-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H9oC1COXCWRZYbdsBM00i4qJH/SkzcSdjzi8SWeKjQJoy/w2Hu2O7xTE52CI/5zQ bNllsMEjJ4h0D06ILwFzpw== 0000930661-98-001115.txt : 19980514 0000930661-98-001115.hdr.sgml : 19980514 ACCESSION NUMBER: 0000930661-98-001115 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: EL PASO ELECTRIC CO /TX/ CENTRAL INDEX KEY: 0000031978 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 740607870 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00296 FILM NUMBER: 98618153 BUSINESS ADDRESS: STREET 1: 303 N OREGON ST CITY: EL PASO STATE: TX ZIP: 79901 BUSINESS PHONE: 9155435711 10-Q 1 FORM 10-Q ================================================================================ FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____ COMMISSION FILE NUMBER 0-296 EL PASO ELECTRIC COMPANY (Exact name of registrant as specified in its charter) TEXAS 74-0607870 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Kayser Center, 100 North Stanton, El Paso, Texas 79901 (Address of principal executive offices) (Zip Code) (915) 543-5711 (Registrant's telephone number, including area code) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND REPORTS REQUIRED TO BE FILED BY SECTIONS 12, 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A COURT. YES X NO --- --- AS OF MAY 1, 1998, THERE WERE 60,272,270 SHARES OF THE COMPANY'S NO PAR VALUE COMMON STOCK OUTSTANDING. ================================================================================ EL PASO ELECTRIC COMPANY INDEX TO FORM 10-Q Page No. ------------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets - March 31, 1998 and December 31, 1997.................1 Statements of Operations - Three Months and Twelve Months Ended March 31, 1998 and 1997........................................3 Statements of Comprehensive Operations - Three Months and Twelve Months Ended March 31, 1998 and 1997..........................4 Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997.............................................................5 Notes to Financial Statements.........................................6 Independent Auditor's Review Report..................................12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................13 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................19 Item 6. Exhibits and Reports on Form 8-K..............................19 i PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EL PASO ELECTRIC COMPANY BALANCE SHEETS
ASSETS MARCH 31, (IN THOUSANDS) 1998 DECEMBER 31, (UNAUDITED) 1997 ---------------- --------------- UTILITY PLANT: Electric plant in service.............................................. $1,540,204 $1,538,572 Less accumulated depreciation and amortization......................... 185,703 164,283 ---------- ---------- Net plant in service................................................. 1,354,501 1,374,289 Construction work in progress.......................................... 51,421 43,761 Nuclear fuel; includes fuel in process of $2,339 and $9,910, respectively................................................. 88,647 86,609 Less accumulated amortization.......................................... 45,682 40,142 ---------- ---------- Net nuclear fuel..................................................... 42,965 46,467 ---------- ---------- Net utility plant.................................................. 1,448,887 1,464,517 ---------- ---------- CURRENT ASSETS: Cash and temporary investments......................................... 113,468 111,227 Accounts receivable, principally trade, net of allowance for doubtful accounts of $5,162 and $5,124, respectively................. 53,326 58,960 Inventories, at cost................................................... 27,447 27,130 Net undercollection of fuel revenues................................... 12,679 13,870 Prepayments and other.................................................. 9,714 6,930 ---------- ---------- Total current assets............................................... 216,634 218,117 ---------- ---------- LONG-TERM CONTRACT RECEIVABLE............................................ 26,559 27,659 ---------- ---------- DEFERRED CHARGES AND OTHER ASSETS: Accumulated deferred income taxes, net................................. 37,692 43,208 Decommissioning trust fund............................................. 40,576 38,438 Other.................................................................. 20,180 20,674 ---------- ---------- Total deferred charges and other assets............................ 98,448 102,320 ---------- ---------- TOTAL ASSETS....................................................... $1,790,528 $1,812,613 ========== ========== See accompanying notes to financial statements.
1 EL PASO ELECTRIC COMPANY BALANCE SHEETS (Continued)
CAPITALIZATION AND LIABILITIES MARCH 31, (IN THOUSANDS EXCEPT FOR SHARE DATA) 1998 DECEMBER 31, (UNAUDITED) 1997 ---------------- ---------------- CAPITALIZATION: Common stock, stated value $1 per share, 100,000,000 shares authorized, 60,101,891 and 60,060,034 shares issued and outstanding; and 174,893 and 196,404 restricted shares, respectively.............. $ 60,277 $ 60,256 Capital in excess of stated value..................................... 241,363 241,222 Unearned compensation--restricted stock awards........................ (885) (1,138) Accumulated earnings.................................................. 76,476 69,484 Accumulated other comprehensive income (loss) (unrealized gains (losses) on marketable securities)............................ 213 (184) ---------- ---------- Common stock equity............................................... 377,444 369,640 Preferred stock, cumulative, no par value, 2,000,000 shares authorized: Redemption required--1,247,747 and 1,213,188 shares issued and and outstanding, respectively; at liquidation preference........ 124,775 121,319 Long-term debt........................................................ 872,280 938,562 Financing and capital lease obligations............................... 25,333 28,248 ---------- ---------- Total capitalization............................................ 1,399,832 1,457,769 ---------- ---------- CURRENT LIABILITIES: Current maturities of long-term debt and financing and capital lease obligations........................................... 64,148 28,463 Accounts payable, principally trade................................... 22,950 24,957 Taxes accrued other than federal income taxes......................... 19,590 19,292 Interest accrued...................................................... 19,799 21,172 Other................................................................. 18,820 17,439 ---------- ---------- Total current liabilities....................................... 145,307 111,323 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES: Decommissioning....................................................... 96,321 94,917 Accrued postretirement benefit liability.............................. 76,593 75,531 Accrued pension liability............................................. 33,824 33,909 Other................................................................. 38,651 39,164 ---------- ---------- Total deferred credits and other liabilities.................... 245,389 243,521 ---------- ---------- COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES............................ $1,790,528 $1,812,613 ========== ========== See accompanying notes to financial statements.
2 EL PASO ELECTRIC COMPANY STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS EXCEPT FOR SHARE DATA)
THREE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, MARCH 31, -------------------------- -------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ OPERATING REVENUES: Base revenues................................................ $ 107,300 $ 103,654 $ 462,625 $ 462,115 Fuel revenues and economy sales.............................. 28,486 30,960 127,698 123,548 Other........................................................ 1,159 1,243 4,803 4,261 ----------- ----------- ----------- ----------- 136,945 135,857 595,126 589,924 ----------- ----------- ----------- ----------- ENERGY EXPENSES: Fuel......................................................... 25,482 28,466 110,473 111,018 Purchased and interchanged power............................. 3,164 2,786 20,508 19,246 ----------- ----------- ----------- ----------- 28,646 31,252 130,981 130,264 ----------- ----------- ----------- ----------- OPERATING REVENUES NET OF ENERGY EXPENSES...................... 108,299 104,605 464,145 459,660 ----------- ----------- ----------- ----------- OTHER OPERATING EXPENSES: Other operations............................................. 32,570 30,964 133,522 129,996 Maintenance.................................................. 8,202 9,429 33,555 37,406 Depreciation and amortization................................ 22,227 21,905 89,057 89,715 Taxes other than income taxes................................ 11,360 11,074 43,637 42,658 ----------- ----------- ----------- ----------- 74,359 73,372 299,771 299,775 ----------- ----------- ----------- ----------- OPERATING INCOME............................................... 33,940 31,233 164,374 159,885 ----------- ----------- ----------- ----------- OTHER INCOME (DEDUCTIONS): Investment income............................................ 2,635 1,109 7,621 5,069 Litigation settlement, net................................... - - 7,500 - Settlement of bankruptcy professional fees................... 376 (413) 1,151 1,892 Gain on sale of investment................................... - - - 3,844 Other, net................................................... (26) (290) (390) (895) ----------- ----------- ----------- ----------- 2,985 406 15,882 9,910 ----------- ----------- ----------- ----------- INCOME BEFORE INTEREST CHARGES................................. 36,925 31,639 180,256 169,795 ----------- ----------- ----------- ----------- INTEREST CHARGES (CREDITS): Interest on long-term debt................................... 20,336 22,225 84,228 94,261 Other interest............................................... 1,765 1,620 6,345 6,523 Interest capitalized and deferred............................ (1,621) (1,350) (6,146) (5,645) ----------- ----------- ----------- ----------- 20,480 22,495 84,427 95,139 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES..................................... 16,445 9,144 95,829 74,656 INCOME TAX EXPENSE............................................. 5,930 3,552 36,869 28,834 ----------- ----------- ----------- ----------- INCOME BEFORE EXTRAORDINARY LOSS ON REPURCHASES OF DEBT.......................................... 10,515 5,592 58,960 45,822 EXTRAORDINARY LOSS ON REPURCHASES OF DEBT, NET OF FEDERAL INCOME TAX BENEFIT................................... - (2,244) - (2,244) ----------- ----------- ----------- ----------- NET INCOME..................................................... 10,515 3,348 58,960 43,578 PREFERRED STOCK DIVIDEND REQUIREMENTS.......................... 3,523 3,149 13,518 12,085 ----------- ----------- ----------- ----------- Net income applicable to common stock.......................... $ 6,992 $ 199 $ 45,442 $ 31,493 =========== =========== =========== =========== BASIC EARNINGS PER COMMON SHARE: Income before extraordinary loss on repurchases of debt...... $ 0.116 $ 0.040 $ 0.756 $ 0.561 Extraordinary loss on repurchases of debt, net of federal income tax benefit................................ - (0.037) - (0.037) ----------- ----------- ----------- ----------- Net income................................................ $ 0.116 $ 0.003 $ 0.756 $ 0.524 =========== =========== =========== =========== DILUTED EARNINGS PER COMMON SHARE: Income before extraordinary loss on repurchases of debt...... $ 0.116 $ 0.040 $ 0.753 $ 0.560 Extraordinary loss on repurchases of debt, net of federal income tax benefit................................ - (0.037) - (0.037) ----------- ----------- ----------- ----------- Net income................................................ $ 0.116 $ 0.003 $ 0.753 $ 0.523 =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING........... 60,164,142 60,113,585 60,140,972 60,086,144 =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND DILUTIVE POTENTIAL COMMON SHARES OUTSTANDING................. 60,443,574 60,350,268 60,353,532 60,183,093 =========== =========== =========== =========== See accompanying notes to financial statements.
3 EL PASO ELECTRIC COMPANY STATEMENTS OF COMPREHENSIVE OPERATIONS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, MARCH 31, ----------------------- ---------------------- 1998 1997 1998 1997 ----------- ---------- ----------- ---------- NET INCOME................................................ $10,515 $3,348 $58,960 $43,578 OTHER COMPREHENSIVE INCOME (LOSS): Net unrealized gain (loss) on marketable securities, less applicable income tax benefit (expense) of $(213), $125, $(115) and $(65), respectively...... 397 (232) 213 120 ------- ------ ------- ------- COMPREHENSIVE INCOME...................................... 10,912 3,116 59,173 43,698 PREFERRED STOCK DIVIDEND REQUIREMENTS..................... 3,523 3,149 13,518 12,085 ------- ------ ------- ------- COMPREHENSIVE INCOME (LOSS) APPLICABLE TO COMMON STOCK......................................... $ 7,389 $ (33) $45,655 $31,613 ======= ====== ======= ======= See accompanying notes to financial statements.
4 EL PASO ELECTRIC COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ----------------------------- 1998 1997 ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................................ $ 10,515 $ 3,348 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................... 28,184 27,082 Deferred income taxes, net...................................... 5,302 3,272 Other operating activities...................................... 1,222 645 Extraordinary loss on repurchases of debt, net of federal income tax benefit........................................... - 2,244 Change in: Accounts receivable............................................. 5,634 6,981 Federal income tax receivable................................... - 17,219 Inventories..................................................... (317) 503 Prepayments and other........................................... (2,784) 1,750 Long-term contract receivable................................... 1,100 826 Accounts payable................................................ (2,007) (10,875) Interest accrued................................................ (1,373) (2,774) Net undercollection of fuel revenues............................ 1,191 (4,204) Other current liabilities....................................... 1,959 782 Deferred charges and credits.................................... 1,603 3,721 --------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES..................... 50,229 50,520 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant........................................ (12,686) (23,838) Investment in decommissioning trust fund.......................... (1,528) (1,411) Other investing activities........................................ 79 19 --------- -------- NET CASH USED FOR INVESTING ACTIVITIES........................ (14,135) (25,230) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repurchases of and payments on long-term debt..................... (29,554) (53,181) Net proceeds from (repayments of) financing obligations........... (3,494) 3,844 Redemption of capital lease obligations........................... (770) (739) Other financing activities........................................ (35) - --------- -------- NET CASH USED FOR FINANCING ACTIVITIES........................ (33,853) (50,076) --------- -------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY INVESTMENTS........... 2,241 (24,786) CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF PERIOD............... 111,227 68,767 --------- -------- CASH AND TEMPORARY INVESTMENTS AT END OF PERIOD..................... $ 113,468 $ 43,981 ========= ======== See accompanying notes to financial statements.
