EXHIBIT 99.03
EL PASO ELECTRIC COMPANY
STOCK OPTION AGREEMENT
El Paso Electric Company, a Texas corporation (the "Company"), hereby
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grants to James S. Haines, Jr. (the "Optionee") as of May 1, 1996 (the "Option
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Date"), pursuant to the provisions of the El Paso Electric Company 1996 Long-
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Term Incentive Plan (the "Plan"), a non-qualified option (the "Non-Qualified
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Option") to purchase from the Company 706,045 shares of its Common Stock, no par
value ("Stock") at the price of $5.3215 per share, and an incentive stock option
(the "Incentive Stock Option") to purchase from the Company 93,955 shares of its
Stock at the price of $5.3215 per share, in each case upon and subject to the
terms and conditions set forth below. The Non-Qualified Option and the
Incentive Stock Option are referred to herein collectively as the "Options."
1. Options Subject to Acceptance of Agreement. The Options shall be null
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and void unless (i) the Optionee shall accept this Agreement by executing it in
the space provided below and returning such original execution copy to the
Company, (ii) the Plan is approved by the affirmative vote of a majority of the
shares of Stock present in person or represented by proxy at the Special Meeting
of Shareholders on November 14, 1996 and (iii) the Plan is approved by all
necessary regulatory authorities.
2. Time and Manner of Exercise of Options.
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2.1. Maximum Term of Option. In no event may the Options be exercised, in
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whole or in part, after April 30, 2006 (the "Expiration Date").
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2.2. Exercise of Options. (a) Except as otherwise provided by Sections
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2.2(b) through 2.2(g) hereof, the Options shall become exercisable (i) on
December 31, 1996 with respect to one-fifth of the number of shares of Stock
subject to each of the Non-Qualified Option and the Incentive Stock Option on
the Option Date, (ii) on December 31, 1997 with respect to an additional one-
fifth of the number of shares of Stock subject to each of the Non-Qualified
Option and the Incentive Stock Option on the Option Date, (iii) on December 31,
1998 with respect to an additional one-fifth of the shares of Stock subject to
each of the Non-Qualified Option and the Incentive Stock Option on the Option
Date, (iv) on December 31, 1999 with respect to an additional one-fifth of the
number of shares of Stock subject to each of the Non-Qualified Option and the
Incentive Stock Option on the Option Date and (v) on December 31, 2000 with
respect to the remaining one-fifth of the shares of Stock subject to each of the
Non-Qualified Option and the Incentive Stock Option on the Option Date.
(b) If there shall occur a "Change in Control" or a "Triggering Event" (in
each case, as such term is defined in the Employment Agreement dated as of April
30, 1996 between the Company and the Optionee (the "Employment Agreement")),
then all unvested Options shall immediately vest and become exercisable in full.
(c) If the Optionee's employment by the Company terminates by reason of
"Total Disability" (as such term is defined in the Employment Agreement) the
Options shall be exercisable only to the extent they are exercisable on the
effective date of the Optionee's termination of employment and may thereafter be
exercised by the Optionee or the Optionee's Legal Representative until and
including the earliest to occur of (i) the date which is 90 days after the
effective date of the Optionee's termination of employment for Incentive Stock
Options and 120 days after such effective date for Non-Qualified Options and
(ii) the Expiration Date.
(d) If the Optionee's employment by the Company terminates by reason of
voluntary retirement, the Options shall be exercisable only to the extent they
are exercisable on the effective date of the Optionee's termination of
employment and may thereafter be exercised by the Optionee or the Optionee's
Legal Representative until and including the earliest to occur of (i) the date
which is 90 days after the effective date of the Optionee's termination of
employment for Incentive Stock Options and 120 days after such effective date
for Non-Qualified Options and (ii) the Expiration Date.
(e) If the Optionee's employment by the Company terminates by reason of
death, the Options shall be exercisable only to the extent they are exercisable
on the date of death and may thereafter be exercised by the Optionee or the
Optionee's Legal Representative or Permitted Transferees, as the case may be,
until and including the earliest to occur of (i) the date which is 90 days after
the date of death for Incentive Stock Options and 120 days after such date of
death for Non-Qualified Options and (ii) the Expiration Date.
