<PAGE>
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SCHEDULE 14A
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
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
El Paso Electric Company
- --------------------------------------------------------------------------------
(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:
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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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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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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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
EL PASO ELECTRIC COMPANY
100 N. Stanton
El Paso, Texas 79901
(915) 543-5711
April 15, 1999
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 27, 1999, 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 III Directors and to consider and act upon the
recommendation of the Board of Directors to approve the El Paso Electric Company
1999 Long-Term Incentive Plan.
Information concerning these matters is set forth in the accompanying
notice of the meeting and Proxy Statement. Your Board of Directors recommends
that you vote FOR the proposals as explained in the attached Proxy Statement.
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 Haines
James Haines
Chief Executive Officer and President
<PAGE>
EL PASO ELECTRIC COMPANY
100 N. Stanton
El Paso, Texas 79901
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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 27, 1999, at 10:00 a.m., Mountain Daylight Time, for the
following purposes:
(1) To elect five members of the Board of Directors for three-year terms;
(2) To consider and act upon the recommendation of the Board of Directors
to approve the El Paso Electric Company 1999 Long-Term Incentive Plan.
Under the 1999 Long-Term Incentive Plan, directors, officers, managers
and other employees, and consultants will be eligible to receive non-
statutory options, incentive stock options, stock appreciation rights,
restricted stock, bonus stock and performance shares covering up to
2,000,000 shares of the Company's Common Stock; and
(3) To transact such other business as may properly come before the
meeting and any adjournment thereof.
The Board of Directors knows of no matter, other than those set forth in
paragraphs (1-2) 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 31, 1999,
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 AND WHO INTEND TO
VOTE IN PERSON 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 15, 1999
YOUR VOTE IS IMPORTANT
PLEASE MARK, DATE, SIGN AND
PROMPTLY RETURN YOUR PROXY. THANK YOU.
<PAGE>
EL PASO ELECTRIC COMPANY
100 N. Stanton
El Paso, Texas 79901
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 27, 1999
GENERAL
The accompanying proxy is solicited on behalf of the Board of Directors of
El Paso Electric Company (the "Company") for use at its 1999 Annual Meeting of
Shareholders to be held on Thursday, May 27, 1999, and at any adjournments
thereof. The Company's principal offices are located at the Paul Kayser Center,
100 N. Stanton, El Paso, Texas 79901.
The cost of soliciting proxies will be borne by the Company. In addition
to the use of the mails, proxies may be solicited by personal interview,
telephone, fax and telegram by the directors, officers and employees of the
Company. The Company will reimburse brokers, banks and other persons for
reasonable expenses in sending proxy materials to beneficial owners. To assist
in the distribution of proxy material and solicitation, the Company has engaged
Corporate Investor Communications, Inc. for a fee of $4,500 plus out-of-pocket
expenses.
This proxy statement and the accompanying form of proxy are first being
mailed to shareholders of the Company on or about April 15, 1999.
SHARES OUTSTANDING, VOTING RIGHTS AND REVOCABILITY OF PROXIES
At the close of business on March 31, 1999, the "record date" for
determination of the shareholders entitled to notice of and to vote at the 1999
Annual Meeting, the Company had outstanding 60,405,083 shares of its common
stock (the "Common Stock").
Each outstanding share of Common Stock is entitled to one vote. The
holders of at least a majority of the issued and outstanding shares of Common
Stock must be represented in person or by proxy at the Annual Meeting for a
quorum to be present and business to be conducted. The vote of a plurality of
the votes cast at the meeting is required for the election of each Class III
Director. The affirmative vote of the holders of a majority of the shares of
common stock entitled to vote and represented in person or by proxy at the
meeting is required to approve the El Paso Electric Company 1999 Long-Term
Incentive Plan.
A shareholder having the right to vote may vote either in person or by
proxy executed in writing by the shareholder. A telegram, telex, cablegram or
similar transmission by a shareholder, or photographic, photostatic, facsimile
or similar reproduction of a writing executed by the shareholder, shall be
treated as an execution in writing.
<PAGE>
A shareholder who signs and returns a proxy may revoke that proxy at any
time before the Annual Meeting or, by ballot at the meeting, cancel any proxy
previously returned. The shares represented by a proxy given and not so revoked
or revised will be voted and, where the shareholder specifies a choice with
respect to any matter to be acted upon and for which a ballot is provided in the
proxy form, the shares will be voted in accordance with the specification so
made. If a proxy is returned, but no choice is specified, the shares will be
voted FOR the election of the nominees described in the proxy statement as Class
III Directors and FOR the approval of the El Paso Electric Company 1999 Long-
Term Incentive Plan as explained in the proxy statement. With respect to any
other matters that will come before the Annual Meeting, the proxy will be voted
in the discretion of the proxy holder. If no proxy is returned, the shares
represented by such proxy will not be voted.
The Board of Directors is not aware of any matter that will be presented at
the Annual Meeting other than as set forth in the accompanying Notice. If,
however, any such matters are presented at the Annual Meeting, in the absence of
instructions to the contrary, the proxies will be voted in accordance with the
best judgment and in the discretion of the named proxy holders.
Abstentions are included in the determination of the number of shares
represented at the meeting for purposes of determining whether a quorum is
present, and are counted as a vote AGAINST for determining whether a proposal
has been approved. Broker non-votes are not included in the determination of
the number of shares represented at the meeting for purposes of determining
whether a quorum is present and are not counted for purposes of determining
whether a proposal has been approved.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Company's Bylaws divide the Board of Directors into three classes, as
nearly equal in number as possible, each of which is elected for a three year
term. Class III directors, consisting of the five nominees shown below, will
stand for election at the 1999 Annual Meeting for three-year terms expiring at
the annual meeting of shareholders in 2002 or until their successors are elected
and qualified. The terms of the other eight directors shown below will continue
as indicated.
The shares represented by the accompanying proxy will be voted to elect the
five nominees recommended by the Board of Directors, who are shown below as
nominees for Class III directors, unless authority to do so is withheld. Each
nominee has agreed to his or her nomination and has agreed to serve if elected.
Should any nominee become unavailable for election, the proxies will be voted
for the election of such other person as may be recommended by the Board of
Directors in place of such nominee.
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<PAGE>
NOMINEES AND DIRECTORS OF THE COMPANY
Director Principal Occupation and Employment
Name Age Since During the Past Five Years (1)
---- --- -------- -----------------------------------
NOMINEES FOR CLASS III DIRECTORS (NEW TERM WILL EXPIRE IN 2002)
James W. Harris 52 1996 Founder and President of Seneca
Financial Group, Inc., since 1993;
Vice President and subsequently
Managing Director of Lehman
Brothers, for more than five years
prior to 1993.
Kenneth R. Heitz 51 1996 Partner of Irell and Manella, a law
firm.
Michael K. Parks 39 1996 President of Aurora National Life
Assurance Company since 1994; Chief
Investment Officer of Aurora
National Life Insurance Company
since 1993; financial consultant
from September 1992 to August 1993
in the rehabilitation of Executive
Life Insurance Company; a Director
of Leveraged Finance and various
other positions at Salomon Brothers
Inc., for more than five years prior
to September 1992.
Eric B. Siegel /(2)/ 41 1996 Principal of Pegasus Insurance
Partners, a private investment firm,
since 1995; limited partner of
Apollo Advisors, L.P. and Lion
Advisors, L.P., and Vice
President/principal of Apollo
Advisors/Lion Advisors from 1990 to
1995.
James Haines /(3)/ 52 1996 Chief Executive Officer and
President of the Company since May
1996; Executive Vice President and
Chief Operating Officer of Western
Resources, Inc. from June 1995 until
May 1996; Executive Vice President
and Chief Administrative Officer of
Western Resources, Inc. from April
1992 to June 1995.
CLASS II DIRECTORS (Term will expire in 2001)
Wilson K. Cadman /(4)/ 71 1992 Retired as Chairman of the Board,
President and Chief Executive
Officer of Kansas Gas and Electric
Company and Vice Chairman of the
Board of Western Resources, Inc., in
1992.
James A. Cardwell /(5)/ 66 1990 Chairman of the Board and Chief
Executive Officer, Petro Stopping
Centers, LP, a nationwide chain of
truck stops.
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<PAGE>
NOMINEES AND DIRECTORS OF THE COMPANY
Director Principal Occupation and Employment
Name Age Since During the Past Five Years (1)
---- --- -------- -----------------------------------
James W. Cicconi 46 1997 General Counsel and Executive Vice
President-Law and Government
Affairs of AT&T since December
1998; Senior Vice President of
Governmental Affairs & Federal
Policy for AT&T from September 1998
to December 1998; Partner of Akin,
Gump, Strauss, Hauer & Feld, a law
firm, for more than five years
prior to September 1998.
Patricia Z. Holland-Branch 54 1997 President, Chief Executive Officer
and Owner of HB/PZH Commercial
Environments Inc., a full service
office furniture dealership,
project management and design firm,
since 1986. Franchise owner of
Office Furniture USA since 1997.
Chairman of the Board and Owner of
Clean Team, Inc., dba Millicare
Environmental Services, a
commercial carpet maintenance
franchise, since 1997.
CLASS I DIRECTORS (Term expires in 2000)
George W. Edwards, Jr. /(6)/ 59 1992 Chairman of the Board since May
1996; Retired as President, Chief
Executive Officer and Director of
Kansas City Railway Company in May
1995, where he served in that
capacity for 4 years, from April
1991 to May 1995; Chairman and CEO
of United Illuminating Co. from
April 1985 to April 1 991.
Ramiro Guzman /(7)/ 52 1996 President of Montana Beverage
Company since February 1998;
President and Chief Executive
Officer of Dickshire Distributing
for more than five years prior to
February 1998.
Stephen Wertheimer /(8)/ 48 1996 Managing Director of Credit
Research and Trading since 1996;
President and Founder of Water
Capital Corp. from 1991 to 1997.
Charles A. Yamarone /(9)/ 40 1996 Executive Vice President of U.S.
Bancorp Libra, a division of U.S.
Bancorp Investments, Inc. since
January 1999; Executive Vice
President of Libra Investments,
Inc. from 1991 to 1999.
_______________________
(1) Where no date is specified, the director has held the position for more
than the past five years.
(2) Mr. Siegel is also a director of Sun International Hotels, Ltd.
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<PAGE>
(3) Mr. Haines is also an advisory director of Chase Bank of Texas, N.A.
(4) Mr. Cadman is also a director of the Columbia Energy Group, and
Clark/Bardes Holdings, Inc.
(5) Mr. Cardwell is also a trustee of Archstone Communities, a real estate
investment trust and a director of Continental National Bank, N.A.
(6) Mr. Edwards is also a director and Chairman of the Board of Aquarion
Company and Hubbell, Inc.
(7) Mr. Guzman is also an advisory director of Chase Bank of Texas, N.A.
(8) Mr. Wertheimer is also Chairman of Advanced Mining Systems, Inc. and is a
director of Caribbean Cigar Company, Greenwich Fine Arts, Inc., and Trikon
Technologies, Inc.
(9) Mr. Yamarone is also a director of Continental Airlines, Inc.
DIRECTORS' MEETINGS, COMPENSATION AND COMMITTEES
The Board of Directors held 9 meetings during calendar year 1998. Each
director attended at least 75% of the total number of meetings of the Board and
the committees on which he/she served during the period he/she served in such
position with the exception of Mr. Kenneth R. Heitz.
COMPENSATION OF DIRECTORS
The compensation for non-employee directors of the Board of Directors
during 1998 consisted of the following: (a) $20,000 per year, for four meetings
of the Board of Directors or committees thereof per year, an additional $1,000
for each meeting beyond four; and (b) in accordance with the terms of the 1996
El Paso Electric Company Long-Term Incentive Plan, stock options covering 5,000
shares of Common Stock. In addition, the Board awarded Mr. Edwards, in
consideration of his service as Chairman of the Board during 1998, 25,000 shares
of Common Stock that are restricted as to sale until May 27, 1999. Further, the
Company has at times called upon directors for special expertise for which it
pays an hourly consulting fee. In 1998, six directors were paid a consulting
fee which in aggregate amounted to approximately $14,000.
During 1999, non-employee directors will receive the same compensation as
in 1998, except that they will be awarded 3,500 shares of restricted stock in
lieu of the 5,000 options granted in previous years. The shares so awarded will
be subject to restrictions on sale or transfer for one year and, in general,
will vest if the director remains continuously in the service as a non-employee
director during such period.
The Board of Directors has the following standing committees: Audit/Ethics,
Civic and Charitable Affairs, Compensation/Benefits, Executive/Nominating, Palo
Verde Oversight, and Environmental.
During 1998, the Audit/Ethics Committee was composed of directors Yamarone,
Parks, Holland-Branch, Cicconi and Guzman. The Audit/Ethics Committee, which
held five meetings in 1998, is responsible for recommending the appointment of
the independent auditors of the
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<PAGE>
Company, reviewing all recommendations of the Company's independent auditors and
the Company's internal auditors, reviewing and approving non-audit services
performed by accountants and other consultants retained by the Company,
reviewing the Company's periodic reports filed with the Securities and Exchange
Commission and otherwise overseeing the Company's financial reporting system.
The Audit/Ethics Committee also performs the functions of an ethics committee
and in that capacity is responsible for ensuring integrity is maintained in all
business dealings involving the Company, that self-dealing and the appearance of
impropriety are avoided in such business transactions, and the Company's ethical
standards of conduct comply with legal requirements.