5 EL PASO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) A. PRINCIPLES OF PREPARATION Pursuant to the rules and regulations of the Securities and Exchange Commission, certain financial information has been condensed and certain footnote disclosures have been omitted. Such information and disclosures are normally included in financial statements prepared in accordance with generally accepted accounting principles. These condensed financial statements should be read in conjunction with the financial statements and notes thereto in the Annual Report of El Paso Electric Company (the "Company") on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K"). Capitalized terms used in this report and not defined herein have the meaning ascribed for such terms in the 1997 Form 10-K. In the opinion of management of the Company, the accompanying financial statements contain all adjustments necessary to present fairly the financial position of the Company at March 31, 1998 and December 31, 1997; the results of operations for the three and twelve months ended March 31, 1998 and 1997; and cash flows for the three months ended March 31, 1998 and 1997. The results of operations for the three and twelve months ended March 31, 1998 are not necessarily indicative of the results to be expected for the full calendar year. SUPPLEMENTAL STATEMENTS OF CASH FLOW DISCLOSURES (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, --------------------------------- 1998 1997 ---------------- --------------- Cash (refunded) paid for: Income taxes, net................................ $ - $(17,219) Interest......................................... 18,991 21,999 Reorganization items--professional fees and other............................... 1,273 155 Non-cash investing and financing activities: Issuance of preferred stock for pay-in-kind dividend......................... 3,456 3,089 Issuance of restricted shares of common stock................................. 195 59
6 EL PASO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) RECONCILIATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE The reconciliation of basic and diluted earnings per common share before extraordinary items is presented below:
THREE MONTHS ENDED MARCH 31, ------------------------------------------------------------------------ 1998 1997 ----------------------------------- ----------------------------------- PER PER COMMON COMMON INCOME SHARES SHARE INCOME SHARES SHARE -------------- ---------- ------- -------------- ---------- ------- (In thousands) (In thousands) Income before extraordinary item..... $10,515 $5,592 Less: Preferred stock dividends.... 3,523 3,149 ------- ------ Basic earnings per common share: Income applicable to common stock.............................. 6,992 60,164,142 $0.116 2,443 60,113,585 $0.040 ====== ====== Effect of dilutive securities: Unvested restricted stock........... - 16,434 - 16,596 Stock options....................... - 262,998 - 220,087 ------- ---------- ------ ---------- Diluted earnings per common share: Income applicable to common stock.............................. $ 6,992 60,443,574 $0.116 $2,443 60,350,268 $0.040 ======= ========== ======= ====== ========== =======
TWELVE MONTHS ENDED MARCH 31, ------------------------------------------------------------------------ 1998 1997 ----------------------------------- ----------------------------------- PER PER COMMON COMMON INCOME SHARES SHARE INCOME SHARES SHARE -------------- ---------- ------- -------------- ---------- ------- (In thousands) (In thousands) Income before extraordinary item..... $58,960 $45,822 Less: Preferred stock dividends.... 13,518 12,085 ------- ------- Basic earnings per common share: Income applicable to common stock.............................. 45,442 60,140,972 $0.756 33,737 60,086,144 $0.561 ====== ====== Effect of dilutive securities: Unvested restricted stock........... - 23,050 - 19,742 Stock options....................... - 189,510 - 77,207 ------- ---------- ------- ---------- Diluted earnings per common share: Income applicable to common stock.............................. $45,442 60,353,532 $0.753 $33,737 60,183,093 $0.560 ======= ========== ====== ======= ========== ======
7 EL PASO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) B. RATE MATTERS For a full discussion of the Company's rate matters, see Note B of Notes to Financial Statements in the 1997 Form 10-K. NEW MEXICO RATE MATTERS Pending Rate Case. In October 1996, the New Mexico Commission issued an order in Case No. 2722, requiring the Company to answer certain ratepayer complaints and to file a rate filing package, including cost of service data and supporting testimony. On March 3, 1997, the Company filed with the New Mexico Commission all of the rate filing package data required by the Commission's order. Although the Company's filing demonstrates a revenue deficiency of approximately $8.6 million under current rates, the Company did not request a rate change to recover the deficiency. On April 17, 1998, testimony was filed by the New Mexico Commission staff and intervenors which included recommendations based on (i) traditional original cost ratemaking and (ii) revaluation of the Company's generating assets. The recommendations ranged from the staff's proposed 5.2% reduction (approximately $4 million) in total jurisdictional base revenues, based on original cost ratemaking, to the City of Las Cruces' proposed 12% reduction in jurisdictional base rates (approximately $9.2 million), based on projected future declining costs. The New Mexico Commission could order a rate reduction, which could be more or less than the parties' recommendations, or, alternatively, in response to economic factors and regulatory, political and competitive pressures, the Company could agree to a rate reduction. Prosecution of the rate case before the New Mexico Commission is expected to be completed before the end of 1998. The Company is unable at this time to predict the outcome of this proceeding. FEDERAL REGULATORY MATTERS In September 1996, one of the wholesale power marketers that submitted a bid in 1996 to the Comision Federal de Electricidad de Mexico ("CFE") in connection with renewal of the interchange agreement for the supply of power during 1997 to Ciudad Juarez, Mexico, filed a complaint against the Company with the Federal Energy Regulatory Commission ("FERC"). The complaint sought emergency relief and requested the FERC to direct the Company to enter into an agreement to provide firm point-to-point transmission service to the CFE under the Company's open access transmission tariff. In October 1996, the FERC issued an order requiring the Company to provide point-to-point transmission service over the Company's transmission system to substation facilities near the United States/Mexico border. The FERC, however, concurred with the Company's position that the FERC does not have jurisdiction to order transmission across the border, suggesting that the Department of Energy ("DOE") has such jurisdiction. The DOE subsequently issued a Notice of Delegation and Assignment which delegated to the FERC the DOE's authority to carry out its duties in this case. The Company responded by asserting its belief that the DOE does not have authority to require transmission access for delivery of power to the CFE, however, the Company agreed to provide access, to the extent transmission capacity is available to a winning bidder other than the Company, pending resolution of this jurisdictional dispute. 8 EL PASO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) In April 1998, the FERC issued its order in this proceeding, finding that the DOE has the authority, which has now been delegated to the FERC, to require the Company to provide open access transmission service, upon a finding that so doing would be in the public interest. Accordingly, the FERC has ordered the Company to revise its open transmission tariff to provide non-discriminatory open access transmission service over the United States portion of the lines connecting the Company's Diablo and Ascarate substations in the United States with the Insurgentes and Riverena substations in Mexico. There are currently no pending transmission requests for cross-border transactions. C. COMMITMENTS AND CONTINGENCIES For a full discussion of commitments and contingencies, including environmental matters related to the Company, see Note H of Notes to Financial Statements in the 1997 Form 10-K. In addition, see Note C of Notes to Financial Statements in the 1997 Form 10-K regarding matters related to Palo Verde, including liability and insurance matters, decommissioning and the operation of steam generators. D. LITIGATION For a full discussion of litigation, see Note I of Notes to Financial Statements in the 1997 Form 10-K. LITIGATION WITH LAS CRUCES Las Cruces is attempting to replace the Company as the electric service provider in Las Cruces by acquiring, through condemnation or a negotiated purchase, the distribution assets and other facilities used to provide electric service to customers in Las Cruces. Sales to customers in Las Cruces represent approximately 8% of the Company's operating revenues. In April 1995, Las Cruces filed a complaint against the Company in the District Court for Dona Ana County, New Mexico, seeking a declaratory judgment that Las Cruces has a right of eminent domain to condemn the electric distribution system and related facilities owned and operated by the Company within and adjacent to the city limits that provide or assist in the provision of electricity within the municipal boundaries of Las Cruces. In May 1995, the Company removed the case to federal district court in New Mexico. Following a trial on the merits, the Federal Magistrate granted the Company's motion to certify to the New Mexico Supreme Court the question as to whether Las Cruces possesses the authority to condemn the Company's property for use as a municipal utility when that property is already devoted to public use. The New Mexico Supreme Court heard oral arguments in February 1997, but prior to issuing a ruling, the New Mexico legislature enacted a bill which purports to give Las Cruces the authority to condemn the Company's distribution system within its city limits and a territory extending five miles beyond the municipal boundary. In February 1998, the New Mexico Supreme Court ruled that the subsequent legislation rendered moot the certified question before the Supreme Court. In April 1998, the Federal Magistrate also dismissed the case as moot. On 9 EL PASO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) February 26, 1998, the Company received notice from Las Cruces of its intent to file a condemnation action in New Mexico district court. The Company is currently evaluating how to respond to the Federal Magistrate's ruling. If Las Cruces succeeds in its efforts to condemn the Company's distribution system, the Company could lose its Las Cruces customer base, although the Company would be entitled to receive "just compensation" as established by New Mexico law. "Just compensation" is generally defined as the amount of money that would fairly compensate the party whose property is condemned. It is the Company's opinion that this amount would be the difference between the value of the Company's entire system prior to the taking, as compared to the value of the entire system after the taking. See Note B of Notes to Financial Statements in the 1997 Form 10-K for a full discussion of stranded costs. Las Cruces has taken several actions to position itself to acquire portions of the Company's distribution system and certain related facilities. In August 1994, Southwestern Public Service Company ("SPS") and Las Cruces entered into an agreement granting SPS the right to provide all of the electric power and energy required by Las Cruces if it succeeds in its efforts to obtain the Company's distribution system. In addition, Las Cruces sold approximately $73 million in revenue bonds in October 1995 to provide funding to finance the acquisition by condemnation or negotiated purchase of the Company's electrical distribution assets within and adjacent to the Las Cruces city limits. The Company has filed a lawsuit in the Dona Ana County District Court and is pursuing a complaint simultaneously before the New Mexico Commission challenging the legality of the sale of the revenue bonds. In addition, the New Mexico Commission is investigating the agreement between SPS and Las Cruces which, under certain circumstances, would grant Las Cruces an option to sell to SPS electric utility assets acquired through condemnation. In August 1996, the Dona Ana County District Court issued an opinion letter stating that Section 3-23-3 of the New Mexico Municipal Code is inapplicable to home rule municipalities and Las Cruces, therefore, was not required to acquire the New Mexico Commission's approval before issuing revenue bonds to acquire utility property. However, the Court did agree with the Company that the revenue bonds, in this case backed by utility revenues, are subject to the same requirements as those imposed on other revenue bonds backed by gross receipts tax revenues. Therefore, if the Court's finding of the applicability of Las Cruces' home rule authority is overturned on appeal, the Company's position that the issuance of the bonds required prior approval could be upheld. The Company filed an appeal with the New Mexico Court of Appeals and Las Cruces requested an expedited ruling from the Court of Appeals. In August 1997, the New Mexico Court of Appeals certified to the New Mexico Supreme Court the issues related to Las Cruces' authority to issue the revenue bonds. Oral argument before the Supreme Court was held in November 1997. In July 1996, Las Cruces exercised its right under Order No. 888 to request that the Company calculate Las Cruces' stranded cost obligation should it leave the Company's system and operate its own municipal utility. The Company's initial non-binding calculation was provided within the statutory period. Las Cruces subsequently filed a request at the FERC for a determination that Las Cruces would have no stranded cost obligation to the Company or, in the alternative, that the FERC convene a hearing to establish the amount of any stranded costs. In August 1997, the FERC issued an order 10 EL PASO ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS (UNAUDITED) denying Las Cruces' request for a determination that Las Cruces would have no stranded cost obligation, and providing for evidentiary hearings on the following stranded costs issues: (i) whether the Company has met the "reasonable expectation" standard so as to justify recovery of stranded costs from Las Cruces; and (ii) if so, the amount of stranded costs that the Company may recover from Las Cruces. An evidentiary hearing on these issues was held before an administrative law judge of the FERC in February 1998. The Company submitted evidence in that proceeding showing that it was entitled to recover stranded generation costs from Las Cruces of $101 million. In contrast, the FERC staff recommended that the Company be permitted to recover stranded costs of $37.0 million, and Las Cruces claimed that its stranded cost obligation was in the range of $0 to $17.4 million. The issues in that proceeding are currently being briefed by the parties, and the process is expected to continue throughout 1998. In April 1997, Las Cruces announced its plan to build a substation and distribution lines to serve a new customer in a city-owned industrial park. Las Cruces stated that SPS would construct, operate and maintain the new substation facility, and that the rates for this new customer would be significantly lower than the Company's current rates. Las Cruces has approved a contract with SPS to provide operation and maintenance services for the proposed Las Cruces electric distribution system, substations and associated transmission facilities. The Company continues to believe that it can provide lower cost electric service to customers in Las Cruces than can be achieved through a municipal takeover. Accordingly, the Company has stated its strong preference for a resolution of its differences with Las Cruces through negotiation rather than litigation and condemnation. A negotiated settlement of the Company's pending rate case in New Mexico could include a reduction in rates or a settlement of all issues in New Mexico, which would likely create increased political and economic pressure on the Company to reduce rates in Texas. The Company is unable to predict the outcome of Las Cruces' efforts to replace the Company as its electric service provider or the effects it may have on the Company's financial position, results of operations and cash flows. The Company does not believe it is probable that a loss has been incurred and, therefore, has made no provision in the accompanying financial statements related to these matters. 11 Independent Auditors' Review Report ----------------------------------- The Shareholders and the Board of Directors El Paso Electric Company: We have reviewed the accompanying condensed balance sheet of El Paso Electric Company (the Company) as of March 31, 1998, the related condensed statements of operations and comprehensive operations for the three months and twelve months ended March 31, 1998 and 1997 and the related condensed statements of cash flows for the three months ended March 31, 1998 and 1997. These condensed financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of El Paso Electric Company as of December 31, 1997, and the related statements of operations, comprehensive operations, changes in common stock equity, and cash flows for the year then ended (not presented herein); and in our report dated February 6, 1998, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 1997, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. KPMG Peat Marwick LLP El Paso, Texas April 23, 1998 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in this Item 2 updates, and should be read in conjunction with, the information set forth in Part II, Item 7 of the Company's 1997 Form 10-K. Statements in this document, other than statements of historical information, are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, as well as other oral and written forward-looking statements made by or on behalf of the Company from time to time, including statements contained in the Company's filings with the Securities and Exchange Commission and its reports to stockholders, involve known and unknown risks and other factors which may cause the Company's actual results in future periods to differ materially from those expressed in any forward-looking statements. Any such statement is qualified by reference to the risks and factors discussed below under the headings "Operational and Prospects and Challenges" and "Liquidity and Capital Resources" and in the Company's filings with the Securities and Exchange Commission, which are available from the Securities and Exchange Commission or which may be obtained upon request from the Company. The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company. OPERATIONAL PROSPECTS AND CHALLENGES While the Company prepares for a new era of deregulation and competition in the electric utility industry, the Rate Stipulation provides a certain level of stability in the rates that the Company currently charges the majority of its customers. During the Freeze Period, the Company's strategic goals include (i) serving the growing need for electricity within its retail service territory; (ii) continuing to focus on its strategic location on the border with Mexico; (iii) enhancing long-term relationships with its largest retail customers; (iv) continuing to reduce operating costs; and (v) developing an energy-related services business. The Company faces a number of challenges which could negatively impact its operations during the Freeze Period. The primary challenge is the risk of increased costs, including the risk of additional or unanticipated costs at Palo Verde resulting from (i) increases in operation and maintenance expenses; (ii) the possible replacement of steam generators; (iii) an extended outage of any of the Palo Verde units; (iv) increases in estimates of decommissioning costs; (v) the storage of radioactive materials; and (vi) compliance with the various requirements and regulations governing commercial nuclear generating stations. There can be no assurance that the Company's revenues will be sufficient to recover any increased costs incurred during the Freeze Period, including any such increased costs in connection with Palo Verde or increases in other costs of operation, whether as a result of higher than anticipated levels of inflation, changes in tax laws or regulatory requirements, or other causes. Another risk to the Company's operations is the potential loss of customers. The Company's wholesale and large retail customers have, in varying degrees, additional alternate sources of economical power, including co-generation of electric power. For example, a 504 MW combined-cycle generating plant located in Samalayuca, Chihuahua, which is scheduled to be fully operational by the end of 1998, when the Company's current power contract expires, will give the CFE the current capacity to supply electricity to portions of northern Chihuahua, including the geographic area currently served by the Company. If the Company loses a significant portion of its retail customer base or wholesale sales, the Company may not be able to replace such revenues through either the addition of new customers or an 13 increase in rates to remaining customers. The New Mexico State Legislature has passed legislation which gives Las Cruces the apparent legal authority to condemn the Company's distribution system and related assets located within its city limits, and the Company has received notice from Las Cruces of its intent to file an eminent domain proceeding. If Las Cruces succeeds in its efforts, the Company could lose its Las Cruces customer base, although the Company would receive "just compensation" as established by the court. In recent years, the United States has closed a large number of military bases and there can be no assurance that Holloman Air Force Base ("Holloman"), White Sands Missile Range ("White Sands") or the United States Army Air Defense Center at Fort Bliss ("Ft. Bliss") will not be closed in the future or that the Company will not lose all or some of its military base sales. The Company's sales to the military bases represent approximately 3% of