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Incentive Compensation Award Agreement
for Short- and Long-Term Awards
This Agreement is dated and effective as of January 1, 1997, and is between
___________________________________ ("Participant"), Texas-New Mexico Power
Company (the "Company") and TNP Enterprises, Inc. ("TNPE").
RECITALS
A Committee appointed by and having full authority to act on behalf of the
Board of Directors of the Company and TNPE, respectively, (collectively, the
"Compensation Committee") adopted the following incentive compensation plans:
A. Texas-New Mexico Power Company Management Short-Term Incentive Plan
("Management Plan"); and
B. TNP Enterprises, Inc. Equity Incentive Plan ("Equity Plan").
On April 28, 1995, the Shareholders approved the adoption by the Board of
Directors of the Equity Plan.
The Management Plan provides for the payment of cash if certain incentive
goals are achieved. The Equity Plan provides for the delivery of stock options,
stock, and performance units upon the achievement of certain incentive goals
which may be short-term and/or long-term goals.
On January 20, 1997, the Compensation Committee (the "Committee")
established the performance goals to be achieved in order to earn incentive
compensation under the plans.
The Participant has been selected to receive awards under each plan subject
to the terms of each applicable plan and the Participant signing this Award
Agreement.
The Participant and the Company agree that this Agreement does not affect
Participant's status as an employee at will and further agree that either party
may terminate Participant's employment at any time with or without cause.
The Committee reserves, in its sole discretion, the right to interpret the
terms and conditions of any award and this agreement and to resolve any
disagreements or disputes concerning this Award Agreement and any decision is
binding upon all parties.
In consideration of the Recitals and mutual covenants and agreements below,
the Participant and the Company desire to and by their respective signatures do
hereby agree to the terms and conditions set forth below.
AGREEMENT
SHORT-TERM AWARDS
Short-Term Cash Award: Participant is hereby awarded _____% of the control
point established for Participant's salary range as of the beginning of each
plan year as a cash award subject to the 1997 short-term goals for the
Management Plan being met as such goals are set forth on Exhibit A attached
hereto and made a part hereof for all purposes. Such award may be adjusted
between 50% and 150% on a straight line basis depending upon where the
performance related to each goal occurs within the range established for each
goal. No award payment will be made for performance below the established
minimum for each goal set forth in Exhibit A. The cash award shall be paid no
later than March 15th following the end of the plan year.
The parties agree that no portion of the cash award is due or payable
regardless of whether any Corporate Operational Goal or Departmental/Individual
Goals are met unless the minimum Corporate Financial Goal is met. Further, the
Committee reserves the right to make year-end adjustments which may account for
any unusual or unforeseen events that impact the attainability of any goal.
Short-Term Stock Award: Participant is hereby awarded _____% of the control
point established for Participant's salary range as of the beginning of the plan
year as a stock award subject to the 1997 goals being met as such goals are set
forth on Exhibit A. Such award may be adjusted between 50% and 150% on a
straight line basis depending upon where the performance related to each goal
occurs within the range established for each goal. No award payment will be made
for performance below the established minimum for each goal set forth in Exhibit
A. The stock award shall be paid no later than March 15th following the end of
the plan year.
The parties agree that no portion of the stock award is due or payable
regardless of whether any Corporate Operational Goal or Departmental/Individual
Goals are met unless the minimum Corporate Financial Goal is met. Further, the
Committee reserves the right to make year-end adjustments which may account for
any unusual or unforeseen events that impact the attainability of any goal.
Restrictions on Sale of Stock: Participant agrees that the short-term stock
award is restricted from being sold for a two-year period following the end of
____________________ (the "Restriction Period"). Participant agrees that any
stock issued as a short-term stock award will bear a legend stating any
applicable restrictions. Participant further agrees that such stock award is
forfeited and of no effect in the event that Participant attempts to sell such
stock during the Restriction Period.
Notwithstanding the foregoing, all restrictions on the sale of the stock
lapse and said stock may be freely sold or transferred if during the Restriction
Period one of the following should occur:
a. Participant's employment should be terminated for any reason other
than cause.
b. A Change of Control should occur as that term is defined in the Equity
Plan.
(Participant should be cognizant of Rule 16(b) to the extent it may apply.)
Allocation of Awards: Participant agrees that total amounts awarded under
the cash and stock awards will be allocated among the Corporate Financial Goal,
Corporate Operational Goals, and Departmental/Individual Performance Goals
applicable to such Participant as is set forth in Exhibit B.
Participant agrees that to the extent any amount of the total award is
allocated to the Departmental/Individual Performance Goals, such amount will be
due and payable only to the extent the performance of the Participant, as
determined by the officer executing this Agreement on behalf of the Company in
such officer's sole discretion (or, if Participant is the Chief Executive
Officer, then as determined by the Committee in its sole discretion), falls
within the Performance Rating range set forth in Exhibit C which is attached
hereto and made a part hereof for all purposes.