(f) If the Optionee's employment by the Company terminates for any reason
other than those described in subparagraphs (c) through (e) above, the Options
shall be exercisable only to the extent they are exercisable on the effective
date of the Optionee's termination of employment and may thereafter be exercised
by the Optionee or the Optionee's Legal Representative until and including the
earliest to occur of (i) the date which is 90 days after the effective date of
the Optionee's termination of employment for Incentive Stock Options and 120
days after such effective date for Non-Qualified Options and (ii) the Expiration
Date.
(g) If the Optionee dies during the period set forth in Sections 2.2(c),
(d) and (f) following termination of employment, the Options shall be
exercisable only to the extent they are exercisable on the date of death and may
thereafter be exercised by the Optionee's Legal Representative or Permitted
Transferees, as the case may be, until and including the earliest to occur of
(i) the date which is 90 days after the date of death for Incentive Stock
Options and 120 days after such date for Non-Qualified Options and (ii) the
Expiration Date.
2.3 Method of Exercise. Subject to the limitations set forth in this
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Agreement, the Options may be exercised by the Optionee (1) by giving written
notice to the Company specifying the Option or Options being exercised, and the
number of whole shares of Stock to be purchased and accompanied by payment
therefor in full (or arrangement made
for such payment to the Company's satisfaction) either (i) in cash, (ii) by
delivery of previously owned whole shares of Stock (which the Optionee has held
for at least six months prior to the delivery of such shares or which the
Optionee purchased on the open market and for which the Optionee has good title,
free and clear of all liens and encumbrances) having a Fair Market Value,
determined as of the date of exercise, equal to the aggregate purchase price
payable pursuant to the Option by reason of such exercise, (iii) in cash by a
broker-dealer acceptable to the Company to whom the Optionee has submitted an
irrevocable notice of exercise or (iv) a combination of (i) and (ii), and (2) by
executing such documents as the Company may reasonably request. The Committee
may disapprove an election pursuant to any of clauses (ii) - (iv) if the
Committee determines, based on the opinion of recognized securities counsel,
that the method of exercise so elected would result in liability to the Optionee
under Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or the regulations promulgated thereunder. Any fraction of a
share of Stock which would be required to pay such purchase price shall be
disregarded and the remaining amount due shall be paid in cash by the Optionee.
No certificate representing a share of Stock shall be delivered until the full
purchase price therefor has been paid.
2.4 Termination of Options. (a) In no event may an Option be exercised
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after it terminates as set forth in this Section 2.4. The Option shall
terminate, to the extent not exercised pursuant to Section 2.3 or earlier
terminated pursuant to Section 2.2, on the Expiration Date.
(b) In the event that rights to purchase all or a portion of the shares of
Stock subject to an Option expire or are exercised, cancelled or forfeited, the
Optionee shall, upon the Company's request, promptly return this Agreement to
the Company for full or partial cancellation, as the case may be. Such
cancellation shall be effective regardless of whether the Optionee returns this
Agreement. If the Optionee continues to have rights to purchase shares of Stock
hereunder, the Company shall, within 10 days of the Optionee's delivery of this
Agreement to the Company, either (i) mark this Agreement to indicate the extent
to which the Option has expired or been exercised, cancelled or forfeited or
(ii) issue to the Optionee a substitute option agreement applicable to such
rights, which agreement shall otherwise be substantially similar to this
Agreement in form and substance.
2.5 Dividend Equivalents. The Company hereby grants to Optionee 706,045
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dividend equivalents (the "Dividend Equivalents"). Each Dividend Equivalent
shall entitle Optionee to receive, at the time of the exercise (in whole or in
part) of any Non-Qualified Option, a cash payment equal to the product of (i)
the aggregate amount of all dividends that have been declared with respect to a
share of Stock in the period after May 1, 1996 but prior to such date of
exercise, and (ii) the number of shares of Stock being purchased by Optionee
pursuant to such full or partial exercise.
3. Additional Terms and Conditions of Options.
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3.1. Nontransferability of Options. The Options may not be transferred by
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the Optionee other than (i) by will or the laws of descent and distribution or
pursuant to beneficiary designation procedures approved by the Company or (ii)
as otherwise permitted under Rule 16b-3 under the Exchange Act as may be set
forth in an amendment to this Agreement. Except to the extent permitted by the
foregoing sentence, during the Optionee's lifetime the Options are exercisable
only by the Optionee or the Optionee's Legal Representative. Except to the
extent permitted by the foregoing, the Options may not be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by
operation of law or otherwise) or be subject to execution, attachment or similar
process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate,
encumber or otherwise dispose of an Option, the Option and all rights hereunder
shall immediately become null and void.
