TNP ENTERPRISES INC, S-4/A, 2000-07-13

TNP ENTERPRISES INC
S-4/A, 2000-07-13
ELECTRIC SERVICES

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As filed with the Securities and Exchange Commission on July 13, 2000

Registration No. 333-38634
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Amendment No. 1

To
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------

TNP ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
Texas 4911 75-1907501
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

4100 International Plaza
Fort Worth, Texas 76113
(817) 731-0099
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

Theodore A. Babcock
2 Robbins Lane
Suite 201
Jericho, New York 11753
(516) 933-3100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

---------------

Copies to:

M. Douglas Dunn, Esq.
Roland Hlawaty, Esq.
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, NY 10005
(212) 530-5000

---------------

Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.

---------------

The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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<PAGE>

PROSPECTUS

$275,000,000

TNP Enterprises, Inc.

Offer to Exchange

10.25% Senior Subordinated Notes, Series B
for any and all outstanding

10.25% Senior Subordinated Notes, Series A

This prospectus and accompanying letter of transmittal relate to our
proposed offer to exchange up to $275,000,000 aggregate principal amount of new
10.25% Senior Subordinated Notes, Series B (the "registered notes"), which will
be freely transferable, for any and all outstanding 10.25% Senior Subordinated
Notes, Series A, issued on April 7, 2000 (the "old notes"), which have transfer
restrictions.

. The exchange offer expires at 5:00 p.m., New York City time, on August
13, 2000, unless extended.

. The terms of the registered notes are substantially identical to the old
notes, except for transfer restrictions, registration rights and
liquidated damages.

. All old notes that are validly tendered and not validly withdrawn will
be exchanged.

. Tenders of old notes may be withdrawn at any time prior to expiration of
the exchange offer.

. We do not intend to apply for listing of the registered notes on any
securities exchange or to arrange for them to be quoted on any quotation
system.

. The only conditions to completing the exchange offer are that the
exchange offer not violate applicable law or any applicable
interpretation of the staff of the Securities and Exchange Commission
and no injunction, order or decree has been issued which would prohibit,
prevent or materially impair our ability to proceed with the exchange
offer.

----------------

Please see "Risk Factors" beginning on page 11 for a discussion of factors
you should consider in connection with the exchange offer.

----------------

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the registered notes, or determined
if this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.

The date of this prospectus is July 14, 2000.
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TABLE OF CONTENTS

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Page
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WHERE TO FIND MORE INFORMATION............................................. i
FORWARD-LOOKING STATEMENTS................................................. iii
SPECIAL NOTE REGARDING PRIVATE PLACEMENT INFORMATION....................... iv
PROSPECTUS SUMMARY......................................................... 1
RISK FACTORS............................................................... 11
RECENT EVENTS.............................................................. 19
RATIO OF EARNINGS TO FIXED CHARGES......................................... 21
THE EXCHANGE OFFER......................................................... 22
USE OF PROCEEDS............................................................ 31
CAPITALIZATION............................................................. 32
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA........................... 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................................... 35
BUSINESS................................................................... 46
MANAGEMENT................................................................. 58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............................ 63
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS....................... 64
DESCRIPTION OF CERTAIN INDEBTEDNESS AND PREFERRED EQUITY................... 65
DESCRIPTION OF THE EXCHANGE NOTES.......................................... 71
FEDERAL INCOME TAX CONSIDERATIONS.......................................... 111
PLAN OF DISTRIBUTION....................................................... 115
LEGAL MATTERS.............................................................. 115
INDEPENDENT ACCOUNTANTS.................................................... 115
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
</TABLE>
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WHERE TO FIND MORE INFORMATION

In connection with the exchange offer, we have filed with the Securities and
Exchange Commission (the "SEC") a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), relating to the registered
notes to be issued in the exchange offer. As permitted by SEC rules, this
prospectus omits information included in the registration statement. For a more
complete understanding of this exchange offer, you should refer to the
registration statement, including its exhibits.

We file annual, quarterly and current reports as well as other information
with the SEC. The public may read and copy any reports or other information
that we file with the SEC at the SEC's public reference room, Room 1024 at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the
SEC's regional offices located at 7 World Trade Center, 13th Floor, New York,
New York 10048, and Suite 1400, 500 West Madison Street, Chicago, Illinois
60661. The public may obtain information on the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at http://www.sec.gov.

We have applied to the SEC for deregistration of the common stock of TNP
Enterprises, Inc. under the Exchange Act. We have agreed that, whether or not
we are required to do so by the rules and regulations of the SEC, for so long
as any of the notes remain outstanding, we will furnish to the holders of the
notes and file with the SEC (unless the SEC will not accept such a filing): (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if we were required
to file such forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by our certified independent accountants and
(ii) all reports that would be required to be filed with the SEC on Form 8-K if
we were required to file such reports. In addition, for so long as any of the
notes remain outstanding, we have agreed to make available to any prospective
purchaser of the notes or beneficial owner of the notes in connection with any
sale thereof the information required by Rule 144A(d)(4) under the Securities
Act.

We are "incorporating by reference" information into this prospectus. This
means that we are disclosing important information by referring to another
document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this prospectus, except for any information
superseded by information in this prospectus. This prospectus incorporates by
reference the documents set forth below that we have previously filed with the
SEC and any future filings made with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
thereafter. These documents contain important information about us.

<TABLE>
<CAPTION>
SEC Filing (File No. 001-08847) Period/Date
------------------------------- -----------
<C> <S>
Annual Report on Form 10-K Year ended December 31, 1999
Current Report on Form 8-K Filed with the SEC on April 21, 2000
Current Report on Form 8-K Filed with the SEC on May 2, 2000
Quarterly Report on Form 10-Q For the Quarter Ended March 31, 2000
Proxy Statement Filed with the SEC on August 12, 1999
</TABLE>

i
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You may also obtain a copy of these filings and the exchange offer
registration statement at no cost by writing or telephoning us at the following
address:

TNP Enterprises, Inc.
4100 International Plaza
PO Box 2943
Fort Worth, Texas 76109
(817) 731-0099
Attention: Corporate Secretary

You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information that is different from this information.

ii
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FORWARD-LOOKING STATEMENTS

This prospectus may contain statements regarding our assumptions,
projections, expectations, intentions or beliefs about future events. We intend
these statements to be "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995 and for purposes of the safe harbor
provided by Section 21E of the Exchange Act, and Section 27A of the Securities
Act. We caution that these statements may and often do vary from actual results
and the differences between these statements and actual results can be
material. Accordingly, we cannot assure you that actual results will not differ
materially from those expressed or implied by the forward-looking statements.
Some of the factors that could cause actual events to differ materially from
those expressed or implied in any forward-looking statement are:

. our ability to recover stranded costs;

. state and federal legislative and regulatory initiatives or proceedings
that affect the recovery of our investments or that have an impact on
rate structures and our results of operations and cash flow;

. the weather and other natural phenomena;

. the timing and extent of changes in costs of labor and prices of natural
resources and commodities;

. interest rates;

. changes in environmental and other laws and regulations to which we and
our subsidiaries are subject or other external factors over which we
have no control;

. the results of financing efforts;

. expansion and other growth opportunities;

. our ability to adapt to the transition to open market competition
enacted by our legislators and regulators;

. technology advances in energy supply and distribution; and

. the effect of accounting policies issued periodically by accounting
standard-setting bodies.

We discuss these factors more completely in our filings with the SEC,
including our annual report on Form 10-K for the year ended December 31, 1999,
and the quarterly report on Form 10-Q for the Quarter ended March 31, 2000, all
of which are incorporated by reference into this prospectus.

iii
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SPECIAL NOTE REGARDING PRIVATE PLACEMENT INFORMATION

In connection with the financing of the merger of ST Acquisition Corp. with
and into TNP Enterprises, Inc., we pursued private placements of our preferred
equity and some existing limited partners pursued a sale of their rights to
acquire partnership interests in SW Acquisition, L.P. These efforts continued
subsequent to the closing of the merger. In connection with such efforts, we
distributed Private Placement Memoranda and made projections available upon
request (together with the Private Placement Memoranda, the "Private Placement
Information") to a limited number of prospective institutional investors
including to persons that may be existing holders of the notes or our
outstanding senior preferred stock or purchasers in the secondary market of the
notes or senior preferred stock. Because the financial information contained in
an offering memorandum pursuant to Rule 144A such as the offering memorandum
relating to the old notes is customarily more limited than that contained in a
traditional private placement made to institutional investors who are expected
to conduct their own comprehensive due diligence review of the issuer, the
Private Placement Information contained certain five-year projections and
forecasts that were not included or incorporated by reference in the offering
memorandum relating to our notes or offering memorandum supplement relating to
our senior preferred stock and are not included or incorporated by reference in
this prospectus.

These forecasts have not been and are not expected to be made public and we
do not intend to update or otherwise revise the forecasts to reflect events or
circumstances after the date of the forecasts or to reflect the occurrence of
unanticipated events. As with all projected financial information, these
forecasts are subject to numerous uncertainties, many of which are beyond our
control and contain assumptions that may not be attainable. These forecasts and
actual results may vary and these variations may be material. THIS PROSPECTUS
IS INTENDED TO SUPERSEDE AND REPLACE THE PRIVATE PLACEMENT INFORMATION AND
HOLDERS OF THE OLD NOTES AND PROSPECTIVE INVESTORS ARE CAUTIONED THAT, IN
MAKING THEIR INVESTMENT DECISION, THEY SHOULD NOT RELY, AND WILL BE DEEMED NOT
TO HAVE RELIED, UPON ANY INFORMATION CONTAINED IN THE PRIVATE PLACEMENT
INFORMATION THAT IS NOT CONTAINED OR EXPRESSLY INCORPORATED BY REFERENCE IN
THIS PROSPECTUS.

iv
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PROSPECTUS SUMMARY

The following summary contains basic information about the offering. It
likely does not contain all the information that is important to you. For a
more complete understanding of the offering, we encourage you to read this
entire document. As used in this prospectus, unless the context indicates
otherwise, all references to (i) "we", "our" and "us" collectively are to TNP
Enterprises, Inc. and its subsidiaries, (ii) "TNMP" are to Texas-New Mexico
Power Company, (iii) "TNP" are only to TNP Enterprises, Inc. and not to any of
its subsidiaries.

The Company

TNP is a holding company whose primary operating subsidiary is TNMP, a
regulated public utility engaged in generating, purchasing, transmitting and
selling electricity to approximately 235,000 residential, commercial and
industrial customers in Texas and New Mexico. TNMP's operations consist
primarily of the transmission and distribution of electricity from various
third-party power plants to end users of electricity. For the year ended
December 31, 1999, and for the quarter ended March 31, 2000, our customers in
Texas and New Mexico accounted for approximately 86% and 14% of our operating
revenues, respectively. Also, for the year ended December 31, 1999, we
generated revenues of $576.2 million, and for the quarter ended March 31, 2000,
we generated revenues of $124.5 million.

TNMP serves a diverse group of residential and commercial customers as well
as a variety of industrial customers, including petrochemical, agricultural,
mining and petroleum firms. Our base revenues (operating revenues less certain
costs that we are permitted to pass through directly to our customers) are
generated primarily from residential and commercial customers. In 1999, these
customers accounted for 49% and 35% of our base revenues, respectively.
Industrial customers, who primarily pay us for the delivery of electricity,
generate the remaining 16% of our base revenues. For the quarter ended March
31, 2000, residential and commercial customers accounted for 44% and 38% of our
base revenues, while industrial customers accounted for 16% of base revenues.

Our utility operations are subject to regulation by the Public Utility
Commission of Texas or PUCT and the New Mexico Public Regulation Commission or
NMPRC. Some of our activities are also under the jurisdiction of the Federal
Energy Regulatory Commission or FERC. We are also subject to legislation in the
states in which we operate. As the result of recent legislation in Texas and
New Mexico deregulating the electric utility industries in those states, we
will be required to restructure our operations. See the "Industry" and
"Business--Government Regulations--Regulatory Matters" sections of this
prospectus.

1
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Business Strategy

We seek to position ourselves as a strong competitor in the increasingly
deregulated utility industry in the regions we serve. Key elements of this
strategy include the following:

. Focus on transmission and distribution segments of the utility business
which will continue to be regulated.

. Provide electric service to residential and commercial customers in
small and medium-sized communities.

. Expand industrial sales.

. Manage purchased power costs.

. Continue to seek to increase our flexibility to take advantage of
favorable pricing and new capacity additions in the marketplace by
shortening the average life of our power contracts.

Recent Events

On April 7, 2000, ST Acquisition Corp., a Texas corporation, merged with and
into TNP. TNP is the surviving corporation in the merger. Upon closing, each
outstanding share of TNP's common stock that was outstanding at the effective
time of the merger was automatically converted into the right to receive $44.00
in cash. Prior to the merger, TNP's common stock was traded on the New York
Stock Exchange. As a result of the merger, TNP is no longer publicly held. SW
Acquisition, L.P., a Texas limited partnership and the parent of ST Acquisition
Corp., now holds all outstanding common stock of TNP.

The general partner of SW Acquisition, L.P. is SW I Acquisition GP, L.P., a
Texas limited partnership, which is ultimately controlled by Dr. William J.
Catacosinos, the former chairman and chief executive officer of Long Island
Lighting Company or LILCO. The limited partners in this partnership are
Canadian Imperial Bank of Commerce or CIBC, Caravelle Investment Fund, L.L.C.
or Caravelle, Continental Casualty Company, and Laurel Hill Capital Partners,
LLC or Laurel Hill.

The total financing for the merger was approximately $838.0 million, $591.6
million of which was required to pay the merger consideration.

On May 26, 2000, we issued, together with SW Acquisition, L.P., $100.0
million in units, each unit consisting of one share of 14 1/2% senior
redeemable preferred stock of TNP with an initial liquidation preference of
$1,000 per share and one warrant to purchase a limited partnership interest in
SW Acquisition L.P., which was used to redeem a portion of the merger
financing.

On June 1, 2000, TNMP closed its offer to repurchase its Series U first
mortgage bonds and its Series A secured debentures pursuant to their respective
change of control provisions that were triggered by the merger. TNMP
repurchased approximately $90.5 million of its first mortgage bonds and $112.8
million of secured debentures pursuant to its tender offer to the holders of
those securities with drawings under its backstop credit facility.

The Exchange Offer

On April 7, 2000, we issued in a private placement $275.0 million in
aggregate principal amount of our 10.25% senior subordinated notes due 2010. We
entered into a registration rights agreement with the initial purchasers of
those notes in which we agreed to deliver to you this prospectus and to
complete the exchange offer on or prior to October 4, 2000. You are entitled to
exchange your old notes in the exchange offer for the applicable registered
notes with substantially identical terms. We believe that the registered notes
to be issued in the exchange offer may be resold by you without compliance with
the registration and prospectus delivery requirements of the Securities Act,
subject to certain limited conditions. You should read the discussion under the
headings "The Exchange Offer" and "Description of the Exchange Notes" for
further information regarding the registered notes.

2
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The Exchange Offer

The Exchange Offer..........
TNP Enterprises, Inc is offering to exchange
$1,000 principal amount of 10.25% senior
subordinated notes, Series B, which have been
registered under the Securities Act, for each
$1,000 principal amount of 10.25% senior
subordinated notes, Series A, which were issued
on April 7, 2000 in a private offering.

The terms of the registered notes and the old
notes are substantially identical, except that
the registered notes will be freely transferable
and issued free of any covenants regarding
exchange and registration rights.

In order to be exchanged, an old note must be
properly tendered and accepted. We will exchange
all old notes validly tendered and not validly
withdrawn.

As of this date, there is $275.0 million
aggregate principal amount of old notes
outstanding. We will issue the registered notes
promptly after the expiration of the exchange
offer.

Registration Rights......... You are entitled under a registration rights
agreement to exchange the old notes that you now
hold for registered notes with substantially
identical terms. This exchange offer is intended
to satisfy these rights. After the exchange offer
is complete, you will no longer be entitled to
any exchange or registration rights with respect
to your notes. See "The Exchange Offer".

Expiration Date.............
The exchange offer expires at 5:00 p.m., New York
time on August 13, 2000 unless we extend it, and
we will consummate the exchange on the next
business day.

Resales of Registered Based on SEC no action letters, we believe that
Notes.................... after the exchange offer you may offer and sell
the registered notes without registration under
the Securities Act so long as:

. you are acquiring the registered notes issued
in the exchange offer in the ordinary course
of your business;

. when the exchange offer begins you do not have
an arrangement with another person to
participate in a distribution of the
registered notes; and

. you are not engaged in a distribution of, nor
do you intend to distribute, the registered
notes.

When you tender the old notes we will ask you to
represent to us that:

. you will acquire the registered notes in the
ordinary course of business;

. you are not our "affiliate", as defined under
Rule 405 of the Securities Act; and

3
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. when the exchange offer begins you are not
engaged in nor do you have plans with another
person to be engaged in a distribution of the
registered notes.

If you are unable to make these representations,
you will be required to comply with the
registration and prospectus delivery requirements
under the Securities Act in connection with any
secondary resale transaction.

If you are a broker-dealer and receive registered
notes for your own account, you may be deemed to
be an "underwriter" within the meaning of the
Securities Act, and you must acknowledge that you
will deliver a prospectus if you resell the
registered notes. By acknowledging your intent
and delivering a prospectus you will not be
deemed to admit that your are an "underwriter"
under the Securities Act. For a period of 180
days after the exchange offer is consummated or
until the old notes are resold, whichever comes
first, we will make this prospectus available to
any broker-dealer in connection with such a
resale. See "Plan of Distribution."

If necessary, we will cooperate with you to
register and qualify the registered notes for
offer or sale without any restrictions or
limitations under state "blue sky" laws.

Transfer Restrictions on You may incur liability under the Securities Act
the Notes................ if:

. any of the representations listed above are
not true; or

. you transfer any registered note issued to you
in the exchange without:

(1) delivering a prospectus meeting the
requirements of the Securities Act, or

(2) qualifying for an exemption under the
Securities Act's requirements to register
your registered notes.

TNP does not assume or indemnify you against that
liability. Each broker-dealer that receives
registered notes for its own account in exchange
for old notes, where old notes were acquired by
that broker-dealer as a result of market-making
or other trading activities, must acknowledge
that it will deliver a prospectus in connection
with any resale of registered notes. A broker-
dealer may use this prospectus for an offer to
resell or to otherwise transfer these registered
notes.

Conditions.................. The only conditions to completing the exchange
offer are that the exchange offer not violate
applicable law or any applicable interpretation
of the staff of the SEC and no injunction, order
or decree has been issued which would prohibit,
prevent or materially impair our ability to
proceed with the exchange offer. See "The
Exchange Offer--Conditions of the Exchange
Offer".

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Procedures for Tendering The old notes were issued as global securities in
Old Notes................... fully registered form without coupons. Beneficial
interests in the old notes which are held by
direct or indirect participants in The Depository
Trust Company through certificateless depositary
interests are shown on, and transfers of the
notes can be made only through, records
maintained in book-entry form by DTC with respect
to its participants. If you are a holder of an
old note held in the form of a book-entry
interest and you wish to tender your old note for
exchange pursuant to the exchange offer, you must
transmit to The Bank of New York, as exchange
agent, on or prior to the expiration of the
exchange offer either:

(1) a written or facsimile copy of a properly
completed and executed letter of
transmittal and all other required
documents to the address set forth on the
cover page of the letter of transmittal;
or

(2) a computer-generated message transmitted
by means of DTC's Automated Tender Offer
Program system and forming a part of a
confirmation of book-entry transfer in
which you acknowledge and agree to be
bound by the terms of the letter of
transmittal.

The exchange agent must also receive on or prior
to the expiration of the exchange offer either:

. a timely confirmation of book-entry transfer
of your old notes into the exchange agent's
account at DTC in accordance with the
procedure for book-entry transfers described
in this prospectus under the heading "The
Exchange Offer--Book-Entry Transfer", or

. the documents necessary for compliance with
the guaranteed delivery procedures described
below.

A letter of transmittal accompanies this
prospectus. By executing the letter of
transmittal or delivering a computer-generated
message through DTC's Automated Tender Offer
Program system, you will represent to us, among
other things, all the items listed below:

. you are acquiring the registered notes issued
in the exchange offer in the ordinary course
of your business;

. you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate
in the distribution of the registered notes to
be issued to you in the exchange offer;

. you are not an initial purchaser who acquired
old notes directly from TNP in the initial
offering to resell pursuant to Rule 144A,
Regulation S or any other available exemption
under the Securities Act; and

. you are not our "affiliate", as defined under
Rule 405 of the Securities Act.

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Failure to Exchange Will
Affect You Adversely....... If you do not exchange your old notes for the
registered notes pursuant to the exchange offer
you will still be subject to the restrictions on
transfer of your old notes as contained in the
legend on the old notes. In general, you may not
offer to sell or sell the old notes, except
pursuant to a registration statement under the
Securities Act or any exemption from registration
thereunder and in compliance with applicable
state securities laws.

Special Procedure for
Beneficial Owner........... If you beneficially own old notes and they are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee,
and you wish to tender your old notes in the
exchange offer, you should promptly contact such
registered holder and instruct that person to
tender on your behalf. If you wish to tender on
your own behalf, you must, before completing and
executing the letter of transmittal for the
exchange offer and delivering your old notes,
either arrange to have your old notes registered
in your name or obtain a properly completed note
power from the registered holder. The transfer of
registered ownership may take considerable time.

Guaranteed Delivery If you wish to tender your old notes and:
Procedures.................

. you cannot complete the procedure for book-
entry transfer on a timely basis,

. you cannot deliver the old notes or any other
documents required by the letter of
transmittal to the exchange agent prior to the
expiration date of the exchange offer, or

. your old notes are not immediately available,
you may still tender your old notes in
accordance with the guaranteed delivery
procedures detailed in the letter of
transmittal. See "The Exchange Offer--
Guaranteed delivery procedures".

Withdrawal.................. You may withdraw the tender of your old notes at
any time before the offer expires by providing a
written withdrawal notice to the Exchange Agent
which must be received by the Exchange Agent
prior to 5:00 p.m. on the expiration date. TNP
will return to you any old notes not accepted for
exchange for any reason without expense to you as
soon as practicable after withdrawal.

Exchange Agent.............. The Bank of New York is the exchange agent for
the exchange offer.

Federal Income Tax The exchange of the old notes will not be a
Consequences............... taxable event for United States federal income
tax purposes. You will not recognize any taxable
gain or loss or any interest income as a result
of such exchange. See "Tax Considerations".

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Terms of the Registered Notes

Securities Offered..........
$275,000,000 principal amount of registered
10.25% senior subordinated notes, Series B.

Maturity Date............... April 1, 2010.

Interest Rate............... 10.25% per year.

Interest Payment Dates...... Each April 1 and October 1, beginning on October
1, 2000.

Ranking..................... The registered notes will not be secured by any
collateral. The registered notes will rank below
all TNP's senior debt. Therefore, if we default,
your right to payment under the registered notes
will be junior to the rights of holders of TNP's
senior debt to collect money we owe them at the
time. The registered notes will effectively rank
below all liabilities (including trade payables)
of our subsidiaries, including TNMP.

The registered notes will rank equal to TNP's
other senior subordinated debt.

We estimate that, as of March 31, 2000, as
adjusted, we would have had approximately $160
million of senior debt and our subsidiaries would
have had approximately $467.6 million of debt.

Optional Redemption.........
Except in the case of certain public equity
offerings by us, we cannot redeem the registered
notes prior to April 1, 2005.

At any time from and after that date (which may
be more than once), we can choose to redeem some
or all of the registered notes at specified
prices, plus accrued interest.

Optional Redemption after
Public Equity Offerings.... At any time (which may be more than once) before
April 1, 2003, we can choose to buy back up to
35% of the outstanding registered notes with
money that we raise in one or more public equity
offerings, as long as:

. we pay 110.25% of the face amount of the
registered notes bought, plus accrued and
unpaid interest;

. we buy the registered notes within 90 days of
completing the public equity offering; and

. at least 65% of the registered notes
originally issued remain outstanding
afterwards.

Change of Control Offer..... If we experience a change in control, we must
give holders of the registered notes the
opportunity to sell us their registered notes at
101% of their face amount, plus accrued and
unpaid interest.

We may not be able to pay you the required price
for registered notes you present to us at the
time of a change of control, because:

. we might not have enough funds at that time;
or

7
<PAGE>

. the terms of our senior debt may prevent us
from paying such amount.

Asset Sale Proceeds.........
We may have to use the cash proceeds from selling
assets and, to the extent distributed to us, cash
proceeds from selling assets of TNMP and its
subsidiaries, to offer to buy back registered
notes at their face amount, plus accrued
interest.

Certain Indenture The indenture governing the registered notes will
Provisions ................ limit what we may do. However, our regulated
subsidiaries, which currently consist of TNMP,
the principal operating subsidiary of TNP, and
its subsidiaries, will not be subject to many of
these limitations. The provisions of the
indenture will limit our ability to:

. incur more debt;

. pay dividends and make distributions;

. issue stock of subsidiaries;

. make certain investments;

. repurchase stock;

. create liens;

. restrict the ability of our subsidiaries to
make payments to us;

. enter into transactions with affiliates;

. enter into sale-leaseback transactions;

. merge or consolidate; and

. transfer and sell assets.

These covenants are subject to a number of
important exceptions, including that the
indenture will not limit the ability of our
regulated subsidiaries to:

. incur more debt;

. issue preferred stock;

. create liens;

. enter into sale-leaseback transactions; and

. transfer and sell assets.

For more complete information about the registered notes, see the
"Description of the Exchange Notes" section of this prospectus.

Risk Factors

Before making an investment in the notes, you should consider carefully the
information included in the "Risk Factors" section of this prospectus, as well
as other information contained in this prospectus.

8
<PAGE>

Principal Executive Office

Our principal executive office is located at 4100 International Plaza, Forth
Worth, Texas 76113 and our telephone number is (817) 731-0099. Our web site is
http://www.tnpe.com. The information found on our web site is not a part of
this prospectus.

9
<PAGE>

Summary Historical Financial and Other Data
(Dollars in thousands)

The following table sets forth summary historical and other data. The
summary historical financial data in this table should be read in conjunction
with, and is qualified in its entirety by, our audited financial statements,
the notes to our audited financial statements, our "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and our "Selected
Historical Financial and Operating Data" included elsewhere in this prospectus.
The historical financial data as of the end of and for each of the three years
in the period ended December 31, 1999, are derived from our audited
consolidated financial statements incorporated by reference herein. The
historical financial data as of and for the three months ended March 31, 1999
and March 31, 2000 are derived from our unaudited financial statements which,
in the opinion of our management, contain all adjustments necessary for a fair
presentation of the information presented.

<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
-------------------------- -----------------------------
1997 1998 1999 March 31, 1999 March 31, 2000
-------- -------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Statement of Income
Data:
Operating revenues..... $578,534 $585,941 $576,150 $118,125 $124,526
Total operating
expenses(1)........... 480,761 501,160 501,758 103,633 107,087
Net operating
income(2)............. 97,773 84,781 74,392 14,492 17,439
Other income (net)..... 1,700 1,238 (482) 281 334
Interest expense....... 56,912 53,885 43,743 11,641 10,514
Income from continuing
operations............ 42,561 32,134 30,167 3,132 7,259

Other Data:
EBITDA(3).............. $161,134 $142,252 $161,342 $ 29,761 $ 33,473
Depreciation and
amortization.......... 40,676 40,628 65,483 14,394 11,990
Preferred dividends and
other................. 158 150 (19) 36 5
Capital
expenditures(4)....... 28,232 37,534 41,144 11,592 9,200
Number of customers (at
end of period)........ 222,671 228,420 233,667 230,018 235,173
Gigawatt-hours sold to
residential
and commercial
customers............. 4,024 4,323 4,342 894 936
Total gigawatt-hours
sold.................. 10,151 9,843 9,369 2,098 2,180
Average revenue per
kilowatt-hour sold
(cents)............... 5.70 5.95 6.15 5.63 5.71
Financial Ratios:
Ratio of total debt to EBITDA............. 2.7x
Ratio of total debt and preferred equity
to EBITDA................................ 2.7x
Ratio of EBITDA to interest expense....... 3.7x
Ratio of EBITDA to interest expense and
preferred dividends...................... 3.7x
</TABLE>

<TABLE>
<CAPTION>
As of December 31, As of March 31,
1999 2000
------------------ ---------------
<S> <C> <C>
Balance Sheet Data:
Total assets.............................. $1,001,199 $1,000,690
Total debt................................ 440,244 461,264
Preferred stock subject to mandatory
redemption............................... 1,664 1,534
Common shareholders' equity............... 327,110 331,658
</TABLE>
--------
(1) Total operating expenses include purchased power, fuel, other operating and
maintenance expenses, depreciation and amortization, charge for recovery of
stranded plant, taxes other than income taxes and income taxes.
(2) Net operating income is operating revenue less total operating expenses.
(3) EBITDA represents income from continuing operations before interest
expense, income tax expense, charge for recovery of stranded plant,
depreciation and amortization expenses and non-cash charges of $2.8 million
net of taxes and taxes on other income in 1999. EBITDA is not intended to
represent cash flow from operations as defined by generally accepted
accounting principles and should not be used as an alternative to operating
income or income from continuing operations as an indicator of our
operating performance or cash flow as a measure of liquidity.
(4) Represents additions to utility plant. Excludes additions to other property
and unregulated investments.

10
<PAGE>

RISK FACTORS

Before you invest in the notes, you should carefully consider these risk
factors as well as the other information contained in this prospectus. The
risks described below are not the only ones we face. Additional risks not
presently known to us or that we currently believe are unimportant may also
hurt our business operations.

Factors Relating to TNP and its Subsidiaries

Our substantial indebtedness could adversely affect our financial condition
and prevent TNP from fulfilling its obligations under the notes. The following
chart shows certain important information about our leverage and represents the
completion of the merger and the application of the proceeds.

<TABLE>
<CAPTION>
As of March 31, 2000
As Adjusted
--------------------
(Dollars in
millions)
<S> <C>
Indebtedness of TNP senior to the notes................. $160.0
Notes offered hereby.................................... 275.0
Indebtedness of TNP's subsidiaries...................... 467.6
Total consolidated indebtedness of TNP(1)............... 902.6
<CAPTION>
As Adjusted For
The Twelve Months
Ended March 31, 2000
--------------------
<S> <C>
Ratio of earnings to fixed charges...................... 2.3x
ProForma Ratio earnings to fixed charges(1)............. 1.1x
</TABLE>
--------

(1) On a pro forma basis to give effect to the financing for the merger
consideration and the application of the proceeds therefrom.

Our substantial indebtedness could have important consequences to you. For
example, it could:

. make it more difficult for us to satisfy our obligations with respect to
the notes;

. increase our vulnerability to general adverse economic and industry
conditions;

. limit our ability to fund future working capital, capital expenditures
and other general corporate requirements;

. require a substantial portion of our cash flow from operations for debt
payments;

. limit our flexibility to plan for, or react to, changes in the business
and the industry in which we operate;

. place us at a competitive disadvantage compared to our competitors that
have relatively less debt; and

. limit our ability to borrow additional funds.

Any of the above listed factors could materially adversely affect us.

Despite current indebtedness levels, we may still be able to incur
substantially more debt. TNP and its subsidiaries may be able to incur
substantial additional indebtedness in the future. The terms of the indenture
do not fully prohibit TNP or any of its future, non-regulated subsidiaries from
doing so. TNP's regulated subsidiaries, including TNMP, are not restricted
under the terms of the indenture from incurring additional indebtedness. After
giving effect to the merger financing, the unit offering and the application of
the proceeds therefrom, as of March 31, 2000, TNP had additional borrowing
availability under its senior secured credit facility of up to $25.0 million
and TNMP had additional borrowing availability under its credit facilities and
indentures of up to $248.3 million, subject to covenant compliance, and any
such borrowing would be senior to the notes. If we incur additional debt, the
related risks that we now face could increase.

11
<PAGE>

To service our indebtedness, we will need a significant amount of cash. Our
ability to generate cash depends on many factors beyond our control. Our
ability to make payments on and to refinance any of our indebtedness,
including, with respect to TNP, the notes, and to fund planned capital
expenditures will depend on our ability to generate cash in the future. Our
ability to generate cash, to a certain extent, is subject to competitive,
regulatory and other factors that are beyond our control. Based on our current
level of operations, we believe that we have sufficient liquidity to satisfy
any known contingencies and meet our expected future working capital
requirements and planned capital expenditures. We cannot assure you, however,
that our business will generate sufficient cash flow from operations, or that
future borrowings will be available to TNP or its subsidiaries under their
respective revolving credit facilities in a sufficient amount to enable them to
pay their indebtedness, including, with respect to TNP, the notes, or to fund
their other liquidity needs. TNP or its subsidiaries may need to refinance all
or a portion of its indebtedness, including, with respect to TNP, the notes, on
or before their stated maturity. However, they might not be able to refinance
any of their indebtedness, including, with respect to TNP, the notes, on
commercially reasonable terms or at all.

TNP is a holding company and depends entirely on the earnings of its primary
operating subsidiary, TNMP, which has no obligation on the notes and may not be
permitted to distribute its earnings to us. The notes will be exclusively the
obligation of TNP and not of TNMP or any of TNP's other subsidiaries or
affiliates. TNP operates primarily through its subsidiaries and other
affiliates. TNP's cash flow, and its ability to service its indebtedness,
including payment of interest and principal on the notes, depends primarily on
the earnings of TNMP and the distribution of those earnings to us. There are
several restrictions on the ability of TNMP to distribute its earnings to TNP.
TNMP must provide for its own obligations, such as operating expenses, debt
service and reserves, and it has also entered into indentures and credit
agreements that restrict its ability to make distributions or pay dividends to
TNP. In addition, TNMP has made certain commitments to the PUCT and the NMPRC
that may affect its ability to make distributions to TNP. These commitments
include:

. a limitation on the payment of dividends to TNP unless certain financial
tests are satisfied;

. a restriction on taking any action that would prevent TNMP from
providing reasonable and proper service at fair and just rates;

. a restriction on lending or transferring funds or issuing securities of
TNMP to, or purchasing debt instruments of, or guaranteeing or assuming
liabilities of, affiliated entities without state regulatory approval;
and

. a restriction on pledging TNMP's assets to secure the payment or
guarantee the debt of any TNMP affiliate without state regulatory
approval.

Finally, TNMP and TNP's other subsidiaries are separate legal entities from
TNP, and, because they are not guaranteeing the notes, are not obligated to
repay any amounts due on the notes or to give TNP any funds therefore, whether
as dividends, loans or payments. In case of liquidation or reorganization of a
subsidiary of TNP, TNP is effectively subordinated to the creditors of such
subsidiary in the receipt of its assets or proceeds. At the closing of the
merger, the articles of incorporation of TNP and TNMP included provisions
designed to ensure that TNP and TNMP will maintain separate and independent
operations. These provisions include:

. a requirement that TNMP have at all times at least one independent
director appointed by the shareholders, whose consent shall be required
for TNMP to amend its articles of incorporation, consolidate or merge
with any person, sell all or substantially all of its assets or to
institute bankruptcy or insolvency proceedings, and who shall be
required to consider only the interest of TNMP and its creditors in
voting on any such transactions;

. a prohibition on TNMP using its credit to satisfy the debts or
obligations of any other person; and

. a prohibition on TNMP lending to any person or buying or holding any
indebtedness or other obligations issued by any other person, except for
cash and cash equivalents.

12
<PAGE>

TNP's regulated subsidiaries, including TNMP and its subsidiaries, are not
subject to many of the restrictive covenants imposed on TNP under the
indenture. TNP's regulated subsidiaries, which currently consist of TNMP, the
principal operating subsidiary of TNP, and its subsidiaries, are not guarantors
of the notes and, as regulated subsidiaries, are not subject to many of the
restrictive covenants imposed on TNP under the indenture. The indenture will
not limit the ability of TNP's regulated subsidiaries to incur more debt, issue
preferred stock, create liens, enter into sale-leaseback transactions or
transfer and sell assets. TNP's regulated restricted subsidiaries, on whom it
is dependent to meet its debt service obligations, therefore will not be
restricted in their ability to take certain actions that could make it more
difficult for them to make distributions to TNP.

The articles of incorporation of TNP and TNMP restrict TNP's ability to
cause TNMP to file for bankruptcy. TNP's and TNMP's articles of incorporation
both contain provisions which prevent TNP from taking any action that would
cause TNMP to file for bankruptcy or seek liquidation or reorganization under
the federal bankruptcy laws. Under certain circumstances, TNP's inability to
cause TNMP to file for bankruptcy or seek liquidation or reorganization could
make it difficult for TNP to satisfy its obligations to creditors, including
holders of the notes, in the event of TNP's bankruptcy, liquidation or
reorganization.

We operate in an increasingly competitive market. The electric utility
industry continues its transition toward an increasingly competitive
environment. Many states, including Texas and New Mexico, have passed
legislation to open the generation and sale of electricity to competition.
Texas law includes provisions which are designed to encourage competitors to
provide electricity to customers in our markets. These same provisions will,
until December 31, 2006, limit our ability to respond to competitors until
these competitors have gained significant market share. The increasingly
competitive environment presents the risk of loss of existing customers. We
cannot assure you that we will be able to compete successfully in this new
unregulated environment.

Certain equityholders of SW Acquisition, L.P. may have interests which
conflict with your interests and have affiliates that acted as initial
purchasers of the notes and lenders under credit facilities of TNP and
TNMP. Upon completion of the merger, SW Acquisition, L.P. ("Parent"), whose
owners include affiliates of CIBC, Continental Casualty Company, Caravelle, an
investment fund managed by an affiliate of certain employees of CIBC, and Dr.
Catacosinos, owned 100% of TNP's outstanding common stock. Parent is able to
elect all of TNP's directors, appoint new management and approve any action
requiring the approval of TNP's shareholders, including amendment of its
articles of incorporation and mergers or sales of substantially all of TNP's
assets. The directors elected by Parent will be able to make decisions
affecting TNP's capital structure, including decisions to issue additional
capital stock, implement stock repurchase programs and declare dividends. The
interests of Parent could conflict with your interests. For example, if TNP
encounters financial difficulties or is unable to pay its debts as they mature,
the interests of TNP's equity holders might conflict with your interests as a
noteholder. Furthermore, TNP's equity holders may have an interest in pursuing
acquisitions, divestitures, financings or other transactions that might involve
risks to the holders of the notes. Under certain circumstances, the interests
of CIBC's affiliates, as holders of limited partnership interests in Parent
and, as a lender under the senior secured credit facility and TNMP's credit
facility and as an initial purchaser of and a market-maker in our senior
preferred stock, may conflict with CIBC's interests as an initial purchaser and
market-maker of the notes. For information concerning the composition of TNP's
management team and its board of directors, see the "Management" section of
this prospectus. For information on rights of equityholders of Parent, see the
"Certain Relationships and Related Party Transactions" section of this
prospectus.

Our historical seasonality could impair TNP's ability to make interest
payments on the notes. Because we experience increased sales and operating
revenues during the summer months as a result of increased air conditioner
usage in hot weather, our business is highly seasonal. Approximately 43% of our
annual operating revenues occur in the months of June, July, August and
September. In addition, unusual temperature fluctuations in our high season and
unpredictable changes in the weather may adversely affect our net sales and
operating revenues in those months. Our working capital needs, and
correspondingly, our borrowings, peak

13
<PAGE>

during the second quarter. If cash on hand and borrowing availability are
insufficient to cover payments due on the notes, this seasonality could
adversely affect TNP's ability to make payments as required by the notes.

We depend on third-party suppliers to fulfill over three-quarters of our
system wide energy requirements. We purchase approximately 80% of our
electricity from various third party electric power suppliers with diversified
fuel sources. The availability and cost of purchased power to TNMP is subject
to changes in supplier costs, regulations and laws, market forces, fuel costs
and other factors. TNMP regularly enters into firm contracts with these third
parties to assure service to its entire customer load. These contracts allow
TNMP the option to purchase power within a specified minimum and maximum range.
Purchases on the spot market are primarily made instead of firm contract
options when the spot market price represents savings to TNMP's customers. In
recent years TNMP has increasingly relied on contracts of a shorter term. In
this way TNMP may achieve greater purchased power savings during periods of
decreasing power costs. However, these shorter term contracts increase our risk
during periods of rising costs. During the past two years we have experienced
higher energy costs due to demand associated with abnormally warm summers. Over
the next five years, TNMP will have to replace power purchase contracts that
represent approximately 77% of our estimated energy requirements. We cannot
assure you that TNMP will be able to continue to renew its firm contracts on a
favorable basis, or be able to adequately protect itself against a long period
of rising costs. If TNMP cannot renew its firm option contracts, it will be
forced to rely on the spot market for its purchased power energy needs. In a
period of high spot market prices, this reliance would adversely affect TNMP's
operating revenues and TNP's ability to repay the notes.

Because our Texas operations are located within the ERCOT system we are
limited in our ability to obtain power to sell to our customers in Texas from
outside ERCOT if needed or if available at a lower cost. We generate
approximately 20% of our total electricity requirements and purchase the
remainder from other electric utilities and third-party power providers. Over
the next several years we will have to replace several long-term power supply
agreements as they expire. We are located within the ERCOT system and depend on
it for the electricity we obtain from third party providers to serve our
customers in Texas. The ERCOT system is a self contained electrical grid with
very limited interconnection with other grids. Therefore, our Texas operations,
which generated 86% of our 1999 operating revenues, are subject to price
fluctuations and availability of electricity within ERCOT and may not be able
to obtain power from outside ERCOT should it become scarce within the system or
available at cheaper prices or better terms from suppliers outside the ERCOT
system.

Our success depends in large part on our senior management personnel. Our
success depends in large part upon the abilities and continued service of our
senior management personnel. The loss of certain members of senior management
could seriously affect our business prospects. We do not maintain key man life
insurance on any of our senior management personnel. See the "Management"
section of this prospectus.

Factors Relating to the Regulatory Environment

We are regulated at both the state and federal levels in a changing
regulatory environment. We are regulated in virtually all aspects of our
utility business by various federal and state agencies. At the state level, we
are subject to comprehensive regulation primarily by the PUCT and NMPRC. The
electrical utility industry is in the process of transition to a competitive
market. Both Texas and New Mexico have recently enacted legislation to open the
generation and retail supply of electricity to competition, and PUCT and NMPRC
are enacting regulations that will govern that transition. Our business
prospects could be adversely affected by the adoption of new laws, policies or
regulations that change the regulatory environment in effect at the time. We
cannot predict how future legislative or regulatory changes will affect the
future regulatory framework of our industry.

At the federal level we are regulated by, among others, the FERC and the
SEC. We are subject to the Federal Power Act and the Public Utility Holding
Company Act of 1935, as amended ("PUHCA"). Because TNP owns a utility
subsidiary, it falls under PUHCA's definition of a holding company. However,
TNP is

14
<PAGE>

currently exempt, under Section 3(a)(1) of PUHCA, from all provisions of PUHCA
except for Section 9(a)(2), which relates to the acquisition of securities of
public utility affiliates.

The application of certain accounting rules could cause extraordinary
charges. Statement of Financial Accounting Standards No. 71, "Accounting for
the effects of certain Types of Regulation," or SFAS 71, allows regulated
entities like TNMP, in appropriate circumstances, to establish regulatory
assets and liabilities, and thereby defer the income statement impact of
certain costs and revenues that are expected to be realized in future rates.

As a result of the Community Choice(R) program in New Mexico, TNMP
discontinued the application of SFAS 71 to its generation/power supply
operations in New Mexico during 1997. The discontinuing of regulatory
accounting principles had no effect on TNMP's financial condition. Community
Choice(R) was TNMP's plan for transition to competition for its New Mexico
service territory that was in effect from May 1, 1997, until the NMPRC
terminated it on June 8, 1999. By terminating Community Choice(R), the NMPRC
placed TNMP on the same timetable as other New Mexico utilities with regard to
retail competition and restored the pass-through of purchased power costs to
customers.

In Texas, prior to the passage of the new legislation, TNMP had been
operating under a transition plan (the "Transition Plan") approved by the PUCT
in 1998. EITF 97-4, "Deregulation of the Pricing of Electricity--Issues Related
to the Application of SFAS Statements No. 71 and 101," states that application
of SFAS 71 should stop "when deregulatory legislation is passed or when a rate
order (whichever is necessary to effect the change in the jurisdiction) that
contains sufficient detail for the enterprise to reasonably determine how the
transition plan will affect the separable portion of its business whose pricing
is being deregulated is issued." With the passage of the legislation, TNMP
discontinued the application of SFAS 71 to the generation and power supply
portion of its Texas business during the fourth quarter of 1999. As a direct
result of discontinuing SFAS 71 and in accordance with the legislation, TNMP
has reclassified net regulatory assets (regulatory assets less liabilities) of
$19.0 million that pertain to these deregulated operations as recoverable
stranded costs, as of March 31, 2000. We believe that the $19.0 million
represents verifiable stranded costs and intend to have TNMP recover them from
customers pursuant to the methods specified in the Texas legislation.

In conjunction with the discontinuance of SFAS 71, TNMP is required to
determine if its generating plant asset, TNP One, is impaired under SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." Based on TNMP's undiscounted cash flow analysis over the
estimated useful life of TNP One, there is no impairment of TNP One, as defined
by SFAS 121, as of March 31, 2000. TNMP's impairment analysis includes
reasonable estimates of future market prices, capacity factors, operating
costs, the effects of competition and many other factors over the life of TNP
One. TNMP's impairment analysis is highly dependent on these estimates. As of
March 31, 2000, the net book value of TNP One was $430.4 million.

The merger is to be accounted for under the purchase method of accounting. In
accordance with the purchase method of accounting, the purchase price will be
allocated to the acquired assets and assumed liabilities based on their fair
values and the unallocated amount will be recorded as goodwill. The process of
determining the fair value of assets and liabilities is underway, and the final
results will not be completed until certain information about pre-acquisition
contingencies is assessed. The most significant items to be determined include
the appropriate value to assign to TNP's sole generating plant and the amount
of regulatory assets to be recorded for recovery of stranded costs as permitted
by Texas legislation.

We may be adversely affected by environmental regulations. In recent years,
public concern for the environment has resulted in increased governmental
regulation of environmental matters. Our subsidiaries are subject to these
regulations in the licensing and operation of the generation, transmission and
distribution facilities in which they have an interest, as well as the
licensing and operation of the facilities in which they are a co-licensee.
These environmental requirements are administered by local, state and federal
regulatory

15
<PAGE>

authorities and concern the impact of our generation, transmission,
distribution, transportation and waste handling facilities on air, water, land,
aesthetic qualities and natural resources.

TNMP must comply with a number of statutes and regulations relating to
protection of the environment and to the safety and health of the public and of
the personnel in operating plants and believes it is in substantial compliance
with these requirements. Such statutes and regulations, which historically have
changed from time to time, include regulation of hazardous materials associated
with each plant, limitations on air, water and noise emissions from the plants,
safety and health standards and requirements relating to the storage, treatment
and disposal of wastes. In addition, TNMP could become liable for the
investigation and removal of any hazardous materials that may be found on its
current or formerly owned or operated property regardless of the sources of
such hazardous materials. Failure to comply with environmental requirements of
such statutes or regulations could result in civil or criminal liability,
imposition of cleanup liens and fines and large expenditures to bring such
property into compliance. TNMP has owned and operated and currently owns and
operates industrial facilities where hazardous substances were and are used. We
cannot assure you that those costs will not be incurred in the future and that
they will not be material.

Factors Relating to the Notes

We are subject to a number of restrictions imposed by the terms of our
indebtedness which, if breached, could have adverse consequences to us. The
indenture has covenants which limit what we may do. Those covenants, in
general, limit what TNP (and in certain cases what TNMP) may do:

. incur more debt; . restrict the ability of TNP's
subsidiaries to make payments to
. pay dividends and make TNP;
distributions;
. enter into transactions with
. issue stock of subsidiaries; affiliates;

. make certain investments; . enter into sale-leaseback
transactions;
. repurchase stock;
. merge or consolidate; and
. create liens;
. transfer and sell assets.

If we do not comply with these covenants, an event of default could occur.
An event of default could materially harm our business if it is not cured or
waived. See the "Description of the Notes--Certain Covenants" section of this
prospectus.

TNP's senior secured credit facility also contains restrictive covenants. In
addition, the senior secured credit facility requires TNP to comply with
specified financial tests and satisfy certain financial condition tests. TNP's
ability to meet these financial ratios and financial condition tests may be
affected by events beyond its control. The breach of any of these covenants
could result in a default under the senior secured credit facility or the
notes. In the event of a default under the senior secured credit facility or
the notes, the lender under the senior secured credit facility could accelerate
such debt. If TNP were unable to repay those amounts, the lender under the
senior secured credit facility could proceed against the collateral granted to
them to secure the debt outstanding. In addition, other debt under instruments
containing cross-acceleration or cross-default provisions could also be
similarly accelerated. If any indebtedness were to be accelerated, TNP might
not have sufficient cash to pay it. See the "Description of Certain
Indebtedness and Preferred Equity" section of this prospectus.

The notes will be contractually subordinated in right of payment to TNP's
senior debt and structurally subordinated in right of payment to its
subsidiaries' debt. The notes will be junior in right of payment to all of
TNP's senior debt, including indebtedness under its senior secured credit
facility. In addition, the indenture permits TNP to incur additional senior
debt, if certain conditions are met. In the event of TNP's insolvency,
liquidation, reorganization, dissolution or other winding-up or upon a default
in payment with respect to, or the acceleration of, any senior debt, the
holders of such senior debt must be paid in full before the holders of the
notes may be paid. If TNP incurs any additional senior subordinated debt, the
holders of such debt would be

16
<PAGE>

entitled to share ratably with the holders of the notes in any proceeds
distributed in connection with any insolvency, liquidation, reorganization,
dissolution or other winding-up. This may reduce the amount of proceeds paid to
the holders of the notes. In addition, no payments may be made with respect to
the principal of, or interest on the notes if a payment default exists with
respect to TNP's senior debt and, under certain circumstances, no payments may
be made with respect to the principal of, or interest on the notes for a
certain period if a non-payment default exists with respect to senior debt. See
the "Description of the Notes --Subordination" section of this prospectus.

TNP's subsidiaries are not guarantors of the notes. As a result, all
indebtedness of TNP's subsidiaries, including any borrowings under TNMP's
credit facilities and other liabilities, will be effectively senior in right of
payment to the notes. For more information about the terms of certain
indebtedness of TNMP, see the "Description of Certain Indebtedness and
Preferred Equity--TNMP" section of this prospectus.

If any or all of TNP's subsidiaries become subject to bankruptcy proceedings
before payment on the notes, we do not expect holders of the notes to have
claims in such proceedings. Only after such subsidiaries' creditors are fully
paid would any remaining value of the subsidiaries' assets be available to TNP
or its creditors, including holders of the notes.

