, if any, under the HSR Act applicable to
the issuance of the Enserch Shares hereunder shall have expired or have been
terminated;
(b) the Enserch Shares, and any TUC Shares which are issued in
payment of the Exercise Price, shall have been approved for listing on the NYSE
upon official notice of issuance;
(c) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal, state or local
administrative agency or commission or other federal, state or local
Governmental Authority, if any, required in connection with the issuance and
acquisition of the Enserch Shares hereunder shall have been obtained or made,
including, without limitation, any required approval of the SEC under Sections
9 and 10 of the 1935 Act, any required approval of the Texas Railroad
Commission or the Texas Public Utilities Commission, as the case may be, of (i)
the issuance of the Enserch Shares by Enserch (ii) the acquisition of Enserch
Shares by TUC and (iii) the acquisition by Enserch of the TUC Shares
constituting the Exercise Price hereunder; and
(d) no preliminary or permanent injunction or other order by any
court of competent jurisdiction prohibiting or otherwise restraining such
issuance shall be in effect.
The conditions set forth in paragraph (b) above may be waived by Enserch, in
the case of TUC Shares, and by TUC, in the case of Enserch Shares, in the sole
discretion of the waiving party.
4. Closing. At any Closing,
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<PAGE> 4
(a) Enserch shall deliver to TUC or its designee a single
certificate in definitive form representing the number of Enserch Shares
designated by TUC in its Exercise Notice, such certificate to be registered in
the name of TUC and to bear the legend set forth in Section 12; and
(b) TUC shall deliver to Enserch the aggregate price for the
Enserch Shares so designated and being purchase by
(i) wire transfer of immediately available funds or
certified check or bank check, or
(ii) subject to the conditions in Section 1(b)(ii), a
certificate or certificates representing the number of TUC Shares
being issued by TUC in consideration thereof, determined in accordance
with Section 4(c).
(c) In the event that TUC issues TUC Shares to Enserch in
consideration of Enserch Shares pursuant to Section 4(b)(ii), the number of TUC
Shares to be so issued shall be equal to the quotient obtained by dividing:
(i) the product of (x) the number of Enserch Shares with
respect to which the Enserch Option is being exercised and (y) the
Exercise Price, by
(ii) the Fair Market Value of the TUC Shares as of the
date immediately preceding the date the Exercise Notice is delivered
to Enserch.
(d) Enserch shall pay all expenses, and any and all United States
Federal, state and local taxes, and other chargers that may be payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 4.
5. Representations and Warranties of Enserch. Enserch represents
and warrants to TUC that
(a) Subject to any required regulatory approvals, Enserch has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder, subject in the case of the repurchase of the Enserch
Shares pursuant to Section 7(a) to applicable law and the provisions of
Enserch' Articles of Incorporation, as amended (the "Enserch Articles");
(b) this Agreement has been duly and validly executed and
delivered by Enserch, and assuming the due authorization, execution and
delivery hereby by TUC, constitutes a valid and binding obligation of Enserch,
enforceable against Enserch in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally, and except that the availability of equitable remedies,
including specific performance, may be subject to the discretion of any court
before which any proceeding therefor may be brought;
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<PAGE> 5
(c) Enserch has taken all necessary corporate action to authorize
and reserve for issuance and to permit it to issue, upon exercise of the
Enserch Option, and at all times from the date hereof through the expiration of
the Enserch Option will have reserved 3,363,570 authorized and unissued Enserch
Shares, such amount being subject to adjustment as provided in Section 11, all
of which, upon their issuance and delivery in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable;
(d) upon delivery of the Enserch Shares to TUC upon the exercise
of the Enserch Option, TUC will acquire the Enserch Shares free and clear of
all claims, liens, charges, encumbrances and security interests of any nature
whatsoever;
(e) except as described in Section 5.4(b) of the Enserch
Disclosure Schedule to the Merger Agreement, the execution and delivery of this
Agreement by Enserch does not, and, subject to compliance with applicable law
and the Enserch Articles with respect to the repurchase of the Enserch Shares
pursuant to Section 7(a), the consummation by Enserch of the transactions
contemplated hereby will not violate, conflict with, or result in a breach of
any provision of, or constitute a default (with or without notice or a lapse of
time, or both) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination, cancellation, or
acceleration of any obligation or the loss of a material benefit under, or the
creation of a lien, pledge, security interest or other encumbrance on assets
(any such conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, hereinafter a "Violation") of Enserch or any of
