<PAGE>
FILED PURSUANT TO RULE 424(b)(4)
REGISTRATION NO. 333-10957
PROSPECTUS
1,750,000 SHARES
TNP Enterprises, Inc.
COMMON STOCK
---------
All of the shares of Common Stock offered hereby are being sold by TNP
Enterprises, Inc. The Common Stock of the Company is traded on the New York
Stock Exchange under the symbol "TNP." The last reported sale price of the
Common Stock on the New York Stock Exchange on September 25, 1996, was $24 3/8
per share (see "Common Stock Price Range and Dividends").
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share......................... $24.375 $0.79 $23.585
Total (3)......................... $42,656,250 $1,382,500 $41,273,750
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $200,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
250,000 additional shares solely to cover over-allotments, if any. See
"Underwriting." If such option is exercised in full, the total Price to the
Public, Underwriting Discounts and Commissions, and Proceeds to Company will
be $48,750,000, $1,580,000 and $47,170,000, respectively.
--------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that the certificates for the
shares of Common Stock offered hereby will be available for delivery on or about
October 1, 1996, at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
--------------
SMITH BARNEY INC.
EDWARD D. JONES & CO., L.P.
LEGG MASON WOOD WALKER INCORPORATED
September 25, 1996
<PAGE>
SERVICE TERRITORY OF TEXAS - NEW MEXICO POWER COMPANY
[Graphic/Image Material - The Prospectus includes an image depicting a map of
the States of Texas and New Mexico and the Company's three regional operating
divisions. The map also depicts the locations of the Company's headquarters,
regional headquarters, and the Company's power plant.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. UNLESS OTHERWISE INDICATED, (i) ALL REFERENCES
IN THIS PROSPECTUS TO THE COMPANY SHALL MEAN TNP ENTERPRISES, INC. AND ITS
SUBSIDIARIES ON A CONSOLIDATED BASIS, AND (ii) THE INFORMATION IN THIS
PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED.
THE COMPANY
TNP Enterprises, Inc., a non-utility holding company, is engaged in the
generation, purchase, transmission, distribution and sale of electricity to
customers within the States of Texas and New Mexico through its wholly-owned
subsidiary, Texas-New Mexico Power Company ("TNP"). The Company is exempt from
regulation as a "registered holding company" as that term is defined in the
Public Utility Holding Company Act of 1935. TNP provides electric service to
approximately 216,000 customers in 85 municipalities and adjacent rural areas.
TNP's service territory is divided into three regional divisions. TNP's largest
region, the South-Western Region, includes the area along the Texas Gulf Coast,
between the cities of Houston and Galveston. This region accounted for 57.4% of
total operating revenues in 1995. The North-Central Region, TNP's second largest
region, extends from Lewisville, Texas, which is north of Dallas-Fort Worth
International Airport, to municipalities along the Red River and accounted for
28.3% of total operating revenues in 1995. The New Mexico Region includes areas
in Southwest and South Central New Mexico and accounted for 14.3% of total
operating revenues in 1995. The areas served by TNP contain a population of
approximately 420,000.
The electric utility industry in general has experienced a significant
increase in the level of competition in the market for the generation and
transmission of electricity as a result of certain recent regulatory changes and
customer demands for lower energy costs. The Company believes that as the
electric utility industry moves toward a more deregulated and competitive
environment, customers will have more choice in the products and services
available to them. The Company is seeking to enhance its competitive position
and strengthen its financial position by pursuing a strategy to expand its
customer base, lower its cost of power and cost of capital, provide additional
customer services and take advantage of new opportunities in unregulated energy
management services. See "The Company--Strategy."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered........................ 1,750,000 shares (1)
Common Stock to be outstanding after the
offering................................... 12,736,397 shares (1)(2)
Price Range of Common Stock (January 1,
1996, through September 25, 1996).......... $18 1/2 to $28 5/8
Closing Price on September 25, 1996......... $24 3/8
Indicated Annual Dividend................... $0.98 per share (3)
Use of Proceeds............................. Capital contribution to TNP for repayment of
certain indebtedness, to provide working
capital and for other general corporate
purposes. See "Use of Proceeds."
New York Stock Exchange Symbol.............. TNP
</TABLE>
- ------------------------
(1) Assuming Underwriters' over-allotment option is not exercised. See
"Underwriting."
(2) Common Stock to be outstanding after the offering is based on 10,986,397
shares of Common Stock outstanding as of September 25, 1996, and does not
include shares that will be issued after such date pursuant to the Company's
Dividend Reinvestment Plan, Equity Incentive Plan or Non-Employee Director's
Stock Plan.