TNP may not be able to finance the change of control offer required by the
indenture. If specific kinds of events that result in our experiencing a change
of control occur, TNP will be required to offer to purchase all outstanding
notes under the indenture. However, it may not be able to access sufficient
funds, internally or otherwise, to purchase any notes tendered. The indenture
also requires that, before TNP may repurchase the notes upon a change of
control, it would have to:

. repay or offer to repay in full all obligations and terminate all
commitments under the senior secured credit facility and repay the
obligations under the senior secured credit facility of each lender who
has accepted such offer; or

. obtain the requisite consents under the senior secured credit facility
to permit it to repurchase the notes as described above. TNP's inability
to repay its obligations and terminate its commitments or obtain the
requisite consent under the senior secured credit facility, and its
inability to repurchase all of the tendered notes, would constitute an
event of default under the indenture.

In addition, certain events involving a change of control may result in an
event of default under the senior secured credit facility and TNP's other
indebtedness that may be incurred in the future. An event of default under the
senior secured credit facility or other future indebtedness could result in an
acceleration of such indebtedness, in which case the subordination provisions
of the notes would require payment in full of all senior debt before TNP can
repurchase or make other payments in respect of the notes. However, it is
possible that it would not have sufficient funds at the time of the change of
control to repurchase the notes or pay its obligations under the senior secured
credit facility or other future senior debt. In addition, we cannot assure you
that TNP will be able to obtain the consent of the lenders under the senior
secured credit facility to enable it to repurchase the notes. See the
"Description of the Exchange Notes--Change of Control" section of this
prospectus.

You cannot be sure that an active trading market will develop for the
registered notes. There is currently no trading market for the registered
notes. We do not intend to apply for listing of the registered notes on any
securities exchange or for quotation through the Nasdaq National Market. The
liquidity of any market for the registered notes will depend upon the number of
holders of the registered notes, the interest of securities dealers in making a
market in the registered notes and other factors. Accordingly, we cannot assure
you as to the development or liquidity of any market for the registered notes,
and holders of registered notes may not be able to sell the registered notes,
or may not be able to sell them at profitable prices. An active market for the
registered notes may not develop, during or after the consummation of the
exchange offer.

Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the registered notes. There can be no assurance that

17
<PAGE>

the market, if any, for the registered notes will not be subject to similar
disruptions. Any such disruptions may have an adverse effect on the holders of
the registered notes.

Holders of old notes who do not participate in the exchange offer will hold
restricted securities without registration rights. TNP issued the old notes in
a private offering exempt from the registration requirements of the Securities
Act. Therefore, holders of old notes may not offer, sell or otherwise transfer
their old notes except in compliance with the registration requirements of the
Securities Act and applicable state securities laws or pursuant to exceptions
from, or in transactions not subject to, such registration requirements.
Holders of old notes who do not exchange their old notes for registered notes
in the exchange offer will continue to be subject to these transfer
restrictions after completion of the exchange offer.

In addition, after completion of the exchange offer, holders of old notes
who do not tender their old notes in the exchange offer will no longer be
entitled to any exchange or registration rights under the registration rights
agreements, except under limited circumstances. To the extent that old notes
are tendered and accepted in the exchange offer, the liquidity of the trading
market for untendered old notes could be adversely affected.

If you fail to follow the exchange offer procedures, your old notes may not
be accepted for exchange. Each holder of old notes wishing to accept the
exchange offer must deliver the letter of transmittal, together with the old
notes to be exchanged and any other required documentation, to the exchange
agent, or effect a tender of old notes by book-entry transfer into the exchange
agent's account, in each case in compliance with the instructions provided in
"The Exchange Offer" section of this prospectus and in the letter of
transmittal.

The method of delivery of old notes and the letter of transmittal and all
other required documentation is at the election and risk of the holders of the
old notes. Although we intend to notify tendering holders of any defects or
irregularities with respect to their tenders of old notes, neither TNP, the
exchange agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of old notes,
nor shall any of them incur any liability for failure to give such
notification. Tenders of old notes will not be deemed to have been made until
such irregularities have been cured or waived.

18
<PAGE>

RECENT EVENTS

The Merger

On May 24, 1999, ST Acquisition Corp. agreed to merge with and into TNP.
Upon closing, each share of TNP's common stock that was outstanding at the
effective time of the merger was automatically converted into the right to
receive $44.00 in cash. On April 7, 2000, ST Acquisition Corp. was merged with
and into TNP, with TNP surviving the merger. At that time, TNP ceased to be
publicly held, and its common stock is no longer be traded on the New York
Stock Exchange. On April 25, 2000, in connection with the merger, we dismissed
Arthur Andersen LLP as our independent accountants and engaged Deloitte &
Touche LLP to replace Arthur Andersen LLP. We filed a Current Report on Form 8-
K with the SEC with respect to this change of accountants on May 2, 2000.

Financing for the Merger

The total financing for the merger was approximately $838.0 million, $591.6
million of which was required to pay the merger consideration. The balance of
the financing was used to refinance certain indebtedness of TNMP that TNMP was
required to repurchase as a result of the change of control of TNP contemplated
by the merger, and to pay costs and expenses related to the merger. The
financing for the merger consisted of: (i) a $200.0 million equity investment
comprised of (x) $100.0 million of proceeds from the issuance by ST Acquisition
Corp. of senior preferred stock (the "Preferred Equity") and (y) a $100.0
million contribution from Parent to ST Acquisition Corp., and (ii) $638.0
million of debt financing, comprised of (x) up to $160.0 million of borrowings
under a senior secured credit facility, (y) $275.0 million from the issuance of
the old notes and (z) $203.0 million of borrowings by TNMP under a backstop
credit facility to refinance debt of TNMP that was required to be repurchased
as a result of the change of control of TNP resulting from the merger.

On June 1, 2000, TNMP closed its offer to repurchase its Series U first
mortgage bonds and its Series A secured debentures pursuant to their respective
change of control provisions triggered by the merger. Approximately $90.5
million of first mortgage bonds and $112.8 million of secured debentures were
tendered for redemption. TNMP borrowed from the backstop credit facility to
refinance the tendered debt and created new series of first mortgage bonds and
of secured debentures.

19
<PAGE>

The following table sets forth the sources and uses of funds in connection
with the merger assuming they were consummated on March 31, 2000 and exclusive
of the drawings under the backstop credit facility (in millions):

<TABLE>
<CAPTION>
Sources of Funds:
<S> <C>
Senior secured credit facility(1)................................ $160.0
Notes offered hereby............................................. 275.0
Preferred Equity................................................. 100.0
Equity contribution by Parent.................................... 100.0
Cash on hand..................................................... 5.3
------
Total.......................................................... $640.3
======
Uses of Funds:
Merger consideration(2).......................................... $591.6
Estimated fees and expenses...................................... 48.7
------
Total.......................................................... $640.3
======
</TABLE>
--------

(1) The senior secured credit facility consists of (i) the $25.0 million
revolving credit facility, of which no borrowings under this facility are
outstanding as of the date of this prospectus, and (ii) the $160.0 million
term loan. See the "Description of Certain Indebtedness and Preferred
Equity" section of this offering memorandum.
(2) The merger consideration consists of $44.00 per share of TNP common stock
outstanding immediately prior to the closing of the merger.

20
<PAGE>

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth the unaudited consolidated ratios of earnings
to fixed charges for TNP on a historical basis:

<CAPTION>
For the Twelve Months ended March 31, 2000
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges......................... 2.3x
Pro forma ratio of earnings to
fixed charges(1)................ 1.1x
</TABLE>
--------

(1) On a pro forma basis to give effect to the financing of the merger
consideration and the application of the proceeds therefrom.

For purposes of this calculation, earnings are defined as income from
continuing operations plus income taxes plus fixed charges. Fixed charges
consist of total interest; amortization of debt discount, premium, and expense,
and the portion of interest implicit in rentals.

21
<PAGE>

THE EXCHANGE OFFER

We issued the old notes on April 7, 2000 (the "Closing Date") to the initial
purchasers in an offering to qualified institutional buyers under Rule 144A
under the Securities Act. As a condition to the sale of the old notes, TNP and
the initial purchasers entered into a registration rights agreement on the
Closing Date. The registration statement, of which this prospectus is part, is
intended to satisfy our obligation to conduct an exchange offer under the
registration rights agreement summarized below. This summary of provisions of
the registration rights agreement does not purport to be complete and reference
is made to the provisions of the registration rights agreement which has been
filed as an exhibit to the registration statement and a copy of which is
available as set forth in "Where to Find More Information."

Pursuant to the registration rights agreement, we agreed to file with the
SEC an exchange offer registration statement on the appropriate form under the
Securities Act with respect to the registered notes. Upon the effectiveness of
the exchange offer registration statement, we will offer to the holders of old
notes who are able to make specified representations the opportunity to
exchange their old notes for the registered notes. If we are not permitted to
consummate the exchange offer because the exchange offer is not permitted by
applicable law or SEC policy, or any noteholder notifies us within the
specified time period that it:

. is prohibited by law or SEC policy from participating in the exchange
offer;

. may not resell the registered notes acquired by it in the exchange offer
to the public without delivering a prospectus and the prospectus
contained in the exchange offer registration statement is not
appropriate or available for such resales by such noteholder; or

. is a broker-dealer and holds old notes acquired directly from us or an
affiliate of ours,

we will use our reasonable best efforts to file with the SEC a shelf
registration statement to cover resales of the old notes by the noteholders who
satisfy conditions relating to the provision of information in connection with
the shelf registration statement. The registration rights agreement provides
that we will:

. commence the exchange offer and use our reasonable best efforts to issue
on or prior to 30 business days after the date on which the exchange
offer registration statement was declared effective by the SEC,
registered notes in exchange for all old notes tendered prior thereto in
the exchange offer; and

. if obligated, to use our reasonable best efforts to file a shelf
registration statement with the SEC as promptly as reasonably
practicable after such filing obligation arises and to cause the shelf
registration statement to be declared effective by the SEC on or prior
to 90 days after we are required to file such shelf registration
statement.

If:

. we fail to consummate the exchange offer on or prior to the date
specified with respect to the exchange offer registration statement; or

. any registration statement required by the registration rights agreement
is filed and declared effective but thereafter ceases to be effective or
usable for its intended purpose;

(each such event referred to in the clauses above a "Registration Default"),
then we will pay liquidated damages to each noteholder, with respect to the
first 90-day period immediately following the occurrence of the first
Registration Default of a rate per annum equal to 0.50% of the principal amount
of transfer restricted securities held by such holder. The rate of the
liquidated damages will increase by an additional 0.25% per annum with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum rate of liquidated damages of 2.0% per annum of the
principal amount of transfer restricted securities. We in no event are required
to pay liquidated damages for more than one Registration Default at any given
time. We will pay all accrued liquidated damages (as more fully set forth in
the indenture and the old

22
<PAGE>

notes) on each interest payment date. Following the cure of all Registration
Defaults, liquidated damages will not accrue.

For purposes of the foregoing, transfer restricted securities means:

each old note until:

. the date on which such old note is exchanged for a registered note which
is entitled to be resold to the public by such noteholder without
complying with the prospectus delivery requirements of the Securities
Act;

. the date on which such old note has been disposed of in accordance with
a shelf registration statement; or

. the date on which such old note is sold pursuant to Rule 144 under the
Securities Act;

and each registered note held by a broker-dealer until the date on which such
registered note is disposed of by a broker-dealer as set forth under the "Plan
of Distribution" section of this prospectus.

Terms of the Exchange Offer

Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all of the old notes
validly tendered and not withdrawn prior to the expiration date of the exchange
offer. As of the date of this prospectus, $275.0 million aggregate principal
amount of the old notes is outstanding and no registered notes are outstanding.
This prospectus, together with the letter of transmittal, is first being sent
on or about July 14, 2000, to all noteholders known to us. Our obligation to
accept the old notes for exchange pursuant to the exchange offer is subject to
the conditions as set forth under "--Certain Conditions to the Exchange Offer"
below. We will issue $1,000 principal amount of registered notes in exchange
for each $1,000 principal amount of outstanding old notes accepted in the
exchange offer. Noteholders may tender some or all of their old notes pursuant
to the exchange offer. See "--Consequences of Failure to Exchange." However,
the old notes may be tendered only in integral multiples of $1,000.

The registered notes will evidence the same debt as the old notes for which
they are exchanged, and are entitled to the benefits of the indenture. The form
and terms of the registered notes are the same as the form and terms of the old
notes, except that the registered notes have been registered under the
Securities Act. Therefore, the registered notes will not bear legends
restricting their transfer.

Noteholders do not have any appraisal or dissenters' rights under the
Indenture in connection with the exchange offer. We intend to conduct the
exchange offer in accordance with the applicable requirements of Regulation 14E
under the Exchange Act.

We shall be deemed to have accepted validly tendered old notes when, as, and
if we have given verbal or written notice of our acceptance to the exchange
agent. The exchange agent will act as agent for the tendering noteholders for
the purpose of receiving the registered notes.

If any tendered old notes are not accepted for exchange because of an
invalid tender, or the failure to satisfy other conditions to the exchange
offer or otherwise, we will return such unaccepted tenders of old notes without
expense to the noteholder of the old note, as promptly as practicable after the
expiration date of the exchange offer.

Noteholders whose old notes are not tendered or are tendered but not
accepted in the exchange offer will continue to hold such old notes and will be
entitled to all the rights and preferences and subject to the limitations
applicable to the old notes under the indenture. Following completion of the
exchange offer, the

23
<PAGE>

noteholders will continue to be subject to the existing restrictions upon
transfer of the old notes and we will have no further obligation to those
noteholders to provide for the registration under the Securities Act of the old
notes held by them. To the extent that old notes are tendered and accepted in
the exchange offer, the trading market for untendered, and tendered but
unaccepted, old notes could be adversely affected.

Noteholders who tender old notes in the exchange offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of old notes
pursuant to the exchange offer. We will pay all charges and expenses, other
than applicable taxes, in connection with the exchange offer. See "--Fees and
Expenses; Solicitation of Tenders."

Expiration Date; Extensions; Amendments

The term expiration date shall mean 5:00 p.m., New York City time on August
13, 2000 unless we extend the exchange offer. If we do extend the exchange
offer, the term expiration date shall mean the date and time to which the
exchange offer is extended. In order to extend the expiration date of the
exchange offer, we will notify the exchange agent of any extension by verbal or
written notice, mail to the registered noteholders an announcement of that
notice, and will make a release to the Dow Jones News Services prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled expiration date of the exchange offer.

We reserve the right at our sole discretion:

. to delay accepting any old notes;

. to extend the exchange offer;

. to terminate the exchange offer and not accept the old notes not
previously accepted if any of the conditions set forth below under "--
Certain Conditions to the Exchange Offer" shall have occurred and shall
not have been waived by us, by giving oral or written notice of such
delay, extension or termination to the exchange agent; and

. to amend the terms of the exchange offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the
noteholders.

If the exchange offer is amended in a manner determined by us to constitute
a material change, we will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to all noteholders, and we will
extend the exchange offer for a period of five to ten business days, depending
upon the significance of the amendment and the manner of disclosure to
noteholders, if the exchange offer would otherwise expire during such five to
ten business day period. During any extension of the expiration date of the
exchange offer, all old notes previously tendered will remain subject to the
exchange offer and may be accepted for exchange by us.

We will have no obligation to publish, advertise, or otherwise communicate
any such public announcement, other than by making a timely release to the Dow
Jones News Service.

Interest on the registered notes

The registered notes will bear interest from the most recent date to which
interest has been paid on the old notes, or, if no interest has been paid on
the old notes, from April 7, 2000. See the "Description of the Exchange Notes--
Principal, Maturity and Interest" section of this prospectus.

Procedures for Tendering the Old Notes

When a beneficial owner of old notes tenders them to us as set forth below
and we accept the old notes, the beneficial owner of the old notes and us will
be deemed to have entered into a binding agreement upon the terms and subject
to the conditions set forth in this prospectus and the letter of transmittal.

24
<PAGE>

Except as set forth below, if you wish to tender the old notes for exchange
pursuant to the exchange offer, we must receive a properly completed and duly
executed letter of transmittal, including all other documents required by such
letter of transmittal, to the exchange agent at one of the addresses set forth
below under "Exchange Agent" on or prior to the expiration date of the exchange
offer. In addition:

. the exchange agent must receive certificates for such old notes along
with the letter of transmittal;

. the exchange agent must receive prior to the expiration date of the
exchange offer a timely confirmation of a book-entry transfer of such
old notes into the exchange agent's account at the Depository Trust
Company pursuant to the procedure for book-entry transfer described
below; or

. the noteholder must comply with the guaranteed delivery procedures
described below.

THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE NOTEHOLDER. IF SUCH
DELIVERY IS BY MAIL, WE RECOMMEND THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT
TIME TO ASSURE TIMELY DELIVERY. YOU SHOULD NOT SEND LETTERS OF TRANSMITTAL OR
OLD NOTES TO US.

Each signature on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the old notes surrendered for exchange
pursuant thereto are tendered:

. by a registered noteholder who has not completed the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" in the letter of transmittal; or

. for the account of an Eligible Institution (as defined below).

In the event that a signature on a letter of transmittal or a notice of
withdrawal, as the case may be, is required to be guaranteed, such guarantee
must be by a firm which is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
by a commercial bank or trust company having an office or correspondent in the
United States or otherwise be an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible
Institutions"). If the old notes are registered in the name of a person other
than the person signing the letter of transmittal, the old notes surrendered
for exchange must be endorsed by, or be accompanied by, a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by us
in our sole discretion, duly executed by the registered noteholder with the
signature thereon guaranteed by an Eligible Institution. If the letter of
transmittal is signed by a person or persons other than the registered
noteholder or noteholders, the old notes must either be endorsed by the
registered noteholder with signature guaranteed by an Eligible Institution or
accompanied by appropriate powers of attorney with signature guaranteed by an
Eligible Institution. In either case, the old notes must be signed exactly as
the name or names of the registered noteholder or noteholders that appear on
the old notes.

If a trustee, executor, administrator, guardian, attorney-in-fact, officer
of a corporation or another acting in a fiduciary or representative capacity
signs the letter of transmittal or any old notes or powers of attorney, the
person signing should indicate in which capacity he or she is signing and,
unless waived by us, submit proper evidence satisfactory to us of his or her
authority to sign with the letter of transmittal.

By tendering, each noteholder will represent to us that, among other things:

. the registered notes acquired pursuant to the exchange offer are being
acquired in the ordinary course of business of the person receiving such
registered notes, whether or not that person is the noteholder; neither
the noteholder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
registered notes;

. if the noteholder is not a broker-dealer, or is a broker-dealer but will
not receive registered notes for its own account in exchange for the old
notes, neither the noteholder nor any such other person is

25
<PAGE>

engaged in or intends to participate in the distribution of such
registered notes; and neither the noteholder nor any such other person
is an "affiliate" of ours, as defined under Rule 405 of the Securities
Act. If the tendering noteholder is a broker-dealer that will receive
registered notes for its own account in exchange for old notes that were
acquired as a result of market-making activities or other trading
activities, the noteholder may be deemed to be an "underwriter" within
the meaning of the Securities Act and will be required to acknowledge
that it will deliver a prospectus in connection with any resale of such
registered notes. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.

DELIVERY OF DOCUMENTS TO US OR THE DEPOSITORY TRUST COMPANY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.

We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt) and acceptance of the old notes
tendered for exchange, which determination shall be final and binding. We
reserve the absolute right to reject any and all tenders of any particular old
notes not properly tendered or to not accept any particular old notes which
acceptance might, in our judgment or our counsel, be unlawful. We also reserve
the absolute right in our sole discretion to waive any defects or
irregularities or conditions of the exchange offer as to any particular old
notes either before or after the expiration date of the exchange offer
(including the right to waive the ineligibility of any noteholder who seeks to
tender old notes in the exchange offer). The interpretation of the terms and
conditions of the exchange offer as to any particular old notes either before
or after the expiration date of the exchange offer (including the letter of
transmittal and its instructions) by us shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with the
tenders of old notes for exchange must be cured within a reasonable period of
time as we shall determine. Neither the Company, the exchange agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of old notes for exchange, nor shall
any of them incur any liability for failure to give such notification.

Acceptance of the old notes for exchange; Delivery of the registered notes

Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date of the exchange offer, all
old notes properly tendered and will issue the registered notes promptly after
acceptance of the old notes. See "--Certain Conditions to the Exchange Offer"
below. For purposes of the exchange offer, we shall be deemed to have accepted
properly tendered old notes for exchange when, and if we have given verbal or
written notice of our acceptance to the exchange agent. In all cases, issuance
of the registered notes for the old notes that are accepted for exchange
pursuant to the exchange offer will be made only after timely receipt by the
exchange agent of the following:

. certificates for such old notes or a timely confirmation of a book-entry
transfer of such old notes into the exchange agent's account at the
Depository Trust Company pursuant to the book-entry transfer procedures
described below;

. a properly completed and duly executed letter of transmittal; and

. all other required documents.

If any tendered old notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer or if certificates representing the
old notes are submitted for a greater principal amount than the noteholder
desires to exchange, those unaccepted or non-exchanged old notes will be
returned without expense to the tendering noteholder thereof (or, in the case
of old notes tendered by book-entry transfer into the exchange agent's account
at the Depository Trust Company pursuant to the book-entry transfer procedures
described below, those non-exchanged old notes will be credited to an account
maintained with the Depository Trust Company) as promptly as practicable after
the expiration or termination of the exchange offer.

26
<PAGE>

Book-Entry Transfer

The exchange agent will make a request to establish an account with respect
to the old notes at the Depository Trust Company for purposes of the exchange
offer promptly after the date of this prospectus. Any financial institution
that is a participant in the Depository Trust Company's systems may make book-
entry delivery of the old notes by causing the Depository Trust Company to
transfer such old notes into the exchange agent's account at the Depository
Trust Company in accordance with the Depository Trust Company's Automated
Tender Offer Program ("ATOP") procedures for transfer. However, the exchange
for the old notes so tendered will only be made after timely confirmation of
such book-entry transfer of old notes into the exchange agent's account, and
timely receipt by the exchange agent of an Agent's Message (as such term is
defined in the next sentence) and any other documents required by the letter
of transmittal on or prior to the expiration date of the exchange offer or
pursuant to the guaranteed delivery procedures described below. The term
"Agent's Message" means a message, transmitted by the Depository Trust Company
and received by the exchange agent and forming a part of a timely confirmation
of a book-entry transfer, which states that the Depository Trust Company has
received an express acknowledgement from a noteholder tendering old notes that
are the subject of such timely confirmation of a book-entry transfer that such
noteholder has received and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce such agreement against such noteholder.

Guaranteed Delivery Procedures

If a registered noteholder of the old notes desires to tender such old
notes and the old notes are not immediately available, or time will not permit
such noteholder's old notes or other required documents to reach the exchange
agent before the expiration date of the exchange offer, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if:

. the tender is made through an Eligible Institution;

. prior to the expiration date of the exchange offer, the exchange agent
receives from such Eligible Institution a properly completed and duly
executed letter of transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by us (by
telegram, telex, facsimile transmission, registered or certified mail or
hand delivery), setting forth the name and address of the noteholder and
the amount of old notes tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates of all physically tendered old
notes, in proper form for transfer, or a timely confirmation of a book-
entry transfer, as the case may be, and any other documents required by
the letter of transmittal will be deposited by the Eligible Institution
with the exchange agent; and

. the certificates for all physically tendered old notes, in proper form
for transfer, or a timely confirmation of a book-entry transfer, as the
case may be, and all other documents required by the letter of
transmittal, are received by the exchange agent within three NYSE
trading days after the date of execution of the Notice of Guaranteed
Delivery.

Withdrawal Rights

You may withdraw your tender of the old notes at any time prior to the
expiration date of the exchange offer.

For a withdrawal to be effective, the exchange agent must receive a written
notice of withdrawal at the applicable address set forth below under "Exchange
Agent." Any such notice of withdrawal must:

. specify the name of the person having tendered the old notes to be
withdrawn;

. identify the old notes to be withdrawn (including the principal amount
of such old notes); and

. (where certificates for old notes have been transmitted) specify the
name in which such old notes are registered, if different from that of
the withdrawing noteholder.

27
<PAGE>

If certificates for old notes have been delivered or otherwise identified to
the exchange agent, then, prior to the release of such certificates, the
withdrawing noteholder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless such noteholder is an Eligible
Institution. If old notes have been tendered pursuant to the procedure for
book-entry transfer described above, any note of withdrawal must specify the
name and number of the account at the Depository Trust Company to be credited
with the withdrawn old notes and otherwise comply with the procedures of such
facility. We will determine all questions as to the validity, form and
eligibility (including time of receipt) of such notices, which shall be final
and binding on all parties. Any old notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the exchange offer. old
notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the noteholder thereof without cost to such
noteholder (or, in the case of old notes tendered by book-entry transfer
procedures described above, such old notes will be credited to an account
maintained with the Depository Trust Company for the old notes) as soon as
practicable after withdrawal, rejection of tender or termination of the
exchange offer. You may retender your properly withdrawn old notes by following
one of the procedures described under "Procedures for Tendering the old notes"
above at any time on or prior to the expiration date of the exchange offer.

Certain Conditions to the Exchange Offer

Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue registered notes in exchange for,
any old notes and may terminate or amend the exchange offer, if at any time
before the acceptance of such old notes for exchange or the exchange of the
registered notes for such old notes, there shall be threatened, instituted or
pending any action or proceeding before, or any injunction, order or decree
shall have been issued by, any court or governmental agency or other
governmental regulatory or administrative agency or commission:

(1) seeking to restrain or prohibit the making or consummation of the
exchange offer or any other transaction contemplated by the exchange
offer, or assessing or seeking any damages as a result thereof; or

(2) resulting in a material delay in our ability to accept for exchange or
exchange some or all of the old notes pursuant to the exchange offer;
or

(3) any statute, rule, regulation, order or injunction shall be sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
exchange offer or any of the transactions contemplated by the exchange
offer by any government or governmental authority, domestic or
foreign; or

(4) any action shall have been taken, proposed or threatened, by any
government, governmental authority, agency or court, domestic or
foreign;

that in our sole judgment might directly or indirectly result in any of the
consequences referred to in (1) or (2) above or, in our sole judgment, might
result in the holders of registered notes having obligations with respect to
resales and transfers of registered notes which exceed those described in this
prospectus, or would otherwise make it inadvisable to proceed with the exchange
offer. If we determine in good faith that any of the conditions are not met, we
may:

. refuse to accept any old notes and return all tendered old notes to
exchanging noteholders;

. extend the exchange offer and retain all old notes tendered prior to the
expiration of the exchange offer, subject, however, to the rights of
noteholders to withdraw such old notes (see "--Withdrawal Rights"); or

. waive some of the unsatisfied conditions with respect to the exchange
offer and accept all properly tendered old notes which have not been
withdrawn or revoked. If such waiver constitutes a material change to
the exchange offer, we will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to all noteholders.

28
<PAGE>

Noteholders have specified rights and remedies against us under the
Registration Rights Agreement, including specified liquidated damages, should
we fail to consummate the exchange offer within a specified period of time,
notwithstanding a failure due to the occurrence of any of the conditions stated
above. Such conditions are not intended to modify those rights or remedies in
any respect. The foregoing conditions are for our benefit and may be asserted
by us in good faith regardless of the circumstances giving rise to such
condition or may be waived by us in whole or in part at any time and from time
to time in our discretion. The failure by us at any time to exercise the
foregoing rights shall not be deemed a wavier of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.

Exchange Agent

The Bank of New York has been appointed as exchange agent for the exchange
offer. You should direct your questions and requests for assistance, requests
for additional copies of this prospectus or of the letter of transmittal to the
exchange agent addressed as follows:

<TABLE>
<C> <S>
By overnight courier or by hand: By registered or certified mail:
The Bank of New York The Bank of New York
Corporate Trust Service Window 101 Barclay Street 21W
Ground Level New York, NY 10286
101 Barclay Street Attention: Michael Daly
New York, NY 10286 Telephone: (212) 815-2588
Attention: Michael Daly Facsimile: (212) 815-5915
Corporate Trust Division, 21 West
Telephone: (212) 815-2588
Facsimile: (212) 815-5915
</TABLE>

IF YOU DELIVER TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMIT
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, IT WILL NOT BE A
VALID DELIVERY.

Fees and Expenses; Solicitation of Tenders

We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telephone or in person by our officers and regular employees and our
affiliates.

We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection with the exchange offer. The
cash expenses to be incurred in connection with the exchange offer will be paid
by us and include fees and expenses of the exchange agent and Trustee plus
accounting and legal fees.

We will pay all transfer taxes, if any, applicable to the exchange of the
old notes pursuant to the exchange offer. If, however, certificates
representing the registered notes or the old notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered
noteholders tendered, or if a transfer tax is imposed for any reason other than
the exchange of the old notes pursuant to the exchange offer, then the
tendering noteholder must pay the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons). If a tendering
noteholder does not submit satisfactory evidence of payment of such taxes or
exemption therefrom to the exchange agent, the amount of such transfer taxes
will be billed directly to such tendering noteholder.

We have not authorized any person to give any information or to make any
representations in connection with the exchange offer other than those
contained in this prospectus. If given or made, such information or

29
<PAGE>

representations should not be relied upon as having been authorized by us.
Neither the delivery of this prospectus nor any exchange made hereunder shall,
under any circumstances, create any implication that there has been no change
in our affairs since the respective dates as of which information is given in
this prospectus. The exchange offer is not being made to (nor will tenders be
accepted from or on behalf of) noteholders in any jurisdiction in which the
making of the exchange offer or the acceptance of this prospectus would not be
in compliance with the laws of such jurisdiction.

Accounting Treatment

We will record the registered notes at the same carrying value as the old
notes, which is face value, as recorded in our accounting records on the date
of the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The costs of the exchange offer will be expensed over the term of
the registered notes.

Consequences of Failure to Exchange

If you do not exchange your old notes for registered notes pursuant to the
exchange offer, you will continue to be subject to the restrictions on transfer
of such old notes as set forth in the legend on the old notes. In general, you
may not offer to sell or sell the old notes, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. We do not
intend to register the old notes under the Securities Act. We believe that,
based upon interpretations contained in no-action letters issued to third
parties by the staff of the SEC, any noteholder may offer for resale, resell or
otherwise transfer the registered notes issued pursuant to the exchange offer
in exchange for the old notes (unless the noteholder is an "affiliate" of ours
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that:

. the noteholder acquires the registered notes in the ordinary course of
its business;

. the noteholder has no arrangement with any person to participate in the
distribution of such old notes; and

. each broker-dealer that receives registered notes for its own account in
exchange for old notes must acknowledge that it will deliver a
prospectus in connection with any resale of such registered notes. See
the "Plan of Distribution" section of this prospectus.

If any noteholder (other than a broker-dealer described in the preceding
sentence) has any arrangement or understanding with respect to the distribution
of the registered notes to be acquired pursuant to the exchange offer, such
noteholder could not rely on the applicable interpretations of the staff of the
SEC and must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction. In addition,
to comply with the securities laws of various jurisdictions, if applicable, you
may not offer or sell the registered notes unless they have been registered or
qualified for sale in such jurisdiction or an exemption from registration or
qualification is available and is complied with.

30
<PAGE>

USE OF PROCEEDS

We will not receive any cash proceeds from the issuance of the registered
notes. As consideration for the registered notes, we will receive in exchange
an equivalent principal amount of outstanding old notes, the terms of which are
substantially identical to the terms of the registered notes, except that the
registered notes will be freely transferable and issued free of any covenants
regarding exchange and registration rights.

We will retire and cancel the old notes surrendered in exchange for the
registered notes. Accordingly, the issuance of registered notes under the
exchange offer will not result in any changes in our outstanding aggregate
indebtedness. We used the net proceeds of the offering of old notes, in
conjunction with borrowings under our senior secured credit facility, the net
proceeds from the issuance of $100.0 million of our Preferred Equity and the
issuance by Parent of $100.0 million of partnership interests which were
contributed to us as equity, to pay the merger consideration and certain fees
and expenses.

31
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of TNP and its
subsidiaries on an unaudited, actual basis as of March 31, 2000, adjusted for
the financing for the merger consideration and the application of the proceeds
therefrom.

You should read the information contained in the following table in conjunction
with "The Merger," "Use of Proceeds," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" sections of this prospectus
and the consolidated financial statements and notes thereto of TNP included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
As of March 31,
2000
(Unaudited)
---------------
As
Actual Adjustments adjusted
-------- --------------- ----------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents.............. $ 11,527 $ (7,308) $ 4,219
======== ========= ==========
Common shareholders' equity............ $331,658 $(235,791)(1) $ 95,867
-------- --------- ----------
Preferred stock subject to mandatory
redemption............................ 1,534 96,246 (2) 97,780
-------- --------- ----------
Long-term debt (including current
maturities):
TNMP revolving credit facilities..... 47,000 209,642 (3) 256,642
9 1/4% first mortgage notes, series
U................................... 100,000 (90,506)(4) 9,494
6 1/4% senior notes.................. 175,000 -- 175,000
Unamortized discount................. (736) -- (736)
10 3/4% secured debentures, series
A................................... 140,000 (112,776)(4) 27,224
Senior secured revolving credit
facility............................ -- -- --
Senior secured term loan............. -- 160,000 (5) 160,000
10.25% senior subordinated notes..... -- 275,000 (5) 275,000
-------- --------- ----------
Total debt......................... 461,264 441,360 902,624
-------- --------- ----------
Total capitalization................... $794,456 $ 301,815 $1,096,271
======== ========= ==========
</TABLE>
--------
(1) Adjustment to eliminate TNP equity, record $100 million equity contribution
from SW Acquisition, issuance of 100,000 warrants, less costs associated
with the issuance of preferred stock.

(2) Adjustment to record the issuance of $100 million 14 1/2% senior redeemable
preferred stock, less value associated with the issuance of 100,000
warrants by Parent.
(3) Adjustment to record borrowings from revolving credit facilities to
refinance debt resulting from the tender offer, as required by various
indentures resulting from the change of control.
(4) Adjustment to record the retirement of debt, resulting from tender offer in
accordance with indentures upon a change of control.

(5) Adjustment to record the issuance of debt related to the merger, including
10.25% senior subordinated notes.

32
<PAGE>

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
(Dollars in thousands)

The following tables set forth selected historical financial data of TNP and
selected operating data for TNMP for the years ended December 31, 1995 through
1999 which have been derived from the audited statements of TNP for those
periods, and for the quarters ended March 31, 2000 and 1999. As the information
presented below is only a summary and does not provide all of the information
contained in the financial statements of TNP, you should read "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto of TNP included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
--------------------------------------------------- --------------------
March 31, March 31,
1995 1996 1997 1998 1999 1999 2000
--------- --------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of operations
data:
Operating revenues...... $ 485,823 $ 502,737 $578,534 $585,941 $ 576,150 $118,125 $ 124,526
--------- --------- -------- -------- --------- -------- ---------
Operating expenses
Purchased power and
fuel.................. 227,363 243,682 300,614 315,949 279,587 57,372 59,550
Other operating and
maintenance........... 82,833 84,417 86,385 95,661 106,634 23,825 24,158
Depreciation........... 37,850 38,172 38,853 38,056 39,295 9,974 10,230
Charge for recovery of
stranded plant........ -- -- -- -- 23,376 3,750 1,629
Taxes other than income
taxes................. 28,865 33,256 33,667 36,014 33,746 8,000 7,941
Income taxes........... 12,317 10,375 21,242 15,480 19,120 712 3,579
--------- --------- -------- -------- --------- -------- ---------
Total operating
expenses............... 389,228 409,902 480,761 501,160 501,758 103,633 107,087
--------- --------- -------- -------- --------- -------- ---------
Net operating income.... 96,595 92,835 97,773 84,781 74,392 14,492 17,439
Other income (net)...... 10,425 2,678 1,700 1,238 (482) 281 334
Interest expenses....... 73,960 69,363 56,912 53,885 43,743 11,641 10,514
--------- --------- -------- -------- --------- -------- ---------
Income from continuing
operations............. 33,060 26,150 42,561 32,134 30,167 3,132 7,259
Loss from discontinued
nonregulated
operations, net of
taxes.................. -- 3,097 12,883 12,710 -- -- --
Cumulative effect of
change in accounting
for unbilled revenues,
net of taxes........... 8,445 -- -- -- -- -- --
--------- --------- -------- -------- --------- -------- ---------
Net income.............. 41,505 23,053 29,678 19,424 30,167 3,132 7,259
Dividends on preferred
stock and other........ 655 167 158 150 (19) 36 5
--------- --------- -------- -------- --------- -------- ---------
Net income applicable to
common................. $ 40,850 $ 22,886 $ 29,520 $ 19,274 $ 30,186 $ 3,096 $ 7,254
========= ========= ======== ======== ========= ======== =========

Other financial data and
ratios:
EBITDA(1)............... $ 149,599 $ 145,366 $161,134 $142,252 $ 161,342 $ 29,761 $ 33,473
Ratio of EBITDA to
consolidated interest
expense................ 2.0x 2.1x 2.8x 2.6x 3.7x 2.6x 3.2x
Ratio of total debt to
EBITDA................. 4.1x 3.7x 3.0x 3.2x 2.7x N/A N/A
Ratio of total debt and
preferred equity to
EBITDA................. 4.1x 3.7x 3.0x 3.2x 2.7x N/A N/A
Ratio of earnings to
fixed charges(2)....... 1.7x 1.5x 2.1x 1.9x 2.1x N/A N/A

Balance sheet data:
Cash and cash
equivalents............ $ 21,105 $ 8,387 $ 15,877 $ 12,216 $ 14,456 $ 6,929 $ 11,527
Property, plant and
equipment, net......... 944,004 933,939 923,268 922,879 907,978 921,142 907,634
Total assets............ 1,030,433 1,006,784 991,926 993,765 1,001,199 984,210 1,000,690
Total debt.............. 612,995 534,102 478,141 459,000 440,244 475,681 461,264
Preferred Stock subject
to mandatory
redemption............. 3,600 3,420 3,240 3,060 1,664 3,060 1,534
Common shareholders'
equity................. 217,457 278,474 298,241 308,294 327,110 310,611 331,658
</TABLE>

33
<PAGE>

<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
--------------------------------------------------- -------------------
March 31, March 31,
1995 1996 1997 1998 1999 1999 2000
--------- --------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
TNMP Operating Revenues:
Residential............ $ 200,455 $ 206,748 $ 211,398 $ 225,870 $ 216,374 $ 42,473 $ 41,862
Commercial............. 148,908 150,034 155,539 164,800 163,248 34,770 36,645
Industrial............. 113,728 129,972 170,169 150,883 147,110 33,968 35,063
Other.................. 22,732 15,983 27,672 33,178 45,695 6,337 9,098
Power Marketing........ -- -- 13,756 11,161 3,666 563 1,844
--------- --------- ---------- ---------- --------- --------- ---------
Total................ $ 485,823 $ 502,737 $ 578,534 $ 585,892 $ 576,093 $ 118,111 $ 124,512
========= ========= ========== ========== ========= ========= =========

Sales (megawatt-hours):
Residential............ 2,141,553 2,230,558 2,251,119 2,439,478 2,420,512 491,948 502,627
Commercial............. 1,681,130 1,725,650 1,772,591 1,883,422 1,921,614 401,854 433,595
Industrial............. 2,704,159 3,797,776 5,523,907 4,981,773 4,799,146 1,155,785 1,153,164
Other.................. 113,985 108,039 107,847 113,535 108,547 26,742 23,078
Power Marketing........ -- -- 494,705 425,216 119,344 21,664 68,348
--------- --------- ---------- ---------- --------- --------- ---------
Total................ 6,640,827 7,862,023 10,150,169 9,843,424 9,369,163 2,097,993 2,180,812
========= ========= ========== ========== ========= ========= =========

Number of Customers (at
end of period):
Residential............ 183,863 187,796 192,005 197,155 199,617 198,641 200,560
Commercial............. 29,361 29,864 30,289 30,884 33,127 31,002 33,679
Industrial............. 136 135 139 138 116 139 119
Other.................. 244 224 222 227 799 230 804
Power Marketing........ -- -- 16 16 8 6 11
--------- --------- ---------- ---------- --------- --------- ---------
Total................ 213,604 218,019 222,671 228,420 233,667 230,018 235,173
========= ========= ========== ========== ========= ========= =========

Revenue Statistics:
Average use per
residential customer
(kilowatt-hours)...... 11,476 11,973 11,835 12,491 12,130 2,486 2,510
Average revenue per
residential customer
(dollars)............. 1,074 1,110 1,111 1,157 1,084 215 209
Average revenue per
kilowatt-hour sold
per residential
customer (cents)...... 9.36 9.27 9.39 9.26 8.94 8.63 8.33
Average revenue per
kilowatt-hour sold
total sales (cents)... 7.32 6.39 5.70 5.95 6.15 5.63 5.71

Net Generation and
Purchases (megawatt-
hours):
Generated.............. 2,351,000 2,296,056 2,089,448 2,062,958 1,912,673 412,701 496,536
Purchased.............. 4,612,186 5,769,173 8,443,990 8,256,857 7,716,856 1,754,193 1,759,058
--------- --------- ---------- ---------- --------- --------- ---------
Total................ 6,963,186 8,065,229 10,533,438 10,319,815 9,629,529 2,166,894 2,255,594
========= ========= ========== ========== ========= ========= =========
Average Cost per
Kilowatt-hour Purchased
(cents):............... 3.87 3.51 3.13 3.39 3.18 2.86 2.88
</TABLE>
--------
(1) EBITDA represents income from continuing operations before interest
expense, income tax expense, charge for recovery of stranded plant,
depreciation and amortization and non-cash charges of $2.8 million net of
taxes and taxes on other income in 1999 and gain on sale of assets of $9.5
million in 1995 net of taxes. EBITDA is not intended to represent cash flow
from operations as defined by generally accepted accounting principals and
should not be used as an alternative to operating income or income from
continuing operations as an indicator of our operating performance or cash
flow as a measure of liquidity.
(2) For purposes of this calculation, earnings are defined as earnings from
income from continuing operations plus income taxes plus fixed charges.
Fixed charges consist of total interest charges and the portion of interest
implicit in rentals.

34
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

TNP is a holding company whose primary operating subsidiary is TNMP, a
regulated public utility engaged in generating, purchasing, transmitting and
selling electricity to approximately 235,000 residential, commercial and
industrial customers in Texas and New Mexico. TNMP's operations consist
primarily of the transmission and distribution of electricity from its
generation facility (TNP One) and various third-party power plants to end users
of electricity. For the year ended December 31, 1999, our transmission and
distribution network, which consists of approximately 1,500 miles of
transmission lines, served customers in 90 municipalities and adjacent suburban
and rural areas throughout our three distinct operating regions. Our operating
regions include suburbs of Houston, Dallas and Galveston and rural areas
throughout central, north and west Texas and southern New Mexico. Our customers
in Texas and New Mexico account for 86% and 14% of our operating revenues,
respectively.

We generate approximately 20% of the electricity we sell and purchase the
remaining 80% from various third party suppliers. We have entered into
purchased power agreements with suppliers of energy and have adequate resources
through firm contracts to serve our entire customer base.

Our operations are subject to regulation by the PUCT and NMPRC as well as
several federal regulatory bodies. New legislation in both Texas and New Mexico
that establishes competition in each state's electric utility industry became
law in 1999. The impact of this legislation on TNMP's financial results will be
noted as necessary in the following discussion.

The following discussion of our historical results of operation and
financial condition should be read in conjunction with the consolidated
financial statements and notes thereto of TNP included elsewhere in this
prospectus.

Recent Developments

On April 25, 2000, in connection with the merger, we dismissed Arthur
Andersen LLP as our independent accountants and engaged Deloitte & Touche LLP
to replace Arthur Andersen LLP. We filed a Current Report on Form 8-K with the
SEC with respect to this change of accountants on May 2, 2000. On May 15, 2000,
we filed our Quarterly Report on Form 10-Q with the SEC, which includes
financial information for the fiscal quarters ended March 31, 2000 and March
31, 1999. Pro forma financial information was included in the Form 10-Q for the
quarterly period ended March 31, 2000, which gives pro forma effect to the
merger and the financing thereof but not the offering of our 14 1/2% senior
redeemable preferred stock as if the merger had occurred at the beginning of
each period presented. Pro forma financial information that was included in the
offering memorandum relating to the old notes has not been updated to reflect
changes in the various estimates and assumptions, which were included in the
Form 10-Q for the quarterly period ended March 31, 2000. As disclosed in the
Form 10-Q, we estimate the goodwill resulting from the merger will total
approximately $286.6 million; the goodwill will be amortized over a 25 year
period; the annual interest expense is now $88.4 million on a pro forma basis
for the twelve months ended December 31, 1999; annual income tax expense is now
$4.0 million on a pro forma basis for the twelve months ended December 31,
1999; and we are assessing the fair market value of TNP One, regulatory assets
and its other assets as required by the purchase method of accounting.

35
<PAGE>

Results of Operations

The following table sets forth the percentage relationships of certain items
in our income statement to operating revenues.

<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
------------------------- -----------------------------
1997 1998 1999 March 31, 1999 March 31, 2000
------- ------- ------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Operating revenues...... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses
Purchased power and
fuel................. 52.0% 53.9% 48.5% 48.6% 47.8%
Other operating and
maintenance.......... 14.9% 16.3% 18.5% 20.1% 19.4%
Depreciation.......... 6.7% 6.5% 6.8% 8.4% 8.2%
Charge for recovery of
stranded plant....... -- -- 4.1% 3.2% 1.3%
Taxes other than
income taxes......... 5.8% 6.2% 5.9% 6.8% 6.4%
Income taxes.......... 3.7% 2.6% 3.3% 0.6% 2.9%
------- ------- ------- ----- -----
Total operating
expenses............... 83.1% 85.5% 87.1% 87.7% 86.0%
------- ------- ------- ----- -----
Net operating income.... 16.9% 14.5% 12.9% 12.3% 14.0%
Other income (net)...... 0.3% 0.2% (0.1)% 0.2% 0.3%
Interest expense........ 9.8% 9.2% 7.6% 9.8% 8.5%
------- ------- ------- ----- -----
Income from continuing
operations............. 7.4% 5.5% 5.2% 2.7% 5.8%
======= ======= ======= ===== =====
</TABLE>

Three Months ended March 31, 2000 compared to Three Months ended March 31, 1999

Overall Results

TNP's earnings applicable to common stock were $7.3 million for the quarter
ended March 31, 2000 as compared to $3.1 million for the quarter ended March
31, 1999. Since the operations of TNMP (the principal subsidiary) currently
represent most of TNP's operations, the following discussion focuses on TNMP's
operations unless noted otherwise.

Under legislation passed in 1999, TNMP's earnings on its Texas operations
are capped at a 10.53% return on rate base adjusted for discounted rates to
industrial customers, which are expected to be approximately $2.0 million in
2000. TNMP will apply Texas earnings in excess of the cap to recover its
stranded costs. During the first quarter of 2000, TNMP recorded pre-tax excess
earnings of $2.0 million ($1.2 million after tax). That amount included an
adjustment to the excess earnings recorded in 1998 and 1999 due to the
resolution of a purchased power dispute.

TNMP's earnings applicable to common stock were $7.8 million for the quarter
ended March 31, 2000 as compared to $3.8 million for the quarter ended March
31, 1999. The $4.0 million increase is attributable to the factors listed below
(in millions):

<TABLE>
<S> <C>
Changes in base revenues............................................. $1.5
Non-pass through purchased power and fuel expense.................... 2.7
Transmission expenses................................................ 1.1
Other operating expenses............................................. (1.7)
Charge for recovery of stranded plant................................ 2.1
Interest............................................................. 1.0
All other (including income tax effects on the items above).......... (2.7)
----
Total.............................................................. $4.0
====
</TABLE>

36
<PAGE>

Operating Revenues

The following table summarizes the components of base revenues (in
thousands).

<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
Increase
2000 1999 (Decrease)
-------- -------- ----------
<S> <C> <C> <C>
Operating revenues............................ $124,512 $118,111 $6,401
Pass-through expenses......................... 47,895 43,033 4,862
-------- -------- ------
Base revenues................................. $ 76,617 $ 75,078 $1,539
======== ======== ======
</TABLE>

Pass-through expenses in Texas include fuel and the energy-related portion
of purchased power. In New Mexico, pass-through expenses include all purchased
power costs.

The following table summarizes the components of the change in base revenues
for the three months ended March 31, 2000 compared to the same period in 1999
(in thousands).

<TABLE>
<S> <C>
Base revenue
Weather related.................................................. $1,871
Customer growth.................................................. 882
Price/sales mix (primarily base rate reductions)................. (2,418)
Transmission revenue............................................. 1,342
Other............................................................ (138)
------
Base revenue increase.......................................... $1,539
======
</TABLE>

Current quarter base revenue increased $1.5 million, or 2.0%, compared to
the corresponding 1999 period. The increase resulted from higher weather-
related sales in the residential and commercial classes, higher transmission
revenues, and growth in the number of residential and commercial customers.
These increases were offset in part by a rate reduction in Texas pursuant to
the Transition Plan.

Transmission revenues increased due to a change in the method of allocating
Texas transmission costs that the PUCT approved as of September 1, 1999. The
PUCT adopted the new method to comply with the restructuring legislation passed
in 1999.

Effective January 1, 2000, TNMP implemented base rate reductions of 3% and
1% for residential and commercial customers, respectively, under the terms of a
Declaratory Order issued by the PUCT on December 6, 1999. Similar rate
reductions will take effect January 1, 2001.

The following table summarizes the components of gigawatt-hour (GWH) sales.

<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
Increase
2000 1999 (Decrease)
----- ----- ----------
<S> <C> <C> <C>
GWH sales:
Residential......................................... 503 492 11
Commericial......................................... 433 402 31
Industrial:
Firm.............................................. 130 112 18
Economy........................................... 1,023 1,044 (21)
Power marketing..................................... 68 22 46
Other............................................... 23 26 (3)
----- ----- ---
Total GWH sales................................. 2,180 2,098 82
===== ===== ===
</TABLE>

37
<PAGE>

Current quarter sales of 2,180 GWHs increased by 82 GWHs (or 3.9%) as
compared to the corresponding 1999 period. The increase resulted from higher
off-system sales, higher weather-related sales in the commercial and
residential classes, and growth in the number of commercial and residential
customers. Although weather in the first quarter of 2000 was below normal, it
was not as mild as weather in the first quarter of 1999.

Operating Expenses

TNMP incurred operating expenses of $106.5 million in the quarter ended
March 31, 2000, an increase of $3.4 million over the amount incurred during the
corresponding period of 1999. The increase reflects higher costs for purchased
power, fuel, and other operating expenses partially offset by lower
transmission expenses and lower charges for recovery of stranded plant.

