SCHEDULE 14A INFORMATION
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the Securities Exchange Act of 1934 (Amendment No. )
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14a-6(e)(2))
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/ / Soliciting Material Pursuant to Section 240.14a-12
PUBLIC SERVICE COMPANY OF NEW MEXICO
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(Name of Registrant as Specified In Its Charter)
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and 0-11.
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Public Service Company of New Mexico
Alvarado Square
Albuquerque, NM 87158
[PNM LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, JULY 3, 2001
9:30 A.M., MOUNTAIN DAYLIGHT TIME
ALBUQUERQUE CONVENTION CENTER - KIVA AUDITORIUM (2ND FLOOR)
401 2ND ST. N. W.
ALBUQUERQUE, NEW MEXICO
May 24, 2001
Dear Shareholder:
You are cordially invited to attend the 2001 Public Service Company of
New Mexico Annual Meeting of Shareholders to:
o vote on election of three directors,
o approve amendments to the Director Retainer Plan,
o approve an amendment to the PNM Resources, Inc. (formerly Manzano
Corporation) Omnibus Performance Equity Plan,
o ratify amendments to the Articles of Incorporation of PNM
Resources, Inc.,
o approve appointment of Arthur Andersen LLP as independent public
accountants for 2001, and
o conduct other business properly brought up at the meeting.
Holders of PNM common stock of record at the close of business on May
14, 2001, may vote at the meeting and at any adjournment of that meeting.
Your vote is important. Whether or not you plan to attend, please sign,
date, and return the enclosed proxy card in the envelope provided. If you attend
the meeting and prefer to vote in person, you may do so.
This proxy statement and proxy card are being distributed on or about
May 24, 2001.
We hope you will be able to attend and I look forward to seeing you at
the meeting.
Sincerely,
/s/ Jeffry E. Sterba
Jeffry E. Sterba
Chairman of the Board, President and
Chief Executive Officer
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TABLE OF CONTENTS
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Notice of Annual Meeting................................................Cover
Attendance and Voting Matters...............................................1
Proposal 1: Election of Directors..........................................3
PNM Common Stock Owned by Executive Officers and Directors..................6
Persons Owning More than Five Percent of PNM Common Stock...................7
Membership Roster...........................................................8
Performance Graph..........................................................10
Audit Committee Report.....................................................12
Compensation and Human Resources Committee
Report on Executive Compensation...........................................13
Executive Compensation.....................................................16
Option Grants in 2000......................................................18
Proposal 2: Approve Amendments to Director Retainer Plan...................23
Proposal 3: Approve the Amendment to the
Omnibus Performance Equity Plan............................................27
Proposal 4: Ratify Amendments to the
Articles of Incorporation of PNM Resources, Inc............................28
Proposal 5: Approval of Independent Public Accountants....................31
Other Matters..............................................................32
Exhibit A - Audit Committee Charter.......................................A-1
i
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ATTENDANCE AND VOTING MATTERS
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ADMISSION TICKETS
Admission tickets will be distributed at the registration tables in the
lobby of the Kiva Auditorium prior to the Annual Meeting. Attendance is limited
to shareholders of record on May 14, 2001. If your shares are held in the name
of your broker, bank, or other nominee, please bring an account statement or
letter from the nominee indicating that you are the beneficial owner of the
shares as of the record date.
VOTING METHODS
You can vote on matters to come before the meeting in two ways:
o you can come to the Annual Meeting and cast your vote there;
or
o you can vote by signing and returning the enclosed proxy card.
If you do so, your shares will be voted in the manner you
indicate. In the absence of specific instructions, proxies
will be voted by those named in the proxy FOR the election of
directors nominated, FOR the amendments to the Director
Retainer Plan, FOR the amendment to the Omnibus Performance
Equity Plan ("PEP"), FOR ratification of the amendments to the
Articles of Incorporation of PNM Resources, Inc. ("PNM
Resources"), FOR the approval of the selection of Arthur
Andersen LLP as independent public accountants, and on all
other matters in accordance with their best judgment. You can
revoke your proxy at any time before it is exercised and vote
your shares in person if you attend the meeting.
Each share of Public Service Company of New Mexico ("PNM") common stock
you own entitles you to one vote. As of May 14, 2001, there were 39,117,799
shares of PNM common stock outstanding.
THE QUORUM REQUIREMENT
A quorum of shareholders is necessary to hold a valid meeting. If at
least a majority of the outstanding common stock of PNM is represented at the
Annual Meeting, in person or by proxy, a quorum will exist.
VOTE NECESSARY FOR ACTION
A quorum and the affirmative vote of the holders of a majority of the
shares of PNM common stock entitled to vote at the Annual Meeting are required
to approve the amendments to the Director Retainer Plan ("Retainer Plan").
Abstentions and "broker non-votes" will have the effect of a vote against this
matter. A quorum and the affirmative vote of the holders of a majority of the
shares of PNM common stock present, in person or by proxy, and entitled to vote
at the Annual Meeting, are required to approve the amendment to the PEP, ratify
the amendments to the PNM Resources Articles of Incorporation, elect directors,
approve the selection of independent public accountants, and to approve other
actions. Abstentions will have the effect of a vote against these matters while
"broker non-votes" will not be counted in calculating voting results on these
matters.
1
Further, in order to satisfy the requirements of a New Mexico law
relating to director conflict of interest transactions, the Board is seeking to
obtain the affirmative vote in favor of the amendments to the Retainer Plan of
the holders of a majority of the shares entitled to be counted for this purpose
at the Annual Meeting. For this purpose, shares owned by or voted under the
control of a non-employee director are not entitled to be counted in the vote
concerning the amendments to the Retainer Plan.
MATTERS RAISED AT THE MEETING NOT INCLUDED IN THIS STATEMENT
We do not know of any matters to be acted upon at the meeting other
than those discussed in this proxy statement. If any other matter is presented,
proxy holders will vote on the matter at their discretion. Under Securities and
Exchange Commission ("SEC") rules, a proxy may confer discretionary authority to
vote on a matter if PNM did not have notice of the matter at least 45 days prior
to the anniversary of the date on which PNM first mailed its proxy statement for
the prior year's annual meeting of stockholders (in this case, that date would
be March 11, 2001), and a specific statement is made to that effect in the proxy
statement.
2
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PROPOSAL 1: ELECTION OF DIRECTORS
(PROPOSAL 1 ON YOUR PROXY CARD)
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STRUCTURE
The transition from PNM to the holding company structure with PNM
Resources as the holding company for PNM (which is discussed in more detail
below) will include a transition in board governance structure. For PNM, the
terms of three directors are expiring: John T. Ackerman, Joyce A. Godwin, and
Manuel Lujan, Jr. These directors are being nominated for election at this
year's Annual Meeting, and it is intended that they will hold office for an
abbreviated tenure until the mandatory share exchange occurs. Upon the date
of the mandatory share exchange, all current PNM directors will resign, with
the exception of Jeffry E. Sterba. Following the share exchange, the PNM
Board will be organized consistent with becoming a wholly-owned subsidiary of
the holding company.
For PNM Resources, at the time of the mandatory share exchange, the
directors will be: Robert G. Armstrong, Joyce A. Godwin, Benjamin F. Montoya,
Theodore F. Patlovich, Robert M. Price, Paul F. Roth, and Jeffry E. Sterba.
The PNM Resources Board is currently not a classified board; therefore, all
directors are elected annually. The PNM Resources Articles of Incorporation
allow for a classified board as permitted by law. Recent amendments to New
Mexico law, which are effective July 1, 2001, would permit a board the size
of the PNM Resources Board to be classified. Just as the PNM Board is now a
classified board, the PNM Resources Board may become a classified board in
the future.
If a nominee is unavailable for election, proxy holders will vote for
another nominee proposed by the Board.
DIRECTORS NOMINATED THIS YEAR FOR TERMS EXPIRING IN 2004
JOHN T. ACKERMAN, 59, is a resident of Corrales, New Mexico, and has
been a director since June 1990. Mr. Ackerman is Chairman Emeritus of PNM.
Mr. Ackerman served as Chairman of the Board of PNM from 1991 to 1999 and as
President and Chief Executive Officer of PNM from 1990 until his retirement
in 1993.
JOYCE A. GODWIN, 57, is a resident of Albuquerque, New Mexico, and
has been a director since May 1989. Ms. Godwin served as Vice President and
Secretary of Presbyterian Healthcare Services of Albuquerque, New Mexico,
from 1979 until her retirement in December 1993. Ms. Godwin also served as
Chairman and President of Southwest Business Ventures, Inc., a holding
company for Presbyterian Healthcare Services' for-profit ventures from 1986
until her retirement in December 1993. Other directorships include: Charter
Bank, Albuquerque, New Mexico.
3
MANUEL LUJAN, JR., 73, is a resident of Albuquerque, New Mexico, and
has been a director since April 1994. Mr. Lujan has been a consultant on United
States governmental matters, focusing on western United States issues since
1993. Mr. Lujan served as United States Secretary of the Interior from 1989 to
1993 and in the United States House of Representatives from 1969 to 1989. Mr.
Lujan has been an insurance agent with Manuel Lujan Insurance, Inc. since 1948.
Other directorships include: Bank 1st, Albuquerque, New Mexico, and SODAK
Gaming, Inc., Albuquerque, New Mexico.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THESE NOMINEES.
DIRECTORS WITH TERMS EXPIRING IN 2002
BENJAMIN F. MONTOYA, 65, is a resident of Granite Bay, California, and
has been a director since October 1993. Mr. Montoya served as President and
Chief Executive Officer of PNM from August 1993 to June 1999, as Chairman,
President and CEO through March 2000, as Chairman and CEO from March 2000
through June 2000, and as Chairman of the Board from June 2000 through October
2000. He previously served as Senior Vice President and General Manager, Gas
Supply Business Unit, Pacific Gas and Electric Company from 1991 to 1993. Other
directorships include: Wells Fargo Corporation (formerly Norwest Corporation)
and Furr's Supermarkets, Inc.
ROBERT M. PRICE, 70, is a resident of Edina, Minnesota, and has been a
director since July 1992. Mr. Price has been President of PSV Inc., a technology
consulting business located in Burnsville, Minnesota, since 1990. Between 1961
and 1990, Mr. Price served in various executive positions, including Chairman
and Chief Executive Officer of Control Data Corporation, a mainframe computer
manufacturer and business services provider. Other directorships include:
Tupperware Corporation, International Multifoods Corporation, Fourth Shift
Corporation, Affinity Technology Group, Inc. and Data Link Corporation.
