Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TNP ENTERPRISES, INC.
(Name of Registrant as Specified in Its Charter)
------------------------
(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:
(2) Aggregate number of securities to which transaction applies:
(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 is calculated and state how it was determined):
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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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(4) Date Filed:
<PAGE>
TNP ENTERPRISES, INC.
4100 International Plaza
Fort Worth, Texas 76109
(817) 731-0099
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held on May 3, 1999
The Annual Meeting of Shareholders of TNP Enterprises, Inc. will be held on
Monday, May 3, 1999, at 10:30 a.m., Central Time, at the International Plaza
Building, First Floor Auditorium, 4055 International Plaza, Fort Worth, Texas.
At the meeting, shareholders will act on the following matters:
1. Election of three Class 2 directors for three-year terms;
2. Amendment of articles of incorporation to increase the number of
authorized shares from 50,000,000 shares to shares;
3. Amendments to the TNP Equity Incentive Plan;
4. Ratify the appointment of Arthur Andersen LLP, Certified Independent
Public Accountants, as independent auditors for 1999; and
In addition, the shareholders will transact any other business that
properly may come before the annual meeting or any adjournments of the annual
meeting.
Shareholders of record at the close of business on March 15, 1999, are
entitled to notice of and to vote at the annual meeting and any postponement or
adjournment.
Whether or not you expect to attend the annual meeting in person, please
complete, sign, and date the enclosed proxy card and return it promptly in the
postage-paid envelope provided so that your shares of common stock can be
represented and voted at the annual meeting. If you attend the annual meeting,
your proxy will be returned to you upon your request and you may vote your
shares in person.
The International Plaza Building is located across International Plaza
from the headquarters of TNP Enterprises and Texas-New Mexico Power Company.
By Order of the Board of Directors
/s/
Paul W. Talbot,
Secretary
Fort Worth, Texas
March __, 1999
<PAGE>
TNP ENTERPRISES, INC.
4100 International Plaza
Fort Worth, Texas 76109
PROXY STATEMENT
For
ANNUAL MEETING OF HOLDERS OF COMMON STOCK
To be Held on May 3, 1999
These proxy materials are furnished in connection with the solicitation
by the Board of Directors of TNP Enterprises, Inc. ("TNP"), of proxies to be
voted at the 1999 Annual Meeting of Shareholders and at any postponement or
adjournment thereof. The annual meeting will be held in the First Floor
Auditorium of the International Plaza Building, 4055 International Plaza, Fort
Worth, Texas on Monday, May 3, 1999, at 10:30 a.m., Central Time.
If you give a proxy prior to the meeting, you may revoke it at any time
before it is voted by submitting written notice of revocation to TNP's
Secretary, submitting a new proxy with a later date, or voting in person at the
annual meeting after withdrawing any proxy previously given.
The information included in this proxy statement relates to the
proposals to be voted on at the annual meeting, the voting process, the
compensation of directors and our most highly paid officers, and certain other
required information. Our 1998 Summary Annual Report, which covers the
operations of TNP and Texas-New Mexico Power Company, its wholly owned electric
utility subsidiary ("TNMP") is also enclosed. You will find the Consolidated
Financial Statements of TNP and TNMP for 1998 at the end of this proxy
statement.
QUORUM AND VOTING
Record Date. Only shareholders of record at the close of business
on March 15, 1999 are entitled to notice of and to vote at the meeting.
Voting Stock. Only TNP common stock may be voted at the annual meeting.
At the close of business on the record date, there were 13,376,527 shares
outstanding and entitled to be voted at the meeting. The holders of those shares
will be entitled to one vote per share. Cumulative voting is not permitted.
Quorum. Holders of more than 50% of the shares entitled to vote must be
represented, either in person or by proxy, in order to conduct any business at
the annual meeting.
Required Vote. A plurality of the votes cast at the meeting is required
to elect directors. The affirmative vote of two-thirds of all outstanding common
stock is required to amend the Articles of Incorporation. All other matters to
be voted on require a majority for passage.
Adjourned Meeting. If a quorum is not present at the scheduled meeting
time, the shareholders who are represented may adjourn the meeting until a
quorum is present. The time and place of the adjourned meeting will be announced
when the adjournment is taken; no other notice will be given. An adjournment
will have no effect on the business that may be conducted at the meeting.
Tabulation of Votes. The Company's transfer agent will tabulate and
certify the votes.
Voting by Street Name Holders. If you are the beneficial owner of
shares held in "street name" by a broker, the broker, as the record holder of
the shares, must vote those shares in accordance with your instructions. If you
do not give instructions to the broker, the broker will nevertheless be entitled
to vote the shares with respect to "discretionary" items but will not be
permitted to vote the shares with respect to "non-discretionary" items (in which
case, the shares will be treated as "broker non-votes").
Abstentions and Broker Non-votes. If you abstain from voting on one or
more proposals, your shares will nevertheless be included in the number of
shares represented for purposes of determining whether a quorum is present. If
you abstain from voting on Proposal 2 (Amendment of the Articles of
Incorporation), Proposal 3 (Amendment of TNP Equity Incentive Plan) or Proposal
4 (Approval of Arthur Andersen as auditors), your shares will also be included
in the number of shares voting on the proposal. Consequently, your abstention
will have the same practical effect as a vote against the proposal. Because
directors are elected by a plurality of the votes, an abstention would have no
effect on the outcome of the vote on proposal 1 and, thus, is not offered as a
voting option for that proposal.
Default Voting. Unless you give other instructions on your proxy card,
the proxy holders will vote your shares in accordance with the Board of
Directors' recommendations. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH
PROPOSAL SUBMITTED TO SHAREHOLDERS AND DESCRIBED IN THIS PROXY STATEMENT. On any
other matter that properly comes before the annual meeting, the proxy holders
will vote as the Board of Directors recommends or, if no recommendation is
given, in their own discretion.
1. ELECTION OF DIRECTORS
The three-year terms of the Class 2 directors will expire at the
upcoming annual meeting. The Board of Directors has nominated John A. Fanning,
Larry G. Wheeler and Dennis H. Withers, all of whom currently serve as Class 2
directors, for reelection. Information regarding the business experience of each
nominee is provided below. If reelected, their new terms will expire at the
annual meeting of shareholders in 2002.
Our Board of Directors recommends a vote FOR the election to the Board
of each of the following nominees.
John A. Fanning has been involved in private investments in oil, gas
and manufacturing since November 1995. He was Executive Vice President of Snyder
Oil Corporation from March 1990 to November 1995, and a director of Snyder from
1981 to 1995. From February to April 1997, he was Interim President, Chief
Executive Officer and a director of Heartland Wireless Communications, Inc.,
which sells wireless cable television services.
Larry G. Wheeler was named Chief Executive Officer of Granny Goose
Foods, Inc., an Oakland, California snack food manufacturer and marketer, in
February 1999. Beginning in May 1995, he was president and chief executive
officer of Mrs. Baird's Bakeries, Inc., Fort Worth, Texas, presiding over the
sale of that company in May 1998. He was president of Alpo Pet Foods, Inc. from
September 1993 until May 1995. He is a member of the International Board of
Visitors--Neeley School of Business at Texas Christian University. Mrs. Baird's
Bakeries filed bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in March
1996, and exited the Chapter 11 proceedings in September 1996.
Dennis H. Withers has been Chairman of Trinity Forge, Inc., a metal
forging and manufacturing company, since 1997, its President since 1979, and a
director since 1972. He was a director of Overton Bancshares, Inc., a bank
holding company, from 1985 until its acquisition by Cullen/Frost Bankers, Inc.
in 1998. He has been an advisory director of the North Texas Division of Frost
National Bank since 1998 and was a director of Overton Bank and Trust, N. A.
from 1993 until 1998.
If a nominee becomes unable or unwilling to accept nomination or
election, the Board of Directors will select a substitute nominee. If you have
properly executed and returned a proxy and a substitute nominee is selected, the
holders of the proxy will vote your shares FOR the election of the substitute
nominee. The Company expects that each nominee can serve as a director if
elected. If, before the annual meeting, any nominee becomes unavailable to
serve, then the persons appointed as proxies intend to vote all shares
represented by proxy for a substitute nominee that the Board of Directors will
nominate.
Under TNP's bylaws, directors are elected by plurality of the votes of
shares represented and entitled to vote at the meeting. That means the three
nominees will be elected if they receive more affirmative votes than any other
nominees.
Continuing Directors
The Board of Directors is separated into three classes, and the
directors in each class are elected for three-year terms. The terms of the Class
1 directors expire at the annual meeting of shareholders to be held in 2001, and
those of the Class 3 directors expire at the annual meeting in 2000. Each TNP
director is also a director of TNMP.
The following is a list of TNP Directors for the next year, assuming
election of the nominees named above, and their ages, director class
designation, the year each was first elected to the Board and current committee
assignments.
<TABLE>
<CAPTION>
Director Year Elected to
Name Age Class Board Committees
________________________ ___ ________ _______________ ___________________________________
<S> <C> <C> <C> <C>
Kevern R. Joyce 52 1 1994 Financial
R. Denny Alexander 53 1 1989 Audit, Financial, Nominating
John A. Fanning 59 2 1984 Compensation, Nominating
Sidney M. Gutierrez 47 1 1994 Audit, Compensation
J.R. Holland, Jr. 55 3 1996 Compensation
Harris L. Kempner, Jr. 59 3 1980 Compensation, Financial, Nominating
Carol Diann Smith Surles 52 3 1995 Audit, Financial
Larry G. Wheeler 52 2 1997 Audit
Dennis H. Withers 53 2 1995 Compensation, Financial
</TABLE>
Following is biographical information about each director, other than
Mr. Fanning, Mr. Wheeler and Mr. Withers, whose biographical information is
included under "Current Nominees" above.
R. Denny Alexander has owned and managed R. Denny Alexander & Company,
an investment management firm, and has been the Managing Partner of OPNB
Building Joint Venture, a real estate investment partnership, since 1978. He
became a director of Cullen/Frost Bankers, Inc., a bank holding company, and
Frost National Bank, a national bank, in 1998 following the acquisition by Frost
of Overton Bancshares, Inc., and Overton Bank and Trust, N.A., of which he had
been a director and Chairman since 1984. Mr. Alexander is Chairman of the Board
of Trustees of W. I. Cook Foundation, Cook Children's Health Care System, and
Cook Children's Medical Center in Fort Worth. He is also on the Board of
Trustees of Texas Christian University in Fort Worth.
Sidney M. Gutierrez has served in various management capacities at
Sandia National Laboratories, a prime contractor for the Department of Energy
since 1994. From 1984 to 1994, he was a NASA astronaut serving as Space Shuttle
Mission Commander. From 1991 to 1994, he was also an Air Force officer serving
in the rank of Colonel. He is president of the Board of Regents of New Mexico
Institute of Mining and Technology and a member of the Board of Directors of
Goodwill Industries of New Mexico and the New Mexico Space Commission.
J. R. Holland, Jr. has been President and Chief Executive Officer of
Unity Hunt, Inc., a large international private holding company with interests
in technology, entertainment, telecommunications, retail, investments, real
estate, natural resources and energy businesses, since 1991. He is a director of
Optical Security Group, Inc., Placid Refining Company, and Texas Capital
Bancshares, Inc.