Purchased Power and Fuel Expenses

The following table summarizes the components of TNMP's purchased power and
fuel expenses (in thousands).

<TABLE>
<CAPTION>
Three Months Ended March
31,
--------------------------
Increase
2000 1999 (Decrease)
------- ------- ----------
<S> <C> <C> <C>
Purchased power and fuel expenses:
Pass through expenses:
Purchased power............................... $39,411 $36,071 $3,340
Fuel.......................................... 8,484 6,962 1,522
------- ------- ------
47,895 43,033 4,862
------- ------- ------
Non-pass through expenses:
Texas demand purchased power.................. 11,215 14,092 (2,877)
Other fuel costs.............................. 440 247 193
------- ------- ------
11,655 14,339 (2,684)
------- ------- ------
Total purchased power and fuel.................. $59,550 $57,372 $2,178
======= ======= ======
</TABLE>

In the first quarter of 2000, purchased power and fuel expenses increased
$2.2 million from the level incurred during the first quarter of 1999. Pass-
through expenses increased $4.9 million, reflecting increased purchases caused
by higher sales and price increases in New Mexico. Non pass-through expenses
decreased $2.7 million due to the deferral of a 1998 payment made to resolve a
billing dispute.

Transmission Expenses

Transmission expenses decreased by $1.1 million in the first quarter of 2000
compared to the corresponding period in 1999, due to the change in cost
allocation described in "Operating Revenues," above.

Other Operating Expenses

Other operating expenses for the current quarter were $1.7 million higher
than in the same quarter of 1999. This increase is primarily due to higher
payroll costs and a payment to the Texas Department of Housing for programs to
assist low-income customers.

Charge for Recovery of Stranded Plant

Charge for recovery of stranded plant decreased $2.1 million in the first
quarter of 2000 compared to the same period in 1999. During the first quarter
of 2000, TNMP recorded pre-tax excess earnings of $1.6 million. In the first
quarter of 1999, TNMP recorded $3.7 million of additional depreciation under
the Transition Plan.

38
<PAGE>

Interest Expense

Interest charges decreased by $1.0 million due to TNMP's January 1999
issuance of $175 million of 6.25% senior notes, which replaced $130 million of
12.5% secured debentures, and due to reduced debt levels of the credit
facilities, and lower amortization of debt related expenses.

Financial Condition

TNMP Liquidity

The main sources of liquidity for TNMP are cash flow from operations and
borrowings from its credit facility. TNMP's cash flow from operations was $6.5
million lower for the first quarter of 2000 as compared to the first quarter of
1999 due to lower receipts from customers, resulting from base rate reductions
in Texas, and the timing of the first interest payment on TNMP's 6.25% senior
notes.

TNMP has sufficient liquidity to satisfy the possibility of any known
contingencies. Management believes cash flow from operations and periodic
borrowings under its revolving credit facility should be sufficient to meet
working capital requirements at least through 2000.

TNP Liquidity

TNP's main sources of liquidity, and its ability to service the debt issued
to finance the merger, depend primarily on the earnings of TNMP and the
distribution of those earnings in the form of cash dividends, as well as tax
payments from TNMP due under a tax sharing agreement between TNP and TNMP. TNP
has a $25 million revolving credit facility that will be used to provide
working capital and meet other requirements. The revolving credit facility was
put in place at the time of the merger. As of the date of this prospectus, the
entire $25 million is available to TNP.

Cash dividends from TNMP to TNP are limited by restrictions included in
TNMP's debt indentures and bank agreements. In addition, the regulatory orders
from the PUCT and the NMPRC approving the merger contain additional
restrictions on TNMP's ability to pay cash dividends to TNP.

During the first quarter of 2000, TNP's cash flow from operations was $1.7
million lower than in the first quarter of 1999 due to TNMP's lower cash flow
from operations as discussed above, offset by reduced expenditures for non-
regulated activities.

Management believes that dividends from TNMP, payments from TNMP under the
tax sharing agreement, and periodic borrowings under its revolving credit
facility should be sufficient to meet TNP's working capital requirements at
least through 2000.

39
<PAGE>

1999 compared to 1998

The following table summarizes the components of gigawatt-hour sales and
provides a comparison of 1999 to 1998.
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------
Percent
1999 1998 Variance Change
------ ------ -------- -------
<S> <C> <C> <C> <C>
Residential.................................. 2,420 2,440 (20) (0.8)%
Commercial................................... 1,922 1,883 39 2.0%
Industrial................................... 4,799 4,981 (182) (3.7)%
Other........................................ 228 539 (311) (57.7)%
------ ------ ---- -----
Total gigawatt-hour sales.................. 9,369 9,843 (474) (4.8)%
====== ====== ==== =====
</TABLE>

In 1999 sales decreased 5%, or 474 gigawatt-hours, from 1998 levels,
primarily due to reduced sales to a large industrial customer whose contract
was renegotiated (see "Operating revenues") and decreased power marketing
sales.

The following table summarizes the average prices paid per kilowatt-hour by
customer class and provides a comparison of 1999 to 1998.

<TABLE>
<CAPTION>
Year Ended
December 31,
-------------
Percent
1999 1998 Change
------ ------ -------
<S> <C> <C> <C>
Average Revenue per Kilowatt-hour (cents):
Residential......................................... 8.94 9.26 (3.5)%
Commercial.......................................... 8.50 8.75 (2.9)%
Industrial.......................................... 3.07 3.03 1.3%
</TABLE>

Average revenue per kilowatt-hour sold to residential and commercial
customers decreased as a result of changes, mandated by the Transition Plan, in
the calculation of the fuel factor (the portion of a customer's energy costs
representing our cost for fuel and purchased power). The Transition Plan
changed the calculation of the fuel factor from variable factor to fixed. TNMP
implemented the approved fuel factor in late 1998. Average revenue per
kilowatt-hour sold to industrial customers increased due to a standby contract
entered into in 1999 with a cogeneration customer. Under this contract, we
receive revenues for providing backup power services. This contract does not
require kilowatt-hour sales unless the cogeneration plant suffers a service
interruption. Excluding this contract, the two periods would be comparable.

Operating revenues: Operating revenues decreased 2% to $576.1 million for
1999 compared to $585.9 million for 1998. Operating revenues consist of two
components: (i) base revenues and (ii) pass-through expenses. Pass-through
expenses in Texas include fuel and the energy-related portion of purchased
power while pass-through expenses in New Mexico were redefined as of July 1,
1999 to include all fuel and purchased power expenses.

The components of TNMP's base revenues (revenues net of pass-through
expenses) are summarized in the following tables (in thousands).

<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1999 1998 Increase/(Decrease)
-------- -------- ------------------
<S> <C> <C> <C>
Operating revenues..................... $576,093 $585,892 $ (9,799)
Pass-through expenses.................. 199,939 193,016 6,923
-------- -------- --------
Base revenues.......................... $376,154 $392,876 $(16,722)
======== ======== ========
</TABLE>

40
<PAGE>

Base revenues decreased 4% or $16.7 million from $392.9 million in 1998 to
$376.2 million in 1999. The following table summarizes the components of the
base revenues decrease (in thousands).

<TABLE>
<S> <C>
Base Revenues:
Weather related.................................................. $ (3,979)
Customer growth.................................................. 5,064
New Mexico purchased power recovery effects from termination of
Community Choice(R)............................................. (10,192)
Industrial--firm rate sales...................................... (3,325)
Clear Lake standby revenue....................................... (2,453)
New Mexico stranded cost adjustment.............................. 1,697
Other changes in base revenues................................... (3,534)
--------
Base revenues decrease......................................... $(16,722)
========
</TABLE>
The base revenues decrease resulted primarily from a change in the
classification of New Mexico purchased power recovery revenues from base to
pass-through. This reclassification resulted from the NMPRC's termination of
Community Choice(R) which restored the pass-through of purchased power costs to
TNMP's New Mexico customers as of July 1, 1999. Effective July 1, 1999, pass-
through expenses include all purchased power costs while prior to July 1, 1999,
purchased power costs were recovered from customers in base rates. Under
Community Choice(R), the difference between purchased power recovery and actual
purchased power costs affected operating income. The termination of Community
Choice(R) limits purchased power recovery to actual purchased power costs and
thus purchased power recovery does not affect operating income. This
reclassification resulted in a $10.2 million decrease in New Mexico base
revenues which was offset by a $10.2 million increase in pass-through revenues.

Other factors contributing to the base revenues decrease were a renegotiated
contract with a large industrial customer who reduced its firm purchased power
commitment by 55%, the settlement of litigation with Clear Lake Cogeneration
Limited Partnership ("Clear Lake"), which resulted in the loss of standby
revenue payments and milder weather compared to 1998. The decrease was
partially offset by residential and commercial customer growth.

Operating expenses: Operating expenses increased to $501.8 million for 1999
from $501.2 million in 1998. The increase of $0.6 million resulted from the
charge for recovery of stranded plant and increased other operating and
maintenance expenses offset by a decrease in purchase power and fuel expense
and taxes other than income taxes.

The following table summarizes the components of TNMP's purchased power and
fuel expenses (in thousands).

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 Increase/(Decrease)
----------- ----------- ------------------
<S> <C> <C> <C>
Pass-through expenses.......... $ 199,939 $ 193,016 $ 6,923
Non pass-through expenses...... 79,648 122,933 (43,285)
----------- ----------- --------
Purchased power and fuel
expenses...................... $ 279,587 $ 315,949 $(36,362)
=========== =========== ========
</TABLE>

In 1999, purchased power and fuel expenses decreased 12% or $36.4 million
from the $315.9 million in 1998 to $279.6 million in 1999. Non pass-through
expenses decreased $43.3 million, reflecting lower demand costs resulting from
the replacement of purchases from TXU Electric Company Inc. ("TXU") with
purchases from lower cost providers, significant reductions of the rate under
which TNMP purchases capacity from Clear Lake, and effects of the termination
of New Mexico Community Choice(R). The decreases in non pass-through costs were
partially offset by increases in pass-through expenses of $6.9 million. Pass-
through expenses

41
<PAGE>

increased because of increased costs of electricity purchased in the spot
market during the third quarter's extreme weather.

The NMPRC terminated Community Choice(R) in the second quarter. Under
Community Choice(R), rates for recovery of New Mexico purchased power costs
were frozen, except those charged to certain industrial customers. The NMPRC
order terminating Community Choice(R) required TNMP to pass through to all
customers New Mexico purchased power costs as of July 1, 1999. As a result,
$11.4 million of New Mexico purchased power costs incurred in the third and
fourth quarter were recorded as pass-through expenses. Those costs would have
been recorded as non pass-through expenses under Community Choice(R).

Under the Texas legislation, we are allowed to apply earnings in excess of
our maximum allowed return on equity to accelerate the amortization of our
stranded costs (charge for recovery of stranded plant). In 1999, based on
provisions of the legislation, we earned $23.4 million in excess of our maximum
allowed return on equity. These excess earnings were used to increase our
amortization of plant and equipment resulting in a reduction to 1999 pre-tax
operating income.

Other operating and maintenance expenses increased 11% or $11.0 million to
$106.6 million in 1999 from $95.7 million in 1998 primarily due to increased
transmission costs and legal and outside consultant fees associated with the
merger ($4.1 million). Transmission expenses increased $7.0 million in 1999,
from the same period in 1998, due to discontinued reimbursements in accordance
with the Clear Lake settlement, and a new allocation of transmission costs
approved by the PUCT in July 1999. The increased transmission expenses approved
by the PUCT resulted from our termination of a majority of the TXU purchased
power contract at the beginning of 1999. While terminating the contract has
produced purchased power savings, the savings were partially offset by
increased transmission payments. A second PUCT action in September 1999
partially offset these increases when, in accordance with the Texas
legislation, the PUCT approved a change in the method of allocating
transmission costs effective September 1, 1999. This change resulted in a $1.7
million reduction in TNMP's transmission expenses in the fourth quarter of 1999
compared to what they would have been without the change.

Taxes other than income taxes decreased 6.4% or $2.3 million from $36.0
million in 1998 to $33.7 million in 1999 due to reduced property taxes and
lower revenue related taxes.

Operating income: Due to the factors discussed above in operating revenues
and expenses, net operating income decreased 12% from $84.8 million in 1998 to
$74.4 million in 1999.

Interest Expense: Interest charges decreased 19% or $10.2 million from $53.9
million in 1998 to $43.7 million in 1999 due to the issuance of $175.0 million
of 6.25% senior notes, the proceeds of which were used to retire our $130.0
million senior secured debentures and reduce outstanding borrowings under our
credit facility.

1998 compared to 1997

The following table summarizes the components of gigawatt-hour sales and
provides a comparison of 1998 to 1997.

<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1998 1997 Variance Percent Change
----- ------ -------- --------------
<S> <C> <C> <C> <C>
Residential............................. 2,440 2,251 189 8.4%
Commercial.............................. 1,883 1,772 111 6.3%
Industrial.............................. 4,981 5,524 (543) (9.8)%
Other................................... 539 603 (64) (10.6)%
----- ------ ---- -----
Total gigawatt-hour sales............. 9,843 10,150 (307) (3.0)%
===== ====== ==== =====
</TABLE>

42
<PAGE>

In 1998, gigawatt-hour sales decreased 3% or 307 gigawatt-hours from 1997
levels, due to the movement of a significant industrial customer to self-
generation and decreased off-system sales. This decrease was partially offset
by increased residential and commercial sales due to increased demand resulting
from hotter-than-normal weather and customer growth.

The following table summarizes the average prices paid per kilowatt-hour by
customer class and provides a comparison of 1998 to 1997.

<TABLE>
<CAPTION>
Year Ended
December 31,
-------------
1998 1997 Percent Change
------ ------ --------------
<S> <C> <C> <C>
Average Revenue per Kilowatt-hour (cents):
Residential................................... 9.26 9.39 (1.4)%
Commercial.................................... 8.75 8.77 (0.2)%
Industrial.................................. 3.03 3.08 (1.6)%
</TABLE>

Average revenue per kilowatt-hour sold to residential and commercial
customers decreased primarily due to rate reductions mandated by the Transition
Plan. The Transition Plan specified base rate reduction, effective January 1,
1998, for residential and commercial customers of 3% and 1% respectively. These
mandated rate reductions were offset by a higher pass-through of fuel and
purchased power. The average revenue per kilowatt-hour sold to industrial
customers decreased due to the loss of major customers.

Operating revenues: Operating revenues increased 1% or $7.4 million to
$585.9 million for 1998 from $578.5 million in 1997. Operating revenues consist
of two components: (i) base revenues and (ii) pass-through expenses. Pass-
through expenses in Texas include fuel and the energy-related portion of
purchased power while in New Mexico, the composition of pass-through expenses
changed in 1997, as described in the "Operating expenses" section below.

The components of TNMP's base revenues (revenues net of pass-through
expenses) are summarized in the following tables (in thousands).

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C> <C> <C>
<CAPTION>
1998 1997 Increase/(Decrease)
----------- ----------- ------------------
<S> <C> <C> <C>
Operating revenues.............. $ 585,892 $578,534 $7,358
Pass through expenses........... 193,016 188,971 4,045
----------- ----------- ------
Base revenues................. $ 392,876 $389,563 $3,313
=========== =========== ======
</TABLE>

The following table summarizes the components of the base revenues increase
from 1997 to 1998 (in thousands).
<TABLE>
<S> <C>
Base Revenues:
Weather related................................................. $11,711
Customer growth................................................. 4,896
New Mexico purchased power recovery effects from termination of
Community Choice(R)............................................ 1,416
Industrial--firm rate sales..................................... (9,020)
New Mexico stranded costs adjustment............................ (383)
Other changes in base revenues.................................. (5,307)
-------
Base revenues increase........................................ $ 3,313
=======
</TABLE>

Base revenues increased 1% or $3.3 million to $392.9 million in 1998 from
$389.6 million in 1997 primarily from increased sales due to hotter-than-normal
weather during the summer and customer growth in

43
<PAGE>

the residential and commercial classes. These increases were partially offset
by the loss of a major industrial customer and other miscellaneous decreases.

Operating expenses: Operating expenses increased 4% or $20.4 million to
$501.2 million in 1998 from $480.8 million in 1997. The increase in operating
expenses was due primarily to increased purchased power and other operating and
maintenance expenses and taxes other than income. Increases in those items were
offset by a decrease in income tax expense.

The following table summarizes the components of TNMP's purchased power and
fuel expenses (in thousands).

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 Increase/(Decrease)
----------- ----------- ------------------
<S> <C> <C> <C>
Pass-through expenses.......... $ 193,016 $ 188,971 $ 4,045
Non pass-through expenses...... 122,933 111,643 11,290
----------- ----------- -------
Purchased power and fuel
expenses.................... $ 315,949 $ 300,614 $15,335
=========== =========== =======
</TABLE>

Purchased power and fuel expenses increased by 5% or $15.3 million in 1998
to $315.9 million from $300.6 million in 1997 due to increased purchased power
expenses during the hotter-than-normal summer weather, recognition of expenses
in compliance with the Texas Transition and the New Mexico Community Choice
plans (both since superseded by legislation) and settlement of a billing
dispute. In Texas, the Transition Plan changed the method of recovering
purchased power expenses from customers. Effective January 1, 1998, only the
energy-related portion of purchased power was passed through directly to
customers via the fixed fuel recovery factor. The demand-related portion of
purchased power will be recovered through base rates. Therefore, any difference
between the amount of demand-related purchased power recovered through TNMP's
rates and the actual costs will affect operating income. Texas demand charges
were $98.3 million in 1998. Recovery of demand purchased power in Texas
amounted to $90.8 million in 1998, resulting in a reduction of $7.5 million in
pre-tax operating income. Prior to January 1, 1998, the majority of purchased
power costs were recoverable from customers via a recovery clause. The
Community Choice(R) plan froze the component of recovering purchased power
costs in base rates charged to New Mexico firm customers (primarily residential
and commercial). Therefore, differences between actual costs and the amount
recovered in base rates impacted operating income. During 1998, TNMP was
underrecovered by $3.2 million as compared to 1997.

Other operating expenses increased 11% or $9.3 million to $95.7 million in
1998 from $86.4 million in 1997. The majority of this increase resulted from
additional transmission expenses of $3.1 million as compared to 1997, and the
$3.3 million write-off of deferred costs related to the Transition Plan.

Taxes other than income taxes increased 7% or $2.3 million to $36.0 million
in 1998 from $33.7 million in 1997 due to higher revenue-related taxes.

Operating income: Due to the factors discussed above in operating revenues
and expenses, net operating income decreased from $97.8 million to $84.8
million.

Interest expense: Interest charges decreased 5% or $3.0 million from $56.9
million in 1997 to $53.9 million in 1998 due primarily to reduced borrowings
and lower interest rates on our credit facilities.

Liquidity and Capital Resources

Historically, we have utilized internally generated funds to meet ongoing
working capital and capital expenditure requirements. As a result of the
merger, we have significantly increased our cash requirements for debt service.
As of March 31, 2000, as adjusted, TNP had long term debt outstanding of $435.0
million and up to $25.0 million available under the revolving portion of the
senior secured credit facility and TNMP had debt outstanding of $467.6 million
and up to $248.3 million available under its credit facility and indentures. We

44
<PAGE>

will rely on internally generated funds and, to the extent necessary,
borrowings under our revolving credit facilities to meet our liquidity needs.

TNP's senior secured credit facility consists of: (i) a $25.0 million
revolving credit facility, under which no amounts are currently outstanding and
(ii) a $160.0 million term loan. The revolving portion and the term loan
portion of the senior secured credit facility mature three years and six years,
respectively, from the closing date of the senior secured credit facility.
Borrowings under the senior secured credit facility are subject to covenants
including maximum ratios of senior debt to EBITDA and total debt to EBITDA, a
minimum interest coverage ratio (including indebtedness of TNMP) and a minimum
fixed charge coverage ratio.

TNP's principal liquidity requirements will be for debt service requirements
under the notes, the senior secured credit facility, other indebtedness and for
working capital needs and capital expenditures. Historically, TNP has funded
its capital and operating requirements from cash flow from operations primarily
generated from its subsidiary, TNMP. Net cash flow from operations provided
$74.6 million, $72.9 million and $103.9 million in 1999, 1998 and 1997,
respectively. Net cash flow from operations in 1999 approximated those in 1998.
The decrease in net cash flow from operations in 1998 resulted mainly from
$20.5 million factoring of unbilled accounts receivables in 1997.

Net cash used in investing activities was $39.1 million, $40.5 million and
$30.0 million in 1999, 1998 and 1997, respectively. Net cash used in investing
activities in 1999 approximated those in 1998. The increase in net cash used in
investing activities in 1998 reflects an increase in capital expenditures.

Capital expenditures are generally related to the construction of new
facilities for customer growth, maintenance of our existing facilities and
improvements in computer information systems. Capital expenditures amounted to
$41.4 million, $37.5 million and $28.2 million in 1999, 1998 and 1997,
respectively. The increase in capital expenditures reflects new construction to
facilitate customer growth and system upgrades associated with Y2K.

Net cash used in financing activities was $33.2 million, $36.1 million and
$66.4 million in 1999, 1998 and 1997, respectively. The net cash used in
financing activities in 1997 is higher than the other two years due to the
redemption of $100.9 million in first mortgage notes in 1997.

Based on our current operations, we believe that our cash flow from
operations, together with available borrowings under the senior secured credit
facility will be adequate to meet our anticipated requirements for working
capital, capital expenditures and interest payments for the next few years.
However, we cannot ensure that we will generate sufficient cash flow from
operations to repay the notes and amounts outstanding under the senior secured
credit facility. See the "Description of Certain Indebtedness and Preferred
Equity" section of this prospectus.

45
<PAGE>

BUSINESS

Introduction

TNP is a holding company whose primary operating subsidiary is TNMP, a
regulated public utility engaged in generating, purchasing, transmitting and
selling electricity to approximately 235,000 residential, commercial and
industrial customers in Texas and New Mexico. TNMP's operations consist
primarily of the transmission and distribution of electricity from various
third-party power plants to end users of electricity. For the year ended
December 31, 1999, our transmission and distribution network, which consists of
over 1,500 miles of transmission lines, served customers in 90 municipalities
and adjacent suburban and rural areas throughout our three distinct operating
regions. Our operating regions include suburbs of Houston, Dallas and Galveston
and rural areas throughout central, north and west Texas and southern New
Mexico. For the year ended December 31, 1999, our customers in Texas and New
Mexico accounted for 86% and 14% of our operating revenues, respectively. Also,
for the year ended December 31, 1999, we generated revenues of $576.2 million.

TNMP serves a diverse group of residential and commercial customers as well
as a variety of industrial customers, including petrochemical, agricultural,
mining and petroleum firms. Our base revenues (operating revenues less certain
costs that we are permitted to pass through directly to our customers) are
generated primarily from residential and commercial customers. In 1999, these
customers accounted for 49% and 35% of our base revenues, respectively. Our
primary point of contact with our residential and commercial customers is
through our network of 38 local offices, where approximately 50% of our
residential customers regularly pay their bills in person. We have
differentiated ourselves from other utilities by focusing more of our resources
on customer service which we believe results in high customer satisfaction.
Industrial customers, who primarily pay us for the delivery of electricity,
generate the remaining 16% of our base revenues.

We generate approximately 20% of the electricity we sell and we purchase the
remaining 80% from various third party power suppliers. Our self-generated
electricity is provided by TNP One, a 300-megawatt electric power plant located
in Robertson County, Texas. For the balance of our electricity requirements we
have entered into purchased power agreements with various third party
suppliers. The rates we charge our customers are set by state regulators to
allow us to recover our fuel and purchased power costs. Under our current
regulation approximately 72% of these costs are subject to adjustment clauses
which alter our rates to provide for the recovery of the actual costs of fuel
and purchased energy.

Our utility operations are subject to regulation by the PUCT and the NMPRC.
Some of our activities are also under the jurisdiction of the FERC. We are also
subject to legislation in the states in which we operate. As the result of
recent legislation in Texas and New Mexico deregulating the electric utility
industries in those states, we will be required to restructure our operations.
See the "Industry" and "Business--Government Regulations--Regulatory Matters"
sections of this prospectus.

In Texas we will be required to disaggregate our current operations into
three separate businesses by January 1, 2002. Our operations will be separated
into: a company engaged in the transmission and distribution of electricity to
customers, a company engaged in the generation of electricity, and a retail
electric provider ("REP") which will act as a wholesale purchaser of
electricity for retail sale to customers. In New Mexico, we will be required to
disaggregate our regulated transmission and distribution business activities
from our generation and power supply operations, which will be subject to
competition.

Under both states' legislation, the transmission and distribution company
will continue to be regulated in much the same way as it is now and generally
will not be subject to competition. The remaining portions of our business will
be subject to competition, but will also be subject to limited regulation. In
Texas, the REP will be subject to restrictions on the rates it can charge and
will be required to maintain certain financial, technical and performance
standards. In both states, the competitive portions of our business will be
subject to regulations governing their transactions and communications with
their affiliated transmission and distribution business.

46
<PAGE>

Operating Strengths

Stable Cash Flow. Electricity is a necessary product with little sales
cyclicality, especially among the residential and small business customers that
make up the bulk of our sales. Until the end of the Competition Period the
rates we charge our customers will be subject to regulatory oversight with
legislation in place that provides a specific rate path for the next several
years. Although both Texas and New Mexico have passed legislation providing for
a transition to competition in the sale of electricity, a significant portion
of our operations will remain regulated and not subject to competition. We
believe our focus on customer service in the relatively small markets we serve
will help us retain our customers as deregulation allows them to choose their
energy providers.

Transmission and Distribution System. Our operations are focused on the
transmission and distribution of electricity, a natural monopoly. Our
transmission and distribution network consists of approximately 1,500 miles of
transmission lines and a network of distribution lines that carry electricity
from our energy suppliers to our customers. Under the recently enacted
legislation in both Texas and New Mexico, transmission and distribution
operations will not be subject to competition and will continue to be
regulated. As a result, we expect stable and consistent cash flows from these
operations.

Stable Customer Base. Residential customers and commercial customers account
for 49% and 35% of our total base revenues, respectively. Our primary point of
contact with our residential and commercial customers is our network of 38
local offices, where approximately 50% of our residential customers regularly
pay their bills in person. We have differentiated ourselves from other
utilities by focusing more of our resources on customer service, which we
believe results in high customer satisfaction. We believe that our residential
and commercial customer base positions us to compete effectively in a
deregulated market. Additionally, if in a newly deregulated environment a
customer decides to purchase electricity from another REP, we will continue to
receive revenues for the use of our transmission and distribution system to
transfer that electricity from the supplier to the end user.

Experienced Management. TNMP's management team has significant experience in
operating utilities and maintaining positive relationships with regulators. Key
members of the management team have on average 24 years of experience within
the electric utility industry and 11 years of experience with us. Most members
of TNMP's management team continued their employment with TNMP after the
merger. The existing management team has successfully negotiated regulatory
plans with the PUCT and the NMPRC on various occasions that have benefited both
us and our customers. Under the leadership of existing management, TNMP's
financial condition has improved markedly over the past few years, resulting in
the achievement by TNMP of an investment grade rating on its senior debt.

At the closing of the merger of ST Acquisition Corp. with and into TNP, Dr.
William J. Catacosinos joined our management team as Chairman and Chief
Executive Officer of TNP and a member of TNMP's board of directors. Dr.
Catacosinos has had 15 years of experience in the electric utility industry as
Chairman and Chief Executive Officer of LILCO.

Business Strategy

Our strategy is to focus on the transmission and distribution of
electricity, market electricity in our service territories, expand our customer
base and manage our cost of power. We believe that this strategy, as described
in more detail below, will effectively position us as a strong competitor in
the increasingly deregulated utility industry.

Focus on Transmission and Distribution. We seek to maximize our operating
profits and minimize the volatility of our earnings by focusing on the
transmission and distribution segments of the utility business, which will
continue to be regulated. The transmission and distribution of electricity is a
natural monopoly that provides stable and consistent cash flows.

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<PAGE>

Provide Local Customer Service. Our principal focus is on providing electric
service to residential and commercial customers in small and medium-sized
communities. We believe that this demographic focus, combined with the customer
service we provide through our network of local offices, will allow us to
retain our current customers and increase our customer base as the communities
we serve grow. This strategy differentiates us from other electric utilities
that have closed their offices in small and medium-sized communities and become
more centralized and focused on urban areas. We believe that, by maintaining a
local presence in the communities we serve, we will continue to be recognized
as a valuable member of those communities. After the disaggregation of our
operations required by legislation, we expect that our local recognition and
reputation for customer service will provide our REP with an important
advantage in the retention of customers in the newly deregulated energy market.
We believe that our localized customer service also provides us with a platform
to expand our distribution of electricity to customers in areas neighboring our
current service territories.

Expand Industrial Sales. While TNMP's role as a turnkey power supplier to
industrial customers will become more price sensitive as markets deregulate, we
intend to offset this exposure by expanding sales of secondary services such as
standby power. TNMP also plans to focus on selling to self-generating
industrial customers through innovative power arrangements such as buying and
managing a customer's self-generation which is then sold back at a premium.
These arrangements provide such customers with the advantage of TNMP's power
resource expertise and the reliability of receiving power from the grid rather
than relying solely on their own generation resources.

Managing Purchased Power Costs. We generate only about 20% of our total
electricity requirements and purchase the remainder from other electric
utilities and third-party power providers. This allows us to purchase
electricity from the most efficient available provider and distribute that
electricity to our customers over our transmission and distribution facilities.
Over the next several years we will have the opportunity to replace several
long-term power supply agreements as they expire, and we expect to enter into
new agreements that we expect will lower our cost of electricity.

Electricity Generation and Supply. Since we purchase approximately 80% of
our electricity from third party power providers, we have sought and will
continue to seek to increase our flexibility to take advantage of favorable
pricing and new capacity additions in the marketplace by shortening the average
life of our power contracts. We believe that this better positions us for the
implementation of the new regulatory initiatives. In addition, we are
evaluating the possible sale of TNP One which would enable the regulated
recovery of any stranded costs associated with TNP One. At the time of any sale
we would likely enter into an outsourcing agreement for the management of our
remaining power supply activities with a full service power supply provider.

TNMP's Service Territories

Our service territories are organized into three operating regions: the Gulf
Coast Region, the North Central Region and the Mountain Region. In all of our
regions, the majority of our revenues come from residential and commercial
customers. A description of each operating region is provided below.

Gulf Coast Region. Our Gulf Coast Region includes the area along the Texas
Gulf Coast between Houston and Galveston and in Brazoria County, south of
Houston. The region encompasses 14 municipalities that in 1998 had an estimated
combined population of 214,632, an increase of approximately 14% from its 1990
population of 187,648. The region's economic activity is supported by oil,
petrochemical and agricultural industries as well as general commercial
activity in the Houston area. More of the company's industrial customers are
located in this region than in any other, primarily in the cities of Texas City
and LaMarque. Other communities that TNMP serves, such as League City,
Friendswood and Pearland, are suburban communities experiencing vigorous
growth. For the last year ended December 31, 1999, we generated $299.0 million
in operating revenues, $127.3 million in base revenues and $35.6 million in
operating income from the

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<PAGE>

Gulf Coast Region. The following table highlights customer and financial
information for the Gulf Coast Region over the past five years.

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Residential customers............. 76,283 77,616 78,543 80,583 81,652
Commercial customers.............. 9,648 9,866 9,917 10,127 11,060
Industrial customers.............. 60 62 67 66 57
Other customers................... 46 44 38 46 362
-------- -------- -------- -------- --------
Total customers................. 86,037 87,588 88,565 90,822 93,131
======== ======== ======== ======== ========
Operating revenues ($000s)........ $250,165 $269,535 $314,423 $295,301 $299,023
</TABLE>

North Central Region. The North Central Region includes areas north and
northeast of Dallas and an area south and west of Fort Worth. The region
encompasses 58 municipalities and had a combined estimated population in 1998
of 185,315, an increase of approximately 63% from the 1990 population of
113,492. Communities in this region that TNMP serves include Lewisville, a city
of approximately 75,000, whose recent significant growth is due in part to its
location near the Dallas/Fort Worth airport and within a rapidly growing part
of the Dallas/Fort Worth Metroplex. The diversified commercial, trade and
industrial activity of the Dallas/Fort Worth area supports Lewisville's
economic activity. The rest of the North Central Region's economic activity is
supported by agricultural activities and, to a lesser extent, tourism and oil
production. For the year ended December 31, 1999, we generated $158.8 million
in operating revenues, $83.6 million in base revenues and $22.3 million in
operating income in the North Central Region. The following table highlights
key demographic, customer and financial information for the North Central
Region over the past five years.

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1995(1) 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Residential customers............ 58,560 60,420 63,258 65,668 66,857
Commercial customers............. 10,702 10,861 11,081 11,314 11,886
Industrial customers............. 28 29 30 31 28
Other customers.................. 159 141 146 143 328
-------- -------- -------- -------- --------
Total customers................ 69,449 71,451 74,515 77,156 79,099
======== ======== ======== ======== ========
Operating revenues ($000s)....... $137,522 $134,236 $143,562 $162,750 $158,843
</TABLE>
--------
(1) On September 15, 1995, TNP sold certain properties in the Texas Panhandle
which served 7,350 customers. Operating revenues from these properties for
the portion of the year prior to the sale were $7.4 million.

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<PAGE>

Mountain Region. The Mountain Region includes areas in southwest and south
central New Mexico and West Texas. The region encompasses 18 municipalities,
with a combined estimated population in 1998 of 90,487, an increase of
approximately 8% from the 1990 population of 84,010. The region's economic
activity is supported by mining and agricultural industries and oil and gas
production. In New Mexico, communities TNMP serves include Silver City,
Alamogordo and Ruidoso. Silver City's economy is anchored by copper mining, but
the community's favorable climate has helped attract many retirees to the area
in recent years. In West Texas, communities TNMP serves include Pecos and Fort
Stockton. For the year ended December 31, 1999, we generated $114.4 million in
operating revenues, $47.5 million in base revenues and $14.2 million in
operating income in the Mountain Region. The following table highlights
customer and financial information for the Mountain Region over the past five
years.

<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
<S> <C> <C> <C> <C> <C>
<CAPTION>
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Residential customers............... 49,020 49,760 50,204 50,904 51,108
Commercial customers................ 9,011 9,137 9,291 9,443 10,181
Industrial customers................ 48 44 42 41 31
Other customers..................... 39 39 38 38 109
------- ------- -------- -------- --------
Total customers................... 58,118 58,980 59,575 60,426 61,429
======= ======= ======== ======== ========
Operating revenues ($000s).......... $98,136 $98,966 $106,844 $117,419 $114,385
</TABLE>

Sources of Energy

We generate approximately 20% of the electricity we sell and we purchase the
remaining 80% from various third party power suppliers. TNMP contracts for
virtually all of its purchased power commitments. Most of TNMP's purchased
power contracts allow TNMP to purchase power on the open market if the open
market price is below the contracted price. These purchases are reflected as
spot market purchases in the table below which outlines our sources of energy
for 1999:

<TABLE>
<CAPTION>
Year Percent of
Contract Expires Energy Provided
---------------- ---------------
<S> <C> <C>
TNP One.................................... -- 20.0%
Purchased power
Firm contracts expiring in 2000.......... -- 6.0%
Firm contract expiring in 2001-2005......
TXU.................................... 2002 7.0%
Clear Lake............................. 2004 12.0%
Others................................. Various 9.0%
Buy sell agreements........................ -- 26.0%
Spot market purchases...................... -- 20.0%
-----
Total.................................... 100.0%
=====
</TABLE>

TNP One Generating Facility

TNP One consists of two 150 megawatt lignite-fired Westinghouse/Mitsubishi
TCF-25 steam turbines for a total of 300 megawatts of generation. Commercial
operation began for Unit 1 in September 1990 and Unit 2 in 1991. Plant
availability in 1999 was approximately 88% and its equivalent forced outage
rate, which measures the amount of time that a generating plant is offline
because of equipment malfunction or failure, has been consistently below the
industry average.

The primary fuel source for TNP One is Texas lignite supplied from a surface
mine located adjacent to the plant site. Natural gas is used for start-up and
supplemental firing. A 24p pipeline owned by TXU crosses the

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<PAGE>

TNP One plant site and is the plant's current source of natural gas. Both Units
1 and 2 are capable of full load operation on 100% natural gas. Additionally,
the proven ability of the TNP One units to burn alternative fuels has been well
communicated to the PUCT. Ability to burn materials such as chipped tires and
oil filter paper offer the potential to successfully mitigate environmental
issues facing Texas and surrounding states.

The TNP One facility is located on approximately 500 acres located in
Robertson County, Texas. An additional 2,200 acres are available for expansion
of the site. The plant site was designed to accommodate four identical plants
with up to eight additional units. The 345 kilovolt double-circuit line
transmitting from TNP One can handle approximately 1,200 megawatts of capacity
without modification, leaving 900 megawatts of available transmission capacity.
The transmission line interconnects with the ERCOT system at TXU's Twin Oaks
Substation, approximately 18 miles from TNP One. An interconnection to the
Southwestern Power Pool is less than 40 miles from TNP One, greatly expanding
the potential markets for electricity generated by TNP One. Water supply is
provided from four water wells near the site and is sufficient for significant
expansion of the facility. Electricity from TNP One is used to serve our
customers in Texas. During 1999 TNP One generated approximately 1,912,673
megawatt-hours of electricity.

Government Regulations; Regulatory Matters

Industry. The electric utility industry--one of the largest remaining
regulated industries in the United States--is in the process of transition to a
competitive market. Traditionally vertically integrated, the industry is
becoming segmented into its three component parts: the generation of
electricity, its transmission to a local market, and its distribution to the
end user. Consumers, primarily industrial customers, who want the right to
choose the electricity supplier that meets their needs most economically,
reliably and efficiently, are driving change in the industry. The federal
government, as well as the PUCT within the boundaries of the ERCOT, regulates
the transmission of electricity between utilities while state governments
regulate the distribution of electricity to customers. At the federal level,
FERC has implemented change by encouraging wholesale competition through its
issuance in July 1996 of Orders 888 and 889. All 50 states and the District of
Columbia have enacted or are evaluating reforms to introduce competition to
generation and related electric service. Both Texas and New Mexico enacted
legislation during 1999 to open the generation and retail supply of electricity
to competition.

Texas. In June 1999, Texas Governor George W. Bush signed Senate Bill 7,
which implements competition in Texas retail electric markets. Under Senate
Bill 7, utilities will be able to recover 100% of their net verifiable stranded
costs through accelerated depreciation and CTCs. Stranded costs represent the
excess of an asset's book value over its market value. CTCs are charges that
utilities will be permitted to include in customers' bills beginning in 2002.
The actual amount of the CTCs will be subject to the approval by the PUCT.
Senate Bill 7 also permits utilities to securitize regulatory assets and up to
75% of their stranded costs, enabling them to accelerate their recovery of
stranded costs. Under the legislation, electric utilities are required to
prepare for competition from January 1, 1999 to December 31, 2001. Actual
competition will be initiated and encouraged from January 1, 2002 to December
31, 2006. After December 31, 2006, retail electric services and generation will
be openly competitive.

By January 1, 2002, utilities in Texas must separate, or "unbundle," their
utility operation into three separate, affiliated entities: a transmission and
distribution company, a retail electric provider, and an electricity generating
company. After the Competition Period, the actual price of electricity will be
determined by the market, however transmission and distribution rates are
expected to continue to be regulated by the PUCT.

The new legislation will implement retail competition for customers in most
areas of Texas on January 1, 2002. Among other provisions, the new legislation:

. Requires utilities to provide service according to the rates in effect
at September 1, 1999, until December 31, 2001. The legislation does not
prohibit changes in the fixed fuel factor that passes through fuel and
purchased power energy costs to customers.

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<PAGE>

. Allows a utility to recover 100% of its verifiable stranded costs via
several methods, including:

1. Redirection of depreciation--During 1998-2001, a utility may
redirect all or a part of the depreciation related to transmission
and distribution assets to its generation assets.

2. Application of earnings in excess of an allowed rate of return--
During the freeze period, utilities' earnings are capped by the cost
of capital approved in the utility's most recent rate proceeding
before the PUCT. For TNMP, the cap is 10.53% return on rate base.
Rate base is the value established by a regulatory authority upon
which the utility is permitted to earn a specified rate of return.
Earnings in excess of the cap will be used to reduce the net book
value of generation assets.

3. Securitization--At any time after the start of the freeze period, a
utility may securitize 100% of its regulatory assets. A utility may
securitize up to 75% of its estimated stranded costs, and recover
those costs from its customers through a transition charge approved
by the PUCT after a lengthy regulatory approval process.

4. Assessing a CTC--After the freeze period, stranded costs that have
not been recovered by one of the methods above will be recovered
through a CTC levied upon all retail customers within a utility's
geographical certificated service area as it existed on May 1, 1999.

. Establishes four alternatives for quantifying the final amount of
stranded costs to be used in establishing the CTC, and provides a
framework for reconciling estimated stranded costs to the actual
stranded costs quantified using those methods.

. Requires utilities to disaggregate into three distinct businesses:
generation, transmission and distribution, and an REP.

. Provides that once customer choice begins on January 1, 2002,
residential and small commercial customers who do not choose an
alternative REP will continue to be served by the utility's affiliate
REP at a "price-to-beat" which is 6% lower than the rate in effect on
January 1, 1999, adjusted to reflect a fuel factor that the PUCT shall
determine as of December 31, 2001. This "price-to-beat" must be offered
by the utility until December 31, 2006. However, after the earlier of 36
months after customer choice is offered or when it loses 40% or more of
its residential sales within its certified service area TNMP may also
offer a different rate.

Prior to the new legislation, TNMP had been operating under its own
transition plan that the PUCT approved in 1998. The Transition Plan provided
that it will be modified to conform to any legislation enacting competition in
the electric utility industry. On October 6, 1999, TNMP filed a Conformed
Stipulation with the PUCT that identifies all of the provisions that TNMP
believes must be changed to conform the Transition Plan to comply with the new
legislation. On December 6, 1999, the PUCT held that TNMP was required to
implement the base rate reductions reflected in its tariffs that were filed in
compliance with its Transition Plan proceedings and approved on November 25,
1998. Accordingly, TNMP reduced base rates for residential and commercial
customers by 3% and 1%, respectively, effective January 1, 2000. Similar rate
reductions will take effect January 1, 2001. As a result, operating revenues
are estimated to decrease in 2000 and 2001 by $6.7 million and $13.9 million,
respectively. The PUCT's order also established that the base rate reductions
would offset the 6% rate reduction required by the new legislation to take
effect on January 1, 2002. The order is interim in nature and can be appealed.
The PUCT postponed consideration of any other impacts of the legislation on the
Transition Plan until 2001.

Historically, TNP's and TNMP's consolidated financial statements reflect the
application of SFAS 71, "Accounting for the Effects of Certain Types of
Regulation," which provides for recognition of the economic effects of rate
regulation. EITF 97-4, "Deregulation of the Pricing of Electricity--Issues
Related to the Application of SFAS Statements No. 71 and 101," states that
application of SFAS 71 should stop "when deregulatory legislation is passed or
when a rate order (whichever is necessary to effect the change in the
jurisdiction) that contains sufficient detail for the enterprise to reasonably
determine how the transition plan will affect the separable portion of its
business whose pricing is being deregulated is issued." With the passage of

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<PAGE>

the legislation, TNMP discontinued the application of SFAS 71 to the generation
and power supply portion of its Texas business during the fourth quarter of
1999. As a direct result of discontinuing SFAS 71 and in accordance with the
legislation, TNMP has reclassified net regulatory assets (regulatory assets
less liabilities) of $19.3 million that pertain to these deregulated operations
as Recoverable Stranded Costs. We believe that the $19.3 million represents
verifiable stranded costs and intend to have TNMP recover them from customers
pursuant to the methods specified in the Texas legislation.

In conjunction with the discontinuance of SFAS 71, TNMP is required to
determine if its generating plant asset, TNP One, is impaired under SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." Based on TNMP's undiscounted cash flow analysis over the
estimated useful life of TNP One, there is no impairment of TNP One, as defined
by SFAS 121, as of December 31, 1999. TNMP's impairment analysis includes
reasonable estimates of future market prices, capacity factors, operating
costs, the effects of competition, and many other factors over the life of TNP
One. TNMP's impairment analysis is highly dependent on these estimates. As of
December 31, 1999, the net book value of TNP One is $434.6 million.

On May 17, 1999, TNMP filed its Electric Investor-Owned Utilities Earnings
Report ("Earnings Report") with the PUCT. Simultaneously, TNMP filed an
Addendum to the Earnings Report ("Addendum") detailing TNMP's calculation of
excess earnings under the Transition Plan for the twelve months ended December
31, 1998. The Addendum showed that TNMP had not earned in excess of the 11.25%
return on equity cap established in the Transition Plan. The Staff of the PUCT,
through the PUCT's Office of Regulatory Affairs ("ORA"), filed a contest to
TNMP's earnings report on August 16, 1999, asserting errors in TNMP's
calculation of excess earnings. ORA's petition did not quantify the amount of
the alleged errors. In addition, ORA proposed to use the Earnings Report
contest as a means for conforming the Transition Plan to the legislation.

ORA is the only party contesting TNMP calculation of excess earnings. On
March 27, 2000, the hearings examiner, in accordance with statements from the
Commissioners at an open meeting on matters of law raised by ORA, filed a
proposed order which has the effect of eliminating ORA's claim that there are
any excess earnings. TNMP will urge the Commission to adopt the proposed order.
We believe this matter will have no material adverse effect on TNMP's financial
condition. On March 30, 2000, TNMP filed its Earnings Report for 1999. As of
the date of this prospectus no party has filed a contest of the Earnings
Report.

New Mexico. In April 1999, New Mexico Governor Gary Johnson signed The
Electric Utility Industry Restructuring Act of 1999, which opened the state's
electricity market to competition. The 1999 Act, pursuant to the rules adopted
by the NMPRC on May 17, 2000, allows residential customers, small business
customers and schools the opportunity to choose among competing electricity
suppliers beginning January 1, 2002. Competition will be expanded to include
all customers by July 1, 2002. Residential and small business customers who do
not choose a competitive power supplier will continue to be served by their
existing utility under a standard offer contract. There is no mandatory rate
reduction included in the legislation. The 1999 Act allows electric utilities
to recover at least 50% of their stranded costs through a charge to customers.
On June 8, 1999, the NMPRC entered a final order terminating TNMP's Community
Choice(R) transition plan. By terminating Community Choice(R), the NMPRC placed
TNMP on the same timetable as other New Mexico utilities with regard to retail
competition and restored the pass-through of purchased power costs to
customers.

Under the 1999 Act, utilities are guaranteed recovery from customers of at
least 50% of their stranded costs over a five-year period. TNMP's Community
Choice(R) program, which has been terminated, did not define stranded costs,
nor their recovery. In addition, the 1999 Act, pursuant to the rules adopted by
the NMPRC on May 17, 2000, delays competition to January 1, 2002 for
residential, small commercial and schools and beginning July 1, 2002 for all
other customers. Community Choice(R) had specified May 1, 2000 for the
beginning of retail choice. As a result, TNMP has reduced its accrual for
potential stranded costs in New Mexico from $3.4 million as of December 31,
1998, to $2.1 million as of December 31, 1999.

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<PAGE>

Community Choice(R) provided for the filing of a rate case by TNMP on June
1, 1999. TNMP and the NMPRC Staff have reached a settlement, and have submitted
the settlement to the NMPRC for approval. The settlement calls for a decrease
in TNMP's base rates of $1.8 million, or 6%, effective October 1, 1999. TNMP
has reflected the base rate reductions in its fourth quarter revenues. We
expect the NMPRC to act on the proposed settlement during the third quarter of
2000.

Agreements with the Regulators. During the hearings conducted by the NMPRC
and the PUCT, we gave assurances that were primarily designed to ensure that
TNP and TNMP would be operated as separate entities following the merger, and
that the assets of TNMP would not be used, to the detriment of rate payers, to
satisfy the obligations of TNP.

Before the PUCT, TNP committed that TNMP would:

. commit to a guaranteed level of stranded cost mitigation equal to $59.0
million less base rate reductions in 2000 and 2001 (estimated to be $6.7
million and $13.9 million, respectively);

. strive to maintain its investment grade rating while placing a high
priority on maintaining the financial integrity of its utility
operations;

. strive to maintain a 65% maximum debt to total capitalization ratio
through December 31, 2001, and with respect to its transmission and
distribution businesses, a 70% maximum debt to total capitalization
ratio through January 1, 2004; and

. limit its payments of dividends to TNP unless certain financial tests
are satisfied, including limiting dividends to the cumulative amount of
cash flow from operations less cash flow from investing before January
1, 2004.

Additionally, TNP agreed that, in connection with any future borrowings, it
would require acknowledgements from its lenders, as long as TNMP has rated debt
outstanding, that:

. TNMP and TNP will be operated as separate corporate and legal entities;

. by agreeing to make new loans, those lenders are relying solely on the
credit worthiness of TNP and not TNMP; and

. TNP will not be permitted to take any steps for the purposes of
procuring the appointment of a receiver or institute a bankruptcy,
reorganization, insolvency, wind-up, or liquidation of TNMP.

Before the NMPRC, we made similar and additional commitments with respect to
TNMP, including committing that TNMP would:

. not pay excessive dividends to TNP;

. furnish a notice of TNMP's declaration to pay a dividend to TNP,
specifying the amount of the dividends to be paid, the cumulative amount
of the dividends for the calendar year, and the net income and the
payout ratio for the two preceding calendar years;

. not purchase debt instruments or any affiliated interests or guarantee
or assume liabilities of affiliated interests without state regulatory
approval;
. not purchase power (not applicable to economy energy purchases) from an
affiliate without receiving prior NMPRC approval;

. not lend or transfer funds or securities or similar assets to affiliated
interests without state regulatory approval;

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<PAGE>

. not obstruct, hinder, diminish, impair or unduly complicate its
supervision and regulation;

. if required by the NMPRC, have a management audit performed by a
consulting firm chosen by and under the direction of the NMPRC to
determine whether there are any adverse effects of affiliate
transactions upon TNMP, and have an allocation study of transactions
between TNMP and its affiliates performed by a consulting firm chosen by
and under the direction of the regulatory authorities;

. hold its customers harmless from any and all negative impacts of the
affiliate transactions involved in the acquisition of TNP's stock; and

. will keep its books and records separately from those of its non-
regulated businesses and in accordance with the Uniform System of
Accounts.