operating revenues. The Company signed a contract with Ft. Bliss in August 1996, under which Ft. Bliss will take service from the Company through 1999, with the right thereafter to continue service on a year-to-year basis for two years. The Company has a contract to provide retail electric service to Holloman for a ten-year term which began in December 1995. In August 1996, the Army advised the Company that White Sands would continue to purchase retail electric service from the Company pursuant to the existing retail service contract for an indefinite period. The Army will provide the Company written notice of termination of such contract not less than one year in advance of the termination date. The Company does not currently have an agreement with New Mexico regulatory authorities or parties to past New Mexico regulatory proceedings comparable to the Rate Stipulation. The Company is currently involved in a proceeding before the New Mexico Commission in which the level of its rates is being examined. The New Mexico Commission could, after hearing, order a rate reduction, which could be more or less than the parties' recommendations, or, alternatively, in response to regulatory, political and competitive pressures, the Company could agree to a rate reduction. Any such agreement by the Company would likely create increased political and economic pressure on the Company to reduce rates in Texas. Prosecution of the case before the New Mexico Commission is expected to be completed in 1998. The Company is unable at this time to predict with certainty the outcome of this proceeding. The Company faces the same concerns as most other companies that use computers relating to the Year 2000 problem. The problem is that many computer applications do not correctly differentiate a one year difference between the years 1999 and 2000. Applications that are date sensitive may not properly calculate information or may not function. The Company began working on the Year 2000 computer concern during the last quarter of 1996. To allow adequate time for additional testing and correction, the Company is attempting to either (i) revise current computer systems to be Year 2000 compliant, or (ii) replace systems with new ones that are Year 2000 compliant by the end of 1998. Incremental costs of the project are anticipated to be immaterial as the Company is using internal resources to modify and test programs. The Company anticipates spending approximately $1.8 million to revise current computer systems and is expensing such amount as incurred. Because of the integrated nature of the Company's business with other utilities and its joint facilities operated by other utilities, the Company is inquiring about and reviewing the activities of the other utilities which comprise the integrated system. In addition, the Company is inquiring about and reviewing the activities of its financial institutions and major suppliers to determine their compliance with Year 2000 issues. Given the complex nature of this problem and the potential overlap with systems 14 beyond the Company's control, the Company cannot assure that it will not experience some difficulty relating to the Year 2000 problem. Finally, the electric utility industry in general is facing significant challenges and increased competition as a result of changes in federal provisions relating to third-party transmission services and independent power production, as well as potential changes in state regulatory provisions relating to wholesale and retail service. Both the Texas and New Mexico Commissions have conducted proceedings related to industry restructuring and stranded cost recovery; however, restructuring legislation has yet to be passed in either state. The potential effects of deregulation are particularly important to the Company because its rates are significantly higher than the national and regional averages. In the face of increased competition, there can be no assurance that such competition will not adversely affect the future operations, cash flow and financial condition of the Company. LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity requirements through the end of the decade are expected to consist of interest and principal payments on the Company's indebtedness and capital expenditures related to the Company's generating facilities and transmission and distribution systems. The Company expects that cash flows from operations will be sufficient for such purposes. Long-term capital requirements of the Company will consist primarily of construction of electric utility plant, payment of interest on and retirement of debt, and payment of dividends on and redemption of preferred stock. The Company has no current plans to construct any new generating capacity through at least 2004. Utility construction expenditures will consist primarily of expanding and updating the transmission and distribution systems and the cost of betterments and improvements to Palo Verde and other generating facilities. The Company anticipates that internally generated funds will be sufficient to meet its construction requirements, provide for the retirement of debt and redemption of preferred stock at maturity and enable the Company to meet other contingencies that may exist, such as compliance with environmental regulation, pending litigation and any claims for indemnification. At March 31, 1998, the Company had approximately $113.5 million in cash and cash equivalents. The Company also has a $100 million revolving credit facility, which provides up to $60 million for nuclear fuel purchases and up to $50 million (depending on the amount of borrowings outstanding for nuclear fuel purchases) for working capital needs. At March 31, 1998, approximately $48.5 million had been drawn for nuclear fuel purchases. No amounts have been drawn on this facility for working capital needs. The Company has a high debt-to-capitalization ratio and significant debt service obligations. Due to the Rate Stipulation and competitive pressures, the Company does not expect to be able to raise its base rates in the event of increases in nonfuel costs or loss of revenues. Accordingly, soon after its emergence from bankruptcy, the Company established debt reduction as a high priority in order to gain additional financial flexibility to address the evolving competitive market. The Company has significantly reduced its long-term debt following the Reorganization. From June 1, 1996 through March 31, 1998, the Company repurchased approximately $230.3 million of first mortgage bonds as part of an aggressive deleveraging program and has reduced its annual interest expense by approximately $17.9 million. Long-term indebtedness as a percentage of capitalization was reduced from 74% at June 30, 1996 to 64% at March 31, 1998. 15 The Company continues to believe that the orderly reduction of debt with a goal of achieving a capital structure that is more typical in the electric utility industry and, ultimately, an investment grade rating, is a significant component of long-term shareholder value creation. Accordingly, the Company will regularly evaluate market conditions and, when appropriate, use a portion of its available cash to reduce its fixed obligations through open market purchases of first mortgage bonds. However, the significant amount of debt reduction that the Company has achieved since the Reorganization, and the need for cash both to meet upcoming bond maturities and, if appropriate, early redemption of the Series A Preferred Stock, may result in a lower volume of repurchases in the future. Accordingly, the Company may experience a net increase in cash as it evaluates the comparative economic value of using excess cash for purposes other than open market purchases of its first mortgage bonds. The degree to which the Company is leveraged could have important consequences on the Company's liquidity, including (i) the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate or other purposes could be limited in the future; (ii) a substantial portion of the Company's cash flow from operations will be dedicated to the payment of principal and interest on its indebtedness and, if appropriate, the early redemption of its Series A Preferred Stock; and (iii) the Company's substantial leverage may place the Company at a competitive disadvantage by limiting its financial flexibility to respond to the demands of the competitive market and make it more vulnerable to adverse economic or business changes. RESULTS OF OPERATIONS Net income applicable to common stock before extraordinary item was approximately $7.0 million, or $0.12 diluted earnings per common share, for the three months ended March 31, 1998, compared with $2.4 million, or $0.04 diluted earnings per common share, for the same period a year ago. For the twelve months ended March 31, 1998, net income applicable to common stock before extraordinary item was approximately $45.4 million, or $0.75 diluted earnings per common share, compared with $33.7 million, or $0.56 diluted earnings per common share for the same period a year ago. Operating revenues net of energy expenses increased $3.7 million and $4.5 million for the three and twelve months ended March 31, 1998 compared to the same periods last year, primarily due to increased KWH sales. The twelve-month increase was also due to increased revenue per KWH from the CFE. Comparisons of KWH sales and operating revenues are shown below (In thousands):
THREE MONTHS ENDED MARCH 31: INCREASE/(DECREASE) - ---------------------------- -------------------------- 1998 1997 AMOUNT PERCENT --------------- --------------- -------------------------- Electric KWH Sales: Retail Customers........................ 1,326,074 1,271,729 54,345 4.3% Other Utilities......................... 459,334 384,756 74,578 19.4 ---------- ---------- ---------- Total.................................. 1,785,408 1,656,485 128,923 7.8 ========== ========== ========== Operating Revenues: Retail Customers........................ $ 110,739 $ 113,313 $ (2,574) (2.3)% Other Utilities......................... 26,206 22,544 3,662 16.2 ---------- ---------- ---------- Total.................................. $ 136,945 $ 135,857 $ 1,088 0.8 ========== ========== ==========
16
TWELVE MONTHS ENDED MARCH 31: INCREASE/(DECREASE) - ----------------------------- -------------------------- 1998 1997 AMOUNT PERCENT --------------- --------------- -------------------------- Electric KWH Sales: Retail Customers........................ 5,838,792 5,673,203 165,589 2.9% Other Utilities......................... 1,972,463 1,782,458 190,005 10.7 ---------- ---------- -------- Total.................................. 7,811,255 7,455,661 355,594 4.8 ========== ========== ======== Operating Revenues: Retail Customers........................ $ 495,294 $ 484,349 $ 10,945 2.3% Other Utilities......................... 99,832 105,575 (5,743) (5.4) ---------- ---------- -------- Total.................................. $ 595,126 $ 589,924 $ 5,202 0.9 ========== ========== ========
Other operations and maintenance expense increased $0.4 million for the three months ended March 31, 1998 compared to the same period last year as a result of increased operations expense of $1.6 million partially offset by a decrease of $1.2 million in maintenance expenses. The increased operations expense was primarily due to a $0.9 million increase in professional fees related to regulatory issues and an additional accrual for sick leave of $0.7 million. The decrease in maintenance expense was primarily due to a $1.1 million decrease in maintenance costs at a Company-owned generating plant. Other operations and maintenance expense decreased $0.3 million for the twelve months ended March 31, 1998 compared to the same period last year as a result of decreased maintenance expense of $3.9 million offset by an increase of $3.5 million in operations expense. The decrease in maintenance expense was primarily due to a $1.4 million decrease in maintenance expense at Palo Verde due to the timing and duration of refueling and maintenance outages and a $1.2 million decrease in maintenance costs at a Company-owned generating plant. The increase in operations expense was primarily due to a $2.8 million increase in professional fees related to regulatory issues and a $2.2 million employee bonus in 1997 offset in part by a $2.7 million decrease in operations expense at Palo Verde. Depreciation and amortization expense was essentially unchanged for the three and twelve months ended March 31, 1998 compared to the same periods last year. Taxes other than income taxes increased $0.3 million and $1.0 million for the three and twelve months ended March 31, 1998, respectively, compared to the same periods last year, primarily due to an increase in Texas property taxes resulting from changes in regulatory operating income and an increase in payroll taxes. The increase was partially offset by a decrease in Arizona property taxes resulting from a 1996 regulatory plant write-down and depreciation. Other income increased $2.6 million for the three months ended March 31, 1998 compared to the same period last year primarily as a result of increased investment income of $1.5 million, due to increased levels of cash, and an increase of $0.8 million due to favorable settlements of bankruptcy professional fees. Other income increased $6.0 million for the twelve month period ended March 31, 1998 when compared to the same period last year due to a favorable litigation settlement in June 1997 of $7.5 million, net of legal fees and expenses, and increased investment income of $2.6 million due to increase levels of cash. These increases were partially offset by a gain on sale of investment of $3.8 million in August 1996. 17 Interest charges decreased $2.0 million and $10.7 million for the three and twelve months ended March 31, 1998 compared to the same periods last year, primarily due to a reduction in outstanding debt as a result of open market purchases of the Company's first mortgage bonds. Income tax expense increased $2.4 million and $8.0 million for the three and twelve months ended March 31, 1998, respectively, compared to the same periods last year, primarily due to changes in pretax income including a favorable litigation settlement and certain permanent differences. Extraordinary loss on repurchases of debt for the three and twelve months ended March 31, 1997 represents the payment of premiums on debt repurchased and the recognition of unamortized issuance expenses on that debt of $2.2 million, net of federal income tax benefit of $1.2 million, with no comparable amounts for the same periods in 1998. 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company hereby incorporates by reference the information set forth in Part I of this report under Note D of Notes to Financial Statements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: See Index to Exhibits incorporated herein by reference. (b) Reports on Form 8-K: None 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EL PASO ELECTRIC COMPANY By: /s/ Gary R. Hedrick --------------------------------------- Gary R. Hedrick Vice President, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial Officer) Dated: May 13, 1998 20 EL PASO ELECTRIC COMPANY INDEX TO EXHIBITS Exhibit Number Exhibit ------ ------- 11 Statement re Computation of Per Share Earnings 15 Letter re Unaudited Interim Financial Information 27 Financial Data Schedule (EDGAR filing only) +99.01 Form of Stock Option Agreement between the Company and certain key officers of the Company. 99.02 Stock Option Agreement, dated as of January 3, 1998, with Terry D. Bassham. 99.03 Stock Option Agreement, dated as of January 3, 1998, with John C. Horne. ++99.04 Form of Restricted Stock Award Agreement between the Company and certain key officers of the Company. 99.05 Restricted Stock Award Agreement, dated as of April 6, 1998, with Robert C. McNiel. 99.06 Restricted Stock Award Agreement, dated as of March 23, 1998, with Susanne M. Sickles. 99.07 Restricted Stock Award Agreement, dated as of April 6, 1998, with Guillermo Silva, Jr. 99.08 Restricted Stock Award Agreement, dated as of March 23, 1998, with Pedro Serrano, Jr. 99.09 Restricted Stock Award Agreement, dated as of March 24, 1998, with Thomas L. Newsom. 99.10 Restricted Stock Award Agreement, dated as of March 19, 1998, with John A. Whitacre. 99.11 Restricted Stock Award Agreement, dated as of March 25, 1998, with Terry D. Bassham. 99.12 Restricted Stock Award Agreement, dated as of March 30, 1998, with Eduardo A. Rodriguez. 99.13 Restricted Stock Award Agreement, dated as of March 20, 1998, with Gary R. Hedrick. 99.14 Restricted Stock Award Agreement, dated as of March 25, 1998, with John C. Horne. 21 + Four agreements, substantially identical in all material respects to this Exhibit, have been entered into with J. Frank Bates; Michael L. Blough; Gary R. Hedrick; and Eduardo A. Rodriguez, officers of the Company. ++ Two agreements, substantially identical in all material respects to this Exhibit, have been entered into with Julius F. Bates and Michael L. Blough, officers of the Company. 22 EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 EL PASO ELECTRIC COMPANY COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS EXCEPT FOR SHARE DATA)
THREE MONTHS ENDED MARCH 31, ----------------------------- 1998 1997 ------------ ------------ NET INCOME APPLICABLE TO COMMON STOCK: Income before extraordinary loss on repurchases of debt $ 6,992 $ 2,443 Extraordinary loss on repurchases of debt, net of federal income tax benefit -- (2,244) ------------ ------------ Net income applicable to common stock $ 6,992 $ 199 ============ ============ BASIC EARNINGS PER COMMON SHARE: Weighted average number of common shares outstanding 60,164,142 60,113,585 ============ ============ Net income per common share: Income before extraordinary loss on repurchases of debt $ 0.116 $ 0.040 Extraordinary loss on repurchases of debt, net of federal income tax benefit -- (0.037) ------------ ------------ Net income $ 0.116 $ 0.003 ============ ============ DILUTED EARNINGS PER COMMON SHARE: Weighted average number of common shares outstanding 60,164,142 60,113,585 ------------ ------------ Effect of dilutive potential common stock options based on the treasury stock method using average market price: Quarter ended March 31 262,998 220,087 Quarter ended June 30 -- -- Quarter ended September 30 -- -- Quarter ended December 31 -- -- Effect of dilutive potential restricted common stock based on the treasury stock method using average market price: Quarter ended March 31 16,434 16,596 Quarter ended June 30 -- -- Quarter ended September 30 -- -- Quarter ended December 31 -- -- ------------ ------------ 279,432 236,683 Divided by number of quarters 1 1 ------------ ------------ Net effect of dilutive potential common stock 279,432 236,683 ------------ ------------ Weighted average number of common shares and dilutive potential common shares outstanding 60,443,574 60,350,268 ============ ============ Net income per common share: Income before extraordinary loss on repurchases of debt $ 0.116 $ 0.040 Extraordinary loss on repurchases of debt, net of federal income tax benefit -- (0.037) ------------ ------------ Net income $ 0.116 $ 0.003 ============ ============
TWELVE MONTHS ENDED MARCH 31, ----------------------------- 1998 1997 ------------ ------------ NET INCOME APPLICABLE TO COMMON STOCK: Income before extraordinary loss on repurchases of debt $ 45,442 $ 33,737 Extraordinary loss on repurchases of debt, net of federal income tax benefit -- (2,244) ------------ ------------ Net income applicable to common stock $ 45,442 $ 31,493 ============ ============ BASIC EARNINGS PER COMMON SHARE: Weighted average number of common shares outstanding 60,140,972 60,086,144 ============ ============ Net income per common share: Income before extraordinary loss on repurchases of debt $ 0.756 $ 0.561 Extraordinary loss on repurchases of debt, net of federal income tax benefit -- (0.037) ------------ ------------ Net income $ 0.756 $ 0.524 ============ ============ DILUTED EARNINGS PER COMMON SHARE: Weighted average number of common shares outstanding 60,140,972 60,086,144 ------------ ------------ Effect of dilutive potential common stock options based on the treasury stock method using average market price: Quarter ended March 31 262,998 220,087 Quarter ended June 30 177,747 14,787 Quarter ended September 30 134,451 36,147 Quarter ended December 31 182,844 37,807 Effect of dilutive potential restricted common stock based on the treasury stock method using average market price: Quarter ended March 31 16,434 16,596 Quarter ended June 30 20,014 19,808 Quarter ended September 30 23,717 21,246 Quarter ended December 31 32,036 21,316 ------------ ------------ 850,241 387,794 Divided by number of quarters 4 4 ------------ ------------ Net effect of dilutive potential common stock 212,560 96,949 ------------ ------------ Weighted average number of common shares and dilutive potential common shares outstanding 60,353,532 60,183,093 ============ ============ Net income per common share: Income before extraordinary loss on repurchases of debt $ 0.753 $ 0.560 Extraordinary loss on repurchases of debt, net of federal income tax benefit -- (0.037) ------------ ------------ Net income $ 0.753 $ 0.523 ============ ============
EX-15 3 LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION Exhibit 15 El Paso Electric Company El Paso, Texas Ladies and Gentlemen: Re: Registration Statement No. 333-17971 With respect to the subject registration statement, we acknowledge our awareness of the use therein of our report dated April 23, 1998 related to our review of interim financial information. Pursuant to Rule 436(c) under the Securities Act of 1933, such a report is not considered part of the registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of sections 7 and 11 of the Act. Very truly yours, KPMG Peat Marwick LLP El Paso, Texas April 23, 1998 EX-27 4 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET OF EL PASO ELECTRIC COMPANY AS OF MARCH 31, 1998 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 PER-BOOK 1,448,887 0 216,634 98,448 26,559 1,790,528 60,277 240,478 76,689 377,444 124,775 0 872,280 0 0 0 37,119 0 25,333 27,029 326,548 1,790,528 136,945 5,094 103,005 108,099 28,846 2,149 30,995 20,480 10,515 3,523 6,992 0 73,665 50,229 0.116 0.116 PRIMARY AND FULLY DILUTED EARNINGS PER SHARE ARE NO LONGER BEING CALCULATED, PER SFAS NO. 128. THE AMOUNTS SHOWN REPRESENT BASIC AND DILUTED EARNINGS PER SHARE, RESPECTIVELY.