(3) Based upon a quarterly dividend of $0.245 per share. The third quarter 1996
dividend was paid on September 15, 1996, to shareholders of record on August
28, 1996.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Twelve Months
Ended June Year Ended December 31,
30, 1996 ----------------------------------------
(Unaudited) 1995 1994 1993
------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues...................................... $ 480,786 $ 485,823 $ 477,989 $ 474,242
Operating income:
before income taxes................................... 112,719 108,912 76,753 82,534
after income taxes.................................... 97,564 96,595 77,991 78,240
Net earnings (loss)..................................... $ 37,643 $ 41,505 $ (17,441) $ 11,605
------------- ------------- ------------- ----------
------------- ------------- ------------- ----------
Earnings (loss) applicable to Common Stock.............. 37,272 40,850 (18,231) 10,726
Earnings (loss) per share of Common Stock............... $ 3.40 $ 3.75 $ (1.70) $ 1.01
------------- ------------- ------------- ----------
------------- ------------- ------------- ----------
Earnings per share of Common Stock excluding one-time
items................................................. $ 2.26(1) $ 1.83(1) $ 0.74(2) $ 1.01
------------- ------------- ------------- ----------
------------- ------------- ------------- ----------
Dividends per share of Common Stock..................... 0.86 0.82 1.22 1.63
Weighted average number of shares of Common Stock
outstanding........................................... 10,967 10,901 10,750 10,641
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1996
(Unaudited)
--------------------------
Actual As Adjusted(3)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Long-term debt (excluding current maturities)........................................ $ 517,431 $ 579,327
Preferred stock...................................................................... 3,600 3,600
Common equity........................................................................ 222,227 263,301
Total capitalization............................................................. 743,258 846,228
Net utility plant.................................................................... 938,594 938,594
Current maturities of long-term debt (4)............................................. 101,870 0
</TABLE>
- ------------------------
(1) One-time items that increased earnings in 1995 included (i) a gain from the
sale of the Company's properties in the Texas Panhandle ($9.48 million or
$0.87 per share); (ii) the effect of the Company's change in the method of
accounting for operating revenues from cycle billing to the accrual method
($8.45 million or $0.77 per share); and (iii) the recognition of deferred
revenues ($3.02 million or $0.28 per share). Excluding the effects of these
items in 1995, (i) net earnings (loss) would have been $20.56 million; and
(ii) earnings (loss) applicable to Common Stock would have been $19.90
million.
(2) One-time items that decreased earnings in 1994 included (i) the recognition
of regulatory disallowances ($20.51 million or $1.91 per share); and (ii)
reorganization costs ($5.72 million or $0.53 per share). Excluding the
effects of these items in 1994, (i) net earnings (loss) would have been
$8.79 million; and (ii) earnings (loss) applicable to Common Stock would
have been $8.0 million.
(3) Adjusted to give effect to the issuance and sale of 1,750,000 shares of
Common Stock at an assumed net price of $23.47 per share and borrowings
under the Company's bank line of credit. See "Use of Proceeds."
(4) Represents primarily the $100,800,000 in aggregate principal amount due
January 15, 1997 (the "Maturity Date"), on the Company's 11 1/4% First
Mortgage Bonds, due 1997 (the "11 1/4% Bonds"). Assumes that the Company
uses all of the net proceeds from the offering, together with sufficient
borrowings from its bank line of credit, to repay the 11 1/4% Bonds on the
Maturity Date. See "Use of Proceeds."
4
<PAGE>
THE COMPANY
OVERVIEW
TNP Enterprises, Inc. (the "Company"), a non-utility holding company, is
engaged in the generation, purchase, transmission, distribution and sale of
electricity to customers within the States of Texas and New Mexico through its
wholly-owned subsidiary, Texas-New Mexico Power Company ("TNP"). The Company is
exempt from regulation as a "registered holding company" as that term is defined
in the Public Utility Holding Company Act of 1935, as amended (the "1935 Act").
TNP provides electric service to approximately 216,000 customers in 85
municipalities and adjacent rural areas through three operating regions.
TNP owns one electric generating facility, TNP One, which is located in
Robertson County, Texas. TNP One consists of two 150-megawatt units, each of
which utilizes a lignite-fueled, circulating fluidized bed technology. The two
units are supplying, on an annualized basis, approximately 25% of TNP's power
requirements.
The Company and its subsidiaries are all Texas corporations. Their executive
offices are located at 4100 International Plaza, P.O. Box 2943, Fort Worth,
Texas 76113 and their telephone number is (817) 731-0099.
COMPETITION
LEGISLATIVE AND REGULATORY DEVELOPMENTS
Electric utilities have historically faced limited or no competition within
the areas they serve. Recently, however, there has been substantial discussion
within the electric utility industry in the United States concerning the
potential for increased competition. Several states, including Texas and New
Mexico, are examining the consequences and feasibility of various legislative
and regulatory options concerning competition.
Each of the Texas Senate and House of Representatives has appointed an
interim committee to report on the status of competition in the electric utility
industry and recommend possible legislation. The Public Utility Regulatory Act
of the State of Texas ("PURA") requires the Public Utility Commission of Texas
("PUCT") to prepare a report to the Texas legislature prior to each of its
regular sessions on the scope and impact of competition and possible industry
restructuring on customers. The Senate interim committee has issued a report
recommending that Texas maintain current regulations relating to wholesale and
retail competition until such time as further legislative action on competition
occurs in other states. Both the House interim committee and the PUCT, through
its Project No. 15000, are in the process of gathering information for their
respective reports. However, neither has issued a report and the content of such
reports is not yet known. The Company expects legislation relating to
competition to be introduced in the next Texas legislative session in 1997, but
cannot predict the outcome of such proceedings.