We also committed to the NMPRC that TNP would:

. not take any action that would have a material adverse effect on TNMP's
ability to provide reasonable and proper service at fair and just rates;

. ensure that no TNP debt would contain provisions which are inconsistent
with TNP and TNMP being operated as separate corporate and legal
entities, and a recognition that TNP's creditors are relying solely on
the creditworthiness of TNP; and

. ensure that no TNP debt would contain provisions allowing TNP's
creditors to take any steps for the purpose of procuring the appointment
of an administrative receiver or the making of an administrative order
for instituting any bankruptcy, reorganization, insolvency, wind up or
liquidation or any like proceeding under applicable law in respect of
TNMP or any of its subsidiaries.

Additionally, TNP and TNMP have committed that the assets of TNMP will not
be pledged to pay or guarantee the debt of any TNMP affiliate without prior
approval of the PUCT and the NMPRC.

Regulatory Approval of Certain Transactions. In addition to the agreements
described above, TNMP is also subject to additional regulation in New Mexico
with respect to certain transactions, particularly those with affiliated
companies. These may restrict the ability of TNP to receive funds from TNMP.
For example:

. proceeds from the issuance of debt by TNMP will generally only be
available for the acquisition of utility property, the construction,
completion, extension or improvement of its facilities, the improvement
or maintenance of service, the discharge or lawful refunding of its
obligations or the reimbursement of money actually expended for the
foregoing;

. prior approval is required for the transfer of utility assets or for the
abandonment of any service;

. cross-subsidization and improper cost allocation between TNMP and its
affiliates is prohibited;

. any adverse impact on reasonable costs and service as a result of the
formation of a holding company is prohibited and, accordingly, some
financing alternatives may not be available to TNP;

. prior notice of any sale, lease or provision of real property, water
rights or other goods or services to an affiliate is required, and the
NMPRC may issue orders on any such transactions to ensure reliable
service at fair, just and reasonable rates; and

. prior approval is required for any acquisition of TNMP stock or
consolidation with TNMP, or any transactions that results in control or
exercise of control of TNMP.

Amendments to TNP and TNMP's Articles of Incorporation

In addition to the assurances given by TNP and TNMP to the state regulatory
authorities, at the closing of the merger TNP and TNMP amended their articles
of incorporation to include provisions designed to ensure that TNP and TNMP
will maintain separate and independent operations in the future. These
provisions include:

55
<PAGE>

. requirements for each of TNP and TNMP to conduct themselves as separate
legal entities in all formalities, including, but not limited to:
maintaining separate books and financial records; observing all
appropriate corporate procedures and formalities; not commingling any
assets, funds, liabilities or business functions; holding themselves out
a s separate entities; not merging or consolidating with any other
person or entering into guarantees for any other person;

. a requirement that TNMP have at all times at least one independent
director appointed by the shareholders, whose consent shall be required
for TNMP to amend its articles of incorporation, consolidate or merge
with any person, sell all or substantially all of its assets or
institute bankruptcy or insolvency proceedings, and who shall be
required to consider only the interest of TNMP and its creditors in
voting on any such transactions;

. a prohibition on TNMP using its credit to satisfy the debts or
obligations of any other person; and

. a prohibition on TNMP lending to any person or buying or holding any
indebtedness or other obligations issued by any other person, except for
cash and cash equivalents.

Employees

At December 31, 1999, TNMP and TNP collectively had 823 employees. No
employees are represented by a union or covered by a collective bargaining
agreement. Management believes relations with its employees are good.

Legal Proceedings

Phillips Petroleum. TNMP is the defendant in a suit styled Phillips
Petroleum Company vs. Texas-New Mexico Power Company, filed on October 1, 1997
and pending in the 149th State District Court of Brazoria County, Texas. The
suit, which is in the discovery stage, is based on events surrounding an
interruption of electricity to a petroleum refinery and related facilities that
occurred in May 1997. Phillips Petroleum Company ("Phillips") is seeking the
recovery of damages arising from the interruption and in May 1999 demanded
payment in the amount of $47.1 million. TNMP's tariff approved by the PUCT
contains limitations against recovery of the great majority of Phillips'
alleged actual damages. The Texas Supreme Court, in another matter, has
recently upheld the enforceability of such tariff limitations in litigation of
this type; we believe the ruling will operate to substantially limit any
recovery by Phillips to the cost of its electrical equipment in the event that
any damages are awarded in this matter. Discovery has not sufficiently
progressed to quantify any damages to Phillips' electrical equipment; however,
Phillips has previously reported to the SEC that it incurred costs of
approximately $2.0 million in this interruption. In May 1999, TNMP filed a
Third Party Petition naming Sweeny Cogeneration Limited Partnership, the
operator of cogeneration and related facilities at the Phillips refinery, as a
defendant. The lawsuit is in the discovery stage. We believe that TNMP has
insurance coverage on most of Phillips' claims up to a total of $31.0 million.
TNMP has previously charged to earnings the deductible amount of its insurance
coverage, $0.5 million.

Power Resource Group, Inc. TNMP is a defendant in a suit styled Power
Resource Group, Inc. v. Public Utility Commission of Texas and Texas-New Mexico
Power Company, pending in the 345th District Court of Travis County, Texas.
This lawsuit, which was originally filed on May 21, 1999, appeals the PUCT's
dismissal of a regulatory case that Power Resource Group, Inc. ("PR Group") had
filed against TNMP. PR Group is a developer of electric generating plants that
are intended to be qualifying cogeneration facilities. This lawsuit and the
regulatory case it appeals both stem from discontinued negotiations for power
supply. PR Group alleged that TNMP was required to buy power to be generated
from an as-yet-unbuilt cogeneration facility. TNMP filed its original answer
with the court on June 28, 1999.

In an amended petition filed January 13, 2000, PR Group asserts a claim of
damages of at least $158.0 million. It bases its claim on the assertion that it
was damaged when TNMP refused to execute an agreement after the aforementioned
discontinued negotiations, that TNMP profited significantly from PR Group's
work,

56
<PAGE>

that TNMP is in error when it relies on a PUCT order dismissing PR Group's
petition before the PUCT on substantially the same facts, and that TNMP
misrepresented that it would enter into a contract with PR Group to purchase
energy and capacity at rates equal to or below TNMP's avoided costs. We believe
that PR Group's claims are without merit and we intend to have TNMP contest
this claim vigorously.

Other. TNMP is involved in various claims and other legal proceedings
arising in the ordinary course of business. In the opinion of management, the
ultimate dispositions of these matters, as well as those described above, will
not have a material adverse effect on TNMP's or our consolidated financial
position or results of operations.

57
<PAGE>

MANAGEMENT

Our and TNMP's directors, executive officers and key employees, their
positions and their ages are as follows:

<TABLE>
<CAPTION>
Name Age* Position
---- ---- --------
<S> <C> <C>
William J. Catacosinos........... 69 Chairman, President and Chief Executive Officer of
TNP, Director of TNMP
Theodore A. Babcock.............. 45 Chief Financial Officer of TNP
Kevern R. Joyce.................. 53 Chairman, President and Chief Executive Officer of
TNMP and director of TNP
Jack V. Chambers, Jr. ........... 50 Senior Vice President and Chief Customer Officer of
TNMP
Manjit S. Cheema................. 45 Senior Vice President and Chief Financial Officer
of TNMP
Larry W. Dillon.................. 45 Vice President of Power Resources of TNMP
Leeam Lowin...................... 54 Director of TNP and TNMP
James T. Flynn................... 66 Director of TNMP
Preston M. Geren III............. 47 Director of TNP and TNMP
</TABLE>
--------
* As of December 31, 1999.

William J. Catacosinos joined TNP upon the closing of the merger as
Chairman, President and Chief Executive Officer. He also serves on TNMP's board
of directors. Since 1998, Dr. Catacosinos has served as Managing Partner of
Laurel Hill. Dr. Catacosinos served as Chairman and Chief Executive Officer of
LILCO from 1984 to 1998.

Theodore A. Babcock joined TNP upon the closing of the merger as Chief
Financial Officer. Since 1998, Mr. Babcock has been a Managing Director of
Laurel Hill. From 1996 to 1998, Mr. Babcock served as Vice President and
Treasurer of LILCO. Mr. Babcock served as Treasurer of LILCO from 1994 to 1996.

Kevern R. Joyce has served as Chairman of TNMP since April 1995, and was
also Chairman of TNP until the closing of the merger. Mr. Joyce joined TNP and
TNMP in April 1994 as President and Chief Executive Officer.

Jack V. Chambers, Jr. has served as Senior Vice President and Chief Customer
Officer of TNMP since 1994. Mr. Chambers was Senior Vice President of TNP from
April 1996 until the closing of the merger.

Manjit S. Cheema has served as Senior Vice President and Chief Financial
Officer of TNMP since July 1996. Mr. Cheema was Senior Vice President and Chief
Financial Officer of TNP from May 1997 until the closing of the merger. Prior
to that, Mr. Cheema was Vice President and Chief Financial Officer of TNP and
TNMP since December 1994. Mr. Cheema joined TNMP as Treasurer in June 1994, a
position he held until September 1995.

Larry W. Dillon has served as TNMP's Vice President of Power Resources since
March 1999. Mr. Dillon was Vice President and Regional Customer Officer of TNMP
from November 1994 until March 1999.

Leeam Lowin became a director of both TNP and TNMP at the closing of the
merger. For the past 33 years, Mr. Lowin has been an investment manager for
private accounts. From 1984 to 1998, Mr. Lowin served as a consultant to LILCO.
From 1992 to 1996, he was a member of the board of directors of AEL Industries
and managed the sale of that company to Tracor.

James T. Flynn became a director of TNMP at the closing of the merger. Mr.
Flynn, prior to his retirement, was President and Chief Operating Officer of
LILCO from 1996 to 1998. From 1994 to 1996, Mr. Flynn was Executive Vice
President and Chief Operating Officer of LILCO.

Preston M. Geren III became a director of both TNP and TNMP at the closing
of the merger. Mr. Geren, currently manages personal business interests in real
estate, oil and gas and securities. Mr. Geren currently

58
<PAGE>

serves on the Board of Directors of Union Pacific Resources (NYSE) and Cullen
Frost Bankers (NYSE). Mr. Geren also is Vice Chairman of the Board of Directors
of Dallas-Fort Worth International Airport. Previously Mr. Geren worked as a
management consultant with Public Strategies, Inc., a Texas-based public
affairs firm from 1997 to 1998. He was a member of the United States Congress
for four terms, from 1989 until 1997. Previous corporate board experience
includes service as an advisory director of TXU.

Executive Compensation

The following table summarizes the compensation paid to the Chief Executive
Officer and each of the four other most highly compensated executive officers
of TNP and its subsidiaries (the "named executive officers") for services
rendered in all capacities to TNP and its subsidiaries during 1999, 1998 and
1997.

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Compensation
---------------------------------
LTIP All Other
Name and Principal Position Year Salary Bonus(1) Payouts(2) Compensation(3)
--------------------------- ---- -------- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Kevern R. Joyce............. 1999 $391,146 $278,466 $304,714 $19,174
President and Chief 1998 370,525 340,822 418,151 25,367
Executive Officer 1997 355,083 147,000 449,816 25,944
Jack V. Chambers, Jr., ..... 1999 $233,294 $ 99,826 $175,666 $11,143
Senior Vice President 1998 223,819 129,092 249,893 14,347
1997 215,733 77,597 268,831 14,794
Manjit S. Cheema............ 1999 $204,898 $ 94,413 $158,229 $10,246
Senior Vice President and 1998 195,239 118,488 213,756 12,775
Chief Financial Officer 1997 183,750 68,378 205,835 12,837
John P. Edwards(4).......... 1999 $207,633 $ 86,861 $158,229 $12,315
Senior Vice President 1998 199,202 111,476 187,634 16,352
1997 192,000 68,900 121,128 18,242
Ralph S. Johnson(4)......... 1999 $197,327 $ 85,091 $158,229 $10,927
Senior Vice President 1998 189,314 107,586 210,240 13,870
1997 182,333 68,212 197,110 13,153
</TABLE>
--------
(1) The 1999 amounts shown in this column are the following awards relating to
1999 and paid in 2000: (a) cash awards under the Management and Broad-Based
Short-Term Incentive Plans; and (b) the second installment of an incentive
and retention bonus. The Compensation Committee awarded the incentive and
retention bonuses as additional compensation to reflect contributions
during 1998 and prior years to the improvement in TNP's value to its
shareholders. These incentive and retention bonuses are being paid in five
equal annual installments; the first installment was paid in 1999.
Subsequent installments are subject to the named officer being employed by
TNP or TNMP on the scheduled date of the payment. They were replaced by
arrangements set forth in new employment agreements that were put in place
in connection with the merger. See the "Change-in-Control Arrangements"
section below. The total amounts of the bonuses to be paid over the five
year period are Mr. Joyce--$850,000; Mr. Chambers-- $235,000; Mr. Cheema--
$235,000; Mr. Edwards--$200,000; and Mr. Johnson--$200,000.
(2) The 1999 amounts in this column are the value of shares issued and dividend
equivalents paid in 2000 under the TNP Long-Term Incentive Compensation
Plan for the 1997-1999 performance period. These amounts represent the
value of the following numbers of shares, at $41.22 per share, the average
of the high and low prices of TNP stock on December 31, 1999, and dividend
equivalents of $3.26 per share: Mr. Joyce--6,850; Mr. Chambers--3,949; Mr.
Cheema--3,557; Mr. Edwards--3,557; and Mr. Johnson--3,557. This payout
reflects that TNP met the performance measures set at the beginning of the
performance period as follows: TNP's shareholder return relative to the S&P
500 was at approximately 135% of the target; TNP's shareholder return
relative to the S&P Electric Utility Index exceeded the maximum goal.

59
<PAGE>

(3) The 1999 amounts in this column and the table below consist of the
following items earned or paid in 1999: (a) company contributions to TNMP's
401(k) plan; (b) company contributions to the TNMP Deferred Compensation
Plan, an unfunded benefit plan that allows eligible employees, including
the Named Executive Officers, to defer receipt of salary and bonuses and
receive matching Company contributions and interest credits, whenever and
to the extent that Internal Revenue Code restrictions limit their
participation in the 401(k) plan; (c) premiums for group life insurance
paid by the Company (none of the Named Executive Officers has any cash
value rights related to such insurance). The amounts shown for the 401(k)
and Deferred Compensation Plans include incentive matching contributions
for 1999 paid in 2000.

<TABLE>
<CAPTION>
Deferred
401(k) Plan Compensation Plan Life Insurance
----------- ----------------- --------------
<S> <C> <C> <C>
Kevern R. Joyce............... $6,468 $9,344 $2,982
Jack V. Chambers, Jr.......... 6,468 2,963 1,712
Manjit S. Cheema.............. 6,212 2,070 1,964
John P. Edwards............... 6,468 1,925 3,922
Ralph S. Johnson.............. 6,468 1,509 2,950
</TABLE>

(4) Messrs. Edwards and Johnson left TNP and TNMP at the closing of the merger.

Dr. Catacosinos Employment Agreement

In connection with the merger, TNP entered into a three year renewable
employment agreement with Dr. Catacosinos to serve as Chairman, President and
Chief Executive Officer of TNP and a member of the board of TNMP. Dr.
Catacosinos agreed to devote a sufficient amount of his time to enable him to
fulfill his obligations under the employment agreement. For his services, he
receives cash compensation commensurate with his position as a chief executive
officer of a utility company and participates in retirement, savings, incentive
and welfare benefit plans on the same terms enjoyed by our present senior
officers. The employment agreement contains provisions relating to termination,
death and disability which will result in different periods for which salary
and benefits continue to be paid, the longest of which is 18 months.

Compensation Arrangements

In connection with the merger, TNMP entered into employment agreements with
certain members of TNMP's senior management. These employment agreements
provide that the executive continues to hold his present position with TNMP and
will receive a minimum level of compensation over the next three years
consisting of:

. an annual base salary and an annual bonus payable in a lump sum on each
of the first, second and third anniversary of the new agreement,
provided the executive is still employed by TNMP;

. an annual incentive bonus of up to 37.5% of the executive's base salary
based on his attainment of certain pre-established financial and
operational goals, and subject to employment through the end of the
relevant year; and

. an additional bonus equal to the shortfall from a minimum predetermined
compensation including base salary, bonus and incentive bonus.

The new employment agreements supersede the severance agreements and the
incentive compensation agreements that existed prior to the merger.

Pension Plan

Effective October 1, 1997, TNMP amended its pension plan to change it to a
cash balance retirement plan. As amended, the pension plan provides benefits
based on an account balance rather than a formula-based benefit. Before that
date, the pension plan was a noncontributory defined benefit plan. Employees
who, as of October 1, 1997, were at least 50 years of age and had at least 10
years of service, can be "grandfathered" in the prior pension plan, and will
receive benefits under the plan that provides the better retirement payments.

60
<PAGE>

The amended pension plan bases its benefits on a employee's account balance
when he or she retires or leaves the company. An employee's initial account
balance was based on his or her accrued pension benefits under the pre-
amendment plan. The account balance will grow as TNMP adds benefit credits
consisting of a percentage of compensation and interest credits based on one-
year Treasury bill rates. All employees are eligible to participate in the
pension plan. All named executive officers will participate in the pension
plan.

The following table sets forth information concerning annual benefits
payable upon normal retirement at age 65 to TNP and TNMP employees under the
pre-amendment pension plan, and reflects the "grandfathered" benefit formula
for individuals retiring in 1999 with the years of service indicated.

Pension Plan Table

<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------
Remuneration(1) 15 20 25 30 35 40
--------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 27,519 $ 36,692 $ 45,865 $ 55,038 $ 64,219 $ 72,336
150,000 33,894 45,192 56,490 67,788 79,086 88,836
175,000 40,269 53,692 67,115 80,538 93,961 105,336
200,000 46,644 62,192 77,740 93,288 108,836 121,836
250,000 59,394 79,192 98,990 118,788 138,586 154,836
300,000 72,144 96,192 120,240 144,288 168,336 187,836
350,000 84,894 113,192 141,490 169,788 198,086 220,836
400,000 97,644 133,192 162,740 195,288 227,836 253,836
450,000 110,394 147,192 183,990 220,788 257,586 286,836
500,000 123,144 164,192 205,240 246,288 287,336 319,836
</TABLE>
--------
(1) Benefits shown do not take into account limits under Section 415 of the
Internal Revenue Code of 1986, as amended (the "Code"), or the $160,000
salary cap in effect after 1996, resulting from Code Section 401(a)(17)
limits. Consequently, a portion of the benefits would be paid from the
Excess Benefit Plan (as defined below).

Annual contributions to the pre-amendment pension plan are computed on an
actuarial basis and cannot be calculated readily on a per person basis.
Benefits for each eligible employee under the old formula are based on his or
her years of service computed through the month of his or her retirement,
multiplied by a specified percentage of his or her average monthly compensation
for each full calendar year of service completed after 1992. TNMP made no
contribution to the pension plan for 1999.

Pension plan benefits are not subject to reduction for Social Security
benefits, but are subject to reduction for retirement prior to age 62.

Highly compensated employees whose pensions are subject to being reduced to
an amount below what the pension plan otherwise would provide as a result of
compliance with Code Sections 415 and 401(a)(17), and whom the board of
directors designate as eligible, may also participate in TNP's "Excess Benefit
Plan." TNP's board of directors has designated 24 active or retired employees
as eligible to participate in the Excess Benefit Plan, including the named
executive officers and three retired employees now receiving excess benefit
payments. Amounts paid as long-term incentive compensation pursuant to the TNP
Equity Incentive Plan or other plans will be included in the remuneration base
for pension and Excess Benefit Plan purposes. TNMP owns policies insuring the
lives of the Excess Benefit Plan participants; policy proceeds are payable to
TNMP to reimburse it for its payments to the retirees.

61
<PAGE>

As of December 31, 1999, the named executive officers were credited with the
years of service set forth in the following table. Executive pension benefits
are computed actuarially.

<TABLE>
<CAPTION>
Name Years of Credited Service
---- -------------------------
<S> <C>
Kevern R. Joyce.................................. 18 years(1)
Jack V. Chambers, Jr............................. 20 years, 11 months
Manjit S. Cheema................................. 5 years, 6 months
John P. Edwards.................................. 22 years(1)
Ralph S. Johnson................................. 21 years(1)
</TABLE>
--------
(1) TNMP has credited each of Messrs. Joyce, Edwards and Johnson with
additional years of service, including years before joining TNP and TNMP,
for purposes of determining their retirement benefits under the TNMP
Excess Benefit Plan. The credits for prior years service were required in
order to retain the services of these executives. Each such executive who
is employed by TNP or TNMP at age 65 will be credited with a total of 30
years of service; this number will be reduced by one year for each year
that his retirement precedes age 65. Excess Benefit Plan benefits that
each receives will be reduced by the amount of any retirement payments
that he receives from the TNMP pension plan and from other employers. Any
who retires before age 55 and five years of service will receive no
benefits, unless there is a change in control of TNP or TNMP. If there is
a change in control, the benefits to each will be fully vested and accrued
as of either the date of the change in control or as of his 62nd birthday,
whichever date provides the greater benefit.

62
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

SW Acquisition, L.P. owns 100% of our equity interests. The following table
sets forth the beneficial ownership of TNP Enterprises, Inc. as of the date of
this prospectus:

<TABLE>
<CAPTION>
Percentage
Beneficially
Name of Beneficial Owner Owned
------------------------ ------------
<S> <C>
SW Acquisition, L.P.(1)..................................... 100.0%
William J. Catacosinos(2)................................... 100.0%
Kevern R. Joyce(3).......................................... 0.0%
Leeam Lowin(3).............................................. 0.0%
Preston M. Geren III(3)..................................... 0.0%
Theodore A. Babcock(4)...................................... 0.0%
All directors and executive officers as a group(2).......... 100.0%
</TABLE>
--------
(1) The business address of S.W. Acquisition, L.P. is 2 Robbins Lane, Suite
201, Jericho, New York 11753.

(2) Dr. William J. Catacosinos, who controls SW I Acquisition GP, L.P., the
general partner of SW Acquisition, L.P., may also be deemed to have
beneficial ownership of the equity interests reported in the table. The
business address of Dr. Catacosinos is 2 Robbins Lane, Suite 201, Jericho,
New York 11753.
(3) The addresses for Messrs. Joyce, Lowin and Geren is c/o TNP Enterprises,
Inc., 4100 International Plaza, Fort Worth, Texas 76113.

(4) The address for Mr. Babcock is c/o Laurel Hill Capital Partners LLC, 2
Robbins Lane, Suite 201, Jericho, New York 11753.

63
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Transactions with CIBC, Laurel Hill, Continental Casualty and their affiliates

We have entered into and agreed to enter into certain transactions with
CIBC, Laurel Hill, Continental Casualty and certain of their affiliates in
connection with the merger:

. CIBC and its affiliates structured, arranged and syndicated a senior
secured credit facility in an aggregate amount of $185.0 million,
pursuant to which CIBC or its affiliates acted as co-arranger and lender
under our senior secured credit facility and administrative agent. An
affiliate of CIBC received certain fees in connection with our senior
secured credit facility.

. CIBC and its affiliates have acted to structure, and arrange and
syndicate a backstop credit facility in an aggregate amount of $203.0
million, in order to repay outstanding debt which became due and payable
as a result of the merger. CIBC or its affiliates acted as co-arranger
and lender under the backstop credit facility and as administrative
agent.

. CIBC was an initial purchaser of the old notes and received certain fees
in connection therewith.

. CIBC, Laurel Hill and Continental Casualty Company purchased Preferred
Equity with a liquidation preference of $32.5 million, $2.5 million and
$32.5 million, respectively, issued concurrently with the issue of the
old notes and received customary commitment and funding fees in
connection therewith. In addition, CIBC acted as initial purchaser in
the issue of $100.0 million of units of our senior preferred stock and
warrants to purchase limited partnership interests in Parent, used to
redeem the Preferred Equity issued in connection with the merger, and
received certain fees in connection therewith.

. Pursuant to the Limited Partnership Agreement of Parent, CIBC or its
affiliates may receive annual advisory fees for certain consulting and
advisory services provided from time to time to TNP.

. Pursuant to a management services advisory agreement, TNP may pay Laurel
Hill an annual fee for certain consulting and advisory services provided
from time to time. In addition, TNP will pay Laurel Hill customary
investment banking fees in the future for advisory services in
connection with merger, acquisition, or purchase or sale of asset
transactions.

64
<PAGE>

DESCRIPTION OF CERTAIN INDEBTEDNESS AND PREFERRED EQUITY

Upon completion of the exchange, in addition to the old notes, if any, and
the registered notes, we will have the following indebtedness and preferred
equity outstanding:

TNP

Senior Secured Credit Facility

General. As part of the merger TNP entered into a senior secured credit
facility with Canadian Imperial Bank of Commerce, as administrative agent, and
CIBC and Chase Securities Inc. ("Chase"), as co-arrangers and co-book managers,
and the lenders party thereto. The senior secured credit facility provides for
a $160.0 million term loan and revolving loans for up to $25.0 million. Subject
to certain restrictions, the senior secured credit facility may be used to
finance the merger and for working capital and general corporate purposes,
including transaction fees and expenses. The obligation of the lenders to
provide the initial advances under the senior secured credit facility will be
subject to the satisfaction of certain conditions.

Repayment. The revolving loan must be repaid on or before the third
anniversary of closing of the merger. Prior to that time the revolving loan may
be borrowed, repaid and reborrowed, without premium or penalty subject to the
satisfaction of certain conditions on the date of any such borrowing. The term
loan is required to be amortized in quarterly installments on March 31, June
30, September 30, and December 31 of each fiscal year beginning on June 30,
2000 as set forth below:

<TABLE>
<CAPTION>
Year Amortization
---- ------------
<S> <C>
2000...................................... $ 1,200,000
2001...................................... 1,600,000
2002...................................... 1,600,000
2003...................................... 1,600,000
2004...................................... 1,600,000
2005...................................... 76,800,000
2006...................................... 75,600,000
</TABLE>

Interest. All borrowings under the senior secured credit facility will bear
interest, at TNP's option, at a rate per annum equal to either:

(a) the "ABR" (which is the higher of (i) the rate of interest publicly
announced by CIBC as its prime rate in effect at its principal office
in New York City and (ii) the federal funds effective rate from time to
time plus 0.5%) plus 1.75%, or

(b) the "eurodollar rate" (which is the rate (adjusted for statutory
reserve requirements for eurocurrency liabilities) for eurodollar
deposits for a period equal to one, two, three or six months (as
selected by us) appearing on Page 3750 of the Dow Jones Markets screen)
plus 2.75%.

Fees. A commitment fee calculated at the rate of 0.50% per annum on the
average daily unused portion of the revolving loan, will be payable quarterly
in arrears.

Covenants.

The senior secured credit facility contains financial covenants, including:

. maximum consolidated leverage ratio;

. maximum senior debt leverage ratio;

. minimum interest coverage ratio; and

. maximum ratio of consolidated TNMP debt to TNMP total capitalization.

65
<PAGE>

The senior secured credit facility also contains negative covenants that
restrict TNP's ability to, among other things:

. borrow money;

. create liens;

. guarantee indebtedness of others;

. sell certain assets or merge with or into other companies;

. consolidate, liquidate or dissolve;

. enter into leases;

. pay dividends on, or make other payments in respect of, capital stock;

. make capital expenditures;

. make investments, loans or advancements;

. make optional payments in respect of, or modify the terms of,
subordinated and other debt instruments;

. enter into transactions with affiliates;

. enter into sale and leaseback transactions;

. make changes in the fiscal year;

. enter into negative pledge clauses or clauses restricting subsidiary
distributions;

. make changes in the lines of business; and

. make changes in our passive holding company status.

Events of Default: The senior secured credit facility contains events of
default including, without limitation: failure to make payments when due;

. breach of representations and warranties;

. breach of covenants (subject, in the case of certain affirmative
covenants, to a grace period);

. cross-default to other indebtedness;

. bankruptcy events;

. certain ERISA events;

. material judgments;

. actual or asserted invalidity of any guarantee, security document,
security interest or subordination provision; and

. a change of control (as defined in the senior secured credit facility).

Units

On May 26, 2000, TNP and SW Acquisition issued 100,000 units consisting of
100,000 shares of 14 1/2% senior redeemable preferred stock of TNP and warrants
to purchase limited partnership interests of SW Acquisition, L.P. In the
aggregate, the warrants are exercisable for limited partnership interests
entitling the holders to receive the amount limited partners who had made an
aggregate $3,753,886.01 capital contribution (3.5% of total contributions as of
the issue date of the units) would receive of the residual distributions to all
partners in accordance with their capital contributions after a return of
capital and preferred distributions are made to the limited partners (other
than holders of limited partnership interests issued upon exercise of the
warrants) and the general partner subject to adjustment.

66
<PAGE>

Separability. The senior preferred stock and the warrants may not be
separately transferable until the earliest of:

(1) 180 days after the issue date of the units;

(2) the occurrence of a change of control;

(3) the occurrence of a voting rights triggering event under the terms of
the senior preferred stock;

(4) the effectiveness of a registration statement with respect to the
senior preferred stock; or

(5) such earlier date as determined by CIBC, in its discretion.

The Senior Preferred Stock

Liquidation Preference. The senior preferred stock has a liquidation
preference of $1,000 per share, plus accumulated and unpaid dividends.

Dividends. Dividends on the senior preferred stock will be payable at the
rate of 14 1/2% when, as and if declared by our board of directors out of funds
legally available for the payment of dividends on each April 1 and October 1,
beginning on October 1, 2000.

On or prior to April 1, 2005, dividends will be payable by issuing
additional shares of senior preferred stock having an aggregate liquidation
preference equal to the amount of the dividend to be paid. Thereafter,
dividends will be payable at our option either in cash or by issuing additional
shares of senior preferred stock having an aggregate liquidation preference
equal to the amount of the dividend to be paid.

Mandatory Redemption. We must redeem any outstanding senior preferred stock
at a price equal to its liquidation preference, plus accumulated dividends, on
April 1, 2011.

Optional Redemption. Except in the case of certain public equity offerings
by us or in the event of a change of control, we cannot choose to redeem the
senior preferred stock prior to April 1, 2005.

At any time from and after that date (which may be more than once), we can
chose to redeem some or all of the senior preferred stock at specified prices,
plus accumulated dividends.

Optional Redemption after Public Equity Offerings. At any time before April
1, 2003, we can choose to buy back all but not less than all of the outstanding
senior preferred stock with money that we raise in one or more public equity
offerings, as long as:

. we pay 114.5% of the liquidation preference of the senior preferred
stock bought, plus accumulated and unpaid dividends; and

. we buy the senior preferred stock within 90 days of completing the
public equity offering.

Change of Control. Before April 1, 2005, we can buy back all but not less
than all of the senior preferred stock at the liquidation preference, plus a
make-whole premium, plus accumulated dividends, in the event of a change of
control. If we experience a change of control, and if we do not exercise our
right to redeem the senior preferred stock, we must give holders of the senior
preferred stock the opportunity to sell us their senior preferred stock at 110%
of their liquidation preference, plus accumulated and unpaid dividends.

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Voting. The senior preferred stock is non-voting, except as otherwise
required by law and except in certain circumstances described herein,
including:

. amending certain rights of the holders of the senior preferred stock;
and

. the issuance of any class of equity securities that ranks equal with or
senior to the senior preferred stock.

In addition, if we:

. fail to make a mandatory redemption or an offer to purchase upon a
change of control, if required; or

. fail to comply with certain covenants,

holders of a majority of the shares of the senior preferred stock, voting as a
class, will be entitled to elect the lesser of two directors or that number of
directors constituting at least 25% of our board of directors.

Certain Restrictive Provisions. The statement of resolution governing the
senior preferred stock of TNP limits what we may do. However, our regulated
subsidiaries, which currently consist of TNMP, the principal operating
subsidiary of TNP, and its subsidiaries, are not subject to some of these
limitations. The provisions of the amended and restated articles of
incorporation of TNP limit our ability to:

. incur more debt;

. pay dividends and make distributions;

. issue preferred stock of subsidiaries

. make certain investments;

. repurchase stock;

. restrict the ability of our subsidiaries to make payments to us;

. enter into transactions with affiliates;

. merge or consolidate; and

. amend or modify the certificate of designation.

These covenants are subject to a number of important exceptions, including
that the amended and restated articles of incorporation of TNP do not limit the
ability of our regulated subsidiaries to:

. incur more debt; and

. issue preferred stock.

Ranking. The senior preferred stock is, with respect to dividend and
liquidation rights, our most senior class or series of capital stock. We may
not issue any capital stock which ranks equal or senior to the senior preferred
stock in terms of dividend and liquidation rights without the approval of
holders of at least a majority of the shares of outstanding senior preferred
stock.

Registration Rights. We have agreed to attempt to register shares of
preferred stock with the SEC in order to try to give holders of the Senior
Preferred Stock the opportunity in the future to exchange the senior preferred
stock for preferred stock that may be publicly traded. In certain
circumstances, we agreed to register the Senior Preferred Stock under a shelf
registration.

The Warrants

Total Number of Warrants. SW Acquisition, L.P. issued 100,000 warrants
which, when exercised, entitle their holders to acquire in the aggregate
limited partnership interests entitling them to receive the amount

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limited partners who had made an aggregate $3,753,886.01 capital contribution
(3.5% of total contributions as of the issue date of the units) would receive
of the residual distributions to all partners in accordance with their capital
contributions after a return of capital and preferred distributions are made to
the limited partners (other than holders of limited partnership interests
issued upon exercise of the warrants) and the general partner subject to
adjustment. The warrants expire on April 1, 2011 (the "expiration date").

Voting Rights. Warrant holders have no voting rights as warrant holders.

Rights as a Limited Partner. Warrant holders will not have any rights as
limited partners unless they exercise their warrants. The limited partnership
interests issuable upon the exercise of the warrants will provide warrants
holders with the same rights and obligations as are provided to limited
partners, except in certain cases where rights and obligations apply only to
the original limited partners and except for the right to receive the preferred
distribution and the benefits and obligations under certain tag-along and right
of first offer provisions.

Registration Rights. A holder of warrants has piggyback registration rights
to have the limited partnership interests underlying its warrants registered
under the Securities Act.

Bring-Along Rights. Holders of the warrants, and the limited partnership
interests issuable upon exercise of the warrants, may be required to include
their warrants or limited partnership interests in a sale initiated by partners
proposing to sell at least 66 2/3% of the limited partnership interests.

TNMP

Revolving Credit Facility

In August 1996, TNMP entered into a revolving credit facility with First
National Bank of Chicago to support its working capital requirements. The First
Chicago credit facility originally had a $100.0 million commitment which TNMP
voluntarily reduced to $80.0 million. The interest rate on this credit facility
is currently LIBOR plus 0.75% and is based on a pricing grid tied to the note
ratings of TNMP. The credit facility has a 0.375% unused fee. The credit
facility is unsecured and matures in December 2000. The credit facility is
subject to terminations by the vote of two thirds of the holders of the
commitments upon a future change of control. The terms of the revolving credit
facility limit dividends that TNMP may pay to cumulative net income over the
previous twenty-four months, less dividends paid over that same period. As of
December 31, 1999, TNMP had $27.7 million of undistributed net income available
for distribution according to this test.

First Mortgage Bonds

In September 1993, TNMP issued $100.0 million of 9.25% Series U First
Mortgage Bonds concurrent with the refinancing of bank borrowings that were
used to build TNP One. The first mortgage bonds are secured by substantially
all tangible utility property owned directly by TNMP, including all tangible
utility property acquired by TNMP in the future. The maximum amount of any
additional first mortgage bonds that TNMP can issue is determined by both a
collateral requirement and by an interest coverage requirement. The collateral
requirement is a function of property additions, previously redeemed first
mortgage bonds, and cash deposited with the trustee. As of December 31, 1999,
the collateral requirement was more restrictive than the interest coverage
requirement, and TNMP could issue up to $96.3 million of additional first
mortgage bonds. The first mortgage bonds mature in September 2000.

The terms of the first mortgage bonds indenture limit dividends that TNMP
may pay to $1.5 million plus cumulative net income from 1969, less dividends
paid and all payments on preferred stock. As of December 31, 1999, TNMP had
$80.6 million of undistributed net income available for distribution according
to this test.

On June 1, 2000, TNMP closed its offer to repurchase the first mortgage
bonds pursuant to change of control provisions following the merger.
Approximately $90.5 million of first mortgage bonds were tendered for
redemption. TNMP borrowed from the backstop credit facility to refinance the
tendered debt and created a new series of first mortgage bonds to secure the
borrowing.

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Secured Debentures

In September 1993, TNMP issued $140.0 million of Series A 10.75% Secured
Debentures concurrent with refinancing of its bank borrowings that were used to
build TNP One. The secured debentures are collateralized by a first lien on a
portion of TNP One, and by second liens on substantially all utility plant in
Texas owned directly by TNMP. The secured debentures contain restrictive
covenants on dividends and asset dispositions and are callable at the
outstanding principal amount beginning on September 15, 2000. On June 1, 2000,
TNMP closed its tender offer to repurchase the secured debentures pursuant to
their change of control provisions following the merger. TNMP repurchased
$112.8 million of secured debentures tendered with proceeds from its backstop
credit facility and created a new series of secured debentures to secure its
borrowings under the backstop credit facility.

Senior Notes

In January 1999, TNMP issued $175.0 million of 6.25% Senior Notes due 2009
and used the proceeds to retire $130.0 million of its 12.5% Secured Debentures
and reduce outstanding borrowings under TNMP's credit facilities. The senior
notes are initially secured by first mortgage notes; however, when TNMP repays
its existing first mortgage notes and secured debentures, the collateral
securing the senior notes can be released and the senior notes may become
unsecured obligations of TNMP.

Preferred Equity

In 1963, TNMP issued Series B Preferred Stock. At December 31, 1999, there
were shares with an aggregate stated value of $839,000 outstanding. The Series
B Preferred Stock pays cash dividends semi-annually at a rate of 4.65% and has
a mandatory repurchase requirement of $120,000 per year.

In 1965, TNMP issued Series C Preferred Stock. At December 31, 1999, there
were shares with an aggregate stated value of $825,000 outstanding. The Series
C Preferred Stock pays cash dividends semi-annually at a rate of 4.75% and has
a mandatory repurchase requirement of $60,000 per year.

Backstop Credit Facility

As a result of the merger, we were required to make an offer to repurchase
the first mortgage bonds and the debentures at 101% of the outstanding
principal amount. As part of the merger, we put in place a backstop credit
facility of $240.0 million to fund the purchase of any debt that we were
required to repurchase under the change of control provisions. On June 1, 2000
TNMP closed the tender offer process for its Series U First Mortgage Bonds and
its 10.75% secured debentures, and drew a total of $203.3 million under the
backstop credit facility to repurchase $90.5 million tendered under its Series
U First Mortgage Bonds and $112.8 million tendered under its 10.75% Secured
Debentures. Commitments associated with the unused portion of the backstop
credit facility terminated on June 1, 2000, and are no longer available to
TNMP. The backstop credit facility is secured by a new series of first mortgage
bonds and a new series of secured debentures, each on the same amount of the
securities that were purchased pursuant to the tender offer. The interest rate
on the backstop credit facility was initially LIBOR plus 1.25%. The backstop
credit facility matures 364 days after closing of the acquisition. CIBC and
Chase act as co-lead arrangers and co-book managers for this credit facility.

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DESCRIPTION OF THE EXCHANGE NOTES

Except as otherwise indicated below, the following summary applies to both
the old notes and the registered notes. As used in this section, the term
"Notes" means the old notes and the registered notes, unless otherwise
indicated. For purposes of this section, references to the "Company", "we",
"us" and "our" include only TNP Enterprises, Inc. and not to any of its
subsidiaries. You can find the definitions of certain terms used in this
description under the subheading "--Certain Definitions."

The form and terms of the registered notes are substantially identical to
the form and terms of the old notes, except that the registered notes:

. will be registered under the Securities Act, and

. will not bear legends containing transfer restrictions.

TNP, as the continuing Person in the merger of ST Acquisition Corp. with and
into TNP, at the effective time of the merger assumed the obligations of ST
Acquisition Corp. under the old notes and the indenture between ST Acquisition
Corp. and The Bank of New York, as trustee (the "Trustee"), as supplemented by
the first supplemental indenture between TNP and the Trustee (the "Indenture").
TNP will issue the registered notes under the Indenture. The terms of the
registered notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA").

The following description is a summary of the material provisions of the
Indenture. It does not restate that agreement in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
holders of the Notes. You can find a copy of the Indenture as described in the
section titled "Where You Can Find More Information".

Brief Description of the Notes

The Notes:

. are general unsecured obligations of the Company;

. are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company; and

. are senior in right of payment to any future subordinated Indebtedness
of the Company.

Assuming we had completed the merger and the related financings including
the offering of the Notes and applied the net proceeds as intended, as of
December 31, 1999, the Company would have had total Senior Indebtedness of
approximately $160.1 million and approximately $24.9 million of additional
borrowings available under the Senior Credit Facility. As indicated above and
as discussed in detail below under the subheading "--Subordination," payments
on the Notes will be subordinated to the payment of Senior Indebtedness. The
Indenture will permit us to incur additional Senior Indebtedness.

As of the Issue Date, all of our Subsidiaries were "Restricted
Subsidiaries." However, our Regulated Restricted Subsidiaries, which as of the
Issue Date consist of our principal operating Subsidiary, TNMP, and its
Subsidiaries, will not be subject to many of the restrictive covenants in the
Indenture that would ordinarily apply to Restricted Subsidiaries. Under the
circumstances described below in the definition of "Unrestricted Subsidiary,"
we will be permitted to designate certain of our Subsidiaries as "Unrestricted
Subsidiaries." Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the Indenture. None of our Subsidiaries guaranteed, or
will guarantee the Notes on the Issue Date. In the event of a bankruptcy,
liquidation or reorganization of any of our Subsidiaries, such Subsidiary will
pay the holders of its debt and its trade creditors before it will be able to
distribute any of its assets to us.

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Principal, Maturity and Interest

The Company will issue Notes with a maximum aggregate principal amount of
$275.0 million. The Company issued the old notes, and will issue the registered
notes in denominations of $1,000 and integral multiples of $1,000. The Notes
will mature on April 1, 2010.

Interest on the Notes will accrue at the rate of 10.25% per annum and will
be payable semi-annually in arrears on each April 1 and October 1, commencing
on October 1, 2000. The Company will make each interest payment to the Holders
of record of the Notes on the immediately preceding March 15 and September 15.

Interest on the Notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.

Optional Redemption

Before April 1, 2003, the Company may redeem up to 35% of the aggregate
principal amount of Notes originally issued at any time and from time to time
at a redemption price equal to 110.25% of the aggregate principal amount so
redeemed, plus accrued and unpaid interest, if any, to the redemption date, out
of the Net Proceeds of one or more Public Equity Offerings; provided that

(1) at least 65% of the aggregate principal amount of Notes originally
issued remains outstanding immediately after the occurrence of any such
redemption; and

(2) any such redemption occurs within 90 days following the closing of such
Public Equity Offering.

On and after April 1, 2005, the Company may redeem the Notes at its option,
in whole at any time or in part from time to time, at the following redemption
prices (expressed as percentages of the principal amount thereof), plus accrued
and unpaid interest, if any, to the redemption date, if redeemed during the
twelve-month period beginning on April 1 of each year listed below:

<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2005........................................ 105.125%
2006........................................ 103.417%
2007........................................ 101.708%
2008 and thereafter......................... 100.000%
</TABLE>

In the event of a redemption of less than all of the Notes, the Trustee will
select the Notes to be redeemed as follows:

(1) if the Notes are listed, in compliance with the requirements of the
principal national securities exchange on which such Notes are listed;
or
(2) if the Notes are not then listed, on a pro rata basis, by lot or in
such other manner as the Trustee deems fair and equitable.

The Notes will be redeemable upon not less than 30 nor more than 60 days'
prior written notice, mailed by first class mail to a Holder's registered
address. Notices of redemption may not be conditional.

If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note will state the portion of the principal amount thereof to
be redeemed. A Registered Note in principal amount equal to the unredeemed
portion of the original Note will be issued in the name of the Holder thereof
upon cancellation of the original Note. Notes called for redemption become due
on the date fixed for redemption. On and after any

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redemption date, interest will cease to accrue on the Notes or portions thereof
called for redemption unless the Company has failed to redeem any such Note.

Subordination

The indebtedness represented by the Notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the prior
payment in full of all Senior Indebtedness of the Company whether outstanding
on the date of the Indenture or thereafter incurred. The holders of Senior
Indebtedness of the Company will be entitled to receive payment in full of all
amounts due on or in respect of all Senior Indebtedness of the Company
(including interest after the commencement of any such proceeding at the rate
specified on the applicable Senior Indebtedness whether or not such interest
constitutes an allowed claim in such proceeding) before the Holders are
entitled to receive or retain any payment of any kind on the Notes (other than
a payment from the trust described under the subheading "--Legal Defeasance and
Covenant Defeasance") in the event of any distribution to creditors of the
Company in any:

(1) bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or to its assets;

(2) liquidation or dissolution or other winding-up of the Company;

(3) assignment for the benefit of creditors of the Company; or

(4) marshalling of assets or liabilities of the Company.

The Company also may not make any payment in respect of the Notes (other
than a payment from the trust described under the subheading "--Legal
Defeasance and Covenant Defeasance") if:

(1) a Payment Default on Designated Senior Indebtedness occurs and is
continuing and the Trustee receives a notice of such Payment Default
from the representative of the holders of Designated Senior
Indebtedness; or

(2) any Non-Payment Default occurs and is continuing on Designated Senior
Indebtedness and the Trustee receives a notice of such Non-Payment
Default (a "Payment Blockage Notice") from the representative of the
holders of such Designated Senior Indebtedness.

Payments on the Notes must be resumed:

(1) in the case of a Payment Default, upon the date on which such Payment
Default is cured, waived in writing or otherwise ceases to exist; and

(2) in case of a Non-Payment Default, the earlier of the date on which such
Non-Payment Default is cured, waived in writing or otherwise ceases to
exist or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated
Senior Indebtedness has been accelerated.

No new Payment Blockage Notice may be delivered unless and until:

(1) 360 days have elapsed since the effectiveness of the immediately
preceding Payment Blockage Notice; and

(2) all scheduled payments of principal, premium and interest on the Notes
that have come due have been paid in full in cash.

No Non-Payment Default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee may be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default has been
waived for a period of not less than 90 days.

When the payment blockages described above are no longer in effect, the
Company must resume making any and all required payments on the Notes,
including any missed payments. If the Company fails to make any

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payment on the Notes when due or within any applicable grace period, whether or
not on account of the payment blockage provisions, such failure would
constitute an Event of Default under the Indenture and would enable the Holders
to accelerate the maturity thereof. See "--Events of Default."

A Holder by its acceptance of Notes agrees to be bound by such provisions
and authorizes and expressly directs the Trustee, on its behalf, to take such
action as may be necessary or appropriate to effectuate the subordination
provided for in the Indenture and appoints the Trustee its attorney-in-fact for
such purpose.

As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of the Company, Holders may recover
less ratably than creditors of the Company who are holders of Senior
Indebtedness. See the "Risk Factors--Subordination" section of this prospectus.

Certain Covenants

Set forth below are certain covenants contained in the Indenture. During any
period of time that (i) the ratings assigned to the Notes by both of the Rating
Agencies are Investment Grade Ratings and (ii) no Default has occurred and is
continuing under the Indenture, the Company and its Restricted Subsidiaries
will not be subject to the provisions of the Indenture described below under
"--Limitation on Additional Indebtedness," "--Limitation on Restricted
Payments," "--Limitation on Transactions with Affiliates," "--Limitation on
Asset Sales" and clause (3) of "--Merger, Consolidation and Sale of Assets"
(collectively, the "Suspended Covenants"). In the event that the Company and
its Restricted Subsidiaries are not subject to the Suspended Covenants with
respect to the Notes for any period of time as a result of the preceding
sentence and, subsequently, one or both Rating Agencies withdraw their ratings
or downgrade the ratings assigned to such Notes below the required Investment
Grade Ratings, then the Company and each of its Restricted Subsidiaries (except
to the extent that any such Restricted Subsidiary is not subject to such
covenant pursuant to the terms thereof) will thereafter again be subject to the
Suspended Covenants for the benefit of such Notes and compliance with the
Suspended Covenants with respect to Restricted Payments made after the time of
such withdrawal or downgrade will be calculated in accordance with the terms of
the covenant described below under "--Limitation on Restricted Payments" as if
such covenant had been in effect during the entire period of time from the date
of the Indenture.

Limitation on Additional Indebtedness

The Company will not, and will not permit any of its Restricted Subsidiaries
(other than any Regulated Restricted Subsidiary) to, directly or indirectly,
incur (as defined) any Indebtedness (including Acquired Indebtedness); provided
that if no Default or Event of Default has occurred and is continuing at the
time or as a consequence of the incurrence of such Indebtedness, the Company or
any of its Restricted Subsidiaries may incur Indebtedness (including Acquired
Indebtedness) if after giving effect to the incurrence of such Indebtedness and
the receipt and application of the proceeds thereof, the Company's Consolidated
Fixed Charge Coverage Ratio is at least 2.0 to 1 if the Indebtedness is
incurred on or prior to December 31, 2001 and 2.25 to 1 if the Indebtedness is
incurred thereafter.

Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur Permitted Indebtedness; provided that the Company may not incur any
Permitted Indebtedness that ranks junior in right of payment to the Notes that
has a maturity or mandatory sinking fund payment prior to the maturity of the
Notes.

For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness which the Company and any Restricted Subsidiary are permitted to
issue, the Company and such Restricted Subsidiary, as the case may be, will
have the right, in the Company's sole discretion, to classify such item of
Indebtedness at the time of its issuance and from time to time thereafter and
will only be required to include the amount and type of such Indebtedness under
the clause permitting the Indebtedness as so classified.

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Limitation on Other Senior Subordinated Indebtedness

The Company will not, directly or indirectly, incur, contingently or
otherwise, any Indebtedness (other than the Notes) that is both

(1) subordinate in right of payment to any Senior Indebtedness of the
Company; and

(2) senior in right of payment to the Notes. For purposes of this covenant,
Indebtedness is deemed to be senior in right of payment to the Notes if
it is not explicitly subordinated in right of payment to Senior
Indebtedness of the Company at least to the same extent as the Notes
are subordinated to such Senior Indebtedness.