Kevern R. Joyce was appointed Chief Executive Officer, President, and
director of TNP and TNMP in April 1994 and was elected Chairman of the Board of
both companies in April 1995. From 1992 until joining TNP and TNMP, Mr. Joyce
was Senior Vice President and Chief Operating Officer of Tucson Electric Power
Company. He is a director of Aztec Manufacturing Co., an electrical products
manufacturer for the industrial market, and a provider of galvanizing services
and oil field tubular products.
Harris L. Kempner, Jr. has been President of Kempner Capital
Management, an investment advisory firm, since 1981; a Trustee of H. Kempner
Trust Association, which engages in investments, since 1964; Chairman Emeritus
and Advisor to the board of United States National Bank, Galveston, Texas, since
1992; a director of Balmorhea Ranches, a ranching/farming operation, and
Imperial Holly Corp., a sugar products company, since 1982; a director or
advisory director of Cullen/Frost Bankers, Inc., a bank holding company, since
1982; a director of American Indemnity Company, an insurance company, since
1987; and a director of American Indemnity Financial, an insurance company,
since 1990.
Dr. Carol Diann Smith Surles became President of Eastern Illinois
University, Charleston, Illinois, in March 1999. She was President of Texas
Woman's University, Denton, Texas, from August 1994 until March 1999. From July
1992 to August 1994 she was Vice President for Administration and Business
Affairs of California State University. Dr. Surles has been a director of First
State Bank in Denton, Texas, since 1995.
Committees and Meetings.
TNP's Board of Directors maintains the following four standing
committees. The members of the committees are identified in the preceding table
of continuing directors.
- Audit Committee. This committee meets with management to consider the
adequacy of the internal controls and the objectivity of financial
reporting; meets with the independent auditors and with appropriate
financial personnel and internal auditors of TNP and TNMP regarding
these matters and regarding the scope of internal and independent
audits; and determines and reviews internal and external audit staff
qualifications and recommends to the full board the appointment of the
independent auditors.
- Compensation Committee. This committee evaluates the Chief Executive
Officer's performance and reviews the performance of officers who
report to him; reviews the terms and conditions of all employee
benefit plans; establishes performance goals for all incentive
compensation plans and designates participants in incentive
compensation plans for management; sets compensation for TNP and TNMP
officers; and makes recommendations to the full board with respect to
directors' compensation.
- Financial Committee. This committee reviews and approves dividend
policy, securities offerings and capital budgets; reviews strategic,
financial and other plans; and reports and recommends in its
discretion to the full board on internal financial affairs.
- Nominating Committee. This committee evaluates and recommends to the
full board candidates for board positions whose terms are expiring or
that have become vacant, and recommends persons for election or
re-election as officers. For information about suggesting candidates
for consideration as nominees for election to the Board of Directors,
see "Additional Information - Shareholder Recommendations of
Directors."
TNP's and TNMP's boards of directors each held four meetings during 1998,
and each acted by unanimous consent twice. The committees held the following
number of meetings: Audit Committee, two; Compensation Committee, six, including
one action by unanimous written consent; Finance Committee, four; and Nominating
Committee, two. All directors attended at least 75% of the aggregate meetings of
the Board of Directors and committees on which they served during 1998.
Director Compensation
Each nonemployee director receives an annual retainer of 525 shares of
TNP common stock from TNP and $8,000 from TNMP, and a fee of $1,000 for each
meeting of the TNP and TNMP boards and committees that he or she attends. TNP
and TNMP split the $1,000 cost when their boards of directors or committees hold
combined meetings. Directors and committee members are also reimbursed for
travel and other incidental expenses incurred in connection with their duties.
Directors who are employees receive no additional compensation for serving as
directors.
The shares of TNP common stock paid to the nonemployee directors are
issued under the TNP Nonemployee Director Stock Plan.
Compensation Committee Interlocks and Insider Participation
No Compensation Committee member is a director of or serves on the
compensation committee of an entity that has an executive officer serving on
TNP's Board of Directors or Compensation Committee. During 1998, Compensation
Committee members were John A. Fanning, Sidney M. Gutierrez, J. R. Holland, Jr.,
Harris L. Kempner, Jr., and Dennis H. Withers.
2. AMENDMENT TO ARTICLES OF INCORPORATION
The Board of Directors has approved and seeks your approval of an
amendment to TNP's Articles of Incorporation to increase the number of
authorized shares of common stock from 50,000,000 to .
At February 28, 1999, 13,376,527 shares of common stock were issued and
outstanding and 1,697,824 were reserved for issuance under the TNP's
compensation plans, 401(k) plan and direct stock purchase plan. Approval of the
amendments to the Equity Incentive Plan described elsewhere in this Proxy
Statement would increase the number reserved for issuance to 2,297,824 shares.
The proxy holders will vote FOR the proposed amendment to the Articles of
Incorporation unless you direct otherwise. The affirmative vote of at least
two-thirds of the outstanding shares of common stock is necessary to adopt the
proposed amendment.
The Board of Directors believes that the proposed increase in the
number of authorized shares of common stock will be advantageous to TNP and its
shareholders because it will provide TNP with added flexibility in effecting
financings, stock splits or stock dividends, and stock plans and other
transactions or arrangements involving the use of stock, including the TNP
Shareholder Rights Plan ("Rights Plan").
If the proposed amendment is approved, TNP may issue the additional
authorized common shares at the discretion of the Board of Directors without
further shareholder approval. As is TNP's current practice, TNP would not seek
further shareholder authorization to issue additional shares, unless applicable
laws, regulations or New York Stock Exchange rules require otherwise. The
additional shares of common stock would be identical in all respects to the
shares of common stock currently authorized, and could be issued for any proper
corporate purpose.
The Board of Directors has not proposed the amendment as an
anti-takeover measure, except to the extent that additional stock could be
issued in connection with the operation of the Rights Plan. TNP has no present
intention of issuing any common shares in order to make an attempt to acquire
TNP more difficult. In the event, however, of an unsolicited tender offer or
takeover proposal, the increased number of shares could give the board of
Directors greater flexibility to act in the best interests of TNP and its
shareholders. Issuing such shares could dilute the ownership interest and voting
power of TNP shareholders seeking control. To the extent that such issuances
impede attempts by others to obtain control of TNP, the proposed amendment could
serve to continue present management.
Shareholder Rights Plan. The Rights Plan is designed to protect TNP's
shareholders from coercive takeover tactics and inadequate or unfair takeover
bids. It does so by confronting a potential acquirer with the prospect of
significant dilution of its equity ownership if such acquirer meets or exceeds a
10% ownership threshold. In that sense, the Rights Plan may be deemed to have an
"anti-takeover" effect.
The Rights Plan is not intended to prevent an acquisition of TNP on
terms that are favorable and fair to all shareholders. The existence of stock
purchase rights under the Rights Plan should not affect any prospective offeror
willing to make an all cash offer at a full and fair price, or to negotiate with
the Board of Directors. It will not interfere with a merger or other business
combination transaction that the Board of directors approves as fair and as
recognizing full value to the shareholders. You may obtain a copy of the Rights
Plan from the Company at no charge.
TNP enacted the Rights Plan in 1988. In August 1998, the Board amended
and extended the Rights Plan for an additional 10-year term, until August 2008,
and increased the exercise price of the stock purchase rights from $45 to $100.
It contains provisions intended to protect shareholders if (i) there is an
unsolicited offer to acquire TNP, including offers that do not treat all
shareholders equally, (ii) someone acquires at least 10% or more of the
outstanding shares in the open market without offering fair value to all
shareholders, and (iii) someone engages in coercive or unfair takeover tactics
that could impair the board's ability to represent the shareholders' interests
fully and that the Board believes are not in the shareholders' best interests.
As amended, the Rights Plan permits TNP to exchange rights under the Rights Plan
for shares of common stock, units of other property or a combination thereof,
upon the occurrence of certain events, as well as permitting rights holders to
acquire additional shares at a favorable price.
The Board of Directors believes that the Rights Plan is for the benefit
of all shareholders and will serve to preserve and enhance shareholder value if
a third party proposes to acquire TNP, one of its subsidiaries or its assets.
Provisions in Articles of Incorporation and Bylaws. TNP's Articles of
Incorporation and bylaws contain provisions that could be deemed to have an
anti-takeover effect. The Articles permit the Board of Directors to determine
the rights, powers and privileges of any preferred stock that TNP may issue. The
Articles also require that holders of 80% of TNP's voting stock approve certain
business transactions between TNP and persons who own or have the right to
acquire 10% or more of the voting stock ("Related Person"). Such approval is not
required, however, if the transaction satisfies certain minimum price criteria
and procedural requirements, or if a majority of Directors who are neither
affiliates, associates nor representatives of the Related Person recommends the
transaction to shareholders. Under the bylaws, the Board of Directors is divided
into three classes that are elected for staggered three-year terms. TNP
originally enacted the staggered terms to ensure continuity of the Board of
Directors. The staggered terms could, however, make it more difficult to change
a majority of directors, since only a third of the Board faces election at any
annual meeting. TNP has no plans to issue any preferred stock or to present
anti-takeover measures in future proxy solicitations.
The Board of Directors recommends a vote FOR the approval of the
amendment to the Articles of Incorporation.
3. PROPOSAL TO AMEND THE TNP EQUITY INCENTIVE PLAN
At the annual meeting, you will be asked to approve amendments to the
TNP Equity Incentive Plan (the "Incentive Plan"). The proposed amendments (1)
amend Section 4.1 of the Incentive Plan to increase the number of shares of
common stock issuable under the Incentive Plan from 300,000 to 900,000 and to
increase the maximum number of shares that may be paid out in awards intended to
qualify to the performance-based exception under Sec.162(m) of the Internal
Revenue Code; and (2) update references to the Compensation Committee and to
regulations under the Securities Exchange Act of 1934 to reflect changes since
the Incentive Plan's adoption in 1995.
The Board of Directors has approved these amendments. The amendments
are subject to the approval by the holders of a majority of the shares of TNP
common stock present and entitled to vote at the annual meeting.
The following is a summary of the Incentive Plan, subject to your
approval of the amendments. The Incentive Plan was filed electronically with the
proxy statement with the Securities and Exchange Commission, but is not included
in the printed version of this Proxy Statement. In addition, you may obtain a
copy of the actual plan document by writing to the Corporate Secretary at TNP's
principal offices in Fort Worth, Texas.
Description of the Plan
The Incentive Plan makes available a variety of stock and stock-based
incentive awards, such as performance shares, restricted stock awards, incentive
and non-qualified options to purchase TNP common stock. This variety gives TNP
flexibility in designing incentive compensation packages and permits it to
respond to its and its subsidiaries' changing needs and to reflect changes in
laws and rules affecting compensation and benefit plans, primarily tax laws,
accounting rules and securities regulations.
Purpose
The Incentive Plan is meant to link participants' personal interests to
those of TNP's shareholders and provide them with an incentive for outstanding
performance, and provide flexibility in the design of compensation packages.
Eligible Participants
All employees of TNP and its subsidiaries are eligible to participate
in the Incentive Plan. Awards are currently being made only to executive
officers and certain key employees.
Shares Subject to Awards
Up to 900,000 shares of TNP common stock for awards have been reserved
for issuance under the Incentive Plan, of which approximately 700,000 shares
remain. Up to 300,000 of these shares may be issued as awards of restricted
stock.
