<PAGE>
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[X] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
El Paso Electric Company
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
No Par Value
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(5) Total fee paid:
No Fee Required
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE>
EL PASO ELECTRIC COMPANY
100 N. Stanton
El Paso, Texas 79901
(915) 543-5711
April 7, 1997
Dear Shareholder:
The Annual Meeting of Shareholders of El Paso Electric Company will be held
at the Paul Kayser Center, located at 100 N. Stanton, El Paso, Texas 79901, on
Thursday, May 8, 1997, at 10:00 a.m., Mountain Daylight Time.
The purpose of the Annual Meeting is to give shareholders an opportunity
to vote on the election of Class I Directors.
Information concerning this matter is set forth in the accompanying notice
of the meeting and Proxy Statement. Your Board of Directors recommends that you
vote FOR the election of the persons nominated by the Board to serve as Class I
Directors.
Your vote is important. To ensure your representation, even if you cannot
attend the Annual Meeting, please mark, sign, date and return the enclosed Proxy
promptly.
Sincerely,
/s/ James S. Haines, Jr.
James S. Haines, Jr.
Chief Executive Officer and President
<PAGE>
EL PASO ELECTRIC COMPANY
100 N. Stanton
El Paso, Texas 79901
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 8, 1997
To the Shareholders of
El Paso Electric Company:
The Annual Meeting of Shareholders of El Paso Electric Company will be held
at the Paul Kayser Center, located at 100 N. Stanton, El Paso, Texas 79901, on
Thursday, May 8, 1997, at 10:00 a.m., Mountain Daylight Time, for the following
purposes:
(1) To elect four of the twelve members of the Board of Directors for
three-year terms; and
(2) To transact such other business as may properly come before the meeting
and any adjournment thereof.
The Board of Directors knows of no matters, other than that set forth in
paragraph (1) above (which is discussed at greater length in the accompanying
Proxy Statement), that will be presented for consideration at the Annual
Meeting.
The Board of Directors has fixed the close of business on March 14, 1997,
as the record date for the determination of shareholders entitled to vote at the
Annual Meeting.
Please mark, date and sign the enclosed Proxy and return it promptly in the
envelope provided for your convenience. If you attend the meeting and decide to
vote in person, you may revoke your Proxy. SHAREHOLDERS ATTENDING THE MEETING
WHOSE SHARES ARE REGISTERED IN THE NAME OF A BROKER SHOULD BRING AN AFFIDAVIT OF
OWNERSHIP FROM THE BROKER SO THAT BENEFICIAL OWNERSHIP CAN BE VERIFIED WITHOUT
DELAY ON THE MEETING DATE. The prompt return of your Proxy will save the
postage expense of additional mailings.
By Order of the Board of Directors,
/s/ Guillermo Silva, Jr.
Guillermo Silva, Jr.
Secretary
April 7, 1997
YOUR VOTE IS IMPORTANT
PLEASE MARK, DATE, SIGN AND
PROMPTLY RETURN YOUR PROXY. THANK YOU.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------------------------------- ------------------------------
Other Securities All
Base Annual Restricted Underlying Other
Name and Salary Bonus Compensation/(1)/ Stock Options/SARs Compensation/(2)/
Principal Position Year ($) ($) ($) ($) (#) ($)
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
James S. Haines, Jr........ 1996 282,789 125,000 62,813/(3)/ 532,150/(4)/ 800,000 0
Chief Executive Officer
& President (since May
1, 1996)
Eduardo A. Rodriguez....... 1996 196,271 250,000 13,846 100,000 4,285
Senior Vice President- 1995 169,000 9,750 0 1,499
Customer and Corporate 1994 161,539 5,000 96,500 1,999
Services
Julius F. Bates............ 1996 129,792 150,000 6,698 100,000 4,750
Vice President- 1995 124,800 2,880 0 3,864
Transmission & 1994 119,818 5,538 40,507 4,380
Distribution
Michael L. Blough.......... 1996 129,792 175,000 6,508 100,000 4,750
Vice President- 1995 114,381 12,900 0 4,620
Administration 1994 96,272 4,776 32,337 4,620
Gary R. Hedrick............ 1996 129,792 175,000 8,384 100,000 0
Vice President- 1995 124,800 9,600 0 1
Treasurer & Chief 1994 120,013 6,923 40,507 1
Financial Officer
John C. Horne.............. 1996 129,792 150,000 5,990 100,000 4,750
Vice President- 1995 124,800 5,760 0 2,592
Power Supply 1994 119,177 6,462 40,507 0
David H. Wiggs, Jr......... 1996 169,675 500,000 0 500,000 80,115 /(5)/
Chairman of the Board & 1995 454,800 41,982 0 4,621
Chief Executive Officer 1994 428,048 33,638 259,750 4,948
Curtis L. Hoskins.......... 1996 41,279 500,000 0 0 10,036 /(6)/
President & Chief 1995 251,700 9,681 0 4,621
Operating Officer 1994 241,154 9,308 143,750 4,981
</TABLE>
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(1) Represents payments for accrued and unused vacation and personal holiday
time pursuant to Company policy. Excludes perquisites representing less than
ten percent of annual salary.
