-----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, NJZonoQiLVdZz56VoaxwKMm4YM0Bu9BOqOr0xYUJzKAI23sFNIkybaE40Pe0LQH4 kydR+LbeaWJASZ24trrehg== 0000741612-01-500013.txt : 20010312 0000741612-01-500013.hdr.sgml : 20010312 ACCESSION NUMBER: 0000741612-01-500013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TNP ENTERPRISES INC CENTRAL INDEX KEY: 0000741612 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 751907501 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 002-89800 FILM NUMBER: 1563379 BUSINESS ADDRESS: STREET 1: PO BOX 2943 STREET 2: 4100 INTERNATIONAL PLAZA CITY: FT WORTH STATE: TX ZIP: 76113 BUSINESS PHONE: 8177310099 MAIL ADDRESS: STREET 1: 4100 INTERNATIONAL PLAZA STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEXAS NEW MEXICO POWER CO CENTRAL INDEX KEY: 0000022767 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 750204070 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 002-97230 FILM NUMBER: 1563380 BUSINESS ADDRESS: STREET 1: 4100 INTERNATIONAL PLZ STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 BUSINESS PHONE: 8177310099 MAIL ADDRESS: STREET 1: 4100 INTERNATIONAL PLAZA STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 FORMER COMPANY: FORMER CONFORMED NAME: COMMUNITY PUBLIC SERVICE CO DATE OF NAME CHANGE: 19810617 EX-10.O 1 chambers-ea.htm AGMT OF 4/6/00 BETWEEN J.V. CHAMBERS AND TNMP Word 8.0 Generic Normal Template, rev. 4/1/97, The Legal MacPac

Senior Officer Agreement

 

 

 

                                                                                           April 6, 2000

PERSONAL AND CONFIDENTIAL

Mr. Jack C. Chambers
Texas-New Mexico Power Company
4100 International Plaza
Fort Worth, Texas 76109

Dear Mr. Chambers:

                We are pleased to offer you the position of Senior Vice President and Chief Customer Officer of Texas-New Mexico Power Company (the "Company") under the terms and conditions herein indicated. For purposes of this agreement the term "Company" shall also include any affiliate of Texas-New Mexico Power Company to which you are transferred during the term of this agreement with your consent.

                This agreement is effective as of and only upon the closing (the "Closing") as defined in the Agreement and Plan of Merger dated as of May 24, 1999 by an among SW Acquisition, L.P., ST Acquisition Corp. and TNP Enterprises, Inc. The terms and conditions set forth herein shall remain in effect until the third anniversary of the Closing, except as otherwise noted herein, provided you remain employed by the Company through such date. This agreement supersedes all previous agreements relating to your employment with the Company, including, but not limited to, your Texas-New Mexico Power Company Executive Agreement for Severance Upon Change in Control dated as of February 16, 1998 and all such agreements will have no further force and effect.

                During the term of this agreement, you will be entitled to annual compensation of not less than $600,000, payable as described below.

1.

Your annual salary will be $535,366, comprised of the following components: an annual Base Salary of $258,535, which shall be payable in accordance with the Company's customary payroll practices and an annual Bonus of $276,831, payable to you in a lump sum on each of the first, second and third anniversaries of the date hereof, provided that you have not terminated your employment with the Company as of the day immediately prior to the date of payment of such annual Bonus.

2.

You will be eligible to receive an annual incentive bonus ranging from 0% to 37.5% of your Base Salary if you remain employed by the Company through the end of each calendar year during the term of this agreement. The amount of your annual incentive bonus will be based on the attainment of certain pre-established financial and operational goals of the Company. Your target annual incentive bonus shall be equal to 25% of your Base Salary.

3.

In the event that the total compensation you receive during any of the three succeeding 12-month periods commencing on the date hereof, including your Base Salary, Bonus and incentive bonus, is less than $600,000, you shall be entitled to an additional bonus for such 12-month period equal to the amount of such shortfall, which amount shall be payable as soon as practicable following the first, second and third anniversaries of the date hereof, as applicable, provided that you have not terminated your employment with the Company prior to the completion of such 12-month period.

 

                You will be eligible for all of the Company's benefits, including major medical, dental, life, and long-term disability insurance, pension plan participation, excess benefit plan participation, thrift plan participation, deferred compensation plan participation, holiday pay and vacation pay, in accordance with the Company's plans and policies as in effect from time to time.

                Notwithstanding any other provision of this agreement, in the event that during the term of this agreement, your employment with the Company is terminated by you for Good Reason (as defined below) or by the Company for any reason other than for Cause (as defined below), you shall be entitled to receive (a) an amount equal to the product of (i) your average annual Base Salary received under this agreement prior to the date of your termination, and (ii) a fraction having a numerator equal to the number of months (or portion thereof) remaining from the date of such termination of employment until the third anniversary of the date hereof, and a denominator equal to 12, and (b) an amount equal to the product of (x) $276,831, and (y) a fraction having a numerator equal to the number of months (or portion thereof) you were employed by the Company in the year of your termination of employment, and a denominator equal to 12.

                In addition, if your employment with the Company terminates after the Closing you (or your estate, in the event of your death) shall be entitled to receive a special lump sum retirement benefit equal to $848,677.

                In the event that during the term of this agreement, your employment with the Company is terminated for Cause, all rights under this agreement (other than the special retirement benefit provided under the preceding paragraph) shall cease and you shall not be entitled to any additional compensation or payments hereunder.

                For the purposes of this agreement, Cause shall mean (i) your willful and continued failure to substantially perform your duties with the Company (excluding any failure resulting from your disability), subject to any appeal or grievance procedure set forth in the Company's Personnel Policy Manual; (ii) your performance of any act or acts constituting a felony involving moral turpitude and which results or is intended to result in damage or harm to the Company, whether monetary or otherwise, or which results in or is intended to result in improper gain or personal enrichment; or (iii) violations of the Company's Personnel Policy Manual, as constituted at any time prior to the expiration of this agreement, concerning personal conduct; provided, that the Company must follow its disciplinary procedures as set forth therein.

                For the purposes of this agreement, Good Reason shall mean any of the following (without your prior express written consent) (i) a material adverse change in your title, position, duties or responsibilities or you are assigned any duties or responsibilities materially inconsistent with your duties or responsibilities immediately prior to the execution of this agreement (provided, however, that a redesignation of your title, duties or responsibilities among TNP Enterprises, the Company and its primary affiliates shall not constitute Good Reason if your overall duties and status among TNP Enterprises, Inc., the Company and its primary affiliates are not substantially adversely affected); (ii) your compensation arrangements as provided in this agreement are decreased by the Company; (iii) your benefits under the employee benefit plans and programs of the Company are, in the aggregate, materially decreased; (iv) there is a material adverse change in your reporting rights and/or obligations; or (v) the Company requires you to relocate to a location more than sixty-five (65) miles from the location of your office immediately prior to the execution of this agreement. A termination for Good Reason under this agreement must occur within thirty (30) days after the event which first provides a basis for such termination.

                The Company's obligation to make the payments provided for in this agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against you or others. In the event that your employment with the Company is terminated for any reason, other than for Cause, you shall be under no obligation to seek other employment or take any other action by way of mitigation of the amounts payable to you under any of the provisions of this agreement.

                In the event that a claim for payment or benefits under this agreement is disputed, or if the Company commences any proceedings in connection with your employment, you shall be reimbursed for all attorney fees and expenses incurred by you in pursuing such claim, provided that you are successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement. While such claim or proceeding is pending, the Company will reimburse you for such attorney fees and expenses on a regular, periodic basis, within thirty days following receipt by the Company of statements of such counsel. However, if you are not successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement, you agree to repay the Company within 30 days of such determination, an amount equal to the total amount that the Company has previously reimbursed you for legal fees and expenses in connection with such claim or proceeding.

                The Company shall require any successor to all or substantially all of its business and/or assets, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, to expressly assume and agree to perform this agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. For purposes of this paragraph, "Company" shall mean both the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this agreement by operation of law or otherwise.

                In the event that during the term of this agreement, your employment with the Company is terminated by you for Good Reason or by the Company for any reason other than for Cause, the Company shall pay you an amount equal to the sum of (i) any excise tax pursuant to Section 4999 of the Internal Revenue Code of 1988, as amended (the "Code"), incurred by you as a result of the payment of any amounts under this agreement as a result of your termination of employment and (ii) any additional federal, state or local income tax liability (calculated at the highest effective rate applicable to individuals) and excise tax liability (under Section 4999 of the Code) attributable to payments made pursuant to this paragraph.

                The respective rights and obligations of the parties hereunder shall survive any termination of this agreement for any reason to the extent necessary to the intended provision of such rights and the intended performance of such obligations.

                No provisions of this agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and the Company. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this agreement. This agreement shall be governed by and construed in accordance with the laws of the State of Texas.

                If the above terms and conditions meet with your approval, please so indicate by countersigning this letter in the space provided below, returning on copy to me. We would be extremely pleased and proud to have you continue as a member of our TNP team.

 

Sincerely,

 

TEXAS-NEW MEXICO POWER COMPANY

   
   
 

By:  \s\  Kevern R. Joyce                            

 

Agreed to and accepted this 6th day of April, 2000.

   \s\  Jack V. Chambers                           

     Jack V. Chambers

EX-10.P 2 cheema-ea.htm AGMT OF 6/15/00 BETWEEN M.S. CHEEMA AND TNMP Word 8.0 Generic Normal Template, rev. 4/1/97, The Legal MacPac

Senior Officer Agreement

 

                                                                                          June 15, 2000

PERSONAL AND CONFIDENTIAL

Mr. Manjit S. Cheema
Texas-New Mexico Power Company
4100 International Plaza
Fort Worth, Texas 76109

Dear Mr. Cheema:

               We are pleased to offer you the position of Senior Vice President and Chief Financial Officer of Texas-New Mexico Power Company (the "Company") under the terms and conditions herein indicated. For purposes of this agreement the term "Company" shall also include any affiliate of Texas-New Mexico Power Company to which you are transferred during the term of this agreement with your consent.

               This agreement is effective as of and only upon the closing (the "Closing") as defined in the Agreement and Plan of Merger dated as of May 24, 1999 by an among SW Acquisition, L.P., ST Acquisition Corp. and TNP Enterprises, Inc. The terms and conditions set forth herein shall remain in effect until the third anniversary of the Closing, except as otherwise noted herein, provided you remain employed by the Company through such date. This agreement supersedes all previous agreements relating to your employment with the Company, including, but not limited to, your Texas-New Mexico Power Company Executive Agreement for Severance Upon Change in Control dated as of February 16, 1998 and all such agreements will have no further force and effect.

               During the term of this agreement, you will be entitled to annual compensation of not less than $525,000, payable as described below.

1.

Your annual salary will be $468,233, comprised of the following components: an annual Base Salary of $227,066, which shall be payable in accordance with the Company's customary payroll practices and an annual Bonus of $241,167, payable to you in a lump sum on each of the first, second and third anniversaries of the date hereof, provided that you have not terminated your employment with the Company as of the day immediately prior to the date of payment of such annual Bonus.

2.

You will be eligible to receive an annual incentive bonus ranging from 0% to 37.5% of your Base Salary if you remain employed by the Company through the end of each calendar year during the term of this agreement. The amount of your annual incentive bonus will be based on the attainment of certain pre-established financial and operational goals of the Company. Your target annual incentive bonus shall be equal to 25% of your Base Salary.

3.

In the event that the total compensation you receive during any of the three succeeding 12-month periods commencing on the date hereof, including your Base Salary, Bonus and incentive bonus, is less than $525,000, you shall be entitled to an additional bonus for such 12-month period equal to the amount of such shortfall, which amount shall be payable as soon as practicable following the first, second and third anniversaries of the date hereof, as applicable, provided that you have not terminated your employment with the Company prior to the completion of such 12-month period.

               You will be eligible for all of the Company's benefits, including major medical, dental, life, and long-term disability insurance, pension plan participation, excess benefit plan participation, thrift plan participation, deferred compensation plan participation, holiday pay and vacation pay, in accordance with the Company's plans and policies as in effect from time to time.

               Notwithstanding any other provision of this agreement, in the event that during the term of this agreement, your employment with the Company is terminated by you for Good Reason (as defined below) or by the Company for any reason other than for Cause (as defined below), you shall be entitled to receive (a) an amount equal to the product of (i) your average annual Base Salary received under this agreement prior to the date of your termination, and (ii) a fraction having a numerator equal to the number of months (or portion thereof) remaining from the date of such termination of employment until the third anniversary of the date hereof, and a denominator equal to 12, and (b) an amount equal to the product of (x) $241,167, and (y) a fraction having a numerator equal to the number of months (or portion thereof) you were employed by the Company in the year of your termination of employment, and a denominator equal to 12.

               In addition, if your employment with the Company is terminated, you (or your estate, in the event of your death) shall be entitled to receive a special lump sum retirement benefit equal to $700,000.

               In the event that during the term of this agreement, your employment with the Company is terminated for Cause, all rights under this agreement (other than the special retirement benefit provided under the preceding paragraph) shall cease and you shall not be entitled to any additional compensation or payments hereunder.

               For the purposes of this agreement, Cause shall mean (i) your willful and continued failure to substantially perform your duties with the Company (excluding any failure resulting from your disability), subject to any appeal or grievance procedure set forth in the Company's Personnel Policy Manual; (ii) your performance of any act or acts constituting a felony involving moral turpitude and which results or is intended to result in damage or harm to the Company, whether monetary or otherwise, or which results in or is intended to result in improper gain or personal enrichment; or (iii) violations of the Company's Personnel Policy Manual, as constituted at any time prior to the expiration of this agreement, concerning personal conduct; provided, that the Company must follow its disciplinary procedures as set forth therein.

               For the purposes of this agreement, Good Reason shall mean any of the following (without your prior express written consent) (i) a material adverse change in your title, position, duties or responsibilities or you are assigned any duties or responsibilities materially inconsistent with your duties or responsibilities immediately prior to the execution of this agreement (provided, however, that a redesignation of your title, duties or responsibilities among TNP Enterprises, the Company and its primary affiliates shall not constitute Good Reason if your overall duties and status among TNP Enterprises, Inc., the Company and its primary affiliates are not substantially adversely affected); (ii) your compensation arrangements as provided in this agreement are decreased by the Company; (iii) your benefits under the employee benefit plans and programs of the Company are, in the aggregate, materially decreased; (iv) there is a material adverse change in your reporting rights and/or obligations; or (v) the Company requires you to relocate to a location more than sixty-five (65) miles from the location of your office immediately prior to the execution of this agreement. A termination for Good Reason under this agreement must occur within thirty (30) days after the event which first provides a basis for such termination.

               The Company's obligation to make the payments provided for in this agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against you or others. In the event that your employment with the Company is terminated for any reason, other than for Cause, you shall be under no obligation to seek other employment or take any other action by way of mitigation of the amounts payable to you under any of the provisions of this agreement.

               In the event that a claim for payment or benefits under this agreement is disputed, or if the Company commences any proceedings in connection with your employment, you shall be reimbursed for all attorney fees and expenses incurred by you in pursuing such claim, provided that you are successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement. While such claim or proceeding is pending, the Company will reimburse you for such attorney fees and expenses on a regular, periodic basis, within thirty days following receipt by the Company of statements of such counsel. However, if you are not successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement, you agree to repay the Company within 30 days of such determination, an amount equal to the total amount that the Company has previously reimbursed you for legal fees and expenses in connection with such claim or proceeding.

               The Company shall require any successor to all or substantially all of its business and/or assets, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, to expressly assume and agree to perform this agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. For purposes of this paragraph, "Company" shall mean both the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this agreement by operation of law or otherwise.

               In the event that during the term of this agreement, your employment with the Company is terminated by you for Good Reason or by the Company for any reason other than for Cause, the Company shall pay you an amount equal to the sum of (i) any excise tax pursuant to Section 4999 of the Internal Revenue Code of 1988, as amended (the "Code"), incurred by you as a result of the payment of any amounts under this agreement as a result of your termination of employment and (ii) any additional federal, state or local income tax liability (calculated at the highest effective rate applicable to individuals) and excise tax liability (under Section 4999 of the Code) attributable to payments made pursuant to this paragraph.

               The respective rights and obligations of the parties hereunder shall survive any termination of this agreement for any reason to the extent necessary to the intended provision of such rights and the intended performance of such obligations.

               No provisions of this agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and the Company. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this agreement. This agreement shall be governed by and construed in accordance with the laws of the State of Texas.

               If the above terms and conditions meet with your approval, please so indicate by countersigning this letter in the space provided below, returning on copy to me. We would be extremely pleased and proud to have you continue as a member of our TNP team.

 

Sincerely,

 

TEXAS-NEW MEXICO POWER COMPANY

   
   
 

By:    \s\ Kevern R. Joyce                             

 

Agreed to and accepted this 15th day of June, 2000.

      \s\ M. S. Cheema                             

     Manjit S. Cheema

EX-10.R 3 hobbs-ea.htm AGMT OF 4/5/00 BETWEEN W.D. HOBBS AND TNMP Word 8.0 Generic Normal Template, rev. 4/1/97, The Legal MacPac

                                                                            April 5, 2000

PERSONAL AND CONFIDENTIAL

Mr. Douglas Hobbs
Texas-New Mexico Power Company
4100 International Plaza
Fort Worth, Texas 76109

Dear Mr. Hobbs:

               We are pleased to offer you the position of Vice President of Texas-New Mexico Power Company (the "Company") under the terms and conditions herein indicated. For purposes of this agreement the term "Company" shall also include any affiliate of Texas-New Mexico Power Company to which you are transferred during the term of this agreement with your consent.

               This agreement is effective as of and only upon the closing (the "Closing") as defined in the Agreement and Plan of Merger dated as of May 24, 1999 by an among SW Acquisition, L.P., ST Acquisition Corp. and TNP Enterprises, Inc. The terms and conditions set forth herein shall remain in effect until the third anniversary of the Closing, except as otherwise noted herein, provided you remain employed by the Company through such date. This agreement supersedes all previous agreements relating to your employment with the Company, including, but not limited to, your Texas-New Mexico Power Company Executive Agreement for Severance Upon Change in Control dated as of February 16, 1998 and all such agreements will have no further force and effect.

               During the term of this agreement, you will be entitled to annual compensation of not less than $330,000, payable as described below.

1.

Your annual salary will be $286,727, comprised of the following components: an annual Base Salary of $173,093, which shall be payable in accordance with the Company's customary payroll practices and an annual Bonus of $113,634, payable to you in a lump sum on each of the first, second and third anniversaries of the date hereof, provided that you have not terminated your employment with the Company as of the day immediately prior to the date of payment of such annual Bonus.

2.

You will be eligible to receive an annual incentive bonus ranging from 0% to 37.5% of your Base Salary if you remain employed by the Company through the end of each calendar year during the term of this agreement. The amount of your annual incentive bonus will be based on the attainment of certain pre-established financial and operational goals of the Company. Your target annual incentive bonus shall be equal to 25% of your Base Salary.

3.

In the event that the total compensation you receive during any of the three succeeding 12-month periods commencing on the date hereof, including your Base Salary, Bonus and incentive bonus, is less than $330,000, you shall be entitled to an additional bonus for such 12-month period equal to the amount of such shortfall, which amount shall be payable as soon as practicable following the first, second and third anniversaries of the date hereof, as applicable, provided that you have not terminated your employment with the Company prior to the completion of such 12-month period.

               You will be eligible for all of the Company's benefits, including major medical, dental, life, and long-term disability insurance, pension plan participation, excess benefit plan participation, thrift plan participation, deferred compensation plan participation, holiday pay and vacation pay, in accordance with the Company's plans and policies as in effect from time to time.

               Notwithstanding any other provision of this agreement, in the event that during the term of this agreement, your employment with the Company is terminated by you for Good Reason (as defined below) or by the Company for any reason other than for Cause (as defined below), you shall be entitled to receive (a) an amount equal to the product of (i) your average annual Base Salary received under this agreement prior to the date of your termination, and (ii) a fraction having a numerator equal to the number of months (or portion thereof) remaining from the date of such termination of employment until the third anniversary of the date hereof, and a denominator equal to 12, and (b) an amount equal to the product of (x) $113,634, and (y) a fraction having a numerator equal to the number of months (or portion thereof) you were employed by the Company in the year of your termination of employment, and a denominator equal to 12.

               In the event that during the term of this agreement, your employment with the Company is terminated for Cause, all rights under this agreement shall cease and you shall not be entitled to any additional compensation or payments hereunder.

               For the purposes of this agreement, Cause shall mean (i) your willful and continued failure to substantially perform your duties with the Company (excluding any failure resulting from your disability), subject to any appeal or grievance procedure set forth in the Company's Personnel Policy Manual; (ii) your performance of any act or acts constituting a felony involving moral turpitude and which results or is intended to result in damage or harm to the Company, whether monetary or otherwise, or which results in or is intended to result in improper gain or personal enrichment; or (iii) violations of the Company's Personnel Policy Manual, as constituted at any time prior to the expiration of this agreement, concerning personal conduct; provided, that the Company must follow its disciplinary procedures as set forth therein.

               For the purposes of this agreement, Good Reason shall mean any of the following (without your prior express written consent) (i) a material adverse change in your title, position, duties or responsibilities or you are assigned any duties or responsibilities materially inconsistent with your duties or responsibilities immediately prior to the execution of this agreement (provided, however, that a redesignation of your title, duties or responsibilities among TNP Enterprises, the Company and its primary affiliates shall not constitute Good Reason if your overall duties and status among TNP Enterprises, Inc., the Company and its primary affiliates are not substantially adversely affected); (ii) your compensation arrangements as provided in this agreement are decreased by the Company; (iii) your benefits under the employee benefit plans and programs of the Company are, in the aggregate, materially decreased; (iv) there is a material adverse change in your reporting rights and/or obligations; or (v) the Company requires you to relocate to a location more than sixty-five (65) miles from the location of your office immediately prior to the execution of this agreement. A termination for Good Reason under this agreement must occur within thirty (30) days after the event which first provides a basis for such termination.

               The Company's obligation to make the payments provided for in this agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against you or others. In the event that your employment with the Company is terminated for any reason, other than for Cause, you shall be under no obligation to seek other employment or take any other action by way of mitigation of the amounts payable to you under any of the provisions of this agreement.

               In the event that a claim for payment or benefits under this agreement is disputed, or if the Company commences any proceedings in connection with your employment, you shall be reimbursed for all attorney fees and expenses incurred by you in pursuing such claim, provided that you are successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement. While such claim or proceeding is pending, the Company will reimburse you for such attorney fees and expenses on a regular, periodic basis, within thirty days following receipt by the Company of statements of such counsel. However, if you are not successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement, you agree to repay the Company within 30 days of such determination, an amount equal to the total amount that the Company has previously reimbursed you for legal fees and expenses in connection with such claim or proceeding.

               The Company shall require any successor to all or substantially all of its business and/or assets, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, to expressly assume and agree to perform this agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. For purposes of this paragraph, "Company" shall mean both the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this agreement by operation of law or otherwise.

               In the event that during the term of this agreement, your employment with the Company is terminated by you for Good Reason or by the Company for any reason other than for Cause, the Company shall pay you an amount equal to the sum of (i) any excise tax pursuant to Section 4999 of the Internal Revenue Code of 1988, as amended (the "Code"), incurred by you as a result of the payment of any amounts under this agreement as a result of your termination of employment and (ii) any additional federal, state or local income tax liability (calculated at the highest effective rate applicable to individuals) and excise tax liability (under Section 4999 of the Code) attributable to payments made pursuant to this paragraph.

               The respective rights and obligations of the parties hereunder shall survive any termination of this agreement for any reason to the extent necessary to the intended provision of such rights and the intended performance of such obligations.

               No provisions of this agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and the Company. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this agreement. This agreement shall be governed by and construed in accordance with the laws of the State of Texas.

               If the above terms and conditions meet with your approval, please so indicate by countersigning this letter in the space provided below, returning on copy to me. We would be extremely pleased and proud to have you continue as a member of our TNP team.

 

Sincerely,

 

TEXAS-NEW MEXICO POWER COMPANY

   
   
 

By:     \s\ Kevern R. Joyce                      

 

Agreed to and accepted this 5th day of April, 2000.

     \s\  Douglas Hobbs                       
      [Name}

EX-10.Q 4 matte-ea.htm AGMT OF 6/19/00 BETWEEN R.M. MATTE AND TNMP DRAFT - FOR DISCUSSION ONLY

                                                                    June 19, 2000

PERSONAL AND CONFIDENTIAL

Mr. Mike Matte
Texas-New Mexico Power Company
4100 International Plaza
Fort Worth, Texas 76109

Dear Mr. Matte:

               We are pleased to offer you the position of Vice President of Texas-New Mexico Power Company (the "Company") under the terms and conditions herein indicated. For purposes of this agreement the term "Company" shall also include any affiliate of Texas-New Mexico Power Company to which you are transferred during the term of this agreement with your consent.

               This agreement is effective as of and only upon the closing (the "Closing") as defined in the Agreement and Plan of Merger dated as of May 24, 1999 by and among SW Acquisition, L.P., ST Acquisition Corp. and TNP Enterprises, Inc. The terms and conditions set forth herein shall remain in effect until the third anniversary of the Closing, except as otherwise noted herein, provided you remain employed by the Company through such date. This agreement supersedes all previous agreements relating to your employment with the Company, including, but not limited to, your Texas-New Mexico Power Company Executive Agreement for Severance Upon Change in Control dated as of February 16, 1998 and all such agreements will have no further force and effect.

               During the term of this agreement, you will be entitled to annual compensation of not less than $330,000, payable as described below.

1.

Your annual salary will be $279,470, comprised of the following components: an annual Base Salary of $202,121, which shall be payable in accordance with the Company's customary payroll practices and an annual Bonus of $77,349, payable to you in a lump sum on each of the first, second and third anniversaries of the date hereof, provided that you have not terminated your employment with the Company as of the day immediately prior to the date of payment of such annual Bonus.

2.

You will be eligible to receive an annual incentive bonus ranging from 0% to 37.5% of your Base Salary if you remain employed by the Company through the end of each calendar year during the term of this agreement. The amount of your annual incentive bonus will be based on the attainment of certain pre-established financial and operational goals of the Company. Your target annual incentive bonus shall be equal to 25% of your Base Salary.

3.

You will be eligible to receive an additional annual milestone bonus ranging from 0 to 150% of $100,000, with a target of $100,000 if you remain employed by the Company through the end of each calendar year during the term of this agreement. Payment of the milestone bonus will be based on the attainment of a pre-established financial and operational goals of the Retail Electric Provider entity, for which you have primary responsibility. If performance is at the minimum level the award would be 50% of target level. At the beginning of each calendar year, or as soon as practical, the milestones will be established and approved by the Chief Executive Officer of Texas-New Mexico Power Company. Following year end, the Chief Executive Officer will also determine the extent to which milestone goals have been accomplished. If during the calendar year, your employment with the Company is terminated by you for Good Reason (as defined below) or by the Company for any reason other than for Cause (as defined below), you shall be entitled to receive a portion of the $100,000, prorated for the number of months from the anniversary date of this agreement until the date of such termination. If such termination occurs prior to the anniversary date of said calendar year, no portion of the $100,000 would be paid under this paragraph.

4.

In the event that the total compensation you receive during any of the three succeeding 12-month periods commencing on the date hereof, including your Base Salary, Bonus and incentive bonus, is less than $330,000, you shall be entitled to an additional bonus for such 12-month period equal to the amount of such shortfall, which amount shall be payable as soon as practicable following the first, second and third anniversaries of the date hereof, as applicable, provided that you have not terminated your employment with the Company prior to the completion of such 12-month period.

               You will be eligible for all of the Company's benefits, including major medical, dental, life, and long-term disability insurance, pension plan participation, excess benefit plan participation, thrift plan participation, deferred compensation plan participation, holiday pay and vacation pay, in accordance with the Company's plans and policies as in effect from time to time. For the purpose of determining vesting service under the Texas-New Mexico Power Pension Plan, the date your period of employment began is May 11, 1998.

               Notwithstanding any other provision of this agreement, in the event that during the term of this agreement, your employment with the Company is terminated by you for Good Reason (as defined below) or by the Company for any reason other than for Cause (as defined below), you shall be entitled to receive (a) an amount equal to the product of (i) your average annual Base Salary received under this agreement prior to the date of your termination, and (ii) a fraction having a numerator equal to the number of months (or portion thereof) remaining from the date of such termination of employment until the third anniversary of the date hereof, and a denominator equal to 12; and (b) an amount equal to the product of (x) $77,349, and (y) a fraction having a numerator equal to the number of months (or portion thereof) you were employed by the Company in the year of your termination of employment, and a denominator equal to 12; and (c) an amount equal to the product of (x) $100,000, and (y) a fraction having a numerator equal to the number of months (or portion thereof) remaining from the date of such termination of employment until the third anniversary of the date hereof, and a denominator equal to 12.

               In the event that during the term of this agreement, your employment with the Company is terminated for Cause, all rights under this agreement shall cease and you shall not be entitled to any additional compensation or payments hereunder.

               For the purposes of this agreement, Cause shall mean (i) your willful and continued failure to substantially perform your duties with the Company (excluding any failure resulting from your disability), subject to any appeal or grievance procedure set forth in the Company's Personnel Policy Manual; (ii) your performance of any act or acts constituting a felony involving moral turpitude and which results or is intended to result in damage or harm to the Company, whether monetary or otherwise, or which results in or is intended to result in improper gain or personal enrichment; or (iii) violations of the Company's Personnel Policy Manual, as constituted at any time prior to the expiration of this agreement, concerning personal conduct; provided, that the Company must follow its disciplinary procedures as set forth therein.

               For the purposes of this agreement, Good Reason shall mean any of the following (without your prior express written consent) (i) a material adverse change in your title, position, duties or responsibilities or you are assigned any duties or responsibilities materially inconsistent with your duties or responsibilities immediately prior to the execution of this agreement (provided, however, that a redesignation of your title, duties or responsibilities among TNP Enterprises, the Company and its primary affiliates shall not constitute Good Reason if your overall duties and status among TNP Enterprises, Inc., the Company and its primary affiliates are not substantially adversely affected); (ii) your compensation arrangements as provided in this agreement are decreased by the Company; (iii) your benefits under the employee benefit plans and programs of the Company are, in the aggregate, materially decreased; (iv) there is a material adverse change in your reporting rights and/or obligations; or (v) the Company requires you to relocate to a location more than sixty-five (65) miles from the location of your office immediately prior to the execution of this agreement. A termination for Good Reason under this agreement must occur within thirty (30) days after the event which first provides a basis for such termination.

