<PAGE>
SCHEDULE 14A INFORMATION
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:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
TNP ENTERPRISES, INC.
(Name of Registrant as Specified In Its Certificate)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, no par value per share
2) Aggregate number of securities to which transaction applies:
13,412,615(1)
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$44.00(2)
4) Proposed maximum aggregate value of transaction: $590,155,060
5) Total fee paid: $118,031.01
(1) Total number of shares of Common Stock estimated to be outstanding as
of June 30, 1999.
(2) Pursuant to Rule 0-11, the filing fee was computed on the basis of a
$44.00 per share cash merger consideration.
[X] 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) Total number of shares of Common Stock estimated to be outstanding
as of June 30, 1999.
2) Pursuant to Rule 0-11, the filing fee was computed on the basis of a
$44.00 per share cash merger consideration.
3) Filing Party: TNP Enterprises, Inc.
4) Date Filed: July 6, 1999
<PAGE>
[LOGO OF TNP ENTERPRISES, INC. APPEARS HERE]
4100 International Plaza
Fort Worth, Texas 76109
(817) 731-0099
August 11, 1999
To Our Shareholders:
We invite you to attend a Special Meeting of the shareholders of TNP
Enterprises, Inc. ("TNP") to be held at 11:00 a.m., Central Daylight Time, on
September 22, 1999, at Will Rogers Memorial Center, South Texas Room, One Amon
Carter Square, Fort Worth, Texas.
The purpose of the Special Meeting is to consider and vote upon the merger
of ST Acquisition Corp. ("Sub"), a Texas corporation and a wholly owned
subsidiary of SW Acquisition, L.P. , a Texas limited partnership ("Parent"),
with and into TNP pursuant to a merger agreement among TNP, Parent and Sub. As
a result of the merger, TNP will continue as the surviving corporation and
become a wholly-owned subsidiary of Parent, and TNP's shareholders will be
entitled to receive in cash $44.00 for each share of TNP common stock they own.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the proposed merger. The Board has also received a written
opinion dated May 24, 1999 and confirmed as of the date of the Proxy Statement
from Warburg Dillon Read LLC ("Warburg Dillon Read"), TNP's financial advisor.
Warburg Dillon Read's opinion addresses the fairness from a financial point of
view (as of such date and confirmed as of the date of the Proxy Statement) of
the consideration the shareholders will receive in the merger. You are urged to
read, understand and consider the discussions of all of these factors set forth
in the Proxy Statement in determining whether to vote for or against the
merger. A copy of Warburg Dillon Read's opinion, which has been confirmed as of
the date of this Proxy Statement, is attached as Appendix B to the Proxy
Statement.
Based on its review of the terms and conditions of the merger, the Board has
determined that the merger is fair and in the best interests of TNP and the TNP
shareholders and unanimously recommends that you vote "FOR" adoption of the
merger agreement and approval of the merger.
We have included details of the proposed merger and other material
information in the Proxy Statement. Please review the Proxy Statement
carefully. At least two-thirds of the outstanding shares of common stock must
vote in favor of the proposal for its approval. As a result, your failure to
vote will have the same effect as a vote against the merger agreement and the
merger. Accordingly, your vote is very important. We urge you to complete, sign
and date the enclosed proxy or voting instruction card and return it in the
enclosed return envelope, whether or not you plan to attend the Special
Meeting. If you do attend the Special Meeting and wish to vote in person, you
may withdraw your proxy and vote in person.
Please do not send any stock certificates at this time. You will receive
instructions regarding the surrender of your stock certificate(s) and receive
payment for your shares of common stock after the effective time of the merger.
If you have any questions prior to the Special Meeting or need further
assistance, please call Georgeson Shareholder Communications, Inc. at (800)
233-2064.
Sincerely,
/s/ KEVERN R. JOYCE
Kevern R. Joyce
Chairman of the Board of Directors,
President and Chief Executive
Officer
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
<PAGE>
[LOGO OF TNP ENTERPRISES, INC. APPEARS HERE]
4100 International Plaza
Fort Worth, Texas 76109
(817) 731-0099
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on September 22, 1999
To the Shareholders of TNP Enterprises, Inc.:
A Special Meeting of shareholders (the "Special Meeting") of TNP
Enterprises, Inc., a Texas corporation ("TNP"), will be held on September 22,
1999, at 11:00 a.m., Central Daylight Time, at Will Rogers Memorial Center,
South Texas Room, One Amon Carter Square, Fort Worth, Texas, for the following
purposes:
1. To consider and vote upon a proposal to (a) adopt the Agreement and Plan
of Merger, dated as of May 24, 1999, and as amended dated August 9,
1999, by and among SW Acquisition, L.P., a Texas limited partnership
("Parent"), ST Acquisition Corp., a Texas corporation and a wholly owned
subsidiary of Parent ("Sub"), and TNP, and (b) approve the merger of Sub
with and into TNP as contemplated by the merger agreement. Subject to
the terms and conditions of the merger agreement, at the effective time
of the merger, each share of common stock, no par value per share, of
TNP outstanding immediately prior to the effective time (other than
shares held in treasury by TNP or owned by Parent, or any subsidiary of
TNP or Parent, and shares held by shareholders of TNP who have validly
exercised and perfected appraisal rights under Texas law) will be
automatically converted into the right to receive $44.00 in cash, as
more fully described in the accompanying Proxy Statement; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The attached Proxy Statement contains information about the matters to be
acted upon at the Special Meeting and summarizes the merger agreement, a copy
of which appears as Appendix A to the accompanying Proxy Statement.
The Board of Directors has fixed the close of business on August 3, 1999, as
the record date (the "Record Date") for the determination of shareholders
entitled to notice of, and to vote at, the Special Meeting or any adjournment
thereof. Only holders of record of shares of TNP common stock at the close of
business on the Record Date are entitled to notice of, and to vote at, the
Special Meeting.
The proxy holders will vote the shares of common stock represented by
properly executed proxies as directed on the proxy card. If no directions are
given, proxies will be voted "FOR" adoption of the merger agreement and
approval of the merger.
Shareholders who do not vote in favor of the merger and who otherwise comply
with the requirements and procedures set forth in Articles 5.11, 5.12 and 5.13
of the Texas Business Corporation Act (the "TBCA") may be entitled to seek an
appraisal of their shares and to obtain the "fair value" of their shares
instead of receiving $44.00 in cash per share. See "The Merger--Appraisal
Rights of Dissenting Shareholders," in the Proxy Statement and the full text of
which is included as Appendix C to the Proxy Statement.
The South Texas Room is located on the main level of the Amon G. Carter, Jr.
Exhibits Hall at the Will Rogers Memorial Center. To reach the Amon G. Carter,
Jr. Exhibits Hall, travel on Interstate 30 approximately 3 miles west of
downtown Fort Worth to the Montgomery Street exit (Exit 11). Turn north on
Montgomery Street. The second traffic light is Burnett/Tandy Drive. Turn east
on Burnett/Tandy. The Amon G. Carter, Jr. Exhibits Hall is the second building
on the left. Free parking is available near the front entrance of the Amon G.
Carter, Jr. Exhibits Hall.
<PAGE>
Your vote is important, regardless of the number of shares you may hold.
Please vote as soon as possible to make sure that your shares are represented
at the Special Meeting, whether or not you expect to attend the Special
Meeting. To grant your proxy to vote your shares, please complete, date and
sign the enclosed proxy card and mail it promptly in the enclosed return
envelope. You may, of course, attend the Special Meeting, revoke your proxy and
vote in person even if you already returned your proxy card. If you do not
vote, it will have the same effect as a vote against approval and adoption of
the merger agreement and the merger.
By Order of the Board of Directors
/s/ PAUL W. TALBOT
Paul W. Talbot
Secretary
Fort Worth, Texas
August 11, 1999
<PAGE>
[LOGO OF TNP ENTREPRISES, INC. APPEARS HERE]
4100 International Plaza
Fort Worth, Texas 76109
(817) 731-0099
PROXY STATEMENT
For
SPECIAL MEETING OF SHAREHOLDERS
To Be Held on September 22, 1999
This Proxy Statement relates to the proposed merger of ST Acquisition Corp.
("Sub"), a Texas corporation and wholly owned subsidiary of SW Acquisition,
L.P., a Texas limited partnership ("Parent"), with and into TNP Enterprises,
Inc., a Texas corporation ("TNP"), pursuant to the Agreement and Plan of Merger
dated as of May 24, 1999, and as amended dated August 9, 1999, by and among
Parent, Sub and TNP. Parent and Sub are each newly formed entities that were
organized by an investor group led by Dr. William J. Catacosinos ("Dr.
Catacosinos"), the former chairman and chief executive officer of Long Island
Lighting Company, and by Canadian Imperial Bank of Commerce (collectively with
its affiliates, "CIBC") for the purpose of entering into the merger agreement.
The investor group consists primarily of institutional investors, some of which
are affiliated with Dr. Catacosinos or CIBC. Upon the effective time of the
merger, TNP will no longer be publicly held, and TNP's common stock will no
longer be traded on the New York Stock Exchange (the "NYSE").
Subject to the terms and conditions of the merger agreement, at the
effective time of the merger, (i) each share of TNP common stock, no par value,
outstanding immediately prior to the effective time of the merger (other than
shares held in treasury by TNP or owned by Parent, or any subsidiary of TNP or
Parent, and shares held by shareholders of TNP who have validly exercised and
perfected appraisal rights under Texas law) will be automatically converted
into the right to receive $44.00 in cash, (ii) Sub will be merged with and into
TNP, and (iii) TNP will continue as the surviving corporation and become a
wholly owned subsidiary of Parent.
TNP is furnishing this Proxy Statement to holders of shares of TNP common
stock in connection with the solicitation of proxies by its Board of Directors
(the "Board") for use at a special meeting of TNP shareholders (the "Special
Meeting") to be held on September 22, 1999. TNP is mailing this Proxy Statement
and the accompanying form of proxy to its shareholders beginning August 11,
1999.
At the Special Meeting, TNP shareholders will be asked to adopt the merger
agreement and approve the merger. The Board has determined that the merger is
fair and in the best interest of TNP and TNP's shareholders and has unanimously
approved the merger agreement and the merger and unanimously recommends that
you vote "FOR" the adoption of the merger agreement and approval of the merger.
No one has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement in
connection with the solicitation of proxies made hereby, and, if given or made,
such information or representation must not be relied upon as having been
authorized by TNP or any other person.
Dated as of August 11, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................................... 1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................... 4
SUMMARY..................................................................... 5
The Parties............................................................... 5
TNP..................................................................... 5
Parent.................................................................. 5
Sub..................................................................... 5
The Special Meeting....................................................... 5
Date, Time and Place.................................................... 5
Purposes of the Special Meeting......................................... 5
Record Date; Shares Entitled to Vote.................................... 6
Quorum.................................................................. 6
Vote Required........................................................... 6
Security Ownership of Management........................................ 6
The Merger................................................................ 6
Effect of the Merger.................................................... 6
Background of the Merger................................................ 6
Recommendation of the Board............................................. 6
Opinion of Financial Advisor to TNP..................................... 6
Financing for the Merger................................................ 7
Terms of the Merger Agreement............................................. 7
Effective Time of the Merger............................................ 7
Certain Conditions to the Merger........................................ 7
Manner and Basis of Converting Shares................................... 8
Stock Option Plans...................................................... 8
No Solicitation......................................................... 9
Termination of the Merger Agreement..................................... 9
Termination Fees and Expenses........................................... 10
Interests of Certain Persons in the Merger................................ 11
Executive Officers...................................................... 11
Bonus and Incentive Awards.............................................. 12
Severance Agreements.................................................... 12
Indemnification......................................................... 12
Regulatory Filings and Approvals.......................................... 12
Federal Income Tax Consequences........................................... 12
Appraisal Rights of Dissenting Shareholders............................... 12
Market Price Data......................................................... 13
Selected Financial Data of TNP............................................ 14
THE SPECIAL MEETING......................................................... 15
Date, Time and Place...................................................... 15
Purposes of the Special Meeting........................................... 15
Record Date and Outstanding Shares........................................ 15
Voting and Revocation of Proxies.......................................... 15
Quorum.................................................................... 15
Vote Required............................................................. 15
Solicitation of Proxies................................................... 16
Other Matters............................................................. 16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
THE MERGER.................................................................. 16
The Parties............................................................... 16
TNP..................................................................... 16
Parent.................................................................. 16
Sub..................................................................... 16
Background................................................................ 16
TNP's Reasons for the Merger; Recommendation of the Board................. 19
Opinion of Financial Advisor to TNP....................................... 21
Discounted Cash Flow Analysis........................................... 22
Generally Comparable Trading Analysis................................... 22
Generally Comparable Acquisition Analysis............................... 23
Interests of Certain Persons in the Merger................................ 24
Executive Officers...................................................... 24
Bonus and Incentive Awards.............................................. 25
Severance Agreements.................................................... 25
Indemnification......................................................... 26
Financing for the Merger.................................................. 26
Partnership Subscription Agreements..................................... 27
Senior Preferred Stock.................................................. 27
Senior Subordinated Notes............................................... 29
Senior Debt Commitment Letter........................................... 30
Backstop Commitment Letter.............................................. 31
Federal Income Tax Consequences........................................... 33
Accounting Treatment...................................................... 34
Existing Relationships with Parent........................................ 34
Appraisal Rights of Dissenting Shareholders............................... 34
TERMS OF THE MERGER AGREEMENT............................................... 36
Effective Time of the Merger.............................................. 36
Manner and Basis of Converting Shares..................................... 37
Stock Options............................................................. 38
Conditions to the Merger.................................................. 39
Representations and Warranties............................................ 41
Certain Covenants Relating to Conduct of Business Prior to the Merger..... 42
No Solicitation........................................................... 43
Certain Post-Merger Matters............................................... 44
Additional Agreements in the Merger Agreement............................. 45
Termination of the Merger Agreement....................................... 46
Termination Fees and Expenses............................................. 48
REGULATORY APPROVALS........................................................ 49
Antitrust Considerations.................................................. 50
Federal Power Act......................................................... 50
Public Utility Commission of Texas........................................ 50
New Mexico Public Regulation Commission................................... 51
Public Utility Holding Company Act of 1935................................ 51
Affiliate Contracts....................................................... 51
Other Regulatory Matters.................................................. 51
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS.............. 53
INDEPENDENT ACCOUNTANTS..................................................... 54
SHAREHOLDER PROPOSALS....................................................... 54
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
AVAILABLE INFORMATION....................................................... 54
INCORPORATION BY REFERENCE.................................................. 54
</TABLE>
<TABLE>
<C> <C> <S>
APPENDIX A -- Agreement and Plan of Merger
APPENDIX B -- Opinion, and Confirmation of Opinion, of Warburg Dillon Read
LLC
APPENDIX C -- Provisions of the Texas Business Corporation Act Relating to
Appraisal Rights of Dissenting Shareholders
</TABLE>
iv
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q:What will be the effect of the merger?
A: TNP will be merged with Sub, which is a wholly-owned subsidiary of Parent.
TNP will continue as the surviving company and become a wholly-owned
subsidiary of Parent. TNP will no longer be publicly held, and TNP common
stock will no longer be traded on the NYSE.
Q:Why did the Board approve the merger?
A: The Board considered a number of factors in approving the merger, including
. the Board's review and analysis of TNP's business, current and future
financial condition, current earnings and earnings prospects, as well as
the competitive business environment and changing regulatory environment
facing a relatively small utility such as TNP;
. the premium that the shareholders will receive for each share of TNP
common stock;
. the financial presentation of Warburg Dillon Read, including its opinion
dated May 24, 1999, to the Board as to the fairness of the merger
consideration from a financial point of view to the holders of TNP
common stock;
. historical market prices of TNP's common stock; and
. other factors, as described in "The Merger--TNP's Reasons for the
Merger; Recommendation of the Board."
Q:What will I receive for my TNP shares after the merger is completed?
A: Each shareholder (except for shareholders who have validly exercised and
perfected appraisal rights under Texas law) will be entitled to receive
$44.00 in cash for each share of TNP common stock.
Q:What do I need to do now?
A: Just mail your signed and completed proxy card in the enclosed return
envelope as soon as possible, so that your shares can be voted at the
Special Meeting.
Q:If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should contact your broker and ask what directions your broker
will need from you. Your broker will not be able to vote your shares without
instructions from you.
Q:Can I change my vote after I have mailed my signed proxy card?
A: Yes. You can change your vote at any time before your proxy is voted at the
Special Meeting. You can do this in one of three ways. First, you can attend
the special meeting and vote in person. Your attendance alone will not,
however, revoke your proxy. If you have instructed a broker to vote your
shares, you must follow directions received from your broker to change those
instructions. Second, you can complete and submit a new proxy card. Third,
you can send a written notice stating that you would like to revoke your
proxy.
Q:Should I send in my stock certificates now?
A: No. After the merger is completed you will receive written instructions for
exchanging your shares of TNP common stock for the cash payment.
1
<PAGE>
Q:What happens to my future dividends?
A: We plan to continue paying dividends on TNP common stock until the closing
of the merger. We expect to pay these future dividends at approximately the
same time and rate per share as we paid during the last year. However, the
Board will continue to evaluate TNP's financial condition, earnings and
dividend policy, and we cannot assure that dividend payments will continue
in the future.
Q:Do I have appraisal rights for my TNP common stock if the merger is
completed?
A: Yes. If you wish to exercise your appraisal rights, you must file a written
objection to the merger with TNP prior to the Special Meeting, you must not
vote in favor of the merger and you must follow certain procedures described
in this proxy statement. If you comply with these procedures, you will have
the right to have an independent valuation made of your shares and receive
the amount of the valuation in exchange for your shares instead of the
$44.00 per share as provided in the merger. The amount you will receive if
you exercise your appraisal rights may be equal to, more than or less than
$44.00 per share.
Q:What will happen if TNP's shareholders do not approve the merger agreement?
A: If TNP's shareholders do not approve the merger agreement, management and
the Board will continue to operate TNP as before, and may consider other
strategic alternatives. However, if the shareholders do not approve the
merger, TNP (with certain exceptions) will be required to pay Parent $10
million, constituting reimbursement of Parent's and Sub's expenses. In
addition, if TNP enters into any agreement to sell TNP with another party
within one year after the termination of the merger agreement, TNP may be
required to pay Parent a termination fee of $20 million.
Q:What happens if I do not send in my proxy or if I abstain from voting?
A: If you do not send in your proxy, if you do not instruct your broker to vote
your shares, or if you abstain from voting, it will have the same effect as
a vote against the merger.
Q:What are the tax consequences of the merger to shareholders?
A: In general, a shareholder will recognize gain or loss for federal income tax
purposes to the extent of the difference between the cash received and the
holder's tax basis in the shares of TNP common stock exchanged for cash.
Q:What regulatory approvals are needed?
Before the merger can be completed, we must, in addition to receiving
shareholder approval, among other things:
. await the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976;
. receive approval from the Federal Energy Regulatory Commission; and
. receive approvals from state utility regulatory agencies in Texas and
New Mexico.
Q:What other conditions are there to the completion of the merger?
A: The Merger will not be completed if certain conditions are not met or
otherwise waived, including, but not limited to:
. TNP shareholders do not approve the merger;
. a material adverse change in TNP occurs;
2
<PAGE>
. a final regulatory order results in a rate plan significantly less
favorable to TNP than the Texas Transition to Competition Plan and TNP's
rate plans in the State of New Mexico on the date of the merger
agreement;
. all conditions to the financing arrangements of Parent and Sub to effect
the merger have not been satisfied; and
. other conditions, as described in "Terms of the Merger Agreement--
Conditions to the Merger."
Q:What are the conditions to Parent and Sub's financing arrangements?
A: The financing of the merger, which will provide Parent and Sub with the cash
needed to pay for the merger consideration to TNP shareholders and other
expenses, is subject to various conditions such as:
. TNP meeting certain financial tests;
. the continued operation of TNP in its ordinary course of business;
. Parent and each investor in Parent not being subject to regulation as a
registered public utility holding company under the Public Utility
Holding Company Act of 1935; and
. all consents and regulatory approvals for the merger having been
obtained.
Q:When do you expect the merger to be completed?
A: We hope to complete the merger by the first quarter of 2000. We are working
toward completing the merger as quickly as possible, and to the extent that
the regulatory approvals are received and other conditions are satisfied
prior to that time, we intend to complete the merger earlier. However, the
timing and likelihood of obtaining the regulatory approvals described above
are uncertain.
Q:Who can help answer my questions?
A: If you have more questions about the merger, you should contact:
Georgeson Shareholder Communications, Inc.
Telephone: (800) 233-2064
3
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995:
(i) Certain statements, including possible or assumed future results of
operations of TNP, contained in "The Merger--Background," "The Merger--
TNP's Reasons for the Merger; Recommendation of the Board" and "The
Merger--Opinion of Financial Advisor to TNP," including any forecasts,
projections and descriptions of anticipated cost savings referred to
therein, and certain statements incorporated by reference from documents
filed with the Securities and Exchange Commission (the "SEC") by TNP and
any statements contained herein or therein regarding the outcome of
current and future rate/regulatory proceedings, the continued
application of regulatory accounting principles, future cash flows, the
potential recovery of stranded costs, future business prospects,
revenues, working capital, liquidity, capital needs, interest costs,
income or the effects of the merger;
(ii) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends," "estimates,"
"projects" or similar expressions; and
(iii) other statements contained or incorporated by reference herein
regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such forward-
looking statements. Shareholders are cautioned not to place undue reliance on
such statements, which speak only as of the date hereof.
Among the factors that could cause actual results to differ materially are:
(i) changes in regulations affecting TNP's business; (ii) results of regulatory
proceedings, including those to approve the merger and related transactions;
(iii) changes in capital markets generally or in the markets for securities
similar to those which Parent and Sub intend to issue to finance the merger;
(iv) changes in general business and economic conditions, particularly in the
geographic areas in which TNP does business; (v) increased competition from
other energy suppliers as well as from alternative forms of energy; (vi)
changes in the availability and pricing of purchased power supplies; (vii) the
impact of legislation in the states that TNP serves that affects the regulation
of its business; and (viii) other risks detailed from time to time in the
reports filed with the SEC by TNP.
The cautionary statements contained or referred to in this Proxy Statement
should be considered in connection with any subsequent written or oral forward-
looking statements that may be issued by TNP or persons acting on its behalf.
Except for its ongoing obligations to disclose material information as required
by the federal securities laws, TNP undertakes no obligation to release
publicly any revisions to any forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
4
<PAGE>
SUMMARY
The following is a summary of information contained elsewhere in this Proxy
Statement and its appendices. You should refer to the more detailed information
contained in or incorporated by reference into this Proxy Statement; this
summary is qualified in its entirety by such information. TNP urges
shareholders to read this Proxy Statement and its appendices carefully and in
their entirety. Unless the context requires otherwise, the term "TNP" means TNP
Enterprises, Inc. and its subsidiaries. Capitalized terms used without
definition are, unless otherwise indicated, defined in the merger agreement and
used in this Proxy Statement with such meanings. The summary of the merger
agreement (as amended, the "merger agreement")contained in this summary is not
complete, and reference is made to the merger agreement, which is attached
hereto as Appendix A.
The Parties
TNP. TNP was organized as a holding company in 1984 and transacts business
through its subsidiaries. Its primary subsidiary, Texas-New Mexico Power
Company ("TNMP"), is a public utility engaged in generating, purchasing,
transmitting, distributing and selling electricity to its customers in Texas
and New Mexico. Each of TNP and TNMP is a Texas corporation. Their executive
offices are located at 4100 International Plaza, P.O. Box 2943, Fort Worth,
Texas 76113, and their telephone number is (817) 731-0099.
Parent. Parent was formed as a Texas limited partnership on May 21, 1999 by
an investor group led by Dr. William J. Catacosinos ("Dr. Catacosinos"), the
former chairman and chief executive officer of Long Island Lighting Company,
and by CIBC for the purpose of entering into the merger agreement. Parent has
not engaged in any business activity other than in connection with the merger
agreement. Substantially all of its assets consist of subscription agreements
pursuant to which the general partner and limited partners of Parent have
subscribed for $100 million in partnership interests. The general partner of
Parent is SW I Acquisition GP, L.P., a Texas limited partnership, which is
ultimately controlled by Dr. Catacosinos. The initial limited partners in the
partnership are CIBC, Caravelle Investment Fund, L.L.C., an investment fund
managed by CIBC ("Caravelle"), Continental Casualty Company, an indirect
subsidiary of Loews Corporation ("CCC"), and Laurel Hill Capital Partners, LLC
("Laurel Hill"), an entity controlled by Dr. Catacosinos. Additional limited
partners, consisting of institutional investors, may be admitted to Parent
prior to or following the merger as a result of sales by certain initial
limited partners of a portion of their rights to subscribe for partnership
interests in Parent; however no such sale will relieve any limited partner of
its obligation to pay the full amount for which it has subscribed. See "The
Merger--Financing for the Merger." Parent's principal address is 2 Robbins
Lane, Suite 201, Jericho, New York 11753, and its telephone number is (516)
933-3100.
Sub. Sub was incorporated under the laws of the State of Texas on May 21,
1999 as a wholly-owned subsidiary of Parent for the purpose of entering into
the merger agreement. Sub has not engaged in any business activity other than
in connection with the merger agreement. Substantially all of its assets
consist of commitment letters pursuant to which certain institutions have
agreed to provide to Sub a portion of the financing required to consummate the
merger. See "The Merger--Financing for the Merger." Sub's principal address is
2 Robbins Lane, Suite 201, Jericho, New York 11753, and its telephone number is
(516) 933-3100.
The Special Meeting
Date, Time and Place. The Special Meeting will be held on September 22,
1999, at Will Rogers Memorial Center, South Texas Room, One Amon Carter Square,
Fort Worth, Texas, commencing at 11:00 a.m. Central Daylight Time.
Purposes of the Special Meeting. At the Special Meeting, TNP's shareholders
will consider and vote upon a proposal to adopt the merger agreement and
approve the merger. TNP's shareholders will also consider and vote upon such
other matters as may properly come before the Special Meeting.
5
<PAGE>
Record Date; Shares Entitled to Vote. Only holders of record of shares of
TNP common stock at the close of business on August 3, 1999 (the "Record
Date"), are entitled to notice of and to vote at the Special Meeting. On such
date, there were 13,415,566 shares of TNP common stock outstanding, each of
which is entitled to one vote on each matter to be acted upon at the Special
Meeting.
Quorum. Holders of a majority of shares of TNP common stock outstanding and
entitled to vote must be present at the Special Meeting, either in person or by
proxy, in order to constitute a quorum and conduct any business.
Vote Required. The affirmative vote of the holders of at least two-thirds of
the common stock outstanding at the Special Meeting is required under the Texas
Business Corporation Act (the "TBCA") to adopt the merger agreement and to
approve the merger. Abstentions and broker non-votes will have the same effect
as a vote against adoption of the merger agreement and against approval of the
merger.
Security Ownership of Management. As of the Record Date, the directors and
executive officers of TNP and their affiliates owned 184,187 shares of TNP
common stock, or approximately 1.4% of the shares entitled to vote at the
Special Meeting.
The Merger
Effect of the Merger. At the effective time of the merger, Sub will merge
with and into TNP. TNP will continue as the surviving corporation (the
"Surviving Corporation") and become a wholly owned subsidiary of Parent.
Subject to the terms and conditions of the merger agreement, at the effective
time of the merger, each share of TNP common stock outstanding at the effective
time of the merger (other than shares held in treasury by TNP or owned by
Parent, or any subsidiary of TNP or Parent and shares held by shareholders of
TNP who have validly exercised and perfected appraisal rights under Texas law)
will be automatically converted into the right to receive $44.00 in cash (the
"Merger Consideration"), and all current holders of TNP common stock will cease
to have any equity interest in, or possess any rights as shareholders of, TNP.
Background of the Merger. For a description of the events leading to the
approval of the merger by the Board, see "The Merger--Background."
Recommendation of the Board. The Board has unanimously determined that the
merger is fair and in the best interest of TNP and the TNP shareholders and
recommends that TNP's shareholders adopt the merger agreement and approve the
merger. See "The Merger--Background" and "--TNP's Reasons for the Merger;
Recommendation of the Board."
Opinion of Financial Advisor to TNP. In deciding to approve the merger, one
of the factors that the Board considered was the opinion of its financial
advisor, Warburg Dillon Read LLC ("Warburg Dillon Read"), that, as of the date
of such opinion and based upon and subject to certain matters stated in such
opinion, the consideration to be received by the holders of TNP common stock
was fair to such shareholders from a financial point of view. Warburg Dillon
Read initially provided its opinion on May 24, 1999 (the date of the execution
of the merger agreement) and has confirmed its opinion in writing as of the
date of this Proxy Statement. TNP urges its shareholders to carefully read
Warburg Dillon Read's opinion and such confirmation, which are attached as
Appendix B to this Proxy Statement, to understand the procedures followed,
assumptions made, matters considered and limitations on the review undertaken
by Warburg Dillon Read in rendering such opinion. See "The Merger--Opinion of
Financial Advisor to TNP." The opinion of Warburg Dillon Read is directed to
the Board and does not constitute a recommendation to any shareholder as to how
such shareholder should vote at the Special Meeting.
6
<PAGE>
Financing for the Merger. The total financing for the merger (including
related costs and expenses) will be approximately $1.068 billion. Of this
amount, approximately $590 million will be required to pay the Merger
Consideration and up to approximately $428 million may be required to refinance
certain indebtedness of TNMP that may become due or that TNMP may be required
to repurchase as a result of the change of control of TNP contemplated by the
merger. Sub intends to obtain all funds needed for the consummation of the
merger through capital contributions from Parent and through borrowing under
credit facilities more fully described below. Parent and Sub have received
commitment letters with respect to such facilities (the "Commitment Letters")
to provide funding on the terms and conditions specified therein. Because
financing is a condition to the merger, each condition to funding set forth in
the Commitment Letters (and the Partnership Subscription Agreements discussed
below) is effectively a condition to Parent's and Sub's obligations to effect
the merger. There are numerous conditions to these financings, and there can be
no assurance that such conditions will be satisfied or waived or that such
financings will be made available to Parent or Sub, as the case may be. These
Commitment Letters have been filed by TNP in a Current Report on Form 8-K dated
August 10, 1999. See "Incorporation by Reference."
When they executed the merger agreement, Parent and Sub delivered to TNP
executed copies of (1) subscription agreements (the "Partnership Subscription
Agreements") from the general partner of Parent, CIBC, Caravelle, CCC and
Laurel Hill (the "Partnership Investors") to commit the common equity financing
in the amount of $100 million to provide Parent and Sub with a portion of the
funds necessary to consummate the transactions contemplated by the merger
agreement, (2) a commitment letter (the "Preferred Stock Bridge Commitment
Letter") from CIBC, The Chase Manhattan Bank ("Chase"), CCC and Laurel Hill
(the "Preferred Stock Investors" and, together with the Partnership Investors,
the "Equity Investors") to commit preferred equity financing in an additional
amount of $100 million to provide Parent and Sub with a portion of the funds
necessary to consummate the transactions contemplated by the merger agreement,
(3) commitment letters from CIBC, Chase and Chase Securities, Inc. ("CSI") to
commit debt financing in an amount up to $868 million to provide Parent and Sub
with all remaining funds necessary to consummate the transactions contemplated
by the merger agreement.
The Preferred Stock Bridge Commitment Letter and the Commitment Letters for
the Debt Financing (as defined below) expire in February 2000. To the extent
necessary and subject to certain conditions contained in the merger agreement,
Parent will use its best efforts to extend these Commitment Letters for an
additional six months. However, there can be no assurance that the merger can
be consummated by February 2000, that these Commitment Letters will be extended
beyond such date or that the merger can be consummated by August 2000. See "The
Merger--Financing for the Merger."
Terms of the Merger Agreement
Effective Time of the Merger. The parties expect that the effective time of
the merger will occur on the third business day following the satisfaction or
waiver of the conditions to the merger contained in the merger agreement. The
merger will become effective when the Secretary of State of the State of Texas
issues a Certificate of Merger.
Certain Conditions to the Merger.
The obligations of Parent and Sub to consummate the merger are subject to
the satisfaction of certain conditions, including the following:
. the adoption of the merger agreement and approval of the merger by the
shareholders of TNP;
. obtaining all required approvals and final orders by any governmental or
regulatory authority;
7
<PAGE>
. the satisfaction of all conditions to the availability of the Equity
Financing (as defined below) and the Debt Financing, and the receipt of
the proceeds of such financings by Parent or Sub, as the case may be,
including, without limitation, TNP meeting certain financial tests, the
continued operation of TNP in its ordinary course of business and that
Parent and each Partnership Investor and Sub lender not be subject to
regulation as a holding company under the Public Utility Holding Company
Act of 1936, as amended ("PUHCA");
. certain executive officers of TNMP entering into employment agreements
satisfactory to Parent;
. holders of not more than 5% of the outstanding shares of TNP common
stock perfecting appraisal rights in accordance with the applicable
provisions of the TBCA; and
. the accuracy of TNP's representations and warranties.
For a description of these and other conditions, see "Terms of the Merger
Agreement--Conditions to the Merger."
Manner and Basis of Converting Shares. At the effective time of the merger,
each issued and outstanding share of TNP common stock (other than the shares
that are canceled as described in the following sentence and shares held by TNP
shareholders who have validly exercised and perfected appraisal rights under
Texas law) will automatically be converted into the right to receive $44.00 in
cash. Any shares of TNP common stock that the Parent, Sub, or any subsidiary of
Parent holds, or that TNP holds as treasury shares, will be canceled and cease
to exist, and no consideration will be delivered or deliverable in exchange for
such shares. This conversion will occur by virtue of the merger and without any
action on the part of any holder of any capital stock of TNP, Parent or Sub.
In order to receive the cash amount of $44.00 per share, shareholders must
surrender for exchange their certificates representing their shares of TNP
common stock (collectively, the "Certificates"). Prior to the effective time of
the merger, Parent will appoint a bank or trust company to act as exchange and
paying agent (the "Paying Agent") for the merger. At the closing of the merger,
Parent will cause the Surviving Corporation to deposit with the Paying Agent,
in a fund established for the benefit of the holders of TNP common stock, for
payment through the Paying Agent, an amount of cash sufficient to pay to the
shareholders of TNP the Merger Consideration.
As soon as reasonably practicable after the effective time of the merger,
the Surviving Corporation will instruct the Paying Agent to mail to each holder
of record of a Certificate or Certificates immediately prior to the effective
time of the merger (i) a form of letter of transmittal and (ii) instructions
for surrendering the Certificates in exchange for payment of the Merger
Consideration.
Stock Option Plans. The merger agreement provides that TNP will use
reasonable efforts to terminate TNP's Non-Employee Director Stock Plan and
TNP's Equity Incentive Plan as of the effective time of the merger. The merger
agreement was amended on August 9, 1999, to require that TNMP's Thrift Plan for
Employees be amended to prohibit the issuance or grant by TNP or any of its
subsidiaries of any capital stock of TNP or any of its subsidiaries. There are
no outstanding options to acquire TNP common stock.
The merger agreement requires that TNP take all actions necessary to provide
that restricted or performance stock granted under TNMP's Thrift Plan for
Employees, TNP's Non-Employee Director Stock Plan and TNP's Equity Incentive
Plan (the "TNP Option Plans") become fully vested and free of restrictions by
the effective time of the merger. The merger agreement permits holders of
restricted or performance stock grants to authorize TNP to retain a number of
shares of TNP common stock from such grant to pay withholding taxes applicable
to the vesting of such grant, in lieu of paying such amount in cash. The
aggregate value of the withheld shares (based on $44.00 per share) must equal
the amount of the withholding taxes.
8
<PAGE>
No Solicitation. The merger agreement restricts TNP, its subsidiaries and
TNP's representatives generally from initiating, soliciting, or encouraging any
other transaction that would result in a merger or the purchase of 10% or more
of the outstanding shares of TNP common stock or the common stock of any of
TNP's subsidiaries or the sale of any significant portion of the assets of TNP
and its subsidiaries taken as a whole. See "Terms of the Merger Agreement--No
Solicitation."
Termination of the Merger Agreement. The merger agreement may be terminated
at any time prior to the effective time of the merger:
(1) by mutual written agreement of Parent and TNP;
(2) by either party if the closing of the merger has not occurred by
February 24, 2000 (provided that (i) the right to terminate will not be
available to any party whose breach of any obligation under the merger
agreement has been the cause of the failure of the effective time to occur
on or before such date and (ii) if all conditions except for (a) the
absence of any injunction by a governmental or regulatory authority
prohibiting the merger, (b) the final approval of the Federal Energy
Regulatory Commission ("FERC") of the merger or (c) obtaining other
regulatory approvals have been satisfied or are capable of being satisfied
by August 24, 2000, this date will be extended until August 24, 2000 (the
"Extended Termination Date"));
(3) by either party if the merger is not approved by TNP's shareholders;
(4) by either party if there has been a material breach of the other
party that has not been cured within 30 days following notice;
(5) by either party if any court or other governmental authority issues
a final order making the merger illegal or otherwise restricting or
prohibiting the merger;
(6) by either party if (a) all consents, approvals and actions to
consummate the merger and the other matters contemplated by the merger
agreement were not obtained or were obtained but have not become final
orders (the failure of which to be obtained could be reasonably expected to
have a material adverse effect on Parent and its subsidiaries or the
Surviving Corporation and its subsidiaries or on the ability of Parent and
TNP to consummate the transactions contemplated by the merger agreement) or
(b) such final orders, individually or in the aggregate, contain terms or
conditions that would have or would reasonably be expected to have a
material adverse effect on the Surviving Corporation and its subsidiaries;
(7) by TNP if the Board determines in good faith, based on advice of
counsel, that termination of the merger agreement is required for the Board
to comply with its fiduciary duties to shareholders imposed by law by
reason of an unsolicited Alternative Proposal (as defined in "Terms of the
Merger Agreement--No Solicitation") and TNP pays to Parent a termination
fee of $20 million and expenses of $10 million;
(8) by Parent if the Board withdraws its recommendation of the merger or
recommends or takes no position with respect to an Alternative Proposal or
if TNP amends its Amended and Restated Rights Agreement (the "Rights Plan")
in an adverse manner to Parent, the Surviving Corporation or any of their
respective subsidiaries or in a manner that would limit the ability of TNP,
Parent or Sub to consummate the merger;
(9) by TNP if any of the Commitment Letters, Partnership Subscription
Agreements, Definitive Preferred Stock Agreements (as defined below) or
Definitive Debt Financing Agreements (as defined below) are terminated at a
time when Parent would not be entitled to terminate the merger agreement in
the manner described under (2) through (6) or (8) above, and such financing
commitments are not replaced within 10 business days of such termination as
discussed under "Terms of the Merger Agreement--Termination of the Merger
Agreement"; or
(10) by Parent if there is a final order with respect to any required
approval, or a change in or event relating to the order by the Public
Utility Commission of Texas (the "PUCT") with respect to TNP's Texas
Transition to Competition Plan, that could reasonably result in a rate plan
that would be significantly less favorable to the Surviving Corporation
than the Texas Transition Plan to Competition and the rate plans applicable
to TNP in New Mexico on the date of the merger agreement.
9
<PAGE>
Termination Fees and Expenses. TNP will be required to pay Parent a
termination fee of $20 million (the "Termination Fee"), plus $10 million (the
"Expense Amount") constituting reimbursement of expenses incurred by Parent and
Sub in connection with the merger agreement, in the event that any person or
group has made an Alternative Proposal and the merger agreement is terminated:
(1) by TNP because the Board has determined in good faith based on
advice of counsel that termination of the merger agreement is required for
the Board to comply with its fiduciary duties to shareholders imposed by
law by reason of an unsolicited Alternative Proposal;
(2) by the Parent because of a material breach by TNP that has not been
cured within 30 days following notice;
(3) by the Parent because (a) the Board has withdrawn its recommendation
of the merger or has recommended or taken no position with respect to an
Alternative Proposal or (b) if TNP has amended the Rights Plan in an
adverse manner to Parent, the Surviving Corporation or any of their
respective subsidiaries or in a manner that would limit the ability of TNP,
Parent or Sub to consummate the merger;
(4) by either party because the merger has not been approved by TNP's
shareholders (and such Alternative Proposal has been made known to TNP's
shareholders generally), and the Board recommends the Alternative Proposal
or an agreement with respect to the Alternative Proposal is executed within
one year of the termination of the merger agreement;
(5) by either party because a court or other governmental entity has
issued a final order making the merger illegal or otherwise restricting or
prohibiting the merger, and the Board recommends the Alternative Proposal
or an agreement with respect to the Alternative Proposal is executed within
one year of the termination of the merger agreement;
(6) by either party if (a) all consents, approvals and actions to
consummate the merger and the other matters contemplated by the merger
agreement were not obtained or were obtained but have not become final
orders (the failure of which to be obtained could be reasonably expected to
have a material adverse effect on Parent and its subsidiaries or the
Surviving Corporation and its subsidiaries or on the ability of Parent and
TNP to consummate the transactions contemplated by the merger agreement) or
(b) such final orders, individually or in the aggregate, contain terms or
conditions that would have or would reasonably be expected to have a
material adverse effect on the Surviving Corporation and its subsidiaries,
and the Board recommends the Alternative Proposal or an agreement with
respect to the Alternative Proposal is executed within one year of the
termination of the merger agreement;
(7) by Parent if there is a final order with respect to any required
approval, or a change in or event relating to the order by the PUCT with
respect to TNP's Texas Transition to Competition Plan, that could
reasonably result in any rate plan that would be significantly less
favorable to the Surviving Corporation than the Texas Transition Plan to
Competition and the rate plans applicable to TNP in New Mexico on the date
of the merger agreement, and the Board recommends the Alternative Proposal
or an agreement with respect to the Alternative Proposal is executed within
one year of the termination of the merger agreement; or
(8) by TNP because the closing of the merger has not occurred by
February 24, 2000 (or by the Extended Termination Date, as applicable), and
the Board recommends the Alternative Proposal or an agreement with respect
to the Alternative Proposal is executed within one year of the termination
of the merger agreement.
