SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
PNM Resources, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PNM Resources, Inc.
Alvarado Square [PNM RESOURCES LOGO]
Albuquerque, NM 87158
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, MAY 14, 2002
9:30 A.M., MOUNTAIN DAYLIGHT TIME
SOUTH BROADWAY CULTURAL CENTER
1025 BROADWAY, SE
ALBUQUERQUE, NEW MEXICO
April 10, 2002
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of PNM Resources, Inc. ("PNM Resources"). The meeting will be
held on Tuesday, May 14, 2002, at 9:30 a.m. (Mountain Daylight Time), at the
South Broadway Cultural Center, 1025 Broadway, SE, Albuquerque, New Mexico. A
map to the meeting location is included on the back page of this proxy
statement. At the meeting, shareholders are being asked to:
o vote on election of four directors,
o approve appointment of Arthur Andersen LLP as independent
public accountants for 2002, subject to the authority of the
Board to select a different independent accounting firm at any
time during the year if the Board, in its discretion,
determines that the change is in the best interest of PNM
Resources and its shareholders, and
o conduct other business properly brought up at the meeting.
Holders of PNM Resources common stock of record at the close of
business on March 25, 2002, may vote at the 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. Your
shares may also be voted by telephone or via the Internet. 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 April 10, 2002.
The continuing interest of our shareholders in the business of PNM
Resources is appreciated and we hope you will be able to attend.
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
Introduction, Attendance and Voting Matters..........................................1
Proposal 1: Election of Directors...................................................3
PNM Resources Common Stock Owned by
Executive Officers and Directors.....................................................7
Persons Owning More than Five Percent of
PNM Resources Common Stock...........................................................8
Board Meetings and Committees........................................................9
Performance Graph...................................................................12
Audit and Ethics Committee Report...................................................13
Board Governance and Human Resources Committee
Report on Executive Compensation....................................................15
Executive Compensation..............................................................18
Option Grants and Exercises in 2001.................................................19
Proposal 2: Approval of Independent Public Accountants.............................23
Other Matters.......................................................................24
Exhibit A - Audit and Ethics Committee Charter.....................................A-1
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INTRODUCTION, ATTENDANCE AND VOTING MATTERS
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INTRODUCTION
Upon the completion on December 31, 2001, of a one-for-one share
exchange between Public Service Company of New Mexico ("PNM") and PNM
Resources, Inc. ("PNM Resources"), PNM Resources became the parent company of
PNM. Prior to the share exchange, PNM Resources had existed as a subsidiary
of PNM.
The new holding company, PNM Resources, began trading on the New York
Stock Exchange under the same PNM symbol beginning on December 31, 2001. With
the change in corporate structure, the utility, PNM, became a wholly owned
subsidiary of PNM Resources.
The material presented in this proxy statement refers to both PNM
Resources and PNM. When the information presented is for time periods prior
to 2002, the information generally refers to PNM. For time periods beginning
in 2002, the information generally refers to PNM Resources.
ADMISSION TICKETS
Admission tickets will be distributed at the registration tables in the
lobby of the South Broadway Cultural Center prior to the Annual Meeting.
Attendance is limited to shareholders of record on March 25, 2002. 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;
o you may vote your proxies by telephone, by calling
1-800-732-6583 (toll free) or through the Internet at
HTTP://PROXY.GEORGESON.COM, or by marking, signing, dating and
returning the proxy card in the enclosed postage-prepaid
envelope. To vote by telephone or through the Internet, please
refer to the instructions on the enclosed proxy card
(shareholders voting through the Internet should understand
that there may be costs associated with electronic access,
such as usage charges from Internet access providers and
telephone companies, that must be paid by the shareholder).
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 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 PNM Resources common stock you own entitles you to one
vote. As of March 25, 2002, there were 39,117,799 shares of PNM Resources
common stock outstanding.
1
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 Resources 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 Resources common stock present, in person or by proxy, at
the Annual Meeting are required to elect directors and to approve the
selection of independent public accountants. 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.
SHARES HELD IN STREET NAME
If you do not return your proxy and your shares are held in street
name, your brokerage firm, under certain circumstances, may vote your shares.
Brokerage firms have authority under New York Stock Exchange rules to vote
customers' unvoted shares on some "routine" matters. The New York Stock
Exchange has determined that the two proposals described in this proxy
statement are considered routine matters.
If you do not give a proxy to vote your shares, your brokerage firm
may either vote your shares on routine matters, or leave your shares unvoted.
When a brokerage firm votes its customers' unvoted shares on routine matters,
these shares are counted to determine if a quorum exists to conduct business
at the meeting. A brokerage firm cannot vote customers' unvoted shares on
non-routine matters. We encourage you to provide instructions to your
brokerage firm by giving your proxy. This ensures your shares will be voted
at the meeting.
You may have granted to your stockbroker discretionary voting
authority over your account. Your stockbroker may be able to vote your shares
depending on the terms of the agreement you have with your stockbroker.
SHARES HELD IN THE MASTER EMPLOYEE SAVINGS PLAN AND TRUST
If you are a participant in the Public Service Company of New Mexico
Master Employee Savings Plan and Trust ("MESP") and shares of PNM Resources
have been allocated to your account under the company stock fund investment
option of the MESP, then YOU WILL RECEIVE A SEPARATE VOTE AUTHORIZATION FORM
AND SUPPLEMENTAL MATERIALS ON VOTING INSTRUCTIONS FOR THESE SHARES FROM THE
MESP COMMITTEE.
MATTERS RAISED AT THE MEETING NOT INCLUDED IN THIS PROXY STATEMENT
The Board knows of no other business to be conducted at the Annual
Meeting other than those discussed in this proxy statement. If any other
matter is properly presented, the proxy committee will vote on the matter in
accordance with its judgment. Shareholders attending the meeting will
directly vote on those matters.
2
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PROPOSAL 1: ELECTION OF DIRECTORS
(PROPOSAL 1 ON YOUR PROXY CARD)
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GENERAL INFORMATION
In connection with the formation of the new holding company, the
number of directors of PNM Resources was increased from seven to nine and the
Board was divided into three classes. Each class has a staggered term of
office so that one class of directors will be elected at each annual meeting
for a term of three years. Dr. R. Martin Chavez and Dr. Manuel T. Pacheco
were elected as directors by the PNM Resources Board of Directors on November
16, 2001, to be effective the next business day after the effective date of
the share exchange (January 2, 2002), when the size of the Board was
increased to nine. In accordance with New Mexico law, the terms of Dr. Chavez
and Dr. Pacheco expire at this Annual Meeting because they were elected due
to an increase in number of directors and so they are both nominated for
election at this year's Annual Meeting in addition to the class of directors
with terms expiring this year.
All nine directors of PNM Resources were also members of the PNM
Board of Directors until December 31, 2001, when all but J. E. Sterba
resigned so that the PNM Board could be reorganized consistent with becoming
a wholly owned subsidiary of the holding company.
If a nominee becomes unavailable for election, proxy holders will
vote for another nominee proposed by the Board.
DIRECTORS NOMINATED THIS YEAR
TERMS EXPIRING IN 2005 (CLASS "A" DIRECTORS)
R. MARTIN CHAVEZ, PH.D.
PNM Resources Director since January 2, 2002
PNM Director August-December 2001
Dr. Chavez, 38, is a resident of New York, New York, and is the Chairman
and CEO of Kiodex, Inc., of New York, New York. Dr. Chavez also served as
Vice President and Senior Energy Strategist for Goldman, Sachs & Company, New
York, New York, from 1993 to 1997.