               The Company's obligation to make the payments provided for in this agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against you or others. In the event that your employment with the Company is terminated for any reason, other than for Cause, you shall be under no obligation to seek other employment or take any other action by way of mitigation of the amounts payable to you under any of the provisions of this agreement.

               In the event that a claim for payment or benefits under this agreement is disputed, or if the Company commences any proceedings in connection with your employment, you shall be reimbursed for all attorney fees and expenses incurred by you in pursuing such claim, provided that you are successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement. While such claim or proceeding is pending, the Company will reimburse you for such attorney fees and expenses on a regular, periodic basis, within thirty days following receipt by the Company of statements of such counsel. However, if you are not successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement, you agree to repay the Company within 30 days of such determination, an amount equal to the total amount that the Company has previously reimbursed you for legal fees and expenses in connection with such claim or proceeding.

               The Company shall require any successor to all or substantially all of its business and/or assets, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, to expressly assume and agree to perform this agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. For purposes of this paragraph, "Company" shall mean both the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this agreement by operation of law or otherwise.

               In the event that during the term of this agreement, your employment with the Company is terminated by you for Good Reason or by the Company for any reason other than for Cause, the Company shall pay you an amount equal to the sum of (i) any excise tax pursuant to Section 4999 of the Internal Revenue Code of 1988, as amended (the "Code"), incurred by you as a result of the payment of any amounts under this agreement as a result of your termination of employment and (ii) any additional federal, state or local income tax liability (calculated at the highest effective rate applicable to individuals) and excise tax liability (under Section 4999 of the Code) attributable to payments made pursuant to this paragraph.

               The respective rights and obligations of the parties hereunder shall survive any termination of this agreement for any reason to the extent necessary to the intended provision of such rights and the intended performance of such obligations.

               No provisions of this agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and the Company. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this agreement. This agreement shall be governed by and construed in accordance with the laws of the State of Texas.

               If the above terms and conditions meet with your approval, please so indicate by countersigning this letter in the space provided below, returning on copy to me. We would be extremely pleased and proud to have you continue as a member of our TNP team.

 

 

 

Sincerely,

 

TEXAS-NEW MEXICO POWER COMPANY

   
   
 

By:   \s\  Kevern R. Joyce                           

 

Agreed to and accepted this 19th day of June, 2000.

  \s\  R. Michael Matte                           
      Mike Matte

EX-21 5 exhibit21.htm SUBSIDIARIES OF THE REGISTRANTS Exhibit 21

Exhibit 21

SUBSIDIARIES OF THE REGISTRANTS

Name

State of Incorporation

   

TNP

 
   

Texas-New Mexico Power Company

Texas

   

Facility Works, Inc.

Texas

   

TNP Operating Company

Texas

   

First Choice Power, Inc.

Texas

   
   

TNMP

 
   

Texas Generating Company

Texas

   

Texas Generating Company II

Texas

   

 

EX-10.M 6 catacosinos-ea.htm AGMT OF 4/7/00 BETWEEN W.J. CATACOSINOS AND TNP

EMPLOYMENT AGREEMENT

 

               This Agreement (this "Agreement"), dated as of April 7, 2000, is made by and between TNP Enterprises, Inc., a Texas public utility holding company, having its principal offices at 4100 International Plaza, P.O. Box 2943, Fort Worth, Texas 76113 (the "Corporation"), and Mr. William J. Catacosinos (the "Executive"), residing at 222 Cleft Road, Mill Neck, NY 11765.

Recitals

               1.     The Corporation desires to retain the Executive as Chairman of the Board, President and Chief Executive Officer of the Corporation, and to enter into an agreement embodying the terms of those relationships.

               2.     The Executive is willing to accept such employment by the Corporation on the terms set forth herein.

Agreement

               NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and other good and valuable consideration, the Corporation and the Executive hereby agree as follows.

          1.     Definitions.

                 1.1   "Affiliate" means any person or entity controlling, controlled by or under common control with the Corporation, including, but not limited to, TNMP.

                 1.2   "Board" means the Board of Directors of the Corporation.

                 1.3   "Cause" means (a) the Executive's conviction of a felony involving moral turpitude, (including a plea of guilty or nolo contendere), or (b) the Executive's gross negligence or willful gross misconduct resulting in material financial or other injury to the Corporation or any of its Affiliates.

                 1.4.   "Change of Control" means an event which shall be deemed to have occurred if:

(i)

any "person" as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other than the Corporation, any trustee or other fiduciary holding securities under any employee benefit plan of the Corporation, or any company owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 50% or more of the combined voting power of the Corporation's then outstanding securities;

(ii)

during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clause (iii) or (iv) herein) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;

(iii)

the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation that would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 25% of the combined voting power of the Corporation's then outstanding securities shall not constitute a Change of Control; or

(iv)

the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of, or the Corporation sells or disposes of, all or substantially all of the Corporation's assets.

                 1.5   "Date of Termination" means (a) in the case of a termination for which a Notice of Termination is required, the date of actual receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (b) in all other cases, the actual date on which the Executive's employment terminates during the Term of Employment.

                 1.6   "Disability" means the Executive's inability to render, for a period of six consecutive months, services hereunder by reason of permanent disability due to physical or mental impairment, as determined by the written medical opinion of an independent medical physician mutually acceptable to the Executive and the Corporation. If the Executive and the Corporation cannot agree as to such an independent medical physician, each shall appoint one medical physician and those two physicians shall appoint a third physician who shall make such determination. In no event shall the Executive be considered disabled for the purposes of this Agreement unless the Executive is deemed disabled pursuant to the Corporation's long-term disability plan.

                 1.7   "Good Reason" means and shall be deemed to exist if (a) without the prior express written consent of the Executive (i) there is a change in the Executive's title or position; (ii) the duties or responsibilities of the Executive are reduced or the Executive is assigned any duties or responsibilities inconsistent in any material respect with the scope of the duties or responsibilities associated with the Executive's titles or positions, as set forth and described in Section 3 of this Agreement; (iii) the Executive's compensation is decreased by the Corporation, the Executive's benefits under the employee benefit or health or welfare plans or programs of the Corporation are in the aggregate materially decreased, or the Corporation fails to pay or provide to the Executive the compensation or other benefits described in Section 4; or (iv) the Executive's reporting rights and/or obligations are changed; or (b) a Change in Control has occurred.

                 1.8   "Term of Employment" has the meaning ascribed to it in Section 2.

                 1.9    TNMP" means Texas-New Mexico Power Company, a Texas corporation wholly-owned by the Corporation.

 

          2.     Term of Employment. The term of employment under this Agreement shall commence on the date hereof (the "Commencement Date") and, unless earlier terminated under Section 5 below or extended pursuant to the next sentence, shall terminate on the third anniversary of the Commencement Date (the "Term of Employment"). On the first anniversary of the Commencement Date, and each succeeding anniversary of the Commencement Date during the Term of Employment, the Term of Employment shall automatically be extended for an additional one year period unless, not later than 90 days prior to any such anniversary of the Commencement Date, either party to this Agreement shall have given notice to the other that the Term of Employment shall not be extended or further extended beyond its then automatically extended term, if any.

          3.     Positions, Responsibilities and Duties.

                 3.1   Positions With the Corporation. During the Term of Employment, the Executive shall be employed and serve as the Chairman of the Board, President and Chief Executive Officer of the Corporation. In such positions, the Executive shall have the duties, responsibilities and authority normally associated with the office and position of chairman of the board, president and chief executive officer of a corporation, including, without limitation, complete management authority with respect to, and total responsibility for the development and execution of the business development strategy of the Corporation, including acquisitions and asset dispositions, and the overall operations and day-to-day business and affairs of the Corporation. No other employee of the Corporation shall have authority and responsibilities that are equal to or greater than those of the Executive. The Executive shall report solely and directly to the Board and all officers and other senior employees of the Corporation shall report solely and directly to the Executive or the Executive's designees. Notwithstanding the above, the Executive shall not be required to perform any duties and responsibilities which would be likely to result in a non-compliance with or violation of any applicable law or regulation.

                 3.2   Executive Committee Membership. During the Term of Employment, the Executive shall serve on the executive committee or other policy making committee of the Board.

                 3.3   Position with TNMP. During the Term of Employment, the Corporation shall cause the Executive to be a director of TNMP. The Executive shall report solely and directly to the Board. All officers and senior employees of TNMP shall report solely and directly to the Executive or his designees.

                 3.4   Duties. During the Term of Employment, the Executive shall devote a portion of his time to the business and affairs of the Corporation and its Affiliates sufficient to enable him to fulfill his obligations hereunder and shall use his best efforts to perform faithfully and efficiently the duties and responsibilities contemplated by this Agreement, including, without limitation, the development and execution of the Corporation's business development strategy, including acquisitions and asset dispositions.

                 3.5   Offices and Secretarial Support. The Corporation and/or TNMP shall provide the Executive with a personal office in both Suffolk or Nassau County, New York and Fort Worth, Texas and the Corporation and/or TNMP shall provide the Executive with appropriate secretarial assistance in both locations.

          4.     Compensation and Other Benefits.

                 4.1   Base Salary. During the Term of Employment and through the first anniversary of the Commencement Date, the Executive shall receive a base salary of no less than $1,350,000 per annum; during the period commencing on the first anniversary of the Commencement Date through the second anniversary of the Commencement date, the Executive shall receive a base salary of no less than $1,450,000 per annum; and commencing on the second anniversary of the Commencement Date and thereafter the Executive shall receive a base salary of no less than $1,550,000 per annum ("Base Salary"). Base Salary shall be payable in accordance with the Corporation's normal payroll practice.

                 4.2   Retirement, Savings and Incentive Plans. During the Term of Employment, the Executive shall be entitled to participate in all incentive, pension, retirement, savings, 401(k) and other employee pension benefit plans and programs maintained by the Corporation and/or TNMP from time to time for the benefit of senior executives at the same levels and on the same terms enjoyed by the senior management executives of TNMP to the extent permissible under the terms and provisions of such plans and programs and applicable law.

                 4.3   Welfare Benefit Plans. During the Term of Employment, the Executive, the Executive's spouse, if any, and their eligible dependents, if any, shall be entitled to participate as of the Commencement Date in and be covered under all the welfare benefit plans or programs maintained by the Corporation from time to time including, without limitation, all medical, hospitalization, dental, disability, life, accidental death and dismemberment and travel accident insurance plans and programs.

                 4.4   Expense Reimbursement. During the Term of Employment, the Executive shall be entitled to receive prompt reimbursement in accordance with the Corporation's policies for all reasonable expenses incurred by the Executive in performing his duties and responsibilities hereunder, including business related first class travel for the Executive and his spouse.

                 4.5   Vacation and Fringe Benefits. During the Term of Employment, the Executive shall be entitled to five weeks paid vacation each calendar year. In addition, during the Term of Employment, the Executive shall be entitled to such fringe benefits and perquisites as in effect and as provided from time to time to the senior executives of the Corporation in accordance with the Corporation's policies, including, but not limited to:

(a)

use of a car and driver while in New York and the availability of car service while in Fort Worth;

(b)

reimbursement for membership dues and all related expenses in respect of relevant and appropriate utility organizations and trade or industry associations;

(c)

membership in one or more Fort Worth lunch and/or dinner clubs to be selected by the Executive;

(d)

Reimbursement for an annual executive physical examination with a doctor selected by the Executive; and

(e)

one or more tables at utility industry functions.

          5.     Termination.

                 5.1   Termination Due to Death or Disability. Upon 30 days prior written notice to the Executive, the Corporation may terminate the Executive's employment hereunder due to Disability. In the event of the Executive's death or a termination of the Executive's employment by the Corporation due to Disability, the Executive, his estate or his legal representative, as the case may be, shall be entitled to:

(a)

(i) in the case of death, Base Salary continuation at the rate in effect (as provided for by Section 4.1 of this Agreement) on the Date of Termination for a period of three months after the date of death, and (ii) in the case of Disability, Base Salary (continuation at the rate in effect (as provided for by Section 4.1 of this Agreement) on the Date of Termination for a period of six months from the Date of Termination;

(b)

any Base Salary accrued but not yet paid as of the Date of Termination;

(c)

immediate payment of any unpaid deferred compensation due to the Executive as of the Date of Termination;

(d)

reimbursement for all reasonable business expenses incurred, but not yet paid prior to the Date of Termination;

(e)

immediate payment for all unused accrued vacation days as of the Date of Termination; and

(f)

any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs of the Corporation and/or TNMP, if applicable, to disabled employees, decedent employees or their families.

                 5.2   Termination by the Corporation for Cause or by the Executive Without Good Reason. The Corporation may terminate the Executive's employment hereunder for Cause and the Executive upon 30 days prior written notice to the Corporation may voluntarily terminate his employment hereunder without Good Reason as provided in this Section 5.2. If the Corporation terminates the Executive's employment hereunder for Cause or if the Executive voluntarily terminates employment without Good Reason, the Executive shall be entitled to:

(a)

Base Salary at the rate in effect (as provided for by Section 4.1 of this Agreement) at the time of such termination through the Date of Termination;

(b)

immediate payment of any unpaid deferred compensation due to the Executive as of the Date of Termination;

(c)

reimbursement for all reasonable business expenses incurred, but not yet paid prior to the Date of Termination;

(d)

immediate payment for all unused accrued vacation days as of the Date of Termination; and

(e)

any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs of the Corporation and/or TNMP, if applicable, for employees whose employment is terminated for Cause or without Good Reason.

               In the case of a Termination by the Corporation for Cause described in this Section 5.2, the Executive shall be given written notice authorized by a vote of at least a majority of the members of the Board that the Corporation intends to terminate the Executive's employment for Cause. Such written notice, given in accordance with Section 5.5 of this Agreement, shall specify the particular act or acts, or failure to act, which is or are the basis for the decision to so terminate the Executive's employment for Cause. The Executive shall be given the opportunity within 30 calendar days of the receipt of such notice to meet with the Board to defend such act or acts, or failure to act, and the Executive shall be given 30 business days after such meeting to correct such act or failure to act. Upon failure of the Executive, within such latter 30 day period, to correct such act or failure to act, the Executive's employment by the Corporation shall automatically be terminated under this Section 5.2 for Cause as of the date determined under Section 1.5 of this Agreement unless the Board determines otherwise.

                 5.3   Termination Without Cause or Termination For Good Reason. Upon 30 days prior written notice to the affected party, the Corporation may terminate the Executive's employment hereunder without Cause and the Executive may terminate his employment hereunder for Good Reason. If the Corporation terminates the Executive's employment hereunder without Cause, other than due to death or Disability, or if the Executive terminates his employment for Good Reason, the Executive shall be entitled to:

(a)

Base Salary continuation at the rate in effect (as provided for by Section 4.1 of this Agreement) on the Date of Termination for a period of 18 months after the Date of Termination;

(b)

any Base Salary accrued but not yet paid as of the Date of Termination;

(c)

immediate payment of any unpaid deferred compensation due to the Executive as of the Date of Termination;

(d)

reimbursement for all reasonable business expenses incurred, but not yet paid prior to the Date of Termination;

(e)

immediate payment for all unused accrued vacation days as of the Date of Termination; and

(f)

any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans or programs of the Corporation and/or TNMP, if applicable for employees whose employment is terminated by the Corporation without Cause or by the employee for Good Reason.

               In the case of a Termination by the Executive for Good Reason described in this Section 5.3, the Corporation shall be given written notice that the Executive intends to terminate the Executive's employment for Good Reason. Such written notice, given in accordance with Section 5.5 of this Agreement, shall specify the particular act or acts, or failure to act, which is or are the basis for the decision to so terminate the Executive's employment for Good Reason. The Corporation shall be given the opportunity within 30 calendar days of the receipt of such notice to meet with the Executive to defend such act or acts, or failure to act, and the Corporation shall be given 30 business days after such meeting to correct such act or failure to act. Upon failure of the Corporation, within such latter 30 day period, to correct such act or failure to act, the Executive's employment by the Corporation shall automatically be terminated under this Section 5.3 for Good Reason as of the date determined under Section 1.5 of this Agreement unless the Executive determines otherwise.

                 5.4   No Mitigation; No Offset. In the event of any termination of employment under this Section 5, the Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that the Executive may obtain. Any amounts due under this Section 5 are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty.

                 5.5   Notice of Termination. Any termination by the Corporation for Cause or by the Executive for Good Reason shall be communicated by a notice of termination to the other party hereto given in accordance with Section 12.3 of this Agreement (the "Notice of Termination"). Such notice shall (a) indicate the specific termination provision in this Agreement relied upon, (b) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (c) if the termination date is other than the date of receipt of such notice, specify the date on which the Executive's employment is to be terminated (which date shall not be earlier than the date on which such notice is actually given). The Notice of Termination shall be given, in the case of a termination for Cause, within 180 business days after a director of the Corporation (excluding the Executive) has actual knowledge of the events giving rise to such purported termination, and in the case of a termination by the Executive for Good Reason, within 180 business days of the Executive's having actual knowledge of the events giving rise to such termination unless, in each such case, the Corporation has given the Executive, or the Executive has given the Corporation, as the case may be, within such 180 business day period, notice of the Corporation's or the Executive's, as the case may be, determination that a problem exists, such notice to specify, in reasonable detail, the facts and circumstances giving rise to such problem.

          6.     Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided or maintained by the Corporation, TNMP and/or any Affiliate and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other existing or future agreements with the Corporation, TNMP and/or any Affiliate, including, without limitation, any stock option agreements or plans. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plans or programs of the Corporation, TNMP and/or any Affiliate at or subsequent to the Date of Termination shall be payable in accordance with such plans or programs.

          7.     Full Settlement. The Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Corporation may have against the Executive or others.

          8.     Legal Fees and Other Expenses. In the event that a claim for payment or benefits under this Agreement is disputed, or if the Corporation or any Affiliate commences any proceedings in connection with the Executive's employment, the Executive shall be reimbursed for all attorney fees and expenses incurred by the Executive in pursuing such claim, provided that the Executive is successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement. While such claim or proceeding is pending, the Corporation will reimburse the Executive for such attorney fees and expenses on a regular, periodic basis, within thirty days following receipt by the Corporation of statements of such counsel. However, if the Executive is not successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement, the Executive agrees to repay the Corporation within 30 days of such determination, an amount equal to the total amount that the Corporation has previously reimbursed the Executive for legal fees and expenses in connection with such claim or proceeding.

          9.     Confidential Information, Non-Competition and Nonsolicitation.

                 9.1   Confidential Information. The Executive shall not, during the Term of Employment and thereafter, without the prior express written consent of the Corporation, disclose any confidential information, knowledge or data relating to the Corporation, TNMP or any Affiliate and their respective businesses, which (a) was obtained by the Executive in the course of the Executive's employment with the Corporation or in connection with the acquisition of the Corporation by ST Acquisition Corp., and (b) which is not information, knowledge or data otherwise in the public domain (other than by reason of a breach of this provision by the Executive), unless required to do so by a court of law or equity or by any governmental agency or other authority. In no event shall an asserted violation of this Section 9.1 constitute a basis for delaying or withholding the payment of any amounts otherwise payable to the Executive under this Agreement.

                 9.2   No Solicitation. The Executive hereby agrees that, if his employment is terminated by the Corporation for Cause or voluntarily by the Executive without Good Reason under Section 5.2 of this Agreement, he shall not, for two years after the Date of Termination, directly or indirectly, induce or solicit any employees of the Corporation or any Affiliate to leave their employment.

          10.     Successors.

                 10.1   The Executive. This Agreement is personal to the Executive and, without the prior express written consent of the Corporation, shall not be assignable by the Executive, except that the Executive's rights to receive any compensation or benefits under this Agreement may be transferred or disposed of pursuant to testamentary disposition, intestate succession or pursuant to a domestic relations order. This Agreement shall inure to the benefit of and be enforceable by the Executive's heirs, beneficiaries and/or legal representatives.

                 10.2   The Corporation. This Agreement shall inure to the benefit of and be binding upon the Corporation and its respective successors and assigns. The Corporation shall require any successor to all or substantially all of its business and/or assets, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Corporation would be required to perform if no such succession had taken place.

          11.     Indemnification. The Corporation agrees that if the Executive is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he is or was a director or officer of the Corporation, TNMP and/or any Affiliate, or is or was serving at the request of the Corporation, TNMP and/or any Affiliate as a director, officer, member, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including, without limitation, service with respect to employee benefit plans, whether or not the basis of such Proceeding is alleged action in an official capacity as a director, officer, member, employee or agent while serving as a director, officer, member, employee or agent, he shall be indemnified and held harmless by the Corporation to the fullest extent authorized by Texas law, as the same exists or may hereafter be amended, against all Expenses incurred or suffered by the Executive in connection therewith, and such indemnification shall continue as to the Executive even if the Executive has ceased to be an officer, director or agent, or is no longer employed by the Corporation and shall inure to the benefit of his heirs, executors and administrators; provided that the Executive shall not be entitled to indemnification hereunder to the extent it is finally determined by a court of competent jurisdiction that such Proceeding is based upon the Executive's willful misconduct or gross negligence.

          12.     Directors and Officers Insurance. During the Term of Employment and for a period of six years thereafter, the Corporation shall cause the Executive to be covered by and named as an insured under any policy or contract of insurance obtained by it to insure its directors and officers against personal liability for acts or omissions in connection with service as an officer or director of the Corporation and any of its Affiliates, or service in other capacities at the request of the Corporation or any of its Affiliates.

          13.     Miscellaneous.

                 13.1   Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, applied without reference to principles of conflict of laws.

                 13.2   Amendments. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

                 13.3   Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:

Mr. William J. Catacosinos

 

222 Cleft Road

 

Mill Neck, NY 11765

   

with a copy to:

 
   
   
   

If to the Corporation:

TNP Enterprises, Inc.

 

4100 International Plaza

 

P.O. Box 2943

 

Fort Worth, TX 76113

 

(with a copy to the attention of

 

    the General Counsel)

or to such other address as any party shall have furnished to the others in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee.

                 13.4   Withholding. The Corporation may withhold from any amounts payable under this Agreement such federal, state or local income taxes as shall be required to be withheld pursuant to any applicable law or regulation.

                 13.5   Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

                 13.6   Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect.

                 13.7   Beneficiaries/References. The Executive shall be entitled to select (and change) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive's death, and may change such election, in either case by giving the Corporation written notice thereof. In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary(ies), estate or other legal representative(s).

                 13.8   Entire Agreement. This Agreement contains the entire agreement between the parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto.

                 13.9   Representations. The Corporation represents and warrants that it is fully authorized and empowered to enter into this Agreement. The Executive represents and warrants that the performance of the Executive's duties under this Agreement will not violate any agreement between the Executive and any other person, firm, partnership, corporation, or organization.

                 13.10   Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement or the Executive's Term of employment hereunder for any reason to the extent necessary to the intended provision of such rights and the intended performance of such obligations.

                 13.11   Remedies Cumulative. All remedies provided in this Agreement are cumulative. This Agreement's providing for a remedy under any circumstance shall not be deemed to imply that such remedy is exclusive in such circumstance or is not available in any other.

                 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Corporation has caused this Agreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written.

 

     TNP Enterprises, Inc.

   
   
   

By:

      \s\  Theodore A. Babcock      

 

     Title:

   
   
   
   
 

      \s\  W. J. Catacosinos          

 

     William J. Catacosinos

EX-10.N 7 joyce-ea.htm AGMT OF 4/6/00 BETWEEN K.R. JOYCE AND TNMP Word 8.0 Generic Normal Template, rev. 4/1/97, The Legal MacPac

                                                                April 6, 2000

PERSONAL AND CONFIDENTIAL

Mr. Kevern R. Joyce
Texas-New Mexico Power Company
4100 International Plaza
Fort Worth, Texas 76109

Dear Mr. Joyce:

               We are pleased to offer you the position of Chairman, President and Chief Executive Officer of Texas-New Mexico Power Company (the "Company"), and a Board Member of TNP Enterprises, Inc. under the terms and conditions herein indicated. For purposes of this agreement the term "Company" shall also include any affiliate of Texas-New Mexico Power Company to which you are transferred during the term of this agreement with your consent.

               This agreement is effective as of and only upon the closing (the "Closing") as defined in the Agreement and Plan of Merger dated as of May 24, 1999 by an among SW Acquisition, L.P., ST Acquisition Corp. and TNP Enterprises, Inc. The terms and conditions set forth herein shall remain in effect until the third anniversary of the Closing, except as otherwise noted herein, provided you remain employed by the Company through such date. This agreement supersedes all previous agreements relating to your employment with the Company, including, but not limited to, your Texas-New Mexico Power Company Executive Agreement for Severance Upon Change in Control dated as of February 16, 1998 and all such agreements will have no further force and effect.

               During the term of this agreement, you will be entitled to annual compensation of not less than $1,200,000, payable as described below.

1.

Your annual salary will be $1,091,375, comprised of the following components: an annual Base Salary of $434,500, which shall be payable in accordance with the Company's customary payroll practices and an annual Bonus of $656,875, payable to you in a lump sum on each of the first, second and third anniversaries of the date hereof, provided that you have not terminated your employment with the Company as of the day immediately prior to the date of payment of such annual Bonus.

2.

You will be eligible to receive an annual incentive bonus ranging from 0% to 37.5% of your Base Salary if you remain employed by the Company through the end of each calendar year during the term of this agreement. The amount of your annual incentive bonus will be based on the attainment of certain pre-established financial and operational goals of the Company. Your target annual incentive bonus shall be equal to 25% of your Base Salary.

3.

In the event that the total compensation you receive during any of the three succeeding 12-month periods commencing on the date hereof, including your Base Salary, Bonus and incentive bonus, is less than $1,200,000, you shall be entitled to an additional bonus for such 12-month period equal to the amount of such shortfall, which amount shall be payable as soon as practicable following the first, second and third anniversaries of the date hereof, as applicable, provided that you have not terminated your employment with the Company prior to the completion of such 12-month period.

               You will be eligible for all of the Company's benefits, including major medical, dental, life, and long-term disability insurance, pension plan participation, excess benefit plan participation, thrift plan participation, deferred compensation plan participation, holiday pay and vacation pay, in accordance with the Company's plans and policies as in effect from time to time.

               Notwithstanding any other provision of this agreement, in the event that during the term of this agreement, your employment with the Company is terminated by you for Good Reason (as defined below) or by the Company for any reason other than for Cause (as defined below), you shall be entitled to receive (a) an amount equal to the product of (i) your average annual Base Salary received under this agreement prior to the date of your termination, and (ii) a fraction having a numerator equal to the number of months (or portion thereof) remaining from the date of such termination of employment until the third anniversary of the date hereof, and a denominator equal to 12, and (b) an amount equal to the product of (x) $656,875, and (y) a fraction having a numerator equal to the number of months (or portion thereof) you were employed by the Company in the year of your termination of employment, and a denominator equal to 12.

               In addition, if your employment with the Company terminates after the Closing you (or your estate, in the event of your death) shall be entitled to receive a special lump sum retirement benefit equal to $3,048,183.

               In the event that during the term of this agreement, your employment with the Company is terminated for Cause, all rights under this agreement (other than the special retirement benefit provided under the preceding paragraph) shall cease and you shall not be entitled to any additional compensation or payments hereunder.

               For the purposes of this agreement, Cause shall mean (i) your willful and continued failure to substantially perform your duties with the Company (excluding any failure resulting from your disability), subject to any appeal or grievance procedure set forth in the Company's Personnel Policy Manual; (ii) your performance of any act or acts constituting a felony involving moral turpitude and which results or is intended to result in damage or harm to the Company, whether monetary or otherwise, or which results in or is intended to result in improper gain or personal enrichment; or (iii) violations of the Company's Personnel Policy Manual, as constituted at any time prior to the expiration of this agreement, concerning personal conduct; provided, that the Company must follow its disciplinary procedures as set forth therein.

               For the purposes of this agreement, Good Reason shall mean any of the following (without your prior express written consent) (i) a material adverse change in your title, position, duties or responsibilities or you are assigned any duties or responsibilities materially inconsistent with your duties or responsibilities immediately prior to the execution of this agreement (provided, however, that a redesignation of your title, duties or responsibilities among TNP Enterprises, the Company and its primary affiliates shall not constitute Good Reason if your overall duties and status among TNP Enterprises, Inc., the Company and its primary affiliates are not substantially adversely affected); (ii) your compensation arrangements as provided in this agreement are decreased by the Company; (iii) your benefits under the employee benefit plans and programs of the Company are, in the aggregate, materially decreased; (iv) there is a material adverse change in your reporting rights and/or obligations; or (v) the Company requires you to relocate to a location more than sixty-five (65) miles from the location of your office immediately prior to the execution of this agreement. A termination for Good Reason under this agreement must occur within thirty (30) days after the event which first provides a basis for such termination.

               The Company's obligation to make the payments provided for in this agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against you or others. In the event that your employment with the Company is terminated for any reason, other than for Cause, you shall be under no obligation to seek other employment or take any other action by way of mitigation of the amounts payable to you under any of the provisions of this agreement.

               In the event that a claim for payment or benefits under this agreement is disputed, or if the Company commences any proceedings in connection with your employment, you shall be reimbursed for all attorney fees and expenses incurred by you in pursuing such claim, provided that you are successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement. While such claim or proceeding is pending, the Company will reimburse you for such attorney fees and expenses on a regular, periodic basis, within thirty days following receipt by the Company of statements of such counsel. However, if you are not successful as to at least part of the disputed claim by reason of litigation, arbitration or settlement, you agree to repay the Company within 30 days of such determination, an amount equal to the total amount that the Company has previously reimbursed you for legal fees and expenses in connection with such claim or proceeding.

               The Company shall require any successor to all or substantially all of its business and/or assets, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, to expressly assume and agree to perform this agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. For purposes of this paragraph, "Company" shall mean both the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this agreement by operation of law or otherwise.

               In the event that during the term of this agreement, your employment with the Company is terminated by you for Good Reason or by the Company for any reason other than for Cause, the Company shall pay you an amount equal to the sum of (i) any excise tax pursuant to Section 4999 of the Internal Revenue Code of 1988, as amended (the "Code"), incurred by you as a result of the payment of any amounts under this agreement as a result of your termination of employment and (ii) any additional federal, state or local income tax liability (calculated at the highest effective rate applicable to individuals) and excise tax liability (under Section 4999 of the Code) attributable to payments made pursuant to this paragraph.