During 1998, the Civic and Charitable Affairs Committee was composed of
directors Cardwell, Holland-Branch, Guzman and Haines. The Civic and Charitable
Affairs Committee, which held two meetings in 1998, is responsible for setting
policy and reviewing an annual budget for civic and charitable contributions by
the Company in the communities it serves.
During 1998, the Compensation/Benefits Committee was composed of directors
Heitz, Cadman, Cicconi and Yamarone. The Compensation/Benefits Committee, which
held two meetings in 1998, is responsible for evaluating and approving the
compensation of executive officers. It also reviews and approves recommended
Company-wide increases for employees, as well as approving the adoption of
contracts with union employees. The Compensation/Benefits Committee is also
responsible for evaluating and adopting benefit plan programs.
During 1998, the Executive/Nominating Committee was composed of directors
Wertheimer, Siegel, Haines, Harris and Parks. The Executive/Nominating
Committee, which held sixteen meetings in 1998, is the administrative and policy
making committee of the Board, and may exercise all powers of the Board (except
as prohibited by the Texas Business Corporation Act) between meetings. In
addition, the Committee's responsibilities include analyzing and making
recommendations to the Board regarding the maximization of shareholder value.
The Executive/Nominating Committee is responsible for conducting peer reviews
and evaluations of the members of the Board.
During 1998, the Palo Verde Oversight Committee was composed of directors
Cadman, Guzman, Siegel and Cardwell. The Palo Verde Oversight Committee, which
held two meetings in 1998, is responsible for reviewing and assessing the
activities and operations of the Palo Verde Nuclear Generating Station, in which
the Company is a minority participant.
During 1998, the Environmental Committee was composed of directors
Cardwell, Harris, Wertheimer and Heitz. The Environmental Committee, which held
two meetings in 1998, is responsible for overseeing the affairs and operations
of the Company to determine whether the Company has operated Company facilities
in compliance with applicable environmental laws and regulations; and
identifying existing and potential environmental issues facing the Company under
federal, state or local law.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1999 (except as indicated
in the footnote to the table), certain information regarding ownership of Common
Stock by (i) each person known to the Company to own beneficially more than 5%
of its Common Stock; (ii) each of the current directors, including those who
have been nominated to serve as a Class III director, of the Company; (iii) the
Company's Chief Executive Officer and certain other executive officers of the
Company during the year ended December 31, 1998 and (iv) all directors and
current executive officers of the Company as a group (22 persons).
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership(1) of Class
------------------- ----------------------- --------
<S> <C> <C>
Westport Asset Management, Inc. 5,408,250 /(2)/ 8.97%
253 Riverside Avenue
Westport, CT 06880
Ryback Management Corporation 5,121,200 /(3)/ 8.49%
7711 Carondelet Avenue
Box 16900
St. Louis, MO 63105
Merrill Lynch & Co., Inc. 4,181,424 /(4)/ 6.94%
World Financial Center, North Tower
250 Vesey Street
New York, NY 10381
Highfields Capital Management L.P. 3,923,300 /(5)/ 6.51%
200 Clarendon Street - 51st Floor
Boston, MA 02117
Heartland Advisors, Inc. 3,259,100 /(6)/ 5.41%
790 North Milwaukee Street
Milwaukee, WI 53202
George W. Edwards, Jr. 92,040 /(7)/ *
Wilson K. Cadman 17,040 /(8)/ *
James A. Cardwell 17,091 /(8)/ *
James W. Cicconi 5,000 /(9)/ *
Ramiro Guzman 17,040 /(8)/ *
James W. Harris 32,040 /(8)/ *
Kenneth R. Heitz 17,040 /(8)/ *
Patricia Z. Holland-Branch 5,000 /(9)/ *
Michael K. Parks 27,040 /(8)/ *
Eric B. Siegel 23,040 /(8)/ *
Stephen Wertheimer 23,290 /(8)/ *
Charles A. Yamarone 27,040 /(8)/ *
James Haines 614,777 /(10)/ 1.01%
Eduardo A. Rodriguez 80,288 /(11)/ *
Gary R. Hedrick 73,992 /(12)/ *
Julius F. Bates 74,040 /(13)/ *
Michael L. Blough 73,493 /(14)/ *
Other Executive Officers 143,818 /(15)/ *
All directors and executive officers
as a group 1,363,109 /(16)/ 2.22%
(22 persons)
</TABLE>
______________________
* Less than 1%.
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<PAGE>
(1) Each individual director, the chief executive officer and certain other
executive officers has sole voting power and investment power with respect
to his/her shares (or shares such power with spouse), except as noted below.
(2) Information regarding ownership of Common Stock by Westport Asset Management
Inc., ("Westport") is included herein in reliance on information set forth
in a Schedule 13-G filed by Westport on February 16, 1999 with the
Securities and Exchange Commission (the "Commission"). Westport is an
Investment Advisor registered under Section 203 of the Investment Advisors
Act of 1940. According to the filing, Westport maintains shared voting and
dispositive power over 5,408,250 Common Shares.
(3) Information regarding ownership of Common Stock by Ryback Management Corp.
("Ryback") is included herein in reliance on information set forth in a
Schedule 13-G filed by Ryback on February 8, 1999 with the Commission,
reflecting ownership as of December 31, 1998. The shares reflected in the
Schedule 13-G were held in a fiduciary capacity by Ryback and/or Lindner
Investment Series Trust. Ryback is an Investment Advisor registered under
Section 203 of the Investment Advisers Act of 1940 and the Lindner
Investment Series Trust is an Investment Company registered under Section 8
of the Investment Company Act. Ryback beneficially owns 5,121,200 shares and
retains sole voting and dispositive power of the Company's Common Shares.
(4) Information regarding ownership of Common Stock by Merrill Lynch & Company
Inc. ("ML&Co.") on behalf of Merrill Lynch Asset Management Group ("AMG")
and Merrill Lynch Global Allocation Fund, Inc. (the "Fund") is included
herein in reliance on information set forth in Amendment 2 to Schedule 13-G
filed by ML&Co., AMG, and the Fund on February 9, 1999 with the Commission,
reflecting ownership as of December 31, 1998. ML&Co. is a parent holding
company pursuant to Rule 13d-1 (b) (ii) (G) of the Securities and Exchange
Act of 1934; AMG is an operating division of ML&Co., which is registered as
an Investment Advisor registered under Section 203 of the Investment
Advisors Act of 1940. The Fund is an investment company registered under
Section 8 of the Investment Company Act of 1940. According to the filing,
ML&Co., AMG, and the Fund have shared voting, dispositive and investment
power over the Company's Common shares. ML& Co. disclaims beneficial
ownership of such common stock.
(5) Information regarding ownership of Common Stock by Highfields Associates
LLC, ("Highfields Associates"), Highfields Capital Management LP,
("Highfields Capital"), Mr. Richard L. Grubman ("Mr. Grubman"), and Mr.
Jonathon S. Jacobson ("Mr. Jacobson") is included herein in reliance on
information set forth in a Schedule 13-G, filed by Highfields Associates,
Highfields Capital, Mr. Grubman, and Mr. Jacobson on February 16, 1999 with
the Commission and reflecting ownership as of December 31, 1998. Highfields
Associates is a limited liability company organized under the laws of the
State of Delaware that serves as a general partner for Highfields Capital I
LP ("Highfields I") and Highfields Capital II LP ("Highfields II").
Highfields Capital, a limited partnership organized under the laws of the
State of Delaware, serves as an investment manager to Highfields Capital
Ltd., ("Highfields Ltd.") a company organized under the laws of the Cayman
Islands, B.W.I., with respect to the
-8-
<PAGE>
shares of Common Stock directly owned by Highfields Ltd. Mr. Grubman and
Mr. Jacobson are Managing Members of Highfields GP LLC, a Delaware limited
liability company, which is the general partner of Highfields Capital, and
in that capacity direct its operations. According to the filing, Highfields
I beneficially owns 268,354 shares and Highfields II beneficially owns
520,890 shares through the general partner Highfields Associates, which
maintains shared voting and dispositive power over 789,244 Common Shares.
Highfields Capital beneficially owns 3,134,056 shares and has shared voting
and dispositive power. Mr. Grubman and Mr. Jacobson beneficially own
3,923,300 shares and have shared voting and dispositive power.
(6) Information regarding ownership of Common Stock by Heartland Advisors, Inc.
("Heartland") is included herein in reliance on information set forth in a
Schedule 13-G filed by Heartland on January 26, 1999. Heartland is an
Investment Advisor registered under Section 203 of the Investment Advisor's
Act of 1940. According to the filing, Heartland maintains sole voting power
over 616,000 shares and dispositive power over 3,259,100 shares of the
Company's Common Stock.
(7) Includes (i) 10,000 shares of common stock that Mr. Edwards has the right
to acquire by exercising options granted under the 1996 Long-Term Incentive
Plan ("1996 Plan"); and (ii) 27,816 shares of restricted stock awarded
under the 1996 Plan over which he has voting power but no investment power.
(8) Includes (i) 10,000 shares of common stock that this director has the right
to acquire by exercising options granted under the 1996 Plan; and (ii)
2,816 shares of restricted stock awarded under the 1996 Plan over which
each director has voting power but no investment power.
(9) Represents common stock that this director has the right to acquire by
exercising options granted under the 1996 Plan.
(10) Includes (i) 530,000 shares of common stock that Mr. Haines currently
has the right to acquire by exercising options granted under the 1996
Plan; and (ii) 40,000 shares of restricted stock awarded under the 1996
Plan over which he has voting power but no investment power.
(11) Includes (i) 60,000 shares of common stock that Mr. Rodriguez currently
has the right to acquire by exercising options granted under the 1996
Plan; and (ii) 13,560 shares of restricted stock awarded under the 1996
Plan over which he has voting power but no investment power.
(12) Includes (i) 60,000 shares of common stock that Mr. Hedrick currently
has the right to acquire by exercising options granted under the 1996
Plan; (ii) 9,438 shares of restricted stock awarded under the 1996 Plan
over which he has voting power but no investment power; and (iii) 5 shares
owned by his spouse over which Mr. Hedrick has no voting power or
investment power.
(13) Includes (i) 60,000 shares of common stock that Mr. Bates currently has
the right to acquire by exercising options granted under the 1996 Plan;
and (ii) 9,075 shares of restricted stock awarded under the 1996 Plan over
which he has voting power but no investment power.
(14) Includes (i) 60,000 shares of common stock that Mr. Blough currently has
the right to acquire by exercising options granted under the 1996 Plan;
and (ii) 9,075 shares of
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restricted stock awarded under the 1996 Plan over which he has voting
power but no investment power.
(15) Includes (i) 105,000 shares of common stock that other executive
officers currently have the right to acquire by exercising options
granted under the 1996 Plan; and (ii) 26,559 shares of restricted
stock awarded under the 1996 Plan over which they have voting power
but no investment power.
(16) Includes (i) 985,000 shares underlying stock options as discussed
above; and (ii) 160,867 shares of restricted stock awarded to named
executives and directors under the 1996 Plan over which they have
voting power but no investment power. Also includes 5 shares owned by
a spouse of an executive officer over which he has no voting power or
investment power.
CERTAIN BUSINESS RELATIONSHIPS
During 1998, the Company purchased office furniture and carpeting from
HB/PZH Commercial Environments, Inc., in the approximate amount of $81,699.
Patricia Z. Holland-Branch, a Class II Director, is the principal shareholder
and president of HB/PZH Commercial Environments, Inc. The Company also
purchased diesel fuel, bulk motor oil and hydraulic fluid during 1998 in the
approximate amount of $263,657 from C&R Distributing. James A. Cardwell, a
Class II Director, is owner and Vice President of C&R Distributing. The Company
believes that the amounts paid to such firms are comparable to amounts payable
for comparable products to firms not affiliated with any director of the
Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act, requires the Company's directors,
officers and holders of more than 10% of the Company's Common Stock to file with
the Commission initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. The Company believes
that during and for the fiscal year ended December 31, 1998, its officers,
directors and 10% shareholders complied with all Section 16(a) filing
requirements.
PROPOSAL 2 - APPROVAL OF EL PASO ELECTRIC COMPANY
1999 LONG-TERM INCENTIVE PLAN
GENERAL
The Board of Directors is proposing for stockholder approval the El
Paso Electric Company 1999 Long-Term Incentive Plan (the "Plan"). The purposes
of the Plan are (i) to align the interests of the Company's stockholders and
recipients of awards under the Plan by increasing the proprietary interest of
such recipients in the Company's growth and success, (ii) to advance the
interests of the Company by attracting and retaining directors, officers,
managers and other employees, and consultants and (iii) to motivate such persons
to act in the long-term best interests of the Company and its stockholders.
Under the Plan, the Company may grant non-qualified stock options, "incentive
stock options" (within the meaning
-10-
<PAGE>
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")),
stock appreciation rights ("SARs"), restricted stock, bonus stock and
performance share awards. Restricted stock in the amount of 3,500 shares will
also be awarded automatically to each non-employee director on the date of each
annual meeting of stockholders of the Company. In addition, each non-employee
director may elect to receive non-qualified stock options and/or restricted
stock in lieu of all or part of such director's cash retainer and meeting fees.
Finally, the Committee administering the Plan, with the approval of the Board of
Directors, is permitted to award restricted stock for service as Chairman of the
Board (or for service in other capacities to the Board). Twelve non-employee
directors and approximately 40 officers and managers are currently eligible to
participate in the Plan. Reference is made to Exhibit A to this Proxy Statement
for the complete text of the Plan which is summarized below.