TNP will be required to pay the Expense Amount to Parent if, under
circumstances in which the amounts in the preceding paragraph are not
payable, the merger agreement is terminated:
(1) by either party on the Extended Termination Date because all
regulatory and governmental approvals have not been obtained but all other
conditions to the merger have been fulfilled or waived;
10
<PAGE>
(2) by either party because the requisite approval of TNP's shareholders
has not been obtained;
(3) by either party because a court or other governmental entity has
issued a final order making the merger illegal or otherwise restricting or
prohibiting the merger;
(4) by either party because other than the filing of the Articles of
Merger, all consents, approvals and actions of, filings with and notices to
any governmental or regulatory authority or any other public or private
third parties required of Parent, TNP or any of their respective
subsidiaries to consummate the merger and the other matters contemplated by
the merger agreement have not been obtained and become final, or such final
orders, individually or in the aggregate, contain terms or conditions that
would have, or would reasonably be expected to have a material adverse
affect on the Surviving Corporation and its subsidiaries, taken as a whole;
(5) by Parent because of a material breach by TNP that has not been
cured within 30 days following notice;
(6) by Parent because the Board has withdrawn its recommendation of the
merger or has recommended or taken no position with respect to an
Alternative Proposal or because TNP has amended the Rights Plan in an
adverse manner to Parent, the Surviving Corporation or any of their
respective subsidiaries or in a manner that would limit the ability of TNP,
Parent or Sub to consummate the merger; or
(7) by Parent if there is a final order with respect to any required
approval, or a change in or event relating to the order by the PUCT with
respect to TNP's Texas Transition to Competition Plan, that could
reasonably result in any rate plan that would be significantly less
favorable to the Surviving Corporation than the Texas Transition Plan to
Competition and the rate plans applicable to TNP in New Mexico on the date
of the merger agreement.
If a termination is as a result of (1), (3), (4) or (7) above, then the Expense
Amount will be reduced to $7 million. In addition, the Expense Amount payable
pursuant to this paragraph will be credited against amounts payable pursuant to
the preceding paragraph. TNP will not be required to pay the Expense Amount if
the payment of the amount is due as a result of (1) above if the failure to
obtain any required regulatory approval is due solely to a lowering of the
credit ratings of the senior debt securities of TNMP to a level below
"investment grade," and such lowering was directly caused by the composition
and terms of the Equity Financing and the Debt Financing. In addition, TNP will
not be required to pay any Expense Amount if any Equity Investor would, upon
consummation of the merger, become subject to regulation as a public utility
holding company under PUHCA, and as a result, such Equity Investor terminates
its obligations under any Commitment Letter, and TNP consequently terminates
the merger agreement pursuant to clause (9) under "--Termination of the Merger
Agreement" above.
Interests of Certain Persons in the Merger
In considering the Board's recommendation that the shareholders vote in
favor of the merger, shareholders should be aware that a number of TNP's
executive officers have employment and other agreements providing for incentive
compensation and severance payments in certain situations upon a change in
control of TNP. As a result, these executive officers have interests in the
merger that are different from, or in addition to, the interest of other
shareholders. It is also expected that some of TNP's executive officers will
have, prior to the closing of the merger, new employment agreements with TNP or
TNMP. See "The Merger--Interests of Certain Persons in the Merger." The Board
was aware of these interests and considered them, among other things, in
approving the merger agreement.
Executive Officers. After the merger, it is anticipated that most of the
executive officers of TNMP will continue their employment with TNMP in their
present positions. It is a condition to Parent's and Sub's obligations under
the merger agreement that TNP and/or TNMP enter into an employment agreement
with certain individuals, identified in the merger agreement. While Parent and
Sub have had discussions with several of the executive officers regarding
employment agreements, no definitive agreements have been made at this time.
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<PAGE>
Bonus and Incentive Awards. TNP has previously granted certain of its
executive officers bonus and incentive compensation awards, including awards
pursuant to TNP's Equity Incentive Plan. The merger will trigger change of
control provisions in these awards, and will result in the accelerated vesting
of certain awards and the lapsing of certain transfer restrictions on
restricted stock.
Severance Agreements. TNMP has in place severance agreements with each of
its executive officers and certain other employees. These agreements provide
that severance and change in control benefits will become payable if certain
qualifying terminations of employment occur after a change in control. The
merger will constitute a change in control under these agreements. A condition
to the closing of the merger, however, is that Parent must be reasonably
satisfied, as of the closing date of the merger, that the aggregate cash
amounts that could become payable under these agreements (including tax
indemnification payments in respect of income or excise taxes) to certain
executive officers as a result of (i) the merger agreement, (ii) the
negotiation of the merger agreement or (iii) the consummation of the merger,
cannot exceed $4,428,000, excluding incentive compensation, pension benefits
and insurance. See "The Merger--Interests of Certain Persons in the Merger." It
is anticipated that each of these officers and employees who elect to enter
into new employment agreements will waive rights to payment pursuant to his or
her severance agreement.
Indemnification. In considering the recommendation of the Board with respect
to the merger, TNP's shareholders should be aware that the merger agreement
contains provisions with respect to indemnification of TNP's directors and
officers.
Regulatory Filings and Approvals
Parent and TNP must receive the approvals of certain federal and state
regulatory agencies before the merger can be completed. At the federal level,
these approvals include the approval of FERC. Additionally, the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act")
must have expired. At the state level, the New Mexico Public Regulation
Commission (the "NMPRC") must permit the acquisition of TNP common stock,
resulting holding company structure and issuance of the loan pursuant to the
Backstop Commitment Letter (as defined). The parties must also comply with
certain notice requirements under New Mexico and Texas law and obtain certain
PUCT findings. The Equity Financing (and therefore the completion of the
merger) is conditioned on the Equity Investors and Parent, as a result of the
transactions contemplated by the Partnership Subscription Agreements and the
merger agreement, not reasonably being expected to be subject to regulation (i)
as registered public utility holding companies under PUHCA, (ii) as public
utility holding companies under the New Mexico Public Utility Act (the "NMPUA")
(except for Parent, in certain situations) or (iii) as public utilities under
the Federal Power Act.
Federal Income Tax Consequences
The receipt of cash for shares of TNP common stock pursuant to the merger or
to the exercise of appraisal rights will be a taxable transaction for federal
income tax purposes and may also be a taxable transaction under state, local
and other tax laws. In general, a shareholder will recognize gain or loss for
federal income tax purposes to the extent of the difference between the cash
received and the holder's tax basis in the shares of TNP common stock exchanged
for cash. For a discussion of these and other federal income tax considerations
in connection with the merger, see "The Merger--Federal Income Tax
Consequences." Holders of shares of TNP common stock are urged to consult their
own tax advisors as to the tax consequences of the merger particular to them,
including the applicability and effect of state, local and other tax laws.
Appraisal Rights of Dissenting Shareholders
In connection with the merger, holders of shares of TNP common stock who
comply with certain requirements and procedures set forth in Articles 5.11,
5.12 and 5.13 of the TBCA may be entitled to seek an appraisal of their shares
and to obtain the "fair value" of their shares instead of the $44.00 in cash
per share to be paid pursuant to the merger. See "The Merger--Appraisal Rights
of Dissenting Shareholders," and the full text of those statutory provisions,
which is included as Appendix C hereto.
12
<PAGE>
Market Price Data
TNP common stock is traded on the NYSE under the symbol "TNP." On May 24,
1999, the last trading day prior to the announcement by Parent and TNP that
they had executed the merger agreement, the high, low and closing per share
sales price of TNP common stock, as reported by the NYSE, was $34.94, $34.00
and $34.94, respectively. On August 10, 1999, the closing per share sales price
of TNP common stock, as reported by the NYSE, was $36.75. Shareholders are
urged to obtain current market quotations for TNP common stock.
13
<PAGE>
SELECTED FINANCIAL DATA OF TNP
(In thousands, except per share data and percentages)
The following table presents selected consolidated financial data for TNP
and its subsidiaries. The six months data was derived from TNP's unaudited
quarterly financial statements, which can be found in TNP's Quarterly Report on
Form 10-Q for the six months ended June 30, 1999. The data for the six months
ended June 30, 1999 and 1998 do not necessarily provide information concerning
the results of operations for the entire year. TNP derived the annual data from
its audited financial statements, which can be found in TNP's Annual Reports on
Form 10-K for the years ended December 31, 1998, 1997, 1996, 1995 and 1994.
This data should be read together with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related notes, as contained in TNP's Form 10-Ks and Form 10-Q.
<TABLE>
<CAPTION>
At and For
Six Months Ended At and For
June 30, Fiscal Years Ended December 31,
------------------ ------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Results:
Operating revenues..... $262,153 $268,036 $586,493 $580,693 $ 502,737 $ 485,823 $ 477,989
Income (loss) from
continuing operations
before the cumulative
effect of change in
accounting............ $ 15,536 $ 10,961 $ 32,134 $ 42,561 $ 26,150 $ 33,060 $ (17,441)
Net income (loss)...... $ 15,536 $ 3,859 $ 19,424 $ 29,678 $ 23,053 $ 41,505 $ (17,441)
Total assets......... $995,266 $995,230 $993,765 $991,926 $1,006,784 $1,030,433 $1,054,488
Common shares
outstanding:
Weighted average....... 13,372 13,214 13,244 13,083 11,465 10,901 10,750
End of period.......... 13,384 13,255 13,294 13,133 13,006 10,920 10,866
Per share of common
stock:
Earnings (loss) from
continuing operations
before the cumulative
effect of change in
accounting............ $ 1.17 $ 0.83 $ 2.42 $ 3.24 $ 2.27 $ 2.98 $ (1.70)
Earnings (loss)........ $ 1.17 $ 0.29 $ 1.46 $ 2.26 $ 2.00 $ 3.75 $ (1.70)
Cash dividends
declared.............. $ 0.58 $ 0.54 $ 1.10 $ 1.00 $ 0.93 $ 0.82 $ 1.22
Book value............. $ 23.92 $ 22.55 $ 23.19 $ 22.71 $ 21.41 $ 19.91 $ 17.01
Capitalization:
Common shareholders'
equity................ $320,087 $298,836 $308,294 $298,241 $ 278,474 $ 217,457 $ 184,869
Preferred stock........ 1,844 3,240 3,060 3,240 3,420 3,600 8,680
Long-term debt, less
current maturities.... 459,702 347,936 459,000 478,041 533,964 611,925 682,832
-------- -------- -------- -------- ---------- ---------- ----------
Total
capitalization...... $781,633 $650,012 $770,354 $779,522 $ 815,858 $ 832,982 $ 876,381
======== ======== ======== ======== ========== ========== ==========
Capitalization ratios:
Common shareholders'
equity................ 41.0% 46.0% 40.0% 38.3% 34.1% 26.1% 21.1%
Preferred stock........ 0.2 0.5 0.4 0.4 0.4 0.4 1.0
Long-term debt, less
current maturities.... 58.8 53.5 59.6 61.3 65.5 73.5 77.9
-------- -------- -------- -------- ---------- ---------- ----------
Total
capitalization...... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ========== ========== ==========
</TABLE>
14
<PAGE>
THE SPECIAL MEETING
Date, Time and Place
The Special Meeting will be held on September 22, 1999, at the South Texas
Room, Will Rogers Memorial Center, Fort Worth, Texas, commencing at 11:00 a.m.
Central Daylight Time.
Purposes of the Special Meeting
The purposes of the Special Meeting are to consider and vote upon (i) a
proposal to adopt the merger agreement and approve the merger and (ii) such
other matters as may properly be brought before the Special Meeting.
Record Date and Outstanding Shares
Only holders of record of TNP common stock at the close of business on the
Record Date are entitled to notice of, and to vote at, the Special Meeting. On
the Record Date, there were approximately 5,134 holders of record of the
13,415,566 shares of TNP common stock then issued and outstanding. Each share
of TNP common stock entitles the holder thereof to one vote on each matter
submitted for shareholder approval. See "Security Ownership of Management and
Certain Beneficial Owners" for information regarding persons known to
management of TNP to be the beneficial owners of more than 5% of the
outstanding shares of TNP common stock. A complete list of the shareholders
entitled to notice of, and to vote at, the Special Meeting will be available
for examination at the offices of TNP in Fort Worth, Texas during normal
business hours by any of TNP's shareholders, for any purpose germane to the
Special Meeting, for a period of 10 days prior to the Special Meeting.
Voting and Revocation of Proxies
A form of proxy for use by shareholders of TNP at the Special Meeting
accompanies this Proxy Statement. All properly executed proxies that are
received prior to or at the Special Meeting and not revoked will be voted at
the Special Meeting in accordance with the instructions contained therein. If a
holder of TNP common stock executes and returns a proxy and does not specify
otherwise, the shares represented by such proxy will be voted "FOR" adoption of
the merger agreement and approval of the merger in accordance with the
recommendation of the Board. In such event, the holder of such shares will not
have the right to dissent from the merger and seek an appraisal of such
holder's shares of TNP common stock. A shareholder of TNP who has executed and
returned a proxy may revoke it at any time before it is voted at the Special
Meeting by (i) executing and returning a proxy bearing a later date, (ii)
filing written notice of such revocation with the Secretary of TNP stating that
the proxy is revoked or (iii) attending the Special Meeting and voting in
person.
Quorum
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of TNP common stock entitled to vote at
the Special Meeting will constitute a quorum for the transaction of business.
Vote Required
Adoption of the merger agreement and approval of the merger require the
affirmative vote of the holders of at least two-thirds of the issued and
outstanding shares of TNP common stock. On the Record Date, there were
13,415,566 shares of TNP common stock outstanding and entitled to vote at the
Special Meeting. In determining whether the merger agreement and the merger
have received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as a vote against the merger.
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<PAGE>
Solicitation of Proxies
In addition to solicitation by mail, the directors, officers, employees and
agents of TNP may solicit proxies from the shareholders of TNP by personal
interview, telephone, telegram or otherwise. TNP will bear the costs of the
solicitation of proxies from its shareholders. Arrangements will also be made
with brokerage firms and other custodians, nominees and fiduciaries who hold of
record voting securities of TNP for the forwarding of solicitation materials to
the beneficial owners thereof. TNP will reimburse such brokers, custodians,
nominees and fiduciaries for the reasonable out-of-pocket expenses incurred by
them in connection therewith. In addition, TNP has retained Georgeson
Shareholder Communications, Inc., a proxy solicitation firm, to assist it in
the solicitations of proxies from shareholders. TNP expects that costs for such
solicitation services will be $10,000 plus $5.00 per telephone call made.
Other Matters
At the date of this Proxy Statement, the Board does not know of any business
to be presented at the Special Meeting other than as set forth in the notices
attached to this Proxy Statement. If any other matters should properly come
before the Special Meeting, it is intended that persons voting the shares
represented by proxies will vote on such matters in accordance with their
judgment.
THE MERGER
The Parties
TNP. TNP was organized as a holding company in 1984 and transacts business
through its subsidiaries. Its primary subsidiary, TNMP, is a public utility
engaged in generating, purchasing, transmitting, distributing and selling
electricity to its customers in Texas and New Mexico. Each of TNP and TNMP is a
Texas corporation. Their executive offices are located at 4100 International
Plaza, P.O. Box 2943, Fort Worth, Texas 76113, and their telephone number is
(817) 731-0099.
Parent. Parent was formed as a Texas limited partnership on May 21, 1999, by
an investor group led by Dr. Catacosinos and by CIBC for the purpose of
entering into the merger agreement. Parent has not engaged in any business
activity other than in connection with the merger agreement. Substantially all
of its assets consist of subscription agreements pursuant to which the general
partner and limited partners of Parent have subscribed for $100 million in
partnership interests. The general partner of Parent is SW I Acquisition GP,
L.P., a Texas limited partnership, which is controlled by Dr. Catacosinos. The
initial limited partners in the partnership are CIBC, Caravelle, CCC and Laurel
Hill. Additional limited partners, consisting of institutional investors, may
be admitted to Parent prior to or following the merger as a result of sales by
certain initial limited partners of a portion of their rights to subscribe for
partnership interests in Parent; however no such sale will relieve any limited
partner of its obligation to pay the full amount for which it has subscribed.
See "The Merger--Financing of the Merger." Parent's principal address is 2
Robbins Lane, Suite 201, Jericho, New York 11753, and its telephone number is
(516) 933-3100.
Sub. Sub was incorporated under the laws of the State of Texas on May 21,
1999, as a wholly-owned subsidiary of Parent for the purpose of entering into
the merger agreement. Sub has not engaged in any business activity other than
in connection with the merger agreement. Substantially all of its assets
consist of the Commitment Letters pursuant to which certain institutions have
agreed to provide to Sub a portion of the financing required to consummate the
merger. See "The Merger--Financing for the Merger." Sub's principal address is
2 Robbins Lane, Suite 201, Jericho, New York 11753, and its telephone number is
(516) 933-3100.
Background
The electric utility industry is moving toward an increasingly competitive
environment as a result of legislative and regulatory changes, technological
advances, consumer demands and greater availability of
16
<PAGE>
natural gas. The significant changes in the electric utility industry have
caused many companies in the industry, including TNP, to reevaluate their
future strategy and options.
At a meeting of the Board on August 10, 1998, the Board explored in general
terms the future direction of TNP. The Board reviewed various options, such as
acquisitions of other utilities, the sale of TNP or a sale of assets. The Board
instructed Kevern Joyce, TNP's Chairman of the Board, President and Chief
Executive Officer, to analyze these and other alternatives for further
exploration by the Board.
On August 28, 1998, Warburg Dillon Read, which acted as regular financial
advisor to TNP, informed Mr. Joyce that a private investor group was interested
in discussing the possible acquisition of TNP. Mr. Joyce indicated TNP's
interest in conducting discussions with the group. On October 18, 1998, Warburg
Dillon Read notified Mr. Joyce that the group consisted of CIBC, Chase and Dr.
Catacosinos, and informed Mr. Joyce that the group continued to express an
interest in an acquisition of TNP. Mr. Joyce again indicated that he was
willing to meet with the group. A meeting among the parties was arranged by
Warburg Dillon Read for November 5, 1998.
Mr. Joyce informed the chairpersons of the Board's Audit, Compensation and
Financial Committees on October 28, 1998, that he would be meeting with a third
party concerning a possible acquisition of TNP. The chairpersons and Mr. Joyce
discussed potential issues concerning this meeting.
On November 5, 1998, Mr. Joyce and Manjit Cheema, Senior Vice President and
Chief Financial Officer of TNP and TNMP, and Warburg Dillon Read met with Dr.
Catacosinos, Paul Kovich of CIBC and Robert Gillham of Chase to evaluate the
group's interest. General terms of a possible transaction were discussed.
Mr. Joyce reported on the discussions of the November 5 meeting to TNP's
directors at a meeting on November 10, 1998. Also present at this meeting were
representatives of Warburg Dillon Read and Haynes and Boone, LLP, regular
outside corporate and securities counsel to TNP. The consensus of the directors
at the November 10 meeting was to pursue further discussions with the investor
group. On November 11, 1998, TNP retained the services of Cahill Gordon &
Reindel to serve as special corporate and securities counsel in connection with
any prospective transaction.
On November 11, 1998, TNP and the investor group entered into discussions
concerning the terms of a confidentiality agreement. The final confidentiality
agreement was signed on December 4, 1998, by TNP, CIBC and Dr. Catacosinos, and
on December 7, 1998, by Chase. On December 8, 1998, the investor group
commenced a due diligence review of TNP, including meetings with senior
management of TNP. This due diligence continued until the merger agreement was
executed.
On December 10, 1998, Dr. Catacosinos and Mr. Joyce met at TNP to discuss
utility regulatory issues in Texas, New Mexico and the southwestern United
States. On December 14, 1998, TNP entered into an engagement letter with
Warburg Dillon Read, pursuant to which Warburg Dillon Read agreed to act as
financial advisor with respect to a possible sale of TNP.
On January 28, 1999, Mr. Joyce provided the Board with a paper on possible
strategic alternatives in response to the Board's request at the August 10,
1998 meeting. These alternatives were discussed at a meeting of the Board on
February 10, 1999. The paper noted that the Board should strongly consider a
strategic transaction for TNP because of certain limitations with respect to
TNP's limited access to capital, TNP's size, and the rapid changes in the
electric utility industry due to deregulation, competition and increased
consolidation.
Between February 10 and February 19, 1999, Warburg Dillon Read had a number
of phone conversations with CIBC regarding the potential terms of a
transaction. On February 19, 1999, Warburg Dillon Read informed Mr. Joyce that
the investor group continued to be interested in the acquisition of TNP. The
parties agreed to meet on February 24, 1999 to further discuss the general
terms of a possible transaction. The Board
17
<PAGE>
and members of senior management held a conference call on February 23, 1999,
in contemplation of the meeting to be held between TNP and the investor group
on February 24. Mr. Joyce informed the Board that CIBC and Chase were in the
process of obtaining approvals for financing commitments and conducting a due
diligence review of TNP. Warburg Dillon Read described the likely financing
that the investor group would need to obtain in order to complete the possible
transaction. Warburg Dillon Read also noted that the number of other potential
purchasers of TNP had likely diminished in recent years as a result of the
focus on international and larger acquisitions by certain utilities that could
be interested in acquiring TNP. Counsel to TNP discussed with the Board the
typical terms of acquisitions of this type. The consensus of the Board was to
continue discussions with the investor group. The parties again met on February
24, 1999, to discuss the terms of a possible transaction.
On March 5, 1999, the Board and members of the senior management of TNP met
at TNP to review the impact of proposed legislation in Texas and its possible
effect on negotiations with the investor group. Counsel to TNP discussed with
the Board its fiduciary duties in the context of a possible transaction with
the investor group, and Warburg Dillon Read discussed with the Board a
preliminary range of valuation of TNP. After these discussions, the Board
instructed senior management to work with Warburg Dillon Read to solicit from
potential acquirors of TNP (other than the private investor group) indications
of interest in acquiring TNP in order to determine if there were other
companies interested in acquiring TNP and at what prices such companies might
be willing to pay.
The investor group submitted a draft of a merger agreement to TNP on March
23, 1999. On April 9, 1999, TNP and its legal and financial advisors met with
the investor group and its legal advisors to discuss the terms of the proposed
merger agreement. The parties also discussed the proposed financing of the
investor group and its potential effects on TNMP's credit ratings.
The Board held a special meeting on April 12, 1999, at which Warburg Dillon
Read and senior management discussed the results of the solicitations of
interest from other companies requested by the Board. Warburg Dillon Read
contacted five companies that it and TNP senior management had selected based
on these companies' perceived interest in acquiring TNP and ability to do so.
Of these five companies, two expressed no interest and one expressed an
interest only in acquiring certain assets of TNP. The other two indications of
interest were at price levels below that which the Board determined justified
additional contacts. At this meeting, Mr. Joyce also reported on the status of
legislation in Texas and New Mexico and summarized the discussions with the
investor group at the April 9 meeting. Counsel to TNP also discussed with the
Board the terms of the proposed merger agreement and the status of the
negotiation thereof. Based on these discussions, the Board authorized senior
management to continue pursuing the proposed sale of TNP with the investor
group.
On April 14, 1999, members of senior management of TNP along with legal
counsel and representatives of Warburg Dillon Read met in New York City with
the investor group and its legal counsel to discuss the merger agreement, the
timing of the proposed transaction, related state and federal regulatory issues
and the investor group's financing.
On April 21 and 23, 1999, TNP and its legal and financial advisors held
conference calls with the investor group and its legal counsel to continue to
discuss these issues. At a meeting of the Board on April 23, 1999, Mr. Joyce
updated the Board concerning the outstanding issues with respect to the
proposed acquisition.
On April 27, 1999, TNP's legal counsel met in New York with the investor
group's legal counsel to discuss outstanding legal issues. On April 28, 1999,
members of TNP's senior management, together with legal counsel and
representatives of Warburg Dillon Read, met with the investor group and its
legal counsel to continue negotiating the merger agreement. The parties also
discussed the severance agreements of the executive officers of TNP and TNMP
and the status of the investor group's financing.
18
<PAGE>
On April 29, 1999, Mr. Joyce discussed a proposed communications plan with
respect to the proposed merger with representatives of Warburg Dillon Read and
CIBC, and the public relations firms of the investor group and TNP. On April
30, 1999, Dr. Catacosinos and Mr. Joyce continued to negotiate business issues
with respect to the acquisition. Also on April 30, 1999, representatives of TNP
and CIBC met with a rating agency to discuss expected ratings of TNMP's debt
after giving effect to the proposed merger.
The Board met on May 2, 1999, to receive an update on the merger agreement,
the meeting with the rating agencies, and issues relating to regulatory
approvals. Counsel to TNP had previously provided the Board with a copy of the
latest draft of the merger agreement, as well as a summary of the draft of the
merger agreement, and a discussion regarding the status of negotiation of the
merger agreement was also held during this meeting.
On May 4, 1999, Mr. Joyce met with Dr. Catacosinos to discuss the proposed
management of TNP and TNMP after the merger and means of assuring the retention
of current officers of TNMP.
On May 12, 1999, the parties and their respective legal counsel and
financial advisors held a conference call to discuss the merger agreement, the
financing commitments, the terms of employment of senior management and other
issues with respect to the transaction. On May 18 through 20, 1999, TNP and
CIBC again met or had telephone conferences with rating agencies concerning the
debt ratings of TNMP.
On May 21, 1999, the parties, along with their respective legal counsel and
financial advisors, held a conference call to negotiate remaining unresolved
issues with respect to the transaction and the merger agreement. On May 22,
1999, the Board met to receive an update with respect to the status of the
transaction. Senior management informed the Board that the investor group
expected to obtain its financing commitments by Monday, May 24, 1999. The Board
also discussed the regulatory approval process with respect to the merger and
the timing of the approvals. In addition, the Board discussed the terms of
employment of senior management required by the investor group. Warburg Dillon
Read provided the Board a presentation concerning the fairness of the proposed
merger price of $44.00 price per share negotiated by the parties and informed
the Board that it would be able to deliver an opinion concerning the fairness
of such price from a financial point of view on Monday, May 24, if the Board
then approved the transaction.
On May 24, 1999, the remaining issues with respect to the merger agreement
were resolved, including the obtaining of financing commitments by the investor
group. On this date, the Board held a special meeting by conference call.
Warburg Dillon Read delivered to the Board an oral opinion, which was followed
by a written opinion dated as of May 24, 1999, to the effect that, as of such
date and based upon and subject to certain matters stated in such opinion, the
consideration to be received pursuant to the merger agreement was fair to TNP's
shareholders from a financial point of view. See "--Opinion of Financial
Advisor to TNP." The Board unanimously (1) determined that it was in the best
interest of TNP and its shareholders for TNP to enter into the merger
agreement, (2) determined that the terms of the merger were fair to, and in the
best interests of, the shareholders of TNP, and (3) authorized, approved and
adopted the proposed merger agreement and the execution and delivery of the
merger agreement. The parties executed and delivered the merger agreement that
evening.
TNP's Reasons for the Merger; Recommendation of the Board
In determining to approve and recommend shareholders' approval of the
merger, and in reaching its determination that the merger is fair to and in the
best interests of TNP shareholders, the Board held discussions and consulted
with TNP's executive officers and its legal and financial advisors. The Board
believes that the merger will maximize shareholder value and provide
shareholders with a significant premium for the TNP common stock. The Board
considered several factors, including, without limitation, the following:
(1) the Board's review and analysis of TNP's business, current and
future financial condition, current earnings and earnings prospects, as
well as the competitive business environment and changing regulatory
environment facing a relatively small utility such as TNMP;
19
<PAGE>
(2) the per share cash consideration of $44.00 to be paid in the
merger, which represents a premium for TNP common stock of approximately
30% over the per share closing price on May 21, 1999, the last trading day
prior to the date of the merger agreement, and approximately 40.8% over
the closing price on the trading day that was four weeks prior to the date
of the merger agreement;
(3) the financial presentation of Warburg Dillon Read, including its
opinion dated May 24, 1999, and confirmed as of the date of this Proxy
Statement, to the Board as to the fairness of the Merger Consideration
from a financial point of view to the holders of TNP common stock as
described below in "--Opinion of Financial Advisor to TNP";
(4) historical market prices of TNP common stock;
(5) the results of the solicitation of indications of interest from
potential acquirors of TNP discussed above under "--Background";
(6) the views expressed by senior management and TNP's financial
advisor that the investor group was unwilling to pay more than $44.00 per
share;
(7) a review of the possible alternatives to a sale of TNP, including
pursuing non-regulated businesses, the prospects of continuing to operate
as a small independent utility or acquiring other smaller distribution
companies and electrical cooperatives, the value to shareholders of such
alternatives and the timing and likelihood of actually achieving
additional value from these alternatives, and the possibility that TNP's
future performance and changes in prevailing interest rates might lead to
a share price having a lower value than the Merger Consideration;
(8) the offer was accompanied by equity and financing commitments,
subject to usual conditions for financings of this type as described
elsewhere in this proxy statement (see "--Financing for the Merger");
(9) the terms of the merger agreement, including the right of the Board
to terminate the merger agreement prior to its approval by the holders of
TNP common stock in the exercise of its fiduciary duties in connection
with receipt by TNP of a proposal superior to that given by Parent;
(10) the fact that, because Parent is not subject to traditional
utility regulation, fewer issues exist from a regulatory standpoint, such
as market power, synergies and costs of services, than may exist with
other potential acquirors that are in the electric utility industry;
(11) the likelihood of consummation of the merger, including an
assessment of the risks associated with obtaining necessary authorizations
from federal and state regulatory authorities and the risks associated
with the conditions to the debt and equity financing commitments and the
possibility of the merger not being consummated even if approved by
shareholders;
(12) the fact that the affirmative vote of two-thirds of the
outstanding shares of TNP common stock is required to approve and adopt
the merger agreement;
(13) the intention of Parent to not lay off employees following the
merger and the directors' belief that most of TNMP's management will
remain in place; and
(14) the fact that the merger will permit TNP to continue to operate
TNMP as a stand-alone local utility with a community-focused strategy.
In view of the wide variety of factors considered in connection with its
evaluation of the proposed merger, the Board did not find it practicable to,
and did not, quantify or otherwise attempt to assign relative weights to the
foregoing factors. The Board viewed its position and recommendation as being
based on the totality of the information presented to and considered by it.
While the foregoing discussion of the information and factors considered by the
Board is not intended to be all-inclusive, it does constitute a summary of all
material information considered by the Board in determining to recommend
approval of the merger.
The Board believes that each of the factors described above supported its
conclusion that the merger is in the best interests of TNP and its
shareholders.
20
<PAGE>
The Board has unanimously determined that the merger is fair to and in the
best interests of the holders of TNP common stock and has approved the merger.
The Board unanimously recommends that holders of TNP common stock vote FOR
approval of the merger.
Opinion of Financial Advisor to TNP
Warburg Dillon Read delivered to the Board its written opinion, dated May
24, 1999, to the effect that, and based upon and subject to the assumptions,
limitations and qualifications set forth therein, as of the date thereof, the
consideration to be received by the holders of TNP common stock pursuant to the
merger agreement is fair from a financial point of view. The full text of
Warburg Dillon Read's opinion, which has been confirmed as of the date of this
Proxy Statement, is attached as Appendix B to this Proxy Statement and is
incorporated herein by reference. The Warburg Dillon Read opinion describes the
assumptions made, matters considered and limits on the review undertaken. It
does not constitute a recommendation to any holder of TNP common stock as to
how such holder should vote at the Special Meeting. Holders of TNP common stock
are urged to read the opinion in its entirety. The following summary of the
Warburg Dillon Read opinion is qualified in its entirety by reference to the
full text of such opinion.
In arriving at its opinion, Warburg Dillon Read has, among other things: (i)
reviewed certain business and historical financial information relating to TNP,
(ii) reviewed certain financial forecasts and other data provided by TNP, (iii)
conducted discussions with members of the senior management of TNP with respect
to its business and prospects, (iv) reviewed publicly available financial and
stock market data of utilities generally comparable to TNP, (v) reviewed the
financial terms of certain transactions involving electric utilities generally
comparable to TNP, (vi) analyzed the value of TNP based upon a discounted cash
flow analysis, (vii) reviewed certain pro forma projections that assumed the
transaction had been completed, (viii) reviewed the merger agreement, (ix)
contacted other potential purchasers with regard to the price they would be
willing to pay to acquire TNP, and (x) conducted such other financial studies,
analyses and investigations, and considered such other information, as it
deemed necessary or appropriate.
In connection with its review, at the direction of TNP, Warburg Dillon Read
did not assume any responsibility for independent verification of any of the
foregoing information and did, with TNP's consent, rely on its being complete
and accurate in all material respects. With respect to the financial forecasts
referred to above, Warburg Dillon Read, at the direction of TNP, assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of management as to the future financial
performance of TNP, and that those estimates would be materially achieved in
the amounts and times stated therein. Further, Warburg Dillon Read's opinion is
based on economic, monetary and market conditions existing on the date thereof
and hereof.
TNP did not place any limitations upon Warburg Dillon Read regarding the
procedures to be followed or factors to be considered in rendering its opinion.
No company, transaction or business used in the analysis described below
under "Generally Comparable Trading Analysis" and "Generally Comparable
Acquisition Analysis" is identical to TNP or the proposed transaction.
Accordingly, an analysis of the results thereof necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors which could effect the transaction or the
public trading or other values of the company or companies to which they are
being compared. Mathematical analysis (such as determining the average or
median) is not in itself a meaningful method of using generally comparable
acquisition or generally comparable company data.
In connection with rendering its opinion, Warburg Dillon Read considered a
variety of valuation methods which are summarized below. While the following
summary describes the material analyses, it does not purport to be a complete
description of the analyses considered by Warburg Dillon Read in this regard.
21
<PAGE>
Discounted Cash Flow Analysis. Warburg Dillon Read performed a discounted
cash flow valuation based upon projections furnished by the management of TNP.
With respect to projections for TNP, Warburg Dillon Read assumed that such
projections were reasonably prepared upon bases reflecting the best available
estimates and judgments of the management of TNP. Utilizing these projections,
Warburg Dillon Read discounted to present value, under assumed discount rates
ranging from 7.25% to 8.75%, the free unleveraged cash flows through the year
2002 for TNP. Warburg Dillon Read added to this amount the present value, under
assumed discount rates ranging from 7.25% to 8.75%, of the proceeds from the
sale of TNP One, TNMP's generating plant, which Warburg Dillon Read assumed
would occur on January 1, 2003. To approximate the future sales value of TNP
One, Warburg Dillon Read discounted to January 1, 2003, under assumed discount
rates ranging from 7.25% to 8.75%, the free unleveraged cash flows from year
2003 through year 2031 for TNP One. Warburg Dillon Read assumed that, as part
of the regulatory settlement, 100% of the capital gains taxes and 70% to 90% of
the stranded costs associated with the sale of TNP One would be recoverable.
Lastly, Warburg Dillon Read discounted to present value, under assumed discount
rates ranging from 7.25% to 8.75%, the free unleveraged cash flows from year
2003 through year 2007 of the transmission and distribution segment and applied
terminal value multiples ranging from 6.5x to 7.0x year 2007 earnings before
interest, taxes, depreciation and amortization ("EBITDA") (as indicated by
generally comparable company trading analysis) for the transmission and
distribution segment.
This analysis indicated that the net after-tax present value of the future
cash flows ranged from $36.46 to $44.95 per share of TNP common stock on a
stand-alone basis.
Generally Comparable Trading Analysis. Using publicly available information,
Warburg Dillon Read compared, based upon market trading values at the time,
multiples of certain financial criteria, such as net income, projected net
income (mean earnings per share estimates for 1999 and 2000 reported by
Institutional Brokers Estimate System or based on Institutional Brokers
Estimate System estimates), cash flow from operations, EBITDA, earnings before
interest and taxes ("EBIT") and book value, to certain other companies which,
in Warburg Dillon Read's judgment, were generally comparable to TNP for the
purposes of this analysis. The factors Warburg Dillon Read considered in
selecting companies for comparison included size, geographic location,
financial condition and scope of business operations.
For TNP, two sets of companies were used in the comparison. The first set
consisted of El Paso Electric Company, Pinnacle West Capital Corporation,
Public Service Company of New Mexico and Unisource Energy Corporation. The
second set, which consisted of all Texas related utilities, was Central &
Southwest Corporation, New Century Energies Incorporated, Reliant Energy
Incorporated and Texas Utilities Company. However, in Warburg Dillon Read's
judgment, the first set of companies were more comparable to TNP. The trading
ranges shown in the following paragraph are based on Warburg Dillon Road's
judgment as to the appropriate comparability of the trading ranges of these
companies to TNP.
For the comparable companies, equity market values (defined as the market
price per common share multiplied by the outstanding number of shares of common
stock) as a multiple of each of the indicated statistics ranged from: (i)
latest 12-month net income of 11.0x to 13.0x, compared to 17.9x for holders of
TNP common stock as a result of the merger, (ii) projected 1999 earnings per
share of 10.0x to 13.0x, compared to 16.5x for holders of TNP common stock as a
result of the merger, (iii) projected 2000 earnings per share of 9.0x to 12.0x,
compared to 15.2x for holders of TNP common stock as a result of the merger,
(iv) latest 12-months cash flow from operations of 4.0x to 5.5x, compared to
7.1x for holders of TNP common stock as a result of the merger and (v) book
value of 1.1x to 1.6x, compared to 1.9x for holders of TNP common stock as a
result of the merger. Net market capitalization (defined as equity market value
plus the value of debt and preferred stock less cash and cash equivalents) as a
multiple of each of the indicated statistics ranged from: (i) latest 12-month
EBITDA of 5.5x to 7.0x, compared to 7.5x for holders of TNP common stock as a
result of the merger and (ii) latest 12-month EBIT of 8.0x to 9.5x, compared to
10.7x for holders of TNP common stock as a result of the merger.
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<PAGE>
Generally Comparable Acquisition Analysis. Using publicly available
information, Warburg Dillon Read compared the premiums paid over the previous
day's closing price (defined as the closing price one day before announcement
of a transaction), the premiums paid over an unaffected stock price (defined as
the closing price one month before announcement of a transaction) and the
multiples of certain financial criteria in previous transactions which, in
Warburg Dillon Read's judgment, were generally comparable to the merger for the
purposes of this analysis. In selecting comparable transactions, Warburg Dillon
Read, based on its judgment, included all electric utility acquisitions
announced after January 1, 1996, and prior to May 24, 1999, excluding proposed
transactions which were withdrawn by any or all of the parties involved. The
list of transactions used in comparison consisted of Utilicorp United
Incorporated's pending acquisition of St. Joseph Light & Power, New England
Electric System's pending acquisition of Eastern Utilities Associates, National
Grid Group PLC's pending acquisition of New England Electric System, Scottish
Power PLC's pending acquisition of PacifiCorp, BEC Energy's pending acquisition
of Commonwealth Energy Corporation, AES Corporation's pending acquisition of
CILCORP Incorporated, CalEnergy Company Incorporated's acquisition of
MidAmerican Energy Holdings Company, Consolidated Edison Incorporated's
acquisition of Orange & Rockland Utilities, Nevada Power Company's acquisition
of Sierra Pacific Resources, American Electric Power Company's pending
acquisition of Central & Southwest Corporation, LG&E Energy Corporation's
acquisition of KU Energy Corporation, Brooklyn Union Gas Company's acquisition
of Long Island Lighting Company, Ohio Edison Company's acquisition of Centerior
Energy Corporation, Delmarva Power & Light Company's acquisition of Atlantic
Energy Incorporated, Enron Corporation's acquisition of Portland General
Company (based on the terms of the amended and final agreement) and Western
Resources Inc.'s pending acquisition of Kansas City Power & Light (based on the
terms of the amended and current agreement).
The premiums paid over the previous day's closing price ranged from 25% to
35% and over the closing price four weeks prior ranged from 25% to 35%. Based
on a closing price for TNP as of May 21, 1999, holders of TNP common stock
would receive a premium of 30.4% over the previous day's close and a premium of
40.8% over the closing price four weeks prior.
For the comparable transactions, equity market values (defined as the market
price per common share multiplied by the outstanding number of shares of common
stock) as a multiple of the following statistics ranged from: (i) latest 12-
months net income 16.0x to 19.0x, compared to 17.9x for holders of TNP common
stock as a result of the merger, (ii) projected 1999 earnings per share of
15.0x to 18.0x, compared to 16.5x for holders of TNP common stock as a result
of the merger, (iii) projected 2000 earnings per share of 13.0x to 17.0x,
compared to 15.2x for holders of TNP common stock as a result of the merger,
(iv) latest 12-months cash flow from operations of 6.5x to 8.0x, compared to
7.1x for holders of TNP common stock as a result of the merger and (v) book
value of 1.7x to 2.1x, compared to 1.9x for holders of TNP common stock. Net
market capitalization (defined as equity market value plus the value of debt
and preferred stock less cash and cash equivalents) as a multiple of (i) latest
12-month's EBITDA was 7.5x to 9.0x, compared to 7.5x for holders of TNP common
stock and (ii) latest 12-month's EBIT ranged from 11.0x to 12.0x, compared to
10.7x for the holders of TNP common stock.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of these methods to particular circumstances, and, therefore, the
opinion and analysis are not readily susceptible to summary description.
Accordingly, notwithstanding the separate factors and analyses summarized
above, Warburg Dillon Read believes that its analysis must be considered as a
whole and that selecting portions of its analysis and other factors it
considered, without considering all factors and analyses, could create a
misleading view of the evaluation process underlying its opinions. Warburg
Dillon Read did not assign any particular weight to any analysis or factor it
considered but, rather made qualitative judgments based on its experience in
rendering such opinion and on economic, monetary and market conditions then
present as to the significance and relevance of each analysis and factor. In
its analyses, Warburg Dillon Read assumed relatively stable industry
performance, regulatory environments and general business and economic
conditions, all of which are beyond TNP's control.
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Any estimates contained in Warburg Dillon Read's analyses do not necessarily
indicate actual value, which may be significantly more or less favorable than
stated therein. Estimates of the financial value of companies do not purport to
be appraisals or necessarily reflect the prices at which companies actually may
be sold. In rendering its opinion, Warburg Dillon Read makes no recommendations
to holders of TNP common stock with respect to how such holders should vote on
the transaction discussed herein.
Warburg Dillon Read is an internationally recognized investment banking firm
which, as part of its investment banking business, regularly is engaged in
evaluating businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The Board selected Warburg
Dillon Read on the basis of the firm's expertise and reputation.
Pursuant to the engagement letter between TNP and Warburg Dillon Read, TNP
paid Warburg Dillon Read for its services in connection with its rendering of a
fairness opinion (i) $250,000 upon TNP's engagement of Warburg Dillon Read and
(ii) $1,250,000 upon the date that the Board orally requested Warburg Dillon
Read's fairness opinion and Warburg Dillon Read advised the Board that it was
prepared to render the opinion. TNP has also agreed to pay Warburg Dillon Read
a transaction fee upon the consummation of a transaction equal to 0.75% of the
aggregate amount of the Merger Consideration, against which the fee payable in
(ii) above is creditable. TNP has agreed to indemnify Warburg Dillon Read
against certain liabilities, including liabilities under federal securities
laws, relating to or arising out of its engagement.