               The respective rights and obligations of the parties hereunder shall survive any termination of this agreement for any reason to the extent necessary to the intended provision of such rights and the intended performance of such obligations.

               No provisions of this agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and the Company. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this agreement. This agreement shall be governed by and construed in accordance with the laws of the State of Texas.

               If the above terms and conditions meet with your approval, please so indicate by countersigning this letter in the space provided below, returning on copy to me. We would be extremely pleased and proud to have you continue as a member of our TNP team.

 

Sincerely,

 

TNP ENTERPRISES, INC.
TEXAS-NEW MEXICO POWER COMPANY

   
   
   
 

By:  \s\ John A. Fanning                            

 

Agreed to and accepted this 6th day of April, 2000.

   \s\  Kevern R. Joyce                            
    Kevern R. Joyce

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M04=%345.5%PR,C!3($1)4T-54U-)3TX@04Y$($%.04Q94TE3($]&($9)3D%. M0TE!3"!#3TY$251)3TX@7`U!3D0@4D5354Q44R!/1B!/4$52051)3TY3+BD- M+T1E'0@,CDY(#`@4B`-/CX@#65N9&]B:@TS M,#$@,"!O8FH-/#P@#2]4:71L92`H4TE'3DE&24-!3E0@159%3E13($%.1"!+ M3D]73B!44D5.1%,@049&14-424Y'(%1.4"!!3D0@5$Y-4"D-+T1E'0@,S$S(#`@4B`-/CX@#65N M9&]B:@TS,3,@,"!O8FH-/#P@#2]4:71L92`H5$Y-4"!#87!I=&%L(%)E2P@ M<'5R8VAA'!E;G-E'0@ M,S$V(#`@4B`-+T9I'0@ M,S`P(#`@4B`-/CX@#65N9&]B:@TS,C8@,"!O8FH-/#P@#2]4:71L92`H271E M;2`S+EQT3$5'04P@4%)/0T5%1$E.1U,N*0TO1&5S="!;(#8V(#`@4B`O1FET M0B!=(`TO4&%R96YT(#(U,B`P(%(@#2]0'0@ M,S,U(#`@4B`-/CX@#65N9&]B:@TS,S,@,"!O8FH-/#P@#2]4:71L92`H4F5C M;W9E&EC;RD-+T1E'!I7!E("]0 M86=E7!E M("]086=E(`TO4&%R96YT(#,T,R`P(%(@#2]297-O=7)C97,@,SD@,"!2(`TO M0V]N=&5N=',@-#`@,"!2(`TO4F]T871E(#`@#2]-961I84)O>"!;(#`@,"`V M,3(@-SDR(%T@#2]#F4@,SDR#2]);F9O(#,T,B`P(%(@#2]2;V]T(#,V,B`P(%(@#2]0 MX\

TNP Enterprises, Inc. has no publicly traded shares of common stock outstanding.

________________________________________________________________________________________________________

 

TEXAS-NEW MEXICO POWER COMPANY

 

 

(Exact name of registrant as specified in its charter)

 

 

 

 

    Texas    

4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113

Commission File

(State of

(Address and zip code of principal executive offices)

Number: 2-97230

incorporation)

 

 

 

 

 

Telephone number, including area code: 817-731-0099

75-0204070

 

 

 

 

(I.R.S. employer

Securities registered pursuant to Section 12(b) of the Act: None

 

identification no.)

 

 

 

 

 

Securities registered pursuant to Section 12(g) of the Act: None

 

 

     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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. \X\

TNP Enterprises, Inc. holds all 10,705 outstanding common shares of Texas-New Mexico Power Company.

________________________________________________________________________________________________________

-1-

________________________________________________________________________________________________________

TNP ENTERPRISES INC. AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Combined Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2000

     This combined annual report on Form 10-K is filed separately by TNP Enterprises, Inc. and Texas-New Mexico Power Company. Information contained in this report relating to Texas-New Mexico Power Company is filed by TNP Enterprises, Inc. and separately by Texas-New Mexico Power Company on its own behalf. Texas-New Mexico Power Company makes no representation as to information relating to TNP Enterprises, Inc. or to any other affiliate or subsidiary of TNP Enterprises, Inc., except as it may relate to Texas-New Mexico Power Company.


TABLE OF CONTENTS

Glossary of Terms

 

4

Part I

 

 

 

Item 1.

BUSINESS

6

 

Introduction

6

 

Acquisition

6

 

TNMP's Service Areas

6

 

Seasonality of Business

7

 

Sources and Cost of Energy

7

 

Government Regulation

8

 

Employees and Executive Officers

8

Item 2.

PROPERTIES

10

 

Generating Facilities

10

 

Transmission and Distribution Facilities

10

 

Administrative and Service Facilities

10

Item 3.

LEGAL PROCEEDINGS

10

Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

11

 

 

 

Part II

 

 

 

Item 5.

MARKET FOR REGISTRANTS' COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

11

Item 6.

SELECTED FINANCIAL DATA

12

Item 7.

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

14

 

Acquisition

14

 

Competitive Conditions

14

 

Results of Operations

15

 

Liquidity and Capital Resources

20

 

Other Matters

21

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

22

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

23

 

TNP Enterprises, Inc. and Subsidiaries

27

 

Texas-New Mexico Power Company and Subsidiaries

32

 

Notes to Consolidated Financial Statements

37

 

Selected Quarterly Consolidated Financial Data

49

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

49

 

 

 

Part III

 

 

 

Item 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

50

 

Directors

50

 

Committees and Meetings

50

 

Director Compensation

51

 

Compensation Committee Interlocks and Insider Participation

51

 

Executive Officers

51

Item 11.

EXECUTIVE COMPENSATION

51

 

Pension Plan

52

 

Employment Contracts and Termination, Severance and Change of Control Arrangements

53

-2-

________________________________________________________________________________________________________

 

 

 

Joint Report on Executive Compensation of TNP and TNMP Compensation Committee

54

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

58

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

58

 

 

 

Part IV

 

 

 

Item 14.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

59


- -3-

________________________________________________________________________________________________________

TNP ENTERPRISES INC. AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Combined Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2000

Glossary of Terms

     As used in this combined report, the following abbreviations, acronyms, or capitalized terms have the meanings set forth below:

Abbreviation, Acronym,
 or Capitalized Term


Meaning

 

 

AFUDC

Allowance for funds used during construction

Clear Lake

Clear Lake Cogeneration Limited Partnership

ECOM

Economic Cost over Market

FWI

Facility Works, Inc., a wholly owned subsidiary of TNP

FERC

Federal Energy Regulatory Commission

FASB

Financial Accounting Standards Board

First Choice Power

First Choice Power, Inc.

GWh

Gigawatt-Hours

ITC

Investment Tax Credits

kWh

Kilowatt-Hours

Laurel Hill

Laurel Hill Capital Partners, LLC

LILCO

Long Island Lighting Company

Merger

Merger of ST Corp. with and into TNP with TNP as surviving corporation

Merger Agreement

Agreement and Plan of Merger, dated as of May 24, 1999, between TNP, SW Acquisition, and ST Corp.

NMPRC

New Mexico Public Regulation Commission

ORA

Office of Regulatory Affairs-PUCT

PR Group

Power Resource Group, Inc.

PUCT

Public Utility Commission of Texas

SEC

Securities and Exchange Commission

SFAS

Statement of Financial Accounting Standards

ST Corp

ST Acquisition Corp., a Texas corporation wholly owned by SW Acquisition

SW Acquisition

SW Acquisition, L.P, a limited partnership organized and existing under the laws of Texas

TGC

Texas Generating Company, a wholly owned subsidiary of TNMP

TGC II

Texas Generating Company II, a wholly owned subsidiary of TNMP

TNP One

A two-unit, lignite-fueled, circulating fluidized-bed generating plant located in Robertson County, Texas

TNMP

Texas-New Mexico Power Company, a wholly owned subsidiary of TNP

TNP

TNP Enterprises, Inc.

Transition Plan

TNMP's transition-to-competition plan in Texas that began January 1, 1998, and was superceded by legislation passed in 1999

TXU

TXU Electric Company

Unit 1

The first electric generating unit of TNP One

Unit 2

The second electric generating unit of TNP One

-4-

________________________________________________________________________________________________________

Statement Regarding Forward Looking Information

     The discussions in this document that are not historical facts, including, but not limited to, future cash flows and the potential recovery of stranded costs are based upon current expectations. Actual results may differ materially. Among the facts that could cause the results to differ materially from expectations are the following: our ability to adapt to open market competition enacted by our legislators and regulators or a delay in implementing retail competition; the effects of accounting pronouncements that may be issued periodically; changes in regulations affecting TNP's and TNMP's businesses; decisions in connection with current regulatory proceedings; the sale of TNP One; insurance coverage available for claims made in litigation; the effect of a Texas Supreme Court decision on the limitations of any actual damages awarded in currently ongoing litigation; future strategic partnerships; general business and economic conditions, and price fluctuations in the electric power market; and other factors described from time to time in TNP's and TNMP's reports filed with the SEC. TNP and TNMP wish to caution readers not to place undue reliance on any such forward looking statements, which are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.

-5-

________________________________________________________________________________________________________

PART I

Item 1.   BUSINESS.

Introduction

     TNP was organized as a holding company in 1983 and transacts business through its subsidiaries. TNMP is a public utility engaged in transmitting, distributing, generating, purchasing and selling electricity to customers in Texas and New Mexico. TNMP's predecessor was organized in 1925. First Choice Power, which was incorporated in 1997, is a wholly-owned subsidiary of TNP and was organized in 2000 to act as TNMP's affiliated retail electric provider, as required by Texas' 1999 legislation establishing the framework for retail competition in Texas' electric utility industry.


     TNMP has two subsidiaries, TGC and TGC II. These subsidiaries were formed in 1988 and 1991, respectively, to facilitate the financing of the construction of the two units of TNP One, TNMP's sole generating plant.


     TNP, TNMP, TGC, TGC II and First Choice Power are all Texas corporations. The executive offices of TNP, TNMP, TGC, TGC II and First Choice Power are located at 4100 International Plaza, P.O. Box 2943, Fort Worth, Texas 76113 and the telephone number is (817) 731-0099. TNP also has executive offices located at 2 Robbins Lane, Suite 201, Jericho, NY 11753 and the telephone number is (516) 933-3100. Unless otherwise indicated, all financial information in this report is presented on a consolidated basis.


Acquisition


     On April 7, 2000, pursuant to an Agreement and Plan of Merger dated May 24, 1999, between TNP, ST Corp. and SW Acquisition, the parent of ST Corp., St Corp. merged with and into TNP, the parent of TNMP. TNP is the surviving corporation in the Merger. SW Acquisition now holds all outstanding common stock of TNP. Upon closing, each share of TNP's common stock that was outstanding at the effective time of the merger was automatically converted into the right to receive $44.00 in cash. Prior to the Merger, TNP common stock was traded on the New York Stock Exchange. As a result of the Merger, TNP common stock is no longer publicly held. Additional information regarding the Merger can be found in Note 2.

TNMP's Service Areas

     TNMP provides electric service to more than 238,000 customers in 85 Texas and New Mexico municipalities and adjacent rural areas. The company serves a market niche of smaller- to medium-sized communities. Only two of the 85 communities in TNMP's service territory have populations exceeding 50,000. TNMP's service territory is organized into two operating areas: Texas and New Mexico.

   Texas

     TNMP's Texas territory consists of three non-contiguous areas. One portion of this territory extends from Lewisville, which is 10 miles north of DFW International airport, eastward to municipalities near the Red River, and to communities south and west of Fort Worth. A second portion of its territory includes the area along the Texas Gulf Coast between Houston and Galveston, and a third includes areas of far west Texas between Midland and El Paso. In Texas, TNMP provides electric service to a variety of entities, including customers engaged in the agricultural, food processing, oil and gas, petrochemical, and tourism industries.

   New Mexico

     This region includes areas in southwest and south central New Mexico. The economy depends primarily upon mining and agriculture, with copper mines as the major industrial customers

   Franchises and Certificates of Public Convenience and Necessity

     Texas law does not require an electric utility to execute a franchise agreement with a Texas municipality to be entitled to provide or continue to provide electrical service within the municipality. A franchise agreement does, however, document the mutually agreeable terms under which the service will be provided within a municipality. TNMP holds 82 franchises with terms ranging from 20 to 50 years, one franchise with a five-year term, and two franchises with indefinite terms from the 85 municipalities to which it provides electric service. These franchises will expire on various dates from 2001 to 2039. One Texas franchise, comprising 2% of total company revenues, is scheduled to expire in 2001. TNMP intends to negotiate and execute new or amended franchise agreements to be effective before existing franchises expire.

     TNMP also holds PUCT certificates of public convenience and necessity covering all Texas areas that TNMP serves. These certificates include terms that are customary in the public utility industry. TNMP generally has not been required to have certificates of public convenience and necessity to provide electric power in New Mexico.

-6-

________________________________________________________________________________________________________

Seasonality of Business

     TNMP experiences increased sales and operating revenues during the summer months as a result of increased air conditioner usage in hot weather. In 2000, approximately 41% of annual revenues were recorded in June, July, August, and September.


Sources and Cost of Energy

     TNMP owns one 300-megawatt lignite-fueled generating facility, TNP One. During 2000, TNP One provided approximately 22% of TNMP's system-wide energy requirements. Power generated at TNP One is transmitted over TNMP's own transmission lines to other utilities' transmission systems for delivery to TNMP's Texas service area systems. To maintain a reliable power supply for its customers and to coordinate interconnected operations, TNMP is a member of the Electric Reliability Council of Texas and the Western Systems Coordinating Council.


     TNMP purchases the remainder of its electricity from various suppliers with diversified fuel sources. The availability and cost of purchased power to TNMP is subject to changes in supplier costs, market forces, regulations and laws, fuel costs, and other factors. For 2001, TNMP has adequate resources through its firm contracts to serve its entire customer load in Texas and the majority of its customer load in New Mexico. These contracts allow TNMP the option to purchase amounts of power within a specified minimum and maximum range. Generally, TNMP makes purchases on the spot market in lieu of firm contract options primarily when the spot market price represents savings to TNMP's customers. In recent years TNMP has reduced its reliance upon long-term power supply contracts in favor of contracts with shorter terms. This practice enhances TNMP's ability to achieve greater purchased power savings during periods of decreasing power costs, but exposes TNMP to greater risk in periods of rising costs.


     During 2000, TNMP's cost per kWh of purchased power increased 26 percent, from an average of 3.18 cents per kWh in 1999, to an average of 4.01 cents per kWh in 2000. The cost increases were caused by higher natural gas prices in Texas and New Mexico and by effects of the volatility in the Western United States electricity market on purchased power prices in New Mexico.


     The following table illustrates the composition of TNMP's sources of electric energy in 2000.

 

Year Contract
Expires

Percent of
Energy Provided

Generation

 

 

TNP One

  -  

22%

 

 

 

Purchased Power

 

 

Firm contracts expiring in 2001

2001

14 

Firm contracts expiring in 2002-2005

 

 

     Clear Lake Cogeneration L.P.

2004

16 

     TXU

2002

 7 

     Others

Various

 4 

Buy-sell agreements

  -  

24 

Spot market purchases

  -  

      13 

 

 

 

  Total

 

   100%


     As discussed in Note 5, the Board of directors has authorized management to sell TNP One. Upon completion of the sale, TNMP expects to replace the generation from TNP One with purchases from other suppliers.

   Recovering Purchased Power and Fuel Costs


     In Texas, fuel costs and the energy-related portion of purchased power costs are recovered from TNMP customers through the fuel adjustment clause authorized by the PUCT. The demand-related portion of purchased power costs is recovered through base rates. At any point in time, TNMP may have recovered more or less from customers through the fuel adjustment clause than its allowable costs under the clause. PUCT rules require TNMP to reconcile its fuel costs at least every three years. TNMP filed a fuel reconciliation in June 2000, and at the same time requested an increase in its fuel factor and authority to implement a surcharge to recover under-recovered fuel and energy related purchased power costs. In December 2000, TNMP asked the PUCT to increase its fuel factor again and implement an additional surcharge. The status of those proceedings is discussed in Note 3. As a result of increased energy costs incurred in 2000, TNMP had an under-recovered balance of fuel and energy-related purchased power costs in Texas of $37.3 million as of December 31, 2000.

     In New Mexico, TNMP recovers all purchased power costs through the fuel and purchased power adjustment clause authorized by the NMPRC. The purchased power recovery factor changes monthly to reflect over-collections or under-collections of purchased power costs. As of December 31, 2000, TNMP had an under-recovered balance of purchased power costs of $2.0 million.

-7-

________________________________________________________________________________________________________

Government Regulation


     TNMP is subject to PUCT and NMPRC regulation. Some of its activities, such as issuing securities, are also subject to FERC regulation. Utility industry regulation continues to change both in reaction to, and as a primary force behind, a more competitive industry. These changes are discussed in Item 7, "Competitive Conditions" and Note 3.


     In addition to regulation as a utility, TNMP's facilities are regulated by the Environmental Protection Agency and Texas and New Mexico environmental agencies. TNP One uses environmentally superior circulating fluidized bed technology that eliminates the need for expensive scrubbers. Phase II of the Clean Air Act of 1990 became effective January 1, 2000 and requires a 30% reduction in sulfur dioxide emissions. TNP One is able to comply with this requirement without capital additions or a significant increase in operating costs. The Texas Natural Resources Conservation Commission (TNRCC) is proposing a rule change that would lower allowable nitrous oxide emissions beginning in 2003. TNMP is investigating the cost of compliance at TNP One. TNMP expects that expenditures necessary to achieve these reductions would not have a material impact on TNMP's financial condition. During 2000, 1999, and 1998, TNMP incurred expenses related to air, water, and solid waste pollution abatement (including ash removal) of approximately $4.7 million, $4.2 million, and $4.0 million, respectively.

Employees and Executive Officers

     At December 31, 2000, TNP and TNMP had 836 employees. The employees are not represented by a union or covered by a collective bargaining agreement. Management believes relations with its employees are excellent.

     Executive officers of TNP and TNMP, who are elected annually by the respective boards of directors and serve at the discretion of the boards, are as follows:

Name

Age

Position with TNP

 

 

 

William J. Catacosinos

70

Chairman, President, & Chief Executive Officer

Theodore A. Babcock

46

Chief Financial Officer

Manjit S. Cheema

46

Treasurer

Kathleen A. Marion

46

Secretary

 

 

 

Name

Age

Position with TNMP

 

 

 

Kevern R. Joyce

54

Chairman, President, & Chief Executive Officer

Jack V. Chambers, Jr.

51

Senior Vice President & Chief Operations Officer

Manjit S. Cheema

46

Senior Vice President & Chief Financial Officer

W. Douglas Hobbs

57

Vice President - Texas Transmission & Distribution Operations

Dennis R. Cash

47

Vice President - Texas Customer Operations

Robert Castillo

47

Vice President - New Mexico Operations

Melissa D. Davis

43

Vice President - Human Resources

Larry W. Dillon

46

Vice President - Power Resources

R. Michael Matte

47

Vice President - Business Development

Michael D. Blanchard

50

Vice President & General Counsel

Patrick L. Bridges

42

Vice President & Treasurer

Scott Forbes

43

Vice President - Chief Accounting & Information Officer

Paul W. Talbot

44

Secretary

Michael J. Ricketts

42

Assistant Controller

B. Jan Adkins

58

Assistant Secretary

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

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

     Jack V. Chambers was named Senior Vice President & Chief Operations Officer of TNMP in October 2000. Prior to that time, Mr. Chambers had served as Senior Vice President and Chief Customer Officer of TNMP since 1994. Mr. Chambers was Senior Vice President of TNP from April 1996 until the closing of the Merger.

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________________________________________________________________________________________________________

     Theodore A. Babcock joined TNP upon the closing of the Merger as Chief Financial Officer. Since 1999, Mr. Babcock has been a Managing Director of Laurel Hill. From 1996 to 1998, Mr. Babcock served as Vice President and Treasurer of LILCO. Mr. Babcock served as Treasurer of LILCO from 1994 to 1996.

     Manjit S. Cheema has served as Senior Vice President & Chief Financial Officer of TNMP since July 1996 and was elected Treasurer of TNP in May 2000. Mr. Cheema was Senior Vice President & Chief Financial Officer of TNP from May 1997 until the closing of the Merger. Prior to that, Mr. Cheema was Vice President & Chief Financial Officer of TNP and TNMP since December 1994.

     W. Douglas Hobbs was appointed Vice President - Texas Transmission and Distribution Operations effective October 2000. He was Vice President and Regional Customer Officer of TNMP from March 1999 to October 2000. He served as Vice President - Business Development of TNP from May 1997 until May 1999. He was Vice President - Business Development of TNMP from February 1997 to May 1997. He was TNMP Vice President and Regional Customer Officer from 1994 to February 1997.

     Dennis R. Cash became Vice President - Texas Customer Operations in October 2000. He was Vice President and Regional Customer Officer of TNMP from March 1999 until October 2000. He served as Vice President - Human Resources of TNMP from 1994 until March 1999.

     Robert Castillo became Vice President - New Mexico Operations in October 2000. Prior to that, he had served as Vice President and Regional Customer Officer of TNMP since September 1999. He served as TNMP Assistant Vice President - New Mexico from January 1998 until September 1999. From 1991 until he joined TNP, he was executive vice president and general manager for the New Mexico Rural Electric Cooperative Association.

     Melissa D. Davis was appointed Vice President - Human Resources of TNMP effective March 1999. She served as TNMP Vice President and Regional Customer Officer from February 1997 until March 1999. From September 1995 to February 1997 she was TNMP's Controller.

     Larry W. Dillon became Vice President - Power Resources effective March 1999. He had served as TNMP Vice President and Regional Customer Officer from 1994 until March 1999.

     R. Michael Matte was named President of First Choice Power in December 2000. He was named Vice President - Business Development of TNMP upon closing of the Merger. Prior to the Merger, he had served as President of FWI since May 1998 and Vice President - Business Development of TNP since November 1998. From January 1997 until joining FWI in May 1998, he was an independent management and utility services consultant in Atlanta, Georgia. From March 1996 to January 1997, he served as Regional Vice President Operations for ADT Security Services, an electronic services company, and from January 1991 to March 1996, he served as Regional General Manager of ADT.

     Michael D. Blanchard became Vice President & General Counsel of TNMP in February 1998. He also served as Vice President & General Counsel of TNP from February 1998 until the closing of the Merger. He was Corporate Secretary and General Counsel of TNMP and TNP from 1987 to February 1998.

     Patrick L. Bridges has served as Vice President & Treasurer of TNMP since November 1999. He also served as Vice President & Treasurer of TNP from November 1999 until the closing of the Merger. He served as Treasurer of TNMP and TNP from September 1995 until November 1999. He served as TNMP's Director - Finance from 1994 to September 1995 and as Assistant Treasurer from 1993 to September 1995.

     Scott Forbes became Vice President - Chief Accounting & Information Officer of TNMP in January 2001. Prior to that, he had served as Chief Accounting & Information Officer of TNMP since April 2000. He was elected Chief Information Officer of TNMP in June 1998. He was Controller of TNMP from February 1997 to June 1998 and was Controller of TNP from May 1997 to June 1998. From September 1996 to February 1997, he was Manager - Financial Systems and Reporting. From January 1994 to September 1996, he was Manager - financial Reporting and Accounting Policy with Entergy Services, Inc.

     Kathleen A. Marion joined TNP upon the closing of the Merger as Secretary. Since 1999, Ms. Marion has been Executive Administrator of Laurel Hill. From 1994 to 1998, she served as Vice President of Corporate Services and Corporate Secretary of LILCO.

     Paul W. Talbot was elected Corporate Secretary of TNMP in February 1998. He served as Corporate Secretary of TNP from February 1998 until the closing of the Merger. He has been Senior Counsel of TNMP since August 1996. Before joining TNMP, he was in the private practice of law in Dallas, for more than ten years.

-9-

________________________________________________________________________________________________________

     Michael J. Ricketts was named Assistant Controller of TNMP in April 2000. He served as Controller of TNMP and TNP from June 1998 to April 2000. From November 1996 to June 1998, he was Manager - Accounting Projects and from 1994 to November 1996, he was Supervisor - Accounting Support of TNMP.

     B. Jan Adkins became Assistant Corporate Secretary of TNMP in August 1987. She also served as Assistant Corporate Secretary of TNP from August 1987 until the closing of the Merger.

Item 2.   PROPERTIES.

Generating Facilities

     TNP One is a two-unit, lignite-fueled generating plant, located in Robertson County, Texas. TNP One generates power for TNMP's Texas service areas and operates as a base load facility.

Transmission and Distribution Facilities

     Management believes that TNMP's transmission and distribution facilities have sufficient capacity to serve existing customers adequately and that those facilities can be extended and expanded to serve customer growth for the foreseeable future. These facilities primarily consist of overhead and underground lines, substations, transformers, and meters. TNMP generally constructs its transmission and distribution facilities on easements or public rights of way and not on real property held in fee simple.

Administrative and Service Facilities

     TNP's and TNMP's corporate headquarters are located in an office building in Fort Worth, Texas. Space in this building is leased through 2003. TNP also has offices in Jericho, New York.

     TNMP owns or leases local offices in 38 of the municipalities that it serves. TNMP owns 14 construction/service centers in Texas and New Mexico.

Item 3.    LEGAL PROCEEDINGS.

     Phillips Petroleum Company.     TNMP is the defendant in a suit styled Phillips Petroleum Company vs. Texas-New Mexico Power Company, filed on October 1, 1997 and pending in the 149th State District Court of Brazoria County, Texas. In May 1999, TNMP filed a Third Party Petition naming Sweeny Cogeneration Limited Partnership, the operator of cogeneration and related facilities at the Phillips refinery, as a defendant. The suits, which are in the discovery stage, are based on events surrounding an interruption of electricity to a petroleum refinery and related facilities that occurred in May 1997. Phillips Petroleum Company is seeking the recovery of damages arising from the interruption and in May 1999 demanded payment in the amount of $47.1 million. TNMP's tariff approved by the PUCT contains limitations against recovery of the great majority of Phillips' alleged damages. The Texas Supreme Court, in another matter, has upheld the enforceability of such tariff limitations in litigation of this type; TNMP believes the ruling will operate to substantially limit any recovery by Phillips to the cost of its electrical equipment, in the event that any are awarded in this matter. Phillips has previously reported to the SEC that it incurred costs of approximately $2.0 million in this interruption. TNMP has previously charged to earnings the deductible amount of its insurance coverage, $500,000.

     Power Resource Group.     On January 16, 2001, TNMP obtained a summary judgment in its favor in the suit styled Power Resource Group, Inc. v. Public Utility Commission of Texas and Texas-New Mexico Power Company, pending in the 345th District Court of Travis County, Texas. The court also dismissed this lawsuit on that date. This lawsuit, which was originally filed on May 21, 1999, challenged the PUCT's dismissal of a regulatory case that PR Group had filed against TNMP. PR Group is a developer of electric generating plants that are intended to be qualifying cogeneration facilities.

     Information regarding additional regulatory and legal matters is provided in Notes 3 and 10.

-10-

________________________________________________________________________________________________________

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No matters were submitted to a vote of security holders in the fourth quarter of 2000.

PART II

Item 5.    MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     TNP has no publicly traded shares of common stock outstanding.

     TNP holds all 10,705 outstanding common shares of TNMP. During 2000 and 1999, TNMP declared common dividends to TNP as follows (in thousands):

QUARTER

  2000  

  1999  

First

$       -   

$       -   

Second

   7,500

    -   

Third

  17,000

  25,000

Fourth

   7,000

   4,000

    Total

$ 31,500

$ 29,000

             

             

     The $315 million credit facility restricts the payment of cash dividends by TNMP. Details regarding the restrictions are discussed in Note 9.

-11-

________________________________________________________________________________________________________

Item 6.   SELECTED FINANCIAL DATA

The following table sets forth selected financial data of TNP and TNMP for 1996 through 2000.
       