(2) Includes matching contributions made by the Company for 1996 under the
Company's 401(k) Plan to Messrs. Haines, Rodriguez, Bates, Horne, Hedrick,
Blough, Wiggs and Hoskins in the amounts of $0, $4,258, $4,750, $4,750, $0,
$4,750, $4,750 and $4,750, respectively, and the reallocation of forfeited
shares of the Company's old common stock under the Leveraged ESOP for the
plan year ended December 31, 1996 in an amount having a fair market value of
less than $1.00 for each individual, based on market valuations as of
December 31, 1996.
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<PAGE>
(3) Includes commissions and certain closing costs and fees associated with the
sale of Mr. Haines' home in Kansas; and reimbursement of moving expenses for
Mr. Haines to relocate to El Paso.
(4) Mr. Haines owned 100,000 restricted shares at year-end and the value of
these shares at December 31, 1996 was $650,000. These shares vest over a
five year period in increments of 20%. Mr. Haines will receive cash
dividends if and when declared on vested shares; dividends on investment
shares will be used to acquire additional restricted shares.
(5) Mr. Wiggs retired as Chairman of the Board and Chief Executive Officer on
May 1, 1996 and retired as a Director effective August 8, 1996. Includes
costs associated with the purchase of Mr. Wiggs' home; expected commission
costs on the sale (appraised value) of Mr. Wiggs' home; and a one-time
payment of $36,471 for unused vacation and sick-time associated with Mr.
Wiggs' retirement.
(6) Mr. Hoskins retired from the Company as President and Chief Operating
Officer and Director effective February 12, 1996. Includes a one-time
payment of $5,286 of unused vacation and sick time pursuant to his
retirement.
AGGREGATE OPTIONS OUTSTANDING UNDER THE 1996 LONG-TERM INCENTIVE PLAN
Set forth below is information with respect to the aggregate options granted
pursuant to the Company's 1996 Long-Term Incentive Plan that were outstanding at
December 31, 1996 for each of the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR/(1)/
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------
Number of
Common Alternative
Shares Grant Date
Underlying Percent of Total Value
Options Options Granted Exercise or Grant Date
Granted to Employees Base Price Expiration Present Value
Name (#)/(1)/ in Fiscal Year ($/Sh) Date $/(2)/
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
James S. Haines, Jr. 800,000 42.11% 5.32 4-30-06 2,067,834.75
Eduardo A. Rodriguez 100,000 5.26% 5.56 6-10-06 279,798.06
Julius F. Bates 100,000 5.26% 5.56 6-10-06 279,798.06
John C. Horne 100,000 5.26% 5.56 6-10-06 279,798.06
Gary R. Hedrick 100,000 5.26% 5.56 6-10-06 279,798.06
Michael L. Blough 100,000 5.26% 5.56 6-10-06 279,798.06
David H. Wiggs, Jr. 200,000 10.53% 5.56 6-10-06 559,596.13
300,000 15.79% 7.00 6-10-06 625,042.53
Curtis L. Hoskins 0 0 0.00 N/A 0
- - ------------------
</TABLE>
(1) All options will vest in equal increments over a period of five years,
subject to earlier vesting in accordance with the terms of Mr. Haines'
employment agreement and the 1996 Long-Term Incentive Plan, except that,
pursuant to his consulting agreement, Mr. Wiggs' options were fully vested
on the date of grant.