Warburg Dillon Read has, in the past, performed various investment banking
services for TNP and its subsidiaries for which Warburg Dillon Read has been
compensated, including acting as an underwriter for a debt offering of TNMP,
serving as a financial advisor to TNP and its subsidiaries, and providing
assistance to TNP with respect to its amendment of its Rights Plan. In the
ordinary course of business, Warburg Dillon Read trades the debt and equity
securities of TNP for its own account and the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Interests of Certain Persons in the Merger
In considering the Board's recommendation that the shareholders vote in
favor of the merger, shareholders should be aware that a number of TNP's
executive officers have employment and other agreements providing for incentive
compensation and severance payments in certain situations upon a change in
control of TNP. As a result, these executive officers have interests in the
merger that are different from, or in addition to, the interest of other
shareholders. It is also expected that some of TNP's executive officers will
have, prior to the closing of the merger, new employment agreements with TNP or
TNMP. The Board was aware of these interests and considered them, among other
things, in approving the merger agreement.
Executive Officers. After the merger it is anticipated that most of the
executive officers of TNMP will continue their employment with TNMP in their
present positions, and that Dr. Catacosinos will be the chairman of the board,
president and chief executive officer of TNP. It is a condition to the closing
of the merger agreement that TNP or TNMP enter into an employment agreement
with an expected term of three years with certain executive officers named in
the merger agreement. It is also a condition of the merger that TNP and TNMP
enter into an employment agreement with at least six of eleven certain other
officers named in the merger agreement. The merger agreement provides that TNP
is to use its best efforts to enter into, and to use its best efforts to cause
TNMP to enter into, an employment agreement with these persons.
While Parent and Sub have had discussions with several of the executive
officers regarding employment agreements, no definitive arrangements have been
made at this time. Upon finalizing any of the employment agreements
contemplated herein, TNP will disclose the employment terms in a Current Report
on Form 8-K or other appropriate report filed with the SEC.
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Bonus and Incentive Awards. Each of TNP and TNMP have previously granted
certain of its executive officers bonus and incentive compensation awards, and
the change of control of TNP contemplated by the merger will modify these
awards as described below.
A letter agreement between TNMP and each of Kevern R. Joyce, John Edwards
and Ralph Johnson provides that in the event of a change in control, each such
executive officer will become fully vested in a supplemental pension benefit
under TNMP's Excess Benefit Plan. The benefit will be accrued and vested as of
the date of the change in control will constitute such a change of control or
the date at which the executive would have been age 62, whichever benefit is
greater. As of June 30, 1999, the ages of Kevern R. Joyce, John Edwards and
Ralph Johnson were 52, 57 and 55, respectively.
In January 1999, TNP entered into bonus agreements with certain executive
officers and other employees providing for the payment of bonuses over the next
one to four years. These agreements provide that if the executive or employee
is terminated for certain reasons following a change in control constitute such
a change of control, the unpaid portion of the bonus awarded under the
agreement vests and is payable immediately. TNP expects that these agreements
will be superseded by new employment agreements between these persons and TNMP
that will replace these remaining bonus amounts with other compensation. With
respect to awards under the TNP Equity Incentive Plan, the Plan provides that
upon a change of control constitute such a change of control of TNP (i) all
options become immediately exercisable; (ii) any restrictions on shares held
will lapse; (iii) any performance share awards will be deemed to have been
fully earned for the entire performance period as of the effective date of the
change of control.
Under the TNP Equity Incentive Plan, there are outstanding performance share
award opportunities that are scheduled to be paid out after the end of the
1999, 2000 and 2001 fiscal years, restricted shares whose restrictions will
expire at the end of 1999, and award opportunities made to some information
services employees of TNMP. There are no options to purchase stock or other
securities outstanding, either under this Plan or otherwise. Under the
incentive compensation award agreements relating to outstanding awards and
award opportunities, the change in control caused by the merger will have the
following effects: (i) the existing restrictions on the stock granted under the
Plan will lapse; (ii) the performance share award opportunities will be deemed
to have been at target; and (iii) the performance share awards and certain
stock awards will be deemed converted to cash awards in amounts equal to the
value of the stock as of the date of the change of control event.
If the closing of the merger had occurred on June 30, 1999, TNP's chief
executive officer and each of the other four most highly compensated executive
officers would have become entitled to a cash payment upon the closing of the
merger of the following amounts representing (a) the value, at $44 per share,
of performance share awards, at their target amounts; (b) 1999 short-term
incentive plan awards that would vest upon such closing; and (c) the 1999
broad-based incentive awards that would vest upon such closing: Kevern R.
Joyce, President and Chief Executive Officer of TNP and TNMP: $881,245, Jack
Chambers, Senior Vice President of TNP and Senior Vice President and Chief
Customer Officer of TNMP: $448,928; Manjit S. Cheema, Senior Vice President and
Chief Financial Officer of TNP and TNMP: $404,371; John Edwards, Senior Vice
President of TNP and Senior Vice President-Corporate Relations of TNMP:
$404,408; and Ralph S. Johnson, Senior Vice President of TNP and Senior Vice-
President-Power Resources of TNMP: $404,270. The aggregate amount of all such
payments to officers and key employees under such plans would be $6,004,426.
Severance Agreements. TNMP has in place severance agreements with each of
its executive officers and certain other employees. Under these agreements,
severance and change in control benefits become payable if certain qualifying
terminations of employment occur after a change in control. The merger will
constitute a change in control under these agreements. A condition to the
closing of the merger, however, is that Parent must be reasonably satisfied, as
of the closing date of the merger, that the aggregate cash amounts that could
become payable under these agreements (including tax indemnification payments
in respect of income or excise taxes) to certain executive officers (named in
the merger agreement) as a result of (i) the merger agreement, (ii) the
negotiation of the merger agreement or (iii) the consummation of the merger,
cannot exceed $4,428,000,
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excluding incentive compensation, pension benefits and insurance. It is
anticipated that these officers and employees who elect to enter into new
employment agreements will waive their rights to receive payment pursuant to
their respective severance agreements.
Indemnification. Until the fourth anniversary of the effective time of the
merger, the Surviving Corporation will indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date of the merger
agreement or who becomes prior to the Effective Time, a director or officer of
TNP or any of its subsidiaries (an "Indemnified Party") with respect to any
Indemnified Liabilities (as that term is defined in the merger agreement),
including all Indemnified Liabilities based on, or arising out of, or
pertaining to the merger agreement.
For a period of four years after the effective time of the merger, the
Surviving Corporation will cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by TNP
(provided that the Surviving Corporation may maintain substitute policies with
similar coverage).
Financing for the Merger
The total financing for the merger (including related costs and expenses)
will be approximately $1.068 billion. Of this amount, approximately $590
million will be required to pay the Merger Consideration and up to
approximately $428 million may be required to refinance certain indebtedness of
TNMP that may become due or that TNMP may be required to repurchase as a result
of the change of control of TNP contemplated by the merger. The remainder will
be available for the payment of expenses associated with the Merger. Sub
intends to obtain all funds needed for the consummation of the merger through
capital contributions from Parent and through borrowing under credit facilities
described below. Parent and Sub have received the Commitment Letters with
respect to such facilities that indicate the willingness of the parties thereto
to provide funding on the terms and conditions specified therein. Because
financing is a condition to the merger, each condition to funding set forth in
the Commitment Letters and the Partnership Subscription Agreements is
effectively a condition to Parent's and Sub's obligations to effect the merger.
There are numerous conditions to these financings, and there can be no
assurance that such conditions will be satisfied or waived or that such
financings will be made available to Parent or Sub, as the case may be.
The amount of financing committed under the Commitment Letters and the
Partnership Subscription Agreements is as follows:
. equity financing of $200 million (the "Equity Financing"), consisting of
(A) $100 million to be provided under the terms of the Partnership
Subscription Agreements by the Partnership Investors, which then
will be contributed to Sub by Parent, and
(B) $100 million from the issuance by Sub of "high yield" Senior
Preferred Stock, either to be (1) marketed through a private
placement to certain institutional investors with terms and
conditions consistent with then current market conditions or (2)
issued under the terms of the Preferred Stock Bridge Commitment
Letter to the Preferred Stock Investors; and
. debt financing of $868 million ("the Debt Financing"), consisting of
(A) borrowings by Sub of $275 million either from (1) the issuance by
Sub of "high yield" Senior Subordinated Notes to be marketed
through a public offering or a private placement to certain
institutional investors with terms and conditions consistent with
then current market conditions or (2) CIBC and Chase (the "Senior
Subordinated Lenders") on the terms set forth in a commitment
letter (the "Senior Subordinated Bridge Loan Commitment Letter");
(B) borrowings by Sub of $165 million from CIBC, Chase and CSI (the
"Senior Debt Lenders") on the terms set forth in a commitment
letter (the "Senior Debt Commitment Letter"); and
(C) borrowings of up to $428 million by TNMP from CIBC, Chase and CSI
(the "Backstop Lenders"), on the terms set forth in a commitment
letter (the "Backstop Commitment Letter") to refinance any debt of
TNMP that may become due or that TNMP may be required to repurchase
as a result of the change of control of TNP contemplated by the
merger.
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The definitive agreements and documents relating to the Senior Preferred
Stock are referred to as the "Definitive Preferred Stock Agreements," and the
definitive agreements relating to the Debt Financing are referred to as the
"Definitive Debt Financing Agreements."
Historically, markets for "high yield," non-investment grade securities
similar to the Senior Preferred Stock and Senior Subordinated Notes have been
subject to material adverse disruptions. Such a disruption could result in the
failure to satisfy conditions under the Commitment Letters with respect to the
Senior Preferred Stock and Senior Subordinated Notes, which contain "market
outs."
Each of the Preferred Stock Bridge Commitment Letter and the Senior
Subordinated Bridge Loan Commitment Letter expires on February 24, 2000, and
each of the Senior Subordinated Bridge Loan Commitment Letter and the Backstop
Commitment Letter expires on February 22, 2000. To the extent necessary and
subject to certain conditions contained in the merger agreement, Parent has
agreed to use its best efforts to extend these Commitment Letters for an
additional six months. However, there can be no assurance that the merger will
be able to close by such dates or that any Commitment Letter will be extended
beyond such dates.
TNP has filed copies of the Commitment Letters in a Current Report on Form
8-K, dated August 10, 1999, with the SEC.
Partnership Subscription Agreements. Pursuant to the Partnership
Subscription Agreements, the Partnership Investors of Parent have subscribed
for partnership interests in Parent in the aggregate amount of $100 million.
Parent will contribute a portion of the proceeds from the subscriptions to Sub.
The Partnership Investors consist of the general partner and the limited
partners of Parent. SW I Acquisition GP, L.P., a Texas limited partnership, is
the general partner of Parent and is controlled by Dr. Catacosinos. The initial
limited partners of Parent are CIBC, Caravelle, CCC and Laurel Hill.
The Partnership Subscription Agreements provide that each of CIBC, Caravelle
and CCC may, subject to certain terms and conditions, sell part of its right to
subscribe for the limited partnership interests in Parent prior to the
consummation of the merger; provided, however, that no such sale by a limited
partner shall relieve it of its obligations under the Partnership Subscription
Agreement. The obligation of each Partnership Investor to fund its subscription
is subject to the satisfaction of customary conditions and certain other
conditions, including, but not limited to, (i) all consents, approvals, filings
and notices to all governmental and regulatory authorities or third parties
necessary to permit the Partnership Investors to perform their obligations have
been obtained and are in full force and effect and (ii) neither Parent nor any
Partnership Investor would be subject to regulation as a public utility holding
company under PUHCA or as a public utility holding company under NMPUA (other
than, in the case of Parent, under Section 62-6-12 thereof).
Senior Preferred Stock. Sub has also received commitments to purchase $100
million of Senior Preferred Stock to finance the merger pursuant to the
Preferred Stock Bridge Commitment Letter, which expires on February 24, 2000.
The obligations of CIBC, Chase, CCC and Laurel Hill to purchase the Senior
Preferred Stock as set forth in the Preferred Stock Bridge Commitment Letter
are subject to the satisfaction of customary conditions and certain other
conditions, including, but not limited to:
. Sub has received a common equity investment of not less than $100
million, provided by the Partnership Investors through Parent, and the
terms and conditions of such equity investments and any tax sharing
arrangement are satisfactory to the purchasers;
. there has not occurred since the date of the most recent financial
statements of TNP a material adverse effect on the rights or remedies of
the purchasers, or on the ability of Sub to perform its obligations to
the purchasers or on the business, property, assets, nature of assets,
liabilities, condition (financial or otherwise), results of operations
or prospects of TNMP;
. trading in securities on the NYSE or the American Stock Exchange has not
been suspended or minimum or maximum prices have not been established on
these exchanges;
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. no banking moratorium has been declared by New York or United States
authorities;
. there has been no outbreak or escalation of material hostilities between
the United States and any other foreign power or an outbreak or
escalation of any other material insurrection or armed conflict
involving the United States or any other national or international
calamity or emergency;
. there has been no material change or disruption in the general
financial, banking or capital markets of the United States that, in each
case, in the reasonable judgment of the purchasers, would materially and
adversely impair the ability to sell or place the Senior Preferred
Stock;
. the pro forma consolidated capital structure of Sub, TNMP and TNP after
giving effect to the merger is consistent in all material respects with
certain projections and the capital structure contemplated by the
Preferred Stock Bridge Commitment Letter;
. all governmental and third party approvals required by the merger
agreement and any other material governmental and third party approvals
required in connection with the financing contemplated by the Preferred
Stock Bridge Commitment Letter have been obtained on reasonably
satisfactory terms and are in full force and effect, and all applicable
waiting periods have expired without any action being taken or
threatened by any competent authority that would materially restrain,
prevent or otherwise impose material adverse conditions on the financing
thereof;
. the purchasers are satisfied that the consolidated EBITDA of TNMP, TNP
and their consolidated subsidiaries for the latest 12 month period for
which relevant financial information is available equals at least $135
million and the Parent will provide support for such calculation of a
nature that is satisfactory to the purchasers;
. the purchasers have received a certificate of Sub satisfactory in form
and substance to the purchasers, executed by the chief executive officer
or chief financial officer of Sub that certifies the solvency of Sub and
its subsidiaries after giving effect to the merger and the other
transactions contemplated by the Preferred Stock Bridge Commitment
Letter;
. the purchasers have received within 120 days of the date of the
Preferred Stock Bridge Commitment Letter a power market study by a
satisfactory independent power marketing consultant, in form and
substance satisfactory to the purchasers;
. the purchasers have received within 120 days of the date of the
Preferred Stock Bridge Commitment Letter an environmental audit with
respect to certain real property owned or leased by TNP, TNMP and their
subsidiaries from a firm acceptable to the purchasers, which audit does
not reveal any material adverse change in TNP, TNMP and their
subsidiaries; and
. (i) Parent has engaged one or more investment banks that are
satisfactory to the purchasers to publicly offer or privately place the
Senior Preferred Stock, the proceeds of which will be used either, in
lieu of issuing Senior Preferred Stock pursuant to the Preferred Stock
Bridge Commitment Letter, to fund the merger or, if any Senior Preferred
Stock issued pursuant to the Preferred Stock Bridge Commitment Letter is
outstanding, to prepay in whole or in part such Senior Preferred Stock;
(ii) Parent and Sub have also prepared an offering memorandum relating
to the issuance of the Senior Preferred Stock at least 30 days prior to
funding and the investment bankers have been afforded the opportunity to
market and have marketed the Senior Preferred Stock pursuant to such
offering memorandum for such a period as is customary to complete the
sale of securities such as the Senior Preferred Stock; and (iii) Parent
and Sub have used all reasonable commercial efforts to assist (and have
obtained the agreement of TNP and TNMP to assist) the investment bankers
in marketing the Senior Preferred Stock.
The Preferred Stock Bridge Commitment Letter contemplates that Sub may offer
and sell Senior Preferred Stock in a private placement on terms based on market
conditions at the time of issuance, the provisions of which would replace or
redeem, as the case may be, any Preferred Stock issued pursuant to the
Preferred Stock Bridge Commitment Letter.
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Senior Subordinated Notes. Sub has received a letter commitment for $275
million on terms set forth in the Senior Subordinated Bridge Loan Commitment
Letter. The obligations of the Senior Subordinated Lenders under the Senior
Subordinated Bridge Loan Commitment Letter terminate on February 24, 2000. The
obligations of the Senior Subordinated Lenders to fund the bridge loan as set
forth in the Senior Subordinated Bridge Loan Commitment Letter are subject to
the satisfaction of customary conditions and certain other conditions,
including, but not limited to, the following:
. Sub has received a common equity investment of not less than $100
million and a preferred equity investment of not less than $100 million,
and the terms of such equity and any tax sharing arrangement are
satisfactory to the Senior Subordinated Lenders;
. there has not occurred since the date of the most recent financial
statements of TNP a material adverse effect on the rights or remedies of
the Senior Subordinated Lenders, or on the ability of TNMP, TNP and Sub
to perform their obligations to the Senior Subordinated Lenders or on
the business, property, assets, nature of assets, liabilities, condition
(financial or otherwise), results of operations or prospects of TNMP;
. trading in securities on the NYSE or the American Stock Exchange has not
been suspended or minimum or maximum prices have not been established on
these exchanges;
. no banking moratorium has been declared by New York or United States
authorities;
. there has been no outbreak or escalation of material hostilities between
the United States and any other foreign power or an outbreak or
escalation of any other material insurrection or armed conflict
involving the United States or any other national or international
calamity or emergency;
. there has been no material change or disruption in the general
financial, banking or capital markets of the United States that, in each
case, in the reasonable judgment of the Senior Subordinated Lenders,
would materially impair the ability to sell or place the Senior
Subordinated Notes or syndicate the bridge loan;
. the pro forma consolidated capital structure of Sub, TNMP and TNP after
giving effect to the merger is consistent in all material respects with
certain projections and the capital structure contemplated by the Senior
Subordinated Bridge Loan Commitment Letter;
. all governmental and third party approvals required by the merger
agreement and any other material governmental and third party approvals
required in connection with the financing contemplated by the Senior
Subordinated Bridge Loan Commitment Letter have been obtained on
reasonably satisfactory terms and are in full force and effect, and all
applicable waiting periods have expired without any action being taken
or threatened by any competent authority that would materially restrain,
prevent or otherwise impose material adverse conditions on the financing
thereof;
. the Senior Subordinated Lenders are satisfied that the consolidated
EBITDA of TNMP, TNP and their consolidated subsidiaries for the latest
12 month period for which relevant financial information is available
equals at least $135 million and the Parent will provide support for
such calculation of a nature that is satisfactory to the Senior
Subordinated Lenders;
. the Senior Subordinated Lenders have received a certificate of Sub
satisfactory in form and substance to the Senior Subordinated Lenders,
executed by the chief executive officer or chief financial officer of
Sub that certifies the solvency of Sub and its subsidiaries after giving
effect to the merger and the other transactions contemplated by the
Senior Subordinated Bridge Loan Commitment Letter;
. the Senior Subordinated Lenders have received within 120 days of the
date of the Senior Subordinated Bridge Loan Commitment Letter a power
market study by a satisfactory independent power marketing consultant,
in form and substance satisfactory to the Senior Subordinated Lenders;
. the Senior Subordinated Lenders have received within 120 days of the
date of the Senior Subordinated Bridge Loan Commitment Letter an
environmental audit with respect to certain real property owned or
leased by TNP, TNMP and their subsidiaries from a firm acceptable to the
Senior Subordinated Lenders, which audit does not reveal any material
adverse change in TNP, TNMP and their subsidiaries; and
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<PAGE>
. (i) Parent has engaged one or more investment banks that are
satisfactory to the Senior Subordinated Lenders to publicly offer or
privately place the Senior Subordinated Notes, the proceeds of which
will be used either, in lieu of the bridge loan, to fund the merger or,
if the bridge loan is outstanding, to prepay in whole or in part the
bridge loan; (ii) Parent and Sub have also prepared an offering
memorandum relating to the issuance of the Senior Subordinated Notes at
least 30 days prior to funding and the investment bankers have been
afforded the opportunity to market and have marketed the Senior
Subordinated Notes pursuant to such offering memorandum for such a
period as is customary to complete the sale of securities such as the
Senior Subordinated Notes; and (iii) Parent and Sub have used all
reasonable commercial efforts to assist (and have obtained the agreement
of TNP and TNMP to assist) the investment bankers in marketing the
Senior Subordinated Notes.
The Subordinated Bridge Loan Commitment Letter also contemplates that Sub
may offer and sell Senior Subordinated Notes in a public offering or a private
placement on terms based on market conditions at the time of issuance, the
provisions of which would replace or redeem, as the case may be, any Senior
Subordinated Notes issued pursuant to the Subordinated Bridge Loan Commitment
Letter.
Senior Debt Commitment Letter. The Senior Debt Lenders have committed to
loan Sub $165 million pursuant to the Senior Debt Commitment Letter. The Senior
Debt Lenders may syndicate the loan to other lenders. Of the $165 million to be
loaned to Sub under the Senior Debt Commitment Letter, $140 million will be a
term loan and the remaining $25 million will be a revolving loan. The
obligations of the Senior Debt Lenders under the Senior Debt Commitment Letter
terminate on February 22, 2000.
The obligations of the Senior Debt Lenders to provide a loan pursuant to the
Senior Debt Commitment Letter are subject to the satisfaction of customary
conditions and certain other conditions, including, but not limited to, the
following:
. (i) Parent receives at least $100 million in cash from the issuance of
partnership interests, and (ii) Sub receives at least $100 million in
cash from the issuance of its common stock to Parent, at least $100
million in cash from the issuance of the Senior Preferred Stock to the
Preferred Stock Investors, and at least $275 million from the issuance
of the Senior Subordinated Notes or a drawdown under the bridge loan
provided pursuant to the Senior Subordinated Bridge Loan Commitment
Letter, each on terms and conditions reasonably satisfactory to the
Senior Debt Lenders;
. TNMP has obtained a loan pursuant to the Backstop Commitment Letter in
the amount of $428 million on reasonably satisfactory terms and
conditions, and any existing indebtedness of Sub and its subsidiaries
due and payable as a result of the merger shall have been paid with
amounts available under such loan;
. all material governmental and third party approvals necessary or, in the
reasonable discretion of CSI and CIBC, advisable in connection with the
merger, the financing contemplated by the Senior Debt Commitment Letter
and the continuing operations of Sub and its subsidiaries have been
obtained on reasonably satisfactory terms and are in full force and
effect, and all applicable waiting periods have expired without any
action being taken or threatened by any competent authority that would
restrain, prevent or otherwise impose material adverse conditions on the
financing thereof;
. the lenders have received reasonably satisfactory evidence that, insofar
as can be reasonably foreseen, no final order with respect to any
required approval, and no change in or event relating to the order by
the PUCT dated September 4, 1998, could reasonably result in any rate
plan that would be significantly less favorable to Sub and its
subsidiaries than the Texas Transition Plan to Competition and the rate
plans applicable to Sub and its subsidiaries in New Mexico on the date
of the Senior Debt Commitment Letter;
. the lenders have received reasonably satisfactory unaudited interim
consolidated financial statements of TNP for each fiscal month and
quarterly period ended after December 31, 1998, as to which such
financial statements are available and such financial statements shall
not reflect any material adverse
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change in the consolidated financial condition of TNP and its
subsidiaries from what was reflected in the financial statements or
projections previously furnished to the lenders;
. the lenders are satisfied that consolidated EBITDA of TNP and its
subsidiaries for the latest twelve-month period for which the relevant
financial information is available is equal at least to $135 million and
Sub shall provide support for such calculation of a nature that is
satisfactory to the lenders for inclusion in marketing materials for the
credit facilities to be provided pursuant to the Senior Debt Commitment
Letter;
. all actions required to perfect the administrative agent's security
interest in the collateral under the credit facilities to be provided
pursuant to the Senior Debt Commitment Letter have been completed;
. the administrative agent is satisfied that the insurance programs
maintained by TNMP and its subsidiaries are with financially sound and
reputable insurance companies and that insurance is maintained on all
property in at least such amounts and against at least such risks (but
including in any event public liability, product liability and business
interruption) as are usually insured against in the same general area by
companies engaged in the same or similar business;
. the lenders have received a certificate of Sub, reasonably satisfactory
in form and substance to the lenders, executed by the chief executive
officer or chief financial officer of Sub, that certifies the solvency
of Sub and its subsidiaries after giving effect to the merger and the
other transactions contemplated by the Senior Debt Commitment Letter;
. the lenders have received within 120 days of the date of the Senior Debt
Commitment Letter an environmental audit with respect to certain real
property owned or leased by Sub and its subsidiaries from a firm
reasonably satisfactory to the Senior Debt Lenders, which audit does not
reveal any condition that reasonably could be expected to result in a
material adverse change in the business, operations, property,
conditions (financial or otherwise) or prospects of Sub or its
subsidiaries, taken as a whole;
. the lenders have received within 120 days of the date of the Senior Debt
Commitment Letter a technical assessment of the assets of TNP and its
subsidiaries by an independent engineer, in form and substance
reasonably satisfactory to the administrative agent;
. the lenders have received within 120 days of the date of the Senior Debt
Commitment Letter a power market study, by a reasonably satisfactory
independent power marketing consultant, in form and substance reasonably
satisfactory to the administrative agent;
. Sub and TNMP have entered into a tax sharing agreement that is in form
and substance reasonably satisfactory to the administrative agent; and
. the administrative agent has received reasonably satisfactory evidence
that, after giving effect to the merger, TNMP's senior unsecured long
term debt will continue to be rated as investment grade.
Backstop Commitment Letter. Pursuant to the Backstop Commitment Letter, the
Backstop Lenders have committed to provide up to $428 million to Sub to
refinance TNMP debt that may become due by reason of the change of control of
TNP contemplated by the merger. The obligations of the Backstop Lenders under
the Backstop Commitment Letter terminate on February 22, 2000. TNP currently
believes that the full $428 million committed under the Backstop Commitment
Letter will not be used.
The obligations of the Backstop Lenders to provide a loan pursuant to the
Backstop Commitment Letter are subject to the satisfaction of customary
conditions and certain other conditions, including, but not limited to, the
following:
. (i) Parent receives at least $100 million in cash from the issuance of
partnership interests, (ii) Sub receives at least $100 million in cash
from the issuance of its common stock to Parent, at least $100 million
in cash from the issuance of the Senior Preferred Stock to the Preferred
Stock Investors, and at least $275 million from the issuance of the
Senior Subordinated Notes or a drawdown under the bridge loan provided
pursuant to the Senior Subordinated Bridge Loan Commitment Letter, each
on terms and conditions reasonably satisfactory to the Backstop Lenders;
and (iii) the credit facility under the Senior Debt Commitment Letter
has become effective;
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. all material governmental and third party approvals necessary or, in the
reasonable discretion of the lenders, advisable in connection with the
merger, the financing contemplated by the Backstop Commitment Letter and
the continuing operations of Sub and its subsidiaries have been obtained
on reasonably satisfactory terms and are in full force and effect, and
all applicable waiting periods have expired without any action being
taken or threatened by any competent authority that would restrain,
prevent or otherwise impose material adverse conditions on the financing
thereof;
. the lenders have received reasonably satisfactory evidence that, insofar
as can be reasonably foreseen, no final order with respect to any
required approval, and no change in or event relating to the order by
the PUCT dated September 4, 1998, could reasonably result in any rate
plan that would be significantly less favorable to Sub and its
subsidiaries than the Texas Transition Plan to Competition and the rate
plans applicable to Sub and its subsidiaries in New Mexico on the date
of the Backstop Commitment Letter;
. the lenders have received reasonably satisfactory unaudited interim
consolidated financial statements of TNP and of TNMP for each fiscal
month and quarterly period ended after December 31, 1998 as to which
such financial statements are available and such financial statements
shall not reflect any material adverse change in the consolidated
financial condition of TNP and its subsidiaries or TNMP and its
subsidiaries from what was reflected in the financial statements or
projections previously furnished to the lenders;
. the lenders are satisfied that consolidated EBITDA of TNP and its
subsidiaries for the latest twelve-month period for which the relevant
financial information is available is equal at least to $135 million and
TNP shall provide support for such calculation of a nature that is
satisfactory to the lenders for inclusion in marketing materials for the
bridge facility to be provided pursuant to the Backstop Commitment
Letter;
. all actions required to perfect the administrative agent's security
interest in the collateral under the bridge facility to be provided
pursuant to the Backstop Commitment Letter have been completed;
. the administrative agent is satisfied that the insurance programs
maintained by TNMP and its subsidiaries are with financially sound and
reputable insurance companies and that insurance is maintained on all
property in at least such amounts and against at least such risks (but
including in any event public liability, product liability and business
interruption) as are usually insured against in the same general area by
companies engaged in the same or similar business;
. the lenders have received a certificate of TNMP, reasonably satisfactory
in form and substance to the lenders, executed by the chief executive
officer or chief financial officer of Sub, that certifies the solvency
of Sub and its subsidiaries after giving effect to the merger and the
other transactions contemplated by the Backstop Commitment Letter;
. the lenders have received within 120 days of the date of the Backstop
Commitment Letter an environmental audit with respect to certain real
property owned or leased by TNMP and its subsidiaries from a firm
reasonably satisfactory to the lenders, which audit does not reveal any
condition that reasonably could be expected to result in a material
adverse change in the business, operations, property, conditions
(financial or otherwise) or prospects of TNMP or its subsidiaries, taken
as a whole;
. the lenders have received within 120 days of the date of the Backstop
Commitment Letter a technical assessment of the assets of TNMP and its
subsidiaries by an independent engineer, in form and substance
reasonably satisfactory to the administrative agent;
. the lenders have received within 120 days of the date of the Backstop
Commitment Letter a power market study, by a reasonably satisfactory
independent power marketing consultant, in form and substance reasonably
satisfactory to the administrative agent;
. TNMP and Sub have entered into a tax sharing agreement that is in form
and substance reasonably satisfactory to the administrative agent;
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. the administrative agent has received reasonably satisfactory evidence
that, after giving effect to the merger, TNMP's senior unsecured long
term debt will continue to be rated as investment grade; and
. the administrative agent has received reasonably satisfactory evidence
that the bridge facility provided pursuant to the Backstop Commitment
Letter will be senior debt of TNMP.
Federal Income Tax Consequences
The following is a general summary of the federal income tax consequences of
the merger to holders of shares of TNP common stock. This discussion is based
on the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed regulations thereunder, Internal Revenue Service ("IRS") rulings and
pronouncements, reports of congressional committees, judicial decisions and
current administrative rulings and practice, all as in effect on the date
hereof. Any change to the foregoing sources could be retroactive and,
accordingly, could modify the tax consequences discussed herein. TNP has not
requested a ruling from the IRS with respect to the matters discussed herein
and there is no assurance that the IRS will agree with the conclusions set
forth in this discussion. In addition, TNP has not requested or received a tax
opinion with respect to the federal income tax consequences of the merger.
This discussion does not address all of the federal income tax consequences
that may be relevant to particular shareholders in light of their personal
circumstances or to certain types of shareholders (such as dealers in
securities, corporations, insurance companies, foreign individuals and
entities, financial institutions and tax-exempt entities) who may be subject to
special treatment under the federal income tax laws. It also does not address
the federal income tax consequences to shareholders who acquired their shares
of TNP common stock through the exercise of employee stock options or otherwise
as compensation. Furthermore, this discussion does not address any tax
consequences under state, local or foreign laws. This summary assumes that the
shares of TNP common stock are held as "capital assets" within the meaning of
Section 1221 of the Code. Pursuant to Section 1221, capital assets are those
assets that are generally held for investment.
For federal income tax purposes, an individual who exchanges his or her
shares of TNP common stock for cash pursuant to the merger or who receives cash
in exchange for such shares pursuant to the exercise of appraisal rights will
be treated as having sold his or her shares for cash in a taxable transaction.
The shareholder will recognize gain or loss on the exchange in an amount equal
to the difference between the cash received and the holder's adjusted tax basis
in such shares. Such gain or loss will be a capital gain or loss if the holder
of the shares of TNP common stock held such shares as a capital asset at the
effective time of the merger, and may qualify as long-term capital gain or loss
if such holder held such shares for more than 12 months at the effective time
of the merger. For certain non-corporate holders of TNP common stock (including
individuals), any such long-term capital gain will be taxed at a maximum
federal income tax rate of 20 percent. Short-term capital gain of these
individuals will be taxed as ordinary income. Ordinary income of individuals is
currently taxed at a maximum federal income tax rate of 39.6%. For corporate
holders of TNP common stock, long-term capital gain will continue to be subject
to ordinary income tax rates applicable to corporations.
Holders of TNP common stock or other payees generally will be required to
provide the Exchange Agent (as defined in "Terms of the Merger Agreement--
Manner and Basis of Converting Shares") with their correct taxpayer
identification numbers (certified under penalties of perjury) on the Substitute
Forms W-9 included as part of the transmittal forms sent to such shareholders
pursuant to the merger. An individual's taxpayer identification number is his
or her social security number. A holder of TNP common stock or other payee who
does not provide the Exchange Agent with a correct taxpayer identification
number may be subject to a $50 fine imposed by the IRS. Furthermore, payments
made to a holder of TNP common stock or other payee may be subject to backup
withholding if: (i) a holder of TNP common stock or other payee fails to
furnish a correct taxpayer identification number, (ii) a holder of TNP common
stock or other payee furnishes an incorrect taxpayer identification number,
(iii) TNP, Parent, or the Exchange Agent is notified by the IRS that such
holder of TNP common stock or other payee failed to report interest or (iv)
under certain circumstances, a holder of TNP common stock fails to provide a
certified statement, signed under penalty of perjury, that the taxpayer
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identification number provided is the correct number and that the holder of TNP
common stock is not subject to backup withholding.
If backup withholding applies, the Exchange Agent will withhold 31% of any
payment made to a holder of TNP common stock or other payee. Backup withholding
is not an additional tax but is credited against the federal income tax
liability of the taxpayer subject to the withholding. If backup withholding
results in an overpayment of a taxpayer's federal income taxes, that taxpayer
may obtain a refund from the IRS.
Generally, a holder of TNP common stock or other payee may avoid backup
withholding by completing the Substitute Form W-9 included as part of the
transmittal forms and certifying that the taxpayer identification number
included therein is correct and that the holder of TNP common stock or other
payee is not subject to backup withholding. Certain types of taxpayers
(including corporations and certain foreign individuals) are not subject to
these reporting or withholding requirements.
Holders of TNP common stock are urged to consult their tax advisors as to
the particular tax consequences to them of participating in the merger,
including the applicability of any state, local or foreign tax laws, changes in
applicable tax laws and any pending or proposed legislation.
Holders of TNP common stock should note that the merger agreement provides
that TNP will pay, without deduction or withholding from any amount payable to
the holders of TNP common stock, any tax on gains derived from real property
transfers (the "Gains Tax"), real estate transfer tax, real property transfer
tax and stock transfer tax (the "Transfer Taxes") imposed by any state (and any
penalties and interest with respect to such taxes) that become payable in
connection with the transactions contemplated by the merger agreement, on its
own behalf or on behalf of the holders of TNP common stock. TNP and Parent have
agreed to cooperate in the preparation, execution and filing of any required
returns with respect to such taxes (including returns on behalf of the
shareholders of TNP) and in determination of the portion of the consideration
allocable to real property of TNP and its subsidiaries. As a result of the
approval of the merger and the merger agreement by the TNP shareholders, the
holders of TNP common stock will be deemed to have agreed to be bound by the
allocation established pursuant to this provision in the merger agreement in
the preparation of any return with respect to the Gains Tax, the Transfer Taxes
and any similar taxes, if applicable.
Accounting Treatment
The merger will be accounted for as a purchase under generally accepted
accounting principles.
Existing Relationships with Parent
Except in connection with the merger agreement and the transactions
contemplated thereby, TNP has never conducted business with nor has it had any
business relationship with Parent prior to the transactions described in the
merger agreement.
TNP and TNMP have had prior business relationships with affiliates of
certain of the limited partners of Parent. CSI was an underwriter of an
offering in January 1999 of TNMP's 6 1/4% Senior Notes. Chase and CIBC are
lenders under one of TNMP's credit facilities.
Appraisal Rights of Dissenting Shareholders
If the merger is consummated, shareholders of TNP who provided TNP (prior to
the Special Meeting) with a written objection to the merger and notice of such
shareholder's intent to dissent from the merger and who did not vote in favor
of the merger will have certain rights to dissent and demand the appraisal of
and payment in cash for the "fair value" of their shares of TNP common stock
pursuant to Articles 5.11, 5.12 and 5.13 of the TBCA. A TNP shareholder who
does not vote on the merger does not waive his or her appraisal rights under
the TBCA. Under the Appraisal Rights Statutes, if the statutory procedures are
complied with, a judicial
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determination of the fair value (excluding any depreciation or appreciation in
anticipation of the merger) required to be paid in cash to such dissenting
holders for their shares will be made. The value so determined could be more or
less than the purchase price per share pursuant to the merger agreement.
Any shareholder contemplating the exercise of appraisal rights is urged to
review carefully the provisions of Articles 5.11, 5.12 and 5.13 of the TBCA (a
copy of which is attached as Appendix C to this Proxy Statement), particularly
with respect to the procedural steps required to perfect the right of
appraisal. If the right of appraisal is lost due to the shareholder's failure
to comply with the procedural requirements of the appraisal rights statutes,
the shareholder will receive $44.00 in cash without interest for each share
owned. Set forth below is a summary of the procedures relating to the exercise
of the right of appraisal, which should be read in conjunction with the full
text of Articles 5.11, 5.12 and 5.13 of the TBCA.
Article 5.12 of the TBCA provides that a shareholder wishing to exercise
such shareholder's rights for appraisal with respect to the merger must file,
prior to the Special Meeting, a written objection to the merger stating that
its right to dissent will be exercised if the merger becomes effective and
giving the shareholder's address, to which notice of the approval of the merger
will be delivered or mailed in such event. If the merger is effected and the
shareholder did not vote in favor of the merger, the Surviving Corporation
will, within 10 days after the effective time of the merger, deliver or mail to
the shareholder written notice that the merger has been effected. In order to
exercise his or her right of appraisal, a shareholder must, within 10 days from
the delivery or mailing of the notice from the Surviving Corporation, make
written demand ("Demand") on the Surviving Corporation for payment of the fair
value of the shareholder's shares. The Demand must state the number and class
of shares owned by such shareholder, and the shareholder's estimate of the fair
value of such shares. Any shareholder failing to make Demand within the 10-day
period will be bound by the merger.
The Demand should be executed by or for such shareholder of record, fully
and correctly, as such shareholder's name appears on the Certificate(s)
formerly representing the shares. If shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the Demand
should be made in such capacity. If shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the Demand should be
executed by or for all joint owners. Any shareholder who has made a Demand may
withdraw the Demand at any time before payment for the shares is made or before
any petition asking for a determination of the fair value of the shares is
filed.
Within 20 days after making a Demand, the shareholder must submit the
Certificates representing the shares to the Surviving Corporation for notation
thereon that a Demand has been made. The failure of a shareholder to submit the
Certificates will terminate the shareholder's rights of appraisal, unless a
court of competent jurisdiction directs otherwise for good and sufficient cause
shown.
Within 20 days after receipt of a Demand, the Surviving Corporation must
deliver or mail to the shareholder a written notice that either (i) accepts the
amount claimed in the Demand and agrees to pay such amount within 90 days after
the effective time of the merger upon the surrender of the duly endorsed
Certificates formerly representing such shareholder's shares, or (ii) contains
an estimate by the Surviving Corporation of the fair value of the shares
together with an offer to pay such amount within 90 days after the effective
time of the merger. If the Surviving Corporation responds to the Demand with an
estimate of the fair value of the shares and the shareholder wishes to accept
the Surviving Corporation's estimate, the Surviving Corporation must receive
written notice from the shareholder accepting such estimate within 60 days
after the shareholder receives the estimate from the Surviving Corporation and
surrendering the duly endorsed Certificates formerly representing such
shareholder's shares. If, within 60 days after the effective time of the
merger, the value of the shares is agreed upon between the shareholder and the
Surviving Corporation, payment for the shares will be made within 90 days after
the effective time of the merger and upon surrender of the Certificates duly
endorsed. Upon payment of the agreed value, the shareholder will cease to have
any interest in the shares or TNP.
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If, within the period of 60 days after the effective time of the merger, the
shareholder and the Surviving Corporation do not agree on the fair value of the
Shares, then the shareholder or the Surviving Corporation may, within 60 days
following the expiration of such 60-day period, file a petition in any court of
competent jurisdiction in the county in which the principal office of the
Surviving Corporation is located, to obtain a judicial finding and
determination of the fair value of the shareholder's shares. Upon filing such
petition by the shareholder, the shareholder must serve the Surviving
Corporation with a copy of such petition. Within 10 days after being served
with a copy of the petition, the Surviving Corporation must file with the court
a list of shareholders who have demanded payment for their shares and with whom
agreements as to the value of their shares have not been reached. If the
petition is filed by the Surviving Corporation, the petition must be
accompanied by this list. All shareholders on this list will be notified as to
the time and place of the hearing of the petition. All shareholders thus
notified and the Surviving Corporation will then be bound by the final judgment
of the court. After the hearing of the petition, the court will determine which
shareholders have complied with the provisions of Article 5.12 and are entitled
to the valuation of and payment for their shares.
Also after the hearing of the petition, the court will appoint one or more
qualified appraisers who will determine the fair value of the shares. The
appraisers will have the power to examine any of the books and records of the
Surviving Corporation and will make a determination of the fair value of the
shares upon such investigation as they deem proper. Each party will have
reasonable opportunity to submit to the appraisers pertinent evidence as to the
value of the shares. The appraisers will file a report of the fair value of the
shares with the clerk of the court, and notice of the filing of the report will
be given by the clerk to the interested parties. Any party may make exceptions
to the appraiser's report. The court will then determine the fair value of the
shares and will direct the Surviving Corporation, upon receipt of the duly
endorsed Certificates formerly representing such Shares, to pay the value
together with interest thereon beginning on the 91st day after the effective
time of the merger to the date of the judgment to such shareholders entitled to
payment. The judgment will be payable only upon, and simultaneous with, the
surrender of the Certificates to the Surviving Corporation. Upon payment of the
judgment, the dissenting shareholders will cease to have any interest in the
shares or TNP.
The TBCA provides that, in the absence of fraud, the foregoing procedures
represent the exclusive remedy under Texas law for a shareholder objecting to
the merger agreement for the recovery of the value of such holder's shares or
of money damages to such shareholder with respect to the merger.