JEFFRY E. STERBA, 46, is a resident of Albuquerque, New Mexico, and
was elected to the PNM Board of Directors in March 2000, appointed President
of PNM on January 26, 2000, with an effective date of March 6, 2000, became
President and CEO on June 6, 2000, and was elected Chairman of the Board on
October 1, 2000. Previously, Mr. Sterba served as Executive Vice President of
USEC, Inc. from January 1999 to February 2000. Mr. Sterba was responsible for
leading new initiatives in USEC's revenue development, market growth and
business strategy. He oversaw USEC's corporate development, marketing and
sales, international trade and information technology functions. USEC is
engaged in the sale of uranium fuel enrichment services for commercial
nuclear power plants. Before joining USEC in January 1999, Mr. Sterba was
Executive Vice President and Chief Operating Officer of PNM overseeing all of
PNM's business units. During his 21 years at PNM, Mr. Sterba held various
executive positions and was responsible for bulk power services, corporate
strategy and asset restructuring, retail electric and water services, and
electric business development and finance.
4
DIRECTORS WITH TERMS EXPIRING IN 2003
ROBERT G. ARMSTRONG, 54, is a resident of Roswell, New Mexico, and
has been a director since May 1991. Mr. Armstrong is the President of
Armstrong Energy Corporation, Roswell, New Mexico, an oil and gas exploration
and production company.
THEODORE F. PATLOVICH, 73, is a resident of Albuquerque, New Mexico,
and has been a director since June 2000. Mr. Patlovich is a businessman,
entrepreneur, and teacher. He joined Loctite Corporation in 1956, serving in
various executive positions, including President of the Loctite Pacific Group
from 1974 to 1975, President of Loctite-Japan from 1975 to 1983, Corporate
Senior Vice President from 1985 to 1991, and Vice Chairman of the Board of
Directors from 1985 until his retirement in 1991. Other directorships
include: SVS, Inc., Fresnel Corporation, Reflexite Corporation, and American
Home Furnishings.
PAUL F. ROTH, 68, is a resident of Santa Fe, New Mexico, and has
been a director since May 1991. Mr. Roth served as the President of the
Dallas Chamber of Commerce, Dallas, Texas, from 1991 to 1992. Between 1956
and 1991, Mr. Roth served in various executive positions including President
of the Texas Division of Southwestern Bell Telephone Company, Dallas, Texas.
DIRECTOR COMPENSATION
Of PNM's current Board members, only one, Mr. Sterba, is a salaried
employee. Mr. Sterba receives no compensation for serving on the Board or its
committees. Board members who are not salaried employees of PNM receive
compensation for Board service which currently includes:
ANNUAL RETAINER: $20,000
ATTENDANCE FEES: $750 per Board meeting
$500 for each Board committee meeting
COMMITTEE CHAIRS: $200 for each Board committee meeting
(in addition to attendance fees)
Under PNM's Retainer Plan, approved by shareholders in 1996,
directors may choose to receive their annual retainer in the form of cash,
restricted stock, or stock options. The restrictions on the restricted stock
generally lapse one-third each year following the year of the grant. The
options generally vest (become exercisable) on the date of the next annual
meeting and allow the director to purchase 2,000 shares of common stock. The
exercise price of the option is equal to the fair market value of the common
stock on the date of grant less the annual retainer divided by 2,000, subject
to a minimum exercise price.
If the shareholders approve the amendments to the Retainer Plan as
proposed in this proxy statement, future Board compensation, including the
compensation of the PNM Resources Board of Directors, will be based upon that
plan, as amended. As described in last year's proxy statement, PNM Resources
will adopt the PNM Director Retainer Plan. Please refer to the discussion
under "Proposal 2: Approve Amendments to the Director Retainer Plan" for more
information about the proposed amendments.
5
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PNM COMMON STOCK OWNED BY EXECUTIVE OFFICERS AND DIRECTORS
(AS OF APRIL 1, 2001)
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Amount and Nature of Shares Beneficially Owned(a)
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Name Aggregate No. Right to Acquire Percent of Shares
of Shares Held(b) Within 60 Days(c) Beneficially Owned
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John T. Ackerman 10,935 -0- *
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Robert G. Armstrong 4,394 7,000 *
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Roger J. Flynn 1,000 19,733 *
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Joyce A. Godwin 3,778 7,000 *
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Manuel Lujan, Jr. 5,291 -0- *
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Max H. Maerki 1,319 33,223 *
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Benjamin F. Montoya 5,746 165,902 *
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Patrick T. Ortiz 862 68,672 *
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Theodore F. Patlovich 2,000 -0- *
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Robert M. Price 3,000 7,000 *
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William J. Real 1,042 30,035 *
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Paul F. Roth 5,378 -0- *
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Jeffry E. Sterba 1,640 -0- *
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Directors & Executive
Officers as a Group (18) 47,963 409,049 1.04%
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(a) Beneficial ownership means the sole or shared power to vote, or to direct
the voting of a security and/or investment power with respect to a
security.
(b) Shares held in the individual's name, individually or jointly with others,
or in the name of a bank, broker, or nominee for the individual's account.
(c) The number of shares directors and executive officers have a right to
acquire through stock option exercises within 60 days after April 1, 2001.
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*Less than 1% of PNM's outstanding shares of common stock.
6
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PERSONS OWNING MORE THAN FIVE PERCENT OF PNM COMMON STOCK
(AS OF MAY 15, 2001)
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VOTING DISPOSITIVE
AUTHORITY AUTHORITY PERCENT
------------------------- ------------------------- TOTAL OF
NAME AND ADDRESS SOLE SHARED SOLE SHARED AMOUNT CLASS
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The Prudential Insurance Company of
America 165,900 2,688,018 165,900 2,695,818 2,861,718 7.32%
751 Broad Street
Newark, New Jersey 07102
Jennison Associates LLC*
466 Lexington Avenue
New York, New York 10017
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Cascade Investment, L.L.C.**
2365 Carillon Point 0 2,344,500 0 2,344,500 2,344,500 6.00%
Kirkland, Washington 98033
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*Jennison Associates LLC ("Jennison") filed a Schedule 13G with the SEC on
February 14, 2001. Jennison reported that The Prudential Insurance Company of
America ("Prudential") indirectly controls Jennison through its indirect
ownership of Jennison and that Prudential may be deemed to have voting and/or
dispositive powers over the shares reported by Jennison. Jennison stated that
the shares reported on Jennison's Schedule 13G may be included in the shares
reported on the Schedule 13G filed by Prudential. Jennison reported the
following: sole voting power: 2,505,600 shares; shared voting power: 0; sole
dispositive power: 0; and shared dispositive power: 2,505,600 shares.
**The Schedule 13G filed by Cascade Investment, L.L.C. ("Cascade") also shows
William H. Gates III as the sole member of Cascade and as a reporting person
with the same reported beneficial ownership.
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The information provided above is based on reports filed with the
SEC. PNM makes no representation as to the accuracy or completeness of such
information. These are the only persons known to PNM, as of May 15, 2001, to
be the beneficial owners of more than 5% of PNM's common stock.
The previously announced transaction in which PNM proposes to
acquire the electric utility operations of Western Resources, Inc. in a stock
for stock transaction will result in a change in control of PNM under the
terms of various Company plans upon consummation. Although PNM is the
acquirer in the transaction, the shareholders of Western Resources, Inc.
would hold a majority of the common shares of the ultimate holding company at
consummation.
7
BOARD MEETINGS AND COMMITTEES
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MEMBERSHIP ROSTER
(STANDING BOARD COMMITTEES)
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Compensation & Customer & Nominating &
Name Board Audit Human Resources Public Policy Executive Finance Governance
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J. T. Ackerman(1) x x x* x
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R. G. Armstrong x x* x x
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J. A. Godwin x x x* x x*
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M. Lujan, Jr. x x x
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B. F. Montoya(2) x x
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T. F. Patlovich(3) x x x
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R. M. Price x x x x*
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P. F. Roth x x* x x x
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J. E. Sterba(4) x* x x
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No. of Meetings in 2000
10 5 6 11 2 6 7
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(1) Elected as a member of the Audit Committee, Customer and Public Policy Committee, and Nominating and
Governance Committee on March 7, 2000, replacing L. H. Lattman, who retired from the Board on March 7, 2000.
(2) Elected as a member of the Customer and Public Policy Committee on December 11, 2000, replacing J. T.
Ackerman.
(3) Elected to the Board and member of the Finance Committee and the Nominating and Governance Committee on
June 6, 2000.
(4) Elected to the Board and Finance Committee on March 7, 2000.
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*Chair
In 2000, the full Board met ten times. In addition, the outside
directors met two times during 2000. Directors attended meetings of
individual Board committees as shown in the above table. For the Board as a
whole, attendance in 2000 at full Board and committee meetings exceeded 96.7%.
The AUDIT COMMITTEE consists entirely of non-employee directors. It
assesses the work of PNM's internal auditors and independent public
accountants and the effectiveness of the business control structure. It also
reviews the financial statements of PNM and oversees PNM's financial
reporting. The committee represents the Board of Directors in accounting and
auditing related activities of PNM. It has the responsibility to make
recommendations to the Board with respect to appointment of the independent
public accountants, to approve the scope of the annual audit, and to monitor
and review the effectiveness of PNM's management of accounting functions. The
Audit Committee's charter complies with requirements recently established by
the New York Stock Exchange.
The COMPENSATION AND HUMAN RESOURCES COMMITTEE consists entirely of
non-employee directors. It reviews PNM's compensation policies and benefit
programs and their relationship to the attainment of business goals. The
committee recommends to the Board the compensation philosophy and guidelines
for the entire executive and managerial group, giving emphasis to rewarding
long-term results and maximizing shareholder value. The committee
8
reviews PNM's diversity program, conducts an annual performance evaluation of
the chief executive officer, and ensures management continuity through annual
review and approval of a management development and succession program. The
committee also has oversight of PNM's code of conduct and compliance program
and interacts with PNM's employee organizations.
The CUSTOMER AND PUBLIC POLICY COMMITTEE consists entirely of
non-employee directors. It reviews and monitors policies that deal with PNM's
responsibility to the communities in which it does business. The subject
matter of policies reviewed and monitored includes: customer service, the
environment, charitable contributions, government relations, and
communications to various constituencies of PNM. The committee meets with
public officials, the media, and other opinion leaders throughout the year to
obtain an independent assessment of PNM's public reputation.
