Incentive Compensation Award Agreement
for Short- and Long-Term Awards
This Agreement is dated and effective as of January 1, 1998, 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 February 16, 1998, 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 granted _____% of the control
point for Participant's salary range as established by the Compensation
Committee at the beginning of each plan year. The cash award is subject to the
1998 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.
Allocation of Awards: Participant agrees that the total amount of the cash
award 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 which is attached hereto and made
a part hereof for all purposes.
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 granted a stock award equal to
_____% of the control point for Participant's salary range as established by the
Compensation Committee as of the beginning of the long-term plan cycle. Such
long-term plan cycle award opportunity granted pursuant to the Equity Plan being
met is subject to the goals 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 1998 long-term plan cycle. The 1998 Plan year
cycle will be a period of three years beginning January 1, 1998.
Allocation of Award: Participant agrees that the total amount awarded under
the Equity Plan will be allocated 35% to the goal established for Total
Shareholder Return in comparison to the S&P 500, and 65% 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 begins employment or Participant's
employment is terminated due to retirement, death, or disability during a plan
year or the 1998 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, provided that if the Change in Control
paragraph is applicable that paragraph shall control.
Change in Control: In the event a Change in Control occurs as that term is
defined in the Executive Agreement for Severance Compensation, then performance
under this Agreement will be deemed to have been at target. To the extent any
payment of an award would have been in stock, such award shall be deemed
converted to a cash award in an amount equal to the value of the stock as of the
day the Change in Control event occurs. Provided that Participant is not
terminated for Cause, as that term is defined in the Executive Agreement for
Severance compensation, the Participant shall be entitled to receive payment of
the awards granted herein no later than the fifth calendar day following the
date of termination or 30 days following the Change in Control event, whichever
first occurs.
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 trading day 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 award made hereunder, a
Participant, at Participant's option, may elect to have the Company withhold
sufficient stock, to the extent payable, to pay the taxes then due on such
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: ____________________
Xxxxxx X. Xxxxx
President & Chief Executive Officer
TNP Enterprises, Inc. Participant
By:_____________________ By:_____________________
Xxxxxx X. Xxxxx
President & Chief Executive Officer
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
-------------------------------------------- ---------------------------- ---------------- ------------- --------------
-------------------------------------------- ---------------------------- ---------------- ------------- --------------
Operational
2. Customer Satisfaction Rating Improve Customer 79 82 85
(Use CSI instead of overall Service
favorability in 1997)
3. O&M Costs/KWH Sales (cents per 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
Accidents 5.05 4.44 3.82
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 as a % of
Performance Rating 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 (35% 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 (65% weighting)
Performance Ranking % of Target Shares Earned
Maximum =>75th percentile 150%
Target =>55th percentile 100%
Minimum =>35th percentile 50%
Below Minimum <=35th percentile 0%