Limitation on Restricted Payments

The Company will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:

(1) no Default or Event of Default has occurred and is continuing at the
time of or immediately after giving effect to such Restricted Payment;

(2) immediately after giving pro forma effect to such Restricted Payment,
the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under "--Limitation on Additional Indebtedness"
above; and

(3) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments made after the Issue Date does not
exceed the sum of

(a) 50% of the Company's Cumulative Consolidated Net Income (or minus
100% of any cumulative deficit in Consolidated Net Income during
such period);

(b) 100% of the aggregate Net Proceeds received by the Company from the
issue or sale after the Issue Date of Capital Stock (other than
Disqualified Capital Stock or Capital Stock of the Company issued to
any Subsidiary of the Company) of the Company or any Indebtedness or
other securities of the Company convertible into or exercisable or
exchangeable for Capital Stock (other than Disqualified Capital
Stock) of the Company which have been so converted, exercised or
exchanged, as the case may be;

(c) without duplication of any amounts included in clause (3)(b) above,
100% of the aggregate Net Proceeds received by the Company from any
equity contribution from a holder of the Company's Capital Stock,
excluding any Net Proceeds from a Public Equity Offering to the
extent used to redeem the Notes; and

(d) without duplication, the sum of:

(i) the aggregate amount returned in cash on or with respect to an
Investment (other than a Permitted Investment) in any Person
made subsequent to the Issue Date whether through interest
payments, principal payments, dividends or other distributions;
and

(ii) the net cash proceeds received by the Company or any of its
Restricted Subsidiaries from the disposition (other than to the
Company or a Subsidiary of the Company), retirement or
redemption of all or any portion of an Investment described in
clause (3)(d)(i);

provided, however, that, with respect to an Investment in any Person,
the sum of clauses (i) and (ii) above with respect to the Investment
in such Person may not exceed the aggregate amount of all Investments
made in such Person subsequent to the Issue Date; and

(e) $5.0 million.

For purposes of determining under clause (3) above, the amount expended for
Restricted Payments, cash distributed will be valued at the face amount
thereof and property other than cash will be valued at its fair market value.

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The provisions of this covenant will not prohibit

(1) the payment of any distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
comply with the provisions of the Indenture;

(2) the repurchase, redemption or other acquisition or retirement of any
shares of Capital Stock of the Company or Indebtedness subordinate in
right of payment to the Notes by conversion into, or by or in exchange
for, shares of Capital Stock of the Company (other than Disqualified
Capital Stock), or out of the Net Proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of other
shares of Capital Stock of the Company (other than Disqualified Capital
Stock);

(3) the redemption or retirement of Indebtedness of the Company subordinate
in right of payment to the Notes in exchange for, by conversion into,
or out of the Net Proceeds of a substantially concurrent sale or
incurrence of, Indebtedness of the Company (other than any Indebtedness
owed to a Subsidiary of the Company) that is Refinancing Indebtedness;

(4) distributions to SW Acquisition, L.P. by the Company for the purpose of
(a) enabling the partners of SW Acquisition, L.P. to pay their tax
liabilities and (b) enabling SW Acquisition, L.P. to pay management,
consulting and financial advisory fees and reimburse expenses in an
amount in the case of this clause (b) not to exceed $2.0 million in the
aggregate in any fiscal year;

(5) the repurchase, redemption or other acquisition or retirement of any
shares of Disqualified Capital Stock out of the Net Proceeds of the
substantially concurrent sale (other than to a Subsidiary of the
Company) of other shares of Disqualified Capital Stock; provided,
however, that the amounts of the redemption obligations of the
Disqualified Capital Stock being issued shall not exceed the amounts of
the redemption obligations of, and such Disqualified Capital Stock
shall have redemption obligations no earlier than those required by,
the Disqualified Capital Stock being refinanced;

(6) the repurchase, redemption, retirement or acquisition of Capital Stock
of the Company from employees or directors of the Company upon such
employees' or directors' death, retirement or termination of employment
or otherwise in accordance with any employment agreement, employee or
director stock option plan or agreement or employee or director equity
subscription agreement, in an aggregate amount not to exceed $2.0
million in any calendar year, plus the aggregate cash proceeds received
by the Company during such calendar year from any issuance of such
Capital Stock to employees or directors of the Company, plus the
portion of such $2.0 million which remains unused at the end of the
prior calendar year, but in no event to exceed $3.0 million in any
calendar year; provided, that the cancellation of Indebtedness owing to
the Company from employees or directors in connection with a repurchase
of Capital Stock of the Company will not be deemed to constitute a
Restricted Payment; and

(7) investments constituting Restricted Payments made as a result of the
receipt of non-cash consideration from any Asset Sale.

In calculating the aggregate amount of Restricted Payments made subsequent
to the Issue Date for purposes of clause (3) of the first paragraph above,
amounts expended pursuant to clauses (1), (2) and (6) of the immediately
preceding paragraph will be included in such calculation.

Not later than the date of making any Restricted Payment, the Company will
deliver to the Trustee an officers' certificate stating that

(1) such Restricted Payment is permitted and setting forth the basis upon
which the calculations required by the covenant described above were
computed, which calculations may be based upon the Company's latest
available financial statements, and

(2) no Default or Event of Default has occurred and is continuing and no
Default or Event of Default will occur immediately after giving effect
to any such Restricted Payment.

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Limitation on Liens

The Company will not, and will not permit any of its Restricted Subsidiaries
(other than any Regulated Restricted Subsidiary) to, create, incur or otherwise
cause or suffer to exist or become effective any Liens of any kind (other than
Permitted Liens) upon any property or asset of the Company or any of its
Restricted Subsidiaries or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary of the Company which owns property or assets, now owned
or hereafter acquired, without making or causing the Restricted Subsidiary to
make effective provision for securing the Notes; and

(1) if such Lien secures Indebtedness which is subordinate in right of
payment to the Notes, such Lien will be subordinate to the Lien granted
to Holders to the same extent as such Indebtedness is subordinate in
right of payment to the Notes; and

(2) in all other cases, the Notes are equally and ratably secured.

Limitation on Transactions with Affiliates

The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, enter into any transaction or series of related
transactions (including, without limitation, the sale, purchase, exchange or
lease of assets, property or services) with or for the benefit of any Affiliate
(each an "Affiliate Transaction") or extend, renew, waive or otherwise amend or
modify the terms of any Affiliate Transaction entered into prior to the Issue
Date unless

(1) such Affiliate Transaction is between or among the Company and one or
more of its Wholly Owned Subsidiaries; or

(2) the terms of such Affiliate Transaction are at least as favorable as
the terms which could be obtained by the Company or such Restricted
Subsidiary, as the case may be, in a comparable transaction made on an
arm's-length basis between unaffiliated parties.

In any Affiliate Transaction (or any series of related Affiliate
Transactions which are similar or part of a common plan) involving an amount or
having a fair market value in excess of $2.0 million which is not permitted
under clause (1) above, the Company must obtain a board resolution of the Board
of Directors of the Company (and approved by at least a majority of the
disinterested directors) certifying that such Affiliate Transaction complies
with clause (2) above. In any Affiliate Transaction (or any series of related
Affiliate Transactions which are similar or part of a common plan) involving an
amount or having a fair market value in excess of $5.0 million which is not
permitted under clause (1) above, the Company must obtain a favorable written
opinion as to the fairness of such transaction or transactions, as the case may
be, from an Independent Financial Advisor.

The foregoing provisions will not apply to

(1) any Restricted Payment that is not prohibited by the provisions
described under "--Limitation on Restricted Payments" above;

(2) fees and compensation paid to, indemnity provided on behalf of, and
employee benefit arrangements for, officers, directors or employees of
the Company or any Restricted Subsidiary of the Company, as determined
in good faith by the Company's Board of Directors or senior management;

(3) any transactions with and any reasonable fees paid to Laurel Hill
Capital Partners LLC and its Affiliates and CIBC World Markets Corp.
and its Affiliates relating to advisory, banking and investment banking
services provided to the Company or any Restricted Subsidiary of the
Company, subject to approval by the Company's Board of Directors;

(4) distributions to SW Acquisition, L.P. by the Company for the purpose of
(a) enabling the partners of SW Acquisition, L.P. to pay their tax
liabilities and (b) enabling SW Acquisition, L.P. to pay

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management, consulting and financial advisory fees and reimburse
expenses in an amount in the case of this clause (b) not to exceed $2.0
million in the aggregate in any fiscal year;

(5) loans or advances to employees of the Company or any Restricted
Subsidiary in the ordinary course of business, but in any event not to
exceed $2.0 million in the aggregate outstanding at any time;

(6) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business approved in
good faith by the Company's Board of Directors; or

(7) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to
any amendment thereto) in any replacement agreement thereto so long as
any such amendment or replacement agreement is not more disadvantageous
to the holders in any material respect than the original agreement as
in effect on the Issue Date.

Limitation on Asset Sales

The Company will not, and will not permit any of its Restricted
Subsidiaries (other than any Regulated Restricted Subsidiary) to, consummate
an Asset Sale (excluding any sale of interests in an Unrestricted Subsidiary)
unless

(1) the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such sale or other disposition at least
equal to the fair market value of the assets sold or otherwise disposed
of; and

(2) not less than 75% of the consideration received by the Company or such
Restricted Subsidiary, as the case may be, is in the form of cash and
Cash Equivalents other than in the case where the Company is
undertaking a Permitted Asset Swap; provided that the following will be
deemed to be cash for purposes of this clause (2):

(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinate in right of payment
to the Notes) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability; and

(b) any securities, notes or other obligations received by the Company
or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted
by the Company or such Restricted Subsidiary into cash (to the
extent of the cash received in that conversion).

The Asset Sale Proceeds received by the Company or any Restricted
Subsidiary may be applied to one or more of the following purposes in such
combination as the Company or the applicable Restricted Subsidiary shall
elect:

A. to the extent the Company or any such Restricted Subsidiary, as the case
may be, elects, or is required, to prepay, repay or purchase
Indebtedness under any then existing Senior Indebtedness of the Company
or any such Restricted Subsidiary within 270 days following the receipt
of the Asset Sale Proceeds from any Asset Sale; provided that any such
repayment must result in a permanent reduction of the commitments
thereunder in an amount equal to the principal amount so repaid; and

B. (i) to an Investment in property or other assets (including Capital
Stock or other securities purchased in connection with the acquisition
of Capital Stock or property of another Person) or (ii) to the cash
collateralization of letters of credit or bankers acceptances designed
to facilitate the purchase of property and services; provided that any
cash collateral released to the Company or such Restricted Subsidiary
upon the expiration of such letters of credit, bankers acceptances or
other instruments or arrangements shall be deemed Asset Sale Proceeds
received on the date of such release; provided, however, that in the
case of clauses (i) and (ii) above, such applications of Asset Sale
Proceeds must

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be made in compliance with "--Limitation on Conduct of Business" below
within 270 days following the receipt of such Asset Sale Proceeds; and

C. to the reimbursement of the Company or any such Restricted Subsidiary
within 270 days following the receipt of insurance proceeds for
expenditures made, and costs incurred, to repair, rebuild, replace or
restore property subject to loss, damage or taking to the extent that
the Asset Sale Proceeds consist of insurance proceeds received on
account of such loss, damage or taking.

The aggregate Asset Sale Proceeds from any Asset Sale made by the Company or
any of its Restricted Subsidiaries (other than any such Asset Sale Proceeds
received by any Regulated Restricted Subsidiary that are not paid as a dividend
to the Company) that have not been applied in accordance with the preceding
paragraph, and that have not yet been the basis for an Excess Proceeds Offer in
accordance with the following paragraph, are referred to herein as "Available
Asset Sale Proceeds."

If the Available Asset Sale Proceeds exceed $10.0 million, the Company or
such Restricted Subsidiary, as the case may be, must apply an amount equal to
the Available Asset Sale Proceeds to an offer to repurchase the Notes, at a
purchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the purchase date (an "Excess Proceeds
Offer").

Within 30 days of the date specified in clause (B) above, the Company will
mail to the Trustee and each Holder a notice stating, among other things, that
the Company or such Restricted Subsidiary is making an Excess Proceeds Offer
and offering to repurchase Notes on the date specified in such notice (which
will be a Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed) pursuant to the procedures required by the
Indenture and described in such notice.

If an Excess Proceeds Offer is not fully subscribed, the Company or such
Restricted Subsidiary may retain the portion of the Available Asset Sale
Proceeds not required to repurchase Notes.

In the event of the transfer of substantially all of the property and assets
of the Company and its Restricted Subsidiaries as an entirety to a Person in a
transaction permitted under "--Merger, Consolidation or Sale of Assets" below,
the successor Person will be deemed to have sold the properties and assets of
the Company and its Restricted Subsidiaries not so transferred for purposes of
this covenant, and must comply with the provisions of this covenant with
respect to such deemed sale as if it were an Asset Sale.

The Company and any such Restricted Subsidiary will comply with the
requirements of Rule 14e-1 under the Exchange Act and other securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of Notes pursuant to an Excess Proceeds
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the "Asset Sale" provisions of the Indenture, the Company or such
Restricted Subsidiary will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
"Asset Sale" provisions of the Indenture by virtue thereof.

Limitation on Preferred Stock of Restricted Subsidiaries

The Company will not permit any of its Restricted Subsidiaries (other than
any Regulated Restricted Subsidiary) to issue any Preferred Stock (except
Preferred Stock issued to the Company or a Wholly Owned Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Subsidiary of the Company) to hold any such Preferred Stock unless such
Restricted Subsidiary would be entitled to incur or assume Indebtedness (other
than Permitted Indebtedness) in compliance with "--Limitation on Additional
Indebtedness" above in the aggregate principal amount equal to the aggregate
liquidation value of the Preferred Stock to be issued.

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Limitation on Capital Stock of Restricted Subsidiaries

The Company will not

(1) sell, pledge, hypothecate or otherwise convey or dispose of any Capital
Stock of a Restricted Subsidiary of the Company (other than any such
transaction resulting in a Lien which constitutes a Permitted Lien); or

(2) permit any of its Restricted Subsidiaries to issue any Capital Stock,
other than to the Company or a Wholly Owned Subsidiary of the Company.

The foregoing restrictions will not apply to (i) an Asset Sale made in
compliance with "--Limitation on Asset Sales" above (provided that if such
Asset Sale is for less than all of the outstanding Capital Stock of any
Restricted Subsidiary held by the Company or any of its Restricted
Subsidiaries, such Asset Sale must also comply with "--Limitation on Restricted
Payments" above), (ii) the issuance of Preferred Stock in compliance with "--
Limitation on Preferred Stock of Restricted Subsidiaries" above or (iii) if,
immediately after giving effect to such issuance, sale or other disposition,
such Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any Investment in such Person remaining after giving effect thereto would
have been permitted to be made under the covenant described under "--Limitation
on Restricted Payments" above if made on the date of such issuance, sale or
other disposition.

Limitation on Transfer of Assets to Certain Subsidiaries

The Company will not, and will not permit any of its Restricted Subsidiaries
to, sell, convey, transfer, lease or otherwise dispose of any of its assets or
property to any Subsidiary that is not a Wholly Owned Subsidiary.

Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries

The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to

(1) pay dividends or make any other distributions to the Company or any
Restricted Subsidiary of the Company

(a) on its Capital Stock, or

(b) with respect to any other interest or participation in, or measured
by, its profits;

(2) repay any Indebtedness or any other obligation owed to the Company or
any Restricted Subsidiary of the Company;

(3) make loans or advances or capital contributions to the Company or any
of its Restricted Subsidiaries; or

(4) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries,

except for such encumbrances or restrictions existing under or by reason of

(1) encumbrances or restrictions existing or entered into on the Issue Date
to the extent and in the manner such encumbrances and restrictions are
in effect on the Issue Date, including, without limitation, the
stipulation agreements entered into with the hearings held by the NMPRC
and the PUCT, the restrictions to be included in the amended and
restated articles of incorporation of TNP and TNMP that will become
effective on the date of the closing of the merger, and any amendments,
extensions or renewals thereof that are no more restrictive in any
material respect with regard to the interests of the Holders of Notes
than the restrictions and encumbrances in effect on the Issue Date;

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(2) any instrument governing Indebtedness of Regulated Restricted
Subsidiaries; provided that such restrictions or encumbrances are no
more restrictive in the aggregate than those contained in the
instruments governing Indebtedness of Regulated Restricted Subsidiaries
on the Issue Date;

(3) any instrument governing Indebtedness of any Restricted Subsidiary that
was a Regulated Restricted Subsidiary at any time after such Restricted
Subsidiary ceases to be a Regulated Restricted Subsidiary, to the
extent and in the manner such encumbrances and restrictions are in
effect on the date such Restricted Subsidiary ceases to be a Regulated
Restricted Subsidiary; provided that such encumbrances and restrictions
(together with encumbrances and restrictions that apply to all
Regulated Restricted Subsidiaries and Restricted Subsidiaries that were
Regulated Restricted Subsidiaries) are no more restrictive in the
aggregate than those contained in the instruments governing
Indebtedness of Regulated Restricted Subsidiaries on the Issue Date;

(4) financial maintenance covenants;

(5) the Indenture and the Notes;

(6) applicable law or regulation;

(7) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets
of the Person (including any Subsidiary of the Person), so acquired;

(8) customary net worth or non-assignment provisions in leases or other
agreements entered in the ordinary course of business and consistent
with past practices;

(9) Refinancing Indebtedness; provided that such restrictions, including
restricted payment baskets, are no more restrictive than those
contained in the agreements governing the Indebtedness being refunded,
refinanced or extended;

(10) customary restrictions in security agreements or mortgages securing
Indebtedness of the Company or a Restricted Subsidiary to the extent
such restrictions restrict the transfer of the property subject to
such security agreements and mortgages; or

(11) customary restrictions with respect to a Restricted Subsidiary of the
Company pursuant to an agreement that has been entered into for the
sale or disposition of all or substantially all of the Capital Stock
or assets of such Restricted Subsidiary.

Limitation on Guarantees by Restricted Subsidiaries

The Company will not permit any of its Restricted Subsidiaries, directly or
indirectly, by way of the pledge of any intercompany note or otherwise, to
guarantee any Indebtedness of the Company or any other Restricted Subsidiary of
the Company (other than the guarantee of Indebtedness of a Regulated Restricted
Subsidiary by another Regulated Restricted Subsidiary), unless, in any such
case,

(1) such Restricted Subsidiary executes and delivers a supplemental
indenture to the Indenture providing a guarantee of payment of the
Notes by such Restricted Subsidiary (the "Guarantee"); and

(2) if any such guarantee of such Restricted Subsidiary is provided in
respect of:

(a) Senior Indebtedness, the guarantee or other instrument provided by
such Restricted Subsidiary in respect of such Senior Indebtedness
may be superior to the Guarantee pursuant to subordination
provisions no less favorable to the Holders of the Notes than those
contained in the Indenture; and

(b) Indebtedness that is expressly subordinated to the Notes, the
guarantee or other instrument provided by such Restricted
Subsidiary in respect of such subordinated Indebtedness shall be
subordinated to the Guarantee pursuant to subordination provisions
no less favorable to the Holders of the Notes than those contained
in the Indenture.

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Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary
of the Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged, without any further action required on
the part of the Trustee or any Holder, upon:

(1) the unconditional release of such Restricted Subsidiary from its
liability in respect of the Indebtedness in connection with which such
Guarantee was executed and delivered pursuant to the preceding
paragraph; or

(2) any sale or other disposition (by merger or otherwise) to any Person
which is not a Restricted Subsidiary of the Company of all of the
Company's Capital Stock in, or all or substantially all of the assets
of, such Restricted Subsidiary; provided that

(a) such sale or disposition of such Capital Stock or assets is
otherwise in compliance with the terms of the Indenture; and

(b) such assumption, guarantee or other liability of such Restricted
Subsidiary has been released by the holders of the other
Indebtedness so guaranteed.

Limitation on Conduct of Business

The Company and its Restricted Subsidiaries will not engage in any
businesses which are not the same, similar, ancillary or related to the
businesses in which the Company and its Restricted Subsidiaries are engaged in
on the Issue Date. No Regulated Restricted Subsidiary will own any capital
stock of any Restricted Subsidiary that is not a Regulated Restricted
Subsidiary.

Limitation on Sale and Lease-Back Transactions

The Company will not, and will not permit any of its Restricted Subsidiaries
(other than any Regulated Restricted Subsidiary) to, enter into any Sale and
Lease-Back Transaction; provided that the Company may enter into a Sale and
Lease-Back Transaction if:

(1) the Company could have

(a) incurred Indebtedness (other than Permitted Indebtedness) in an
amount equal to the Attributable Indebtedness relating to such Sale
and Lease-Back Transaction under "--Limitation on Additional
Indebtedness" above; and

(b) incurred a Lien to secure such Indebtedness pursuant to "--
Limitation on Liens" above;

(2) the gross cash proceeds of that Sale and Lease-Back Transaction are at
least equal to the fair market value of the property sold; and

(3) the transfer of assets in that Sale and Lease-Back Transaction is
permitted by, and the Company applies the proceeds of such transaction
in compliance with "--Limitation on Asset Sales" above.

Payments for Consent

The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the Indenture
or the Notes unless such consideration is offered to be paid or agreed to be
paid to all Holders that so consent, waive or agree to amend in the time frame
set forth in solicitation documents relating to such consent, waiver or
amendment.

Change of Control Offer

If a Change of Control occurs, the Company must make an offer to repurchase
(the "Change of Control Offer") each Holder's outstanding Notes at a purchase
price (the "Change of Control Purchase Price") equal to

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101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the Change of Control Payment Date (as defined) in accordance with the
procedures set forth below.

Within 30 days of the occurrence of a Change of Control, the Company will
mail to the Trustee and each Holder a notice describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice (which will be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed
(the "Change of Control Payment Date")) pursuant to the procedures required by
the Indenture and described in such notice.

The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.

On the Change of Control Payment Date, the Company will

(1) accept for payment Notes or portions thereof tendered pursuant to the
Change of Control Offer;

(2) deposit with the Paying Agent money sufficient to pay the Change of
Control Purchase Price of all Notes or portions thereof so tendered;
and

(3) deliver or cause to be delivered to the Trustee Notes so accepted
together with an officers' certificate stating the aggregate principal
amount of Notes or portions thereof tendered to the Company.

The Paying Agent will promptly mail to each Holder of Notes so accepted payment
in an amount equal to the Change of Control Purchase Price for such Notes, and
the Company will execute and issue, and the Trustee will promptly authenticate
and mail to such holder, a registered note equal in principal amount to any
unpurchased portion of the Notes surrendered; provided that each such
registered note will be issued in an original principal amount in denominations
of $1,000 and integral multiples thereof.

Prior to complying with any of the procedures of this "Change of Control"
covenant, but in any event within 30 days following any Change of Control, the
Company covenants to

(1) repay in full all obligations and terminate all commitments under or in
respect of all Senior Indebtedness the terms of which prohibit the
purchase by the Company of the Notes upon a Change of Control in
compliance with the terms of this covenant or offer to repay in full
all obligations and terminate all commitments under or in respect of
all such Senior Indebtedness and repay the Senior Indebtedness owed to
each such lender who has accepted such offer; or

(2) obtain the requisite consents under all such Senior Indebtedness to
permit the repurchase of the Notes as described above.

The Company must first comply with the covenant described in the preceding
sentence before it will be required to purchase Notes in the event of a Change
of Control; provided that the Company's failure to comply with the covenant
described in the preceding sentence will constitute an Event of Default
described in clause (3) under "--Events of Default" below.

The Indenture further provides that (1) if the Company or any of its
Restricted Subsidiaries has outstanding any Indebtedness that is subordinated
in right of payment to the Notes or Preferred Stock, and the Company or such
Restricted Subsidiary is required to make a change of control offer or to make
a distribution with respect to such subordinated Indebtedness or Preferred
Stock in the event of a Change of Control, the Company will not consummate any
such offer or distribution with respect to such subordinated Indebtedness or
Preferred Stock until such time as the Company has paid the Change of Control
Purchase Price to the Holders that have accepted the Company's Change of
Control Offer and must otherwise have consummated the Change of Control Offer
and (2) the Company will not issue Indebtedness that is subordinated in right
of payment to

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the Notes or Preferred Stock with change of control provisions requiring the
payment of such Indebtedness or Preferred Stock prior to the payment of the
Notes in the event of a Change in Control.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.

The definition of Change of Control includes a phrase relating to the sale,
lease, exchange or other transfer of "all or substantially all" of the assets
of the Company or TNMP. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Notes to require the Company to purchase Notes as a result of a sale,
lease, exchange or other transfer, of less than all of the assets of the
Company to another person or group may be uncertain.

Merger, Consolidation or Sale of Assets

The Company will not (1) consolidate or merge with or into another Person
(whether or not the Company will be the continuing Person), or (2) sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its assets (as an entirety or substantially as an entirety in one
transaction or a series of related transactions) to any Person unless:

(1) the Company is the continuing Person, or the Person (if other than the
Company) formed by such consolidation or into which the Company is
merged or to which the assets of the Company are sold, assigned,
transferred, leased, conveyed or otherwise disposed of must be a
corporation organized and existing under the laws of the United States
or any State thereof or the District of Columbia and must expressly
assume, by a supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all of the obligations of
the Company under the Indenture and the Notes, and the obligations
thereunder will remain in full force and effect;

(2) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default will have occurred and be
continuing; and

(3) immediately after giving effect to such transaction on a pro forma
basis the Company or such Person will be able to incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) under
"--Certain Covenants--Limitation on Additional Indebtedness" above;

provided, however, that any such transaction effected solely for the purpose of
changing the Company's jurisdiction of incorporation need not comply with the
foregoing clauses (2) and (3).

In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company will deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an officers' certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in
respect thereto comply with this provision and that all conditions precedent
herein provided for relating to such transaction or transactions have been
complied with.

For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of related transactions) of all or
substantially all of the properties and assets of one or more Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, will be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.

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Reports to Holders

Whether or not required by the SEC, so long as any Notes are outstanding,
the Company will furnish to the Holders, within 15 days of the time periods
specified in the SEC's rules and regulations:

(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
on the annual financial statements by the Company's certified
independent accountants; and

(2) all current reports that would be required to be filed with the SEC on
Form 8-K if the Company were required to file such reports.

If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in a
management's discussion and analysis of financial condition and results of
operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.

In addition, whether or not required by the SEC, the Company will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the SEC for public availability within 15 days of the time periods
specified in the SEC's rules and regulations (unless the SEC will not accept
such a filing) and make such information available to prospective investors
upon request. The Company will also furnish to Holders and prospective
investors upon request the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act.

No Personal Liability of Officers, Directors, Employees and Stockholders

No officer, employee, director or stockholder of the Company or any
Subsidiary of the Company shall have any liability for any obligations of the
Company or any Subsidiary of the Company under the Notes or the Indenture, or
for any claim based on or in respect of, or by reason of, such obligations or
the creation or any such obligation. Each Holder of the Notes by accepting a
Note waives and releases all such liability, and such waiver and release is
part of the consideration for the issuance of the Notes. The foregoing waiver
may not be effective to waive liabilities under the federal securities laws and
the SEC is of the view that such a waiver is against public policy.

Events of Default

The following events are defined in the Indenture as "Events of Default":

(1) default in payment of any principal of, or premium, if any, on the
Notes whether at maturity, upon redemption, required repurchase or
otherwise (whether or not such payment is prohibited by the
subordination provisions of the Indenture);

(2) default for 30 days in payment of any interest on the Notes;

(3) default by the Company or any Restricted Subsidiary in the observance
or performance of any other covenant in the Notes or the Indenture for
30 days after written notice from the Trustee or the Holders of not
less than 25% in aggregate principal amount of the Notes then
outstanding (except in the case of a default with respect to the
"Change of Control" or "Merger, Consolidation or Sale of Assets"
covenant which will constitute an Event of Default with such notice
requirement but without such passage of time requirement);

(4) failure to pay at final maturity (giving effect to any waiver or
extension thereof) principal of any Indebtedness of the Company or any
Restricted Subsidiary thereof, or the acceleration of any such

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Indebtedness, if the aggregate amount of such Indebtedness, together
with the amount of any other such Indebtedness in default for failure to
pay principal, at final maturity or which has been accelerated,
aggregates $10.0 million or more at any time;

(5) any final judgment or judgments which can no longer be appealed for the
payment of money in excess of $10.0 million is rendered against the
Company or any Restricted Subsidiary thereof, and is not discharged for
any period of 60 consecutive days during which a stay of enforcement is
not in effect;

(6) certain events involving bankruptcy, insolvency or reorganization of
the Company or any Restricted Subsidiary thereof; and

(7) any of the Guarantees ceases to be in full force and effect or any of
the Guarantees is declared to be null and void and unenforceable or any
of the Guarantees is found to be invalid or any of the Guarantors
denies its liability under its Guarantee (in each case other than by
reason of release of a Guarantor in accordance with the terms of the
Indenture).

The Indenture provides that the Trustee may withhold notice to the Holders
of any Default (except in payment of principal or premium, if any, or interest
on the Notes) if the Trustee considers it to be in the best interest of the
Holders to do so.

The Indenture provides that if an Event of Default (other than an Event of
Default of the type described in clause (6) above) has occurred and is
continuing, then the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may declare to be immediately
due and payable the entire principal amount of all the Notes then outstanding
plus accrued and unpaid interest, if any, to the date of acceleration and (1)
the same will become immediately due and payable or (2) if there are any
amounts outstanding under the Senior Credit Facility, will become immediately
due and payable upon the first to occur of an acceleration under the Senior
Credit Facility or five Business Days after receipt by the Company and the
representative under the Senior Credit Facility of a notice of acceleration;
provided, however, that after such acceleration but before a judgment or
decree based on acceleration is obtained by the Trustee, the Holders of a
majority in aggregate principal amount of outstanding Notes may rescind and
annul such acceleration if

(1) all Events of Default, other than nonpayment of principal, premium, if
any, or interest that has become due solely because of the
acceleration, have been cured or waived as provided in the Indenture;

(2) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been
paid;

(3) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances;
and

(4) in the event of the cure or waiver of an Event of Default of the type
described in clause (6) of the above Events of Default, the Trustee
must have received an officers' certificate and an opinion of counsel
that such Event of Default has been cured or waived.

No such rescission will affect any subsequent Default or impair any right
consequent thereto. In case an Event of Default of the type described in
clause (6) above occurs, the principal, premium and interest amount with
respect to all of the Notes will be due and payable immediately without any
declaration or other act on the part of the Trustee or the Holders.

The Holders of a majority in principal amount of the Notes then outstanding
have the right to waive any existing Default or compliance with any provision
of the Indenture or the Notes and to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations provided for in the Indenture and under the TIA.

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No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless

(1) such Holder has previously given to the Trustee written notice of a
continuing Event of Default;

(2) the Holders of at least 25% in aggregate principal amount of the
outstanding Notes have made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as Trustee;

(3) the Trustee has not received from the Holders of a majority in
aggregate principal amount of the outstanding Notes a direction
inconsistent with such request; and

(4) the Trustee has failed to institute such a proceeding within 60 days.

Notwithstanding the foregoing, such limitations do not apply to a suit
instituted on such Note on or after the respective due dates expressed in such
Note.

Modification of Indenture

From time to time, the Company, the Guarantors, if any, and the Trustee may,
without the consent of the Holders, amend or supplement the Indenture for
certain specified purposes, including providing for uncertificated Notes in
addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not, in the opinion of the
Trustee, materially and adversely affect the rights of any Holder. The
Indenture contains provisions permitting the Company, the Guarantors, if any,
and the Trustee, with the consent of Holders of at least a majority in
principal amount of the outstanding Notes, to modify or supplement the
Indenture, except that no such modification may, without the consent of each
Holder affected thereby,

(1) reduce the percentage of the principal amount of Notes whose Holders
must consent to an amendment, supplement, or waiver to the Indenture;

(2) reduce the rate of or change the time for payment of interest,
including defaulted interest, on any Note;

(3) reduce the principal of or premium on or change the stated maturity of
any Note or change the date on which any Notes may be subject to
redemption or repurchase or reduce the redemption or repurchase price
therefor;

(4) make any Note payable in money other than that stated in the Note or
change the place of payment from New York, New York;

(5) waive a Default on the payment of the principal of, interest on, or
redemption payment with respect to any Note;

(6) make any change in provisions of the Indenture protecting the right of
each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in principal amount of
Notes to waive Defaults or Events of Default;

(7) after such obligation has arisen, amend, change or modify in any
material respect the obligation of the Company to make and consummate
a Change of Control Offer in the event of a Change of Control or make
and consummate an Excess Proceeds Offer with respect to any Asset Sale
that has been consummated or modify any of the provisions or
definitions with respect thereto;

(8) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the Holders; or

(9) release any Guarantor from any of its obligations under any Guarantee
or the Indenture otherwise than in accordance with the terms of the
Indenture.

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Legal Defeasance and Covenant Defeasance

The Indenture provides that the Company may elect

(1) to defease and be discharged from any and all of its obligations with
respect to the Notes (except for the obligations to register the
transfer or exchange of such Notes, to replace temporary or mutilated,
destroyed, lost or stolen Notes, to maintain an office or agency in
respect of the Notes and to hold monies for payment in trust) ("Legal
Defeasance"); or

(2) to be released from its obligations with respect to the Notes under
some of the covenants contained in the Indenture ("Covenant
Defeasance")

upon the deposit with the Trustee (or other qualifying trustee), in trust for
such purpose, of money and/or non-callable U.S. government obligations which
through the payment of principal and interest in accordance with their terms
will provide money, in an amount sufficient to pay the principal of, premium,
if any, and interest on the Notes, on the scheduled due dates therefor or on a
selected date of redemption in accordance with the terms of the Indenture.

The Company may exercise its Legal Defeasance option notwithstanding its
prior exercise of its Covenant Defeasance option. If the Company exercises its
Legal Defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its Covenant
Defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clauses (3), (4), (5) and, with respect only to
Restricted Subsidiaries, (6), or because of the Company's failure to comply
with "Merger, Consolidation or Sale of Assets" above.

In order to exercise either defeasance option, the Company must irrevocably
deposit in trust with the Trustee the money or U.S. government obligations for
the payment of principal and interest on the Notes to redemption or maturity,
as the case may be, and must comply with certain other conditions, including
the delivery to the Trustee of an opinion of counsel to the effect that the
Holders of the Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such deposit and defeasance and will be subject to
federal income taxes on the same amount, in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such opinion of counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law).

Satisfaction and Discharge

The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
old notes, as expressly provided for in the Indenture) as to all outstanding
Notes when:

(1) either:

(a) all the Notes authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid and Notes for
whose payment money has been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee
for cancellation; or

(b) all Notes not delivered to the Trustee for cancellation have
become due and payable and the Company has irrevocably deposited
or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the
Notes not delivered to the Trustee for cancellation, for principal
of, premium, if any, and interest on the Notes to the date of
deposit together with irrevocable instructions from the Company
directing the Trustee to apply such funds to the payment thereof
at maturity or redemption, as the case may be;

(2) the Company has paid all other sums payable under the Indenture by the
Company; and

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(3) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.

Compliance Certificate

The Company will deliver to the Trustee on or before 90 days after the end
of the Company's fiscal year and on or before 45 days after the end of each the
first, second and third fiscal quarters in each year an officers' certificate
stating whether or not the signers know of any Default or Event of Default that
has occurred. If they do, the certificate will describe the Default or Event of
Default, its status and the intended method of cure, if any.

Methods of Receiving Payments on the Notes

The Company will make all principal, premium and interest payments on the
Notes at the office or agency of the Paying Agent and Registrar within the City
and State of New York unless the Company elects to make interest payments by
check mailed to the Holders at their address set forth in the register of
Holders. The Trustee will initially act as Paying Agent and Registrar. The
Company may change the Paying Agent or Registrar without prior notice to the
Holders, and the Company or any of its Subsidiaries may act as Paying Agent or
Registrar.

The Trustee

The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs.

The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions; provided
that if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign.

Transfer and Exchange

Holders may transfer or exchange Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents, and the Company may require a Holder to
pay any taxes and fees required by law or permitted by the Indenture. The
Company is not required to transfer or exchange any Note selected for
redemption and is not required to transfer or exchange any Note for a period of
15 days before a selection of Notes to be redeemed.

The Notes will be issued in a transaction exempt from registration under the
Securities Act and will be subject to the restrictions on transfer described in
"Notice to Investors."

The registered holder of a Note may be treated as the owner of such Note for
all purposes.

Certain Definitions

Set forth below is a summary of certain of the defined terms used in the
Indenture. We refer you to the Indenture for the full definition of all such
terms as well as any other capitalized terms used herein for which no
definition is provided.

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"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or is merged into or consolidated with any other Person or which is
assumed in connection with the acquisition of assets from such Person and, in
each case, whether or not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such merger, consolidation or acquisition.

"Affiliate" means, with respect to any specific Person, any other Person
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by," and "under common control with"), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement
or otherwise; provided that, for purposes of the covenant described under "--
Certain Covenants--Limitation on Transactions with Affiliates" beneficial
ownership of at least 10% of the voting securities of a Person, either directly
or indirectly, will be deemed to be control.

"Asset Acquisition" means

(1) an Investment by the Company or any Restricted Subsidiary of the
Company in any other Person pursuant to which such Person becomes a
Restricted Subsidiary of the Company or any Restricted Subsidiary of
the Company, or is merged with or into the Company or any Restricted
Subsidiary of the Company; or

(2) the acquisition by the Company or any Restricted Subsidiary of the
Company of the assets of any Person (other than a Restricted
Subsidiary of the Company) which constitute all or substantially all
of the assets of such Person or comprise any division or line of
business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.

"Asset Sale" means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease or other disposition (including any Sale and Lease-
Back Transaction), other than to the Company or any of its Wholly Owned
Subsidiaries, in any single transaction or series of related transactions of

(1) any Capital Stock of or other equity interest in any Restricted
Subsidiary of the Company; or

(2) any other property or assets of the Company or of any Restricted
Subsidiary thereof;

provided that Asset Sales do not include

(1) a transaction or series of related transactions that involves assets
having a fair market value or for which the Company or its Restricted
Subsidiaries receive aggregate consideration of less than $1.0
million;

(2) sales of inventory and vehicles in the ordinary course of business and
consistent with past practices;

(3) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company as permitted under "--
Merger, Consolidation or Sale of Assets" above;

(4) a disposition of obsolete, worn-out, damaged or otherwise unsuitable
or unnecessary equipment or other obsolete assets;

(5) dispositions with respect to sales of excess energy, capacity and
rights of use in the Company's distribution network in the ordinary
course of the electricity transmission and distribution business and
the electricity generation business;

(6) a sale-leaseback of assets within one year of the acquisition of such
assets; and

(7) a transaction or series of transactions that results in a Change of
Control.

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"Asset Sale Proceeds" means, with respect to any Asset Sale,

(1) cash received by the Company or any Restricted Subsidiary of the
Company from such Asset Sale (including cash received as consideration
for the assumption of liabilities incurred in connection with or in
anticipation of such Asset Sale), after

(a) provision for all income or other taxes measured by or resulting
from such Asset Sale,

(b) payment of all brokerage commissions, underwriting and other fees
and expenses related to such Asset Sale,

(d) repayment of Indebtedness that is secured by the assets subject to
such Asset Sale or otherwise required to be repaid in connection
with such Asset Sale, and

(e) deduction of appropriate amounts to be provided by the Company or
a Restricted Subsidiary of the Company as a reserve, in accordance
with GAAP, against any liabilities associated with the assets sold
or disposed of in such Asset Sale and retained by the Company or a
Restricted Subsidiary after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities
and liabilities related to environmental matters or against any
indemnification obligations associated with the assets sold or
disposed of in such Asset Sale; and

(2) promissory notes and other noncash consideration received by the
Company or any Restricted Subsidiary of the Company from such Asset
Sale or other disposition upon the liquidation or conversion of such
promissory notes or noncash consideration into cash.

"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the present value (discounted at the
rate of interest implicit in such transaction, determined in accordance with
GAAP) of the total obligations of the lessee for rental payments during the
remaining term of the lease included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).

"Board of Directors" means, as to any Person, the board of directors of such
Person (or, if such Person is a partnership, the board of directors or other
governing body of the general partner (or, if there is more than one general
partner of such person, the general partner or general partners which may take
the applicable action pursuant to the partnership agreement of such Person) of
such Person or, if such Person is a limited liability company, the board of
managers of such company) or similar governing body or any duly authorized
committee thereof.

"Business Day" means a day that is not a Legal Holiday. A "Legal Holiday" is
a Saturday, a Sunday or other day on which (i) commercial banks in The City of
New York are authorized or required by law to close or (ii) the New York Stock
Exchange is not open for trading.

"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership or limited liability company
interests or any other participation, right or other interest in the nature of
an equity interest in such Person including, without limitation, Common Stock
and Preferred Stock of such Person, or any option, warrant or other security
convertible into any of the foregoing.

"Capitalized Lease Obligations" means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness will be the capitalized amount of such obligations
determined in accordance with GAAP.

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"Cash Equivalents" means

(1) marketable direct obligations issued by, or unconditionally guaranteed
by, the United States Government or issued by any agency or
instrumentality thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof;

(2) marketable direct obligations issued by any state of the United States
of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date
of acquisition thereof and, at the time of acquisition, having one of
the two highest ratings obtainable from either Standard & Poor's
Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's");

(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of
at least A-1 from S&P or at least P-1 from Moody's;

(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or
the District of Columbia or any U.S. branch of a foreign bank having
at the date of acquisition thereof combined capital and surplus of not
less than $500.0 million;

(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above
entered into with any bank meeting the qualifications specified in
clause (4) above; and

(6) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (1) through (5)
above.

A "Change of Control" of the Company will be deemed to have occurred at such
time as

(1) any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), other than a Permitted Holder,
becomes the beneficial owner (as defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act,
except that a Person will be deemed to have "beneficial ownership" of
all securities that such Person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time) of
more than 50% of the total voting power of the Company's Capital
Stock;

(2) there is consummated any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all or
substantially all of the assets of the Company or TNMP to any Person
or Group, together with any Affiliates thereof (whether or not
otherwise in compliance with the provisions of the Indenture);

(3) there is consummated any consolidation or merger of the Company or
TNMP in which the Company or TNMP, as the case may be, is not the
continuing or surviving Person or pursuant to which the Common Stock
of the Company or TNMP, as the case may be, would be converted into
cash, securities or other property, other than a merger or
consolidation of the Company in which the holders of the Capital Stock
of the Company outstanding immediately prior to the consolidation or
merger hold, directly or indirectly, at least a majority of the
Capital Stock of the surviving corporation immediately after such
consolidation or merger;

(4) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the
Company or TNMP (together with any new directors whose election by
such Board of Directors or whose nomination for election by the
shareholders of the Company or TNMP, as the case may be, has been
approved by 66 2/3% of the directors then still in office who either
were directors at the beginning of such period or whose election or
recommendation for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the
Company or TNMP, as the case may be, then in office;

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(5) the approval by the holders of Capital Stock of the Company or TNMP of
any plan or proposal for the liquidation or dissolution of the Company
or TNMP, as the case may be (whether or not otherwise in compliance
with the provisions of the Indenture); or

(6) any order, judgment or decree shall be entered against the Company or
TNMP decreeing the dissolution or split-up of the Company or TNMP, as
the case may be; provided that any sale, assignment, conveyance,
transfer or other disposition of TNMP's assets to another Restricted
Subsidiary in connection with the Company's compliance with Texas
Senate Bill 7 shall not be deemed to be a Change of Control hereunder.

"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to

(1) vote in the election of directors of such Person; or

(2) if such Person is not a corporation, vote or otherwise participate in
the selection of the governing body, partners, managers or others that
will control the management and policies of such Person.

"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of EBITDA of such Person during the four full fiscal quarters
(the "Four Quarter Period") ending on or prior to the date of the transaction
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for
the Four Quarter Period. In addition to and without limitation of the
foregoing, for purposes of this definition, "EBITDA" and "Consolidated Fixed
Charges" will be calculated after giving effect on a pro forma basis for the
period of such calculation to

(1) the incurrence or repayment of any Indebtedness of such Person or any
of its Restricted Subsidiaries or the issuance or redemption or other
repayment of Preferred Stock of any such Restricted Subsidiary (and
the application of the proceeds thereof) giving rise to the need to
make such calculation and any incurrence or repayment of other
Indebtedness and, in the case of any Restricted Subsidiary, the
issuance or redemption or other repayment of Preferred Stock (and the
application of the proceeds thereof), other than the incurrence or
repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities,
occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment or issuance or
redemption or other repayment, as the case may be (and the application
of the proceeds thereof), occurred on the first day of the Four
Quarter Period; and

(2) any Asset Sales or Asset Acquisitions (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation
as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result
of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any EBITDA
(provided that such EBITDA will be included only to the extent that
Consolidated Net Income would be includable pursuant to the definition
of "Consolidated Net Income") (including any pro forma expense and
cost reductions calculated on a basis consistent with Regulation S-X
of the Exchange Act) attributable to the assets which are the subject
of the Asset Acquisition or Asset Sale during the Four Quarter Period)
occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the Four Quarter
Period.

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If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence will give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio,"

(1) interest on outstanding Indebtedness determined on a fluctuating basis
as of the Transaction Date and which will continue to be so determined
thereafter will be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the
Transaction Date;

(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a
factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four
Quarter Period; and

(3) notwithstanding clause (1) above, interest on Indebtedness determined
on a fluctuating basis, to the extent such interest is covered by one
or more agreements in respect of Hedging Obligations, will be deemed
to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.

"Consolidated Fixed Charges" means, with respect to any Person, for any
period, the sum, without duplication, of

(1) Consolidated Interest Expense, plus

(2) the product of

(a) the amount of all dividend payments (whether or not in cash) on any
series of Preferred Stock of such Person and its Restricted
Subsidiaries (other than dividends paid in Capital Stock (other
than Disqualified Capital Stock)) paid, accrued or scheduled to be
paid or accrued during such period times

(b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated federal,
state and local tax rate of such Person, expressed as a decimal.

"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest expense which, in conformity with
GAAP, would be set forth opposite the caption "interest expense" or any like
caption on an income statement for such Person and its Restricted Subsidiaries
on a consolidated basis including, but not limited to,

(1) imputed interest included in Capitalized Lease Obligations and
Attributable Indebtedness;

(2) all commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing;

(3) the net payment obligations associated with Hedging Obligations;

(4) amortization of financing fees and expenses and the write-off of
deferred financing costs;

(5) the interest portion of any deferred payment obligation;

(6) amortization of discount or premium, if any;

(7) all non-cash interest expense (other than interest amortized to cost of
sales);

(8) all capitalized interest for such period; and

(9) all interest incurred or paid under any guarantee of Indebtedness
(including a guarantee of principal, interest or any combination
thereof) of any Person.

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"Consolidated Leverage Ratio" means, with respect to any Person, the ratio
of:

(1) the sum of the aggregate outstanding amount of Indebtedness of such
Person and its Restricted Subsidiaries and Preferred Stock of any such
Restricted Subsidiary issued in accordance with "--Certain Covenants--
Limitation on Preferred Stock of Restricted Subsidiaries" as of the
date of calculation (the "Transaction Date") on a consolidated basis
determined in accordance with GAAP to

(2) such Person's EBITDA for the four full fiscal quarters (the "Four
Quarter Period") ending on or prior to the date of determination for
which financial statements are available.

For purposes of this definition, clauses (1) and (2) above will be
calculated after giving effect on a pro forma basis to:

(1) any incurrence or repayment of Indebtedness and, in the case of any
Restricted Subsidiary, the issuance or redemption or other repayment of
Preferred Stock (and the application of the proceeds thereof), other
than the incurrence or repayment of Indebtedness in the ordinary course
of business for working capital purposes pursuant to working capital
facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior
to the Transaction Date, as if such incurrence or repayment or issuance
or redemption or other repayment, as the case may be (and the
application of the proceeds thereof), occurred on the first day of the
Four Quarter Period; and

(2) any Asset Sales or Asset Acquisitions (including any EBITDA (provided
that such EBITDA will be included only to the extent that Consolidated
Income would be includable pursuant to the definition of "Consolidated
Net Income") (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X of the Exchange
Act) attributable to the assets which are the subject of the Asset
Acquisition or Asset Sale during the Four Quarter Period) occurring
during the Four Quarter Period or at any time subsequent to the last
day of the Four Quarter Period and on or prior to the Transaction Date,
as if such Asset Sale or Asset Acquisition (including the incurrence,
assumption or liability for any Acquired Indebtedness) occurred on the
first day of the Four Quarter Period.

"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that

(1) the portion of Net Income of any Person, other than a Restricted
Subsidiary of the referent Person, will be included only to the extent
of the amount of dividends or distributions paid to the referent Person
or a Restricted Subsidiary of such referent Person;

(2) the Net Income of any Restricted Subsidiary of the Person in question
that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions will be excluded to the
extent of, and for only the period of time that, such restriction or
limitation actually prohibits the payment of such dividends or the
making of such other distributions;

(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will
be excluded;

(4) any net gain (but not loss) resulting from an Asset Sale by the Person
in question or any of its Restricted Subsidiaries other than in the
ordinary course of business will be excluded;

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(5) extraordinary gains and losses will be excluded;

(6) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether
or not such operations were classified as discontinued) will be
excluded; and

(7) in the case of a successor to the referent Person by consolidation or
merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or
transfer of assets will be excluded.

"Cumulative Consolidated Net Income" means, with respect to any Person, as
of any date of determination, the Consolidated Net Income of such Person from
April 1, 2000 to the end of such Person's must recently ended full fiscal
quarter prior to such date, taken as a single accounting period.

"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.

"Designated Senior Indebtedness," as to the Company, means (i) any Senior
Indebtedness under the Senior Credit Facility and (ii) after the Senior Credit
Facility has been paid in full and terminated, any other Senior Indebtedness
permitted under the Indenture, (x) the principal amount of which is $50.0
million or more and (y) has been designated by the Company as "Designated
Senior Indebtedness."

"Disqualified Capital Stock" means any Capital Stock of a Person or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes, for cash or securities constituting
Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock
will be deemed to include any Preferred Stock of a Person or a Restricted
Subsidiary of such Person, with respect to either of which, under the terms of
such Preferred Stock, by agreement or otherwise, such Person or Restricted
Subsidiary is obligated to pay current dividends or distributions in cash
during the period prior to the maturity date of the Notes; provided, however,
that Preferred Stock of a Person or any Restricted Subsidiary thereof that is
issued with the benefit of provisions requiring a change of control offer to be
made for such Preferred Stock in the event of a change of control of such
Person or Restricted Subsidiary which provisions have substantially the same
effect as the provisions described under "--Change of Control Offer" above,
will not be deemed to be Disqualified Capital Stock solely by virtue of such
provisions.