It is a condition of Parent's and Sub's obligation to close the merger
agreement that not more than 5% of the holders of TNP common stock have
perfected dissenter's rights and not withdrawn such rights.
TERMS OF THE MERGER AGREEMENT
The following description of the merger agreement does not purport to be
complete and is qualified in its entirety by reference to the merger agreement,
a copy of which is attached as Appendix A to this Proxy Statement and is
incorporated herein by reference.
Effective Time of the Merger
The merger will become effective upon the issuance of a Certificate of
Merger by the Secretary of State of the State of Texas. Assuming all conditions
to the merger contained in the merger agreement are satisfied or, to the extent
susceptible to waiver, waived prior thereto, it is anticipated that the
effective time of the merger will occur on the third business day following the
satisfaction or waiver of these conditions. See "--Conditions to the Merger."
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Manner and Basis of Converting Shares
At the effective time of the merger, by virtue of the merger and without any
action on the part of any holder of any capital stock of TNP, Parent or Sub,
each issued and outstanding share of TNP common stock (other than treasury
shares, shares held by Parent, Sub or any other wholly-owned subsidiary of
Parent and shares held by TNP shareholders who have validly exercised and
perfected appraisal rights under Texas law) will be automatically converted
into the right to receive the Merger Consideration of $44.00 in cash. All such
shares of TNP common stock will no longer be outstanding and will automatically
be canceled and retired and will cease to exist. Each holder of a Certificate
representing any such shares will cease to have any rights with respect
thereto, except the right to receive the Merger Consideration per share, upon
the surrender of such Certificate, without interest, subject to any applicable
withholding tax. All shares of TNP common stock that TNP owns as treasury stock
and any shares of TNP common stock owned by Parent, Sub or any other wholly-
owned subsidiary of Parent will be canceled and retired. Each issued and
outstanding share of the common stock, no par value, of Sub ("Sub Common
Stock") will be automatically converted into and become one fully paid and
nonassessable share of common stock, no par value, of the Surviving Corporation
("Surviving Corporation Common Stock"). Each issued and outstanding share of
preferred stock, no par value, of Sub ("Sub Preferred Stock") will be
automatically converted into and become one fully paid and nonassessable share
of preferred stock, no par value, of the Surviving Corporation ("Surviving
Corporation Preferred Stock"). Each certificate representing outstanding shares
of Sub Common Stock and each certificate representing outstanding shares of Sub
Preferred Stock will at the effective time of the merger represent an equal
number of shares of Surviving Corporation Common Stock and Surviving
Corporation Preferred Stock, respectively. Holders of shares of TNP common
stock have the right under Article 5.11 of the TBCA to dissent from the merger.
See "The Merger--Appraisal Rights of Dissenting Shareholders."
Prior to the effective time of the merger, Parent will designate the Paying
Agent for the merger. At the closing of the merger agreement, Parent will
deposit with the Paying Agent, in a separate fund established for the benefit
of the holders of TNP common stock, for payment through the Paying Agent, a
sufficient amount of cash to pay to the holders of TNP common stock the Merger
Consideration.
As soon as reasonably practicable after the effective time of the merger,
the Surviving Corporation will instruct the Paying Agent to mail to each holder
of record of a Certificate or Certificates immediately prior to the effective
time of the merger (other than dissenting shareholders) (i) a form of letter of
transmittal (which will specify that delivery will be effected, and risk of
loss and title to the Certificates will pass, only upon proper delivery of the
Certificates to the Paying Agent) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent, together with a duly executed letter of transmittal and such other
documents as the Paying Agent requires, the holder of such Certificate will be
entitled to receive the Merger Consideration, and the surrendered Certificate
will be canceled. No interest will be paid or accrued on the Merger
Consideration payable upon the surrender of any Certificate. In order for
someone other than the registered holder of the surrendered Certificate to
receive the payment, the surrendered Certificate must be properly endorsed or
otherwise be in proper form for transfer. In addition, the person requesting
such payment must either pay any transfer or other taxes required by reason of
the payment being made to someone other than the registered holder of the
surrendered Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. From the
effective time of the merger, until surrendered as described in this paragraph,
each Certificate (other than Certificates held by dissenting shareholders) will
represent only the right to receive upon such surrender the Merger
Consideration and any unpaid dividends that may have been declared by TNP on
such shares.
Following the effective time of the merger, no transfer of any TNP common
stock (other than Certificates held by dissenting shareholders) thereafter will
be made. If, after the effective time of the merger, any Certificates (other
than Certificates held by dissenting shareholders) are presented to the Paying
Agent for transfer, they will be canceled and exchanged for the Merger
Consideration.
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Parent is entitled to withhold from the Merger Consideration amounts
required to be withheld under the Code or any provision of state, local or
foreign tax law. To the extent withheld, such withheld amounts will be treated
for all purposes as having been paid to the holder of TNP common stock in
respect of which such deduction and withholding was made by Parent.
All funds that the Paying Agent holds for payment that remain undistributed
to the holders of TNP common stock one year after the effective time of the
merger will be returned to the Surviving Corporation. Any holders of
unsurrendered Certificates then will look only to the Surviving Corporation for
payment of Merger Consideration to which they are entitled, subject to
applicable law. None of the Parent, Sub, TNP nor the Surviving Corporation will
be liable to any person for such shares or funds delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
Stock Options
The merger agreement requires TNP to take all actions necessary to provide
that, immediately prior to the consummation of the merger, (x) each outstanding
option to acquire shares of TNP common stock (the "TNP Options") granted under
any of the TNP Option Plans, whether or not then exercisable or vested, will
become fully exercisable and vested, (y) each TNP Option which is then
outstanding will be canceled and (z) in consideration of such cancellation, and
except to the extent that Parent or Sub and the holder of any such TNP Option
otherwise agree, TNP (or, at Parent's option, Parent or Sub) will pay to such
holders of TNP Options an amount in respect thereof equal to the product of (A)
the excess, if any, of the Merger Consideration per share over the per share
exercise price thereof and (B) the number of shares of TNP common stock subject
thereto (the "Option Amount") (such payment to be net of applicable withholding
taxes); provided that the foregoing will not require any action which violates
the TNP Option Plans.
Except as provided in the merger agreement or as otherwise agreed to by
Parent, Sub and TNP and to the extent permitted by the TNP Option Plans, (x)
TNP will use all reasonable efforts to provide that (A) the TNP Option Plans,
other than TNMP's Thrift Plan for Employees, will terminate as of the effective
time of the merger and (B) either the provisions in any other plan, program or
arrangement providing for the issuance or grant by TNP or any of its
subsidiaries of any interest in respect of the capital stock of TNP or any of
its subsidiaries will be deleted, or such plan, program or arrangement will
terminate as of the effective time of the merger, and (y) TNP will use all
reasonable efforts to ensure that following the effective time of the merger,
no holder of TNP Options or any participant in the TNP Option Plans or any
other such plans, programs or arrangements will have any right thereunder to
acquire any equity securities of TNP, the Surviving Corporation or any
subsidiary thereof. The merger agreement was amended on August 9, 1999, to
require that TNMP's Thrift Plan for Employees be amended to prohibit the
issuance or grant by TNP or any of its subsidiaries of any capital stock of TNP
or any of its subsidiaries. Currently, there are no outstanding options to
acquire TNP common stock.
The merger agreement requires that TNP take all actions necessary to provide
that each share of restricted or performance stock granted under the TNP Option
Plans become fully vested and free of restrictions no later than the
consummation of the merger. It also provides that any holder of a restricted or
performance stock grant may authorize TNP to retain a number of shares of TNP
common stock from such grant having an aggregate value (based upon the
Consideration Price per share) equal to any withholding taxes applicable to the
vesting of such grant, in lieu of the payment of such amount in cash. As a
result, 6,792 shares of restricted stock outstanding as of July 1, 1999 will
become fully vested and free of restrictions. The restrictions on these shares
otherwise expire on December 31, 1999.
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Conditions to the Merger
The obligations of each party to consummate the merger are subject to the
satisfaction of certain conditions, including the following:
(1) the merger agreement has been adopted by the requisite vote of the
shareholders of TNP under the TBCA and TNP's articles of incorporation;
(2) any waiting period (and any extension of the waiting period)
applicable to the consummation of the merger under the HSR Act has expired
or been terminated;
(3) no court of competent jurisdiction or other competent governmental
or regulatory authority has enacted, issued, promulgated, enforced or
entered any law or order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making illegal or otherwise
restricting, preventing or prohibiting consummation of the merger or the
other transactions contemplated by the merger agreement;
(4) the final approval of FERC under the Federal Power Act with respect
to the merger and the transactions contemplated by this merger agreement,
or an order of FERC disclaiming jurisdiction over the merger, has been
obtained; and
(5) other than the filing of the Articles of Merger, all consents,
approvals and actions of, filings with and notices to any governmental or
regulatory authority (including, without limitation, under the Texas Public
Utility Regulatory Act, the NMPUA, the Federal Power Act and HSR Act) or
any other public or private third parties (the "Required Approvals")
required of Parent, TNP or any of their respective subsidiaries to
consummate the merger and the other matters contemplated by the merger
agreement, the failure of which to be obtained or taken could be reasonably
expected to have a material adverse effect on Parent and its subsidiaries
or the Surviving Corporation and its subsidiaries, in each case taken as a
whole, or on the ability of Parent and TNP to consummate the transactions
contemplated by the merger agreement, have been obtained and become final,
and such final orders do not, individually or in the aggregate, contain
terms or conditions that would have, or would reasonably be expected to
have a material adverse affect on the Surviving Corporation and its
subsidiaries, taken as a whole.
The obligations of Parent and Sub to consummate the merger are subject to
the following conditions:
(A) each of the representations and warranties made by TNP in the merger
agreement that is qualified by materiality is true and correct, and each of
such representations and warranties that is not so qualified is true and
correct in all material respects, in each case, as of the closing date of
the merger agreement as though made on and as of the closing date of the
merger or, in the case of representations and warranties made as of a
specified date earlier than the closing date of the merger, on and as of
such earlier date, except as affected by the transactions contemplated by
the merger agreement, and TNP has delivered to Parent a certificate to such
effect;
(B) TNP has performed and complied with, in all material respects, each
agreement, covenant and obligation required by the merger agreement to be
so performed or complied with by TNP at or prior to the closing of the
merger agreement, and TNP has delivered to Parent a certificate to such
effect;
(C) since the date of the merger agreement, no material adverse effect
has occurred with respect to TNP and there exists no facts or circumstances
arising after the date of the merger agreement, which in the aggregate
would, or insofar as reasonably can be foreseen, could, when taken together
with any breaches or violations of any representations, warranties,
covenants and agreements of TNP contained in the merger agreement, result
in a material adverse effect with respect to TNP;
(D) Parent is reasonably satisfied that, insofar as can be reasonably
foreseen, no final order with respect to any Required Approval, and no
change in or event relating to the order of the PUCT dated September 4,
1998, could reasonably result in any rate plan which would be significantly
less favorable to the Surviving Corporation and its subsidiaries than the
Texas Transition Plan to Competition and the rate plans applicable to TNP
and its subsidiaries in the State of New Mexico on the date of the merger
agreement;
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(E) on or prior to the closing date of the merger, the rights under
TNP's Amended and Restated Rights Agreement (the "Rights Agreement") have
not become exercisable or transferable apart from the associated shares of
TNP common stock, no "Stock Acquisition Date", "Triggering Event" or
"Distribution Date" (each as defined in the Rights Agreement) has occurred
and the rights under the Rights Agreement have not become nonredeemable, in
each case other than as a result of actions by Parent or any of its
affiliates;
(F) all conditions to the availability of the financings contemplated by
the Commitment Letters, Definitive Preferred Stock Agreements and the
Definitive Debt Financing Agreements have been fulfilled or waived and all
proceeds of such financings have been received by Parent and Sub; provided,
that this condition is not applicable if the failure of Parent or Sub to
receive the proceeds of such financing has been occasioned by action or the
failure to take action by Parent or Sub which action or inaction also
constitutes a breach of any material covenant, representation or warranty
of such party hereunder;
(G) TNP has delivered to Parent or Sub or its lenders such additional
customary certificates, opinions of counsel and other documents as Parent's
or Sub's lenders reasonably request;
(H) all of the options under the TNP Option Plans have been validly
canceled and none remain outstanding and all of the shares of restricted
stock under the TNP Option Plans constitute fully vested, issued and
outstanding shares no later than the effective time of the merger, and no
holder of TNP Options or any participant in the TNP Option Plans or any
other employee benefit plan has any right thereunder to acquire any equity
securities of TNP, the Surviving Corporation or any of their respective
subsidiaries;
(i) holders of not more than 5% of the outstanding shares of TNP common
stock have perfected such holder's right to dissent in accordance with the
applicable provisions of the TBCA and have not withdrawn or lost such
rights;
(J) TNP or TNMP, as the case may be, has entered into an employment
agreement with certain officers of TNP and TNMP named in the merger
agreement, and Parent is reasonably satisfied, as of the closing date of
the merger agreement, that the aggregate cash amounts that could become
payable (including tax indemnification payments in respect of income and/or
excise taxes) to these executive officers payable as a result of the merger
agreement does not exceed $4,428,000, excluding incentive compensation,
pension benefits and insurance; and
(K) all proceedings to be taken on the part of TNP in connection with
the closing of the transactions contemplated by the merger agreement and
all documents incident thereto have been reasonably satisfactory in form
and substance to Parent, and Parent has received copies of all such
documents and other evidences as Parent may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
The obligation of TNP to consummate the merger is subject to the following
conditions:
(i) each of the representations and warranties made by Parent and Sub in
the merger agreement that is qualified by materiality is true and correct,
and each of such representations and warranties that is not so qualified is
true and correct in all material respects, in each case, as of the closing
date of the merger agreement as though made on and as of the closing date
of the merger agreement or, in the case of representations and warranties
made as of a specified date earlier than the closing date of the merger
agreement, on and as of such earlier date, except as affected by the
transactions contemplated by the merger agreement, and Parent and Sub have
delivered to TNP a certificate to such effect;
(ii) Parent and Sub have performed and complied with, in all material
respects, each agreement, covenant and obligation required by the merger
agreement to be so performed or complied with by Parent or Sub at or prior
to the closing of the merger agreement, and Parent and Sub each have
delivered to TNP a certificate to such effect; and
(iii) all proceedings to be taken on the part of Parent and Sub in
connection with the closing of the transactions contemplated by the merger
agreement and all documents incident thereto are reasonably satisfactory in
form and substance to TNP, and TNP has received copies of all such
documents and other
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evidences as TNP may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
There can be no assurance that all of the conditions to the merger will be
satisfied.
Representations and Warranties
The merger agreement contains various representations and warranties of TNP
concerning the following matters:
. TNP's due organization and qualification, the due organization and
qualification of its subsidiaries and similar corporate matters;
. TNP's capital structure;
. the authorization, execution, delivery, performance and enforceability
of the merger agreement and related matters;
. the non-contravention of the merger agreement with TNP's corporate
documents, applicable laws and contracts;
. regulatory and statutory approvals;
. that reports and financial statements that have been filed with
governmental authorities have complied in all material respects with all
applicable requirements, and did not contain a material
misrepresentation or omission;
. the absence of material adverse changes;
. the absence of undisclosed liabilities;
. legal proceedings of TNP;
. the information supplied by TNP for use in this Proxy Statement does not
contain a material misrepresentation or omission;
. the permits of TNP and its compliance with laws and governmental orders;
. the absence of defaults under TNP's organizational documents and
material contracts, and information concerning certain recent material
contracts of TNP;
. the taxes of TNP;
. the employee benefit plans of TNP and its subsidiaries and compliance
with certain provisions of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA");
. certain employee and labor matters;
. certain environmental matters;
. the status of TNP under PUHCA;
. TNP's insurance;
. intellectual property rights of TNP;
. the vote required by the holders of TNP common stock;
. the receipt by TNP of the opinion of Warburg Dillon Read as to the
fairness of the Merger Consideration, from a financial point of view;
. the non-applicability of certain statutory and company-specific anti-
takeover provisions; and
. the Year 2000 compliance of TNP and its subsidiaries.
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The merger agreement contains various representations and warranties of the
Parent and Sub concerning the following matters:
. Parent's and Sub's due organization and qualification, the due
organization and qualification of its significant subsidiaries and
similar corporate matters;
. the authorization, execution, delivery, performance and enforceability
of the merger agreement and related matters;
. the non-contravention of the merger agreement with Parent's and Sub's
corporate documents, applicable laws and contracts;
. legal proceedings that could have a material adverse effect on the
ability of Parent or Sub to consummate the merger;
. the information supplied by Parent or Sub for inclusion (by
incorporation by reference or otherwise) in this Proxy Statement or any
other document to be filed by Parent, Sub or TNP;
. the ownership of TNP common stock by Parent or its affiliates;
. the financing of the merger;
. the capitalization of Sub; and
. certain representations concerning fraudulent conveyances.
Certain Covenants Relating to Conduct of Business Prior to the Merger
TNP has agreed that, prior to the effective time of the merger, TNP will,
and will cause its subsidiaries to, conduct their respective businesses only
in, and neither TNP nor any such subsidiary will take any action except in, the
ordinary course consistent with past practice. In addition, TNP has agreed that
TNP will, and will cause its subsidiaries to use all commercially reasonable
efforts to comply with the provisions of the merger agreement and provide for
the truthfulness of its representations.
TNP has also agreed that it and its subsidiaries will use all commercially
reasonable efforts to preserve intact in all material respects their present
business organizations and reputation, to keep available the services of their
key officers and employees, to maintain their assets and properties in good
working order and condition, ordinary wear and tear excepted, to maintain
insurance on their tangible assets and businesses in such amounts and against
such risks and losses as are currently in effect, to preserve their
relationships with governmental authorities, customers and suppliers and others
having significant business dealings with them and to comply in all material
respects with all laws and orders applicable to them.
TNP has also agreed that, without the consent of Parent, it will not, and
will not permit any of its subsidiaries to:
. amend any of its organizational documents (except to the extent required
by law, bylaws or other comparable corporate documents);
. declare or pay any dividends other than as provided in the merger
agreement;
. issue or sell any stock or securities convertible into stock, other than
as provided in the merger agreement;
. acquire any business or assets, other than as provided in the merger
agreement;
. dispose of any material assets, other than as provided in the merger
agreement;
. permit any material change in any of its pricing, accounting, tax or
other policies, other than as provided in the merger agreement;
. incur or prepay any material indebtedness, other than as provided in the
merger agreement;
. adopt, amend or terminate any employee benefit plan, other than as
provided in the merger agreement;
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. enter into or amend any contract or engage in any new transaction with
any affiliate, except in the ordinary course of business consistent with
past practice or on an arm's length basis;
. willfully take or fail to take any action that would result in a
material breach of the merger agreement or in the representations and
warranties being untrue;
. initiate any litigation other than in the ordinary course of business
consistent with past practice;
. take any action that would be reasonably likely to jeopardize the
qualification of any material amount of outstanding revenue bonds which
qualify on the date of the merger agreement under Section 142(a) of the
Code as "exempt facility bonds" or as tax-exempt industrial development
bonds under Section 103(b)(4) of the Internal Revenue Code of 1954, as
amended, prior to the enactment of the Tax Reform Act of 1986;
. make any capital expenditures or commitments for additions to plant,
property or equipment constituting capital assets in excess of budgeted
amounts, other than as provided in the merger agreement;
. make any change in its lines of business;
. engage in any activities that would cause a change in its or its
subsidiaries' status under PUHCA or the Federal Power Act or that would
impair the ability of TNP or Parent or any subsidiary of Parent to claim
any exemption under PUHCA or that would subject Parent or any subsidiary
of Parent to regulation under PUHCA (other than Section 9(a)(2) or as an
exempt holding company under PUHCA) following the merger, except as
required by applicable law;
. except as may be required by applicable law, agree or consent to any
material agreements or modifications of (i) material existing agreements
with any governmental authority in respect of the operations of their
businesses, or (ii) material rates, charges, service agreements or other
like agreements filed with and subject to approval by any governmental
authority, except where following discussion with the relevant authority
such agreements or modifications are imposed upon TNP;
. commence construction of any additional generating, transmission or
delivery capacity, other than as provided in the merger agreement;
. obligate itself to acquire or dispose of any additional generating,
transmission or delivery plants or facilities, other than as provided in
the merger agreement;
. buy or sell any energy futures or forward contracts or energy
transportation futures or forward contracts, or options on any of the
foregoing; or
. enter into any contract, commitment or arrangement to do or engage in
any of the foregoing, other than as provided in the merger agreement.
No Solicitation
TNP has agreed that neither it, its subsidiaries nor any of its
Representatives (as that term is defined in the merger agreement) will
initiate, solicit or encourage, directly or indirectly, any inquiries, or make
or implement any proposal or offer (including, without limitation, any proposal
or offer to its shareholders) with respect to a merger, consolidation or other
business combination including TNP or any of its subsidiaries or any
acquisition or similar transaction (including, without limitation, a tender or
exchange offer) involving the purchase of (i) all or any significant portion of
the assets of TNP and its subsidiaries taken as a whole, (ii) 10% or more of
the outstanding shares of TNP common stock or (iii) 10% of the outstanding
shares of the capital stock of any subsidiary of TNP (collectively, an
"Alternative Proposal"). In addition, they will not engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person or group relating to an Alternative Proposal
(excluding the transactions contemplated by this Agreement), or otherwise
facilitate any effort or attempt to make or implement an Alternative Proposal.
In addition, TNP has agreed that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties with respect to any of the foregoing, and it will take the
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necessary steps to inform such parties of its obligations under this section of
the merger agreement. TNP has also agreed to notify Parent immediately if it
receives any such inquiries, proposals or offers, request for any such
information, or requests to initiate or continue any such negotiations or
discussions.
The merger agreement provides, however, that prior to the TNP shareholders'
approval of the merger, the Board may furnish information to (but only pursuant
to a confidentiality agreement in customary form) or enter into discussions or
negotiations with any person or group that makes an unsolicited bona fide
Alternative Proposal, if, and only to the extent that:
. the Board, based on advice from outside counsel, determines in good
faith that such action is required for it to comply with its fiduciary
duties to shareholders imposed by law;
. the Board has reasonably concluded in good faith, after consultation
with its financial advisor, that
(1) if such Alternative Proposal contains cash consideration, the
person or group making such Alternative Proposal will have adequate
sources of financing to consummate such Alternative Proposal and
(2) such Acquisition Proposal could reasonably lead to a transaction
that is more favorable to TNP's shareholders than the merger;
. prior to furnishing such information to, or entering into discussions or
negotiations with, such person or group, TNP provides written notice to
Parent to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person or group, which
notice will identify such person or group in reasonable detail; and
. TNP keeps Parent reasonably informed of the status of any such
discussions or negotiations.
In addition, the Board may, to the extent required, comply with Rule 14e-2
under the Exchange Act with regard to an Alternative Proposal.
The foregoing, however, does not (i) permit TNP to terminate the merger
agreement (except as otherwise specifically provided in the merger agreement),
(ii) permit TNP to enter into any agreement with respect to an Alternative
Proposal for so long as the merger agreement remains in effect, or (iii) affect
any other obligation of TNP under the merger agreement.
Except to the extent required by applicable law or to the extent that the
Board, based on advice from outside counsel, determines in good faith that such
action is required for the Board to comply with its fiduciary duties to
shareholders imposed by law, prior to the effective time of the merger, without
the prior written consent of Parent, TNP is prohibited from taking any action
with respect to, or make any determination under, or amend the Rights Plan,
including a redemption of the rights under the Rights Plan.
Certain Post-Merger Matters
Once the merger is consummated:
. Sub will cease to exist as a corporation, and TNP, as the Surviving
Corporation, will succeed to all of the assets, rights and obligations
of Sub;
. the Articles of Incorporation and Bylaws of Sub, as in effect
immediately prior to the effective time of the merger, will be the
Articles of Incorporation and Bylaws of the Surviving Corporation, until
duly amended;
. the individuals who are directors of Sub immediately prior to the
effective time of the merger will comprise the full Board of Directors
of the Surviving Corporation, until the earlier of their death,
resignation or removal or until their respective successors are duly
elected and qualified; and
. the individuals who are officers of Sub immediately prior to the
effective time of the merger will be the initial officers of TNP, as the
Surviving Corporation, until the earlier of their death, resignation or
removal or until their respective successors are duly elected and
qualified.
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Additional Agreements in the Merger Agreement
The merger agreement provides for the following additional agreements:
. TNP and its subsidiaries will provide Parent access to certain
information concerning TNP and its subsidiaries through the effective
time of the merger;
. TNP is required to prepare and file this Proxy Statement and to
cooperate with Parent and Sub in preparing offering materials in
connection with the financing of the merger;
. TNP is required to hold the Special Meeting, recommend the adoption of
the merger agreement and to use its best efforts to obtain the adoption
of the merger agreement;
. TNP, Parent and Sub are required to obtain all consents and make all
necessary filings with governmental and regulatory authorities required
to consummate the merger, including the PUCT, the NMPRC and pursuant to
the HSR Act, and to provide all necessary information to such
governmental and regulatory authorities;
. Parent is required to maintain the TNP Benefit Plans in effect as of the
date of the merger agreement for one year (other than TNP's Non-Employee
Director Stock Plan and TNP's Equity Incentive Plan);
. prior to closing, TNP and TNMP are to use their best efforts to enter
into an employment agreement with certain of the executive officers of
TNP and TNMP (see "The Merger--Interests of Certain Persons in the
Merger");
. the Surviving Corporation is required to indemnify the directors and
officers of TNP and its subsidiaries for four years after the effective
time of the merger and to maintain certain liability insurance policies
(see "The Merger--Interests of Certain Persons in the Merger");
. except with respect to the termination of the merger agreement, all
costs and expenses incurred in connection with the merger agreement are
to be paid by the party incurring such cost or expense (see "--
Termination of the Merger Agreement");
. each party represented that no third person is entitled to any broker's
or finder's fee or other commission, except Warburg Dillon Read and
CIBC;
. to the extent that any antitakeover statute becomes applicable to the
merger, TNP and the Board will take any necessary actions so that the
merger can be consummated as promptly as practicable and to minimize the
effect of such antitakeover statute;
. TNP and Parent will cooperate in the preparation, execution and filing
of tax returns and other tax documents with respect to taxes that become
payable as a result of the merger that are required to be filed prior to
or at the effective time of the merger;
. TNP will pay any tax on gains derived from real property transfers, real
estate transfer tax, real property transfer tax and any stock transfer
tax imposed by any state that become payable in connection with the
merger, and TNP and Parent will cooperate in the preparation of such
returns (and in the determination of the portion of the consideration
allocable to real property of TNP and its subsidiaries; in addition, the
shareholders of TNP will be deemed to have agreed to be bound by the
allocation established in the preparation of any return with respect to
the gains tax and the transfer taxes, if applicable;
. prior to the effective time of the merger, except as required by
applicable law and subject to other provisions of the merger agreement,
Parent will, and will cause Sub to, (i) perform its obligations under
the merger agreement in accordance with its terms, (ii) not incur
directly or indirectly any liabilities or obligations other than those
incurred in connection with the merger (including, without limitation,
the Equity Financing and the Debt Financing), (iii) not engage directly
or indirectly in any business or activities of any type or kind and not
enter into any agreements or arrangements with any person, or be subject
to or bound by any obligation or undertaking, which is not contemplated
by the merger agreement and (iv) not create any lien upon its properties
or assets which would attach to any properties or assets of the
Surviving Corporation after the effective time of the merger other than
as
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contemplated by the Equity Financing, the Subordinated Debt Financing
and the Senior Debt Financing;
. TNP and its subsidiaries may not, without the approval of Parent, (i)
initiate a general rate case in any jurisdiction in which it does
business or (ii) propose, make or agree to make any changes in rates or
charges, standards of service or accounting from those each has in
effect on the date of the merger agreement; TNP and its subsidiaries
may, however, make certain filings in New Mexico, filings with respect
to certain fuel reconciliation cases, and filings required by laws,
after providing notice to Parent;
. Parent and Sub will not, without the prior consent of TNP, amend any of
the Commitment Letters, the Equity Documents and Agreements, the
Definitive Preferred Stock Agreements or the Definitive Debt Financing
Agreements if such amendment would (i) reduce the aggregate amount of
funds committed under the Commitment Letters, (ii) add significant
additional conditions to the consummation of the transactions
contemplated by the Commitment Letters, the Equity Documents and
Agreements or the Definitive Debt Financing Agreements or (iii) have a
significant adverse affect on or significantly delay the receipt of any
of the required approvals with respect to the merger or the consummation
of the merger;
. Parent is required to enforce the provisions of the Commitment Letters,
the Definitive Preferred Stock Agreements and the Definitive Debt
Financing Agreements, and Parent and Sub are required to use their best
efforts to cause all conditions to funding to be fulfilled under, and
cause the funding to occur under the Commitment Letters, the Definitive
Preferred Stock Agreements and the Definitive Debt Financing Agreements
as promptly as reasonably practicable;
. Parent must give TNP prompt written notice of (i) any material breach or
threatened material breach by any party of the terms or provisions of
the Commitment Letters, Equity Documents and Agreements, Definitive
Preferred Stock Agreements or Definitive Debt Financing Agreements, (ii)
any termination or threatened termination of any of the Commitment
Letters, Equity Documents and Agreements, Definitive Preferred Stock
Agreements or Definitive Debt Financing Agreements, or (iii) any
exercise or threatened exercise of any "market out" or "material adverse
change" condition under any of the Commitment Letters, Equity Documents
and Agreements, Definitive Preferred Stock Agreements or Definitive Debt
Financing Agreements;
. prior to the expiration of any Commitment Letter relating to the Senior
Preferred Stock, the Senior Debt Financing or the Subordinated Debt
Financing, to the extent that Parent determines that it is reasonably
likely that the initial termination date of the merger agreement may be
extended, Parent must use its best efforts to secure an extension of the
expiration date of such Commitment Letter to the Extended Termination
Date;
. TNP will, at the request of Parent, make the same representations and
warranties to each Equity Investor, the Senior Lender, the Subordinated
Lender and the Backstop Lender, as the case may be (the "Financing
Parties") as are made by TNP to Parent in the merger agreement, and any
others customarily requested by such Financing Parties, and will deliver
customary documents, and grant security interests in its assets pursuant
to such agreement; however, no such obligation of TNP will be effective
until the effective time of the merger; and
. each party will provide notice of and use its best efforts to cure any
event that causes or will cause any breach of any covenant,
representation or warranty, and each party will promptly advise the
other parties of any event that could have a material adverse effect on
the ability of any party to consummate the merger.
Termination of the Merger Agreement
The merger agreement may be terminated at any time prior to the effective
time of the merger:
(1) by mutual written agreement of Parent and TNP;
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(2) by either party if the closing of the merger has not occurred by
February 24, 2000 (provided that (i) the right to terminate will not be
available to any party whose breach of any obligation under the agreement
has been the cause of the failure of the effective time to occur on or
before such date and (ii) if all conditions except for (a) the absence of
any injunction by a governmental or regulatory authority prohibiting the
merger, (b) the final approval of FERC of the merger or (c) obtaining other
regulatory approvals have been satisfied or are capable of being satisfied
by the Extended Termination Date (which would be August 24, 2000) that this
date will be extended to the Extended Termination Date);
(3) by either party if the merger is not approved by TNP's shareholders;
(4) by either party if there has been a material breach of the other
party that has not been cured within 30 days following notice;
(5) by either party if any court or other governmental authority issues
an order making the merger illegal or otherwise restricting the merger (and
the order has become final and nonappealable);
(6) by either party if (a) all consents, approvals and actions to
consummate the merger and the other matters contemplated by the merger
agreement were not obtained or were obtained but have not become final
orders (the failure of which to be obtained could be reasonably expected to
have a material adverse effect on Parent and its subsidiaries or the
Surviving Corporation and its subsidiaries or on the ability of Parent and
TNP to consummate the transactions contemplated by the merger agreement) or
(b) such final orders, individually or in the aggregate, contain terms or
conditions that would have or would reasonably be expected to have a
material adverse effect on the Surviving Corporation and its subsidiaries;
(7) by TNP if the Board determines in good faith, based on advice of
counsel, that termination of the merger agreement is required for the Board
to comply with its fiduciary duties to shareholders imposed by law by
reason of an unsolicited Alternative Proposal;
(8) by Parent if the Board withdraws its recommendation of the merger or
recommends or takes no position with respect to an Alternative Proposal or
if TNP amends the Rights Plan in an adverse manner to Parent, the Surviving
Corporation or any of their respective subsidiaries or in a manner that
would limit the ability of TNP, Parent or Sub to consummate the merger;
(9) by TNP if any of the Commitment Letters, Partnership Subscription
Agreements, Definitive Preferred Stock Agreements or Definitive Debt
Financing Agreements are terminated at a time when Parent would not be
entitled to terminate the merger agreement in the manner described under
(2) through (6) or (8) above, and such financing commitments are not
replaced within 10 business days of such termination as discussed under
"Terms of the Merger Agreement--Termination of the Merger Agreement"; or
(10) by Parent if there is a final order with respect to any required
approval, or a change in or event relating to the order by the PUCT with
respect to TNP's Texas Transition to Competition Plan, that could
reasonably result in a rate plan that would be significantly less favorable
to the Surviving Corporation than the Texas Transition Plan to Competition
and the rate plans applicable to TNP in New Mexico on the date of the
merger agreement.
In the event of termination of the merger agreement by either TNP or Parent,
the merger agreement will forthwith become void and there will be no liability
or obligation on the part of TNP or Parent or their respective representatives
or affiliates, except (i) that certain provisions (such as confidentiality,
expenses and the enforcement of remedies) will continue to apply following such
termination, (ii) that no such termination will relieve any party from
liability for any willful breach thereof, and (iii) that certain obligations
relating to termination fees and expenses may be triggered.
Subject to applicable law, the merger agreement may be amended, modified or
supplemented only by action taken by or on behalf of Parent and the respective
Boards of Directors of TNP and Sub at any time prior to the effective time of
the merger, whether prior to or after the requisite approval of TNP's
shareholders has been obtained.
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Termination Fees and Expenses
TNP will be required to pay Parent the Termination Fee of $20 million, plus
the Expense Amount equal to $10 million, constituting reimbursement of expenses
incurred by Parent and Sub in connection with the merger agreement, in the
event that any person or group has made an Alternative Proposal and the merger
agreement is terminated:
(1) by TNP because the Board has determined in good faith based on
advice of counsel that termination of the merger agreement is required for
the Board to comply with its fiduciary duties to shareholders imposed by
law by reason of an unsolicited Alternative Proposal;
(2) by the Parent because of a material breach by TNP that has not been
cured within 30 days following notice;
(3) by the Parent because (a) the Board has withdrawn its recommendation
of the merger or has recommended or taken no position with respect to an
Alternative Proposal or (b) if TNP has amended the Rights Plan in an
adverse manner to Parent, the Surviving Corporation or any of their
respective subsidiaries or in a manner that would limit the ability of TNP,
Parent or Sub to consummate the merger;
(4) by either party because the merger has not been approved by TNP's
shareholders (and such Alternative Proposal has been made known to TNP's
shareholders generally), and the Board recommends the Alternative Proposal
or an agreement with respect to the Alternative Proposal is executed within
one year of the termination of the merger agreement;
(5) by either party because a court or other governmental entity has
issued an order making the merger illegal or otherwise restricting or
prohibiting the merger (and the order has become final and nonappealable),
and the Board recommends the Alternative Proposal or an agreement with
respect to the Alternative Proposal is executed within one year of the
termination of the merger agreement;
(6) by either party if (a) all consents, approvals and actions to
consummate the merger and the other matters contemplated by the merger
agreement were not obtained or were obtained but have not become final
orders (the failure of which to be obtained could be reasonably expected to
have a material adverse effect on Parent and its subsidiaries or the
Surviving Corporation and its subsidiaries or on the ability of Parent and
TNP to consummate the transactions contemplated by the merger agreement) or
(b) such final orders, individually or in the aggregate, contain terms or
conditions that would have or would reasonably be expected to have a
material adverse effect on the Surviving Corporation and its subsidiaries,
and the Board recommends the Alternative Proposal or an agreement with
respect to the Alternative Proposal is executed within one year of the
termination of the merger agreement;
(7) by Parent if there is a final order with respect to any required
approval, or a change in or event relating to the order by the PUCT with
respect to TNP's Texas Transition to Competition Plan, that could
reasonably result in any rate plan that would be significantly less
favorable to the Surviving Corporation than the Texas Transition Plan to
Competition and the rate plans applicable to TNP in New Mexico on the date
of the merger agreement, and the Board recommends the Alternative Proposal
or an agreement with respect to the Alternative Proposal is executed within
one year of the termination of the merger agreement; or
(8) by TNP because the closing of the merger has not occurred by
February 24, 2000 (or by the Extended Termination Date (August 24, 2000),
as applicable), and the Board recommends the Alternative Proposal or an
agreement with respect to the Alternative Proposal is executed within one
year of the termination of the merger agreement.
TNP will be required to pay the Expense Amount to Parent if, under
circumstances in which the amounts in the preceding paragraph are not payable,
the merger agreement is terminated:
(1) by either party on the Extended Termination Date because all
regulatory and governmental approvals have not been obtained but all other
conditions to the merger have been fulfilled or waived;
48
<PAGE>
(2) by either party because the requisite approval of TNP's shareholders
has not been obtained;
(3) by either party because a court or other governmental entity has
issued an order making the merger illegal or otherwise restricting the
merger (and the order has become final and nonappealable);
(4) by either party because other than the filing of the Articles of
Merger, all consents, approvals and actions of, filings with and notices to
any governmental or regulatory authority or any other public or private
third parties required of Parent, TNP or any of their respective
subsidiaries to consummate the merger and the other matters contemplated by
the merger agreement have not been obtained and become final, or such final
orders, individually or in the aggregate, contain terms or conditions that
would have, or would reasonably be expected to have a material adverse
affect on the Surviving Corporation and its subsidiaries, taken as a whole;
(5) by Parent because of a material breach by TNP that has not been
cured within 30 days following notice;
(6) by Parent because the Board has withdrawn its recommendation of the
merger or has recommended or taken no position with respect to an
Alternative Proposal or because TNP has amended the Rights Plan in an
adverse manner to Parent, the Surviving Corporation or any of their
respective subsidiaries or in a manner that would limit the ability of TNP,
Parent or Sub to consummate the merger; or
(7) by Parent if there is a final order with respect to any required
approval, or a change in or event relating to the order by the PUCT with
respect to TNP's Texas Transition to Competition Plan, that could
reasonably result in any rate plan that would be significantly less
favorable to the Surviving Corporation than the Texas Transition Plan to
Competition and the rate plans applicable to TNP in New Mexico on the date
of the merger agreement.
If a termination is as a result of (1), (3), (4) or (7) above, then the
Expense Amount will be $7 million. In addition, the Expense Amount payable
pursuant to this paragraph will be credited against amounts payable pursuant to
the preceding paragraph. TNP will not be required to pay the Expense Amount if
the amount is due as a result of (1) above if the failure to obtain any
required regulatory approval is due solely to a lowering of the credit ratings
of the senior debt securities of TNMP to a level below "investment grade," and
such lowering was directly caused by the composition and terms of the Equity
Financing and the Debt Financing. In addition, TNP will not be required to pay
any Expense Amount if any Equity Investor would, upon consummation of the
merger, become subject to regulation as a public utility holding company under
PUHCA, and as a result, such Equity Investor terminates its obligations under
any Commitment Letter, and TNP consequently terminates the merger agreement
pursuant to clause (9) under "--Termination of the Merger Agreement" above.
REGULATORY APPROVALS
Set forth below is a summary of the material regulatory requirements
affecting the merger. Additional consents from or notifications to governmental
agencies may be necessary or appropriate in connection with the merger.
Under the merger agreement, Parent and TNP have agreed to proceed diligently
and in good faith to obtain, as promptly as practicable, any permits, orders
and other governmental authorizations necessary, proper or advisable to
consummate and make effective the transactions contemplated by the merger
agreement. While Parent and TNP believe that they will receive the requisite
regulatory approvals of the merger, including favorable ratemaking treatment,
there can be no assurance as to the timing of such approvals, the ability to
obtain such approvals or that such approvals will contain satisfactory terms
and conditions. There can be no assurance that any such approvals will be
obtained or, if obtained, will not contain terms, conditions or qualifications
that cause such approvals to fail to satisfy such condition to the consummation
of the merger or that such orders will not be appealed by intervenors to the
appropriate courts.
49
<PAGE>
Antitrust Considerations
The HSR Act and the rules and regulations thereunder provide that certain
transactions (including the merger) may not be consummated until certain
information has been submitted to the Antitrust Division of the Department of
Justice ("Antitrust Division") and the Federal Trade Commission (the "FTC") and
the specified HSR Act waiting period requirements have been satisfied. Parent
and TNP will provide their respective premerger notifications pursuant to the
HSR Act. The expiration or earlier termination of the HSR Act waiting period
would not preclude the Antitrust Division or the FTC from challenging the
merger on antitrust grounds. Neither Parent nor TNP believes that the merger
will violate federal antitrust laws. If the merger is not consummated within 12
months after the expiration or earlier termination of the initial HSR Act
waiting period, Parent and TNP must submit new information to the Antitrust
Division and the FTC, and a new HSR Act waiting period must expire or be
earlier terminated before the merger may be consummated.
Federal Power Act
Section 203 of the Federal Power Act provides that no public utility may
sell or otherwise dispose of its jurisdictional facilities, directly or
indirectly merge or consolidate its facilities with those of any other person,
or acquire any security of any other public utility, without first having
obtained authorization from FERC. TNMP and Parent filed a joint application
with FERC on July 7, 1999 seeking authorization of the proposed indirect
disposition of ownership and control of TNMP's jurisdictional facilities to
Parent by virtue of the merger of TNP and Sub. Under Section 203 of the Federal
Power Act, FERC will approve such a disposition if it finds it to be
"consistent with the public interest." In making this determination, FERC
policy is to consider the effect of the proposed disposition of jurisdictional
facilities on competition, electric rates and regulation. TNMP filed an
application dated July 7, 1999, seeking FERC authorization under Section 204 of
the Federal Power Act of the assumption by TNMP of liabilities of up to $428
million under a loan to be provided pursuant to the Backstop Commitment Letter.
In approving an application for Section 204 authorization, FERC is instructed
to determine that the proposed assumption of liabilities is for a lawful
purpose, within the corporate purposes of the applicant and in the public
interest. FERC must also find that such assumption of liabilities is consistent
with proper performance of utility service, such assumption will not impair the
applicant's ability to perform that service, and the assumption is reasonably
necessary or appropriate for such purposes. The deadlines for intervention in
the Section 204 proceeding and the Section 203 proceeding were August 4, 1999,
and August 9, 1999, respectively. As of the close of business on August 10,
1999, TNMP and Parent had not received notice of any such filings, and none had
been posted by FERC on its Records and Information Management System.