(2) The value of options is based on the Black Scholes Option Pricing Model
using the following assumptions: (a) risk-free rate of return for Mr. Haines
is 6.65% (yield on the 10-year Treasury Note) based on an award date of
April 30, 1996, and for other officers is 6.99% based on an award date of
June 11, 1996; (b) volatility is 4.09% for Mr. Haines and 4.35% for other
officers calculated using the annual standard deviation of El Paso
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<PAGE>
Electric Company's Common Stock from February 16, 1996 to the award date;
(c) exercise price is the market price on date of award (which is $5.32 for
Mr. Haines, $5.56 for other officers and for 200,000 of Mr. Wiggs' options
and $7.00 for 300,000 of Mr. Wiggs' options) and (d) time of exercise is
assumed to be ten years from date of grant.
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FY-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Exercisable/Unexercised
Exercisable/Unexercised In-the-Money
Options/SARS at Options-SARS at
Name Fiscal Year-end Fiscal Year-end
- - -----------------------------------------------------------------------------
<S> <C> <C>
James S. Haines, Jr. 160,000/640,000 188,560/754,240
Eduardo A. Rodriguez 0/100,000 0/94,000
Julius F. Bates 0/100,000 0/94,000
John C. Horne 0/100,000 0/94,000
Gary R. Hedrick 0/100,000 0/94,000
Michael L. Blough 0/100,000 0/94,000
David H. Wiggs, Jr. 500,000/0 188,000/0
Curtis L. Hoskins 0/0 0/0
</TABLE>
RETIREMENT INCOME PLAN TABLE
The table set forth below shows estimated annual benefits payable at the
normal retirement age of 65 upon retirement under the Company's Retirement
Income Plan for the years of service and levels of final average compensation
specified.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
----------------------------------------------------
Compensation 15 20 25 30 35
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000 $23,438 $31,250 $39,062 $46,875 $54,688
150,000 28,125 37,500 46,875 56,250 65,625
175,000 28,125 37,500 46,875 56,250 65,625
200,000 28,125 37,500 46,875 56,250 65,625
225,000 28,125 37,500 46,875 56,250 65,625
250,000 28,125 37,500 46,875 56,250 65,625
300,000 28,125 37,500 46,875 56,250 65,625
400,000 28,125 37,500 46,875 56,250 65,625
500,000 28,125 37,500 46,875 56,250 65,625
600,000 28,125 37,500 46,875 56,250 65,625
</TABLE>
The compensation covered by the Retirement Income Plan is the annual salary
paid to the participant, which is reflected in the column titled "Base Salary"
in the Summary Compensation Table. The estimated credited years of service for
each of Messrs. Haines, Rodriguez, Bates, Horne, Hedrick, Blough, Wiggs and
Hoskins at December 31, 1996 was 0, 16, 24, 24, 20, 15, 8 and 6, respectively.
The benefits are computed based on straight-life annuity amounts and are not
subject to any deduction or offset for social security benefits or other
amounts. Pursuant to applicable federal regulations, for periods after December
31, 1992, the maximum amount of compensation on which the benefits can be based
was reduced to $150,000 per year, as such amount may be adjusted in $10,000
increments. Participants in the Retirement Income Plan will
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<PAGE>
receive the greater of the accrued benefit at December 31, 1992, or the benefits
accrued using the compensation limitation.
EMPLOYMENT AGREEMENTS AND RELATED MATTERS
James S. Haines, Jr. became the Company's Chief Executive Officer and
President on May 1, 1996. The Company has entered into an employment agreement
with Mr. Haines for an initial term of five years at an initial base salary of
$425,000 per year. In addition, pursuant to the agreement, Mr. Haines was
awarded 100,000 shares of restricted stock and was granted options covering
800,000 shares of Common Stock with an exercise price of $5.3215 per share
(which was the closing price on the American Stock Exchange on April 30, 1996).
The restrictions on the restricted stock are scheduled to lapse in 20%
increments beginning January 1, 1997 and the options are scheduled to vest in
20% increments per year beginning December 31, 1996, subject to earlier lapsing
and vesting under certain circumstances (including a change of control of the
Company). In addition to the foregoing, in order to compensate Mr. Haines for
relocating from Kansas to El Paso, the Company paid him a lump sum bonus of
$125,000, agreed to purchase his Kansas residence for its appraised value and
reimbursed his moving expenses.
