UNITED STATES SECURITIES AND EXCHANGE COMMISSION … › ~ › media › Files › P › PNM... · 4100 International Plaza P.O. Box 2943 Fort Worth, Texas 76113 (817) 731 -0099

Indicate by check mark whether PNM Resources, Inc. (“PNMR”) and Public Service Company of New Mexico (“PNM”) (1) have filed all reports required to be filed by Section 13 or 15

(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. YES � NO

Indicate by check mark whether Texas-New Mexico Power Company (“TNMP”) (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES NO � (NOTE: As a voluntary filer, not subject to the filing requirements, TNMP filed all reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q (Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

Commission Name of Registrants, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 001-32462 PNM Resources, Inc. 85-0468296

(A New Mexico Corporation) Alvarado Square Albuquerque, New Mexico 87158 (505) 241-2700

001-06986 Public Service Company of New Mexico 85-0019030 (A New Mexico Corporation) Alvarado Square Albuquerque, New Mexico 87158 (505) 241-2700

002-97230 Texas-New Mexico Power Company 75-0204070 (A Texas Corporation) 4100 International Plaza P.O. Box 2943 Fort Worth, Texas 76113 (817) 731-0099

Indicate by check mark whether PNMR is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).

Indicate by check mark whether each of PNM and TNMP is a large accelerated filer, accelerated filer, or non-accelerated filer (as defined in Rule 12b-2 of the Act).

Indicate by check mark whether any of the registrants is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO �

As of October 30, 2008, 86,474,236 shares of common stock, no par value per share, of PNMR were outstanding.

The total number of shares of common stock of PNM outstanding as of October 30, 2008 was 39,117,799 all held by PNMR (and none held by non-affiliates).

The total number of shares of common stock of TNMP outstanding as of October 30, 2008 was 6,358 all held indirectly by PNMR (and none held by non-affiliates).

PNM AND TNMP MEET THE CONDITIONS SET FORTH IN GENER AL INSTRUCTIONS (H) (1) (a) AND (b) OF FORM 10-Q AND ARE THEREFORE FILING THIS

FORM WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION (H) (2).

This combined Form 10-Q is separately filed by PNMR, PNM and TNMP. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other registrants. When this Form 10-Q is incorporated by reference into any filing with the SEC made by PNMR, PNM or TNMP, as a registrant, the portions of this Form 10-Q that relate to each other registrant are not incorporated by reference therein.

Large accelerated filer � Accelerated filer Non-accelerated filer

Large accelerated filer Accelerated filer Non-accelerated filer �

2

PNM RESOURCES, INC. AND SUBSIDIARIES

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARI ES TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

INDEX Page No. GLOSSARY 4 PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) PNM RESOURCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) 6 CONDENSED CONSOLIDATED BALANCE SHEETS 7 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 9 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS’ EQUITY 11 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 12

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARI ES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) 13 CONDENSED CONSOLIDATED BALANCE SHEETS 14 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 16 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY 18 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 19

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) 20 CONDENSED CONSOLIDATED BALANCE SHEETS 21 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 23 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER’S EQUITY 25 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 26

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S 27 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 66 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 86 ITEM 4. CONTROLS AND PROCEDURES 95

PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 96 ITEM 1A. RISK FACTORS 96 ITEM 6. EXHIBITS 97

SIGNATURE 98

3

GLOSSARY

Definitions: Afton Afton Generating Station AG New Mexico Attorney General ALJ Administrative Law Judge Altura Altura Power L.P. APS Arizona Public Service Company BART Best Available Retrofit Technology Board Board of Directors of PNMR BTU British Thermal Unit CAIR EPA’s Clean Air Interstate Rule Cal PX California Power Exchange Cal ISO California Independent System Operator Cascade Cascade Investment, L.L.C. Continental Continental Energy Systems, LLC CRHC Cap Rock Holding Corporation, a subsidiary of Continental CTC Competition Transition Charge Decatherm Million BTUs Delta Delta-Person Limited Partnership EaR Earnings at Risk ECJV ECJV Holdings, LLC EEI Edison Electric Institute EIP Eastern Interconnection Project EITF Emerging Issues Task Force EnergyCo EnergyCo, LLC, a limited liability corporation, owned 50% by each of PNMR and ECJV EPA United States Environmental Protection Agency EPE El Paso Electric ERCOT Electric Reliability Council of Texas ESPP Employee Stock Purchase Plan

FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission FIN FASB Interpretation Number FIP Federal Implementation Plan FSP FASB Staff Position First Choice First Choice Power, L. P. and Subsidiaries Four Corners Four Corners Power Plant FPPAC Fuel and Purchased Power Adjustment Clause GAAP Generally Accepted Accounting Principles in the United States of America GWh Gigawatt hours IBEW International Brotherhood of Electrical Workers, Local 611 ISO Independent System Operator LBB Lehman Brothers Bank, FSB, a subsidiary of LBH LBCS Lehman Brothers Commodity Services, a subsidiary of LBH LBH Lehman Brothers Holdings Inc. LIBOR London Interbank Offered Rate Lordsburg Lordsburg Generating Station Luna Luna Energy Facility MD&A Management’s Discussion and Analysis of Financial Condition and Results of Operations Moody’s Moody’s Investor Services, Inc. MW Megawatt Navajo Acts Navajo Nation Air Pollution Prevention and Control Act, the Navajo Nation Safe Drinking Water Act, and the Navajo Nation

Pesticide Act

NDT Nuclear Decommissioning Trusts for PVNGS Ninth Circuit United States Court of Appeals for the Ninth Circuit NMGC New Mexico Gas Company, Inc., a subsidiary of Continental NMED New Mexico Environment Department NMPRC New Mexico Public Regulation Commission NOPR Notice of Proposed Rulemaking NOX Nitrogen Oxides NOI Notice of Inquiry NRC United States Nuclear Regulatory Commission NSPS New Source Performance Standards NSR New Source Review OATT Open Access Transmission Tariff

4

O&M Operations and Maintenance PGAC Purchased Gas Adjustment Clause PG&E Pacific Gas and Electric Co. PNM Public Service Company of New Mexico and Subsidiaries PNM Facility PNM’s $400 Million Unsecured Revolving Credit Facility PNMR PNM Resources, Inc. and Subsidiaries PNMR Facility PNMR’s $600 Million Unsecured Revolving Credit Facility PPA Power Purchase Agreement PRP Potential Responsible Party PSD Prevention of Significant Deterioration PUCT Public Utility Commission of Texas PVNGS Palo Verde Nuclear Generating Station Pyramid Tri-State Pyramid Unit 4 REC Renewable Energy Certificates REP Retail Electricity Provider Reimbursement Agreement PNM’s $100 Million Letter of Credit Facility RMC Risk Management Committee SCE Southern Cal Edison Company SDG&E San Diego Gas and Electric Company

SEC United States Securities and Exchange Commission SFAS FASB Statement of Financial Accounting Standards

SJCC San Juan Coal Company SJGS San Juan Generating Station SOAH State Office of Administrative Hearings SO 2 Sulfur Dioxide

SPS Southwestern Public Service Company SRP Salt River Project S&P Standard and Poors Ratings Services TECA Texas Electric Choice Act Term Loan Agreement PNM’s $300 Million Unsecured Delayed Draw Term Loan Facility TNMP Texas-New Mexico Power Company and Subsidiaries TNMP Bridge Facility TNMP’s $100 Million Bridge Term Loan Credit Agreement TNMP Facility TNMP’s $200 Million Unsecured Revolving Credit Facility TNP TNP Enterprises, Inc. and Subsidiaries Tri-State Tri-State Generation and Transmission Association, Inc. Twin Oaks Assets of Twin Oaks Power, L.P. and Twin Oaks Power III, L.P. Valencia Valencia Energy Facility VaR Value at Risk Accounting Pronouncements (as amended and interpreted) : EITF 02-3 EITF Issue No. 02-3 “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved

in Energy Trading and Risk Management Activities” FIN 46R FIN 46R “ Consolidation of Variable Interest Entities an Interpretation of ARB No. 51 ” FSP FAS 157-3 FASB Staff Position No. FAS 157-3 “Determining the Fair Value of a Financial Asset when the Market for that Asset is not

Active” FSP FIN 39-1 FASB Staff Position No. FIN 39-1 – “ Amendment of FASB Interpretation No. 39” SFAS 5 SFAS No. 5 “ Accounting for Contingencies ” SFAS 57 SFAS No. 57 “ Related Party Disclosures ” SFAS 112 SFAS No. 112 “ Employers’ Accounting for Postemployment Benefits – an amendment of FASB Statements No. 5 and 43 ” SFAS 115 SFAS No. 115 “ Accounting for Certain Investments in Debt and Equity Securities” SFAS 128 SFAS No. 128 “ Earnings per Share ” SFAS 133 SFAS No. 133 “ Accounting for Derivative Instruments and Hedging Activities ” SFAS 141 SFAS No. 141 “ Business Combinations ” SFAS 142 SFAS No. 142 “ Goodwill and Other Intangible Assets” SFAS 144 SFAS No. 144 “ Accounting for the Impairment or Disposal of Long-Lived Assets” SFAS 157 SFAS No. 157 “ Fair Value Measurements” SFAS 159 SFAS No. 159 “ The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB

Statement No. 115 ” SFAS 161 SFAS No. 161 “ Disclosure about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133 ” SFAS 162 SFAS No. 162 “ The Hierarchy of Generally Accepted Accounting Principles”

5

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS

PNM RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)

The accompanying notes, as they relate to PNMR, are an integral part of these financial statements.

Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 (In thousands, except per share amounts) Operating Revenues:

Electric $ 607,023 $ 569,575 $ 1,551,668 $ 1,511,814 Other 53 334 221 708 Total operating revenues 607,076 569,909 1,551,889 1,512,522

Operating Expenses:

Cost of energy 393,623 375,006 1,026,702 903,283 Administrative and general 60,999 56,507 167,753 165,434 Energy production costs 46,471 57,223 143,231 156,279 Impairment of goodwill and other intangible assets 7,906 - 144,085 - Regulatory disallowances - - 30,248 - Depreciation and amortization 36,752 31,441 105,438 100,504 Transmission and distribution costs 14,981 14,347 43,467 43,955 Taxes other than income taxes 12,680 12,153 39,032 45,484 Total operating expenses 573,412 546,677 1,699,956 1,414,939 Operating income (loss) 33,664 23,232 (148,067 ) 97,583

Other Income and Deductions:

Interest income 7,248 10,144 17,190 27,519 Gains (losses) on investments held by NDT (5,697 ) 3,897 (10,079 ) 6,898 Other income 2,834 1,574 4,950 5,294 Equity in net earnings (loss) of EnergyCo (1,485 ) 10,556 (29,091 ) 12,166 Minority interest in earnings of Valencia (3,451 ) - (4,452 ) - Other deductions (1,785 ) (2,037 ) (8,866 ) (8,517 ) Net other income and deductions (2,336 ) 24,134 (30,348 ) 43,360

Interest Charges:

Interest on long-term debt 29,518 21,298 72,622 58,197 Other interest charges 9,634 10,088 26,384 35,084 Total interest charges 39,152 31,386 99,006 93,281

Earnings (Loss) before Income Taxes (7,824 ) 15,980 (277,421 ) 47,662 Income Taxes (Benefit) (3,109 ) 4,212 (55,587 ) (1,340 ) Preferred Stock Dividend Requirements of Subsidiary 132 132 396 396 Earnings (Loss) from Continuing Operations (4,847 ) 11,636 (222,230 ) 48,606 Earnings (Loss) from Discontinued Operations, net of Income

Taxes (Benefit) of $820, $(2,139), $16,299 and $6,337 (638 ) (3,264 ) 24,622 9,671 Net Earnings (Loss) $ (5,485 ) $ 8,372 $ (197,608 ) $ 58,277

Earnings (Loss) from Continuing Operations per Common Share:

Basic $ (0.06 ) $ 0.15 $ (2.72 ) $ 0.63 Diluted $ (0.06 ) $ 0.15 $ (2.72 ) $ 0.62

Net Earnings (Loss) per Common Share: Basic $ (0.06 ) $ 0.11 $ (2.42 ) $ 0.76 Diluted $ (0.06 ) $ 0.11 $ (2.42 ) $ 0.75

Dividends Declared per Common Share $ 0.125 $ 0.230 $ 0.480 $ 0.690

6

PNM RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


September 30, December 31, 2008 2007 (In thousands)

ASSETS Current Assets:

Cash and cash equivalents $ 267,116 $ 17,763 Special deposits 3,275 1,717 Accounts receivable, net of allowance for uncollectible accounts of $11,671 and $6,021 172,700 134,325 Unbilled revenues 79,527 74,896 Other receivables 61,488 90,002 Materials, supplies, and fuel stock 45,822 41,312 Regulatory assets 1,932 157 Derivative instruments 84,406 49,257 Income taxes receivable 46,803 39,189 Current assets of discontinued operations 73,454 120,061 Other current assets 82,566 37,198

Total current assets 919,089 605,877

Other Property and Investments:

Investment in PVNGS lessor notes 169,071 192,226 Equity investment in EnergyCo 227,740 248,094 Investments held by NDT 120,424 139,642 Other investments 35,972 47,749 Non-utility property, net of accumulated depreciation of $2,228 and $1,570 9,490 6,968

Total other property and investments 562,697 634,679

Utility Plant:

Electric plant in service 4,246,815 3,920,071 Common plant in service and plant held for future use 146,182 128,119

4,392,997 4,048,190 Less accumulated depreciation and amortization 1,523,871 1,464,625

2,869,126 2,583,565 Construction work in progress 202,200 299,574 Nuclear fuel, net of accumulated amortization of $18,669 and $15,395 61,068 52,246

Net utility plant 3,132,394 2,935,385

Deferred Charges and Other Assets:

Regulatory assets 435,722 481,872 Pension asset 24,059 17,778 Goodwill 360,607 495,664 Other intangible assets, net of accumulated amortization of $4,344 and $3,362 65,882 75,892 Derivative instruments 23,331 45,694 Non-current assets of discontinued operations 552,510 526,539 Other deferred charges 89,363 52,756

Total deferred charges and other assets 1,551,474 1,696,195

$ 6,165,654 $ 5,872,136

7


CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


September 30, December 31, 2008 2007 (In thousands, except share information)

LIABILITIES AND STOCKHOLDERS ’ EQUITY Current Liabilities:

Short-term debt $ 778,667 $ 665,900 Current installments of long-term debt 205,561 449,219 Accounts payable 210,540 148,955 Accrued interest and taxes 67,489 57,766 Derivative instruments 88,174 53,832 Current liabilities of discontinued operations 45,982 96,003 Other current liabilities 127,053 112,394

Total current liabilities 1,523,466 1,584,069

Long-term Debt 1,481,011 1,231,859 Deferred Credits and Other Liabilities:

Accumulated deferred income taxes 592,893 600,187 Accumulated deferred investment tax credits 24,582 26,825 Regulatory liabilities 339,468 332,372 Asset retirement obligations 62,218 66,466 Accrued pension liability and postretirement benefit cost 56,561 60,022 Derivative instruments 6,609 55,206 Minority interest in Valencia 95,949 - Non-current liabilities of discontinued operations 90,077 89,848 Other deferred credits 156,479 121,342

Total deferred credits and other liabilities 1,424,836 1,352,268

Total liabilities 4,429,313 4,168,196

Commitments and Contingencies (See Note 9) Cumulative Preferred Stock of Subsidiary

without mandatory redemption requirements ($100 stated value, 10,000,000 shares authorized: issued and outstanding 115,293 shares) 11,529 11,529

Common Stockholders’ Equity:

Common stock outstanding (no par value, 120,000,000 shares authorized: issued and outstanding 86,454,111 and 76,814,491 shares) 1,287,555 1,042,974 Accumulated other comprehensive income, net of income taxes 25,514 11,208 Retained earnings 411,743 638,229

Total common stockholders’ equity 1,724,812 1,692,411

$ 6,165,654 $ 5,872,136

8


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


Nine Months Ended September 30, 2008 2007 (In thousands)

Cash Flows From Operating Activities: Net earnings (loss) $ (197,608 ) $ 58,277 Adjustments to reconcile net earnings (loss) to net cash flows from operating activities: Depreciation and amortization 116,797 141,220 Amortization of prepayments on PVNGS firm-sales contracts (10,313 ) - Deferred income tax expense (benefit) (26,056 ) 4,769 Equity in net (earnings) loss of EnergyCo 29,091 (12,166 ) Minority interest in earnings of Valencia 4,452 - Net unrealized losses on derivatives 14,222 15,618 Realized (gains) losses on investments held by NDT 10,079 (6,898 ) Realized loss on Altura contribution - 3,637 Impairment of goodwill and other intangible assets 144,085 3,380 Impairment loss on utility plant - 19,500 Amortization of fair value of acquired Twin Oaks sales contract - (35,073 ) Stock based compensation expense 2,810 6,115 Regulatory disallowances 30,248 - Other, net 1,168 (4,991 ) Changes in certain assets and liabilities:

Accounts receivable and unbilled revenues 1,695 1,528 Materials, supplies, fuel stock, and natural gas stored (9,486 ) (3,972 ) Other current assets (31,300 ) 19,129 Other assets (29,440 ) (821 ) Accounts payable 1,624 (40,340 ) Accrued interest and taxes 2,016 (8,520 ) Other current liabilities 10,750 (8,331 ) Other liabilities (783 ) (25,085 ) Net cash flows from operating activities 64,051 126,976

Cash Flows From Investing Activities:

Utility plant additions (235,672 ) (336,597 ) Proceeds from sales of investments held by NDT 105,055 99,525 Purchases of investments held by NDT (106,437 ) (104,455 ) Proceeds from sales of utility plant 1,390 25,041 Return of principal on PVNGS lessor notes 22,164 24,296 Change in restricted special deposits 6,581 (10,203 ) Investments in EnergyCo - (45,040 ) Distributions from EnergyCo - 362,275 Other, net (2,985 ) 4,443

Net cash flows from investing activities (209,904 ) 19,285

9




Nine Months Ended September 30, 2008 2007 (In thousands) Cash Flows From Financing Activities:

Short-term borrowings (repayments), net 112,767 (115,661 ) Long-term borrowings 452,750 20,000 Redemption of long-term debt (448,935 ) (100,500 ) Issuance of common stock 250,231 3,309 Proceeds from stock option exercise 86 10,935 Purchase of common stock to satisfy stock awards (1,355 ) (18,078 ) Excess tax benefits (tax shortfall) from stock-based payment arrangements (618 ) 9 Dividends paid (46,558 ) (52,545 ) Payments received on PVNGS firm-sales contracts 80,858 - Other, net (4,022 ) (410 )