JOYCE A. GODWIN
PNM Resources Director since March 3, 2000
PNM Director 1989-2001
Ms. Godwin, 58, is a resident of Albuquerque, New Mexico, and 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
PAUL F. ROTH
PNM Resources Director since July 5, 2001
PNM Director 1991-2001
Mr. Roth, 69, is a resident of Santa Fe, New Mexico, and 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.
The nomination and election for this term of service will result in
Ms. Godwin and Mr. Roth serving for more than twelve (12) years on the boards
of PNM and PNM Resources. The Board has deemed that, due to the transition to
a holding company structure, the addition of two new directors within the
last year, and to better coordinate an orderly transition to new directors,
it is in the best interest of PNM Resources for these two directors to
continue serving on the Board. In accordance with the Director's Service
Policy approved on February 19, 2002, and referenced in this proxy statement
on page 11, these directors shall submit a written resignation to the Board
for acceptance at such time as the Board, in its discretion, deems advisable.
TERM EXPIRING IN 2003 (CLASS "B" DIRECTOR)
MANUEL T. PACHECO, PH.D.
PNM Resources Director since January 2, 2002
PNM Director November-December 2001
Dr. Pacheco, 60, is a resident of Columbia, Missouri, and is the
President of the University of Missouri System. From 1984 to 1997 Dr. Pacheco
served as President of various universities, including the University of
Arizona and the University of Houston. Dr. Pacheco is being nominated for
election as a Class "B" director of PNM Resources, for a term expiring at the
annual meeting of shareholders in 2003.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THESE NOMINEES.
DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING IN 2003 (CLASS "B" DIRECTORS)
ROBERT G. ARMSTRONG
PNM Resources Director since March 3, 2000
PNM Director 1991-2001
Mr. Armstrong, 55, is a resident of Roswell, New Mexico, and is the
President of Armstrong Energy Corporation, Roswell, New Mexico, an oil and
gas exploration and production company.
4
ROBERT M. PRICE
PNM Resources Director since March 3, 2000
PNM Director 1992-2001
Mr. Price, 71, is a resident of Edina, Minnesota, and 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: Affinity Technology Group, Inc. and Data Link
Corporation.
TERMS EXPIRING IN 2004 (CLASS "C" DIRECTORS)
BENJAMIN F. MONTOYA
PNM Resources Director since March 3, 2000
PNM Director 1993-2001
Mr. Montoya, 66, is a resident of Granite Bay, California, and is CEO
and Director of Smart System Technologies, Inc. He served as President and
Chief Executive Officer of PNM from August 1993 to June 1999; as Chairman,
President and CEO of PNM through March 2000; as Chairman and CEO of PNM from
March 2000 through June 2000; and as Chairman of the Board of PNM 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 Jacobs Engineering.
THEODORE F. PATLOVICH
PNM Resources Director since March 3, 2000
PNM Director 2000-2001
Mr. Patlovich, 74, is a resident of Albuquerque, New Mexico, and 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.
JEFFRY E. STERBA
PNM Resources Director since March 3, 2000
PNM Director since 2000
Mr. Sterba, 46, is a resident of Albuquerque, New Mexico, and is
Chairman, President and Chief Executive Officer of PNM Resources. Mr. Sterba
continues to serve as Chairman, President and Chief Executive Officer of its
wholly owned utility subsidiary, PNM. Mr. Sterba became President of PNM on
March 6, 2000, became President and CEO of PNM on June 6, 2000, and was
5
elected Chairman of the Board of PNM on October 1, 2000. Previously, Mr.
Sterba served as Executive Vice President of USEC, Inc. from January 1999 to
February 2000. 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 previous 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.
DIRECTOR COMPENSATION
Of PNM Resources' current Board members, only Mr. Sterba is a
salaried employee and receives no compensation for serving on the Board.
Board members who are not salaried employees of PNM Resources receive
compensation for Board service, which currently includes:
ANNUAL RETAINER: $25,000 and 5,000 stock options
ATTENDANCE FEES: $ 1,000 per Board meeting
$ 750 for each Board committee meeting
COMMITTEE CHAIRS: $ 300 for each Board committee meeting
(in addition to attendance fees)
Under PNM Resources' Director Retainer Plan, non-employee directors
will receive their annual retainer in the form of cash and stock options as
determined by the Board. The options generally vest (become exercisable) on
the date of the next annual meeting. The exercise price of the option is
equal to the fair market value of the common stock on the date of grant. The
compensation currently provided to non-employee directors of PNM Resources
differs from the compensation previously provided to non-employee directors
of PNM before December 31, 2001.
6
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PNM RESOURCES COMMON STOCK OWNED BY EXECUTIVE OFFICERS AND DIRECTORS
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(AS OF MARCH 15, 2002)
---------------------------------- -----------------------------------------------------------------------------------
Amount and Nature of Shares Beneficially Owned(a)
---------------------------------- ------------------------- ---------------------------- ----------------------------
Name Aggregate No. Right to Acquire Percent of Shares
of Shares Held(b) Within 60 Days(c) Beneficially Owned
---------------------------------- ------------------------- ---------------------------- ----------------------------
Robert G. Armstrong 4,515 9,000 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
R. Martin Chavez 400 0 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
Roger J. Flynn 1,520 47,399 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
Joyce A. Godwin 3,787 9,000 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
Max H. Maerki 2,111 25,666 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
Benjamin F. Montoya 646 120,902 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
Patrick T. Ortiz 3,167 93,671 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
Manuel T. Pacheco 404 0 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
Theodore F. Patlovich 2,000 0 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
Robert M. Price 3,000 4,000 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
William J. Real 3,790 35,765 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
Paul F. Roth 5,378 0 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
Jeffry E. Sterba 3,603 42,906 *
---------------------------------- ------------------------- ---------------------------- ----------------------------
Directors & Executive 38,548 494,945 1.35%
Officers as a Group (18)
---------------------------------- ------------------------- ---------------------------- ----------------------------
(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 March 15, 2002,
and the number of shares that executive officers have a right to acquire
through the Executive Savings Plan upon the participant's death or
termination of employment. As of March 15, 2002, the Executive Savings Plan
share rights consist of 1,240 shares of the 42,906 shares reported for
Jeffry E. Sterba and an additional 146 shares of the 494,945 shares
reported for directors and executive officers as a group.
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*Less than 1% of PNM Resources outstanding shares of common stock.