                           
            Predecessor
            ____________________________________________________  
        2000   1999   1998   1997   1996  
TNP ENTERPRISES, INC.   (Dollars in thousands)
For the years ended December 31,  
Consolidated results                      
  Operating revenues   $ 644,035 (1) $ 576,150   $ 585,941   $ 578,534   $ 502,737  
  Income from continuing operations   $ 5,061 (1) $ 30,167   $ 32,134   $ 42,561   $ 26,150  
  Net income   $ 5,061 (1) $ 30,167   $ 19,424   $ 29,678   $ 23,053  
At December 31,                    
Total assets   $ 1,328,731   $ 1,001,199   $ 993,765   $ 991,926   $ 1,006,784  
Capitalization                      
  Common shareholders' equity   $ 86,620   $ 327,110   $ 308,294   $ 298,241   $ 278,474  
  Preferred stock   104,393   1,664   3,060   3,240   3,420  
  Long-term debt, including current maturities   860,127   440,244   459,000   478,141   534,102  
        ____________ ____________ ____________ ____________ ____________
    Total capitalization   $ 1,051,140   $ 769,018   $ 770,354   $ 779,622   $ 815,996  
        ____________ ____________ ____________ ____________ ____________
        ____________ ____________ ____________ ____________ ____________
Capitalization ratios                      
  Common shareholders' equity   8.3 % 42.5 % 40.0 % 38.3 % 34.1 %
  Preferred stock   9.9   0.2   0.4   0.4   0.4  
  Long-term debt, including current maturities   81.8   57.3   59.6   61.3   65.5  
        ____________ ____________ ____________ ____________ ____________
    Total capitalization   100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
        ____________ ____________ ____________ ____________ ____________
        ____________ ____________ ____________ ____________ ____________
TEXAS-NEW MEXICO POWER COMPANY    
For the years ended December 31,  
Consolidated results                      
  Operating revenues   $ 644,035   $ 576,093   $ 585,892   $ 578,534   $ 502,737  
  Net income   $ 41,957   $ 39,443   $ 34,321   $ 43,918   $ 26,862  
At December 31,                    
Total assets   $ 998,497   $ 984,395   $ 973,566   $ 967,006   $ 1,002,157  
Capitalization                      
  Common shareholder's equity   $ 322,977   $ 312,558   $ 302,096   $ 287,021   $ 287,548  
  Preferred stock   -   1,664   3,060   3,240   3,420  
  Long-term debt, including current maturities   426,327   440,244   450,000   478,000   533,900  
        ____________ ____________ ____________ ____________ ____________
    Total capitalization   $ 749,304   $ 754,466   $ 755,156   $ 768,261   $ 824,868  
        ____________ ____________ ____________ ____________ ____________
        ____________ ____________ ____________ ____________ ____________
Capitalization ratios                      
  Common shareholder's equity   43.1 % 41.4 % 40.0 % 37.4 % 34.9 %
  Preferred stock   -   0.2   0.4   0.4   0.4  
  Long-term debt, including current maturities   56.9   58.4   59.6   62.2   64.7  
        ____________ ____________ ____________ ____________ ____________
    Total capitalization   100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
        ____________ ____________ ____________ ____________ ____________
        ____________ ____________ ____________ ____________ ____________
  Includes information of Predecessor company for January 1, 2000 through April 7, 2000, the period prior to the acquisition as discussed                        
    in Note 2.                      
12
_____________________________________________________________________________________
                           
TEXAS-NEW MEXICO POWER COMPANY
SELECTED OPERATING STATISTICS
       
        2000   1999   1998   1997   1996  
        ___________   ___________   ___________   ___________   ___________  
Operating revenues (in thousands):                      
  Residential   $ 231,953   $ 216,374   $ 225,870   $ 211,398   $ 206,748  
  Commercial   176,635   163,248   164,800   155,539   150,034  
  Industrial   172,908   147,110   150,883   170,169   129,972  
  Sales for resale (includes power marketing) 12,350   3,803   11,448   14,019   283  
  Other   50,189   45,558   32,891   27,409   15,700  
        ___________   ___________   ___________   ___________   ___________  
    Total   $ 644,035   $ 576,093   $ 585,892   $ 578,534   $ 502,737  
        ___________   ___________   ___________   ___________   ___________  
        ___________   ___________   ___________   ___________   ___________  
Sales (MWH):                      
  Residential   2,582,081   2,420,512   2,439,478   2,251,119   2,230,558  
  Commercial   2,069,046   1,921,614   1,883,422   1,772,591   1,725,650  
  Industrial   4,610,059   4,799,146   4,981,773   5,523,907   3,797,776  
  Sales for resale (includes power marketing) 281,017   121,077   428,884   498,038   4,944  
  Other   101,563   106,814   109,867   104,514   103,095  
        ___________   ___________   ___________   ___________   ___________  
    Total   9,643,766   9,369,163   9,843,424   10,150,169   7,862,023  
        ___________   ___________   ___________   ___________   ___________  
        ___________   ___________   ___________   ___________   ___________  
Number of customers (at year end):                      
  Residential   202,759   199,617   197,155   192,005   187,796  
  Commercial   34,345   33,127   30,884   30,289   29,864  
  Industrial   116   116   138   139   135  
  Sales for resale (includes power marketing) 16   8   17   17   1  
  Other   788   799   226   221   223  
        ___________   ___________   ___________   ___________   ___________  
    Total   238,024   233,667   228,420   222,671   218,019  
        ___________   ___________   ___________   ___________   ___________  
        ___________   ___________   ___________   ___________   ___________  
Revenue statistics:                      
Average annual use per residential                      
  customer (KWH)   12,805   12,130   12,491   11,835   11,973  
Average annual revenue per residential                      
  customer (dollars)   1,150   1,084   1,157   1,111   1,110  
Average revenue per KWH sold                      
  per residential customer (cents)   8.98   8.94   9.26   9.39   9.27  
Average revenue per KWH sold                      
  total sales (cents)   6.68   6.15   5.95   5.70   6.39  
                           
Net generation and purchases (MWH):                      
  Generated   2,215,236   1,912,673   2,062,958   2,089,448   2,296,056  
  Purchased   7,686,302   7,716,856   8,256,857   8,443,990   5,769,173  
        ___________   ___________   ___________   ___________   ___________  
    Total   9,901,538   9,629,529   10,319,815   10,533,438   8,065,229  
        ___________   ___________   ___________   ___________   ___________  
        ___________   ___________   ___________   ___________   ___________  
                           
Average cost per KWH purchased (cents) 4.01   3.18   3.39   3.13   3.51  
                           
Employees (year-end)   830   823   827   811   819  
                           
13
_____________________________________________________________________________________
                           

________________________________________________________________________________________________________

Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

SIGNIFICANT EVENTS AND KNOWN TRENDS AFFECTING TNP AND TNMP

Acquisition

     On April 7, 2000, pursuant to an Agreement and Plan of Merger dated May 24, 1999, between TNP, ST Corp. and SW Acquisition, the parent of ST Corp., ST Corp. merged with and into TNP, the parent of TNMP. TNP is the surviving corporation in the Merger. SW Acquisition now holds all outstanding common stock of TNP. Upon closing, each share of TNP's common stock that was outstanding at the effective time of the merger was automatically converted into the right to receive $44.00 in cash. Prior to the merger, TNP common stock was traded on the New York Stock Exchange. As a result of the Merger, TNP is no longer publicly held. Further information regarding the Merger can be found in Note. 2.

Competitive Conditions

     Much of the electric utility industry continues to transition toward competition. During 1999, legislation was passed in both Texas and New Mexico that establishes retail competition for generation operations. Retail competition is scheduled to begin in both New Mexico and Texas on January 1, 2002. The legislation in both states provides for recovery of "stranded costs", the difference between the regulatory value of TNMP's investments in generation assets and purchased power contracts, and the market price for energy in a competitive market. The increasingly competitive environment presents opportunities to compete for new customers, as well as the risk of loss of existing customers. TNMP expects the portions of operations pertaining to transmission and distribution to continue to be regulated.

     The following discusses the effects of the legislation in Texas and New Mexico on TNMP's operations, and TNMP's ongoing efforts to prepare for the start of retail competition.

   Texas

     Excess Earnings.     The legislation established a cap on TNMP's earnings in 1999, 2000, and 2001. To the extent that TNMP's rate of return on rate base is greater than 10.53 percent, earnings in excess of the cap are used to reduce stranded costs. TNMP has recorded estimated excess earnings of $18.3 million for the year ended December 31, 2000.

     Business Separation.     The legislation requires utilities to unbundle their operations into three distinct businesses on or before January 1, 2002. Utilities must create businesses for their regulated transmission and distribution operations, unregulated generation operations, and their retail electric provider. Retail electric providers are entities that sell electricity to retail customers in Texas.

     During 2000, TNMP made two filings with the PUCT regarding business separation. In January 2000, TNMP filed its plan for complying with the legislation. In March 2000, TNMP filed a rate case to set rates for its regulated transmission and distribution company, from which TNMP's customers will purchase transmission and distribution services beginning January 1, 2002. The March filing also included a proposed Competition Transition Charge designed to recover stranded costs. Details of these filings can be found in Note 3. The PUCT held hearings on various issues raised in the filings during 2000. In March 2001, TNMP and other parties to the March 2000 filing reached a settlement regarding the transmission and distribution cost of service. The parties are preparing to present the settlement to the PUCT for its consideration. The current schedule for these cases contemplates issuance of a final order in August 2001.

     In January 2001, the PUCT approved TGC's request to become a power generation company as specified in the legislation.

     In February 2001, the PUCT certified TNMP's affiliated retail electric provider, First Choice Power, as a retail electric provider. Certification is needed to allow First Choice Power to compete when the Texas electric market opens to competition on a partial basis in June 2001 and on a statewide basis in 2002.

     Pilot Program.     The legislation includes provisions for pilot programs that will allow the PUCT, utilities, and their customers to test the implementation of customer choice. The legislation requires that each utility offer customer choice in its service area to five percent of the utility's combined load in all customer classes. The pilot programs begin June 1, 2001. During the pilot program, participating customers may buy electric energy from any non-affiliated retail electric provider. In the case of TNMP, First Choice Power will participate in the statewide pilot program, but cannot offer services to TNMP's transmission and distribution customers participating in the pilot program.

-14-

________________________________________________________________________________________________________

     Fuel Recovery.     PUCT rules require TNMP to reconcile its fuel costs at least every three years. During 2000, TNMP made filings at the PUCT in June and December seeking (i) increases in its fuel factor to recover projected fuel and energy-related purchased power costs and (ii) authority to implement surcharges to recover under-recovered fuel and energy-related purchased power costs accumulated as of March 31 and September 30, 2000, respectively. The June filing also included a request to reconcile TNMP's eligible fuel and energy-related purchased power expenses for the three year-period ended December 31, 1999.

     As a result of a settlement hearing on the June 2000 filing, TNMP implemented a new fuel factor in July 2000 that was approximately 20 percent higher than its previous factor. In September 2000, TNMP implemented the permanent fuel factor resulting from the settlement, and an interim surcharge to begin collecting $23.7 million of under-recovered fuel and energy-related purchased power costs. TNMP settled the December filing in January 2001 and implemented an interim fuel factor that is approximately 30 percent higher than the factor it implemented in September 2000. More details of these filings can be found in Note 3.

     At December 31, 2000, TNMP had an under-recovered balance of fuel and the energy-related portion of purchased power costs of $37.3 million. Under the legislation, TNMP may request changes in its fuel factor until December 31, 2001.

     The surcharge implemented in September 2000 is effective through December 31, 2001. The surcharge resulting from the December 2000 filing is effective through December 31, 2002. Any over-recovered or under-recovered balance of fuel and energy-related purchased power costs as of December 31, 2001 will be included in the final quantification of stranded costs under the legislation. The legislation specifies that the PUCT will make the final quantification of stranded costs in 2004.

   New Mexico

     The New Mexico Legislature opened the state's electric power market to consumer choice with the passage of the Electric Utility Industry Restructuring Act of 1999 (the Act) in April 1999. The Act allows recovery of at least 50 percent of a utility's stranded costs over a five-year period, and provided for the phase-in of retail choice, which was originally scheduled to begin January 1, 2001. On May 17, 2000, the NMPRC delayed the date for retail electric competition for residential, school, and small commercial customers by one year to January 1, 2002. At the same time the NMPRC moved the date for open access for large commercial and industrial customers back six months, from January 1, 2002 to July 1, 2002. During March 2001, a proposal to delay the start of competition by five years passed the New Mexico Legislature and awaits the Governor's signature.

   Impact of Competition on TNMP

     TNMP is currently pursuing strategies to retain existing customers and attract new customers. With the onset of competition in Texas, First Choice Power will assume primary responsibility for customer growth and retention. Management believes TNMP's revenue growth opportunities are through an increased customer base. However, increased competition could result in losses of existing customers.

     As noted in "Recovering Purchased Power and Fuel Costs," TNMP recovers the demand component of purchased power in base rates. As such, TNMP is exposed to the risk of increases in the demand component of purchased power. At the same time, TNMP has the opportunity to retain the benefit of savings realized from reductions in these costs. TNMP is actively managing its resources to minimize the risks in its power supply portfolio.

     The legislation establishing competition in both states provides for recovery of stranded costs. The actual amount of stranded cost recovery is subject to regulatory review and approval.

Results of Operations

     The Merger was accounted for under the purchase method of accounting; accordingly, purchase accounting adjustments have been reflected in the financial statements of TNP for all periods subsequent to March 31, 2000. Financial statements for periods prior to that date were prepared using TNP's historical basis of accounting and are designated as "predecessor." For purposes of the discussion of 2000 annual operating results provided herein, the pre-merger financial information of the predecessor has been combined with the post-merger financial information. The business operations of TNP were not significantly changed as a result of the Merger and post-merger and pre-merger operating results, except as noted in the discussion, are comparable.

     Amounts shown in the consolidated financial statements of TNMP continue to present the financial position and results of operations based on historical cost.

-15-

________________________________________________________________________________________________________

   Overall Results

    TNP

     TNP had a loss applicable to common stock of $5.9 million in 2000 as compared to earnings of $30.2 million in 1999. TNP's reduced earnings reflect goodwill amortization, interest expense, preferred dividends, and one-time charges related to the Merger.

     As noted above, TNP had earnings applicable to common stock of $30.2 million for 1999, compared to $19.3 million in 1998. TNP's 1999 results included the effect of a $2.8 million charge to write off certain nonregulated business ventures, and legal and outside consultant fees of $4.1 million associated with the Merger. TNP's 1998 results included a $12.7 million loss associated with FWI's discontinued operations. In late 1997, management discontinued the construction segment of FWI. In 1998, TNP elected to discontinue all remaining operations of FWI. See Note 4 for additional information regarding the discontinued operations.

    TNMP

     TNMP's earnings applicable to common stock were $41.9 million in 2000, as compared to $39.5 million in 1999 and $34.2 million in 1998.

     Under legislation passed in 1999, TNMP's earnings on its Texas operations are capped at a 10.53 percent return on rate base adjusted for discounted rates to industrial customers, which were approximately $2.8 million in 2000. TNMP will apply Texas earnings in excess of the cap to recover its stranded costs. TNMP recorded pre-tax excess earnings of $18.3 million ($11.3 million after tax) for the year ended December 31, 2000. Those amounts included an adjustment to the excess earnings recorded in 1998 and 1999 due to the resolution of a purchased power dispute and the resolution of a contest to TNMP's 1999 excess earnings calculation. These adjustments are discussed in Note 3 - 1998 Excess Earnings and 1999 Excess Earnings, respectively.

     The changes in TNP's and TNMP's earnings for 2000 compared to 1999 and 1999 compared to 1998 are attributable to the factors listed below (in millions):

 

 

 

Earnings Increase (Decrease)

 

 

 

2000 v. 1999

1999 v. 1998

Factors affecting TNMP:

 

 

 

Changes in base revenues

$        4.7 

$       (4.7)

 

Non-pass through purchased power and fuel expenses

(5.6)

31.3 

 

Transmission expenses

6.7 

(7.0)

 

Other operating expenses

(4.8)

(0.7)

 

Interest expense

2.6 

10.6 

 

All other (including income tax effects on the items above)

        (4.3)

        (9.7)

 

 

TNMP earnings increase (decrease) before charge for
   recovery of stranded plant

 

 

 

Charge for recovery of stranded plant (net of tax)

         3.1 

       (14.5)

 

 

TNMP earnings increase

2.4 

5.3 

Factors affecting TNP:

 

 

 

Other operating expenses

(2.8)

(3.2)

 

Depreciation and goodwill amortization

(8.5)

-   

 

Interest expense

(32.7)

(0.5)

 

Other income and deductions (net)

3.2 

(3.0)

 

Dividends on preferred stock

(11.0)

-   

 

All other (including income tax effects on the items above)

         3.3 

         (0.4)

 

 

TNP earnings decrease from continuing operations

(38.5)

(7.1)

 

Discontinued operations of FWI

          -   

        12.7 

 

 

TNP earnings increase (decrease)

       (38.5)

           5.6 

 

 

 

 

 

 

 

Consolidated earnings increase (decrease)

$       (36.1)

$      10.9 

                 

                

-16-

________________________________________________________________________________________________________

     TNMP Operating Revenues

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

 

 

 

 

Increase (Decrease) 

 

2000

1999

1998

'00 v. '99

'99 v. '98

Operating revenues

$ 644,035

$ 576,093

$ 585,892

$  67,942 

$  (9,799)

 

 

 

 

 

 

Pass-through expenses

  274,101

  210,850

  215,950

   63,251 

   (5,100)

 

 

 

 

 

 

Base revenues

$ 369,934

$ 365,243

$ 369,942

$   4,691 

$  (4,699)

 

              

              

              

              

              

     Pass-through expenses in Texas include fuel and the energy-related portion of purchased power. In New Mexico, pass-through expenses include all purchased power costs. Details of pass-through expenses are discussed under "Results of Operations - Operating Expenses."

     The following table summarizes the components of the changes in base revenues from 2000 to 1999 and from 1999 to 1998 (in thousands).

 

'00 v. '99

'99 v. '98

Base revenues

 

 

Weather related

$  13,622 

$  (3,979)

Customer growth

    8,051 

    5,064 

Transmission Revenue

    2,955 

    1,225 

Industrial sales

   (7,736)

   (4,395)

Texas base rate reduction

   (7,061)

     -    

New Mexico base rate reduction

     (826)

     (434)

Clear Lake standby revenue

      -   

   (2,453)

Price/sales mix and other

   (4,314)

     273 

 

 

 

     Base revenues increase (decrease)

$   4,691 

$  (4,699)

              

              

     Base revenues increased in 2000 over 1999 by $4.7 million, or 1.3 percent. The increase is attributable to higher weather-related sales in residential and commercial classes, growth in the number of residential and commercial customers, and higher transmission revenues. The increases were partially offset by a rate reduction in Texas as discussed below, a rate reduction in New Mexico as discussed in Note 3, reduced sales to industrial customers and a contract renegotiation with a large industrial customer in New Mexico. The renegotiated contract will reduce base revenues by approximately $2.0 million annually and the reduction was retroactive to October 1999.

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

     Effective January 1, 2000, TNMP implemented base rate reductions of 3 percent and 1 percent for residential and commercial customers, respectively, under the terms of a Declaratory Order issued by the PUCT on December 6, 1999. Similar rate reductions took effect January 1, 2001. The 2001 rate reduction will reduce base revenues by an estimated $14.1 million dollars compared to 1999 levels.

     Base revenues decreased $4.7 million, or 1.3 percent, in 1999 compared to 1998. Factors contributing to the base revenue decrease were a renegotiated contract with a large industrial customer and the absence of standby revenue payments resulting from the settlement of litigation between Clear Lake and TNMP regarding purchases of cogenerated electricity. These factors were partially offset by increased base revenues from residential and commercial customers due to growth in these customer classes, which overcame lower weather-related sales in residential and commercial classes brought about by milder weather in 1999 as compared to 1998.

-17-

________________________________________________________________________________________________________

     The components of GWh sales for 2000 and 1999 are summarized in the following table:

 

2000

1999

Variance

  %  

Residential

  2,582 

 2,420 

   162 

  6.7 

Commercial

  2,069 

 1,922 

   147 

  7.6 

Industrial:

 

 

 

 

     Firm

    550 

   516 

   34 

  6.6 

     Economy

  4,060 

 4,283 

  (223)

 (5.2)

Sales for resale (includes power
     marketing


  281 


   121 


  160 


132.2 

Other

    102 

    107 

     (5)

    (4.7)

        Total GWh sales

  9,644 

  9,369 

   275 

     2.9 

 

            

            

           

           

     2000 sales increased 275 GWHs (or 2.9 percent) as compared to 1999. The increase resulted primarily from higher weather-related sales to residential and commercial customers, growth in the number of residential and commercial customers, and higher off-system sales. This was partially offset by reduced sales to a significant industrial customer under an economy sales arrangement.

   Operating Expenses

    Factors Affecting TNMP

     TNMP incurred operating expenses of $562.6 million for the year ended December 31, 2000, an increase of $66.9 million over the amount incurred during 1999. The increase reflects higher costs for purchased power and fuel partially offset by lower transmission expenses.

     For the year ended December 31, 1999, TNMP incurred operating expenses of $495.7 million, a decrease of $3.1 million from 1998 levels, due primarily to lower purchased power expenses, offset by the charge for recovery of stranded plant and higher transmission expenses.

     Purchased Power and Fuel Expenses

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

 

 

 

 

    Increase (Decrease)

 

  2000  

  1999  

  1998  

 '00 v. '99 

 '99 v. '98 

Purchased power and fuel expenses:

 

 

 

 

 

    Pass-through expenses

 

 

 

 

 

        Purchased power

$  235,355

$  178,548

$  181,264

$   56,807

$   (2,716)

        Fuel

     38,746

     32,302

      34,686

      6,444

     (2,384)

 

   274,101

   210,850

   215,950

    63,251

     (5,100)

    Non pass-through expenses:

 

 

 

 

 

        Purchased power

  72,857

  67,132

  98,353

   5,725 

(31,221)

        Fuel

      1,503

      1,605

      1,646

      (102)

         (41)

 

    74,360

    68,737

    99,999

     5,623

   (31,262)

 

 

 

 

 

 

Total purchased power and fuel

$  348,461

$  279,587

$  315,949

$   68,874

$  (36,362)

              

              

             

             

               

     In 2000, purchased power and fuel expenses increased $68.9 million from the level incurred in 1999. Pass-through expenses increased $63.3 million, reflecting increased purchases caused by higher sales overall and price increases in Texas and New Mexico. Non pass-through expenses increased $5.6 million due to higher costs incurred on sales to an industrial customer under a replacement power contract and increased prices for demand purchased power in Texas, partially offset by the deferral of a $2.4 million payment made in 1998 to resolve a billing dispute as described in Note 3 - 1998 Excess Earnings.

     In 1999, purchased power and fuel expenses decreased $36.4 million from the level incurred during 1998. Non pass-through expenses decreased $31.3 million, reflecting lower demand costs resulting from the replacement of purchases from TXU with purchases from lower cost providers, and significant reductions of the rate under which TNMP purchases capacity from Clear Lake. Pass-through expenses decreased $5.1 million from 1998 levels, reflecting lower sales.

-18-

________________________________________________________________________________________________________

     Transmission Expenses

     Transmission expenses decreased by $6.7 million for the year ended December 31, 2000, compared to 1999, due to the change in cost allocation described in "TNMP Operating Revenues," above.

     Transmission expenses increased $7.0 million in 1999, from the same period in 1998. The higher expenses were due to discontinued reimbursements in accordance with the Clear Lake settlement, and a new allocation of transmission costs that the PUCT approved in July 1999. The increased transmission expense approved by the PUCT resulted from the termination of the majority of the TXU purchased power contract at the beginning of 1999. While terminating the contract has produced purchased power savings, these savings have been partially offset by these higher transmission payments. The change in cost allocation described in "TNMP Operating Revenues," above partially offsets these increases.

     Other Operating Expenses

     In 2000, other operating expenses were $4.8 million higher than in 1999. This increase is primarily due to higher payroll costs, an increase in the proportion of total payroll charged to operating expenses, and increased medical costs.

     Other operating expenses in 1999 increased slightly, by $0.7 million, compared to 1998.

     Interest Charges

     Interest charges decreased by $2.6 million for the year ended December 31, 2000, compared to 1999, due to lower interest rates on the Backstop Facility and the $315 Million Credit Facility used to refinance TNMP debt, as discussed in Note 8, and lower debt balances.

     During 1999, interest charges decreased $10.6 million from 1998 levels due to the issuance of $175 million of 6.25% senior notes, which replaced $130 million of 12.5% secured debentures and borrowings against the credit facilities.

     Charge for Recovery of Stranded Plant

     Charge for recovery of stranded plant was $18.3 million for the year ended December 31, 2000, a decrease of $5.1 million as compared to 1999. As noted in "Overall Results," TNMP's earnings are capped at a 10.53 percent return on rate base. During 2000, TNMP has reduced its overall cost of debt, thereby increasing the allowed return on equity used in calculating excess earnings. This increase in allowed equity return is primarily responsible for the decreases in charges for recovery of stranded plant. The decrease also reflects adjustments to 1998 and 1999 excess earnings discussed earlier in Overall Results - TNMP.

     TNMP recorded a charge for recovery of stranded plant of $23.4 million in 1999.

     Factors Affecting TNP

     Other Operating Expenses

     Other operating expenses for 2000 increased $2.8 million compared to 1999. This increase is primarily due to a one-time charge of approximately $5.6 million for severance and retirement benefits due to the change in control resulting from the Merger. The increase was partially offset by a reduction in ongoing activity following the closing of the Merger.

     Other operating expenses in 1999 increased $3.2 million from 1998 levels, due primarily to legal and outside consultant fees related to the Merger.

     Depreciation and Amortization

     Beginning in the second quarter of 2000, TNP began amortizing goodwill associated with the Merger over 25 years. Goodwill amortization was $8.5 million for the year ended December 31, 2000.

     Interest Charges

     TNP incurred interest expense of $33.4 million for the year ended December 31, 2000, on the debt issued in connection with the Merger. That amount was $32.7 million higher than the pre-merger interest expense incurred in 1999.

-19-

________________________________________________________________________________________________________

     Other Income and Deductions (net)

     Other income and deductions increased by $3.2 million in 2000 over 1999. The increase reflects a 1999 charge of $2.8 million to write off certain nonregulated business ventures. The 1999 charge is also primarily responsible for the $3.0 million decrease in other income and deductions (net) in 1999 from 1998.

     Dividends on Preferred Stock

     As discussed in Note 9, TNP issued preferred stock to finance the Merger. Dividends on preferred stock were $11.0 million in 2000.

     Discontinued Operations

     Operating results in 1998 included a $12.7 million loss associated with FWI's discontinued operations as discussed in Note 4.

Liquidity and Capital Resources

     TNMP Liquidity

     The main sources of liquidity for TNMP are cash flow from operations and borrowings from its $315 Million Credit Facility. TNMP's cash flow from operations in 2000 of $90.4 million was $13.6 million higher than cash flow from operations in 1999 due primarily to higher receipts from customers and lower income tax payments partially offset by higher payments for fuel, purchased power and interest. Cash flow from operations in 1999 was $76.8 million, $22.5 million lower than in 1998. The lower cash flows from operations are attributable to refunds under the Transition Plan and higher tax payments.

     As discussed in Note 8, TNMP repurchased all $140.0 million of its Series A Secured Debentures and retired the $100.0 million of its Series U First Mortgage bonds upon their maturity during the second and third quarters of 2000, using funds from the Backstop Facility and an existing bank facility. Note 8 also discusses TNMP's establishment of the $315 Million Credit Facility, and the use of funds from it to refinance the amounts outstanding on the Backstop Facility and its existing bank facility .

     As discussed in Note 3, TNMP has an under-recovered balance of fuel and energy-related purchased power costs in Texas of $37.3 million as of December 31, 2000. Note 3 also discusses changes to TNMP's fuel factor resulting from its December 2000 request to increase its fuel factor above the level requested in its June 2000 filing and implement a surcharge to recover its under-recovered balance of fuel and energy-related purchased power costs incurred in April through September 2000. TNMP may request changes in its fuel factor until December 31, 2001.

     TNMP has sufficient liquidity to satisfy the possibility of any known contingencies. Management believes cash flow from operations and periodic borrowings under the $315 Million Credit Facility should be sufficient to meet working capital requirements at least through 2001.

     TNP Liquidity

     TNP's main sources of liquidity, and its ability to service the debt issued to finance the Merger, depend primarily on the earnings of TNMP and the distribution of those earnings in the form of cash dividends, as well as tax payments from TNMP due under a tax sharing agreement between TNP and TNMP. TNP has a $25 million revolving credit facility that may be used to provide working capital and meet other requirements. The revolving credit facility was put in place at the time of the Merger. As of December 31, 2000, TNP had no borrowings against the revolving credit facility, and the entire $25 million was available to TNP.

     Cash dividends from TNMP to TNP are limited by restrictions included in TNMP's debt indentures and bank agreements. In addition, the regulatory orders from the PUCT and the NMPRC approving the Merger contain additional restrictions on TNMP's ability to pay cash dividends to TNP. For the year ended December 31, 2000, TNMP paid dividends of $27.5 million to TNP.

     During 2000, TNMP made tax sharing payments to TNP of $10.1 million.

     During 2000, TNP's cash flow from operations was $9.4 million lower than in 1999 due to interest payments on debt to finance the Merger, partially offset by TNMP's increased cash flow described above. TNP's cash flow from operations in 1999 was $1.7 million higher than in 1998 due to reduced expenditures for nonregulated activities.

     Management believes that dividends from TNMP, payments from TNMP under the tax sharing agreement, and periodic borrowings under its revolving credit facility should be sufficient to meet TNP's working capital requirements at least through 2001.

-20-

________________________________________________________________________________________________________

   TNP Capital Resources

     With the closing of the Merger, TNP's capital structure became highly leveraged. As of December 31, 2000, TNP's common equity, preferred equity and long-term debt ratios were 8.3 percent, 9.9 percent and 81.8 percent, respectively, compared to common equity, preferred equity and long-term debt ratios of 42.5 percent, 0.2 percent and 57.3 percent as of December 31, 1999, respectively.

     TNP's capital requirements through 2005 are projected to be as follows (amounts in millions):

 

2001

2002

2003

2004

2005

Senior credit facility maturities (see Note 8)

$1.6

$1.6

$1.6

$1.6

$76.8

   TNMP Capital Resources

     During 2000, TNMP reduced debt levels, resulting in improvement of its capital ratios. As of December 31, 2000, TNMP's common equity and long-term debt ratios were 43.1 percent and 56.9 percent, respectively, compared to common equity and long-term debt ratios of 41.4 percent and 58.4 percent as of December 31, 1999, respectively.

     TNMP's capital requirements through 2005 are projected to be as follows (amounts in millions):

 

2001

2002

2003

2004

2005

$315 million credit facility maturity (see Note 8)

$    -  

$    -  

$ 252.0

$    -  

$    -  

Capital expenditures

   44.0

   44.0

   44.0

   44.0

   44.0

     Total capital requirements

$ 44.0

$ 44.0

$ 296.0

$ 44.0

$ 44.0

          

          

          

          

          

Other Matters

   Year 2000

     TNMP actively addressed the Year 2000 issue (Y2K) throughout its operating and office environments. As a result of its Y2K planning and preparation, TNMP experienced no disruption of service or any other material effect in any of its computer systems that serve critical business areas - generation, transmission, distribution, energy management and corporate information systems.

     Changes in Accounting Standards

     TNP and TNMP adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as extended and amended, effective January 1, 2001. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires the recognition of derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. Management does not expect the adoption of SFAS 133 to have a significant impact on the financial position, results of operations, or cash flows of TNP or TNMP.

     Ongoing implementation issues currently being addressed by the Derivatives Implementation Group (DIG) may affect the application of SFAS 133. In its normal course of business, TNMP enters into electricity contracts that include "swing" components for additional purchases or sales of electricity. TNMP and its customers use these contracts to meet electricity requirements. TNMP evaluated these contracts and determined that they qualify for the normal purchases and sales exception as provided by SFAS 133. In October 2000, the DIG reached a tentative conclusion that option contracts, which could potentially include these commodity "swing" contracts, do not qualify for such exception. If the FASB approves this tentative conclusion, TNMP would be required to account for these contracts as derivatives. TNMP is not required to apply DIG conclusions until after FASB approves such conclusions.

     TNMP is unable to determine the precise impact related to the electricity contracts discussed above until such time as the FASB has approved the tentative conclusion and TNMP has had time to evaluate the effect. There are a number of other issues pending before the DIG that may have an impact on the application of this statement. TNMP is unable to predict the outcome of these issues.