DESCRIPTION OF THE PLAN
Administration. The Plan will be administered by the Compensation
Committee of the Board of Directors (the "Committee"). Each member of the
Committee is currently a "Non-Employee Director" within the meaning of Rule 16b-
3 under the Securities Exchange Act of 1934 and is an "outside director" within
the meaning of Section 162(m) of the Code.
Section 162(m) of the Code generally limits to $1 million the amount that a
publicly held corporation is allowed each year to deduct for the compensation
paid to each of the corporation's chief executive officer and the corporation's
four most highly compensated executive officers other than the chief executive
officer. However, "qualified performance-based compensation" is not subject to
the $1 million deduction limit. To qualify as performance-based compensation,
the following requirements must be satisfied: (i) the performance goals are
determined by a committee consisting solely of two or more "outside directors",
(ii) the material terms under which the compensation is to be paid, including
the performance goals, are approved by a majority of the corporation's
stockholders, and (iii) if applicable, the committee certifies that the
applicable performance goals were satisfied before payment of any performance-
based compensation is made. As noted above, the Committee currently consists
solely of "outside directors" for purposes of Section 162(m) of the Code. As a
result, certain compensation under the Plan, such as that payable with respect
to options and SARS, is not expected to be subject to the $1 million deduction
limit, but other compensation payable under the Plan, such as any restricted
stock award which is not subject to a performance condition to vesting, would be
subject to such limit.
Subject to the express provisions of the Plan, and except for options and
restricted stock granted automatically to non-employee directors, the Committee
will have the authority to select eligible persons to receive awards and
determine all of the terms and conditions of each award. All awards will be
evidenced by a written agreement containing such provisions not inconsistent
with the Plan as the Committee shall approve. The Committee will also have
authority to establish rules and regulations for administering the Plan and to
decide questions of interpretation or application of any provision of the Plan.
Except with respect to grants to executive officers of the Company and persons
whose compensation is likely to be subject to the $1 million deduction limit
under Section 162(m) of the Code, the Committee may delegate
-11-
<PAGE>
some or all of its power and authority to administer the Plan to the Chief
Executive Officer and President or other executive officer of the Company.
Available Shares. In 1996, the Company's shareholders approved the El Paso
Electric Company 1996 Long-Term Incentive Plan (the "1996 Plan"). At March 15,
1999, there remained 459,898 shares available for awards under the 1996 plan.
The Company estimates that all shares available under the 1996 Plan will have
been awarded prior to the annual shareholders meeting in 2000.
Under the Plan, 2,000,000 shares of Common Stock are available for awards,
subject to adjustment in the event of a stock split, stock dividend,
recapitalization, reorganization, merger, spin-off or other similar change or
event. This would represent approximately 3.3% of the Company's outstanding
Common Shares on a fully-diluted basis. The number of available shares will be
reduced by the sum of the aggregate number of shares of Common Stock which
become subject to outstanding options, free-standing SARs, stock awards and
performance share awards. To the extent that shares of Common Stock subject to
an outstanding option (except to the extent shares of Common Stock are issued or
delivered by the Company in connection with the exercise of a tandem SAR), free-
standing SAR, stock award or performance share award are not issued or delivered
by reason of the expiration, termination, cancellation or forfeiture of such
award or by reason of the delivery or withholding of shares of Common Stock to
pay all or a portion of the exercise price of an award, if any, or to satisfy
all or a portion of the tax withholding obligations relating to an award, then
such shares of Common Stock will again be available under the Plan. The maximum
number of shares of Common Stock with respect to which options and SARs may be
granted during any calendar year to any person is 250,000, subject to adjustment
as described above.
Change in Control. In the event of certain acquisitions of 30% or more of
the Common Stock, a change in a majority of the Board of Directors, or the
approval by shareholders of a reorganization, merger or consolidation or sale or
disposition of all or substantially all of the assets of the Company (unless,
among other conditions, the Company's stockholders receive 60% or more of the
stock of the surviving company) or the approval by shareholders of a liquidation
or dissolution of the Company, all outstanding options and SARs will be
exercisable in full, the restriction periods applicable to outstanding
restricted stock and the performance periods applicable to outstanding
performance stock will lapse, and the performance measures applicable to
outstanding restricted stock and performance share awards shall be deemed to be
satisfied at the maximum level.
Effective Date, Termination and Amendment. If approved by stockholders,
the Plan will become effective as of the date of such approval. The Plan will
terminate ten years thereafter unless terminated earlier by the Board of
Directors. The Board of Directors may amend the Plan at any time, subject to
any requirement of stockholder approval required by applicable law, rule or
regulation and provided that no amendment may be made without stockholder
approval if such amendment would (i) increase the maximum number of shares of
Common Stock available under the Plan, (ii) effect any change inconsistent with
Section 422 of the Code or (iii) extend the term of the Plan.
-12-
<PAGE>
Stock Options-General. Except for restricted stock awarded automatically
to non-employee directors and options or restricted stock issued to directors in
lieu of fees, the Committee will determine the conditions to the exercisability
of each option. Upon exercise of an option, the purchase price may be paid in
cash or by delivery of previously owned shares of Common Stock.
Non-Qualified Stock Options and Stock Appreciation Rights. The period for
the exercise of a non-qualified stock option or SAR will be determined by the
Committee. The exercise price of a non-qualified stock option and the base
price of an SAR will not be less than 100% of the fair market value of the
Common Stock on the date of grant, provided that the base price of an SAR
granted in tandem with an option (a "tandem SAR") will be the exercise price of
the related option. An SAR entitles the holder to receive upon exercise
(subject to withholding taxes) shares of Common Stock (which may be restricted
stock), cash or a combination thereof with a value equal to the difference
between the fair market value of the Common Stock on the exercise date and the
base price of the SAR.
In the event of termination of employment or service by reason of
disability, retirement in accordance with the Company's normal criteria or with
the consent of the Company, death or for any other reason, each non-qualified
stock option and SAR will be exercisable only to the extent exercisable on the
date of termination for a period of no more than six months after such
termination (or such shorter period set forth in the award agreement), but in no
event after the expiration of such option or SAR. If an optionee dies during
the specified periods following termination of employment or service by reason
of disability, retirement or for any other reason, each non-qualified stock
option and SAR will be exercisable only to the extent exercisable on the date of
death for a period of no more than 90 days after the date of death, but in no
event after the expiration of such option or SAR.
Incentive Stock Options. Each incentive stock option will be exercisable
for no more than ten years after its date of grant, unless the optionee owns
greater than ten percent of the voting power of all shares of capital stock of
the Company (a "ten percent holder"), in which case the option will be
exercisable for no more than five years after its date of grant. The exercise
price of an incentive stock option will not be less than the fair market value
of the Common Stock on its date of grant, unless the optionee is a ten percent
holder, in which case the option exercise price will be the price required by
the Code, currently 110% of fair market value.
In the event of termination of employment by reason of permanent and total
disability (as defined in Section 22(e)(3) of the Code), each incentive stock
option will be exercisable only to the extent exercisable on the date of
termination for a period of no more than one year after such termination (or
such shorter period set forth in the award agreement), but in no event after the
expiration of such option. In the event of termination of employment for any
other reason, each incentive stock option will be exercisable to the same extent
as set forth above with respect to non-qualified stock options for a period of
no more than three months after such termination, but in no event after the
expiration of such option; provided, however,
-13-
<PAGE>
that if termination is by reason of death, each incentive stock option will be
exercisable to the same extent and for the same period as set forth above with
respect to non-qualified stock options. If an optionee dies during the specified
periods following termination of employment by reason of permanent and total
disability or for any other reason, each incentive stock option will be
exercisable only to the extent exercisable on the date of death and may
thereafter be exercised for a period of no more than 90 days after the date of
death, but in no event after expiration of such option.
Bonus Stock and Restricted Stock Awards. The Plan provides for the grant of
(i) bonus stock awards, which are vested upon grant, and (ii) stock awards which
may be subject to a restriction period ("restricted stock"). An award of
restricted stock may be subject to specified performance measures during the
applicable restriction period. Shares of restricted stock will be non-
transferable and subject to forfeiture if the holder does not remain
continuously in the employment of or service to the Company during the
restriction period or, if the restricted stock is subject to performance
measures, if such performance measures are not attained; provided, however, that
termination of employment by reason of disability, retirement, death or any
other reason will result in the portion of a restricted stock award which is
then subject to a restriction period being forfeited and canceled by the
Company. Unless otherwise set forth in a restricted stock award agreement, the
holder of a restricted stock award will have rights as a stockholder of the
Company, including the right to vote and receive dividends with respect to the
shares of restricted stock.
Grant of Restricted Stock to Non-Employee Directors. Beginning on the date
of the Company's 1999 Annual Meeting of Stockholders, non-employee directors
will automatically be granted, on the date of each meeting of stockholders,
3,500 shares of restricted stock. Such awards will be made under the Plan only
after no shares remain available for awards under the 1996 Plan. The shares
awarded annually to non-employee directors will be restricted as to sale or
transfer for one year from the date of the award and will vest (subject to
earlier vesting in the event of a change in control) if the holder remains
continuously in the service of the Company as a non-employee director during
such one year period and shall otherwise be forfeited. Notwithstanding the
foregoing, if the holder's service as a non-employee director terminates during
the one year period other than for cause, then the restricted stock will vest
upon such termination of service.
Performance Share Awards. The Plan also provides for the grant of
performance share awards. Each performance share is a right, contingent upon the
attainment of performance measures within a specified performance period, to
receive one share of Common Stock, which may be restricted stock, or the fair
market value of all or a portion of such performance share in cash. Prior to the
settlement of a performance share award in shares of Common Stock, the holder of
such award will have no rights as a stockholder of the Company with respect to
the shares of Common Stock subject to the award. Performance shares will be non-
transferable and subject to forfeiture if the specified performance measures are
not attained; provided, however, that termination of employment by reason of
disability, retirement, death or any other reason will result in the portion of
a performance share award which is then subject to a performance period being
forfeited and canceled by the Company.
-14-
<PAGE>
Elective Provisions for Non-Employee Directors. Under the Plan, each non-
employee director may elect to receive non-qualified stock options and/or
restricted stock in lieu of all or part of such director's cash retainer and
meeting fees. With respect to such options, the exercise price per share will
equal 100% of the fair market value of a share of Common Stock on the date of
grant and the shares of Common Stock subject to an option will have a fair
market value equal to 100% of the amount of the foregone retainer and meeting
fees. Each option will become exercisable in full beginning on the first
anniversary of the date of grant and will expire 10 years after the date of
grant. Notwithstanding the foregoing, if a non-employee director ceases to be a
director by reason of disability, death or any other reason, each of such
director's options shall be fully exercisable and may be exercised for a period
of one year after such termination, but in no event after termination of such
option. If a non-employee director dies during the one-year period following
termination of service, each of such director's options will be exercisable for
a period of no more than one year after the date of death, but in no event after
the expiration of such option.
The restricted stock would have a fair market value equal to 100% of the
amount of the foregone retainer and meeting fees. Such restricted stock will
vest on the first anniversary of the date of grant if the holder of such award
remains continuously in the service of the Company as a non-employee director.
Notwithstanding the foregoing, if the holder of such award ceases to be a non-
employee director for any reason other than cause, the restricted stock will
vest immediately. Unless otherwise set forth in a restricted stock award
agreement, the holder of such award will have all rights of a stockholder of the
Company, including the right to vote and receive dividends with respect to the
shares of restricted stock.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain U.S. federal income tax
consequences generally arising with respect to awards under the Plan.
A participant will not recognize taxable income at the time an option is
granted and the Company will not be entitled to a tax deduction at such time. A
participant will recognize compensation taxable as ordinary income (and subject
to income tax withholding in respect of an employee) upon exercise of a non-
qualified stock option equal to the excess of the fair market value of the
shares purchased over their exercise price, and the Company will be entitled to
a corresponding deduction. A participant will not recognize income (except for
purposes of the alternative minimum tax) upon exercise of an incentive stock
option. If the shares acquired by exercise of an incentive stock option are held
for the longer of two years from the date the option was granted and one year
from the date it was exercised, any gain or loss arising from a subsequent
disposition of such shares will be taxed as long-term or mid-term capital gain
or loss, and the Company will not be entitled to any deduction. If, however,
such shares are disposed of within the above-described period, then in the year
of such disposition the participant will recognize compensation taxable as
ordinary income equal to the excess of the lesser of (i) the amount realized
upon such disposition and (ii) the fair market
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<PAGE>
value of such shares on the date of exercise over the exercise price, and the
Company will be entitled to a corresponding deduction.
A participant will not recognize taxable income at the time SARs are
granted and the Company will not be entitled to a tax deduction at such time.
Upon exercise, the participant will recognize compensation taxable as ordinary
income (and subject to income tax withholding in respect of an employee) in an
amount equal to the fair market value of any shares delivered and the amount of
cash paid by the Company. This amount is deductible by the Company as
compensation expense.
A participant will not recognize taxable income at the time restricted
stock is granted and the Company will not be entitled to a tax deduction at such
time, unless the participant makes an election to be taxed at such time. If such
election is not made, the participant will recognize compensation taxable as
ordinary income (and subject to income tax withholding in respect of an
employee) at the time the restrictions lapse in an amount equal to the excess of
the fair market value of the shares at such time over the amount, if any, paid
for such shares. The amount of ordinary income recognized by making the above-
described election or upon the lapse of restrictions is deductible by the
Company as compensation expense, except to the extent the deduction limits of
Section 162(m) of the Code apply. In addition, a participant receiving dividends
with respect to restricted stock for which the above-described election has not
been made and prior to the time the restrictions lapse will recognize
compensation taxable as ordinary income (and subject to income tax withholding
in respect of an employee), rather then dividend income, in an amount equal to
the dividends paid and the Company will be entitled to a corresponding
deduction, except to the extent the deduction limits of Section 162(m) apply.