Net cash flows from financing activities 395,204 (252,941 ) Change in Cash and Cash Equivalents 249,351 (106,680 ) Cash and Cash Equivalents at Beginning of Period 17,791 123,419 Cash and Cash Equivalents at End of Period $ 267,142 $ 16,739

Supplemental Cash Flow Disclosures:

Interest paid, net of capitalized interest $ 91,715 $ 90,799

Income taxes paid (refunded), net $ (1,702 ) $ 2,904

Supplemental schedule of noncash investing and financing activities: As of June 1, 2007, PNMR contributed its ownership of Altura to EnergyCo at a fair value of $549.6 million after an adjustment for working capital changes. In conjunction with the contribution, PNMR removed Altura’s assets and liabilities from its balance sheet as follows: Current assets $ 22,529 Utility plant, net 575,906 Deferred charges 46,018 Total assets contributed 644,453 Current liabilities 63,268 Deferred credits and other liabilities 38,095 Total liabilities contributed 101,363 Other comprehensive income (12,651 ) Total liabilities and OCI contributed 88,712

Net contribution to EnergyCo $ 555,741

Utility plant purchased in 2007 through assumption of long-term debt that offsets a portion of investment in PVNGS lessor notes and is eliminated in consolidation. $ 41,152

Activities related to the consolidation of Valencia (see Note 16):

Initial consolidation at May 30, 2008: Utility plant additions $ 87,310 Increase in short-term borrowings $ 82,468

Minority interest transactions as of July 10, 2008:

Reduction in short-term borrowings $ 88,059 Increase in minority interest in Valencia $ 90,148

10


CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COM MON STOCKHOLDERS’ EQUITY (Unaudited)


Accumulated Common Stock Other Total Common Number of Aggregate Comprehensive Retained Stockholders’ Shares Value Income Earnings Equity (Dollars in thousands) Balance at December 31, 2007 76,814,491 $ 1,042,974 $ 11,208 $ 638,229 $ 1,692,411 Adoption of SFAS 157 - - - 10,422 10,422 Exercise of stock options - (1,241 ) - - (1,241 ) Tax shortfall from stock-based compensation arrangements - (618 ) - - (618 ) Stock based compensation expense - 2,810 - - 2,810 Sale of common stock 9,568,786 242,856 - - 242,856 Common stock issued to ESPP 70,834 774 - - 774 Net earnings (loss) - - - (197,608 ) (197,608 ) Total other comprehensive income - - 14,306 - 14,306 Dividends declared on common stock - - - (39,300 ) (39,300 ) Balance at September 30, 2008 86,454,111 $ 1,287,555 $ 25,514 $ 411,743 $ 1,724,812

11


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)


Three Months Ended September 30, Nine Months Ended September 30, 2008 2007 2008 2007 (In thousands) Net Earnings (Loss) $ (5,485 ) $ 8,372 $ (197,608 ) $ 58,277 Other Comprehensive Income (Loss): Unrealized Gain (Loss) on Investment Securities :

Unrealized holding gains (losses) arising during the period, net of income tax (expense) benefit of $1,196, $(1,549), $1,608, and $(4,070) (1,825 ) 2,364 (2,454 ) 6,210 Reclassification adjustment for (gains) included in net earnings (loss), net of income tax expense of $1,051, $2,401, $2,777, and $2,493 (1,603 ) (3,664 ) (4,237 ) (3,804 )

Fair Value Adjustment for Designated Cash Flow Hedges:

Change in fair market value, net of income tax (expense) benefit of $(34,281), $(4,887), $(13,423), and $6,079 51,583 7,414 21,153 (9,333 ) Reclassification adjustment for (gains) losses included in net earnings (loss), net of income tax expense (benefit) of $(1,986) $482, $(583), and $(653) 1,946 (638 ) (156 ) 1,093

Total Other Comprehensive Income (Loss) 50,101 5,476 14,306 (5,834 ) Comprehensive Income (Loss) $ 44,616 $ 13,848 $ (183,302 ) $ 52,443

12

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARI ES

A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)

The accompanying notes, as they relate to PNM, are an integral part of these financial statements.

Three Months Ended September 30, Nine Months Ended September 30, 2008 2007 2008 2007 (In thousands) Electric Operating Revenues $ 356,397 $ 360,455 $ 995,119 $ 901,137 Operating Expenses:

Cost of energy 194,478 229,248 577,762 517,767 Administrative and general 27,900 34,138 86,134 94,767 Energy production costs 48,808 59,558 150,365 142,693 Impairment of goodwill - - 51,143 - Regulatory disallowances - - 30,248 - Depreciation and amortization 21,666 20,731 63,532 62,215 Transmission and distribution costs 9,743 9,877 28,247 29,609 Taxes other than income taxes 6,417 6,602 20,522 21,016 Total operating expenses 309,012 360,154 1,007,953 868,067 Operating income (loss) 47,385 301 (12,834 ) 33,070


Interest income 7,227 10,477 18,197 25,375 Gains (losses) on investments held by NDT (5,697 ) 3,897 (10,079 ) 6,898 Other income 912 1,081 2,068 3,101 Minority interest in earnings of Valencia (3,451 ) - (4,452 ) - Other deductions (587 ) (852 ) (4,018 ) (3,331 ) Net other income and deductions (1,596 ) 14,603 1,716 32,043

Interest Charges:

Interest on long-term debt 17,628 9,536 42,924 28,084 Other interest charges 2,687 3,485 9,117 10,824 Total interest charges 20,315 13,021 52,041 38,908

Earnings (Loss) before Income Taxes 25,474 1,883 (63,159 ) 26,205 Income Taxes (Benefit) 9,540 377 (5,108 ) 9,565 Earnings (Loss) from Continuing Operations 15,934 1,506 (58,051 ) 16,640 Earnings (Loss) from Discontinued Operations, net of Income

Taxes (Benefit) of $820, $(2,139), $16,299 and $6,337 (638 ) (3,264 ) 24,622 9,671 Net Earnings (Loss) 15,296 (1,758 ) (33,429 ) 26,311 Preferred Stock Dividends Requirements 132 132 396 396 Net Earnings (Loss) Available for Common Stock $ 15,164 $ (1,890 ) $ (33,825 ) $ 25,915

13


A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)




Cash and cash equivalents $ 96,208 $ 4,303 Special deposits 3,225 1,397 Accounts receivable, net of allowance for uncollectible accounts of $1,368 and $729 87,211 78,094 Unbilled revenues 35,316 32,039 Other receivables 54,585 79,842 Affiliate accounts receivable 70 271 Materials, supplies, and fuel stock 44,280 39,771 Regulatory assets 1,932 157 Derivative instruments 26,329 14,859 Current assets of discontinued operations 73,454 120,061 Other current assets 49,799 28,926



Investment in PVNGS lessor notes 201,053 231,582 Investments held by NDT 120,424 139,642 Other investments 12,054 20,733 Non-utility property 976 976


Utility Plant:

Electric plant in service 3,362,285 3,055,953 Common plant in service and plant held for future use 17,400 18,237

3,379,685 3,074,190 Less accumulated depreciation and amortization 1,189,800 1,157,775

2,189,885 1,916,415 Construction work in progress 164,139 259,386 Nuclear fuel, net of accumulated amortization of $18,669 and $15,395 61,068 52,246

Net utility plant 2,415,092 2,228,047


Regulatory assets 310,989 348,719 Pension asset 7,236 2,859 Derivative instruments 15,943 37,359 Goodwill 51,632 102,775 Non-current assets of discontinued operations 552,510 526,539 Other deferred charges 71,250 64,449

Total deferred charges and other assets 1,009,560 1,082,700

$ 4,231,568 $ 4,103,400

14


A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



LIABILITIES AND STOCKHOLDER’S EQUITY Current Liabilities:

Short-term debt $ 340,000 $ 321,000 Current installments of long-term debt 36,000 299,969 Accounts payable 112,932 72,864 Affiliate accounts payable 13,606 19,948 Accrued interest and taxes 56,760 26,385 Derivative instruments 13,794 17,896 Current liability of discontinued operations 45,982 96,003 Other current liabilities 71,392 59,468

Total current liabilities 690,466 913,533

Long-term Debt 1,019,713 705,701 Deferred Credits and Other Liabilities:

Accumulated deferred income taxes 421,311 409,430 Accumulated deferred investment tax credits 24,534 26,634 Regulatory liabilities 291,067 285,782 Asset retirement obligations 61,437 65,725 Accrued pension liability and postretirement benefit cost 52,796 56,101 Derivative instruments 15 47,597 Minority interest in Valencia 95,949 - Non-current liabilities of discontinued operations 90,077 89,848 Other deferred credits 131,129 98,295

Total deferred credits and liabilities 1,168,315 1,079,412

Total liabilities 2,878,494 2,698,646

Commitments and Contingencies (See Note 9) Cumulative Preferred Stock

without mandatory redemption requirements ($100 stated value, 10,000,000 authorized: issued and outstanding 115,293 shares) 11,529 11,529

Common Stockholder’s Equity:

Common stock outstanding (no par value, 40,000,000 shares authorized: issued and outstanding 39,117,799 shares) 932,523 932,523 Accumulated other comprehensive income, net of income tax 19,303 7,580 Retained earnings 389,719 453,122