-21-

________________________________________________________________________________________________________

Item 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     TNP's and TNMP's involvement in the trading of market risk sensitive instruments is minimal and does not have a material impact to either company's financial condition or results of operations. As noted in Item 1, "Sources and Cost of Energy," TNMP's exposure to changes in the prevailing market price of power has increased. This exposure is due to TNMP's greater reliance on shorter term contracts and, as also discussed in Item 1, "Sources and Cost of Energy," the fact that TNMP no longer passes the demand component of purchased power costs directly through to its customers. As a result, TNMP is exposed to the risk of executing new purchased power contracts at future market prices. Conversely, TNMP has the opportunity to benefit from a favorable market for purchased power. During 2000, the market price of natural gas increased significantly, and TNMP's costs of purchased power increased in concert with the changes in natural gas prices.

     TNP and TNMP manage their exposure to interest rate risk through the proportion of fixed rate debt to variable rate debt in their total debt portfolio. To manage this mix, TNP or TNMP may enter into interest rate collars that allow interest rates on variable rate debt to move only within specified floor and ceiling levels. TNP's ratio of fixed rate debt to total debt was 52 percent and 94 percent at December 31, 2000 and 1999, respectively. TNMP's ratio of fixed rate debt to total debt was 41 percent and 94 percent at December 31, 2000 and 1999, respectively. The changes in the ratios reflect issuance of variable rate debt by TNP to finance the Merger, and the refinancing of fixed rate debt at TNMP with variable rate debt, primarily in connection with the Merger. Neither TNP nor TNMP had interest rate collars outstanding at December 31, 2000.

-22-

________________________________________________________________________________________________________

Item 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEPENDENT AUDITORS' REPORT

To the Shareholder and Board of Directors of TNP Enterprises, Inc.:

We have audited the accompanying consolidated balance sheet and consolidated statement of capitalization of TNP Enterprises, Inc. and subsidiaries (the Company) as of December 31, 2000, and the related consolidated statements of income (loss), cash flows and common shareholders' equity for the nine-month period ended December 31, 2000, and the three-month period ended March 31, 2000 (Predecessor Company Operations). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TNP Enterprises, Inc. and subsidiaries at December 31, 2000, and the results of their operations and their cash flows for the nine-month period ended December 31, 2000 and the three-month period ended March 31, 2000 in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Dallas, Texas

February 28, 2001

-23-

________________________________________________________________________________________________________

INDEPENDENT AUDITORS' REPORT

To the Shareholder and Board of Directors of Texas-New Mexico Power Company:

We have audited the accompanying consolidated balance sheet and consolidated statement of capitalization of Texas-New Mexico Power Company and subsidiaries (the Company) as of December 31, 2000, and the related consolidated statements of income, cash flows and common shareholder's equity for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Texas-New Mexico Power Company and subsidiaries at December 31, 2000, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

DELOITTE & TOUCHE LLP

Dallas, Texas

February 28, 2001

-24-

________________________________________________________________________________________________________

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of TNP Enterprises, Inc.:

We have audited the accompanying consolidated balance sheet and consolidated statement of capitalization of TNP Enterprises, Inc. (a Texas corporation) (the "Company") as of December 31, 1999, and the related consolidated statements of income, common shareholders' equity and cash flows for the years ended December 1999 and 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1999, and the results of its operations and its cash flows for the years ended December 31, 1999 and 1998 in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

 

Fort Worth, Texas

February 16, 2000

-25-

________________________________________________________________________________________________________

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholder and Board of Directors of Texas-New Mexico Power Company:

We have audited the accompanying consolidated balance sheet and consolidated statement of capitalization of Texas-New Mexico Power Company (a Texas corporation) (the "Company") as of December 31, 1999, and the related consolidated statements of income, common shareholder's equity and cash flows for the years ended December 1999 and 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1999, and the results of its operations and its cash flows for the years ended December 31, 1999 and 1998 in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Fort Worth, Texas
February 16, 2000

-26-

________________________________________________________________________________________________________

 

TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
         
          Predecessor
          _________________________________________________
      Nine Months Ended   Three Months Ended   Years Ended December 31,
        December 31, 2000   March 31, 2000   1999   1998
        (In thousands)
                     
OPERATING REVENUES $ 519,509   $ 124,526   $ 576,150   $ 585,941
        _________________   _________________   _________________   _________________
OPERATING EXPENSES:              
  Purchased power and fuel 288,911   59,550   279,587   315,949
  Other operating and maintenance 78,091   29,398   106,634   95,661
  Depreciation and amortization 39,646   10,230   39,295   38,056
  Charge for recovery of stranded plant 16,677   1,629   23,376   -
  Taxes other than income taxes 27,680   7,941   33,746   36,014
  Income taxes 5,100   1,745   19,120   15,480
        _________________   __________________   _________________ _________________
    Total operating expenses   456,105   110,493   501,758   501,160
        _________________   __________________   _________________ _________________
NET OPERATING INCOME 63,404   14,033   74,392   84,781
        _________________   __________________   _________________   _________________
OTHER INCOME (LOSS):              
  Other income and deductions, net 1,655   465   (2,348)   1,363
  Income taxes (482)   (131)   1,866   (125)
        _________________   __________________   _________________   _________________
    Other income (loss), net of taxes 1,173   334   (482)   1,238
        _________________   __________________   _________________   _________________
INCOME BEFORE INTEREST CHARGES 64,577   14,367   73,910   86,019
        _________________   __________________   _________________   _________________
INTEREST CHARGES:              
  Interest on long-term debt 57,744   9,626   38,538   48,393
  Other interest and amortization of debt-related costs 5,625   888   5,205   5,492
        _________________   __________________   _________________   _________________
    Total interest charges 63,369   10,514   43,743   53,885
        _________________   __________________   _________________   _________________
INCOME FROM CONTINUING OPERATIONS 1,208   3,853   30,167   32,134
                     
Loss from discontinued nonregulated operations, net of taxes (Note 4) -   -   -   12,710
        _________________   __________________   _________________   _________________
NET INCOME 1,208   3,853   30,167   19,424
Dividends on preferred stock and other 10,987   5   (19)   150
        _________________   __________________   _________________   _________________
INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (9,779)   $ 3,848   $ 30,186   $ 19,274
        _________________   __________________   _________________   _________________
        _________________   __________________   _________________   _________________
The accompanying notes are an integral part of these consolidated financial statements.    
-27-
_____________________________________________________________________________________
                     
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
     
      Predecessor
      _______________________________________________________
      Nine   Three  
      Months Ended   Months Ended   Years Ended December 31,
        December 31, 2000   March 31, 2000   1999   1998
        (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:              
  Cash received from sales to customers $ 478,000   $ 102,091   $ 532,237   $ 600,596
  Purchased power and fuel costs paid (269,199)   (63,613)   (291,384)   (318,616)
  Cash paid for payroll and to other suppliers (62,956)   (24,234)   (89,455)   (116,852)
  Interest paid, net of amounts capitalized (47,195)   (14,690)   (35,527)   (51,592)
  Income taxes paid (3,944)   5,500   (7,527)   (6,825)
  Other taxes paid (17,791)   (17,089)   (34,140)   (35,089)
  Other operating cash receipts and payments, net 113   147   353   1,250
        ____________________   _________________   __________________   __________________
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 77,028   (11,888)   74,557   72,872
        ____________________   _________________   __________________   __________________
                     
CASH FLOWS FROM INVESTING ACTIVITIES:              
  Merger costs, net of cash aquired (605,346)   -   -   -
  Additions to utility plant (34,088)   (9,200)   (41,144)   (37,534)
  Additions to other property and nonregulated investments 702   -   100   (1,020)
  Withdrawals from (deposits to) escrow account -   -   1,902   (1,902)
        ____________________   _________________   __________________   __________________
NET CASH USED IN INVESTING ACTIVITIES (638,732)   (9,200)   (39,142)   (40,456)
        ____________________   _________________   __________________   __________________
                     
CASH FLOWS FROM FINANCING ACTIVITIES:              
  Dividends paid on preferred and common stocks (6,919)   (3,926)   (15,640)   (14,729)
  Borrowings from (repayments to) revolving credit facilities - net:              
    TNMP $315 million facility 252,000   -   -   -
    TNP 1998 facility -   -   (9,000)   9,000
    TNMP 1996 facility (47,000)   21,000   (54,000)   (20,000)
  Issuances:              
    TNP senior subordinated notes 275,000   -   -   -
    TNP term loan 160,000   -   -   -
    TMNP senior notes, net of discount -   -   174,164   -
    TNP preferred stock, net of discount 104,075   -   -   -
    TNP common stock 100,000   1,202   4,167   5,355
  Financing costs (24,608)   -   (1,588)   (7,382)
  Redemptions:              
    TNMP first mortgage bonds (100,000)   -   -   (8,000)
    TNMP secured debentures (140,000)   -   (130,000)   -
    TNP term loan (1,200)   -   -   -
    TNMP preferred stock, net of gain (1,534)   (117)   (1,278)   (180)
    FWI debt -   -   -   (141)
        ____________________   _________________   __________________   __________________
                     
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 569,814   18,159   (33,175)   (36,077)
        ____________________   _________________   __________________   __________________
                     
NET CHANGE IN CASH AND CASH EQUIVALENTS 8,110   (2,929)   2,240   (3,661)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -   14,456   12,216   15,877
        ____________________   _________________   __________________   __________________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,110   $ 11,527   $ 14,456   $ 12,216
        ____________________   _________________   __________________   __________________
        ____________________   _________________   __________________   __________________
                     
RECONCILIATION OF NET INCOME TO NET              
  CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:              
  Net income $ 1,208   $ 3,853   $ 30,167   $ 19,424
  Adjustments to reconcile net income to net cash provided by operating activities:              
    Depreciation and amortization 39,646   10,230   39,295   38,056
    Charge for recovery of stranded plant 16,677   1,629   23,376   -
    Purchased power settlement adjustment -   (2,425)   -   -
    Amortization of debt-related costs and other deferred charges 5,735   957   8,044   7,390
    Allowance for funds used during construction (355)   (82)   (933)   (228)
    Deferred income taxes 3,398   2,541   6,535   4,722
    Investment tax credits (1,066)   (401)   2,205   1,281
    Deferred purchased power and fuel costs (14,894)   (2,233)   (20,425)   894
                     
  Cash flows impacted by changes in current assets and liabilities:              
    Accounts receivable (12,253)   (1,021)   (2,429)   2,630
    Accounts payable 21,112   (2,740)   (7,711)   976
    Accrued interest 11,122   (4,990)   3,400   (2,303)
    Accrued taxes 9,016   (3,825)   (1,472)   (3,299)
    Reserve for customer refund 1,035   838   (10,289)   10,971
    Changes in other current assets and liabilities 1,407   (14,601)   11,291   (4,845)
  Clear Lake settlement payment -   -   (8,000)   -
  Other, net (4,760)   382   1,503   (2,797)
        ____________________   _________________   __________________   __________________
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 77,028   $ (11,888)   $ 74,557   $ 72,872
        ____________________   _________________   __________________   __________________
        ____________________   _________________   __________________   __________________
                     
The accompanying notes are an integral part of these consolidated financial statements.
                     
28
_____________________________________________________________________________________
                     
                     
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
       
              Predecessor
          2000   1999
            (In thousands)  
ASSETS      
UTILITY PLANT:        
  Electric plant   $ 818,247   $ 1,288,104
  Construction work in progress   1,508   2,501
          ____________   _____________
      Total   819,755   1,290,605
  Less accumulated depreciation   27,566   382,627
          ____________   _____________
      Net utility plant   792,189   907,978
          ____________   _____________
               
OTHER PROPERTY AND INVESTMENTS, at cost   3,636   4,243
          ____________   _____________
CURRENT ASSETS:        
  Cash and cash equivalents   8,110   14,456
  Accounts receivable   21,658   8,384
  Inventories, at lower of average cost or market:        
    Fuel   406   575
    Materials and supplies   3,990   3,834
  Deferred purchased power and fuel costs   1,977   304
  Other current assets   695   635
          ____________   _____________
      Total current assets   36,836   28,188
          ____________   _____________
LONG-TERM AND OTHER ASSETS:        
  Goodwill   281,870   -
  Recoverable stranded costs   119,857   19,256
  Deferred purchased power and fuel costs   37,251   21,797
  Deferred charges   57,092   19,737
          ____________   _____________
      Total long-term and other assets   496,070   60,790
          ____________   _____________
          $ 1,328,731   $ 1,001,199
          ____________   _____________
          ____________   _____________
CAPITALIZATION AND LIABILITIES        
CAPITALIZATION:        
  Common shareholders' equity:        
    Common stock - no par value per share. Authorized 1,000,000 and        
      50,000,000 shares; issued 100 and 13,416,556 shares   $ 100,000   $ 196,685
    Retained earnings (deficit)   (13,380)   130,425
          ____________   _____________
      Total common shareholders' equity   86,620   327,110
             
  Redeemable cumulative preferred stock   104,393   1,664
  Long-term debt, less current maturities   858,527   340,244
          ____________   _____________
      Total capitalization   1,049,540   669,018
          ____________   _____________
               
CURRENT LIABILITIES:        
  Current maturities of long-term debt   1,600   100,000
  Accounts payable   38,672   20,300
  Accrued interest   14,552   8,420
  Accrued taxes   18,009   12,818
  Customers' deposits   3,945   3,786
  Accumulated deferred income taxes   13,427   7,543
  Reserve for customer refund   2,555   682
  Other current liabilities   15,862   29,720
          ____________   _____________
      Total current liabilities   108,622   183,269
          ____________   _____________
LONG-TERM AND OTHER LIABILITIES:        
  Regulatory tax liabilities   6,371   6,633
  Accumulated deferred income taxes   98,353   97,196
  Accumulated deferred investment tax credits   22,377   23,978
  Deferred credits   43,468   21,105
          ____________   _____________
      Total long-term and other liabilities   170,569   148,912
          ____________   _____________
COMMITMENTS AND CONTINGENCIES (Note 10)   ____________ _____________
          $ 1,328,731   $ 1,001,199
          ____________   _____________
          ____________   _____________
               
The accompanying notes are an integral part of these consolidated financial statements.  
  29
  _____________________________________________________________________________________
               
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
 
                              Predecessor
                          2000   1999
                            (In thousands)  
COMMON SHAREHOLDERS' EQUITY                  
  Common stock with no par value per share                    
  Authorized shares - 1,000,000 and 50,000,000                
  Outstanding shares - 100 in 2000 and 13,416,556 in 1999       $ 100,000   $ 196,685
  Retained earnings (deficit)                 (13,380)   130,425
                          ____________   _____________
      Total common shareholders' equity             86,620   327,110
                          ____________   _____________
PREFERRED STOCK                    
  Preferred stock with no par value                    
  Authorized shares - 5,000,000                    
  Outstanding shares - None                    
                               
  Redeemable cumulative preferred stock of TNMP with $100 par value          
  Authorized shares - 1,000,000                
                               
          Redemption                  
          price at TNMP's     Outstanding shares        
          option       2000   1999        
    Series B 4.65% $ 100.00       -   8,390   -   839
    Series C 4.75% 100.00       -   8,250   -   825
                  __________   __________   ____________   _____________
      Total TNMP redeemable cumulative preferred stock -   16,640   -   1,664
                  __________   __________        
                               
  Senior Redeemable cumulative preferred stock of TNP with no par value          
    Authorized shares - 2,000,000                    
                               
          Redemption                  
          price at TNP's     Outstanding shares        
          option       2000   1999        
    Senior redeemable including accrued dividends                
        14.50% $ 1,145.00       105,075   -   104,393   -
                          ____________   _____________
      Total redeemable cumulative preferred stock         104,393   1,664
                          ____________   _____________
                               
LONG-TERM DEBT                      
  FIRST MORTGAGE BONDS                    
    TNMP Series U, 9.25% due 2000               -   100,000
                               
  SENIOR NOTES                      
    TNP 10.25% due 2010                 275,000   -
    TNMP 6.25% due 2009                 175,000   175,000
    TNMP unamortized discount               (673)   (756)
                               
  SECURED DEBENTURES                    
    TNMP Series A, 10.75% due 2003               -   140,000
                               
  REVOLVING CREDIT FACILITIES                    
    TNMP 1996 facility                 -   26,000
    TNMP $315 million facility               252,000   -
                               
  TERM LOAN                      
    TNP variable rate due 2006               158,800   -
                          ____________   _____________
      Total long-term debt               860,127   440,244
      Less current maturities                 (1,600)   (100,000)
                          ____________   _____________
      Total long-term debt, less current maturities           858,527   340,244
                          ____________   _____________
                               
TOTAL CAPITALIZATION               $ 1,049,540   $ 669,018
                          ____________   _____________
                          ____________   _____________
The accompanying notes are an integral part of these consolidated financial statements.    
                               
30
_____________________________________________________________________________________
                               
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
 
      Common Shareholders' Equity  
      Common Stock   Other paid- Retained      
      Shares   Amount   in capital Earnings   Total  
      (Dollars in thousands)
PREDECESSOR                    
YEAR ENDED DECEMBER 31, 1998                    
  Balance at January 1, 1998 13,132,821   $ 187,163   $ -   $ 111,078   $ 298,241  
  Net income -   -   -   19,424   19,424  
  Dividends on preferred stock -   -   -   (150)   (150)  
  Dividends on common stock - $1.10 per share -   -   -   (14,579)   (14,579)  
  Sale of common stock 161,175   5,355   -   -   5,355  
  Gain on retirement of preferred stock -   -   -   3   3  
      _______________   _____________   _____________   _____________   ___________  
    Balance at December 31, 1998 13,293,996   192,518   -   115,776   308,294  
                         
YEAR ENDED DECEMBER 31, 1999                    
  Net income -   -   -   30,167   30,167  
  Dividends on preferred stock -   -   -   (99)   (99)  
  Dividends on common stock - $1.16 per share -   -   -   (15,537)   (15,537)  
  Sale of common stock 122,560   4,167   -   -   4,167  
  Gain on retirement of preferred stock -   -   -   118   118  
      _______________   _____________   _____________   _____________   ___________  
    Balance at December 31, 1999 13,416,556   196,685   -   130,425   327,110  
                         
THREE MONTHS ENDED MARCH 31, 2000                    
  Net income -   -   -   3,853   3,853  
  Dividends on preferred stock -   -   -   (18)   (18)  
  Dividends on common stock - $0.29 per share -   -   -   (3,908)   (3,908)  
  Sale of common stock 28,938 1,202   -   -   1,202  
  Gain on retirement of preferred stock -   -   -   13   13  
      ______________   _____________   _____________   _____________   ___________  
    Balance at March 31, 2000 13,445,494   197,887   -   130,365   328,252  
                         
SUCCESSOR                    
  Acquisition of predecessor (Note 2) (13,445,494)   (197,887)       (130,365)   (328,252)  
      _______________   _____________   _____________   _____________   ___________  
                         
NINE MONTHS ENDED DECEMBER 31, 2000                    
  Net income -   -   -   1,208   1,208  
  Dividends on preferred stock -   -   -   (10,725)   (10,725)  
  Issuance of common stock 100   100,000   -   -   100,000  
  Capital contribution from SW Acquisition -   -   3,754   -   3,754  
  Preferred stock issuance costs -   -   (3,754)   (3,601)   (7,355)  
  Preferred stock discount and warrant accretion -   -   -   (262)   (262)  
      _______________   _____________   _____________   _____________   ___________  
    Balance at December 31, 2000 100   $100,000   $ -   $ (13,380)   $ 86,620  
      _______________   _____________   _____________   _____________   ___________  
      _______________   _____________   _____________   _____________   ___________  
                         
The accompanying notes are an integral part of these consolidated financial statements.  
                         
31
_____________________________________________________________________________________
                         
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES  
(a wholly owned subsidiary of TNP Enterprises, Inc.)  
CONSOLIDATED STATEMENTS OF INCOME  
For the Years Ended December 31,  
   
    2000   1999   1998  
    (In thousands)  
               
OPERATING REVENUES $ 644,035   $ 576,093   $ 585,892  
        ________________________   _________________________   ____________________  
OPERATING EXPENSES:            
  Purchased power and fuel 348,461   279,587   315,949  
  Other operating and maintenance 97,466   99,390   91,663  
  Depreciation of utility plant 41,353   39,295   38,054  
  Charge for recovery of stranded plant 18,306   23,376   -  
  Taxes other than income taxes 34,615   33,296   36,298  
  Income taxes 22,375   20,799   16,863  
        ________________________   _________________________   ____________________  
    Total operating expenses 562,576   495,743   498,827  
        ________________________   _________________________   ____________________  
NET OPERATING INCOME   81,459   80,350   87,065  
        ________________________   _________________________   ____________________  
OTHER INCOME:              
  Other income and deductions, net   1,626   1,940   1,035  
  Income taxes   (606)   277   (52)  
        ________________________   _________________________   ____________________  
    Other income, net of taxes   1,020   2,217   983  
        ________________________   _________________________   ____________________  
INCOME BEFORE INTEREST CHARGES   82,479   82,567   88,048  
        ________________________   _________________________   ____________________  
INTEREST CHARGES:              
  Interest on long-term debt   35,231   37,919   48,342  
  Other interest and amortization of debt-related costs   5,291   5,205   5,385  
        ________________________   _________________________   ____________________  
    Total interest charges   40,522   43,124   53,727  
        _____________________   _________________________   ____________________  
NET INCOME   41,957   39,443   34,321  
Dividends on preferred stock and other   38   (19)   150  
        ________________________   _________________________   ____________________  
INCOME APPLICABLE TO COMMON STOCK   $ 41,919   $ 39,462   $ 34,171  
        ________________________   _________________________   ____________________  
        ________________________   _________________________   ____________________  
                   
The accompanying notes are an integral part of these consolidated financial statements.      
                   
32
_____________________________________________________________________________________
                   
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
         
        2000   1999   1998  
        (In thousands)  
CASH FLOWS FROM OPERATING ACTIVITIES:              
  Cash received from sales to customers   $ 578,345   $ 528,552   $ 579,482  
  Purchased power and fuel costs paid   (332,812)   (291,384)   (318,616)  
  Cash paid for payroll and to other suppliers   (75,141)   (74,372)   (72,590)  
  Interest paid, net of amounts capitalized   (37,345)   (34,924)   (51,545)  
  Income taxes paid   (8,468)   (17,592)   (2,786)  
  Other taxes paid   (33,933)   (33,540)   (35,492)  
  Other operating cash receipts and payments, net   (238)   100   864  
        ________________   ______________   ______________  
NET CASH PROVIDED BY OPERATING ACTIVITIES   90,408   76,840   99,317  
        ________________   ______________   ______________  
CASH FLOWS FROM INVESTING ACTIVITIES:              
  Additions to utility plant   (43,251)   (40,911)   (37,506)  
  Withdrawals from (deposits to) escrow account   -   1,902   (1,902)  
  Proceeds from other investments   102   -   -  
        ________________   ______________   ______________  
CASH FLOWS USED IN INVESTING ACTIVITIES   (43,149)   (39,009)   (39,408)  
        ________________   ______________   ______________  
CASH FLOWS FROM FINANCING ACTIVITIES:              
  Dividends paid on preferred and common stocks   (27,554)   (29,102)   (19,249)  
  Borrowings from (repayments to) revolving credit facilities - net:              
    $315 million facility   252,000   -   -  
    1996 facility   (26,000)   (54,000)   (20,000)  
  Issuances:              
    Senior notes, net of discount   -   174,164   -  
  Financing costs   (5,443)   (1,590)   (7,275)  
  Redemptions:              
    First mortgage bonds   (100,000)   -   (8,000)  
    Secured debentures   (140,000)   (130,000)   -  
    Preferred stock, net of gain   (1,651)   (1,278)   (180)  
        ________________   ______________   ______________  
NET CASH USED IN FINANCING ACTIVITIES   (48,648)   (41,806)   (54,704)  
        ________________   ______________   ______________  
NET CHANGE IN CASH AND CASH EQUIVALENTS   (1,389)   (3,975)   5,205  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   4,002   7,977   2,772  
        ________________   ______________   ______________  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 2,613   $ 4,002   $ 7,977  
        ________________   ______________   ______________  
        ________________   ______________   ______________  
RECONCILIATION OF NET INCOME TO NET              
  CASH PROVIDED BY OPERATING ACTIVITIES:              
  Net income   $ 41,957   $ 39,443   $ 34,321  
  Adjustments to reconcile net income to net cash provided by operating activities:                
    Depreciation of utility plant   41,353   39,295   38,054  
    Charge for recovery of stranded plant   18,306   23,376   -  
    Purchased power settlement adjustment   (2,425)   -   -  
    Amortization of debt-related costs and other deferred charges   5,470   8,044   7,281  
    Allowance for funds used during construction   (437)   (933)   (228)  
    Deferred income taxes   10,083   6,716   9,559  
    Investment tax credits   (1,601)   2,149   1,173  
    Deferred purchased power and fuel costs   (17,127)   (20,425)   894  
                   
  Cash flows impacted by changes in current assets and liabilities:              
    Accounts receivable   (15,021)   (5,424)   1,419  
    Accounts payable   18,252   (6,814)   2,029  
    Accrued interest   (1,468)   3,384   (2,319)  
    Accrued taxes   6,994   (6,260)   2,698  
    Reserve for customer refund   1,873   (10,289)   10,971  
    Changes in other current assets and liabilities   (13,084)   15,688   (5,904)  
  Clear Lake settlement payment   -   (8,000)   -  
  Other, net   (2,717)   (3,110)   (631)  
        ________________   ______________   ______________  
NET CASH PROVIDED BY OPERATING ACTIVITIES   $ 90,408   $ 76,840   $ 99,317  
        ________________   ______________   ______________  
        ________________   ______________   ______________  
                   
The accompanying notes are an integral part of these consolidated financial statements.      
                   
33  
_____________________________________________________________________________________  
                   
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED BALANCE SHEETS
December 31,
          2000   1999  
          (In thousands)  
ASSETS        
UTILITY PLANT:          
  Electric plant   $ 1,326,296   $ 1,288,080  
  Construction work in progress       1,508   2,501  
          ________________   ______________  
      Total   1,327,804   1,290,581  
  Less accumulated depreciation   415,816   382,627  
          ________________   ______________  
      Net utility plant   911,988   907,954  
          ________________   ______________  
OTHER PROPERTY AND INVESTMENTS, at cost   206   213  
          ________________   ______________  
CURRENT ASSETS:          
  Cash and cash equivalents   2,613   4,002  
  Accounts receivable   21,368   6,347  
  Inventories, at lower of average cost or market:          
    Fuel   406   575  
    Materials and supplies   3,990   3,834  
  Deferred purchased power and fuel costs   1,977   304  
  Other current assets   641   356  
          ________________   ______________  
      Total current assets   30,995   15,418  
          ________________   ______________  
LONG-TERM AND OTHER ASSETS:          
  Recoverable stranded costs   -   19,256  
  Deferred purchased power and fuel costs   37,251   21,797  
  Deferred charges   18,057   19,757  
          ________________   ______________  
      Total long-term and other assets   55,308   60,810  
          ________________   ______________  
          $ 998,497   $ 984,395  
          ________________   ______________  
          ________________   ______________  
CAPITALIZATION AND LIABILITIES          
                 
CAPITALIZATION:          
  Common shareholder's equity:          
    Common stock, $10 par value per share          
      Authorized 12,000,000 shares; issued 10,705 shares   $ 107   $ 107  
    Capital in excess of par value   222,149   222,149  
    Retained earnings   100,721   90,302  
          ________________   ______________  
      Total common shareholder's equity   322,977   312,558  
  Redeemable cumulative preferred stock   -   1,664  
  Long-term debt, less current maturities   426,327   340,244  
          ________________   ______________  
      Total capitalization   749,304   654,466  
          ________________   ______________  
CURRENT LIABILITIES:          
  Current maturities of long-term debt   -   100,000  
  Accounts payable   38,326   20,074  
  Accrued interest   6,920   8,388  
  Accrued taxes   21,183   14,189  
  Customers' deposits   3,945   3,786  
  Accumulated deferred income taxes   13,767   8,434  
  Reserve for customer refund   2,555   682  
  Other current liabilities   19,044   28,015  
          ________________   ______________  
      Total current liabilities   105,740   183,568  
          ________________   ______________  
LONG-TERM AND OTHER LIABILITIES:          
  Regulatory tax liabilities   6,371   6,633  
  Accumulated deferred income taxes   100,177   95,165  
  Accumulated deferred investment tax credits   22,377   23,978  
  Deferred credits   14,528   20,585  
          ________________   ______________  
      Total long-term and other liabilities   143,453   146,361  
          ________________   ______________  
COMMITMENTS AND CONTINGENCIES (Note 10)    
          ________________   ______________  
          $ 998,497   $ 984,395  
          ________________   ______________  
          ________________   ______________  
                 
The accompanying notes are an integral part of these consolidated financial statements.      
                 
34  
_____________________________________________________________________________________  
                 
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
 
                        2000   1999
                        (In thousands)
COMMON SHAREHOLDER'S EQUITY              
  Common stock, $10 par value per share                        
  Authorized shares - 12,000,000                    
  Outstanding shares - 10,705               $ 107   $ 107
  Capital in excess of par value               222,149   222,149
  Retained earnings                 100,721   90,302
                        _____________   _____________
    Total common shareholder's equity           322,977   312,558
                        _____________   _____________
                             
PREFERRED STOCK                      
  Redeemable cumulative preferred stock with $100 par value            
    Authorized shares - 1,000,000                    
                             
        Redemption                  
        price at TNMP's       Outstanding shares        
        option       2000   1999        
    Series B 4.65% $ 100.00       -   8,390   -   839
    Series C 4.75% 100.00       -   8,250   -   825
                __________   __________   _____________   _____________
    Total redeemable cumulative preferred stock -   16,640   -   1,664
                __________   __________   _____________   _____________
                             
LONG-TERM DEBT                    
  FIRST MORTGAGE BONDS                    
    Series U, 9.25% due 2000               -   100,000
                             
  SENIOR NOTES                      
    6.25% due 2009                 175,000   175,000
    Unamortized discount                 (673)   (756)
                             
  SECURED DEBENTURES                    
    Series A, 10.75% due 2003               -   140,000
                             
  REVOLVING CREDIT FACILITIES                    
    1996 facility               -   26,000
    $315 million facility               252,000   -
                        _____________   _____________
    Total long-term debt             426,327   440,244
    Less current maturities               -   (100,000)
                        _____________   _____________
    Total long-term debt, less current maturities         426,327   340,244
                        _____________   _____________
TOTAL CAPITALIZATION         $ 749,304   $ 654,466
                        _____________   _____________
                        _____________   _____________
The accompanying notes are an integral part of these consolidated financial statements.    
                             