The New Mexico legislature also has appointed an interim committee to
examine the status of competition within the electric utility industry. Although
this interim committee has previously issued a report stating that legislation
concerning retail competition was not yet appropriate in New Mexico, the interim
committee is continuing to study the issue. The New Mexico Public Utility
Commission ("NMPUC") also has initiated a review of competition, industry
restructuring as it relates to competition, and other related issues. The
Company cannot predict what either the interim committee or the NMPUC may
recommend at the conclusion of their respective proceedings.
The Company believes that wholesale competition within the electric utility
industry is likely to increase in the near future. Federal Energy Regulatory
Commission ("FERC") Order 888 and PUCT Substantive Rule 23.67 require open
access transmission on terms and conditions that will encourage and enhance the
development of a competitive wholesale market. See "--Regulation."
5
<PAGE>
EXISTING RETAIL COMPETITION
The existing statutory and regulatory systems in Texas and New Mexico limit
retail transmission and distribution competition. In Texas, retail competition
currently exists only where the PUCT has certified more than one electric
utility to serve a particular area. Currently, such areas contain approximately
15% of TNP's customers and comprise 10% of its total revenues attributable to
Texas. Since the regulatory system in New Mexico generally does not result in
more than one utility being authorized to serve a particular area, there is
currently very limited retail competition in New Mexico. FERC is expressly
prohibited by the Energy Policy Act of 1992 from ordering transmission and
distribution of electric services to retail customers.
WHOLESALE COMPETITION
PURA provides for a competitive wholesale market in Texas and allows
utilities to seek approval from the PUCT for flexible pricing that can be set
between the utility's approved rate and its marginal cost. This flexible pricing
can be used to attract or retain customers on a utility's system.
THE COMPANY'S RESPONSE
Competition in the electric utility industry could result in many companies,
including TNP, not being able to recover potential "stranded costs," which
represent the difference between the cost to a company of providing energy and
what a customer would be willing to pay for such energy in a competitive market.
In order to address this significant uncertainty in the absence of legislation
or regulatory guidance, the Company has filed applications with the PUCT and
NMPUC for approval of its competitive retail electric service plan, Community
Choice-SM-. Community Choice-SM- provides the Company an opportunity to recover
from its customers a significant portion of the Company's estimate of its
potential stranded costs during a reasonable transition period. There is no
assurance that Community Choice-SM- will obtain regulatory approval or, if
approved, that Community Choice-SM- will be successful. The Company's inability
to recover a significant portion of its estimated potential stranded costs could
have a materially adverse effect on the Company's financial condition. See
"--Strategy--Community Choice-SM-."
STRATEGY
COMPONENTS OF THE COMPANY'S STRATEGY
The Company believes that as the electric utility industry moves toward a
more deregulated and competitive environment, customers will have more choice in
the products and services available to them. The Company is seeking to enhance
its competitive position and strengthen its financial position in this new
environment by pursuing a strategy to expand its customer base, lower its cost
of power and cost of capital, provide additional customer services, and take
advantage of new opportunities in unregulated energy management services. The
Company believes that this strategy, as described in more detail below, will
allow TNP to continue positioning itself to be competitive in the increasingly
deregulated utility industry.
EXPAND CUSTOMER BASE.
RESIDENTIAL AND COMMERCIAL CUSTOMERS. The Company principally focuses on
providing personalized electric service to residential and commercial customers
in small and medium-sized communities. The Company believes that its focus on
providing local, personalized service will allow TNP to grow along with the
communities it serves. This strategy differentiates the Company from other
electric utilities that have withdrawn from small and medium-sized communities
and become more centralized and focused on urban areas. The Company believes
that by maintaining a local presence in the communities it serves, it will
continue to be recognized as a valuable member of those communities.
6
<PAGE>
INDUSTRIAL CUSTOMERS. Industrial customers have more power supply options
and are, consequently, more price sensitive. The Company will seek to expand its
industrial customer base by providing flexible pricing and services. One method
of pursuing this strategy is to match competitive purchased power resources with
a particular customer's requirements. Another method is to provide
self-generating customers with innovative power arrangements that may lower
their costs and increase their operational efficiency.
LOAD CONTROL AREA SERVICES. In July 1996, TNP began operating its own
electrical control area to manage its resources in its South-Western Region. The
implementation of the control area provides TNP with the flexibility to balance
its generated power from TNP One and its purchased power requirements with its
customers' needs. The increased efficiency provided by its new electrical
control area also enables TNP to reduce its costs of standby power. TNP also
will seek to market its control area services to other potential users.
REDUCE COST OF POWER.
PURCHASED POWER COSTS. Unlike many utilities that generate most of the
power provided to their customers, TNP generates approximately 25% of its total
power requirements and purchases the remainder from other electric utilities and
third-party power providers. This allows TNP to take advantage of the current
surplus of low-cost power available in the southwestern region of the United
States by replacing expiring high cost purchase power contracts with lower cost
contracts. This strategy provides the Company with the increased flexibility
necessary to benefit from a competitive wholesale market.
GENERATED POWER COSTS. The Company continues to seek ways to decrease the
annual operation and maintenance costs of TNP One. As discussed above, the
Company recently reduced the standby power costs of TNP One by installing new
control area facilities in its South-Western Region. The Company also is seeking
methods to reduce the work force at TNP One by up to 40 percent prior to the end
of 1997.