its Subsidiaries, pursuant to
(i) any provision of the Enserch Articles or the Bylaws
of Enserch,
(ii) any provision of any material loan or credit
agreement, note, mortgage, indenture, lease, Enserch benefit plan or
other agreement, obligation, instrument, permit, concession,
franchise, license of Enserch or its Subsidiaries or to which any of
them is a party (any of the foregoing in effect on the date hereof
being referred to as a "Material Contract"), or
(iii) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Enserch or its properties or assets,
which Violation, in the case of each of clauses (ii) and (iii), could
reasonably be expected to have a Enserch Material Adverse Effect (except that
no representation or warranty is given concerning any Violation of a Material
Contract with respect to the repurchase of Enserch Shares pursuant to Section
7(a));
(f) except as described in Section 5.4(c) of the Enserch
Disclosure Schedule to the Merger Agreement or Section 3 hereof, the execution
and delivery of this Agreement by Enserch does not, and the performance of this
Agreement by Enserch will not, require any consent, approval, authorization or
permit or filing with or notification to, any Governmental Authority;
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<PAGE> 6
(g) none of Enserch, any of its affiliates or anyone acting on its
or their behalf, has issued, sold or offered any security of Enserch to any
person under circumstances that would cause the issuance and sale of Enserch
Shares, as contemplated by this Agreement, to be subject to the registration
requirements of the Securities Act as in effect on the date hereof, and,
assuming the representations and warranties of TUC contained in Section 6(g)
are true and correct, the issuance, sale and delivery of the Enserch Shares
hereunder would be exempt from the registration and prospectus delivery
requirements of the Securities Act, as in effect on the date hereof (and
Enserch shall not take any action which would cause the issuance, sale, and
delivery of Enserch Shares hereunder not to be exempt from such requirements);
and
(h) any TUC Shares acquired pursuant to this Agreement will be
acquired for Enserch' own account, for investment purposes only, and will not
be acquired by Enserch with a view to the public distribution thereof in
violation of nay applicable provision of the Securities Act.
6. Representations and Warranties of TUC. TUC represents and
warrants to Enserch that
(a) TUC has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder;
(b) this Agreement has been duly and validly executed and
delivered by TUC, and assuming the due authorization, execution and delivery
hereof, constitutes a valid and binding obligation of TUC, enforceable against
TUC in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting the
enforcement of creditors' rights generally, and except that the availability of
equitable remedies, including specific performance, may be subject to the
discretion of any court before which any proceeding may be brought:
(c) prior to any delivery of TUC Shares in consideration of the
purchase of Enserch Shares pursuant hereto, TUC will have taken all necessary
corporate action to authorize for issuance and to permit it to issue such TUC
Shares, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable;
(d) upon any delivery of such TUC Shares to Enserch in
consideration of the purchase of Enserch Shares pursuant hereto, Enserch will
acquire the TUC Shares free and clear of all claims, liens, charges,
encumbrances and security interest of any nature whatsoever;
(e) except as described in Section 6.4(b) of the TUC Disclosure
Schedule to the Merger Agreement, the execution and delivery of this Agreement
by TUC does not, and the consummation by TUC of the transactions contemplated
hereby will not, violate, conflict with, or result in the breach of any
provision of, or constitute a default (with or without notice or a lapse of
time, or both) under, or result in any Violation by TUC or any of its
subsidiaries, pursuant to
(i) any provision of the Articles of Incorporation or
Bylaws of TUC,
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<PAGE> 7
(ii) any provisions of any loan or credit agreement, note,
mortgage, indenture, lease, TUC benefit plan or other agreement,
obligation, instrument, permit, concession, franchise, license of TUC
or any of its subsidiaries or to which any of them is a party, or
(iii) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to TUC or its properties or assets,
which Violation, in the case of each of clauses (ii) or (iii) would have a TUC
Material Adverse Effect;
(f) except as described in Section 6.4(c) of the TUC Disclosure
Schedule to the Merger Agreement or Section 3 hereof, the execution and
delivery of this Agreement by TUC does not, and the consummation by TUC of the
transactions contemplated hereby will not, require any consent, approvals
authorization or permit of, or filing with or notification to, any Governmental
Authority; and
(g) any Enserch Shares acquired upon exercise of the Enserch
Option will be acquired for TUC's own account, for investment purposes only and
will not be, and the Enserch Option is not being, acquired by TUC with a view
to the public distribution thereof, in violation of any applicable provision of
the Securities Act.