35
_____________________________________________________________________________________
                             
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
 
     
      Common Shareholder's Equity  
      __________________________________________________  
        Capital in  
      Common Stock   Excess of   Retained      
      Shares   Amount   Par Value   Earnings   Total  
      (Dollars in thousands)
YEAR ENDED DECEMBER 31, 1998                    
  Balance at January 1, 1998 10,705   $ 107   $ 222,146   $ 64,768   $ 287,021  
  Net income -   -   -   34,321   34,321  
  Dividends on preferred stock -   -   -   (150)   (150)  
  Dividends on common stock -   -   -   (19,099)   (19,099)  
  Gain on retirement of preferred stock -   -   3   -   3  
      _______   _________   _________   _________   _________  
    Balance at December 31, 1998 10,705   107   222,149   79,840   302,096  
                         
YEAR ENDED DECEMBER 31, 1999                    
  Net income -   -   -   39,443   39,443  
  Dividends on preferred stock -   -   -   (99)   (99)  
  Dividends on common stock -   -   -   (29,000)   (29,000)  
  Gain on retirement of preferred stock -   -   -   118   118  
      _______   _________   _________   _________   _________  
    Balance at December 31, 1999 10,705   107   222,149   90,302   312,558  
                         
YEAR ENDED DECEMBER 31, 2000                    
  Net income -   -   -   41,957   41,957  
  Dividends on preferred stock -   -   -   (51)   (51)  
  Dividends on common stock -   -   -   (31,500)   (31,500)  
  Gain on retirement of preferred stock -   -   -   13   13  
      _______   _________   _________   _________   _________  
    Balance at December 31, 2000 10,705   $ 107   $222,149   $ 100,721   $ 322,977  
      _______   _________   _________   _________   _________  
      _______   _________   _________   _________   _________  
                         
The accompanying notes are an integral part of these consolidated financial statements.  
36  
_____________________________________________________________________________________  
                         

 

TNP ENTERPRISES, INC. AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements

     The notes to the consolidated financial statements pertain to both TNP and TNMP, except in instances where the note indicates that it applies only to TNP or TNMP.

Note 1.   Summary of Significant Accounting Policies

     General Information.  The consolidated financial statements of TNP and subsidiaries include the accounts of TNP and its wholly owned subsidiaries, TNMP, FWI, and TNP Operating Company. The consolidated financial statements of TNMP and subsidiaries include the accounts of TNMP and its wholly owned subsidiaries, TGC and TGC II. All intercompany transactions and balances have been eliminated in consolidation.

     TNMP is TNP's principal operating subsidiary. TNMP is a public utility engaged in generating, purchasing, transmitting, distributing, and selling electricity in Texas and New Mexico. TNMP is subject to PUCT and NMPRC regulation. Some of TNMP's activities, including the issuance of securities, are subject to FERC regulation, and its accounting records are maintained in accordance with FERC's Uniform System of Accounts. TNMP has one reportable segment.

     The use of estimates is required to prepare TNP's and TNMP's consolidated financial statements in conformity with generally accepted accounting principles. Management believes that estimates are essential and will not materially differ from actual results. However, adjustments may be necessary in the future to the extent that future estimates or actual results are different from the estimates used in the 2000 financial statements.

     Accounting for the Effects of Regulation.  As discussed in Note 3, legislation that establishes competition was enacted during 1999 in Texas and New Mexico. As a result, TNMP discontinued the application of SFAS 71, "Accounting for the Effects of Certain Types of Regulation," to the generation/power supply portion of its operations in Texas and New Mexico. Since the legislation affirmed the regulated nature of TNMP's transmission and distribution operations in both states, TNMP continues to apply SFAS 71 to its transmission and distribution operations.

     The legislation in both states provides for recovery of "stranded costs," the difference between the regulatory value of TNMP's investments in generation assets and purchased power contracts and the market price for energy in a competitive market. Any such stranded costs would be recoverable from TNMP's transmission and distribution customers.

     As a result of discontinuing SFAS 71 to the generation/power supply operations in Texas, the following accounting policy changes became effective:

  • AFUDC is no longer accrued to generation-related construction projects. Interest is capitalized to these projects in accordance with SFAS 34, "Capitalization of Interest Cost."
  • Under SFAS 71, TNMP deferred the gains or losses that arose when long-term debt was redeemed prior to maturity, and amortized those costs over the life of the new debt. Accordingly, gains or losses incurred for the early retirement of debt attributable to TNMP's generation/power supply operations are recorded in accordance with SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt."

     Utility Plant. TNMP's utility plant is stated at the historical cost of construction, which includes labor, materials, indirect charges for such items as engineering and administrative costs, and AFUDC or capitalized interest. Property repairs and replacement of minor items are charged to operating expenses; major replacements and improvements are capitalized to utility plant.

     As discussed in Note 2, TNP allocated its purchase price to the acquired assets (including utility plant) and liabilities based on fair values at the time of the acquisition.

     AFUDC is a non-cash item designed to enable a utility to capitalize financing costs during periods of construction of property subject to rate regulation. Established regulatory practices enable TNMP to recover these costs from customers. The composite rate used for AFUDC was 9.6 percent in 2000, 10.6 percent in 1999 and 6 percent in 1998.

     The costs of depreciable units of plant retired or disposed of in the normal course of business are eliminated from utility plant accounts and such costs plus removal expenses less salvage are charged to accumulated depreciation. When complete operating units are disposed of, appropriate adjustments are made to accumulated depreciation, and the resulting gains or losses, if any, are recognized.

     Depreciation is provided on a straight-line method based on the estimated lives of the properties as indicated by periodic depreciation studies. A portion of depreciation of transportation equipment used in construction is charged to utility plant accounts in accordance with the equipment's use. Depreciation as a percentage of average depreciable cost was 3.2 percent, 3.1 percent, and 3.2 percent in 2000, 1999, and 1998, respectively.

-37-

________________________________________________________________________________________________________

     Cash Equivalents. All highly liquid debt instruments with maturities of three months or less when purchased are considered cash equivalents.

     Customer Receivables and Operating Revenues. TNMP accrues estimated revenues for electricity delivered from the latest billing date to the end of the accounting period. TNMP, under a factoring arrangement with an unaffiliated company, sells its customer receivables on a nonrecourse basis. Amounts estimated to have been delivered, but remaining unbilled, are also sold in connection with this agreement.

     Purchased Power and Fuel Costs. In Texas, fuel and the energy-related portion of purchased power costs are recovered from customers through the fuel adjustment clause authorized by the PUCT. The demand-related portion of purchased power is recovered through base rates and is not subject to adjustment or future reconciliation. Therefore, any difference between the amount of demand-related purchased power recovered through TNMP's rates and the actual cost of such affects operating income.

     In New Mexico, TNMP recovers all purchased power costs through the fuel and purchased power adjustment clause authorized by the NMPRC. The purchased power recovery factor changes monthly to reflect over-collections or under-collections of purchased power costs.

     Deferred Charges. Costs incurred in issuing long-term debt and related discount and premium are deferred and amortized on a straight-line basis over the lives of the respective issues.

     Included in deferred charges are other assets that are expected to benefit future periods and certain costs that are deferred for ratemaking purposes and amortized over periods allowed by regulatory authorities.

     Income Taxes. TNP files a consolidated federal income tax return that includes its subsidiaries and the consolidated operations of TNMP. The amounts of income taxes recognized in TNMP's accompanying consolidated financial statements were computed as if TNMP and its subsidiaries filed a separate consolidated federal income tax return.

     ITC amounts utilized in the federal income tax return are generally deferred and amortized to earnings ratably over the estimated service lives of the related assets.

     Fair Values of Financial Instruments. Fair values of cash equivalents, temporary investments, and customer receivables approximated the carrying amounts because of the short maturities of those instruments.

     The estimated fair values of long-term debt and preferred stock were based on quoted market prices of the same or similar issues. The estimated fair values of TNP's financial instruments are as follows:

 

 

     December 31, 2000     

     December 31, 1999     

 

 

Carrying Amount

Fair Values

Carrying Amount

Fair Values

 

 

 

(In thousands)

 

Assets

 

 

 

 

 

 

Interest rate collars

$         -    

$         -    

$         66

$       3,578

 

 

 

 

 

 

Capitalization and Liabilities

 

 

 

 

 

Long-term debt

860,127

858,738

440,244

420,731

 

Preferred stock

104,393

105,075

1,664

1,664

     Reclassification. Certain items in 1998 and 1999 were reclassified to conform to the 2000 presentation.

     Changes in Accounting Standards

     TNP and TNMP adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as extended and amended effective January 1, 2001. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires the recognition of derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. Management does not expect the adoption of SFAS 133 to have a significant impact on the financial position, results of operations, or cash flows of TNP or TNMP.

     Ongoing implementation issues currently being addressed by the Derivatives Implementation Group (DIG) may affect the application of SFAS 133. In its normal course of business, TNMP enters into electricity contracts that include "swing" components for additional purchases or sales of electricity. TNMP and its customers use these contracts to meet electricity requirements. TNMP evaluated these contracts and determined that they qualify for the normal purchases and sales exception as provided by SFAS 133. In October 2000, the DIG reached a tentative conclusion that option contracts, which could potentially include these commodity "swing" contracts, do not qualify for such exception. If the FASB approves this tentative conclusion, TNMP would be required to account for these contracts as derivatives. TNMP is not required to apply DIG conclusions until after FASB approves such conclusions.

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     TNMP is unable to determine the precise impact related to the electricity contracts discussed above until such time as the FASB has approved the tentative conclusion and TNMP has had time to evaluate the effect. There are a number of other issues pending before the DIG that may have an impact on the application of this statement. TNMP is unable to predict the outcome of these issues.

Note 2.   Acquisition and Basis of Accounting for TNP

     On April 7, 2000, pursuant to an Agreement and Plan of Merger dated May 24, 1999, between TNP, ST Corp. and SW Acquisition, the parent of ST Corp., ST Corp. merged with and into TNP, the parent of TNMP. TNP is the surviving corporation in the Merger. SW Acquisition now holds all outstanding common stock of TNP. Upon closing, each share of TNP's common stock that was outstanding at the effective time of the merger was automatically converted into the right to receive $44.00 in cash. Prior to the merger, TNP common stock was traded on the New York Stock Exchange. As a result of the Merger, TNP common stock is no longer publicly held.

     SW Acquisition and ST Corp. funded the merger using a combination of debt and equity financing. SW Acquisition contributed $100 million in equity funding to ST Corp. ST Corp. secured financing for the merger through sales of debt and equity securities as discussed in Notes 8 and 9.

     The Merger was accounted for under the purchase method of accounting, as prescribed in Accounting Principles Board Opinion No. 16, "Business Combinations" (APB 16). Accordingly, TNP allocated the purchase price of approximately $616.9 million to the acquired assets and assumed liabilities based on their estimated fair values and recorded the excess purchase consideration of approximately $290.4 million as goodwill. For convenience, purchase accounting has been applied as of April 1, 2000. The consolidated financial statements of TNP for the periods ended before April 1, 2000, were prepared using TNP's historical basis of accounting and are designated as "predecessor." Predecessor TNP's Consolidated Statement of Income for the three months ended March 31, 2000, includes a net-of-tax charge of approximately $3.4 million for pre-merger severance and retirement benefits recorded between April 1, 2000, and April 7, 2000. The comparability of the financial position and operating results of the predecessor and the periods subsequent to the Merger are affected by the purchase accounting adjustments including the revaluation of TNP One (discussed below) and amortization of goodwill over a period of twenty-five years. As of December 31, 2000, accumulated amortization of goodwill was $8.5 million.

     If the Merger had occurred at the beginning of the years ended December 31, 2000 and 1999, the unaudited pro forma loss applicable to common stock would have been approximately $(17.8) million and $(20.3) million, respectively, as compared to TNP's reported income (loss) applicable to common stock of $(5.9) million and $30.2 million for the years ended December 31, 2000 and 1999, respectively. However, these results are not necessarily indicative of the results which would have been obtained had the Merger actually taken place on the dates indicated.

     The assets of TNP, with the exception of TNP One, its sole generating plant, are accounted for under the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation." Due to the regulated nature of the business in which these assets are employed, TNP recorded these assets at their historical cost.

     In 2000, TNP, with the assistance of an independent third party, estimated the fair market value of TNP One to be approximately $309.7 million, at the time of the Merger. The difference between the fair market value of TNP One and its book value of approximately $431.9 million will be recoverable from TNMP's transmission and distribution customers under the provisions of Texas Senate Bill 7, which established retail competition for generation operations. Accordingly, TNP recorded a regulatory asset for recoverable stranded costs associated with TNP One of approximately $122.2 million, at the time of the Merger. The actual amount of recoverable stranded costs will be determined through one of the four market-based mechanisms included in Texas Senate Bill 7, and may differ from TNP's estimate.

     The estimate of TNP One's fair market value is dependent on a number of assumptions, including the future price of energy, and the future supply and demand for electricity. The evaluation of TNP's assets and liabilities is complete, and there are expected to be no other purchase accounting adjustments recorded to the financial statements.

     As conditions for approval of the Merger, TNMP made a number of commitments to both the NMPRC and PUCT. The commitments cover a wide range of financial, operational, electric reliability, and other standards that TNMP agreed to honor. TNMP made 55 commitments in New Mexico and Texas, of which 50 are currently in effect. TNMP monitors compliance on a monthly basis and could be subject to financial penalties for non-compliance with certain commitments. As of December 31, 2000, TNMP was in compliance with all commitments subject to penalties.

Note 3.   Regulatory Matters

     During 1999, legislation was passed in both Texas and New Mexico that establishes retail competition for generation operations. Retail competition is scheduled to begin in both New Mexico and Texas on January 1, 2002. The legislation in both states contains provisions that affect TNMP's operations, as discussed below.

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   Texas

     Legislative Provisions. The 1999 legislation created the framework for Texas utilities' transition to retail competition. The legislation requires that electric service through December 31, 2001 be provided according to base rate tariffs in effect at September 1, 1999, but allows changes in the fixed fuel factor between September 1, 1999, and December 31, 2001. The legislation allows a utility to recover 100 percent of its verifiable stranded costs using a number of methods, including excess earnings, securitization and assessment of a competition transition charge. The legislation also established methods for first estimating and then quantifying stranded costs. The legislation requires utilities to unbundle their operations into three distinct businesses by January 1, 2002, consisting of regulated transmission and distribution operations, unregulated generation operations, and retail electric providers. Retail electric providers are entities that sell electricity to retail customers in Texas. Finally, the legislation established the price at which TNMP's affiliated retail electric provider must offer electricity to TNMP customers beginning January 1, 2002. That price, commonly called the "price-to-beat", is 6 percent lower than the rate in effect on January 1, 1999, adjusted to reflect a fuel factor that the PUCT will put into effect as of December 31, 2001.

     1998 Transition Plan. Prior to the legislation, TNMP had been operating under a voluntary Transition Plan approved by the PUCT in 1998. The Transition Plan covered a five-year period, and had provided for rate reductions, sharing of earnings in excess of 11.25 percent return on equity and recovery of stranded costs. It also included a provision requiring that TNMP conform the Plan to any legislation enacting competition in the electric utility industry.

     As part of the process of conforming the Transition Plan to the legislation, the PUCT issued a Declaratory Order in December 1999 stating that TNMP was required "to give effect to base rate reductions reflected in" the Transition Plan. Accordingly, TNMP reduced base rates for residential and commercial customers by 3 percent and 1 percent, respectively, effective January 1, 2000 and 2001. As a result, operating revenues decreased by $7.1 million in 2000. Operating revenues are estimated to decrease by $14.1 million in 2001 relative to 1999. The order also established that the 2000 and 2001 base rate reductions would offset the 6 percent rate reduction required by the "price-to-beat" provisions of the legislation, as previously described in the section "Texas - Legislative Provisions." TNMP will file information with the PUCT in May 2001 regarding its position with respect to all remaining conflicting provisions between the legislation and the Transition Plan.

     Excess Earnings.     As discussed above, TNMP has operated with an earnings cap since 1998. During 1998, TNMP's Transition Plan specified that earnings in excess of the earnings cap would be applied toward customer refunds and stranded cost recovery. In 1999 and 2000, the legislation discussed above provides excess earnings are to be applied solely for stranded cost recovery.

     1998 Excess Earnings.     In its original 1998 earnings report filing, TNMP reported that it had not earned in excess of the 11.25 percent return on equity established in the Transition Plan. On May 3, 2000, the PUCT issued a final order resolving two issues raised by ORA on August 16, 1999. The PUCT held in favor of TNMP that the effects of a 1999 refinancing should not be retroactively applied to 1998, but should be applied starting with the 1999 earnings report. However, the PUCT ordered TNMP to defer a $4.8 million purchased power dispute payment it made in 1998, and to amortize it over a four-year period, beginning in 1998 and ending in 2001. Accordingly, in March 2000 TNMP recorded a regulatory asset of $2.4 million, the unamortized balance of the $4.8 million payment and a corresponding reduction to purchased power expense.

     Based on the adjustment discussed above, TNMP earned $1.2 million more than the earnings cap for 1998. In accordance with the Transition Plan, the excess earnings will be shared equally between customer refunds and stranded cost recovery.

     1999 Excess Earnings.     On March 30, 2000, TNMP filed its Annual Report pursuant to Section 39.257 of the Public Utility Regulatory Act. The Annual Report details TNMP's calculation of excess earnings under the provisions of the legislation passed in 1999. The Annual Report showed that TNMP earned $22.0 million in excess of the 10.53 percent return on rate base established in the legislation. That amount is $1.4 million lower than the $23.4 million TNMP had accrued for excess earnings as of December 31, 1999. The difference is attributable to the amortization of the 1998 purchased power settlement described above. On September 26, 2000, ORA filed a notice with the PUCT that it disagreed with TNMP's calculation of excess earnings in the 1999 Annual Report by $0.6 million. Representatives of TNMP and ORA met to discuss the Annual Report on October 24, 2000. In a filing on December 20, 2000, ORA withdrew one of its disagreements with TNMP. In February 2001, the PUCT approved a settlement of the remaining contested issue between TNMP and ORA. As a result, TNMP has reduced its 2000 excess earnings accrual by $1.4 million to reflect the settlement.

     2000 Excess Earnings.     TNMP has recorded estimated excess earnings of $18.3 million for the year ended December 31, 2000, including adjustments recorded in 2000 to reflect changes to 1998 and 1999 excess earnings as discussed above. TNMP is required to file its 2000 Annual Report to the PUCT no later than March 31, 2001.

     Unbundled Cost of Service Filing.     The legislation required TNMP to file a rate case that will set rates for the transmission and distribution company that will provide regulated services once competition begins in 2002. On March 31, 2000, TNMP filed its Unbundled Cost of Service Filing (UCOS) with the PUCT. The filing proposed the rates at which TNMP's customers would purchase transmission and distribution services after December 31, 2001, in TNMP's service area. The proposed rates were based upon a projected cost of service of $150.3 million. The cost of service included TNMP's projected reasonable and necessary expenses, and return on its transmission and distribution rate base at a 9.11 percent weighted average cost of capital.

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     The filing also included a proposed Competition Transition Charge, as required by the legislation. The Competition Transition Charge is designed to recover stranded costs (ECOM) related to TNMP's generation assets and purchased power contracts, as determined by a PUCT-established model. The legislation allows securitization of up to 75 percent of estimated ECOM as determined by the PUCT. Although the PUCT will make an initial determination of ECOM, the actual amount of ECOM will be determined through one of the four market-based mechanisms included in the legislation. The actual determination of ECOM may differ from the PUCT's initial determination.

     On August 28 and October 2, 2000, TNMP filed updated information for its calculation of ECOM and UCOS, respectively. The update to the ECOM calculation resulted in no net change to TNMP's initial calculation. TNMP's proposed UCOS tariffs were revised to reflect a projected cost of service of $154.7 million, including return on transmission and distribution rate base at a 9.27 percent weighted average cost of capital.

     In March 2001, TNMP and other parties to the UCOS reached a settlement regarding the transmission and distribution cost of service. The parties are preparing to present the settlement to the PUCT for its consideration.

     In addition to UCOS issues, TNMP expects the PUCT to address certain issues related to its January 2000 Business Separation Plan filing in the UCOS. The current schedule for TNMP's UCOS contemplates issuance of a final order in August 2001.

     Fuel Reconciliation.     In June 2000, TNMP filed with the PUCT to 1) increase its fuel factor to recover projected fuel and energy-related purchased power costs, 2) implement an interim surcharge to recover under-recovered fuel and energy-related purchased power costs of $24.7 million as of March 31, 2000, and 3) reconcile its eligible fuel and energy-related purchased power expenses for the three-year period ended December 31, 1999.

     PUCT rules require TNMP to reconcile its fuel and energy-related purchased power costs at least every three years. Management believes the ultimate outcome of the fuel reconciliation will not have a material adverse effect on TNP's or TNMP's consolidated financial position.

     As the result of a settlement hearing, TNMP implemented an interim fuel factor in July 2000 that was approximately 20 percent higher than its previous factor. In September 2000, TNMP implemented the permanent fuel factor resulting from the settlement, and an interim surcharge to begin collecting $23.7 million of under-recovered fuel and energy-related purchased power costs. The interim surcharge is effective through December 31, 2001, the end of the surcharge period.

     In December 2000, TNMP filed a request with the PUCT seeking approval to implement a fuel factor that is higher than the factor it implemented in September 2000. TNMP also requested a surcharge to collect $15.2 million in under-recovered fuel and energy-related purchased power cost incurred in April through September 2000, plus interest. TNMP proposed to collect the surcharge through December 31, 2002.

     In January 2001, TNMP and other parties agreed to a settlement of the December 2000 filing that resulted in TNMP implementing an interim fuel factor that is approximately 30 percent higher than the factor it implemented in September 2000. TNMP will implement the permanent fuel factor resulting from the settlement in March 2001. The settlement also grants TNMP's request to implement its requested surcharge beginning in March 2001. In February 2001, the PUCT ratified the settlement, but extended the period over which the surcharge will be collected to December 31, 2002.

     At December 31, 2000, TNMP had an under-recovered balance of fuel and the energy-related portion of purchased power costs of $37.3 million. Under the legislation, TNMP may request changes in its fuel factor until December 31, 2001.

   New Mexico

     1999 Rate Case.     On August 15, 2000, the NMPRC approved a settlement between TNMP and the NMPRC Staff. The settlement calls for a decrease in TNMP's base rates of $1.8 million, or 6 percent, effective October 1, 1999. TNMP has a refund obligation of $1.7 million to New Mexico customers covering the period from October 1, 1999, to September 1, 2000. The NMPRC is considering a proposal by TNMP to apply the refund obligation to its under-recovered fuel balance, which was $2.0 million at December 31, 2000.

     Restructuring.     The New Mexico Legislature opened the state's electric power market to consumer choice with the passage of the Electric Utility Industry Restructuring Act of 1999 (the Act) in April 1999. The Act allows recovery of at least 50 percent of a utility's stranded costs over a five-year period, and originally provided for the phase-in of retail choice beginning January 1, 2001. On May 17, 2000, the NMPRC delayed the date for retail electric competition for residential, school, and small commercial customers by one year to January 1, 2002. At the same time the NMPRC moved the date for open access for large commercial and industrial customers back six months, from January 1, 2002 to July 1, 2002. During March 2001, a proposal to delay the start of competition by five years passed the New Mexico Legislature and awaits the Governor's signature.

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     During the second quarter of 2000, TNMP revised its reserve for stranded costs associated with purchased power contracts as a result of the NMPRC action to delay the start of competition. TNMP reduced the reserve by $1.2 million, from $2.1 million to $0.9 million.

     The Act also requires utilities to disaggregate their regulated transmission and distribution business activities from their generation operations, which will be subject to competition. TNMP filed its plan for complying with the Act on June 1, 2000. The filing explained TNMP's intention to separate its New Mexico operations into a transmission and distribution affiliate and a competitive power supply affiliate. The filing also contains a timetable for achieving the various tasks necessary to comply with the Act.

 

Note 4.   Discontinued Nonregulated Operations

     During 1998, TNP discontinued all remaining operations of FWI. The pre-tax loss on discontinued operations recognized in 1998 was $19.6 million ($12.7 million, net of taxes).

Note 5.   Sale of TNP One

     As discussed in Note 3, the legislation establishing retail competition in Texas established methods for quantifying stranded costs, one of which is the sale of generation assets. On November 14, 2000, the Board of Directors of TNP authorized management to sell TNP One, subject to the approval of the Board, for the purposes of determining the amount of stranded costs related to TNP One in compliance with the legislation.

Note 6.   Employee Benefit Plans

   Pension and Postretirement Benefits Plans

     TNP and TNMP sponsor a defined benefit pension plan covering substantially all of its employees. Benefits are based on an employee's years of service and compensation. TNP's and TNMP's funding policy is to contribute the minimum amount required by federal funding standards. TNP and TNMP provide an excess benefit plan for certain key personnel and retired employees whose benefits federal law restricts. TNP and TNMP also sponsor a health care plan that provides postretirement medical and death benefits to retirees who satisfied minimum age and service requirements during employment.

Pension Benefits

Postretirement Benefits

2000

1999

2000

1999

(In thousands)

Change in projected benefit obligation:

Benefit obligation at beginning of year

$   73,361 

$  79,262 

$    8,969 

$ 10,875 

Service cost

1,715 

1,828 

324 

362 

Interest cost

5,675 

5,198 

852 

722 

Participant contributions

-   

-   

182 

179 

Actuarial (gain) or loss, including changes

   in discount rate

3,930 

    (5,490)  

2,755 

(1,468)

Curtailments/settlements

2,048 

-   

-   

-   

Special termination benefits paid

(1,806)

-   

-   

-   

Benefits paid

    (6,735)

    (7,437)

    (1,573)

   (1,701)

Benefit obligation at end of year

$   78,188 

$   73,361 

$  11,509 

$   8,969

                 

                 

                

               

Change in plan assets:

Fair value of plan assets at beginning of year

$  104,197 

$  97,714 

$    8,855 

$   9,936 

Actual return on plan assets, net of expenses

1,781 

13,409 

(623)

(198)

Employer contributions

-    

-    

552 

618 

Participant contributions

-    

-    

179 

179 

Benefits paid

     (6,026)

    (6,926)

    (1,570)

    (1,680)

Fair value of plan assets at end of year

$    99,952 

$ 104,197 

$   7,393 

$   8,855 

              

              

              

              

     As discussed in Note 2, the Merger was accounted for under the purchase method of accounting. Acquired assets and assumed liabilities were recorded based on their estimated fair values. Accordingly, TNP recorded an asset for the pension plan assets in excess of the projected benefit obligations, and a liability for the postretirement projected benefit obligation in excess of the plan assets, thereby eliminating any previously existing unrecognized actuarial net gains or losses, prior service cost, and net transitional obligation. TNP also recorded a net regulatory liability associated with the pension plan and postretirement benefit plan that will be amortized in conjunction with TNMP's amortization of its unrecognized gain or loss, unrecognized prior service cost, or unrecognized net transitional obligation, in order to reflect the amounts permitted for rate making purposes in operations.

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Pension Benefits

Postretirement Benefits

2000

1999

2000

1999

(In thousands)

Reconciliation of funded status:

TNMP

Funded status

$   21,763 

$  30,836 

$   (4,116)

$    (113)

Unrecognized actuarial gain

(26,842)

(35,930)

(2,489)

(6,560)

Unrecognized transition (asset) or obligation

     -     

(11)

3,891 

4,216 

Unrecognized prior service cost

     (2,479)

    (2,699)

      -    

     -    

TNMP prepaid (accrued) benefit cost

$    (7,558)

$   (7,804)

$   (2,714)

$  (2,457)

TNP

Recognition of amounts in purchase accounting

    38,024 

           -  

     1,083 

          -  

TNP prepaid (accrued) benefit cost

$   30,466 

$   (7,804)

$   (1,631)

$  (2,457)

                

                

                

                

Components of net periodic benefit cost:

TNMP

Service cost

$    1,715 

$   1,827 

$     324 

$     362 

Interest cost

5,675 

5,198 

852 

722 

Expected return on plan assets

(7,654)

(7,018)

(497)

(583)

Amortization of prior service cost

(220)

(220)

-    

-    

Amortization of transitional (asset) or obligation

(11)

(24)

325 

325 

Recognized actuarial gain

      (508)

      107 

(192)

(344)

TNMP net periodic benefit cost

   (1,003)

     (130)

      812 

    482 

TNP

Elimination of amortization and actuarial amounts

1,236 

     -     

(100)

-    

Amortization of regulatory assets (liabilities)

     (1,236)

        -     

        100 

         -    

Net periodic benefit cost

$   (1,003)

$     (130)

$     812 

$    482 

               

               

               

             

Weighted-average assumptions as of December 31:

Discount rate

7.50%

8.00%

7.50%

8.00%

Expected long-term rate of return on plan assets

9.50%

9.50%

5.25%

5.25%

Average rate of compensation increase

4.00%

4.00%

N/A 

N/A 

     The assumed health care cost trend rate used to measure the expected cost of benefits was 5.0 percent for 2000 and is assumed to trend downward slightly each year to 4.3 percent for 2003 and thereafter. Assumed health care cost trend rates could have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects (in thousands):

One-Percentage-Point

One-Percentage-Point

Increase

Decrease

Effect on total of service and interest cost

     components for 2000

$       891     

$       (889)     

Effect on year-end 2000 postretirement

     benefit obligation

$   12,059     

$   (12,032)     

     The projected benefit obligation of the excess benefit plan, which has an accumulated benefit obligation in excess of plan assets, was $4.8 million and $4.7 million at December 31, 2000 and 1999, respectively. The accumulated benefit obligation of the excess benefit plan was $4.6 million and $4.5 million at December 31, 2000 and 1999, respectively. The excess benefit plan had no plan assets at December 31, 2000 and 1999, respectively.