The EXECUTIVE COMMITTEE consists of the Chairman of the Board, the
Chairman Emeritus and the chairs of PNM's standing Board committees. It
exercises the powers of the Board during intervals between Board meetings.
The FINANCE COMMITTEE consists of a majority of non-employee
directors. It reviews and recommends to the Board the capital structure and
financial strategy for PNM including dividend policy. It has oversight of
PNM's financial performance, investment procedures and policies, pension fund
performance and funding level, large capital expenditures and risk management
strategies and policies.
The NOMINATING AND GOVERNANCE COMMITTEE consists entirely of
non-employee directors. It has the responsibility to make recommendations to
the Board for nominees for election as directors, as well as recommendations
concerning the effectiveness, structure, size, composition and compensation
of the Board, including committee assignments and candidates for election as
Chairman of the Board. The Nominating and Governance Committee conducts an
annual evaluation of Board performance and effectiveness and, at least
annually, reviews conflict of interest questionnaires submitted by directors
to determine whether any potential or actual conflict of interest exists. In
1995, the Board approved a Nominations Policy which describes the guidelines,
procedures, and selection criteria for filling vacancies on the Board,
recognizing the importance of a well-balanced Board which reflects the
interests of PNM's shareholders, customers, employees, and the communities it
serves. The Nominating and Governance Committee seeks potential nominees for
Board membership in various ways and will consider suggestions submitted by
shareholders. Suggestions, together with a description of the potential
nominee's qualifications, appropriate biographical information, and the
potential nominee's signed consent to serve, should be submitted to the
Secretary of PNM prior to December 15, 2001, for consideration at the year
2002 Annual Meeting.
BOARD SERVICE POLICY
The Board of Directors had previously adopted a service policy
addressing various aspects of board service, retirement practices, terms of
office and inside directors. This policy was suspended on March 7, 2000,
because of the expected transition to a holding company structure. The Board
anticipates that, subsequent to formation of the holding company, an
appropriate board service policy will be adopted by the new holding company
board.
9
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PERFORMANCE GRAPH
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The following graph assumes that $100 was invested on December 31,
1995, in PNM Common Stock, the S&P 500 Stock Index, the Philadelphia Utility
Index, and the combination gas and electric peer group, and that all
dividends were reinvested. This graph differs from the graphs in previous
proxy statements in that it includes the Philadelphia Utility Index which PNM
believes currently provides a closer comparison to PNM than the peer group
comparison. Therefore, future proxy statements will include the Philadelphia
Utility Index and not the peer group index. Historical performance does not
necessarily predict future results.
[GRAPH]
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FISCAL YEAR ENDED
DECEMBER 31, 1995 1996 1997 1998 1999 2000
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PNM 100 114 142 127 105 181
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S&P 500 100 123 164 211 255 232
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*Peer Group 100 93 124 154 118 169
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**Phil. Utility Index 100 100 128 152 128 191
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*The peer group companies are combination electric and gas utilities with an
investment in a nuclear power generating station. The peer group companies
are as follows: CH Energy Group, Inc., CMS Energy Corp., Consolidated Edison,
Inc., Exelon Corp., Niagara Mohawk Holdings, Inc., PG&E Corp., Public Service
Enterprise Group, RGS Energy Group, Inc., Scana Corp., Wisconsin Energy
Corp., WPS Resources Corp., and Xcel Energy, Inc.
10
**The Philadelphia Utility Index companies are as follows: AES Corporation,
Ameren Corporation, American Electric Power, Inc., Consolidated Edison, Inc.,
Dominion Resources, Inc., DTE Energy Company, Duke Energy Corporation, Edison
International, Entergy Corporation, Exelon Corporation, FirstEnergy
Corporation, FPL Group Inc., Niagara Mohawk Holdings, Inc., Northeast
Utilities, Public Service Enterprise Group, Reliant Energy, Inc., Southern
Company, and TXU Corporation.
11
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AUDIT COMMITTEE REPORT
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The Audit Committee Report and Audit Committee Charter are included
in this proxy statement to comply with new Securities and Exchange Commission
("SEC") rules issued on November 21, 2000. The rules govern disclosures
related to audit committee members and auditor services. The Audit Committee
has prepared the following report for inclusion in this proxy statement.
The Audit Committee of PNM is composed of three directors who are
"independent" under the New York Stock Exchange rules and operates under a
written charter, which was most recently amended and, as amended, adopted by
the Board of Directors on December 11, 2000 (Exhibit A to the proxy
statement). The members of the Audit Committee are Robert G. Armstrong
(Chair), John T. Ackerman, and Manuel Lujan, Jr. The Audit Committee
recommends to the Board of Directors, subject to stockholder ratification,
the selection of PNM's independent accountants.
Management is responsible for PNM's internal controls and financial
reporting process. The independent accountants are responsible for performing
an independent audit of PNM's consolidated financial statements in accordance
with generally accepted auditing standards and to issue a report. The Audit
Committee's responsibility is to monitor and oversee these processes.
In this context, the Audit Committee has met and held discussions
with management and the independent accountants. Management represented to
the Audit Committee that PNM's consolidated financial statements were
prepared in accordance with generally accepted accounting principles, and the
Audit Committee has reviewed and discussed the consolidated financial
statements with management and the independent accountants. The Audit
Committee discussed with the independent accountants matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees).
PNM's independent accountants also provided to the Audit Committee
the written disclosures required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees), and the Audit Committee
discussed with the independent accountants that firm's independence. This
discussion and disclosure informed the Audit Committee of Arthur Andersen
LLP's independence as required under Statement on Auditing Standards No. 61
(Communication with Audit Committees).
Based on the Audit Committee's discussion with management and the
independent accountants and the Committee's review of the representations of
management and the report of the independent accountants to the Committee,
the Audit Committee recommended that the Board of Directors include the
audited consolidated financial statements in PNM's Annual Report on Form 10-K
for the year ended December 31, 2000, filed with the SEC.
Robert G. Armstrong (Chair)
John T. Ackerman
Manuel Lujan, Jr.
12
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COMPENSATION AND HUMAN RESOURCES COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
COMPENSATION POLICIES
The Compensation and Human Resources Committee (the "Compensation
Committee") establishes compensation guidelines and targets based upon the
performance of PNM, business units within PNM, and individual executive
officers. The Compensation Committee consists of four independent directors
who are not PNM employees. The Compensation Committee's goal is to establish
a compensation program that:
o links the interests of management and shareholders,
o aligns executive compensation with long-term PNM performance,
and
o attracts and retains executives of high caliber and ability.
For 2000, the program consisted of base salary, short-term incentive
compensation, and long-term incentive compensation.
The Compensation Committee believes the compensation program was a
factor contributing to PNM's success this past year, including earnings per
share of $2.53 and operating revenues of $1.611 billion.
BASE SALARIES
EXECUTIVE OFFICERS. Each year the Compensation Committee reviews
base salaries of individual executive officers and their salary ranges. In
2000, base salaries were conservatively tied to the median base salaries of
executives in comparable positions within electric and gas utilities together
with general industry. Numerous compensation surveys were utilized including
Edison Electric Institute, American Gas Association, William M. Mercer, Inc.,
and Hewitt Associates, LLC.
CHIEF EXECUTIVE OFFICER. Mr. Montoya served as President and Chief
Executive Officer of PNM from 1993 until 1999 when he became Chairman,
President and Chief Executive Officer. During 2000, Mr. Montoya relinquished
his responsibilities as President and Chief Executive Officer, and in
October, Mr. Montoya retired as Chairman of the Board.
Mr. Sterba was originally employed by PNM from June 6, 1977 to
December 31, 1998, when he resigned his position as Executive Vice President
and Chief Operating Officer. On February 28, 2000, Mr. Sterba rejoined PNM as
President at a salary of $350,000. Mr. Sterba was named President and Chief
Executive Officer on June 6, 2000, and his salary was increased by $50,000 to
$400,000. Mr. Sterba was elected Chairman of the Board on October 1, 2000,
replacing Mr. Montoya, who retired as Chairman of the Board. In setting Mr.
Sterba's salary for 2000, the Compensation Committee evaluated competitive
utility and general industry practices for companies with revenues similar to
PNM.
13
SHORT-TERM INCENTIVE COMPENSATION
EXECUTIVE OFFICERS AND CHIEF EXECUTIVE OFFICER. In 2000, executive
officers, including Mr. Sterba, participated in an officer incentive plan.
The plan has "at risk" cash compensation elements tied to individual
performance, combined with company-wide earnings per share ("EPS")
performance, and positive Total Shareholder Return ("TSR") that exceeds the
Philadelphia Utility Index which is composed of similarly situated utilities.
EPS and TSR goals are approved annually by the PNM Board of Directors. Mr.
Sterba's 2000 individual performance goals included measurements related to
formation of the new holding company and development of its board and
governance, achievement and maintenance of PNM's long-term investment rating,
progress on recovery of stranded costs, and certain human resources goals.
Other executive officers were measured on achievement of their business unit
goals for 2000 which were generally focused on customer satisfaction, cost
control, operations efficiency, and business unit earnings per share, with
performance targets established for threshold, stretch, and optimal
achievements. 2000 company-wide EPS results were 128% of the targeted
business plan goal, and TSR performance exceeded the Philadelphia Utility
Index by 21.55 percentage points. Other significant achievements during 2000
include:
o developed corporate governance policies for proposed
restructuring,
o successfully negotiated and reached agreement to acquire the
electric utility operations of Western Resources, Inc.,
o provided total return to shareholders of 72.10% and increased
price/earnings ratio from 8 to 10.8 times earnings,
o accelerated the strategic and annual business planning and
approval processes,
o secured future competitiveness of San Juan power generation
through re-negotiation of coal contracts,
o achieved high wholesale profitability despite risky
environment,
o continued improvement in community acceptance and customer
satisfaction indicators, and
o identified preliminary succession plans for all officers.
Award payments were made to participants in February 2001.