Administration.
The Compensation Committee administers the Incentive Plan. It may:
- establish and change rules for administering the Incentive Plan;
- designate participants to whom awards will be made;
- determine award sizes, types, terms, conditions, and methods of
payment, whether dividend equivalents will be included with
awards, and participant rights upon termination of employment
(Under the Incentive Plan, "dividend equivalents" are contingent
rights to dividends declared on securities underlying Incentive
Plan awards);
- establish performance goals to be achieved for a participant to
earn and receive any performance-based awards under the Incentive
Plan; and
- amend terms of outstanding awards subject to certain limitations.
The Compensation Committee may also permit or require participants
to defer cash and stock award payouts.
Compensation Committee decisions concerning the Incentive Plan and
related orders of the full board are final and binding. If the Compensation
Committee cancels outstanding awards, it cannot replace them with substitute
awards.
Awards
The Incentive Plan provides for several types of stock and stock-based
incentive awards.
Performance Shares and Units. Participants may earn awards of
performance shares or units, subject to the achievement of performance goals
that the Compensation Committee sets. The value of each performance share or
unit must equal the fair market value of one share of TNP common stock on the
grant date. The period during which performance goals may be achieved must
always exceed six months. Dividend equivalents can be paid on underlying
performance shares or units that are earned. All shares issued and award
opportunities awarded under the Incentive Plan since its inception have been
performance shares.
Stock Options. The Compensation Committee may grant incentive stock
options, nonqualified stock options, or a combination of these. The terms and
conditions of individual option agreements may vary, provided that the option
price per share is not less than the fair market value of a share of TNP common
stock on the grant date. The term of each option can be up to ten years from the
grant date. Dividend equivalents are not permitted on incentive stock options.
Cashless option exercises may be permitted. No stock options have been awarded
under the Incentive Plan.
Restricted Stock. The Compensation Committee may grant shares of
restricted stock to eligible employees in amounts that it determines, and
subject to transfer and such other restrictions that it may impose. During the
restriction period, participants may exercise all voting rights of and may be
credited with all dividends and distributions declared on their restricted
stock; dividends and distributions, other than cash dividends, are subject to
the same restrictions as the underlying restricted stock. To date, no restricted
stock awards have been made.
Other Stock-Based Awards. Other stock-based awards may be granted under
the Incentive Plan as the Compensation Committee may determine.
Performance Measures
Performance goals to be achieved for a participant to earn and receive
payment of any performance-based award will be selected from the following:
- - Earnings per share;
- - Measurements of cost control effectiveness such as the ratio of operations
and maintenance costs to kilowatt hour sales;
- - Measurements of community involvement and customer satisfaction;
- - Measurements of anticipation and resolution of environmental issues;
- - Measurements of reliability such as the equivalent forced outage rate,
minutes of outage per customer served, and number of customers interrupted
per customer served;
- - Measurements of employee safety;
- - Measurements of long-term rate competitiveness;
- - Total shareholder return compared to one or more groups as determined by
the Compensation Committee; and
- - Cash value added.
The Compensation Committee may establish a range of performance around
any predetermined goal; the range may have corresponding adjustments to the
performance payout within the range. The Compensation Committee may not make
upward adjustments to awards held by the Chief Executive Officer and four other
most highly compensated executive officers and that are designed to qualify for
the performance-based exception to Sec.162(m) of the Internal Revenue Code.
Effective Period of Incentive Plan
The Incentive Plan will remain in effect until all shares of TNP common
stock reserved for awards have been awarded or until the Board of Directors
terminates this plan. No awards may be made after January 1, 2005. Termination
of the Incentive Plan will not affect participant rights under awards made prior
to termination.
Change in Control
If there is a change in control of TNP, then all outstanding options
will become exercisable immediately. With respect to awards made at least six
months previously, restrictions imposed on shares will lapse and performance
goals for restricted stock, performance shares and units and other stock-based
awards will be deemed to have been achieved at the target level as of the
effective date of the change in control. The Compensation Committee may make
other appropriate changes to outstanding awards before the change in control is
effective. Events constituting a "change in control" are defined in the employee
severance contracts described in "Compensation of Executive Officers--Severance
Agreements and Arrangements."
Transferability of Incentive Plan Awards and Underlying Stock
In general, unearned and unvested Incentive Plan awards are not
transferable, other than by will or the laws of descent and distribution.
Certificates representing awards or stock underlying awards will bear
appropriate legends referring to applicable restrictions on earning, vesting and
transfer.
TNP has registered its issuance of all stock currently reserved for
Incentive Plan awards under applicable federal and state securities laws and
will register the newly reserved stock after shareholder approval of this
proposed amendment. Such registration generally makes awarded stock freely
tradable on the open market, unless it is subject to earnout, vesting or
transfer restrictions.
The Company has adopted an insider trading policy applicable to all
employees that places additional restrictions on all employee stock sales. In
addition, all employee sales are subject to securities law prohibitions on
insider trading prohibitions.
Indemnification of Directors and Compensation Committee Members
The Incentive Plan requires TNP to indemnify Board and Compensation
Committee members against losses, costs, liabilities, expenses, TNP-approved
settlements, and judgments that they may incur in connection with claims or
proceedings involving actions or failures to act under the Incentive Plan.
Federal Income Tax Considerations
The following describes tax treatment of performance shares, restricted
stock awards and stock options. It describes the general tax treatment of such
items; the tax treatment may vary in individual circumstances. The discussion
does not purport to be complete, and the language and interpretation of
statutory provisions are subject to change.
Performance Shares and Units. The grant of performance shares or units
does not result in income tax consequences for the participant or TNP. When TNP
pays out cash, shares, or other property at the end of a performance period, the
participant will recognize ordinary income equal to the fair market value of the
asset received. TNP will be entitled to a deduction in the same amount when the
participant recognizes income.
Restricted Stock. A recipient of a restricted stock award will
recognize ordinary income when the award is made, in an amount equal to the
shares' fair market value on the award date, less any payment he or she has made
for the shares. TNP will be entitled to a deduction in the same amount, subject
to the requirements of Sec.162(m) (as discussed further below) of the Internal
Revenue Code of 1986, as amended (the "Tax Code"). The participant will treat
any dividends received as dividend income in the year of payment; TNP cannot
deduct such dividends. If a participant subsequently forfeits the restricted
stock, then he or she will be entitled to treat any amount paid for the stock as
a short- or long-term capital loss, depending on his or her holding period. TNP
must then recognize as ordinary income the amount of its original deduction with
respect to the stock.
Incentive Stock Options. There will be no federal income tax
consequences to either TNP or a participant upon the grant or exercise of an
incentive stock option (other than the possible application of alternative
minimum tax). The participant will realize a long-term capital gain upon
disposition of shares acquired upon exercising the option if the participant
holds the shares until the later of (1) two years from the grant option date or
(2) one year from the option exercise date. Otherwise, the difference between
the option price and the stock's fair market value when exercised will be taxed
as ordinary income in the year of disposition. TNP will receive a deduction
equal to the ordinary income that the participant recognizes. Any additional
gain generally will be taxed as capital gains with no tax implications to TNP.
Incentive stock options having no more than $100,000 aggregate fair market value
(determined as of each option's grant date) may become exercisable for the first
time in any one year. Amounts exceeding $100,000 generally will be treated as
nonqualified options.
Nonqualified Stock Options. No federal income tax consequences will
result to either TNP or a participant upon a nonqualified stock option grant. A
participant will recognize ordinary income upon exercising a nonqualified stock
option to the extent that the fair market value of the shares acquired exceed
their option price. TNP will receive a corresponding deduction upon the
participant's exercise of the option. Any gain realized upon a subsequent
disposition of the shares will be treated either as a short- or long-term
capital gain, depending on the participant's holding period.
Section 162(m) of the Tax Code. TNP may not deduct compensation of more
than $1,000,000 that is paid to an individual who, on the last day of the
taxable year, is either TNP's chief executive officer or is among one of the
four other most highly-compensated officers for that year. The limitation on
deductions does not apply to certain types of compensation, including qualified
performance-based compensation. TNP believes that performance-based awards paid
to executives under the Incentive Plan will be exempt from the $1,000,000
limitation on deductible compensation.
Awards that are designed to comply with the performance-based
compensation exception are subject to the following maximum annual award amount
limitations: (i) 225,000 options and stock appreciation rights; (ii) 75,000
shares of restricted stock; (iii) 90,000 performance shares and units; (iv)
$900,000 cash payout with respect to performance shares and units and other
stock-based awards; and (v) 120,000 other stock-based award shares. While grants
of options and performance shares and units can be structured to qualify for the
performance-based compensation exception, restricted stock grants cannot. The
Compensation Committee intends to grant Incentive Plan awards designed, in most
cases, to qualify for the performance-based compensation exception, unless it
determines that noncomplying awards will best serve TNP's interests with respect
to a particular award or executive officer. The Board anticipates that tax
consequences resulting to TNP and its subsidiaries from nonqualifying
compensation, if any, will not be materially adverse. Termination of employment
generally will not affect vesting of restricted stock awards if the restricted
stock qualifies for tax deductibility under the performance-based exception.
1999 Estimated Benefits
The following table sets forth the estimated dollar value and number of
shares proposed to be awarded in 1999 under the long-term components of the
Incentive Plan. Information in the table is based on participant salary ranges
on the award date and assumes: shareholder approval of the amendment to the
Incentive Plan; achievement of all pre-established performance goals at the
target level; and no changes in the management employees who are expected to be
designated for participation in the Incentive Plan. The table does not include
cash awards made under other incentive plans. Actual awards earned can range
from 0% to 200% of the designated award level. Information concerning the
estimated dollar value of plan awards is based on a $30 price per share of TNP
common stock and dividend equivalents expected to be $3.48 per share.
<TABLE>
<CAPTION>
TNP EQUITY INCENTIVE PLAN(1)
Name Dollar Value Number of Shares
- --------------------------- ------------ ----------------
<S> <C> <C>
Kevern R. Joyce $218,567 6,540
Jack V. Chambers 92,540 2,769
Manjit S. Cheema 83,383 2,495
John Edwards 83,383 2,495
Ralph S. Johnson 83,383 2,495
Executive Group (21 Persons) $1,273,479 38,037
</TABLE>
The Board of Directors recommends a vote FOR approval of the Amended
and Restated Incentive Plan.
4. SELECTION OF AUDITORS
The Board of Directors has appointed Arthur Andersen LLP, Certified
Independent Public Accountants ("Arthur Andersen"), to serve as independent
auditors for the current year, subject to shareholder approval. Arthur Andersen
served as the independent auditors for 1998. A representative of Arthur Andersen
is expected to attend the annual meeting and will have an opportunity to make a
statement if the representative desires to do so and to respond to appropriate
questions.
The Board of Directors recommends a vote FOR ratification of the
appointment of Arthur Andersen LLP, Certified Independent Public Accountants, as
independent auditors for 1999.