LONG-TERM AWARD
Long-Term Stock Award: Participant is hereby awarded _____% of the control
point established for Participant's salary range as of the beginning of the
long-term plan cycle as a stock award subject to the 1997 long-term plan cycle
award opportunities established for the Equity Plan being met as such goals are
set forth on Exhibit D which is attached hereto and made a part hereof for all
purposes. Such award may be adjusted between 50% and 150% on a straight line
basis, depending upon where the performance related to each goal occurs within
the range established for each goal. No award payment will be made for
performance below the established minimum for each goal set forth in Exhibit D.
Any stock award earned shall be paid no later than March 15th following the end
of the 1997 long-term plan cycle. The 1997 Plan year cycle will be a period of
three years beginning January 1, 1997.
Allocation of Award: Participant agrees that the total amount awarded under
the Equity Plan will be allocated 50% to the goal established for Total
Shareholder Return in comparison to the S&P 500, and 50% to the goal established
for Total Shareholder Return in comparison to the S&P Electrical Utility Group.
The amounts allocated to each set of goals will be due and payable only to the
extent each such goal shall be met as set forth in Exhibit D.
GENERAL TERMS
Dividend Equivalents: Participant shall have the right to receive, at the
time any stock awards are paid, cash in an amount equal in value to the
dividends declared on each Share on each record date occurring during the
applicable performance period established for each plan. Dividend equivalents
will not include any dividends on the dividend equivalents accrued during the
applicable performance periods.
Pro-Ration of Awards: If a Participant's employment is terminated due to
retirement, death, or disability during a plan year or the 1997 long-term
performance cycle, any award earned shall be prorated based on the number of
months of participation within the plan year or long-term plan cycle. The
prorated award will be based upon performance determined at year or cycle end
and will be paid at the same time as all other awards are paid from each of the
plans under which awards are made.
Termination of Employment: If employment is terminated for any reason other
than retirement, death, or disability, any award opportunity granted under
either plan shall be forfeited, provided that the Committee may waive such
forfeiture upon the CEO's recommendation.
Valuation of Shares: Shares issued under the Equity Plan pursuant to having
been earned under the plan and the terms of this Agreement shall be valued by
averaging the high and low prices of the stock on the first and last trading
days of the plan performance period (the "Share Value"). The Share Value shall
be applied to the dollar value of the award to arrive at the equivalent number
of shares awarded. The awarded shares shall be adjusted for the average of the
high and low stock price on the last trading day of the plan year.
Tax Treatment: Payments are taxable to the participant in the year of
receipt. The Company will have the right to deduct any federal, state, or local
taxes required by law to be withheld. In regard to any stock award made
hereunder a Participant, at Participant's option, may elect to have the Company
withhold sufficient stock to pay the taxes then due on such stock award.
Provisions Consistent with Plan: This Agreement shall be construed
consistent with the provisions of the applicable plan under which any award may
be made. Where matters are not addressed in this Award Agreement, but are
addressed in the Management Plan or Equity Plan, then such terms are deemed a
part of this Award Agreement and shall apply equally to all awards granted
herein, except for where such terms obviously apply solely to one of the plans.
If there is a conflict between the provisions of this Agreement and such plan,
the provisions of the applicable plan control. Unless otherwise noted to the
contrary, the definition of terms in each Plan also apply in this Agreement.
Attorney Fees: In the event either party is required to bring a cause of
action against the other to enforce the terms of this Agreement, then such
party, to the extent such party is successful in such action, shall be entitled
to reasonable attorney fees.
Governing Law: This Agreement shall be governed by the laws of the State of
Texas. Venue for any cause of action shall be Tarrant County, Texas.
Texas-New Mexico Power Company Participant:
By: ____________________ By: ____________________
TNP Enterprises, Inc. Participant
By:_____________________ By:_____________________
EXHIBIT A
TNP ENTERPRISES, INC.
TEXAS-NEW MEXICO POWER COMPANY
Short-Term Incentive Corporate Goals
1997 Goals
Measurement Objective Minimum Target Maximum
___________ _________ _______ ______ _______
Financial
1. Cash Value Added Improve Financial 4.05 4.40 4.75
Condition
Corporate Threshold 4.05
Opeational
2. Customer Satisfaction Rating Improve Customer 79 82 85
(Use CSI instead of overall Service
favorability in 1997)
3. O&M Costs/KWH Sales ((cent)KWH) Reduce Operating Costs
4.15 3.95 3.75
4. Equivalent Forced Outage Rate (Moved Improve TNP One's
to Plant Specific Goals in 1997) Reliability 4.7 4.5 4.3
5. Injury Frequency Ratio Reduce Employee 5.05 4.44 3.82
Accidents 49 43 37
6. System Reliability
A) Average Minutes of Outage per Reduce Outage Time 86 76 66
customer
B) Average Number of Outages per Reduce No. of
customer Customers Interrupted 1.40 1.25 1.10
EXHIBIT B
TEXAS-NEW MEXICO POWER COMPANY
Short-Term Incentive Plan
Weighting of 1997 Goals for
Texas-New Mexico Power Company Participants
Corporate
Financial Corporate Operational
Cash Customer O&M Avg. Avg.