7. Certain Repurchases.
(a) TUC "Put". At the request of TUC by written notice (x)
at any time during which the Enserch Option is exercisable pursuant to Section
2 (the "Repurchase Period"), Enserch (or any successor entity thereof) shall,
if permitted by applicable law, the Enserch Articles and Bylaws and Enserch's
Material Contracts (but notwithstanding any insufficiency in the number of
Enserch Shares authorized for issuance upon the exercise of the Enserch
Option), repurchase from TUC all or any portion of the Enserch Option, at the
price set forth in subparagraph (i) below, or, (y) at any time prior to March
31, 1997 (provided that such date shall have extended to September 30, 1997
under the circumstances where the date after which either party may terminate
the Merger Agreement pursuant to Section 10.1(b) of the Merger Agreement has
been extended to September 30, 1997), Enserch (or any successor entity thereof)
shall, if permitted by applicable law, the Enserch Articles and Enserch's
Material Contracts, repurchase from TUC all or any portion of the Enserch
Shares purchased by TUC pursuant to the Enserch Option, at the price set forth
in subparagraph (ii) below:
(i) the difference between the "Market/Offer Price" (as
defined below) for shares of Enserch Common Stock as of the date TUC
gives notice of its intent to exercise its rights under this Section 7
and the Exercise Price, multiplied by the number of Enserch Shares
purchasable pursuant to the Enserch Option (or portion thereof with
respect to which TUC is exercising its rights under this Section 7),
but only if the Market/Offer Price is greater than the Exercise Price.
For purposes of this subparagraph (i), "Market/Offer Price" shall
mean, as of any date, the higher of (x) the price per share offered as
of such date pursuant to any
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<PAGE> 8
tender or exchange offer or other offer with respect to a Business
Combination involving Enserch as the Target Party which was made prior
to such date and not terminated or withdrawn as of such date and (y)
the Fair Market Value of Enserch Common Stock as of such date.
(ii) the product of (x) the sum of (A) the Exercise Price
paid by TUC per Enserch Share acquired pursuant to the Enserch Option,
and (B) the difference between the "Offer Price" (as defined below)
and the Exercise Price, but only if the Offer Price is greater than
the Exercise Price, and (y) the number of Enserch Shares so to be
repurchased pursuant to this Section 8. For purposes of this clause
(ii), the "Offer Price" shall be the highest price per share offered
pursuant to a tender or exchange offer or other Business Combination
offer involving Enserch as the Target party during the Repurchase
Period prior to the delivery by TUC of a notice of repurchase.