The Equity Financing (and therefore the completion of the merger) is
conditioned on the Equity Investors and Sub, as a result of the transactions
contemplated by the Partnership Subscription Agreements and the merger
agreement, not reasonably being expected to be subject to regulation as a
public utility under the Federal Power Act.
Public Utility Commission of Texas
TNMP is subject to the jurisdiction of PUCT. Pursuant to Section 14.101 of
the Texas Utilities Code, each transaction involving the sale of at least 50%
of the stock of a public utility must be reported to PUCT within a reasonable
time.
In reviewing a transaction involving the sale of at least 50% of the stock
of a Texas utility, PUCT is required to determine whether the action is
consistent with the public interest, taking into consideration factors such as
the reasonable value of the property, facilities, or securities to be acquired,
disposed of, merged, transferred, or consolidated, and whether the transaction
will adversely affect the health or safety of customers or employees, result in
the transfer of jobs of Texas citizens to workers domiciled outside of Texas,
or result in the decline of service. If PUCT determines that a transaction is
not in the public interest, it may take the effect of the transaction into
consideration in ratemaking proceedings and disallow the effect of such
transaction if such transaction will unreasonably affect rates or service. TNP
and TNMP reported the merger to PUCT for its
50
<PAGE>
review on July 15, 1999, and are seeking a public interest finding. As of the
date of this proxy statement, two cooperatives and one power marketer have
intervened in this proceeding. In addition, the office of Public Utility
Counsel, in its statutory capacity as the representative of residential and
small commercial rate payers in Texas, has intervened. As of the date of this
proxy statement, no material issues have been raised by any of the intervenors.
The deadline for intervention in this proceeding is September 20, 1999, and it
is possible that additional parties may intervene.
New Mexico Public Regulation Commission
TNMP is subject to the jurisdiction of the NMPRC. Pursuant to the NMPUA and
the NMPRC's rules, TNMP filed an application with the NMPRC requesting approval
of the acquisition of the common stock of TNP, issuance of debt securities and
for related matters described in this Proxy Statement. Acquisition of TNP
common stock and the related merger will result in the formation of holding
companies in addition to TNP, which requires conformance with NMPRC Rule 450
which governs affiliate transactions. NMPRC Rule 450 requires the filing and
approval of an Amended General Diversification Plan ("Amended GDP"), which sets
forth certain specified details of the transactions described in this Proxy
Statement as well as other terms and conditions, as a condition of approval of
such affiliate transactions. The NMPRC will approve the consummation of the
transactions contemplated in the merger agreement, including the Amended GDP,
if it finds that (i) they are not unlawful or inconsistent with the public
interest, (ii) they will not interfere with the provision by TNMP of reasonable
and proper utility service at fair, just and reasonable rates, (iii) the level
of investment appears reasonable, and (iv) the Amended GDP contains the
information required by NMPRC Rule 450 in detail acceptable to the NMPRC, and
TNMP represents and the NMPRC makes the findings specified in NMPRC Rule 450.
The NMPRC will approve the issuance of debt securities unless it finds that (i)
such transactions are inconsistent with the public interest; (ii) the purpose
of the issuance is not permitted by the NMPUA; or (iii) the aggregate amount of
the securities outstanding and proposed to be outstanding will exceed the fair
value of the properties and business of TNMP. TNMP filed its application with
the NMPRC on July 15, 1999. As of the date of this proxy statement, two parties
have intervened in this proceeding. The Attorney General of New Mexico has
intervened in this proceeding in its capacity as the statutory representative
of New Mexico ratepayers. TNMP's largest industrial customer has also
intervened. As of the date of this proxy statement, no material issues have
been raised by any of the intervenors. A prehearing conference will be held on
August 19, 1999, at which time a deadline for intervention with respect to this
proceeding will be established, and it is possible that additional parties may
intervene in this proceeding.
The Equity Financing (and therefore the completion of the merger) is
conditioned on the Equity Investors and Parent, as a result of the transactions
contemplated by the Partnership Subscription Agreements and the merger
agreement, not reasonably being expected to be subject to regulation as a
public utility holding company under the NMPUA (except for Parent, in certain
situations).
Public Utility Holding Company Act of 1935
The transaction is not subject to approval by the SEC under PUHCA. Following
the closing, the Partnership Investors have advised TNP that Parent will be,
and TNP will continue to be, an exempt holding company under Section (3)(a)(1)
of PUHCA because after the merger TNP will be doing business primarily
intrastate within the States of Texas and New Mexico as TNP is today. The
Equity Financing (and therefore the completion of the merger) is conditioned on
the Equity Investors and Parent, as a result of the transactions contemplated
by the Partnership Subscription Agreements and the merger agreement, not
reasonably being expected to be subject to regulation as a registered public
utility holding company under PUHCA. The Partnership Investors have advised TNP
that none of the Partnership Investors would be required to register under
PUHCA.
Affiliate Contracts
In connection with the merger, Parent, Sub and other affiliates may need to
enter into or amend agreements related to the provision by affiliates of
various services, including management, supervisory,
51
<PAGE>
construction, engineering, accounting, legal, financial or similar services.
The approval or non-opposition of certain state regulatory commissions is
required with respect to the creation or amendment of certain inter-affiliate
agreements. Parent, TNP and their subsidiaries will file such agreements with
the appropriate state regulatory commissions.
Other Regulatory Matters
TNP and its subsidiaries have obtained from various regulatory authorities
certain franchises, permits and licenses which may need to be renewed, replaced
or transferred as a result of the merger, and approvals, consents or
notifications may be required in connection with such renewals, replacements or
transfers.
Regulatory commissions of states where TNMP operates may intervene in the
federal regulatory proceedings. In addition, such regulatory commissions
regulate the rates charged to utility customers within their jurisdictions. In
approving rates, each state may take into account savings resulting from, and
other effects of, the merger.
52
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of TNP common stock as of August 3, 1999, for (i) each director, (ii)
each executive officer, (iii) all directors and executive officers as a group,
and (iv) persons known to management to beneficially own more than 5% of TNP
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
Name of Beneficial Owner of Beneficial Ownership of Class
- ------------------------ ----------------------- --------
<S> <C> <C>
R. Denny Alexander........................... 3,125 *
John A. Fanning.............................. 3,025 *
Sidney M. Gutierrez.......................... 2,787 *
J. R. Holland, Jr............................ 2,100 *
Kevern R. Joyce.............................. 22,724 *
Harris L. Kempner, Jr........................ 3,025(1) *
Carol D. Surles.............................. 2,100 *
Larry G. Wheeler............................. 1,073 *
Dennis H. Withers............................ 3,125 *
Jack V. Chambers............................. 31,941 *
Manjit S. Cheema............................. 12,067(2) *
John P. Edwards.............................. 6,817 *
Ralph S. Johnson............................. 15,166 *
All directors and officers as a group (25
persons).................................... 184,187 1.4%
The Vanguard Group (3)....................... 1,315,863 9.8%
Putnam Investments, Inc (4).................. 859,000 6.4%
Scudder Kemper Investments, Inc. (5)......... 732,235 5.5%
</TABLE>
- --------
* Less than 1 percent
(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 August 3, 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 401(k) plan.
(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.
53
<PAGE>
INDEPENDENT ACCOUNTANTS
Since March 7, 1997, TNP's independent public accountants have been the firm
of Arthur Andersen LLP. It is expected that one or more representatives of such
firm will attend the Special Meeting. Such representatives will be given an
opportunity to make statements at the Special Meeting, if they so desire, and
are expected to be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
In order for proposals of shareholders intended to be presented at the
annual meeting of shareholders to be held in 2000 (if the merger is not
consummated prior to such time) to be considered for inclusion in TNP's proxy
statement and form of proxy relating to that meeting, such proposals must be
received at TNP's executive offices on or before November 30, 1999. Proposals
should be sent to the Secretary, TNP Enterprises, Inc., P.O. Box 2943, Fort
Worth, Texas 76113. The notice must provide the exact wording and purpose of
the proposal, describe the proposing shareholder's reasons for supporting the
proposal, provide the shareholder's name, address, number of the shares of TNP
stock that the shareholder owns beneficially and of record, the date on which
the shareholder acquired such stock, and disclose any material interest that
the shareholder has in the subject of the proposal. Shareholder proposals must
also satisfy applicable requirements of Regulation 14A under the Exchange Act.
Pursuant to recent amendments to the rules relating to proxy statements
under the Exchange Act, shareholders of TNP are hereby notified that any
shareholder proposal not included in the proxy materials disseminated by the
management of TNP for its 2000 annual meeting in accordance with Rule 14a-8
under the Exchange Act will be considered untimely for the purposes of Rules
14a-4 and 14a-5 under the Exchange Act if notice thereof is received after
February 14, 1999. Management proxies will be authorized to exercise
discretionary voting authority with respect to any shareholder proposal not
included in such proxy materials for the annual meeting of TNP unless TNP
receives notice of such proposal by the date set forth above and the conditions
set forth in Rule 14a-4(c)(2)(I)-(iii) under the Exchange Act are met.
AVAILABLE INFORMATION
TNP is subject to the informational requirements of the Exchange Act, and
accordingly files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information filed with the SEC are
available for inspection and copying at the public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. TNP's
public filings are also available to the public from commercial document
retrieval services and at the Internet web site maintained by the SEC at
http://www.sec.gov. Reports, proxy statements and other information concerning
TNP also may be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
INCORPORATION BY REFERENCE
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. These documents are available upon
request from TNP as follows: TNP Enterprises, Inc., P.O. Box 2943, Fort Worth,
Texas 76113, Attention: Paul W. Talbot (telephone: (817) 731-0099). To ensure
timely delivery of documents prior to the Special Meeting, requests should be
made by September 13, 1999.
TNP hereby undertakes to provide without charge to each person, including
any beneficial owner to whom a copy of this Proxy Statement has been delivered,
upon the written or oral request of such person, a copy (without exhibits,
except those specifically incorporated by reference) of any and all of the
documents referred
54
<PAGE>
to below which have been or may be incorporated in this Proxy Statement by
reference. Requests for such documents should be directed to the person
indicated above.
The following documents, previously filed with the SEC pursuant to the
Exchange Act, are hereby incorporated by reference:
(1) Annual Report on Form 10-K for the year ended December 31, 1998;
(2) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
(3) Current Report on Form 8-K dated June 7, 1999;
(4) Current Report on Form 8-K dated August 10, 1999; and
(5) Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
The information relating to TNP contained in this Proxy Statement should be
read together with the information in the documents incorporated by reference
herein.
All documents filed by TNP pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date hereof and prior to the date of the Special
Meeting, and any adjournment thereof, will be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein will be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded will not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
By Order of the Board of Directors
/s/ KEVERN R. JOYCE
Kevern R. Joyce
Chairman of the Board of Directors,
President and Chief Executive
Officer
Fort Worth, Texas
August 11, 1999
55
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
Dated May 24, 1999
By and Among
SW Acquisition, L.P.
ST Acquisition Corp.
and
TNP Enterprises, Inc.,
and As Amended August 9, 1999
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated May 24, 1999
by and among
SW ACQUISITION, L.P.
ST ACQUISITION CORP.
and
TNP ENTERPRISES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GLOSSARY OF DEFINED TERMS
The following terms, when used in this Agreement, have the meanings ascribed
to them in the corresponding Sections of this Agreement listed below:
<TABLE>
<S> <C>
"affiliate"............................................ Section 9.11(a)
"Agreement"............................................ Preamble
"Alternative Proposal"................................. Section 5.02
"Antitrust Division"................................... Section 6.04
"Articles of Merger"................................... Section 1.03
"Backstop Commitment Letter"........................... Section 4.07(a)
"Backstop Financing"................................... Section 4.07(a)
"Backstop Lenders"..................................... Section 4.07(a)
"beneficially"......................................... Section 9.11(b)
"business day"......................................... Section 9.1l(c)
"Certificate of Merger"................................ Section 1.03
"Certificates"......................................... Section 2.02(b)
"Closing".............................................. Section 1.02
"Closing Date"......................................... Section 1.02
"Code"................................................. Section 2.02(e)
"Commitment Letters"................................... Section 4.07(a)
"Company".............................................. Preamble
"Company Budget"....................................... Section 5.01(b)(ii)(D)
"Company Common Stock"................................. Section 2.01(b)
"Company Disclosure Letter"............................ Section 3.0l
"Company Employee Benefit Plan"........................ Section 3.13(b)(i)
"Company Financial Statements"......................... Section 3.05(a)
"Company Material Adverse Effect"...................... Section 9.11(d)
"Company Options"...................................... Section 2.01(e)(i)
"Company Option Plans"................................. Section 3.02(a)
"Company Permits"...................................... Section 3.10(a)
"Company Preferred Stock".............................. Section 3.02(a)
"Company Rights"....................................... Section 3.02(a)
"Company Rights Agreement"............................. Section 3.02(a)
"Company SEC Reports".................................. Section 3.05(a)
"Company Shareholders' Approval"....................... Section 6.03
"Company Shareholders' Meeting"........................ Section 6.03
"Confidentiality Agreement"............................ Section 6.01
"Constituent Corporations"............................. Section 1.01
"Consideration Commitment Letters"..................... Section 4.07(a)
"Contracts"............................................ Section 3.04(a)
"control," "controlling," "controlled by" and "under
common control with".................................. Section 9.11(a)
"Debt Financing"....................................... Section 4.07(a)
"Defined Benefit Plan"................................. Section 3.13(g)
"Definitive Debt Financing Agreements"................. Section 6.14(a)
"Definitive Preferred Stock Agreements"................ Section 4.02
"Dissenting Share"..................................... Section 2.01(d)(i)
"DOE".................................................. Section 3.05(b)
"Effective Time"....................................... Section 1.03
"Environmental Claims"................................. Section 3.15(h)(i)
"Environmental Laws"................................... Section 3.l5(h)(ii)
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C>
"Environmental Permits"................................. Section 3.15(b)
"Equity Documents and Agreements"....................... Section 4.07(b)
"Equity Financing"...................................... Section 4.07(a)
"Equity Investors"...................................... Section 4.07(a)
"ERISA"................................................. Section 3.13(b)(i)
"ERISA Affiliate"....................................... Section 3.13(b)(iii)
"Exchange Act".......................................... Section 3.04(b)
"Excluded Transactions"................................. Section 3.21
"Expense Amount"........................................ Section 8.02(b)
"Extended Termination Date"............................. Section 8.01(b)(i)(y)
"FERC".................................................. Section 3.05(b)
"Final Order"........................................... Section 7.01(e)
"Financing Parties"..................................... Section 6.14(c)
"FTC"................................................... Section 6.04
"Gains Tax"............................................. Section 6.11
"General Partner"....................................... Section 4.07(b)
"Governmental or Regulatory Authority".................. Section 3.04(a)
"group"................................................. Section 9.11(g)
"Hazardous Materials"................................... Section 3.15(h)(iii)
"HSR Act"............................................... Section 3.04(b)
"Indemnified Liabilities"............................... Section 6.06(a)
"Indemnified Parties"................................... Section 6.06(a)
"Initial Termination Date".............................. Section 8.01(b)(i)
"Intellectual Property"................................. Section 3.18
"knowledge"............................................. Section 9.l1(e)
"laws".................................................. Section 3.04(a)
"Lien".................................................. Section 3.02(b)
"material," "material adverse effect" and "materially
adverse"............................................... Section 9.11(f)
"Merger"................................................ Preamble
"Merger Price".......................................... Section 2.01(c)(i)
"NMPRC"................................................. Section 3.04(b)
"Offering Materials".................................... Section 6.02(b)
"Option Amount"......................................... Section 2.01(e)(i)
"Options"............................................... Section 3.02(a)
"orders"................................................ Section 3.04(a)
"Parent"................................................ Preamble
"Parent Disclosure Letter".............................. Section 4.03(b)
"Partnership Subscription Agreements"................... Section 4.07(a)
"Partnership Investors"................................. Section 4.07(a)
"Payment Agent"......................................... Section 2.02(a)
"Payment Fund".......................................... Section 2.02(a)
"PBGC".................................................. Section 3.13(g)
"person"................................................ Section 9.11(g)
"Plan".................................................. Section 3.13(b)(ii)
"Plan of Merger"........................................ Section 3.03
"Power Act"............................................. Section 3.04(b)
"Preferred Stock Investors"............................. Section 4.07(a)
"Preferred Stock Commitment Letters".................... Section 4.07(a)
"Proxy Statement"....................................... Section 3.09
"PUCT".................................................. Section 3.04(b)
"PUHCA"................................................. Section 3.16
"Release"............................................... Section 3.15(h)(iv)
</TABLE>
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"Representatives"............................................... Section 9.11(h)
"Required Approvals"............................................ Section 7.01(e)
"SEC"........................................................... Section 3.04(b)
"Secretary of State"............................................ Section 1.03
"Securities Act"................................................ Section 3.05(a)
"Senior Debt Commitment Letter"................................. Section 4.07(a)
"Senior Debt Financing"......................................... Section 4.07(a)
"Senior Lenders"................................................ Section 4.07(a)
"Specified Compensation and Benefit Programs"................... Section 3.13(l)
"Sub"........................................................... Preamble
"Sub Common Stock".............................................. Section 2.01(a)
"Sub Preferred Stock"........................................... Section 2.01(a)
"Subordinated Debt Commitment Letter"........................... Section 4.07(a)
"Subordinated Debt Financing"................................... Section 4.07(a)
"Subordinated Lenders".......................................... Section 4.07(a)
"Subsidiary".................................................... Section 9.11(i)
"Surviving Corporation"......................................... Section 1.01
"Surviving Corporation Common Stock"............................ Section 2.01(a)
"Surviving Corporation Preferred Stock"......................... Section 2.01(a)
"Tax" and "Taxes"............................................... Section 3.12
"TBCA".......................................................... Section 1.01
"Termination Fee"............................................... Section 8.02(b)
"TNMP".......................................................... Section 3.13(l)
"Transfer Taxes"................................................ Section 6.11
"Year 2000 Compliant"........................................... Section 3.23
</TABLE>
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TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to
which it is attached but is inserted for convenience only.
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ARTICLE I
The Merger
1.01 The Merger.................................................... 1
1.02 Closing....................................................... 1
1.03 Effective Time................................................ 1
Articles of Incorporation and Bylaws of the Surviving
1.04 Corporation.................................................. 1
1.05 Directors and Officers of the Surviving Corporation........... 1
1.06 Effects of the Merger......................................... 2
1.07 Further Assurances............................................ 2
ARTICLE II
Conversion of Shares
2.01 Conversion of Capital Stock................................... 2
2.02 Exchange of Certificates...................................... 3
ARTICLE III
Representations and Warranties of the Company
3.01 Organization and Qualification................................ 5
3.02 Capital Stock................................................. 5
3.03 Authority Relative to this Agreement.......................... 6
3.04 Non-Contravention; Approvals and Consents..................... 7
3.05 SEC Reports and Financial Statements.......................... 8
3.06 Absence of Certain Changes or Events.......................... 8
3.07 Absence of Undisclosed Liabilities............................ 8
3.08 Legal Proceedings............................................. 9
3.09 Information Supplied.......................................... 9
3.10 Permits; Compliance with Laws and Orders...................... 9
3.11 Compliance with Agreements; Certain Agreements................ 10
3.12 Taxes......................................................... 10
3.13 Employee Benefit Plans; ERISA................................. 12
3.14 Labor Matters................................................. 15
3.15 Environmental Matters......................................... 15
3.16 Regulation as a Utility....................................... 17
3.17 Insurance..................................................... 17
3.18 Intellectual Property Rights.................................. 17
3.19 Vote Required................................................. 17
3.20 Opinion of Financial Advisor.................................. 17
3.21 Company Rights Agreement...................................... 17
3.22 Article IX of the Company's Articles of Incorporation and
Article 13 of the TBCA Not Applicable........................ 18
3.23 Year 2000..................................................... 18
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ARTICLE IV
Representations and Warranties of Parent and Sub
4.01 Organization and Qualification...................................... 18
4.02 Authority Relative to this Agreement................................ 18
4.03 Non-Contravention; Approvals and Consents........................... 19
4.04 Legal Proceedings................................................... 20
4.05 Information Supplied................................................ 20
4.06 Ownership of Company Common Stock................................... 20
4.07 Financing........................................................... 20
4.08 Capitalization of Sub............................................... 21
4.09 Fraudulent Conveyance............................................... 21
ARTICLE V
Covenants of the Company
5.01 Covenants of the Company............................................ 22
5.02 No Solicitations.................................................... 24
5.03 Company Rights Agreement............................................ 25
5.04 Third Party Standstill Agreements................................... 25
ARTICLE VI
Additional Agreements
6.01 Access to Information; Confidentiality.............................. 25
6.02 Preparation of Proxy Statement; Offering Materials.................. 26
6.03 Approval of Shareholders............................................ 26
6.04 Regulatory and Other Third Party Approvals.......................... 26
6.05 Employee Benefit Plans.............................................. 27
6.06 Directors' and Officers' Indemnification and Insurance.............. 27
6.07 Expenses............................................................ 28
6.08 Brokers or Finders.................................................. 29
6.09 Takeover Statutes................................................... 29
6.10 Conveyance Taxes.................................................... 29
6.11 Gains Tax........................................................... 29
6.12 Conduct of Business of Parent and Sub............................... 29
6.13 Rate Matters........................................................ 30
6.14 Financing........................................................... 30
6.15 Notice and Cure..................................................... 31
ARTICLE VII
Conditions
7.01 Conditions to Each Party's Obligation to Effect the Merger.......... 31
7.02 Conditions to Obligation of Parent and Sub to Effect the Merger..... 32
7.03 Conditions to Obligation of the Company to Effect the Merger........ 33
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ARTICLE VIII
Termination, Amendment and Waiver
8.01 Termination........................................................ 34
8.02 Effect of Termination.............................................. 35
8.03 Amendment.......................................................... 36
8.04 Waiver............................................................. 36
ARTICLE IX
General Provisions
9.01 Non-Survival of Representations, Warranties, Covenants and
Agreements........................................................ 36
9.02 Notices............................................................ 37
9.03 Entire Agreement; Incorporation of Exhibits........................ 37
9.04 Public Announcements............................................... 38
9.05 No Third Party Beneficiary......................................... 38
9.06 No Assignment; Binding Effect...................................... 38
9.07 Headings........................................................... 38
9.08 Invalid Provisions................................................. 38
9.09 Governing Law...................................................... 38
9.10 Enforcement of Agreement........................................... 38
9.11 Certain Definitions................................................ 39
9.12 Counterparts....................................................... 39
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This AGREEMENT AND PLAN OF MERGER, dated as of May 24, 1999 (this
"Agreement"), is made and entered into by and among SW Acquisition, L.P.,
organized and existing under the laws of Texas ("Parent"), ST Acquisition
Corp., a Texas corporation wholly owned by Parent ("Sub"), and TNP Enterprises,
Inc., a Texas corporation (the "Company").
Whereas, the Boards of Directors of Sub and the Company have each determined
that it is advisable and in the best interests of their respective shareholders
to consummate, and Parent, Sub and the Company have approved, the business
combination transaction provided for herein in which Sub would merge with and
into the Company and the Company would become a wholly-owned subsidiary of
Parent (the "Merger"); and
Whereas, each of Parent, Sub and the Company desires to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
Now, Therefore, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
The Merger
1.01 The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.03), Sub shall be
merged with and into the Company in accordance with the Business Corporation
Act of the State of Texas (the "TBCA"). At the Effective Time, the separate
existence of Sub shall cease and the Company shall continue as the surviving
corporation in the Merger (the "Surviving Corporation"). Sub and the Company
are sometimes referred to herein as the "Constituent Corporations". As a result
of the Merger, the outstanding shares of capital stock of the Constituent
Corporations shall be converted or cancelled in the manner provided in Article
II.
1.02 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.01, and subject to the satisfaction or waiver (where applicable) of the
conditions set forth in Article VII, the closing of the Merger (the "Closing")
will take place at the offices of Milbank, Tweed, Hadley & McCloy LLP, 1 Chase
Manhattan Plaza, New York, New York 10005 at 10:00 a.m., local time, on the
third business day following satisfaction of the conditions set forth in
Article VII, unless another date, time or place is agreed to in writing by the
parties hereto (the "Closing Date"). At the Closing there shall be delivered to
Parent, Sub and the Company the certificates and other documents and
instruments required to be delivered under Article VII.
1.03 Effective Time. At the Closing, articles of merger (the "Articles of
Merger") shall be duly prepared and executed by the Company and Sub and
thereafter delivered to the Secretary of State of the State of Texas (the
"Secretary of State") for filing as provided in Article 5.04 of the TBCA, as
soon as practicable on the Closing Date. The Merger shall become effective upon
the issuance of a certificate of merger (the "Certificate of Merger") by the
Secretary of State (the date and time of such issuance being referred to herein
as the "Effective Time").
1.04 Articles of Incorporation and Bylaws of the Surviving Corporation. At
the Effective Time, (i) the articles of incorporation of the Sub as in effect
immediately prior to the Effective Time shall be the articles of incorporation
of the Surviving Corporation until thereafter amended as provided by law and
such articles of incorporation, and (ii) the bylaws of Sub as in effect
immediately prior to the Effective Time shall be the bylaws of the Surviving
Corporation until thereafter amended as provided by law, the articles of
incorporation of the Surviving Corporation and such bylaws.
1.05 Directors and Officers of the Surviving Corporation. The directors and
the officers of Sub immediately prior to the Effective Time shall, from and
after the Effective Time, be the directors and officers,
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respectively, of the Surviving Corporation until their successors shall have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's articles
of incorporation and bylaws.
1.06 Effects of the Merger. Subject to the foregoing, the effects of the
Merger shall be as provided in the applicable provisions of the TBCA.
1.07 Further Assurances. Each party hereto will, at or after the Effective
Time, execute such further certificates, documents, instruments, deeds, bills
of sale, assignments and assurances and take such further actions as may
reasonably be requested by one or more of the others to consummate the Merger,
to vest the Surviving Corporation with full title to all assets, properties,
privileges, rights, approvals, immunities and franchises of either of the
Constituent Corporations or to effect the other purposes of this Agreement.
ARTICLE II
Conversion of Shares
2.01 Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:
(a) Capital Stock of Sub. Each issued and outstanding share of the
common stock, no par value, of Sub ("Sub Common Stock") shall be converted
into and become one fully paid and nonassessable share of common stock, no
par value, of the Surviving Corporation ("Surviving Corporation Common
Stock"). Each issued and outstanding share of preferred stock, no par
value, of Sub ("Sub Preferred Stock") shall be converted into and become
one fully paid and nonassessable share of preferred stock, no par value of
the Surviving Corporation ("Surviving Corporation Preferred Stock"). Each
certificate representing outstanding shares of Sub Common Stock and each
certificate representing outstanding shares of Sub Preferred Stock shall at
the Effective Time represent an equal number of shares of Surviving
Corporation Common Stock and Surviving Corporation Preferred Stock,
respectively.
(b) Cancellation of Treasury Stock and Stock Owned by Parent and
Subsidiaries. All shares of common stock, no par value, of the Company
("Company Common Stock") that are owned by the Company as treasury stock
and any shares of Company Common Stock owned by Parent, Sub or any other
wholly-owned Subsidiary (as defined in Section 9.11) of Parent shall be
canceled and retired and shall cease to exist and no stock of Parent or
other consideration shall be delivered in exchange therefor.
(c) Exchange Ratio for Company Common Stock.
(i) Each issued and outstanding share of Company Common Stock (other
than shares to be canceled in accordance with Section 2.01(b) and other
than Dissenting Shares (as defined in Section 2.01(d))) shall be
converted automatically into the right to receive $44.00 in cash (the
"Merger Price").
(ii) All shares of Company Common Stock converted in accordance with
paragraph (i) of this Section 2.01(c) shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto, except the right
to receive the Merger Price per share, upon the surrender of such
certificate in accordance with Section 2.02, without interest, subject
to any applicable withholding tax.
(d) Dissenting Shares.
(i) Notwithstanding any provision of this Agreement to the contrary,
each issued and outstanding share of Company Common Stock, the holder
of which has not voted in favor of the Merger, has perfected such
holder's right to dissent in accordance with the applicable provisions
of the TBCA and has not effectively withdrawn or lost such right to
dissent (a "Dissenting Share"),
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shall not be converted into or represent a right to receive the Merger
Price pursuant to Section 2.01(c), but the holder thereof shall be
entitled only to such rights as are granted by the applicable
provisions of the TBCA; provided, however, that any Dissenting Share
held by a person at the Effective Time who shall, after the Effective
Time, withdraw such person's objection to the Merger or such person's
demand for payment or lose the right to dissent, in either case
pursuant to the TBCA, shall be deemed to be converted into, as of the
Effective Time, the right to receive the Merger Price pursuant to
Section 2.01(c).
(ii) The Company shall give Parent (x) prompt notice of any written
objections to the Merger received in compliance with Article 5.12 of
the TBCA, withdrawals of any such objections, and any other instruments
served pursuant to Article 5.12 of the TBCA relating to a shareholder's
right to dissent received by the Company and (y) the opportunity to
direct all negotiations and proceedings with respect to demands made by
dissenting shareholders for the payment of the fair value of the
Company Common Stock held by them. The Company will not voluntarily
make any payment with respect to any such demands, and will not, except
with the prior written consent of Parent, settle or offer to settle any
such demands.
(e) Stock Option Plans.
(i) The Company shall take all actions necessary to provide that,
immediately prior to the consummation of the Merger, (x) each
outstanding option to acquire shares of Company Common Stock (the
"Company Options") granted under any of the Company Option Plans (as
defined in Section 3.02(a)), whether or not then exercisable or vested,
shall become fully exercisable and vested, (y) each Company Option
which is then outstanding shall be canceled and (z) in consideration of
such cancellation, and except to the extent that Parent or Sub and the
holder of any such Company Option otherwise agree, the Company (or, at
Parent's option, Parent or Sub) shall pay to such holders of Company
Options an amount in respect thereof equal to the product of (A) the
excess, if any, of the Merger Price per share over the per share
exercise price thereof and (B) the number of shares of Company Common
Stock subject thereto (the "Option Amount") (such payment to be net of
applicable withholding taxes); provided that the foregoing shall not
require any action which violates the Company Option Plans.
(ii) Except as provided herein or as otherwise agreed to by the
parties and to the extent permitted by the Company Option Plans, (x)
the Company shall use all reasonable efforts to provide that (A) the
Company Option Plans shall terminate as of the Effective Time and (B)
either the provisions in any other plan, program or arrangement
providing for the issuance or grant by the Company or any of its
Subsidiaries of any interest in respect of the capital stock of the
Company or any of its Subsidiaries shall be deleted, or such plan,
program or arrangement shall terminate as of the Effective Time, and
(y) the Company shall use all reasonable efforts to ensure that
following the Effective Time no holder of Company Options or any
participant in the Company Option Plans or any other such plans,
programs or arrangements shall have any right thereunder to acquire any
equity securities of the Company, the Surviving Corporation or any
Subsidiary thereof.
(f) Restricted or Performance Stock. The Company shall take all actions
necessary to provide that each share of restricted or performance stock
granted under the Company Option Plans shall become fully vested and free
of restrictions no later than the consummation of the Merger and that any
holder of a restricted or performance stock grant may elect to authorize
the Company to retain a number of shares of Company Common Stock from such
grant having an aggregate value (based upon the Merger Price per share)
equal to any withholding taxes applicable to the vesting of such grant, in
lieu of the payment of such amount in cash.
2.02 Exchange of Certificates. (a) Payment Agent. At the Closing, Parent
shall cause the Surviving Corporation to deposit with a bank or trust company
designated before the Closing Date by Parent and reasonably acceptable to the
Company (the "Payment Agent"), a cash amount equal to the aggregate Merger
Price to which holders of shares of Company Common Stock shall be entitled upon
consummation of the
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Merger, to be held for the benefit of and distributed to such holders in
accordance with this Section. The Payment Agent shall agree to hold such funds
(such funds, together with earnings thereon, being referred to herein as the
"Payment Fund") for delivery as contemplated by this Section, and upon such
additional terms as may be agreed upon by the Payment Agent, the Company and
Parent. If for any reason (including losses) the Payment Fund is inadequate to
pay the cash amounts to which holders of shares of Company Common Stock shall
be entitled, Parent and the Surviving Corporation shall in any event be liable,
and Parent and the Surviving Corporation shall make available to the Payment
Agent additional funds, for the payment thereof. The Payment Fund shall not be
used for any purpose except as expressly provided in this Agreement.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Payment Agent to mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock (the "Certificates") whose shares are converted pursuant to Section
2.01(c) into the right to receive the Merger Price (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates to
the Payment Agent and shall be in such form and have such other provisions as
the Surviving Corporation may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for the Merger
Price. Upon surrender of a Certificate for cancellation to the Payment Agent,
together with such letter of transmittal duly executed and completed in
accordance with its terms, the holder of such Certificate shall be entitled to
receive in exchange therefor payment of the dollar amount representing the
Merger Price per share of Company Common Stock represented thereby, subject to
any applicable withholding tax, which such holder has the right to receive
pursuant to the provisions of this Article II, and the Certificate so
surrendered shall forthwith be canceled. In no event shall the holder of any
Certificate be entitled to receive interest on any funds to be received in the
Merger, including any interest accrued in respect of the Payment Fund. In the
event of a transfer of ownership of Company Common Stock which is not
registered in the transfer records of the Company, the Merger Price may be
issued to a transferee if the Certificate representing such Company Common
Stock is presented to the Payment Agent accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. The Surviving Corporation shall pay all fees and
expenses of the Payment Agent in connection with the distribution of the Merger
Price. Until surrendered as contemplated by this Section 2.02(b), each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Price per share of
Company Common Stock represented thereby as contemplated by this Article II,
together with the dividends, if any, which may have been declared by the
Company on such shares of Company Common Stock in accordance with the terms of
this Agreement and which remained unpaid at the Effective Time.
(c) No Further Ownership Rights in Company Common Stock. All cash paid upon
the surrender for exchange of Certificates in accordance with the terms hereof
shall be deemed to have been paid in full satisfaction of all rights pertaining
to the shares of Company Common Stock represented thereby, subject, however, to
the Surviving Corporation's obligation to pay any dividends which may have been
declared by the Company on such shares of Company Common Stock in accordance
with the terms of this Agreement and which remained unpaid at the Effective
Time. Other than with respect to transfers of Dissenting Shares, from and after
the Effective Time, the stock transfer books of the Company shall be closed and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates (other than Certificates representing Dissenting Shares) are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Section.
(d) Termination of Payment Fund. Any portion of the Payment Fund which
remains undistributed to the shareholders of the Company for one (1) year after
the Effective Time shall be delivered to the Surviving Corporation, upon
demand, and any shareholders of the Company (other than holders of Dissenting
Shares) who have not theretofore complied with this Article II shall thereafter
look only to the Surviving Corporation (subject to abandoned property, escheat
and other similar laws) as general creditors for payment of their claim
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for the Merger Price per share. Neither Parent nor the Surviving Corporation
shall be liable to any holder of shares of Company Common Stock for cash
representing the Merger Price delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(e) Withholding Rights. Parent shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as Parent is required to deduct and
withhold with respect to the making of such payment under the Internal Revenue
Code of 1986, as amended (the "Code"), or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Parent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of Company Common Stock in respect of
which such deduction and withholding was made by Parent.
ARTICLE III
Representations and Warranties of The Company
The Company represents and warrants to Parent and Sub as follows:
3.01 Organization and Qualification. Each of the Company and its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has full
corporate power and authority to conduct its business as and to the extent now
conducted and to own, use and lease its assets and properties, except for such
failures to be so incorporated, existing and in good standing or to have such
power and authority which, individually or in the aggregate, are not having and
could not be reasonably expected to have a Company Material Adverse Effect (as
defined in Section 9.11). Each of the Company and its Subsidiaries is duly
qualified, licensed or admitted to do business and is in good standing in each
jurisdiction in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary, except for such failures to be so qualified,
licensed or admitted and in good standing which, individually or in the
aggregate, are not having and could not be reasonably expected to have a
Company Material Adverse Effect. Section 3.01 of the letter dated the date
hereof and delivered to Parent and Sub by the Company concurrently with the
execution and delivery of this Agreement (the "Company Disclosure Letter") sets
forth (i) the name and jurisdiction of incorporation of each Subsidiary of the
Company, (ii) its authorized capital stock, (iii) the number of its issued and
outstanding shares of capital stock and (iv) the record owners of such shares.
Except for interests in the Subsidiaries of the Company and as disclosed in
Section 3.01 of the Company Disclosure Letter, the Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, limited liability company, joint venture or other
business association or entity (other than non-controlling investments in the
ordinary course of business). The Company has previously delivered or made
available to Parent correct and complete copies of the articles of
incorporation and bylaws (or other comparable charter documents) of the Company
and its Subsidiaries.
3.02 Capital Stock. (a) The authorized capital stock of the Company consists
solely of 50,000,000 shares of Company Common Stock and 5,000,000 shares of
preferred stock, no par value ("Company Preferred Stock"), none of which
Company Preferred Stock is issued and outstanding. As of May 21, 1999,
13,401,680 shares of Company Common Stock were issued and outstanding, no
shares were held in the treasury of the Company, and the only shares reserved
for issuance as of such date consisted of 796,947 shares which were reserved or
held for issuance under the Company's Equity Incentive Plan, 9,525 shares which
were reserved or held for issuance under the Company's Non-Employee Director
Stock Plan, 528,516 shares which were reserved or held for issuance under the
Texas-New Mexico Power Company Thrift Plan for Employees (such Plans, the
"Company Option Plans"), and 939,526 shares which were reserved or held for
issuance under the Company's Direct Stock Purchase Plan. Since such date,
except as set forth in Section 3.02 of the Company Disclosure Letter, as of the
date of this Agreement, there has been no change in the number of issued
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and outstanding shares of Company Common Stock or shares of Company Common
Stock held in treasury or reserved for issuance. All of the issued and
outstanding shares of Company Common Stock are, and all shares reserved for
issuance will be, upon issuance in accordance with the terms specified in the
instruments or agreements pursuant to which they are issuable, duly authorized,
validly issued, fully paid and nonassessable. Except pursuant to this Agreement
and the Amended and Restated Rights Agreement dated as of August 11, 1998, as
amended, by and between the Company and The Bank of New York, as Rights Agent
(the "Company Rights Agreement"), pursuant to which the Company has issued
rights (the "Company Rights") to purchase shares of Company Common Stock, and
except as set forth in Section 3.02 of the Company Disclosure Letter (which
includes, without limitation, a list of all currently outstanding awards under
the Company Option Plans or under any other plan, program or arrangement
providing for the issuance or grant by the Company or any of its Subsidiaries
of any interest in respect of the capital stock of the Company or any of its
Subsidiaries), as of the date of this Agreement, there are no outstanding
subscriptions, options, warrants, rights (including "phantom" stock rights),
preemptive rights or other contracts, commitments, understandings or
arrangements, including any right of conversion or exchange under any
outstanding security, instrument or agreement (together, "Options"), obligating
the Company or any of its Subsidiaries to issue or sell any shares of capital
stock of the Company or to grant, extend or enter into any Option with respect
thereto.
(b) Except as disclosed in Section 3.02 of the Company Disclosure Letter,
all of the outstanding shares of capital stock of each Subsidiary of the
Company are duly authorized, validly issued, fully paid and nonassessable and
are owned, beneficially and of record, by the Company or a Subsidiary wholly
owned, directly or indirectly, by the Company, free and clear of any liens,
claims, mortgages, encumbrances, pledges, security interests, and charges of
any kind (each a "Lien"). Except as disclosed in Section 3.02 of the Company
Disclosure Letter, there are no (i) outstanding Options obligating the Company
or any of its Subsidiaries to issue or sell any shares of capital stock of any
Subsidiary of the Company or to grant, extend or enter into any such Option or
(ii) voting trusts, proxies or other commitments, understandings, restrictions
or arrangements in favor of any person other than the Company or a Subsidiary
wholly owned, directly or indirectly, by the Company with respect to the voting
of or the right to participate in dividends or other earnings on any capital
stock of any Subsidiary of the Company.
(c) Except as disclosed in Section 3.02 of the Company Disclosure Letter,
there are no outstanding contractual obligations of the Company or any
Subsidiary of the Company to repurchase, redeem or otherwise acquire any shares
of Company Common Stock or any capital stock of any Subsidiary of the Company
or to provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Subsidiary of the Company or any other
person, other than in the ordinary course of business consistent with past
practice.
(d) Section 3.02(d) of the Company Disclosure Letter sets forth a true and
complete statement of the maximum contractual borrowing limit, if any, under
all loan agreements (including indentures) providing for credit to the Company
or any of its Subsidiaries in excess of $10 million and a true and complete
statement of the total indebtedness of the Company and each of its Subsidiaries
outstanding on May 21, 1999 under such agreements.