   Incentive Plans

     TNP and TNMP have several incentive compensation plans. All employees participate in one or more of these plans. Incentive compensation is based on meeting key financial and operational performance goals such as cash flow from operations, customer satisfaction, and system reliability measures. Combined operating expenses of TNP and TNMP for 2000, 1999, and 1998 included costs for the various plans of $6.0 million, $5.3 million, and $5.9 million, respectively.

   Other Employee Benefits

     TNP and TNMP have a 401(k) plan designed to enhance the other retirement plans available to its employees. Employees may invest their contributions in various mutual funds. TNP's and TNMP's contributions are invested in the same manner as the employee's contributions. Combined operating expenses of TNP and TNMP for 2000, 1999, and 1998 included contribution costs of $0.9 million, $0.8 million and $0.8 million, respectively.

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     In connection with the Merger described in Note 2, TNMP entered into employment agreements with certain members of TNMP's senior management. These agreements provide that the executive continues to hold his or her present position with TNMP and will receive a minimum level of compensation over the next three years.

 

Note 7.   Income Taxes

     As discussed in Item 7, "Results of Operations," amounts shown below for TNP for the year ended December 31, 2000, include both pre-merger and post-merger information. Components of income taxes were as follows:

          TNP          

          TNMP          

2000

1999

1998

2000

1999

1998

(In thousands)

Taxes on net operating income:

Federal - current

$  1,235 

$ 10,161 

$  9,751 

$ 12,324 

$ 11,652 

$  6,299 

State - current

1,827 

582 

164 

2,256 

645 

197 

Federal - deferred

5,251 

5,849 

3,962 

9,396 

6,029 

8,872 

ITC adjustments

  (1,468)

    2,528 

    1,603 

   (1,601)

    2,473 

    1,495 

    6,845 

  19,120 

  15,480 

  22,375 

  20,799 

  16,863 

Taxes on other income (loss):

Federal - current

(74)

(2,229)

(313)

(81)

(640)

(313)

Federal - deferred

687 

687 

760 

687 

687 

687 

ITC adjustments

       -   

     (324)

    (322)

      -   

    (324)

     (322)

     613 

   (1,866)

      125 

    606 

    (277)

         52 

Tax benefit from discontinued

nonregulated operations (Note 4)

         -   

         -   

   (6,843)

         -   

         -   

         -   

Total income taxes

$  7,458 

$ 17,254 

$  8,762 

$ 22,981 

$ 20,522 

$ 16,915 

          

          

          

          

          

          

     The amounts for total income taxes differ from the amounts computed by applying the appropriate federal income tax rate to earnings (loss) before income taxes for the following reasons:

          TNP          

          TNMP          

2000

1999

1998

2000

1999

1998

(In thousands)

Tax at statutory tax rate

$  3,729 

$  16,393 

$  9,796 

$ 21,938 

$ 20,762 

$ 17,864 

Amortization of

 accumulated deferred ITC

(1,601)

(1,632)

(1,525)

(1,601)

(1,632)

(1,525)

Amortization of

  excess deferred taxes

(141)

(141)

(141)

(141)

(141)

(141)

State income taxes

1,827 

1,044 

197 

2,256 

1,107 

197 

ITC related to 1995

     PUCT disallowance

-

(324)

(322)

-

(324)

(322)

Goodwill amortization

3,130

-

-

-

-

-

Other, net

    514 

     1,914 

      757 

      529 

      750 

      842 

    Actual income taxes

$ 7,458 

$  17,254 

$  8,762 

$ 22,981 

$ 20,522 

$ 16,915 

         

           

          

          

          

           

-44-

________________________________________________________________________________________________________

     The tax effects of temporary differences that gave rise to significant portions of net current and net noncurrent deferred income taxes as of December 31, 2000, and 1999, are presented below.

    TNP               

      TNMP               

2000

1999

2000

1999

(In thousands)

Current deferred income taxes:

Deferred tax assets:

Unbilled revenues

$  1,738 

$    673 

$  1,738 

$    673 

Other

   1,243 

   2,273 

    903 

   1,382 

2,981 

2,946 

2,641 

2,055 

Deferred tax liability:

Recoverable stranded costs

(2,648)

(2,648)

(2,648)

(2,648)

Deferred purchased power and fuel costs

 (13,760)

  (7,841)

 (13,760)

 (7,841)

Current deferred income taxes, net

$(13,427)

$(7,543)

$(13,767)

$(8,434)

         

            

            

            

Noncurrent deferred income taxes:

Deferred tax assets:

   Minimum tax credit carryforwards

$ 29,532 

$ 29,624 

$ 28,322 

$33,365 

   ITC carryforwards

1,320 

1,482 

   -   

-

   Regulatory related items

12,562 

13,493 

12,562 

13,493 

   Accrued employee benefit costs

2,037 

3,109 

2,037 

3,109 

   Excess earnings

14,216 

7,825 

14,216 

7,825 

   Other

   1,409 

   1,384 

   1,409 

   1,156 

  61,076 

   56,917

   58,546 

   58,948

Deferred tax liabilities:

   Utility plant, principally due to

      depreciation and basis differences,
      including TNP One revaluation
      regulatory asset



(141,154)



(135,973)



(141,154)



(135,973)

   Deferred charges

(12,692)

(12,257)

(11,986)

(12,257)

   Other recoverable stranded costs
      (noncurrent)


(4,491)


(4,455)


(4,491)


(4,455)

   Regulatory related items

   (1,092)

   (1,428)

   (1,092)

   (1,428)

(159,429)

(154,113)

(158,723)

(154,113)

      Noncurrent deferred income taxes, net net

$ (98,353)

$ (97,196)

$(100,177)

$ (95,165)

               

               

               

               

     Federal tax carryforwards as of December 31, 2000, were as follows:

TNP

TNMP

                (In thousands)

Minimum tax credits

Amount

$ 29,532

$ 28,322

Expiration period

None

None

Investment tax credit

Amount

$   1,320

$     -    

Expiration period

2005

Note 8.   Long-Term Debt

   TNMP

     In connection with the Merger, TNMP entered into a Backstop Credit Facility (Backstop Facility) in the amount of $240 million on April 17, 2000, so that it could repurchase up to $100 million of its 9.25 percent Series U First Mortgage Bonds and up to $140 million of its 10.75 percent Series A Secured Debentures. As required by its first mortgage bond and secured debenture indentures, TNMP was required to offer to repurchase this debt at 101 percent of par value due to the change in control of TNP resulting from the Merger.

     On June 1, 2000, TNMP repurchased approximately $112.8 million of its Series A Secured Debentures and approximately $90.5 million of its Series U First Mortgage bonds at 101 percent of par plus accrued interest. TNMP borrowed $203.0 million from the Backstop Facility and $6.6 million from its existing bank facility to refinance the tendered debt.

-45-

________________________________________________________________________________________________________

     TNMP incurred a loss of approximately $1.6 million related to unamortized debt expense associated with the retirement of the Series U First Mortgage Bonds and Series A Secured Debentures. In accordance with SFAS 71, TNMP deferred approximately $0.9 million of the loss and will amortize that amount in future periods. Approximately $0.7 million of the loss, associated with the portion of TNMP's business no longer accounted for under regulated accounting principles, was expensed in the second quarter of 2000.

     On September 15, 2000, TNMP redeemed the remaining $27.2 million of Series A Secured Debentures and $9.5 million of Series U First Mortgage Bonds. TNMP financed the redemption by drawing $36.0 million from its existing bank facility, which it used to pay principal and accrued interest. TNMP incurred a loss of approximately $0.3 million associated with the redemption. In accordance with SFAS 71, TNMP deferred approximately $0.2 million of the loss for amortization in future periods, and expensed the approximately $0.1 million of the loss related to the portion of TNMP's business no longer accounted for under regulated accounting principles.

     On October 30, 2000, TNMP established a new $315.0 million credit facility ($315 Million Credit Facility). TNMP used funds from the $315 Million Credit Facility to retire the Backstop Facility and its existing bank facility, which had balances at October 30, 2000, of $203 million and $49 million, respectively. The $315 Million Credit Facility matures in October 2003, and bears interest at a variable rate that was 8.0673 percent as of December 31, 2000. The $315 Million Credit Facility had an outstanding balance of $252 million, and TNMP had the ability to borrow an additional $63 million under the $315 Million Credit Facility as of December 31, 2000.

     For the year ended December 31, 2000, the average interest rate on the $315 Million Credit Facility was 8.09 percent.

     The composite average borrowing rates under TNMP's credit facilities were 7.86 percent and 6.11 percent for 2000 and 1999, respectively.

   TNP

     ST Corp. financed the merger through the sale of various debt and equity securities, as discussed in Notes 8 and 9.

     Senior Subordinated Notes.     On April 7, 2000, ST Corp. issued $275 million of 10.25 percent senior subordinated notes (Notes) due 2010 in a private offering. The Notes pay interest semi-annually, and are unsecured. TNP can redeem up to 35 percent of the Notes at specified prices out of the net proceeds of a TNP common equity offering before April 1, 2003, but cannot otherwise redeem the Notes before April 1, 2005. In July 2000, TNP issued an offer to exchange the privately placed Senior Subordinated Notes for registered Senior Subordinated Notes with terms substantially identical to the old notes except for transfer restrictions, registration rights and liquidated damages. As of August 14, 2000, the closing of the offer, all holders of the privately placed Senior Subordinated Notes had exchanged the Notes for registered Senior Subordinated Notes.

     Senior Secured Credit Facility.     ST Corp. established a senior secured credit facility (Senior Credit Facility) in the amount of $185 million. The Senior Credit Facility consists of a $160 million term loan due 2006 and a $25 million revolving credit facility that expires in 2003. TNP may request that the revolving credit facility be extended to 2006. As of December 31, 2000, the term loan had an outstanding balance of $158.8 million. TNP had no amounts borrowed under the revolving credit facility as of December 31, 2000, giving TNP the ability to borrow the full $25 million commitment under the revolving credit facility. The term loan bears interest at a variable rate that was 9.45 percent as of December 31, 2000.

     For the year ended December 31, 2000, the average interest rate on the Senior Credit Facility was 9.50 percent.

     The Senior Credit Facility contains a number of financial covenants and includes a number of covenants restricting various transactions. The Senior Credit Facility is secured by a pledge of all TNMP common stock held by TNP.

     Maturities

     As of December 31, 2000, scheduled maturities of long-term debt for the five years following 2000 are as follows:

 

Year

TNMP Credit
Facility

TNP Credit
Facility


Total

 

 

(In thousands)

 

2001

$        -    

$      1,600

$      1,600

2002

-    

1,600

1,600

2003

252,000

1,600

253,600

2004

-    

1,600

1,600

2005

-    

76,800

76,800

-46-

________________________________________________________________________________________________________

Note 9.   Capital Stock and Dividends

   TNMP

     The $315 Million Credit Facility restricts the payment of cash dividends by TNMP. TNMP may not declare or pay dividends if doing so would cause cumulative dividends declared or paid in the preceding twenty-four month period to exceed cumulative net income available for common stock in the same period. As of December 31, 2000, $20.7 million of unrestricted retained earnings were available for dividends.

     On September 15, 2000, TNMP redeemed all $0.8 million of its outstanding Series B Preferred Stock and all $0.7 million of its outstanding Series C Preferred Stock at par value.

   TNP

     Senior Redeemable Preferred Stock.     On April 7, 2000, ST Corp. issued $100 million of senior preferred stock under a bridge preferred stock commitment. In May 2000, TNP replaced the bridge preferred stock with $100 million of senior redeemable preferred stock (Preferred Stock) and 100,000 warrants to purchase limited partnership interests of SW Acquisition, together comprising 100,000 units issued in a private placement. The Preferred Stock pays a dividend of 14.50 percent and must be redeemed by April 1, 2011. Through April 1, 2005, dividends on the Preferred Stock will be paid by issuing additional shares of Preferred Stock having an aggregate liquidation preference equal to the amount of the dividends to be paid. After April 1, 2005, TNP has the option to pay dividends in cash or by issuing additional shares of Preferred Stock as previously described.

     Before April 1, 2003, TNP can redeem all, but not less than all, of the Preferred Stock at a specified price, plus accumulated dividends, out of the net proceeds of a TNP common equity offering. Before April 1, 2005, TNP can redeem all, but not less than all, of the Preferred Stock at a specified price, plus accumulated dividends, in the event of a change in control. After April 1, 2005, TNP may redeem any amount of the Preferred Stock at specified prices .

     The warrants issued as part of the units as described above had an aggregate fair market value of approximately $3.8 million at issue and were treated as a capital contribution to TNP from SW Acquisition.

     The Preferred Stock was recorded at its fair market value at the time of issuance, reflecting the value of the warrants described above and the issuance discount of $1.0 million. TNP will accrete the Preferred Stock to its redemption value of $100 million, through periodic charges against income applicable to common stock.

     On October 20, 2000, TNP completed the registration process to exchange the privately placed Preferred Stock for registered Senior Redeemable Preferred Stock with terms substantially identical to the old preferred stock, including the liquidation preference and dividend rate. As of November 22, 2000, the deadline for the exchange, substantially all holders of privately placed shares had exchanged their shares for the registered Senior Redeemable Preferred Stock.

Note 10.    Commitments and Contingencies

   Fuel Supply Agreement

     TNMP has an agreement with the Walnut Creek Mining Company to purchase lignite for TNP One through at least 2017. Depending on the output of TNP One, the contract could supply the plant for several years beyond 2017. Peter Kiewit Sons' has acquired the interest of Phillips Coal Company, and now owns all interests in Walnut Creek Mining Company.

   Wholesale Purchased Power Agreements

     TNMP purchases approximately 78% of its electricity requirements from various wholesale suppliers. These contracts are scheduled to expire in various years through 2005.

     At December 31, 2000, TNMP had various outstanding commitments for take or pay agreements, including the Fuel Supply Agreement discussed above. Detailed below are the fixed and determinable portion of the obligations (amounts in millions):

 

 

2001

2002

2003

2004

2005

 

 

 

 

 

 

 

Purchased power agreements

$   99.5

$  39.9

$  22.7

$   11.5

$    -   

Fuel supply agreements

    31.3

    30.0

    30.3

    30.5

    30.7

 

Total

$ 130.8

$  69.9

$  53.0

$  42.0

$  30.7

            

           

           

           

            

-47-

________________________________________________________________________________________________________

   Legal Actions

     Phillips Petroleum. TNMP is the defendant in a suit styled Phillips Petroleum Company vs. Texas-New Mexico Power Company, filed on October 1, 1997 and pending in the 149th State District Court of Brazoria County, Texas. In May 1999, TNMP filed a Third Party Petition naming Sweeny Cogeneration Limited Partnership, the operator of cogeneration and related facilities at the Phillips refinery, as a defendant. The suits, which are in the discovery stage, are based on events surrounding an interruption of electricity to a petroleum refinery and related facilities that occurred in May 1997. Phillips Petroleum Company is seeking the recovery of damages arising from the interruption and in May 1999 demanded payment in the amount of $47.1 million. TNMP's tariff approved by the PUCT contains limitations against recovery of the great majority of Phillips' alleged damages. The Texas Supreme Court, in another matter, has upheld the enforceability of such tariff limitations in litigation of this type; TNMP believes the ruling will operate to substantially limit any recovery by Phillips to the cost of its electrical equipment, in the event that any damages are awarded in this matter. Phillips has previously reported to the SEC that it incurred costs of approximately $2.0 million in this interruption. TNMP has previously charged to earnings the deductible amount of its insurance coverage, $500,000.

     Power Resource Group. On January 16, 2001, TNMP obtained a summary judgment in its favor in the suit styled Power Resource Group, Inc. v. Public Utility Commission of Texas and Texas-New Mexico Power Company, pending in the 345th District Court of Travis County, Texas. The court also dismissed this lawsuit on that date. This lawsuit, which was originally filed on May 21, 1999, challenged the PUCT's dismissal of a regulatory case that PR Group had filed against TNMP. PR Group is a developer of electric generating plants that are intended to be qualifying cogeneration facilities.

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

     Contract Disputes with Industrial Customers

     In November 2000, TNMP and two significant industrial customers reached agreements regarding contracts for electric service. TNMP and its customers had been operating without contracts since the expiration of the existing contracts in May 1999 and June 2000. As a result of the settlement, the industrial customers agreed to pay approximately $5.0 million that they had withheld during the dispute. TNMP had recorded the disputed amounts as revenue during the dispute. The settlements also established terms and conditions for electric service between TNMP and the industrial customers through December 31, 2001.

-48-

________________________________________________________________________________________________________

TNP ENTERPRISES, INC. AND SUBSIDIARIES
Selected Quarterly Consolidated Financial Data

     The following selected quarterly consolidated financial data for TNP is unaudited, and, in the opinion of TNP's management, is a fair summary of the results of operations for such periods:

 

Predecessor

 

 

March 31

June 30

Sept. 30

Dec. 31

 

(In thousands)

2000

 

 

 

 

Operating revenues

$124,526

$155,931

$203,666

$159,912 

Net operating income

14,033

22,006

31,086

10,312 

Net income (loss)

3,853

532

10,567

(9,891)

 

 

 

 

 

 

Predecessor

 

March 31

June 30

Sept. 30

Dec. 31

1999

 

 

 

 

Operating revenues

$118,125

$144,027

$190,570

$123,428 

Net operating income

14,492

22,175

25,611

12,114 

Net income (loss)

3,132

12,403

15,047

(415)

     Generally, the variations between quarters reflect the seasonal fluctuations of TNMP's business. The Merger discussed in Note 2 effected operating results beginning with the second quarter of 2000. The first quarter of 2000 includes amounts recorded between April 1, 2000 and April 7, 2000 for pre-merger severance and retirement benefits. Beginning in 1999, operating results reflect the effects of the new legislation described in Note 3.

 

Item 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

     TNP filed a report on Form 8-K dated May 2, 2000, to disclose the termination of Arthur Andersen, LLP, and the appointment of Deloitte & Touche LLP, as its independent accountants effective April 25, 2000.

-49-

________________________________________________________________________________________________________

PART III

Item 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Directors

     William J. Catacosinos, 70, joined TNP upon the closing of the merger as Chairman, President and Chief Executive Officer. He also serves on TNMP's board of directors. Since 1998, Dr. Catacosinos has served as Managing Partner of Laurel Hill. Dr. Catacosinos served as Chairman and Chief Executive Officer of LILCO from 1984 to 1998. He also serves as a director of Atlantic Bank of New York.

     Kevern R. Joyce, 54, has served as Chairman of TNMP since April 1995, and was also Chairman of TNP until the closing of the merger. Mr. Joyce joined TNP and TNMP in April 1994 as President and Chief Executive Officer. He is a director of AZZ Incorporated, an electrical products manufacturer for the industrial market, a provider of galvanizing services and oil field tubular products.

     Leeam Lowin, 55, became a director of both TNP and TNMP at the closing of the merger. For the past 34 years, Mr. Lowin has been an investment manager for private accounts. From 1984 to 1998, Mr. Lowin served as a consultant to LILCO. From 1992 to 1996, he was a member of the board of directors of AEL Industries and managed the sale of that company to Tracor.

     James T. Flynn, 67, became a director of TNMP at the closing of the merger and of TNP in November 2000. Mr. Flynn, prior to his retirement, was President and Chief Operating Officer of LILCO from 1996 to 1998. From 1994 to 1996, Mr. Flynn was Executive Vice President and Chief Operating Officer of LILCO.

     Preston M. Geren, III, 48, became a director of both TNP and TNMP at the closing of the merger. Mr. Geren is an attorney and currently manages personal business interests in real estate, oil and gas and securities. Mr. Geren currently serves on the board of directors of Cullen Frost Bankers (NYSE) and Anadarko Petroleum Corp (NYSE). Mr. Geren also is Vice Chairman of the board of directors of Dallas-Fort Worth International Airport. Previously Mr. Geren worked as a management consultant with Public Strategies, Inc. a Texas-based public affairs firm from 1997 to 1998. He was a member of the United States Congress for four terms, from 1989 until 1997. Previous corporate board experience includes service as an advisory director of TXU as a director of Union Pacific Resources and as a director of Overton Bank and Trust, Fort Worth, Texas.

Committees and Meetings.

     TNP's and TNMP's Boards of Directors maintain the following two standing committees.

  • Audit Committee. This committee oversees the financial reporting process; reviews the annual and quarterly financial statements; recommends to the full board the appointment of the independent accountants and evaluates their performance and fees charged; reviews the internal audit function; meets with the independent accountants and with appropriate financial personnel and internal auditors regarding corporate financial reporting, accounting procedures and controls, and the scope of internal and independent audits; and evaluates officer's compliance with ethics policies, national and state laws and regulations related to securities, criminal conduct and the environment. Messrs. Flynn, Geren and Lowin were named to the Audit Committees of TNP and TNMP in 2000, after the Merger. Mr. Geren is the Chair of both committees.
  • Compensation Committee. This committee reviews the performance of the Company's officers and establishes the appropriate level of base compensation ranges and specific base salaries within such ranges for the officers who report to the Chief Executive Officer; recommends actions with respect to adoption, amendment, administration or termination of compensation, welfare, benefit, pension and other plans related to compensation of employees; reviews the terms and conditions of all employee benefit plans; establishes performance goals for all incentive compensation plans and designates participants in incentive compensation plans for management; oversees the management organization; and makes recommendations to the full board with respect to directors' compensation. After the Merger, Messrs. Flynn, Geren and Lowin were named to the Compensation Committee of TNP and Messrs. Catacosinos, Flynn, Geren and Lowin were named to the Compensation Committee of TNMP. Mr. Flynn chairs both committees.

     TNP's current board of directors held five meetings during 2000, and acted by unanimous consent once. The predecessor board held two meetings and acted by unanimous consent once prior to the Merger. TNMP's current board of directors held three meetings during 2000, and acted by unanimous consent twice. The predecessor board held two meetings prior to the Merger. The committees held the following number of meetings: Audit Committee, four (including one held prior to the Merger by the predecessor Audit Committee); and Compensation Committee, four (including two meetings held by the predecessor Compensation Committee prior to the Merger). All directors attended at least 75% of all the meetings of the Board of Directors and committees on which they served during 2000.

-50-

________________________________________________________________________________________________________

Director Compensation

     Each non-employee director receives an annual retainer of $20,000 from TNP and $28,000 from TNMP, and a fee of $1,250 for each meeting of the TNP and TNMP boards and committees that he attends. Directors and committee members are also reimbursed for travel and other incidental expenses incurred in connection with their duties. Directors who are employees receive no additional compensation for serving as directors.

Compensation Committee Interlocks and Insider Participation

     No Compensation Committee member is a director of or serves on the compensation committee of an entity that has an executive officer serving on TNP's Board of Directors or Compensation Committee.

Executive Officers

     The information set forth under "Employees and Executives" in Part I is incorporated here by reference.

Item 11.   EXECUTIVE COMPENSATION.

     The following table summarizes the compensation paid to the Chief Executive Officer and the other most highly compensated executive officers of TNP and TNMP (the "Named Executive Officers") for services rendered in all capacities to TNP and TNMP and its affiliated companies during 1998, 1999, and 2000.

SUMMARY COMPENSATION TABLE

 

 

Annual Compensation

Long Term
Compensation



All Other      Compensation(4)


Name & Principal Position(1)


Year


Salary


Bonus
(2)


Payouts
(3)

William J. Catacosinos, Chairman, President and Chief Executive Officer of TNP

2000

$960,577

$323,596

--    

$19,436

Kevern R. Joyce, President and Chief Executive Officer of TNMP

2000
1999
1998

$423,820
391,146
370,525

$104,150
278,466
340,822

$490,193
304,714
418,151

$10,832
19,174
25,367

Jack V. Chambers, Senior Vice President & Chief Operations Officer of TNMP

2000
1999
1998

$252,181
233,294
223,819

$61,971
99,826
129,092

$237,059
175,666
249,893

$9,949
11,143
14,347

 

 

 

 

 

 

Manjit S. Cheema, Senior Vice President & Chief Financial Officer of TNMP; Treasurer of TNP

2000
1999
1998

$221,485
204,898
195,239

$54,428
94,413
118,488

$213,573
158,229
213,756

$10,556
10,246
12,775

 

 

 

 

 

 

R. Michael Matte, Vice President, Business Development of TNMP; President, First Choice Power(5)

2000
1999
1998

$197,153
182,064
134,592

$128,448
59,713
60,822

$182,377
79,181
45,089

$9,360
8,151
1,211

 

 

 

 

 

 

W. Douglas Hobbs, Vice President, Texas Transmission & Distribution Operations of TNMP

2000
1999
1998

$168,839
156,193
149,920

$42,807
45,119
53,118

$127,289
102,154
135,636

$10,093
8,105
10,842

 

 

 

 

 

 

Theodore A. Babcock, Chief Financial Officer of TNP

2000

$163,654

$ 46,310

--  

$ 8,913

                                                     

  1. The named Executive Officers of TNP are Dr. Catacosinos and Mr. Babcock. Messrs. Joyce, Chambers, Cheema, Matte and Hobbs are the Named Executive Officers of TNMP. Dr. Catacosinos and Mr. Babcock joined TNP on April 7, 2000, the date of the Merger. Prior to the Merger, Messrs. Joyce, Chambers and Cheema were also executive officers of TNP.
  2. The 2000 amounts shown in this column are the bonuses relating to 2000 and paid in 2001. The bonuses of Dr. Catacosinos and Messrs. Joyce, Chambers, Cheema, Matte and Hobbs consist of cash awards under the incentive bonus provisions of their respective employment agreements. See "Employment Contracts and Termination, Severance and Change of Control Arrangements" below. Mr. Babcock's bonus consists of cash awards under the TNP and TNMP Management Short-Term Incentive Compensation Plan and the TNP and TNMP Broad-Based Incentive Compensation Plan. Mr. Matte's 2000 bonus includes a payment under the Milestone Bonus provision of his employment contract.
  3. -51-

    ________________________________________________________________________________________________________

  4. The 2000 amounts shown in this column were paid at the time of the Merger pursuant to change in control provisions of the TNP Equity Incentive Plan, which was the company's long-term incentive compensation plan. Under those provisions, each Named Executive Officer received a cash payment equal to the product of (a) the target number of shares previously awarded in long-term stock incentive opportunities under the Plan for the 1998-2000 and 1999-2001 performance periods, and (b) $44 per share (the amount paid for TNP shares in the Merger). Each Named Executive Officer also received dividend equivalents payable with respect to those shares. The total target number of shares for each Named Executive Officer was: Mr. Joyce - 10,685; Mr. Chambers - 5,158; Mr. Cheema - 4,647; Mr. Matte - 3,971; and Mr. Hobbs - 2,768. Dividend equivalents paid were $2.55 per share for the 1998-2000 shares, and $1.45 for the 1999-2001 shares. The company terminated the TNP Equity Incentive Plan prior to the Merger.
  5. The 2000 amounts in this column and the table below consist of the following items earned or paid in 2000: (a) company contributions to TNP's and TNMP's 401(k) plan, including incentive matching contributions for 2000 paid in 2001; and (b) premiums for group life insurance paid by the Company (none of the Named Executive Officers has any cash value rights related to such insurance).
  6. 401(k) Plan

    Life Insurance Premiums

    Dr. Catacosinos

    $ 8,787

    $ 10,649

    Mr. Joyce

      8,787

       2,045

    Mr. Chambers

      8,787

       1,162

    Mr. Cheema

      8,787

       1,769

    Mr. Matte

      8,787

         573

    Mr. Hobbs

      8,726

       1,367

    Mr. Babcock

      8,459

        454

  7. Mr. Matte joined FWI in May 1998 and TNMP in November 1998. Of his 1998 salary $114,400 was paid by FWI.

Pension Plan

     Effective October 1, 1997, TNMP amended its pension plan to change it to a cash balance retirement plan. As amended, the pension plan provides benefits based on an account balance rather than a formula-based benefit. Before that date, the pension plan was a noncontributory defined benefit plan. Employees who, as of October 1, 1997, were at least 55 years of age, or were at least 50 years of age and had at least 10 years of service, can be "grandfathered" in the prior pension plan, and will receive benefits under the plan that provides the better retirement payments.

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

     The following table sets forth information concerning annual benefits payable upon normal retirement at age 65 to TNP and TNMP employees under the pre-amendment pension plan, and reflects the "grandfathered" benefit formula for individuals retiring in 2000 with the years of service indicated.

PENSION PLAN TABLE

Years of Service

Remuneration (1)

  15  

  20  

  25  

  30  

35

  40  

$125,000

$29,697

$ 39,596 

$49,495

$59,394

$69,293

$77,418

150,000

36,072

48,096

60,120

72,144

84,168

93,918

175,000

42,447

56,596

70,745

84,894

99,043

110,418

200,000

48,822

65,096

81,370

97,644

113,918

126,918

250,000

61,572

82,096

102,620

123,144

143,668

159,918

300,000

74,322

99,096

123,870

148,644

173,418

192,918

350,000

87,072

116,096

145,120

174,144

203,168

225,918

400,000

99,822

133,096

166,370

199,644

232,918

258,918

450,000

112,572

150,096

187,620

225,144

262,668

291,918

500,000

125,322

167,096

208,870

250,644

292,418

324,918

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________________________________________________________________________________________________________

(1 ) Benefits shown do not take into account limits under Section 415 of the Internal Revenue Code of 1986, as amended (the "Tax Code") or the $170,000 salary cap now in effect, resulting from Tax Code Section 401(a)(17) limits. Consequently, a portion of the benefits would be paid from the Excess Benefit Plan (as defined below).

     Annual contributions to the pre-amendment pension plan are computed on an actuarial basis and cannot be calculated readily on a per person basis. Benefits for each eligible employee under the old formula are based on his or her years of service computed through the month of his or her retirement, multiplied by a specified percentage of his or her average monthly compensation for each full calendar year of service completed after 1992. TNMP made no contribution to the pension plan for 2000.

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

     Highly compensated employees whose pensions are subject to being reduced to an amount below what the pension plan otherwise would provide as a result of compliance with Tax Code Sections 415 and 401(a)(17), and whom the Board of Directors designate as eligible, may also participate in TNMP's "Excess Benefit Plan." The Boards of TNMP and TNP have designated 20 TNMP employees and two TNP employees as eligible to participate in the Excess Benefit Plan, including the Named Executive Officers and three retired employees now receiving excess benefit payments. Amounts paid as long-term incentive compensation pursuant to the TNP Equity Incentive Plan or other plans will be included in the remuneration base for pension and Excess Benefit Plan purposes.

     During 2000, the TNMP Board of Directors approved TNP and First Choice Power, the corporation designated to become company's affiliated retail electric provider, as participants in the Pension and Excess Benefit Plans.