(b) Redelivery of TUC Shares. If TUC shall have previously elected
to purchase Enserch Shares pursuant to the exercise of the Enserch Option by
the issuance and delivery of TUC Shares, then Enserch shall, if so requested by
TUC, in fulfillment of its obligation pursuant to Section 7(a)(y) (that is,
with respect to the Exercise Price only and without limitation to its
obligation to pay additional consideration under clause (B) of Section
7(a)(ii)(x)), redeliver the certificates for such TUC Shares to TUC, free and
clear of all liens, claims, charges and encumbrances of any kind or nature
whatsoever; provided, however, that if at any time less than all of the Enserch
Shares so purchased by TUC pursuant to the Enserch Option are to be repurchased
by Enserch pursuant to Section 7(a)(y), then (i) Enserch shall be obligated to
redeliver to TUC the same proportion of such TUC Shares as the number of
Enserch Shares that Enserch is then obligated to repurchase bears to the number
of Enserch Shares acquired by TUC upon exercise of the Enserch Option and (ii)
TUC shall issue to Enserch new certificates representing those TUC Shares which
are not due to be redelivered to TUC pursuant to this Section 7(b) to the
extent that excess TUC Shares are included in the certificates redelivered to
TUC by Enserch.
(c) Payment and Redelivery of Enserch Options or Shares. In the
event TUC exercises its rights under this Section 7, Enserch shall, within ten
business days thereafter, pay the required amount to TUC in immediately
available funds and TUC shall surrender to Enserch the Enserch Option or the
certificate or certificates evidencing the Enserch Shares purchased by TUC
pursuant hereto, and TUC shall warrant that it owns the Enserch Option or such
shares and that the Enserch Option or such shares are then free and clear of
all liens, claims, damages, charges and encumbrances of any kind or nature
whatsoever.
(d) TUC "Call". If TUC has elected to purchase Enserch Shares
pursuant to the exercise of the Enserch Option by the issuance and delivery of
TUC Shares, notwithstanding that TUC may no longer hold any such Enserch Shares
or that TUC elects not to exercise its other rights under this Section 7, TUC
may require, at any time or from time to time prior to March 31, 1997 (provided
that such date shall be extended to September 30, 1997 under the circumstances
where the date after which either party may terminate the Merger Agreement
pursuant to Section 10.1(b) of the Merger
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Agreement has been extended to September 30, 1997), Enserch to sell to TUC any
such TUC Shares at the price attributed to such TUC Shares pursuant to Section
4 plus interest at the rate of 8.75% per annum on such amount from the Closing
Date relating to the exchange of such TUC Shares pursuant to Section 4 to the
Closing Date under this Section 7(d) less any dividends on such TUC Shares paid
during such period or declared and payable to shareholders of record on a date
during such period.
(e) Repurchase Price Reduced at TUC's Option. In the event the
repurchase price specified in Section 7(a) would subject the purchase of the
Enserch Option or the Enserch Shares purchased by TUC pursuant to the Enserch
Option to a vote of the shareholders of Enserch pursuant to applicable law or
the Enserch Articles, then TUC may, at its election, reduce the repurchase
price to an amount which would permit such repurchase without the necessity for
such a shareholder vote.
8. Voting of Shares. Following the date hereof and prior to the
fifth anniversary of the date hereof (the "Expiration Date"), each party shall
vote any shares of capital stock of the other party acquired by such party
pursuant to this Agreement ("Restricted Shares"), including any TUC Shares
issued pursuant to Section 1(b), or otherwise beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), by such party on each matter submitted to a vote
of shareholders of such other party for and against such matter in the same
proportion as the vote of all other shareholders of such other party are voted
(whether by proxy or otherwise) for and against such matter.
9. Restrictions on Transfer.
(a) Restrictions on Transfer. Prior to the Expiration Date,
neither party shall, directly or indirectly, by operation of law or otherwise,
sell, assign, pledge, or otherwise dispose of or transfer any Restricted Shares
beneficially owned by such party, other than (i) pursuant to Section 7, or (ii)
in accordance with Section 7(b) or Section 10.