Total common stockholder’s equity 1,341,545 1,393,225

$ 4,231,568 $ 4,103,400

15


A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Nine Months Ended September 30, 2008 2007 (In thousands) Cash Flows From Operating Activities: Net earnings (loss) $ (33,429 ) $ 26,311

Adjustments to reconcile net earnings (loss) to net cash flows from operating activities: Depreciation and amortization 75,803 100,224 Amortization of prepayments on PVNGS firm-sales contracts (10,313 ) - Deferred income tax expense (4,732 ) (14,695 ) Minority interest in earnings of Valencia 4,452 - Net unrealized (gains) losses on derivatives 5,955 14,943 Realized (gains) losses on investments held by NDT 10,079 (6,898 ) Impairment of utility plant - 19,500 Regulatory disallowances 30,248 - Impairment of goodwill 51,143 - Other, net (1,445 ) (3,515 ) Changes in certain assets and liabilities:

Accounts receivable and unbilled revenues 37,318 58,893 Materials, supplies, fuel stock, and natural gas stored (9,486 ) (3,761 ) Other current assets (1,531 ) 26,241 Other assets (1,783 ) (1,263 ) Accounts payable (18,401 ) (44,666 ) Accrued interest and taxes 30,738 29,575 Other current liabilities (15,536 ) (18,228 ) Other liabilities (2,238 ) (22,312 ) Net cash flows from operating activities 146,842 160,349

Cash Flows From Investing Activities:

Utility plant additions (200,983 ) (260,250 ) Proceeds from sales of NDT investments 105,055 99,525 Purchases of NDT investments (106,437 ) (104,455 ) Proceeds from sales of utility plant 837 25,041 Return of principal on PVNGS lessor notes 25,735 24,296 Change in restricted special deposits 6,581 (10,203 ) Other, net (284 ) 1,653

Net cash flows from investing activities (169,496 ) (224,393 )

16


A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Nine Months Ended September 30, 2008 2007 (In thousands) Cash Flows From Financing Activities:

Short-term borrowings (repayments), net 19,000 35,310 Long-term borrowings 350,000 20,000 Redemption of long-term debt (300,000 ) - Payments received on PVNGS firm-sales contracts 80,858 - Dividends paid (40,396 ) (396 ) Other, net 5,095 (41 )

Net cash flows from financing activities 114,557 54,873 Change in Cash and Cash Equivalents 91,903 (9,171 ) Cash and Cash Equivalents at Beginning of Period 4,331 11,886 Cash and Cash Equivalents at End of Period $ 96,234 $ 2,715

Supplemental Cash Flow Disclosures:

Interest paid, net of capitalized interest $ 49,354 $ 49,839

Income taxes paid (refunded), net $ (1,855 ) $ -

Supplemental schedule of noncash investing and financing activities: As of January 1, 2007, TNMP transferred its New Mexico operational assets and liabilities to PNMR through a redemption of TNMP’s common stock. PNMR contemporaneously contributed the TNMP New Mexico operational assets and liabilities to PNM.

Current assets $ 15,444 Other property and investments 10 Utility plant, net 96,468 Goodwill 102,775 Deferred charges 1,377 Total assets transferred from TNMP 216,074

Current liabilities 17,313 Long-term debt 1,065 Deferred credits and other liabilities 30,673 Total liabilities transferred from TNMP 49,051

Net assets transferred – increase in common stockholder’s equity $ 167,023

Activities related to the consolidation of Valencia (see Note 16):

Initial consolidation at May 30, 2008: Utility plant additions $ 87,310 Increase in short-term borrowings $ 82,468

Minority interest transactions as of July 10, 2008:

Reduction in short-term borrowings $ 88,059 Increase in minority interest in Valencia $ 90,148

17


A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COM MON STOCKHOLDER’S EQUITY

(Unaudited)


Accumulated Common Stock Other Total Common Number of Aggregate Comprehensive Retained Stockholder’s Shares Value Income Earnings Equity (Dollars in thousands) Balance at December 31, 2007 39,117,799 $ 932,523 $ 7,580 $ 453,122 $ 1,393,225 Adoption of SFAS 157 - - - 10,422 10,422 Net earnings (loss) - - - (33,429 ) (33,429 ) Total other comprehensive income - - 11,723 - 11,723 Dividends on preferred stock - - - (396 ) (396 ) Dividends on common stock - - - (40,000 ) (40,000 ) Balance at September 30, 2008 39,117,799 $ 932,523 $ 19,303 $ 389,719 $ 1,341,545

18


A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


Three Months Ended September 30, Nine Months Ended September 30, 2008 2007 2008 2007 (In thousands) Net Earnings (Loss) Available for Common Stock $ 15,164 $ (1,890 ) $ (33,825 ) $ 25,915 Other Comprehensive Income (Loss): Unrealized Gain (Loss) on Investment Securities :

Unrealized holding gains (losses) arising during the period, net of income tax (expense) benefit of $1,196, $(1,549), $1,608 and $(4,070) (1,825 ) 2,364 (2,454 ) 6,210 Reclassification adjustment for (gains) included in net earnings (loss), net of income tax expense of $1,051, $2,401, $2,777 and $2,493 (1,603 ) (3,664 ) (4,237 ) (3,804 )

Fair Value Adjustment for Designated Cash Flow Hedges:

Change in fair market value, net of income tax (expense) benefit of $(18,619), $(903), $(9,485) and $(1,886) 28,411 1,378 14,474 2,877 Reclassification adjustment for (gains) losses included in net earnings (loss), net of income tax expense (benefit) of $(2,956), $826, $(2,582) and $(300) 4,511 (1,261 ) 3,940 458

Total Other Comprehensive Income (Loss) 29,494 (1,183 ) 11,723 5,741 Comprehensive Income (Loss) $ 44,658 $ (3,073 ) $ (22,102 ) $ 31,656

19

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (Unaudited)

The accompanying notes, as they relate to TNMP, are an integral part of these financial statements.

Three Months Ended September 30, Nine Months Ended September 30, 2008 2007 2008 2007 (In thousands) Electric Operating Revenues $ 51,097 $ 52,680 $ 140,442 $ 137,144 Operating Expenses:

Cost of energy 8,423 7,544 24,170 21,936 Administrative and general 7,000 6,024 20,643 22,288 Impairment of goodwill - - 34,456 - Depreciation and amortization 9,901 7,082 27,037 21,123 Transmission and distribution costs 5,235 4,465 15,208 14,332 Taxes, other than income taxes 5,032 6,503 14,402 16,741 Total operating expenses 35,591 31,618 135,916 96,420 Operating income 15,506 21,062 4,526 40,724


Interest income 20 25 25 888 Other income 1,726 397 2,746 1,444 Other deductions (18 ) (25 ) (46 ) (99 ) Net other income and deductions 1,728 397 2,725 2,233

Interest Charges:

Interest on long-term debt 2,623 4,890 9,832 17,475 Other interest charges 1,608 878 3,752 2,242 Net interest charges 4,231 5,768 13,584 19,717

Earnings (Loss) Before Income Taxes 13,003 15,691 (6,333 ) 23,240 Income Taxes 4,910 5,463 10,597 7,840 Net Earnings (Loss) $ 8,093 $ 10,228 $ (16,930 ) $ 15,400

20






Cash and cash equivalents $ 9,017 $ 187 Special deposits 50 50 Accounts receivable, net of allowance for uncollectible accounts of $96 and $0 12,803 8,789 Unbilled revenues 4,166 4,392 Other receivables 2,529 1,063 Affiliate accounts receivable 7,004 8,005 Materials and supplies 1,541 1,425 Income taxes receivable - 881 Other current assets 1,275 501



Other investments 554 554 Non-utility property 2,111 2,111


Utility Plant:

Electric plant in service 801,767 781,355 Common plant in service and plant held for future use 488 488

802,255 781,843 Less accumulated depreciation and amortization 288,163 274,128

514,092 507,715 Construction work in progress 30,740 22,493

Net utility plant 544,832 530,208


Regulatory assets 124,733 133,154 Goodwill 226,665 261,121 Pension asset 16,822 14,919 Other deferred charges 30,447 5,432

Total deferred charges and other assets 398,667 414,626

$ 984,549 $ 972,792

21





LIABILITIES AND STOCKHOLDER’S EQUITY Current Liabilities:

Short-term debt $ 150,000 $ - Short-term debt – affiliate - 3,404 Current installments of long-term debt 167,670 148,882 Accounts payable 27,675 5,666 Affiliate accounts payable 3,755 3,456 Accrued interest and taxes 42,081 35,204 Other current liabilities 5,390 1,785

Total current liabilities 396,571 198,397

Long-term Debt - 167,609 Deferred Credits and Other Liabilities:

Accumulated deferred income taxes 116,032 120,274 Accumulated deferred investment tax credits 48 191 Regulatory liabilities 48,401 46,590 Asset retirement obligations 697 662 Accrued pension liability and postretirement benefit cost 3,766 3,922 Other deferred credits 2,516 1,699

Total deferred credits and other liabilities 171,460 173,338

Total liabilities 568,031 539,344

Commitments and Contingencies (See Note 9) Common Stockholder’s Equity:

Common stock outstanding ($10 par value, 12,000,000 shares authorized: issued and outstanding 6,358 shares) 64 64 Paid-in-capital 427,320 427,320 Accumulated other comprehensive income, net of income tax 823 823 Retained earnings (deficit) (11,689 ) 5,241