CAPITAL INVESTMENT COSTS.
The Company is working towards achieving an investment grade credit rating
over the next several years. Part of the Company's strategy is to use a
significant amount of its annual free cash flows to retire outstanding
indebtedness and reduce its cost of borrowed funds. Additionally, TNP currently
internally generates all of its capital requirements.
OPPORTUNITIES IN UNREGULATED BUSINESSES.
Another part of the Company's strategy is to capitalize on unregulated
business opportunities. Community Public Service Company ("CPS"), a wholly-owned
subsidiary of the Company, is currently evaluating a variety of unregulated
opportunities in energy management services. CPS's strategy is to provide
energy-related services to small and to medium-sized communities in the
Company's service areas, and, as this business expands, throughout the
southwestern region of the United States. The Company believes that its ability
to take advantage of these new unregulated opportunities may play an important
role in enhancing the Company's long-term financial performance as the electric
utility industry moves toward increased competition.
COMMUNITY CHOICE-SM-
Community Choice-SM- is designed to provide economic benefits to the
Company's customers and shareholders. During a four to five year transition
period, the Company would have the opportunity to reduce its potential "stranded
costs," and TNP would hold its rates constant at their 1995 level. At the end of
the transition period, TNP proposes to aggregate its customers at the community
level and permit these customer groups to choose their energy supplier and the
types and nature of electric services they desire. TNP would continue to provide
transmission and distribution services to its customers. There can be no
7
<PAGE>
assurance that Community Choice-SM- will obtain regulatory approval. If
Community Choice-SM- is not approved but the retail electric service market
eventually becomes deregulated, the Company intends to develop an alternative
strategy that will provide the Company and its customers with many of the
benefits of Community Choice-SM-.
SERVICE TERRITORY
TNP's service territory is divided into three regional divisions: the
South-Western Region, the North-Central Region and the New Mexico Region.
SOUTH-WESTERN REGION
The South-Western Region includes the area along the Texas Gulf Coast
between Houston and Galveston. The oil and petrochemical industries,
agricultural industry and general commercial activity in the Houston area
support the economy of this area. This region also includes the area in far west
Texas between Midland and El Paso. The economy in this area is based primarily
on oil and gas production, agriculture and food processing.
NORTH-CENTRAL REGION
The North-Central Region extends from Lewisville, Texas, which is north of
Dallas-Fort Worth International Airport, to municipalities along the Red River.
TNP provides electric service to a variety of commercial, agricultural and
petroleum industry customers in this area. This region also includes
municipalities and communities south and west of Fort Worth. This area's economy
depends largely on agriculture and, to a lesser extent, tourism and oil
production.
NEW MEXICO REGION
The New Mexico Region includes areas in southwest and south-central New
Mexico. This region's economy is primarily dependent upon mining and
agriculture. Copper mines are the major industrial customers in this region.
TNP's sales in all regions are primarily to retail customers. Revenues
contributed by each operating region and its percentage of total operating
revenues in 1995, 1994 and 1993, respectively, are set forth in the following
table. No single customer accounted for more than 10% of operating revenues
during the years presented in the table.
OPERATING REVENUES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
REGION 1995 1994 1993
- ---------------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
South-Western............... $ 278,791 57.4% $ 269,194 56.3% $ 262,979 55.4%
North-Central............... 137,521 28.3 132,595 27.8 131,725 27.8
New Mexico.................. 69,511 14.3 76,200 15.9 79,538 16.8
---------- --------- ---------- --------- ---------- ---------
Total..................... $ 485,823 100.0% $ 477,989 100.0% $ 474,242 100.0%
---------- --------- ---------- --------- ---------- ---------
---------- --------- ---------- --------- ---------- ---------
</TABLE>
8
<PAGE>
The following table provides certain information regarding the total
revenues of the Company from the sale of electricity and average revenue per
kilowatt hour by customer class during the years presented:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE FROM SALE OF ELECTRICITY (IN THOUSANDS):
Residential............................................ $ 200,455 $ 194,933 $ 193,484
Commercial............................................. 148,908 141,886 138,680
Industrial............................................. 113,728 122,714 124,474
Other.................................................. 22,732 18,456 17,604
---------- ---------- ----------
Total................................................ $ 485,823 $ 477,989 $ 474,242
---------- ---------- ----------
---------- ---------- ----------
AVERAGE REVENUE PER KILOWATT HOUR (IN CENTS):
Residential............................................ 9.4 9.3 9.5
Commercial............................................. 8.9 8.8 8.8
Industrial............................................. 4.2 4.6 4.8
</TABLE>
The following table provides the number of customers of the Company by class
at December 31 for each of the three years presented:
<TABLE>
<CAPTION>
1995 (1) 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Residential............................................ 183,863 185,364 181,298
Commercial............................................. 29,361 30,624 30,235
Industrial............................................. 136 142 142
Other.................................................. 244 237 237
---------- ---------- ----------
Total................................................ 213,604 216,367 211,911
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(1) Excludes approximately 7,300 residential, commercial and industrial
customers located within the Company's former service area in the Texas
Panhandle. The Company sold its properties in this service area to
Southwestern Public Service Co. in September 1995.