Mr. Montoya retired during 2000, giving up the position of President
in March, then Chief Executive Officer in June and Chairman of the Board in
October. Although he was not a participant in the plan, in April 2001, the
Board of Directors determined that Mr. Montoya should receive a discretionary
bonus, consistent with past practice, in the amount of $150,000 for a partial
year of service to reward him for his significant contributions to PNM's
successes in 2000. In addition, the Board recognized his significant
accomplishments during his career with PNM and the progress made by PNM since
he joined PNM in August 1993, including more than doubling the stock price,
successfully guiding PNM through the seven year legislative process
surrounding restructuring, positioning PNM for competition, restoring the
dividend, successfully
14
protecting PNM against punitive regulatory actions, significantly increasing
earnings, rebuilding trust and credibility for PNM in the community,
recruiting a highly qualified successor, and facilitating a smooth transition
to his successor.
LONG-TERM INCENTIVE COMPENSATION
EXECUTIVE OFFICERS AND CHIEF EXECUTIVE OFFICER. Under PNM's
Performance Stock Plan ("PSP"), non-qualified stock options have been granted
to all executive officers, as well as other key employees. The PSP provided
that the Compensation Committee, in its sole and absolute discretion, would
declare the level of options to be granted. The grant for 2000 was approved
and awarded in February 2000 under the PSP. On December 31, 2000, the PSP was
scheduled to expire and was to be replaced by the new management stock plan,
the PEP, which was approved by shareholders in 2000 and becomes effective on
formation of the proposed holding company. Due to regulatory delays that have
postponed formation of the holding company, the PEP was not expected to
become effective in time for the regular annual grant schedule for February
2001. Therefore, a grant was awarded in December 2000 under the PSP prior to
its expiration. Both grants are reported in this proxy statement under
"Option Grants in 2000".
CERTAIN TAX MATTERS
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally prohibits publicly held companies, such as PNM, from
deducting, for federal income tax purposes, annual compensation in excess of
$1 million paid to any of certain top executives, except to the extent
compensation is based upon the attainment of performance goals set by the
Compensation Committee pursuant to plans approved by the shareholders. The
Board of Directors, to comply with applicable tax law, is submitting an
amendment to the PEP for shareholder approval at this year's Annual Meeting
in order to allow certain of the compensation payable under the plan to be
eligible for favorable tax treatment. The Compensation Committee endeavors to
maximize the deductibility of compensation under Section 162(m) to the extent
practicable, but does consider other factors as necessary to achieve the
compensation program goals.
Compensation and Human Resources Committee
Paul F. Roth (Chair) Joyce A. Godwin
Robert G. Armstrong Robert M. Price
15
-------------------------------------------------------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
---------------------------------------------------------- ---------------
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION AWARDS
-------------------------------------------------------------------------------------------------------------------------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(a) OPTIONS(#) COMPENSATION
-------------------------------------------------------------------------------------------------------------------------------
J. E. Sterba 2000 $317,114(b) $241,200(c) -- 325,000 $127,464(d)
Chairman, President & Chief 1999(e) -- -- -- -- --
Executive Officer 1998 256,849(f) 117,161(g) -- -0-(h) 6,525(i)
-------------------------------------------------------------------------------------------------------------------------------
B. F. Montoya 2000 $377,881(b) $150,000(j) -- 100,000 $129,961(k)
Chairman and Chief Executive 1999 415,376 100,000(l) -- 45,000 19,153(i)
Officer 1998 389,423 25,000(l) -- -0-(h) 22,327(i)
-------------------------------------------------------------------------------------------------------------------------------
R. J. Flynn 2000 $234,808 $182,820(c) -- 65,000 $9,691(i)
Executive Vice President of 1999 193,110 64,400(g) -- 16,000 5,555(i)
Electric and Gas Services 1998 166,320 49,223(g) -- -0-(h) 1,842(i)
-------------------------------------------------------------------------------------------------------------------------------
M. H. Maerki 2000 $217,393 $111,452(c) -- 49,000 $6,652(i)
Senior Vice President and 1999 188,732 55,200(g) -- 16,000 5,281(i)
Chief Financial Officer 1998 190,432(f) 49,927(g) -- -0-(h) 3,024(i)
-------------------------------------------------------------------------------------------------------------------------------
P. T. Ortiz 2000 $197,121 $78,982(c) -- 47,000 $10,651(i)
Senior Vice President, 1999 170,670 39,900(g) -- 16,000 3,446(i)
General Counsel and 75,000(m) -- -0-(h) 982(i)
Secretary 1998 155,699 41,588(g) --
-------------------------------------------------------------------------------------------------------------------------------
W. J. Real 2000 $219,233 $182,820(c) -- 67,000 $7,217(i)
Executive Vice President of 1999 173,139 45,600(g) -- 16,000 3,752(i)
Power Production and Marketing 1998 145,335 18,685(g) -- -0-(h) 301(i)
-------------------------------------------------------------------------------------------------------------------------------
16
--------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE FOOTNOTES
--------------------------------------------------------------------------------
(a) Amounts are less than the established reporting thresholds.
(b) Salary for a partial year of service; Mr. Montoya retired October 13, 2000
and Mr. Sterba was hired March 1, 2000.
(c) Bonus paid in 2001 for 2000 performance according to an Officer Incentive
Plan that was created to replace executive officer participation in the
broad-based employee annual incentive program, Results Pay. The officer
plan ties a portion of officer compensation to company-wide earnings per
share, positive corporate total shareholder return in excess of the
Philadelphia Utility Index, and individual performance.
(d) Relocation expense reimbursements plus amounts pursuant to a plan that
provides executives with contribution benefits for earning more than IRS
limits imposed for qualified plans.
(e) Mr. Sterba was not employed by PNM during 1999.
(f) Amounts include sales of accrued vacation hours during 1998 and also
reflect increases in base salaries.
(g) Incentives paid in 2000 and 1999 for prior year achievements under the
broad-based employee annual incentive program, Results Pay. In addition,
these amounts include any lump sum bonus granted for individual
performance.
(h) Due to Performance Stock Plan amendments approved in 1998 that changed the
timing of the grants, no grants were awarded with a 1998 effective date.
(i) Amounts are pursuant to a plan that provides executives with contribution
benefits for earning more than IRS limits imposed for qualified plans.
(j) Bonus paid in April 2001 for previous performance.
(k) Taxable gifts, unused vacation and flexible holiday pay upon retirement,
plus amounts pursuant to a plan that provides executives with contribution
benefits for earning more than IRS limits imposed for qualified plans.
(l) Bonus paid in February 2000 for 1999 performance; bonus paid in June 1998
for previous performance.
(m) Bonus paid in March 2000 for previous performance.
--------------------------------------------------------------------------------
17
--------------------------------------------------------------------------------
OPTION GRANTS IN 2000
--------------------------------------------------------------------------------
Under PNM's Performance Stock Plan, non-qualified stock option
grants were awarded to all executive officers, including Mr. Sterba, as well
as other key employees. Annual grants for 2000 were approved and awarded in
February 2000. Due to the December 31, 2000, expiration of the PSP and a
delay in the effective date of the PEP, a final grant under the PSP was
approved and awarded in December 2000.
OPTION GRANTS IN FISCAL YEAR 2000
(PSP)
--------------------------------------------------------------------------------------------------------------------
Individual Grants(1)
--------------------------------------------------------------------------------------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or Grant Date
Options Employees in Base Price Expiration Present
Name Granted(#) Fiscal Year ($/Share) Date Value ($)(2)
--------------------------------------------------------------------------------------------------------------------
R. J. Flynn 30,000 1.4% $15.8125 02/07/2010 $112,200(2)(a)
---------------------------------------------------------------------------------------------
35,000 1.7% $24.3125 12/10/2010 $415,450(2)(b)
--------------------------------------------------------------------------------------------------------------------
M. H. Maerki 20,000 1.0% $15.8125 02/07/2010 $74,800(2)(a)
---------------------------------------------------------------------------------------------
29,000 1.4% $24.3125 12/10/2010 $344,230(2)(b)
--------------------------------------------------------------------------------------------------------------------
B. F. Montoya(3) 100,000 4.8% $15.8125 02/07/2010 $374,000(2)(a)
--------------------------------------------------------------------------------------------------------------------
P. T. Ortiz 20,000 1.0% $15.8125 02/07/2010 $74,800(2)(a)
---------------------------------------------------------------------------------------------
27,000 1.3% $24.3125 12/10/2010 $320,490(2)(b)
--------------------------------------------------------------------------------------------------------------------
W. J. Real 30,000 1.4% $15.8125 02/07/2010 $112,200(2)(a)
---------------------------------------------------------------------------------------------
37,000 1.8% $24.3125 12/10/2010 $439,190(2)(b)
--------------------------------------------------------------------------------------------------------------------
J. E. Sterba 100,000 4.8% $15.1250 03/06/2010 $351,000(2)(c)
---------------------------------------------------------------------------------------------
100,000 4.8% $16.1875 06/06/2010 $438,000(2)(d)
---------------------------------------------------------------------------------------------
125,000 6.0% $24.3125 12/10/2010 $1,483,750(2)(b)
--------------------------------------------------------------------------------------------------------------------
(1) The options shown in this table were granted in 2000 under the Third
Restated and Amended Public Service Company of New Mexico Performance Stock
Plan.
(2) The grant date valuation was calculated using the Black-Scholes option
pricing model:
a. Assuming stock price volatility of 27.799%, a risk-free rate of return
of 6.636% and an annual dividend yield of 5.06%. The weighted average
grant date option fair value is $3.74.
b. Assuming stock price volatility of 58.168%, a risk-free rate of return
of 5.36% and an annual dividend yield of 3.29%. The weighted average
grant date option fair value is $11.87.
c. Assuming stock price volatility of 29.393%, a risk-free rate of return
of 6.409% and an annual dividend yield of 5.29%. The weighted average
grant date option fair value is $3.51.
d. Assuming stock price volatility of 33.948%, a risk-free rate of return
of 6.12% and an annual dividend yield of 4.94%. The weighted average
grant date option fair value is $4.38.
(3) Mr. Montoya retired from PNM effective October 13, 2000; however, he will
continue to serve as a member of the Board of Directors.