(b) Permitted Sales. Following the termination of the Merger
Agreement, a party shall be permitted to sell any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or exchange
offer that has been approved or recommended, or otherwise determined to be fair
to and in the best interests of the shareholders of the other party, by a
majority of the members of the Board of Directors of such other party, which
majority shall include a majority of directors who were directors prior to the
announcement of such tender or exchange offer.
10. Registration Rights.
(a) Following the termination of the Merger Agreement, either
party hereto that owns Restricted Shares (a "Designated Holder") may by written
notice (the "Registration Notice") to the other party (the "Registrant")
request the Registrant to register under the Securities Act all or any part of
the Restricted Shares beneficially owned by such Designated Holder (the
"Registrable Securities") pursuant to a bona fide firm commitment underwritten
public offering, in which the Designated Holder and the underwriters shall
effect as wide a distribution of such Registrable
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Securities as is reasonably practicable and shall use their best efforts to
prevent any person (including any Group (as used in Rule 13d-5 under the
Exchange Act)) and its affiliates from purchasing through such offering
Restricted Shares representing more than 1% of the outstanding shares of common
stock of the Registrant on a fully diluted basis (a "Permitted Offering").
(b) The Registration Notice shall include a certificate executed
by the Designated Holder and its proposed managing underwriter, which
underwriter shall be an investment banking firm of nationally recognized
standing (the "Manager"), stating that
(i) they have a good faith intention to commerce promptly
a Permitted Offering, and
(ii) the Manager in good faith believes that, based on the
then-prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price equal to at least 80% of
the then Fair Market Value of such shares.
(c) The Registrant (and/or any person designated by the
Registrant) shall thereupon have the option exercisable by written notice
delivered to the Designated Holder within ten business days after the receipt
of the Registration Notice, irrevocably to agree to purchase all or any part of
the Registrable Securities proposed to be so sold for cash at a price (the
"Option Price") equal to the product of (i) the number of Registrable
Securities to be so purchased by the Registrant and (ii) the then Fair Market
Value of such shares.
(d) Any purchase of Registrable Securities by the Registrant (or
its designee) under Section 11(c) shall take place at a closing to be held at
the principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or
such designee in such notice within twenty business days after delivery of such
notice, and any payment for the shares to be so purchased shall be made by
delivery at the time of such closing in immediately available funds.
(e) If the Registrant does not elect to exercise its option
pursuant to this Section 10 with respect to all Registrable Securities, it
shall use its best efforts to effect, as promptly as practicable, the
registration under the Securities Act of the unpurchased Registrable Securities
proposed to be so sold; provided, however, that
(i) neither party shall be entitled to demand more than
an aggregate of two effective registration statements hereunder, and
(ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed 40
days after such request in the case of clause (A) below or 90 days in
the case of clauses (B) and (C) below) when
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(A) the Registrant is in possession of material
non-public information which it reasonably believes would be
detrimental to be disclosed at such time and, in the opinion
of counsel to the Registrant, such information would be
required to be disclosed if a registration statement were
filed at that time;
(B) the Registrant is required under the
Securities Act to include audited financial statements for any
period in such registration statement and such financial
statements are not yet available for inclusion in such
registration statement; or
(C) the Registrant determines, in its reasonable
judgment, that such registration would interfere with any
financing, acquisition or other material transaction involving
the Registrant or any of its affiliates.
(f) The Registrant shall use its reasonable best efforts to cause
any Registrable Securities registered pursuant to this Section 10 to be
qualified for sale under the securities or Blue Sky law of such jurisdictions
as the Designated Holder may reasonably request and shall continue such
registration or qualification in effect in such jurisdiction; provided,
however, that the Registrant shall not be required to qualify to do business
in, or consent to general service of process in, any jurisdiction by reason of
this provision.
(g) The registration rights set forth in this Section 10 are
subject to the condition that the Designated Holder shall provide the
Registrant with such information with respect to such holder's Registrable
Securities, the plans for the distribution thereof, and such other information
with respect to such holder as, in the reasonable judgment of counsel for the
Registrant, is necessary to enable the Registrant to include in such
registration statement all material facts required to be disclosed with respect
to a registration thereunder.