7
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PERSONS OWNING MORE THAN FIVE PERCENT OF PNM RESOURCES COMMON STOCK
(AS OF MARCH 15, 2002)
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---------------------------------------- ---------------------------- ----------------------------- ------------- ------------
VOTING DISPOSITIVE
AUTHORITY AUTHORITY PERCENT
---------------------------- ----------------------------- TOTAL OF
NAME AND ADDRESS SOLE SHARED SOLE SHARED AMOUNT CLASS
---------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Prudential Financial, Inc.(1)
751 Broad Street 0 2,500,782 0 2,500,782 2,500,782 6.4%
Newark, New Jersey 07102
Jennison Associates LLC
466 Lexington Avenue
New York, New York 10017
---------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Cascade Investment, L.L.C.(2)
2365 Carillon Point 0 2,669,500 0 2,669,500 2,669,500 6.82%
Kirkland, Washington 98033
---------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------
Barclays Global Investors, LTD.(3)
Murray House 2,059,916 0 2,172,416 0 2,172,416 5.55%
1 Royal Mint Court
London, England EC3 NHH
---------------------------------------- -------------- ------------- -------------- -------------- ------------- ------------\
(1) As reported on Schedule 13G dated February 11, 2002, filed with the SEC by
Prudential Financial, Inc. The filing reported that Prudential Financial, Inc.
may be deemed the beneficial owner of securities beneficially owned by certain
direct or indirect subsidiaries, including The Prudential Insurance Company of
America ("Prudential") and Jennison Associates LLC ("Jennison"). On February 1,
2002, Jennison filed a Schedule 13G with the SEC reporting that as a result of
its role as investment advisor to certain managed portfolios, it may be deemed
to be the beneficial owner of shares of PNM Resources held by such managed
portfolios and that Prudential owns 100% of the equity interests of Jennison. As
a result, Prudential may be deemed to have voting and/or dispositive powers over
the shares reported by Jennison. This filing reported that Jennison beneficially
owned 2,505,600 shares with sole voting and dispositive power.
(2) As reported on Schedule 13G/A dated February 14, 2002, filed with the SEC by
Cascade Investment, L.L.C. ("Cascade"). The filing reported that all shares held
by Cascade may be deemed to be beneficially owned by William H. Gates III as the
sole member of Cascade.
(3) As reported on Schedule 13G dated March 11, 2002, filed with the SEC by
Barclays Global Investors, LTD., Barclays Global Investors, N.A. and Barclays
Global Fund Advisors. The filing reported that the shares reported are held in
trust accounts for the economic benefit of the beneficiaries of those accounts.
This filing also reported that Barclays Global Investors, N.A. beneficially
owned 1,745,740 shares with sole voting power and 1,858,240 shares with sole
dispositive power; Barclays Global Fund Advisors beneficially owned 310,226
shares with sole voting and dispositive power; and that Barclays Global
Investors, LTD., beneficially owned 3,950 shares with sole voting and
dispositive power.
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The information provided above is based on reports filed with the SEC.
PNM Resources makes no representation as to the accuracy or completeness of such
information. These are the only persons known to PNM Resources, as of March 15,
2002, to be the beneficial owners of more than 5% of PNM Resources common stock.
8
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BOARD MEETINGS AND COMMITTEES
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MEMBERSHIP ROSTERS
(STANDING BOARD COMMITTEES)
-----------------------------------------------------------------------------------------------------------------------
PNM
-----------------------------------------------------------------------------------------------------------------------
Compensation & Customer & Nominating &
Name Board Audit Human Resources Public Policy Executive Finance Governance
-----------------------------------------------------------------------------------------------------------------------
R. G. Armstrong x x* x x
-----------------------------------------------------------------------------------------------------------------------
R. M. Chavez(1) x x x
-----------------------------------------------------------------------------------------------------------------------
J. A. Godwin x x x* x x*
-----------------------------------------------------------------------------------------------------------------------
B. F. Montoya x x
-----------------------------------------------------------------------------------------------------------------------
M. T. Pacheco(2) x x x
-----------------------------------------------------------------------------------------------------------------------
T. F. Patlovich x x x
-----------------------------------------------------------------------------------------------------------------------
R. M. Price x x x x*
-----------------------------------------------------------------------------------------------------------------------
P. F. Roth x x* x x x
-----------------------------------------------------------------------------------------------------------------------
J. E. Sterba(3) x x* x
-----------------------------------------------------------------------------------------------------------------------
No. of Meetings in 2001 10 4 4 6 0 5 11
-----------------------------------------------------------------------------------------------------------------------
(1) Elected Class "C" Director of PNM effective August 14, 2001, replacing
M. Lujan, Jr. Appointed a member of the Audit and Finance Committees on
November 30, 2001.
(2) Elected Class "C" Director of PNM effective November 30, 2001, replacing
J. T. Ackerman. Appointed a member of the Audit and Customer and Public
Policy Committees on November 30, 2001.
(3) Chairman, President and CEO. A member of the Finance Committee from
January through April 2001. Attended all Committee meetings.
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*Chair
-----------------------------------------------------------------------------------------------------------------------
PNM RESOURCES
-----------------------------------------------------------------------------------------------------------------------
Audit & Board Governance &
Name Board Ethics Human Resources Customer Policy Finance
-----------------------------------------------------------------------------------------------------------------------
R. G. Armstrong x x* x
-----------------------------------------------------------------------------------------------------------------------
R. M. Chavez(1) x x x
-----------------------------------------------------------------------------------------------------------------------
J. A. Godwin x x x*
-----------------------------------------------------------------------------------------------------------------------
B. F. Montoya x x
-----------------------------------------------------------------------------------------------------------------------
M. T. Pacheco(2) x x x
-----------------------------------------------------------------------------------------------------------------------
T. F. Patlovich x x x
-----------------------------------------------------------------------------------------------------------------------
R. M. Price x x x*
-----------------------------------------------------------------------------------------------------------------------
P. F. Roth x x* x
-----------------------------------------------------------------------------------------------------------------------
J. E. Sterba x
-----------------------------------------------------------------------------------------------------------------------
No. of Meetings in 2001(3) 2 0 0 0 0
-----------------------------------------------------------------------------------------------------------------------
(1) Elected Class "A" Director of PNM Resources effective January 2, 2002, for a
term expiring at the Annual Meeting of Shareholders in 2002.
(2 Elected Class "B" Director of PNM Resources effective January 2, 2002, for a
term expiring at the Annual Meeting of Shareholders in 2003, subject, however,
to election by shareholders at the 2002 Annual Meeting.
(3) There were no PNM Resources committee meetings held in 2001. Committee
membership was determined on November 16, 2001.
--------------------------------------------------------------------------------
*Chair
9
In 2001, the PNM Board met ten (10) times and the PNM Resources
Board met twice. In addition, the outside Directors of PNM met once during
2001. Attendance in 2001 at full PNM Board and committee meetings exceeded
96%. The PNM Board and committees were reorganized on December 31, 2001,
consistent with becoming a wholly owned subsidiary of PNM Resources.
Since PNM Resources did not become a publicly held holding company
until December 31, 2001, this proxy statement describes the standing
committees for PNM that met in 2001, as well as the standing committees of
PNM Resources that began functioning after December 31, 2001. On November 16,
2001, PNM Resources established the following four committees: Audit and
Ethics Committee, Board Governance and Human Resources Committee, Customer
Policy Committee, and Finance Committee. Next year's proxy statement will
only provide committee information for PNM Resources. All PNM Resources'
committees consist of non-employee directors.
The AUDIT AND ETHICS COMMITTEE of PNM Resources assumes the function
that PNM's Audit Committee performed in 2001, as well as ethics-related
responsibilities from the former Compensation and Human Resources Committee.
This committee assesses the work of PNM Resources and PNM's internal auditors
and independent public accountants, and the effectiveness of the business
control structure. It also reviews the financial statements of PNM Resources
and PNM and oversees PNM Resources' and PNM's financial reporting. The
committee represents the Board of Directors in accounting and
auditing-related activities of PNM Resources. 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 Resources' management of
accounting functions. The Audit and Ethics Committee has also determined
that, beginning March 31, 2002, the independent auditor of PNM Resources'
books and records will not be eligible to provide consulting services for PNM
Resources without prior approval of the committee. The Audit and Ethics
Committee's charter complies with requirements established by the New York
Stock Exchange and is attached to this proxy statement as Exhibit A.