--------------------------------------------------------------------------------------------------------------------
18
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AGGREGATED OPTION EXERCISES IN 2000
AND 2000 YEAR-END OPTION VALUES
------------------------------ --------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2000 DECEMBER 31, 2000(a)
---------------------------------------------------------------------------------------------------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED(D) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------------------------------------------------------------------------------------------------------
R. J. Flynn - - 19,733 81,000 $111,638 $566,500
M. H. Maerki - - 33,223 65,000 $235,578 $441,500
B. F. Montoya(b) 166,896(c) $1,282,364(c)- 165,902 -0- $1,584,381 -0-
P. T. Ortiz - - 68,672 63,000 $736,941 $436,500
W. J. Real - - 30,035 83,000 $209,184 $571,500
J. E. Sterba - - -0- 325,000 -0- $2,543,750
---------------------------------------------------------------------------------------------------------------------
(a) Value equals the year-end stock price ($26.8125) minus the exercise price,
times the number of shares underlying the option. "In-the-Money" means that
the year-end stock price was greater than the exercise price of the option.
(b) Mr. Montoya retired effective October 13, 2000.
(c) Of these amounts 91,332 shares and $760,989 in value were realized after
Mr. Montoya's retirement date of October 13, 2000.
(d) Value of shares exercised is the market value of the shares on the exercise
date minus the exercise price.
---------------------------------------------------------------------------------------------------------------------
RETIREMENT PLAN AND RELATED MATTERS
In December 1996, the Board of Directors approved changes to the PNM
defined benefit plan ("Retirement Plan") and implementation of matching and
non-matching contributions to the 401(k) defined contribution plan effective
January 1, 1998. PNM contributions to the 401(k) plan consist of a three
percent non-matching contribution, and a 75 percent match on the first six
percent contributed by the employee on a before-tax basis.
Through December 31, 1997, the Retirement Plan covered employees who
had at least one year of service and had attained the age of 21. Vesting
occurred after five years of service. Directors who were not employees did
not participate in the Retirement Plan. PNM made no contribution in 2000 to
the Retirement Plan for plan year 1999, as the Retirement Plan was adequately
funded and was frozen effective December 31, 1997.
Salaries used in Retirement Plan benefit calculations were frozen as
of December 31, 1997. Additional credited service can be accrued under the
Retirement Plan up to a limit determined by age and years of service. PNM
made contributions in 1998 to the Retirement Plan for plan year 1997 in the
amount of $185,000. The amount of any contribution with respect to any one
person cannot be determined. The contribution amount is actuarially
determined based upon the number of Retirement Plan participants, the
participant's age, salary, and years of service.
The following table illustrates the annual benefits that would be
provided under the Retirement Plan to employees who retire at the indicated
compensation and year of service levels and who elect to receive the
benefits, which are calculated on a straight-life annuity basis, over their
remaining lives. Vesting of accrued benefits would also occur in the event of
a change in control of PNM. Benefits shown are maximum annual benefits
payable at age 65 to participants who retire at age 65. The table is based on
the Retirement Plan. The amounts shown in the table are not subject to any
deduction for Social Security benefits or other offset amounts.
19
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PENSION PLAN TABLE
----------------------------------------------------------------------------------------------------------------------
AVERAGE OF
HIGHEST ANNUAL
BASE SALARY
FOR 3 CREDITED YEARS OF SERVICE
CONSECUTIVE -----------------------------------------------------------------------------------------------------
YEARS(a) 5(b) 10 15 20 25 30 32-1/2(c)
----------------------------------------------------------------------------------------------------------------------
$100,000 $10,000 $20,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000 $ 65,000
$150,000 15,000 30,000 45,000 60,000 75,000 90,000 97,500
$200,000 20,000 40,000 60,000 80,000 100,000 120,000 130,000
$250,000 25,000 50,000 75,000 100,000 125,000 150,000 162,500
$300,000 30,000 60,000 90,000 120,000 150,000 180,000 195,000
$350,000 35,000 70,000 105,000 140,000 175,000 210,000 227,500
$400,000 40,000 80,000 120,000 160,000 200,000 240,000 260,000
$450,000 45,000 90,000 135,000 180,000 225,000 270,000 292,500
----------------------------------------------------------------------------------------------------------------------
(a) For these purposes, compensation consists of base salaries and includes any
amount voluntarily deferred under PNM's Master Employee Savings Plan.
Generally, compensation for these purposes does not include bonuses,
payments for accrued vacation, or overtime pay.
(b) Although years of service begin accumulating from the date of employment,
vesting occurs after five years of service.
(c) The maximum number of years generally taken into account for purposes of
calculating benefits under the non-contributory defined benefit plan. Under
limited circumstances, an employee working beyond age 62 could earn an
additional 3% retirement benefit.
----------------------------------------------------------------------------------------------------------------------
Credited years of service, which can be used to calculate benefits
as shown in the above table, have been accumulated by executive officers
under the Retirement Plan, the Accelerated Management Performance Plan
discussed below, and the supplemental employee retirement arrangements
discussed below. Credited years of service computed as of December 31, 2000,
are as follows: Mr. Montoya, 11 years; Mr. Sterba, 23.9 years; Mr. Flynn, 6
years; Mr. Maerki, 28.5 years; Mr. Ortiz, 10.25 years; and Mr. Real, 22.33
years. The executive officers' remuneration that would be used to calculate
benefits is determined by reference to the Retirement Plan and the
supplemental employee retirement arrangements discussed below. As of December
31, 2000, the remuneration used to calculate benefits was as follows: Mr.
Montoya, $373,336; Mr. Sterba, $167,412; Mr. Flynn, $161,163; Mr. Maerki,
$170,900; Mr. Ortiz, $138,332; and Mr. Real, $135,000. The remuneration used
by the plan was frozen as of December 31, 1997.
Under Section 401(a)(17) of the Code there is a limitation on the
amount of compensation that can be considered in determining retirement
benefits under qualified retirement plans. In June 1998, the Board of
Directors approved a plan to give executives with earnings in excess of the
Code Section 401(a)(17) limitation ($170,000 for 2000) an opportunity to
participate in a non-qualified plan and receive the 3% company contribution
and a 75 cent on the dollar match for the first 6% contributed by the
employee for eligible earnings in excess of the compensation limitation. The
non-qualified plan also permits executives to contribute amounts in excess of
the Code Section 402(g) limitations on elective deferrals. Nine executive
officers participated in the Executive Savings Plan in 2000.
In January 1981, the Board of Directors approved a non-qualified
executive benefit program for a group of management employees. The
Accelerated Management Performance Plan, or AMPP, was intended to attract,
motivate and retain key management employees. Mr. Maerki and certain other
key management employees are eligible to participate in one or more of
20
the plans in the program. Under the program, as originally adopted, key
management employees had the opportunity to earn additional credit for years
of service toward retirement. The AMPP, as amended and restated, phased out
the accumulation of additional credits by January 1, 1990. In addition, the
amended and restated plan includes a provision that allows key management
employees who have not attained the maximum credits for years of service to
receive a reduced benefit from the plan upon accepting early retirement.
Monthly benefits received pursuant to the AMPP are offset by monthly benefits
received pursuant to the Retirement Plan.
As approved by the Board of Directors in 1989, a supplemental
employee retirement agreement was entered into with Mr. Maerki. Under the
agreement, Mr. Maerki's retirement benefits will be computed as if he had
been an employee of PNM since February 15, 1974.
As approved by the Board of Directors in 2000, supplemental employee
retirement agreements were entered into with Mr. Sterba and Mr. Ortiz. Under
the terms of the agreement with Mr. Sterba, he will earn additional years of
credited service so that, if he remains employed by PNM until February 28,
2005, he will be credited with 30 years of service. Mr. Sterba's agreement
also provides that, until February 28, 2005, his eligibility for retiree
medical benefits will be determined as if he attained 20 years of credited
service with PNM at age 45. Under the terms of the agreement with Mr. Ortiz,
he will earn additional years of credited service so that, if he remains
employed by PNM until January 1, 2010, he will be credited with 30 years of
service. This agreement also provides that, until Mr. Ortiz reaches the age
of 55, his eligibility for retiree medical benefits will be determined as if
he had attained 20 years of credited service with PNM at age 45.
Under the terms of employment agreements with Mr. Montoya, he is
receiving supplemental retirement benefits computed as if he had been an
employee of PNM since August 1, 1990.
The Board of Directors has approved the establishment of an
irrevocable grantor trust, under provisions of the Code, generally in
connection with the AMPP and the supplemental retirement arrangements with
Mr. Montoya, Mr. Sterba, Mr. Ortiz, Mr. Maerki, and certain former executive
officers. PNM may, but is not obligated to, provide funds to the trust, which
was established with an independent trustee, to aid in meeting its
obligations under those arrangements. Funds in the amount of $12.7 million
have been provided to the trust since 1989. Distributions have been made from
the trust since 1989. No additional funds have been provided to the trust. In
connection with amendments to the Executive Retention Plan discussed below,
the Executive Savings Plan and supplemental retirement arrangements would be
required to be funded through the trust upon a change in control of PNM.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
The PNM Board of Directors adopted the Executive Retention Plan, or
the Retention Plan, effective January 1, 1992. The Retention Plan covers
executive officers and other key employees designated by the Board. The
Retention Plan provides certain severance benefits should the employee be
terminated from PNM as a result of a change in control of PNM, and the
employee is not immediately re-employed by the successor company, if that
termination is (a) for reasons other than cause, or (b) by the employee due
to constructive termination. The severance benefits include: (i) lump sum
severance equal to 2.5 times current base compensation
21
for executive officers; (ii) reimbursement of reasonable legal fees and
expenses incurred as a result of termination of employment; (iii) certain
insurance benefits that are substantially similar to those received by the
employee immediately prior to termination of employment; (iv) certain other
amounts; and (v) if an employee receives any payment due to a change in
control that is subject to the excise tax provided in Section 4999 of the
Code, then PNM will reimburse the employee in an amount equal to that which
places the employee in the same after-tax position as if no excise tax had
been imposed. The Retention Plan was effective for an initial term through
December 31, 1992, and is to continue in effect until terminated by the
Board. The Retention Plan is also subject to automatic extension, or revival
if it has been terminated, for certain events relating to potential changes
in control.
PNM also has a Non-union Severance Pay Plan that covers non-union
employees, including executives, who are terminated due to the elimination of
their positions. Executives are eligible, upon signing a release agreement,
for a lump sum payment equal to one year of base salary and reimbursement for
placement assistance expenses incurred during the year after being terminated
up to 5% of base salary. Executives are also eligible for regular severance
pay in the amount of two months of base salary, plus one additional week of
base salary for each year of service, continuation of certain insurances, and
health care benefits for up to 12 months. Severance benefits shall not exceed
the equivalent of twice the participant's annual compensation. If an employee
is to receive benefits under the Retention Plan, severance benefits are not
available to that employee under the Non-union Severance Pay Plan.