(h) A registration effected under this Section 10 shall be
effected at the Registrant's expense, except for underwriting discounts and
commissions and the fees and these of counsel to the Designated Holder, and the
Registrant shall provide to the underwriters such documentation (including
certificates, opinions of counsel and "comfort" letters from auditors) as is
customary in connection with underwritten public offerings as such underwriters
may reasonably require.
(i) In connection with any registration effected under this
Section 10, the parties agree
(i) to indemnify each other and the underwriters in the
customary manner;
(ii) to enter into an underwriting agreement in form and
substance customary for transactions of such type with the Manager and
the other underwriters participating in such offering, and
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(iii) to take all further actions which shall be reasonably
necessary to effect such registration and sale (including if the
Manager deems it necessary, participating in road-show presentations).
(j) The Registrant shall be entitled to include (at its expense)
additional shares of its common stock in a registration effected pursuant to
this Section 10 only if and to the extent the Manager determines that such
inclusion will not adversely affect the prospects for success of such offering.
11. Adjustment of Number of Enserch Shares.
(a) Without limitation to any restrictions on Enserch contained in
this Agreement or in the Merger Agreement, in the event of any change in
Enserch Common Stock by reason of stock dividends, splitups, mergers (other
than the Merger), recapitalizations, combinations, exchange of shares or the
like, the type and number of shares or securities subject to the Enserch
Option, and the purchase price per share provided in Section 1, shall be
adjusted appropriately to restore to TUC its rights hereunder, including the
right to purchase from Enserch (or its successors) shares of Enserch Common
Stock (or such other shares or securities into which Enserch Common Stock has
been so changed) representing 4.9% of the outstanding Enserch Common Stock for
the aggregate Exercise Price calculated as of the date of this Agreement as
provided in Section 1.
(b) If, as a result of the application of the limitations on
payments contained in Section 10.3(d) of the Merger Agreement, the maximum
payment upon the "put" of the entire Enserch Option under Section 7(a) of this
Agreement is limited, the number of Enserch Shares shall be reduced to the
maximum number of Enserch Shares that would, if the "put" of the Enserch Option
provided in Section 7(a) of this Agreement were exercised on the Termination
Date (as defined in the Merger Agreement), result in such maximum payment as so
limited.
12. Restrictive Legends. Each certificate representing shares of
Enserch Common Stock issued to TUC hereunder, and TUC Shares, if any, delivered
to Enserch at a Closing, shall include a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES OR BLUE SKY LAWS, AN D MAY BE REOFFERED OR SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE ENSERCH STOCK OPTION AGREEMENT, DATED AS
OF APRIL 13, 1996, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER
UPON REQUEST.
It is understood and agreed that:
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(i) the reference to the resale restrictions of the
Securities Act and state securities or Blue Sky laws in the above
legend shall be removed by delivery of substitute certificate(s)
without such reference if TUC or Enserch, as the case may be, shall
have delivered to the other party a copy of a letter from the staff of
the SEC, or an opinion of counsel, in form and substance satisfactory
to the other party, to the effect that such legend is not required for
purposes of the Securities Act or such laws;
(ii) the reference to the provisions to this Agreement in
the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such
reference; and
(iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied.
In addition, such certificates shall bear any other legend as may be required
by law. Certificates representing shares should in a registered public offering
pursuant to Section 10 shall not be required to bear the legend set forth in
this Section 12.
13. Binding Effect; No Assignment; No Third Party Beneficiaries.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
(b) Except as expressly provided for in this Agreement, neither
this Agreement nor the rights or obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the
other party.
(c) Nothing contained in this Agreement, express or implied, is
intended to confer upon any person other than the parties hereto and their
respective permitted assigns any rights or remedies of any nature whatsoever by
reason of this Assignment.