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes the compensation paid to the Chief
Executive Officer and each of the four other most highly compensated executive
officers of TNP and its subsidiaries (the "Named Executive Officers") for
services rendered in all capacities to TNP and its subsidiaries during 1998,
1997 and 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Other Annual LTIP All Other
Name & Principal Position Year Salary Bonus(1) Compensation(2) Payouts(3) Compensation(4)
- ------------------------------ ---- --------- -------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Kevern R. Joyce, President and 1998 $370,525 $340,822 -- $418,151 $25,367
Chief Executive Officer 1997 355,083 147,000 -- 449,816 25,944
1996 336,500 143,557 -- -- 24,698
Jack V. Chambers, Senior Vice 1998 $223,819 $129,092 -- $249,893 $14,347
President 1997 215,733 77,597 -- 268,831 14,794
1996 204,338 79,151 -- -- 13,554
Manjit S. Cheema, Senior Vice 1998 $195,239 $118,488 -- $213,756 $12,775
President & Chief Financial 1997 183,750 68,378 -- 205,835 12,837
Officer 1996 162,296 58,412 -- -- 11,133
John P. Edwards, Senior Vice 1998 $199,202 $111,476 -- $187,634 $16,352
President (5) 1997 192,000 68,900 -- 121,128 18,242
1996 81,827 56,903 $20,000 -- 5,365
Ralph S. Johnson, Senior Vice 1998 $189,314 $107,586 -- $210,240 $13,870
President 1997 182,333 68,212 -- 197,110 13,153
1996 156,730 55,344 -- -- 11,281
</TABLE>
- ------------------------
(1) The 1998 amounts shown in this column are the following awards relating to
1998 and paid in 1999: (a) cash awards under the Management and Broad-Based
Short-Term Incentive Plans; and (b) the first installment of an incentive
and retention bonus. The Compensation Committee awarded the incentive and
retention bonuses as additional compensation to reflect contributions
during 1998 and prior years to the improvement in TNP's value to its
shareholders. These incentive and retention bonuses are being paid in five
equal annual installments. Subsequent installments are subject to the named
officer being employed by TNP or TNMP on the scheduled date of the payment.
The total amounts of the bonuses to be paid over the five year period are
Mr.Joyce - $850,000; Mr. Chambers - $235,000; Mr. Cheema - $235,000; Mr.
Edwards - $200,000; and Mr. Johnson - $200,000.
(2) Other Annual Compensation consists primarily of relocation allowances. The
officers named in the table received other personal benefits during the
years reported; the total value of such benefits did not exceed the lesser
of $50,000 or 10% of their respective total annual salaries and bonuses,
except as shown in the table.
(3) The 1998 amounts in this column are the value of shares issued and dividend
equivalents paid in 1999 under the TNP Long-Term Incentive Compensation
Plan for the 1996-1998 performance period. These amounts represent the
value of the following numbers of shares, at $37.84 per share, the average
of the high and low prices of TNP stock on December 31, 1998, and dividend
equivalents of $3.035 per share: Mr. Joyce - 10,229; Mr. Chambers - 6,113;
Mr. Cheema - 5,229; Mr. Edwards - 4,590; and Mr. Johnson - 5,143. This
payout reflects that TNP exceeded the maximum performance goals set at the
beginning of the performance period for total shareholder return relative
to the S&P 500 and S&P Electric Company 500 Indices, as described in
"Compensation Committee Report on Executive Compensation - Long Term
Incentive Compensation." Awards for the 1998-2000 performance period are
described below under "Long-Term Incentive Compensation."
(4) The 1998 amounts in this column and the table below consist of the
following items earned or paid in 1998: (a) company contributions to TNMP's
401(k) plan; (b) company contributions to the TNMP Deferred Compensation
Plan, an unfunded benefit plan that allows eligible employees, including
the Named Executive Officers, to defer receipt of salary and bonuses and
receive matching Company contributions and interest credits, whenever and
to the extent that Internal Revenue Code restrictions limit their
participation in the 401(k) plan; and (c) premiums for group life insurance
paid by the Company (none of the Named Executive Officers has any cash
value rights related to such insurance). The amounts shown for the 401(k)
and Deferred Compensation Plans include incentive matching contributions
for 1998 paid in 1999.
<TABLE>
<CAPTION>
401(k) Plan Deferred Compensation Plan Life Insurance Premiums
----------- -------------------------- -----------------------
<S> <C> <C> <C>
Mr. Joyce $9,275 $12,262 $3,830
Mr. Chambers 9,275 3,729 1,343
Mr. Cheema 9,089 2,272 1,414
Mr. Edwards 9,275 2,298 4,779
Mr. Johnson 9,275 1,724 2,871
</TABLE>
(5) Mr. Edwards joined TNP and its subsidiaries on July 1, 1996.
Long-Term Incentive Compensation
The following table contains information about awards made in 1998 of
long-term stock incentive opportunities made under the TNP Equity Incentive Plan
to the Named Executive Officers for the 1998-2000 performance period.
EQUITY INCENTIVE PLAN - LONG TERM INCENTIVE AWARDS IN 1998
<TABLE>
<CAPTION>
Estimated Payout at End of Period(2)
----------------------------------------------------
Performance
Name Period until Payout Threshold Target (1) Maximum
- ------------------------ ------------------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Kevern R. Joyce 1998-2000 2,072 shares 4,144 shares 6,216 shares
Jack V. Chambers 1998-2000 1,194 shares 2,389 shares 3,583 shares
Manjit S. Cheema 1998-2000 1,076 shares 2,152 shares 3,228 shares
John P. Edwards 1998-2000 1,076 shares 2,152 shares 3,228 shares
Ralph S. Johnson 1998-2000 1,076 shares 2,152 shares 3,228 shares
</TABLE>
(1) The target number of shares was based on (i) the following percentages of
the Named Executive Officers' respective base salary midpoints: Mr. Joyce -
40%; Messrs. Chambers, Cheema, Edwards and Johnson - 35%.; and (ii) the
average of the high and low prices of TNP common stock on the NYSE on
January 2, 1998, $33.16.
(2) The awards listed in the table relate to the performance period from
January 1, 1998 through December 31, 2000. Payouts will occur in early 2001
and will be based on the level of attainment of two equally weighted
performance goals measuring the total return during the performance period
of TNP common stock relative to the S&P 500 and the S&P Electric Company
Indices. Payouts can range from 0% (if neither performance goal is
achieved) to 150% of the target number of shares. At payout, Plan
participants will receive the stock awards and dividend equivalents, paid
in cash. Based on dividends paid in 1998 and assuming that the current
quarterly dividend rate will remain in effect for the remainder of the
performance period, plan participants would receive dividend equivalent
payments of $3.42 per share of stock awarded at payout. See "Compensation
Committee Report on Executive Compensation - Incentive Compensation."
Pension Plan
Effective October 1, 1997, TNMP amended its pension plan to change it
to a cash balance retirement plan. As amended, the pension plan provides
benefits based on an account balance rather than a formula-based benefit. Before
that date, the pension plan was a noncontributory defined benefit plan.
Employees who, as of October 1, 1997, were at least 50 years of age and had at
least 10 years of service, can be "grandfathered" in the prior pension plan, and
will receive benefits under the plan that provides the better retirement
payments.
The amended pension plan bases its benefits on an employee's account
balance when he or she retires or leaves the company. An employee's initial
account balance was based on his or her accrued pension benefits under the
pre-amendment plan. The account balance will grow as TNMP adds benefit credits
consisting of a percentage of compensation and interest credits based on
one-year Treasury bill rates. All employees are eligible to participate in the
pension plan. All Named Executive Officers will participate in the pension plan.
The following table sets forth information concerning annual benefits
payable upon normal retirement at age 65 to TNP and TNMP employees under the
pre-amendment pension plan, and reflects the "grandfathered" benefit formula for
individuals retiring in 1998 with the years of service indicated.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Years of Service
------------------------------------------------------------------------------------------
Remuneration (1) 15 20 25 30 35 40
- ----------------------- ------------- -------------- -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 27,771 $ 37,028 $ 46,285 $ 55,542 $ 64,799 $ 72,924
150,000 34,146 45,528 56,910 68,292 79,674 89,424
175,000 40,521 54,028 67,535 81,042 94,549 105,924
200,000 46,896 62,528 78,160 93,792 109,424 122,424
250,000 59,646 79,528 99,410 119,292 139,174 155,424
300,000 72,396 96,528 120,660 144,792 168,924 188,424
350,000 85,146 113,528 141,910 170,292 198,674 221,424
400,000 97,896 133,528 163,160 195,792 228,424 254,424
450,000 110,646 147,528 184,410 221,292 258,174 287,424
500,000 123,396 164,528 205,660 246,792 287,924 320,424
</TABLE>
(1) Benefits shown do not take into account limits under Sec. 415 of the
Internal Revenue Code of 1986, as amended (the "Tax Code") or the
$160,000 salary cap in effect after 1996, resulting from Tax Code
Sec. 401(a)(17) limits. Consequently, a portion of the benefits would
be paid from the Excess Benefit Plan (as defined below).
Annual contributions to the pre-amendment pension plan are computed on
an actuarial basis and cannot be calculated readily on a per person basis.
Benefits for each eligible employee under the old formula are based on his or
her years of service computed through the month of his or her retirement,
multiplied by a specified percentage of his or her average monthly compensation
for each full calendar year of service completed after 1992. TNMP made no
contribution to the pension plan for 1998.
Pension plan benefits are not subject to reduction for Social Security
benefits, but are subject to reduction for retirement prior to age 62.
Highly compensated employees whose pensions are subject to being
reduced to an amount below what the pension plan otherwise would provide as a
result of compliance with Tax Code Secs .415 and 401(a)(17), and whom the Board
of Directors designate as eligible, may also participate in TNP's "Excess
Benefit Plan." The Board has designated 24 active or retired employees as
eligible to participate in the Excess Benefit Plan, including the Named
Executive Officers and three retired employees now receiving excess benefit
payments. Amounts paid as long-term incentive compensation pursuant to the TNP
Equity Incentive Plan or other plans will be included in the remuneration base
for pension and Excess Benefit Plan purposes. TNMP owns policies insuring the
lives of the Excess Benefit Plan participants; policy proceeds are payable to
TNMP to reimburse it for its payments to the retirees.
As of December 31, 1998, the Named Executive Officers were credited
with the years of service set forth in the following table. Executive pension
benefits are computed actuarially.
Name Years of Credited Service
---- -------------------------
Kevern R. Joyce 17 years(1)
Jack V. Chambers 19 years, 11 months
Manjit S. Cheema 4 years, 6 months
John P. Edwards 21 years(1)
Ralph S. Johnson 20 years(1)
- ------------------------
(1) TNMP has credited each of Messrs. Joyce, Edwards and Johnson with
additional years of service, including years before joining TNP and TNMP,
for purposes of determining their retirement benefits under the TNMP Excess
Benefit Plan. Each who is employed by TNP or TNMP at age 65 will be
credited with a total of 30 years of service; this number will be reduced
by one year for each year that his retirement precedes age 65. Each was or
will be vested in these benefits upon three years of employment with TNP
and TNMP. Excess Benefit Plan benefits that each receives will be reduced
by the amount of any retirement payments that he receives from the TNMP
pension plan and from other employers. Any who retires before age 55 and
five years of service will receive no benefits , unless there is a change
in control of TNP or TNMP. If there is a change in control, the benefits to
each will be fully vested and accrued as of either the date of the change
in control or as of his 62nd birthday, whichever date provides the greater
benefit.