Total common stockholder’s equity 416,518 433,448

$ 984,549 $ 972,792

22





Cash Flows From Operating Activities: Net earnings (loss) $ (16,930 ) $ 15,400 Adjustments to reconcile net earnings (loss) to net cash flows from operating activities: Depreciation and amortization 29,866 23,768 Impairment of goodwill 34,456 - Deferred income tax expense (benefit) (4,386 ) (3,253 ) Other, net (1,941 ) (2,238 ) Changes in certain assets and liabilities:

Accounts receivable and unbilled revenues (3,884 ) (11,932 ) Materials and supplies (117 ) (283 ) Other current assets (1,412 ) (191 )

Other assets (25,689 ) 588 Accounts payable 22,010 (5,679 ) Accrued interest and taxes 7,838 7,554 Other current liabilities 4,905 (18,512 ) Other liabilities 465 (123 ) Net cash flows from operating activities 45,181 5,099

Cash Flows From Investing Activities -

Utility plant additions (33,073 ) (26,837 )

23





Cash Flow From Financing Activities: Short-term borrowings 150,000 - Short-term borrowings (repayments), net – affiliate (3,404 ) 18,500 Redemption of long-term debt (148,935 ) (100,500 ) Equity contribution by parent - 101,249 Other, net (939 ) 1

Net cash flows from financing activities (3,278 ) 19,250

Change in Cash and Cash Equivalents 8,830 (2,488 ) Cash and Cash Equivalents at Beginning of Period 187 2,542 Cash and Cash Equivalents at End of Period $ 9,017 $ 54

Supplemental Cash Flow Disclosures: Interest paid, net of capitalized interest $ 16,724 $ 19,693

Income taxes paid (refunded), net $ (858 ) $ -

Supplemental schedule of noncash investing and financing activities: As of January 1, 2007, TNMP transferred its New Mexico operational assets and liabilities to PNMR through a redemption of TNMP’s common stock. PNMR contemporaneously contributed the TNMP New Mexico operational assets and liabilities to PNM.

Current assets $ 15,444 Other property and investments 10 Utility plant, net 96,468 Goodwill 102,775 Deferred charges 1,377

Total assets transferred to PNM 216,074

Current liabilities 17,313 Long-term debt 1,065 Deferred credits and other liabilities 30,673

Total liabilities transferred to PNM 49,051

Net assets transferred – common stock redeemed $ 167,023

24


CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COM MON STOCKHOLDER’S EQUITY (Unaudited)


Accumulated Total Common Stock Other Common Number of Aggregate Paid-in Comprehensive Retained Stockholder’s Shares Value Capital Income Earnings (Deficit) Equity (Dollars in thousands) Balance at December 31, 2007 6,358 $ 64 $ 427,320 $ 823 $ 5,241 $ 433,448 Net earnings (loss) - - - - (16,930 ) (16,930 ) Balance at September 30, 2008 6,358 $ 64 $ 427,320 $ 823 $ (11,689 ) $ 416,518

25


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)


Three Months Ended September 30, Nine Months Ended September 30, 2008 2007 2008 2007 (In thousands) Net Earnings (Loss) and Comprehensive Income (Loss) $ 8,093 $ 10,228 $ (16,930 ) $ 15,400

26

Financial Statement Preparation

In the opinion of management, the accompanying unaudited interim Condensed Consolidated Financial Statements reflect all normal and recurring accruals and adjustments that are necessary to present fairly the consolidated financial position at September 30, 2008 and December 31, 2007, the consolidated results of operations and comprehensive income for the three months and nine months ended September 30, 2008 and 2007 and the consolidated cash flows for the nine months ended September 30, 2008 and 2007. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could ultimately differ from those estimated. The results of operations presented in the accompanying Condensed Consolidated Financial Statements are not necessarily representative of operations for an entire year.

These Condensed Consolidated Financial Statements are unaudited, and certain information and note disclosures normally included in the annual Consolidated Financial Statements have been condensed or omitted, as permitted under the applicable rules and regulations. Readers of these financial statements should refer to PNMR’s, PNM’s and TNMP’s audited Consolidated Financial Statements and Notes thereto that are included in their respective 2007 Annual Reports on Form 10-K. Principles of Consolidation

The Condensed Consolidated Financial Statements of each of PNMR, PNM, and TNMP include their accounts and those of subsidiaries in which that entity owns a majority voting interest. PNMR’s primary subsidiaries are PNM, TNMP, First Choice and, through May 31, 2007, Altura. PNM consolidates the PVNGS Capital Trust and Valencia. See Note 16. PNMR shared services’ administrative and general expenses, which represent costs that are primarily driven by corporate level activities, are allocated to the business units. Other significant intercompany transactions between PNMR, PNM, and TNMP include transmission and distribution services, lease payments, dividends paid on common stock, and interest paid by PVNGS Capital Trust to PNM. All intercompany transactions and balances have been eliminated. See Note 12. Presentation

The Notes to the Condensed Consolidated Financial Statements include disclosures for PNMR, PNM, and TNMP. For discussion purposes, this report will use the term “Company”when discussing matters of common applicability to PNMR, PNM and TNMP. Discussions regarding only PNMR, PNM or TNMP will be indicated as such. Certain amounts in the 2007 Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 2008 financial statement presentation. Dividends on Common Stock

Dividends on PNMR’s common stock are declared by its Board. The timing of the declaration of dividends is dependent on the timing of meetings and other actions of the Board. This has historically resulted in dividends considered to be attributable to the second quarter of each year being declared through actions of the Board during the third quarter of the year. The Board declared dividends on common stock considered to be for the second quarter of $0.23 per share in July 2007 and $0.125 per share in August 2008, which are reflected as being in the second quarter within “Dividends Declared per Common Share” on the PNMR Condensed Consolidated Statements of Earnings (Loss). The Board declared dividends on common stock considered to be for the third quarter of $0.23 per share in September 2007 and $0.125 per share in September 2008, which are reflected as being in the third quarter within “Dividends Declared per Common Share.” In September 2008, PNM paid a dividend to PNMR amounting to $40.0 million.



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S

(Unaudited)

(1) Significant Accounting Policies and Responsibility for Financial Statements

27

PNM Gas Sale; Termination of Cap Rock Acquisition

On January 12, 2008, PNM reached a definitive agreement to sell its natural gas operations, which comprise the PNM Gas segment, to NMGC, a subsidiary of Continental, for $620 million in cash. In a separate transaction conditioned upon the sale of the natural gas operations, PNMR proposed to acquire CRHC, Continental’s regulated Texas electric transmission and distribution business, for $202.5 million in cash. On July 22, 2008, PNMR and Continental agreed to terminate the agreement for the acquisition of CRHC. The termination agreement provides that Continental will pay PNMR $15.0 million, but only upon the closing of the PNM Gas transaction. PNMR expects to use the proceeds from the sale of PNM Gas to retire debt, fund future electric capital expenditures and for other corporate purposes.

The agreement for the sale of PNM Gas contains a number of customary representations and warranties and indemnification provisions as well as closing conditions, including regulatory and third party approvals. The parties may terminate the agreement under certain circumstances and may be obligated to pay a termination fee in connection therewith. The sale of the natural gas operations is subject to, among other conditions, receiving approval from the NMPRC. On June 13, 2008, PNMR received notice of early termination of the waiting period required under the Hart-Scott-Rodino antitrust rules. Notification of early termination is considered antitrust clearance of the transaction. The Company filed testimony with the NMPRC in March 2008 for approvals required for the sale of its gas utility operations and for transition services to be provided to NMGC. On August 20, 2008, the NMPRC staff, the AG, the IBEW, PNM and NMGC filed a stipulation indicating the filing parties have agreed to a resolution of the issues in the proceeding. A hearing took place before the NMPRC in September 2008. A schedule has been established, but the NMPRC has not announced any decisions. Pending all approvals, a closing date for the sale of PNM Gas is expected late in 2008 or early in 2009.

There are no material relationships between the PNMR and Continental parties other than in respect of the transactions described herein. See Note 14 for financial information concerning PNM Gas, which is classified as discontinued operations in the accompanying financial statements. Twin Oaks Acquisition and Disposition

On April 18, 2006, PNMR’s wholly owned subsidiary, Altura, purchased the Twin Oaks business, which included the 305 MW coal-fired Twin Oaks power plant located 150 miles south of Dallas, Texas. Effective June 1, 2007, PNMR contributed Altura, including the Twin Oaks business, to EnergyCo. See Note 11. The results of Twin Oaks operations have been included in the Consolidated Financial Statements of PNMR from April 18, 2006 through May 31, 2007. Beginning June 1, 2007, the Twin Oaks operations are included in EnergyCo, which is accounted for by PNMR using the equity method.

As part of the acquisition of Twin Oaks, PNMR determined the fair value of two contractual obligations to sell power. The first contract obligated Altura to sell power through September 2007 at which time the second contract began and extends for three years. PNMR concluded that the contracts were below market and recorded the contracts at fair value to be amortized as an increase in operating revenue over the contract periods. During the nine months ended September 30, 2007, PNMR amortized $35.0 million for the first contract and nothing for the second contract.

The following segment presentation is based on the methodology that management uses for making operating decisions and assessing performance of its various business activities. A

reconciliation of the segment presentation to the GAAP financial statements is provided.