(d) Any Restricted Shares sold by a party in compliance with the
provision of Section 10 shall, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement, unless and
until such party shall repurchase or otherwise become the beneficial owner of
such shares, and any transferee of such shares shall to be entitled to the
registration rights of such party.
14. Specific Performance. The parties hereto agree that
irreparable harm would occur in the event that any of the provision of this
Agreement were not performed in accordance with their specified terms or were
otherwise breached. It is accordingly agreed that the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
Untied States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or equity.
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15. Validity. (a) The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the other provisions of this Agreement, which shall remain in full force and
effect.
(b) In the event any court or other competent authority holds any
provision of this Agreement to be null, void or unenforceable, the parties
hereto shall negotiate in good faith the execution and delivery of an amendment
to this Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision and the economic effects thereof.
(c) If for any reason any such court or regulatory agency
determines that TUC is not permitted to acquire, or Enserch is not permitted to
repurchase pursuant to Section 8, the full number of shares of Enserch Common
Stock provided in Section 1 hereof (as the same may be adjusted), it is the
express intention of Enserch to allow TUC to acquire or to require Enserch to
repurchase such lesser number of shares as may be permissible without any
amendment or modification hereof.
(d) Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null, void
or unenforceable, or order any party to take any action inconsistent therewith,
or not take any action required herein, the other party shall not be entitled
to specific performance of such provisions or part hereof or to any other
remedy, including but not limited to money damages, for breach hereof or of any
other provision of this Agreement or part hereof as the result of such holding
or order.
16. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if (a) delivered personally, or (b) if
sent by overnight courier service (receipt confirmed in writing), or (c) if
delivered by facsimile transmission (with receipt confirmed), or (d) five days
after being mailed by registered or certified mail (return receipt requested)
to the parties in each case to the following addresses (or at such other
address for a party as shall be specified by like notice):
A. If to TUC to:
By Mail:
and Hand: Worsham, Forsythe & Wooldridge, L.L.P.
1601 Bryan Street, 30th Floor
Dallas, Texas 75201
Attention: Robert A. Wooldridge, Esq.
with a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, N.Y. 10019
Attention: Douglas W. Hawes, Esq.
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B. If to Enserch to:
By Mail:
and Hand: Enserch Corporation
300 South St. Paul
Dallas, Texas
Attention: William T. Satterwhite, Esq.
with a copy to: Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044
Attention: David Brown, Esq.
17. Governing Law; Choice of Forum. This Agreement shall be
governed by and construed in accordance with the laws of the State of Texas
applicable to agreements made and to be performed entirely within such State
and without regard to its choice of law principles.
18. Interpretation.
(a) When reference is made in this Agreement to Articles, Sections
or Exhibits, such reference shall be to an Article, Section or Exhibit of this
Agreement, as the case may be, unless otherwise indicated.
(b) The table of contents and heading contained in this Agreement
are for reference purposes and shall not affect in any way the meaning or
interpretation of the Agreement.
(c) Whenever the words "include," "includes," or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation."
(d) Whenever "or" is used in this Agreement it shall be construed
in the nonexclusive sense.
19. Counterparts; Effect. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
20. Amendments; Waiver. This Agreement may be amended by the
parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf
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of each of the parties hereto, or, in the case of a waiver, by an instrument
signed on behalf of the party waiving compliance.
21. Extension of Time Periods. The time periods for exercise of
certain rights under Sections 2, 6 and 7 shall be extended:
(a) to the extent necessary to obtain all regulatory approvals for
the exercise of such rights, and for the expiration of all statutory waiting
periods; and
(b) to the extent necessary to avoid any liability under Section
16(b) of the Exchange Act by reason of such exercise.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written
ENSERCH CORPORATION
By: /s/ D. W. BIEGLER
-----------------------------------
Name: D. W. Biegler
Title: Chairman and Chief Executive
TEXAS UTILITIES COMPANY
By: /s/ ERLE NYE
-----------------------------------
Name: Erle Nye
Title: President and Chief Executive
17