The Company entered into certain employment agreements and special early
retirement arrangements with the Named Executive Officers of the Company and
entered into employment agreements with certain other individuals serving as
executive officers, all as approved by the bankruptcy court in connection with
the Company's emergence from bankruptcy. The arrangements (i) provide additional
compensation for the unique or extraordinary demands placed on and the
contributions of the officers to the Company's reorganization; (ii) in certain
instances provided incentives for individuals to remain with the Company
following the reorganization; and (iii) included a complete release by the
employees of any claims they may have had against the Company in connection with
their employment, all benefit and compensation plans and termination of
employment. The following is a summary of the arrangements for the Named
Executive Officers.
Pursuant to an Amended and Restated Executive Services Agreement between the
Company and Mr. Wiggs, upon the date a successor Chief Executive Officer was
elected by the Board of Directors of the Company and began his employment (May
1, 1996), Mr. Wiggs retired as Chairman of the Board and the Chief Executive
Officer. Subsequently, Mr. Wiggs retired from the Board of Directors (effective
August 8, 1996). For his services as Chief Executive Officer, Mr. Wiggs will
receive a retirement benefit of $280,000 per year (the "Retirement Payments"),
payable to him or, upon his death, to his designated beneficiary until the
expiration of the number of years determined to be the life expectancy of Mr.
Wiggs at his retirement from employment. Mr. Wiggs was paid a cash bonus of
$500,000 following the effective date of the plan of reorganization, which was
February 12, 1996 (the "Effective Date") and received an additional $500,000 on
the first anniversary of the Effective Date. Mr. Wiggs also received payments
totalling $1.0 million due to the Company's Common Stock appreciating in value
from its initial trading price to designated levels of 115%, 125% and 135% of
such initial value and sustaining such value for five consecutive trading days.
The Company has acquired Mr. Wiggs's El Paso residence for an amount determined
by an independent real estate appraiser to be its fair market value. In order to
retain the benefits of Mr. Wiggs's experience during a transition period,
particularly with respect to ongoing litigation between the Company and Central
and South West
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<PAGE>
Corporation and other significant projects assigned by the Chief Executive
Officer, the Company entered into a three year consulting agreement with Mr.
Wiggs effective May 1, 1996. Under the agreement, Mr. Wiggs will be paid a
consulting fee which, after crediting the Retirement Payments in accordance with
the order of the bankruptcy court, will be equal to approximately $80,000 per
year. In addition, Mr. Wiggs has been awarded ten-year options to acquire
200,000 shares of Common Stock at an exercise price of $5.56 per share (which
was the closing price on the American Stock Exchange on June 11, 1996) and
300,000 shares of Common Stock at an exercise price of $7.00 per share.
The Company entered into a four-year employment contract with Mr. Rodriguez at
an initial base salary of $200,000 per year. In addition, on the Effective Date,
Mr. Rodriguez was paid a cash bonus of $250,000.
The Company entered into a two-year employment agreement with Mr. Hedrick and
Mr. Blough, effective with the Effective Date, and 18-month agreements with Mr.
Bates and Mr. Horne. The Company has entered into eighteen-month employment
agreements with the other current executive officers, effective on the Effective
Date. The employment agreements provide for a base salary equal to the
individual's base salary at January 1, 1996. Each Vice President and the
Secretary received a cash bonus at the Effective Date from a bonus pool of $1.0
million, in amounts for each individual determined by the Board of Directors.
COMPENSATION/BENEFITS COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
GENERAL. The Compensation/Benefits Committee (the "Committee") of the Board
of Directors is comprised entirely of non-employee Directors. The Committee is
responsible for reviewing and approving the compensation of all executive
officers of the Company, including the Named Executive Officers and for
administering the 1996 Long-Term Incentive Plan. Following review and approval
by the Committee, all significant issues pertaining to executive compensation
are submitted to the full Board for approval.
COMPENSATION PROGRAM. Following its emergence from bankruptcy, the Company
retained an international benefits and compensation consulting firm to advise
the Board in designing an overall executive compensation program. Specific
information was provided for 13 organizations engaged primarily in the electric
utility business, and more general data was made available covering other
organizations of a size comparable to the Company. In addition, the Company's
internal staff provided the Committee with salary and benefits information
compiled by the Edison Electric Institute (EEI) covering electric utilities with
annual revenues between $300 million and $1 billion. This overall group of
companies is thus smaller than the "EEI 100" index used to prepare the
performance graph that appears later in this Proxy Statement, and at the same
time broader than that index because of the Committee's view that the Company is
entering a deregulated environment and must compete for executive talent against
non-utility companies.