PNM RESOURCES, INC. AND SUBSIDIARIES PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARI ES

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S (Unaudited)

(2) Acquisitions and Dispositions

(3) Segment Information

28

Effective as of December 31, 2007, management changed the methodology it uses to operate and assess the business activities of the Company as described in the 2007 Annual Reports on Form 10-K. The prior period segment information presented below has been recast to be consistent with the new methodology. PNM Electric

PNM Electric includes the retail electric utility operations of PNM that are subject to traditional rate regulation by the NMPRC. PNM Electric provides integrated electricity services that include the generation, transmission and distribution of electricity for retail electric customers in New Mexico as well as the sale of transmission to third parties. PNM Electric includes the generation and sale of electricity into the wholesale market. This includes optimization of PNM’s jurisdictional assets as well as the capacity of its generating plants excluded from retail rates. Although the FERC has jurisdiction over the wholesale rates, they are not subject to traditional rate of return regulation. PNM Electric also includes the purchase power contract with Valencia, which is a variable interest entity and is consolidated by PNM. See Note 16. TNMP Electric

TNMP Electric is a regulated utility operating in Texas. TNMP’s operations are subject to traditional rate of return regulation. TNMP provides regulated transmission and distribution services in Texas under the TECA. PNM Gas

PNM Gas distributes natural gas to most of the major communities in New Mexico and is subject to traditional rate regulation by the NMPRC. The customer base of PNM Gas includes both sales-service customers and transportation-service customers. PNM Gas purchases natural gas in the open market and resells it at cost to its sales-service customers. As a result, increases or decreases in gas revenues resulting from gas price fluctuations do not impact gross margin or earnings. As described in Note 2, PNM entered into an agreement to sell its gas operations on January 12, 2008. PNM Gas is reported as discontinued operations in the accompanying financial statements and is not included in the segment information presented below. Financial information regarding PNM Gas is presented in Note 14. Altura

The Altura segment includes the results of Twin Oaks from the date of its acquisition by PNMR on April 18, 2006 until its contribution to EnergyCo as of June 1, 2007. See Note 2 and Note 11. First Choice

First Choice is a certified retail electric provider operating in Texas, which allows it to provide electricity to residential, small and large commercial, industrial and institutional customers. Although First Choice is regulated in certain respects by the PUCT, it is not subject to traditional rate of return regulation. First Choice has also entered into speculative trading transactions in order to attempt to take advantage of market opportunities. As explained in Note 4, First Choice has closed out its speculative positions and has ended any further speculative trading due to market volatility and the deterioration of the forward basis market.

On August 11, 2008, PNMR announced that it had decided to pursue strategic alternatives for First Choice. Since then, global economic conditions have deteriorated dramatically encompassing the U.S. residential housing market, and global and domestic equity and credit markets. The tightening of the credit markets coupled with extreme volatility in commodity markets has increased the risk of executing strategic transactions in the retail sector. At this point, management has determined that retaining First Choice provides better long term value for PNMR shareholders.




29

EnergyCo

Upon the contribution of Altura to EnergyCo, EnergyCo became a separate segment for PNMR effective June 1, 2007. PNMR’s investment in EnergyCo is held in the Corporate and Other segment and is accounted for using the equity method of accounting. EnergyCo’s revenues and expenses are not included in PNMR’s consolidated revenues and expenses or the following tables. See Notes 2 and 11. Corporate and Other

PNMR Services Company is included in the Corporate and Other segment. Corporate and Other also reflects activities of the PNMR holding company, including earnings (loss) of EnergyCo and interest expense on PNMR short-term and long-term debt.

The following tables present summarized financial information for PNMR by reportable segment. Excluding PNM Gas, which is presented as discontinued operations, PNM has only one reporting segment. TNMP also operates in only one reportable segment. Therefore, tabular segment information is not presented for PNM and TNMP.




30

PNMR SEGMENT INFORMATION

* Excludes total assets of PNM Gas discontinued operations of $625,964.




(Unaudited)

PNM TNMP First Corporate 2008 Electric Electric Choice and Other Consolidated

(In thousands) Three Months Ended September 30, 2008 Operating revenues $ 356,367 $ 35,865 $ 215,009 $ (165 ) $ 607,076 Intersegment revenues 30 15,232 - (15,262 ) - Total revenues 356,397 51,097 215,009 (15,427 ) 607,076 Cost of energy 194,478 8,423 205,954 (15,232 ) 393,623 Gross margin 161,919 42,674 9,055 (195 ) 213,453 Other operating expenses 92,868 17,267 30,542 2,360 143,037 Depreciation and amortization 21,666 9,901 630 4,555 36,752 Operating income (loss) 47,385 15,506 (22,117 ) (7,110 ) 33,664 Interest income 7,227 20 448 (447 ) 7,248 Equity in net earnings (loss) of EnergyCo - - - (1,485 ) (1,485 ) Other income (deductions) (8,823 ) 1,708 183 (1,167 ) (8,099 ) Net interest charges (20,315 ) (4,231 ) (1,846 ) (12,760 ) (39,152 )

Segment earnings (loss) before income taxes 25,474 13,003 (23,332 ) (22,969 ) (7,824 ) Income tax expense (benefit) 9,540 4,910 (6,796 ) (10,763 ) (3,109 ) Preferred stock dividend requirements 132 - - - 132

Segment net earnings (loss) from continuing operations $ 15,802 $ 8,093 $ (16,536 ) $ (12,206 ) $ (4,847 )

Nine Months Ended September 30, 2008 Operating revenues $ 995,040 $ 95,892 $ 461,402 $ (445 ) $ 1,551,889 Intersegment revenues 79 44,550 - (44,629 ) - Total revenues 995,119 140,442 461,402 (45,074 ) 1,551,889 Cost of energy 577,762 24,170 469,305 (44,535 ) 1,026,702 Gross margin 417,357 116,272 (7,903 ) (539 ) 525,187 Other operating expenses 366,659 84,709 118,800 (2,352 ) 567,816 Depreciation and amortization 63,532 27,037 1,679 13,190 105,438 Operating income (loss) (12,834 ) 4,526 (128,382 ) (11,377 ) (148,067 ) Interest income 18,197 25 1,318 (2,350 ) 17,190 Equity in net earnings (loss) of EnergyCo - - - (29,091 ) (29,091 ) Other income (deductions) (16,481 ) 2,700 110 (4,776 ) (18,447 ) Net interest charges (52,041 ) (13,584 ) (2,459 ) (30,922 ) (99,006 )

Segment earnings (loss) before income taxes (63,159 ) (6,333 ) (129,413 ) (78,516 ) (277,421 ) Income tax expense (benefit) (5,108 ) 10,597 (28,393 ) (32,683 ) (55,587 ) Preferred stock dividend requirements 396 - - - 396

Segment net earnings (loss) from continuing operations $ (58,447 ) $ (16,930 ) $ (101,020 ) $ (45,833 ) $ (222,230 )

At September 30, 2008: Total assets* $ 3,605,604 $ 984,549 $ 412,941 $ 536,596 $ 5,539,690 Goodwill $ 51,632 $ 226,665 $ 82,310 $ - $ 360,607

31

PNMR SEGMENT INFORMATION

* Excludes total assets of PNM Gas discontinued operations of $605,643.




PNM TNMP First Corporate 2007 Electric Electric Altura Choice and Other Consolidated

Three Months Ended September 30, 2007 (In thousands) Operating revenues $ 360,455 $ 31,405 $ - $ 177,694 $ 355 $ 569,909 Intersegment revenues - 21,275 - - (21,275 ) - Total revenues 360,455 52,680 - 177,694 (20,920 ) 569,909 Cost of energy 229,248 7,544 - 159,180 (20,966 ) 375,006 Gross margin 131,207 45,136 - 18,514 46 194,903 Other operating expenses 110,175 16,992 - 13,583 (520 ) 140,230 Depreciation and amortization 20,731 7,082 - 470 3,158 31,441 Operating income (loss) 301 21,062 - 4,461 (2,592 ) 23,232 Interest income 10,477 25 - 489 (847 ) 10,144

Equity in net earnings of EnergyCo - - - - 10,556 10,556 Other income (deductions) 4,126 372 - 101 (1,165 ) 3,434 Net interest charges (13,021 ) (5,768 ) - (638 ) (11,959 ) (31,386 )

Segment earnings (loss) before income taxes 1,883 15,691 - 4,413 (6,007 ) 15,980 Income tax expense (benefit) 377 5,463 - 1,668 (3,296 ) 4,212 Preferred stock dividend requirements 132 - - - - 132

Segment earnings (loss) from continuing operations $ 1,374 $ 10,228 $ - $ 2,745 $ (2,711 ) $ 11,636

Nine Months Ended September 30, 2007 Operating revenues $ 901,137 $ 82,046 $ 65,395 $ 463,214 $ 730 $ 1,512,522 Intersegment revenues - 55,098 - 78 (55,176 ) - Total revenues 901,137 137,144 65,395 463,292 (54,446 ) 1,512,522 Cost of energy 517,767 21,936 22,063 395,858 (54,341 ) 903,283 Gross margin 383,370 115,208 43,332 67,434 (105 ) 609,239 Other operating expenses 288,085 53,361 17,326 41,701 10,679 411,152 Depreciation and amortization 62,215 21,123 7,684 1,411 8,071 100,504 Operating income (loss) 33,070 40,724 18,322 24,322 (18,855 ) 97,583 Interest income 25,375 888 146 1,506 (396 ) 27,519

Equity in net earnings of EnergyCo - - - - 12,166 12,166 Other income (deductions) 6,668 1,345 - 66 (4,404 ) 3,675 Net interest charges (38,908 ) (19,717 ) (8,564 ) (1,814 ) (24,278 ) (93,281 ) Segment earnings (loss) before income taxes 26,205 23,240 9,904 24,080 (35,767 ) 47,662 Income tax expense (benefit) 9,565 7,840 3,921 9,086 (31,752 ) (1,340 ) Preferred stock dividend requirements 396 - - - - 396

Segment earnings (loss) from continuing operations $ 16,244 $ 15,400 $ 5,983 $ 14,994 $ (4,015 ) $ 48,606

At September 30, 2007: Total Assets* $ 3,452,680 $ 1,004,509 $ - $ 370,440 $ 415,197 $ 5,242,826 Goodwill $ 102,775 $ 261,121 $ - $ 131,768 $ - $ 495,664

32

Energy Related Derivative Contracts

Overview

Under derivative accounting and related rules for energy contracts, the Company accounts for its various derivative instruments for the purchase and sale of energy based on the Company’s intent. Energy contracts that do not qualify for the normal sales and purchases exception are recorded at fair value. Note 8 of Notes to Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K contains information regarding energy related derivative contracts. See Note 7 for additional information regarding interest rate swaps, which are fair value hedges.