The BOARD GOVERNANCE AND HUMAN RESOURCES COMMITTEE of PNM Resources
consolidates and assumes the functions previously performed by PNM's
Nominating and Governance Committee and Compensation and Human Resources
Committee. This committee 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 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. The 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 Resources prior to
December 15, 2002, for consideration at the year 2003 Annual Meeting. The
committee also reviews PNM Resources' 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 reviews PNM
Resources' 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 interacts with standing employee
10
organizations. In 2001, the committee's oversight of PNM Resources' Code of
Conduct and Compliance Program was assumed by the Audit and Ethics Committee.
The CUSTOMER POLICY COMMITTEE of PNM Resources assumes the functions
that the PNM Customer and Public Policy Committee performed in 2001. This
committee reviews and monitors policies that deal with PNM Resources'
responsibility to the communities in which the holding company or its
subsidiaries do 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 Resources and PNM. The committee meets with public
officials, the media, and other opinion leaders throughout the year to obtain
an independent assessment of the company's public reputation.
The FINANCE COMMITTEE of PNM Resources assumes the functions that
PNM's Finance Committee performed in 2001. This committee reviews and
recommends to the Board the capital structure and financial strategy for PNM
Resources including dividend policy. This committee has oversight of PNM's
financial performance, investment procedures and policies, pension fund
performance and funding level, capital expenditures, and risk management
strategies and policies.
DIRECTOR'S SERVICE POLICY
On February 19, 2002, the Board of Directors of PNM Resources
adopted a service policy addressing various aspects of board service,
retirement practices, terms of office and inside directors. An equivalent
policy for the PNM Board had been suspended on March 7, 2000, due to the
expected transition to a holding company structure, that occurred on December
31, 2001. The following is a summary of the current policy.
RETIREMENT POLICY. Although there is no age limitation for service
on the Board, under normal circumstances a director will not be nominated to
serve another term after the term during which the director reaches the age
of 72 years. A director who is also an employee of PNM Resources shall, on
the date of his or her leaving PNM Resources, submit a written resignation to
the Board for acceptance at such time as the Board, in its discretion, deems
advisable.
TERM LIMITS. No director shall be eligible for nomination for
another term if election for that term would result in the director serving
for more than twelve (12) years, except: (1) under extraordinary
circumstances involving PNM Resources where the Board in its discretion deems
it to be in the best interest of PNM Resources for the director to continue
serving on the Board for more than twelve (12) years; or (2) the service
beyond twelve (12) years is due to the director having been selected to fill
a vacancy resulting in serving for a portion of an unexpired term. A nominee
for director for a term, which would result in service in excess of twelve
(12) years, shall submit a written resignation to the Board for acceptance at
such time as the Board, in its discretion, deems advisable. Service on the
Board of PNM prior to the establishment of PNM Resources as the holding
company of PNM shall be counted for purposes of determining term limits under
this policy.
CHIEF EXECUTIVE OFFICER. The Chief Executive Officer ("CEO") of PNM
Resources shall be a director and the provisions of this policy regarding age
and term limits shall not apply to the CEO as a director. When the director
no longer holds the position of CEO of PNM Resources: (1) he or she shall
submit a written resignation as a director to the Board for acceptance at
such time as the Board, in its discretion, deems advisable; (2) the
provisions of this policy regarding service as an inside director, age and
term limits shall apply to the director; and, (3) any service on the Board by
the director, including the time served on the Board as CEO, shall be counted
for purposes of determinations under this policy.
11
--------------------------------------------------------------------------------
PERFORMANCE GRAPH
--------------------------------------------------------------------------------
The following graph assumes that $100 was invested on
December 31, 1996, in PNM Common Stock, the S&P Stock Index, and the
Philadelphia Utility Index, and that all dividends were reinvested.
Historical performance does not necessarily predict future results.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG PNM, THE S & P INDEX AND
THE PHILADELPHIA UTILITY INDEX
[graph]
*$100 invested on 12/31/96 in stock or index-including reinvestment of
dividends. Fiscal year ending December 31.
---------------------------------------- ------ --------- ---------- --------- ----------- -----------
FISCAL YEAR ENDED DECEMBER 31, 1996 1997 1998 1999 2000 2001
---------------------------------------- ------ --------- ---------- --------- ----------- -----------
PNM 100 125 111 92 159 171
---------------------------------------- ------ --------- ---------- --------- ----------- -----------
S&P 500 100 133 171 208 189 166
---------------------------------------- ------ --------- ---------- --------- ----------- -----------
*Philadelphia Utility Index 100 128 152 127 191 162
---------------------------------------- ------ --------- ---------- --------- ----------- -----------
*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, PG&E Corporation, Progress Energy, Inc., Public Service
Enterprise Group, Reliant Energy, Inc., Southern Company, and TXU Corporation.
12
--------------------------------------------------------------------------------
AUDIT AND ETHICS COMMITTEE REPORT
--------------------------------------------------------------------------------
Upon formation of the holding company on December 31, 2001, the PNM
Audit Committee became the Audit and Ethics Committee of PNM Resources
("Audit Committee"). A copy of the Audit Committee's charter, adopted on
February 19, 2002, is included as Appendix A. However, the report below is
based on fulfilling the charter responsibilities of the PNM Audit Committee
for 2001.
The Audit Committee Report is included in this proxy statement to
comply with 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 is currently composed of three directors, Robert
G. Armstrong (Chair), R. Martin Chavez, and Manuel T. Pacheco, who are
"independent" under the New York Stock Exchange listing standards. During a
portion of 2001, Manuel Lujan, Jr. and John T. Ackerman, both "independent"
directors, were members of the PNM Audit Committee until they retired and
were replaced by Dr. Chavez and Dr. Pacheco. The Audit Committee operated
under a written charter as revised by the Board of Directors on December 11,
2000. As required by the charter, the Audit Committee reviews and reassesses
the charter annually and recommends any changes to the Board of Directors for
approval. The Audit Committee also recommends to the Board of Directors the
independent accountants to be submitted for election by the shareholders.
Prior to making the recommendation to the Board, the Audit Committee
performed its annual evaluation of the quality and cost of service provided
by Arthur Andersen LLP ("Arthur Andersen") and an assessment of auditor
independence. The Audit Committee reported to the Board and recommended that
Arthur Andersen be selected as independent accountants for 2002. In 1992, the
Board adopted an Independent Accountant Evaluation and Selection Policy
("Policy"). The Policy was adopted because the Board considers it desirable
to periodically change independent accountants in a manner that maintains the
appearance and reality of independence and to obtain new perspectives, but
not so frequently as to be disruptive or hinder the development of company
and operational in-depth knowledge. According to that Policy, each year the
Audit Committee evaluates the quality and cost of services provided by the
independent accountants. A major review is conducted every five years that
includes a Request for Proposal ("RFP") unless extraordinary circumstances
exist. After fifteen years of continued service, PNM Resources will consider
changing independent accountants. The PNM Board undertook major evaluations
of the independent accountants in 1998 and repeated those processes each year
thereafter. The Audit Committee elected not to include an RFP in those major
evaluations. The Audit Committee has determined that, under current
circumstances, an RFP will be issued in 2002 for the audit year 2003 forward.