"EBITDA" means, with respect to any Person and its Restricted Subsidiaries,
for any period, an amount equal to

(1) the sum of

(a) Consolidated Net Income for such period, plus

(b) the provision for taxes for such period based on income or profits
to the extent such income or profits were included in computing
Consolidated Net Income and any provision for taxes utilized in
computing net loss under clause (a) hereof, plus

(d) depreciation for such period on a consolidated basis, plus

(e) amortization of intangibles for such period on a consolidated
basis, plus

(f) any other non-cash items reducing Consolidated Net Income for such
period, other than non-cash items that represent accruals of, or
reserves for, cash disbursements to be made in any future period;
minus

(2) all non-cash items increasing Consolidated Net Income (other than any
non-cash items that were accrued in the ordinary course of business)
for such period, all for such Person and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP;

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provided, however, that, for purposes of calculating EBITDA during any fiscal
quarter, cash income from a particular Investment (other than a Restricted
Subsidiary) of such Person will be included only

(1) if cash income has been received by such Person with respect to such
Investment during each of the previous four fiscal quarters, or

(2) if the cash income derived from such Investment is attributable to Cash
Equivalents.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.

"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value will be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a board resolution of
such Board of Directors.

"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.

"Guarantor" means the issuer at any time of a Guarantee (so long as such
Guarantee remains outstanding).

"Hedging Obligations" means, with respect to any Person, the net payment
obligations of such Person under (a) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (b) other
agreements or arrangements entered into in order to protect such Person against
fluctuations in commodity, electricity or fuel prices, interest rates or
currency exchange rates.

"Holder" means a Person in whose name a Note is registered on the
Registrar's books.

"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurable," and "incurring" will have meanings
correlative to the foregoing); provided that a change in GAAP that results in
an obligation of such Person that exists at such time becoming Indebtedness
will not be deemed an incurrence of such Indebtedness.

"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by notes, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property if and to the extent any of the foregoing indebtedness would appear as
a liability upon a balance sheet of such Person prepared in accordance with
GAAP, and will also include, to the extent not otherwise included

(1) any Capitalized Lease Obligations of such Person;

(2) obligations secured by a lien to which the property or assets owned or
held by such Person is subject, whether or not the obligation or
obligations secured thereby have been assumed;

(3) guarantees of (or obligations with respect to letters of credit
supporting) items of other Persons which would be included within this
definition for such other Persons (whether or not such items would
appear upon the balance sheet of the guarantor);

(4) all obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction;

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(5) Disqualified Capital Stock of such Person or any Restricted Subsidiary
thereof and any Preferred Stock of a Restricted Subsidiary of such
Person incurred under "--Certain Covenants--Limitation on Preferred
Stock of Restricted Subsidiaries" above; and

(6) hedging obligations of any such Person applicable to any of the
foregoing (if and to the extent such hedging obligations would appear
as a liability upon a balance sheet of such Person prepared in
accordance with GAAP).

The amount of Indebtedness of any Person at any date will be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided that

(1) the amount outstanding at any time of any Indebtedness issued with
original issue discount is the principal amount of such Indebtedness
less the remaining unamortized portion of the original issue discount
of such Indebtedness at such time as determined in conformity with
GAAP; and

(2) Indebtedness will not include

(a) any liability for federal, state, local or other taxes, and

(b) any accounts payable, trade payables and other accrued liabilities
arising from the purchase of goods or materials or for services
obtained in the ordinary course of business.

"Independent Financial Advisor" means an investment banking firm of national
reputation in the United States

(1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the
Company; and

(2) which, in the judgment of the Board of Directors of the Company, is
otherwise independent and qualified to perform the task for which it is
to be engaged.

Notwithstanding the foregoing, CIBC and its Affiliates shall be deemed to be
Independent Financial Advisors.

"Investment Grade Rating" means a rating equal to or higher than Baa3 (or
the equivalent) and BBB- (or the equivalent) by Moody's Investors Service, Inc.
(or any successor to the rating agency business thereof) and Standard & Poor's
Ratings Service, a division of McGraw Hill, Inc. (or any successor to the
rating agency business thereof), respectively.

"Investments" means, with respect of any Person, directly or indirectly, any
advance, account receivable (other than an account receivable arising in the
ordinary course of business of such Person), loan or capital contribution to
(by means of transfers of property to others, payments for property or services
for the account or use of others or otherwise), the purchase of any Capital
Stock, notes, notes, debentures, partnership or joint venture interests or
other securities of, the acquisition, by purchase or otherwise, of all or
substantially all of the business or assets or stock or other evidence of
beneficial ownership of, any Person or the making of any investment in any
Person. Investments exclude

(1) extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices of such Person; and

(2) the repurchase of securities of any Person by such Person.

For the purposes of the "Limitation on Restricted Payments" covenant, (1)
"Investments" (a) include and are valued at the fair market value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary and (b) exclude the fair market value
of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary, provided, that,
in no event may such amount exceed the net amount of any Investments
constituting Restricted

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Payments made in such Subsidiary after the Issue Date and (2) the amount of any
Investment will be the original cost of such Investment plus the cost of all
additional Investments by the Company or any of its Restricted Subsidiaries,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment, reduced by the (i)
amount returned in cash with respect to such Investment whether through
interest payments, principal payments, dividends or other distributions and
(ii) proceeds received by the Company or any of its Restricted Subsidiaries
from the disposition, retirement or redemption of all or any portion of such
Investment; provided that the aggregate of all such reductions may not exceed
the amount of such initial Investment plus the cost of all additional
Investments; provided, further, that no such payment of distributions or
receipt of any such other amounts may reduce the amount of any Investment if
such payment of distributions or receipt of any such amounts would be included
in Consolidated Net Income. If the Company or any Restricted Subsidiary of the
Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, the Company no longer owns, directly or
indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary,
the Company will be deemed to have made an Investment on the date of any such
sale or disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.

"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.

"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance,
preference, priority, or other security agreement or preferential arrangement
of any kind or nature whatsoever on or with respect to such property or assets
(including without limitation, any Capitalized Lease Obligation, conditional
sales, or other title retention agreement having substantially the same
economic effect as any of the foregoing).

"Net Income" means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.

"Net Proceeds" means

(1) in the case of any sale of Capital Stock by or equity contribution to
any Person, the aggregate net cash proceeds received by such Person,
after payment of expenses, commissions and the like incurred in
connection therewith;

(2) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into shares of Capital Stock
of the Company which is not Disqualified Capital Stock, the net book
value of such outstanding securities on the date of such exchange,
exercise, conversion or surrender (plus any additional amount required
to be paid by the holder to such Person upon such exchange, exercise,
conversion or surrender, less any and all payments made to the holders,
e.g., on account of fractional shares and less all expenses incurred by
such Person in connection therewith); and

(3) in the case of any issuance of any Indebtedness by the Company or any
Restricted Subsidiary, the aggregate net cash proceeds received by such
Person after the payment of expenses, commissions, underwriting
discounts and the like incurred in connection therewith.

"Non-Payment Default" means any event (other than a Payment Default) the
occurrence of which entitles one or more Persons to accelerate the maturity of
any Designated Senior Indebtedness.

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"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of or premium, if any, or interest on or any other amount payable in connection
with Designated Senior Indebtedness.

"Permitted Asset Swap" means, with respect to any Person, the substantially
concurrent exchange of assets of such Person for assets of another Person which
are useful to the business of such aforementioned Person.

"Permitted Holders" means Laurel Hill Capital Partners, LLC, Caravelle
Investment Fund, L.L.C., CIBC WG Argosy Merchant Fund 2, L.L.C., Co-Investment
Merchant Fund 3, L.L.C., Continental Casualty Company and their respective
affiliates, other than their portfolio companies.

"Permitted Indebtedness" means:

(1) Indebtedness of the Company or any Restricted Subsidiary arising under
or in connection with the Senior Credit Facility in an aggregate
principal amount not to exceed $185.0 million at any time outstanding
less any mandatory prepayment actually made thereunder (to the extent,
in the case of payments of revolving credit borrowings, that the
corresponding commitments have been permanently reduced) or scheduled
payments actually made thereunder;

(2) Indebtedness under the Notes and the Indenture;

(3) Indebtedness not covered by any other clause of this definition which
is outstanding on the Issue Date reduced by the amount of any mandatory
prepayments, permanent reductions or scheduled payments actually made
thereunder;

(4) Indebtedness of the Company to any Wholly Owned Subsidiary and
Indebtedness of any Wholly Owned Subsidiary to the Company or another
Wholly Owned Subsidiary, in each case subject to no Lien held by a
Person other than the Company; provided, however, that:

(a) if the Company is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinate in right of payment to
the prior payment in full in cash of all obligations with respect
to the Notes in the case of the Company; and

(b) if as of any date any Person other than the Company or a Wholly
Owned Subsidiary of the Company owns or holds any such Indebtedness
or if as of any date any Person other than the Company holds a Lien
in respect of such Indebtedness, such Indebtedness or Lien shall be
deemed to constitute an incurrence of Indebtedness not permitted by
this clause (4);

(5) Purchase Money Indebtedness and Capitalized Lease Obligations incurred
to acquire property in the ordinary course of business which Purchase
Money Indebtedness and Capitalized Lease Obligations do not in the
aggregate exceed $10.0 million at any one time outstanding;

(6) Indebtedness of the Company or any Restricted Subsidiary arising from
the honoring by a bank or other financial institution of a check, draft
or similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business;

(7) the incurrence by the Company or any Restricted Subsidiary of Hedging
Obligations that are incurred in the ordinary course of business of the
Company or such Restricted Subsidiary and not for speculative purposes;
provided that, in the case of any Hedging Obligation that relates to

(a) interest rate risk, the notional principal amount of such Hedging
Obligation does not exceed the principal amount of the Indebtedness
to which such Hedging Obligation relates, and

(b) currency risk, such Hedging Obligation does not increase the
Indebtedness of the Company and its Restricted Subsidiaries
outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;

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(8) Indebtedness of a Restricted Subsidiary (other than any Regulated
Restricted Subsidiary) of the Company assumed by the Company to the
extent such Indebtedness was permitted to be incurred by such
Restricted Subsidiary at the time of incurrence thereof;

(9) Refinancing Indebtedness;

(10) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for indemnification, adjustment of
purchase price, earn out or other similar obligations, in each case,
incurred or assumed in connection with the disposition of any
business, assets or a Restricted Subsidiary of the Company, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the
purpose of financing such acquisition; provided that the maximum
assumable liability in respect of all such Indebtedness shall at no
time exceed the gross proceeds actually received by the Company and
its Restricted Subsidiaries in connection with such disposition;

(11) Indebtedness consisting of performance and other similar notes and
reimbursement obligations incurred by the Company in the ordinary
course of business securing the performance of contractual, franchise,
license or other obligations of the Company or a Restricted
Subsidiary;

(12) Indebtedness of a Receivables Subsidiary that is not recourse to the
Company or any other Restricted Subsidiary (other than with respect to
Standard Securitization Undertakings) in connection with a Qualified
Receivables Transaction;

(13) Indebtedness of the Company or any of its Restricted Subsidiaries
constituting reimbursement obligations with respect to bankers'
acceptances and letters of credit issued in the ordinary course of
business in respect of workers' compensation claims or self-insurance,
or other Indebtedness with respect to reimbursement type obligations
regarding workers' compensation claims; provided, however, that
obligations arising upon the drawing of such letters of credit or the
incurrence of such Indebtedness are reimbursed within 30 days
following such drawing or incurrence;

(14) the accrual of interest, the issuance of additional Indebtedness in
the form of additional promissory notes or otherwise in lieu of the
payment of cash interest and the accretion of accreted value; and

(15) additional Indebtedness of the Company and its Restricted Subsidiaries
(other than its Regulated Restricted Subsidiaries) not to exceed $25.0
million in aggregate principal amount at any one time outstanding
(which may be, but shall not be required to be, in the form of
additional Indebtedness under the Senior Credit Facility).

"Permitted Investments" means Investments made on or after the Issue Date
consisting of

(1) Investments by the Company, or by a Restricted Subsidiary thereof, in
the Company or a Wholly Owned Subsidiary;

(2) Investments by the Company, or by a Restricted Subsidiary thereof, in a
Person, if as a result of such Investment

(a) such Person becomes a Wholly Owned Subsidiary of the Company, or

(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Subsidiary thereof;

(3) Investments in cash and Cash Equivalents;

(4) reasonable and customary loans made to employees not to exceed $2.0
million in the aggregate at any one time outstanding;

(5) an Investment that is made by the Company or a Restricted Subsidiary
thereof in the form of any Capital Stock, notes, notes, debentures,
partnership or joint venture interests or other securities that

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are issued by a third party to the Company or such Restricted Subsidiary
solely as partial consideration for the consummation of an Asset Sale
that is otherwise permitted under "--Certain Covenants--Limitation on
Asset Sales" above;

(6) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;

(7) Hedging Obligations entered into in the ordinary course of the
Company's or its Restricted Subsidiaries' business and not for
speculative purposes;

(8) any Investment solely in exchange for the issuance of equity interests
(other than Disqualified Capital Stock) of the Company;

(9) the contribution by the Company of any portion or all of the
undeveloped sites located on the 2,700 acres adjacent to TNP One to any
Person in exchange for an equity interest in such Person; provided that
such Person may not be a Subsidiary of the Company; provided, further,
that (a) at or prior to the time of such contribution, the Company
shall have received a minimum of $150.0 million of gross proceeds form
the sale of TNP One and (b) at the time of such contribution, the
Company's Consolidated Leverage Ratio is equal to or less than 4.5 to
1.0; and

(10) additional Investments not to exceed $10.0 million at any one time
outstanding.

"Permitted Liens" means

(1) Liens on property or assets of, or any shares of Capital Stock of or
secured Indebtedness of, any Person existing at the time such Person
becomes a Restricted Subsidiary of the Company or at the time such
Person is merged into the Company or any of its Restricted
Subsidiaries; provided that such Liens

(a) are not incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary of the Company or merging
into the Company or any of its Restricted Subsidiaries, and

(b) do not extend to or cover any property, assets, Capital Stock or
Indebtedness other than those of such Person at the time such
Person becomes a Restricted Subsidiary or is merged into the
Company or any of its Restricted Subsidiaries;

(2) Liens securing Senior Indebtedness which Senior Indebtedness is
outstanding on the Issue Date or incurred in compliance with "--Certain
Covenants--Limitation on Additional Indebtedness" above;

(3) Liens existing on the Issue Date;

(4) Liens securing the Notes and Liens in favor of the Trustee and any Lien
granted in respect of amounts owed to the Trustee or to any trustee or
similar institution under any indenture for Indebtedness permitted
under the Indenture;

(5) Liens securing Refinancing Indebtedness; provided that any such Lien
does not extend to or cover any property, asset, Capital Stock or
Indebtedness other than the property, asset, Capital Stock or
Indebtedness so refunded, refinanced or extended;

(6) Liens in favor of the Company or any of its Restricted Subsidiaries
(other than any Regulated Restricted Subsidiary);

(7) Liens to secure Purchase Money Indebtedness that is otherwise permitted
under the Indenture; provided that

(a) the principal amount of the Indebtedness secured by such Lien does
not exceed 100% of the purchase price, or the cost of installation,
construction or improvement, of the property or asset to which such
Purchase Money Indebtedness relates,

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(b) such Lien does not extend to or cover any Property or asset other
than such item of property or asset and any improvements on such
property or asset, and

(c) such Lien is created at the time of such acquisition or within 100
days of such acquisition or the completion of such installation,
construction or improvement, as the case may be;

(8) statutory liens or landlords', carriers', warehouseman's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens imposed by
law or arising in the ordinary course of business which do not secure
any Indebtedness and with respect to amounts not yet delinquent or
being contested in good faith by appropriate proceedings, if a reserve
or other appropriate provision, if any, as is required in conformity
with GAAP have been made therefor;

(9) Liens for taxes, assessments or governmental charges that are being
contested in good faith by appropriate proceedings;

(10) Liens securing Capitalized Lease Obligations permitted to be incurred
under clause (5) of the definition of "Permitted Indebtedness";
provided that such Lien does not extend to any property other than
that subject to the underlying lease;

(11) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in
any material respect with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries;

(12) Liens incurred on deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal notes, bids, leases,
governmental contracts, performance, completion and return-of-money
notes and other similar obligations (exclusive of obligations for the
payment of borrowed money) or to secure obligations arising from
statutory, regulatory, contractual or warranty requirements;

(13) judgment Liens not giving rise to a Default or an Event of Default so
long as such Lien is adequately noteed and any appropriate legal
proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;

(14) Liens relating to Hedging Obligations;

(15) Liens in favor of the Company securing intercompany Indebtedness
issued by any Restricted Subsidiary to the Company;

(16) Liens securing reimbursement obligations with respect to letters of
credit incurred in the ordinary course which encumber documents and
other property relating to such letters of credit and the products and
proceeds thereof; provided, the Indebtedness represented thereby is
permitted under the Indenture;

(17) Liens on Capital Stock of Unrestricted Subsidiaries;

(18) other Liens securing obligations incurred in the ordinary course of
business which obligations do not exceed $1.0 million in the aggregate
at any one time outstanding; and

(19) any extensions, substitutions, replacements or renewals of the
foregoing.

"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).

"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.

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"Public Equity Offering" means a public offering by the Company of shares of
its Common Stock (however designated and whether voting or non-voting) and any
and all rights, warrants or options to acquire such Common Stock.

"Purchase Money Indebtedness" means Indebtedness of any Person incurred in
the normal course of business of such Person for the purpose of financing all
or any part of the purchase price, or the cost of installation, construction or
improvement of, any property or asset.

"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any Restricted
Subsidiary pursuant to which the Company or any Restricted Subsidiary may sell,
convey or otherwise transfer to (a) a Receivables Subsidiary (in the case of a
transfer by the Company or any Restricted Subsidiary) and (b) any other Person
(in the case of a transfer by a Receivables Subsidiary), or may grant a
security interest in, any accounts receivable (whether now existing or arising
in the future) of the Company or any Restricted Subsidiary and any asset
related thereto, including, without limitation, all collateral securing the
accounts receivable, all contracts and all guarantees or other obligations in
respect of the accounts receivable, proceeds of the accounts receivable and
other assets which are customarily transferred, or in respect of which security
interests are customarily granted, in connection with asset securitization
transactions involving accounts receivable. In addition, "Qualified Receivables
Transaction" shall include any financing transaction by the Company or any
Restricted Subsidiary under Chapter 39, Subchapter G of the Texas Public
Utility Regulatory Act or any analogous law which the Company or such
Restricted Subsidiary is subject to.

"Rating Agencies" means Standard & Poor's Ratings Service, a division of
McGraw Hill, Inc., and Moody's Investors Service, Inc. or any successor to the
respective rating agency businesses thereof.

"Receivables Subsidiary" means a Wholly Owned Subsidiary of the Company
which engages in no activities other than in connection with the financing of
accounts receivable and which is designated by the Board of Directors of the
Company (as provided below) as a Receivables Subsidiary:

(1) has no portion of the Indebtedness or any other Obligations (contingent
or otherwise) of which

(a) is guaranteed by the Company or any other Restricted Subsidiary
(excluding guarantees of obligations pursuant to Standard
Securitization Undertakings),

(b) is recourse to or obligates the Company or any other Restricted
Subsidiary in any way other than pursuant to Standard
Securitization Undertakings, or

(c) subjects any property or asset of the Company or any other
Restricted Subsidiary, directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to
Standard Securitization Undertakings;

(2) with which neither the Company nor any other Restricted Subsidiary of
the Company has any material contract, agreement, arrangement or
understanding (except in connection with a Qualified Receivables
Transaction) other than on terms no less favorable to the Company or
such other Restricted Subsidiary of the Company than those that might
be obtained at the time from persons that are not Affiliates of the
Company, other than fees payable in the ordinary course of business in
connection with servicing accounts receivable; and

(3) to which neither the Company nor any Restricted Subsidiary of the
Company has any obligation to maintain or preserve such entity's
financial condition or cause such entity to achieve certain levels of
operating results.

Any designation of a Wholly Owned Subsidiary of the Company as a Receivables
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the board resolution of the Board of Directors of the Company
giving effect to such designation and an officers' certificate certifying that
the designation complied with preceding conditions and was permitted by the
Indenture.

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"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date or other Indebtedness permitted to be incurred by
the Company or its Restricted Subsidiaries pursuant to the terms of the
Indenture, but only to the extent that

(1) the Refinancing Indebtedness is subordinated to the Notes to at least
the same extent as the Indebtedness being refunded, refinanced or
extended, if at all;

(2) the Refinancing Indebtedness is scheduled to mature either

(a) no earlier than the Indebtedness being refunded, refinanced or
extended, or

(b) after the maturity date of the Notes;

(3) the portion, if any, of the Refinancing Indebtedness that is scheduled
to mature on or prior to the maturity date of the Notes has a Weighted
Average Life to Maturity at the time such Refinancing Indebtedness is
incurred that is equal to or greater than the Weighted Average Life to
Maturity of the portion of the Indebtedness being refunded, refinanced
or extended that is scheduled to mature on or prior to the maturity
date of the Notes;

(4) such Refinancing Indebtedness is in an aggregate principal amount that
is equal to or less than the sum of

(a) the aggregate principal amount then outstanding under the
Indebtedness being refunded, refinanced or extended,

(b) the amount of accrued and unpaid interest, if any, and premiums
owed, if any, not in excess of preexisting prepayment provisions on
such Indebtedness being refunded, refinanced or extended, and

(5) such Refinancing Indebtedness is incurred by the same Person (or its
successor) that initially incurred the Indebtedness being refunded,
refinanced or extended.

"Regulated Restricted Subsidiary" means a Restricted Subsidiary that is
regulated or certified by the PUCT or the NMPRC or any successor thereto or any
analogous regulatory body of any state of the United States or the District of
Columbia.

"Restricted Payment" means any of the following:

(1) the declaration or payment of any dividend or any other distribution or
payment on Capital Stock of the Company or any Restricted Subsidiary of
the Company or any payment made to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Company or any
Restricted Subsidiary of the Company (other than (a) dividends or
distributions payable solely in Capital Stock (other than Disqualified
Capital Stock) or in options, warrants or other rights to purchase such
Capital Stock (other than Disqualified Capital Stock), and (b) in the
case of Restricted Subsidiaries of the Company, dividends or
distributions payable to the Company or to a Restricted Subsidiary of
the Company);

(2) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company or any of its Restricted
Subsidiaries (other than Capital Stock owned by the Company or a Wholly
Owned Subsidiary of the Company, excluding Disqualified Capital Stock)
or any option, warrants or other rights to purchase such Capital Stock;

(3) the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, of any Indebtedness which is subordinated in
right of payment to

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the Notes (other than subordinated Indebtedness acquired in anticipation
of satisfying a scheduled sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of
acquisition);

(4) the making of any Investment or guarantee of any Investment in any
Person other than a Permitted Investment;

(5) any designation of a Subsidiary as an Unrestricted Subsidiary (valued
at the fair market value of the net assets of such Subsidiary on the
date of designation); and

(6) the forgiveness of any Indebtedness of an Affiliate of the Company to
the Company or a Restricted Subsidiary of the Company.

"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The Board of Directors of the Company may
designate any Unrestricted Subsidiary as a Restricted Subsidiary if immediately
after giving effect to such action (and treating any Acquired Indebtedness as
having been incurred at the time of such action),

(1) the Company could have incurred at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to "--Certain
Covenants--Limitation on Additional Indebtedness" above; and

(2) no Default or Event of Default has occurred and is continuing or
results therefrom.

"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal property, which property has been or
is to be sold or transferred by the Company or such Restricted Subsidiary to
such Person in contemplation of such leasing.

"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.

"Senior Credit Facility" means the Credit Agreement dated as of April 7,
2000, among ST Acquisition Corp., whose rights and obligations thereunder were
assumed by the Company upon consummation of the merger, the lenders party
thereto in their capacities as lenders thereunder, Canadian Imperial Bank of
Commerce, as administrative agent, and CIBC World Markets Corp. and Chase
Securities Inc., as co-arrangers and co-book managers, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (provided that such
increase in borrowings is permitted under "--Certain Covenants--Limitation on
Additional Indebtedness" above) or adding Restricted Subsidiaries of the
Company as additional borrowers or guarantors thereunder) all or any portion of
the Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.

"Senior Indebtedness" means the principal of and premium, if any, and
interest on, and any and all other fees, expense reimbursement obligations and
other amounts due pursuant to the terms of all agreements, documents and
instruments providing for, creating, securing or evidencing or otherwise
entered into in connection with

(1) all Indebtedness of the Company owed to lenders under the Senior Credit
Facility;

(2) all obligations of the Company with respect to Hedging Obligations;

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(3) all obligations of the Company to reimburse any bank or other person in
respect of amounts paid under letters of credit, acceptances or other
similar instruments;

(4) all other Indebtedness of the Company which does not provide that it is
to rank equally with or subordinate to the Notes; and

(5) all deferrals, renewals, extensions and refundings of, and amendments,
modifications and supplements to, any of the Senior Indebtedness
described above.

Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include

(1) Indebtedness of the Company to any of its Subsidiaries, or to any
Affiliate of the Company or any of such Affiliate's Subsidiaries;

(2) Indebtedness represented by the Notes;

(3) any Indebtedness which by the express terms of the agreement or
instrument creating, evidencing or governing the same is junior or
subordinate in right of payment to any item of Senior Indebtedness;

(4) any trade payable arising from the purchase of goods or materials or
for services obtained in the ordinary course of business;

(5) Indebtedness incurred in violation of the Indenture;

(6) Indebtedness represented by Disqualified Capital Stock; and

(7) any Indebtedness to or guaranteed on behalf of, any shareholders,
director, officer or employee of the Company or any Subsidiary of the
Company.

"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Restricted
Subsidiary of the Company which are reasonably customary in an accounts
receivable securitization transaction.

"Subsidiary" of any specified Person means any corporation, partnership,
limited liability company, joint venture, association or other business entity,
whether now existing or hereafter organized or acquired,

(1) in the case of a corporation, of which more than 50% of the total
voting power of the Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any
of its Subsidiaries; or

(2) in the case of a partnership, limited liability company, joint venture,
association or other business entity, with respect to which such first-
named Person or any of its Subsidiaries has the power to direct or
cause the direction of the management and policies of such entity by
contract or otherwise or if in accordance with GAAP such entity is
consolidated with the first-named Person for financial statement
purposes.

"Texas Senate Bill 7" means Senate Bill 7 of the State of Texas signed in
June 1999 by Texas Governor George W. Bush which implements competition in
Texas retail electric markets.

"Unrestricted Subsidiary" means

(1) any Subsidiary of an Unrestricted Subsidiary; and

(2) any Subsidiary of the Company which is designated after the Issue Date
as an Unrestricted Subsidiary by a board resolution of the Board of
Directors of the Company;

provided that a Subsidiary may be so designated as an Unrestricted
Subsidiary only if

(a) such designation is in compliance with "--Certain Covenants--Limitation
on Restricted Payments" above; and

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(b) neither the Company nor any Restricted Subsidiary will at any time

(i) provide a guarantee of, or similar credit support to, any
Indebtedness of such Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness),

(ii) be directly or indirectly liable for any Indebtedness of such
Subsidiary, or

(iii) be directly or indirectly liable for any other Indebtedness which
provides that the holder thereof may (upon notice, lapse of time
or both) declare a default thereon (or cause the payment thereof
to be accelerated or payable prior to its final scheduled
maturity) upon the occurrence of a default with respect to any
other Indebtedness that is Indebtedness of such Subsidiary
(including any corresponding right to take enforcement action
against such Subsidiary),

except in the case of clause (i) or (ii) to the extent

(i) that the Company or such Restricted Subsidiary could otherwise
provide such a guarantee or incur such Indebtedness (other than as
Permitted Indebtedness) pursuant to "--Certain Covenants--
Limitation on Additional Indebtedness" above, and

(ii) the provision of such guarantee and the incurrence of such
Indebtedness otherwise would be permitted under "--Certain
Covenants--Limitation on Restricted Payments" above.

The Trustee will be provided with an officers' certificate stating that such
designation is permitted and setting forth the basis upon which the
calculations required by this definition were computed, together with a copy of
the board resolution adopted by the Board of Directors of the Company making
such designation.

"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing

(1) the then outstanding aggregate principal amount of such Indebtedness
into

(2) the sum of the total of the products obtained by multiplying

(a) the amount of each then remaining installment, sinking fund, serial
maturity or other required payment of principal, including payment
at final maturity, in respect thereof, by

(b) the number of years (calculated to the nearest one-twelfth) which
will elapse between such date and the making of such payment.

"Wholly Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares and, in
the case of TNMP, other than shares of preferred stock outstanding on the Issue
Date) of which are owned, directly or indirectly, by the Company.

Book-Entry, Delivery And Form

The registered notes will initially be issued in the form of one or more
permanent global certificates in definitive, fully registered form without
interest coupons (the "Global Notes"). The Global Notes will be deposited on
the date of the closing of this exchange offering with, or on behalf of, the
Trustee as custodian for The Depository Trust Company ("DTC") and registered in
the name of a nominee of such depositary (such nominee being referred to herein
as the "Global Note Holder").

Registered notes that are issued as described below under "--Certificated
Notes" will be issued in the form of registered definitive certificates (the
"Certificated Notes"). Upon the transfer of Certificated Notes, Certificated
Notes may, unless all Global Notes have previously been exchanged for
Certificated Notes, be exchanged for an interest in the Global Note
representing the principal amount of registered notes being transferred.

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DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations. Access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interests
in, and transfers of ownership interests in, each security held by or on behalf
of DTC are recorded on the records of the Participants and Indirect
Participants.

DTC has also advised the Company that, pursuant to procedures established by
it:

(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes; and

(2) ownership of these interests in the Global Notes will be shown on, and
the transfer of ownership thereof will be effected only through,
records maintained by DTC, with respect to the Participants or by the
Participants and the Indirect Participants, with respect to other
owners of beneficial interest in the Global Notes.

So long as the Global Noteholder is the registered owner of any registered
notes, the Global Noteholder will be considered the sole holder under the
Indenture of any registered notes evidenced by the Global Notes. Beneficial
owners of registered notes evidenced by the Global Notes will not be considered
the owners or holders thereof under the Indenture for any purpose, including
with respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC relating to the
registered notes.

Payments in respect of the principal of, and interest and premium on a
Global Note registered in the name of the Global Noteholder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Noteholder in its capacity as the registered holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee will treat the Persons
in whose names the registered notes, including the Global Notes, are registered
as the owners thereof for the purpose of receiving payments and for all other
purposes. Consequently, neither the Company, the Trustee nor any agent of the
Company or the Trustee has or will have any responsibility or liability for:

(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or

(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.

DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the registered notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date unless DTC has reason to believe it will
not receive payment on such payment date. Each relevant Participant is credited
with an amount proportionate to its beneficial ownership of an interest in the
principal amount of the relevant security as shown on the records of DTC.
Payments by the Participants and the Indirect Participants to the beneficial
owners of registered notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee or
the Company. Neither the Company nor the Trustee will be liable for any delay
by DTC or any of its Participants in

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identifying the beneficial owners of the registered notes, and the Company and
the Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.

Certificated Registered Notes

Subject to specified conditions, any Person having a beneficial interest in
a Global Note may, upon prior written request to the Trustee, exchange such
beneficial interest for registered notes in the form of certificated registered
notes. Upon any such issuance, the Trustee is required to register such
certificated registered notes in the name of, and cause the same to be
delivered to, such Person or Persons (or the nominee of any thereof). In
addition, if:

(1) DTC (a) notifies the Company that it is unwilling or unable to
continue as depositary for the Global Notes and the Company fails to
appoint a successor depositary or (b) has ceased to be a clearing
agency registered under the Exchange Act;

(2) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of certificated registered notes in lieu
of a Global Note; or

(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the registered notes;

then, upon surrender by the Global Noteholder of its Global Note, registered
notes in such form will be issued to each person that the Global Noteholder and
DTC identify as being the beneficial owner of the related registered notes.

Neither the Company nor the Trustee will be liable for any delay by the
Global Noteholder or DTC in identifying the beneficial owners of registered
notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Noteholder or DTC for all
purposes.

Same Day Settlement and Payment

The Company will make payments in respect of the registered notes
represented by the Global Notes (including principal, premium, if any, and
interest) by wire transfer of immediately available funds to the accounts
specified by the Global Noteholder. The Company will make all payments of
principal, interest and premium, if any, with respect to certificated
registered notes by wire transfer of immediately available funds to the
accounts specified by the Holders thereof holding more than $1.0 million of
registered notes or, if no such account is specified, or if such Holder of
certificated registered notes holds $1.0 million or less of registered notes,
by mailing a check to each such Holder's registered address. The registered
notes represented by the Global Notes are expected to trade in DTC's Same-Day
Funds Settlement System, and any permitted secondary market trading activity in
such registered notes will, therefore, be required by DTC to be settled in
immediately available funds. The Company expects that secondary trading in any
certificated registered notes will also be settled in immediately available
funds.

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FEDERAL INCOME TAX CONSIDERATIONS

The following general discussion summarizes certain of the material U.S.
federal income tax consequences of the purchase, ownership and disposition of
the notes and the exchange of the notes for Exchange Notes. This discussion is
a summary for general information only and does not consider all aspects of
U.S. federal income tax that may be relevant in light of your personal
circumstances. This discussion also does not address the U.S. federal income
tax consequences of ownership of notes not held as "capital assets" within the
meaning of the Internal Revenue Code of 1986, as amended (the "Code"), or the
U.S. federal income tax consequences to investors subject to special treatment
under the U.S. federal income tax laws, such as dealers in securities or
foreign currency, traders who elect to mark to market, tax-exempt entities,
banks, thrifts, insurance companies, persons that hold the notes as part of a
"straddle," a "hedge" against currency risk, a "conversion transaction" or
other integrated transaction, and persons that have a "functional currency"
other than the U.S. dollar, all within the meaning of the Code. In addition,
this discussion is generally limited to the tax consequences to initial holders
that purchased the Notes at the "issue price." For this purpose the "issue
price" of a note is the first price at which a substantial part of the notes is
sold to the public for money (excluding sales to bond houses, brokers, or
similar organizations acting in the capacity of underwriters, placement agents
or wholesalers). It does not describe any tax consequences arising out of the
tax laws of any state, local or foreign jurisdiction.

This discussion is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing are subject to change, possibly on a retroactive basis, and any such
change could affect the continuing validity of this discussion.

You should consult your own tax advisors concerning the application of U.S.
federal income tax laws, as well as the laws of any state, local, or foreign
taxing jurisdiction to your particular situation.

U.S. Holders

The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a note that is a U.S. person. A U.S.
person is:

. a citizen or resident of the United States,

. a corporation or partnership created or organized in the United States
or under the law of the United States or any State,

. an estate, the income of which is subject to U.S. federal income tax
regardless of the source, or

. a trust the administration of which is subject to the primary
supervision of a U.S. court and for which one or more U.S. persons can
make all significant decisions.

Certain U.S. federal income tax consequences relevant to a holder of a note
other than a U.S. person are discussed separately below.

Stated Interest. Interest we pay to you will be includible in gross income
by you as ordinary interest income at the time it accrues or is received in
accordance with your method of accounting for tax purposes. If we fail to
comply with certain provisions requiring registration of the notes, we will pay
you additional interest. Treasury regulations generally require the current
accrual of contingent payments, like the additional interest payments, unless
certain conditions are satisfied. Under these regulations, the possibility that
we will pay additional interest will not affect the yield of the notes if,
based on all the facts and circumstances as of the issue date, it is
significantly more likely than not that we will not be required to make any
payments of additional interest. Based on all the facts and circumstances, we
believe it is significantly more likely than not that we will not be required
to make any payments of additional interest to you. Accordingly, you will be
required to include payments of additional interest in gross income only if
additional interest becomes payable,

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in which case you may become taxable on the additional interest payments on an
economic accrual basis (regardless of your regular method of accounting).

Exchange Offer. The exchange of the notes for Exchange Notes pursuant to the
Registration Rights Agreement will not be a taxable exchange for U.S. federal
income tax purposes. As a result, your exchange of notes for Exchange Notes
will not result in any U.S. federal income tax consequences.

Sale, Exchange or Redemption of the Notes. Upon the disposition of a note by
sale, exchange or redemption, you will generally recognize gain or loss equal
to the difference between (i) the amount you realize on the disposition (other
than amounts attributable to accrued interest) and (ii) your tax basis in the
note. Your tax basis in a note generally will equal the cost of the note (other
than any cost attributable to accrued interest as of the date you acquired the
note). Such gain or loss will generally constitute capital gain or loss and
will be long-term capital gain or loss if you have held the note for longer
than one year. Non-corporate taxpayers are generally subject to a maximum
regular federal income tax rate of 20% on net long-term capital gains. The
deductibility of capital losses is subject to certain limitations.

Backup Withholding and Information Reporting. Under the Code, you may be
subject, under certain circumstances, to information reporting and/or backup
withholding at a 31% rate with respect to cash payments in respect of interest
or the gross proceeds from dispositions of the notes. This withholding applies
only if you (i) fail to furnish your social security or other taxpayer
identification number ("TIN") within a reasonable time after a request
therefor, (ii) furnish an incorrect TIN, (iii) fail to report interest
properly, or (iv) fail, under certain circumstances, to provide a certified
statement, signed under penalty of perjury, that the TIN provided is your
correct number and that you are not subject to backup withholding. Any amount
withheld from a payment to you under the backup withholding rules is allowable
as a credit (and may entitle you to a refund) against your U.S. federal income
tax liability, provided you furnish the required information to the IRS.
Certain persons are exempt from backup withholding, including corporations and
certain financial institutions. The U.S. Treasury Department has issued new
regulations, generally effective for payments made after December 31, 2000,
that modify in certain respects the backup withholding and information
reporting rules discussed above. You should consult your tax advisor as to your
qualification for exemption from withholding and the procedure for obtaining
such exemption, as well as the impact, if any, of the new regulations.

Non-U.S. Holders

The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership, and
disposition of the notes by an initial purchaser of the notes that is a not a
U.S. person as defined above.

Interest. Interest that we pay to you will not be subject to U.S.
withholding tax if you:

. do not actually or constructively own 10% or more of the total combined
voting power of all classes of our stock,

. are not a controlled foreign corporation with respect to which we are a
related person, and

. you certify to us, our payment agent, or the person who would otherwise
be required to withhold U.S. tax, on Form W-8BEN (or applicable
substitute form), under penalties of perjury, that you are not a U.S.
person and provide your name and address.

If you do not satisfy the three preceding requirements, your interest on a
note would generally be subject to U.S. withholding tax at a flat rate of 30%
(or a lower applicable treaty rate).

If you are engaged in trade or business in the U.S., and if interest on a
note is effectively connected with the conduct of that trade or business (or in
the case of an applicable tax treaty, is attributable to a permanent
establishment maintained by you in the U.S.), you will be exempt from U.S.
withholding tax but will be subject to regular U.S. federal income tax on the
interest in the same manner as if you were a U.S. person. In order to

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claim the benefits of a tax treaty or to establish an exemption from U.S.
withholding tax on the grounds that the interest is effectively connected with
your conduct of a U.S. trade or business, you must provide to us, our payment
agent or the person who would otherwise be required to withhold U.S. tax, a
properly executed IRS Form W8-BEN or W-8ECI (or applicable substitute form). In
addition to regular U.S. federal income tax, if you are a foreign corporation,
you may be subject to a U.S. branch profits tax.

Gain on Disposition. You generally will not be subject to U.S. federal
income tax with respect to gain recognized on a sale, redemption, or other
disposition of a note unless:

. the gain is effectively connected with the conduct by you of a trade or
business within the U.S., or, under an applicable tax treaty, is
attributable to a permanent establishment maintained by you in the U.S.,
or

. if you are an individual, you are present in the U.S. for 183 or more
days in the taxable year and certain other requirements are met.

Federal Estate Taxes. If interest on the notes is exempt from withholding of
U.S. federal income tax under the rules described above, the notes held by an
individual who at the time of death is a non-U.S. person generally will not be
subject to U.S. federal estate tax as a result of such individual's death
provided such individual did not at the time of death actually or
constructively own 10% or more of the combined voting power of all classes of
our stock entitled to vote, and provided that, at the time of death, payments
with respect to such note would not have been effectively connected with the
conduct by such individual of a trade or business within the U.S.

Information Reporting and Backup Withholding. We will, when required, report
to you and the IRS the amount of any interest paid on the notes in each
calendar year and the amounts of tax withheld, if any, with respect to such
payments.

Backup withholding tax is a withholding tax imposed at the rate of 31% on
certain payments to persons who fail to furnish the information required under
U.S. information reporting requirements. In the case of payments of interest to
you, backup withholding tax and certain information reporting will not apply to
such payments with respect to which either the certification described under
"Interest" above has been received or an exemption has otherwise been
established, provided that neither we nor our payment agent has actual
knowledge that you are a U.S. person or that the conditions of any other
exemption are not in fact satisfied.

Payments to you of the proceeds from the sale of a note made to or through a
foreign office of a broker generally will not be subject to information
reporting or backup withholding. However, information reporting (but not backup
withholding) may apply to such payments, unless the broker has documentary
evidence in its records that you are not a U.S. person and certain other
conditions are met or you otherwise establish an exemption, if the broker is:

. a U.S. person,

. a controlled foreign corporation for U.S. tax purposes,

. a foreign person 50% or more of whose gross income is effectively
connected with a U.S. trade or business for a specified three-year
period, or

. with respect to payments made after December 31, 2000, a foreign
partnership if at any time during its tax year, one or more of its
partners are U.S. persons who in the aggregate hold more than 50% of the
income or capital interest in the partnership or if, at any time during
its tax year, the foreign partnership is engaged in a U.S. trade or
business.

Payments to you of the proceeds from the sale of a note made to or through
the U.S. office of a broker are subject to information reporting and backup
withholding unless you certify under penalties of perjury as to your non-U.S.
status or otherwise establish an exemption from information reporting and
backup withholding.

113
<PAGE>

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against your U.S. federal
income tax liability, provided that the required information is furnished to
the IRS.

The U.S. Treasury Department has issued new regulations regarding the
withholding and information reporting rules discussed above. In general, the
new regulations do not significantly alter the substantive withholding, backup
withholding and information reporting requirements but rather unify current
certification procedures and forms and clarify reliance standards. The new
regulations require, however, that a foreign person furnish its taxpayer
identification number in certain circumstances to claim a reduction in U.S.
federal withholding tax and new rules are provided for foreign persons that
hold debt instruments through a foreign intermediary. The new regulations are
generally effective for payments made after December 31, 2000, subject to
certain transition rules. You should consult your own tax advisor with respect
to the impact, if any, of the new regulations.

114
<PAGE>

PLAN OF DISTRIBUTION

This prospectus, as it may be amended or supplemented from time to time, may
be used by a Broker-Dealer in connection with the resale of the registered
notes received in exchange for the old notes where such old notes were acquired
for its own account as a result of market-making activities or other trading
activities (other than where acquired directly from the Company or any
"Affiliate," as defined in Rule 144 of the Securities Act). Each such Broker-
Dealer that participates in the exchange offer that receives the registered
notes for its own account pursuant to the exchange offer must acknowledge that
it will deliver a prospectus in connection with any resale of such registered
notes. We have agreed that for a period of 180 days after the exchange offer is
consummated or until the old notes are resold, whichever comes first, we will
use our best efforts to make this prospectus, as amended or supplemented,
available to any such Broker-Dealer for use in connection with any such resale.

We will not receive any proceeds from any sale of registered notes by
Participating Broker-Dealers. Registered notes received by Broker-Dealers for
their own account pursuant to the exchange offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the registered notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Broker-Dealer and/or the purchasers of any such
registered notes. Any Broker-Dealer that resells registered notes that were
received by it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such registered notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of registered notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a Broker-
Dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. For a period of 180 days after the expiration
date of the exchange offer, we will promptly send additional copies of this
prospectus and any amendment or supplement to this prospectus to any Broker-
Dealer that requests such documents in the letter of transmittal.

This prospectus has been prepared for use in connection with the exchange
offer and may be used by the initial purchasers in connection with the offers
and sales related to market-making transactions in the registered notes. The
initial purchasers may act as principals or agents in such transactions. Such
sales will be made at prices related to prevailing market prices at the time of
sale. We will not receive any of the proceeds of such sales. The initial
purchasers have no obligation to make a market in the registered notes and may
discontinue their market-making activities at any time without notice, at their
sole discretion.

LEGAL MATTERS

The validity of the registered notes offered in this prospectus will be
passed upon for us by Milbank, Tweed, Hadley & McCloy LLP, New York, New York.

INDEPENDENT ACCOUNTANTS

The consolidated financial statements of TNP as of December 31, 1999 and
1998, and for each of the three years in the period ended December 31, 1999 and
the notes thereto included in this prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as stated in their reports
appearing in this prospectus. Following the merger, TNP dismissed Arthur
Andersen LLP as its independent accountants and engaged Deloitte & Touche LLP
to replace Arthur Andersen LLP.