Certain other plans in which the named executive officers
participate contain provisions that are triggered by a change in control of
PNM. These include the Performance Stock Plan, under which immediate vesting
of stock options occurs upon a change in control, and the PNM Resources, Inc.
Omnibus Performance Equity Plan, which provides for immediate vesting upon
eligible termination due to a change in control.
The terms of the change in control provisions are similar among the
plans but do have some variations. The Board of Directors is considering
whether a uniform definition of "change in control" should be adopted to
apply to all plans.
22
--------------------------------------------------------------------------------
PROPOSAL 2: APPROVE AMENDMENTS TO DIRECTOR RETAINER PLAN
(PROPOSAL 2 ON YOUR PROXY CARD)
--------------------------------------------------------------------------------
SUMMARY
The Board of Directors has adopted amendments to the current First
Restated and Amended PNM Director Retainer Plan, subject to approval by PNM's
shareholders.
This amended Retainer Plan will become the PNM Resources, Inc. Director
Retainer Plan upon the effective date of the mandatory share exchange. The
existing plan is effective until 2002, and the majority of the 100,000 shares
authorized for the Retainer Plan have been granted. The amended Retainer Plan
will expand the flexibility of PNM Resources to structure appropriate retainer
fees for the Board of Directors. Ownership of stock will continue to tie
directors to the financial success of PNM and to the best interests of the
shareholders.
The comparison below highlights the proposed amendments to the Retainer
Plan:
--------------------------------------------------------------------------------------------------------------
FIRST RESTATED AND AMENDED PROPOSED
PNM DIRECTOR RETAINER PLAN AMENDMENTS
--------------------------------------------------------------------------------------------------------------
AUTHORIZED SHARES
100,000 (51,199 shares utilized as of April 30, 2001) 200,000 (including shares previously granted)
--------------------------------------------------------------------------------------------------------------
EXPIRATION DATE
April 30, 2002 July 1, 2005
--------------------------------------------------------------------------------------------------------------
RETAINER FEES PAYABLE IN:
Director selects one of the following:
Cash Cash and Stock Options
Restricted Stock
Stock Options
--------------------------------------------------------------------------------------------------------------
RESTRICTED STOCK
Included as an alternative Restricted Stock eliminated as an alternative
--------------------------------------------------------------------------------------------------------------
NUMBER OF STOCK OPTIONS GRANTED
2,000 granted on each Annual Meeting Date Determined by the Board; generally granted on
each Annual Meeting Date
--------------------------------------------------------------------------------------------------------------
EXERCISE PRICE OF STOCK OPTIONS
Determined by dividing the cash retainer by the Determined by the Fair Market Value at the close
number of Stock Options granted and subtracting this of business on the Grant Date
result from the Fair Market Value of one share
of Stock on the Grant Date
--------------------------------------------------------------------------------------------------------------
VESTING
Stock Options shall vest on the next Annual Meeting The same, subject to exceptions as determined by
Date following the Grant Date of such Stock Options the Committee
--------------------------------------------------------------------------------------------------------------
23
The following is a more detailed description of the Retainer Plan, as
proposed to be amended:
ELIGIBILITY. Only non-employee directors are eligible to participate in
the Retainer Plan. These directors would be PNM directors until the date of the
share exchange and would be PNM Resources directors thereafter. Participants
would generally receive annual grants on the date of the Annual Meeting of
Shareholders.
SHARES SUBJECT TO THE PLAN. Under the Retainer Plan, 200,000 shares of
common stock of PNM would be granted in the aggregate. This represents an
increase of 100,000 over the shares currently authorized, of which 51,199 shares
have been utilized as of April 30, 2001. The common stock has no preemptive
rights. Although the use of either authorized but unissued shares or shares
purchased on the open market ("market shares") is permissible, it is anticipated
that future grants will consist of market shares and therefore will have no
dilutive effect with respect to the number of outstanding shares. The number of
shares is subject to adjustments for changes in capitalization or in connection
with certain corporate transactions. Any shares which are forfeited may again be
used for grants under the Retainer Plan subject to certain limitations.
ADMINISTRATION. The Retainer Plan is administered by the Compensation
and Human Resources Committee of the Board of Directors or any other committee
(as used in this section, the "Committee") as may be designated by the Board to
administer the Retainer Plan, the membership of such Committee not being less
than three members of the Board.
CASH. The cash award is established by the Board of Directors.
STOCK OPTIONS. The Retainer Plan allows for grants of stock options to
be made to each eligible director. The exercise price of each option will be the
"Fair Market Value" (as defined in the Plan) of a share of Common Stock at the
date of grant.
A stock option shall generally vest and be exercisable on the
immediately following Annual Meeting date subject to exceptions determined by
the Committee. Vested stock options will be exercisable at any time on or before
the earlier of: (i) one year following a director's termination from the Board
or (ii) the tenth anniversary date of the grant date of the stock options.
Stock options shall be exercised by the director giving written notice
to PNM of his or her intent to exercise options, along with the tendering of
cash in the amount of the exercise price, as described above, for the options
being exercised, times the number of the options being exercised. Alternatively,
in lieu of cash, the exercise price may be paid by the director, in whole or in
part, by assignment and delivery to PNM of vested options (other than those
being exercised) owned by the director. The amount credited toward the exercise
price shall equal the cumulative fair market value of all of the stock subject
to the options tendered on the date of the transfer, less the exercise price of
the options. The director may also tender payment by assignment and delivery of
unrestricted stock. The amount credited toward the exercise price shall equal
the cumulative fair market value of the stock being assigned.
Subject to the terms of the Retainer Plan, within an administratively
reasonable period of time after the exercise of an option and the payment of the
full exercise price, the director shall
24
receive a stock certificate evidencing his or her ownership of the stock. The
director shall have none of the rights of a shareholder with respect to the
stock subject to options, until the date a stock certificate is issued in the
director's name. If necessary to meet the conditions of SEC Rule 16b-3,
shares of stock obtained upon the exercise of any option granted under the
Retainer Plan may not, in any event, be sold by a director until six months
after acquisition by the director of the stock option. Options will not be
transferable other than by will or by the laws of descent and distribution,
and during a participant's lifetime shall be exercisable only by the director.
VESTING OF STOCK OPTIONS. Stock options cannot be exercised until they
vest. Stock options granted under the Retainer Plan will generally vest on the
next Annual Meeting date following the Annual Meeting date on which the stock
options are granted, subject to exceptions determined by the Committee, if the
director continuously remains a director during the vesting period.
The Retainer Plan provides for the acceleration of vesting of stock
options upon the death, disability, or retirement of a director or upon
completion of his or her elected term, without reelection (regardless of the
reason) or upon a change in control of PNM. If a director ceases to be a
director of PNM for any other reason prior to vesting of options, the non-vested
options shall automatically be forfeited.
TERMINATION, SUSPENSION OR MODIFICATION OF THE RETAINER PLAN. Subject
to the following discussion, the Board of Directors may amend, terminate, or
suspend the Retainer Plan at any time. If required by law or if necessary to
meet the conditions of SEC Rule 16b-3, the Board of Directors will not, without
authorization of PNM shareholders, effect any change (other than through
adjustment or changes in capitalization or corporate transactions, as provided
in the Retainer Plan) which would increase the maximum number of shares of
Common Stock available for grants under the Retainer Plan, modify the
requirements as to eligibility for grants under the Retainer Plan or otherwise
materially increase the benefits accruing to the directors under the Retainer
Plan (subject, however, to the Board's right to establish the annual retainer
amount). In addition, if required by law or if necessary to meet the conditions
of SEC Rule 16b-3, no amendment to the Retainer Plan that would change the
amount, price, or timing of stock option grants (other than to comport with the
changes in the Code or the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations thereunder) will be made more than once
every six months (without regard to shareholder approval).
FEDERAL TAX CONSEQUENCES. The options granted under the Retainer Plan
are not intended to be qualified (statutory) options under the Code. No taxable
income will be recognized by a director upon the grant of an option. Upon
exercise, the director will generally recognize ordinary income equal to the
excess of the fair market value of the shares on the date of exercise over the
exercise price. PNM will be entitled to a deduction of the same amount.
In the case of the exercise of an option using previously acquired
shares, PNM understands that (i) with respect to the evenly exchanged shares
(i.e., the new shares received are equal in number to the old shares
surrendered), no gain or loss will be recognized to the optionee at the time of
exercise, PNM will not be entitled to a deduction, and the basis and holding
period of the equal number of new shares received in the exchange will be the
same as the basis and holding period of the surrendered shares, and (ii) with
respect to the additional shares received upon exercise, the optionee will be
required to recognize as ordinary income in the year of exercise an amount equal
to the fair market value on the date of exercise of the additional shares
25
received, less any cash paid upon exercise, and PNM will be entitled to a
deduction in a corresponding amount. The basis of the additional shares received
will be equal to their fair market value on the date of exercise and the holding
period for such shares will begin on the date of exercise. In the payment of the
exercise price of an option by assigning other existing options to PNM, the
optionee, in addition to recognizing ordinary income on the options being
exercised, shall also recognize ordinary income on the options being assigned by
the amount that the fair market value of the stock exceeds the exercise price of
the option being assigned.
SELF-EMPLOYMENT TAXES. Self-employment taxes are generally recognized
and payable by the director at the same time ordinary income is recognized.
The foregoing is only a summary of the principal tax consequences to
PNM and the director from the grant of stock options under the Retainer Plan, as
amended.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
26
--------------------------------------------------------------------------------
PROPOSAL 3: APPROVE THE AMENDMENT TO
THE OMNIBUS PERFORMANCE EQUITY PLAN
(PROPOSAL 3 ON YOUR PROXY CARD)
--------------------------------------------------------------------------------
The Manzano Corporation Omnibus Performance Equity Plan ("PEP"), a new
employee stock incentive plan for the new holding company of PNM, was approved
by PNM's shareholders on June 26, 2000. At that time, commitments were made by
PNM to (i) reduce reserved shares from 5 million to 2.5 million, (ii) limit the
grant of restricted stock rights, performance shares and units, and stock
appreciation rights to 500,000 shares out of the total reserved shares, and
(iii) prohibit re-pricing of stock options unless shareholder approval is
obtained. The PEP will take effect upon the effectiveness of the mandatory share
exchange. Recently, the PEP was amended to change the name of the PEP to the
"PNM Resources, Inc. Omnibus Performance Equity Plan," and incorporate the
commitments described above. This amendment also made other changes to the PEP
for which shareholder approval is not required.