A participant will recognize compensation taxable as ordinary income (and
subject to income tax withholding in respect of an employee) at the time bonus
stock is granted in an amount equal to the then fair market value of such stock.
This amount is deductible by the Company as compensation expense, except to the
extent the deduction limits of Section 162(m) apply.
A participant will not recognize taxable income at the time performance
shares are granted and the Company will not be entitled to a tax deduction at
such time. Upon the settlement of performance shares, the participant will
recognize compensation taxable as ordinary income (and subject to income tax
withholding in respect of an employee) in an amount equal to the fair market
value of any shares delivered and the amount of cash paid by the Company. This
amount is deductible by the Company as compensation expense, except to the
extent the deduction limits of Section 162(m) apply.
The following table sets forth (i) the aggregate number of shares of Common
Stock underlying options that would be granted annually to non-employee
directors based on the amount of the cash retainer and meeting fees currently
payable to non-employee directors (assuming all non-employee directors elect to
receive only options in lieu of all of such retainer and meeting fees) and (ii)
the number of shares of restricted stock that would be granted
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<PAGE>
(A) automatically to non-employee directors on the date of each annual meeting
of stockholders beginning with the 1999 Annual Meeting of Stockholders, (B)
annually to non-employee directors based on the amount of the cash retainer and
meeting fees currently payable to non-employee directors (assuming all non-
employee directors elect to receive only restricted stock in lieu of all of such
retainer and meeting fees), (C) in 2000 to current executive officers under the
Company's 1999 Bonus plan if "target" level performance is achieved and (D) in
2000 to current non-executive officer employees if "target" level performance is
achieved.
<TABLE>
<CAPTION>
NEW PLAN BENEFITS TABLE
EL PASO ELECTRIC COMPANY 1999
LONG-TERM INCENTIVE PLAN
COMMON SHARES
RESTRICTED SHARES UNDERLYING OPTIONS
----------------------------------- ----------------------------
POSITION NUMBER VALUE NUMBER VALUE
------------------------------------ ---------- ---------------- ------------- ---------
<S> <C> <C> <C> <C>
Non-employee directors 42,000 (2) $320,250$455,600 (2) 59,751 (1) $455,600 (1)
(12 persons) 59,751 (3) (3)
Current executive officers 50,288 (4) $ 382,989 (4)
(8 persons)
Current non-executive officer employees 54,968 (5) $ 419,131 (5)
(30 persons)
</TABLE>
_______________________
(1) The exercise price per share would be 100% of the fair market value of a
share of Common Stock on the date of grant. On March 31, 1999, the closing
sale price of Common Stock on the American Stock Exchange was $7.6250 per
share. Based on a current annual cash retainer and meeting fees of $455,600
and a fair market value of $7.6250 per share, non-employee directors would
be granted options to purchase up to 59,751 shares of Common Stock. The
general terms of each option are described above under "Elective Provisions
for Non-Employee Directors."
(2) Non-employee directors would be awarded 42,000 shares of restricted stock.
The indicated value is based on a fair market value of $7.6250 per share.
The general terms of such restricted stock are described above under "Grant
of Restricted Stock to Non-Employee Directors."
(3) Based on a current annual cash retainer and meeting fees of $455,600 and a
fair market value of $7.625 per share, non-employee directors would be
granted up to 59,751 shares of restricted stock with the indicated value.
The general terms of such restricted stock are described above under
"Elective Provisions for Non-Employee Directors."
(4) Based on a total "target" level bonus of $382,989 and a fair market value
of $7.6250 per share, current executive officers would be awarded 50,228
shares of restricted stock with the indicated value. Such awards vest 20%
on the date of grant and 20% on each of the next four anniversaries of the
date of grant.
(5) Based on a total "target" level bonus of $419,131 and a fair market value
of $7.6250 per share, current manager-level employees would be awarded
54,968 shares of restricted stock with the indicated value. Such awards
vest 20% on the date of grant and 20% on each of the next four
anniversaries of the date of grant.
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<PAGE>
VOTE REQUIRED AND BOARD RECOMMENDATION
The affirmative vote of the holders of a majority of the shares of Common
Stock entitled to vote and represented in person or by proxy at the Annual
Meeting is required to approve the El Paso Electric Company 1999 Long-Term
Incentive Plan. Unless otherwise instructed, the proxy holders will vote the
proxies received by them FOR approval of the Plan. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR APPROVAL OF THE PLAN.
CERTAIN ADDITIONAL INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the cash and
non-cash compensation paid to the chief executive officer during 1998, and each
of the other four most highly compensated executive officers other than the
chief executive officer who were serving as executive officers at December 31,
1998 (the "Named Executive Officers"), for the fiscal years ended December 31,
1998, December 31, 1997 and December 31, 1996, for service in the capacities
indicated.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation
Compensation Awards
-------------------------------------- --------------------------
Other Securities All
Base Annual Restricted Underlying Other
Name and Salary Bonus Compensation/(2)/ Stock Options/SARs Compensation/(3)/
Principal Position Year ($) ($) ($) ($) (#) ($)
------------------ ---- ------ ----- --------------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
James Haines...................... 1998/(1)/ 441,346 0 0 0 0 4,800
Chief Executive Officer 1997 425,000 0 24,519 0 0 4,750
& President (since May 1,1996) 1996 282,789 125,000 84,880/(4)/ 532,150/(5)/ 800,000 0
Eduardo A. Rodriguez.............. 1998/(1)/ 228,981 81,786/(6)/ 13,569 100,000 4,800
Senior Vice President- 1997 210,000 32,010/(7)/ 2,423 0 3,998
Energy Services 1996 196,271 296,097/(8)/ 13,846 100,000 4,750
Gary R. Hedrick................... 1998/(1)/ 163,340 57,892/(6)/ 6,050 100,000 847
Vice President-Treasurer 1997 147,000 22,415/(7)/ 6,785 0 317
& Chief Financial Officer 1996 129,792 205,216/(8)/ 8,384 100,000 0
Julius F. Bates................... 1998/(1)/ 155,209 55,039/(6)/ 8,623 100,000 4,800
Vice President- 1997 141,000 21,499/(7)/ 5,748 0 4,253
Transmission & Distribution 1996 129,792 180,216/(8)/ 5,990 100,000 4,750
Michael L. Blough................. 1998/(1)/ 155,209 55,039/(6)/ 4,599 100,000 4,800
Vice President- 1997 141,000 21,499/(7)/ 6,833 0 4,444
Administration 1996 129,792 205,216/(8)/ 6,508 100,000 4,750
</TABLE>
___________________
(1) Base salary information reflects 27 biweekly payroll amounts compared to a
typical 26 biweekly payroll year because of timing.
(2) 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.
(3) Includes matching contributions made by the Company under the Company's
401(k) Plan.
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<PAGE>
(4) 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.
(5) Mr. Haines owned 87,781 restricted shares at year-end and the value of these
shares at December 31, 1998 was $768,084. These shares vest over a five year
period in increments of 20% per year beginning January 1, 1998. Mr. Haines
will receive cash dividends if and when declared on vested shares; dividends
on unvested shares will be used to acquire additional restricted shares.
(6) Messrs. Rodriguez, Hedrick, Bates, and Blough owned 10,320, 7,305, 6,945,
and 6,945 shares of restricted stock respectively, under the 1998 Bonus
Plan. Such shares vest over 4 years with 20% vesting on the day of the grant
and 20% vesting on each annual anniversary of the grant. Each individual
will receive cash dividends if and when declared on vested shares; dividends
on unvested shares will be used to acquire additional shares. The value of
these shares at December 31, 1998 for Messrs. Rodriguez, Hedrick, Bates, and
Blough was $90,300, $63,919, $60,769, and $60,769, respectively.
(7) Messrs. Rodriguez, Hedrick, Bates, and Blough owned 4,058, 2,841, 2,725, and
2,725 shares of restricted stock, respectively, under the 1997 Bonus Plan.
Such shares vest over 4 years with 20% vesting on the day of the grant and
20% vesting on each annual anniversary of the grant. Each individual will
receive cash dividends if and when declared on vested shares; dividends on
unvested shares will be used to acquire additional shares. The value of
these shares at December 31, 1998 for Messrs. Rodriguez, Hedrick, Bates, and
Blough was $35,508, $24,859, $23,844, and $23,844, respectively.
(8) Includes compensation for the unique or extraordinary demands placed on and
the contribution of the officers for the Company's emergence from
Bankruptcy. Also reflects the ownership by Messrs. Rodriguez, Hedrick,
Bates, and Blough of 5,910, 3,822, 4,081,and 3,822 shares of restricted
stock, respectively, under the 1996 Annual Incentive Plan. Such shares vest
over 4 years with 20% vesting on the day of the grant and 20% vesting on
each annual anniversary of the grant. Each individual will receive cash
dividends if and when declared on vested shares; dividends on unvested
shares will be used to acquire additional shares. The value of these shares
at December 31, 1998 for Messrs. Rodriguez, Hedrick, Bates, and Blough was
$57,713, $33,443, $35,709 and $33,443, respectively.
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<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND FY-END OPTIONS/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARS at Fiscal Options-SARS at
Fiscal Year-end Fiscal Year-end
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------- ------------------------- -------------------------
<S> <C> <C>
James Haines 480,000/320,000 1,645,680/1,097,120
Eduardo A. Rodriguez 40,000/160,000 127,600/316,400
Gary R. Hedrick 40,000/160,000 127,600/316,400
Julius F. Bates 40,000/160,000 127,600/316,400
Michael L. Blough 40,000/160,000 127,600/316,400
</TABLE>
AGGREGATE OPTIONS OUTSTANDING UNDER THE 1996 LONG-TERM INCENTIVE PLAN
Set forth below is information with respect to the aggregate options granted
pursuant to the Company's 1996 Long-Term Incentive Plan that were outstanding at
December 31, 1998 for each of the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR/(1)/
Individual Grants
------------------------------------------------------------------------------------
Number of Alternative
Common Grant Date
Shares Percent of Total Value
Underlying Options Granted Exercise or Grant Date
Options to Employees Base Price Expiration Present Value
Name Granted in Fiscal Year ($/Share) Date $/(2)/
- ------------------------- ---------------- ----------------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
James Haines 0 0 N/A N/A N/A
Eduardo A. Rodriguez 100,000 19.05% 7.50 01-02-08 281,600.24
Gary R. Hedrick 100,000 19.05% 7.50 01-02-08 281,600.24
Julius F. Bates 100,000 19.05% 7.50 01-02-08 281,600.24
Michael L. Blough 100,000 19.05% 7.50 01-02-08 281,600.24
</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 the 1996 Long-
Term Incentive Plan.
(2) The value of options is based on the Black Scholes Option Pricing Model
using the following assumptions: (a) risk-free rate of return is 5.83%
(yield on the 10-year Treasury Note) based on an award date of January 3,
1998; (b) volatility is 6.64%, calculated using the standard deviation of
El Paso Electric Company's Common Stock from January 3, 1997 to the award
date; (c) exercise price is the market price on date of award, which is
$7.50 and (d) time of exercise is assumed to be ten years from date of
grant.
-20-
<PAGE>
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.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
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 30,000 40,000 50,000 60,000 70,000
200,000 30,000 40,000 50,000 60,000 70,000
225,000 30,000 40,000 50,000 60,000 70,000
250,000 30,000 40,000 50,000 60,000 70,000
300,000 30,000 40,000 50,000 60,000 70,000
400,000 30,000 40,000 50,000 60,000 70,000
450,000 30,000 40,000 50,000 60,000 70,000
500,000 30,000 40,000 50,000 60,000 70,000
</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, Hedrick, Bates, and Blough at December 31,
1998 was 3, 18, 22, 26, and 17, 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. The maximum amount
of compensation on which benefits may be based is currently $160,000.
Participants in the Retirement Income Plan will 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 Haines 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. The restrictions on
the restricted stock are scheduled to lapse in 20% increments annually beginning
January 1, 1998 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.
The Company has a four-year employment contract with Mr. Rodriguez, which
expires on February 12, 2000 and provides for certain minimum base salary
levels, which escalate to not less than $220,000 in the final year of the
agreement.
-21-
<PAGE>
Each Named Executive and certain other officers of the Company have entered
into a Severance Agreement requiring such person to remain in the employ of the
Company for two years following a change in control. In the event the executive
is terminated during such period, other than for cause or certain other reasons,
the Agreement provides that such person would receive 2.99 times annual base
salary plus bonuses, the actuarial equivalent of vested benefits under the
Company's retirement plan calculated with three additional years of service,
continuation of welfare benefits for two years and outplacement services for one
year.
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 and, if approved by the
shareholders, the 1999 Long-Term Incentive Plan. Following review and approval
by the Committee, all significant issues pertaining to executive compensation
are submitted to the full Board of Directors 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 provides the Committee with salary and benefits information
compiled by the Edison Electric Institute (EEI) covering electric utilities with
annual revenues between $500 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 compensation that
aligns the interests of the executive with the total return to the Company's
shareholders. The incentive components of compensation 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.
-22-
<PAGE>
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. 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 1998, the performance goals included
safety, customer satisfaction and deleveraging. Executive officers earned a 1998
short-term incentive award of 36.8% of base salary for partial achievement of
the deleveraging, safety and customer satisfaction performance goals. For the
1999 incentive plan, goals have been established for safety, customer
satisfaction and cash flow. No short-term incentive awards will be granted,
however, unless the cash flow goal is met.