SOURCES OF ENERGY
TNP generates electricity at TNP One and purchases the remainder of its
requirements of electricity from various suppliers with diversified fuel
sources. TNP One, which has 300 megawatts of capacity, provided approximately
25% of TNP's total power requirements during 1995. Power generated at TNP One is
transmitted over TNP's own transmission lines to other utilities' transmission
systems for delivery to TNP's Texas service area systems. To maintain a reliable
power supply for its customers and to coordinate interconnected operations, TNP
is a member of the Electric Reliability Council of Texas ("ERCOT"), the Inland
Power Pool and the New Mexico Power Pool. The availability and cost of purchased
energy to TNP may be affected by changes in supplier costs, regulations and
laws, fuel costs and other factors. TNP is pursuing various opportunities to
reduce purchased power costs. See "--Strategy--Reduce Cost of Power." Management
believes that current supply arrangements and the availability of electricity on
the wholesale market are adequate to satisfy TNP's foreseeable power
requirements.
9
<PAGE>
The following table sets forth certain information concerning TNP's sources
of electric energy in 1995 by state:
<TABLE>
<CAPTION>
Year Contract Percent of Energy
Expires Provided
------------- -------------------
<S> <C> <C>
TEXAS
GENERATION
TNP One..................................................... -- 44%
PURCHASED POWER
Texas Utilities Electric Co. ("TU") (1)..................... 1999 29%
Clear Lake Cogeneration L.P................................. 2004 19%
Other....................................................... Various 8%
---
Total......................................................... 100%
---
---
NEW MEXICO
PURCHASED POWER
Tucson Electric Power Co.................................... 1996 35%
Public Service Co. of New Mexico (2)........................ 2006 26%
El Paso Electric Co. (2).................................... 2002 21%
Southwestern Public Service Co. (2)......................... 2001 11%
Other....................................................... Various 7%
---
Total......................................................... 100%
---
---
</TABLE>
- ------------------------
(1) TNP has notified TU of its intent to cease purchasing its full requirements
of power and energy effective January 1, 1999.
(2) Supplier may not terminate service to TNP without FERC authorization.
SEASONALITY OF BUSINESS
TNP experiences increased sales and operating revenues during the summer
months as a result of increased air conditioner usage in hot weather. In 1995,
approximately 40% of annual revenues were recorded in June, July, August and
September.
REGULATION
GENERAL
The Company is a holding company as defined in the 1935 Act. However, the
Company and its subsidiaries are exempt from the provisions of the 1935 Act,
except Section 9(a)(2) thereof, which relates to the acquisition of securities
of public utility companies. TNP is subject to regulation by the PUCT and the
NMPUC, and certain of its activities in New Mexico are subject to the
jurisdiction of FERC. In addition, each of the cities within TNP's Texas service
areas that have not surrendered jurisdiction to the PUCT has original rate
jurisdiction over the utilities that provide electricity to the city. The
rate-related decisions of each of these cities are appealable to the PUCT on a
DE NOVO basis.
PUCT
Amendments to PURA, the legal foundation of electric regulation in Texas,
became effective in September 1995. Among other things, the amendments
deregulate the wholesale bulk power market in the ERCOT region, permit pricing
flexibility for utilities facing competitive challenges, provide for a market-
10
<PAGE>
driven integrated resource planning process and mandate open access transmission
service comparable to the service a utility provides itself.
The PUCT recently passed Substantive Rule 23.67, which establishes the terms
and conditions for regional wholesale transmission access and a reasonable
method of transmission pricing. The purpose of the rule is to unbundle the price
for transmission rate services within Texas and establish an independent system
operator for the ERCOT transmission system. As a direct result, cost data from
all Texas utilities have been filed with the PUCT. These filings will be used by
the PUCT to set the transmission pricing rules for the ERCOT region. TNP's
initial review of these rules indicates that implementation results in a greater
reduction in its transmission expenses than the expected reduction in
transmission related revenues. TNP believes it should benefit from the new rules
as competition increases in the wholesale power market, thereby providing TNP
with increased access to the ERCOT transmission system and resulting in reduced
purchased power and transmission costs.
TNP currently recovers its eligible fuel costs by means of a fixed fuel
factor set by the PUCT. Eligible fuel costs may be reconciled at a utility's
option every six months but must be reconciled on a three year basis or, if an
over or under cost recovery greater than 4% occurs, then the utility must file a
fuel reconciliation with the PUCT within six months after any such occurrence.
The PUCT allows the current recovery of TNP's purchased power through a recovery
factor that changes each month. TNP expects that its fuel factor will be
reviewed this year by the PUCT. In the event Community Choice-SM- receives
regulatory approval, both the fuel and purchased power factors will be fixed at
their 1995 levels, and any recovery in excess of costs will be used to reduce
TNP's potential stranded costs.
NMPUC
The NMPUC is presently engaged in work sessions to develop proposed
rulemaking or legislation that will address the restructuring of the electric
utility industry in New Mexico with respect to competition in retail utility
service, including potential open access of transmission and distribution lines
and customer choice of energy suppliers. In addition, the NMPUC has proposed new
regulations that address the manner in which electric utilities may engage in
non-utility activities, form affiliated entities and engage in transactions with
affiliates. The Company cannot predict the outcome of the NMPUC's proposed
rulemaking proceedings and work sessions or the impact that any permanent
regulations or legislation that result from the NMPUC's efforts will have on
TNP's operations in New Mexico.