At this time, to comply with applicable tax law, the shareholders are
being asked to approve an amendment to the PEP that would place an annual
limitation of 500,000 shares to any one person, on the number of shares that may
be granted to a participant in the PEP. The proposed amendment will facilitate
allowing certain of the compensation payable under the PEP to be eligible for
income tax deduction.
If this proposal is adopted, a new subsection 5.4 will be added to the
PEP as follows:
5.4 ANNUAL LIMITATION ON NUMBER OF SHARES SUBJECT TO
AWARDS. Notwithstanding any provision in the Plan to the
contrary, and subject to adjustment upon the occurrence of any
of the events indicated in Section 5.3, the maximum number of
shares of Stock that may be granted to any one Participant
during any of the Company's fiscal years with respect to one
or more Awards shall be five hundred thousand (500,000).
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
27
--------------------------------------------------------------------------------
PROPOSAL 4: RATIFY AMENDMENTS TO THE ARTICLES OF INCORPORATION
OF PNM RESOURCES, INC.
(PROPOSAL 4 ON YOUR PROXY CARD)
--------------------------------------------------------------------------------
The Board of Directors of PNM is asking shareholders to ratify
amendments to the Articles of Incorporation of its proposed holding company to
conform to a similar change in PNM's bylaws permitted by a recent amendment to
New Mexico law. As discussed below, the proposed amendment would lower the vote
required for shareholder approval of certain specified corporate actions.
BACKGROUND. At the Annual Meeting of Shareholders in 2000, PNM's
shareholders approved an agreement and plan of share exchange under which PNM
will reorganize into a holding company structure. PNM had proposed the holding
company structure in response to a 1999 New Mexico law that required separation
of state-regulated electric and gas distribution and transmission assets and
activities from competitive, deregulated businesses, primarily electric
generation assets and service and other energy services. In 2001, the law was
amended to delay electric utility industry restructuring, including corporate
separation, by an additional five years. The amended law, however, requires the
New Mexico Public Regulation Commission ("PRC") to approve a holding company,
without corporate separation of generation from transmission and distribution,
by July 1, 2001, subject to terms and conditions in the public interest. The
amended law also allows utilities to engage in new, unregulated power generation
business activities until corporate separation is implemented. The law will
provide PNM with significant flexibility to pursue its growth strategy, despite
the delay in restructuring.
PNM has applied to the PRC for authorization to implement the holding
company structure provided for in the amended law. PNM is not able to predict
the outcome of the case and whether or not the holding company proposal will be
approved by the PRC with acceptable conditions. The agreement and plan of share
exchange that was approved by PNM's shareholders in 2000 is the legal document
that will create the holding company structure, subject to receiving regulatory
approvals and meeting certain other conditions. The agreement and plan of share
exchange provides that each share of PNM common stock will be exchanged for one
share of holding company common stock. As a result of the share exchange, you
will own holding company common stock and the holding company will own all of
the outstanding shares of PNM common stock. In connection with the share
exchange, PNM proposes to distribute the outstanding shares of common stock of
its existing subsidiaries, including Avistar, Inc., an unregulated subsidiary of
PNM engaged in providing energy and utility-related services, to the holding
company. You are not being asked to vote again on the agreement and plan of
share exchange.
The holding company's Articles of Incorporation were provided to
shareholders in connection with the 2000 shareholder approval of the agreement
and plan of share exchange. At that time, the proposed holding company was named
"Manzano Corporation." However, in light of intervening events, the Board of
Directors has determined that "PNM Resources, Inc." would be a more appropriate
name for the holding company. The name of the proposed holding company has been
changed by action of the Manzano Corporation and PNM Boards by amending the
proposed holding company's Articles of Incorporation. Retaining "PNM" as part of
the name of the holding company allows continued trading under the "PNM" symbol
and
28
avoids potential investor confusion as PNM moves forward with its pending
transaction with Western Resources, Inc. The proposed holding company is
therefore referred to in this proxy statement as "PNM Resources."
In connection with shareholder approval of the agreement and plan of
share exchange in 2000, PNM committed that not more than 10 million shares of
preferred stock would be issued by the holding company without express approval
of the common shareholders. The Articles of Incorporation for PNM Resources have
therefore been amended to carry out this commitment by reducing the number of
shares of stock authorized from 170 million to 130 million, eliminating 40
million shares of preferred stock originally authorized so that only 10 million
shares of preferred stock remain authorized for PNM Resources.
The foregoing changes in the Articles of Incorporation have been made
under the authority of the respective Boards and are not being submitted to
shareholders for ratification. However, additional changes in the PNM Resources
Articles of Incorporation are being submitted for ratification by the PNM
shareholders.
The Articles of Incorporation for PNM Resources contain supermajority
voting provisions which provide that the affirmative vote of the holders of
two-thirds of its outstanding common shares is required to effect a merger,
consolidation or sale of all or substantially all of its assets, to amend the
provisions of its Articles of Incorporation, and to effect certain exchanges of
stock. These provisions are as follows:
ARTICLE VI
AMENDMENTS
The affirmative vote of the holders of two-thirds of
the outstanding capital stock of the Corporation entitled to
vote shall be required in order to amend, alter, change or
repeal any provisions of these Articles of Incorporation.
ARTICLE IX
SHAREHOLDERS
The affirmative vote of the holders of two-thirds of
the outstanding capital stock of the Corporation entitled to
vote shall be required in order to approve any merger,
consolidation, plan to exchange all the issued or outstanding
shares of one or more classes of stock of this Corporation for
shares of another corporation or sale of all or substantially
all of the Corporation's assets.
The Board of PNM Resources has recommended, and the Board of PNM acting
as sole shareholder of PNM Resources, has approved, subject to PNM shareholder
ratification, amending the Articles of Incorporation of PNM Resources to
eliminate the supermajority voting provisions quoted above.
Effective June 17, 1983, the New Mexico Business Corporation Act
("NMBCA") was amended to lower the voting requirements for certain corporate
actions from a supermajority to a
29
majority for corporations formed on or after that date. These corporate
actions included amendments to articles of incorporation, mergers and
consolidations, voluntary dissolutions, sales of all or substantially all
assets outside the ordinary course of business and mandatory share exchanges.
The amendments reduced the voting requirement from a supermajority of
two-thirds to a simple majority of shares outstanding, in the absence of an
articles provision establishing a supermajority. However, the 1983 amendments
regarding voting majorities did not apply to corporations already existing at
that time in the absence of an articles provision adopting the 1983
amendments lowering the voting requirements. Although PNM does not have such
an articles provision, the supermajority provisions still applied to it
because it was formed prior to 1983.
Pursuant to legislation passed in March 2001, signed into law in April
2001, and effective July 1, 2001, the NMBCA was further amended to allow certain
corporations existing on the effective date of the 1983 amendments (such as PNM)
to make the lower voting requirements of the 1983 amendments applicable by means
of a bylaw provision, which can only be rescinded by an amendment to the
Articles of Incorporation establishing supermajority voting provisions.
Accordingly, the PNM Board amended the PNM bylaws to take advantage of this
revised statute, effective July 1, 2001.
THE PNM RESOURCES ARTICLES OF INCORPORATION AMENDMENTS. At the time of
the submission of the agreement and plan of share exchange to the shareholders
for approval, PNM had drafted the Articles of Incorporation of PNM Resources to
conform to its own circumstances regarding supermajority voting requirements.
However, because PNM Resources was already subject to the lower voting
requirements of the 1983 amendments to the NMBCA, having been incorporated in
2000, the NMBCA required an express articles provision to impose these
requirements. PNM identified these supermajority voting requirements in the PNM
Resources Articles of Incorporation as "anti-takeover" provisions in the proxy
statement for the 2000 meeting, at which the holding company was approved. The
PNM Board has now determined to eliminate these provisions from the PNM
Resources Articles of Incorporation and rely on the simple majority voting
requirements contained in New Mexico law as it has done for PNM. Although
technically requiring only PNM's approval as the sole shareholder of PNM
Resources, the Board has determined that this change should not take effect
unless ratified by the holders of a majority of the shares of PNM represented,
in person or by proxy, at the annual meeting. This proposal is being submitted
to PNM's shareholders under PNM's bylaws which allow the directors to submit any
matter for ratification by the shareholders, even though not otherwise required
to be submitted.
PNM's Board has determined, in accordance with the agreement and plan
of share exchange, that the proposed change would not materially and adversely
affect the rights of PNM's shareholders. The passage of the recent amendment to
the NMBCA making it easier for certain corporations to elect to come under the
more modern voting requirement provisions of the NMBCA signals a clear public
policy in New Mexico against supermajority voting provisions unless shareholders
have clearly expressed their desire for such provisions by express language in
the articles. This policy choice is consistent with the notion that
supermajority voting provisions thwart the will of the majority by providing
veto power to a minority of shareholders. In addition, many shareholder rights
proponents now advocate for the elimination of supermajority requirements as
detrimental to shareholder interests for this same reason.
30
If ratified by shareholders at this annual meeting, the PNM Resources
shareholder vote on the proposed combination with Western Resources, Inc., to be
held at a later shareholder meeting will require a majority vote and not a
supermajority vote as would be required if the Articles of PNM Resources were
not amended to eliminate the supermajority voting provisions.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
--------------------------------------------------------------------------------
PROPOSAL 5: APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL 5 ON YOUR PROXY CARD)
--------------------------------------------------------------------------------
The Audit Committee of the Board of Directors has selected Arthur
Andersen LLP to audit PNM's books of account and other corporate records for
2001. Arthur Andersen has audited PNM's books since 1993, and has advised PNM
that they are independent, within the meaning of the rules and guidelines of the
SEC.
Fees paid to Arthur Andersen LLP by PNM are as follows:
AUDIT FEES. The aggregate fees billed by Arthur Andersen for the year
2000 for audit services rendered were $436,300.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. There
were no fees for financial information system design and implementation in 2000.
ALL OTHER FEES. The aggregate fees billed by Arthur Andersen for the
year 2000 for all services other than those described above were $1,599,000. The
Audit Committee has considered whether the provision of these services is
compatible with maintaining the principal accountant's independence.