Value Satisfaction Costs/per Minutes of Number of Departmental/
Added Rating KWH IFR Outage Outages EFOR Individual Total
-------- ---------- --------- ------- --------- --------- ------ ------------ --------
CEO 60 5 5 5 5 5 5 10 100%
---
SR VP CCO 60 10 5 5 5 5 10 100%
RCOs 50 5 5 5 2.5 2.5 30 100%
Key Employees 50 5 5 5 2.5 2.5 30 100%
SR VP Power Resources 60 5 5 5 25 100%
Asst. Res. Acq. 60 5 5 30 100%
Asst. VP Ind. Mkt. 60 5 5 30 100%
Key Participants 60 5 5 30 100%
Plant Mgr. & Key Participants 60 5 5 * 30 100%
SR VP CFO 60 5 5 30 100%
Controller 60 5 5 30 100%
Treasurer 60 5 5 30 100%
Key Employees 60 5 5 30 100%
SR VP Corporate Relations 60 5 5 5 25 100%
VP HR 60 5 5 5 25 100%
Sec Gen Counsel 60 5 5 30 100%
Key Employees 60 5 5 30 100%
* 1/3 of TNP One's Departmental Goal will be EFOR.
EXHIBIT C
DEPARTMENTAL/INDIVIDUAL PERFORMANCE TARGET GOALS
Individual Performance
Performance Rating as a % of Target Award
4 - Greatly exceeded expectations for objective(s) 150%
(maximum)
3 - Exceeded expectations for objective(s) 125%
2 - Achieved expectations for objective(s) (target) 100%
1 - Almost achieved expectations for objective(s) 50%
(minimum)
0 - Improvement needed, failed to meet objective(s) 0%
EXHIBIT D
LONG-TERM STOCK AWARD GOALS
Total Shareholder Return Payout
on the basis of matrix
reflecting total
shareholder return in
relation to each of the S&P
500 and the S&P Electric
Utility Index.
TSR to S&P 500 (50% weighting)
Performance Ranking % of Target Shares Earned
Maximum =>75th percentile 150%
Target =>55th percentile 100%
Minimum =>35th percentile 50%
Below Minimum <=35th percentile 0%
TSR to S&P Electric Utility Index (50% weighting)
Performance Ranking % of Target Shares Earned
Maximum =>75th percentile 150%
Target =>55th percentile 100%
Minimum =>35th percentile 50%
Below Minimum <=35th percentile 0%
SCHEDULE OF AWARD AGREEMENTS
Employee Position
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1. ▇▇▇▇▇▇ ▇▇▇▇▇ Chairman President & CEO
2. ▇▇▇▇ ▇▇▇▇▇▇▇▇ Sr VP & Chief Customer Officer
3. ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ VP & Chief Financial Officer
4. ▇▇▇▇ ▇▇▇▇▇▇▇ Sr VP - Corporate Relations
5. ▇▇▇▇▇ ▇▇▇▇▇▇▇ Sr VP - Power Resources
6. ▇▇▇▇ ▇▇▇▇▇ VP - Business Development
7. ▇▇▇▇▇ ▇▇▇▇▇ VP - Regional Customer Officer
8. ▇▇▇▇▇ ▇▇▇▇▇▇ VP - Regional Customer Officer
9. ▇▇▇▇▇▇▇ ▇▇▇▇▇ VP - Regional Customer Officer
10. ▇▇▇▇▇▇ ▇▇▇▇ VP - Human Resources
1. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Corporate Secretary & General Counsel
12. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ President (Facility Works)
13. ▇▇▇ ▇▇▇▇▇▇▇ Treasurer
14. ▇▇▇▇▇ ▇▇▇▇▇▇ Controller
15. ▇▇▇▇▇ ▇▇▇▇▇ Asst. VP - Resource Acquisition
16. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Director Regulatory & Governmental Affairs
17. ▇▇▇▇ ▇▇▇▇▇▇ Plant Manager
18. ▇▇▇▇ ▇▇▇▇▇▇▇ Asst VP - Industrial Marketing
19. ▇▇▇▇▇ Means Director - Information Services