FERC
In March 1995, FERC released a notice of proposed rulemaking (the
"MegaNOPR") to solicit comments on pending policy changes aimed at increasing
access to the nation's electric transmission lines. The proposed changes would
require utilities with power transmission lines to grant access to those lines
under the same terms and conditions as the utility itself uses the lines. The
purpose of this initiative is to promote competition in bulk power markets.
After receiving comments to the MegaNOPR, in April 1996, FERC issued orders
888 and 889. Order 888 opens wholesale power sales to competition by requiring
public utilities that own, control, or operate transmission facilities to file
non-discriminatory open access tariffs offering other utilities the same
transmission service they provide themselves. Order 888 also allows utilities,
under certain conditions, to petition FERC for the full recovery of stranded
costs for wholesale requirements agreements signed before July 11, 1994. After
that date, the recovery of stranded costs must be specifically provided for in
the service agreement.
Order 889 provides for a real time information system known as OASIS (Open
Access Same-time Information System). It also addresses standards of conduct to
ensure that transmission owners and their affiliates do not have an unfair
competitive advantage by using transmission to sell power. This rule requires
that transmission utilities provide information about their transmission system
for their own
11
<PAGE>
wholesale power transmissions and functionally separates the wholesale power
marketing and transmission operation functions.
Order 888 leaves pricing issues raised by the MegaNOPR to be resolved
through subsequent litigation at the FERC on a case by case basis. Due to the
uncertainty of this litigation, the Company is unable to estimate the potential
impact of these orders on TNP's operations.
ENVIRONMENTAL
In addition to regulation as a utility, TNP's facilities are regulated by
the Environmental Protection Agency and by Texas and New Mexico environmental
agencies. TNP One uses environmentally efficient circulating fluidizing bed
technology that eliminates the need for expensive scrubbers. TNP was allotted
sufficient emission allowances to comply with the Clean Air Act of 1990 through
the year 2000. During 1995, 1994 and 1993, TNP incurred expenses related to air,
water and solid waste pollution abatement (including ash removal) of
approximately $5.5 million, $5.9 million and $4.3 million, respectively.
12
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of 1,750,000 shares of Common Stock offered
hereby are estimated to be $41.1 million ($47.0 million if the Underwriters'
over-allotment is exercised) after deducting the underwriting discounts and
commissions and estimated offering expenses payable by the Company. The Company
intends to use such proceeds (i) to make contributions to the equity capital of
TNP, (ii) to provide working capital, and (iii) for other general corporate
purposes. TNP intends to utilize approximately $40.0 million of the net proceeds
and borrowings in the amount of $60.8 from its bank line of credit to repay at
maturity (January 15, 1997) the $100,800,000 outstanding principal amount of its
11 1/4% First Mortgage Bonds, due 1997. Pending application of the net proceeds
for specific purposes, such proceeds may be used to reduce certain revolving
bank indebtedness or may be invested in short-term or marketable securities.
COMMON STOCK PRICE RANGE AND DIVIDENDS
The Common Stock is listed on the New York Stock Exchange under the symbol
"TNP." The following table sets forth on a per share basis the price range and
cash dividends paid for the Common Stock as reported on the New York Stock
Exchange for the periods indicated:
<TABLE>
<CAPTION>
PRICE RANGE DIVIDENDS
------------------ PAID PER
YEAR HIGH LOW SHARE
- ---------------------------------------------------------- ------- ------- -----------
<S> <C> <C> <C>
1994
First Quarter........................................... $18 5/8 $16 5/8 $ 0.41
Second Quarter.......................................... 17 3/8 14 5/8 0.41
Third Quarter........................................... 15 5/8 13 1/4 0.20 (1)
Fourth Quarter.......................................... 15 3/8 13 3/8 0.20
1995
First Quarter........................................... $16 $14 5/8 $ 0.20
Second Quarter.......................................... 16 3/4 15 0.20
Third Quarter........................................... 17 3/4 16 0.20
Fourth Quarter.......................................... 19 1/8 17 1/2 0.22
1996
First Quarter........................................... $23 1/4 $18 1/2 $ 0.22
Second Quarter.......................................... 28 5/8 22 0.22
Third Quarter (through September 25, 1996).............. 27 3/4 23 3/8 0.245(2)
</TABLE>
- ------------------------
(1) The Board of Directors of the Company reduced the third quarter 1994
dividend due to the Company's financial condition during such period.
(2) The third quarter 1996 dividend was paid on September 15, 1996, to
shareholders of record on August 28, 1996.
As of September 25, 1996, there were 6,389 record holders of Common Stock.
For a recent closing sales price of the Common Stock, see the cover page of this
Prospectus.
The Company has a dividend reinvestment plan ("DRP") that allows
shareholders of record to purchase additional shares of Common Stock with cash
dividends paid by the Company. Currently, a person must either already own
shares of Common Stock or purchase shares through a broker prior to
participating in the DRP. After a shareholder becomes a participant in the DRP,
the shareholder may purchase, without brokerage fees, additional shares from the
Company in an amount of not less than $25 or more than $5,000 per calendar
quarter. Since October 1984, the Company has issued approximately 900,000 of the
1,200,000 shares of Common Stock authorized for the DRP.