115
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................... F-2

TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME........................................ F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................... F-5
CONSOLIDATED BALANCE SHEETS.............................................. F-6
CONSOLIDATED STATEMENTS OF CAPITALIZATION................................ F-7
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS EQUITY.................... F-8

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME........................................ F-9
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................... F-10
CONSOLIDATED BALANCE SHEETS.............................................. F-11
CONSOLIDATED STATEMENTS OF CAPITALIZATION................................ F-12
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY................... F-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................. F-14
</TABLE>

INDEX TO UNAUDITED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--FOR THE THREE MONTHS ENDED MARCH
31, 2000 AND 1999....................................................... F-34

CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999... F-35

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME--FOR THE THREE MONTHS ENDED MARCH 31,
2000 AND 1999........................................................... F-36

CONSOLIDATED STATEMENTS OF CASH FLOWS--FOR THE THREE MONTHS ENDED MARCH
31, 2000 AND 1999....................................................... F-37

CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999... F-38

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS................................ F-39
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of TNP Enterprises, Inc.:

We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of TNP Enterprises, Inc. (a Texas
corporation) (the "Company") as of December 31, 1999 and 1998, and the related
consolidated statements of income, common shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those Standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the years ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Fort Worth, Texas
February 16, 2000

F-2
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholder and Board of Directors of Texas-New Mexico Power Company:

We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of Texas-New Mexico Power Company (a
Texas corporation) (the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of income, common shareholder's equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

ARTHUR ANDERSEN LLP

Fort Worth, Texas
February 16, 2000

F-3
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31,

<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
(In thousands except per share amounts)

<S> <C> <C> <C>
OPERATING REVENUES............... $ 576,150 $ 585,941 $ 578,534
------------- ------------- -------------
OPERATING EXPENSES:
Purchased power and fuel....... 279,587 315,949 300,614
Other operating and mainte-
nance......................... 106,634 95,661 86,385
Depreciation................... 39,295 38,056 38,853
Charge for recovery of stranded
plant (Note 3)................ 23,376 -- --
Taxes other than income taxes.. 33,746 36,014 33,667
Income taxes................... 19,120 15,480 21,242
------------- ------------- -------------
Total operating expenses..... 501,758 501,160 480,761
------------- ------------- -------------
NET OPERATING INCOME............. 74,392 84,781 97,773
------------- ------------- -------------
OTHER INCOME (LOSS):
Other income and deductions,
net........................... (2,348) 1,363 1,443
Income taxes................... 1,866 (125) 257
------------- ------------- -------------
Other income (loss), net of
taxes....................... (482) 1,238 1,700
------------- ------------- -------------
INCOME BEFORE INTEREST CHARGES... 73,910 86,019 99,473
------------- ------------- -------------
INTEREST CHARGES:
Interest on long-term debt..... 38,538 48,393 52,557
Other interest and amortization
of debt-related costs......... 5,205 5,492 4,355
------------- ------------- -------------
Total interest charges....... 43,743 53,885 56,912
------------- ------------- -------------
INCOME FROM CONTINUING OPERA-
TIONS........................... 30,167 32,134 42,561
Loss from discontinued nonregu-
lated operations, net of taxes
(Note 4)........................ -- 12,710 12,883
------------- ------------- -------------
NET INCOME....................... 30,167 19,424 29,678
Dividends on preferred stock and
other........................... (19) 150 158
------------- ------------- -------------
INCOME APPLICABLE TO COMMON
STOCK........................... $ 30,186 $ 19,274 $ 29,520
============= ============= =============
EARNINGS PER SHARE OF COMMON
STOCK:
Earnings from continuing opera-
tions......................... $ 2.25 $ 2.42 $ 3.24
Loss from discontinued nonregu-
lated operations.............. -- (0.96) (0.98)
------------- ------------- -------------
EARNINGS PER SHARE............... $ 2.25 $ 1.46 $ 2.26
============= ============= =============
DIVIDENDS PER SHARE OF COMMON
STOCK........................... $ 1.16 $ 1.10 $ 1.005
============= ============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING..................... 13,394 13,244 13,083
============= ============= =============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales to customers........ $ 532,237 $ 600,596 $ 625,032
Purchased power and fuel costs paid.......... (291,384) (318,616) (299,554)
Cash paid for payroll and to other
suppliers................................... (89,455) (116,852) (125,188)
Interest paid, net of amounts capitalized.... (35,527) (51,592) (57,337)
Income taxes paid............................ (7,527) (6,825) (9,089)
Other taxes paid............................. (34,140) (35,089) (32,990)
Other operating cash receipts and payments,
net......................................... 353 1,250 2,979
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 74,557 72,872 103,853
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant................... (41,144) (37,534) (28,232)
Additions to other property and nonregulated
investments................................. 100 (1,020) (1,777)
Withdrawals from (deposits to) escrow
account..................................... 1,902 (1,902) --
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES......... (39,142) (40,456) (30,009)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common
stocks...................................... (15,640) (14,729) (13,305)
Common stock issuances....................... 4,167 5,355 3,392
Borrowings from (repayments to) revolving
credit facilities--net...................... (63,000) (11,000) 45,000
Issuances:
Senior notes, net of discount.............. 174,164 -- --
Deferred expenses associated with
financings.................................. (1,588) (7,382) --
Redemptions:
First mortgage bonds....................... -- (8,000) (100,900)
Secured debentures......................... (130,000) -- --
Preferred stock............................ (1,396) (180) (180)
Other...................................... 118 (141) (361)
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES......... (33,175) (36,077) (66,354)
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS....... 2,240 (3,661) 7,490
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 12,216 15,877 8,387
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 14,456 $ 12,216 $ 15,877
========= ========= =========
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income................................... $ 30,167 $ 19,424 $ 29,678
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................... 39,295 38,056 38,853
Charge for recovery of stranded plant...... 23,376 -- --
Amortization of debt-related costs and
other deferred charges.................... 8,044 7,390 5,633
Allowance for funds used during
construction.............................. (933) (228) (47)
Deferred income taxes...................... 6,535 4,722 7,434
Investment tax credits..................... 2,205 1,281 1,406
Deferred purchased power and fuel costs.... (20,425) 894 995
Cash flows impacted by changes in current
assets and liabilities:
Accounts payable........................... (7,711) 976 (1,411)
Accrued interest........................... 3,400 (2,303) (3,556)
Accrued taxes.............................. (1,472) (3,299) (1,244)
Reserve for customer refund................ (10,289) 10,971 --
Changes in other current assets and
liabilities............................... 8,862 (2,215) 25,099
Clear Lake settlement payment................ (8,000) -- --
Other, net................................... 1,503 (2,797) 1,013
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... $ 74,557 $ 72,872 $ 103,853
========= ========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant.......................................... $1,288,104 $1,260,147
Construction work in progress........................... 2,501 6,294
---------- ----------
Total............................................... 1,290,605 1,266,441
Less accumulated depreciation........................... 382,627 343,562
---------- ----------
Net utility plant................................... 907,978 922,879
---------- ----------
OTHER PROPERTY AND INVESTMENTS, at cost.................. 4,243 10,384
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents............................... 14,456 12,216
Accounts receivable..................................... 8,384 5,955
Inventories, at lower of average cost or market:
Fuel.................................................. 575 677
Materials and supplies................................ 3,834 4,567
Deferred purchased power and fuel costs................. 304 --
Accumulated deferred income taxes....................... -- 2,235
Other current assets.................................... 635 4,403
---------- ----------
Total current assets................................ 28,188 30,053
---------- ----------
LONG-TERM AND OTHER ASSETS:
Recoverable stranded costs (Note 3)..................... 19,256 --
Deferred purchased power and fuel costs (Note 3)........ 21,797 1,676
Deferred charges........................................ 19,737 28,773
---------- ----------
Total long-term and other assets.................... 60,790 30,449
---------- ----------
$1,001,199 $ 993,765
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Common stock--no par value per share. Authorized
50,000,000 shares;
issued 13,416,556 shares in 1999 and 13,293,996 in
1998................................................. $ 196,685 $ 192,518
Retained earnings..................................... 130,425 115,776
---------- ----------
Total common shareholders' equity................... 327,110 308,294
Redeemable cumulative preferred stock................... 1,664 3,060
Long-term debt, less current maturities................. 340,244 459,000
---------- ----------
Total capitalization................................ 669,018 770,354
---------- ----------
CURRENT LIABILITIES:
Current maturities of long-term debt.................... 100,000 --
Accounts payable........................................ 20,300 28,011
Accrued interest........................................ 8,420 5,020
Accrued taxes........................................... 12,818 14,290
Customers' deposits..................................... 3,786 3,609
Accumulated deferred income taxes....................... 7,543 --
Reserve for customer refund (Note 3).................... 682 10,971
Other current liabilities............................... 29,720 25,202
---------- ----------
Total current liabilities........................... 183,269 87,103
---------- ----------
LONG-TERM AND OTHER LIABILITIES:
Regulatory tax liabilities.............................. 6,633 957
Accumulated deferred income taxes....................... 97,196 97,346
Accumulated deferred investment tax credits............. 23,978 20,916
Deferred credits........................................ 21,105 17,089
---------- ----------
Total long-term and other liabilities............... 148,912 136,308
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 10)
---------- ----------
$1,001,199 $ 993,765
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CAPITALIZATION

December 31,

<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common stock with no par value per share
Authorized shares--50,000,000............................
Outstanding shares--13,416,556 in 1999 and 13,293,996 in
1998.................................................... $196,685 $192,518
Retained earnings.......................................... 130,425 115,776
-------- --------
Total common shareholders' equity...................... 327,110 308,294
-------- --------
PREFERRED STOCK
Preferred stock with no par value
Authorized shares--5,000,000.............................
Outstanding shares--None.................................
Redeemable cumulative preferred stock of TNMP with $100 par
value
Authorized shares--1,000,000.............................
</TABLE>

<TABLE>
<CAPTION>
Redemption
price at Outstanding
TNMP's shares
option 1999 1998
------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Series B....................... 4.65% $100.00 8,390 19,200 839 1,920
Series C....................... 4.75% 100.00 8,250 11,400 825 1,140
------ ------ ------ --------
Total redeemable cumulative preferred
stock..................................... 16,640 30,600 1,664 3,060
------ ------ ------ --------
</TABLE>

<S> <C> <C>
LONG-TERM DEBT
FIRST MORTGAGE BONDS
Series U, 9.25% due 2000............................... 100,000 100,000
SENIOR NOTES
6.25% due 2009......................................... 175,000 --
Unamortized discount................................... (756) --
SECURED DEBENTURES
12.50% due 1999........................................ -- 130,000
Series A, 10.75% due 2003.............................. 140,000 140,000
REVOLVING CREDIT FACILITIES
1996 Facility.......................................... 26,000 80,000
1998 Facility.......................................... -- 9,000
--------- --------
Total long-term debt................................. 440,244 459,000
Less current maturities.............................. (100,000) --
--------- --------
Total long-term debt, less current maturities........ 340,244 459,000
--------- --------
TOTAL CAPITALIZATION....................................... $ 669,018 $770,354
========= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY

For the Years Ended December 31,

<TABLE>
<CAPTION>
Common Shareholders' Equity
----------------------------------
Common Stock
--------------- Retained
Shares Amount Earnings Total
------ -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Balance at January 1, 1997............... 13,006 $183,771 $ 94,703 $278,474
Net income............................... -- -- 29,678 29,678
Dividends on preferred stock............. -- -- (158) (158)
Dividends on common stock--$1.005 per
share................................... -- -- (13,158) (13,158)
Sale of common stock..................... 127 3,392 -- 3,392
Retirement of preferred stock............ -- -- 13 13
------ -------- -------- --------
Balance at December 31, 1997........... 13,133 187,163 111,078 298,241
YEAR ENDED DECEMBER 31, 1998
Net income............................... -- -- 19,424 19,424
Dividends on preferred stock............. -- -- (150) (150)
Dividends on common stock--$1.10 per
share................................... -- -- (14,579) (14,579)
Sale of common stock..................... 161 5,355 -- 5,355
Retirement of preferred stock............ -- -- 3 3
------ -------- -------- --------
Balance at December 31, 1998........... 13,294 192,518 115,776 308,294
YEAR ENDED DECEMBER 31, 1999
Net income............................... -- -- 30,167 30,167
Dividends on preferred stock............. -- -- (99) (99)
Dividends on common stock--$1.16 per
share................................... -- -- (15,537) (15,537)
Sale of common stock..................... 123 4,167 -- 4,167
Retirement of preferred stock............ -- -- 118 118
------ -------- -------- --------
Balance at December 31, 1999........... 13,417 $196,685 $130,425 $327,110
====== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-8
<PAGE>

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31,

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
OPERATING REVENUES................................ $576,093 $585,892 $578,534
-------- -------- --------
OPERATING EXPENSES:
Purchased power and fuel........................ 279,587 315,949 300,614
Other operating and maintenance................. 99,390 91,663 84,294
Depreciation of utility plant................... 39,295 38,054 38,851
Charge for recovery of stranded plant (Note 3).. 23,376 -- --
Taxes other than income taxes................... 33,296 36,298 33,260
Income taxes.................................... 20,799 16,863 22,062
-------- -------- --------
Total operating expenses...................... 495,743 498,827 479,081
-------- -------- --------
NET OPERATING INCOME.............................. 80,350 87,065 99,453
-------- -------- --------
OTHER INCOME:
Other income and deductions, net................ 1,940 1,035 1,120
Income taxes.................................... 277 (52) 257
-------- -------- --------
Other income, net of taxes.................... 2,217 983 1,377
-------- -------- --------
INCOME BEFORE INTEREST CHARGES.................... 82,567 88,048 100,830
-------- -------- --------
INTEREST CHARGES:
Interest on long-term debt...................... 37,919 48,342 52,557
Other interest and amortization of debt-related
costs.......................................... 5,205 5,385 4,355
-------- -------- --------
Total interest charges........................ 43,124 53,727 56,912
-------- -------- --------
NET INCOME........................................ 39,443 34,321 43,918
Dividends on preferred stock and other............ (19) 150 158
-------- -------- --------
INCOME APPLICABLE TO COMMON STOCK................. $ 39,462 $ 34,171 $ 43,760
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-9
<PAGE>

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales to customers........ $ 528,552 $ 579,482 $ 606,803
Purchased power and fuel costs paid.......... (291,384) (318,616) (299,554)
Cash paid for payroll and to other
suppliers................................... (74,372) (72,590) (86,607)
Interest paid, net of amounts capitalized.... (34,924) (51,545) (57,331)
Income taxes paid............................ (17,592) (2,786) (8,464)
Other taxes paid............................. (33,540) (35,492) (32,980)
Other operating cash receipts and payments,
net......................................... 100 864 2,600
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 76,840 99,317 124,467
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant................... (40,911) (37,506) (27,942)
Withdrawals from (deposits to) escrow
account..................................... 1,902 (1,902) 1,670
--------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES....... (39,009) (39,408) (26,272)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common
stocks...................................... (29,102) (19,249) (44,458)
Borrowings from (repayments to) revolving
credit facilities--net ..................... (54,000) (20,000) 45,000
Issuances:
Senior notes, net of discount............... 174,164 -- --
Deferred expenses associated with
financings.................................. (1,590) (7,275) --
Redemptions:
First mortgage bonds....................... -- (8,000) (100,900)
Secured debentures......................... (130,000) -- --
Preferred stock............................ (1,396) (180) (180)
Other...................................... 118 -- --
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES......... (41,806) (54,704) (100,538)
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS....... (3,975) 5,205 (2,343)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 7,977 2,772 5,115
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 4,002 $ 7,977 $ 2,772
========= ========= =========
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income................................... $ 39,443 $ 34,321 $ 43,918
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of utility plant.............. 39,295 38,054 38,851
Charge for recovery of stranded plant...... 23,376 -- --
Amortization of debt-related costs and
other deferred charges.................... 8,044 7,281 5,633
Allowance for funds used during
construction.............................. (933) (228) (47)
Deferred income taxes...................... 6,716 9,559 10,650
Investment tax credits..................... 2,149 1,173 2,121
Deferred purchased power and fuel costs.... (20,425) 894 995
Cash flows impacted by charges in current
assets and liabilities:
Accounts payable........................... (6,814) 2,029 (2,395)
Accrued interest........................... 3,384 (2,319) (3,556)
Accrued taxes.............................. (6,260) 2,698 850
Reserve for customer refund................ (10,289) 10,971 --
Changes in other current assets and
liabilities............................... 10,264 (4,485) 24,751
Clear Lake settlement payment................ (8,000) -- --
Other, net................................... (3,110) (631) 2,696
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... $ 76,840 $ 99,317 $ 124,467
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-10
<PAGE>

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)

CONSOLIDATED BALANCE SHEETS

December 31,
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant.......................................... $1,288,080 $1,260,099
Construction work in progress........................... 2,501 6,294
---------- ----------
Total............................................... 1,290,581 1,266,393
Less accumulated depreciation........................... 382,627 343,562
---------- ----------
Net utility plant................................... 907,954 922,831
---------- ----------
OTHER PROPERTY AND INVESTMENTS, at cost.................. 213 2,116
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents............................... 4,002 7,977
Accounts receivable..................................... 6,347 923
Inventories, at lower of average cost or market:
Fuel.................................................. 575 677
Materials and supplies................................ 3,834 4,567
Deferred purchased power and fuel costs................. 304 --
Other current assets.................................... 356 4,093
---------- ----------
Total current assets................................ 15,418 18,237
---------- ----------
LONG-TERM AND OTHER ASSETS:
Recoverable stranded costs (Note 3)..................... 19,256 --
Deferred purchased power and fuel costs (Note 3)........ 21,797 1,676
Deferred charges........................................ 19,757 28,706
---------- ----------
Total long-term and other assets.................... 60,810 30,382
---------- ----------
$ 984,395 $ 973,566
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholder's equity:
Common stock, $10 par value per share
Authorized 12,000,000 shares; issued 10,705 shares... $ 107 $ 107
Capital in excess of par value........................ 222,149 222,149
Retained earnings..................................... 90,302 79,840
---------- ----------
Total common shareholder's equity................... 312,558 302,096
Redeemable cumulative preferred stock................... 1,664 3,060
Long-term debt, less current maturities................. 340,244 450,000
---------- ----------
Total capitalization................................ 654,466 755,156
---------- ----------
CURRENT LIABILITIES:
Current maturities of long-term debt.................... 100,000 --
Accounts payable........................................ 20,074 26,888
Accrued interest........................................ 8,388 5,004
Accrued taxes........................................... 14,189 20,449
Customers' deposits..................................... 3,786 3,609
Accumulated deferred income taxes....................... 8,434 649
Reserve for customer refund (Note 3).................... 682 10,971
Other current liabilities............................... 28,015 17,076
---------- ----------
Total current liabilities........................... 183,568 84,646
---------- ----------
LONG-TERM AND OTHER LIABILITIES:
Regulatory tax liabilities.............................. 6,633 957
Accumulated deferred income taxes....................... 95,165 93,378
Accumulated deferred investment tax credits............. 23,978 22,729
Deferred credits........................................ 20,585 16,700
---------- ----------
Total long-term and other liabilities............... 146,361 133,764
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 10)
---------- ----------
$ 984,395 $ 973,566
========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-11
<PAGE>

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)

CONSOLIDATED STATEMENTS OF CAPITALIZATION

December 31,

<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common stock, $10 par value per share
Authorized shares--12,000,000.............................
Outstanding shares--10,705................................ $ 107 $ 107
Capital in excess of par value.............................. 222,149 222,149
Retained earnings........................................... 90,302 79,840
-------- --------
Total common shareholders' equity....................... 312,558 302,096
-------- --------
PREFERRED STOCK
Redeemable cumulative preferred stock with $100 par value
Authorized shares--1,000,000..............................
</TABLE>

<S> <C> <C>
LONG-TERM DEBT
FIRST MORTGAGE BONDS
Series U, 9.25% due 2000................................ 100,000 100,000
SENIOR NOTES
6.25% due 2009.......................................... 175,000 --
Unamortized discount.................................... (756) --
SECURED DEBENTURES
12.50% due 1999......................................... -- 130,000
Series A, 10.75% due 2003............................... 140,000 140,000
REVOLVING CREDIT FACILITIES
1996 Facility........................................... 26,000 80,000
-------- --------
Total long-term debt.................................. 440,244 450,000
Less current maturities............................... (100,000) --
-------- --------
Total long-term debt, less current maturities......... 340,244 450,000
-------- --------
TOTAL CAPITALIZATION........................................ $654,466 $755,156
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-12
<PAGE>

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY

For the Years Ended December 31,

<TABLE>
<CAPTION>
Common Shareholder's Equity
-------------------------------------------
Common Stock Excess of
------------- Capital in Retained
Shares Amount Par Value Earnings Total
------ ------ ---------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Balance at January 1, 1997........ 11 $107 $222,133 $65,308 $287,548
Net income........................ -- -- -- 43,918 43,918
Dividends on preferred stock...... -- -- -- (158) (158)
Dividends on common stock......... -- -- -- (44,300) (44,300)
Retirement of preferred stock..... -- -- 13 -- 13
--- ---- -------- ------- --------
Balance at December 31, 1997.... 11 107 222,146 64,768 287,021
YEAR ENDED DECEMBER 31, 1998
Net income........................ -- -- -- 34,321 34,321
Dividends on preferred stock...... -- -- -- (150) (150)
Dividends on common stock......... -- -- -- (19,099) (19,099)
Retirement of preferred stock..... -- -- 3 -- 3
--- ---- -------- ------- --------
Balance at December 31, 1998.... 11 107 222,149 79,840 302,096
YEAR ENDED DECEMBER 31, 1999
Net income........................ -- -- -- 39,443 39,443
Dividends on preferred stock...... -- -- -- (99) (99)
Dividends on common stock......... -- -- -- (29,000) (29,000)
Retirement of preferred stock..... -- -- -- 118 118
--- ---- -------- ------- --------
Balance at December 31, 1999.... 11 $107 $222,149 $90,302 $312,558
=== ==== ======== ======= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-13
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

General Information

The consolidated financial statements of TNP and subsidiaries include the
accounts of TNP and its wholly owned subsidiaries, TNMP, FWI, and TNP Operating
Company. The consolidated financial statements of TNMP and subsidiaries include
the accounts of TNMP and its wholly owned subsidiaries, TGC and TGC II. All
intercompany transactions and balances have been eliminated in consolidation.

TNMP is TNP's principal operating subsidiary. TNMP is a public utility
engaged in generating, purchasing, transmitting, distributing, and selling
electricity in Texas and New Mexico. TNMP is subject to PUCT and NMPRC
regulation. Some of TNMP's activities, including the issuance of securities,
are subject to FERC regulation, and its accounting records are maintained in
accordance with FERC's Uniform System of Accounts.

The use of estimates is required to prepare TNP's and TNMP's consolidated
financial statements in conformity with generally accepted accounting
principles. Management believes that estimates are essential and will not
materially differ from actual results. However, adjustments may be necessary in
the future to the extent that future estimates or actual results are different
from the estimates used in the 1999 financial statements.

Accounting for the Effects of Regulation

As discussed in Note 3, legislation that establishes competition became
effective during 1999 in Texas and New Mexico. As a result, SFAS 71,
"Accounting for the Effects of Certain Types of Regulation," is no longer
applied to the generation/power supply portion of TNMP's operations in Texas
and New Mexico. Based on the legislation, TNMP believes that SFAS 71 continues
to apply to the transmission and distribution portion of its operations in both
states.

SFAS 71 allows TNMP to recognize the economic effects of rate regulation in
the transmission and distribution portion of its business. Among these effects
are the recognition of regulatory assets and liabilities. Regulatory assets
represent revenues associated with certain costs that TNMP expects to recover
from customers in future rates. Regulatory liabilities are costs previously
collected from customers or other amounts that reduce future rates. The
following table summarizes TNP's and TNMP's regulatory assets and liabilities
as of December 31, 1999 and 1998.

<TABLE>
<CAPTION>
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Regulatory Assets:
Deferred purchased power and fuel costs...................... $22,101 $ 1,676
Deferred charges:
Losses on reacquired debt.................................. 2,837 6,494
Rate case expenses......................................... 201 1,396
Recoverable stranded costs................................. 19,256 --
Deferred accounting amounts................................ -- 3,221
------- -------
Total.................................................... $44,395 $12,787
======= =======
Regulatory Liabilities:
Income tax related, net...................................... $ 6,633 $ 957
======= =======
</TABLE>

F-14
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As a result of discontinuing SFAS 71 to the generation/power supply Texas
operations, the following accounting policy changes will be effective January
1, 2000:

. Allowance for funds used during construction will no longer be accrued
to generation-related construction projects. Interest will be
capitalized to these projects in accordance with SFAS 34,
"Capitalization of Interest Cost."

. Under SFAS 71, TNMP deferred the gains or losses that arose when long-
term debt was redeemed prior to maturity, and amortized those costs over
the life of the new debt. Effective January 1, 2000, gains or losses
incurred for the early retirement of debt attributable to TNMP's
generation/power supply operations will be recorded in accordance with
SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt."

Utility Plant

Utility plant is stated at the historical cost of construction, which
includes labor, materials, indirect charges for such items as engineering and
administrative costs, and AFUDC. Property repairs and replacement of minor
items are charged to operating expenses; major replacements and improvements
are capitalized to utility plant.

AFUDC is a non-cash item designed to enable a utility to capitalize
financing costs during periods of construction. Established regulatory
practices enable TNMP to recover these costs from customers. The composite rate
used for AFUDC was 10.6% in 1999 and 6% in both 1998 and 1997.

The costs of depreciable units of plant retired or disposed of in the normal
course of business are eliminated from utility plant accounts and such costs
plus removal expenses less salvage are charged to accumulated depreciation.
When complete operating units are disposed of, appropriate adjustments are made
to accumulated depreciation, and the resulting gains or losses, if any, are
recognized.

Depreciation is provided on a straight-line method based on the estimated
lives of the properties as indicated by periodic depreciation studies. A
portion of depreciation of transportation equipment used in construction is
charged to utility plant accounts in accordance with the equipment's use.
Depreciation as a percentage of average depreciable cost was 3.1%, 3.2%, and
3.3% in 1999, 1998, and 1997, respectively.

Cash Equivalents

All highly liquid debt instruments with maturities of three months or less
when purchased are considered cash equivalents.

Customer Receivables and Operating Revenues

TNMP accrues estimated revenues for electricity delivered since the latest
billing. TNMP, under a factoring arrangement with an unaffiliated company,
sells its customer receivables on a nonrecourse basis. Amounts estimated to
have been delivered, but remaining unbilled, are also sold in connection with
this agreement.

Purchased Power and Fuel Costs

In Texas, fuel and the energy-related portion of purchased power costs are
recovered from customers through the fuel adjustment clause authorized by the
PUCT. The demand-related portion of purchased power is recovered through base
rates and is not subject to adjustment or future reconciliation. Therefore, any
difference between the amount of demand-related purchased power recovered
through TNMP's rates and the actual cost of such affects operating income.

In New Mexico, TNMP recovers all purchased power costs through the fuel and
purchased power adjustment clause authorized by the NMPRC. The purchased power
recovery factor changes monthly to reflect over or under collections of
purchased power costs. Prior to July 1, 1999, the recovery of purchased power
had been frozen in base rates in accordance with Community Choice.

F-15
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Deferred Charges

Expenses incurred in issuing long-term debt and related discount and premium
are amortized on a straight-line basis over the lives of the respective issues.

Included in deferred charges are other assets that are expected to benefit
future periods and certain costs that are deferred for ratemaking purposes and
amortized over periods allowed by regulatory authorities.

Derivatives

The initial cost of an interest rate collar is being amortized over the term
of the related agreement. Unamortized premiums of $66,000 are included in
Deferred Charges in the consolidated balance sheets. Amounts to be received or
paid under the agreement, if any, will be recognized when they occur as a
component of interest expense. As of December 31, 1999, TNMP had neither an
obligation to pay, nor the right to receive any amounts under the agreement.

Income Taxes

TNP files a consolidated federal income tax return that includes its
subsidiaries and the consolidated operations of TNMP. The amounts of income
taxes recognized in TNMP's accompanying consolidated financial statements were
computed as if TNMP and its subsidiaries filed a separate consolidated federal
income tax return.

ITC amounts utilized in the federal income tax return are generally deferred
and amortized to earnings ratably over the estimated service lives of the
related assets.

Fair Values of Financial Instruments

Fair values of cash equivalents, temporary investments, and customer
receivables approximated the carrying amounts because of the short maturities
of those instruments.

The estimated fair values of long-term debt and preferred stock were based
on quoted market prices of the same or similar issues. The estimated fair
values of TNP's financial instruments are as follows:

<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------- ---------------------------
Carrying Amount Fair Values Carrying Amount Fair Values
--------------- ----------- --------------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Assets
Interest rate
collars.............. $ 66 $ 3,578 $ 164 $ (333)
Capitalization and
Liabilities
Long-term debt........ 441,000 420,731 459,000 475,189
Preferred stock....... 1,664 1,664 3,060 1,978
</TABLE>

Common Stock

At December 31, 1999, 519,304 shares of TNP's common stock were reserved for
issuance to TNMP's 401(k) plan, and 1,738,491 shares of TNP's common stock were
reserved for subsequent issuance under other stock compensation or shareholder
plans.

Shareholder Rights Plan

TNP has a shareholder rights plan that is designed to protect TNP's
shareholders from coercive takeover tactics and inadequate or unfair takeover
bids. The rights plan provides for the distribution of one right for each share
of TNP's common stock currently outstanding or issued until the close of
business on August 11, 2008.

F-16
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Upon the occurrence of certain events, each right entitles a shareholder to
elect to purchase one share of common stock at $100 per share or, under certain
circumstances, shares of common stock at half the then-current market price, or
to receive TNP common stock or other securities having an aggregate value equal
to the excess of (i) the value of the common stock or other securities on the
date the rights are exercised over or (ii) the cash payment that would have
been payable upon exercise of the rights if cash payment had been elected.

Until certain triggering events occur, the rights will trade together with
TNP's common stock and separate rights certificates will not be issued. Among
the triggering events are the acquisition by a person or group of 10% or more
of TNP's outstanding common stock or the commencement of a tender or exchange
offer that, upon consummation, would result in a person or group of persons
owning 15% or more of TNP's outstanding common stock. The rights expire August
11, 2008, unless earlier redeemed or exchanged by TNP, and have had no effect
on EPS.

On June 4, 1999, TNP amended its shareholder rights plan to exempt the
Merger discussed in Note 2 from the provisions of the shareholder rights plan.

Stock-Based Compensation

As discussed in Note 5, TNP has an equity-based incentive compensation plan
that awards stock-based compensation. In 1995 the FASB issued SFAS 123,
"Accounting for Stock-Based Compensation", that changes the method for
calculating expenses associated with stock-based compensation. SFAS 123, which
became effective for 1996, also allows companies to retain the approach as set
forth in APB Opinion 25, "Accounting for Stock Issued to Employees", for
measuring expense for its stock-based compensation. TNP has elected to continue
to apply the provisions of APB Opinion 25 in calculating stock-based
compensation. The application of SFAS 123 would have had no significant effect
on the amount of expense associated with TNP's stock-based compensation.

Reclassification

Certain items in 1997 and 1998 were reclassified to conform to the 1999
presentation.

Note 2. Acquisition

TNP, SW Acquisition, L.P., and ST Acquisition Corp. have entered into a
Merger Agreement, dated as of May 24, 1999, which provides for a merger of ST
Corp. with and into TNP, with TNP being the surviving corporation. Under the
terms of the Merger Agreement, each issued and outstanding share of common
stock of TNP will be canceled and converted automatically into the right to
receive $44.00 in cash. The Merger will convert TNP from a listed public
corporation to a privately owned corporation.

TNP expects the Merger to close early in the second quarter of 2000. The
Merger Agreement requires various approvals. To date, approvals have been
obtained from TNP's shareholders, the Federal Trade Commission, FERC, the PUCT,
and the NMPRC. Approvals are final in all jurisdictions except Texas.
Information regarding the approval status in each jurisdiction is as follows:

Shareholder Approval. A special meeting of TNP shareholders was held
September 22, 1999, at which shareholders approved the Merger, with more than
98 percent of the votes cast favoring the transaction. The affirmative votes
represented approximately 81 percent of the outstanding shares of TNP.

F-17
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

FERC. On July 9, 1999, TNMP and SW filed a joint application with the FERC
seeking approval of the Merger. Simultaneously, TNMP filed an application with
the FERC seeking approval of a Backstop Credit Facility (Credit Facility). As a
result of the Merger, TNMP must offer to repurchase certain existing debt.
Should holders of this debt accept TNMP's repurchase offer, proceeds from the
Credit Facility would fund the repurchase. On September 29, 1999, the FERC
issued an order approving the Merger, concluding that the Merger would be
consistent with the public interest. The FERC issued an order approving the
Credit Facility on September 30, 1999.

FTC. On September 3, 1999, TNMP filed an application with the FTC seeking
approval of the Merger, as required under the Hart-Scott-Rodino Act. The FTC
approved the application on September 21, 1999.

Texas. On July 15, 1999, TNP and TNMP filed an application with the PUCT
seeking a determination that the Merger is consistent with the public interest.
On November 10, 1999, TNMP and the staff of the PUCT agreed to a settlement
that resolves all issues between the two parties. At a hearing held November
12, 1999, the remaining parties joined the settlement, withdrew from the case,
or waived their rights to hearing and did not oppose the settlement. In late
December 1999, the administrative law judge assigned to the case issued a draft
order approving the Merger. On February 10, 2000, the PUCT voted unanimously to
approve the Merger. Approval by the PUCT is expected to be final in March 2000.
Approval by the PUCT requires TNMP to honor certain financial and operational
commitments, including a guaranteed level of stranded cost mitigation equal to
$59 million less base rate reductions in 2000 and 2001. The subject base rate
reductions are described in Note 3.

New Mexico. Also on July 15, TNMP filed an application with the NMPRC
seeking to obtain all approvals and authorizations necessary to consummate the
Merger, including approval of the Credit Facility described above. On October
8, 1999, the Staff of the NMPRC filed testimony recommending approval of the
Merger, subject to certain financial and operational commitments of TNMP. On
October 18, 1999, TNMP filed testimony agreeing to make the proposed
commitments. No other parties opposed the Merger. Hearings before the NMPRC
were held October 25 and 26, 1999. On January 18, 2000, the NMPRC voted to
approve the Merger. The decision became final on February 17, 2000.

Note 3. Regulatory Matters

The electric utility industry continues its transition toward increased
competition. During 1999, legislation was passed in both Texas and New Mexico
that establishes retail competition for generation operations. Retail
competition is scheduled to begin in New Mexico and Texas on January 1, 2001,
and January 1, 2002, respectively. The legislation in both states provides for
recovery of "stranded costs", the difference between the regulatory value of
TNMP's investments in generation assets and purchased power contracts and the
market price for energy in a competitive market. The increasingly competitive
environment presents opportunities to compete for new customers, as well as the
risk of loss of existing customers. TNMP expects the portions of operations
pertaining to transmission and distribution to continue to be regulated.

The following discusses the legislation in Texas and New Mexico, the effects
of the legislation on TNMP's operating results, and the relationship of the
legislation in Texas to the Transition Plan.

F-18
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Texas

Legislation. On September 1, 1999, legislation that establishes competition
in the generation portion of the Texas electric utility industry went into
effect. The legislation will implement retail competition in generation for
customers in most areas of Texas on January 1, 2002. Among other provisions,
the legislation:

. Requires utilities to provide service according to the base rate tariffs
in effect at September 1, 1999, until December 31, 2001. The legislation
does not prohibit changes in the fixed fuel factor that passes through
fuel and purchased power energy costs to customers.

. Allows a utility to recover 100% of its verifiable stranded costs via
several methods, including:

. Redirection of depreciation--A utility may redirect all or a part of
the depreciation related to transmission and distribution assets to
its generation assets for the periods 1998 through 2001.

. Application of earnings in excess of an allowed rate of return--
During the freeze period (January 1, 1999 through December 31,
2001), utilities' earnings are capped by the cost of capital
approved in the utility's most recent rate proceeding before the
PUCT. For TNMP, the cap is a 10.53% return on rate base. Earnings in
excess of the cap will be used to reduce stranded costs.

. Securitization--A utility may securitize 100% of its regulatory
assets and up to 75% of its estimated stranded costs, and recover
those costs from its customers through a charge approved by the
PUCT.

. Assessment of a competition transition charge--After the freeze
period, stranded costs that have not been recovered by one of the
methods above will be recovered through a competition transition
charge levied upon all retail customers within a utility's
geographical certificated service area as it existed on May 1, 1999.

. Establishes four alternatives for quantifying the final amount of
stranded costs, and provides a framework for reconciling estimated
stranded costs to the actual stranded costs quantified using those
methods. Reconciliation will occur sometime after January 10, 2004,
according to a schedule to be established by the PUCT.

. Requires utilities to disaggregate, on or before January 1, 2002, into
three distinct businesses: generation, transmission and distribution,
and retail electric provider. A retail electric provider is an entity
that sells electric energy to retail customers in Texas. Such an entity
cannot own or operate generation assets.

. Provides that once customer choice begins on January 1, 2002,
residential and small commercial customers who do not choose an
alternative provider will continue to be served by TNMP's affiliate
retail energy provider at a "price-to-beat" which is 6% lower than the
rate in effect on January 1, 1999, adjusted to reflect a fuel factor
that the PUCT shall determine as of December 31, 2001. This "price to
beat" must be offered by the utility until the earlier of 36 months
after customer choice is offered or when it loses 40% or more of its
residential sales within its certified service area.

Prior to the legislation, TNMP had been operating under a voluntary
Transition Plan approved by the PUCT in 1998. The Transition Plan covered a
five-year period, and had provided for rate reductions, sharing of earnings in
excess of 11.25% return on equity and recovery of stranded costs. It also
included a provision requiring that TNMP conform the Plan to any legislation
enacting competition in the electric utility industry. There are provisions of
the legislation that conflict with provisions of the Transition Plan. In such
instances, including the calculation and subsequent application of excess
earnings, Management believes the legislation supercedes the Transition Plan.

F-19
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Management has calculated excess earnings for the twelve months ended
December 31, 1999, based on the provisions of the legislation. The calculation
resulted in a reduction to 1999 pre-tax operating income of $23.4 million
($1.09 per share). The $23.4 million of excess earnings are displayed in the
income statement under the caption "Charge for recovery of stranded plant."
TNMP did not have excess earnings under the Transition Plan in 1998.

1998 Earnings Monitoring Report and Transition Plan Conformance. On May 17,
1999, TNMP filed its Electric Investor-Owned Utilities Earnings Report
(Earnings Report) with the PUCT. Simultaneously, TNMP filed an Addendum to the
Earnings Report (Addendum) detailing TNMP's calculation of excess earnings
under the Transition Plan for the twelve months ended December 31, 1998. The
Addendum showed that TNMP had not earned in excess of the 11.25% return on
equity cap established in the Transition Plan. After reviewing the Addendum,
the Office of Regulatory Affairs (ORA) of the PUCT filed a contest to TNMP's
earnings report on August 16, 1999, asserting errors in TNMP's calculation of
excess earnings. ORA's petition did not quantify the amount of its alleged
errors. In addition, the ORA proposed to use the Earnings Report contest as a
means for conforming the Transition Plan to the legislation. The PUCT hearing
examiner assigned to the Earnings Report is considering the issues related to
TNMP's calculation of excess earnings for 1998.

The ORA is the only party contesting TNMP's calculation of excess earnings.
In a letter to the hearing examiner on November 1, 1999, TNMP reported that
TNMP and ORA had not yet resolved the Earnings Report issues. On January 25,
2000, TNMP filed a Motion for Dismissal or Summary Decision, asking the PUCT to
reject ORA's contest, and approve TNMP's 1998 Earnings Report. TNMP believes
the issues relating to its calculation of excess earnings can be disposed of as
a matter of law without a factual hearing. TNMP does not expect resolution of
this matter to have a material effect on its financial condition.

Regarding the conformance of the Transition Plan to the legislation, TNMP
filed a Conformed Stipulation with the PUCT on October 6, 1999. The Conformed
Stipulation identifies all of the provisions in the Transition Plan that TNMP
believes must be changed in order for the Transition Plan to comply with the
legislation. On December 6, 1999, the PUCT issued a Declaratory Order stating
that TNMP was required "to give effect to base rate reductions reflected in"
the Transition Plan. Accordingly, TNMP reduced base rates for residential and
commercial customers by 3% and 1%, respectively, effective January 1, 2000.
Similar rate reductions will take effect January 1, 2001. As a result,
operating revenues are estimated to decrease in 2000 and 2001 by $6.7 million
and $13.9 million, respectively. The order also established that the base rate
reductions would offset the 6% rate reduction required by the legislation, as
previously described in the section "Texas--Legislation." The order is interim
in nature, and can be appealed.

Uncertainties exist as to the application of the legislation to other
provisions of the Transition Plan. Such uncertainties will not be resolved
until TNMP reports to the PUCT regarding its efforts to conform the Transition
Plan to the legislation. That report will be the subject of a PUCT review that
will occur in 2001.

Discontinuing SFAS 71. Historically, TNP's and TNMP's consolidated financial
statements reflect the application of SFAS 71, "Accounting for the Effects of
Certain Types of Regulation," which provides for recognition of the economic
effects of rate regulation. EITF 97-4, "Deregulation of the Pricing of
Electricity--Issues Related to the Application of SFAS Statements No. 71 and
101," states that application of SFAS 71 should stop "when deregulatory
legislation is passed or when a rate order (whichever is necessary to effect
the change in the jurisdiction) that contains sufficient detail for the
enterprise to reasonably determine how the transition plan will affect the
separable portion of its business whose pricing is being deregulated is
issued." With the passage of the legislation, TNMP discontinued the application
of SFAS 71 to the generation/power

F-20
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

supply portion of its Texas business during the fourth quarter of 1999. As a
direct result of discontinuing SFAS 71, and in accordance with the legislation,
TNMP has reclassified net regulatory assets (regulatory assets less
liabilities) of $19.3 million that pertain to these deregulated operations as
Recoverable Stranded Costs. TNMP believes the $19.3 million represents
verifiable stranded costs and intends to recover them from customers pursuant
to the methods discussed under "Texas--Legislation."

In conjunction with the discontinuance of SFAS 71, TNMP is required to
determine if its generating plant asset, TNP One, is impaired under SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." Based on TNMP's undiscounted cash flow analysis over the
estimated useful life of TNP One, there is no impairment of TNP One, as defined
by SFAS 121, as of December 31, 1999. TNMP's impairment analysis includes
reasonable estimates of future market prices, capacity factors, operating
costs, the effects of competition, and many other factors over the life of TNP
One. TNMP's impairment analysis is highly dependent on these estimates. As of
December 31, 1999, the net book value of TNP One is $435 million.

Business Separation Plan. As noted above, the legislation requires utilities
to disaggregate, on or before January 1, 2002, into three distinct businesses:
generation, transmission and distribution, and retail electric provider. On
January 10, 2000, TNMP filed its Business Separation Plan with the PUCT. The
BSP details TNMP's plans for complying with the legislation, which include
creating three new affiliated companies, and establishing a timeline for
accomplishing the separation.

Unbundled Cost of Service Filing. The legislation also requires TNMP to file
a rate case that will set rates for the transmission and distribution company
that will provide regulated services once competition begins in 2002. The
filing must be made no later than March 31, 2000. The rates will be composed of
a transmission and distribution charge; a competition transition charge for
stranded cost recovery, which may include securitization; and a system benefits
charge. The CTC is designed to recover stranded costs related to TNMP's
generation assets and purchased power contracts, as determined by a PUCT-
established model. The PUCT will also use this proceeding to review and approve
the BSP.

Annual Report. The legislation requires TNMP to file a report prior to March
30, 2000 that will allow the PUCT to review TNMP's calculation of excess
earnings for the year ended December 31, 1999.

Fuel Reconciliation. At December 31, 1999, TNMP had an underrecovered
balance of fuel and the energy-related portion of purchased power costs of
$21.8 million. PUCT rules require TNMP to reconcile its fuel costs at least
every three years. TNMP expects to file a fuel reconciliation for the three-
year period ended December 31, 1999, in mid-2000. TNMP will also file a request
for a new fuel factor, which will take into account the expected cost of fuel
and purchased energy. Management believes the ultimate outcome of this fuel
reconciliation will not have a material adverse effect on TNP's or TNMP's
consolidated financial position.

New Mexico

The New Mexico Legislature opened the state's electric power market to
consumer choice with the passage of the Electric Utility Industry Restructuring
Act of 1999 (the Act) in April 1999. The Act provides for the phase-in of
retail choice beginning January 1, 2001, requires utilities to disaggregate
their regulated transmission and distribution business activities from their
generation operations, that will be subject to competition, and guarantees
recovery of at least 50% of a utility's stranded costs over a five-year period.
Prior to the passage of the Act, TNMP had been operating under Community
Choice. Community Choice did not define stranded costs, or their recovery, and
had specified May 1, 2000, for the beginning of retail choice. As a

F-21
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

result, TNMP has reduced its accrual for potential stranded costs related to
its purchased power contracts in New Mexico from $3.4 million as of December
31, 1998, to $2.1 million as of December 31, 1999. Stranded costs in New Mexico
could ultimately be in a range from zero to $6 million, depending on the market
price of purchased power at the onset of competition.

TNMP is required to file its plan for complying with the Act by June 1,
2000.

On June 8, 1999, the NMPRC entered a Final Order terminating Community
Choice. By terminating Community Choice, the NMPRC placed TNMP on the same
timetable as other New Mexico utilities with regard to retail competition and
restored the pass-through of purchased power costs to customers effective
July 1, 1999. Under Community Choice, purchased power costs were a fixed
component of base rates. Therefore, the difference between the actual amounts
recovered from customers and actual purchased power costs affected operating
income.

Community Choice provided for the filing of a rate case by TNMP on June 1,
1999. TNMP and the NMPRC Staff have reached a settlement, and have submitted
the settlement to the NMPRC for approval. The settlement calls for a decrease
in TNMP's base rates of $1.8 million, or 6%, effective October 1, 1999. TNMP
has reflected the base rate reductions in its fourth quarter revenues. TNMP
expects the NMPRC to act on the proposed settlement during the second quarter
of 2000.

Note 4. Discontinued Nonregulated Operations

Management, with approval from the Board of Directors, authorized a plan to
discontinue the construction activities of FWI in late 1997. During the third
quarter of 1998, TNP elected to discontinue all remaining operations of FWI.

The pre-tax loss on discontinued operations recognized in 1998 was $19.6
million ($12.7 million, net of taxes, or $0.96 per share). The 1998 pre-tax
loss resulted from construction delays, a shortage of skilled labor, and job
site performance problems. Due to these reasons, there were a few jobs not
completed at December 31, 1999. TNP expects the jobs to be completed during
early 2000.

The pre-tax loss on discontinued operations recognized in 1997 was $19.8
million ($12.9 million, net of taxes, or $0.98 per share). All losses incurred
by FWI, both construction and service, incurred in 1997 have been reclassified
as losses from discontinued operations.

F-22
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 5. Employee Benefit Plans

Pension and Postretirement Benefits Plans

TNMP has a defined benefit pension plan covering substantially all of its
employees. Benefits are based on an employee's years of service and
compensation. TNMP's funding policy is to contribute the minimum amount
required by federal funding standards. TNMP also sponsors a health care plan
that provides postretirement medical and death benefits to retirees who
satisfied minimum age and service requirements during employment.

<TABLE>
<CAPTION>
Pension
Benefits Postretirement Benefits
---------------- ------------------------
1999 1998 1999 1998
------- ------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Change in projected benefit
obligation:
Benefit obligation at beginning
of year......................... $76,395 $76,316 $ 10,875 $ 10,651
Service cost................... 1,705 1,439 362 309
Interest cost.................. 5,010 5,055 722 736
Participant contributions...... -- -- 179 183
Plan amendments................ -- (873) -- --
Actuarial (gain) or loss,
including changes in discount
rate.......................... (7,540) 1,366 (1,468) 442
Benefits paid.................. (6,926) (6,908) (1,701) (1,446)
------- ------- ----------- -----------
Benefit obligation at end of
year............................ $68,644 $76,395 $ 8,969 $ 10,875
======= ======= =========== ===========
</TABLE>

<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
----------------- -----------------------
1999 1998 1999 1998
-------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Change in plan assets:
Fair value of plan assets at
beginning of year.............. $ 97,714 $95,751 $ 9,936 $ 8,274
Actual return on plan assets,
net of expenses.............. 13,409 8,871 (198) 1,105
Employer contributions........ -- -- 618 1,597
Participant contributions..... -- -- 179 183
Benefits paid................. (6,926) (6,908) (1,680) (1,223)
-------- ------- ----------- -----------
Fair value of plan assets at end
of year........................ $104,197 $97,714 $ 8,855 $ 9,936
======== ======= =========== ===========
Reconciliation of funded status:
Funded status................... $ 35,553 $21,319 $ (113) $ (938)
Unrecognized actuarial gain..... (39,551) (25,620) (6,560) (6,216)
Unrecognized transition (asset)
or obligation.................. (11) (35) 4,216 4,540
Unrecognized prior service
cost........................... (1,996) (2,152) -- --
-------- ------- ----------- -----------
Prepaid (accrued) benefit
cost......................... $ (6,005) $(6,488) $ (2,457) $ (2,614)
======== ======= =========== ===========
Components of net periodic benefit
cost:
Service cost.................... $ 1,705 $ 1,439 $ 362 $ 309
Interest cost................... 5,010 5,055 722 736
Expected return on plan assets.. (7,018) (6,664) (583) (484)
Amortization of prior service
cost........................... (156) (156) -- --
Amortization of transitional
(asset) or obligation.......... (24) (24) 325 325
Recognized actuarial gain....... -- -- (344) (326)
-------- ------- ----------- -----------
Net periodic benefit cost..... $ (483) $ (350) $ 482 $ 560
======== ======= =========== ===========
Weighted-average assumptions as of
December 31:
Discount rate................... 8.00% 6.75% 8.00% 6.75%
Expected long-term rate of
return on plan assets.......... 9.50% 9.50% 5.25% 5.25%
Average rate of compensation
increase....................... 4.00% 4.00% N/A N/A
</TABLE>

F-23
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The assumed health care cost trend rate used to measure the expected cost of
benefits was 5.2% for 1999 and is assumed to trend downward slightly each year
to 4.3% for 2003 and thereafter. Assumed health care cost trend rates could
have a significant effect on the amounts reported for the health care plans. A
one-percentage-point change in assumed health care cost trend rates would have
the following effects (in thousands):

<TABLE>
<CAPTION>
One-Percentage-Point One-Percentage-Point
-------------------- --------------------
Increase Decrease
-------------------- --------------------
<S> <C> <C>
Effect on total of service and
interest cost components for
1999......................... $ 1 $ (3)
Effect on year-end 1999
postretirement benefit
obligation................... 27 (32)
</TABLE>

Incentive Plans

TNP and TNMP have several incentive compensation plans. All employees
participate in one or more of these plans. Incentive compensation is based on
meeting key financial and operational performance goals such as cash value
added, customer satisfaction, and system reliability measures. Operating
expenses for 1999, 1998, and 1997 included costs for the various cash and
equity plans of $5.3 million, $5.9 million, and $6.0 million, respectively.

Other Employee Benefits

TNMP has a 401(k) plan designed to enhance the other retirement plans
available to its employees. Employees may invest their contributions in fixed
income securities, mutual funds, or TNP common stock. TNMP's contributions are
used to purchase TNP common stock, which employees may later convert to other
investment options.

TNMP has change in control severance agreements with certain members of
management and other key personnel. The contracts provide for lump sum
compensation payments and other rights in the event of termination of
employment or other adverse treatment of such persons following a "change in
control" of TNP or TNMP. Such event is defined to include, among other things,
substantial changes in the corporate structure, ownership, or board of
directors of either entity. The Merger described in Note 2 is considered a
"change in control" event. The Merger Agreement requires that employment
contracts be accepted by four specific employees, and by at least six of a
group of 11 other employees.

An excess benefit plan has been provided for certain key personnel and
retired employees, whose benefits are restricted by federal law. The payment of
benefits under the excess benefit plan is partially funded under an insurance
policy arrangement.

F-24
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 6. Income Taxes

Components of income taxes were as follows:

<TABLE>
<CAPTION>
TNP TNMP
------------------------ -------------------------
1999 1998 1997 1999 1998 1997
------- ------ ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Taxes on net operating
income:
Federal--current....... $10,161 $9,751 $12,251 $11,652 $ 6,299 $ 9,140
State--current......... 582 164 428 645 197 428
Federal--deferred...... 5,849 3,962 6,747 6,029 8,872 9,963
ITC adjustments........ 2,528 1,603 1,816 2,473 1,495 2,531
------- ------ ------- ------- ------- -------
19,120 15,480 21,242 20,799 16,863 22,062
------- ------ ------- ------- ------- -------

Taxes on other income
(loss):
Federal--current....... (2,229) (313) (534) (640) (313) (534)
Federal--deferred...... 687 760 687 687 687 687
ITC adjustments........ (324) (322) (410) (324) (322) (410)
------- ------ ------- ------- ------- -------
(1,866) 125 (257) (277) 52 (257)
------- ------ ------- ------- ------- -------

Tax benefit from
discontinued
nonregulated operations
(Note 4)................ -- (6,843) (6,660) -- -- --
------- ------ ------- ------- ------- -------
Total income taxes... $17,254 $8,762 $14,325 $20,522 $16,915 $21,805
======= ====== ======= ======= ======= =======
</TABLE>
The amounts for total income taxes differ from the amounts computed by
applying the appropriate federal income tax rate to earnings (loss) before
income taxes for the following reasons:

<TABLE>
<CAPTION>
TNP TNMP
------------------------ -------------------------
1999 1998 1997 1999 1998 1997
------- ------ ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory tax
rate..................... $16,393 $9,796 $15,252 $20,762 $17,864 $22,854
Amortization of
accumulated deferred
ITC.................... (1,632) (1,525) (1,403) (1,632) (1,525) (1,403)
Amortization of excess
deferred taxes......... (141) (141) (141) (141) (141) (141)
State income taxes...... 1,044 197 428 1,107 197 428
ITC related to 1995
PUCT disallowance....... (324) (322) (410) (324) (322) (410)
Other, net.............. 1,914 757 599 750 842 477
------- ------ ------- ------- ------- -------
Actual income taxes... $17,254 $8,762 $14,325 $20,522 $16,915 $21,805
======= ====== ======= ======= ======= =======
</TABLE>

F-25
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The tax effects of temporary differences that gave rise to significant
portions of net current and net noncurrent deferred income taxes as of December
31, 1999, and 1998, are presented below.

<TABLE>
<CAPTION>
TNP TNMP
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Current deferred income taxes:
Deferred tax assets:
Unbilled revenues.............. $ 673 $ 91 $ 673 $ 91
Other.......................... 2,273 2,999 1,382 115
--------- --------- --------- ---------
2,946 3,090 2,055 206
Deferred tax liability:
Recoverable stranded costs..... (2,648) -- (2,648) --
Deferred purchased power and
fuel costs.................... (7,841) (855) (7,841) (855)
--------- --------- --------- ---------
Current deferred income
taxes, net.................. $ (7,543) $ 2,235 $ (8,434) $ (649)
========= ========= ========= =========
Noncurrent deferred income taxes:
Deferred tax assets:
Minimum tax credit
carryforwards................. $ 29,624 $ 30,241 $ 33,365 $ 34,437
ITC carryforwards.............. 1,482 5,018 -- 3,206
Regulatory related items....... 13,493 12,731 13,493 12,731
Accrued employee benefit
costs......................... 3,109 3,330 3,109 3,330
Excess earnings................ 7,825 -- 7,825 --
Other.......................... 1,384 (890) 1,156 694
--------- --------- --------- ---------
56,917 50,430 58,948 54,398
--------- --------- --------- ---------
Deferred tax liabilities:
Utility plant, principally due
to depreciation and basis
differences................... (135,973) (135,870) (135,973) (135,870)
Deferred charges............... (12,257) (4,611) (12,257) (4,611)
Recoverable stranded costs
(noncurrent).................. (4,455) -- (4,455) --
Regulatory related items....... (1,428) (7,295) (1,428) (7,295)
--------- --------- --------- ---------
(154,113) (147,776) (154,113) (147,776)
--------- --------- --------- ---------
Noncurrent deferred income
taxes, net.................. $ (97,196) $ (97,346) $ (95,165) $ (93,378)
========= ========= ========= =========
</TABLE>

Federal tax carryforwards as of December 31, 1999, were as follows:

<TABLE>
<CAPTION>
TNP TNMP
------- -------
(In thousands)
<S> <C> <C>
Minimum tax credits
Amount.................................................. $29,624 $33,365
Expiration period....................................... None None
Investment tax credit
Amount.................................................. $ 1,482 $ --
Expiration period....................................... 2005
</TABLE>

F-26
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 7. Long-Term Debt

First Mortgage Bonds

FMBs issued under the Bond Indenture are secured by substantially all
utility plant owned directly by TNMP. The Bond Indenture restricts cash
dividend payments on TNMP common stock.