LONG-TERM INCENTIVES. During 1998, each current Named Executive Officer
other than the Chief Executive Officer was awarded a stock option grant to
acquire 100,000 Common Shares at a price 7% greater than the market price on the
date of grant. The stock options vest in equal 20% increments over five years.
Each Named Executive Officer other than the Chief Executive Officer was also
awarded stock options, covering 100,000 shares in 1996. The 1996 options have a
exercise price equal to 100% of the market value of the common stock on the date
of grant and vest in equal increments over 5 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.
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 suggest that the
Chief Executive Officer own common stock with a value equal to three times his
base salary and that other executive officers and directors own
-23-
<PAGE>
common stock with a value equal to two times their base salary or annual
retainer, respectively. The ownership guidelines were set in 1996 with the
intention that they be met within 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 he was selected, following an extensive search, with
the assistance of a prominent executive search firm, as a chief executive
officer with the experience and vision to lead the Company into the deregulated
market. 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. Mr. Haines is 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 motivated 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. In 1999, Mr.
Haines was awarded a bonus of a stock option grant to acquire 50,000 common
shares at the market price on the date of the grant. The options vested
immediately. The option grant was intended to reflect both the committee's and
board's recognition of Mr. Haines performance and the Company's performance
since he joined the Company. 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.
Members of the Compensation/Benefits Committee:
Wilson K. Cadman
James W. Cicconi
Kenneth R. Heitz - Chairman
Charles A. Yamarone
-24-
<PAGE>
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
to the performance of the American Exchange U.S. Total Return Index (AMEX U.S.)
and the Edison Electric Institute's Index of 100 investor-owned electric
utilities (EEI 100). The graph sets the value of El Paso Electric Common Stock
on February 16, 1996 (when it began trading on the American Stock Exchange), and
the value of the AMEX U.S. on February 16, 1996 to a base of 100 and the value
of the EEI 100 on January 1, 1996 to a base of 100. The graph assumes that all
dividends were reinvested. The EEI 100 is not published daily. The common shares
of the Company prior to February 12, 1996 (the effective date of the plan of
reorganization) were cancelled 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 AMEX U.S. and the EEI
100, as reflected in the graph.
TOTAL RETURN COMPARISON
EL PASO ELECTRIC, AMEX STOCK MARKET, EEI 100 INDEX
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Base December 31, 1996 December 31, 1997 December 31, 1998
--------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
El Paso Electric 100.000 136.84 153.94 184.21
AMEX U.S. 100.000 100.21 125.31 133.67
EEI 100 100.000 101.20 128.57 142.46
</TABLE>
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 2000 Annual Meeting of Shareholders, a shareholder proposal
must be received at the Company's principal executive offices on or prior to
December 28, 1999. 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.
-25-
<PAGE>
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.
INDEPENDENT AUDITORS
Representatives of KPMG LLP, the independent auditors of the Company's
financial statements, 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.
ANNUAL REPORT
The Company's 1998 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: April 15, 1999
-26-
<PAGE>
EXHIBIT A
EL PASO ELECTRIC COMPANY
1999 LONG-TERM INCENTIVE PLAN
I. INTRODUCTION
1.1 PURPOSES. The purposes of the 1999 Long-Term Incentive Plan (the "Plan")
-------- ----
of El Paso Electric Company (the "Company") are (i) to align the interests of
-------
the Company's stockholders and the recipients of awards under this Plan by
increasing the proprietary interest of such recipients in the Company's growth
and success, (ii) to advance the interests of the Company by attracting and
retaining directors, officers, managers and other employees and consultants and
(iii) to motivate such persons to act in the long-term best interests of the
Company and its stockholders.
1.2 CERTAIN DEFINITIONS.
-------------------
"AGREEMENT" shall mean the written agreement evidencing an award hereunder
---------
between the Company and the recipient of such award.
"BOARD" shall mean the Board of Directors of the Company.
-----
"BONUS STOCK" shall mean shares of Common Stock which are not subject to a
-----------
Restriction Period or Performance Measures.
"BONUS STOCK AWARD" shall mean an award of Bonus Stock under this Plan.
-----------------
"CAUSE" shall mean any act of dishonesty, commission of a felony,
-----
significant activities harmful to the reputation of the Company, refusal to
perform or substantial disregard of duties properly assigned or significant
violation of any statutory or common law duty of loyalty to the Company.
"CHANGE IN CONTROL" shall have the meaning set forth in Section 6.8(b).
-----------------
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
----
"COMMITTEE" shall mean the Committee designated by the Board, consisting of
---------
two or more members of the Board, each of whom shall be (i) a "Non-Employee
Director" within the meaning of Rule 16b-3 under the Exchange Act and (ii) an
"outside director" within the meaning of Section 162(m) of the Code.
"COMMON STOCK" shall mean the common stock, no par value, of the Company.
------------
"COMPANY" has the meaning specified in Section 1.1.
-------
<PAGE>
"DIRECTORS OPTIONS" shall have the meaning set forth in Section 5.5.
-----------------
"DIRECTORS RESTRICTED STOCK" shall have the meaning set forth in Section
--------------------------
5.4.
"DISABILITY" shall mean the inability of the holder of an award to perform
----------
substantially such holder's duties and responsibilities for a continuous period
of at least six months, as determined solely by the Committee.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
------------
"FAIR MARKET VALUE" shall mean the closing transaction price of a share of
-----------------
Common Stock as reported in the American Stock Exchange Composite Transactions
on the date as of which such value is being determined or, if there shall be no
reported transactions for such date, on the next preceding date for which
transactions were reported; provided, however, that Fair Market Value may be
determined by the Committee by whatever means or method as the Committee, in the
good faith exercise of its discretion, shall at such time deem appropriate.
"FREE-STANDING SAR" shall mean an SAR which is not issued in tandem with,
-----------------
or by reference to, an option, which entitles the holder thereof to receive,
upon exercise, shares of Common Stock (which may be Restricted Stock), cash or a
combination thereof with an aggregate value equal to the excess of the Fair
Market Value of one share of Common Stock on the date of exercise over the base
price of such SAR, multiplied by the number of such SARs which are exercised.
"INCENTIVE STOCK OPTION" shall mean an option to purchase shares of Common
----------------------
Stock that meets the requirements of Section 422 of the Code, or any successor
provision, which is intended by the Committee to constitute an Incentive Stock
Option.
"INCUMBENT BOARD" shall have the meaning set forth in Section 6.8(b)(2).
---------------
"MATURE SHARES" shall mean previously-acquired shares of Common Stock for
-------------
which the holder thereof has good title, free and clear of all liens and
encumbrances and which such holder either (i) has held for at least six months
or (ii) has purchased on the open market.
"NON-EMPLOYEE DIRECTOR" shall mean any director of the Company who is not
---------------------
an officer or employee of the Company or any Subsidiary.
"NON-STATUTORY STOCK OPTION" shall mean an option to purchase shares of
--------------------------
Common Stock which is not an Incentive Stock Option.
"OUTSTANDING COMPANY COMMON STOCK" shall have the meaning set forth in
--------------------------------
Section 6.8(b)(1).
-2-
<PAGE>
"OUTSTANDING COMPANY VOTING SECURITIES" shall have the meaning set forth in
-------------------------------------
Section 6.8(b)(1).
"PERFORMANCE MEASURES" shall mean the criteria and objectives, established
--------------------
by the Committee, which shall be satisfied or met (i) as a condition to the
exercisability of all or a portion of an option or SAR, (ii) as a condition to
the grant of a Stock Award or (iii) during the applicable Restriction Period or
Performance Period as a condition to the holder's receipt, in the case of a
Restricted Stock Award, of the shares of Common Stock subject to such award, or,
in the case of a Performance Share Award, of the shares of Common Stock subject
to such award and/or of payment with respect to such award. Such criteria and
objectives may include, but are not limited to, the attainment by a share of
Common Stock of a specified Fair Market Value for a specified period of time,
earnings per share, return to stockholders (including dividends), return on
equity, earnings of the Company, revenues, market share, cash flow or cost
reduction goals, or any combination of the foregoing and any other criteria and
objectives established by the Board or the Committee.
"PERFORMANCE PERIOD" shall mean any period designated by the Committee
------------------
during which the Performance Measures applicable to a Performance Share Award
shall be measured.
"PERFORMANCE SHARE" shall mean a right, contingent upon the attainment of
-----------------
specified Performance Measures within a specified Performance Period, to receive
one share of Common Stock, which may be Restricted Stock, or in lieu of all or a
portion thereof, the Fair Market Value of such Performance Share in cash.
"PERFORMANCE SHARE AWARD" shall mean an award of Performance Shares under
-----------------------
this Plan.
"PERMANENT AND TOTAL DISABILITY" shall have the meaning set forth in
------------------------------
Section 22(e)(3) of the Code or any successor thereto.
"PERSON" shall have the meaning set forth in Section 6.8(b)(1).
------
"POST-TERMINATION EXERCISE PERIOD" shall mean the period specified in or
--------------------------------
pursuant to Section 2.3(a), Section 2.3(b), Section 2.3(d) or Section 2.3(e)
following termination of employment with or service to the Company during which
an option or SAR may be exercised.
"RESTRICTED STOCK" shall mean shares of Common Stock which are subject to a
----------------
Restriction Period and shall include Directors Restricted Stock.
"RESTRICTED STOCK AWARD" shall mean an award of Restricted Stock under this
----------------------
Plan.
"RESTRICTION PERIOD" shall mean any period designated by the Committee
------------------
during which the Common Stock subject to a Restricted Stock Award may not be
sold, transferred,
-3-
<PAGE>
assigned, pledged, hypothecated or otherwise encumbered or disposed of, except
as provided in this Plan or the Agreement relating to such award.
"RETIREMENT" shall mean termination of employment with or service to the
----------
Company by reason of retirement in accordance with the Company's normal criteria
or with the consent of the Company.
"SAR" shall mean a stock appreciation right which may be a Free-Standing
---
SAR or a Tandem SAR.
"STOCK AWARD" shall mean a Restricted Stock Award or a Bonus Stock Award.
-----------
"SUBSIDIARY" and "SUBSIDIARIES" shall have the meanings set forth in
---------- ------------
Section 14.
"TANDEM SAR" shall mean an SAR which is granted in tandem with, or by
----------
reference to, an option (including a Non-Statutory Stock Option granted prior to
the date of grant of the SAR), which entitles the holder thereof to receive,
upon exercise of such SAR and surrender for cancellation of all or a portion of
such option, shares of Common Stock (which may be Restricted Stock), cash or a
combination thereof with an aggregate value equal to the excess of the Fair
Market Value of one share of Common Stock on the date of exercise over the base
price of such SAR, multiplied by the number of shares of Common Stock subject to
such option, or portion thereof, which is surrendered.
"TAX DATE" shall have the meaning set forth in Section 6.5.
--------
"TEN PERCENT HOLDER" shall have the meaning set forth in Section 2.1(a).
------------------
1.3 ADMINISTRATION. This Plan shall be administered by the Committee. Any one
--------------
or a combination of the following awards may be made under this Plan to eligible
persons: (i) options to purchase shares of Common Stock in the form of
Incentive Stock Options or Non-Statutory Stock Options, (ii) SARs in the form of
Tandem SARs or Free-Standing SARs, (iii) Stock Awards in the form of Restricted
Stock or Bonus Stock and (iv) Performance Shares. The Committee shall, subject
to the terms of this Plan, select eligible persons for participation in this
Plan and determine the form, amount and timing of each award to such persons
and, if applicable, the number of shares of Common Stock, the number of SARs and
the number of Performance Shares subject to such an award, the exercise price or
base price associated with the award, the time and conditions of exercise or
settlement of the award and all other terms and conditions of the award,
including, without limitation, the form of the Agreement evidencing the award.
The Committee may, in its sole discretion and for any reason at any time,
subject to the requirements of Section 162(m) of the Code and regulations
thereunder in the case of an award intended to be qualified performance-based
compensation, take action such that (i) any or all outstanding options and SARs
shall become exercisable in part or in full, (ii) all or a portion of the
Restriction Period applicable to any outstanding Restricted Stock Award shall
lapse, (iii) all or a portion of the Performance Period applicable to any
outstanding Performance Share Award shall lapse and (iv) the Performance
Measures applicable to any
-4-
<PAGE>
outstanding award (if any) shall be deemed to be satisfied at the maximum or any
other level. The Committee shall, subject to the terms of this Plan, interpret
this Plan and the application thereof, establish rules and regulations it deems
necessary or desirable for the administration of this Plan and may impose,
incidental to the grant of an award, conditions with respect to the award, such
as limiting competitive employment or other activities. All such
interpretations, rules, regulations and conditions shall be final, binding and
conclusive.
The Committee may delegate some or all of its power and authority hereunder
to the Board or the Chief Executive Officer and President or other executive
officer of the Company as the Committee deems appropriate; provided, however,
that (i) the Committee may not delegate its power and authority to the Board or
the Chief Executive Officer and President or other executive officer of the
Company with regard to the grant of an award to any person who is a "covered
employee" within the meaning of Section 162(m) of the Code or who, in the
Committee's judgment, is likely to be a covered employee at any time during the
period an award hereunder to such employee would be outstanding and (ii) the
Committee may not delegate its power and authority to the Chief Executive
Officer and President or other executive officer of the Company with regard to
the selection for participation in this Plan of an officer or other person
subject to Section 16 of the Exchange Act or decisions concerning the timing,
pricing or amount of an award to such an officer or other person.