13
<PAGE>
DESCRIPTION OF COMMON STOCK
The statements herein concerning the Common Stock and the Articles of
Incorporation, as amended (the "Articles"), are merely a summary and do not
purport to be complete. The relative rights, authorized amounts, descriptions,
and preferences and limitations of the preferred stock, no par value ("Preferred
Stock"), of the Company and the Common Stock are stated in full in the Articles
and other instruments, which are exhibits to the Registration Statement.
Presently, the Company has no outstanding shares of Preferred Stock. All
outstanding shares of preferred stock set forth in the Company's consolidated
financial statements incorporated herein by reference were issued by TNP and
only affect the rights of the holders of the Common Stock with respect to the
ownership rights in the assets of TNP as a wholly owned subsidiary of the
Company.
DIVIDEND RIGHTS AND LIMITATIONS
The holders of the Common Stock are entitled to receive such dividends as
may be declared by the Board of Directors, but no dividends may be declared or
paid on the Common Stock (other than dividends payable solely in shares of the
Common Stock) unless all past and current dividends on any issued and
outstanding Preferred Stock of the Company have been paid or declared and set
apart for payment and all requisite sinking or purchase fund obligations for the
Preferred Stock have been fulfilled.
Since TNP constitutes the Company's principal subsidiary, the ability of the
Company to pay dividends may be dependent on the ability of TNP to pay dividends
to the Company. A summary of the legal limitations on TNP's ability to pay
dividends is set forth below and is qualified in its entirety by the documents
referenced in such summary.
Under TNP's Articles of Incorporation, the Company, as holder of the common
stock of TNP, is entitled to receive such dividends as may be declared by the
Board of Directors, but no dividends may be declared or paid on the common stock
of TNP (other than dividends payable solely in shares of common stock of TNP)
unless all past and current dividends on outstanding preferred stock of TNP have
been paid or declared and set apart for payment and all requisite sinking or
purchase fund obligations for the preferred stock of TNP have been fulfilled.
Under TNP's Indenture of Mortgage and Deed of Trust dated as of November 1,
1944 (the "Mortgage"), as supplemented and modified, TNP may not pay cash
dividends on its common stock to the Company (other than dividends payable
solely in shares of its common stock), unless at the date of such declaration of
dividends on its common stock, after giving effect thereto, the sum of
$1,500,000 plus (or minus in case of a deficit) the Net Income of TNP from
December 31, 1969, to and including the date of such common stock dividend
declaration shall be greater than the aggregate amount of all such payments or
distributions declared or authorized during such period on TNP's common stock
plus the aggregate amount of all cash dividends on, and payment pursuant to any
sinking, purchase or analogous fund for, preferred stock of TNP declared or made
during such period. At June 30, 1996, the amount of restricted retained earnings
of TNP was approximately $18.66 million.
Under TNP's Credit Agreement dated as of November 3, 1995 (the "Credit
Agreement"), TNP may not, without the consent of the holders of at least
two-thirds of the indebtedness under the Credit Agreement declare or pay,
directly or indirectly, any dividend or make any other distribution (by
reduction of capital or otherwise), whether in cash, property, securities or a
combination thereof, with respect to any shares of its capital stock or directly
or indirectly redeem, purchase, retire or otherwise acquire for value any shares
of any class of its capital stock or set aside any amount for such purpose,
subject to certain exceptions based upon TNP's compliance with debt and interest
coverage ratios.
Similar restrictions also are contained in separate credit agreements
entered into by TGC and TGCII with third party creditors, pursuant to which TNP
is subject to certain obligations and negative covenants.
14
<PAGE>
VOTING RIGHTS
The holders of the Common Stock are entitled to one vote for each share held
at all meetings of shareholders. Pursuant to the Company's Bylaws, the Board of
Directors has been divided into three equal classes. At each Annual Meeting,
directors are elected to succeed those in the class whose terms then expire for
three-year terms so that the terms of one class of directors will expire each
year.
LIQUIDATION RIGHTS
In the event of liquidation, dissolution or winding up of the affairs of the
Company, the holders of the Common Stock are entitled to receive pro rata all
assets of the Company distributable to shareholders, but only after payment to
the holders, if any, of the Preferred Stock of the Company of the full
preferential amounts fixed for all series of the Company's Preferred Stock.
SHAREHOLDER RIGHTS PLAN
The Company has a Shareholder Rights Plan (the "Rights Plan") that is
designed to protect the Company's shareholders from coercive takeover tactics
and inadequate or unfair takeover bids. The Rights Plan, adopted in 1988 and
amended on November 13, 1990, by the Company's Board of Directors, provides for
the distribution of one right for each share of Common Stock held of record as
of the close of business on November 4, 1988, and for each share of Common Stock
issued thereafter until November 4, 1998. Each right entitles the shareholder to
elect to exercise the right in whole or in part to purchase, upon the occurrence
of certain events, one share of Common Stock at an initial price of $45 per
share or, under certain circumstances, shares of Common Stock at half the
then-current market price, or with an election to exercise such rights without
payment of cash, to receive the number of shares of the Common Stock or other
securities having an aggregate value equal to the excess of (i) the value of the
Common Stock or other securities on the date of the exercise of the rights over
(ii) the cash payment that would have been payable upon the exercise of the
rights if an election for cash payment had been made. Until certain triggering
events occur, the rights will trade together with the Common Stock, separate
rights certificates will not be issued, and the rights will have no voting or
dividend rights. Among the triggering events are the acquisition by a person or
group of persons of 10% or more of the outstanding Common Stock or the
commencement of a tender or exchange offer which, upon consummation, would
result in a person or group of persons owning 15% or more of the outstanding
Common Stock. The rights expire November 4, 1998, unless earlier redeemed or
exchanged by the Company, and the existence of the rights has had no effect on
earnings per share.