The Audit Committee has also determined that, beginning March 31, 2002, the
auditor of PNM Resources' books and records will not be eligible to provide
consulting services for PNM Resources without prior approval of the Audit
Committee. In addition, the Audit Committee has authorized that an RFP be
issued for audit year 2002, to identify a replacement for Arthur Andersen,
should the Board determine during the year that a replacement for Arthur
Andersen is in the best interest of PNM Resources and its shareholders.
Management is responsible for PNM Resources' internal controls and
financial reporting process. The independent accountants are responsible for
performing an independent audit of PNM Resources' consolidated financial
statements in accordance with generally accepted auditing
13
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
fairly represent PNM Resources' financial position. 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 by Statement on Auditing Standards
No. 61 (Communication with Audit Committees).
PNM Resources' 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
Committee discussed with the independent accountants that firm's
independence. This discussion and disclosure informed the Committee of Arthur
Andersen LLP's independence as required under Statement on Auditing Standards
No. 61 (Communication with Audit Committees).
Based on the Committee's discussion with management and the
independent accountants and the Audit Committee's review of the
representations of management and the report of the independent accountants
to the Audit Committee, the Audit Committee recommended that the Board of
Directors include the audited consolidated financial statements in PNM
Resources' Annual Report on Form 10-K for the year ended December 31, 2001,
filed with the SEC.
Audit and Ethics Committee
Robert G. Armstrong, Chair
R. Martin Chavez
Manuel T. Pacheco
14
--------------------------------------------------------------------------------
BOARD GOVERNANCE AND HUMAN RESOURCES COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
Upon formation of the holding company on December 31, 2001, the
functions of the PNM Compensation and Human Resources Committee were assumed
by the PNM Resources Board Governance and Human Resources Committee
("Committee"). This report by the Committee includes activities performed by
the PNM Compensation and Human Resources Committee.
COMPENSATION POLICIES
The Committee establishes compensation guidelines and targets based
upon the performance of PNM Resources, its subsidiaries and business units,
and individual executive officers. The Committee consists of four independent
directors who are not PNM Resources employees. The 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 Resources
performance, and
o attracts and retains executives of high caliber and ability.
For 2001, the program consisted of review of base salary, short-term
incentive compensation, and long-term incentive compensation.
The Committee believes the compensation program was a factor
contributing to PNM's success this past year, including earnings per share of
$3.77 and operating revenues of $2.352 billion.
BASE SALARIES
EXECUTIVE OFFICERS. Each year the Committee reviews base salaries of
individual executive officers and their salary ranges. In 2001, 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. 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 (effective March 6, 2000) 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. On October 1, 2000, Mr.
Sterba was elected Chairman of the Board. On February 20, 2001, Mr. Sterba's
salary was increased by $50,000 to $450,000. In setting Mr. Sterba's salary
for 2001, the Committee evaluated competitive utility and general industry
practices for companies with revenues similar to PNM.
15
SHORT-TERM INCENTIVE COMPENSATION
EXECUTIVE OFFICERS AND CHIEF EXECUTIVE OFFICER. In 2001, executive
officers, including Mr. Sterba, participated in an officer incentive plan.
The plan has "at risk" cash compensation elements tied to individual
performance and unit 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 Board of
Directors. Mr. Sterba's 2001 individual performance goals included
measurements related to ensuring business flexibility to implement its
wholesale power trading strategy, the Western Resources transaction,
maintenance of the company's long-term investment rating, and the overall
performance of PNM as measured by the level of goal achievement of each
business segment. Other executive officers were measured on achievement of
their business unit goals for 2001, 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. The 2001 company-wide EPS results were 159% of the
targeted business plan goal, and TSR performance exceeded the Philadelphia
Utility Index by 23.53 percentage points. Other significant achievements
during 2001 include:
o achieved record results in revenues, earnings and cash flow,
o provided 7.2% annual and 171% five-year total return to
shareholders,
o completed formation of the holding company for PNM and its
subsidiaries,
o recognized as "Philanthropic Organization of the Year" by the
Association of Fundraising Professionals,
o implemented officer stock ownership program,
o managed risk successfully in the volatile 2001 electric
commodity markets,
o took steps to provide future resources by licensing generation
construction sites and purchasing combustion turbines, and
o continued improvement in customer satisfaction indicators.
Award payments were made to participants in February 2002.
LONG-TERM INCENTIVE COMPENSATION
EXECUTIVE OFFICERS AND CHIEF EXECUTIVE OFFICER. On December 31,
2000, the Performance Stock Plan ("PSP") expired and was to be replaced by
the new Omnibus Performance Equity Plan ("PEP"). The PEP was approved by
shareholders in 2000 and was to become effective upon formation of the
holding company. Due to regulatory delays, the formation of the holding
company was delayed until December 31, 2001, and stock options were not
granted in 2001. However, an additional grant was awarded in December 2000
under the PSP prior to its expiration to cover this period.
16
The PEP expands the company's flexibility to structure compensation
incentives for officers and employees by rewarding long-term growth and
profitability incentives in the emerging competitive environment. The PEP
allows for non-qualified stock options, incentive stock options, restricted
stock rights, performance shares, performance units and stock appreciation
rights. Stock ownership provides additional incentives for eligible employees
to devote their best efforts to the company's financial success as well as to
perform in the best interest of shareholders, customers, and employees.
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 Resources,
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 Committee pursuant to plans approved by the shareholders. An amendment to
the PEP was approved by shareholders at the 2001 Annual Meeting, which allows
certain compensation payable under the plan to be eligible for favorable tax
treatment. The 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.
Board Governance and Human Resources Committee
Paul F. Roth, Chair
Joyce A. Godwin
Theodore F. Patlovich
Robert M. Price
17
--------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
-------------------------------------------------------------------------------------------------------------------------------
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS
-------------------------------------------------------------------------------------------------------------------------------
OTHER ANNUAL SECURITIES
NAME AND COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (a) OPTIONS (#) COMPENSATION
-------------------------------------------------------------------------------------------------------------------------------
J. E. Sterba 2001 $465,255(e) $472,500(b) --- -0-(j) $ 39,885(g)
Chairman, President 2000 317,114(i) 241,200(f) --- 325,000 127,464(c)
& Chief Executive Officer 1999(d) --- --- --- --- ---
-------------------------------------------------------------------------------------------------------------------------------
R. J. Flynn 2001 $251,352(e) $211,830(b) --- -0-(j) $19,755(g)
Executive Vice President 2000 234,808 182,820(f) --- 65,000 9,691(g)
Electric & Gas Services 1999 193,110 64,400(f) --- 16,000 5,555(g)
-------------------------------------------------------------------------------------------------------------------------------
M. H. Maerki 2001 $230,940(e) $150,000(b) --- -0-(j) $11,745(g)
Senior Vice President 2000 217,393 111,452(f) --- 49,000 6,652(g)
& Chief Financial Officer 1999 188,732 55,200(f) --- 16,000 5,281(g)
-------------------------------------------------------------------------------------------------------------------------------
P. T. Ortiz 2001 $207,100(e) $123,000(b) --- -0-(j) $ 8,681(g)
Senior Vice President, 2000 197,121 78,982(f) --- 47,000 10,651(g)
General Counsel & Secretary 1999 170,670 39,900(f) --- 16,000 3,446(g)
75,000(h)
-------------------------------------------------------------------------------------------------------------------------------
W. J. Real 2001 $242,672(e) $214,900(b) --- -0-(j) $19,106(g)
Executive Vice President Power 2000 219,233 182,820(f) --- 67,000 7,217(g)
Production & Marketing 1999 173,139 45,600(f) --- 16,000 3,752(g)
-------------------------------------------------------------------------------------------------------------------------------
(a) Amounts are less than the established reporting thresholds.