3.2. Investment Representation. The Optionee hereby represents and
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covenants that (a) any share of Stock purchased upon exercise of the Option will
be purchased for investment and not with a view to the distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
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Act"), unless such purchase has been registered under the Securities Act and any
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applicable state securities laws; (b) any subsequent sale of any such shares
shall be made either pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws, or pursuant to an
exemption from registration under the Securities Act and such state securities
laws; and (c) if requested by the Company, the Optionee shall submit a written
statement, in form satisfactory to the Company, to the effect that such
representation (x) is true and correct as of the date of purchase of any shares
hereunder or (y) is true and correct as of the date of any sale of any such
shares, as applicable. As a further condition precedent to any exercise of an
Option, the Optionee shall comply with all regulations and requirements of any
regulatory authority having control of or supervision over the issuance or
delivery of the shares and, in connection therewith, shall execute any documents
which the Board or the Committee shall in its sole discretion deem necessary or
advisable.
3.3. Withholding Taxes. (a) As a condition precedent to the delivery of
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Stock upon exercise of an Option, the Optionee may, upon request by the Company,
pay to the Company in addition to the purchase price of the shares, such amount
of cash as the Company may be required, under all applicable federal, state,
local or other laws or regulations, to withhold and pay over as income or other
withholding taxes (the "Required Tax Payments") with respect to such exercise of
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the Option. If the Optionee shall fail to advance the Required Tax Payments
after request by the Company, the Company may, in its discretion, deduct any
Required Tax Payments from any amount then or thereafter payable by the Company
to the Optionee.
(b) The Optionee may elect to satisfy his or her obligation to advance the
Required Tax Payments by any of the following means: (1) a cash payment to the
Company
pursuant to Section 3.3(a), (2) delivery to the Company of previously owned
whole shares of Stock (which the Optionee has held for at least six months prior
to the delivery of such shares or which the Optionee purchased on the open
market and for which the Optionee has good title, free and clear of all liens
and encumbrances) having a Fair Market Value, determined as of the date the
obligation to withhold or pay taxes first arises in connection with the Option
(the "Tax Date"), equal to the Required Tax Payments, (3) authorizing the
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Company to withhold whole shares of Stock which would otherwise be delivered to
the Optionee upon exercise of the Option having a Fair Market Value, determined
as of the Tax Date, equal to the Required Tax Payments, (4) a cash payment by a
broker-dealer acceptable to the Company to whom the Optionee has submitted an
irrevocable notice of exercise or (5) any combination of (1), (2) and (3). The
Committee may disapprove an election pursuant to any of clauses (2)-(5) if the
Committee determines, based on the opinion of recognized securities counsel,
that the method so elected would result in liability to the Optionee under
Section 16(b) of the Exchange Act or the regulations promulgated thereunder.
Shares of Stock to be delivered or withheld may not have a Fair Market Value in
excess of the minimum amount of the Required Tax Payments. Any fraction of a
share of Stock which would be required to satisfy any such obligation shall be
disregarded and the remaining amount due shall be paid in cash by the Optionee.
No certificate representing a share of Stock shall be delivered until the
Required Tax Payments have been satisfied in full.
3.4 Adjustment. In the event of any stock split, stock dividend,
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recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Stock other than a regular cash
dividend, the number and class of securities subject to the Options and the
purchase price per security shall be appropriately adjusted by the Committee
without an increase in the aggregate purchase price. If any adjustment would
result in a fractional security being subject to the Options, the Company shall
pay the Optionee, in connection with the first exercise of an Option, in whole
or in part, occurring after such adjustment, an amount in cash determined by
multiplying (i) the fraction of such security (rounded to the nearest hundredth)
by (ii) the excess, if any, of (A) the Fair Market Value on the exercise date
over (B) the exercise price of the Option. The decision of the Committee
regarding any such adjustment shall be final, binding and conclusive.