3.03 Authority Relative to this Agreement. The Company has the requisite
corporate power and authority to enter into this Agreement and, subject to
obtaining the Company Shareholders' Approval (as defined in Section 6.03), to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of the Company, the Board of Directors of the Company has recommended
adoption of the plan of merger contemplated hereby (the "Plan of Merger") by
the shareholders of the Company and directed that the Plan of Merger be
submitted to the shareholders of the Company for their consideration, and no
other corporate proceedings on the part of the Company or its shareholders are
necessary to authorize the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, other than obtaining the Company
Shareholders' Approval. This Agreement
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has been duly and validly executed and delivered by the Company and, assuming
the due authorization, execution and delivery of this Agreement by Parent and
Sub, this Agreement constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.04 Non-Contravention; Approvals and Consents. (a) Except as disclosed in
Section 3.04 of the Company Disclosure Letter, the execution and delivery of
this Agreement by the Company do not, and the performance by the Company of its
obligations hereunder and the consummation by it of the transactions
contemplated hereby will not, conflict with, result in a violation or breach
of, constitute (with or without notice or lapse of time or both) a default
under, result in or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the assets or properties of the
Company or any of its Subsidiaries under, any of the terms, conditions or
provisions of (i) the articles of incorporation or bylaws (or other comparable
charter documents) of the Company or any of its Subsidiaries, or (ii), subject
to the obtaining of the Company Shareholders' Approval and the taking of the
actions described in paragraph (b) of this Section, (x) any legislative or
regulatory enactment, statute, ordinance, law or regulation (together, "laws")
existing on the date of this Agreement, or any judgment, decree, order, writ,
permit or license (together, "orders"), of any court, tribunal, arbitrator,
authority, agency, commission, official or other instrumentality of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision (a "Governmental or Regulatory Authority")
applicable to the Company or any of its Subsidiaries or any of their respective
assets or properties, or (y) any note, bond, mortgage, security agreement,
indenture, license, franchise, permit, concession, contract, lease or other
instrument, obligation, rate, rate schedule, tariff; utility service agreement
or like document filed with or approved by any Governmental or Regulatory
Authority, or agreement of any kind (together, "Contracts") to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or any of their respective assets or properties is bound,
excluding from the foregoing clauses (x) and (y) conflicts, violations,
breaches, defaults, terminations, modifications, accelerations and creations
and impositions of Liens which, individually or in the aggregate, could not be
reasonably expected to have a Company Material Adverse Effect, or a material
adverse effect on the ability of the Company to consummate the transactions
contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification report by the
Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), (ii) for the
filing of the Proxy Statement (as defined in Section 3.09) with the Securities
and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder (the "Exchange
Act"), (iii) for the filing of the Articles of Merger and other appropriate
merger documents required by the TBCA with the Secretary of State and
appropriate documents with the relevant authorities of other states in which
the Constituent Corporations are qualified to do business and the issuance of
the Certificate of Merger by the Secretary of State, (iv) for (x) the approval
of the Public Utility Commission of Texas ("PUCT") under Texas law, to the
extent required by the Texas Public Utility Regulatory Act and for (y) the
approval of the New Mexico Public Regulation Commission ("NMPRC") under New
Mexico law, to the extent required by the New Mexico Public Utility Act, (v)
for the filing of an application under Section 203 and any directly related
section of or regulation under, the Federal Power Act (the "Power Act") for the
sale or disposition of jurisdictional facilities of the Company, or an order
under the Power Act disclaiming jurisdiction over this merger, and (vi) as
disclosed in Section 3.04 of the Company Disclosure Letter, no consent,
approval or action of, filing with or notice to any Governmental or Regulatory
Authority or other public or private third party is necessary or required under
any of the terms, conditions or provisions of any law or order of any
Governmental or Regulatory Authority or any Contract to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective assets or properties is bound for the
execution and delivery of this Agreement by the Company, the performance by the
Company of its obligations hereunder or the consummation by it of the
transactions
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contemplated hereby, other than such consents, approvals, actions, filings and
notices which the failure to make or obtain, as the case may be, individually
or in the aggregate, could not be reasonably expected to have a Company
Material Adverse Effect or a material adverse effect on the ability of the
Company to consummate the transactions contemplated by this Agreement.
3.05 SEC Reports and Financial Statements. (a) The Company delivered or made
available to Parent prior to the execution of this Agreement a true and
complete copy of each form, report, schedule, registration statement,
definitive proxy statement and other document (together with all amendments
thereof and supplements thereto) filed by the Company or any of its
Subsidiaries with the SEC since December 31, 1995 (as such documents have since
the time of their filing been amended or supplemented, the "Company SEC
Reports"), which are all the documents (other than preliminary material) that
the Company and its Subsidiaries were required to file with the SEC since such
date. As of their respective dates, the Company SEC Reports (i) complied as to
form in all material respects with the requirements of the Securities Act of
1933, as amended, and the rules and regulations thereunder (the "Securities
Act"), or the Exchange Act, as the case may be, and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim consolidated
financial statements (including, in each case, the notes, if any, thereto)
included in the Company SEC Reports (the "Company Financial Statements")
complied as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated therein or in the notes
thereto and except with respect to unaudited statements as permitted by Form
10-Q of the SEC) and fairly present in accordance with generally accepted
accounting principles (subject, in the case of the unaudited interim financial
statements, to normal, recurring year-end audit adjustments (which, for periods
subsequent to December 31, 1998, are not expected to reflect a Company Material
Adverse Effect)) the consolidated financial position of the Company and its
consolidated subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended. Except as set forth in Section 3.05 of the Company
Disclosure Letter, each Subsidiary of the Company is treated as a consolidated
subsidiary of the Company in the Company Financial Statements for all periods
covered thereby.
(b) All material filings required to be made by the Company or any of its
Subsidiaries since December 31, 1995, under the Power Act and applicable state
laws and regulations, have been filed with the Federal Energy Regulatory
Commission (the "FERC"), the Department of Energy (the "DOE") or any
appropriate state Governmental or Regulatory Authorities (including, without
limitation, the Public Utility Commission of Texas and the New Mexico Public
Regulatory Commission), as the case may be, including all material written
forms, statements, reports, agreements and all material documents, exhibits,
amendments and supplements appertaining thereto, including but not limited to
all material rates, tariffs, franchises, service agreements and related
documents; and all such filings complied, as of their respective dates, in all
material respects with all applicable requirements of the appropriate statute
and the rules and regulations thereunder.
3.06 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Reports filed prior to the date of this Agreement, (a) since
December 31, 1998, there has not been any change, event or development having,
or that could be reasonably expected to have, individually or in the aggregate,
a Company Material Adverse Effect, and (b) except as disclosed in Section 3.06
of the Company Disclosure Letter, between such date and the date hereof (i) the
Company and its Subsidiaries have conducted their respective businesses only in
the ordinary course consistent with past practice and (ii) neither the Company
nor any of its Subsidiaries has taken any action which, if taken after the date
hereof, would constitute a breach of any provision of clause (ii) of Section
5.01(b).
3.07 Absence of Undisclosed Liabilities. Except for matters reflected or
reserved against in the balance sheet as of December 31, 1998 included in the
Company Financial Statements, as disclosed in Section 3.07 of the Company
Disclosure Letter, or as disclosed in the Company SEC Reports filed since such
date, neither the
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Company nor any of its Subsidiaries had at such date, or has incurred since
that date, any liabilities or obligations (whether absolute, accrued,
contingent, fixed or otherwise, or whether due or to become due) of any nature
that would be required by generally accepted accounting principles to be
reflected on a consolidated balance sheet of the Company and its consolidated
Subsidiaries (including the notes thereto), except liabilities or obligations
(i) which were incurred in the ordinary course of business consistent with past
practice or, (ii) which have not been, and could not be reasonably expected to
be, individually or in the aggregate, to have a Company Material Adverse
Effect.
3.08 Legal Proceedings. .Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement or in Section 3.08 of the Company
Disclosure Letter, (i) there are no actions, suits, arbitrations or proceedings
pending or, to the knowledge of the Company, threatened against, relating to or
affecting, nor to the knowledge of the Company are there any Governmental or
Regulatory Authority investigations, reviews or audits pending or threatened
against, relating to or affecting, the Company or any of its Subsidiaries or
any of their respective assets and properties which, individually or in the
aggregate, could be reasonably expected to have a Company Material Adverse
Effect or a material adverse effect on the ability of the Company to consummate
the transactions contemplated by this Agreement, (ii) there have not been any
significant developments since December 31, 1998 with respect to any actions,
suits, arbitrations, proceedings, investigations, reviews or audits disclosed
in the Company SEC Reports filed prior to the date of this Agreement or in
Section 3.08 of the Company Disclosure Letter, and (iii) neither the Company
nor any of its Subsidiaries is subject to any order of or any investigation,
rate suspension or other proceeding by or before any Governmental or Regulatory
Authority which individually or in the aggregate, is having or could be
reasonably expected to have a Company Material Adverse Effect or a material
adverse effect on the ability of the Company to consummate the transactions
contemplated by this Agreement.
3.09 Information Supplied. The proxy statement relating to the Company
Shareholders' Meeting (as defined in Section 6.03), as amended or supplemented
from time to time (as so amended and supplemented, the "Proxy Statement"), and
any other documents to be filed by the Company with the SEC or any other
Governmental or Regulatory Authority in connection with the Merger and the
other transactions contemplated hereby will not, on the date of its filing or,
in the case of the Proxy Statement, at the date it is mailed to shareholders of
the Company and at the date of the Company Shareholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading, except
that no representation is made by the Company with respect to information
supplied in writing by or on behalf of Parent or Sub expressly for inclusion
therein and information incorporated by reference therein from documents filed
by Parent or any of its Subsidiaries with the SEC. The Proxy Statement and any
such other documents filed by the Company with the SEC under the Exchange Act
in connection with the Merger and the other transactions contemplated hereby
will comply as to form in all material respects with the requirements of the
Exchange Act. Neither the information supplied or to be supplied by or on
behalf of the Company and its Subsidiaries for inclusion, nor the information
incorporated by reference from documents filed by the Company or any of its
Subsidiaries with the SEC, in any of the Offering Materials (as defined in
Section 6.02(b)) will as of the date of such Offering Materials and on the
Closing Date, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
3.10 Permits; Compliance with Laws and Orders. (a) The Company and its
Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of, and have made all required rate, tariff and other filings with
all Governmental and Regulatory Authorities necessary for the lawful conduct of
their respective businesses as currently conducted (the "Company Permits"),
except for failures to hold such permits, licenses, variances, exemptions,
orders and approvals which, individually or in the aggregate, are not having
and could not be reasonably expected to have a Company Material Adverse Effect.
The Company and its Subsidiaries are in compliance with the terms of the
Company Permits, except failures so to comply which individually or in the
aggregate, are not having and could not be reasonably expected to have a
Company Material Adverse Effect.
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(b) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement, the Company and its Subsidiaries are not in violation of or
default under any law or order of any Governmental or Regulatory Authority,
except for such violations or defaults which individually or in the aggregate,
are not having and could not be reasonably expected to have a Company Material
Adverse Effect.
3.11 Compliance with Agreements; Certain Agreements. (a) Except as disclosed
in the Company SEC Reports filed prior to the date of this Agreement, neither
the Company nor any of its Subsidiaries nor, to the knowledge of the Company,
any other party thereto is in breach or violation of, or in default in the
performance or observance of any term or provision of, and no event has
occurred which, with notice or lapse of time or both, could be reasonably
expected to result in a default under, (i) the articles of incorporation or
bylaws (or other comparable charter documents) of the Company or any of its
Subsidiaries or (ii) any Contract to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
any of their respective assets or properties is bound, except in the case of
clause (ii) for breaches, violations and defaults which individually or in the
aggregate, are not having and could not be reasonably expected to have a
Company Material Adverse Effect.
(b) Except as disclosed in Section 3.11 of the Company Disclosure Letter or
in the Company SEC Reports filed prior to the date of this Agreement or as
provided for in this Agreement, as of the date hereof, neither the Company nor
any of its Subsidiaries is a party to any oral or written (i) consulting
agreement that (A) involves the annual payment or potential payment, pursuant
to the terms of any such consulting agreement by the Company of more than
$100,000 individually or $1,000,000 in the aggregate and (B) is not terminable
on thirty (30) days' or less notice, (ii) Contracts with any person containing
any provision or covenant prohibiting or materially limiting the ability of the
Company to engage in any business activity or compete with any person or
prohibiting or materially limiting the ability of any person to compete with
the Company, (iii) partnership, joint venture, shareholders' or other similar
Contracts with any person, (iv) Contracts relating to the future disposition or
acquisition of any assets of the Company with a value of more than $100,000
individually or $1,000,000 in the aggregate, or (v) other Contracts (other than
Company Employee Benefit Plans) that (A) involve the payment or potential
payment, pursuant to the terms of any such Contract, by or to the Company of
more than $100,000 annually and (B) cannot be terminated within thirty (30)
days after giving notice of termination without resulting in any material cost
or penalty to the Company.
3.12 Taxes. For purposes of this Agreement, "Taxes" (including, with
correlative meaning, the word "Tax") shall include any and all federal, state,
county, local, foreign or other taxes, charges, imposts, rates, fees, levies or
other assessments imposed by any Governmental or Regulatory Authority,
including, without limitation, all net income, alternative minimum, gross
income, sales and use, ad valorem, transfer, gains, profits, excise, franchise,
real and personal property, gross receipt, capital stock, production, business
and occupation, disability, employment, payroll, license, estimated, stamp,
custom duties, severance, withholding or other taxes, fees, assessments or
other similar charges of any kind whatsoever, together with any interest and
penalties (civil or criminal) on or additions to any such taxes. Except as
specifically identified in Section 3.12 of the Company Disclosure Letter:
(a) Filing of Timely Tax Returns. The Company and each of its Subsidiaries
have timely filed (or there has been timely filed on their behalf) all material
Tax returns and reports required to be filed by or on behalf of each of them
under applicable law. All such Tax returns and reports were and are in all
material respects true, complete and correct. Neither the Company nor any of
its Subsidiaries has requested any extension of time within which to file any
Tax return or report, which Tax return or report has not since been timely
filed.
(b) Payment of Taxes. The Company and each of the Company's Subsidiaries
has, paid all Taxes that are shown as due in all Tax returns and reports.
(c) Tax Reserves. The accrual for Taxes on the most recent Company financial
statements contained in the Company SEC Reports reflects an adequate reserve
for all Taxes payable by the Company and its Subsidiaries for all taxable
periods and portions thereof accrued through the date of such financial
statements.
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(d) Tax Liens. There are no Liens for Taxes upon the assets, properties or
business of the Company or any of its Subsidiaries except Liens for Taxes not
yet due or being contested in good faith through appropriate proceedings and
for which adequate reserves have been established in the most recent financial
statements of the Company contained in the Company SEC Reports.
(e) Waivers of Statute of Limitations. Neither the Company nor any of its
Subsidiaries has executed any outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax returns or reports.
(f) Expiration of Statute of Limitations. The statutes of limitations for
the assessment of all Taxes with respect to all material Tax returns or reports
of the Company and its Subsidiaries for all Tax periods have expired. Prior to
the date of this Agreement, the Company has provided Parent with written
schedules of (i) the Tax years of the Company and each of its Subsidiaries for
which any statute of limitation with respect to any Tax has not expired and
(ii) with respect to any franchise Tax and any Tax based on net income, gross
receipts or gross income, for all Tax years of the Company and each of its
Subsidiaries for which the statutes of limitations have not yet expired, those
years for which examinations by a Governmental or Regulatory Authority have
been completed, those years for which examinations by a Governmental or
Regulatory Authority are presently being conducted, and those years for which
examinations by a Governmental or Regulatory Authority have not yet been
initiated. To the knowledge the Company, no deficiency for any Taxes has been
proposed, asserted or assessed against the Company or any of its Subsidiaries
that has not been resolved and, at the amount so resolved, paid in full.
(g) Audit, Administrative and Court Proceedings. No audits or other
proceedings by any Governmental or Regulatory Authority are presently pending,
or, to the knowledge of the Company or any of its Subsidiaries, threatened,
with regard to any Taxes or tax returns or reports of the Company or any of its
Subsidiaries.
(h) Powers of Attorney. Each power of attorney currently in force that has
been granted by the Company or any of its Subsidiaries concerning any Tax
matter is disclosed in Section 3.12(h) of the Company Disclosure Letter.
(i) Tax Rulings. Neither the Company nor any of its Subsidiaries has
received or requested a Tax ruling or entered into a closing agreement with any
Governmental or Regulatory Authority that would have effect after the Closing
Date.
(j) Availability of Tax Returns. The Company has made available to Parent
complete and accurate copies of (i) all Tax returns or reports for open years,
and any amendments thereto, filed by or on behalf of the Company or any of its
Subsidiaries, (ii) all audit reports or written proposed adjustments (whether
formal or informal) received from any Governmental or Regulatory Authority
relating to any Tax return or report filed by or on behalf of the Company or
any of its Subsidiaries and (iii) any Tax ruling or request for a Tax ruling
applicable to the Company or any of its Subsidiaries and closing agreements
entered into by the Company or any of its Subsidiaries.
(k) Tax Sharing Agreements. Neither the Company nor any of its Subsidiaries
is a party to, is bound by, or has any obligation under, any agreement relating
to the allocation or sharing of Taxes or has any liability for the Taxes of any
person other than the Company or its Subsidiaries, as a transferee, or
successor or otherwise (including, without limitation, any liability under
Treasury Regulations Section 1.1502-6 or any similar provision of state, local
or foreign law).
(l) Code Section 341(f). Neither the Company nor any of its Subsidiaries has
filed a consent pursuant to Code Section 341(f) or has agreed to have Code
Section 341(f)(2) apply to any disposition of a subsection (f) asset (as that
term is defined in Code Section 341(f)(4)) owned by the Company or any of its
Subsidiaries.
(m) Code Section 168. No property of the Company or any of its Subsidiaries
is property that the Company or any of its Subsidiaries or any party to this
transaction is or will be required to treat as being
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owned by another person pursuant to the provisions of Code Section 168(f)(8)
(as in effect prior to its amendment by the Tax Reform Act of 1986) or is "tax
exempt use property" within the meaning of Code Section 168(h).
(n) Code Section 280G. Neither the Company nor any of its Subsidiaries has
made any payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it to make any
payments that under Code Section 280G will not be deductible.
(o) Code Section 6662. Each of the Company and its Subsidiaries has
disclosed on its federal income Tax returns each position taken therein that
could give rise to a substantial understatement of United States federal income
Tax within the meaning of Code Section 6662.
(p) Code Section 481 Adjustments. Neither the Company nor any of its
Subsidiaries is required to include in income for any Tax period ending after
the date hereof any adjustment pursuant to Code Section 481(a) by reason of a
voluntary change in accounting method of the Company or any of its
Subsidiaries, nor has the IRS proposed any such adjustment or change in
accounting method.
(q) Acquisition Indebtedness. No indebtedness of the Company or any of its
Subsidiaries is "corporate acquisition indebtedness" within the meaning of Code
Section 279(b) or an "applicable high yield discount obligation" within the
meaning of Code Section 163(i).
(r) Consolidated Tax Returns. Neither the Company nor any of the Company
Subsidiaries has ever been a member of an affiliated group of corporations
(within the meaning of Code Section 1504(a)) filing consolidated Tax returns,
other than the affiliated group of which the Company is the common parent.
(s) 5% Foreign Stockholders. The Company is not a "United States real
property holding corporation" within the meaning of Code Section 897(c)(2) and
based on any Schedule 13D and 13G filings with the SEC with respect to the
Company and any other relevant information within the Company's knowledge, no
foreign person has owned 5% or more of the outstanding shares of the Company
Common Stock at any time during the five year period ending on the Closing
Date.
3.13 Employee Benefit Plans; ERISA. (a) Except as described in the Company
SEC Reports filed prior to the date of this Agreement or as would not have a
Company Material Adverse Effect, (i) all Company Employee Benefit Plans (as
defined below) are in compliance with all applicable requirements of law,
including without limitation ERISA (as defined below) and the Code, (ii)
neither the Company nor any of its Subsidiaries has any liabilities or
obligations, other than for payment of benefits in accordance with their
respective terms, with respect to any such Company Employee Benefit Plans,
whether accrued, contingent or otherwise, nor to the knowledge of the Company
are any such liabilities or obligations expected to be incurred, and (iii) each
Company Employee Benefit Plan that is intended to qualify under Section 401(a)
of the Code is qualified under that Section, and, if applicable, each such Plan
also complies with the requirements of Section 401(k) of the Code. Except as
specifically disclosed in Section 3.13 of the Company Disclosure Letter, the
execution of, and performance of the transactions contemplated in, this
Agreement will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any Company Employee Benefit Plan
that will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee. The only
management, employment, deferred compensation, consulting, termination, change-
in-control, severance, or similar agreements or policies applicable to the
Company or any of its Subsidiaries are the agreements and policies specifically
referred to in Section 3.13 of the Company Disclosure Letter. Except as
disclosed in Section 3.13 of the Company Disclosure Letter, no compensation
award, benefit or payment, and no acceleration of the exercisability or vesting
of any such award, benefit or payment, provided under the terms of any Company
Employee Benefit Plan will be disallowed as a deduction to the Company, any
Subsidiary of the Company or the Parent under Sections 280G or 162(m) of the
Code.
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(b) As used herein:
(i) "Company Employee Benefit Plan" means any Plan entered into,
established, maintained, sponsored, contributed to or required to be
contributed to by the Company or any of its Subsidiaries for the benefit of
the current or former employees or directors of the Company or any of its
Subsidiaries and existing on the date of this Agreement or at any time
subsequent thereto and on or prior to the Effective Time and, in the case
of a Plan which is subject to Part 3 of Title I of the Employee Retirement
Income Security Act of 1974, as amended, and the rules and regulations
thereunder ("ERISA"), Section 412 of the Code or Title IV of ERISA, at any
time during the five-year period preceding the date of this Agreement;
(ii) "Plan" means any employment, bonus, incentive compensation,
deferred compensation, pension, profit sharing, savings, retirement, stock
purchase, stock option, stock ownership, stock appreciation rights, phantom
stock, leave of absence, layoff, vacation, day or dependent care, legal
services, cafeteria, life, health, medical, accident, disability, workmen's
compensation or other insurance, severance, separation, termination, change
of control or other benefit plan, agreement, practice, policy, program or
arrangement of any kind, whether written or oral, including, but not
limited to any "employee benefit plan" within the meaning of Section 3(3)
of ERISA; and
(iii) "ERISA Affiliate" means any person, who is under common control
with the Company within the meaning of Section 414 of the Code.
(c) Complete and correct copies of the following documents have been made
available to Parent, as of the date of this Agreement: (i) all material Company
Employee Benefit Plans and any related trust agreements or related insurance
contracts and pro forma option agreements, (ii) the most current summary plan
descriptions of each Company Employee Benefit Plan subject to the requirement
to give a summary plan description under ERISA, (iii) the most recent Form 5500
and Schedules thereto for each Company Employee Benefit Plan subject to such
reporting, (iv) the most recent determination of the Internal Revenue Service
with respect to the qualified status of each Company Employee Benefit Plan that
is intended to qualify under Section 401(a) of the Code, (v) the most recent
accountings with respect to each Company Employee Benefit Plan funded through a
trust, and (vi) the most recent actuarial report of the qualified actuary of
each Company Employee Benefit Plan with respect to which actuarial valuations
are conducted.
(d) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement or Section 3.13 of the Company Disclosure Letter, neither the
Company nor any Subsidiary of the Company maintains or is obligated to provide
material benefits under any life, medical or health Plan (other than as an
incidental benefit under a Plan qualified under Section 401(a) of the Code)
which provides benefits to retirees or other terminated employees other than
benefit continuations rights under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(e) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement or Section 3.13 of the Company Disclosure Letter, neither the
Company, any Subsidiary of the Company any ERISA Affiliate nor any other
corporation or organization controlled by or under common control with any of
the foregoing within the meaning of Section 4001 of ERISA has any material
liability resulting from contribution or withdrawal from a "multiemployer
plan", as that term is defined in Section 4001 of ERISA. With respect to each
"multiemployer plan", as defined above, in which the Company, any Subsidiary of
the Company or any ERISA Affiliate participates or has participated, (i)
neither the Company, any Subsidiary of the Company nor any ERISA Affiliate has
incurred or would reasonably be expected to incur, any material withdrawal
liability, (ii) neither the Company, any Subsidiary of the Company nor any
ERISA Affiliate has received any notice in the past five years that (A) any
such plan is being reorganized in a manner that will result, or would
reasonably be expected to result, in material liability, or (B) increased
contributions of a material amount may be required to avoid a reduction in plan
benefits or the imposition of an excise tax, or (C) any such plan is, or would
reasonably be expected to become, insolvent, and (iii) to the knowledge of the
Company, there are no PBGC (as defined below) proceedings against any such
Plan.
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(f) Except as disclosed in the Company SEC Reports filed prior to the date
of this Agreement or Section 3.13 of the Company Disclosure Letter, to the
knowledge of the Company, no event has occurred, and there exists no condition
or set of circumstances in connection with any Company Employee Benefit Plan,
under which the Company or any Subsidiary of the Company, directly or
indirectly (through any indemnification agreement or otherwise), could
reasonably be expected to be subject to material liability under Section 409 of
ERISA, Section 502(i) of ERISA, Title IV of ERISA or Section 4975 of the Code.
(g) No transaction contemplated by this Agreement will result in any
material liability to the Pension Benefit Guaranty Corporation ("PBGC") under
Section 302(c)(11), 4062, 4063, 4064 or 4069 of ERISA, or otherwise, with
respect to the Company, any Subsidiary of the Company, Parent or any
corporation or organization controlled by or under common control with any of
the foregoing within the meaning of Section 4001 of ERISA, and, to the
knowledge of the Company, no event or condition exists or has existed which
would reasonably be expected to result in any material liability to the PBGC
with respect to Parent, the Company, any Subsidiary of the Company or any such
corporation or organization. Except as set forth in Section 3.13 of the Company
Disclosure Letter, no "reportable event" within the meaning of Section 4043 of
ERISA has occurred with respect to any Company Employee Benefit Plan that is
subject to Part 3 of Title I of ERISA, Section 412 of the Code or Title IV of
ERISA (a "Defined Benefit Plan") other than "reportable events" as to which the
requirement of notice to the PBGC within thirty days has been waived, and other
than reportable events that are not reasonably likely to result in material
liability. Except as set forth in Section 3.13 of the Company Disclosure
Letter, no Defined Benefit Plan has incurred any accumulated funding deficiency
whether or not waived.
(h) Except as set forth in Section 3.13 of the Company Disclosure Letter, no
employer securities, employer real property or other employer property is
included in the assets of any Company Employee Benefit Plan.
(i) No stock appreciation rights are outstanding under the Company Option
Plans or any other plan or arrangement maintained by the Company or any
affiliate of the Company.
(j) There are no pending or threatened claims by or on behalf of any Company
Employee Benefit Plan, by any Person covered thereby, or otherwise, which
allege violations on the part of the Company, any Subsidiary or any fiduciary
of any such Company Employee Benefit Plan reasonably expected to result in a
material liability to the Company, any Subsidiary or Parent.
(k) The fair market value of the assets of each Defined Benefit Plan, as
determined as of the last day of the plan year of such plan which coincides
with or first precedes the date of this Agreement, was not less than the
present value of the projected benefit obligations under such plan at such date
as established on the basis of reasonable actuarial assumptions applicable
under such Defined Benefit Plan used by the Company in preparing its financial
statements at such date and, to the knowledge of the Company, there have been
no material changes in such values since such date.
(l) Termination Benefits. Section 3.13 of the Company Disclosure Letter
contains a schedule showing the Company's good faith estimate of the present
value as of December 31, 1998 of the monetary amounts that could become payable
(including tax indemnification payments in respect of income and/or excise
taxes), and identifying the in-kind benefits that could become due, as a result
of the consummation of the Merger under the Specified Compensation and Benefit
Programs (as defined herein) for each of the Company or any of its Subsidiaries
and each officer or other employee of the Company, Texas-New Mexico Power
Company ("TNMP") or any other Subsidiary of the Company individually. For
purposes hereof, "Specified Compensation and Benefit Programs" shall include
all employment agreements, change in control agreements, severance or special
termination agreements, severance plans, pension, retirement or deferred
compensation plans for non-employee directors, supplemental executive
retirement programs, tax indemnification agreements, outplacement programs,
cash bonus programs, stock appreciation rights, phantom stock or stock unit
plans, and health, life, disability and other insurance or welfare plans or
other arrangements, but shall not include any tax-
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qualified pension, profit-sharing or employee stock ownership plan or any
Company Option Plan. For purposes of preparing the Disclosure Letter, the
present value of the benefits payable under the Specified Compensation and
Benefit Programs shall be determined as follows: (i) it shall be assumed that a
change of control of the Company occurs on December 31, 1998 and that each
person entitled to benefits under the Specified Compensation and Benefit
Programs is discharged as of December 31, 1998; (ii) it shall be assumed that
all compensation levels remain constant; (iii) it shall be assumed that the
present value of any payment or benefit which would be due and payable before
December 31, 1998 is equal to the amount of such payment or the cost of such
benefit; (iv) the present value of any payment or benefit that would be due and
payable after December 31, 1998 shall be computed using the interest rate
specified by the applicable plan for purposes of valuing lump sum payments or
if no rate is specified, an assumed interest rate of 6% per annum, compounded
annually; and (v) that all accrued benefits under all tax-qualified plans are
100% vested. The entire present value of the benefits payable under the
Specified Compensation and Benefit Programs is set forth on Section 3.13 of the
Company Disclosure Letter, which specifies the portion thereof that has been
accrued as a liability on the financial statements of the Company as of
February 28, 1999.
3.14 Labor Matters. (a) Except as disclosed in the Company SEC Reports filed
prior to the date of this Agreement or in Section 3.14(a) of the Company
Disclosure Letter there are no material controversies pending or, to the
knowledge of the Company, threatened between the Company or any of its
Subsidiaries and any representatives of its employees, and, to the knowledge of
the Company, there are no material organizational efforts presently being made
involving any of the now unorganized employees of the Company or any of its
Subsidiaries. Since December 31, 1995, there has been no work stoppage, strike
or other concerted action by employees of the Company or any of its
Subsidiaries except as would not, individually or in the aggregate, have a
Company Material Adverse Effect.
(b) Except as disclosed in Section 3.14(b) of the Company Disclosure Letter,
(i) no current or former employee has made, or has threatened to make,
any claim against the Company or any of its Subsidiaries or filed any
complaint or charge with the U.S. Equal Employment Opportunity Commission,
any state or local fair employment agency, any federal, state or local
Department of Labor, any federal, state or local governmental agency or
unit responsible for enforcing any laws, rules or regulations enacted for
the protection of employees or any other Governmental or Regulatory
Authority or any agency or organization providing an alternative dispute
resolution mechanism for disputes or claims of current or former employees.
(ii) the Company is not aware of any state of facts, or the occurrence
of any event, relating to the employment practices of the Company or any of
its Subsidiaries or any act or omission by any officer, director or
employee of the Company or any of its Subsidiaries that might reasonably be
anticipated to result in any liability of, or the imposition of a penalty
or lien on, or any claim against, the Company or any of its Subsidiaries or
any of their respective assets or properties.
3.15 Environmental Matters. Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement or in Section 3.15 of the Company
Disclosure Letter and except as would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect:
(a) (i) Each of the Company and its Subsidiaries is in compliance with
all applicable Environmental Laws (as hereinafter defined); and
(ii) Neither the Company nor any of its Subsidiaries has received any
written communication from any person or Governmental or Regulatory
Authority that alleges that the Company or any of its Subsidiaries is not
in such compliance with applicable Environmental Laws.
(b) Each of the Company and its Subsidiaries has obtained all permits
and other governmental authorizations (collectively, the "Environmental
Permits") necessary under applicable Environmental Laws for the
construction of its facilities and the conduct of its operations, as
applicable, and all such Environmental Permits are in good standing or,
where applicable, a renewal application has been timely
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filed and is pending agency approval, and the Company and its Subsidiaries are
in compliance with all terms and conditions of the Environmental Permits.
(c) There is no Environmental Claim (as hereinafter defined) pending:
(i) against the Company or any of its Subsidiaries;
(ii) to the knowledge of the Company, against any person or entity
whose liability for any such Environmental Claim the Company or any of
its Subsidiaries has retained or assumed either contractually or by
operation of law; or
(iii) against any real or personal property or operations which the
Company or any of its Subsidiaries owns, leases or manages, in whole or
in part.
(d) To the knowledge of the Company, there have not been any Releases
(as hereinafter defined) of any Hazardous Material (as hereinafter defined)
that would be reasonably likely to form the basis of any material
Environmental Claim against the Company or any of its Subsidiaries, or
against any person whose liability for any Environmental Claim the Company
or any of its Subsidiaries has or may have been retained or assumed by
contract, other agreement or by operation of law.
(e) To the knowledge of the Company, with respect to any predecessor of
the Company or any of its Subsidiaries, there is no Environmental Claim
pending or threatened in writing, and there has been no Release of
Hazardous Materials in each case that would be reasonably likely to form
the basis of any Environmental Claim.
(f) The Company has disclosed to Parent all material facts of which it
is aware and reasonably believes are likely to form the basis of a
Environmental Claim against the Company or any of its Subsidiaries arising
from (x) current environmental remediation or mining reclamation costs of
the Company, its Subsidiaries or such remediation or reclamation costs
known to be required in the future under any applicable Environmental Law,
or (y) any other obligation of the Company or its Subsidiaries under any
applicable Environmental Law.
(g) Neither the Company nor any of its Subsidiaries have entered into
any agreements with any person requiring the Company or any of its
Subsidiaries to indemnify, reimburse or provide contribution to such other
person for any matter related to Environmental Laws, Hazardous Materials or
the environment, except for such matters that have been fully resolved and
for which the Company or any of its Subsidiaries has no further monetary or
non-monetary obligation.
(h) As used in this Section 3.15:
(i) "Environmental Claims" means any and all administrative,
regulatory or judicial actions, suits, demand letters, directives,
claims, liens, investigations or written notices alleging liability
under or violation of any applicable Environmental Law by any person or
entity (including any Governmental or Regulatory Authority) including,
without limitation, claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence or Release of any
Hazardous Materials;
(ii) "Environmental Laws" means all current Federal, state and local
laws, rules and regulations relating to pollution or protection of the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or protection of human
health as it relates to the environment including, without limitation,
laws and regulations relating to Releases or threatened Releases of
Hazardous Materials, or otherwise relating to the generation, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials;
(iii) "Hazardous Materials" means any petroleum or petroleum
products, radioactive materials, asbestos, polychlorinated biphenyls,
and any other chemical, material, substance or waste, regulated under
any applicable Environmental Law; and
(iv) "Release" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal or leaching or
migration into the environment.
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3.16 Regulation as a Utility. The Company is exempt from all provisions
(other than Section 9(a)(2)) of the requirements of the Public Utility Holding
Company Act of 1935, as amended (the "PUHCA"), pursuant to the provisions of
Section 3(a)(1) in accordance with Rule 2 of the SEC under the PUHCA. Section
3.16(a) of the Company Disclosure Letter sets forth a list of each Subsidiary
of the Company which either (i) is a "public utility company", a "gas utility
company" or an "electric utility company" under the PUHCA, (ii) qualifies as an
exempt wholesale generator under the PUHCA or as a "qualifying facility" under
the Public Utility Regulatory Policies Act of 1978, (iii) is a "public utility"
under the Power Act or (iv) is a "public utility" or is franchised to provide
any utility services under any applicable state law.
3.17 Insurance. Except as set forth in Section 3.17 of the Company
Disclosure Letter, each of the Company and its Subsidiaries is, and has been
continuously since January 1, 1996, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary in
all material respects for companies conducting the business conducted by the
Company and its Subsidiaries during such time period. Except as set forth in
Section 3.17 of the Company Disclosure Letter, neither the Company nor any of
its Subsidiaries has received any notice of cancellation or termination with
respect to any material insurance policy of the Company or any of its
Subsidiaries. The material insurance policies of the Company and each of its
Subsidiaries are valid and enforceable policies and will remain in effect
following the Merger.
3.18 Intellectual Property Rights. The Company and its Subsidiaries have all
necessary right, title and interest in, or a valid and binding license to use,
all Intellectual Property (as defined below) individually or in the aggregate
material to the conduct of the businesses of the Company and its Subsidiaries
taken as a whole. Except as set forth in Section 3.18 of the Company Disclosure
Letter, neither the Company nor any Subsidiary of the Company is in default (or
with the giving of notice or lapse of time or both, would be in default) under
any license to use such Intellectual Property, to the Company's knowledge such
Intellectual Property is not being infringed by any third party, and neither
the Company nor any Subsidiary of the Company is infringing any Intellectual
Property of any third party, except for such defaults and infringements which,
individually or in the aggregate, are not having and could not be reasonably
expected to have a Company Material Adverse Effect. For purposes of this
Agreement, "Intellectual Property" means patents and patent rights, trademarks
and trademark rights, trade names and trade name rights, service marks and
service mark rights, service names and service name rights, copyrights and
copyright rights and other proprietary intellectual property rights and all
pending applications for and registrations of any of the foregoing.
3.19 Vote Required. Assuming the accuracy of the representation and warranty
contained in Section 4.06, the affirmative vote of the holders of record of at
least two-thirds of the outstanding shares of Company Common Stock with respect
to the adoption of the Plan of Merger is the only vote of the holders of any
class or series of the capital stock of the Company required to adopt the Plan
of Merger and approve the other transactions contemplated hereby.
3.20 Opinion of Financial Advisor. The Company has received the opinion of
Warburg Dillon Read LLC, dated the date hereof, to the effect that, as of the
date hereof, the Merger Price to be received in the Merger by the shareholders
of the Company is fair from a financial point of view to the shareholders of
the Company, and a true and complete copy of such opinion has been delivered to
Parent at or prior to the execution of this Agreement.
3.21 Company Rights Agreement. As of the date hereof and after giving effect
to the execution and delivery of this Agreement, each Company Right is
represented by the certificate representing the associated share of Company
Common Stock and is not exercisable or transferable apart from the associated
share of Company Common Stock, and the Company has (i) taken all necessary
actions so that the execution and delivery of this Agreement and the
consummation of the transactions contemplated (which transactions shall not be
deemed to include any transaction other than the Merger, as may be amended from
time to time, pursuant to which Parent, Sub or any Equity Investor (as defined
in Section 4.07(a)), or any of them acting as a group for purposes of Rule 13-d
under the Exchange Act, purchases or otherwise acquires beneficial ownership of
10% or more of any voting securities of the Company (the "Excluded
Transactions")) hereby will not result
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in a "Distribution Date", a "Triggering Event" or a "Stock Acquisition Date"
(as defined in the Company Rights Agreement) and (ii) amended the Company
Rights Agreement to render it inapplicable to this Agreement and the
transactions contemplated by this Agreement (which transactions shall not be
deemed to include any Excluded Transaction).
3.22 Article IX of the Company's Articles of Incorporation and Article 13 of
the TBCA Not Applicable. The Company has taken all necessary actions so that
neither the provisions of Article IX of the Company's articles of incorporation
nor the provisions of Article 13 of the TBCA will, before the termination of
this Agreement, apply to this Agreement, the Merger or the other transactions
contemplated hereby (which transactions shall not be deemed to include any
Excluded Transaction).
3.23 Year 2000. The Company and its Subsidiaries have put into effect
reasonable and customary practices and programs (which include communications
with third party vendors and service providers on whom it relies to determine
whether such parties have put into effect practices and programs which will
enable their material software, hardware and equipment (including
microprocessors) to be Year 2000 Compliant (as defined below)) designed to
enable all material software, hardware and equipment (including
microprocessors) that are owned or utilized by the Company or any of its
Subsidiaries in the operations of its or their respective business to be
capable, by December 31, 1999, of accounting for all calculations using a
century and date sensitive algorithm for the year 2000 and the fact that the
year 2000 is a leap year and to otherwise continue to function without any
material interruption caused by the occurrence of the year 2000 (such
capabilities are herein referred to as being "Year 2000 Compliant"). Except as
set forth in Section 3.23 of the Company Disclosure Letter, the Company has
received from its material third party vendors and service providers on whom it
relies a statement to the effect that such parties have put into effect
practices and programs designed to enable their material software, hardware and
equipment (including microprocessors) to be Year 2000 Compliant.
ARTICLE IV
Representations and Warranties of Parent and Sub
Parent and Sub represent and warrant to the Company as follows:
4.01 Organization and Qualification. Parent is duly formed, validly existing
and in good standing under the laws of its jurisdiction of formation and has
full power and authority to conduct its business as and to the extent now
conducted and to own, use and lease its assets and properties, except for such
failures to be so formed, existing and in good standing or to have such power
and authority which, individually or in the aggregate, are not having and could
not be reasonably expected to have a material adverse effect on Parent and its
Subsidiaries taken as a whole. Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has full corporate power and authority to conduct its
business as and to the extent now conducted and to own, use and lease its
assets and properties, except for such failures to be so incorporated, existing
and in good standing or to have such power and authority which, individually or
in the aggregate, are not having and could not be reasonably expected to have a
material adverse effect on Parent and its Subsidiaries taken as a whole. Each
of Parent and Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement, has engaged in no other business
activities and has conducted its operations only as contemplated hereby. Parent
has previously delivered or made available to the Company correct and complete
copies of the certificate of formation of Parent and of the articles of
incorporation and bylaws of Sub. Parent has no subsidiaries other than Sub.
4.02 Authority Relative to this Agreement. Each of Parent and Sub has the
requisite partnership or corporate, as applicable, power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Sub and the consummation by each of Parent
and Sub of the transactions
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contemplated hereby have been duly and validly approved by all necessary
partnership or corporate action, as applicable, and by Parent in its capacity
as the sole shareholder of Sub, and no other proceedings on the part of Parent
or Sub or Sub's shareholders are necessary to authorize the execution, delivery
and performance of this Agreement by Parent and Sub and the consummation by
Parent and Sub of the transactions contemplated hereby. Notwithstanding the
foregoing, further action may be necessary to authorize the issuance of shares
of Sub Preferred Stock pursuant to the Preferred Stock Commitment Letters (as
defined in Section 4.07) and to authorize the definitive agreements and
documents relating to the Sub Preferred Stock (the "Definitive Preferred Stock
Agreements") and the Definitive Debt Financing Agreements (as defined in
Section 6.14(a)) and the transactions contemplated thereby and any such
necessary action shall be taken prior to the Closing. This Agreement has been
duly and validly executed and delivered by each of Parent and Sub and, assuming
the due authorization, execution and delivery of this Agreement by the Company,
constitutes a legal, valid and binding obligation of each of Parent and Sub
enforceable against each of Parent and Sub in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.03 Non-Contravention; Approvals and Consents. (a) The execution and
delivery of this Agreement by each of Parent and Sub do not, and the
performance by each of Parent and Sub of its obligations hereunder and the
consummation of the transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or without notice or lapse
of time or both) default under, result in or give to any person any right of
payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien (other
than Liens contemplated by the Commitment Letters) upon any of the assets or
properties of Parent or any of Parent's Subsidiaries under, any of the terms,
conditions or provisions of (i) the certificate of formation of Parent or the
certificates or articles of incorporation or bylaws (or other comparable
charter documents) of any of Parent's Subsidiaries, or (ii) subject to the
taking of the actions described in paragraph (b) of this Section, (x) any laws
existing on the date hereof or orders of any Governmental or Regulatory
Authority applicable to Parent or any of Parent's Subsidiaries or any of their
respective assets or properties, or (y) any Contracts to which Parent or any of
Parent's Subsidiaries is a party or by which Parent or any of Parent's
Subsidiaries or any of their respective assets or properties is bound,
excluding from the foregoing clauses (x) and (y) conflicts, violations,
breaches, defaults, terminations, modifications, accelerations and creations
and impositions of Liens which, individually or in the aggregate, could not be
reasonably expected to have a material adverse effect on the ability of Parent
and Sub to consummate the transactions contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification report by the
ultimate parent(s) of Parent under the HSR Act, (ii) for the filing of the
Articles of Merger and other appropriate merger documents required by the TBCA
with the Secretary of State and appropriate documents with the relevant
authorities of other states in which the Constituent Corporations are qualified
to do business and the issuance of the Certificate of Merger by the Secretary
of State, (iii) for (x) the approval of the PUCT under Texas law, to the extent
required by the Texas Public Utility Regulatory Act and for (y) the approval of
the NMPRC under New Mexico law, to the extent required by the New Mexico Public
Utility Act, (iv) for the filing of an application under Section 203 and any
directly related section of, or regulation under, the Power Act for the sale or
disposition of jurisdictional facilities of the Company or for waiver of Power
Act jurisdiction over this transaction, and (v) as disclosed in Section 4.03 of
the letter dated the date hereof and delivered to the Company by Parent and Sub
concurrently with the execution and delivery of this Agreement (the "Parent
Disclosure Letter"), no consent, approval or action of, filing with or notice
to any Governmental or Regulatory Authority or other public or private third
party is necessary or required under any of the terms, conditions or provisions
of any law or order of any Governmental or Regulatory Authority or any Contract
to which Parent or any of its Subsidiaries is a party or by which Parent or any
of its Subsidiaries or any of their respective assets or properties is bound
for the execution and delivery of this Agreement by each of Parent and Sub, the
performance by each of Parent and Sub of its obligations hereunder or the
consummation of the transactions contemplated hereby, other than such consents,
approvals, actions, filings and notices which the failure to make or obtain, as
the case may be,
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individually or in the aggregate, could not be reasonably expected to have a
material adverse effect on the ability of Parent and Sub to consummate the
transactions contemplated by this Agreement.