For derivative transactions meeting the definition of a cash flow or fair value hedge, the Company documents the relationships between the hedging instruments and the items being hedged. This documentation includes the strategy that supports executing the specific transaction and the methods utilized to assess the effectiveness of the hedges. Changes in the fair value of contracts qualifying for cash flow hedge accounting are included in accumulated other comprehensive income to the extent effective. Ineffectiveness gains and losses were immaterial for the three months and nine months ended September 30, 2008 and 2007. The amounts shown as current assets and current liabilities relate to contracts that will be settled in the next twelve months. Gains or losses related to cash flow hedge instruments are reclassified from accumulated other comprehensive income when the hedged transaction settles and impacts earnings. Based on market prices at September 30, 2008, after-tax gains of $8.6 million for PNMR and $11.5 million for PNM would be reclassified from other comprehensive income into earnings during the next twelve months. However, the actual amount reclassified into earnings will vary due to future changes in market prices. As of September 30, 2008, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows is through December 31, 2010.

The contracts recorded at fair value that do not qualify or are not designated for hedge accounting are classified as either trading transactions or economic hedges. Trading transactions are defined as derivative instruments that are either speculative and expose the Company to market risk or transactions that lock in margin with no forward market risk and are not economic hedges. Changes in the fair value of trading transactions are reflected on a net basis in operating revenues. Economic hedges are defined as derivative instruments, including long-term power agreements, used to hedge generation assets, purchased power costs, and customer load requirements. Changes in the fair value of economic hedges are reflected in results of operations, with changes related to sales contracts included in operating revenues and changes related to purchase contracts included in cost of energy.

Fair value is based on current market quotes as available and is supplemented by modeling techniques and assumptions made by the Company to the extent quoted market prices or volatilities are not available. External pricing input availability varies based on commodity location, market liquidity, and term of the agreement. The Company regularly assesses the validity and availability of pricing data for its derivative transactions. Although management uses its best judgment in estimating the fair value of these instruments, there are inherent limitations in any estimation technique.

Effective January 1, 2008, the Company adopted SFAS 157, SFAS 159, and FSP FIN 39-1. SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FSP 157-2 delayed the effective date of SFAS 157 for certain nonfinancial assets and nonfinancial liabilities measured on a nonrecurring basis, primarily goodwill and other intangible assets, and the Company has not elected to early adopt SFAS 157 for these items. SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for




(4) Energy Related Derivative Contracts and Fair Value Disclosures

33

certain financial assets and liabilities on a contract-by-contract basis. FSP FIN 39-1 permits a reporting entity to offset fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement and to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments in accordance with FSP FIN 39-1. On October 10, 2008, the FASB issued FSP FAS 157-3 to clarify the application of SFAS 157 when a market for a financial instrument is not active. FSP FAS 157-3 has no impact on the Company’s current methodologies for assessing fair value.

As stated in SFAS 157, valuations of derivative assets and liabilities must take into account nonperformance risk including the effect of the Company’s own credit standing. Nonperformance risk refers to the risk that the obligation will not be fulfilled and affects the value at which the liability is transferred. Effective January 1, 2008, the Company updated its methodology to include the impact of the nonperformance risk and its own credit standing. The Company did not elect to irrevocably fair value any additional financial assets and liabilities under SFAS 159 and did not elect to offset fair values of its derivative instruments under FSP FIN 39-1.

Prior to January 1, 2008, the Company deferred gains and losses at inception of certain derivative contracts whose fair value was not evidenced by observable market data in accordance with EITF 02-3. For those gains and losses not evidenced by observable market data, the transaction price was used as the fair value of the derivative contract. Any difference between the transaction price and the model fair value was considered an unrecognized gain or loss at inception of the contract. These unrecognized gains and losses were recorded in income as the contracts settled. The adoption of SFAS 157 on January 1, 2008, eliminated the deferral of these gains and losses resulting in the recognition of previously deferred gains and losses as a net after-tax increase of $10.4 million in the beginning balance of retained earnings for both PNMR and PNM and had no impact on TNMP.

At September 30, 2008, amounts recognized for the right to reclaim cash collateral are $21.0 million for PNMR and $4.5 million for PNM. The Company had no obligations to return cash collateral.

The following tables do not include activity related to PNM Gas. See Note 14.




34

PNMR

PNMR’s commodity derivative instruments are summarized as follows:

In 2007, First Choice entered into a series of forward trades that arbitraged basis differentials among certain ERCOT delivery zones. During the three months ended March 31, 2008,

these trades were negatively affected by extreme transmission congestion within the ERCOT market. This congestion resulted in historically high basis differences between the various delivery zones. As a result, in the first quarter of 2008, First Choice recorded a total pre-tax loss of $47.1 million in the trading margins from these speculative trades that is reflected in electric revenues. Because of continued market volatility and the concern that the forward basis market would continue to deteriorate, First Choice decided to end any further speculative trading. Since March 31, 2008, First Choice incurred an additional $1.9 million loss to close out remaining speculative positions, including transaction costs. Of the speculative trading losses, $7.8 million has not cash settled at September 30, 2008. The majority of these positions will cash settle before December 31, 2008. No significant additional costs are expected related to speculative trading.




(Unaudited)

September 30, December 31, September 30, December 31, 2008 2007 2008 2007 Type of Derivative Mark -to-Market Instruments Hedge Instruments (In thousands) Current Assets

Energy contracts $ 42,843 $ 14,486 $ 18,525 $ 864 Swaps and futures 15,282 25,653 772 524 Options 6,621 7,372 363 358

Total current assets 64,746 47,511 19,660 1,746 Deferred Charges

Energy contracts 8,908 14,133 11,860 - Swaps and futures 2,563 26,898 - - Options - 4,663 - -

Total deferred charges 11,471 45,694 11,860 - Total Assets 76,217 93,205 31,520 1,746 Current Liabilities

Energy contracts (50,987 ) (19,842 ) - - Swaps and futures (27,854 ) (25,308 ) (2,314 ) (1,058 ) Options (6,238 ) (7,594 ) (781 ) (30 )

Total current liabilities (85,079 ) (52,744 ) (3,095 ) (1,088 ) Long-term Liabilities

Energy contracts (2,675 ) (42,009 ) - - Swaps and futures (3,798 ) (4,465 ) (136 ) (32 ) Options - (8,700 ) - -

Total long-term liabilities (6,473 ) (55,174 ) (136 ) (32 ) Total Liabilities (91,552 ) (107,918 ) (3,231 ) (1,120 ) Net Total Assets and Liabilities $ (15,335 ) $ (14,713 ) $ 28,289 $ 626

First Choice Trading Activities

35

PNM

PNM’s commodity derivative instruments are summarized as follows:

Sale of Wholesale Contracts

On January 18, 2008, PNM entered into an agreement to sell certain wholesale power, natural gas and transmission contracts. These contracts represent a significant portion of the wholesale activity portfolio of PNM Electric, and include several long-term sales and purchase power agreements. Included in the sales agreement were the Tri-State Pyramid Unit 4 operating lease and certain transmission agreements, which were not considered derivative instruments under SFAS 133. The derivative contracts included in the sale were fair valued and reflected in the above table at December 31, 2007 as current assets of $6.3 million, deferred charges of $35.8 million, current liabilities of $10.7 million, and long-term liabilities of $47.6 million. In connection with the adoption of SFAS 157, pre-tax gains on these contracts amounting to $17.2 million were recorded as an adjustment to January 1, 2008 retained earnings. On June 19, 2008 PNM completed the sale for $6.1 million. PNM recognized gains on the sale of these contracts of $5.1 million in the nine months ended September 30, 2008. PNM provided the buyer with a $10.0 million letter of credit for 18 months in connection with PNM’s representations regarding the contracts.