No member of the Board or Committee, and neither the Chief Executive
Officer and President nor any other executive officer to whom the Committee
delegates any of its power and authority hereunder, shall be liable for any act,
omission, interpretation, construction or determination made in connection with
this Plan in good faith, and the members of the Board and the Committee and the
Chief Executive Officer and President or other executive officer shall be
entitled to indemnification and reimbursement by the Company in respect of any
claim, loss, damage or expense (including attorneys' fees) arising therefrom to
the full extent permitted by law, except as otherwise may be provided in the
Company's Articles of Incorporation and/or By-laws, and under any directors' and
officers' liability insurance that may be in effect from time to time.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (i) acts of a majority of the members of the Committee
present at any meeting at which a quorum is present or (ii) acts approved in
writing by all of the members of the Committee without a meeting.
1.4 ELIGIBILITY. Participants in this Plan shall consist of such directors
-----------
(including Non-Employee Directors), officers, managers and other employees,
persons expected to become directors, officers, managers and other employees,
and consultants of the Company, and its subsidiaries from time to time
designated by the Board or the Committee (individually a "Subsidiary" and
----------
collectively the "Subsidiaries") as the Committee in its sole discretion may
------------
select from time to time. For purposes of this Plan, references to employment
by the Company shall also mean employment by a Subsidiary. The Committee's
selection of a person to participate in this Plan at any time shall not require
the Committee to select such
-5-
<PAGE>
person to participate in this Plan at any other time. Non-Employee Directors of
the Company shall be eligible to participate in this Plan in accordance with
Section V.
1.5 SHARES AVAILABLE. Subject to adjustment as provided in Section 6.7, Two
----------------
Million (2,000,000) shares of Common Stock shall be available under this Plan,
reduced by the sum of the aggregate number of shares of Common Stock which
become subject to outstanding options, including Directors Options, outstanding
Free-Standing SARs, outstanding Stock Awards and outstanding Performance Shares.
To the extent that shares of Common Stock subject to an outstanding option
(except to the extent shares of Common Stock are issued or delivered by the
Company in connection with the exercise of a Tandem SAR), Free-Standing SAR,
Stock Award or Performance Share are not issued or delivered by reason of the
expiration, termination, cancellation or forfeiture of such award or by reason
of the delivery or withholding of shares of Common Stock to pay all or a portion
of the exercise price of an award, if any, or to satisfy all or a portion of the
tax withholding obligations relating to an award, then such shares of Common
Stock shall again be available under this Plan.
Shares of Common Stock shall be made available from authorized and unissued
shares of Common Stock, or authorized and issued shares of Common Stock
reacquired and held as treasury shares or otherwise or a combination thereof.
To the extent required by Section 162(m) of the Code and the regulations
thereunder, the maximum number of shares of Common Stock with respect to which
options or SARs or a combination thereof may be granted during any calendar year
to any person shall be 250,000, subject to adjustment as provided in Section
6.7.
II. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
2.1 STOCK OPTIONS. The Committee may, in its discretion, grant options to
-------------
purchase shares of Common Stock to such eligible persons as may be selected by
the Committee. Each option, or portion thereof, that is not an Incentive Stock
Option, shall be a Non-Statutory Stock Option. An Incentive Stock Option may
not be granted to any person who is not an employee of the Company or any parent
or subsidiary (as defined in Section 424 of the Code). Each Incentive Stock
Option shall be granted within ten years of the effective date of this Plan. To
the extent that the aggregate Fair Market Value (determined as of the date of
grant) of shares of Common Stock with respect to which options designated as
Incentive Stock Options are exercisable for the first time by a participant
during any calendar year (under this Plan or any other plan of the Company, or
any parent or subsidiary as defined in Section 424 of the Code) exceeds the
amount (currently $100,000) established by the Code, such options shall
constitute Non-Statutory Stock Options.
Options shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
this Plan, as the Committee shall deem advisable:
-6-
<PAGE>
(a) Number of Shares and Purchase Price. The number of shares of Common
-----------------------------------
Stock subject to an option and the purchase price per share of Common Stock
purchasable upon exercise of the option shall be determined by the Committee;
provided, however, that the purchase price per share of Common Stock purchasable
upon exercise of any Non-Statutory and Incentive Stock Option shall not be less
than 100% of the Fair Market Value of a share of Common Stock on the date of
grant of such option; provided further, that if an Incentive Stock Option shall
be granted to any person who, at the time such option is granted, owns capital
stock possessing more than ten percent of the total combined voting power of all
classes of capital stock of the Company (or of any parent or subsidiary as
defined in Section 424 of the Code) (a "Ten Percent Holder"), the purchase price
------------------
per share of Common Stock shall be the price (currently 110% of Fair Market
Value) required by the Code in order to constitute an Incentive Stock Option.
(b) Option Period and Exercisability. The period during which an option
--------------------------------
may be exercised shall be determined by the Committee; provided, however, that
no Incentive Stock Option shall be exercised later than ten years after its date
of grant; provided further, that if an Incentive Stock Option shall be granted
to a Ten Percent Holder, such option shall not be exercised later than five
years after its date of grant. The Committee may, in its discretion, establish
Performance Measures which shall be satisfied or met as a condition to the grant
of an option or to the exercisability of all or a portion of an option. The
Committee shall determine whether an option shall become exercisable in
cumulative or non-cumulative installments and in part or in full at any time.
An exercisable option, or portion thereof, may be exercised only with respect to
whole shares of Common Stock.
(c) Method of Exercise. An option may be exercised (i) by giving written
------------------
notice to the Company specifying the number of whole shares of Common Stock to
be purchased and accompanied by payment therefor in full (or arrangement made
for such payment to the Company's satisfaction) either (A) in cash, (B) by
delivery (either actual delivery or by attestation procedures established by the
Company) of Mature Shares having an aggregate Fair Market Value, determined as
of the date of exercise, equal to the aggregate purchase price payable by reason
of such exercise, (C) in cash by a broker-dealer acceptable to the Company to
whom the optionee has submitted an irrevocable notice of exercise or (D) a
combination of (A) and (B), in each case to the extent set forth in the
Agreement relating to the option, (ii) if applicable, by surrendering to the
Company any Tandem SARs which are canceled by reason of the exercise of the
option and (iii) by executing such documents as the Company may reasonably
request. The Company shall have sole discretion to disapprove of an election
pursuant to any of clauses (B)-(D). Any fraction of a share of Common Stock
which would be required to pay such purchase price shall be disregarded and the
remaining amount due shall be paid in cash by the optionee. No certificate
representing Common Stock shall be delivered until the full purchase price
therefor has been paid (or arrangement made for such payment to the Company's
satisfaction).
(d) Dividend Equivalents. The Agreement relating to any Non-Statutory
--------------------
Stock Option may provide for the grant of "dividend equivalents" with respect to
each Non-Statutory Stock Option. Each dividend equivalent shall entitle the
optionee to receive a cash payment
-7-
<PAGE>
equal to the product of (i) the dividends declared with respect to a share of
Common Stock and (ii) the number of shares of Common Stock subject to such
option.
2.2 STOCK APPRECIATION RIGHTS. The Committee may, in its discretion, grant
-------------------------
SARs to such eligible persons as may be selected by the Committee. The
Agreement relating to an SAR shall specify whether the SAR is a Tandem SAR or a
Free-Standing SAR.
SARs shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
this Plan, as the Committee shall deem advisable:
(a) Number of SARs and Base Price. The number of SARs subject to an award
-----------------------------
shall be determined by the Committee. Any Tandem SAR related to an Incentive
Stock Option shall be granted at the same time that such Incentive Stock Option
is granted. The base price of a Tandem SAR shall be the purchase price per
share of Common Stock of the related option. The base price of a Free-Standing
SAR shall be determined by the Committee; provided, however, that such base
price shall not be less than 100% of the Fair Market Value of a share of Common
Stock on the date of grant of such SAR.
(b) Exercise Period and Exercisability. The Agreement relating to an award
----------------------------------
of SARs shall specify whether such award may be settled in shares of Common
Stock (including shares of Restricted Stock) or cash or a combination thereof.
The period for the exercise of an SAR shall be determined by the Committee;
provided, however, that no Tandem SAR shall be exercised later than the
expiration, cancellation, forfeiture or other termination of the related option.
The Committee may, in its discretion, establish Performance Measures which shall
be satisfied or met as a condition to the grant of an SAR or to the
exercisability of all or a portion of an SAR. The Committee shall determine
whether an SAR may be exercised in cumulative or non-cumulative installments and
in part or in full at any time. An exercisable SAR, or portion thereof, may be
exercised, in the case of a Tandem SAR, only with respect to whole shares of
Common Stock and, in the case of a Free-Standing SAR, only with respect to a
whole number of SARs. If an SAR is exercised for shares of Restricted Stock, a
certificate or certificates representing such Restricted Stock shall be issued
in accordance with Section 3.2(c) and the holder of such Restricted Stock shall
have such rights of a stockholder of the Company as determined pursuant to
Section 3.2(d). Prior to the exercise of an SAR for shares of Common Stock,
including Restricted Stock, the holder of such SAR shall have no rights as a
stockholder of the Company with respect to the shares of Common Stock subject to
such SAR and shall have rights as a stockholder of the Company in accordance
with Section 6.10.
(c) Method of Exercise. A Tandem SAR may be exercised (i) by giving
------------------
written notice to the Company specifying the number of whole SARs which are
being exercised, (ii) by surrendering to the Company any options which are
canceled by reason of the exercise of the Tandem SAR and (iii) by executing such
documents as the Company may reasonably request. A Free-Standing SAR may be
exercised (i) by giving written notice to the Company specifying
-8-
<PAGE>
the whole number of SARs which are being exercised and (ii) by executing such
documents as the Company may reasonably request.
2.3 TERMINATION OF EMPLOYMENT OR SERVICE. (a) Disability. Subject to
------------------------------------ ----------
paragraph (e) below and to Section 6.8, and unless otherwise specified in the
Agreement relating to an option or SAR, as the case may be, if the employment
with or service to the Company of the holder of an option or SAR terminates by
reason of Disability, each option and SAR held by such holder shall be
exercisable only to the extent that such option or SAR, as the case may be, is
exercisable on the effective date of such holder's termination of employment or
service and may thereafter be exercised by such holder (or such holder's legal
representative or similar person) until and including the earliest to occur of
(i) the date which is six (6) months (or such shorter period as set forth in the
Agreement relating to such option or SAR) after the effective date of such
holder's termination of employment or service and (ii) the expiration date of
the term of such option or SAR.
(b) Retirement. Subject to paragraph (e) below and to Section 6.8, and
----------
unless otherwise specified in the Agreement relating to an option or SAR, as the
case may be, if the employment with or service to the Company of the holder of
an option or SAR terminates by reason of Retirement, each option and SAR held by
such holder shall be exercisable only to the extent that such option or SAR, as
the case may be, is exercisable on the effective date of such holder's
termination of employment or service and may thereafter be exercised by such
holder (or such holder's legal representative or similar person) until and
including the earliest to occur of (i) the date which is six (6) months (or such
shorter period as set forth in the Agreement relating to such option or SAR)
after the effective date of such holder's termination of employment or service
and (ii) the expiration date of the term of such option or SAR.
(c) Death. Unless otherwise specified in the Agreement relating to an
-----
option or SAR, as the case may be, and subject to Section 6.8, if the employment
with or service to the Company of the holder of an option or SAR terminates by
reason of death, each option and SAR held by such holder shall be exercisable
only to the extent that such option or SAR, as the case may be, is exercisable
on the date of such holder's death, and may thereafter be exercised by such
holder's executor, administrator, legal representative, beneficiary or similar
person until and including the earliest to occur of (i) the date which is six
(6) months (or such shorter period as set forth in the Agreement relating to
such option or SAR) after the date of death and (ii) the expiration date of the
term of such option or SAR.
(d) Other Termination. Subject to paragraph (e) below and to Section 6.8,
-----------------
and unless otherwise specified in the Agreement relating to an option or SAR, as
the case may be, if the employment with or service to the Company of the holder
of an option or SAR terminates for any reason other than Disability, Retirement
or death, each option and SAR held by such holder shall be exercisable only to
the extent that such option or SAR is exercisable on the effective date of such
holder's termination of employment or service and may thereafter be exercised by
such holder (or such holder's legal representative or similar person) until and
including the earliest to occur of (i) the date which is six (6) months (or such
shorter period as set forth in the Agreement relating to such option or SAR)
after the effective date of such
-9-
<PAGE>
holder's termination of employment or service and (ii) the expiration date of
the term of such option or SAR.
(e) Termination of Employment - Incentive Stock Options. Unless otherwise
---------------------------------------------------
specified in the Agreement relating to the option, and subject to Section 6.8,
if the employment with the Company of a holder of an Incentive Stock Option
terminates by reason of Permanent and Total Disability, each Incentive Stock
Option held by such optionee shall be exercisable to the extent set forth in
Section 2.3(a), and may thereafter be exercised by such optionee (or such
optionee's legal representative or similar person) until and including the
earliest to occur of (i) the date which is one year (or such shorter period as
set forth in the Agreement relating to such option) after the effective date of
such optionee's termination of employment and (ii) the expiration date of the
term of such option.