Severance Agreements and Arrangements
TNMP has entered into employment severance contracts with its officers
and other key personnel. The principal purpose of these contracts is to
encourage retention of management and other key personnel required for the
orderly conduct of TNP's business during any threatened or pending acquisition
of TNP or TNMP and during any ownership transition. Agreements between TNP and
its officers under which TNP has made its incentive compensation plan awards
also contain provisions relating to payment of incentive plan awards in the
event the employee is terminated in connection with a change of control of TNP.
The agreements between the Named Executive Officers provide that a
Named Executive Officers will receive severance compensation if, following a
change of control of TNP or TNMP, his employment is terminated or he suffers
other adverse treatment. A change in control includes, among other things,
certain substantial changes in the corporate structure, ownership, assets,
existence, or Board of Directors of either entity. The Named Executive Officers'
employment severance contracts provide for lump sum compensation payments equal
to three times their current annual salaries and other rights. Their incentive
plan award agreements provide for payment of long-term and short-term incentive
awards at the target level. In addition to payments under these agreements, the
Named Executive Officers would receive any remaining unpaid balance of the
incentive and retention bonus awarded in early 1999 upon involuntary
termination.
The TNMP officers' employment severance contracts have three-year
terms; those of other key personnel have two-year terms. TNP's Board of
Directors periodically reviews the contracts and determines whether to extend
them for an additional year, in effect returning them to their original three-
or two-year term with each review. TNP's Board of Directors, acting through its
Compensation Committee, last reviewed the contracts in February 1998. The
current contracts of the Named Executive Officers expire in February 2001.
The incentive plan award agreements are awarded annually and expire
when the awards under the agreements are paid out. The agreements between TNP
and the Named Executive Officers have three-year terms.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires TNP's and
TNMP's directors and executive officers to file reports of beneficial ownership
and changes in ownership of TNP's equity securities with the Securities and
Exchange Commission and the NYSE. All such reports were filed on time, except
for the Form 3 of Michael Matte, the Vice President of Business Development of
TNP, which was filed late.
Compensation Committee Report on Executive Compensation
The Compensation Committee furnishes the following report on executive
compensation for 1998.
Compensation Philosophy and Strategy. The Committee believes that
executives' compensation should be competitive with other companies in the
electric utility industry, and that executives should be rewarded when TNP's
operations and financial returns reflect superior performance and continuing
improvement in operations, customer satisfaction and shareholder value.
The key components of executives' regular compensation are a base
salary, annual incentive compensation and long-term incentive compensation. The
compensation package enables TNP to meet the requirements of the competitive
market in which it operates, while ensuring that the executives are compensated
in a way that advances both the short-term and long-term interests of
shareholders. Under this approach, compensation for these officers involve a
high proportion of pay that is "at risk," namely, the short term and long term
incentive compensation.
The Committee relates total compensation levels for TNP's executive
officers to the total compensation paid to similarly situated executives of a
peer group of companies, both within and outside of the electric utility
industry, that are of a similar size and have performance characteristics
similar to TNP. TNP has selected the executive compensation Peer Group under an
outside consulting firm's counsel. Some of these companies are also included in
the S&P Electric Company Index found under the caption "Performance Graph,"
below.
Total compensation is targeted to approximate the median of the peer
group. However, because of the performance-oriented nature of the incentive
programs, total compensation may exceed market norms when TNP exceeds its
targeted performance goals. Likewise, total compensation may lag the market when
TNP does not achieve its performance goals.
The Committee also reviews the Company's longer-term performance as
compared to the average performance of the peer group, and, where appropriate,
takes such relative performance into account in determining future compensation
levels.
Base Salary. The Committee determines salaries for all officers
annually, based on the review of each executive's level of responsibility,
experience, expertise, sustained corporate performance and, in the case of
officers other than the Chief Executive Officer, upon the recommendation of the
Chief Executive Officer. Based on competitive market data supplied by an
independent consultant, executive salaries approximate the Peer Group median
level.
Annual Incentive Compensation. Executive officers and key employees
participate in the TNP Short-Term Incentive Compensation program and are
eligible to receive annual cash incentive awards if certain specified objectives
are met. Awards for 1998, which were paid in early 1999, were based on financial
measures of cash value added and factors measuring customer satisfaction, system
reliability and safety, and other measures of individual and departmental
performance. These measures were weighted depending upon the executive officer's
area of responsibility. Compensation objectives were generally above target for
1998.
In addition, all full-time employees, including executive officers,
participate in the TNP Broad-Based Incentive Compensation Plan and are eligible
to receive annual cash incentive awards. The performance criteria for these
awards were the same as for the Short Term Incentive Compensation awards.
Compensation objectives for this Plan were above target for 1998.
In 1998, a portion of TNP's matching contribution to its 401(k)
retirement plan for employees was related to the performance of the cash value
added goal. The cash value added performance achieved for 1998 was between the
target and maximum goals. Accordingly, TNP made an incentive matching
contribution to the 401(k) accounts of eligible participants, including
executive officers, equal to approximately 93% of the total amount that TNP
matched during 1998 as part of its regular employee benefits.
Long Term Incentive Compensation. Long term incentive compensation
awards are granted for a three-year performance period. Awards are expressed as
a percentage of the individual's salary range midpoint and, if earned, are paid
in TNP stock at the end of the period. At the beginning of the period, the
Committee approves a payout schedule based on prescribed financial performance.
Performance targets for awards made in 1998 for the 1998 - 2000 performance
cycle are a total shareholder return that exceeds the 55th percentile of both
the S&P 500 Index and the S&P Electric Company Index. If both target levels are
reached, payout will equal 100% of the amount granted at the beginning of the
period. Performance above or below pays more or less than the target amount,
based on the schedule. The maximum amount payable is 150% of the amount granted,
and the minimum is 0%. Award recipients do not receive any portion of an award
related to a particular objective unless a minimum threshold for that objective
has been achieved. Recipients also receive dividend equivalents, payable in
cash, for the stock that they earn.
The payout for awards made for the 1996-1998 performance period
occurred in January 1999. The exemplary shareholder return relative to the S&P
500 and S&P Electric Company Indices during that period resulted in the maximum
possible payout.
Special Incentive and Retention Bonus. In early 1999 the Compensation
Committee voted to award a special incentive and retention bonus to officers and
certain key employees as additional compensation to reflect their contributions
to the improvement in TNP's value to its shareholders during 1998 and previous
years. For the officers named in the Executive Compensation Table elsewhere in
this proxy statement, the bonus consists of five equal annual installments, the
first of which was paid in January 1999. The payment of the remaining
installments, which will occur during January of the four successive years, is
subject to such officers' continuing employment by TNP at the anniversary date
of the Compensation Committee's vote to award the special bonus. An officer
would receive the unpaid balance of the bonus if he or she is terminated after a
change in control of the company. The amount of such bonuses was calculated
based on competitive market data supplied by an independent consultant.
Compensation of Chairman and Chief Executive Officer. Mr. Joyce
participates in the same executive compensation plans that cover the other
executive officers, determined according to the same compensation philosophy and
principles.
Each year, Mr. Joyce and the Board of Directors agree on a set of
personal and strategic company objectives. The Committee reviews Mr. Joyce's
performance against those objectives at year end. The review includes a detailed
analysis of the short- and long-term financial results as well as progress
towards TNP's strategic objectives. The Committee oversees this review and makes
appropriate adjustments to Mr. Joyce's compensation. For 1998, the Committee,
with the participation of all outside directors, determined that the results for
TNP for the year were outstanding.
The Committee increased Mr. Joyce's base salary from $357,100 to
$375,000, effective March 1, 1998. It has increased his base salary to $395,000,
effective March 1, 1999. In setting Mr. Joyce's salary, the Committee, with the
participation of all outside directors, determined that critical goals were
achieved and that the results for TNP for the year were outstanding.
For 1998, Mr. Joyce's short-term incentive award was paid above his
target level because the Company significantly exceeded the target cash value
added objective and operations objectives for 1998. He was awarded a short-term
incentive compensation bonus of $151,700 and received $19,200 under the
all-employee plan.
In January 1999, Mr. Joyce received a payout of 10,229 shares of TNP
common stock and dividend equivalents of $31,045 under the long-term incentive
plan for the 1996-1998 long-term incentive performance period. This payout
reflected strong TNP shareholder return relative to the S&P 500 and the S&P
Electric Company Indices, and was at the maximum possible payout for that
period.
In January 1999, Mr. Joyce received $170,000 as the first installment
of the special incentive and retention bonus awarded by the Compensation
Committee, relating to his performance in 1998. The total amount of the bonus
awarded is $850,000. Mr. Joyce will receive the remaining four installments in
January of the next four years, subject to his being employed by TNP at the
anniversary date of the Compensation Committee's action awarding the bonus.
Internal Revenue Code Section 162(m). Internal Revenue Code Section
162(m) limits tax deductions for executive compensation to $1 million. There are
several exemptions to Section 162(m), including one for qualified
performance-based compensation. To be qualified, performance-based compensation
must meet various requirements, including shareholder approval. The Committee's
policy with respect to the deductibility limit of Section 162(m) generally is to
preserve the federal income tax deductibility of compensation paid when it is
appropriate and is in the best interests of TNP and its shareholders. However,
the Committee reserves the right to authorize the payment of nondeductible
compensation if it deems that is appropriate.
Compensation Committee
John A. Fanning Sidney M. Gutierrez
J. R. Holland, Jr. Harris L. Kempner, Jr.
Dennis H. Withers
The Compensation Committee Report on Executive Compensation and the
performance graph that follows will not be deemed incorporated by reference by
any general statement incorporating this proxy statement by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that TNP specifically incorporates the information by
reference.
Five Year Comparison of Cumulative Total Return
The graph below shows TNP's performance relative to the S&P Electric
Company Index and the S&P 500 Index. The graph spans TNP's last five years,
assumes that $100 is invested at the close of trading on December 31, 1993, and
is calculated assuming quarterly reinvestment of dividends.(Graphic omitted)
<TABLE>
<CAPTION>
- ----------------------------------------- -------- -------- -------- -------- -------- --------
1993 1994 1995 1996 1997 1998
- ----------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
TNP Enterprises, Inc. 100 98 129 196 248 292
S&P 500 Index 100 100 139 171 229 294
S&P Electric Company Index 100 81 107 106 134 155
- ----------------------------------------- -------- -------- -------- -------- -------- --------
</TABLE>
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of TNP's common stock as of February 28, 1999, for (i) each
incumbent director and each nominee for director, (ii) the Named Executive
Officers, (iii) all directors and officers of TNP and TNMP as a group, and (iv)
persons known to management to beneficially own more than 5% of TNP's common
stock. Except as otherwise noted, each named individual or family member has
sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
Amount and Nature Percent of
Name of Beneficial Owner of Beneficial Ownership Class
<S> <C> <C> <C>
R. Denny Alexander 2,600 *
John A. Fanning 2,500 *
Sidney M. Gutierrez 2,262 *
J. R. Holland, Jr. 1,575 *
Kevern R. Joyce 22,480 *
Harris L. Kempner, Jr. 2,500(1) *
Carol D. Surles 1,575 *
Larry G. Wheeler 534 *
Dennis H. Withers 2,600 *
Jack V. Chambers 31,485 *
Manjit S. Cheema 11,782(2) *
John P. Edwards 6,638 *
Ralph S. Johnson 14,776 *
All directors and officers
as a group (25 persons) 178,282 1.3%
The Vanguard Group(3) 1,198,972 9.0%
Putnam Investments, Inc.(4) 859,000 6.4%
Scudder Kemper Investments, Inc. (5) 732,235 5.5%
</TABLE>
- ------------------------
*Less than 1%.