The maximum amount of any additional FMBs that TNMP can issue is determined
by both a collateral requirement and by an interest coverage requirement. The
collateral requirement is a function of property additions, previously redeemed
FMBs, and cash deposited with the trustee. As of December 31, 1999, the
collateral requirement was more restrictive than the interest coverage
requirement, and TNMP could therefore issue up to $96 million of additional
FMBs.

Secured Debentures

TNMP's Series A, 10.75% secured debentures ($140 million) are secured with a
first lien on a portion of Unit 1, and by second liens on substantially all
utility plant in Texas owned directly by TNMP. The secured debentures also
contain restrictions on dividends and asset dispositions.

Senior Notes

In January 1999, TNMP issued $175 million of 6.25% Senior Notes due in 2009
and used the proceeds to retire $130 million of its 12.5% Secured Debentures
and reduce outstanding borrowings under the credit facilities. The Senior Notes
were issued under a new indenture that allows the issuance of unsecured debt.
The new notes are initially secured by FMBs. However, when TNMP repays its
existing FMBs and secured debentures, the collateral securing the Senior Notes
can be released. The Senior Notes would become unsecured, but will remain the
senior debt obligations of TNMP.

Revolving Credit Facilities

The following table summarizes the terms of TNP's and TNMP's revolving
credit facilities at December 31,1999:

<TABLE>
<CAPTION>
1999 Average
Total Amount Commitment Interest
Commitment Outstanding Expires Rate Seccurity
---------- ----------- -------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
1998 TNP Facility....... $50,000 $ -- November 2003 5.49% Unsecured
1996 TNMP Facility...... 80,000 26,000 September 2001 6.11% Unsecured
</TABLE>

The composite average borrowing rates under TNMP's credit facilities were
6.11% and 6.99% for 1999 and 1998, respectively.

TNMP has a $50 million interest rate collar to mitigate exposure to variable
interest rates. The collar sets floor and ceiling rates on the 90-day LIBOR
rate at 5.25% and 7.50%, respectively. The term of the interest rate collar is
September 1997 through September 2000. TNMP also has a $100 million interest
rate collar to mitigate the risk of refinancing the debt that matures or is
callable in 2000. The collar sets floor and ceiling rates on the 10-year U. S.
Treasury bond at 4.91% and 6.25%, respectively. The collar expires, and is
exercisable only on, September 15, 2000.

TNMP believes that cash flow from operations, borrowings in the capital
markets, and periodic borrowings under the credit facilities will be sufficient
to retire or refinance $100 million of its 9.25%, Series U, FMBs, and meet its
other capital requirements through the end of 2000.

Under specified conditions, TNMP's credit facilities restrict the payment of
cash dividends on TNMP common stock. The credit facilities also prohibit the
sale, lease, transfer, or other disposition of assets other than in the
ordinary course of business.

F-27
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Maturities

As of December 31, 1999, scheduled maturities of long-term debt for the five
years following 1999 are as follows:
<TABLE>
<CAPTION>
Credit Secured
Year FMBs Facilities Debentures Total
---- -------- ---------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
2000 $100,000 $ -- $ -- $100,000
2001 -- 26,000 -- 26,000
2002 -- -- -- --
2003 -- -- 140,000 140,000
2004 -- -- -- --
</TABLE>

In January 1999, TNMP retired upon their maturity, $130 million of 12.5%
secured debentures, and issued $175 million of 6.25% Senior Notes due in 2009.
TNMP's Series A, 10.75% Secured Debentures due 2003 of $140 million are
callable at par on September 15, 2000.

Note 8. Capital Stock and Dividends

TNP

In November 1998, TNP increased its quarterly dividend from $0.27 to $0.29
per share.

TNMP

The 1996 TNMP Credit Facility restricts the payment of cash dividends by
TNMP. As of December 31, 1999, $27.7 million of unrestricted retained earnings
were available for dividends.

Note 9. Segment and Related Information

During 1998, TNP adopted FASB Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information". In 1998, TNP reported two segments,
TNMP, which provides regulated electric service in Texas and New Mexico, and
FWI, which before operations were discontinued, provided integrated mechanical,
electrical, plumbing and other maintenance and repair services to commercial
customers in Texas metropolitan areas.

The operations of TNMP have been separated into two segments, Texas and New
Mexico. TNP manages the segments separately to respond to the differing
operational and regulatory climates in the two states.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Intersegment revenues are not
material.

F-28
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following tables present information about profits, losses and assets of
TNP's reportable segments (in thousands). In the tables below, "Total assets"
for Texas and New Mexico includes only net utility plant. All other assets are
included in All Other and Eliminations.

<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Texas
-----
Operating revenues.................................. $492,535 $500,556 $499,978
Depreciation and amortization....................... 35,754 37,370 34,416
Charge for recovery of stranded plant............... 23,376 -- --
Income taxes........................................ 17,719 13,938 19,323
Interest revenue.................................... 601 829 1,315
Total interest charges.............................. 39,936 50,253 53,247
Income from continuing operations................... 34,819 29,008 38,323
Loss from discontinued nonregulated operations...... -- -- --
Net income.......................................... 34,819 29,008 38,323
Total assets........................................ 821,160 840,258 846,482
Property additions.................................. 36,710 33,774 25,193

New Mexico

Operating revenues.................................. $ 83,558 $ 85,337 $ 78,556
Depreciation and amortization....................... 5,368 4,791 4,566
Charge for recovery of stranded plant............... -- -- --
Income taxes........................................ 3,080 2,925 2,739
Interest revenue.................................... 106 115 182
Total interest charges.............................. 3,188 3,473 3,665
Income from continuing operations................... 4,624 5,313 5,595
Loss from discontinued nonregulated operations...... -- -- --
Net income.......................................... 4,624 5,313 5,595
Total assets........................................ 86,541 82,574 76,768
Property additions.................................. 4,202 3,732 2,749
</TABLE>

F-29
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
-----------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
All Other and
Eliminations
-------------
Operating revenues...... $ 57 $ 48 $ --
Depreciation and
amortization........... -- 2 2
Charge for recovery of
stranded plant......... -- -- --
Income taxes............ (1,679) (1,383) (820)
Interest revenue........ 253 391 326
Total interest charges.. 619 159 --
Income (loss) from
continuing operations.. (9,276) (2,187) (1,357)
Loss from discontinued
nonregulated
operations............. -- 12,710 12,883
Net income (loss)....... (9,276) (14,897) (14,240)
Total assets............ 93,498 70,933 68,676
Property additions...... 132 1,048 2,067

Consolidated

Operating revenues...... $ 576,150 $585,941 $578,534
Depreciation and
amortization........... 41,122 42,163 38,984
Charge for recovery of
stranded plant......... 23,376 -- --
Income taxes............ 19,120 15,480 21,242
Interest revenue........ 960 1,335 1,823
Total interest charges.. 43,743 53,885 56,912
Income (loss) from
continuing operations.. 30,167 32,134 42,561
Loss from discontinued
nonregulated
operations............. -- 12,710 12,883
Net income.............. 30,167 19,424 29,678
Total assets............ 1,001,199 993,765 991,926
Property additions...... 41,044 38,554 30,009
</TABLE>

Note 10. Commitments and Contingencies

Fuel Supply Agreement

TNMP has an agreement with the Walnut Creek Mining Company to purchase
lignite for TNP One through at least 2017. Depending on the output of TNP one,
the contract could supply the plant for several years beyond 2017. Phillips
Coal Company and Peter Kiewit Sons' jointly own Walnut Creek Mining Company,
Inc.

Wholesale Purchased Power Agreements

TNMP purchases approximately 80% of its electricity requirements from
various wholesale suppliers. These contracts are scheduled to expire in various
years through 2005.

In 1999, Clear Lake was TNMP's largest wholesale supplier of electricity. In
1999, Clear Lake supplied approximately 23% of TNMP's Texas capacity and 16% of
its Texas energy requirements.

F-30
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

At December 31, 1999, TNMP had various outstanding commitments for take or
pay agreements, including the fuel supply agreement discussed above. Detailed
below are the fixed and determinable portion of the obligations (amounts in
millions):

<TABLE>
<CAPTION>
2000 2001 2002 2003 2004
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Purchased power agreements...................... $ 76.1 $66.6 $36.7 $22.7 $11.5
Fuel supply agreements.......................... 32.4 31.6 30.7 31.5 32.3
------ ----- ----- ----- -----
Total....................................... $108.5 $98.2 $67.4 $54.2 $43.8
====== ===== ===== ===== =====
</TABLE>

Legal Actions

Clear Lake. TNMP and Clear Lake Limited Partnership ("Clear Lake") agreed in
March 1999 to settle the lawsuit styled Clear Lake Cogeneration Limited
Partnership vs. Texas-New Mexico Power Company, pending in the 234th District
Court of Harris County, Texas, and the parallel proceeding pending before the
PUCT. The PUCT approved the settlement on July 15, 1999. These proceedings
arose out of disagreements between TNMP and Clear Lake over the interpretation
of certain terms of an agreement under which TNMP purchases cogenerated
electricity from Clear Lake.

Under the settlement, TNMP, Clear Lake, and Calpine Power Services Company
(an affiliate of Clear Lake) have entered into a revised purchased power
contract effective as of October 1, 1998, governing energy and capacity
transactions between the parties. In addition, TNMP paid Clear Lake $8 million,
which TNMP expects to recover through customer rates.

Phillips Petroleum. TNMP is the defendant in a suit styled Phillips
Petroleum Company vs. Texas-New Mexico Power Company, filed on October 1, 1997
and pending in the 149th State District Court of Brazoria County, Texas. The
suit, which is in the discovery stage, is based on events surrounding an
interruption of electricity to a petroleum refinery and related facilities that
occurred in May 1997. Phillips Petroleum Company is seeking the recovery of
damages arising from the interruption and in May 1999 demanded payment in the
amount of $47.1 million. TNMP's tariff approved by the PUCT contains
limitations against recovery of the great majority of Phillip's alleged
damages. The Texas Supreme Court, in another matter, has recently upheld the
enforceability of such tariff limitations in litigation of this type; TNMP
believes the ruling will operate to substantially limit any recovery by
Phillips to the cost of its electrical equipment, in the event that any are
awarded in this matter. Discovery has not sufficiently progressed to quantify
any damages to Phillips' electrical equipment; however, Phillips has previously
reported to the SEC that it incurred costs of approximately $2.0 million in
this interruption. In May 1999, TNMP filed a Third Party Petition naming Sweeny
Cogeneration Limited Partnership, the operator of cogeneration and related
facilities at the Phillips refinery, as a defendant. TNMP has previously
charged to earnings the deductible amount of its insurance coverage, $500,000.

Power Resource Group. TNMP is a defendant in a suit styled Power Resource
Group, Inc. v. Public Utility Commission of Texas and Texas-New Mexico Power
Company, pending in the 345th District Court of Travis County, Texas. This
lawsuit, which was originally filed on May 21, 1999, appeals the PUCT's
dismissal of a regulatory case that Power Resource Group, Inc. had filed
against TNMP. PR Group is a developer of electric generating plants that are
intended to be qualifying cogeneration facilities. This lawsuit and the
regulatory case it appeals both stem from discontinued negotiations for power
supply. PR Group alleged that TNMP was required to buy power to be generated
from an as-yet-unbuilt cogeneration facility. TNMP filed its original answer
with the court on June 28, 1999.

F-31
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In an amended petition filed January 13, 2000, PR Group asserts a claim of
damages of at least $158,000,000. It bases its claim on the assertion that it
was damaged when TNMP refused to execute an agreement after the aforementioned
discontinued negotiations, that TNMP profited significantly from PR Group's
work, that TNMP is in error when it relies on a PUCT order dismissing PR
Group's petition before the PUCT on substantially the same facts, and that TNMP
misrepresented that it would enter into a contract with PR Group to purchase
energy and capacity at rates equal to or below TNMP's avoided costs. TNMP
believes that PR Group's claims are without merit and intends to contest this
claim vigorously.

TNMP is involved in various claims and other legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
dispositions of these matters, as well as those described above, will not have
a material adverse effect on TNMP's and TNP's consolidated financial position
or results of operations.

F-32
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
OPERATING REVENUES......................................... $ 124,526 $ 118,125
--------- ---------
OPERATING EXPENSES:
Purchased power and fuel................................. 59,550 57,372
Other operating and maintenance.......................... 24,158 23,825
Depreciation............................................. 10,230 9,974
Charge for recovery of stranded plant.................... 1,629 3,750
Taxes other than income taxes............................ 7,941 8,000
Income taxes............................................. 3,579 712
--------- ---------
Total operating expenses............................... 107,087 103,633
--------- ---------
NET OPERATING INCOME....................................... 17,439 14,492
--------- ---------
OTHER INCOME:
Other income and deductions, net......................... 465 163
Income taxes............................................. (131) 118
--------- ---------
Other income, net of taxes............................. 334 281
--------- ---------
INCOME BEFORE INTEREST CHARGES............................. 17,773 14,773
--------- ---------
INTEREST CHARGES:
Interest on long-term debt............................... 9,626 10,224
Other interest and amortization of debt-related costs.... 888 1,417
--------- ---------
Total interest charges................................. 10,514 11,641
--------- ---------
NET INCOME................................................. 7,259 3,132
Dividends on preferred stock and other..................... 5 36
--------- ---------
INCOME APPLICABLE TO COMMON STOCK.......................... $ 7,254 $ 3,096
========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-33
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales to customers................... $ 102,091 $ 105,835
Purchased power and fuel costs paid..................... (63,613) (62,523)
Cash paid for payroll and to other suppliers............ (24,234) (27,935)
Interest paid, net of amounts capitalized............... (14,690) (11,577)
Income taxes refunded................................... 5,500 4,000
Other taxes paid........................................ (17,089) (18,147)
Other operating cash receipts and payments, net......... 147 181
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES.................... (11,888) (10,166)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant.............................. (9,200) (11,592)
Withdrawals from escrow account......................... -- 1,902
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES.................... (9,200) (9,690)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks........... (3,926) (3,906)
Common stock issuances.................................. 1,202 3,091
Borrowings from (repayments to) revolving credit
facilities--net........................................ 21,000 (27,500)
Issuances:
Senior notes, net of discount......................... -- 174,164
Deferred expenses associated with financings............ -- (1,280)
Redemptions:
Secured debentures.................................... -- (130,000)
Preferred stock, net of gain.......................... (117) --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES................ 18,159 14,569
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................. (2,929) (5,287)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......... 14,456 12,216
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 11,527 $ 6,929
========= =========
RECONCILIATION OF NET INCOME TO NET CASH USED IN
OPERATING ACTIVITIES:
Net income.............................................. $ 7,259 $ 3,132
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation.......................................... 10,230 9,974
Charge for recovery of stranded plant................. 1,629 3,750
Purchased power settlement adjustment................. (2,425) --
Amortization of debt-related costs and other deferred
charges.............................................. 957 1,881
Allowance for funds used during construction.......... (82) (78)
Deferred income taxes................................. 2,541 (2,126)
Investment tax credits................................ (401) 678
Deferred purchased power and fuel costs............... (2,535) (587)
Cash flows impacted by changes in current assets and
liabilities:
Accounts payable........................................ (2,740) (6,858)
Accrued interest........................................ (4,990) (1,071)
Accrued taxes........................................... (1,991) (5,369)
Reserve for customer refund............................. 838 (8,511)
Changes in other current assets and liabilities......... (20,560) (4,818)
Other, net............................................... 382 (163)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES.................... $ (11,888) $ (10,166)
========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-34
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

CAPITALIZATION AND LIABILITIES

CAPITALIZATION:
Common shareholders' equity:
Common stock--no par value per share.
Authorized 50,000,000 shares; issued 13,445,494
shares in 2000 and 13,416,556 in 1999......... $ 197,887 $ 196,685
Retained earnings............................... 133,771 130,425
---------- ----------
Total common shareholders' equity............ 331,658 327,110
Redeemable cumulative preferred stock............. 1,534 1,664
Long-term debt, less current maturities........... 361,264 340,244
---------- ----------
Total capitalization......................... 694,456 669,018
---------- ----------
CURRENT LIABILITIES:
Current maturities of long-term debt.............. 100,000 100,000
Accounts payable.................................. 17,560 20,300
Accrued interest.................................. 3,430 8,420
Accrued taxes..................................... 10,827 12,818
Customers' deposits............................... 3,890 3,786
Accumulated deferred income taxes................. 8,321 7,543
Reserve for customer refund....................... 1,520 682
Other current liabilities......................... 10,583 29,720
---------- ----------
Total current liabilities.................... 156,131 183,269
---------- ----------
LONG-TERM AND OTHER LIABILITIES:
Regulatory tax liabilities........................ 6,509 6,633
Accumulated deferred income taxes................. 98,973 97,196
Accumulated deferred investment tax credits....... 23,578 23,978
Deferred credits.................................. 21,043 21,105
---------- ----------
Total long-term and other liabilities........ 150,103 148,912
---------- ----------
COMMITMENTS AND CONTINGENCIES......................
---------- ----------
$1,000,690 $1,001,199
========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-35
<PAGE>

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of TNP Enterprises, Inc.)

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

<TABLE>
<CAPTION>
Three Months
Ended
March 31,
------------------
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
OPERATING REVENUES........................................... $124,512 $118,111
-------- --------

OPERATING EXPENSES:
Purchased power and fuel................................... 59,550 57,372
Other operating and maintenance............................ 23,607 23,023
Depreciation............................................... 10,230 9,974
Charge for recovery of stranded plant...................... 1,629 3,750
Taxes other than income taxes.............................. 7,822 7,879
Income taxes............................................... 3,627 1,044
-------- --------
Total operating expenses................................. 106,465 103,042
-------- --------
NET OPERATING INCOME......................................... 18,047 15,069
-------- --------

OTHER INCOME:
Other income and deductions, net........................... 330 73
Income taxes............................................... (131) 142
-------- --------
Other income, net of taxes............................... 199 215
-------- --------
INCOME BEFORE INTEREST CHARGES............................... 18,246 15,284
-------- --------

INTEREST CHARGES:
Interest on long-term debt................................. 9,595 10,054
Other interest and amortization of debt-related costs...... 888 1,417
-------- --------
Total interest charges................................... 10,483 11,471
-------- --------
NET INCOME................................................... 7,763 3,813
Dividends on preferred stock and other....................... 5 36
-------- --------
INCOME APPLICABLE TO COMMON STOCK............................ $ 7,758 $ 3,777
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-36
<PAGE>

TEXAS-NEW MEXICO POWER COMPANY, INC. AND SUBSIDIARIES
(A wholly owned subsidiary of TNP Enterprises, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------
2000 1999
--------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales to customers.................... $ 102,460 $105,001
Purchased power and fuel costs paid...................... (63,613) (62,523)
Cash paid for payroll and to other suppliers............. (23,538) (22,504)
Interest paid, net of amounts capitalized................ (14,626) (11,447)
Income taxes refunded.................................... 4,508 4,000
Other taxes paid......................................... (17,146) (18,089)
Other operating cash receipts and payments, net.......... 13 158
--------- --------
NET CASH USED IN OPERATING ACTIVITIES..................... (11,942) (5,404)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant............................... (9,200) (11,692)
Withdrawals from escrow account.......................... -- 1,902
--------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES................... (9,200) (9,790)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks............ (18) (36)
Borrowings from (repayments to) revolving credit
facilities--net......................................... 21,000 (31,000)
Issuances:
Senior notes, net of discount.......................... -- 174,164
Deferred expenses associated with financings............. -- (1,280)
Redemptions:
Secured debentures..................................... -- (130,000)
Preferred stock, net of gain........................... (117) --
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES................. 20,865 11,848
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS................... (277) (3,346)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......... 4,002 7,977
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $ 3,725 $ 4,631
========= ========
RECONCILIATION OF NET INCOME TO NET CASH USED IN OPERATING
ACTIVITIES:
Net income............................................... $ 7,763 $ 3,813
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation........................................... 10,230 9,974
Charge for recovery of stranded plant.................. 1,629 3,750
Purchased power settlement adjustment.................. (2,425) --
Amortization of debt-related costs and other deferred
charges............................................... 957 1,881
Allowance for funds used during construction........... (82) (78)
Deferred income taxes.................................. 1,980 (2,125)
Investment tax credits................................. (401) 894
Deferred purchased power and fuel costs................ (2,535) (587)
Cash flows impacted by changes in current assets and
liabilities:
Accounts payable....................................... (2,662) (6,310)
Accrued interest....................................... (4,958) (1,112)
Accrued taxes.......................................... (2,635) (4,075)
Reserve for customer refund............................ 838 (8,511)
Changes in other current assets and liabilities........ (20,186) (3,048)
Other, net............................................... 545 130
--------- --------
NET CASH USED IN OPERATING ACTIVITIES..................... $ (11,942) $ (5,404)
========= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-37
<PAGE>

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary Of TNP Enterprises, Inc.)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
March 31, 2000 December 31,
(Unaudited) 1999
-------------- ------------
(In thousands)
<S> <C> <C>
ASSETS
UTILITY PLANT:
Electric plant.................................... $1,293,720 $1,288,080
Construction work in progress..................... 4,093 2,501
---------- ----------
Total........................................ 1,297,813 1,290,581
Less accumulated depreciation..................... 390,203 382,627
---------- ----------
Net utility plant............................ 907,610 907,954
---------- ----------
OTHER PROPERTY AND INVESTMENTS, at cost 213 213
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents......................... 3,725 4,002
Accounts receivable............................... 6,985 6,347
Inventories, at lower of average cost or market:
Fuel............................................ 1,235 575
Materials and supplies.......................... 3,897 3,834
Other current assets.............................. 438 660
---------- ----------
Total current assets......................... 16,280 15,418
---------- ----------
LONG-TERM AND OTHER ASSETS:
Recoverable stranded costs........................ 19,029 19,256
Deferred purchased power and fuel costs........... 24,332 21,797
Deferred charges.................................. 18,714 19,757
---------- ----------
Total long-term and other assets............. 62,075 60,810
---------- ----------
$ 986,178 $ 984,395
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Common stock--$10 par value per share
Authorized 12,000,000 shares; issued 10,705
shares....................................... $ 107 $ 107
Capital in excess of par value.................. 222,149 222,149
Retained earnings............................... 98,061 90,302
---------- ----------
Total common shareholders' equity............ 320,317 312,558
Redeemable cumulative preferred stock............. 1,534 1,664
Long-term debt, less current maturities........... 361,264 340,244
---------- ----------
Total capitalization......................... 683,115 654,466
---------- ----------
CURRENT LIABILITIES:
Current maturities of long-term debt.............. 100,000 100,000
Accounts payable.................................. 17,412 20,074
Accrued interest.................................. 3,430 8,388
Accrued taxes..................................... 11,554 14,189
Customers' deposits............................... 3,890 3,786
Accumulated deferred income taxes................. 9,321 8,434
Reserve for customer refund....................... 1,520 682
Other current liabilities......................... 8,864 28,015
---------- ----------
Total current liabilities.................... 155,991 183,568
---------- ----------
LONG-TERM AND OTHER LIABILITIES:
Regulatory tax liabilities........................ 6,509 6,633
Accumulated deferred income taxes................. 96,381 95,165
Accumulated deferred investment tax credits....... 23,578 23,978
Deferred credits.................................. 20,604 20,585
---------- ----------
Total long-term and other liabilities........ 147,072 146,361
---------- ----------
COMMITMENTS AND CONTINGENCIES......................
---------- ----------
$ 986,178 $ 984,395
========== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-38
<PAGE>

TNP ENTERPRISES INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Interim Financial Statements

The interim consolidated financial statements of TNP and subsidiaries, and
TNMP and subsidiaries, are unaudited and contain all adjustments (consisting
primarily of normal recurring accruals) necessary for a fair statement of the
results for the interim periods presented. Results for interim periods are not
necessarily indicative of results to be expected for a full year or for
previously reported periods due in part to seasonal revenue fluctuations. It is
suggested that these consolidated financial statements be read in conjunction
with the audited consolidated financial statements and notes thereto included
in TNP's and TNMP's 1999 Combined Annual Report on Form 10-K.

Prior period statements have been reclassified in order to be consistent
with current period presentation. The reclassification had no effect on net
income or common shareholders equity.

Note 2. Acquisition

On March 14, 2000, the process of obtaining needed approvals for the Merger
was completed. On April 7, 2000, ST Acquisition Corp., a Texas corporation (ST
Corp.) merged with and into TNP, the parent of TNMP. Upon closing, each
outstanding share of TNP's common stock that was outstanding at the effective
time of the merger was automatically converted into the right to receive $44.00
in cash. Prior to the merger, TNP common stock was traded on the New York Stock
Exchange. As a result of the Merger, TNP is no longer publicly held.

The merger occurred pursuant to an Agreement and Plan of Merger (Merger
Agreement) dated May 24, 1999, between TNP, ST Corp. and SW Acquisition, L.P.
("SW Acquisition"), the parent of ST Corp. TNP is the surviving corporation in
the Merger. SW Acquisition now holds all outstanding common stock of TNP.

SW Acquisition and ST Corp. funded the merger as follows (in millions):

<TABLE>
<S> <C>
Sources of funding:
Equity contribution to ST Corp. by SW Acquisition............... $100.0
Sale of 100,000 shares of senior preferred stock by ST Corp..... 100.0
Borrowings from senior secured credit facility by ST Corp....... 160.0
Issuance of senior subordinated notes by ST Corp................ 275.0
Cash on hand (TNP).............................................. 5.3
------
Total......................................................... $640.3
======
Uses of funding:
Payment of Merger consideration................................. $591.6
Costs and expenses related to Merger............................ 48.7
------
Total......................................................... $640.3
======
</TABLE>

The senior preferred stock was issued in a private placement under a bridge
preferred stock commitment. Until the bridge preferred stock is replaced with a
permanent issuance of senior preferred stock, it will accrue dividends at a
rate based off of LIBOR, with the initial dividend rate set at 13.28%. If the
senior preferred stock has not been replaced by July 7, 2000, the dividend rate
will increase by an additional 100 basis points. Further delays in permanently
placing the stock will cause the dividend rate to increase an additional 50
basis points on October 5, 2000 and January 3, 2001, with the rate being fixed
at 18% beginning April 8, 2001. TNP

F-39
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

intends to replace the bridge preferred stock with a senior preferred stock
that pays an in-kind dividend. The borrowings from the senior secured credit
facility include a $160 million term loan due in 2006. The term loan bears
interest at a variable rate that is currently 9.21%. The senior secured credit
facility is secured by a pledge of all TNMP common stock held by TNP. The
senior subordinated notes were issued through a private offering, bear interest
at 10.25% per year, and mature in 2010.

In connection with the Merger, TNMP entered into a Backstop Credit Facility
(Backstop Facility) in the amount of $240 million on April 17, 2000. The
Backstop Facility will provide financing for TNMP to repurchase up to $100
million of its 9.25% Series U first mortgage bonds and up to $140 million of
its 10.75% Series A Secured Debentures. As required by its first mortgage bond
and secured debenture indentures, TNMP must offer to repurchase this debt at
101 percent of par value due to the change in control of TNP resulting from the
Merger. TNMP made such an offer in late April 2000, and holders have until May
24, 2000, to respond. Payment on tendered bonds and debentures shall be made
within five business days of the offer's expiration.

The Merger is to be accounted for under the purchase method of accounting. In
accordance with the purchase method of accounting, the purchase price will be
allocated to the acquired assets and assumed liabilities based on their fair
values and the unallocated amount will be recorded as goodwill. The process of
determining the fair value of assets and liabilities is underway, and the final
results will not be completed until certain information about pre-acquisition
contingencies is assessed. The most significant items to be determined include
the appropriate value to assign to TNP's sole generating plant and the amount
of regulatory assets to be recorded for recovery of stranded costs as permitted
by Texas legislation.

F-40
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following condensed unaudited pro forma consolidated balance sheet shows
the effect of the Merger closing as if it had occurred on March 31, 2000. The
condensed unaudited pro forma consolidated statements of income and loss show
the effects of the Merger closing as if it had occurred on January 1, 2000 and
1999, respectively. These pro forma financial statements are based on a
preliminary estimate of the fair value of assets acquired and liabilities
assumed in connection with the Merger. These results are not necessarily
indicative of actual results that would have occurred had the Merger closed at
the beginning of the periods presented. Further, the pro forma results are not
intended to be a projection of future results of operations. A substantial
portion of TNMP's earnings occur during the second and third quarters of the
year, which include the periods of peak electricity usage in the TNMP service
territory.

TNP ENTERPRISES, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED BALANCE SHEET

As of March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Actual Adjustment Balance
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
ASSETS
Net utility plant......................... $ 907,634 $ -- (1) $ 907,634
Other property and investments, at cost... 4,243 -- 4,243
Current assets............................ 26,677 (5,343)(7) 21,334
Long-term and other assets................
Recoverable stranded costs.............. 19,029 -- (1) 19,029
Deferred charges........................ 18,775 299,960 (2) 318,735
Other................................... 24,332 -- 24,332
---------- --------- ----------
$1,000,690 $ 294,617 $1,295,307
========== ========= ==========
CAPITALIZATION AND LIABILITIES
Common stock.............................. $ 197,887 $(104,574)(3) $ 93,313
Retained earnings......................... 133,771 (133,771)(4) --
Preferred stock........................... 1,534 100,000 (5) 101,534
Long-term debt, less current maturities... 361,264 435,000 (6) 796,264
---------- --------- ----------
Total capitalizaton..................... 694,456 296,655 991,111
Current liabilities....................... 156,131 (2,038)(8) 154,093
Long-term and other liabilities........... 150,103 -- 150,103
---------- --------- ----------
$1,000,690 $ 294,617 $1,295,307
========== ========= ==========
</TABLE>

Adjustments:

(1) TNP is currently assessing the fair value of TNP One and its other
assets as required by the purchase method of accounting.

F-41
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(2) Adjustment to record goodwill and other deferred charges resulting from
the merger. The amount is calculated as follows:

<TABLE>
<S> <C>
Merger consideration paid...................................... $591,602
Direct expenses................................................ 22,865
Less: estimated fair value of assets acquired, net of
liabilities assumed........................................... 327,873
--------
Goodwill....................................................... 286,594
Capitalized financing fees..................................... 13,366
--------
$299,960
========

(3) Adjustment to eliminate TNP equity and record $100 million equity
contribution from SW Acquisition, less preferred stock issuance costs
of $6.7 million.

(4) Adjustment to eliminate TNP retained earnings.

(5) Adjustment to record issuance of $100 million of senior preferred stock
by ST Corp.

(6) Adjustment to reflect issuance of debt related to the Merger as
follows:

Senior secured credit facility................................. $160,000
Senior subordinated notes...................................... 275,000
--------
$435,000
========
</TABLE>

(7) Reflects the net cash effect from the preceding pro forma adjustments.

(8) Tax effects related to certain goodwill items.

F-42
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)

For The Three Months Ended March 31, 2000
(Unaudited)

Net operating income.......................... 17,439 757 18,196
Other income, net of taxes.................... 334 -- 334
-------- -------- --------
Income before interest charges................ 17,773 757 18,530
Interest charges.............................. 10,514 11,166 (4) 21,680
-------- -------- --------
Net income (loss)............................. 7,259 (10,409) (3,150)
Dividends on preferred stock and other........ 5 3,320 (5) 3,325
-------- -------- --------
Income (loss) applicable to common stock...... $ 7,254 $(13,729) $ (6,475)
======== ======== ========
</TABLE>

F-43
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)

For the Three Months Ended March 31, 1999
(Unaudited)

<TABLE>
<CAPTION>
Pro Forma Pro Forma
Actual Adjustment Balance
-------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Operating revenues............................ $118,125 $ -- $118,125
-------- -------- --------
Operations and maintenance expense............ 81,197 380 (1) 81,577
Depreciation and amortization................. 9,974 2,866 (2) 12,840
Income taxes.................................. 712 (4,041)(3) (3,329)
Other operating expenses...................... 11,750 -- 11,750
-------- -------- --------
Total operating expenses.................... 103,633 (795) 102,838
-------- -------- --------
Net operating income.......................... 14,492 795 15,287
Other income, net of taxes.................... 281 -- 281
-------- -------- --------
Income before interest charges................ 14,773 795 15,568
Interest charges.............................. 11,641 11,166 (4) 22,807
-------- -------- --------
Net income (loss)............................. 3,132 (10,371) (7,239)
Dividends on preferred stock and other........ 36 3,320 (5) 3,356
-------- -------- --------
Income (loss) applicable to common stock...... $ 3,096 $(13,691) $(10,595)
======== ======== ========
</TABLE>

F-44
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)

For the Twelve Months Ended December 31, 1999
(Unaudited)

<TABLE>
<CAPTION>
Pro Forma Pro Forma
Actual Adjustment Balance
-------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Operating revenues........................... $576,150 $ -- $576,150
-------- -------- --------
Operations and maintenance expense........... 386,221 (1,435)(1) 384,786
Depreciation and amortization................ 39,295 11,464 (2) 50,759
Income taxes................................. 19,120 (15,130)(3) 3,990
Other operating expenses..................... 57,122 -- 57,122
-------- -------- --------
Total operating expenses................... 501,758 (5,101) 496,657
-------- -------- --------
Net operating income......................... 74,392 5,101 79,493
Other income, net of taxes................... (482) -- (482)
-------- -------- --------
Income before interest charges............... 73,910 5,101 79,011
Interest charges............................. 43,743 44,663 (4) 88,406
-------- -------- --------
Net income (loss)............................ 30,167 (39,562) (9,395)
Dividends on preferred stock and other....... (19) 13,280 (5) 13,261
-------- -------- --------
Income (loss) applicable to common stock..... $ 30,186 $(52,842) $(22,656)
======== ======== ========
</TABLE>
--------
Adjustments:

(1) Reflects pro forma TNP expenses, excluding one-time Merger expenses, as
follows:

<TABLE>
<CAPTION>
Three
Months Twelve Months
Ended Ended
March 31, December 31,
---------- --------------
2000 1999 1999
---- ---- --------------
<S> <C> <C> <C>
TNP expenses:
Salaries and benefits....................... $544 $544 $ 2,177
Rent and utilities.......................... 96 96 384
Miscellaneous............................... 29 29 116
---- ---- -------
Subtotal...................................... 669 669 2,677
One-time Merger expenses...................... (230) (289) (4,112)
---- ---- -------
$439 $380 $(1,435)
==== ==== =======
</TABLE>

(2) Reflects amortization of goodwill over a 25-year amortization period.
(3) Income tax effect of pro forma adjustments, excluding non-deductible
goodwill.

F-45
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(4) Adjustment to interest expense reflects the following:

<TABLE>
<CAPTION>
Three Months Twelve Months
Ended Ended
March 31, December 31,
2000 and 1999 1999
------------- -------------
<S> <C> <C>
Senior subordinated notes at 10.25 percent.. $ 7,047 $28,189
Term loan at 9.21 percent................... 3,685 14,738
Fees on unused senior secured credit
facility at 0.5 percent.................... 31 124
Amortization of capitalized financing fees.. 403 1,612
------- -------
$11,166 $44,663
======= =======
</TABLE>

(5) Adjustment to record estimated preferred stock dividend at 13.28%.

Note 3. Regulatory Matters

During 1999, legislation was passed in both Texas and New Mexico that
establishes retail competition for generation operations. Retail competition is
currently scheduled to begin in New Mexico and Texas on January 1, 2001, and
January 1, 2002, respectively. The legislation in both states contains
provisions that affect TNMP's operations. The impact of those provisions will
be noted as necessary in the following discussion.

Texas

Excess Earnings. As discussed in TNMP's 1999 Annual Report on Form 10-K,
TNMP has operated since 1998 with an earnings cap that provided for excess
earnings to be used, in part, to recover stranded costs. During 1998, TNMP's
Transition Plan directed the method for sharing of excess earnings. In 1999,
legislation was passed in Texas, which also provides for stranded cost recovery
through use of earnings in excess of an allowed rate of return.

1998 Excess Earnings. In its original 1998 earnings report filing, TNMP
reported that it had not earned in excess of the 11.25% return on equity
established in the Transition Plan. On May 3, 2000, the Public Utility
Commission of Texas (PUCT) issued a final order resolving two issues raised by
the PUCT's Office of Regulatory Affairs on August 16, 1999. The PUCT held in
favor of TNMP that the effects of a 1999 refinancing should not be
retroactively applied to 1998, but should be applied starting with the 1999
earnings report. However, the PUCT ordered TNMP to defer a $4.8 million
purchased power dispute payment it made in 1998, and to amortize it over a
four-year period, beginning in 1998 and ending in 2001. Accordingly, in March
2000 TNMP recorded a regulatory asset of $2.4 million, the unamortized balance
of the $4.8 million payment and a corresponding reduction to purchased power
expense.

Based on the adjustment discussed above, TNMP earned $1.2 million more than
the earnings cap for 1998. In accordance with the Transition Plan, the excess
earnings will be shared equally between customer refunds and stranded cost
recovery.

1999 Excess Earnings. On March 30, 2000, TNMP filed its Annual Report
pursuant to (S)39.257 of the Public Utility Regulatory Act. The Annual Report
details TNMP's calculation of excess earnings under the provisions of the
legislation passed in 1999. The Annual Report showed that TNMP earned $22.0
million in excess of the 10.53% return on rate base established in the
legislation. That amount is $1.4 million lower than

F-46
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the $23.4 million TNMP had accrued for excess earnings as of December 31, 1999.
The difference is attributable to the amortization of the 1998 purchased power
settlement described above.

2000 Excess Earnings. TNMP has recorded estimated excess earnings of $2.0
million for the three months ended March 31, 2000.

Unbundled Cost of Service Filing. The legislation requires TNMP to file a
rate case that will set rates for the transmission and distribution company
that will provide regulated services once competition begins in 2002. On March
31, 2000, TNMP filed its Unbundled Cost of Service Filing (UCOS) with the PUCT.
The filing proposes tariffs under which Retail Electric Providers (REPs) will
be able to purchase transmission and distribution services after December 31,
2001 in TNMP's service area. The tariffs are based upon a projected cost of
service of $150.3 million. The cost of service includes TNMP's projected
reasonable and necessary expenses, and return on its transmission and
distribution rate base at a 9.11% weighted average cost of capital.

The filing also includes a proposed Competition Transition Charge (CTC), as
required by the legislation. The CTC is designed to recover stranded costs
related to TNMP's generation assets and purchased power contracts, as
determined by a PUCT-established model. In its filing, TNMP calculated Economic
Cost over Market (ECOM) in the amount of $194.4 million would remain at January
1, 2002. In addition, TNMP expects the PUCT to address certain issues related
to its January 2000 Business Separation Plan filing in the UCOS.

The PUCT has proposed a schedule for TNMP's UCOS that contemplates a
settlement conference in August 2000, hearings in October 2000, if no
settlement is reached, a preliminary decision in February 2001, and final
orders in August 2001.

Fuel Reconciliation. At March 31, 2000, TNMP had an under-recovered balance
of fuel and the energy-related portion of purchased power costs of $24.3
million. PUCT rules require TNMP to reconcile its fuel and energy-related
purchased power costs at least every three years. In June 2000, TNMP plans to
file with the PUCT to recover and reconcile fuel and energy-related purchased
power expenses. TNMP will request an increase to the fuel factor based on
projected fuel and energy-related purchased power costs. TNMP will also request
an interim surcharge to begin recovery of TNMP's under recovered costs as of
March 31, 2000. Management believes the ultimate outcome of this fuel
reconciliation will not have a material adverse effect on TNP's or TNMP's
consolidated financial position.

New Mexico

1999 Rate Case. TNMP and the NMPRC Staff reached a settlement in this case,
which was filed in June 1999, and have submitted the settlement to the NMPRC
for approval. The settlement calls for a decrease in TNMP's base rates of $1.8
million, or 6%, effective October 1, 1999. TNMP has reserved $0.9 million
related to the base rate reductions through March 31, 2000. TNMP expects the
NMPRC to act on the proposed settlement during the second quarter of 2000.

Restructuring. The New Mexico Legislature opened the state's electric power
market to consumer choice with the passage of the Electric Utility Industry
Restructuring Act of 1999 (the Act) in April 1999. The Act provides for the
phase-in of retail choice beginning January 1, 2001, and guarantees recovery of
at least 50 percent of a utility's stranded costs over a five-year period. The
Act also requires utilities to disaggregate their regulated transmission and
distribution business activities from their generation operations, which will
be subject to competition. TNMP is required to file its plan for complying with
the Act by June 1, 2000.

F-47
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 4. Segment and Related Information

TNP's principal subsidiary, TNMP, has two reportable segments, Texas and New
Mexico. TNP manages the segments separately to respond to the differing
operational and regulatory climates in the two states.

<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
----------------------------------------------
All Other and
Texas New Mexico Eliminations Consolidated
-------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Operating revenues............. $104,449 $20,063 $ 14 $ 124,526
Net income (loss).............. 7,106 657 (504) 7,259
Total assets at March 31,
2000.......................... 823,261 84,349 93,080 1,000,690

<CAPTION>
Three Months Ended March 31, 1999
----------------------------------------------
All Other and
Texas New Mexico Eliminations Consolidated
-------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Operating revenues............. $ 98,994 $19,117 $ 14 $ 118,125
Net income (loss).............. 3,194 619 (681) 3,132
Total assets at December 31,
1999.......................... 823,565 84,389 93,245 1,001,199
</TABLE>

Note 5. Commitments and Contingencies

Legal Actions

Phillips Petroleum. TNMP is the defendant in a suit styled Phillips
Petroleum Company vs. Texas-New Mexico Power Company, filed on October 1, 1997
and pending in the 149th State District Court of Brazoria County, Texas. The
suit, which is in the discovery stage, is based on events surrounding an
interruption of electricity to a petroleum refinery and related facilities that
occurred in May 1997. Phillips Petroleum Company is seeking the recovery of
damages arising from the interruption and in May 1999 demanded payment in the
amount of $47.1 million. TNMP's tariff approved by the PUCT contains
limitations against recovery of the great majority of Phillip's alleged
damages. The Texas Supreme Court, in another matter, has recently upheld the
enforceability of such tariff limitations in litigation of this type; TNMP
believes the ruling will operate to substantially limit any recovery by
Phillips to the cost of its electrical equipment, in the event that any damages
are awarded in this matter. Discovery has not sufficiently progressed to
quantify any damages to Phillips' electrical equipment; however, Phillips has
previously reported to the SEC that it incurred costs of approximately $2.0
million in this interruption. In May 1999, TNMP filed a Third Party Petition
naming Sweeny Cogeneration Limited Partnership, the operator of cogeneration
and related facilities at the Phillips refinery, as a defendant. TNMP has
previously charged to earnings the deductible amount of its insurance coverage,
$500,000.

Power Resource Group. TNMP is a defendant in a suit styled Power Resource
Group, Inc. v. Public Utility Commission of Texas and Texas-New Mexico Power
Company, pending in the 345th District Court of Travis County, Texas. This
lawsuit, which was originally filed on May 21, 1999, appeals the PUCT's
dismissal of a regulatory case that Power Resource Group, Inc. (PR Group) had
filed against TNMP. PR Group is a developer of electric generating plants that
are intended to be qualifying cogeneration facilities. This lawsuit and the
regulatory case it appeals both stem from discontinued negotiations for power
supply. PR Group alleged that TNMP was required to buy power to be generated
from an as-yet-unbuilt cogeneration facility. TNMP filed its original answer
with the court on June 28, 1999.

F-48
<PAGE>

TNP ENTERPRISES, INC. AND SUBSIDIARIES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

TNMP is involved in various claims and other legal proceedings arising in
the ordinary course of business. In the opinion of management, the ultimate
dispositions of these matters will not have a material adverse effect on TNMP's
and TNP's consolidated financial position or results of operations.

F-49
<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

We have not authorized any dealer, salesperson or other person to give any
information or represent anything to you other than the information contained
in this prospectus. You must not rely on unauthorized information or
representations.

This prospectus does not offer to sell or ask for offers to buy any of the
securities in any jurisdiction where it is unlawful, where the person making
the offer is not qualified to do so, or to any person who cannot legally be
offered the securities. The information in this prospectus is current only as
of the date on its cover, and may change after that date. For any time after
the date on the cover of this prospectus, we do not represent that our affairs
are the same as described or that the information in this prospectus is
correct--nor do we imply those things by delivering this prospectus or selling
securities to you.

---------------

Dealer Prospectus Delivery Obligation

Until February 9, 2000, all broker dealers that effect transactions in the
registered notes, whether or not participating in the exchange offer, may be
required to deliver a prospectus. This is in addition to the broker-dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to any unsold allotments or subscriptions.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

$275,000,000

[LOGO OF TNP ENTERPRISES, INC.]

Offer to exchange

10.25% Senior Subordinated Notes,

Series A

------------

PROSPECTUS

------------

July 14, 2000

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 20. Indemnification of Directors and Officers

The Texas Business Corporation Act permits, and in some cases requires,
corporations to indemnify officers, directors, agents and employees who are or
have been a party to or are threatened to be made a party to litigation against
judgments, penalties (including excise and similar taxes), fines, settlements
and reasonable expenses under certain circumstances.

The Amended and Restated Articles of Incorporation of TNP, state that "no
director of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this article does not eliminate or limit
the liability of a director to the extent the director is found liable for: (a)
a breach of the director's duty of loyalty to the Corporation or its
shareholders; (b) an act or omission not in good faith that constitutes a
breach of duty of the director to the Corporation or an act or omission that
involves intentional misconduct or a knowing violation of the law; (c) a
transaction from which the director received an improper benefit, whether or
not the benefit resulted from an action taken within the scope of the
director's office; (d) an act or omission for which the liability of a director
is expressly provided for by an applicable statute."

The Amended and Restated Bylaws of TNP, state that the Company shall
indemnify every Director, officer, employee or former Director, officer or
employee of the Company, or any person who has served at the Company's request
as a Director, officer or employee of another Company in which the Company owns
shares of stock, against, and reimburse and advance to every Director, officer
and employee or former Director, officer or employee for, all liabilities,
costs and expenses incurred in connection with such directorship, office or
employment and any actions taken or omitted in such capacity to the greatest
extent permitted under the Texas Business Corporation Act and other applicable
laws at the time of such indemnification, reimbursement or advance payment."

Item 21. Exhibits and Financial Schedule Tables

(a) Exhibits:

A list of exhibits included as part of this registration statement is set
forth in the Exhibit Index that immediately precedes such exhibits and is
incorporated herein by reference.

(b) Financial Statement Schedules:

All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required, are inapplicable or the required information has already
been provided elsewhere in the registration statement.

No such Reports, Opinions or Appraisals are applicable to this registration
statement.

Item 22. Undertakings

(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d)of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

II-1
<PAGE>

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the Trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of such Act.

(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within business one day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.

(c) The undersigned Registrant hereby undertakes to supply by means of a
post effective amendment all information concerning a transaction, and the
company being acquired involved herein, that was not subject of and included in
the registration statement when it became effective.

II-2
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fort
Worth, State of Texas, June 1, 2000.

TNP ENTERPRISES, INC.

/s/ Theodore A. Babcock
By: _________________________________
Theodore A. Babcock
Chief Financial Officer

POWER OF ATTORNEY

Each person whose signature appears below hereby authorizes and appoints
Theodore A. Babcock as his or her attorney-in-fact, with full power of
substitution and resubstitution to sign and file on his or her behalf
individually and in each such capacity stated below any and all amendments and
post-effective amendments to this Registration Statement and any registration
statement of the company relating to registered notes filed after the date
hereof pursuant to Rule 462(b) under the Securities Act of 1933, as amended, as
fully as such person could do in person, hereby verifying and confirming all
that said attorney-in-fact, or his substitutes, may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ * President, Chief Executive June 1, 2000
____________________________________ Officer and Director
William J. Catacosinos (Principal Executive
Officer)

/s/ * Chief Financial Officer June 1, 2000
____________________________________ (Principal Financial
Theodore A. Babcock Officer)

/s/ * Director June 1, 2000
____________________________________
Kevern R. Joyce

/s/ * Director June 1, 2000
____________________________________
Leeam Lowin

/s/ * Director June 1, 2000
____________________________________
Preston M. Geren III
</TABLE>

<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Purchase Agreement, dated as of March 31, 2000, among ST Acquisition
Corp., CIBC World Markets Corp., Chase Securities Inc. and Barclays
Capital Inc. (Exhibit 1.1, Form S-4, filed June 6, 2000)
2.1* Agreement and Plan of Merger, dated as of May 24, 1999, by and among
SW Acquisition, L.P., ST Acquisition Corp. and TNP Enterprises, Inc.
(Exhibit 2, Form 8-K filed June 7, 1999).
3.1* Amended and Restated Articles of Incorporation of TNP Enterprises,
Inc. (Exhibit 3(a)(i) in Form
10-Q filed May 12, 2000).
3.2* Amended and Restated Bylaws of TNP Enterprises, Inc. (Exhibit 3(a)(ii)
in Form 10-Q filed May 12, 2000).
4.1* Indenture, dated as of April 7, 2000, between ST Acquisition Corp. and
The Bank of New York, as Trustee. (Exhibit 4-A, Form 8-K filed April
7, 2000).
4.2* First Supplemental Indenture, dated as of April 7, 2000, between the
Registrant and The Bank of New York, as Trustee. (Exhibit 4-B, Form 8-
K filed April 7, 2000).
4.3* Form of 10.25% Senior Subordinated Exchange Note of the Registrant.
(included in Exhibit 4.1 hereto).
4.4* Registration Rights Agreement, dated as of April 7, 2000, among ST
Acquisition Corp., CIBC World Markets Corp., Chase Securities Inc. and
Barclays Capital Inc. (Exhibit 4(b)(i) in Form 10-Q filed May 12,
2000).
4.5* Assumption Agreement, dated as of April 7, 2000, by TNP Enterprises,
Inc. (filed with Form 10-Q filed May 12, 2000).
5.1 Legality Opinion of Milbank, Tweed, Hadley & McCloy LLP.
8.1 Opinion of Milbank, Tweed, Hadley & McCloy LLP regarding Tax Matters.
12.1* Statement Regarding Computation of Ratios of Earnings to Fixed
Charges. (Exhibit 12.1, Form S-4, filed June 6, 2000)
21.1* Subsidiaries of the Registrant. (Exhibit 21.1, Form S-4, filed June 6,
2000)
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Milbank, Tweed, Hadley & McCloy LLP. (included in Exhibit
5.1).
24.1 Power of Attorney (included in Part II of this Registration
Statement).
25.1 Form T-1 Statement of Eligibility.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
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* Previously filed with the SEC