Unless otherwise specified in the Agreement relating to the option,
and subject to Section 6.8, if the employment with the Company of a holder of an
Incentive Stock Option terminates for any reason other than Permanent and Total
Disability, each Incentive Stock Option held by such optionee shall be
exercisable to the extent set forth in Section 2.3(a), Section 2.3(b) or 2.3(d),
as applicable, and may thereafter be exercised by such holder (or such holder's
legal representative or similar person) until and including the earliest to
occur of (i) the date which is three months after the effective date of such
optionee's termination of employment and (ii) the expiration date of the term of
such option; provided, however, that if termination is by reason of death, each
Incentive Stock Option will be exercisable to the same extent and for the same
period set forth above in Section 2.3(c).
(f) Death Following Termination of Employment or Service. Unless otherwise
----------------------------------------------------
specified in the Agreement relating to an option or SAR, as the case may be, and
subject to Section 6.8, if the holder of an option or SAR dies during the
applicable Post-Termination Exercise Period, each option and SAR held by such
holder shall be exercisable only to the extent that such option or SAR, as the
case may be, is exercisable on the date of such holder's death and may
thereafter be exercised by the holder's executor, administrator, legal
representative, beneficiary or similar person until and including the earliest
to occur of (i) the date which is 90 days after the date of death and (ii) the
expiration date of the term of such option or SAR.
III. STOCK AWARDS
3.1 STOCK AWARDS. The Committee may, in its discretion, grant Stock Awards to
------------
such eligible persons as may be selected by the Committee. The Agreement
relating to a Stock Award shall specify whether the Stock Award is a Restricted
Stock Award or Bonus Stock Award.
3.2 TERMS OF STOCK AWARDS. Stock Awards shall be subject to the following
---------------------
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall deem advisable.
-10-
<PAGE>
(a) Number of Shares and Other Terms. The number of shares of Common Stock
--------------------------------
subject to a Restricted Stock Award or Bonus Stock Award and the Performance
Measures (if any) and Restriction Period applicable to a Restricted Stock Award
shall be determined by the Committee.
(b) Vesting and Forfeiture. The Agreement relating to a Restricted Stock
----------------------
Award shall provide, in the manner determined by the Committee, in its
discretion, and subject to the provisions of this Plan, for the vesting of the
shares of Common Stock subject to such award (i) if specified Performance
Measures are satisfied or met during the specified Restriction Period or (ii) if
the holder of such award remains continuously in the employment of or service to
the Company during the specified Restriction Period and for the forfeiture of
all or a portion of the shares of Common Stock subject to such award (x) if
specified Performance Measures are not satisfied or met during the specified
Restriction Period or (y) if the holder of such award does not remain
continuously in the employment of or service to the Company during the specified
Restriction Period.
Bonus Stock Awards shall not be subject to any Performance Measures or
Restriction Periods.
(c) Share Certificates. During the Restriction Period, a certificate or
------------------
certificates representing a Restricted Stock Award may be registered in the
holder's name or a nominee name at the discretion of the Company and may bear a
legend, in addition to any legend which may be required pursuant to Section 6.6,
indicating that the ownership of the shares of Common Stock represented by such
certificate is subject to the restrictions, terms and conditions of this Plan
and the Agreement relating to the Restricted Stock Award. All certificates
registered in the holder's name shall be deposited with the Company, together
with stock powers or other instruments of assignment (including a power of
attorney), each endorsed in blank with a guarantee of signature if deemed
necessary or appropriate by the Company, which would permit transfer to the
Company of all or a portion of the shares of Common Stock subject to the
Restricted Stock Award in the event such award is forfeited in whole or in part.
Upon termination of any applicable Restriction Period (and the satisfaction or
attainment of applicable Performance Measures), or upon the grant of a Bonus
Stock Award, in each case subject to the Company's right to require payment of
any taxes in accordance with Section 6.5, a certificate or certificates
evidencing ownership of the requisite number of shares of Common Stock shall be
delivered to the holder of such award.
(d) Rights with Respect to Restricted Stock Awards. Unless otherwise set
----------------------------------------------
forth in the Agreement relating to a Restricted Stock Award, and subject to the
terms and conditions of a Restricted Stock Award, the holder of such award shall
have all rights as a stockholder of the Company, including, but not limited to,
voting rights, the right to receive dividends and the right to participate in
any capital adjustment applicable to all holders of Common Stock; provided,
however, that a distribution with respect to shares of Common Stock, other than
a regular cash dividend, shall be deposited with the Company and shall be
subject to the same restrictions as the shares of Common Stock with respect to
which such distribution was made. The Agreement relating to Restricted Stock
Award may provide that regular cash dividends
-11-
<PAGE>
made with respect to Common Stock in a Restricted Stock Award prior to the
termination of the Restriction Period shall be deposited with the Company and
such cash dividends shall be used to purchase additional shares of Common Stock
which shall be subject to the same restrictions, vesting period, Performance
Measures and other provisions as the shares of Common Stock with respect to
which such cash dividend was made.
3.3 TERMINATION OF EMPLOYMENT OR SERVICE. Unless otherwise set forth in the
------------------------------------
Agreement relating to a Restricted Stock Award, and subject to Section 6.8, if
the employment with or service to the Company of the holder of such award
terminates by reason of Disability, Retirement, death, or any other reason, the
portion of such award which is subject to a Restriction Period on the effective
date of such holder's termination of employment or service shall be forfeited by
such holder and such portion shall be canceled by the Company.
IV. PERFORMANCE SHARE AWARDS
4.1 PERFORMANCE SHARE AWARDS. The Committee may, in its discretion, grant
------------------------
Performance Share Awards to such eligible persons as may be selected by the
Committee.
4.2 TERMS OF PERFORMANCE SHARE AWARDS. Performance Share Awards shall be
---------------------------------
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of this Plan, as the
Committee shall deem advisable.
(a) Number of Performance Shares and Performance Measures. The number of
-----------------------------------------------------
Performance Shares subject to any award and the Performance Measures and
Performance Period applicable to such award shall be determined by the
Committee.
(b) Vesting and Forfeiture. The Agreement relating to a Performance Share
----------------------
Award shall provide, in the manner determined by the Committee, in its
discretion, and subject to the provisions of this Plan, for the vesting of such
award, if specified Performance Measures are satisfied or met during the
specified Performance Period, and for the forfeiture of all or a portion of such
award, if specified Performance Measures are not satisfied or met during the
specified Performance Period.
(c) Settlement of Vested Performance Share Awards. The Agreement relating
---------------------------------------------
to a Performance Share Award (i) shall specify whether such award may be settled
in shares of Common Stock (including shares of Restricted Stock) or cash or a
combination thereof and (ii) may specify whether the holder thereof shall be
entitled to receive, on a current or deferred basis, dividend equivalents, and,
if determined by the Committee, interest on or the deemed reinvestment of any
deferred dividend equivalents, with respect to the number of shares of Common
Stock subject to such award. If a Performance Share Award is settled in shares
of Restricted Stock, a certificate or certificates representing such Restricted
Stock shall be issued in accordance with Section 3.2(c) and the holder of such
Restricted Stock shall have such rights of a stockholder of the Company as
determined pursuant to Section 3.2(d). Prior to the settlement of a Performance
Share Award in shares of Common Stock, including Restricted Stock, the holder of
such award shall have no rights as a stockholder of the Company with
-12-
<PAGE>
respect to the shares of Common Stock subject to such award and shall have
rights as a stockholder of the Company in accordance with Section 6.10.
4.3 TERMINATION OF EMPLOYMENT. Unless otherwise set forth in the Agreement
-------------------------
relating to a Performance Share Award, and subject to Section 6.8, if the
employment with or service to the Company of the holder of such award terminates
by reason of Disability, Retirement, death, or any other reason, the portion of
such award which is subject to a Performance Period on the effective date of
such holder's termination of employment shall be forfeited and such portion
shall be canceled by the Company.
V. PROVISIONS RELATING TO NON-EMPLOYEE DIRECTORS
5.1 ELIGIBILITY. Each Non-Employee Director shall receive a Restricted Stock
-----------
Award in accordance with this Article V.
5.2 RESTRICTED STOCK AWARDS
-----------------------
(a) Time of Award. On May 27, 1999 (or, if later, on the date on which a
-------------
person is first elected or begins to serve as a Non-Employee Director other than
by reason of termination of employment), and, thereafter, on the date of each
annual meeting of stockholders of the Company, each person who is a Non-Employee
Director immediately after such meeting of stockholders shall receive a
Restricted Stock Award of 3,500 shares (which amount shall be pro-rated if such
Non-Employee Director is first elected or begins to serve as a Non-Employee
Director on a date other than the date of an annual meeting of stockholders);
provided, that such award will be made under the Plan only after no shares
remain available for awards under the Company's 1996 Long-Term Incentive Plan.
(b) Terms of Award. The Restriction Period and other terms governing any
--------------
award under this section 5.2 shall be as set forth in section 5.4 below.
5.3 ELECTIVE PARTICIPATION. Each Non-Employee Director may from time to time
----------------------
elect, in accordance with procedures to be specified by the Committee, to
receive in lieu of all or part of the cash retainer and any meeting fees that
would otherwise be payable to such Non-Employee Director, on each date on which
such retainer and meeting fees would otherwise be payable during the period that
such election is in effect, either (i) Restricted Stock having the terms
described in Section 5.4 ("Directors Restricted Stock") with a Fair Market Value
--------------------------
as of such payment date equal to 100% of the foregone amount of such retainer
payment and meeting fees or (ii) options having the terms described in Section
5.5 ("Directors Options") to purchase shares of Common Stock having a Fair
-----------------
Market Value as of such payment date equal to 100% of the foregone amount of
such retainer payment and meeting fees.
5.4 DIRECTORS RESTRICTED STOCK. Shares of Directors Restricted Stock shall be
--------------------------
subject to a Restriction Period commencing on the date of grant of such award
and terminating on the date of the first anniversary of the date of grant of
such award, shall vest (subject to earlier vesting pursuant to Section 6.8) if
the holder of such award remains continuously in the service of the
-13-
<PAGE>
Company as a Non-Employee Director during the Restriction Period and shall be
forfeited if the holder of such award does not remain continuously in the
service of the Company as a Non-Employee Director during the Restriction Period.
A certificate or certificates representing Directors Restricted Stock shall be
issued in accordance with Section 3.2(c) and the holder of such award shall have
such rights of a stockholder of the Company as determined pursuant to Section
3.2(d).
Notwithstanding the foregoing paragraph, if the service to the Company as a
Non-Employee Director of the holder of Directors Restricted Stock terminates for
any reason other than Cause, the Restriction Period shall terminate as of the
effective date of such holder's termination of service.
5.5 DIRECTORS OPTIONS. Each Directors Option shall be subject to the following
-----------------
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall deem advisable:
(a) Exercise Period and Exercisability. Each Directors Option shall not be
----------------------------------
exercisable during the first year following its date of grant, and may be
exercised in full thereafter and from and after a Change in Control. Each
Directors Option shall expire ten (10) years after its date of grant.
(b) Purchase Price. The purchase price for the shares of Common Stock
--------------
subject to any Directors Option shall be equal to 100% of the Fair Market Value
of a share of Common Stock on the date of grant of such Directors Option. An
exercisable Directors Option, or portion thereof, may be exercised in whole or
in part only with respect to whole shares of Common Stock. Directors Options
shall be exercisable in accordance with Section 2.1(c).
(c) Termination of Directorship. If the holder of a Directors Option
---------------------------
ceases to be a director of the Company by reason of Disability, each such option
held by such holder shall be fully exercisable and may thereafter be exercised
by such holder (or such holder's legal representative or similar person) until
and including the expiration date of the term of such option.
If the holder of a Directors Option ceases to be a director of the
Company by reason of death, each such option held by such holder shall be fully
exercisable and may thereafter be exercised by such holder's executor,
administrator, legal representative, beneficiary or similar person until and
including the expiration date of the term of such option.
If the holder of a Directors Option ceases to be a director of the
Company for any reason other than Disability or death, each such option held by
such holder shall be fully exercisable and may thereafter be exercised by such
holder (or such holder's legal representative or similar person) until the
expiration date of the term of such option.
5.6 OTHER AWARDS OF RESTRICTED STOCK TO DIRECTORS. The Committee, with the
---------------------------------------------
approval of the Board, may award shares of Restricted Stock for service as
Chairman of the Board (or for
-14-
<PAGE>
service in other capacities to the Board). Any such award of Restricted Stock
shall be governed by the provisions of Section 5.4 or such other provisions as
shall be adopted by the Committee with the approval of the Board.
VI. GENERAL
6.1 EFFECTIVE DATE AND TERM OF PLAN. This Plan shall be submitted to the
-------------------------------
stockholders of the Company for approval and, if approved by the affirmative
vote of the holders of a majority of the shares of Common Stock entitled to vote
and present in person or represented by proxy at the 1999 annual meeting of
stockholders, shall become effective on the date of such approval. No option may
be exercised prior to the date of such stockholder approval. This Plan shall
terminate ten (10) years after its effective date, unless terminated earlier by
the Board. Termination of this Plan shall not affect the terms or conditions of
any award granted prior to termination.
In the event that this Plan is not approved by the stockholders, this Plan
and any awards granted hereunder shall be null and void.
6.2 AMENDMENTS. The Board may amend this Plan as it shall deem advisable,
----------
subject to any requirement of stockholder approval required by applicable law,
rule or regulation, including Section 162(m) and Section 422 of the Code;
provided, however, that no amendment shall be made without stockholder approval
if such amendment would (a) increase the maximum number of shares of Common
Stock available under this Plan (subject to Section 6.7), (b) effect any change
inconsistent with Section 422 of the Code or (c) extend the term of this Plan.