(1) Includes 200 shares that Mr. Kempner's wife owns, beneficial ownership of
which Mr. Kempner disclaims.
(2) Includes 1,462 shares held by Mr. Cheema's wife, beneficial ownership of
which he disclaims.
(3) This amount is as of January 31, 1999. The address of The Vanguard Group is
P.O. Box 2900, Valley Forge, Pennsylvania 19482. The Vanguard Group holds
all shares included in the table as trustee of the TNMP and Facility Works,
Inc. 401(k) plans.
(4) The address of Putnam Investments, Inc. ("PI") is One Post Office Square,
Boston, Massachusetts 10036. PI is the parent holding company of Putnam
Investment Management, Inc. ("PIM") and The Putnam Advisory Company, Inc.
("PAC"), both of which are investment advisers registered under the
Investment Advisers Act of 1940, and both of whose addresses are One Post
Office Square, Boston, Massachusetts 10036. Neither PI, PIM nor PAC have
any voting or sole dispositive power over the shares included in the table.
PI has shared dispositive power over all the shares. PIM has shared
dispositive power with respect to 851,000 shares, and PAC has shared
dispositive power with respect to 8,000 shares. Each holds their respective
shares on behalf of their investment advisory clients. The parent holding
company of PI is Marsh & McLennan Companies, Inc., the address of which is
1166 Avenue of the Americas, New York, New York 10036. The information
included in the table and this note is derived from a joint report on
Schedule 13G dated February 11, 1999, filed with the Securities and
Exchange Commission.
(5) The address of Scudder Kemper Investments, Inc. ("SKI") is 345 Park Avenue,
New York, New York. SKI has sole voting power over 432,595 shares, shared
voting power over 283,000 shares, and sole dispositive power over all the
shares. SKI is an investment adviser registered under the Investment
Advisers Act of 1940. The information included in the table and this note
is derived from a joint report on Schedule 13G dated February 11, 1999,
filed with the Securities and Exchange Commission.
OTHER MATTERS
Proxy Solicitation. The Company will bear all costs of proxy
solicitation. Proxies may be solicited by mail, in person or by telephone or
facsimile transmission by officers, directors and regular employees of the
Company. The Company may also reimburse brokerage firms, custodians, nominees
and fiduciaries for their expenses to forward proxy materials to beneficial
owners.
Stockholder list. TNP will maintain a list of the shareholders entitled
to vote at the annual meeting at its corporate offices at 4100 International
Plaza, Fort Worth, Texas. The list will be open for examination by any
shareholder, during regular business hours, for a period of 10 days prior to the
annual meeting. The list will also be available during the meeting itself.
Annual Report. TNP's is sending its 1998 Summary Annual Report to
Shareholders with this Proxy Statement. The 1998 Summary Annual Report is not
part of the proxy solicitation material. It covers operations of TNP and Texas
new-Mexico Power Company, its wholly owned electric utility subsidiary. You may
obtain a copy of TNP's Annual Report on Form 10-K (without exhibits) for the
year ended December 31, 1998, at no charge by writing Sheryl Lewis, Investor
Relations, TNP Enterprises, Inc., 4100 International Plaza, Fort Worth, Texas.
In addition, TNP's Annual Report on Form 10-K is available via the Internet at
its World Wide Web site (www.TNPE.com), and at the World Wide Web site of the
Securities and Exchange Commission (www.sec.gov).
Change of Certifying Accountants. On February 18, 1997, the Board of
Directors, upon the recommendation of its Audit Committee, approved the
engagement of Arthur Andersen as the Company's new independent accountants. The
previous independent accountants, KPMG Peat Marwick LLP ("KPMG") were dismissed
as the Company's independent accountants effective March 7, 1997, the date of
the filing of the 1996 Annual Report on Form 10-K. This change of certifying
accountants occurred after an analysis and review of existing services, and the
receipt of competitive proposals for external auditing services.
KPMG's reports on the Company's consolidated financial statements for
1996 contained no adverse opinions or disclaimers of opinion, and were not
qualified as to uncertainty, audit scope or accounting principles. During 1996
and through the date of KPMG's dismissal, there were, other than as described
below, no disagreements between the Company and KPMG on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures that, if not resolved to KPMG's satisfaction, would have caused it to
make a reference in connection with its reports to the subject matter of the
disagreements. A disagreement occurred in early February 1997 that arose out of
senior-level discussions regarding when the Company should report the accounting
effect of the tentative settlement, reached January 30, 1997, of litigation
between TNMP and Jackson National Life Insurance Company. The Audit Committee
discussed the subject matter of the disagreement with KPMG, and the issue was
resolved to KPMG's satisfaction.
During discussions on this issue, the Company communicated to KPMG that
two other accounting firms disagreed with KPMG's conclusions. On February 5,
1997, the Company informally discussed the potential effects of this settlement
with Arthur Andersen, in anticipation of their appointment as TNMP's auditors
for 1997, but relied upon a TNMP staff member's previous experience with regard
to the expressed views of another accounting firm. The Company did not request
from Arthur Andersen or any other accounting firm a formal opinion on KPMG's
conclusions on the accounting of this transaction.
During 1997, in connection with its audit of the Company's 1996
consolidated financial statements, KPMG informed the Company of a material
weakness in the internal control structure of a newly formed non-regulated
subsidiary. Management took steps to correct this weakness.
Except as described in the preceding paragraph, during 1996 and through
the date of its dismissal, there were no other reportable events with KPMG on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure that were not resolved to KPMG's satisfaction. As
defined by Securities and Exchange Commission regulations, "reportable events,"
with respect to KPMG and the Company, would be: (1) KPMG advising the Company
that internal controls necessary for the Company to develop reliable financial
statements do not exist; (2) KPMG advising the Company that information had come
to its attention that had led it to no longer be able to rely on management's
representations or that made it unwilling to be associated with the financial
statements prepared by management; (3) (a) KPMG advising the company of the need
to expand significantly the scope of its audit, or that information had come to
its attention that, if further investigated, may (i) materially impact the
fairness of either: a previously issued audit report or the underlying financial
statements; or the financial statements issued or to be issued covering 1996; or
(ii) cause it to be unwilling to rely on management's representations or be
associated with the company's financial statements, and (b) due to KPMG's
dismissal, or for any other reason, KPMG did not so expand the scope of its
audit or conduct such further investigation; and (4) KPMG advising the company
that information had come to its attention and that it had concluded that the
new information materially impacted the fairness or reliability of either a
previously issued audit report or the underlying financial statements, or the
1996 financial statements.
TNP and TNMP authorized KPMG to respond fully to inquiries of Arthur
Andersen concerning the subject matter of the disagreement described above.
Shareholder Recommendations of Directors. If a shareholder wishes to
formally nominate a candidate for the Board, TNP's bylaws require generally that
a shareholder deliver a nomination in writing to the committee from 30 to 60
days before the anniversary of the notice of the preceding year's annual
shareholders' meeting, with certain exceptions. The nomination notice must
include the shareholder's name and address, the class and number of TNP shares
that the shareholder owns beneficially and of record and the date on which each
was acquired, information about the nominee that satisfies applicable
requirements of Regulation 14A under the Securities Exchange Act of 1934, and
the nominee's consent.
Shareholder Proposals. Any TNP shareholder who desires to present a
proposal for consideration at next year's annual meeting must deliver the
proposal to TNP's principal executive offices no later than November ___, 1999,
unless TNP notifies the shareholders otherwise. Only those proposals that are
proper for shareholder action may be included in the company's proxy statement.
Written requests for inclusion should be addressed to Corporate Secretary, TNP
Enterprises, Inc. 4100 International Plaza, Fort Worth, Texas 76109.
Kevern R. Joyce,
President and Chief Executive Officer
Fort Worth, Texas
March __, 1999
<PAGE>
EXHIBIT A
TNP ENTERPRISES, INC. EQUITY INCENTIVE PLAN
Article 1. Establishment, Purpose, and Duration
1.1 Establishment of the Plan. TNP Enterprises, Inc., a Texas corporation
(hereinafter referred to as the "Company"), hereby establishes an incentive
compensation plan to be known as the "TNP Enterprises, Inc. Equity Incentive
Plan" (hereinafter referred to as the "Plan"), as set forth in this document.
The Plan permits the grant of Nonqualified Stock Options, Incentive Stock
Options, Restricted Stock, Performance Units, Performance Shares, and Other
Stock-Based Awards.
Subject to approval by the Company's shareholders, the Plan shall become
effective as of January 1, 1995 (the "Effective Date"), and shall remain in
effect as provided in Section 1.3 herein.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the success
and enhance the value of the Company by linking the personal interests of
Participants to those of Company shareholders, and by providing Participants
with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants upon whose
judgment, interest, and special effort the successful conduct of its operation
largely is dependent.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date, as
described in Section 1.1 herein, and shall remain in effect, subject to the
right of the Board of Directors to terminate the Plan at any time pursuant to
Article 15 herein, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no event may an Award
be granted under the Plan on or after January 1, 2005.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below and, when the meaning is intended, the initial letter of the word is
capitalized:
(a) "Award" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, Restricted
Stock, Performance Units, Performance Shares, or Other Stock-Based
Awards.
(b) "Award Agreement" means an agreement entered into by each Participant
and the Company, setting forth the terms and provisions applicable to
Awards granted to Participants under this Plan.
(c) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.
(d) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(e) "Cause" means the admission by or the conviction of the Participant of
an act of fraud, embezzlement, theft, or other criminal act
constituting a felony under laws involving moral turpitude. The Board
of Directors, by majority vote, shall make the determination of
whether Cause exists.
(f) "Change in Control" shall have the meaning ascribed to such term in
the Texas-New Mexico Power Company Executive Agreement for Severance
Compensation Upon Change in Control.
(g) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(h) "Committee" means the committee, as specified in Article 3, appointed
by the Board to administer the Plan.
(i) "Company" means TNP Enterprises, Inc., a Texas corporation, and the
Company's subsidiaries, as well as any successor thereto as provided
in Article 18 herein.
(j) "Director" means any individual who is a member of the Board of
Directors of the Company.
(k) "Disability" shall have the meaning ascribed to such term in the
Participants' governing long-term disability plan.
(l) "Dividend Equivalent" means a contingent right to be paid dividends
declared with respect to outstanding Awards, pursuant to the terms of
Sections 6.5 and 8.3 herein.
(m) "Employee" means any full-time, nonunion employee of the Company or of
the Company's Subsidiaries. Directors who are not otherwise employed
by the Company shall not be considered Employees under this Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor Act thereto.
(o) "Fair Market Value" means the Fair Market Value of the Shares
determined by such methods or procedures as shall be established from
time to time by the Committee; provided, however, that so long as the
Shares are traded in a public market, Fair Market Value means the
average of the high and low prices of a Share in the principal market
for the Shares on the specified date (or, if no sales occurred on such
date, the last preceding date on which sales occurred).