The Committee believes that the executive compensation program should include
a base salary that is at or near the mean for peer utilities (as described
above), adjusted as appropriate for regional price and compensation levels and
trends, and short-term and long-term incentive
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<PAGE>
compensation that aligns the interests of the executive with the total return to
the Company's shareholders. The incentive components of salary are intended to
provide total compensation that is commensurate with a broader industry group as
well as utilities. The use of stock-based compensation that vests over time has
the additional effect of retaining quality talent.
Based on the above parameters, the Committee and Board adopted during 1996 a
total compensation program for executives that is comprised of three elements:
base salary; short-term incentives; and long-term incentives.
BASE SALARY. Each executive officer position is assigned a salary grade with
minimum, midpoint and maximum ranges established to reflect salary information
from comparable electric utility companies as described above. Once the range
is established for a particular position, the base salary of each executive
officer is determined by his or her skills and experience and potential impact
on the Company's operations. Base salary adjustments are affected by the
officer's individual performance and success in achieving specific corporate and
individual goals. The Chief Executive Officer reviews the performance of the
other executive officers and makes recommendations to the Committee based on
each officer's performance. The base salaries of the Named Executive Officers
(other than the chief executive officer) in 1996 also reflect their prior salary
history. Based on the information available to it, the Committee believes that
the base salary of these individuals is generally near the median for comparable
electric utilities.
SHORT-TERM INCENTIVES. Each executive officer other than the Chief Executive
Officer may earn an incentive bonus of up to 50% of his or her base compensation
if the Company achieves specific annual goals that are established in advance by
the Committee and the Board. All short-term incentive awards are paid in Common
Stock and vest equally over a four year period with 20% vesting once the goal is
achieved and 20% vesting on each one year anniversary of such date for the next
four years. It is anticipated that the annual performance goals will be
"stretch" goals based on the achievement of corporate objectives (such as cash
flow, expense reduction, customer satisfaction, etc.) that will lead to enhanced
shareholder value. In 1996, in light of the primary need for the Company to
service and reduce its debt, the performance goal was limited to achieving
certain cash flow performance. Because of this limitation, the opportunity for
bonuses in 1996 was limited to 37.5% of base salary. Executive officers earned
a 1996 short-term incentive award of 23.28% of base salary for partial
achievement of the cash flow performance goal. For the 1997 incentive plan,
goals have been established for safety, customer satisfaction and deleveraging.
No short-term incentive awards will be granted, however, unless the deleveraging
goals are met.
LONG-TERM INCENTIVES. During 1996, each current Named Executive Officers
other than the Chief Executive Officer was awarded a stock option grant to
acquire 100,000 Common Shares at the market price on the date of grant. The
stock options vest in equal 20% increments over five years. The options were
designed as both a retention plan as well as a long-term incentive plan, and the
number of options granted was by reference to both the base salaries and the
Committee's view of appropriate incentives in an industry moving to greater
competition. The long-term incentive plan is intended to promote long-term
growth and stability and to allow executive officers to acquire the Company's
common stock and directly align the executive officers' personal interest with
that of other shareholders.
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<PAGE>
STOCK OWNERSHIP GUIDELINES. Recognizing that stock ownership by executive
officers and directors can directly correlate to improved performance and
shareholder enhancement, the Committee also established stock ownership
guidelines for executive officers and directors. The guidelines are three times
base salary for the Chief Executive Officer and two times base salary for the
other executive officers. Guidelines for directors are set at two times the
annual retainer. The ownership guidelines were set with the intention that they
be met within the next 5 years.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The philosophy of the Committee
and the Board of Directors is to directly tie the most significant portion of
the chief executive officer's compensation to the Company's success in
maximizing shareholder value. The shareholders will benefit through the chief
executive officer's leadership in establishing and meeting short-term and
medium-term financial and operational goals and his initiative in developing and
implementing long-term strategy. The need to use cash to deleverage and the
constraints on the Company's ability to enhance revenues from customers through
rate increases require that the cash portion of the chief executive officer's
compensation initially be fixed. At the same time, the Committee strongly
believes that the chief executive officer's total compensation should directly
reflect increases in the value of the Common Shares.
The philosophy described above guided the Board in establishing Mr. Haines'
compensation in 1996. After its emergence from bankruptcy, the Company's new
Board of Directors conducted an extensive search, with the assistance of a
prominent executive search firm, for a chief executive officer with the
experience and vision to lead the Company into the deregulated market. Mr.