(b) Bonus paid in 2002 for 2001 performance according to the Officer
Incentive Plan. 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.
(c) 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.
(d) Mr. Sterba was not employed by PNM during 1999.
(e) Amounts include sales of accrued vacation hours during 2001, and also
reflect increases in base salaries.
(f) Incentives paid in 2000 and 2001 for prior year achievements under the
Officer Incentive Plan and the broad-based employee annual incentive
program, Results Pay, respectively. In addition, these amounts include
any lump sum bonus granted for individual performance.
(g) Amounts are pursuant to a plan that provides executives with
contribution benefits for earning more than IRS limits imposed for
qualified plans.
(h) Bonus paid in March 2000 for previous performance.
(i) Salary for partial year of service. Mr. Sterba rejoined PNM on
February 28, 2000.
(j) The Public Service Company of New Mexico Performance Stock Plan ("PSP")
expired on December 31, 2000. The 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,
amended on July 3, 2001, and became effective upon the date of the
mandatory share exchange, December 31, 2001. Therefore, no stock option
grants were awarded in 2001.
--------------------------------------------------------------------------------
18
--------------------------------------------------------------------------------
OPTION GRANTS AND EXERCISES IN 2001
--------------------------------------------------------------------------------
The Public Service Company of New Mexico Performance Stock Plan
("PSP") expired on December 31, 2000. The PNM Resources 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, amended
on July 3, 2001, and became effective upon the date of the mandatory share
exchange, December 31, 2001. Therefore, no stock option grants were awarded
in 2001.
------------------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN 2001
AND 2001 YEAR-END OPTION VALUES
-------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2001 DECEMBER 31, 2001(a)
------------------------------------------------------------------------------------------------------------------------------
NAME SHARES ACQUIRED VALUE
ON EXERCISE REALIZED(b) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------------------------------------------------------------------------------------------------------
R. J. Flynn - - 31,399 69,344 $180,948 $616,202
M. H. Maerki 33,223 $306,924 9,666 55,334 $35,160 $480,277
P. T. Ortiz - - 77,671 54,001 $838,092 $475,429
W. J. Real 22,603 $239,821 19,765 70,667 $76,540 $621,051
J. E. Sterba - - 41,666 283,334 $151,560 $2,761,877
------------------------------------------------------------------------------------------------------------------------------
(a) Value equals the year-end stock price ($27.95) 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) 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 PNM 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 2001 to
the Retirement Plan for plan year 2000, 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
19
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 Resources. 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.
--------------------------------------------------------------------------------
PENSION PLAN TABLE
--------------------------------------------------------------------------------
AVERAGE OF
HIGHEST ANNUAL
BASE SALARY CREDITED YEARS OF SERVICE
FOR 3
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 and
Trust and PNM's Executive 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, 2001,
are as follows: Mr. Sterba, 25.097 years; Mr. Flynn, 7.083 years; Mr. Maerki,
28.483 years; Mr. Ortiz, 14.000 years; and Mr. Real, 23.333 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, 2001, the
remuneration used to calculate benefits was as follows: Mr. Sterba, $183,335;
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 PNM Board of
Directors approved a plan to give executives with earnings in excess of the
Code Section 401(a)(17) limitation ($170,000 for 2001) 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. Eighteen officers
were eligible to participate in the Executive Savings Plan in 2001.
20
In January 1981, the PNM 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 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 PNM 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 PNM 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.
The PNM 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 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
21
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 PSP, under which immediate vesting of stock options
occurs upon a change in control, and the PNM Resources, Inc. PEP, 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. The reorganization of PNM into a holding company
structure on December 31, 2001, did not trigger any of the change in control
provisions discussed above.
22
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PROPOSAL 2: APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL 2 ON YOUR PROXY CARD)
--------------------------------------------------------------------------------
The Audit and Ethics Committee ("Committee") has performed its
annual evaluation of the quality and cost of services provided by Arthur
Andersen LLP ("Arthur Andersen") and an assessment of auditor independence.
The Committee reported to the Board complete satisfaction with the services
provided by Arthur Andersen and recommended that Arthur Andersen be selected
as independent public accountants for 2002. The Board agrees with the
Committee's recommendations, as described in the Committee report contained
in this proxy statement, and the Committee will issue a Request for Proposals
("RFP") for outside auditing services for 2003. The Committee has also
authorized the issuance of an RFP for alternative auditing services for 2002,
if the Board determines during the year that a replacement for Arthur
Andersen is in the best interest of PNM Resources and its shareholders. The
Board of Directors is recommending that the shareholders approve the
selection of Arthur Andersen as independent accountants for 2002, subject to
the authority of the Board to select a different independent accounting firm
at any time during the year if the Board, in its discretion, determines that
the change is in the best interest of PNM Resources and its shareholders.
A representative of Arthur Andersen 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.
AUDIT FEES FOR 2001
AUDIT FEES include the consolidated audit, quarterly review of
consolidated financial statements and audits of specific transaction cycles.
Aggregated fees billed by Arthur Andersen for the year 2001 were $458,500.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees for financial information system design and
implementation in 2001.
ALL OTHER FEES
AUDIT-RELATED SERVICE FEES include statutory audit of subsidiaries,
benefit plan audits, acquisition due diligence, accounting consultation,
various attest services under professional standards, assistance with
registration statements, comfort letters, consents and other major
transaction analysis. Aggregated fees billed by Arthur Andersen for the year
2001 were $679,500.
TAX COMPLIANCE AND ADVISORY FEES include the review of the company's
consolidated tax return and tax planning and advisory services. Aggregated
fees billed by Arthur Andersen for the year 2001 were $597,000.
CONSULTING AND OTHER FEES billed by Arthur Andersen for the year
2001 for all services other than those described above were $3,419,000. These
services were largely related to the proposed acquisition of Western
Resources, Inc.
The Committee has considered whether the provision of these services
is compatible with maintaining the principal accountant's independence. The
Committee has also determined that, beginning March 31, 2002, the auditor of
PNM Resources' books and records will not be eligible to provide consulting
services for PNM Resources without prior approval of the Committee.
Total fees paid to Arthur Andersen LLP for the year 2001 aggregated
$5,154,000.
23
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OTHER MATTERS
--------------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
The Securities Exchange Act of 1934 requires 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, all reports
required to be filed pursuant to Section 16(a) of the Exchange Act with
respect to 2001 reporting were filed on a timely basis.
ANNUAL REPORT AND OTHER MATTERS
PNM Resources' Annual Report, including consolidated financial
statements, was mailed to shareholders beginning on April 10, 2002. COPIES OF
THE 2001 ANNUAL REPORT ON FORM 10-K ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN
REQUEST TO BARBARA BARSKY, SENIOR VICE PRESIDENT, COMMUNICATIONS, INVESTOR
SERVICES AND COMMUNITY RELATIONS, ALVARADO SQUARE, MAIL STOP 2806,
ALBUQUERQUE, NM 87158, or electronically at INVESTORRELATIONS@PNM.COM. You
may also obtain our SEC filings through the Internet at HTTP://WWW.PNM.COM or
HTTP://WWW.SEC.GOV.