EX-99.01 5 FORM OF STOCK OPTION AGREEMENT Exhibit 99.01 EL PASO ELECTRIC COMPANY STOCK OPTION AGREEMENT (INCENTIVE STOCK OPTIONS) El Paso Electric Company, a Texas corporation (the "Company"), hereby grants to ____________________ (the "Optionee") as of January 2, 1998 (the "Option Date"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), an option to purchase from the Company (the "Option") 26,666 shares of its Common Stock, no par value ("Stock"), at the price of $7.50 per share upon and subject to the terms and conditions set forth below. 1. Option Subject to Acceptance of Agreement. The Option shall be null and void unless the Optionee shall accept this Agreement by executing it in the space provided below and returning such original execution copy to the Company. 2. Time and Manner of Exercise of Option. 2.1. Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after January 2, 2008 (the "Expiration Date"). 2.2. Exercise of Option. (a) Except as otherwise provided by Sections 2.2(b) and 2.2(c) hereof and by Section 6.8 of the Plan, the Option shall become exercisable (i) on January 2, 2002, with respect to one-half of the number of shares of stock subject to the option on the option date and (ii) on January 2, 2003, with respect to the remaining one-half of the shares of stock subject to the option on the option date. (b) If the Optionee's employment by the Company terminates by reason of Disability, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 90 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (c) If the Optionee's employment by the Company terminates by reason of retirement, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 90 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (d) If the Optionee's employment by the Company terminates by reason of death, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee or the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 90 days after the date of death and (ii) the Expiration Date. (e) If the Optionee's employment by the Company terminates for any reason other than Disability, retirement or death, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 90 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (f) If the Optionee dies during the period set forth in Section 2.2(b) following termination of employment by reason of Disability, or if the Optionee dies during the period set forth in Section 2.2(c) following termination of employment, or if the Optionee dies during the period set forth in Section 2.2(e) following termination of employment for any reason other than Disability or retirement, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 90 days after the date of death and (ii) the Expiration Date. 2.3 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised by the Optionee (1) by giving written notice to the Company specifying the number of whole shares of Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (i) in cash, (ii) by delivery of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iii) in cash by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (iv) a combination of (i) and (ii), and (2) by executing such documents as the Company may reasonably request. The Committee may disapprove an election pursuant to any of clauses (ii) - (iv) if the Committee determines, based on the opinion of recognized securities counsel, that the method of exercise so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the regulations promulgated thereunder. Any fraction of a share of Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the full purchase price therefor has been paid . 2.4 Termination of Option. (a) In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate, -2- to the extent not exercised pursuant to Section 2.3 or earlier terminated pursuant to Section 2.2, on the Expiration Date. (b) In the event that rights to purchase all or a portion of the shares of Stock subject to the Option expire or are exercised, canceled or forfeited, the Optionee shall, upon the Company's request, promptly return this Agreement to the Company for full or partial cancellation, as the case may be. Such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase shares of Stock hereunder, the Company shall, within 10 days of the Optionee's delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, canceled or forfeited or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be substantially similar to this Agreement in form and substance. 3. Additional Terms and Conditions of Option. 3.1. Nontransferability of Option. The Option may not be transferred by the Optionee other than (i) by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise permitted under Rule 16b-3 under the Exchange Act as may be set forth in an amendment to this Agreement. Except to the extent permitted by the foregoing sentence, during the Optionee's lifetime the Option is exercisable only by the Optionee or the Optionee's Legal Representative. Except to the extent permitted by the foregoing, the Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Option, the Option and all rights hereunder shall immediately become null and void. 3.2. Investment Representation. The Optionee hereby represents and covenants that (a) any share of Stock purchased upon exercise of the Option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such purchase has been registered under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Optionee shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of purchase of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to any exercise of the Option, the Optionee shall comply with all regulations and requirements of any regulatory -3- authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Board or the Committee shall in its sole discretion deem necessary or advisable. 3.3. Withholding Taxes. (a) As a condition precedent to the delivery of Stock upon exercise of the Option, the Optionee shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares, such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to such exercise of the Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee. (b) The Optionee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 3.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Option (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares of Stock which would otherwise be delivered to the Optionee upon exercise of the Option having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Exchange Act or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may not have a Fair Market Value in excess of the minimum amount of the Required Tax Payments. Any fraction of a share of Stock which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 3.4 Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be appropriately adjusted by the Committee without an increase in the aggregate purchase price. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay the Optionee, in connection with the first exercise of the Option, in whole or in part, occurring after such adjustment, an amount in cash determined by -4- multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date over (B) the exercise price of the Option. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 3.5. Compliance with Applicable Law. The Option is subject to the condition that if the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of shares hereunder, the Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent or approval. 3.6. Delivery of Certificates. Upon the exercise of the Option, in whole or in part, the Company shall deliver or cause to be delivered one or more certificates representing the number of shares purchased against full payment therefor. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.3. 3.7. Option Confers No Rights as Stockholder. The Optionee shall not be entitled to any privileges of ownership with respect to shares of Stock subject to the Option unless and until purchased and delivered upon the exercise of the Option, in whole or in part, and the Optionee becomes a stockholder of record with respect to such delivered shares; and the Optionee shall not be considered a stockholder of the Company with respect to any such shares not so purchased and delivered. 3.8. Option Confers No Rights to Continued Employment. In no event shall the granting of the Option or its acceptance by the Optionee give or be deemed to give the Optionee any right to continued employment by the Company. 3.9. Decisions of Board or Committee. The Board or the Committee shall have the right to resolve all questions which may arise in connection with the Option or its exercise. Any interpretation, determination or other action made or taken by the Board or the Committee regarding the Plan or this Agreement shall be final, binding and conclusive. 3.10. Company to Reserve Shares. The Company shall at all times prior to the expiration or termination of the Option reserve and keep available, either in its treasury or out of its authorized but unissued shares of Stock, the full number of shares subject to the Option from time to time. -5- 3.11. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Optionee hereby acknowledges receipt of a copy of the Plan. 4. Miscellaneous Provisions. 4.1. Designation as an Incentive Stock Option. The Option is hereby designated as constituting an "incentive stock option" within meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); this Agreement shall be interpreted and treated consistently with such designation. 4.2. Meaning of Certain Terms. As used herein, the term "Legal Representative" shall include an executor, administrator, legal representative, guardian or similar person and the term "Permitted Transferee" shall include any transferee (i) pursuant to a transfer permitted under Section 6.4 of the Plan and Section 3.1 hereof or (ii) designated pursuant to beneficiary designation procedures approved by the Company. 4.3. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights hereunder in accordance with this Agreement or the Plan. 4.4. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Optionee, to __________________________________________________. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. 4.5. Governing Law. This Agreement, the Option and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to principles of conflicts of laws. -6- 4.6. Counterparts. This Agreement may be executed in two counterparts each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: ---------------------------------- Name: Kenneth R. Heitz Title: Director Accepted this 3rd day of January, 1998 - -------------------------------------- Exhibit 99.01 EL PASO ELECTRIC COMPANY STOCK OPTION AGREEMENT FOR EMPLOYEES (NON-QUALIFIED STOCK OPTIONS) El Paso Electric Company, a Texas corporation (the "Company"), hereby grants to _______________ (the "Optionee") as of January 2, 1998 (the "Option Date"), pursuant to the provisions of the El Paso Electric Company 1996 Long- Term Incentive Plan (the "Plan"), a non-qualified option to purchase from the Company (the "Option") 73,334 shares of its Common Stock, no par value ("Stock"), at the price of $7.50 per share upon and subject to the terms and conditions set forth below. 1. Option Subject to Acceptance of Agreement. The Option shall be null and void unless the Optionee shall accept this Agreement by executing it in the space provided below and returning such original execution copy to the Company. 2. Time and Manner of Exercise of Option. 2.1. Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after January 2, 2008 (the "Expiration Date"). 2.2. Exercise of Option. (a) Except as otherwise provided by Sections 2.2(b) and 2.2(c) hereof and by Section 6.8 of the Plan, the Option shall become exercisable on the anniversary date of the grant as set forth below: Year Exercisable Amount Exercisable ---------------- ------------------ 1999 20,000 2000 20,000 2001 20,000 2002 6,667 2003 6,667 (b) If the Optionee's employment by the Company terminates by reason of Disability, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 120 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (c) If the Optionee's employment by the Company terminates by reason of retirement, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 120 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (d) If the Optionee's employment by the Company terminates by reason of death, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee or the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 120 days after the date of death and (ii) the Expiration Date. (e) If the Optionee's employment by the Company terminates for any reason other than Disability, retirement or death, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 120 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (f) If the Optionee dies during the period set forth in Section 2.2(b) following termination of employment by reason of Disability, or if the Optionee dies during the period set forth in Section 2.2(c) following termination of employment, or if the Optionee dies during the period set forth in Section 2.2(e) following termination of employment for any reason other than Disability or retirement, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 90 days after the date of death and (ii) the Expiration Date. 2.3 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised by the Optionee (1) by giving written notice to the Company specifying the number of whole shares of Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (i) in cash, (ii) by delivery of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iii) in cash by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (iv) a combination of (i) and (ii), and (2) by executing such documents as the Company may reasonably request. The Committee may disapprove an election pursuant to any of clauses (ii) - (iv) if the Committee determines, based on the opinion of recognized securities counsel, that the method of exercise so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the regulations promulgated thereunder. Any fraction of a share of Stock which would be required to -2- pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the full purchase price therefor has been paid. 2.4 Termination of Option. (a) In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate, to the extent not exercised pursuant to Section 2.3 or earlier terminated pursuant to Section 2.2, on the Expiration Date. (b) In the event that rights to purchase all or a portion of the shares of Stock subject to the Option expire or are exercised, cancelled or forfeited, the Optionee shall, upon the Company's request, promptly return this Agreement to the Company for full or partial cancellation, as the case may be. Such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase shares of Stock hereunder, the Company shall, within 10 days of the Optionee's delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, cancelled or forfeited or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be substantially similar to this Agreement in form and substance. 3. Additional Terms and Conditions of Option. 3.1. Nontransferability of Option. The Option may not be transferred by the Optionee other than (i) by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise permitted under Rule 16b-3 under the Exchange Act as may be set forth in an amendment to this Agreement. Except to the extent permitted by the foregoing sentence, during the Optionee's lifetime the Option is exercisable only by the Optionee or the Optionee's Legal Representative. Except to the extent permitted by the foregoing, the Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Option, the Option and all rights hereunder shall immediately become null and void. 3.2. Investment Representation. The Optionee hereby represents and covenants that (a) any share of Stock purchased upon exercise of the Option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such purchase has been registered under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Optionee shall submit a written statement, in form satisfactory to the Company, to the -3- effect that such representation (x) is true and correct as of the date of purchase of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to any exercise of the Option, the Optionee shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Board or the Committee shall in its sole discretion deem necessary or advisable. 3.3. Withholding Taxes. (a) As a condition precedent to the delivery of Stock upon exercise of the Option, the Optionee shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares, such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to such exercise of the Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee. (b) The Optionee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 3.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Option (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares of Stock which would otherwise be delivered to the Optionee upon exercise of the Option having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Exchange Act or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may not have a Fair Market Value in excess of the minimum amount of the Required Tax Payments. Any fraction of a share of Stock which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 3.4 Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be -4- appropriately adjusted by the Committee without an increase in the aggregate purchase price. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay the Optionee, in connection with the first exercise of the Option, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date over (B) the exercise price of the Option. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 3.5. Compliance with Applicable Law. The Option is subject to the condition that if the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of shares hereunder, the Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent or approval. 3.6. Delivery of Certificates. Upon the exercise of the Option, in whole or in part, the Company shall deliver or cause to be delivered one or more certificates representing the number of shares purchased against full payment therefor. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.3. 3.7. Option Confers No Rights as Stockholder. The Optionee shall not be entitled to any privileges of ownership with respect to shares of Stock subject to the Option unless and until purchased and delivered upon the exercise of the Option, in whole or in part, and the Optionee becomes a stockholder of record with respect to such delivered shares; and the Optionee shall not be considered a stockholder of the Company with respect to any such shares not so purchased and delivered. 3.8. Option Confers No Rights to Continued Employment. In no event shall the granting of the Option or its acceptance by the Optionee give or be deemed to give the Optionee any right to continued employment by the Company. 3.9. Decisions of Board or Committee. The Board or the Committee shall have the right to resolve all questions which may arise in connection with the Option or its exercise. Any interpretation, determination or other action made or taken by the Board or the Committee regarding the Plan or this Agreement shall be final, binding and conclusive. 3.10. Company to Reserve Shares. The Company shall at all times prior to the expiration or termination of the Option reserve and keep available, either in its -5- treasury or out of its authorized but unissued shares of Stock, the full number of shares subject to the Option from time to time. 3.11. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Optionee hereby acknowledges receipt of a copy of the Plan. 4. Miscellaneous Provisions. 4.1. Designation as Nonqualified Stock Option. The Option is hereby designated as not constituting an "incentive stock option" within meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); this Agreement shall be interpreted and treated consistently with such designation. 4.2. Meaning of Certain Terms. As used herein, the term "Legal Representative" shall include an executor, administrator, legal representative, guardian or similar person and the term "Permitted Transferee" shall include any transferee (i) pursuant to a transfer permitted under Section 6.4 of the Plan and Section 3.1 hereof or (ii) designated pursuant to beneficiary designation procedures approved by the Company. 4.3. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights hereunder in accordance with this Agreement or the Plan. 4.4. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Optionee, to ________________________________________________. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. 4.5. Governing Law. This Agreement, the Option and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to principles of conflicts of laws. -6- 4.6. Counterparts. This Agreement may be executed in two counterparts each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: ----------------------------------- Name: Kenneth R. Heitz Title: Director Accepted this 3rd day of January, 1998 - --------------------------------------- EX-99.02 6 STOCK OPTION AGRMT. WITH TERRY D. BASSHAM Exhibit 99.02 EL PASO ELECTRIC COMPANY STOCK OPTION AGREEMENT (INCENTIVE STOCK OPTIONS) El Paso Electric Company, a Texas corporation (the "Company"), hereby grants to Terry D. Bassham (the "Optionee") as of January 2, 1998 (the "Option Date"), pursuant to the provisions of the El Paso Electric Company 1996 Long- Term Incentive Plan (the "Plan"), an option to purchase from the Company (the "Option") 66,665 shares of its Common Stock, no par value ("Stock"), at the price of $7.50 per share upon and subject to the terms and conditions set forth below. 1. Option Subject to Acceptance of Agreement. The Option shall be null and void unless the Optionee shall accept this Agreement by executing it in the space provided below and returning such original execution copy to the Company. 2. Time and Manner of Exercise of Option. 2.1. Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after January 2, 2008 (the "Expiration Date"). 2.2. Exercise of Option. (a) Except as otherwise provided by Sections 2.2(b) and 2.2(c) hereof and by Section 6.8 of the Plan, the Option shall become exercisable (i) on January 2, 1999, with respect to one-fifth of the number of shares of Stock subject to the Option on the Option Date and (ii) on January 2, 2000, with respect to an additional one-fifth of the shares of Stock subject to the Option on the Option Date, (iii) on January 2, 2001 with respect to an additional one-fifth of the shares of Stock subject to the Option on the Option Date, (iv) on January 2, 2002 with respect to an additional one-fifth of the number of shares of Stock subject to the Option on the Option Date and (v) on January 1, 2003 with respect to the remaining one-fifth of the shares of Stock subject to the Option on the Option Date. (b) If the Optionee's employment by the Company terminates by reason of Disability, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 90 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (c) If the Optionee's employment by the Company terminates by reason of retirement, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 90 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (d) If the Optionee's employment by the Company terminates by reason of death, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee or the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 90 days after the date of death and (ii) the Expiration Date. (e) If the Optionee's employment by the Company terminates for any reason other than Disability, retirement or death, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 90 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (f) If the Optionee dies during the period set forth in Section 2.2(b) following termination of employment by reason of Disability, or if the Optionee dies during the period set forth in Section 2.2(c) following termination of employment, or if the Optionee dies during the period set forth in Section 2.2(e) following termination of employment for any reason other than Disability or retirement, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 90 days after the date of death and (ii) the Expiration Date. 2.3 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised by the Optionee (1) by giving written notice to the Company specifying the number of whole shares of Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (i) in cash, (ii) by delivery of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iii) in cash by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (iv) a combination of (i) and (ii), and (2) by executing such documents as the Company may reasonably request. The Committee may disapprove an election pursuant to any of clauses (ii) - (iv) if the Committee determines, based on the opinion of recognized securities counsel, that the method of exercise so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the regulations promulgated thereunder. Any fraction of a share of Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the full purchase price therefor has been paid. -2- 2.4 Termination of Option. (a) In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate, to the extent not exercised pursuant to Section 2.3 or earlier terminated pursuant to Section 2.2, on the Expiration Date. (b) In the event that rights to purchase all or a portion of the shares of Stock subject to the Option expire or are exercised, canceled or forfeited, the Optionee shall, upon the Company's request, promptly return this Agreement to the Company for full or partial cancellation, as the case may be. Such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase shares of Stock hereunder, the Company shall, within 10 days of the Optionee's delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, canceled or forfeited or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be substantially similar to this Agreement in form and substance. 3. Additional Terms and Conditions of Option. 3.1. Nontransferability of Option. The Option may not be transferred by the Optionee other than (i) by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise permitted under Rule 16b-3 under the Exchange Act as may be set forth in an amendment to this Agreement. Except to the extent permitted by the foregoing sentence, during the Optionee's lifetime the Option is exercisable only by the Optionee or the Optionee's Legal Representative. Except to the extent permitted by the foregoing, the Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Option, the Option and all rights hereunder shall immediately become null and void. 3.2. Investment Representation. The Optionee hereby represents and covenants that (a) any share of Stock purchased upon exercise of the Option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such purchase has been registered under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Optionee shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of purchase of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to any exercise of the Option, -3- the Optionee shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Board or the Committee shall in its sole discretion deem necessary or advisable. 3.3. Withholding Taxes. (a) As a condition precedent to the delivery of Stock upon exercise of the Option, the Optionee shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares, such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to such exercise of the Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee. (b) The Optionee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 3.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Option (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares of Stock which would otherwise be delivered to the Optionee upon exercise of the Option having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Exchange Act or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may not have a Fair Market Value in excess of the minimum amount of the Required Tax Payments. Any fraction of a share of Stock which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 3.4 Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be appropriately adjusted by the Committee without an increase in the aggregate purchase price. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay the Optionee, in connection with the first exercise of the Option, -4- in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date over (B) the exercise price of the Option. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 3.5. Compliance with Applicable Law. The Option is subject to the condition that if the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of shares hereunder, the Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent or approval. 3.6. Delivery of Certificates. Upon the exercise of the Option, in whole or in part, the Company shall deliver or cause to be delivered one or more certificates representing the number of shares purchased against full payment therefor. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.3. 3.7. Option Confers No Rights as Stockholder. The Optionee shall not be entitled to any privileges of ownership with respect to shares of Stock subject to the Option unless and until purchased and delivered upon the exercise of the Option, in whole or in part, and the Optionee becomes a stockholder of record with respect to such delivered shares; and the Optionee shall not be considered a stockholder of the Company with respect to any such shares not so purchased and delivered. 3.8. Option Confers No Rights to Continued Employment. In no event shall the granting of the Option or its acceptance by the Optionee give or be deemed to give the Optionee any right to continued employment by the Company. 3.9. Decisions of Board or Committee. The Board or the Committee shall have the right to resolve all questions which may arise in connection with the Option or its exercise. Any interpretation, determination or other action made or taken by the Board or the Committee regarding the Plan or this Agreement shall be final, binding and conclusive. 3.10. Company to Reserve Shares. The Company shall at all times prior to the expiration or termination of the Option reserve and keep available, either in its treasury or out of its authorized but unissued shares of Stock, the full number of shares subject to the Option from time to time. -5- 3.11. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Optionee hereby acknowledges receipt of a copy of the Plan. 4. Miscellaneous Provisions. 4.1. Designation as an Incentive Stock Option. The Option is hereby designated as constituting an "incentive stock option" within meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); this Agreement shall be interpreted and treated consistently with such designation. 4.2. Meaning of Certain Terms. As used herein, the term "Legal Representative" shall include an executor, administrator, legal representative, guardian or similar person and the term "Permitted Transferee" shall include any transferee (i) pursuant to a transfer permitted under Section 6.4 of the Plan and Section 3.1 hereof or (ii) designated pursuant to beneficiary designation procedures approved by the Company. 4.3. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights hereunder in accordance with this Agreement or the Plan. 4.4. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Optionee, to Terry D. Bassham, 365 La Mirada Circle, El Paso, Texas 79932. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. 4.5. Governing Law. This Agreement, the Option and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to principles of conflicts of laws. -6- 4.6. Counterparts. This Agreement may be executed in two counterparts each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: ------------------------------ Name: Kenneth R. Heitz Title: Director Accepted this 3rd day of January, 1998 - -------------------------------------- Terry D. Bassham Exhibit 99.02 EL PASO ELECTRIC COMPANY STOCK OPTION AGREEMENT FOR EMPLOYEES (NON-QUALIFIED STOCK OPTIONS) El Paso Electric Company, a Texas corporation (the "Company"), hereby grants to Terry D. Bassham (the "Optionee") as of January 2, 1998 (the "Option Date"), pursuant to the provisions of the El Paso Electric Company 1996 Long- Term Incentive Plan (the "Plan"), a non-qualified option to purchase from the Company (the "Option") 33,335 shares of its Common Stock, no par value ("Stock"), at the price of $7.50 per share upon and subject to the terms and conditions set forth below. 1. Option Subject to Acceptance of Agreement. The Option shall be null and void unless the Optionee shall accept this Agreement by executing it in the space provided below and returning such original execution copy to the Company. 2. Time and Manner of Exercise of Option. 2.1. Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after January 2, 2008 (the "Expiration Date"). 2.2. Exercise of Option. (a) Except as otherwise provided by Sections 2.2(b) and 2.2(c) hereof and by Section 6.8 of the Plan, the Option shall become exercisable (i) on January 2, 1999 with respect to one-fifth of the number of shares of Stock subject to the Option on the Option Date, (ii) on January 2, 2000 with respect to an additional one-fifth of the number of shares of Stock subject to the Option on the Option Date, (iii) on January 2, 2001 with respect to an additional one-fifth of the shares of Stock subject to the Option on the Option Date, (iv) on January 2, 2002 with respect to an additional one- fifth of the number of shares of Stock subject to the Option on the Option Date and (v) on January 1, 2003 with respect to the remaining one-fifth of the shares of Stock subject to the Option on the Option Date. (b) If the Optionee's employment by the Company terminates by reason of Disability, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 120 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (c) If the Optionee's employment by the Company terminates by reason of retirement, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 120 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (d) If the Optionee's employment by the Company terminates by reason of death, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee or the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 120 days after the date of death and (ii) the Expiration Date. (e) If the Optionee's employment by the Company terminates for any reason other than Disability, retirement or death, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 120 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (f) If the Optionee dies during the period set forth in Section 2.2(b) following termination of employment by reason of Disability, or if the Optionee dies during the period set forth in Section 2.2(c) following termination of employment, or if the Optionee dies during the period set forth in Section 2.2(e) following termination of employment for any reason other than Disability or retirement, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 90 days after the date of death and (ii) the Expiration Date. 2.3 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised by the Optionee (1) by giving written notice to the Company specifying the number of whole shares of Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (i) in cash, (ii) by delivery of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iii) in cash by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (iv) a combination of (i) and (ii), and (2) by executing such documents as the Company may reasonably request. The Committee may disapprove an election pursuant to any of clauses (ii) - (iv) if the Committee determines, based on the opinion of recognized securities counsel, that the method of exercise so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the regulations promulgated thereunder. Any fraction of a share of Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be -2- paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the full purchase price therefor has been paid. 2.4 Termination of Option. (a) In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate, to the extent not exercised pursuant to Section 2.3 or earlier terminated pursuant to Section 2.2, on the Expiration Date. (b) In the event that rights to purchase all or a portion of the shares of Stock subject to the Option expire or are exercised, canceled or forfeited, the Optionee shall, upon the Company's request, promptly return this Agreement to the Company for full or partial cancellation, as the case may be. Such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase shares of Stock hereunder, the Company shall, within 10 days of the Optionee's delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, canceled or forfeited or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be substantially similar to this Agreement in form and substance. 3. Additional Terms and Conditions of Option. 3.1. Nontransferability of Option. The Option may not be transferred by the Optionee other than (i) by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise permitted under Rule 16b-3 under the Exchange Act as may be set forth in an amendment to this Agreement. Except to the extent permitted by the foregoing sentence, during the Optionee's lifetime the Option is exercisable only by the Optionee or the Optionee's Legal Representative. Except to the extent permitted by the foregoing, the Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Option, the Option and all rights hereunder shall immediately become null and void. 3.2. Investment Representation. The Optionee hereby represents and covenants that (a) any share of Stock purchased upon exercise of the Option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such purchase has been registered under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Optionee shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of purchase of any -3- shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to any exercise of the Option, the Optionee shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Board or the Committee shall in its sole discretion deem necessary or advisable. 3.3. Withholding Taxes. (a) As a condition precedent to the delivery of Stock upon exercise of the Option, the Optionee shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares, such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to such exercise of the Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee. (b) The Optionee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 3.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Option (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares of Stock which would otherwise be delivered to the Optionee upon exercise of the Option having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Exchange Act or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may not have a Fair Market Value in excess of the minimum amount of the Required Tax Payments. Any fraction of a share of Stock which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 3.4 Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be appropriately adjusted by the Committee without an increase in the aggregate purchase -4- price. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay the Optionee, in connection with the first exercise of the Option, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date over (B) the exercise price of the Option. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 3.5. Compliance with Applicable Law. The Option is subject to the condition that if the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of shares hereunder, the Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent or approval. 3.6. Delivery of Certificates. Upon the exercise of the Option, in whole or in part, the Company shall deliver or cause to be delivered one or more certificates representing the number of shares purchased against full payment therefor. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.3. 3.7. Option Confers No Rights as Stockholder. The Optionee shall not be entitled to any privileges of ownership with respect to shares of Stock subject to the Option unless and until purchased and delivered upon the exercise of the Option, in whole or in part, and the Optionee becomes a stockholder of record with respect to such delivered shares; and the Optionee shall not be considered a stockholder of the Company with respect to any such shares not so purchased and delivered. 3.8. Option Confers No Rights to Continued Employment. In no event shall the granting of the Option or its acceptance by the Optionee give or be deemed to give the Optionee any right to continued employment by the Company. 3.9. Decisions of Board or Committee. The Board or the Committee shall have the right to resolve all questions which may arise in connection with the Option or its exercise. Any interpretation, determination or other action made or taken by the Board or the Committee regarding the Plan or this Agreement shall be final, binding and conclusive. 3.10. Company to Reserve Shares. The Company shall at all times prior to the expiration or termination of the Option reserve and keep available, either in its treasury or out of its authorized but unissued shares of Stock, the full number of shares subject to the Option from time to time. -5- 3.11. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Optionee hereby acknowledges receipt of a copy of the Plan. 4. Miscellaneous Provisions. 4.1. Designation as Nonqualified Stock Option. The Option is hereby designated as not constituting an "incentive stock option" within meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); this Agreement shall be interpreted and treated consistently with such designation. 4.2. Meaning of Certain Terms. As used herein, the term "Legal Representative" shall include an executor, administrator, legal representative, guardian or similar person and the term "Permitted Transferee" shall include any transferee (i) pursuant to a transfer permitted under Section 6.4 of the Plan and Section 3.1 hereof or (ii) designated pursuant to beneficiary designation procedures approved by the Company. 4.3. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights hereunder in accordance with this Agreement or the Plan. 4.4. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Optionee, to "Address". All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. 4.5. Governing Law. This Agreement, the Option and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to principles of conflicts of laws. -6- 4.6. Counterparts. This Agreement may be executed in two counterparts each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: ---------------------------------- Name: Kenneth R. Heitz Title: Director Accepted this 3rd day of January, 1998 - -------------------------------------- Terry D. Bassham EX-99.03 7 STOCK OPTION AGREEMENT WITH JOHN C. HORNE Exhibit 99.03 EL PASO ELECTRIC COMPANY STOCK OPTION AGREEMENT (INCENTIVE STOCK OPTIONS) El Paso Electric Company, a Texas corporation (the "Company"), hereby grants to John C. Horne (the "Optionee") as of January 2, 1998 (the "Option Date"), pursuant to the provisions of the El Paso Electric Company 1996 Long- Term Incentive Plan (the "Plan"), an option to purchase from the Company (the "Option") 10,000 shares of its Common Stock, no par value ("Stock"), at the price of $7.50 per share upon and subject to the terms and conditions set forth below. 1. Option Subject to Acceptance of Agreement. The Option shall be null and void unless the Optionee shall accept this Agreement by executing it in the space provided below and returning such original execution copy to the Company. 2. Time and Manner of Exercise of Option. 2.1. Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after January 2, 2008 (the "Expiration Date"). 2.2. Exercise of Option. (a) Except as otherwise provided by Sections 2.2(b) and 2.2(c) hereof and by Section 6.8 of the Plan, the Option shall become exercisable (i) on January 2, 2002, with respect to one-half of the number of shares of stock subject to the option on the option date and (ii) on January 2, 2003, with respect to the remaining one-half of the shares of stock subject to the option on the option date. (b) If the Optionee's employment by the Company terminates by reason of Disability, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 90 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (c) If the Optionee's employment by the Company terminates by reason of retirement, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 90 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (d) If the Optionee's employment by the Company terminates by reason of death, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee or the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 90 days after the date of death and (ii) the Expiration Date. (e) If the Optionee's employment by the Company terminates for any reason other than Disability, retirement or death, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 90 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (f) If the Optionee dies during the period set forth in Section 2.2(b) following termination of employment by reason of Disability, or if the Optionee dies during the period set forth in Section 2.2(c) following termination of employment, or if the Optionee dies during the period set forth in Section 2.2(e) following termination of employment for any reason other than Disability or retirement, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 90 days after the date of death and (ii) the Expiration Date. 2.3 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised by the Optionee (1) by giving written notice to the Company specifying the number of whole shares of Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (i) in cash, (ii) by delivery of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iii) in cash by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (iv) a combination of (i) and (ii), and (2) by executing such documents as the Company may reasonably request. The Committee may disapprove an election pursuant to any of clauses (ii) - (iv) if the Committee determines, based on the opinion of recognized securities counsel, that the method of exercise so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the regulations promulgated thereunder. Any fraction of a share of Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the full purchase price therefor has been paid. 2.4 Termination of Option. (a) In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate, -2- to the extent not exercised pursuant to Section 2.3 or earlier terminated pursuant to Section 2.2, on the Expiration Date. (b) In the event that rights to purchase all or a portion of the shares of Stock subject to the Option expire or are exercised, canceled or forfeited, the Optionee shall, upon the Company's request, promptly return this Agreement to the Company for full or partial cancellation, as the case may be. Such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase shares of Stock hereunder, the Company shall, within 10 days of the Optionee's delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, canceled or forfeited or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be substantially similar to this Agreement in form and substance. 3. Additional Terms and Conditions of Option. 3.1. Nontransferability of Option. The Option may not be transferred by the Optionee other than (i) by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise permitted under Rule 16b-3 under the Exchange Act as may be set forth in an amendment to this Agreement. Except to the extent permitted by the foregoing sentence, during the Optionee's lifetime the Option is exercisable only by the Optionee or the Optionee's Legal Representative. Except to the extent permitted by the foregoing, the Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Option, the Option and all rights hereunder shall immediately become null and void. 3.2. Investment Representation. The Optionee hereby represents and covenants that (a) any share of Stock purchased upon exercise of the Option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such purchase has been registered under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Optionee shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of purchase of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to any exercise of the Option, the Optionee shall comply with all regulations and requirements of any regulatory -3- authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Board or the Committee shall in its sole discretion deem necessary or advisable. 3.3. Withholding Taxes. (a) As a condition precedent to the delivery of Stock upon exercise of the Option, the Optionee shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares, such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to such exercise of the Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee. (b) The Optionee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 3.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Option (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares of Stock which would otherwise be delivered to the Optionee upon exercise of the Option having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Exchange Act or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may not have a Fair Market Value in excess of the minimum amount of the Required Tax Payments. Any fraction of a share of Stock which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 3.4 Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be appropriately adjusted by the Committee without an increase in the aggregate purchase price. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay the Optionee, in connection with the first exercise of the Option, in whole or in part, occurring after such adjustment, an amount in cash determined by -4- multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date over (B) the exercise price of the Option. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 3.5. Compliance with Applicable Law. The Option is subject to the condition that if the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of shares hereunder, the Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent or approval. 3.6. Delivery of Certificates. Upon the exercise of the Option, in whole or in part, the Company shall deliver or cause to be delivered one or more certificates representing the number of shares purchased against full payment therefor. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.3. 3.7. Option Confers No Rights as Stockholder. The Optionee shall not be entitled to any privileges of ownership with respect to shares of Stock subject to the Option unless and until purchased and delivered upon the exercise of the Option, in whole or in part, and the Optionee becomes a stockholder of record with respect to such delivered shares; and the Optionee shall not be considered a stockholder of the Company with respect to any such shares not so purchased and delivered. 3.8. Option Confers No Rights to Continued Employment. In no event shall the granting of the Option or its acceptance by the Optionee give or be deemed to give the Optionee any right to continued employment by the Company. 3.9. Decisions of Board or Committee. The Board or the Committee shall have the right to resolve all questions which may arise in connection with the Option or its exercise. Any interpretation, determination or other action made or taken by the Board or the Committee regarding the Plan or this Agreement shall be final, binding and conclusive. 3.10. Company to Reserve Shares. The Company shall at all times prior to the expiration or termination of the Option reserve and keep available, either in its treasury or out of its authorized but unissued shares of Stock, the full number of shares subject to the Option from time to time. -5- 3.11. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Optionee hereby acknowledges receipt of a copy of the Plan. 4. Miscellaneous Provisions. 4.1. Designation as an Incentive Stock Option. The Option is hereby designated as constituting an "incentive stock option" within meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); this Agreement shall be interpreted and treated consistently with such designation. 4.2. Meaning of Certain Terms. As used herein, the term "Legal Representative" shall include an executor, administrator, legal representative, guardian or similar person and the term "Permitted Transferee" shall include any transferee (i) pursuant to a transfer permitted under Section 6.4 of the Plan and Section 3.1 hereof or (ii) designated pursuant to beneficiary designation procedures approved by the Company. 4.3. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights hereunder in accordance with this Agreement or the Plan. 4.4. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Optionee, to John C. Horne, 6124 Laguna Vista Drive, El Paso, Texas 79932. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. 4.5. Governing Law. This Agreement, the Option and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to principles of conflicts of laws. -6- 4.6. Counterparts. This Agreement may be executed in two counterparts each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: ---------------------------------- Name: Kenneth R. Heitz Title: Director Accepted this 3rd day of January, 1998 - -------------------------------------- John C. Horne Exhibit 99.03 EL PASO ELECTRIC COMPANY STOCK OPTION AGREEMENT FOR EMPLOYEES (NON-QUALIFIED STOCK OPTIONS) El Paso Electric Company, a Texas corporation (the "Company"), hereby grants to John C. Horne (the "Optionee") as of January 2, 1998 (the "Option Date"), pursuant to the provisions of the El Paso Electric Company 1996 Long- Term Incentive Plan (the "Plan"), a non-qualified option to purchase from the Company (the "Option") 15,000 shares of its Common Stock, no par value ("Stock"), at the price of $7.50 per share upon and subject to the terms and conditions set forth below. 1. Option Subject to Acceptance of Agreement. The Option shall be null and void unless the Optionee shall accept this Agreement by executing it in the space provided below and returning such original execution copy to the Company. 2. Time and Manner of Exercise of Option. 2.1. Maximum Term of Option. In no event may the Option be exercised, in whole or in part, after January 2, 2008 (the "Expiration Date"). 2.2. Exercise of Option. (a) Except as otherwise provided by Sections 2.2(b) and 2.2(c) hereof and by Section 6.8 of the Plan, the Option shall become exercisable on the anniversary date of the grant as set forth below: Year Exercisable Amount Exercisable ---------------- ------------------ 1999 5,000 2000 5,000 2001 5,000 (b) If the Optionee's employment by the Company terminates by reason of Disability, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 120 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (c) If the Optionee's employment by the Company terminates by reason of retirement, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 120 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (d) If the Optionee's employment by the Company terminates by reason of death, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee or the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 120 days after the date of death and (ii) the Expiration Date. (e) If the Optionee's employment by the Company terminates for any reason other than Disability, retirement or death, the Option shall be exercisable only to the extent it is exercisable on the effective date of the Optionee's termination of employment and may thereafter be exercised by the Optionee or the Optionee's Legal Representative until and including the earliest to occur of (i) the date which is 120 days after the effective date of the Optionee's termination of employment and (ii) the Expiration Date. (f) If the Optionee dies during the period set forth in Section 2.2(b) following termination of employment by reason of Disability, or if the Optionee dies during the period set forth in Section 2.2(c) following termination of employment, or if the Optionee dies during the period set forth in Section 2.2(e) following termination of employment for any reason other than Disability or retirement, the Option shall be exercisable only to the extent it is exercisable on the date of death and may thereafter be exercised by the Optionee's Legal Representative or Permitted Transferees, as the case may be, until and including the earliest to occur of (i) the date which is 90 days after the date of death and (ii) the Expiration Date. 2.3 Method of Exercise. Subject to the limitations set forth in this Agreement, the Option may be exercised by the Optionee (1) by giving written notice to the Company specifying the number of whole shares of Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (i) in cash, (ii) by delivery of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to the Option by reason of such exercise, (iii) in cash by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (iv) a combination of (i) and (ii), and (2) by executing such documents as the Company may reasonably request. The Committee may disapprove an election pursuant to any of clauses (ii) - (iv) if the Committee determines, based on the opinion of recognized securities counsel, that the method of exercise so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the regulations promulgated thereunder. Any fraction of a share of Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the full purchase price therefor has been paid. -2- 2.4 Termination of Option. (a) In no event may the Option be exercised after it terminates as set forth in this Section 2.4. The Option shall terminate, to the extent not exercised pursuant to Section 2.3 or earlier terminated pursuant to Section 2.2, on the Expiration Date. (b) In the event that rights to purchase all or a portion of the shares of Stock subject to the Option expire or are exercised, cancelled or forfeited, the Optionee shall, upon the Company's request, promptly return this Agreement to the Company for full or partial cancellation, as the case may be. Such cancellation shall be effective regardless of whether the Optionee returns this Agreement. If the Optionee continues to have rights to purchase shares of Stock hereunder, the Company shall, within 10 days of the Optionee's delivery of this Agreement to the Company, either (i) mark this Agreement to indicate the extent to which the Option has expired or been exercised, cancelled or forfeited or (ii) issue to the Optionee a substitute option agreement applicable to such rights, which agreement shall otherwise be substantially similar to this Agreement in form and substance. 