Haines was the unanimous choice of both the Board and the Company's other
constituencies that were involved in the selection process. Mr. Haines'
compensation, which is contained in a five-year employment contract, has three
elements: a base salary payable in cash; restricted stock; and stock options.
Mr. Haines' base salary is $425,000, which is comparable to the cash portion of
his compensation in his previous position as a senior officer of a major
electric and gas utility and well within the range of salaries of CEOs of
electric utilities. There is no provision in Mr. Haines' contract for annual
cash bonuses or for automatic increases in his base salary, and the Committee
has not exercised its discretion to award Mr. Haines a cash bonus for 1996 or to
increase his base salary in 1997. Instead, Mr. Haines will be compensated for
the achievement of short and medium-term goals through increases in the value of
100,000 restricted Common Shares, which will vest in equal increments over the
term of his contract. Mr. Haines has also been incentivized to build long-term
value for shareholders through the award of 800,000 stock options with an
exercise price equal to the value of the Common Shares on the date he began his
service as the Company's chief executive officer. The number of restricted
shares and options awarded to Mr. Haines was arrived at through negotiation and
is consistent with utility industry norms for overall compensation. The
Committee believes that the bias in favor of stock-based compensation will
provide the greatest incentive for Mr. Haines to create and implement value
enhancing strategies for the benefit of the company's shareholders.
The Company emerged from bankruptcy in early 1996 with a reconstituted Board
of Directors and, within a short period of time, hired a new chief executive
officer. Under these circumstances, the Board considered it important to have
available the advice and assistance of Mr. Wiggs, who had led the Company during
the bankruptcy proceedings and was instrumental in implementing the plan of
reorganization. Certain arrangements regarding termination and retirement
payments for Mr. Wiggs were already in place. These matters had been negotiated
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<PAGE>
by the creditors and equity owners in the reorganization and were approved by
the bankruptcy court without the involvement of the post-reorganization Board.
The three-year Consulting Agreement entered into with Mr. Wiggs covers only
future services and the annual retainer is fully offset by bankruptcy court-
mandated payments (resulting in an annual net payment of $80,000). Under the
agreement, Mr. Wiggs will be available to advise Mr. Haines and the Board on
major projects that will enhance shareholder value and to assist on matters
where his experience is critical such as the CSW and Las Cruces litigations. In
keeping with the committee's philosophy, the most significant portion of Mr.
Wiggs consulting compensation is stock-based (200,000 options with an exercise
price equal to the market price on the date of grant and 300,000 options with an
exercise price set at a premium equal to 125% of the initial trading value of
the Common stock as it emerged from bankruptcy). The number of options awarded
to Mr. Wiggs was arrived at through negotiation and will result in benefits for
him only if the shareholders simultaneously benefit from an increase in the
price of the Common shares.
Members of the Compensation/Benefits Committee:
Kenneth R. Heitz - Chairman
Wilson K. Cadman
Edward C. Houghton, IV
Charles A. Yamarone
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock to
the performance of the American Exchange Market Value Index (XAM) and the Edison
Electric Institute's Index of 100 investor-owned electric utilities (EEI 100).
The graph assumes that the value of El Paso Electric Common Stock on February
16, 1996 (when it began trading on the American Stock Exchange), and of each
index on January 1, 1996, was $100 and that all dividends were reinvested. The
common shares of the Company prior to February 12, 1996 (the effective date of
the plan of reorganization) were canceled as part of the bankruptcy and their
performance is not comparable to that of the common shares of the reorganized
Company. The table sets forth the relative yearly percentage change in the
Company's cumulative total shareholder return as compared to the XAM and the EEI
100, as reflected in the graph.