(p) "Incentive Stock Option" or "ISO" means an option to purchase Shares,
granted under Article 6 herein, which is designated as an Incentive
Stock Option and is intended to meet the requirements of Section 422
of the Code, or any successor provision thereto.
(q) "Insider" shall mean an Employee who is, on the relevant date,
an officer, director, or ten percent (10%) Beneficial Owner of any
class of the Company's equity securities that is registered pursuant
to Section 12 of the Exchange Act, all as defined under Section 16 of
the Exchange Act.
(r) "Named Executive Officer" means a Participant who, as of the date of
vesting and/or payout of an Award, as applicable, is one of the group
of "covered employees," as defined in the regulations promulgated
under Code Section 162(m), or any successor statute.
(s) "Nonqualified Stock Option" or "NQSO" means an option to purchase
Shares, granted under Article 6 herein, which is not intended to be an
Incentive Stock Option.
(t) "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
(u) "Option Price" means the price at which a Share may be purchased by a
Participant pursuant to an Option, as determined by the Committee.
(v) "Other Stock-Based Award" means an Award granted pursuant to Article 9
hereof.
(w) "Participant" means an Employee of the Company who has
outstanding an Award granted under the Plan.
(x) "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
(y) "Performance Unit" means an Award granted to an Employee, as described
in Article 8 herein.
(z) "Performance Share" means an Award granted to an Employee, as described
in Article 8 herein.
(aa) "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the
passage of time, the achievement of performance goals, or upon the
occurrence of other events as determined by the Committee, at its
discretion), and the Shares are subject to a substantial risk of
forfeiture, as provided in Article 7 herein.
(ab) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d).
(ac) "Restricted Stock" means an Award granted to a Participant pursuant to
Article 7 herein.
(ad) "Retirement" shall have the meaning ascribed to such term in the
Participants' governing Company-sponsored Retirement plan.
(ae) "Shares" means Shares of common stock of the Company.
(af) "Subsidiary" means any corporation in which the Company owns directly,
or indirectly through subsidiaries, at least fifty percent (50%) of
the total combined voting power of all classes of stock, or any other
entity (including, but not limited to, partnerships and joint
ventures) in which the Company owns at least fifty percent (50%) of
the combined equity thereof.
(ag) "Window Period" means the period beginning on the third business day
following the date of public release of the Company's quarterly sales
and earnings information, and ending on the twelfth (12th) business
day following such date.
Article 3. Administration
3.1 The Committee. The Plan shall be administered by the Compensation
Committee of the Board or by any other Committee appointed by the Board
consisting of not less than two (2) Directors. The members of the Committee
shall be appointed from time to time by, and shall serve at the discretion of,
the Board of Directors.
The Committee shall be comprised solely of Directors who are Non-Employee
Directors, as defined in Rule 16b-3under the Exchange Act, as such Rule is
amended or changed from time to time.
3.2 Authority of the Committee. The Committee shall have full power except
as limited by law or by the Articles of Incorporation or Bylaws of the Company,
and subject to the provisions herein, to designate employees to be Participants
in the Plan; to determine the size and types of Awards; to determine the terms
and conditions of such Awards in a manner consistent with the Plan; to determine
whether, to what extent, and under what circumstances, Awards granted to
Participants may be settled or exercised in cash, Shares or other property; to
construe and interpret the Plan and any agreement or instrument entered into
under the Plan; to establish, amend, or waive rules and regulations for the
Plan's administration; and (subject to the provisions of Article 15 herein) to
amend the terms and conditions of any outstanding Award to the extent such terms
and conditions are within the discretion of the Committee as provided in the
Plan. Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law,
the Committee may delegate its authorities as identified hereunder.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board shall be final, conclusive, and binding on all persons,
including the Company, its shareholders, Employees, Participants, and their
estates and beneficiaries.
Article 4. Shares Subject to the Plan
4.1 Number of Shares Available for Grants. Subject to adjustment as
provided in section 4.3 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be six hundred thousand (900,000);
provided, however, that the maximum number of Shares of Restricted Stock granted
pursuant to Article 7 herein, shall be three hundred thousand (300,000).
Unless and until the Committee determines that an Award to a Named
Executive Officer shall not be designed to comply with the Performance-Based
Exception, the following rules shall apply to grants of such Awards to any Named
Executive Officer under the Plan:
(a) The maximum annual aggregate number of Options/SARs that may be
granted shall be two hundred twenty-five thousand (225,000); and
(b) The maximum annual aggregate number of Restricted Shares that may
be granted shall be seventy-five thousand (75,000); and
(c) The maximum annual aggregate number of Performance Shares that
may be granted shall be ninety thousand (90,000); and
(d) The maximum annual aggregate cash payout with respect to Awards
granted pursuant to Articles 8 and 9 herein which may be made to any
Named Executive Officer shall be four hundred fifty thousand dollars
($450,000); and
(e) The maximum annual aggregate number of Shares granted under Article
9 herein shall be one hundred twenty thousand (120,000).
4.2 Lapsed Awards. If any Award granted under this Plan is canceled,
terminates, expires, or lapses for any reason, any Shares subject to such Award
again shall be available for the grant of an Award under the Plan. However, in
the event that prior to the Award's cancellation, termination, expiration, or
lapse, the holder of the Award at any time received one or more "benefits of
ownership" pursuant to such Award (as defined by the Securities and Exchange
Commission, pursuant to any rule or interpretation promulgated under Section 16
of the Exchange Act), the Shares subject to such Award shall not be made
available for regrant under the Plan.
4.3 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, split-up, Share combination, or other change in the corporate
structure of the Company affecting the Shares, such adjustment shall be made in
the number and class of Shares which may be delivered under the Plan, and in the
number and class of and/or price of Shares subject to outstanding Awards granted
under the Plan, as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement of rights;
and provided that the number of Shares subject to any Award shall always be a
whole number.
Article 5. Eligibility and Participation
5.1 Eligibility. Persons eligible to participate in this Plan include all
active Employees of the Company and its Subsidiaries, as determined by the
Committee, including Employees who are members of the Board, but excluding
Directors who are not Employees.
5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees at any time and from time to time as shall
be determined by the Committee. The Committee shall have discretion in
determining the number of Shares subject to Options granted to each Participant.
The Committee may grant ISOs, NQSOs, or a combination thereof.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO within the meaning of Section 422 of the Code,
or a NQSO whose grant is intended not to fall under the Code provisions of
Section 422.
6.3 Option Price. The Option Price for each grant of an Option under this
Section 6.3 shall be at least equal to one hundred percent (100%) of the Fair
Market Value of a Share on the date the Option is granted.
6.4 Duration of Options. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth (10th) anniversary date of its
grant.
6.5 Dividend Equivalents. Simultaneous with the grant of a Nonqualified
Stock Option, the Participant receiving the Option may be granted, at no
additional cost, under any terms and conditions set forth by the Committee,
Dividend Equivalents. Each Dividend Equivalent shall entitle the Participant to
receive a contingent right to be paid an amount equal to the dividends declared
on a Share on all record dates occurring during the period between the grant
date of an Option and the date the Option is exercised.
The underlying value of each Dividend Equivalent shall accrue as a book
entry in the name of each Participant holding the Dividend Equivalent. Payout of
the accrued value of a Dividend Equivalent shall occur only in the event the
Option issued in tandem with the Dividend Equivalent is "in the money" (i.e.,
the Fair Market Value of Shares underlying the Option as of the exercise date
exceeds the Option Price) as of the exercise date. Payout of Dividend
Equivalents shall be made in cash or Shares, in one lump sum, within thirty (30)
days following the exercise of the corresponding Option, subject to such terms
and conditions as the Committee deems appropriate.
6.6 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for
each grant or for each Participant.
6.7 Payment. Options shall be exercised by the delivery of a written notice
of exercise to the Company, setting forth the number of Shares with respect to
which the Option is to be exercised, accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price), or (c) by a combination of
(a) and (b), as specified by the Committee.
The Committee also may allow cashless exercises as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law restrictions,
or by any other means which the Committee determines to be consistent with the
Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s).
6.8 Termination of Employment. Each Participant's Award Agreement shall set
forth the extent to which the Participant shall have the right to exercise the
Option following termination of the Participant's employment with the Company
and/or its Subsidiaries. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award Agreement entered
into with each Participant, need not be uniform among all Options issued
pursuant to this Article 6, and may reflect distinctions based on the reasons
for termination of employment.
6.9 Nontransferability of Options. No Option granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all
Options granted to a Participant under the Plan shall be exercisable during his
or her lifetime only by such Participant, or, if permissible under applicable
law, by such Participant's guardian or legal representative.
Article 7. Restricted Stock
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to eligible Employees in such amounts as the Committee shall
determine.
7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by an Award Agreement that shall specify the Period of Restriction, or
Periods, the number of Restricted Stock Shares granted, and such other
provisions as the Committee shall determine.
7.3 Transferability. Except as provided in this Article 7, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Award Agreement,
or upon earlier satisfaction of any other conditions, as specified by the
Committee in its sole discretion and set forth in the Award Agreement. All
rights with respect to the Restricted Stock granted to a Participant under the
Plan shall be available during his or her lifetime only to such Participant.
7.4 Other Restrictions. The Committee shall impose such other conditions
and/or restrictions on any Shares of Restricted Stock granted pursuant to the
Plan as it may deem advisable including, without limitation, a requirement that
Participants pay a stipulated purchase price for each Share of Restricted Stock,
restrictions based upon the achievement of specific performance goals
(Company-wide, divisional, and/or individual), and/or restrictions under
applicable Federal or state securities laws; and may legend the certificates
representing Restricted Stock to give appropriate notice of such restrictions.
7.5 Certificate Legend. In addition to any legends placed on certificates
pursuant to Section 7.4 herein, each certificate representing Shares of
Restricted Stock granted pursuant to the Plan may bear the following legend:
"The sale or other transfer of the Shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer as set forth in the TNP
Enterprises, Inc. Equity Incentive Plan, and in an Award Agreement. A
copy of the Plan and such Award Agreement may be obtained from TNP
Enterprises, Inc."
The Company shall have the right to retain the certificates representing
Shares of Restricted Stock in the Company's possession until such time as all
conditions and/or restrictions applicable to such Shares have been satisfied.
7.6 Removal of Restrictions. Except as otherwise provided in this Article
7, Shares of Restricted Stock covered by each Restricted Stock grant made under
the Plan shall become freely transferable by the Participant after the last day
of the Period of Restriction. Once the Shares are released from the
restrictions, the Participant shall be entitled to have the legend required by
Section 7.5 removed from his or her Share certificate.
7.7 Voting Rights. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
7.8 Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with all regular cash dividends paid with respect to all Shares while
they are so held. Except as provided in the succeeding sentence, all other cash
dividends and other distributions paid with respect to Shares of Restricted
Stock may be credited to Participants subject to the same restrictions on
transferability and forfeitability as the Shares of Restricted Stock with
respect to which they were paid. If any such dividends or distributions are paid
in Shares, the Shares shall be subject to the same restrictions on
transferability and forfeitability as the Shares of Restricted Stock with
respect to which they were paid. Subject to the succeeding paragraph, all
dividends credited to a Participant shall be paid to the Participant within
forty-five (45) days following the full vesting of the Shares of Restricted
Stock with respect to which such dividends were earned.