3. Additional Terms and Conditions of Option. 3.1. Nontransferability of Option. The Option may not be transferred by the Optionee other than (i) by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise permitted under Rule 16b-3 under the Exchange Act as may be set forth in an amendment to this Agreement. Except to the extent permitted by the foregoing sentence, during the Optionee's lifetime the Option is exercisable only by the Optionee or the Optionee's Legal Representative. Except to the extent permitted by the foregoing, the Option may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of the Option, the Option and all rights hereunder shall immediately become null and void. 3.2. Investment Representation. The Optionee hereby represents and covenants that (a) any share of Stock purchased upon exercise of the Option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such purchase has been registered under the Securities Act and any applicable state securities laws; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Optionee shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of purchase of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to any exercise of the Option, -3- the Optionee shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance or delivery of the shares and, in connection therewith, shall execute any documents which the Board or the Committee shall in its sole discretion deem necessary or advisable. 3.3. Withholding Taxes. (a) As a condition precedent to the delivery of Stock upon exercise of the Option, the Optionee shall, upon request by the Company, pay to the Company in addition to the purchase price of the shares, such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to such exercise of the Option. If the Optionee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Optionee. (b) The Optionee may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 3.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Optionee has held for at least six months prior to the delivery of such shares or which the Optionee purchased on the open market and for which the Optionee has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Option (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold whole shares of Stock which would otherwise be delivered to the Optionee upon exercise of the Option having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company to whom the Optionee has submitted an irrevocable notice of exercise or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Exchange Act or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may not have a Fair Market Value in excess of the minimum amount of the Required Tax Payments. Any fraction of a share of Stock which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by the Optionee. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 3.4 Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Option and the purchase price per security shall be appropriately adjusted by the Committee without an increase in the aggregate purchase price. If any adjustment would result in a fractional security being subject to the Option, the Company shall pay the Optionee, in connection with the first exercise of the Option, -4- in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date over (B) the exercise price of the Option. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 3.5. Compliance with Applicable Law. The Option is subject to the condition that if the listing, registration or qualification of the shares subject to the Option upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the purchase or delivery of shares hereunder, the Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any such listing, registration, qualification, consent or approval. 3.6. Delivery of Certificates. Upon the exercise of the Option, in whole or in part, the Company shall deliver or cause to be delivered one or more certificates representing the number of shares purchased against full payment therefor. The Company shall pay all original issue or transfer taxes and all fees and expenses incident to such delivery, except as otherwise provided in Section 3.3. 3.7. Option Confers No Rights as Stockholder. The Optionee shall not be entitled to any privileges of ownership with respect to shares of Stock subject to the Option unless and until purchased and delivered upon the exercise of the Option, in whole or in part, and the Optionee becomes a stockholder of record with respect to such delivered shares; and the Optionee shall not be considered a stockholder of the Company with respect to any such shares not so purchased and delivered. 3.8. Option Confers No Rights to Continued Employment. In no event shall the granting of the Option or its acceptance by the Optionee give or be deemed to give the Optionee any right to continued employment by the Company. 3.9. Decisions of Board or Committee. The Board or the Committee shall have the right to resolve all questions which may arise in connection with the Option or its exercise. Any interpretation, determination or other action made or taken by the Board or the Committee regarding the Plan or this Agreement shall be final, binding and conclusive. 3.10. Company to Reserve Shares. The Company shall at all times prior to the expiration or termination of the Option reserve and keep available, either in its treasury or out of its authorized but unissued shares of Stock, the full number of shares subject to the Option from time to time. -5- 3.11. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Optionee hereby acknowledges receipt of a copy of the Plan. 4. Miscellaneous Provisions. 4.1. Designation as Nonqualified Stock Option. The Option is hereby designated as not constituting an "incentive stock option" within meaning of section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); this Agreement shall be interpreted and treated consistently with such designation. 4.2. Meaning of Certain Terms. As used herein, the term "Legal Representative" shall include an executor, administrator, legal representative, guardian or similar person and the term "Permitted Transferee" shall include any transferee (i) pursuant to a transfer permitted under Section 6.4 of the Plan and Section 3.1 hereof or (ii) designated pursuant to beneficiary designation procedures approved by the Company. 4.3. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights hereunder in accordance with this Agreement or the Plan. 4.4. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Optionee, to John C. Horne, 6124 Laguna Vista Drive, El Paso, Texas 79932. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. 4.5. Governing Law. This Agreement, the Option and all determinations made and actions taken pursuant hereto and thereto, to the extent not governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to principles of conflicts of laws. -6- 4.6. Counterparts. This Agreement may be executed in two counterparts each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: ----------------------------------------------- Name: Kenneth R. Heitz Title: Director Accepted this 3rd day of January, 1998 - --------------------------------------- John C. Horne EX-99.04 8 FORM OF RESTRICTED STOCK AWARD AGREEMENT Exhibit 99.04 EL PASO ELECTRIC COMPANY RESTRICTED STOCK AWARD AGREEMENT El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to _______________ (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 2,935 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Award Subject to Acceptance of Agreement. The Award shall be null and void unless the Holder shall accept this Agreement by executing it in the space provided below and returning it to the Company and execute and return one or more irrevocable stock powers. As soon as practicable after the Holder has executed this Agreement and such stock power or powers and returned the same to the Company, the Company shall cause to be issued in the Holder's name a stock certificate or certificates representing the total number of shares of Stock subject to the Award. 2. Rights as a Stockholder. Holder shall have the right to vote the shares of Stock subject to the Award. During the Restriction Period as to any shares of Stock, cash dividends which would otherwise be payable on any such shares of will be credited to the Holder in the form of additional unvested shares of Stock as if the dividend had purchased additional shares at the closing market price on the date such dividend is paid, and such additional shares (including shares received as stock dividend or stock split), shall be delivered to the Company (and the Holder shall, if requested by the Company, execute and return one or more irrevocable stock powers related thereto) and shall be subject to the same restrictions as the shares of Stock with respect to which such dividend or other distribution was made. 3. Custody and Delivery of Certificates Representing Shares. The Company shall hold the certificate or certificates representing the shares of Stock subject to the Award until the restrictions on such Award shall have lapsed, in whole or in part, pursuant to Section 4 hereof, and the Company shall as soon thereafter as practicable, subject to Section 5.3, deliver the certificate or certificates for such shares to the Holder and destroy the stock power or powers relating to such shares. If such stock power or powers also relates to shares as to which restrictions remain in effect, the Company may require, as a condition precedent to delivery of any certificate pursuant to this Section 3, the execution and delivery to the Company of one or more stock powers relating to such shares. 4. Restriction Period and Vesting. (a) The restrictions on the Award shall lapse on the earliest of the following: (i) with respect to one-fifth of the aggregate number of shares of Stock subject to the Award on February 19, 1998 and as to an additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1999 through 2002, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period"). (b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited. 5. Additional Terms and Conditions of Award. 5.1. Nontransferability of Award. During the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be transferred by the Holder other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing, during the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such shares, the Award shall immediately become null and void. 5.2. Investment Representation. The Holder hereby represents and covenants that (a) any share of Stock acquired upon the lapse of restrictions will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such acquisition has been registered under the Securities Act and any applicable state securities law; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of acquisition of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to the delivery to the Holder of any shares subject to the Award, the Holder shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance of the shares and, in connection therewith, shall execute any documents which the Board or any committee authorized by the Board shall in its sole discretion deem necessary or advisable. -2- 5.3. Withholding Taxes. (a) As a condition precedent to the delivery to the Holder of any shares of Stock subject to the Award, the Holder may, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to the Award. If the Holder shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Holder. (b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 5.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Holder has held for at least six months prior to the delivery of such shares or which the Holder purchased on the open market and for which the Holder has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold from the shares of Stock otherwise to be delivered to the Holder pursuant to the Award, a number of whole shares of Stock having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company through whom the Holder has sold the shares with respect to which the Required Tax Payments have arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended, or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Holder's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 5.4. Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Award shall be appropriately adjusted by the Committee. If any adjustment would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount -3- in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 5.5. Compliance with Applicable Law. Award is subject to the condition that if the listing, registration or qualification of the shares subject to the Award upon any securities exchange or under any law, or the consent or approval of any governments body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of shares hereunder, the shares of Stock subject to the Award may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any :such listing, registration, qualification, consent or approval. 5.6. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Holder hereby acknowledges receipt of a copy of the Plan. 6. Miscellaneous Provisions. 6.1. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Holder, acquire any rights hereunder in accordance with this Agreement or the Plan. 6.2. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Holder, to ________________________________. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission, or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. -4- 6.3. Governing Law. This Agreement, the Award and all determinations made and actions taken pursuant hereto and thereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to conflicts of laws principles. 6.4. Counterparts. This Agreement may be executed in two counterpart each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: -------------------------------- Name: Kenneth R. Heitz Title: Director Acceptance Date: --------------- - ------------------------------- -5- EX-99.05 9 RESTRICTED STOCK AWARD AGRMT. WITH ROBERT C. MCNIEL Exhibit 99.05 EL PASO ELECTRIC COMPANY RESTRICTED STOCK AWARD AGREEMENT El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Robert C. McNiel (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 2,390 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Award Subject to Acceptance of Agreement. The Award shall be null and void unless the Holder shall accept this Agreement by executing it in the space provided below and returning it to the Company and execute and return one or more irrevocable stock powers. As soon as practicable after the Holder has executed this Agreement and such stock power or powers and returned the same to the Company, the Company shall cause to be issued in the Holder's name a stock certificate or certificates representing the total number of shares of Stock subject to the Award. 2. Rights as a Stockholder. Holder shall have the right to vote the shares of Stock subject to the Award. During the Restriction Period as to any shares of Stock, cash dividends which would otherwise be payable on any such shares of will be credited to the Holder in the form of additional unvested shares of Stock as if the dividend had purchased additional shares at the closing market price on the date such dividend is paid, and such additional shares (including shares received as stock dividend or stock split), shall be delivered to the Company (and the Holder shall, if requested by the Company, execute and return one or more irrevocable stock powers related thereto) and shall be subject to the same restrictions as the shares of Stock with respect to which such dividend or other distribution was made. 3. Custody and Delivery of Certificates Representing Shares. The Company shall hold the certificate or certificates representing the shares of Stock subject to the Award until the restrictions on such Award shall have lapsed, in whole or in part, pursuant to Section 4 hereof, and the Company shall as soon thereafter as practicable, subject to Section 5.3, deliver the certificate or certificates for such shares to the Holder and destroy the stock power or powers relating to such shares. If such stock power or powers also relates to shares as to which restrictions remain in effect, the Company may require, as a condition precedent to delivery of any certificate pursuant to this Section 3, the execution and delivery to the Company of one or more stock powers relating to such shares. 4. Restriction Period and Vesting. (a) The restrictions on the Award shall lapse on the earliest of the following: (i) with respect to one-fifth of the aggregate number of shares of Stock subject to the Award on February 19, 1998 and as to an additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1999 through 2002, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period"). (b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited. 5. Additional Terms and Conditions of Award. 5.1. Nontransferability of Award. During the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be transferred by the Holder other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing, during the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such shares, the Award shall immediately become null and void. 5.2. Investment Representation. The Holder hereby represents and covenants that (a) any share of Stock acquired upon the lapse of restrictions will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such acquisition has been registered under the Securities Act and any applicable state securities law; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of acquisition of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to the delivery to the Holder of any shares subject to the Award, the Holder shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance of the shares and, in connection therewith, shall execute any documents which the Board or any committee authorized by the Board shall in its sole discretion deem necessary or advisable. -2- 5.3. Withholding Taxes. (a) As a condition precedent to the delivery to the Holder of any shares of Stock subject to the Award, the Holder may, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to the Award. If the Holder shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Holder. (b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 5.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Holder has held for at least six months prior to the delivery of such shares or which the Holder purchased on the open market and for which the Holder has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold from the shares of Stock otherwise to be delivered to the Holder pursuant to the Award, a number of whole shares of Stock having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company through whom the Holder has sold the shares with respect to which the Required Tax Payments have arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended, or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Holder's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 5.4. Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Award shall be appropriately adjusted by the Committee. If any adjustment would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount -3- in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 5.5. Compliance with Applicable Law. Award is subject to the condition that if the listing, registration or qualification of the shares subject to the Award upon any securities exchange or under any law, or the consent or approval of any governments body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of shares hereunder, the shares of Stock subject to the Award may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any :such listing, registration, qualification, consent or approval. 5.6. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Holder hereby acknowledges receipt of a copy of the Plan. 6. Miscellaneous Provisions. 6.1. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Holder, acquire any rights hereunder in accordance with this Agreement or the Plan. 6.2. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Holder, to 4860 Sage Road, Las Cruces, New Mexico 88001. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission, or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. -4- 6.3. Governing Law. This Agreement, the Award and all determinations made and actions taken pursuant hereto and thereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to conflicts of laws principles. 6.4. Counterparts. This Agreement may be executed in two counterpart each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: -------------------------------- Name: Kenneth R. Heitz Title: Director Acceptance Date: ------------------ - ---------------------------------- Robert C. McNiel -5- EX-99.06 10 RSTRCTD STOCK AWARD AGRMNT. WITH SUSANNE M. SICKLES Exhibit 99.06 EL PASO ELECTRIC COMPANY RESTRICTED STOCK AWARD AGREEMENT El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Susanne M. Sickles (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 1,110 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Award Subject to Acceptance of Agreement. The Award shall be null and void unless the Holder shall accept this Agreement by executing it in the space provided below and returning it to the Company and execute and return one or more irrevocable stock powers. As soon as practicable after the Holder has executed this Agreement and such stock power or powers and returned the same to the Company, the Company shall cause to be issued in the Holder's name a stock certificate or certificates representing the total number of shares of Stock subject to the Award. 2. Rights as a Stockholder. Holder shall have the right to vote the shares of Stock subject to the Award. During the Restriction Period as to any shares of Stock, cash dividends which would otherwise be payable on any such shares of will be credited to the Holder in the form of additional unvested shares of Stock as if the dividend had purchased additional shares at the closing market price on the date such dividend is paid, and such additional shares (including shares received as stock dividend or stock split), shall be delivered to the Company (and the Holder shall, if requested by the Company, execute and return one or more irrevocable stock powers related thereto) and shall be subject to the same restrictions as the shares of Stock with respect to which such dividend or other distribution was made. 3. Custody and Delivery of Certificates Representing Shares. The Company shall hold the certificate or certificates representing the shares of Stock subject to the Award until the restrictions on such Award shall have lapsed, in whole or in part, pursuant to Section 4 hereof, and the Company shall as soon thereafter as practicable, subject to Section 5.3, deliver the certificate or certificates for such shares to the Holder and destroy the stock power or powers relating to such shares. If such stock power or powers also relates to shares as to which restrictions remain in effect, the Company may require, as a condition precedent to delivery of any certificate pursuant to this Section 3, the execution and delivery to the Company of one or more stock powers relating to such shares. 4. Restriction Period and Vesting. (a) The restrictions on the Award shall lapse on the earliest of the following: (i) with respect to one-fifth of the aggregate number of shares of Stock subject to the Award on February 19, 1998 and as to an additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1999 through 2002, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period"). (b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited. 5. Additional Terms and Conditions of Award. 5.1. Nontransferability of Award. During the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be transferred by the Holder other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing, during the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such shares, the Award shall immediately become null and void. 5.2. Investment Representation. The Holder hereby represents and covenants that (a) any share of Stock acquired upon the lapse of restrictions will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such acquisition has been registered under the Securities Act and any applicable state securities law; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of acquisition of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to the delivery to the Holder of any shares subject to the Award, the Holder shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance of the shares and, in connection therewith, shall execute any documents which the Board or any committee authorized by the Board shall in its sole discretion deem necessary or advisable. -2- 5.3. Withholding Taxes. (a) As a condition precedent to the delivery to the Holder of any shares of Stock subject to the Award, the Holder may, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to the Award. If the Holder shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Holder. (b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 5.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Holder has held for at least six months prior to the delivery of such shares or which the Holder purchased on the open market and for which the Holder has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold from the shares of Stock otherwise to be delivered to the Holder pursuant to the Award, a number of whole shares of Stock having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company through whom the Holder has sold the shares with respect to which the Required Tax Payments have arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended, or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Holder's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 5.4. Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Award shall be appropriately adjusted by the Committee. If any adjustment would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount -3- in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 5.5. Compliance with Applicable Law. Award is subject to the condition that if the listing, registration or qualification of the shares subject to the Award upon any securities exchange or under any law, or the consent or approval of any governments body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of shares hereunder, the shares of Stock subject to the Award may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any :such listing, registration, qualification, consent or approval. 5.6. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Holder hereby acknowledges receipt of a copy of the Plan. 6. Miscellaneous Provisions. 6.1. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Holder, acquire any rights hereunder in accordance with this Agreement or the Plan. 6.2. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Holder, to Rt. 1, Box 1021, Anthony, New Mexico 88021. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission, or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. -4- 6.3. Governing Law. This Agreement, the Award and all determinations made and actions taken pursuant hereto and thereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to conflicts of laws principles. 6.4. Counterparts. This Agreement may be executed in two counterpart each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: ------------------------------ Name: Kenneth R. Heitz Title: Director Acceptance Date: ---------------- - -------------------------------- Susanne M. Sickles -5- EX-99.07 11 RSTRCTD STOCK AWARD AGRMNT. WITH GUILLERMO SILVA Exhibit 99.07 EL PASO ELECTRIC COMPANY RESTRICTED STOCK AWARD AGREEMENT El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Guillermo Silva, Jr. (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 1,060 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Award Subject to Acceptance of Agreement. The Award shall be null and void unless the Holder shall accept this Agreement by executing it in the space provided below and returning it to the Company and execute and return one or more irrevocable stock powers. As soon as practicable after the Holder has executed this Agreement and such stock power or powers and returned the same to the Company, the Company shall cause to be issued in the Holder's name a stock certificate or certificates representing the total number of shares of Stock subject to the Award. 