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<PAGE>
TOTAL RETURN COMPARISON
EL PASO ELECTRIC, AMEX STOCK MARKET, EEI 100 INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
January 1, February 16, December 31,
1996 1996 1996
---------- ------------ ------------
<S> <C> <C> <C>
El Paso Electric - 100.000 136.842
XAM 100.000 - 106.393
EEI 100 100.000 - 101.205
</TABLE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed KPMG Peat Marwick LLP, independent public
accountants, who have served as independent auditors of the Company's financial
statements since 1983, to serve as the independent auditors of the Company's
financial statements for the 1997 fiscal year. Representatives of KPMG Peat
Marwick LLP will be present at the Annual Meeting and will have an opportunity
to make a statement if they desire to do so and will respond to appropriate
questions.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Under certain circumstances, shareholders are entitled to present proposals at
shareholders meetings. To be eligible for inclusion in the proxy statement for
the Company's 1998 Annual Meeting of Shareholders, a shareholder proposal must
be received at the Company's principal executive offices on or prior to November
24, 1997. A shareholder's notice should list each proposal and a brief
description of the business to be brought before the meeting; the name and
address of the shareholder proposing such business; the class and number of
shares held by the shareholder; and any material interest of the shareholder in
the business. If a shareholder wishes to nominate a director he must provide
the nomination to the Executive/Nominating Committee in writing at the Company's
principal offices pursuant to the notice provisions provided in the Company's
By-Laws.
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OTHER BUSINESS
The Board of Directors knows of no business, other than as stated in the
Notice of Annual Meeting of Shareholders, that will be presented for
consideration at the Annual Meeting. If, however, other matters are properly
brought before the Annual Meeting, it is the intention of the persons named in
the accompanying form of proxy to vote the shares represented thereby on such
matters in accordance with their best judgment and in their discretion.
ANNUAL REPORT
The Company's 1996 Annual Report, which includes financial statements, but
which does not constitute a part of the proxy solicitation material, accompanies
this proxy statement.
EL PASO ELECTRIC COMPANY
By Order of the Board of Directors
/s/ Guillermo Silva, Jr.
Guillermo Silva, Jr.
Secretary
Dated: March 24, 1997
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[FORM OF PROXY CARD]
EL PASO ELECTRIC COMPANY
For the Annual Meeting of Shareholders
to be held May 8, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby nominate(s), constitute(s) and appoint(s) James S.
Haines, Jr., Terry D. Bassham and Guillermo Silva, Jr., and each of them, the
attorneys, agents and proxies of the undersigned, with full powers of
substitution to each, to attend and act as proxy or proxies of the undersigned
at the Annual Meeting of Shareholders (the "Annual Meeting") of El Paso Electric
Company (the "Company") to be held at the Paul Kayser Center, 100 N. Stanton, El
Paso, Texas 79901, on Thursday, May 8, 1997 at 10:00 a.m., MDT, or at any
adjournments thereof, and vote as specified herein the number of shares that the
undersigned, if personally present, would be entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
DESCRIBED IN THE PROXY STATEMENT AS CLASS I DIRECTORS.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION
IS MADE, IT WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES DESCRIBED IN THE
PROXY STATEMENT AS CLASS I DIRECTORS. IF ANY MATTERS NOT SPECIFIED IN THE
NOTICE OF MEETING ARE PRESENTED, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
BEST JUDGMENT AND IN THE DISCRETION OF THE NAMED PROXY HOLDERS. THIS PROXY MAY
BE REVOKED PRIOR TO ITS EXERCISE BY FILING WITH THE SECRETARY OF THE COMPANY AN
INSTRUMENT IN WRITING REVOKING THE PROXY OR A DULY EXECUTED PROXY BEARING A
LATER DATE. THIS PROXY MAY ALSO BE REVOKED BY ATTENDING THE MEETING AND VOTING
IN PERSON.
[REVERSE OF CARD]
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[_]
1. Election of Directors FOR all nominees [X] WITHHOLD AUTHORITY to vote [X] *EXCEPTIONS [X]
Listed Below (to listed below for all nominees listed below
serve for a term of three
years to expire at the
annual meeting in 2000)
Nominees: GEORGE W. EDWARDS, JR. RAMIRO GUZMAN STEPHEN WERTHEIMER CHARLES A. YAMARONE
INSTRUCTIONS: To withhold authority to vote for any nominee, mark the "Exceptions" box and write that nominee's name on the space
provided below.
*Exceptions
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Address Changes [X]
and/or Comments
Please date and sign exactly as name appears. If
shares are held jointly, each should sign, if
signing as attorney, executor, administrator,
trustee or guarantee, etc., so indicate when
signing. If a corporation, please sign in full
corporate name by an authorized officer. If a
partnership, please sign in partnership name by
authorized person.
Dated
---------------------------------------------
--------------------------------------------------
Signature
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Signature if held jointly
Votes must be indicated
(x) in Black or Blue ink. [X]
Mark, Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
</TABLE>
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