7.9 Termination of Employment. Each Award Agreement shall set forth the
extent to which the Participant shall have the right to receive unvested
Restricted Shares following termination of the Participant's employment with the
Company and/or its Subsidiaries. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award Agreement entered
into with each Participant, need not be uniform among all Shares of Restricted
Stock issued pursuant to the Plan, and may reflect distinctions based on the
reasons for termination of employment; provided, however, that except in the
cases of terminations connected with a Change in Control and terminations by
reason of death or Disability, the vesting of Shares of Restricted Stock which
qualify for the Performance-Based Exception and which are held by Named
Executive Officers shall occur at the time they otherwise would have, but for
the employment termination.
Article 8. Performance Units and Performance Shares
8.1 Grant of Performance Units/Shares. Subject to the terms of the Plan,
Performance Units and Performance Shares may be granted to eligible Employees at
any time and from time to time, as shall be determined by the Committee. The
Committee shall have complete discretion in determining the number of
Performance Units and Performance Shares granted to each Participant.
8.2 Award Agreement. Each Performance Share/Unit grant shall be evidenced
by an Award Agreement that shall specify the number of Performance Shares/Units
granted, the value of each Performance Share/Unit granted, the Performance
Period, the performance measures, and such other provisions as the Committee may
determine.
8.3 Value of Performance Units/Shares. Each Performance Unit shall have an
initial value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the date of grant. The Committee shall set performance goals in its
discretion which, depending on the extent to which they are met, will determine
the number and/or value of Performance Units/Shares that will be paid out to the
Participants. The time period during which the performance goals must be met
shall be called a "Performance Period." Performance Periods shall, in all cases,
exceed six (6) months in length.
8.4 Dividend Equivalents. Simultaneous with the grant of Performance
Units/Shares, the Participant receiving the Performance Units/Shares may be
granted, at no additional cost, Dividend Equivalents. Each Dividend Equivalent
shall entitle the Participant to receive a contingent right to be paid an amount
equal to the dividends declared on a Share on all record dates occurring during
the period between the grant of Performance Units/Shares and the date the
Performance Units/Shares are earned, subject to such terms and conditions as the
Committee deems appropriate.
The underlying value of each Dividend Equivalent shall accrue as a book
entry in the name of each Participant holding the Dividend Equivalent. Payout of
the accrued value of a Dividend Equivalent may be contingent on the achievement
of performance goal(s) set by the Committee which, depending on the extent to
which they are met, will determine the number and/or value of Dividend
Equivalents that will be paid out to the Participants. Notwithstanding the
foregoing, the Company or Subsidiary performance measures to be used for
purposes of grants to Named Executive Officers shall be chosen from and subject
to the conditions specified in Article 10 hereof.
Payout of Dividend Equivalents shall be made in cash or Shares or a
combination thereof, as determined by the Committee, in one (1) lump sum, within
thirty (30) days following the payout of Performance Units/Shares.
8.5 Earning of Performance Units/Shares. After the applicable Performance
Period has ended, the holder of Performance Units/Shares shall be entitled to
receive payout on the number and value of Performance Units/Shares earned by the
Participant over the Performance Period, to be determined by the Committee as a
function of the extent to which the corresponding performance goals have been
achieved.
8.6 Form and Timing of Payment of Performance Units/Shares. Payment of
earned Performance Units/Shares shall be made in a single lump sum, within
seventy-five (75) calendar days following the close of the applicable
Performance Period. The Committee, in its sole discretion, may pay earned
Performance Units/Shares in the form of cash or in Shares (or in a combination
thereof), which have an aggregate Fair Market Value equal to the value of the
earned Performance Units/Shares at the close of the applicable Performance
Period. Such Shares may be granted subject to any restrictions deemed
appropriate by the Committee.
At the discretion of the Committee, Participants may be entitled to receive
any dividends declared with respect to Shares which have been earned in
connection with grants of Performance Units and/or Performance Shares which have
been earned, but not yet distributed to Participants. (Such dividends shall be
subject to the same accrual, forfeiture, and payout restrictions as apply to
dividends earned with respect to Shares of Restricted Stock, as set forth in
Section 7.8 herein.) In addition, Participants may, at the discretion of the
Committee, be entitled to exercise their voting rights with respect to such
Shares.
8.7 Termination of Employment Due to Death, Disability, Retirement, or
Involuntary Termination Without Cause. In the event the employment of a
Participant is terminated by reason of death, Disability, Retirement, or
involuntary termination without Cause during a Performance Period, the
Participant shall receive a prorated payout of the Performance Units/Shares. The
prorated payout shall be determined by the Committee, in its sole discretion,
and shall be based upon the length of time that the Participant held the
Performance Units/Shares during the Performance Period, and shall further be
adjusted based on the achievement of the preestablished performance goals.
Payment of earned Performance Units/Shares shall be made at the same time
payments are made to Participants who did not terminate employment during the
applicable Performance Period.
8.8 Termination of Employment for Other Reasons. In the event that a
Participant's employment terminates for any reason other than those reasons set
forth in Section 8.7 herein, all Performance Units/Shares shall be forfeited by
the Participant to the Company. The Committee, however, in its sole discretion,
shall have the right to make payment of Awards for any Performance Periods
coincident with terminations pursuant to this Section 8.8.
8.9 Nontransferability. Except as provided in a Participant's Award
Agreement, Performance Units/Shares may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, a Participant's rights under the Plan
shall be exercisable during the Participant's lifetime only by the Participant
or the Participant's legal representative.
Article 9. Other Stock-Based Awards
Subject to the terms of the Plan, Other Stock-Based Awards may be granted
to eligible Employees at any time and from time to time and in such amounts and
upon such terms as the Committee deems appropriate.
Article 10. Performance Measures
Unless and until the Committee proposes for shareholder vote and
shareholders approve a change in the general performance measures set forth in
this Article 10, the attainment of which may determine the degree of payout
and/or vesting with respect to Awards to Named Executive Officers which are
designed to qualify for the Performance-Based Exception, the performance
measure(s) to be used for purposes of such grants shall be chosen from among the
following alternatives:
-Earnings per share;
-Measurements of cost control effectiveness such as the ratio of operations
and maintenance costs to kilowatt hour sales;
-Measurements of community involvement and customer satisfaction;
-Measurements of anticipation and resolution of environmental issues;
-Measurements of reliability such as the equivalent forced outage rate,
minutes of outage per customer served, and number of customers interrupted
per customer served;
-Measurements of employee safety;
-Measurements of long-term rate competitiveness;
-Total shareholder return compared to one or more groups as determined by
the Incentive Plan Committee; and Cash value added.
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the preestablished performance goals; provided, however,
that Awards which are designed to qualify for the Performance-Based Exception,
and which are held by the Named Executive officers, may not be adjusted upward.
(The Committee shall retain the discretion to adjust such Awards downward.)
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval. In
addition, in the event the Committee determines it is advisable to grant Awards
which shall not qualify for the Performance-Based Exception, the Committee may
make such grants without satisfying the requirements of Code Section 162(m).
Article 11. Beneficiary Designation
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
The spouse of a married Participant domiciled in a community property
jurisdiction shall join in any designation of beneficiary or beneficiaries other
than the spouse.
Article 12. Deferrals
The Committee, in its sole discretion, may permit or require a Participant
to defer such Participant's receipt of the payment of cash or the delivery of
Shares that would otherwise be due to such Participant by virtue of the exercise
of an Option or the lapse or waiver of restrictions with respect to Restricted
Stock, or the satisfaction of any requirements or goals with respect to
Performance Units/Shares or Other Stock-Based Awards hereunder. If any such
deferral election is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals.
Article 13. Rights of Employees
13.1 Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
For purposes of the Plan, transfer of employment of a Participant between
the Company and any one of its Subsidiaries, or vice-versa, (or between
Subsidiaries) shall not be deemed a termination of employment. Upon such a
transfer, the Committee may make such adjustments to outstanding Awards as it
deems appropriate to reflect the changed reporting relationships.
13.2 Participation. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.
Article 14. Change in Control
Upon the occurrence of a Change in Control, unless otherwise specifically
prohibited by applicable law or by the rules and regulations of any governmental
agencies or national securities exchanges:
(a) Any and all Options granted hereunder shall become immediately
exercisable;
(b) Any Period of Restriction and restrictions imposed on Restricted Shares
shall lapse;
(c) The target payout opportunity attainable under all outstanding
Awards of Restricted Stock, Performance Units, Performance
Shares, and Other Stock-Based Awards shall be deemed to have been
fully earned for the entire Performance Period(s) as of the
effective date of the Change in Control. The vesting of all
Awards denominated in Shares shall be accelerated as of the
effective date of the Change in Control, and there shall be paid
out in cash to Participants within thirty (30) days following the
effective date of the Change in Control the full portion of such
target payout opportunity; provided, however, that if the
effective date of the Change in Control is within six months
after the grant of an Award of Restricted Stock, Performance
Units, Performance Shares, or Other Stock-Based Awards, then the
payout to a Participant shall not occur until the earlier of (i)
the scheduled payout or vesting date of such Award or (ii) upon
the actual or constructive termination of the Participant, if
such termination occurs during the two-year period following such
effective date; and
(d) Subject to Article 15 herein, the Committee shall have the authority
to make any modifications to the Awards as determined by the Committee
to be appropriate before the effective date of the Change in Control.
Article 15. Amendment, Modification, and Termination
15.1 Amendment, Modification, and Termination. The Board may, at any time,
and from time to time, alter, amend, suspend or terminate the Plan in whole or
in part; provided, that no amendment which requires shareholder approval in
order for the Plan to continue to comply with Rule 16b-3 under the Exchange Act,
including any successor to such Rule, shall be effective unless such amendment
shall be approved by the requisite vote of shareholders of the Company entitled
to vote thereon.
The Committee shall not have the authority to cancel outstanding Awards and
issue substitute Awards in replacement thereof.
15.2 Awards Previously Granted. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant holding
such Award.
15.3 Compliance With Code Section 162(m). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Committee determines that such compliance is not desired with respect to any
Award or Awards available for grant under the Plan, then compliance with Code
Section 162(m) will not be required. In addition, in the event changes are made
to Code Section 162(m) to permit greater flexibility with respect to any Award
or Awards available under the Plan, the Committee may, subject to this Article
15, make any adjustments it deems appropriate.
Article 16. Withholding
16.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising or as a result of any Award to a Participant under
this Plan.
16.2 Share Withholding. With respect to withholding required upon the
exercise of Options, upon the lapse of restrictions on Restricted Stock, or upon
any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
The Committee may establish such procedures as it deems appropriate for the
settling of withholding obligations with Shares, including, without limitation,
the establishment of such procedures as may be necessary to comply with the
requirements of Rule 16b-3, unless otherwise determined by the Committee.
Article 17. Indemnification
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgment in any such action, suit, or proceeding against him or her, provided he
or she shall give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be entitled under
the Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
Article 18. Successors
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
Article 19. Restrictions on Share Transferability
In addition to any restrictions imposed pursuant to the Plan, all
certificates for Shares delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange or market upon which such Shares are then listed or traded,
any applicable Federal or state securities laws, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
Article 20. Legal Construction
20.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
20.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
20.3 Requirements of Law. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
20.4 Securities Law Compliance. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions or Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of the
Plan or action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
20.5 Governing Law. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the State of Texas.