2. Rights as a Stockholder. Holder shall have the right to vote the shares of Stock subject to the Award. During the Restriction Period as to any shares of Stock, cash dividends which would otherwise be payable on any such shares of will be credited to the Holder in the form of additional unvested shares of Stock as if the dividend had purchased additional shares at the closing market price on the date such dividend is paid, and such additional shares (including shares received as stock dividend or stock split), shall be delivered to the Company (and the Holder shall, if requested by the Company, execute and return one or more irrevocable stock powers related thereto) and shall be subject to the same restrictions as the shares of Stock with respect to which such dividend or other distribution was made. 3. Custody and Delivery of Certificates Representing Shares. The Company shall hold the certificate or certificates representing the shares of Stock subject to the Award until the restrictions on such Award shall have lapsed, in whole or in part, pursuant to Section 4 hereof, and the Company shall as soon thereafter as practicable, subject to Section 5.3, deliver the certificate or certificates for such shares to the Holder and destroy the stock power or powers relating to such shares. If such stock power or powers also relates to shares as to which restrictions remain in effect, the Company may require, as a condition precedent to delivery of any certificate pursuant to this Section 3, the execution and delivery to the Company of one or more stock powers relating to such shares. 4. Restriction Period and Vesting. (a) The restrictions on the Award shall lapse on the earliest of the following: (i) with respect to one-fifth of the aggregate number of shares of Stock subject to the Award on February 19, 1998 and as to an additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1999 through 2002, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period"). (b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited. 5. Additional Terms and Conditions of Award. 5.1. Nontransferability of Award. During the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be transferred by the Holder other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing, during the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such shares, the Award shall immediately become null and void. 5.2. Investment Representation. The Holder hereby represents and covenants that (a) any share of Stock acquired upon the lapse of restrictions will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such acquisition has been registered under the Securities Act and any applicable state securities law; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of acquisition of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to the delivery to the Holder of any shares subject to the Award, the Holder shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance of the shares and, in connection therewith, shall execute any documents which the Board or any committee authorized by the Board shall in its sole discretion deem necessary or advisable. -2- 5.3. Withholding Taxes. (a) As a condition precedent to the delivery to the Holder of any shares of Stock subject to the Award, the Holder may, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to the Award. If the Holder shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Holder. (b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 5.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Holder has held for at least six months prior to the delivery of such shares or which the Holder purchased on the open market and for which the Holder has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold from the shares of Stock otherwise to be delivered to the Holder pursuant to the Award, a number of whole shares of Stock having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company through whom the Holder has sold the shares with respect to which the Required Tax Payments have arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended, or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Holder's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 5.4. Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Award shall be appropriately adjusted by the Committee. If any adjustment would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount -3- in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 5.5. Compliance with Applicable Law. Award is subject to the condition that if the listing, registration or qualification of the shares subject to the Award upon any securities exchange or under any law, or the consent or approval of any governments body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of shares hereunder, the shares of Stock subject to the Award may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any :such listing, registration, qualification, consent or approval. 5.6. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Holder hereby acknowledges receipt of a copy of the Plan. 6. Miscellaneous Provisions. 6.1. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Holder, acquire any rights hereunder in accordance with this Agreement or the Plan. 6.2. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Holder, to 4629 R.T. Cassidy, El Paso, Texas 79924. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission, or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. -4- 6.3. Governing Law. This Agreement, the Award and all determinations made and actions taken pursuant hereto and thereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to conflicts of laws principles. 6.4. Counterparts. This Agreement may be executed in two counterpart each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: ------------------------------- Name: Kenneth R. Heitz Title: Director Acceptance Date: ---------------- - -------------------------------- Guillermo Silva, Jr. -5- EX-99.08 12 RSTRCTD STOCK AWARD AGRMNT. WITH PEDRO SERRANO, JR Exhibit 99.08 EL PASO ELECTRIC COMPANY RESTRICTED STOCK AWARD AGREEMENT El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Pedro Serrano, Jr. (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 1,050 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Award Subject to Acceptance of Agreement. The Award shall be null and void unless the Holder shall accept this Agreement by executing it in the space provided below and returning it to the Company and execute and return one or more irrevocable stock powers. As soon as practicable after the Holder has executed this Agreement and such stock power or powers and returned the same to the Company, the Company shall cause to be issued in the Holder's name a stock certificate or certificates representing the total number of shares of Stock subject to the Award. 2. Rights as a Stockholder. Holder shall have the right to vote the shares of Stock subject to the Award. During the Restriction Period as to any shares of Stock, cash dividends which would otherwise be payable on any such shares of will be credited to the Holder in the form of additional unvested shares of Stock as if the dividend had purchased additional shares at the closing market price on the date such dividend is paid, and such additional shares (including shares received as stock dividend or stock split), shall be delivered to the Company (and the Holder shall, if requested by the Company, execute and return one or more irrevocable stock powers related thereto) and shall be subject to the same restrictions as the shares of Stock with respect to which such dividend or other distribution was made. 3. Custody and Delivery of Certificates Representing Shares. The Company shall hold the certificate or certificates representing the shares of Stock subject to the Award until the restrictions on such Award shall have lapsed, in whole or in part, pursuant to Section 4 hereof, and the Company shall as soon thereafter as practicable, subject to Section 5.3, deliver the certificate or certificates for such shares to the Holder and destroy the stock power or powers relating to such shares. If such stock power or powers also relates to shares as to which restrictions remain in effect, the Company may require, as a condition precedent to delivery of any certificate pursuant to this Section 3, the execution and delivery to the Company of one or more stock powers relating to such shares. 4. Restriction Period and Vesting. (a) The restrictions on the Award shall lapse on the earliest of the following: (i) with respect to one-fifth of the aggregate number of shares of Stock subject to the Award on February 19, 1998 and as to an additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1999 through 2002, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period"). (b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited. 5. Additional Terms and Conditions of Award. 5.1. Nontransferability of Award. During the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be transferred by the Holder other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing, during the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such shares, the Award shall immediately become null and void. 5.2. Investment Representation. The Holder hereby represents and covenants that (a) any share of Stock acquired upon the lapse of restrictions will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such acquisition has been registered under the Securities Act and any applicable state securities law; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of acquisition of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to the delivery to the Holder of any shares subject to the Award, the Holder shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance of the shares and, in connection therewith, shall execute any documents which the Board or any committee authorized by the Board shall in its sole discretion deem necessary or advisable. -2- 5.3. Withholding Taxes. (a) As a condition precedent to the delivery to the Holder of any shares of Stock subject to the Award, the Holder may, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to the Award. If the Holder shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Holder. (b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 5.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Holder has held for at least six months prior to the delivery of such shares or which the Holder purchased on the open market and for which the Holder has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold from the shares of Stock otherwise to be delivered to the Holder pursuant to the Award, a number of whole shares of Stock having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company through whom the Holder has sold the shares with respect to which the Required Tax Payments have arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended, or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Holder's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 5.4. Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Award shall be appropriately adjusted by the Committee. If any adjustment would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount -3- in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 5.5. Compliance with Applicable Law. Award is subject to the condition that if the listing, registration or qualification of the shares subject to the Award upon any securities exchange or under any law, or the consent or approval of any governments body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of shares hereunder, the shares of Stock subject to the Award may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any :such listing, registration, qualification, consent or approval. 5.6. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Holder hereby acknowledges receipt of a copy of the Plan. 6. Miscellaneous Provisions. 6.1. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Holder, acquire any rights hereunder in accordance with this Agreement or the Plan. 6.2. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Holder, to 4115 Bliss Ave., El Paso, Texas 79903. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission, or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. -4- 6.3. Governing Law. This Agreement, the Award and all determinations made and actions taken pursuant hereto and thereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to conflicts of laws principles. 6.4. Counterparts. This Agreement may be executed in two counterpart each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: ----------------------------------- Name: Kenneth R. Heitz Title: Director Acceptance Date: ---------------- - -------------------------------- Pedro Serrano, Jr. -5- EX-99.09 13 RSTRCTD STOCK AWARD AGRMNT. WITH THOMAS L. NEWSOM Exhibit 99.09 EL PASO ELECTRIC COMPANY RESTRICTED STOCK AWARD AGREEMENT El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Thomas L. Newsom (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 1,045 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Award Subject to Acceptance of Agreement. The Award shall be null and void unless the Holder shall accept this Agreement by executing it in the space provided below and returning it to the Company and execute and return one or more irrevocable stock powers. As soon as practicable after the Holder has executed this Agreement and such stock power or powers and returned the same to the Company, the Company shall cause to be issued in the Holder's name a stock certificate or certificates representing the total number of shares of Stock subject to the Award. 2. Rights as a Stockholder. Holder shall have the right to vote the shares of Stock subject to the Award. During the Restriction Period as to any shares of Stock, cash dividends which would otherwise be payable on any such shares of will be credited to the Holder in the form of additional unvested shares of Stock as if the dividend had purchased additional shares at the closing market price on the date such dividend is paid, and such additional shares (including shares received as stock dividend or stock split), shall be delivered to the Company (and the Holder shall, if requested by the Company, execute and return one or more irrevocable stock powers related thereto) and shall be subject to the same restrictions as the shares of Stock with respect to which such dividend or other distribution was made. 3. Custody and Delivery of Certificates Representing Shares. The Company shall hold the certificate or certificates representing the shares of Stock subject to the Award until the restrictions on such Award shall have lapsed, in whole or in part, pursuant to Section 4 hereof, and the Company shall as soon thereafter as practicable, subject to Section 5.3, deliver the certificate or certificates for such shares to the Holder and destroy the stock power or powers relating to such shares. If such stock power or powers also relates to shares as to which restrictions remain in effect, the Company may require, as a condition precedent to delivery of any certificate pursuant to this Section 3, the execution and delivery to the Company of one or more stock powers relating to such shares. 4. Restriction Period and Vesting. (a) The restrictions on the Award shall lapse on the earliest of the following: (i) with respect to one-fifth of the aggregate number of shares of Stock subject to the Award on February 19, 1998 and as to an additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1999 through 2002, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period"). (b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited. 5. Additional Terms and Conditions of Award. 5.1. Nontransferability of Award. During the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be transferred by the Holder other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing, during the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such shares, the Award shall immediately become null and void. 5.2. Investment Representation. The Holder hereby represents and covenants that (a) any share of Stock acquired upon the lapse of restrictions will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such acquisition has been registered under the Securities Act and any applicable state securities law; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of acquisition of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to the delivery to the Holder of any shares subject to the Award, the Holder shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance of the shares and, in connection therewith, shall execute any documents which the Board or any committee authorized by the Board shall in its sole discretion deem necessary or advisable. -2- 5.3. Withholding Taxes. (a) As a condition precedent to the delivery to the Holder of any shares of Stock subject to the Award, the Holder may, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to the Award. If the Holder shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Holder. (b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 5.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Holder has held for at least six months prior to the delivery of such shares or which the Holder purchased on the open market and for which the Holder has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold from the shares of Stock otherwise to be delivered to the Holder pursuant to the Award, a number of whole shares of Stock having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company through whom the Holder has sold the shares with respect to which the Required Tax Payments have arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended, or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Holder's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 5.4. Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Award shall be appropriately adjusted by the Committee. If any adjustment would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount -3- in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 5.5. Compliance with Applicable Law. Award is subject to the condition that if the listing, registration or qualification of the shares subject to the Award upon any securities exchange or under any law, or the consent or approval of any governments body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of shares hereunder, the shares of Stock subject to the Award may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any :such listing, registration, qualification, consent or approval. 5.6. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Holder hereby acknowledges receipt of a copy of the Plan. 6. Miscellaneous Provisions. 6.1. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Holder, acquire any rights hereunder in accordance with this Agreement or the Plan. 6.2. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Holder, to 6883 Orizaba, El Paso, Texas 79912. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission, or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. -4- 6.3. Governing Law. This Agreement, the Award and all determinations made and actions taken pursuant hereto and thereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to conflicts of laws principles. 6.4. Counterparts. This Agreement may be executed in two counterpart each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: ----------------------------- Name: Kenneth R. Heitz Title: Director Acceptance Date: --------------------- - ------------------------------------- Thomas L. Newsom -5- EX-99.10 14 RSTRCTD STOCK AWARD AGRMNT. WITH JOHN A. WHITACRE Exhibit 99.10 EL PASO ELECTRIC COMPANY RESTRICTED STOCK AWARD AGREEMENT El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to John A. Whitacre (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 1,085 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Award Subject to Acceptance of Agreement. The Award shall be null and void unless the Holder shall accept this Agreement by executing it in the space provided below and returning it to the Company and execute and return one or more irrevocable stock powers. As soon as practicable after the Holder has executed this Agreement and such stock power or powers and returned the same to the Company, the Company shall cause to be issued in the Holder's name a stock certificate or certificates representing the total number of shares of Stock subject to the Award. 2. Rights as a Stockholder. Holder shall have the right to vote the shares of Stock subject to the Award. During the Restriction Period as to any shares of Stock, cash dividends which would otherwise be payable on any such shares of will be credited to the Holder in the form of additional unvested shares of Stock as if the dividend had purchased additional shares at the closing market price on the date such dividend is paid, and such additional shares (including shares received as stock dividend or stock split), shall be delivered to the Company (and the Holder shall, if requested by the Company, execute and return one or more irrevocable stock powers related thereto) and shall be subject to the same restrictions as the shares of Stock with respect to which such dividend or other distribution was made. 3. Custody and Delivery of Certificates Representing Shares. The Company shall hold the certificate or certificates representing the shares of Stock subject to the Award until the restrictions on such Award shall have lapsed, in whole or in part, pursuant to Section 4 hereof, and the Company shall as soon thereafter as practicable, subject to Section 5.3, deliver the certificate or certificates for such shares to the Holder and destroy the stock power or powers relating to such shares. If such stock power or powers also relates to shares as to which restrictions remain in effect, the Company may require, as a condition precedent to delivery of any certificate pursuant to this Section 3, the execution and delivery to the Company of one or more stock powers relating to such shares. 4. Restriction Period and Vesting. (a) The restrictions on the Award shall lapse on the earliest of the following: (i) with respect to one-fifth of the aggregate number of shares of Stock subject to the Award on February 19, 1998 and as to an additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1999 through 2002, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period"). (b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited. 5. Additional Terms and Conditions of Award. 5.1. Nontransferability of Award. During the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be transferred by the Holder other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing, during the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such shares, the Award shall immediately become null and void. 5.2. Investment Representation. The Holder hereby represents and covenants that (a) any share of Stock acquired upon the lapse of restrictions will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such acquisition has been registered under the Securities Act and any applicable state securities law; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of acquisition of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to the delivery to the Holder of any shares subject to the Award, the Holder shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance of the shares and, in connection therewith, shall execute any documents which the Board or any committee authorized by the Board shall in its sole discretion deem necessary or advisable. -2- 5.3. Withholding Taxes. (a) As a condition precedent to the delivery to the Holder of any shares of Stock subject to the Award, the Holder may, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to the Award. If the Holder shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Holder. (b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 5.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Holder has held for at least six months prior to the delivery of such shares or which the Holder purchased on the open market and for which the Holder has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold from the shares of Stock otherwise to be delivered to the Holder pursuant to the Award, a number of whole shares of Stock having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company through whom the Holder has sold the shares with respect to which the Required Tax Payments have arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended, or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Holder's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 5.4. Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Award shall be appropriately adjusted by the Committee. If any adjustment would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount -3- in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 5.5. Compliance with Applicable Law. Award is subject to the condition that if the listing, registration or qualification of the shares subject to the Award upon any securities exchange or under any law, or the consent or approval of any governments body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of shares hereunder, the shares of Stock subject to the Award may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any :such listing, registration, qualification, consent or approval. 5.6. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Holder hereby acknowledges receipt of a copy of the Plan. 6. Miscellaneous Provisions. 6.1. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Holder, acquire any rights hereunder in accordance with this Agreement or the Plan. 6.2. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Holder, to 333 Kingswood Loop, El Paso, Texas 79932. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission, or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. -4- 6.3. Governing Law. This Agreement, the Award and all determinations made and actions taken pursuant hereto and thereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to conflicts of laws principles. 6.4. Counterparts. This Agreement may be executed in two counterpart each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: --------------------------------- Name: Kenneth R. Heitz Title: Director Acceptance Date: ----------------- - --------------------------------- John A. Whitacre -5- EX-99.11 15 RSTRCTD STOCK AWARD AGRMNT. WITH TERRY D. BASSHAM Exhibit 99.11 EL PASO ELECTRIC COMPANY RESTRICTED STOCK AWARD AGREEMENT El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Terry D. Bassham (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 2,770 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Award Subject to Acceptance of Agreement. The Award shall be null and void unless the Holder shall accept this Agreement by executing it in the space provided below and returning it to the Company and execute and return one or more irrevocable stock powers. As soon as practicable after the Holder has executed this Agreement and such stock power or powers and returned the same to the Company, the Company shall cause to be issued in the Holder's name a stock certificate or certificates representing the total number of shares of Stock subject to the Award. 2. Rights as a Stockholder. Holder shall have the right to vote the shares of Stock subject to the Award. During the Restriction Period as to any shares of Stock, cash dividends which would otherwise be payable on any such shares of will be credited to the Holder in the form of additional unvested shares of Stock as if the dividend had purchased additional shares at the closing market price on the date such dividend is paid, and such additional shares (including shares received as stock dividend or stock split), shall be delivered to the Company (and the Holder shall, if requested by the Company, execute and return one or more irrevocable stock powers related thereto) and shall be subject to the same restrictions as the shares of Stock with respect to which such dividend or other distribution was made. 3. Custody and Delivery of Certificates Representing Shares. The Company shall hold the certificate or certificates representing the shares of Stock subject to the Award until the restrictions on such Award shall have lapsed, in whole or in part, pursuant to Section 4 hereof, and the Company shall as soon thereafter as practicable, subject to Section 5.3, deliver the certificate or certificates for such shares to the Holder and destroy the stock power or powers relating to such shares. If such stock power or powers also relates to shares as to which restrictions remain in effect, the Company may require, as a condition precedent to delivery of any certificate pursuant to this Section 3, the execution and delivery to the Company of one or more stock powers relating to such shares. 