No amendment may impair the rights of a holder of an outstanding award without
the consent of such holder.
6.3 AGREEMENT. No award shall be valid until an Agreement is executed by the
---------
Company and the recipient of such award and, upon execution by each party and
delivery of the Agreement to the Company, such award shall be effective as of
the effective date set forth in the Agreement.
6.4 NON-TRANSFERABILITY OF AWARDS. Unless otherwise specified in the Agreement
-----------------------------
relating to an award, no award shall be transferable other than by will, the
laws of descent and distribution or pursuant to beneficiary designation
procedures approved by the Company. Except to the extent permitted by the
foregoing sentence or the Agreement relating to an award, each award may be
exercised or settled during the holder's lifetime only by the holder or the
holder's legal representative or similar person. Except to the extent permitted
by the second preceding sentence or the Agreement relating to an award, no award
may be sold, transferred, assigned, pledged, hypothecated, encumbered or
otherwise disposed of (whether by operation of law or otherwise) or be subject
to execution, attachment or similar process. Upon any attempt to so sell,
transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any such
award, such award and all rights thereunder shall immediately become null and
void.
-15-
<PAGE>
6.5 TAX WITHHOLDING. The Company shall have the right to require, prior to the
---------------
issuance or delivery of any shares of Common Stock or the payment of any cash
pursuant to an award made hereunder, payment by the holder of such award of any
Federal, state, local or other taxes which may be required to be withheld or
paid in connection with such award. An Agreement may provide that (i) the
Company shall withhold whole shares of Common Stock which would otherwise be
delivered to a holder, having an aggregate Fair Market Value determined as of
the date the obligation to withhold or pay taxes arises in connection with an
award (the "Tax Date"), or withhold an amount of cash which would otherwise be
--------
payable to a holder, in the amount necessary to satisfy any such obligation or
(ii) the holder may satisfy any such obligation by any of the following means:
(A) a cash payment to the Company, (B) delivery (either actual delivery or by
attestation procedures established by the Company) to the Company of Mature
Shares having an aggregate Fair Market Value, determined as of the Tax Date,
equal to the amount necessary to satisfy any such obligation, (C) authorizing
the Company to withhold whole shares of Common Stock which would otherwise be
delivered having an aggregate Fair Market Value, determined as of the Tax Date,
or withhold an amount of cash which would otherwise be payable to a holder,
equal to the amount necessary to satisfy any such obligation, (D) in the case of
the exercise of an option, a cash payment by a broker-dealer acceptable to the
Company to whom the optionee has submitted an irrevocable notice of exercise or
(E) any combination of (A), (B) and (C), in each case to the extent set forth in
the Agreement relating to the award; provided, however, that the Company shall
have sole discretion to disapprove of an election pursuant to any of clauses
(B)- (E). Any fraction of a share of Common Stock which would be required to
satisfy such an obligation shall be disregarded and the remaining amount due
shall be paid in cash by the holder.
6.6 RESTRICTIONS ON SHARES. Each award made hereunder shall be subject to the
----------------------
requirement that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
award upon any securities exchange or under any law, or the consent or approval
of any governmental body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the exercise or settlement
of such award or the delivery of shares thereunder, such award shall not be
exercised or settled and such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company. The
Company may require that certificates evidencing shares of Common Stock
delivered pursuant to any award made hereunder bear a legend indicating that the
sale, transfer or other disposition thereof by the holder is prohibited except
in compliance with the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
6.7 ADJUSTMENT. In the event of any stock split, stock dividend,
----------
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular cash
dividend, the number and class of securities available under this Plan, the
number and class of securities subject to each outstanding option and the
purchase price per security, the number and class of securities subject to each
Restricted Stock Award granted to Non-Employee Directors pursuant to Article V,
the terms of each outstanding SAR,
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<PAGE>
the number and class of securities subject to each outstanding Stock Award, and
the terms of each outstanding Performance Share shall be appropriately adjusted
by the Committee, such adjustments to be made in the case of outstanding options
and SARs without an increase in the aggregate purchase price or base price. The
decision of the Committee regarding any such adjustment shall be final, binding
and conclusive. If any such adjustment would result in a fractional security
being (a) available under this Plan, such fractional security shall be
disregarded, or (b) subject to an award under this Plan, the Company shall pay
the holder of such award, in connection with the first the vesting, exercise or
settlement of such award in whole or in part occurring after such adjustment, an
amount in cash determined by multiplying (i) the fraction of such security
(rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the Fair
Market Value on the vesting, exercise or settlement date over (B) the exercise
or base price, if any, of such award.
6.8 CHANGE IN CONTROL. (a) Notwithstanding any provision in this Plan or any
-----------------
Agreement, in the event of a Change in Control, (i) all outstanding options and
SARs shall immediately become exercisable in full, (ii) the Restriction Period
applicable to any outstanding Restricted Stock Award shall lapse, (iii) the
Performance Period applicable to any outstanding Performance Share Award shall
lapse, (iv) the Performance Measures applicable to any outstanding Restricted
Stock Award (if any) and to any outstanding Performance Share Award shall be
deemed to be satisfied at the maximum level.
(b) "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a "Person"),
------
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act, of beneficial ownership within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 30% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding Company
-------------------
Common Stock") or (ii) the combined voting power of the then outstanding
- ------------
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); excluding, however, the
-------------------------------------
following: (A) any acquisition directly from the Company (excluding any
acquisition resulting from the exercise of an exercise, conversion or exchange
privilege unless the security being so exercised, converted or exchanged was
acquired directly from the Company), (B) any acquisition by the Company, (C) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (D)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (3) of this Section 6.8(b);
(2) individuals who, as of May 27, 1999, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
---------------
majority of such Board; provided that any individual who becomes a director of
the Company subsequent to May 27, 1999 whose election, or nomination for
election by the Company's stockholders, was approved by the vote of at least a
majority of the directors then comprising the Incumbent Board shall be deemed a
member of the Incumbent Board; and provided further, that any individual who was
initially elected as a director of the Company as a result of an actual or
threatened election
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<PAGE>
contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act, or any other actual or threatened solicitation of
proxies or consents by or on behalf of any Person other than the Board shall not
be deemed a member of the Incumbent Board;
(3) approval by the stockholders of the Company of a reorganization,
merger or consolidation of the Company or sale or other disposition of all or
substantially all of the assets of the Company (a "Corporate Transaction");
---------------------
excluding, however, a Corporate Transaction pursuant to which (i) all or
substantially all of the individuals or entities who are the beneficial owners,
respectively, of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 60% of, respectively, the
outstanding shares of common stock, and the combined voting power of the
outstanding securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's assets
either directly or indirectly) in substantially the same proportions relative to
each other as their ownership, immediately prior to such Corporate Transaction,
of the Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (ii) no Person (other than: the Company; any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company; the corporation resulting from
such Corporate Transaction; and any Person which beneficially owned, immediately
prior to such Corporate Transaction, directly or indirectly, 30% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting Securities,
as the case may be) will beneficially own, directly or indirectly, 30% or more
of, respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined voting power of the
outstanding securities of such corporation entitled to vote generally in the
election of directors and (iii) individuals who were members of the Incumbent
Board will constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate Transaction; or
(4) approval by the stockholders of the Company of a plan of complete
liquidation or dissolution of the Company.
(c) (1) With respect to any optionee who is subject to Section 16 of the
Exchange Act, (i) notwithstanding the exercise periods set forth in subsections
(a) through (f) of Section 2.3, Section 5.5 or as set forth pursuant to such
subsections in any Agreement to which such optionee is a party and (ii)
notwithstanding the expiration date of the term of such option, in the event the
Company is involved in a business combination which is intended to be treated as
a pooling of interests for financial accounting purposes (a "Pooling
-------
Transaction") or pursuant to which such optionee receives a substitute option to
- -----------
purchase securities of any entity, including an entity directly or indirectly
acquiring the Company, then each option (or option in substitution thereof) held
by such optionee shall be exercisable to the extent set forth in this Plan or
the Agreement evidencing such option, as applicable, until and including the
latest of (x) the expiration date of the term of the option or, in the event of
such optionee's
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<PAGE>
termination of employment or service, the date determined pursuant to the then
applicable subsection or paragraph of Section 2.3, or 5.5, (y) the date which is
seven months after the consummation of such business combination and (z) the
date which is 30 days after the date of expiration of any period during which
such optionee may not dispose of a security issued in the Pooling Transaction in
order for the Pooling Transaction to be accounted for as a pooling of interests;
and
(2) With respect to any holder of an SAR (other than an SAR which may
be settled only for cash) who is subject to Section 16 of the Exchange Act, (i)
notwithstanding the exercise periods set forth in subsections (a) through (f) of
Section 2.3, Section 5.5 or as set forth pursuant to such subsections in any
Agreement to which such holder is a party and (ii) notwithstanding the
expiration date of the term of such SAR (or related option in the case of a
Tandem SAR), in the event the Company is involved in a Pooling Transaction or
pursuant to which such holder receives a substitute SAR relating to any entity,
including an entity directly or indirectly acquiring the Company, then each such
SAR (or SAR in substitution thereof) held by such holder shall be exercisable to
the extent set forth in the Agreement evidencing such SAR until and including
the latest of (x) the expiration date of the term of such SAR (or related option
in the case of a Tandem SAR), or, in the event of such holder's termination of
employment or service, the date determined pursuant to the then applicable
subsection of Section 2.3, or 5.5 (y) the date which is seven months after the
consummation of such business combination and (z) the date which is 30 days
after the date of expiration of any period during which such holder may not
dispose of a security issued in the Pooling Transaction in order for the Pooling
Transaction to be accounted for as a pooling of interests.
6.9 NO RIGHT OF PARTICIPATION OR EMPLOYMENT. No person shall have any right to
---------------------------------------
participate in this Plan. Neither this Plan nor any award made hereunder shall
confer upon any person any right to continued employment by the Company, any
Subsidiary or any affiliate of the Company or affect in any manner the right of
the Company, any Subsidiary or any affiliate of the Company to terminate the
employment of any person at any time without liability hereunder.
6.10 RIGHTS AS STOCKHOLDER. No person shall have any right as a stockholder of
---------------------
the Company with respect to any shares of Common Stock or other equity security
of the Company which is subject to an award hereunder unless and until such
person becomes a stockholder of record with respect to such shares of Common
Stock or equity security.
6.11 DESIGNATION OF BENEFICIARY. If permitted by the Company, a holder of an
--------------------------
award may file with the Committee a written designation of one or more persons
as such holder's beneficiary or beneficiaries (both primary and contingent) in
the event of the holder's death. To the extent an outstanding option or SAR
granted hereunder is exercisable, such beneficiary or beneficiaries shall be
entitled to exercise such option or SAR.
Each beneficiary designation shall become effective only when filed in
writing with the Committee during the holder's lifetime on a form prescribed by
the Committee. The spouse of a married holder domiciled in a community property
jurisdiction shall join in any designation of
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<PAGE>
a beneficiary other than such spouse. The filing with the Committee of a new
beneficiary designation shall cancel all previously filed beneficiary
designations.
If a holder fails to designate a beneficiary, or if all designated
beneficiaries of a holder predecease the holder, then each outstanding option
and SAR hereunder held by such holder, to the extent exercisable, may be
exercised by such holder's executor, administrator, legal representative or
similar person.
6.12 GOVERNING LAW. This Plan, each award hereunder and the related Agreement,
-------------
and all determinations made and actions taken pursuant thereto, to the extent
not otherwise governed by the Code or the laws of the United States, shall be
governed by the laws of the State of Texas and construed in accordance therewith
without giving effect to principles of conflicts of laws.
6.13 FOREIGN EMPLOYEES. Without amending this Plan, the Committee may grant
-----------------
awards to eligible persons who are foreign nationals on such terms and
conditions different from those specified in this Plan as may in the judgment of
the Committee be necessary or desirable to foster and promote achievement of the
purposes of this Plan and, in furtherance of such purposes the Committee may
make such modifications, amendments, procedures, subplans and the like as may be
necessary or advisable to comply with provisions of laws in other countries or
jurisdictions in which the Company or its Subsidiaries operates or has
employees.
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<PAGE>
[FORM OF PROXY CARD]
EL PASO ELECTRIC COMPANY
For the Annual Meeting of Shareholders
to be held May 27, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby nominate(s), constitute(s) and appoint(s) James
Haines, Terry 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 Friday, May 27, 1999 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 III DIRECTORS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE EL PASO
ELECTRIC 1999 LONG-TERM INCENTIVE PLAN.
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 III DIRECTORS AND "FOR" THE APPROVAL OF THE EL
PASO ELECTRIC COMPANY 1999 LONG-TERM INCENTIVE PLAN AS EXPLAINED IN THE PROXY
STATEMENT. 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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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
_____
_____
1. Election of Directors Listed FOR all nominees [X] WITHHOLD AUTHORITY to [X] *EXCEPTIONS [X]
Below (to serve for a term of three listed below vote for all nominees
years to expire at the annual meeting listed below
in 2002)
Nominees: JAMES W. HARRIS KENNETH R. HEITZ MICHAEL K. PARKS ERIC B. SIEGEL JAMES HAINES
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 ____________________________________________________________________________________________________________________
2. Approval of the El Paso Electric Company 1999 Long-Term Incentive Plan.
FOR [X] AGAINST [X] ABSTAIN [X]
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
_______________________________________________________________________
Signature if held jointly
Votes must be indicated
(x) in Black or Blue ink. [X]
</TABLE>
Mark, Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
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