SHAREHOLDER PROPOSALS FOR THE YEAR 2003 ANNUAL MEETING
If you want us to consider including a proposal in our proxy
statement and form of proxy next year, you must submit the proposal to us in
accordance with applicable rules of the SEC, and your proposal must be
received at our principal executive offices no later than December 11, 2002.
If you intend to present a proposal at next year's annual meeting,
but do not want the proposal to be included in our next year's proxy
statement and form of proxy, then you must submit the proposal to the
Secretary of PNM Resources no later than January 10, 2003, in accordance with
the specific procedural requirements set forth in our bylaws.
Shareholder proposals should be delivered to or mailed and received
by us on or before the above dates addressed to:
Secretary
PNM Resources, Inc.
Alvarado Square, Mail Stop 2822
Albuquerque, NM 87158
If you would like a copy of the procedures for submitting shareholder
proposals contained in our bylaws, please contact:
Assistant Corporate Secretary
PNM Resources, Inc.
Alvarado Square, Mail Stop 2850
Albuquerque, NM 87158
505-241-2205
24
For next year's annual meeting of shareholders, the persons
appointed by the proxy to vote shareholders' shares will vote those shares
according to their best judgment on any shareholder proposal that PNM
Resources receives after January 10, 2003.
SOLICITATION
The enclosed proxy is being solicited on behalf of PNM Resources'
Board of Directors. This solicitation is being made by mail but also may be
made in person, by telephone or via the Internet. We have hired Georgeson
Shareholder to assist in the solicitation, for an estimated fee of $4,000.
PNM Resources 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 T. Ortiz
Patrick T. Ortiz
Senior Vice President,
General Counsel and Secretary
25
EXHIBIT A
CHARTER
PNM RESOURCES, INC.
AUDIT AND ETHICS COMMITTEE
STATEMENT OF PURPOSE
The Audit and Ethics Committee (the "Committee") shall be a standing
committee appointed by the Board of Directors consisting of at least three
outside directors who are free of any relationships that would interfere with
their exercise of independent judgment. The Committee and its designees will
be granted unlimited accessibility to all PNM Resources' 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 periodically review its
charter and recommend appropriate changes to the Board of Directors. The
Committee may retain independent consultants, as appropriate, and take such
other actions as may be necessary to achieve 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 Board and the Committee will follow the
Independent Accountant and Selection Policy approved on July 7, 1992,
regarding the outside auditors. The major provisions of this policy
include:
o The Committee shall annually undertake an evaluation (against
specific criteria defined in the policy) of the quality and
cost of services provided to the company by its selected
independent accountants. This occurs in preparation for the
annual recommendation to the Board as to the nomination of
independent accountants for the following year.
o No later than every five years, absent extraordinary
circumstances, the Committee should undertake a major review
of the services being provided by the independent accountants.
Issuance of Request for Proposals ("RFP") from independent
accountants will be included in this review. This RFP process
will allow the Committee to properly assess the quality and
cost of services being provided.
o After fifteen years of continued service from a particular
independent accounting firm, the company will consider
changing independent accountants.
A-1
2. At least annually, the Committee shall obtain from the outside auditors
a formal written statement delineating all relationships between the
outside auditors and the company. The Committee shall discuss with the
outside auditors any relationships or services provided to the company
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.
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 the company's
quarterly and annual financial statements prior to filing. Discuss any
significant changes to the company'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 the company's financial statements; the clarity of
the financial disclosure practices used or proposed by the company;
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 the
company'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 the company'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.
A-2
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.
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.
4. Review and monitor the company's Code of Conduct and Compliance
Program.
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 the company 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
THIS PAGE WILL CONTAIN A MAP AND DIRECTIONS
TO THE SOUTH BROADWAY CULTURAL CENTER.
[LOGO]
Fellow shareholder,
Your company's Board of Directors cordially invites you to attend the first
annual meeting of shareholders of PNM Resources, Public Service Company of
New Mexico's new holding company. The meeting will be held on Tuesday, May
14, beginning at 9:30 a.m., at the South Broadway Cultural Center in
Albuquerque.
The annual meeting offers an opportunity to become acquainted with me and the
other directors, together with all the members of the PNM Resources executive
team, and to discuss our plans for the future. For shareholders who do not
join us in person, we will be making my presentation available on the PNM.COM
web site on the day of the meeting.
If you are unable to attend this year's meeting, please take a few moments to
read the enclosed proxy statement and cast your vote for the election of
directors and the appointment of our auditor for 2002. This year, in another
first for our company, we are offering shareholders the option to register
their votes by telephone or over the Internet, as well as with the
traditional mail-in ballot.
As you will see in the annual report that accompanies this mailing, 2001 was
an extraordinarily successful year for PNM. In 2002, our challenge is to
build on that success while we continue to safeguard your investment. On
behalf of all the men and women who work for PNM Resources and PNM, I thank
you for your continued confidence in us.
Sincerely,
/s/ Jeffry E.Sterba
Jeffry E.Sterba,
Chairman, President & CEO
The Annual Meeting of Shareholders of PNM Resources, Inc., will be held at
the South Broadway Cultural Center, 1025 Broadway SE, Albuquerque, New
Mexico, at 9:30 a.m., Mountain Daylight Time, on May 14, 2002.
- FOLD AND DETACH HERE -
--------------------------------------------------------------------------------
PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE UNDERSIGNED DOES HEREBY CONSTITUTE AND APPOINT R.G. ARMSTRONG,T.F.
PATLOVICH, AND R.M. PRICE, AND EACH OR ANY ONE OF THEM,TRUE AND LAWFUL
ATTORNEY-IN-FACT AND PROXY FOR THE UNDERSIGNED,WITH FULL POWER OF
SUBSTITUTION,TO REPRESENT AND VOTE THE COMMON STOCK OF THE UNDERSIGNED AT THE
ANNUAL MEETING OF SHAREHOLDERS OF PNM RESOURCES, INC., TO BE HELD AT THE
SOUTH BROADWAY CULTURAL CENTER, 1025 BROADWAY SE, ALBUQUERQUE, NEW MEXICO, AT
9:30 A.M., MOUNTAIN DAYLIGHT TIME, ON MAY 14, 2002 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 AND 2.
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.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
OPTION 1: VOTE OVER THE INTERNET -- AVAILABLE UNTIL 5:00 PM EASTERN TIME ON
MAY 13,2002.
1. Read the accompanying Proxy Statement.
2. Have your 12-digit control number and company number located on your voting
ballot available.
3. Point your browser to http://proxy.georgeson.com.
4. Follow the instructions. You will be given two choices:
o You can simply cast your vote;or
o You can cast your vote and register to receive all future stockholder
communications electronically, instead of in print.
This means that the annual report, proxy, and any other correspondence
will be delivered to you electronically via e-mail. or
OPTION 2: VOTE BY TELEPHONE -- AVAILABLE UNTIL 5:00 PM EASTERN TIME ON
MAY 13,2002.
1. Read the accompanying Proxy Statement.
2. Have your 12-digit control number located on your voting ballot available.
3. Using a touch-tone phone, call, toll-free:1-800-732-6583
4. Follow the recorded instructions. or
OPTION 3: VOTE BY PAPER BALLOT
1. Read the accompanying Proxy Statement.
2. Mark your vote on the enclosed paper ballot and return it in the envelope
provided.