The stock certificates relating to the shares of Common Stock offered hereby
will bear a legend referring to the rights.
MISCELLANEOUS
The Common Stock has no preemptive rights or cumulative voting rights and
there are no redemption, sinking fund, or conversion provisions with respect to
the Common Stock.
The outstanding Common Stock is, and the shares offered hereby when issued
will be, fully paid and nonassessable.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Society National
Bank, in care of KeyCorp. Shareholder Services, Inc., 1201 Elm Street, Suite
5050, Dallas, Texas 75270.
15
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each of Smith Barney Inc., Edward D. Jones &
Co., L.P. and Legg Mason Wood Walker, Inc. (collectively the "Underwriters") has
severally agreed to purchase, and the Company has agreed to sell, shares of
Common Stock in the following respective amounts: (i) 583,334 shares of Common
Stock to Smith Barney Inc.; and (ii) 583,333 shares of Common Stock to each of
Edward D. Jones & Co., L.P. and Legg Mason Wood Walker, Inc.
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all shares of
Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the public offering price set forth on the cover page
of this Prospectus and part of the shares to certain dealers at a price which
represents a concession not in excess of $0.45 per share under the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per share to certain other dealers. After the
initial offering of the Common Stock, the public offering price and such
concessions may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 250,000
additional shares of Common Stock at the price to public set forth on the cover
page of this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares of Common Stock set
forth opposite each Underwriter's name in the preceding table bears to the total
number of shares listed in such table.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
Smith Barney Inc. has, from time to time, provided and may in the future
provide certain investment banking services to the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Michael D. Blanchard, Corporate Secretary and General
Counsel of the Company, and by Haynes and Boone, LLP, Fort Worth, Texas. Certain
legal matters in connection with the offering will be passed upon for the
Underwriters by Milbank, Tweed, Hadley & McCloy, New York, New York. All matters
pertaining to local laws in connection with the issuance of the shares offered
hereby will be passed upon only by Haynes and Boone, LLP as to Texas law, and
Rubin, Katz, Salazar, Alley & Rouse, Santa Fe, New Mexico, as to New Mexico law.
EXPERTS
The consolidated financial statements of TNP Enterprises, Inc. as of
December 31, 1995 and 1994, and for each of the years in the three-year period
ended December 31, 1995, included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, have been incorporated by reference herein
and in the registration statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The report of KPMG Peat Marwick LLP covering the Company's consolidated
financial statements refers to a change in the method of accounting for
operating revenues in 1995 and changes in the methods of accounting for income
taxes and postretirement benefits in 1993.
16
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
Exchange Act, the Company files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information can be inspected and copied at the public
reference facilities that the Commission maintains at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Suite
1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of these
materials can be obtained at prescribed rates from the Public Reference Section
of the Commission at the principal offices of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. In addition, reports, proxy statements, and other
information concerning the Company may be inspected at the offices of the New
York Stock Exchange at 20 Broad Street, New York, New York 10005. Such material
may also be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Common Stock. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain items of which are
contained in schedules and exhibits to the Registration Statement as permitted
by the rules and regulations of the Commission. Statements made in the
Prospectus concerning the contents of any documents referred to herein are not
necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description, and each such statement shall be deemed
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference in
this Prospectus:
(i) Annual Report on Form 10-K for the year ended December 31, 1995;
(ii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1996;
(iii) Quarterly Report on Form 10-Q for the quarter ended June 30, 1996; and
(iv) the description of the Common Stock included in the Company's Report on
Form 8-B dated January 9, 1985.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
in this Prospectus from their respective dates of filing.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated by reference (other than
exhibits to such documents which are not specifically incorporated by reference
in such documents). Written requests for such copies should be directed to the
Company at 4100 International Plaza, P.O. Box 2943, Fort Worth, Texas 76113.
Telephone requests may be directed to Michael D. Blanchard, Corporate Secretary
and General Counsel of the Company, at (817) 731-0099.
17
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 5
Use of Proceeds................................ 13
Common Stock Price Range and Dividends......... 13
Description of Common Stock.................... 14
Underwriting................................... 16
Legal Matters.................................. 16
Experts........................................ 16
Available Information.......................... 17
Incorporation of Certain Documents by
Reference.................................... 17
</TABLE>
1,750,000 SHARES
TNP Enterprises, Inc.
COMMON STOCK
---------
PROSPECTUS
SEPTEMBER 25, 1996
--------------
SMITH BARNEY INC.
EDWARD D. JONES & CO., L.P.
LEGG MASON WOOD WALKER INCORPORATED
- -------------------------------------------------------------------------------
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