4.04 Legal Proceedings. There are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of Parent or Sub, threatened against,
relating to or affecting, nor to the knowledge of Parent or Sub are there any
Governmental or Regulatory Authority investigations or audits pending or
threatened against, relating to or affecting, Parent or any of its Subsidiaries
or any of their respective assets and properties which, individually or in the
aggregate, could be reasonably expected to have a material adverse effect on
the ability of Parent and Sub to consummate the transactions contemplated by
this Agreement, and neither Parent nor any of its Subsidiaries is subject to
any order of any Governmental or Regulatory Authority which, individually or in
the aggregate, could be reasonably expected to have a material adverse effect
on the ability of Parent and Sub to consummate the transactions contemplated by
this Agreement.
4.05 Information Supplied. Neither the information supplied or to be
supplied by or on behalf of Parent or Sub for inclusion, nor the information
incorporated by reference from documents filed by Parent or any of Parent's
Subsidiaries with the SEC, in the Proxy Statement or any other documents to be
filed by Parent, Sub or the Company with the SEC or any other Governmental or
Regulatory Authority in connection with the Merger and the other transactions
contemplated hereby will on the date of its filing or, in the case of the Proxy
Statement, at the date it is mailed to shareholders of the Company and at the
date of the Company Shareholders' Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. All such documents
filed by Parent or Sub with the SEC under the Exchange Act in connection with
the Merger and the other transactions contemplated hereby will comply as to
form in all material respects with the requirements of the Exchange Act.
4.06 Ownership of Company Common Stock. As of the date hereof, none of
Parent or any of Parent's Subsidiaries or other affiliates, either individually
or as part of a group for purposes of Rule 13-d under the Exchange Act,
beneficially owns any shares of Company Common Stock, except for such shares
held in the ordinary course of business by any affiliate of Parent which do
not, in the aggregate, equal or exceed ten percent 10% or more of the
outstanding shares of Company Common Stock.
4.07 Financing. (a) Parent has, on or prior to the date hereof, entered into
subscription agreements (the "Partnership Subscription Agreements") dated the
date hereof pursuant to which the subscribers thereunder (the "Partnership
Investors") have agreed, subject to the terms and conditions contained in the
Partnership Subscription Agreements and no other conditions, to provide an
aggregate of $100 million to Parent in cash for partnership interests in
Parent. Sub has, on or prior to the date hereof, entered into one or more
commitment letters (the "Preferred Stock Commitment Letters") dated the date
hereof pursuant to which the proposed purchasers thereunder (the "Preferred
Stock Investors"; and, together with the Partnership Investors, the "Equity
Investors") have agreed, subject to the terms and conditions contained in the
Preferred Stock Commitment Letters and no other conditions, to provide an
aggregate of up to $100 million of funds to Sub in cash for shares of preferred
stock of Sub, which shares of preferred stock will contain terms substantially
the same as those set forth on Exhibit A to the Preferred Stock Commitment
Letters (as such terms may be amended in accordance with the terms of the
Preferred Stock Commitment Letters and Section 6.14 hereof prior to the
Effective Time). The financing to be provided to Parent and Sub pursuant to the
Partnership Subscription Agreements and the Preferred Stock Commitment Letters
is sometimes referred to herein as the "Equity Financing." Parent and Sub have,
on or prior to the date hereof, entered into a commitment letter (the
"Subordinated Debt Commitment Letter"), with CIBC World Markets Corp. and The
Chase Manhattan Bank (the "Subordinated Lenders") pursuant to which the
Subordinated Lenders have committed, subject to the conditions contained in the
Subordinated Debt Commitment Letter and no other conditions, to provide an
aggregate of up to $275 million to Sub in cash as a senior subordinated
increasing rate bridge loan to Sub, which senior subordinated increasing rate
bridge loan will contain terms substantially the same as those set forth on
Exhibit A to the Subordinated Debt Commitment Letter (as such terms may be
amended in accordance
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with the terms thereof and Section 6.14 hereof prior to the Effective Time)
(the "Subordinated Debt Financing"). Sub has, on or prior to the date hereof,
entered into a commitment letter (the "Senior Debt Commitment Letter"), and,
together with the Partnership Subscription Agreements, the Preferred Stock
Commitment Letters and the Subordinated Debt Commitment Letter (the
"Consideration Commitment Letters"), with CIBC World Markets Corp., Canadian
Imperial Bank of Commerce, The Chase Manhattan Bank and Chase Securities, Inc.
pursuant to which the Canadian Imperial Bank of Commerce and The Chase
Manhattan Bank (the "Senior Lenders") have committed, subject to the conditions
contained in the Senior Debt Commitment Letter and no other conditions, to
provide an aggregate of up to $165 million to Sub in cash as a senior secured
credit facility to Sub, which senior secured credit facility will contain terms
substantially the same as those set forth on Exhibit A to the Senior Debt
Commitment Letter (as such terms may be amended in accordance with the terms
thereof and Section 6.14 hereof prior to the Effective Time) (the "Senior Debt
Financing"). The aggregate cash amount committed to be provided under the
Consideration Commitment Letters is sufficient to pay the aggregate Merger
Price per share and the aggregate Option Amounts and to make all other
necessary payments of fees and expenses required to be paid by Parent and Sub
in connection with the transactions contemplated by this Agreement. Sub has, on
or prior to the date hereof, entered into a commitment letter (the "Backstop
Commitment Letter" and, together with the Consideration Commitment Letters, the
"Commitment Letters") with CIBC World Markets Corp., Canadian Imperial Bank of
Commerce, The Chase Manhattan Bank and Chase Securities, Inc. pursuant to which
Canadian Imperial Bank of Commerce and The Chase Manhattan Bank (the "Backstop
Lenders") have committed, subject to the conditions contained in the Backstop
Commitment Letter and no other conditions, to provide up to $428 million in
cash of senior debt financing to TNMP after the Effective Time to refinance
certain outstanding indebtedness of TNMP and its Subsidiaries which may become
due and payable as a result of the Merger, which senior debt financing will
contain terms substantially the same as those set forth on Exhibit A of the
Backstop Commitment Letter (as such terms may be amended in accordance with the
terms thereof and Section 6.14 hereof prior to the Effective Time) (the
"Backstop Financing" and, together with the Subordinated Debt Financing and the
Senior Debt Financing, the "Debt Financing").
(b) Parent has previously provided the Company with true and complete copies
of (i) each Commitment Letter entered into on or prior to the date hereof, (ii)
the form of partnership agreement of the Parent, (iii) the form of articles of
incorporation of Sub, (iv) the partnership agreement and all other organization
and formation documents of the general partner of the Parent (the "General
Partner"), (v) the limited liability company regulations and all other
organization and formation documents of the general partner of the General
Partner and (vi) the form of each other agreement to which Sub, Parent or the
General Partner, on the one hand, and any Financing Party, an affiliate of a
Financing Party or any other person, on the other hand, to be entered into on
the date hereof and relating to any equity interest of Sub, Parent or the
General Partner (the documents and agreements referred to in clauses (ii)
through (v) are referred to herein as "Equity Documents and Agreements").
4.08 Capitalization of Sub. The authorized capital stock of Sub consists of
(i) 1,000,000 shares of common stock, no par value per share, 100 of which
shares, as of the date of this Agreement, are validly issued and outstanding,
fully paid and nonassessable and are owned by Parent free and clear of all
Liens and (ii) 1,000,000 shares of preferred stock, no par value, none of which
is issued and outstanding.
4.09 Fraudulent Conveyance. Assuming the accuracy of the representations and
warranties made by the Company in this Agreement, neither Parent nor Sub has
any reason to believe that the financing to be provided to Parent and Sub to
consummate the Merger will cause (i) the fair salable value of the Surviving
Corporation's assets to be less than the total amount of its existing
liabilities, (ii) the fair salable value of the assets of the Surviving
Corporation to be less than the amount that will be required to pay its
probable liabilities on its existing debts as they mature, (iii) the Surviving
Corporation not to be able to meet its obligations as they mature or become due
as the result of the Merger or (iv) the Surviving Corporation to have an
unreasonably small capital with which to engage in its business.
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ARTICLE V
Covenants of The Company
5.01 Covenants of the Company. At all times from and after the date hereof
until the Effective Time, the Company covenants and agrees as to itself and its
Subsidiaries that (except as set forth in Section 5.01 of the Company
Disclosure Letter, expressly contemplated or permitted by this Agreement, or to
the extent that Parent shall otherwise previously consent in writing):
(a) Ordinary Course; No Breach. The Company and its Subsidiaries shall (i)
conduct their respective businesses only in, and neither the Company nor any
such Subsidiary shall take any action except in, the ordinary course consistent
with past practice and (ii) use all commercially reasonable efforts to comply
with the provisions of this Agreement and provide for the truthfulness of its
representations on and as of the Closing Date.
(b) Certain Restricted Actions. Without limiting the generality of paragraph
(a) of this Section, (i) the Company and its Subsidiaries shall use all
commercially reasonable efforts to preserve intact in all material respects
their present business organizations and reputation, to keep available the
services of their key officers and employees, to maintain their assets and
properties in good working order and condition, ordinary wear and tear
excepted, to maintain insurance on their tangible assets and businesses in such
amounts and against such risks and losses as are currently in effect, to
preserve their relationships with Governmental and Regulatory Authorities,
customers and suppliers and others having significant business dealings with
them and to comply in all material respects with all laws and orders of all
Governmental or Regulatory Authorities applicable to them; provided that no
action by the Company or its Subsidiaries, with respect to matters specifically
addressed by any provision of Section 5.01(b)(ii) shall be deemed a breach of
Section 5.01(b)(i) unless such action would constitute a breach of one or more
of such provisions of Section 5.01(b)(ii); and (ii) without the prior written
consent of Parent, which consent shall not be unreasonably withheld, the
Company shall not, nor shall it permit any of its Subsidiaries to:
(A) amend or propose to amend its articles of incorporation or, except
to the extent required by law, bylaws (or other comparable corporate
charter documents);
(B) (w) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock, except that the
Company may continue the declaration and payment of regular quarterly cash
dividends on Company Common Stock, with usual record and payment dates for
such dividends in accordance with past dividend practice, and except for
the declaration and payment of dividends by a wholly-owned Subsidiary
solely to its parent corporation, and dividends and distributions declared
and paid by its Subsidiaries with respect to shares of preferred stock or
similar obligations of the Company's Subsidiaries outstanding on the date
hereof, (x) split, combine, reclassify or take similar action with respect
to any of its capital stock or issue or authorize or propose the issuance
of any other securities in respect to in lieu of or in substitution for
shares of its capital stock, (y) adopt a plan of complete or partial
liquidation or resolutions providing for or authorizing such liquidation or
a dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization or (z) directly or indirectly redeem, repurchase or
otherwise acquire any shares of its capital stock or any Option with
respect thereto other than redemptions, repurchases and other acquisitions
in the ordinary course of business consistent with past practice, including
purchases, redemptions and other acquisitions (1) in connection with the
administration of employee benefit, direct stock purchase and dividend
reinvestment plans as in effect on the date hereof in the ordinary course
of the operation of such plans and (2) required by the respective terms of
any such security outstanding on the date hereof;
(C) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any Option with
respect thereto (other than (x) the issuance of Company Common Stock
granted under the Company's Nonemployee Director Stock Plan, outstanding on
the date of this Agreement and in accordance with their present terms, (y)
the issuance by a wholly-owned Subsidiary of its capital stock to its
parent corporation, and (z) the issuance of Company Common Stock or Company
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Rights pursuant to the Company Rights Agreement in accordance with the
terms thereof), or modify or amend any right of any holder of outstanding
shares of capital stock or Options with respect thereto (except
determinations with respect to the Company Rights in compliance with
Section 5.03);
(D) except to the extent provided for in the most recent business plan
and operating and capital budgets approved by the Company's Board of
Directors (the "Company Budget"), acquire (by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner) any business or any
corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets
(other than inventory and other assets to be sold or used in the ordinary
course of business consistent with past practice);
(E) except as set forth in Section 5.01(b)(ii)(E) of the Company
Disclosure Letter and other than dispositions in the ordinary course of its
business consistent with past practice of assets which are not,
individually or in the aggregate, material to the Company and its
Subsidiaries taken as a whole, sell, lease, grant any security interest in
or otherwise dispose of or encumber any of its assets or properties, except
to the extent provided for in the Company Budget;
(F) except to the extent required by applicable law or to the extent
provided for in the Company Budget, (x) permit any material change in (A)
any pricing, marketing, purchasing, investment, accounting (unless required
by changes in generally accepted accounting principles after the date
hereof), financial reporting, inventory, credit, allowance or tax practice
or policy or (B) any method of calculating any bad debt, contingency or
other reserve for accounting, financial reporting or tax purposes or (y)
make any material tax election or settle or compromise any material income
tax liability with any Governmental or Regulatory Authority;
(G) (x) except as set forth in Section 5.01(b)(ii)(G) of the Company
Disclosure Letter or to the extent provided for in the Company Budget,
incur (which shall not be deemed to include entering into credit
agreements, lines of credit or similar arrangements until borrowings are
made under such arrangements) any material indebtedness for borrowed money
or guarantee any such indebtedness (net of any amounts of any such
indebtedness discharged during such period), or (y) voluntarily purchase,
cancel, prepay or otherwise provide for a complete or partial discharge in
advance of a scheduled repayment date with respect to, or waive any right
under, any material indebtedness for borrowed money, except to the extent
consistent with past practice (1) drawings under credit lines existing at
the date of this Agreement or renewals or replacements thereof and (2)
obligations evidenced by debt securities issued by a Subsidiary of the
Company for the purpose of financing investments or capital expenditures
permitted under this Agreement or refinancing existing indebtedness or
preferred stock obligations of such Subsidiary on terms no less favorable
to such Subsidiary;
(H) enter into or except as may be required by applicable law, adopt,
amend in any material respect or terminate any Company Employee Benefit
Plan, or other agreement, arrangement, plan or policy between the Company
or one of its Subsidiaries and one or more of its directors, officers or
employees, or, except for normal increases in the ordinary course of
business consistent with past practice that, in the aggregate, do not
result in a material increase in benefits or compensation expense to the
Company and its Subsidiaries taken as a whole, increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan or arrangement in effect as of the
date hereof;
(I) enter into any Contract or, except as may be required by applicable
law, amend or modify any existing Contract, or engage in any new
transaction outside the ordinary course of business consistent with past
practice or not on an arm's length basis, with any affiliate of the Company
or any of its Subsidiaries;
(J) willfully take or fail to take any action that would or is
reasonably likely to result (i) in a material breach of any provision of
this Agreement, or (ii) in any of its representations and warranties set
forth in this Agreement being untrue on and as of the Closing Date;
(K) initiate any material actions, suits, arbitrations or proceedings
other than in the ordinary course of business consistent with past
practice;
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(L) take any action that would be reasonably likely to jeopardize the
qualification of any material amount of outstanding revenue bonds which
qualify on the date hereof under Section 142(a) of the Code as "exempt
facility bonds" or as tax-exempt industrial development bonds under Section
103(b)(4) of the Internal Revenue Code of 1954, as amended, prior to the
enactment of the Tax Reform Act of 1986;
(M) make any capital expenditures or commitments for additions to plant,
property or equipment constituting capital assets in excess of the Company
Budget approved by the Board of Directors of the Company or any of its
Subsidiaries, except as set forth in Section 5.01(b)(ii)(M) of the Company
Disclosure Letter;
(N) make any change in the lines of business in which it participates or
is engaged;
(O) except as may be required by applicable law, engage in any
activities which would cause a change in its status, or that of its
Subsidiaries under the PUHCA or under the Power Act, including any action
or inaction that would cause the prior approval of the SEC under the PUHCA
to be required for the consummation of the transactions contemplated
hereby, or that would impair the ability of the Company or Parent or any
Subsidiary of Parent to claim any exemption under the PUHCA or that would
subject Parent or any Subsidiary of Parent to regulation under the PUHCA
(other than Section 9(a)(2) or as an exempt holding company under the
PUHCA) following the Merger;
(P) except as may be required by applicable law, agree or consent to any
material agreements or modifications of (i) material existing agreements
with any Government or Regulatory Authority in respect of the operations of
their businesses, or (ii) material rates, charges, service agreements or
other like agreements filed with and subject to approval by any
Governmental or Regulatory Authority, except where following discussion
with the relevant authority such agreements or modifications are imposed
upon the Company;
(Q) except as set forth in Section 5.01(b)(ii)(Q) of the Company
Disclosure Letter or to the extent provided for in the Company Budget,
(i) commence construction of any additional generating, transmission
or delivery capacity, or
(ii) obligate itself to purchase or otherwise acquire, or to sell or
otherwise dispose of, or to share, any additional generating,
transmission or delivery plants or facilities;
(R) buy or sell any energy futures or forward contracts or energy
transportation futures or forward contracts, or options on any of the
foregoing; or
(S) enter into any Contract, commitment or arrangement to do or engage
in any of the foregoing.
(c) Advice of Changes. The Company shall confer on a regular and frequent
basis with Parent with respect to its business and operations and other
matters relevant to the Merger, and shall promptly advise Parent, orally and
in writing, of any change or event having, or which, insofar as can be
reasonably foreseen, could have, a material adverse effect on the Company and
its Subsidiaries taken as a whole or on the ability of the Company to
consummate the transactions contemplated hereby; provided that the Company
shall not be required to make any disclosure to the extent such disclosure
would constitute a violation of any applicable law.
5.02 No Solicitations. Prior to the Effective Time, the Company agrees (a)
that neither it nor any of its Subsidiaries or other affiliates shall, and it
shall use its best efforts to cause their respective Representatives (as
defined in Section 9.11) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its
shareholders) with respect to a merger, consolidation or other business
combination including the Company or any of its Subsidiaries or any
acquisition or similar transaction (including, without limitation, a tender or
exchange offer) involving the purchase of (i) all or any significant portion
of the assets of the Company and its Subsidiaries taken as a whole, (ii) 10%
or more of the outstanding shares of Company Common Stock or (iii) 10% of the
outstanding shares of the capital stock of any Subsidiary of the Company (any
such proposal or offer being hereinafter referred to as an "Alternative
Proposal"), or engage in any negotiations concerning, or
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provide any confidential information or data to, or have any discussions with,
any person or group relating to an Alternative Proposal (excluding the
transactions contemplated by this Agreement), or otherwise facilitate any
effort or attempt to make or implement an Alternative Proposal; (b) that it
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties with respect to any of the
foregoing, and it will take the necessary steps to inform such parties of its
obligations under this Section; and (c) that it will notify Parent immediately
if any such inquiries, proposals or offers are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it or any of such persons or groups;
provided, however, that nothing contained in this Section 5.02 shall prohibit
the Board of Directors of the Company from (i) furnishing information to (but
only pursuant to a confidentiality agreement in customary form) or entering
into discussions or negotiations with any person or group that makes an
unsolicited bona fide Alternative Proposal, if, and only to the extent that
prior to receipt of the Company Shareholder Approval, (A) the Board of
Directors of the Company, based on advice from outside counsel, determines in
good faith that such action is required for the Board of Directors to comply
with its fiduciary duties to shareholders imposed by law, (B) the Board of
Directors has reasonably concluded in good faith, after consultation with its
financial advisor, that (1) if such Alternative Proposal contains cash
consideration, the person or group making such Alternative Proposal will have
adequate sources of financing to consummate such Alternative Proposal and (2)
such Acquisition Proposal could reasonably lead to a transaction that is more
favorable to the Company's shareholders than the Merger, (C) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or group, the Company provides written notice to Parent to
the effect that it is furnishing information to, or entering into discussions
or negotiations with, such person or group, which notice shall identify such
person or group in reasonable detail, and (D) the Company keeps Parent
reasonably informed of the status of any such discussions or negotiations; and
(ii) to the extent required, complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Alternative Proposal. Nothing in this Section
5.02 shall (x) permit the Company to terminate this Agreement (except as
specifically provided in Article VIII), (y) permit the Company to enter into
any agreement with respect to an Alternative Proposal for so long as this
Agreement remains in effect (it being agreed that for so long as this Agreement
remains in effect, the Company shall not enter into any agreement with any
person or group that provides for, or in any way facilitates, an Alternative
Proposal (other than a confidentiality agreement under the circumstances
described above)), or (z) affect any other obligation of the Company under this
Agreement.
5.03 Company Rights Agreement. Except to the extent required by applicable
law or to the extent that the Board of Directors of the Company, based on
advice from outside counsel, determines in good faith that such action is
required for the Board of Directors to comply with its fiduciary duties to
shareholders imposed by law, prior to the Effective Time, without the prior
written consent of Parent, the Company will not take any action with respect
to, or make any determination under, or amend the Company Rights Agreement,
including a redemption of the Company Rights.
5.04 Third Party Standstill Agreements. During the period from the date of
this Agreement through the Effective Time, neither the Company nor any of its
Subsidiaries shall terminate, amend, modify or waive any material provision of
any confidentiality or standstill agreement to which it is a party. During such
period, the Company shall enforce, to the fullest extent permitted under
applicable law, the provisions of any such agreement, including, but not
limited to, by obtaining injunctions to prevent any breaches of such agreements
and to enforce specifically the terms and provisions thereof in any court
having jurisdiction.
ARTICLE VI
Additional Agreements
6.01 Access to Information; Confidentiality. The Company shall, and shall
cause each of its Subsidiaries to, throughout the period from the date hereof
to the Effective Time, (i) provide the Parent and, at Parent's request, its
Representatives with full access to the Company's facilities, upon reasonable
prior notice and during normal business hours, and to all officers, employees,
agents and accountants of the Company and
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its Subsidiaries and their respective assets, properties, books and records,
but only to the extent that such access does not unreasonably interfere with
the business and operations of the Company and its Subsidiaries, and (ii)
furnish promptly to such persons (x) a copy of each report, statement, schedule
and other document filed or received by the Company or any of its Subsidiaries
pursuant to the requirements of federal or state securities laws and each
material report, statement, schedule and other document filed with any other
Governmental or Regulatory Authority, and (y) all other information and data
(including, without limitation, copies of Contracts, Company Employee Benefit
Plans and other books and records) concerning the business and operations of
the Company and its Subsidiaries as Parent or any of such other persons
reasonably may request. No investigation pursuant to this paragraph or
otherwise shall affect any representation or warranty contained in this
Agreement or any condition to the obligations of the parties hereto. Any such
information or material obtained pursuant to this Section 6.01 shall constitute
"Confidential Information" (as such term is defined in the Confidentiality and
Non-Disclosure Agreement dated as of December 4, 1998 between the Company and
CIBC Oppenheimer Corp. (now CIBC World Markets Corp.), as amended (the
"Confidentiality Agreement")) and Parent and Sub each hereby agree to be bound
by the Confidentiality Agreement as if it were the Recipient (as defined in the
Confidentiality Agreement).
6.02 Preparation of Proxy Statement; Offering Materials. (a) The Company
shall prepare and file with the SEC the Proxy Statement as soon as reasonably
practicable after the date hereof, and shall use its best efforts to have the
Proxy Statement cleared by the SEC. If at any time prior to the Effective Time
any event shall occur that should be set forth in an amendment of or a
supplement to the Proxy Statement, the Company shall prepare and file with the
SEC such amendment or supplement as soon thereafter as is reasonably
practicable. Parent, Sub and the Company shall cooperate with each other in the
preparation of the Proxy Statement, and the Company shall notify Parent of the
receipt of any comments of the SEC with respect to the Proxy Statement and of
any requests by the SEC for any amendment or supplement thereto or for
additional information, and shall provide to Parent promptly copies of all
correspondence between the Company or any representative of the Company and the
SEC with respect to the Proxy Statement. The Company shall give Parent and its
counsel the opportunity to review the Proxy Statement and all responses to
requests for additional information by and replies to comments of the SEC
before their being filed with, or sent to, the SEC. Each of the Company, Parent
and Sub agrees to use its best efforts, after consultation with the other
parties hereto, to respond promptly to all such comments of and requests by the
SEC and to cause the Proxy Statement to be mailed to the holders of Company
Common Stock entitled to vote at the Company Shareholders' Meeting at the
earliest practicable time.
(b) The Company shall, and shall cause its Subsidiaries to, use all
commercially reasonable efforts to cooperate with and assist Parent and Sub in
preparing such information packages and offering materials as the Financing
Parties may reasonably request (collectively, the "Offering Materials") for use
in connection with the offering and/or syndications of partnership interests,
preferred stock, debt securities and loan participations contemplated by the
Commitment Letters, including, without limitation, making senior management and
other representatives of the Company and its Subsidiaries available (at
mutually agreeable times) to participate in meetings with prospective investors
and providing such information and assistance as the Financing Parties may
reasonably request in connection therewith.
6.03 Approval of Shareholders. The Company shall, through its Board of
Directors, duly call, give notice of, convene and hold a meeting of its
shareholders (the "Company Shareholders' Meeting" for the purpose of voting on
the Plan of Merger (the "Company Shareholders' Approval") as soon as reasonably
practicable after the date hereof. Subject to the exercise of fiduciary
obligations as advised by outside counsel (i) the Company shall, through its
Board of Directors, include in the Proxy Statement the recommendation of the
Board of Directors of the Company that the shareholders of the Company adopt
the Plan of Merger, and (ii) the Company shall use its best efforts to obtain
such adoption.
6.04 Regulatory and Other Third Party Approvals. Subject to the terms and
conditions of this Agreement and without limiting the provisions of Sections
6.02 and 6.03, each of the Company, Parent, and Sub will proceed diligently and
in good faith to, as promptly as practicable, (i) obtain all consents,
approvals or
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actions of, make all filings with and give all notices to Governmental or
Regulatory Authorities or any other third parties required of Parent, Sub, the
Company or any of their Subsidiaries to consummate the Merger and the other
matters contemplated hereby, including obtaining the approval of the PUCT under
Texas law, to the extent required by the Texas Public Utility Regulatory Act
and the approval of the NMPRC under New Mexico law, to the extent required by
the New Mexico Public Utility Act and complying with the filing and approval
requirements of the FERC and the approvals set forth in Section 6.04 of the
Company Disclosure Letter, and (ii) provide such other information and
communications to such Governmental or Regulatory Authorities or other third
parties as the other party or such Governmental or Regulatory Authorities or
other third parties may reasonably request in connection therewith. In addition
to and not in limitation of the foregoing, each of the parties will (x) take
promptly all actions necessary to make the filings required of Parent, Sub, and
the Company or their affiliates under the HSR Act, (y) comply at the earliest
practicable date with any request for additional information received by such
party or its affiliates from the Federal Trade Commission (the "FTC") or the
Antitrust Division of the Department of Justice (the "Antitrust Division")
pursuant to the HSR Act, and (z) cooperate with the other party in connection
with such party's filings under the HSR Act and in connection with resolving
any investigation or other inquiry concerning the Merger or the other matters
contemplated by this Agreement commenced by either the FTC or the Antitrust
Division or state attorneys general.
6.05 Employee Benefit Plans. (a) From and after the Effective Time, Parent
shall cause the Company Employee Benefit Plans in effect at the date of this
Agreement (other than the Company Option Plans) to remain in effect until the
first anniversary of the Effective Time or, to the extent such Company Employee
Benefit Plans (other than the Company Option Plans) are not continued, Parent
will cause to be maintained until such date benefit plans which are no less
favorable, in the aggregate, to the employees covered by such Company Employee
Benefit Plans, provided, however, that nothing contained herein shall be
construed as requiring Parent or the Surviving Corporation to continue any
specific plan or to grant to any person any right to acquire any equity
securities of Parent, the Surviving Corporation or any of their respective
Subsidiaries, or as preventing Parent or the Surviving Corporation from (a)
establishing and, if necessary, seeking shareholder approval to establish, any
other benefit plans in respect of all or any of the employees covered by such
Company Employee Benefit Plans or any other employees, or (b) amending such
Company Employee Benefit Plans (or any replacement benefit plans therefor)
where required by applicable law or where such amendment is with the consent of
the affected employees. From and after the Effective Time, Parent shall honor,
and shall cause its Subsidiaries to honor, in accordance with its express
terms, each then existing employment, change of control, severance and
termination agreement between the Company or any of its Subsidiaries, and any
officer, director or employee of such company, including without limitation all
legal and contractual obligations pursuant to outstanding restoration plans,
severance plans, bonus deferral plans, vested and accrued benefits and similar
employment and benefit arrangements, policies and agreements that have been
disclosed to Parent as of the date hereof and other obligations, if any,
entered into in accordance with Sections 5.0l(b)(ii)(C) and (H). The officers
and directors of the Company and its Subsidiaries are intended beneficiaries of
this Section 6.05.
(b) Prior to the Closing, the Company shall, and shall cause TNMP to, use
its best efforts to enter into an employment agreement, substantially in the
form provided by Parent to the Company prior to the date hereof (an "Employment
Agreement"), with each individual listed in Section 6.05 of the Parent
Disclosure Letter, which provides for the payment to each such individual of
the amounts set forth opposite such individual's name therein.
6.06 Directors' and Officers' Indemnification and Insurance. (a) From and
after the Effective Time and until the fourth anniversary of the Effective Time
and for so long thereafter as any claim for indemnification asserted on or
prior to such date has not been fully adjudicated, the Surviving Corporation
shall indemnify, defend and hold harmless each person who is now, or has been
at any time prior to the date hereof or who becomes prior to the Effective
Time, a director or officer of the Company or any of its Subsidiaries (the
"Indemnified Parties") against (i) all losses, claims, damages, costs and
expenses (including reasonable attorneys' fees), liabilities, judgments and
settlement amounts that are paid or incurred in connection with any claim,
action, suit, proceeding or investigation (whether civil, criminal,
administrative or investigative and
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whether asserted or claimed prior to, at or after the Effective Time) that is
based on, or arises out of, the fact that such Indemnified Party is or was a
director or officer or agent of the Company or any of its Subsidiaries and
relates to or arises out of any action or omission occurring at or prior to the
Effective Time ("Indemnified Liabilities"), and (ii) all Indemnified
Liabilities based on, or arising out of, or pertaining to this Agreement or the
transactions contemplated hereby, in each case to the fullest extent a
corporation is permitted under applicable law to indemnify its own directors or
officers, as the case may be; provided that the Surviving Corporation shall not
be liable for any settlement of any claim effected without its written consent.
Without limiting the foregoing, in the event that any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Party (whether
arising prior to or after the Effective Time), (w) the Surviving Corporation
will pay expenses in advance of the final disposition of any such claim,
action, suit, proceeding or investigation to each Indemnified Party to the full
extent permitted by applicable law; provided that the person to whom expenses
are advanced provides any undertaking required by applicable law to repay such
advance if it is ultimately determined that such person is not entitled to
indemnification; (x) the Indemnified Parties shall retain counsel reasonably
satisfactory to the Surviving Corporation; (y) the Surviving Corporation shall
pay all reasonable fees and expenses of such counsel for the Indemnified
Parties (subject to the final sentence of this paragraph) promptly as
statements therefor are received; and (z) the Surviving Corporation shall use
all commercially reasonable efforts to assist in the defense of any such
matter. Any Indemnified Party wishing to claim indemnification under this
Section, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Surviving Corporation, but the failure so to
notify the Surviving Corporation shall not relieve the Surviving Corporation
from any liability which it may have under this paragraph except to the extent
such failure materially prejudices the Surviving Corporation. The Indemnified
Parties as a group may retain only one law firm to represent them with respect
to each such matter unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two
or more Indemnified Parties in which case, the Indemnified Parties may retain
more than one law firm.
(b) Except to the extent required by law, until the fourth anniversary of
the Effective Time, Parent will not take any action so as to amend, modify,
limit or repeal the provisions for indemnification of Indemnified Parties
contained in the certificates or articles of incorporation or bylaws (or other
comparable charter documents) of the Surviving Corporation and its Subsidiaries
(which as of the Effective Time shall be no more favorable to such individuals
than those maintained by the Company and its Subsidiaries on the date hereof)
in such a manner as would adversely affect the rights of any Indemnified Party
to be indemnified by such corporations in respect of their serving in such
capacities prior to the Effective Time.
(c) For a period of four years after the Effective Time, Surviving
Corporation shall cause to be maintained in effect policies of directors' and
officers' liability insurance maintained by Company as of the date hereof;
provided, that Surviving Corporation may substitute therefor policies of at
least the same coverage containing terms that are no less advantageous with
respect to matters occurring prior to the Effective Time to the extent such
liability insurance can be maintained annually at a cost to Surviving
Corporation not greater than 200 percent of the current annual premiums for
such directors' and officers' liability insurance, which existing premium costs
are set forth in Section 6.06(c) of the Company Disclosure Letter; provided,
further, that if such insurance cannot be so maintained or obtained at such
cost, Surviving Corporation shall maintain or obtain as much of such insurance
as can be so maintained or obtained at a cost equal to 200 percent of the
current annual premiums of Company for its directors' and officers' liability
insurance.
(d) The provisions of this Section are intended to be for the benefit of,
and shall be enforceable by, each Indemnified Party and each party entitled to
insurance coverage under paragraph (c) above, respectively, and his or her
heirs and legal representatives, and shall be in addition to, and shall not
impair, any other rights an Indemnified Party may have under the certificate or
articles of incorporation or bylaws of the Surviving Corporation or any of its
Subsidiaries, under the TBCA or otherwise.
6.07 Expenses. Except as set forth in Section 8.02, whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such cost or expense.
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6.08 Brokers or Finders. Each of Parent and the Company represents, as to
itself and its affiliates, that no agent, broker, investment banker, financial
advisor or other firm or person is or will be entitled to any broker's or
finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, except Warburg Dillon Read
LLC, whose fees and expenses will be paid by the Company in accordance with the
Company's agreement with such firm (a true and complete copy of which has been
delivered by the Company to Parent prior to the execution of this Agreement),
and CIBC World Markets Corp., whose fees and expenses will be paid by Parent in
accordance with Parent's agreement with such firm (a true and complete copy of
which has been delivered by Parent to the Company prior to the execution of
this Agreement), and each of Parent and the Company shall indemnify and hold
the other harmless from and against any and all claims, liabilities or
obligations with respect to any other such fee or commission or expenses
related thereto asserted by any person on the basis of any act or statement
alleged to have been made by such party or its affiliate.
6.09 Takeover Statutes. If any "fair price", " moratorium", "control stock
acquisition" or other form of antitakeover statute or regulation shall become
applicable to the Merger or the transactions contemplated hereby, (which
transactions shall not be deemed to include any Excluded Transaction) the
Company and the members of the Board of Directors of the Company shall grant
such approvals and take such actions as are reasonably necessary so that the
Merger or the transactions contemplated hereby (which transactions shall not be
deemed to include any Excluded Transaction) may be consummated as promptly as
practicable on the terms contemplated hereby and thereby and otherwise act to
eliminate or minimize the effects of such statute or regulation on the Merger
or the transactions contemplated hereby (which transactions shall not be deemed
to include any Excluded Transaction).
6.10 Conveyance Taxes. The Company and Parent shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time.
6.11 Gains Tax. The Company shall pay, without deduction or withholding from
any amount payable to the holders of Company Common Stock, any Tax on gains
derived from real property transfers (the "Gains Tax"), real estate transfer
Tax, real property transfer Tax and stock transfer Tax (the "Transfer Taxes")
imposed by any State of the United States (and any penalties and interest with
respect to such taxes), which become payable in connection with the
transactions contemplated by this Agreement, on its own behalf or on behalf of
the shareholders of the Company. The Company and Parent shall cooperate in the
preparation, execution and filing of any required returns with respect to such
taxes (including returns on behalf of the shareholders of the Company) and in
the determination of the portion of the consideration allocable to real
property of the Company and its Subsidiaries in any jurisdiction. The terms of
the Proxy Statement shall provide that the shareholders of the Company shall be
deemed to have agreed to be bound by the allocation established pursuant to
this Section in the preparation of any return with respect to the Gains Tax and
the Transfer Taxes and any similar taxes, if applicable.
6.12 Conduct of Business of Parent and Sub. Prior to the Effective Time,
except as may be required by applicable law and subject to the other provisions
of this Agreement, Parent shall, and cause Sub to, (a) perform its obligations
under this Agreement in accordance with its terms, (b) not incur directly or
indirectly any liabilities or obligations other than those incurred in
connection with the Merger (including, without limitation, the Equity Financing
and the Debt Financing), (c) not engage directly or indirectly in any business
or activities of any type or kind and not enter into any agreements or
arrangements with any person, or be subject to or bound by any obligation or
undertaking, which is not contemplated by this Agreement and (d) not create,
grant or suffer to exist any Lien upon its properties or assets which would
attach to any properties or assets of the Surviving Corporation after the
Effective Time other than as contemplated by the Equity Financing, the
Subordinated Debt Financing and the Senior Debt Financing.
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6.13 Rate Matters. Neither Company nor any of its Subsidiaries shall
initiate a general rate case in any jurisdiction in which it does business
without first consulting with Parent and obtaining Parent's approval during the
period commencing on the date hereof and ending on the Effective Date. During
this same period, neither the Company nor any of its Subsidiaries shall
propose, make or agree to make any changes in rates or charges, standards of
service or accounting from those each has in effect on the date hereof without
first consulting with and obtaining the approval of the Parent. Neither the
Company, nor any of its Subsidiaries, shall effect any agreement, commitment,
arrangement or consent, whether written or oral, formal or informal, with
respect to any of the foregoing without first consulting with Parent and
obtaining Parent's approval. Notwithstanding this Section 6.13, Company and its
Subsidiaries shall be able (i) to initiate, file, and proceed to conclusion,
the New Mexico general rate case required by Case No. 2718; (ii) to initiate,
file, and proceed to conclusion any fuel reconciliation case required by the
rules of the Governmental or Regulatory Authorities having jurisdiction over
the Company or its Subsidiaries; and (iii) initiate, file, and proceed to
conclusion any other proceeding required by the laws of any jurisdiction in
which Company or its Subsidiaries does business, or the rules of any
Governmental or Regulatory Authority having jurisdiction over the Company or
its Subsidiaries; provided that prior to any filing pursuant to Section
6.13(i), (ii), or (iii), the Company or its Subsidiaries shall consult with,
and give notice of such filing to, Parent.
6.14 Financing. (a) Each of Parent and Sub agrees that it will not, without
the prior consent of the Company (which consent shall not be unreasonably
withheld), enter into any material amendment to, or modification or waiver of,
any of the Commitment Letters, the Equity Documents and Agreements, Definitive
Preferred Stock Agreements or the definitive agreements relating to the Debt
Financing (the "Definitive Debt Financing Agreements") if such amendment,
modification or waiver would (i) reduce the aggregate amount of funds committed
under the Commitment Letters, (ii) add significant additional conditions to the
consummation of the transactions contemplated by the Commitment Letters, the
Equity Documents and Agreements or the Definitive Debt Financing Agreements or
(iii) have a significant adverse affect on or significantly delay the receipt
of any of the Required Approvals (as defined in Section 7.01(e)) or the
consummation of the Merger. Parent shall enforce, to the fullest extent
permitted under applicable law, the provisions of the Commitment Letters and
(after the same have been entered into) the Definitive Preferred Stock
Agreements and the Definitive Debt Financing Agreements, including, but not
limited to, obtaining injunctions to enforce specifically the terms and
provisions thereof in any court having jurisdiction. Parent and Sub shall use
their best efforts to fulfill all of their obligations under, cause all
conditions to funding to be fulfilled under, and cause the funding to occur
under the Commitment Letters, the Definitive Preferred Stock Agreements and the
Definitive Debt Financing Agreements as promptly as reasonably practicable.
Parent shall give the Company prompt written notice of (i) any material breach
or threatened material breach by any party of the terms or provisions of the
Commitment Letters, Equity Documents and Agreements, Definitive Preferred Stock
Agreements or Definitive Debt Financing Agreements, (ii) any termination or
threatened termination of any of the Commitment Letters, Equity Documents and
Agreements, Definitive Preferred Stock Agreements or Definitive Debt Financing
Agreements, or (iii) any exercise or threatened exercise of any "market out" or
"material adverse change" condition under any of the Commitment Letters, Equity
Documents and Agreements, Definitive Preferred Stock Agreements or Definitive
Debt Financing Agreements. Prior to the expiration of any Commitment Letter
relating to the Sub Preferred Stock, the Senior Debt Financing or the
Subordinated Debt Financing, to the extent that Parent determines that it is
reasonably likely that the Initial Termination Date will be extended pursuant
to the provisions of Section 8.01(b)(i)(y), Parent shall use its best efforts
to secure an extension of the expiration date of such Commitment Letter to the
Extended Termination Date.
(b) Parent's and Sub's obligations under Section 6.14(a) shall not be
construed in any way as restricting the ability of Parent or Sub to modify or
otherwise alter the terms, conditions or relative amounts of any debt or equity
financing as long as such modification or alteration does not (i) reduce the
aggregate amount of funds committed under the Commitment Letters entered into
on or prior to the date hereof, (ii) add significant additional conditions to
the funding contemplated by any Commitment Letter entered into on or prior to
the date hereof, or (iii) have a significant adverse affect on or significantly
delay the receipt of any of the Required Approvals (as defined in Section
7.01(e)) or the consummation of the Merger.