Voting by Internet or telephone is fast, convenient and your vote is
immediately confirmed and tabulated. Using the Internet or the telephone, you
can vote anytime, 24 hours a day. More importantly, by choosing either
option, you help PNM Resources reduce postage and proxy tabulation costs.
Please do not return the enclosed paper ballot if you are voting using the
Internet or telephone.
-------------------- --------------------
COMPANY NUMBER CONTROL NUMBER
-------------------- --------------------
- FOLD AND DETACH HERE -
--------------------------------------------------------------------------------
PLEASE MARK
|X| VOTES AS IN
THIS EXAMPLE.
----------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
DIRECTORS AND "FOR"PROPOSAL 2.
----------------------------------------------------------------------
A vote FOR the following proposals is recommended by the Board of Directors.
1. Election of Directors R. Martin Chavez, Joyce A. Godwin, Paul F. Roth
and Manuel T.Pacheco
Mark one:
FOR WITHHOLD AUTHORITY FOR ALL
ALL NOMINEES TO VOTE FOR ALL NOMINEES LISTED
LISTED ABOVE NOMINEES LISTED ABOVE ABOVE EXCEPT
| | | | | |
2. Approve appointment of Arthur Andersen LLP as independent public
accountants for 2002, subject to the authority of the Board to select a
different independent accounting firm at any time during the year if
the Board, in its discretion, determines that the change is in the best
interest of PNM Resources and its shareholders.
FOR AGAINST ABSTAIN
| | | | | |
3. Conduct other business properly brought up at the meeting.
------------------------------- ----------------
Signature Date
------------------------------- ----------------
Signature (if held jointly) Date
[LOGO]
April 10, 2002
Dear MESP Participant:
In connection with the Annual Meeting of Shareholders of PNM Resources,
Inc.on May 14, 2002, you may direct the voting of shares of PNM Resources
common stock held by the Public Service Company of New Mexico Master Employee
Savings Plan and Trust ("MESP") which are allocated to your account.
The MESP requires the MESP Committee to provide voting instructions to
the Trustee, the Vanguard Group, for all shares held under the plan. Your
voting directions will be received in confidence and tallied by the solicitor
for PNM Resources, Georgeson Shareholder, who will only provide the MESP
Committee with the cumulative results of all of the express directions
received, so that the MESP Committee may instruct the Trustee to vote your
allocated shares in accordance with the express directions received from you.
No individual participant vote information will be provided to the MESP
Committee.
In certain limited circumstances, the MESP Committee may have a
fiduciary obligation to override your voting instructions. Although the MESP
Committee does not anticipate that such circumstances will arise regarding
this vote, if they do, you will be advised.
If no timely express directions are received from you, then the MESP
Committee shall instruct the Trustee to vote the shares allocated to your
account as follows:
o FOR the four nominees for directors of PNM Resources.
o FOR the appointment of Arthur Andersen as independent public
accountants for 2002, subject to the authority of the Board to
select a different independent accounting firm at any time
during the year if the Board, in its discretion, determines
that the change is in the best interest of PNM Resources and
its shareholders.
o IN ACCORDANCE WITH the best judgment of the MESP Committee's
authorized representative, who will attend the meeting, on
such other matters as may properly come before the Annual
Meeting or any adjournment thereof.
We encourage you to direct the voting of the shares allocated to
your MESP account by voting over the Internet or by telephone on or before
May 13, 2002 at 5:00 p.m., Eastern Time or by signing and mailing the vote
authorization form attached below so that it is received prior to the Annual
Meeting. If you vote over the Internet or by telephone, you may change your
express voting directions up until the deadline for voting over the Internet
or by telephone.
Sincerely,
/s/ Ramon M. Gonzales
Ramon M. Gonzales
MESP Committee Chairperson
- FOLD AND DETACH HERE -
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FORM
VOTE AUTHORIZATION FORM
I understand that The Vanguard Group is the holder of record and
custodian of all shares of PNM Resources common stock held by the Public
Service Company of New Mexico Master Employee Savings Plan and Trust ("MESP")
which are allocated to my MESP account. Further, I understand that I have the
right to direct the MESP Committee as to the manner in which the MESP
Committee is to direct The Vanguard Group to vote the shares allocated to my
account and that my voting instructions are solicited on behalf of PNM
Resources'Board of Directors for the Annual Meeting of Shareholders of PNM
Resources to be held on May 14, 2002.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
Instructions for Directing the Voting of MESP Shares Allocable to You:
(PLEASE NOTE THAT THIS FORM IS ONLY FOR VOTING MESP SHARES. YOU MUST USE THE
SEPARATE PROXY CARD PROVIDED TO YOU TO VOTE SHARES HELD DIRECTLY BY YOU.)
MESP Participants may submit their voting directions in one of three ways:
OPTION 1: VOTE OVER THE INTERNET -- AVAILABLE UNTIL 5:00 PM EASTERN TIME ON
MAY 13, 2002.
1. Read the accompanying proxy statement.
2. Have your 12-digit control number and company number shown below available.
3. Point your browser to HTTP://PROXY.GEORGESON.COM.
4. Follow the instructions.
OPTION 2: VOTE BY TELEPHONE-- AVAILABLE UNTIL 5:00 PM EASTERN TIME ON MAY 13,
2002.
or
1. Read the accompanying proxy statement.
2. Have your 12-digit control number shown below available.
3. Using a touch-tone phone, call toll-free 1-800-732-6583.
4. Follow the recorded instructions.
or
OPTION 3: VOTE BY PAPER BALLOT.
1. Read the accompanying proxy statement.
2. Mark, sign and date your vote authorization form and return it in the
envelope provided.
Voting by Internet or telephone is fast, convenient and your vote is
immediately confirmed and tabulated. Using the Internet or the telephone, you
can vote anytime, 24 hours a day. More importantly, by choosing either
option, you help PNM Resources reduce postage and proxy tabulation costs.
Please do not return the enclosed paper vote authorization form if you are
voting using the Internet or telephone.
-------------------- --------------------
COMPANY NUMBER CONTROL NUMBER
-------------------- --------------------
- TO VOTE BY MAIL, PLEASE DETACH THE VOTE AUTHORIZATION FORM HERE -
--------------------------------------------------------------------------------
PLEASE MARK
|X| VOTES AS IN
THIS EXAMPLE.
Accordingly, you are to vote my shares as follows:
1. Election of Directors:
Dr. R.Martin Chavez, Ms. Joyce A. Godwin, Mr. Paul F. Roth, and
Dr. Manuel T. Pacheco
Mark one:
FOR WITHHOLD AUTHORITY FOR ALL
ALL NOMINEES TO VOTE FOR ALL NOMINEES LISTED
LISTED ABOVE NOMINEES LISTED ABOVE ABOVE EXCEPT
| | | | | |
___________________________________________________________________________
2. Approve appointment of Arthur Andersen LLP as independent public accountants
for 2002, subject to the authority of the Board to select a different
independent accounting firm at any time during the year if the Board, in its
discretion, determines that the change is in the best interest of PNM
Resources and its shareholders.
FOR AGAINST ABSTAIN
| | | | | |
3. Conduct other business properly brought up at the meeting.
The MESP Committee is hereby authorized to instruct the MESP Trustee to vote any
shares attributed to me in the MESP Trustee's trust capacity as indicated above.
---------------- ---------------------------------
Date Signature