4. Restriction Period and Vesting. (a) The restrictions on the Award shall lapse on the earliest of the following: (i) with respect to one-fifth of the aggregate number of shares of Stock subject to the Award on February 19, 1998 and as to an additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1999 through 2002, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period"). (b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited. 5. Additional Terms and Conditions of Award. 5.1. Nontransferability of Award. During the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be transferred by the Holder other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing, during the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such shares, the Award shall immediately become null and void. 5.2. Investment Representation. The Holder hereby represents and covenants that (a) any share of Stock acquired upon the lapse of restrictions will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such acquisition has been registered under the Securities Act and any applicable state securities law; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of acquisition of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to the delivery to the Holder of any shares subject to the Award, the Holder shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance of the shares and, in connection therewith, shall execute any documents which the Board or any committee authorized by the Board shall in its sole discretion deem necessary or advisable. -2- 5.3. Withholding Taxes. (a) As a condition precedent to the delivery to the Holder of any shares of Stock subject to the Award, the Holder may, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to the Award. If the Holder shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Holder. (b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 5.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Holder has held for at least six months prior to the delivery of such shares or which the Holder purchased on the open market and for which the Holder has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold from the shares of Stock otherwise to be delivered to the Holder pursuant to the Award, a number of whole shares of Stock having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company through whom the Holder has sold the shares with respect to which the Required Tax Payments have arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended, or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Holder's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 5.4. Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Award shall be appropriately adjusted by the Committee. If any adjustment would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount -3- in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 5.5. Compliance with Applicable Law. Award is subject to the condition that if the listing, registration or qualification of the shares subject to the Award upon any securities exchange or under any law, or the consent or approval of any governments body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of shares hereunder, the shares of Stock subject to the Award may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any :such listing, registration, qualification, consent or approval. 5.6. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Holder hereby acknowledges receipt of a copy of the Plan. 6. Miscellaneous Provisions. 6.1. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Holder, acquire any rights hereunder in accordance with this Agreement or the Plan. 6.2. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Holder, to 365 La Mirada, El Paso, Texas 79932. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission, or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. -4- 6.3. Governing Law. This Agreement, the Award and all determinations made and actions taken pursuant hereto and thereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to conflicts of laws principles. 6.4. Counterparts. This Agreement may be executed in two counterpart each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: -------------------------------- Name: Kenneth R. Heitz Title: Director Acceptance Date: ------------------- - ----------------------------------- Terry D. Bassham -5- EX-99.12 16 RSTRCTD STOCK AWARD AGRMNT. WITH EDUARDO A. RODRIQ Exhibit 99.12 EL PASO ELECTRIC COMPANY RESTRICTED STOCK AWARD AGREEMENT El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Eduardo A. Rodriguez (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 4,370 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Award Subject to Acceptance of Agreement. The Award shall be null and void unless the Holder shall accept this Agreement by executing it in the space provided below and returning it to the Company and execute and return one or more irrevocable stock powers. As soon as practicable after the Holder has executed this Agreement and such stock power or powers and returned the same to the Company, the Company shall cause to be issued in the Holder's name a stock certificate or certificates representing the total number of shares of Stock subject to the Award. 2. Rights as a Stockholder. Holder shall have the right to vote the shares of Stock subject to the Award. During the Restriction Period as to any shares of Stock, cash dividends which would otherwise be payable on any such shares of will be credited to the Holder in the form of additional unvested shares of Stock as if the dividend had purchased additional shares at the closing market price on the date such dividend is paid, and such additional shares (including shares received as stock dividend or stock split), shall be delivered to the Company (and the Holder shall, if requested by the Company, execute and return one or more irrevocable stock powers related thereto) and shall be subject to the same restrictions as the shares of Stock with respect to which such dividend or other distribution was made. 3. Custody and Delivery of Certificates Representing Shares. The Company shall hold the certificate or certificates representing the shares of Stock subject to the Award until the restrictions on such Award shall have lapsed, in whole or in part, pursuant to Section 4 hereof, and the Company shall as soon thereafter as practicable, subject to Section 5.3, deliver the certificate or certificates for such shares to the Holder and destroy the stock power or powers relating to such shares. If such stock power or powers also relates to shares as to which restrictions remain in effect, the Company may require, as a condition precedent to delivery of any certificate pursuant to this Section 3, the execution and delivery to the Company of one or more stock powers relating to such shares. 4. Restriction Period and Vesting. (a) The restrictions on the Award shall lapse on the earliest of the following: (i) with respect to one-fifth of the aggregate number of shares of Stock subject to the Award on February 19, 1998 and as to an additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1999 through 2002, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period"). (b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited. 5. Additional Terms and Conditions of Award. 5.1. Nontransferability of Award. During the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be transferred by the Holder other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing, during the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such shares, the Award shall immediately become null and void. 5.2. Investment Representation. The Holder hereby represents and covenants that (a) any share of Stock acquired upon the lapse of restrictions will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such acquisition has been registered under the Securities Act and any applicable state securities law; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of acquisition of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to the delivery to the Holder of any shares subject to the Award, the Holder shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance of the shares and, in connection therewith, shall execute any documents which the Board or any committee authorized by the Board shall in its sole discretion deem necessary or advisable. -2- 5.3. Withholding Taxes. (a) As a condition precedent to the delivery to the Holder of any shares of Stock subject to the Award, the Holder may, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to the Award. If the Holder shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Holder. (b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 5.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Holder has held for at least six months prior to the delivery of such shares or which the Holder purchased on the open market and for which the Holder has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold from the shares of Stock otherwise to be delivered to the Holder pursuant to the Award, a number of whole shares of Stock having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company through whom the Holder has sold the shares with respect to which the Required Tax Payments have arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended, or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Holder's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 5.4. Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Award shall be appropriately adjusted by the Committee. If any adjustment would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount -3- in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 5.5. Compliance with Applicable Law. Award is subject to the condition that if the listing, registration or qualification of the shares subject to the Award upon any securities exchange or under any law, or the consent or approval of any governments body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of shares hereunder, the shares of Stock subject to the Award may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any :such listing, registration, qualification, consent or approval. 5.6. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Holder hereby acknowledges receipt of a copy of the Plan. 6. Miscellaneous Provisions. 6.1. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Holder, acquire any rights hereunder in accordance with this Agreement or the Plan. 6.2. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Holder, to 6404 Los Altos, El Paso, Texas 79912. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission, or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. -4- 6.3. Governing Law. This Agreement, the Award and all determinations made and actions taken pursuant hereto and thereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to conflicts of laws principles. 6.4. Counterparts. This Agreement may be executed in two counterpart each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: -------------------------------------------- Name: Kenneth R. Heitz Title: Director Acceptance Date: --------------- - -------------------------------- Eduardo A. Rodriguez -5- EX-99.13 17 RSTRCTD STOCK AWARD AGRMNT. WITH GARY R. HEDRICK Exhibit 99.13 EL PASO ELECTRIC COMPANY RESTRICTED STOCK AWARD AGREEMENT El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to Gary R. Hedrick (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 3,060 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Award Subject to Acceptance of Agreement. The Award shall be null and void unless the Holder shall accept this Agreement by executing it in the space provided below and returning it to the Company and execute and return one or more irrevocable stock powers. As soon as practicable after the Holder has executed this Agreement and such stock power or powers and returned the same to the Company, the Company shall cause to be issued in the Holder's name a stock certificate or certificates representing the total number of shares of Stock subject to the Award. 2. Rights as a Stockholder. Holder shall have the right to vote the shares of Stock subject to the Award. During the Restriction Period as to any shares of Stock, cash dividends which would otherwise be payable on any such shares of will be credited to the Holder in the form of additional unvested shares of Stock as if the dividend had purchased additional shares at the closing market price on the date such dividend is paid, and such additional shares (including shares received as stock dividend or stock split), shall be delivered to the Company (and the Holder shall, if requested by the Company, execute and return one or more irrevocable stock powers related thereto) and shall be subject to the same restrictions as the shares of Stock with respect to which such dividend or other distribution was made. 3. Custody and Delivery of Certificates Representing Shares. The Company shall hold the certificate or certificates representing the shares of Stock subject to the Award until the restrictions on such Award shall have lapsed, in whole or in part, pursuant to Section 4 hereof, and the Company shall as soon thereafter as practicable, subject to Section 5.3, deliver the certificate or certificates for such shares to the Holder and destroy the stock power or powers relating to such shares. If such stock power or powers also relates to shares as to which restrictions remain in effect, the Company may require, as a condition precedent to delivery of any certificate pursuant to this Section 3, the execution and delivery to the Company of one or more stock powers relating to such shares. 4. Restriction Period and Vesting. (a) The restrictions on the Award shall lapse on the earliest of the following: (i) with respect to one-fifth of the aggregate number of shares of Stock subject to the Award on February 19, 1998 and as to an additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1999 through 2002, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period"). (b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited. 5. Additional Terms and Conditions of Award. 5.1. Nontransferability of Award. During the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be transferred by the Holder other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing, during the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such shares, the Award shall immediately become null and void. 5.2. Investment Representation. The Holder hereby represents and covenants that (a) any share of Stock acquired upon the lapse of restrictions will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such acquisition has been registered under the Securities Act and any applicable state securities law; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of acquisition of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to the delivery to the Holder of any shares subject to the Award, the Holder shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance of the shares and, in connection therewith, shall execute any documents which the Board or any committee authorized by the Board shall in its sole discretion deem necessary or advisable. -2- 5.3. Withholding Taxes. (a) As a condition precedent to the delivery to the Holder of any shares of Stock subject to the Award, the Holder may, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to the Award. If the Holder shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Holder. (b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 5.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Holder has held for at least six months prior to the delivery of such shares or which the Holder purchased on the open market and for which the Holder has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold from the shares of Stock otherwise to be delivered to the Holder pursuant to the Award, a number of whole shares of Stock having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company through whom the Holder has sold the shares with respect to which the Required Tax Payments have arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended, or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Holder's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 5.4. Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Award shall be appropriately adjusted by the Committee. If any adjustment would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount -3- in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 5.5. Compliance with Applicable Law. Award is subject to the condition that if the listing, registration or qualification of the shares subject to the Award upon any securities exchange or under any law, or the consent or approval of any governments body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of shares hereunder, the shares of Stock subject to the Award may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any :such listing, registration, qualification, consent or approval. 5.6. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Holder hereby acknowledges receipt of a copy of the Plan. 6. Miscellaneous Provisions. 6.1. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Holder, acquire any rights hereunder in accordance with this Agreement or the Plan. 6.2. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Holder, to 215-J Mulberry, El Paso, Texas 79932. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission, or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. -4- 6.3. Governing Law. This Agreement, the Award and all determinations made and actions taken pursuant hereto and thereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to conflicts of laws principles. 6.4. Counterparts. This Agreement may be executed in two counterpart each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: ----------------------------- Name: Kenneth R. Heitz Title: Director Acceptance Date: ------------------- - ----------------------------------- Gary R. Hedrick -5- EX-99.14 18 RSTRCTD STOCK AWARD AGRMNT. WITH JOHN C. HORNE Exhibit 99.14 EL PASO ELECTRIC COMPANY RESTRICTED STOCK AWARD AGREEMENT El Paso Electric Company, a Texas corporation (the 'Company'), hereby grants to John C. Horne (the "Holder"), pursuant to the provisions of the El Paso Electric Company 1996 Long-Term Incentive Plan (the "Plan"), a restricted stock award (the "Award") of 2,865 shares of the Company's Common Stock, no par value ("Stock"), upon and subject to the restrictions, terms and conditions set forth below. Capitalized terms not defined herein shall have the meanings specified in the Plan. 1. Award Subject to Acceptance of Agreement. The Award shall be null and void unless the Holder shall accept this Agreement by executing it in the space provided below and returning it to the Company and execute and return one or more irrevocable stock powers. As soon as practicable after the Holder has executed this Agreement and such stock power or powers and returned the same to the Company, the Company shall cause to be issued in the Holder's name a stock certificate or certificates representing the total number of shares of Stock subject to the Award. 2. Rights as a Stockholder. Holder shall have the right to vote the shares of Stock subject to the Award. During the Restriction Period as to any shares of Stock, cash dividends which would otherwise be payable on any such shares of will be credited to the Holder in the form of additional unvested shares of Stock as if the dividend had purchased additional shares at the closing market price on the date such dividend is paid, and such additional shares (including shares received as stock dividend or stock split), shall be delivered to the Company (and the Holder shall, if requested by the Company, execute and return one or more irrevocable stock powers related thereto) and shall be subject to the same restrictions as the shares of Stock with respect to which such dividend or other distribution was made. 3. Custody and Delivery of Certificates Representing Shares. The Company shall hold the certificate or certificates representing the shares of Stock subject to the Award until the restrictions on such Award shall have lapsed, in whole or in part, pursuant to Section 4 hereof, and the Company shall as soon thereafter as practicable, subject to Section 5.3, deliver the certificate or certificates for such shares to the Holder and destroy the stock power or powers relating to such shares. If such stock power or powers also relates to shares as to which restrictions remain in effect, the Company may require, as a condition precedent to delivery of any certificate pursuant to this Section 3, the execution and delivery to the Company of one or more stock powers relating to such shares. 4. Restriction Period and Vesting. (a) The restrictions on the Award shall lapse on the earliest of the following: (i) with respect to one-fifth of the aggregate number of shares of Stock subject to the Award on February 19, 1998 and as to an additional one-fifth of such aggregate number of shares on each anniversary thereof during the years 1999 through 2002, inclusive, or (ii) in accordance with Section 6.8 of the Plan (the "Restriction Period"). (b) If the Holder's employment with the Company is terminated by the Company during the Restriction Period or by reason of the Holder's "Permanent and Total Disability" (as such term is defined in the Plan), or by reason of the Holder's voluntary resignation or retirement or his death, then any shares of Stock as to which restrictions have not lapsed shall be forfeited. 5. Additional Terms and Conditions of Award. 5.1. Nontransferability of Award. During the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be transferred by the Holder other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company. Except to the extent permitted by the foregoing, during the Restriction Period, the shares of Stock subject to the Award as to which restrictions remain in effect may not be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate or encumber, or otherwise dispose of such shares, the Award shall immediately become null and void. 5.2. Investment Representation. The Holder hereby represents and covenants that (a) any share of Stock acquired upon the lapse of restrictions will be acquired for investment and not with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), unless such acquisition has been registered under the Securities Act and any applicable state securities law; (b) any subsequent sale of any such shares shall be made either pursuant to an effective registration statement under the Securities Act and any applicable state securities laws, or pursuant to an exemption from registration under the Securities Act and such state securities laws; and (c) if requested by the Company, the Holder shall submit a written statement, in form satisfactory to the Company, to the effect that such representation (x) is true and correct as of the date of acquisition of any shares hereunder or (y) is true and correct as of the date of any sale of any such shares, as applicable. As a further condition precedent to the delivery to the Holder of any shares subject to the Award, the Holder shall comply with all regulations and requirements of any regulatory authority having control of or supervision over the issuance of the shares and, in connection therewith, shall execute any documents which the Board or any committee authorized by the Board shall in its sole discretion deem necessary or advisable. -2- 5.3. Withholding Taxes. (a) As a condition precedent to the delivery to the Holder of any shares of Stock subject to the Award, the Holder may, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the "Required Tax Payments") with respect to the Award. If the Holder shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to the Holder. (b) The Holder may elect to satisfy his or her obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company pursuant to Section 5.3(a), (2) delivery to the Company of previously owned whole shares of Stock (which the Holder has held for at least six months prior to the delivery of such shares or which the Holder purchased on the open market and for which the Holder has good title, free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the Company to withhold from the shares of Stock otherwise to be delivered to the Holder pursuant to the Award, a number of whole shares of Stock having a Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a broker-dealer acceptable to the Company through whom the Holder has sold the shares with respect to which the Required Tax Payments have arisen or (5) any combination of (1), (2) and (3). The Committee may disapprove an election pursuant to any of clauses (2)-(5) if the Committee determines, based on the opinion of recognized securities counsel, that the method so elected would result in liability to the Optionee under Section 16(b) of the Securities Exchange Act of 1934, as amended, or the regulations promulgated thereunder. Shares of Stock to be delivered or withheld may have a Fair Market Value in excess of the minimum amount of the Required Tax Payments, but not in excess of the amount determined by applying the Holder's maximum marginal tax rate. Any fraction of a share of Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the Holder. No certificate representing a share of Stock shall be delivered until the Required Tax Payments have been satisfied in full. 5.4. Adjustment. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar change in capitalization or event, or any distribution to holders of Stock other than a regular cash dividend, the number and class of securities subject to the Award shall be appropriately adjusted by the Committee. If any adjustment would result in a fractional security being subject to the Award, the Company shall pay the Holder in connection with the vesting, if any, of such fractional security, an amount -3- in cash determined by multiplying (i) such fraction (rounded to the nearest hundredth) by (ii) the Fair Market Value on the vesting date. The decision of the Committee regarding any such adjustment shall be final, binding and conclusive. 5.5. Compliance with Applicable Law. Award is subject to the condition that if the listing, registration or qualification of the shares subject to the Award upon any securities exchange or under any law, or the consent or approval of any governments body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the vesting or delivery of shares hereunder, the shares of Stock subject to the Award may not be delivered, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company agrees to use reasonable efforts to effect or obtain any :such listing, registration, qualification, consent or approval. 5.6. Agreement Subject to the Plan. This Agreement is subject to the provisions of the Plan and shall be interpreted in accordance therewith. The Holder hereby acknowledges receipt of a copy of the Plan. 6. Miscellaneous Provisions. 6.1. Successors. This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Holder, acquire any rights hereunder in accordance with this Agreement or the Plan. 6.2. Notices. All notices, requests or other communications provided for in this Agreement shall be made, if to the Company, to Kayser Building, 100 North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to the Holder, to 6124 Laguna Vista Drive, El Paso, Texas 79932. All notices, requests or other communications provided for in this Agreement shall be made in writing either (a) by personal delivery to the party entitled thereto, (b) by facsimile with confirmation of receipt, (c) by mailing in the United States mails to the last known address of the party entitled thereto or (d) by express courier service. The notice, request or other communication shall be deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission, or upon receipt by the party entitled thereto if by United States mail or express courier service; provided, however, that if a notice, request or other communication is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. -4- 6.3. Governing Law. This Agreement, the Award and all determinations made and actions taken pursuant hereto and thereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Texas and construed in accordance therewith without giving effect to conflicts of laws principles. 6.4. Counterparts. This Agreement may be executed in two counterpart each of which shall be deemed an original and both of which together shall constitute one and the same instrument. EL PASO ELECTRIC COMPANY By: --------------------------------------- Name: Kenneth R. Heitz Title: Director Acceptance Date: --------------- - ------------------------------- John C. Horne -5- -----END PRIVACY-ENHANCED MESSAGE-----