Employment Contracts and Termination, Severance and Change of Control Arrangements

     Each Named Executive Officer of TNP and TNMP, other than Mr. Babcock, is employed pursuant to a written agreement of employment.

     William J. Catacosinos. Dr. Catacosinos is employed by TNP as its Chairman, President and Chief Executive Officer pursuant to an employment agreement dated as of April 7, 2000 (the "Catacosinos Agreement"). The term of his agreement is three years. This term shall automatically be extended for an additional one year period on each anniversary date of the agreement, unless either Dr. Catacosinos or TNP gives notice to the other at least 90 days prior to any such anniversary date that the Agreement term, as then extended, shall not be extended beyond its then automatically extended term.

     Dr. Catacosinos shall receive an annual base salary of not less than $1,350,000 during the first year of the agreement term, not less than $1,450,000 during the second year, and not less than $1,550,000 per year thereafter. He shall be entitled to participate in all incentive, pension, retirement, savings, 401(k) and other employee pension benefit plans and programs that TNP and/or TNMP maintains from time to time for the benefit of its senior management executives. He is also entitled to participate in all of TNP and TNMP's other compensation and employee benefit plans or programs and to receive officer perquisites.

     If Dr. Catacosinos resigns for Good Reason or is terminated without Cause (as the Catacosinos Agreement defines such terms), he will be entitled to receive his base salary at the rate then in effect for a period of 18 months after the termination. Such termination or resignation would require 30 days prior written notice to the affected party. If Dr. Catacosinos is terminated for Cause or resigns without Good Reason, he would receive his base salary then in effect through the date of his termination. If he dies or becomes Disabled (as the Catacosinos Agreement defines the term), Dr. Catacosinos, his estate or his legal representative, as the case may be, would be entitled to receive his base salary at the rate then in effect for a period of six months from the date of termination. In each instance, Dr. Catacosinos would also be entitled to any base salary accrued but not unpaid as of the termination date, immediate payment of any unpaid compensation due to him as of the termination date, reimbursement of all reasonable business expenses incurred but not yet paid, payment for all unused accrued vacation days, and any other compensation and benefits payable pursuant to any applicable plans or programs of TNP and/or TNMP.

     Messrs. Joyce, Chambers, Cheema, Matte and Hobbs. TNMP entered into employment agreements with Messrs. Joyce, Chambers, Cheema, Matte and Hobbs as of April 7, 2000, the effective date of the Merger (such agreements, respectively, the "Joyce Agreement," "Chambers Agreement," the "Cheema Agreement," the "Matte Agreement" and the "Hobbs Agreement" and collectively, the "2000 Employment Agreements." Each of the 2000 Employment Agreements has a three-year term, beginning on April 7, 2000. Each specifies the position and duties of the executive during the period of employment. Currently, (i) Mr. Joyce is Chairman, President and Chief Executive Officer, (ii) Mr. Chambers is Senior Vice President and Chief Operations Officer, (iii) Mr. Cheema serves as Senior Vice President and Chief Financial Officer, (iv) Mr. Matte is Vice President-Business Development and as President of First Choice Power, the corporation designated to become the company's retail electric provider affiliate; and (v) Mr. Hobbs is Vice President - Texas Transmission and Distribution Operations.

-53-

________________________________________________________________________________________________________

     Each of the 2000 Employment Agreements specifies the compensation and benefits provided to the executive during the agreement term, and that each will receive a minimum level of compensation over the next three years. The minimum compensation for (i) Mr. Joyce is $1,200,000; (ii) Mr. Chambers is $600,000; (iii) Mr. Cheema is $525,000; (iv) Mr. Matte is $330,000; and (v) Mr. Hobbs is 330,000. This compensation will consist of:

    • an annual base salary and an annual bonus payable in a lump sum on each of the first, second and third anniversary of the new agreement, provided the executive is still employed by TNMP (the "Annual Bonus"). The base salary and Annual Bonus, respectively for (i) Mr. Joyce are $434,500 and $656,875; (ii) Mr. Chambers are $258,535 and $276,831; (iii) Mr. Cheema are $227,066 and $241,167; and (iv) Mr. Matte are $202,121 and $77,349; and (v) Mr. Hobbs are $173,093 and $113,634.
    • an annual incentive bonus ranging from 0% to 37.5% of the executive's base salary based on his attainment of certain pre-established financial and operational goals, and subject to employment through the end of the relevant calendar year. The target annual incentive bonus will be equal to 25 percent of base salary in each case; and
    • an additional bonus equal to the shortfall from the minimum level of compensation including base salary, Annual Bonus and annual incentive bonus, provided the executive is still employed by TNMP on the anniversary date of his Employment Agreement.

     Each of the 2000 Employment Agreements provides that if the company terminates the executive for any reason other than Cause or if he resigns for Good Reason (each term is defined in each of the 2000 Employment Agreements), he will be entitled to receive

    • an amount equal to the product of (i) his average annual base salary received under his Employment Agreement prior to the date of his termination, and (ii) a fraction having a numerator equal to the number of months (or portion thereof) remaining from the date of such termination of employment until the third anniversary of the date of his employment agreement, and a denominator equal to 12, and
    • an amount equal to the product of (x) the amount of his Annual Bonus, and (y) a fraction having a numerator equal to the number of months (or portion thereof) he was employed by the company in the year of his termination of employment, and a denominator equal to 12.
    • an amount equal to the sum of any excise taxes that he would incur as a result of the payment of these amounts, and any additional federal, state or local income tax liability and excise tax liability attributable to the payments described in this sentence.

     The Joyce Agreement also provides that if Mr. Joyce's employment is terminated for any reason, he (or his estate, in the event of his death) shall be entitled to receive a special lump sum retirement benefit equal to $3,048,183. The Chambers and Cheema Agreements contain like provisions under which Mr. Chambers and Mr. Cheema would be entitled receive a special lump sum retirement benefit equal to $848,677 and $700,000, respectively.

     The Matte Agreement provides that Mr. Matte will be eligible to receive an additional annual milestone bonus ranging from 0 to 150% of $100,000, with a target of $100,000 if he remains employed by the company through the end of each calendar year during the term of the Matte Agreement (the "Milestone Bonus"). Payment of the Milestone Bonus will be based on the attainment of pre-established financial and operational goals of the company's affiliated retail electric provider, for which he has primary responsibility. If performance is at the minimum level the award would be 50% of the target level. The milestones will be established and approved by the Chief Executive Officer of TNMP at the beginning of each calendar year, or as soon as practical, and the Chief Executive Officer will also determine the extent to which milestone goals have been accomplished following year-end. If, during the calendar year, Mr. Matte terminates his employment with the company for Good Reason or he is terminated by the company for any reason other than Cause, he shall be entitled to receive a portion of the $100,000, prorated for the number of months from the anniversary date of the Matte Agreement until the date of such termination. If such termination occurs prior to the anniversary date of said calendar year, no portion of the $100,000 would be paid.

     If any executive's employment is terminated for Cause, all rights under his employment agreement (other than the special retirement benefits for Messrs. Joyce, Chambers and. Cheema described above) shall cease and he shall not be entitled to any additional compensation or payments under his employment agreement.

Joint Report on Executive Compensation of TNP and TNMP Compensation Committees

     The TNP and TNMP Compensation Committees oversee all executive compensation matters of TNP and TNMP. The current TNP Compensation Committee was formed in November 2000. The full TNP Board of Directors addressed compensation matters during the period from the closing of the Merger to the formation of this Committee. The current TNMP Compensation committee was installed in May 2000, after the Merger. Messrs. Flynn, Lowin and Geren are members of both Committees.

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________________________________________________________________________________________________________

     Dr. Catacosinos, TNP's Chairman and CEO, is a member of the TNMP Compensation Committee only. He is not an officer or employee of TNMP. Dr. Catacosinos has executed this report only as it relates to TNMP compensation matters.

     The compensation of the Named Executive Officers of both TNP and TNMP was in place when each of the current Committees was formed. Neither Committee has made any changes to the compensation or compensation structure in place.

TNP

     Dr. Catacosinos is compensated in accordance with his employment agreement. The compensation of the other officers, including the other TNP Named Executive Officer, was set in accordance with the following principles.

     Base Salary. The salaries for the other officers were based on their levels of responsibility, experience, expertise, sustained corporate performance and the recommendation of the Chief Executive Officer.

     Annual Incentive Compensation. Executive officers who do not have an employment agreement and key employees participate in the TNP and TNMP Management Short-Term Incentive Compensation program and, along with all other full-time employees, the TNP and TNMP Broad-Based Incentive Compensation Plan. They can receive annual cash incentive awards under both plans if certain specified objectives are met.

     TNP paid the incentive bonuses for the 2000 performance period in January 2001. The performance measures used were the same measures used in the TNP and TNMP Management Short-Term and Broad-Based Incentive Compensation Plans, (i) a cash flow financial measure and (ii) TNMP operational performance measures of customer satisfaction, system reliability and safety, and other measures of performance. The overall attainment of the performance measures resulted in a payout of 95.9% of target, or approximately 24% of their annual base salary. The performance measures were generally at or above target. One performance measure, operational and maintenance expenses, required that such expenses remain below specified amounts; since those expenses, however, exceeded the amount that would have permitted a payout related to that goal, there were no incentive payments related to that goal.

     In 2000, a portion of TNP's matching contribution to its 401(k) retirement plan for employees was based on the same financial performance measure used in the TNP and TNMP Management Short-Term and Broad-Based Incentive Compensation Plans. The financial performance measure was slightly above its target goal. The Company made an incentive matching contribution to the 401(k) accounts of eligible participants, including executive officers, equal to approximately 36 percent of the total amount that TNP matched during 2000, including amounts paid as part of its regular employee benefits and this incentive matching contribution.

     Compensation of TNP Chairman and Chief Executive Officer.

     Dr. Catacosinos was compensated in accordance with the terms of his employment agreement. Under that agreement, he received a base salary at the annual rate of $1,350,000. His base salary will increase to $1,450,000 on the first anniversary date of his employment agreement, and to $1,550,000 on the second anniversary date. Under his agreement, he is entitled to participate in all incentive, pension, retirement, savings, 401(k) and other employee pension benefit plans and programs that the Company and/or TNMP maintain for the benefit of TNMP's senior management executives. He participates in such plans at the same levels and on the same terms as do TNMP senior management executives. Accordingly, he receives an annual incentive bonus ranging from 0% to 37.5% of his base salary, provided he remains employed by the Company through the end of each calendar year during the term of his employment agreement. The incentive performance measures and goals are the same as those applicable to the Management Short-Term and Broad-Based Incentive Compensation Plans described above. Dr. Catacosinos' employment agreement is described in this Annual Report under "Executive Compensation- Employment Contracts and Termination, Severance and Change of Control Arrangements."

TNMP

     Compensation for the Period after the Merger

     Employment Agreements. Since the Merger, TNMP has compensated its officers in accordance with the employment agreements that each executed at the time of the Merger. The terms of the employment agreements of the Named Executive Officers are described in more detail in this Annual Report at "Executive Compensation- Employment Contracts and Termination, Severance and Change of Control Arrangements." Each employment agreement provides that the officer will continue to perform duties consistent with his then-current duties at a minimum level of compensation over the three-year period following the Merger.

     The new employment agreements replaced compensation arrangements in place prior to the Merger. They were designed to provide incentives to remain with the Company after the Merger and to compensate them for forgoing payments to which they would have otherwise been entitled as a result of the Merger under employment severance agreements, incentive compensation agreements, and retention bonus arrangements.

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________________________________________________________________________________________________________

     Incentive Compensation. A portion of the Named Executive Officers' compensation under their employment agreements consists of an annual incentive bonus. This bonus may range from 0% to 37.5% of the officer's base salary, and is based on the attainment of certain pre-established financial and operational goals. It is also subject to the officer's employment with TNMP through the end of the relevant year.

     TNMP paid the incentive bonuses for the 2000 performance period in January 2001. The performance measures used, the overall attainment of such measures, and the payout were the same as those described above for TNP. TNMP also made an incentive matching contribution to its 401(k) retirement plan. The matching contribution was the same as that described above for TNP officers.

     In 2000, a portion of TNMP's matching contribution to its 401(k) retirement plan for employees was also based on the same financial performance measure used in the Management Short-Term and Broad-Based Incentive Compensation Plans. The financial performance measure was slightly above its target goal. The Company made an incentive matching contribution to the 401(k) accounts of eligible participants, including executive officers, equal to approximately 36% of the total amount that TNMP matched during 2000 as part of its regular employee benefits.

     Compensation for Period Preceding the Merger

     The main components of executives' regular compensation prior to the Merger were a base salary, the annual incentive compensation described above, and long-term incentive compensation. Under this approach, a high proportion of these officers' compensation was "at risk," namely, the short-term and long-term incentive compensation.

     In setting compensation, the prior Committee related total compensation levels for the Company's executive officers to the total compensation paid to similarly situated executives of a peer group of companies that were of a similar size and with similar performance characteristics, both within and outside of the electric utility industry. The total compensation package was targeted to approximate the median of the peer group. Because of the performance-oriented nature of the incentive programs, total compensation could exceed market norms when the Company exceeded its targeted performance goals, and lag the market when it did not.

     Annual Incentive Compensation. Executive officers and key employees participated in the TNP Management Short-Term Incentive Compensation program and, along with all other full-time employees, the TNP Broad-Based Incentive Compensation Plan. They received annual cash incentive awards under both plans if certain specified objectives were met. The incentive measures were weighted depending upon the executive officer's area of responsibility. This incentive compensation for the Named Executive Officers was replaced by the incentive compensation arrangements in their respective employment agreements at the time of the Merger, and they received no incentive compensation pursuant to these plans with respect to the period in 2000 preceding the Merger.

     Long-Term Incentive Compensation. Long-term incentive compensation awards were granted annually. Each award was related to a three-year performance period. Awards were expressed as a percentage of the individual's salary range midpoint and, if earned, were paid in TNP stock at the end of the three-year period. The Named Executive Officers received cash payments pursuant to change in control provisions in the TNP Equity Incentive Plan (the "Long-Term Plan") at the time of the Merger. The amount of these payments was equal to the number of shares payable at target under all outstanding long-term incentive compensation awards then outstanding, times $44 per share, the amount paid for TNP common stock in the Merger. The Long-Term Plan was terminated at the time of the Merger.

     Special Incentive and Retention Bonus. In early 1999, the predecessor Compensation Committee voted to award a special incentive and retention bonus to officers and certain key employees as additional compensation to reflect their contributions to the improvement in TNP's value to its shareholders during 1998 and previous years. For the Named Executive Officers, the bonus consisted of five equal annual installments, the first two of which were paid in January 1999 and January 2000. The remaining installments were superseded by compensation to be paid pursuant to the new employment agreements.

     Compensation of TNMP Chairman and Chief Executive Officer.

     Mr. Joyce's compensation is as provided in his employment contract. Mr. Joyce's contract provides a base salary of $434,500; an annual bonus of $656,875 payable on the first, second and third anniversary dates of the agreement; an annual incentive bonus ranging from 0% to 37.5% of his base salary, provided he remains employed by the Company through the end of each calendar year during the term of his employment agreement; and, if his total compensation during any 12 month period commencing on the date or anniversary date of the employment agreement is less than $1,200,000, an additional bonus for such 12 month period equal to the amount of the shortfall, provided that he has not terminated his employment with the Company prior to the end of such 12 month period. Mr. Joyce's employment agreement is described in this report under "Executive Compensation- Employment Contracts and Termination, Severance and Change of Control Arrangements."

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________________________________________________________________________________________________________

     The predecessor Compensation Committee had raised Mr. Joyce's base salary from $395,000 to $434,500, effective March 1, 2000. At the time of the Merger, Mr. Joyce received payments of $490,913 under the change in control provisions of the Long-Term Plan. This amount represented the target payout amount of all outstanding awards under the Long-Term Plan. All pre-Merger compensation arrangements have been replaced by the arrangements in Mr. Joyce's employment agreement.

     Internal Revenue Code Section 162(m).

     Internal Revenue Code Section 162(m) limits tax deductions for executive compensation to $1 million. There are several exemptions to Section 162(m), including one for qualified performance-based compensation. To be qualified, performance-based compensation must meet various requirements, including shareholder approval. The Committee's policy with respect to the deductibility limit of Section 162(m) generally is to preserve the federal income tax deductibility of compensation paid when it is appropriate and is in the best interests of TNP and its shareholders. However, the Committee reserves the right to authorize the payment of nondeductible compensation if it deems that such action is appropriate.

Compensation Committee

TNP Compensation Committee

TNMP Compensation Committee

 

 

James T. Flynn, Chair

James T. Flynn, Chair

Preston M. Geren, III

William J. Catacosinos

Leeam Lowin

Preston M. Geren, III

 

Leeam Lowin

     The Compensation Committee Reports on Executive Compensation will not be deemed incorporated by reference by any general statement incorporating this report by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that TNP or TNMP specifically incorporates the information by reference.

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Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     SW Acquisition owns 100 percent of the common equity interests of TNP. The following table sets forth the beneficial ownership of TNP as of the date of this report.

Name of Beneficial Owner

Percent of
Class

SW Acquisition (1)

100.0%  

William J. Catacosinos (2)

100.0%  

Kevern R. Joyce(3)

0.0%

Leeam Lowin (3)

0.0%

James T. Flynn(3)

0.0%

Preston M. Geren, III(3)

0.0%

Theodore A. Babcock(4)

0.0%

Jack V. Chambers(3)

0.0%

Manjit S. Cheema(3)

0.0%

R. Michael Matte(3)

0.0%

W. Douglas Hobbs(3)

0.0%

All directors and officers
   as a group (2)


100.0%  

 

(1)   The business address of SW Acquisition is 2 Robbins Lane, Suite 201, Jericho, New York 11753.

(2)   Dr. William J. Catacosinos, who controls SW I Acquisition GP, L.P., the general partner of SW Acquisition, may also be deemed to have beneficial ownership of the equity interests reported in the table. The business address of Dr. Catacosinos is 2 Robbins Lane, Suite 201, Jericho, New York 11753.

(3)   The address for Messrs. Joyce, Lowin, Geren, Chambers, Cheema, Matte and Hobbs is 4100 International Plaza, Fort Worth, Texas 76109.

(4)   The address for Mr. Babcock is 2 Robbins Lane, Suite 201, Jericho, New York 11753.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     At the time of the Merger, and in accordance with the SW Acquisition limited partnership agreement, TNP and Laurel Hill entered into a Management Services Agreement under which TNP engaged Laurel Hill as its agent to provide certain management and financial advisory services to TNP. These services include an assessment of TNP's competitive environment, development and implementation of a strategic plan, assessment and implementation of financing strategies, development and implementation of operating budgets, development and implementation of marketing and sales initiatives, regulatory advice, and other advice relating to the enhancement of shareholder value, all for the purpose of assisting TNP in developing and executing its long term business goals and strategy. During the term of this agreement, TNP is paying Laurel Hill an annual fee of $1,200,000, payable monthly. This agreement has a three-year initial term, and will automatically renew thereafter for successive one-year terms. It provides that TNP will indemnify Laurel Hill, its agents and the companies controlling Laurel Hill for losses arising out of the Agreement or Laurel Hill's duties thereunder. Dr. Catacosinos is the Manager of Laurel Hill. Laurel Hill is a limited partner of SW Acquisition.

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PART IV

Item 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)

The following financial statements are filed as part of this report:

 

 

 

Page

 

Reports of Independent Public Accountants

23

 

 

 

 

TNP

 

 

Consolidated Statements of Income, Three Years Ended December 31, 2000

27

 

Consolidated Statements of Cash Flows, Three Years Ended December 31, 2000

28

 

Consolidated Balance Sheets, December 31, 2000, and 1999

29

 

Consolidated Statements of Capitalization, December 31, 2000, and 1999

30

 

Consolidated Statements of Common Shareholders' Equity, Three Years
   Ended December 31, 2000


31

 

 

 

 

TNMP

 

 

Consolidated Statements of Income, Three Years Ended December 31, 2000

32

 

Consolidated Statements of Cash Flows, Three Years Ended December 31, 2000

33

 

Consolidated Balance Sheets, December 31, 2000, and 1999

34

 

Consolidated Statements of Capitalization, December 31, 2000, and 1999

35

 

Consolidated Statements of Common Shareholder's Equity, Three Years
   Ended December 31, 2000


36

 

Notes to Consolidated Financial Statements

37

 

Selected Quarterly Consolidated Financial Data - TNP

49

 

 

 

(b)

Report on Form 8-K:

 

 

  • TNP filed a report on Form 8-K dated April 21, 2000, to disclose the closing of the Merger.

 

 

  • TNP filed a report on Form 8-K date May 2, 2000, to disclose the termination of Arthur Andersen, LLP, and the appointment of Deloitte & Touche LLP, as its independent accountants effective April 25, 2000.

 

 

  • TNP filed a report on Form 8-K dated August 17, 2000, to disclose second quarter earnings.

 

 

 

 

(c)

The Exhibit Index on pages 61 - 62 is incorporated here by reference.

 

 

 

 

(d)

All financial statement schedules are omitted, as the required information is not applicable or the information is presented in the consolidated financial statements or related Notes.

 

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.

 

                                   TNP ENTERPRISES, INC.

 

Date: March 8, 2001         By:   \s\ Theodore A. Babcock                                                       
                                              Theodore A. Babcock, Chief Financial Officer

 

                                   TEXAS-NEW MEXICO POWER COMPANY

 

Date:March 8, 2001       By:   \s\ Manjit S. Cheema                                                             
                                              Manjit S. Cheema, Senior Vice President & Chief Financial Officer

 

Date:March 8, 2001       By:   \s\ Scott Forbes                                                                  
                                              Scott Forbes, Vice President- Chief Accounting & Information Officer

 

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrants and in the capacities and on the dates indicated.

 

Title

Date

 

 

 

By    \s\ Kevern R. Joyce                                       
   Kevern R. Joyce

Chairman, President & Chief
   Executive Officer of TNMP

3/8/01

 

 

 

 

 

 

By    \s\ William J. Catacosinos                               
   William J. Catacosinos

Chairman, President & Chief
   Executive Officer of TNP

3/8/01

 

 

 

 

 

 

By    \s\ Manjit S. Cheema                                      
   Manjit S. Cheema

Senior Vice President & Chief
   Financial Officer of TNMP;
    Treasurer of TNP

3/8/01

 

 

 

 

 

 

By    \s\ Theodore A. Babcock                                
   Theodore A. Babcock

Chief Financial Officer of TNP

3/8/01

 

 

 

 

 

 

By    \s\ Scott Forbes                                            
   Scott Forbes

Vice President - Chief Accounting
   & Information Officer of TNMP

3/8/01

 

 

 

 

 

 

By    \s\ James T. Flynn                                       
   James T. Flynn

Director

3/8/01

 

 

 

 

 

 

By    \s\ Preston M. Geren III                                   
   Preston M. Geren III

Director

3/8/01

 

 

 

 

 

 

By    \s\ Leeam Lowin                                          
   Leeam Lowin

Director

3/8/01

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EXHIBIT INDEX

     Exhibits filed with this report are denoted by "*."

Exhibit
No.


Description

TNP incorporates the following Exhibits by reference to the Exhibits and filings noted in parenthesis.

3(a)

Amended and Restated Articles of Incorporation (Ex. 3(a)(i), TNP Form 10-Q, quarter ended March 31, 2000).

3(b)

Amended and Restated Bylaws (Ex. 3(a)(ii), TNP Form 10-Q, quarter ended March 31, 2000).

3(c)

Articles of Merger of ST Acquisition Corp. with and into TNP Enterprises, Inc. (Ex.3 (a)(iii) TNP Form 10-Q, quarter ended March 31, 2000).

4(a)

Statement of Resolution Decreasing Series A Preferred Stock, Eliminating Series B Preferred Stock and Establishing Two New Series of Shares, (Series C & D) filed with the Secretary of the State of Texas on May 25, 2000, by the Registrant (Exhibit 4.1, Form S-4, File No. 333-42116, filed July 24, 2000).

4(b)

Form of 14 1/2% Redeemable Preferred Stock of the Registrant. (Exhibit 4.2, Form S-4, File No. 333-42116, filed July 24, 2000).

4(c)

Unit Agreement dated as of May 26, 2000, among TNP Enterprises, Inc., SW Acquisition, L.P. and The Bank of New York, as Unit Agent. (Exhibit 4.5, Form S-4, File No. 333-42116, filed July 24, 2000).

4(d)

Warrant Agreement, dated as of May 26, 2000, between SW Acquisition, L.P. and The Bank of New York, as Warrant Agent (Exhibit 4.6, Form S- 4, File No. 333-42116 filed July 24, 2000).

4(e)

Indenture, dated as of April 7, 2000, between ST Acquisition Corp. and The Bank of New York, as Trustee. (Exhibit 4-A, Form 8-K filed April 7, 2000).

4(f)

First Supplemental Indenture dated as of April 7, 2000, between the Registrant and The Bank of New York, as Trustee. (Exhibit 4-B, Form 8- K filed April 7, 2000).

4(g)

Form of 10.25% Senior Subordinated Exchange Note of the Registrant. (Exhibit 4-A, Form 8-K filed April 7, 2000).

 

 

TNMP incorporates the following Exhibits by reference to the Exhibits and filings noted in parenthesis.

 

 

3(i)

Amended and Restated Articles of Incorporation. (Ex. 3(b)(i), TNMP Form 10-Q, quarter ended March 31, 2000)

3(ii)

Amended and Restated Bylaws, (Ex. 3(b)(ii), TNMP Form 10-Q, quarter ended March 31, 2000).

 

TNP and TNMP incorporates the following Exhibits by reference to the Exhibits and filings noted in parenthesis.

4(a)

Indenture dated Jan. 1, 1999 between TNMP and the Chase Bank of Texas, N. A. (Ex. 4(w), TNMP 1998 Form 10-K).

4(b)

First Supplemental Indenture dated Jan. 1, 1999 to Indenture dated Jan. 1, 1999 between TNMP and the Chase Bank of Texas, N. A. (Ex. 4(x), TNMP 1998 Form 10-K).

Contracts Relating to TNP One

10(a)

Fuel Supply Agreement, dated Nov. 18, 1987, between Phillips Coal Company and TNMP (Ex. 10(j), TNMP 1987 Form 10-K).

10(a)1

Amendment No. 1, dated April 1, 1988, to Fuel Supply Agreement dated Nov. 18, 1987, between Phillips Coal Company and TNMP (Ex. 10(a)1, TNP and TNMP 1994 Form 10-K).

10(a)2

Amendment No. 2, dated Nov. 29, 1994, between Walnut Creek Mining Company and TNMP, to Fuel Supply Agreement dated Nov. 18, 1987, between Phillips Coal Company and TNMP, (Ex. 10(a)2, TNP and TNMP 1994 Form 10-K).

Power Supply Contracts

10(b)

Contract dated May 12, 1976, between TNMP and Houston Lighting & Power Company (Ex. 5(a), TNMP 1976 Form 10-K).

10(b )1

Amendment, dated Jan. 4, 1989, to contract between TNMP and Houston Lighting & Power Company (Ex. 10(cccc), TNMP 1988 Form 10-K).

10(c)

Amended and Restated Agreement for Electric Service dated May 14, 1990, between TNMP and Texas Utilities Electric Company (Ex. 10(vv), TNMP 1990 Form 10-K).

10(c)1

Amendment dated April 19, 1993 to Amended and Restated Agreement for Electric Service between TNMP and Texas Utilities Electric Company (Ex. 10(ii)1, 1993 Form S-2, Registration Statement, File No. 33-66232).

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10(c)2

Letter agreement dated Nov. 24, 1997 between TNMP and Texas Utilities Electric Company (Ex. 10(qq), TNMP 1998 Form 10-K).

10(d)

Contract dated April 27, 1977, between TNMP and West Texas Utilities Company, as amended (Ex. 10(e), Form 8 applicable to TNMP 1986 Form 10-K).

10(e)

Contract dated April 29, 1987, between TNMP and El Paso Electric Company (Ex. 10(f), Form 8 applicable to TNMP 1986 Form 10-K).

10(f)

Contract dated Dec. 8, 1981, between TNMP and SPS as amended (Ex. 10(h), Form 8 applicable to TNMP 1986 Form 10-K).

10(f)1

Amendment, dated Dec. 12, 1988, to contract between TNMP and SPS (Ex. 10(llll), TNMP 1988 Form 10-K).

10(f)2

Amendment, dated Dec. 12, 1990, to contract between TNMP and SPS (Ex. 19(t), TNMP 1990 Form 10-K).

10(g)

Interconnection Agreement between TNMP and Plains Electric Generation and Transmission Cooperative, Inc. dated July 19, 1984 (Ex. 10(j), Form 8 applicable to TNMP 1986 Form 10-K).

10(h)

Interchange Agreement between TNMP and El Paso Electric Company dated April 29, 1987 (Ex. 10(l), Form 8 applicable to TNMP 1986 Form 10-K).

10(i)

Interchange Agreement between TNMP and El Paso Electric Company dated April 29, 1987 (Ex. 10(l), Form 8 applicable to TNMP 1986 Form 10-K).

10(j)

DC Terminal Participation Agreement between TNMP and El Paso Electric Company dated Dec. 8, 1981 as amended (Ex. 10(m), Form 8 applicable to TNMP 1986 Form 10-K).

10(k)

Agreement for Purchase and Sale of Energy effective May 1, 1996 among TNMP, Amoco Chemical Company and Amoco Oil Company (Ex. 10 (pp), TNP and TNMP 1997 Form 10-K).

10(l)

Agreement dated Dec. 30, 1994 between TNMP and Union Carbide Corporation for Purchase of Capacity and Energy from UCC (Ex. 10(qq), TNP and TNMP 1997 Form 10-K).

Management Contracts

*10(m)

Agreement dated April 7, 2000 between William J. Catacosinos and TNP.

*10(n)

Agreement dated April 6, 2000 between Kevern R. Joyce and TNMP.

*10(o)

Agreement dated April 6, 2000 between Jack V. Chambers and TNMP.

*10(p)

Agreement dated June 15, 2000 between Manjit S. Cheema and TNMP.

*10(q)

Agreement dated June 19, 2000 between R. Michael Matte and TNMP.

*10(r)

Agreement dated April 5, 2000 between W. Douglas Hobbs and TNMP.

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Subsidiaries of the Registrants.

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