Exhibit 99.1
January 7, 2002
Xx. Xxxxxxx X. Xxxxxxx
Executive Vice President and General Counsel
Western Resources, Inc.
P. X. Xxx 000
Xxxxxx, Xxxxxx 00000
Re: Agreement and Plan of Restructuring and Merger Among Western Resources,
Inc. ("WRI"), Public Service Company of New Mexico ("PHVOLT Enterprises,
Inc., HVK, Inc. and HVNM, Inc. ("Agreement")
Dear Xxxx:
This is to notify WRI that the Board of Directors of PNM Resources, Inc. has
taken action to terminate the Agreement effective as of January 7, 2002. The
Agreement is, therefore, terminated effective as of such date.
The reasons for termination of the Agreement include, but are not limited to,
the following:
o Regulatory rulings in Kansas have rendered an essential element of the
transaction - the Split-Off - impossible. Reversal of the Kansas
Corporation Commission ("KCC") orders on appeal is unlikely. Even if the
orders are reversed on appeal, the KCC would still be able to disapprove
the transaction as presently designed, or condition its approval on
elimination or redesign of the Split-Off.
o WRI breached representations and warranties to the effect that no KCC
approval was required for the Split-Off.
o The Rate Orders issued by the KCC would have a material adverse effect
on the operations of the combined enterprise. Reversal of the KCC orders
on appeal is unlikely.
o Even if the KCC Orders were to be reversed on appeal, it would be
impossible to obtain necessary regulatory approvals in either Kansas or
New Mexico by December 31, 2002, the last date for consummation of the
transaction contained in the Agreement.
January 7, 2002 -2-
o Even if the merger applications could be placed before the KCC and New
Mexico Public Regulation Commission ("NMPRC") in a timely fashion, it is
unlikely that the KCC would approve the merger in the form required by
the Agreement due to the necessary condition of the Split-Off, which the
KCC clearly opposes. Any WRI debt reduction plan that called for the
diversion of PNM revenue to Kansas operations would likely not be
approved by the NMPRC.
o In breach of the Agreement, WRI has, without notice to or the consent of
PNM, instituted new severance plans. These plans are outside the normal
and usual course of business, not excepted in the Company Disclosure
Letter and have resulted in the termination of key employees who may
have been vital to the operation and management of the combined
enterprise.
o WRI, in breach of the Agreement, failed to renegotiate the Agreement in
good faith following the issuance of the KCC's Split-Off and Rate
Orders.
o WRI failed to adequately prosecute the Rate Case in breach of the
Agreement.
o WRI breached the Agreement by unilaterally submitting a new debt
reduction proposal to the KCC in November 2001 - a proposal that is
outside the terms of the Agreement - without advance notice to or the
consent of PNM.
o In breach of the Agreement, WRI failed to provide PNM with financial
information vital to determining the impact of the Split-Off and Rate
Orders, and to enable formulation of a credible and economically
feasible debt reduction plan.
o WRI, in breach of the Agreement, unreasonably refused to consent to
PNM's proposed stock repurchase plan.
Sincerely,
/s/ Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxx
Senior Vice President,
General Counsel & Secretary
cc: Xxxxxxx Xxxx
Xxxxxxx Toy
Xxxxx Xxxxxxx
Xxxxxxx Xxxxxx