A representative of Arthur Andersen LLP will be available at the Annual
Meeting to respond to questions and to make any statement the representative may
desire.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
31
--------------------------------------------------------------------------------
OTHER MATTERS
--------------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act of 1934 requires PNM's executive
officers and directors to file certain reports of ownership and changes in
ownership with the SEC. Based upon a review of reports filed with the SEC and
written representations by persons required to report, all reports required
to be filed pursuant to Section 16(a) of the Exchange Act with respect to
2000 reporting were filed on a timely basis, except Form 3 for the new Board
member Mr. Theodore F. Patlovich and the year-end Form 5 for Mr. John R.
Loyack were filed late.
ANNUAL REPORT AND OTHER MATTERS
PNM's Annual Report, including consolidated financial statements,
was mailed to shareholders beginning on March 30, 2001. COPIES OF PNM'S 2000
ANNUAL REPORT ON FORM 10-K ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST
TO BARBARA BARSKY, SENIOR VICE PRESIDENT, PLANNING AND INVESTOR SERVICES,
ALVARADO SQUARE MS 2806, ALBUQUERQUE, NM 87158, or electronically at
INVESTORRELATIONS@PNM.COM. You may also obtain our SEC filings through the
internet at HTTP://WWW.SEC.GOV.
SHAREHOLDER PROPOSALS FOR THE YEAR 2002 ANNUAL MEETING
Any proposal to be considered for possible inclusion in the proxy
statement for PNM's (or PNM Resources's if the share exchange is completed)
2002 Annual Meeting of Shareholders must be received by PNM (or PNM
Resources), Attention: Secretary, Alvarado Square, Mail Stop 2822,
Albuquerque, NM 87158, on or before January 24, 2002.
A shareholder proposal submitted outside the processes of the SEC's
proxy rules will be considered untimely if: (a) a notice is received by PNM
after April 9, 2002, if the share exchange is not completed, or (b) notice is
received by PNM Resources after February 24, 2002, if the share exchange is
completed. The proxy for the meeting may confer discretionary authority to
vote on a matter for which notice is not received in a timely manner.
SOLICITATION
The enclosed proxy is being solicited on behalf of PNM's Board of
Directors. This solicitation is being made by mail but also may be made in
person, by telephone or other means of electronic communication. We have
hired Innisfree M&A Incorporated to assist in the solicitation, for an
estimated fee of $8,500. PNM will pay all costs related to solicitation.
REVOCABILITY OF PROXY
You may revoke the enclosed proxy by attending the Annual Meeting
and voting your shares in person or by providing a later executed proxy.
By Order of the Board of Directors
/S/ PATRICK ORTIZ
Patrick T. Ortiz
Senior Vice President,
General Counsel and Secretary
32
EXHIBIT A
CHARTER
AUDIT COMMITTEE
Revised 12-11-2000
STATEMENT OF PURPOSE
The Audit Committee (the "Committee") shall be a standing committee
appointed by the Board of Directors consisting of at least three independent
directors, as defined by the New York Stock Exchange Listed Company Manual.
The directors shall be free of any relationships that would interfere with
their exercise of independent judgment. The directors shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements. At least one director shall have accounting
or related financial management expertise. The Committee and its designees
will be granted unlimited accessibility to all PNM records, property, and
employees. The Committee has the authority to initiate and supervise
investigations into any matters within the scope of its duties and
responsibilities through the employment of any resources including outside
counsel, if deemed necessary.
An annual report will be completed for the Board of Directors
regarding the Committee's accomplishments. The Committee will at least
annually review its charter and recommend appropriate changes to the Board of
Directors. The Committee will prepare a report to shareholders as required by
the SEC to be included in PNM's annual proxy statement. The Committee shall
cause its charter to be published at least every three years in accordance
with SEC regulations. The Committee shall meet at least four times a year,
may retain independent consultants, as appropriate, and take such other
actions as may be necessary in its performance of the following duties and
responsibilities:
DUTIES AND RESPONSIBILITIES
A. ASSESS EXTERNAL AUDIT
1. The outside auditors are ultimately accountable to the Board
and the Committee. The Board of Directors and the Committee
have the authority and responsibility to select, evaluate, and
where appropriate, replace the outside auditors. The Committee
shall evaluate the performance of the outside auditors and
annually recommend to the Board of Directors the nomination of
the outside auditors for shareholder approval in the proxy
statement.
2. At least annually, the Committee shall obtain from the outside
auditors a formal written statement delineating all
relationships between the outside auditors and PNM. The
Committee shall discuss with the outside auditors any
relationships or services provided to PNM that may impact the
objectivity and independence of the outside auditors. The
Committee shall recommend to the Board of Directors any
appropriate action to be taken in response to the reports that
may be necessary to satisfy itself of the independence of the
outside auditors.
A-1
3. Discuss the scope, objectives, staffing, reliance upon
management and procedures to be included in the annual audit
with the outside auditors, including the coordination of audit
effort with the internal audit staff.
4. Review with financial management and the outside auditors
PNM's quarterly and annual financial statements prior to
filing. Discuss any significant changes to PNM's accounting
principles and any items required to be communicated in
accordance with Statement of Accounting Standards No. 61. In
particular the Committee shall review and discuss: significant
accounting policies; management judgments and accounting
estimates; significant audit adjustments; disagreements with
management, including accounting principles, scope of audit,
and disclosures; consultation with other accountants by
management; the quality of the accounting principles and
underlying estimates used in the preparation of PNM's
financial statements; the clarity of the financial disclosure
practices used or proposed by PNM; and, the outside auditors'
views about the reasonableness of management's choices of
accounting principles from the perspective of income, asset
and liability recognition, and whether those practices are
common practices or minority practices.
5. Review any restrictions placed on the outside auditors in
performance of their work, and the cooperation received from
Company personnel.
6. Report the results of the outside auditors' examination of
PNM's financial statements to the Board of Directors.
7. Maintain a direct line of communication with the outside
auditors including meeting with them without Company personnel
present whenever deemed appropriate by the Committee or at the
request of the outside auditors.
B. ASSESS THE BUSINESS CONTROL STRUCTURE
Review PNM's business control structure by performing the following:
1. Obtain periodic briefings by senior management regarding
financial performance, business and financial risks, exposures
and other issues, financial reporting issues and changes,
litigation issues, internal controls, laws and regulations,
and including oversight and responsibility for Senior
Executive expense reimbursement. Request briefings from Senior
Management on areas of operational risk that may impact
Company financial health. Review and monitor risk mitigation
and management methods designed to address these risks.
2. Review reports prepared by the internal and external auditors
regarding risks outside the acceptable limits established by
management and the Board. The Committee should consider the
actions taken by management in response to the internal and
external auditors' suggestions.
A-2
3. Review the effectiveness of management's program to assure
compliance with the requirements of laws and regulations and
all associated risks. Ensure Internal Audit is sufficiently
involved in review of Company compliance with laws and
regulations.
C. OVERSEE THE WORK OF THE INTERNAL AUDITORS
1. Review and approve the Audit Services Department plan for
assessing and reviewing business risks and the activities and
mechanisms implemented by management to keep risks within
acceptable limits.
2. Assess whether the Audit Services Department is meeting the
objectives defined by the Committee and senior management to:
o Add value to the overall operation of PNM through
review of work performed, as reflected in the audit
comments issued (operational perspective and
preventative nature of recommendations), and in
survey results from auditees;
o Perform reviews in a proactive manner, evidenced by
scheduled and reported involvement in key business
projects company-wide (new systems in development,
reengineering of significant business processes,
quality initiatives, steering committees, advisory
boards, etc.);
o Evaluate the internal audit process for continual
improvement opportunities and to incorporate best
practices found through research within and outside
the industry, with the objective to better serve
internal and external customers, as evidenced by
periodic presentations by the Director of Audit
Services of new methods and process changes.
3. Perform a formal evaluation of the performance of the Director
of Audit Services at least annually with quarterly feedback
regarding accomplishment of the mission and scope of coverage.
The Committee must concur on the selection of any candidate
for the position of Director of Audit Services.
A-3
[MAP]
[LOGO]
The Annual Meeting of Shareholders of Public Service Company of New Mexico
will be held at the Albuquerque Convention Center, Kiva Auditorium, 401 2nd
St. N.W., Albuquerque, New Mexico, at 9:30 a.m., Mountain Daylight Savings
Time, on July 3, 2001.
(VOTING INSTRUCTIONS ARE ON BACK)
FOLD AND DETACH HERE
--------------------------------------------------------------------------------
A vote FOR the following proposals is recommended by the Board of Directors.
1. Election of Directors (John T. Ackerman, Joyce A. Godwin, and Manuel
Lujan, Jr.)
Mark one: ___ FOR all nominees listed above.
___ FOR all nominees listed above except
_____________________________________
___ WITHHOLD AUTHORITY to vote for all
nominees listed above.
2. Approve amendments to Director Retainer Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Approve an amendment to the PNM Resources, Inc.
(formerly Munzano Corporation) Omnibus Performance Equity Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. Ratify amendments to the Articles of Incorporation of PNM Resources, Inc.
/ / FOR / / AGAINST / / ABSTAIN
5. Approve appointment of Arthur Andersen LLP as independent public
accountants for 2001.
/ / FOR / / AGAINST / / ABSTAIN
6. Conduct other business properly brought up at the meeting.
P ___________________________________ __ __
R Signature | |
O ___________________________________
X Signature
Y Dated: ______________________, 2001 |__ __|
---------------------------------------------
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY
CARD PROMPTLY, USING THE ENCLOSED ENVELOPE
---------------------------------------------
PUBLIC SERVICE COMPANY OF NEW MEXICO
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned does hereby constitute and appoint R.G. Armstrong, T.F.
Patlovich, and P.F. Roth, and each or any one of them, true and lawful
P attorney-in-fact and proxy for the undersigned, with full power of
R substitution, to represent and vote the Common Stock of the undersigned
O at the Annual Meeting of Shareholders of Public Service Company of New
X Mexico to be held at the Albuquerque Convention Center, Kiva Auditorium,
Y 401 2nd St. N.W. Albuquerque, New Mexico at 9:30 a.m., Mountain Daylight
Savings Time, on July 3, 2001 and at any adjournments thereof, on all
matters coming before said meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, AND 5.
Please date and sign exactly as name appears hereon. When signing as
attorney, executor, administrator, trustee, guardian, etc., give full
title. If stock is held jointly, each owner should sign. If stock is
owned by a corporation, please sign full corporate name by a duly
authorized officer. If a partnership, please sign in partnership name by
an authorized person.