3.5. Compliance with Applicable Law. The Options are subject to the
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condition that if the listing, registration or qualification of the shares
subject to the Option upon any securities exchange or under any law, or the
consent or approval of any governmental body, or the taking of any other action
is necessary or desirable as a condition of, or in connection with, the purchase
or delivery of shares hereunder, the Options may not be exercised, in whole or
in part, unless such listing, registration, qualification, consent or approval
shall have been effected or obtained, free of any conditions not acceptable to
the Company. The Company agrees to use reasonable efforts to effect or obtain
any such listing, registration, qualification, consent or approval.
3.6. Delivery of Certificates. Upon the exercise of an Option, in whole
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or in part, the Company shall deliver or cause to be delivered one or more
certificates representing the number of shares purchased against full payment
therefor. The Company shall pay all original issue or transfer taxes and all
fees and expenses incident to such delivery, except as otherwise provided in
Section 3.3.
3.7. Options Confer No Rights as Stockholder. The Optionee shall not be
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entitled to any privileges of ownership with respect to shares of Stock subject
to an Option unless and until purchased and delivered upon the exercise of an
Option, in whole or in part, and the Optionee becomes a stockholder of record
with respect to such delivered shares; and the Optionee shall not be considered
a stockholder of the Company with respect to any such shares not so purchased
and delivered.
3.8. Options Confer No Rights to Continued Employment. In no event shall
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the granting of the Options or their acceptance by the Optionee give or be
deemed to give the Optionee any right to continued employment by the Company.
3.9. Company to Reserve Shares. The Company shall at all times prior to
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the expiration or termination of the Options reserve and keep available, either
in its treasury or out of its authorized but unissued shares of Stock, the full
number of shares subject to the Options from time to time.
3.10. Agreement Subject to the Plan. This Agreement is subject to the
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provisions of the Plan and shall be interpreted in accordance therewith. The
Optionee hereby acknowledges receipt of a copy of the Plan.
4. Miscellaneous Provisions.
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4.1. Designation as an Incentive Stock Option. The Incentive Stock
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Option is hereby designated as constituting an "incentive stock option" within
meaning of section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Non-Qualified Option is hereby designated as not constituting
an "incentive stock option" within the meaning of Section 422 of the Code; this
Agreement shall be interpreted and treated consistently with such designations.
4.2. Meaning of Certain Terms. As used herein, the term "Legal
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Representative" shall include an executor, administrator, legal representative,
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guardian or similar person and the term "Permitted Transferee" shall include any
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transferee (i) pursuant to a transfer permitted under Section 6.4 of the Plan
and Section 3.1 hereof or (ii) designated pursuant to beneficiary designation
procedures approved by the Company.
4.3. Successors. This Agreement shall be binding upon and inure to
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the benefit of any successor or successors of the Company and any person or
persons who shall,
upon the death of the Optionee, acquire any rights hereunder in accordance with
this Agreement or the Plan.
4.4. Notices. All notices, requests or other communications provided
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for in this Agreement shall be made, if to the Company, to Kayser Building, 100
North Stanton, El Paso, Texas 79901, Attention: Corporate Secretary, and if to
the Optionee, to 720 Wakefield, El Paso, Texas 79922. All notices, requests or
other communications provided for in this Agreement shall be made in writing
either (a) by personal delivery to the party entitled thereto, (b) by facsimile
with confirmation of receipt, (c) by mailing in the United States mails to the
last known address of the party entitled thereto or (d) by express courier
service. The notice, request or other communication shall be deemed to be
received upon personal delivery, upon confirmation of receipt of facsimile
transmission or upon receipt by the party entitled thereto if by United States
mail or express courier service; provided, however, that if a notice, request or
other communication is not received during regular business hours, it shall be
deemed to be received on the next succeeding business day of the Company.
4.5. Governing Law. This Agreement, the Option and all determinations
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made and actions taken pursuant hereto and thereto, to the extent not governed
by the laws of the United States, shall be governed by the laws of the State of
Texas and construed in accordance therewith without giving effect to principles
of conflicts of laws.
4.6. Counterparts. This Agreement may be executed in two counterparts
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each of which shall be deemed an original and both of which together shall
constitute one and the same instrument.
EL PASO ELECTRIC COMPANY
By: /s/ Kenneth R. Heitz
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Name: Kenneth R. Heitz
Title: Director
Accepted this 17th day of
January, 1997.
/s/ James S. Haines, Jr.
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Optionee