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(c) In connection with the negotiation and execution of the Definitive Debt
Financing Agreements, the Company will, at the request of Parent, make the same
representations and warranties to each Equity Investor, the Senior Lender, the
Subordinated Lender and the Backstop Lender, as the case may be (the "Financing
Parties") as are made by the Company to Parent in Article III hereof, and any
others customarily requested by such Financing Parties, and shall deliver such
other documents, instruments, certificates or opinions as are customary in
financings of this type, and pledge, grant security interests in, and otherwise
grant liens on its assets pursuant to such agreements, provided that no
obligation of the Company under any such agreement, pledge, or grant shall be
effective until the Effective Time.
(d) The obligations contained in this Section 6.14 are not intended, nor
shall they be construed, to benefit or confer any rights upon any third party.
6.15 Notice and Cure. Each of Parent, Sub, and the Company will notify the
other of, and will use all best efforts to cure before the Closing, any event,
transaction or circumstance, as soon as practical after it becomes known to
such party, that causes or will cause any covenant or agreement of Parent, Sub,
or the Company under this Agreement to be breached or that renders or will
render untrue any representation or warranty of Parent or the Company contained
in this Agreement. Each of Parent, Sub, and the Company also will notify the
other in writing of, and will use all best efforts to cure, before the Closing,
any violation or breach, as soon as practical after it becomes known to such
party, of any representation, warranty, covenant or agreement made by Parent,
Sub, or the Company. Each of Parent, Sub and the Company will promptly advise
the others, orally and in writing, of any change or event, including any
complaint, investigation or hearing by any Governmental or Regulatory Authority
(or communication indicating the same may be contemplated) or the institution
or threat of litigation having, or which, insofar as can be reasonably
foreseen, could have a material adverse effect on the ability of any party
hereto to consummate the transactions contemplated herein. No notice given
pursuant to this Section shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement for purposes of
determining satisfaction of any condition contained herein.
ARTICLE VII
Conditions
7.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
fulfillment, at or prior to the Closing, of each of the following conditions:
(a) Shareholder Approval. The Plan of Merger shall have been adopted by
the requisite vote of the shareholders of the Company under the TBCA and
the Company's articles of incorporation.
(b) HSR Act. Any waiting period (and any extension thereof) applicable
to the consummation of the Merger under the HSR Act shall have expired or
been terminated.
(c) No Injunctions or Restraints. No court of competent jurisdiction or
other competent Governmental or Regulatory Authority shall have enacted,
issued, promulgated, enforced or entered any law or order (whether
temporary, preliminary or permanent) which is then in effect and has the
effect of making illegal or otherwise restricting, preventing or
prohibiting consummation of the Merger or the other transactions
contemplated by this Agreement.
(d) Power Act. The final approval of the FERC under the Power Act with
respect to the Merger and the transactions contemplated by this Agreement,
or an order of the FERC disclaiming jurisdiction over this Merger, shall
have been obtained.
(e) Governmental and Regulatory and Other Consents and Approvals. Other
than the filing provided for by Section 1.03, all consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory
Authority (including, without limitation, under the Texas Public Utility
Regulatory Act, the New Mexico Public Utility Act, the Power Act and HSR
Act) or any other public or
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private third parties (the "Required Approvals") required of Parent, the
Company or any of their respective Subsidiaries to consummate the Merger
and the other matters contemplated hereby, the failure of which to be
obtained or taken could be reasonably expected to have a material adverse
effect on Parent and its Subsidiaries or the Surviving Corporation and its
Subsidiaries, in each case taken as a whole, or on the ability of Parent
and the Company to consummate the transactions contemplated hereby, shall
have been obtained and become Final Orders (as defined below), and the
Final Orders shall not, individually or in the aggregate, contain terms or
conditions that would have, or would reasonably be expected to have a
material adverse affect on the Surviving Corporation and its Subsidiaries,
taken as a whole. A "Final Order" means an action by the relevant
Governmental or Regulatory Authority that has not been reversed, stayed,
enjoined, set aside, annulled or suspended, with respect to which any
waiting period prescribed by applicable law before the transactions
contemplated hereby may be consummated has expired or been terminated, and
as to which all conditions to the consummation of such transactions
prescribed by applicable law, regulation or order have been satisfied.
7.02 Conditions to Obligation of Parent and Sub to Effect the Merger. The
obligation of Parent and Sub to effect the Merger is further subject to the
fulfillment, at or prior to the Closing, of each of the following additional
conditions (all or any of which may be waived in whole or in part by Parent and
Sub in their sole discretion):
(a) Representations and Warranties. Each of the representations and
warranties made by the Company in this Agreement that is qualified by
materiality shall be true and correct, and each of such representations and
warranties that is not so qualified shall be true and correct in all
material respects, in each case, as of the Closing Date as though made on
and as of the Closing Date or, in the case of representations and
warranties made as of a specified date earlier than the Closing Date, on
and as of such earlier date, except as affected by the transactions
contemplated by this Agreement, and the Company shall have delivered to
Parent a certificate, dated the Closing Date and executed in the name and
on behalf of the Company by its Chairman of the Board, President or any
Senior Vice President, to such effect.
(b) Performance of Obligations. The Company shall have performed and
complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with
by the Company at or prior to the Closing, and the Company shall have
delivered to Parent a certificate, dated the Closing Date and executed in
the name and on behalf of the Company by its Chairman of the Board,
President or any Senior Vice President, to such effect.
(c) Material Adverse Effect. Since the date of this Agreement, no
Company Material Adverse Effect shall have occurred and there shall exist
no facts or circumstances arising after the date hereof, which in the
aggregate would, or insofar as reasonably can be foreseen, could, when
taken together with any breaches or violations of any representations,
warranties, covenants and agreements of the Company contained herein,
result in a Company Material Adverse Effect.
(d) Required Approvals. Parent shall be reasonably satisfied that,
insofar as can be reasonably foreseen, no Final Order with respect to any
Required Approval, and no change in or event relating to the order of the
PUCT dated September 4, 1998, could reasonably result in any rate plan
which would be significantly less favorable to the Surviving Corporation
and its Subsidiaries than the Texas Transition Plan to Competition and the
rate plans applicable to the Company and its Subsidiaries in the State of
New Mexico on the date hereof.
(e) Company Rights Agreement. On or prior to the Closing Date, the
Company Rights shall not have become exercisable or transferable apart from
the associated shares of Company Common Stock, no "Stock Acquisition Date",
"Triggering Event" or "Distribution Date" (each as defined in the Company
Rights Agreement) shall have occurred and the Company Rights shall not have
become nonredeemable, in each case other than as a result of actions by
Parent or any of its affiliates.
(f) Financing. All conditions to the availability of the financings
contemplated by the Commitment Letters, Definitive Preferred Stock
Agreements and the Definitive Debt Financing Agreements shall have
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been fulfilled or waived and all proceeds of such financings shall have
been received by Parent and Sub; provided, that this condition shall not be
applicable if the failure of Parent or Sub to receive the proceeds of such
financing shall have been occasioned by action or the failure to take
action by Parent or Sub which action or inaction also constitutes a breach
of any material covenant, representation or warranty of such party
hereunder.
(g) Additional Documents. The Company shall have delivered to Parent or
Sub or its lenders such additional customary certificates, opinions of
counsel and other documents as Parent's or Sub's lenders shall reasonably
request.
(h) Options; Restricted Stock. All of the Options under the Company
Option Plans shall have been validly cancelled and none shall remain
outstanding and all of the shares of restricted stock under the Company
Option Plans shall constitute fully vested, issued and outstanding shares
no later than the Effective Time, and no holder of Company Options or any
participant in the Company Option Plans or any other Plan shall have any
right thereunder to acquire any equity securities of the Company, the
Surviving Corporation or any of their respective Subsidiaries.
(i) Dissenting Shares. Holders of not more than five percent (5%) of the
outstanding shares of Company Common Stock shall have perfected such
holder's right to dissent in accordance with the applicable provisions of
the TBCA and shall not have withdrawn or lost such rights.
(j) Employment Agreements and Severance Agreements. The Company and/or
TNMP, as the case may be, shall have entered into an Employment Agreement
with each of the first four individuals listed in Section 7.02 of the
Parent Disclosure Letter, and with not less than one-half of the
individuals listed under the caption "Designated Employees" therein, and
Parent shall be reasonably satisfied, as of the Closing Date, that the
aggregate cash amounts that could become payable (including tax
indemnification payments in respect of income and/or excise taxes) to the
individuals listed in Section 7.02 of the Parent Disclosure Letter under
the Specified Compensation and Benefit Programs of the Company as a result
of this Agreement, the negotiation thereof or the consummation of the
Merger shall not exceed $4,428,000.
(k) Proceedings. All proceedings to be taken on the part of the Company
in connection with the Closing of the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably
satisfactory in form and substance to Parent, and Parent shall have
received copies of all such documents and other evidences as Parent may
reasonably request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.
7.03 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger is further subject to the
fulfillment, at or prior to the Closing, of each of the following additional
conditions (all or any of which may be waived in whole or in part by the
Company in its sole discretion):
(a) Representations and Warranties. Each of the representations and
warranties made by Parent and Sub in this Agreement that is qualified by
materiality shall be true and correct, and each of such representations and
warranties that is not so qualified shall be true and correct in all
material respects, in each case, as of the Closing Date as though made on
and as of the Closing Date or, in the case of representations and
warranties made as of a specified date earlier than the Closing Date, on
and as of such earlier date, except as affected by the transactions
contemplated by this Agreement, and Parent and Sub shall each have
delivered to the Company a certificate, dated the Closing Date and executed
in the name and on behalf of Parent by any authorized officer and in the
name and on behalf of Sub by its Chairman of the Board, President or any
Vice President, to such effect.
(b) Performance of Obligations. Parent and Sub shall have performed and
complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with
by Parent or Sub at or prior to the Closing, and Parent and Sub shall each
have delivered to the Company a certificate, dated the Closing Date and
executed in the name and on behalf of Parent by any authorized officer and
in the name and on behalf of Sub by its Chairman of the Board, President or
any Vice President, to such effect.
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(c) Proceedings. All proceedings to be taken on the part of Parent and
Sub in connection with the Closing of the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Company, and the Company shall
have received copies of all such documents and other evidences as the
Company may reasonably request in order to establish the consummation of
such transactions and the taking of all proceedings in connection
therewith.
ARTICLE VIII
Termination, Amendment and Waiver
8.01 Termination. This Agreement may be terminated, and the transactions
contemplated hereby may be abandoned, at any time prior to the Effective Time,
whether prior to or after the Company Shareholders' Approval:
(a) By mutual written agreement of the parties hereto duly authorized by
action taken by or on behalf of their respective Boards of Directors;
(b) By either the Company or Parent upon written notification to the
non-terminating party by the terminating party:
(i) at any time after the date which is nine (9) months following
the date of this Agreement (the "Initial Termination Date"); provided,
however, that
(x) the right to terminate the Agreement under this Section
8.01(b)(i) shall not be available to any party whose breach of any
obligation under this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such
date; and
(y) if, on the Initial Termination Date, the conditions to the
Closing set forth in Section 7.01(c), (d) or (e) shall not have been
fulfilled, but all other conditions to the Merger shall be fulfilled
or shall be reasonably capable of being fulfilled within six months,
then the Initial Termination Date shall be extended to the date
which is six (6) months from the Initial Termination Date (the
"Extended Termination Date");
(ii) if the Company Shareholders' Approval shall not be obtained by
reason of the failure to obtain the requisite vote upon a vote held at
a meeting of such shareholders, or any adjournment thereof, called
therefor;
(iii) if there has been a material breach of any representation,
warranty, covenant or agreement on the part of the non-terminating
party set forth in this Agreement, which breach is not curable or, if
curable, has not been cured within thirty (30) days following receipt
by the non-terminating party of notice of such breach from the
terminating party;
(iv) if any court of competent jurisdiction or other competent
Governmental or Regulatory Authority shall have issued an order making
illegal or otherwise restricting, preventing or prohibiting the Merger
and such order shall have become final and nonappealable; or
(v) if any occurrence or circumstance results in a failure to
satisfy the conditions set forth in Section 7.01(e).
(c) By the Company if the Board of Directors of the Company determines
in good faith, based on advice from outside counsel, that termination of
the Agreement is required for the Board of Directors to comply with its
fiduciary duties to shareholders imposed by law by reason of an unsolicited
bona fide Alternative Proposal meeting the requirements of clauses (A) and
(B) of Section 5.02 having been made; provided that the Company shall have
complied with the provisions of clauses (C) and (D) of Section 5.02 and
shall notify Parent within two (2) business days of its intention to
terminate this Agreement or enter into a definitive agreement with respect
to such Alternative Proposal, but in no event shall such notice be given
less than twenty-four (24) hours prior to the public announcement of the
Company's termination of this Agreement; and provided, further that the
Company's ability to terminate this Agreement pursuant to
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this paragraph, (c) is conditioned upon the prior payment by the Company to
Parent of any amounts owed by it pursuant to Section 8.02(b);
(d) By Parent (i) if the Board of Directors of the Company (or any
committee thereof) shall have withdrawn or modified in a manner adverse to
Parent its approval or recommendation of this Agreement or the Plan of
Merger or shall have recommended or taken no position with respect to an
Alternative Proposal to the shareholders of the Company or shall resolve to
take any of the foregoing actions, or (ii) if the Company shall amend, take
any action with respect to or make any determination under the Company
Rights Agreement which could reasonably be expected to be adverse to
Parent, the Surviving Corporation or any of their respective Subsidiaries
or on the ability of the Company, Parent or Sub to consummate the
transactions contemplated hereby;
(e) By the Company if any of the Commitment Letters, Definitive
Preferred Stock Agreements or Definitive Debt Financing Agreements shall
have been terminated at any time when Parent would not be entitled to
terminate this Agreement pursuant to Section 8.01(b) or Section 8.01(d)
and, within ten (10) business days after any such termination, such
Commitment Letter, Definitive Preferred Stock Agreements or Definitive Debt
Financing Agreement shall not have been replaced; or
(f) By Parent if any occurrence or circumstance results in a failure to
satisfy the conditions set forth in Section 7.02(d).
8.02 Effect of Termination. (a) If this Agreement is validly terminated by
either the Company or Parent pursuant to Section 8.01, this Agreement will
forthwith become null and void and there will be no liability or obligation on
the part of either the Company or Parent (or any of their respective
Representatives or affiliates), except (i) that the provisions of Sections 6.01
(with respect to confidentiality), 6.07, 6.08, and 9.10 and this Section 8.02
will continue to apply following any such termination, (ii) that nothing
contained herein shall relieve any party hereto from liability for willful
breach of its representations, warranties, covenants or agreements contained in
this Agreement, and (iii) as provided in paragraph (b) below.
(b) In the event that any person or group shall have made an Alternative
Proposal and thereafter (i) this Agreement is terminated (x) by the Company
pursuant to Section 8.01(c) or, (y) by Parent pursuant to Section 8.01(b)(iii)
or Section 8.01(d), or (ii) this Agreement is terminated (x) by either party
pursuant to (A) Section 8.01(b)(ii) and such Alternative Proposal is made known
to the Company's shareholders generally or (B) Section 8.01(b)(iv) or Section
8.01(b)(v), (y) by Parent pursuant to Section 8.01(f) or (z) by the Company
pursuant to Section 8.01(b)(i) and, in the case of this clause (ii) only, the
Board of Directors of the Company recommends such Alternative Proposal, or a
definitive agreement with respect to such Alternative Proposal is executed,
within one year after such termination, then the Company shall pay to Parent,
by wire transfer of same day funds, either on the date contemplated in Section
8.01(c) if applicable, or otherwise, within two (2) business days after such
amount becomes due, a termination fee of $20 million (the "Termination Fee"),
plus an amount equal to $10 million, constituting reimbursement of expenses
incurred or to be incurred by Parent and Sub in connection with this Agreement
and the transactions contemplated hereby, without any requirement that Parent
or Sub account for actual expenses (the "Expense Amount").
(c) In the event that this Agreement is terminated (i) by either party (x)
pursuant to Section 8.01(b)(i) if, on the Extended Termination Date, the
conditions to the Closing set forth in Section 7.01(e) shall not have been
fulfilled, but all other conditions to the Merger shall have been fulfilled (or
waived), or (y) pursuant to Section 8.01(b)(ii), 8.01(b)(iv) or 8.01(b)(v), or
(ii) by Parent pursuant to Section 8.01(b)(iii), Section 8.01(d) or Section
8.01(f), in any case, in circumstances in which the amounts set forth in clause
(b) above are not payable, the Company shall pay to Parent, by wire transfer of
same day funds, within two (2) business days after such amount becomes due, an
amount equal to the Expense Amount; provided, however, that with respect to any
termination under this paragraph (c) pursuant to Section 8.01(b)(i), Section
8.01(b)(iv), Section 8.01(b)(v) or Section 8.01(f), the Expense Amount shall be
reduced to an amount equal to $7 million; and provided further that if the
amounts set forth in clause (b) above thereafter become payable pursuant to
Section 8.02(b), amounts paid to Parent and Sub under this Section 8.02(c)
shall be credited against such amounts. Notwithstanding the
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<PAGE>
foregoing, (i) if the failure to obtain any Required Approval is due solely to
a lowering by Standard & Poor's Ratings Services, Moody's Investors Services or
Duff & Phelps Credit Rating Co. of the credit ratings assigned to the senior
debt securities of TNMP to a level which is below "investment grade", and such
lowering was directly caused by the composition and terms of the Equity
Financing and the Debt Financing, then no Expense Amount shall be payable by
the Company pursuant to clause (c)(i)(x) above, and (ii) if any Equity Investor
(x) would, upon consummation of the Merger, become subject to regulation as a
public utility holding company under the PUHCA and (y) as a result thereof,
such Equity Investor terminates its obligations under any Commitment Letter
entered into on or prior to the date hereof, and thereafter this Agreement is
terminated by the Company pursuant Section 8.01(e), then no Expense Amount
shall be payable by the Company.
(d) The Company acknowledges that the agreements contained in the preceding
paragraphs (b) and (c) are an integral part of the transactions contemplated by
this Agreement and that, without these agreements, Parent and Sub would not
enter into this Agreement; accordingly, if the Company fails promptly to pay
the amount due pursuant to such paragraph, and in order to obtain such payment,
Parent and Sub commences a suit which results in a judgment against the Company
for the fee set forth in such paragraph, the Company shall pay to Parent or
Sub, as the case may be, its costs and expenses (including reasonable
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the prime rate of Morgan Guaranty Trust
Company of New York in effect on the date such payment was required to be made.
8.03 Amendment. This Agreement may be amended, supplemented or modified by
action taken by or on behalf of Parent and the respective Boards of Directors
of the Company and Sub at any time prior to the Effective Time, whether prior
to or after the Company Shareholders' Approval shall have been obtained, but
after such adoption and approval only to the extent permitted by applicable
law. No such amendment, supplement or modification shall be effective unless
set forth in a written instrument duly executed by or on behalf of each party
hereto.
8.04 Waiver. At any time prior to the Effective Time any party hereto, by
action taken by or on behalf of its Board of Directors, may to the extent
permitted by applicable law (i) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties of the other parties hereto
contained herein or in any document delivered pursuant hereto or (iii) waive
compliance with any of the covenants, agreements or conditions of the other
parties hereto contained herein. No such extension or waiver shall be effective
unless set forth in a written instrument duly executed by or on behalf of the
party extending the time of performance or waiving any such inaccuracy or non-
compliance. No waiver by any party of any term or condition of this Agreement,
in any one or more instances, shall be deemed to be or construed as a waiver of
the same or any other term or condition of this Agreement on any future
occasion.
ARTICLE IX
General Provisions
9.01 Non-Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements contained
in this Agreement or in any instrument delivered pursuant to this Agreement
shall not survive the Merger but shall terminate at the Effective Time, except
for the agreements contained in Article I and Article II, in Sections 6.05,
6.06, 6.07, 6.08, 6.10 and 6.11 and this Article IX and the last sentence of
Section 6.01, which shall survive the Effective Time.
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<PAGE>
9.02 Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally or by facsimile transmission or mailed (first class postage prepaid)
to the parties at the following addresses or facsimile numbers:
If to Parent or Sub, to:
SW I Acquisition GP, L.P.
2 Robbins Lane
Suite 201
Jericho, NY 11753
Facsimile No.: 516-933-3108
Attn: William J. Catacosinos
with a copy to:
Milbank, Tweed, Hadley & McCloy LLP
One Chase Manhattan Plaza
New York, NY 10005
Facsimile No.: 212-530-5219
Attn: M. Douglas Dunn
If to the Company, to:
TNP Enterprises, Inc.
4100 International Plaza
P.O. Box 2943
Fort Worth, TX 76102
Facsimile No.: 817-377-5577
Attn: Kevern Joyce
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Facsimile No.: 212-269-5420
Attn: Gary W. Wolf
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number
as provided in this Section, be deemed given upon receipt, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section, be deemed given upon receipt (in each case regardless of whether
such notice, request or other communication is received by any other person to
whom a copy of such notice, request or other communication is to be delivered
pursuant to this Section). Any party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other parties hereto.
9.03 Entire Agreement; Incorporation of Exhibits. (a) This Agreement
supersedes all prior discussions and agreements among the parties hereto with
respect to the subject matter hereof, other than the Confidentiality Agreement,
which shall survive the execution and delivery of this Agreement in accordance
with its terms, and contains, together with the Confidentiality Agreement, the
sole and entire agreement among the parties hereto with respect to the subject
matter hereof.
(b) The Company Disclosure Letter, the Parent Disclosure Letter and any
Exhibit attached to this Agreement and referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
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<PAGE>
9.04 Public Announcements. Except as otherwise required by law or the rules
of any applicable securities exchange or national market system, so long as
this Agreement is in effect, Parent and the Company will not, and will not
permit any of their respective Representatives to, issue or cause the
publication of any press release or make any other public announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld. Parent
and the Company will cooperate reasonably with each other in the development
and distribution of all press releases and other public announcements with
respect to this Agreement and the transactions contemplated hereby, and will
furnish the other with drafts of any such releases and announcements as far in
advance as reasonably practicable.
9.05 No Third Party Beneficiary. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and except as otherwise expressly provided for
herein, it is not the intention of the parties to confer third-party
beneficiary rights upon any other person.
9.06 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without
the prior written consent of the other parties hereto and any attempt to do so
will be void. Subject to the preceding sentence, this Agreement is binding
upon, inures to the benefit of and is enforceable by the parties hereto and
their respective successors and assigns.
9.07 Headings. The headings used in this Agreement have been inserted for
convenience of reference only and do not define, modify or limit the provisions
hereof.
9.08 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law or order, and
if the rights or obligations of any party hereto under this Agreement will not
be materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
and (iii) the remaining provisions of this Agreement will remain in full force
and effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom.
9.09 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas applicable to a contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
9.10 Enforcement of Agreement. (a) The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
was not performed in accordance with its specified terms or was otherwise
breached. It is accordingly agreed, that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
(b) Notwithstanding the provisions of Section 9.10(a), in the event of a
termination of this Agreement pursuant to which a payment is made in full
compliance with Section 8.01(b), (c) or (d), the receipt of such payment shall
serve as liquidated damages with respect to any breach of this Agreement by the
party who has made such payment giving rise to such termination, and the
receipt of any such payment shall be the sole and exclusive remedy (at law or
in equity) with respect to any such breach. Further, notwithstanding any of the
terms or provisions of this Agreement, the Company agrees that neither it nor
any person acting on its behalf may assert any claim or cause of action against
any of the Equity Investors or any of their respective affiliates (other than
Parent or Sub), agents, officers or employees (excluding for this purpose any
claim solely against the general partner of Parent for injunctive relief) in
connection with or arising out of this Agreement or the transactions
contemplated hereby.
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<PAGE>
9.11 Certain Definitions. As used in this Agreement:
(a) the term "affiliate," as applied to any person, shall mean any other
person directly or indirectly controlling, controlled by, or under common
control with, that person; for purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through
the ownership of voting securities, by contract or otherwise;
(b) a person will be deemed to "beneficially" own securities if such
person would be the beneficial owner of such securities under Rule 13d-3
under the Exchange Act, including securities which such person has the
right to acquire (whether such right is exercisable immediately or only
after the passage of time);
(c) the term "business day" means a day other than Saturday, Sunday or
any day on which banks located in the State of Texas or the State of New
York are authorized or obligated to close;
(d) the term "Company Material Adverse Effect" means an event, change,
cause or effect which is materially adverse to the business, properties,
assets, liabilities, prospects, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a
whole;
(e) the term "knowledge" or any similar formulation of "knowledge" shall
mean, with respect to the Company, the knowledge of any of the Company's
executive officers or directors;
(f) any reference to any event, change or effect being "material" or
"materially adverse" or having a "material adverse effect" on or with
respect to an entity (or group of entities taken as a whole) means such
event, change or effect is material or materially adverse, as the case may
be, to the business, properties, assets, liabilities, prospects, condition
(financial or otherwise) or results of operations of such entity (or of
such group of entities taken as a whole);
(g) the term "person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act);
(h) the "Representatives" of any entity means such entity's directors,
officers, employees, legal, investment banking and financial advisors,
accountants and any other agents and representatives; and
(i) the term "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated,
of which more than fifty percent (50%) of either the equity interests in,
or the voting control of, such corporation or other organization is,
directly or indirectly through Subsidiaries or otherwise, beneficially
owned by such party.
9.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be signed
by its officer thereunto duly authorized as of the date first above written.
SW Acquisition, L.P.
By: SW I Acquisition GP, L.P.,
as General Partner
By: SW II Acquisition, LLC,
as General Partner
/s/ William J. Catacosinos
By: _________________________________
Name:William J. Catacosinos
Title:Manager
ST Acquisition Corp.
/s/ William J. Catacosinos
By: _________________________________
Name:William J. Catacosinos
Title:Chairman, President and
Chief Executive Officer
TNP Enterprises, Inc.
/s/ Kevern Joyce
By: _________________________________
Name:Kevern Joyce
Title:Chairman, President and
Chief Executive Officer
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<PAGE>
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment"),
dated as of August 9, 1999, is entered into by and among SW Acquisition, L.P.,
a Texas limited partnership ("Parent"), ST Acquisition Corp., a Texas
corporation ("Sub"), and TNP Enterprises, Inc., a Texas corporation (the
"Company"). Capitalized terms used in this Amendment without definition shall
have the respective meanings given to them in the Agreement (as defined below).
RECITALS
WHEREAS, the parties entered into that certain Agreement and Plan of Merger,
dated as of May 24, 1999 (the "Agreement"); and
WHEREAS, Parent and the respective Boards of Directors of the Company and
Sub desire to amend the Agreement in accordance with Section 8.03 thereof by
entering into this Amendment in the manner set forth below.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and in the Agreement, and other good and valuable
consideration, the adequacy of which is hereby acknowledged, the parties agree
as follows:
1. Amendments.
(a) Section 2.01(e)(ii) of the Agreement is hereby amended by adding the
following at the end of such section:
Notwithstanding the preceding, the Texas-New Mexico Power Company Thrift
Plan for Employees shall not be terminated but shall be amended effective
as of the Effective Time to prohibit the issuance or grant by the Company
or any of its Subsidiaries of any interest in respect of the capital stock
of the Company or any of its Subsidiaries.
(b) Section 6.05(a) of the Agreement is hereby amended and restated in its
entirety as follows:
6.05 Employee Benefit Plans. (a) From and after the Effective Time,
Parent shall cause the Company Employee Benefit Plans in effect at the date
of this Agreement (other than the Company's Equity Incentive Plan and the
Company's Non-Employee Director Stock Plan) to remain in effect until the
first anniversary of the Effective Time or, to the extent such Company
Employee Benefit Plans (other than the Company's Equity Incentive Plan and
the Company's Non-Employee Director Stock Plan) are not continued, Parent
will cause to be maintained until such date benefit plans which are no less
favorable, in the aggregate, to the employees covered by such Company
Employee Benefit Plans, provided, however, that nothing contained herein
shall be construed as requiring Parent or the Surviving Corporation to
continue any specific plan or to grant to any person any right to acquire
any equity securities of Parent, the Surviving Corporation or any of their
respective Subsidiaries, or as preventing Parent or the Surviving
Corporation from (a) establishing and, if necessary, seeking shareholder
approval to establish, any other benefit plans in respect of all or any of
the employees covered by such Company Employee Benefit Plans or any other
employees, or (b) amending such Company Employee Benefit Plans (or any
replacement benefit plans therefor) where required by applicable law or
where such amendment is with the consent of the affected employees. From
and after the Effective Time, Parent shall honor, and shall cause its
Subsidiaries to honor, in accordance with its express terms, each then
existing employment, change of control, severance and termination agreement
between the Company or any of its Subsidiaries, and any officer, director
or employee of such company, including without limitation all legal and
contractual obligations pursuant to outstanding restoration plans,
severance plans, bonus deferral plans, vested
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<PAGE>
and accrued benefits and similar employment and benefit arrangements,
policies and agreements that have been disclosed to Parent as of the date
hereof and other obligations, if any, entered into in accordance with
Sections 5.0l(b)(ii)(C) and (H). The officers and directors of the Company
and its Subsidiaries are intended beneficiaries of this Section 6.05.
2. Full Force and Effect. All other terms and provisions of the Agreement
not expressly modified by this Amendment shall remain in full force and effect
and are hereby expressly ratified and confirmed.
3. Section Headings, Construction. The headings of Sections in this
Amendment are provided for convenience only and will not affect its
construction or interpretation. All words used in this Amendment will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
4. Counterparts. This Amendment may be executed in counterparts, each of
which shall be deemed an original for all purposes and all of which shall be
deemed collectively to be one agreement, but in making proof hereof it shall be
necessary to exhibit only one such counterpart.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to be
effective as of the date first written above.
SW Acquisition, L.P.
By: SW I Acquisition GP, L.P.,
as General Partner
By: SW II Acquisition, LLC,
as General Partner
/s/ William J. Catacosinos
By: _________________________________
Name:William J. Catacosinos
Title:Manager
ST Acquisition Corp.
/s/ William J. Catacosinos
By: _________________________________
Name:William J. Catacosinos
Title:Chairman, President and
Chief Executive Officer
TNP Enterprises, Inc.
/s/ Kevern Joyce
By: _________________________________
Name:Kevern Joyce
Title:Chairman, President and
Chief Executive Officer
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<PAGE>
APPENDIX B
LETTER OPINION OF WARBURG DILLON READ LLC
B-1
<PAGE>
Warburg Dillon Read Warburg Dillon Read LLC
2001 Ross Avenue,
Suite 3950
Dallas, TX 75201
Telephone 214 969-
4000
www.wdr.com
May 24, 1999
The Board of Directors
TNP Enterprises, Inc.
4100 International Plaza
Fort Worth, Texas 76109
Dear Members of the Board:
We understand that TNP Enterprises, Inc. ("TNP" or the "Company") is
considering a transaction whereby ST Acquisition Corp. ("Sub"), a subsidiary of
SW Acquisition, L.P. ("Parent"), will merge with the Company (the
"Transaction"). Pursuant to the terms of the draft Agreement and Plan of
Merger, dated May 24, 1999 (the "Purchase Agreement") by and among Parent, Sub
and the Company, each issued and outstanding share of Company common stock, no
par value, together with associated purchase rights (the "Common Stock"), will
be converted into the right to receive $44.00 in cash for each share of Common
Stock (the "Consideration"). The terms and conditions of the Transaction are
more fully set forth in the draft Purchase Agreement.
You have requested our opinion as to the fairness to the holders of the
Common Stock from a financial point of view of the Consideration to be received
by such holders in the Transaction.
Warburg Dillon Read LLC ("WDR") has acted as financial advisor to the Board
of Directors of the Company in connection with the Transaction and will receive
a fee upon the consummation thereof. In the past, WDR and its predecessors have
provided investment banking services to the Company and received customary
compensation for the rendering of such services. In the ordinary course of
business, WDR, its successors and affiliates may trade securities of the
Company for their own accounts and, accordingly, may at any time hold a long or
short position in such securities.
Our opinion does not address the Company's underlying business decision to
effect the Transaction or constitute a recommendation to any shareholder of the
Company as to how such shareholder should vote with respect to the Transaction.
At your direction, we have not been asked to, nor do we, offer any opinion as
to the material terms of the Purchase Agreement or the form of the Transaction.
In rendering this opinion, we have assumed, with your consent, that the final
executed form of the Purchase Agreement does not differ in any material respect
from the draft that we have examined, and that Parent, Sub and the Company will
comply with all the material terms of the Purchase Agreement.
In arriving at our opinion, we have, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to the Company, (ii) reviewed certain internal financial information
and other data relating to the business and financial prospects of the Company,
including estimates and financial forecasts prepared by management of the
Company, that were provided to us by the Company and not publicly available,
(iii) conducted discussions with members of the senior management of the
Company, (iv) reviewed publicly available financial and stock market data with
respect to certain other companies in lines of
<PAGE>
business we believe to be generally comparable to those of the Company, (v)
reviewed historical prices and trading volumes for the Common Stock, (vi)
compared the financial terms of the Transaction with the publicly available
financial terms of certain other transactions which we believe to be generally
relevant, (vii) reviewed drafts of the Purchase Agreement, and (viii) conducted
such other financial studies, analyses, and investigations, and considered such
other information, as we deemed necessary or appropriate. In addition, at your
direction, we held discussions with a limited number of parties to assess their
possible interest in a transaction involving the Company.
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification of any of the information reviewed
by us for the purpose of this opinion and have, at your direction, relied on
its being complete and accurate in all material respects. In addition, at your
direction, we have not made any independent evaluation or appraisal of any of
the assets or liabilities (contingent or otherwise) of the Company, nor have we
been furnished with any such evaluation or appraisal. With respect to the
estimates and financial forecasts referred to above, we have assumed, at your
direction, that they have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the management of the
Company. Our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be received by the holders of the Common
Stock in the Transaction is fair, from a financial point of view, to such
holders.
Very truly yours,
WARBURG DILLON READ LLC
<PAGE>
Warburg Dillon Read Warburg Dillon Read LLC
2001 Ross Avenue,
Suite 3950
Dallas, TX 75201
Telephone 214 969-
4000
www.wdr.com
August 11, 1999
The Board of Directors
TNP Enterprises, Inc.
4100 International Plaza
Fort Worth, Texas 76109
Dear Members of the Board:
You have requested a confirmation of our opinion dated May 24, 1999 (the
"Opinion"), as investment bankers as to the fairness to the holders of Common
Stock, no par value (the "Common Stock"), of TNP Enterprises, Inc. ("TNP" or
the "Company") from a financial point of view of the Consideration (as defined
in the Opinion) to be received by such holders in the Transaction (as defined
in the Opinion).
In conducting our review and analysis to provide you this confirmation, we
undertook to update the factors we considered in rendering the Opinion
(including reviewing and analyzing the executed Agreement).
Subject to the foregoing, we hereby confirm as of the date hereof that the
Consideration to be received by the holders of Common Stock is fair to such
holders from a financial point of view. This confirmation is intended solely
for the benefit and use of the Company (including the management and directors
of the Company) and may not be used for any other purpose or reproduced,
disseminated, quoted or referred to (other than in the Agreement) at any time,
in any manner or for any purpose, without the prior written consent of Warburg
Dillon Read LLC, except that this confirmation may be reproduced in full in,
and references to this confirmation and to Warburg Dillon Read LLC and its
relationship with the Company (in each case in such form as Warburg Dillon Read
LLC shall approve) may be included in, the proxy statement the Company
distributes to its shareholders in connection with the Transaction.
Very truly yours,
WARBURG DILLON READ LLC
<PAGE>
APPENDIX C
PROVISIONS OF THE TEXAS BUSINESS CORPORATION ACT
RELATING TO
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
(Articles 5.11 through 5.13)
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<PAGE>
Article 5.11. Rights of Dissenting Shareholders in the Event of Certain
Corporate Actions
A. Any shareholder of a domestic corporation shall have the right to dissent
from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and
the shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all,
the property and assets, with or without good will, of a corporation if
special authorization of the shareholders is required by this Act and the
shareholders hold shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in
which there is a single surviving or new domestic or foreign corporation, or
from any plan of exchange, if:
(1) the shares held by the shareholder are part of a class or series,
shares of which are on the record date fixed to determine the shareholders
entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation
system) or designated as a national market security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., or successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger
or plan of exchange to accept for the shareholder's shares any
consideration that is different than the consideration (other than cash in
lieu of fractional shares that the shareholder would otherwise be entitled
to receive) to be provided to any other holder of shares of the same class
or series of shares held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of merger
or the plan of exchange to accept for the shareholder's shares any
consideration other than:
(a) shares of a domestic or foreign corporation that, immediately
after the effective time of the merger or exchange, will be part of a
class or series, shares of which are:
(i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange;
(ii) approved for quotation as a national market security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc., or successor entity; or
(iii) held of record by not less than 2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled to be
received; or
(c) any combination of the securities and cash described in
Subdivisions (a) and (b) of this subsection.
Article 5.12. Procedure for Dissent by Shareholders as to Said Corporate
Actions
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1)(a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the
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<PAGE>
action, setting out that the shareholder's right to dissent will be
exercised if the action is effective and giving the shareholder's address,
to which notice thereof shall be delivered or mailed in that event. If the
action is effected and the shareholder shall not have voted in favor of the
action, the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant
to Section A of Article 9.10 of this Act, the corporation, in the case of
action other than a merger, and the surviving or new corporation (foreign
or domestic) or other entity that is liable to discharge the shareholder's
right of dissent, in the case of a merger, shall, within ten (10) days
after the date the action is effected, mail to each shareholder of record
as of the effective date of the action notice of the fact and date of the
action and that the shareholder may exercise the shareholder's right to
dissent from the action. The notice shall be accompanied by a copy of this
Article and any articles or documents filed by the corporation with the
Secretary of State to effect the action. If the shareholder shall not have
consented to the taking of the action, the shareholder may, within twenty
(20) days after the mailing of the notice, make written demand on the
existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be,
of a demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or
other entity shall deliver or mail to the shareholder a written notice that
shall either set out that the corporation (foreign or domestic) or other
entity accepts the amount claimed in the demand and agrees to pay that
amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may,
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within sixty (60) days after the expiration of the sixty (60) day period, file
a petition in any court of competent jurisdiction in the county in which the
principal office of the domestic corporation is located, asking for a finding
and determination of the fair value of the shareholder's shares. Upon the
filing of any such petition by the shareholder, service of a copy thereof shall
be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing, and
they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
power and authority as may be conferred on Masters in Chancery by the Rules of
Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of
the agreed value of the shares or pursuant to payment of the judgment entered
for the value of the shares, as in this Article provided, shall, in the case of
a merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery
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of the value of his shares or money damages to the shareholder with respect to
the action. If the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, complies with the requirements
of this Article, any shareholder who fails to comply with the requirements of
this Article shall not be entitled to bring suit for the recovery of the value
of his shares or money damages to the shareholder with respect to the action.
Article 5.13. Provisions Affecting Remedies of Dissenting Shareholders
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled
to vote or exercise any other rights of a shareholder except the right to
receive payment for his shares pursuant to the provisions of those articles and
the right to maintain an appropriate action to obtain relief on the ground that
the corporate action would be or was fraudulent, and the respective shares for
which payment has been demanded shall not thereafter be considered outstanding
for the purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 of 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act,
as the case may be, or if after the hearing of a petition filed pursuant to
Article 5.12 or 5.16, the court shall determine that such shareholder is not
entitled to the relief provided by those articles, then, in any such case, such
shareholder and all persons claiming under him shall be conclusively presumed
to have approved and ratified the corporate action from which he dissented and
shall be bound thereby, the right of such shareholder to be paid the fair value
of his shares shall cease, and his status as a shareholder shall be restored
without prejudice to any corporate proceedings which may have been taken during
the interim, and such shareholders shall be entitled to receive any dividends
or other distributions made to shareholders in the interim.
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(1) Adoption of Agreement and Plan of Merger and Approval of Merger. (2) As such proxies may in their discretion determine upon
such other matters as may properly come before the
meeting.
FOR [_] AGAINST [_] ABSTAIN [_] FOR [_] AGAINST [_] ABSTAIN [_]
PLEASE NOTE
This proxy is to be voted as directed. In absence of specific direction, it is intended to vote the shares represented by this proxy
for each of the proposals.
You are urged to sign and return your proxy without delay in the return envelope provided for that purpose, which requires no
postage if mailed in the United States or Canada.
PLEASE SEND IN YOUR PROXY. THE FAILURE TO VOTE WILL HAVE
THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT AND THE MERGER.
In order that there may be proper representation at the Special Meeting, each shareholder, whether he or she owns one or more
shares, is requested to sign this proxy and return it promptly in the enclosed envelope.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR EACH OF THE PROPOSALS.
Change of Address and
or Comments Mark Here [_]
Please execute this Proxy as your name
appears hereon. When shares are held by
joint tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by the president or
other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
Dated:___________________________, 1999
_______________________________________
Signature
_______________________________________
Signature if Held Jointly
Votes must be indicated
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROMPTLY USING THE ENCLOSED ENVELOPE. (x) in Black or Blue ink.
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TNP ENTERPRISES, INC.
4100 International Plaza, Fort Worth, Texas 76109
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON SEPTEMBER 22, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kevem R. Joyce, Manjit S. Cheema and Paul W. Talbot and each of them, as Proxies, each with
the power to appoint substitutes, and hereby authorizes each of them to represent and to vote, as designated below, all of the
shares of the Common Stock, no par value per share, of TNP Enterprises, Inc. ("TNP") held of record by the undersigned at the close
of business on August 3, 1999, that the undersigned is entitled to vote, at the Special Meeting of Shareholders of TNP to be held at
11:00 a.m., Central Daylight Time, on September 22, 1999, at the Will Rogers Memorial Center, South Texas Room, One Amon Carter
Square, Fort Worth, Texas, or any adjournments thereof and hereby revokes all prior proxies granted with respect to such shares.
The Proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder(s). IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSALS SET FORTH ON THE REVERSE SIDE, AND IN THE DISCRETION OF THE PROXIES
WITH RESPECT TO ANY OTHER MATTER THAT IS PROPERLY BROUGHT BEFORE THE MEETING.
(Continued and to be voted and signed on the reverse side.)
TNP ENTERPRISES, INC.
P.O. BOX 11317
NEW YORK, N.Y. 10203-0317
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