(Unaudited)

September 30, December 31, September 30, December 31, 2008 2007 2008 2007 Type of Derivative Mark -to-Market Instruments Hedge Instruments (In thousands) Current Assets

Energy contracts $ 656 $ 2,587 $ 18,525 $ 864 Swaps and futures 6,396 6,650 744 422 Options 8 4,336 - -

Total current assets 7,060 13,573 19,269 1,286 Deferred Charges

Energy contracts 2,804 9,443 11,860 - Swaps and futures 1,279 23,253 - - Options - 4,663 - -

Total deferred charges 4,083 37,359 11,860 - Total Assets 11,143 50,932 31,129 1,286 Current Liabilities

Energy contracts (5,092 ) (6,872 ) - - Swaps and futures (8,409 ) (6,037 ) (293 ) (868 ) Options - (4,119 ) - -

Total current liabilities (13,501 ) (17,028 ) (293 ) (868 ) Long-term Liabilities

Energy contracts - (38,172 ) - - Swaps and futures - (693 ) (15 ) (32 ) Options - (8,700 ) - -

Total long-term liabilities - (47,565 ) (15 ) (32 ) Total Liabilities (13,501 ) (64,593 ) (308 ) (900 ) Net Total Assets and Total Liabilities $ (2,358 ) $ (13,661 ) $ 30,821 $ 386

36

Sale of Power from PVNGS Unit 3

In April 2008, PNM entered into three separate contracts for the sale of capacity and energy related to its entire ownership interest in PVNGS Unit 3, which is 135 MW. Under two of the contracts, PNM will sell 90 MW of firm capacity and energy. Under the remaining contract, PNM will sell 45 MW of unit contingent capacity and energy. The term of the contracts is May 1, 2008 through December 31, 2010. Under the two firm contracts, the two buyers made prepayments of $40.6 million and $30.0 million. These amounts are recorded to a deferred revenue account and amortized over the life of the contracts. The amount to be amortized in the next 12 months is included in other current liabilities in the Condensed Consolidated Balance Sheet and the remainder is included in other deferred credits. The prepayments received under the firm contracts, as well as required subsequent monthly payments on them, are shown as a financing activity in the Condensed Consolidated Statement of Cash Flows as required by GAAP. The firm contracts are considered energy derivatives and a loss of $4.8 million was recognized at inception. The firm contracts are accounted for as cash flow hedges and changes in fair value are included in accumulated other comprehensive income. The contingent contract is accounted for as a normal sale.

Effective January 1, 2008, the Company determines the fair market values of its instruments based on the fair value hierarchy established in SFAS 157, which requires an entity to maximize

the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The fair values determinations at September 30, 2008 are as follows:

Assets and Liabilities Measured at Fair Value on a Recurring Basis Fair Value Measurements




Fair Value Disclosures

Total (1)

Quoted Prices in Active Market for Identical Assets

(Level 1)

Significant Other Observable

Inputs (Level 2)

Significant Unobservable

Inputs (Level 3)

(In thousands) PNMR

Assets Commodity derivatives $ 107,737 $ 13,893 $ 91,061 $ 1,442 NDT 120,424 79,255 41,169 - Rabbi Trust 1,378 1,368 10 - Total Assets 229,539 94,516 132,240 1,442 Liabilities Commodity derivatives (94,783 ) (26,536 ) (64,906 ) (2,000 ) Net Total Assets and Total Liabilities $ 134,756 $ 67,980 $ 67,334 $ (558 )

37

A reconciliation of the changes in Level 3 fair value measurements is as follows:

Recurring Fair Value Measurements Using Significant Unobservable Inputs

(Level 3)

Gains and losses (realized and unrealized) for Level 3 fair value measurements included in earnings for the three and nine months ended September 30, 2008 are reported in operating

revenues and cost of energy as follows:




(Unaudited)

PNM Assets Commodity derivatives $ 42,272 $ 745 $ 40,238 $ 1,022 NDT 120,424 79,255 41,169 - Rabbi Trust 1,378 1,368 10 - Total Assets 164,074 81,368 81,417 1,022 Liabilities Commodity derivatives (13,809 ) (1,034 ) (10,508 ) (2,000 ) Net Total Assets and Total Liabilities $ 150,265 $ 80,334 $ 70,909 $ (978 )

(1) The Level 1, 2 and 3 columns in the above table are presented based on the nature of each instrument. The total column is presented based on the balance sheet classification of the instruments and reflect unit of account reclassifications between commodity derivative assets and commodity derivative liabilities of $1.3 million for PNMR and $0.3 million for PNM.

Three Months Ended Nine Months Ended September 30, 2008 September 30, 2008 PNMR PNM PNMR PNM (In thousands) Level 3 Fair Value Assets and Liabilities Balance at December 31, 2007 $ 2,061 $ 2,679 Adoption of SFAS 157 16,407 16,407 Balance at beginning of period $ 19,863 $ 19,666 18,468 19,086

Total gains (losses) included in earnings (19,503 ) (19,117 ) (1,859 ) (2,200 ) Total gains (losses) included in other comprehensive income (60 ) - 28 - Purchases, issuances, and settlements (1) 669 - (15,668 ) (16,337 ) Transfers into Level 3 (2) (1,527 ) (1,527 ) (1,527 ) (1,527 )

Balance at September 30, 2008 $ (558 ) $ (978 ) $ (558 ) $ (978 )

Total gains (losses) included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the end of the period $ (9,925 ) $ (10,256 ) $ (3,097 ) $ (2,821 )

(1) Represents unearned and prepaid option premiums received and paid during the period for contracts still held at end of period and sale of PNM Electric wholesale contracts. (2) Transfers in to Level 3 from Level 2 are at the fair value as of August 29, 2008.

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In accordance with SFAS 128, dual presentation of basic and diluted earnings per share has been presented in the Condensed Consolidated Statements of Earnings of PNMR. Information

regarding the computation of earnings per share is as follows:




Three Months Ended Nine Months Ended September 30, 2008 September 30, 2008

PNMR Operating Revenues

Cost of Energy Total

Operating Revenues

Cost of Energy Total

(In thousands) Total gains (losses) included in earnings $ 2 $ (19,505 ) $ (19,503 ) $ 21,800 $ (23,659 ) $ (1,859 ) Change in unrealized gains or losses relating to

assets still held at reporting date $ 2 $ (9,927 ) $ (9,925 ) $ 2 $ (3,099 ) $ (3,097 )

PNM Total gains (losses) included in earnings $ 2 $ (19,119 ) $ (19,117 ) $ 21,183 $ (23,383 ) $ (2,200 ) Change in unrealized gains or losses relating to

assets still held at reporting date $ 2 $ (10,258 ) $ (10,256 ) $ 2 $ (2,823 ) $ (2,821 )

(5) Earnings Per Share

Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 (In thousands, except per share amounts) Earnings (Loss):

Earnings (loss) from continuing operations $ (4,847 ) $ 11,636 $ (222,230 ) $ 48,606 Earnings (loss) from discontinued operations (638 ) (3,264 ) 24,622 9,671 Net Earnings (Loss) $ (5,485 ) $ 8,372 $ (197,608 ) $ 58,277

Average Number of Common Shares Outstanding 86,408 76,736 81,669 76,697 Dilutive Effect of Common Stock Equivalents (a):

Stock options and restricted stock - 422 - 594 Equity-linked units - 403 - 860 Average Common and Common Equivalent

Shares Outstanding 86,408 77,561 81,669 78,151

Per Share of Common Stock – Basic:

Earnings (loss) from continuing operations $ (0.06 ) $ 0.15 $ (2.72 ) $ 0.63 Earnings (loss) from discontinued operations - (0.04 ) 0.30 0.13 Net Earnings (Loss) $ (0.06 ) $ 0.11 $ (2.42 ) $ 0.76

Per Share of Common Stock – Diluted:

Earnings (loss) from continuing operations $ (0.06 ) $ 0.15 $ (2.72 ) $ 0.62 Earnings (loss) from discontinued operations - (0.04 ) 0.30 0.13 Net Earnings (Loss) $ (0.06 ) $ 0.11 $ (2.42 ) $ 0.75

(a) Due to losses in the three and nine months ended September 30, 2008, no potentially dilutive securities are reflected in the average number of common shares used to compute earnings (loss) per share for those periods since any impact would be anti-dilutive. At September 30, 2008, PNMR’s potentially dilutive securities consists of all options and restricted stock (see Note 6) and the privately held equity-linked units (see Note 7).

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Information concerning stock-based compensation plans is contained in Note 13 of Notes to Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K.

Stock Options

The following table represents stock option activity for the nine months ended September 30, 2008:

The following table provides additional information concerning stock option activity:

Nine Months Ended September 30,




(6) Stock-Based Compensation

Weighted- Weighted- Aggregate Average Average Intrinsic Remaining Exercise Value Contract Life

Options for PNMR Common Stock Shares Price (In thousands) (Years) Outstanding at beginning of period 3,264,898 $ 23.26 Granted 558,261 11.90 Exercised (5,001 ) 16.13 Forfeited (65,073 ) 24.90 Outstanding at end of period 3,753,085 $ 21.53 $ (42,321 ) 6.62

Options exercisable at end of period 2,625,886 $ 21.94 $ (30,719 ) 5.69

Options available for future grant 1,866,703

Options for PNMR Common Stock 2008 2007

(In thousands,

except per share amounts) Weighted-average grant date fair value per share of options granted $ 1.39 $ 4.70 Total intrinsic value of options exercised during the period $ 15 $ 4,854

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Restricted Stock

The following table summarizes nonvested restricted stock activity for the nine months ended September 30, 2008:

The total fair value of shares of restricted stock that vested during the nine months ended September 30, 2008 was $2.2 million.

Information concerning financing activities is contained in Note 6 of Notes to Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K.

Impacts of Difficulties of Financial Institutions

Recent and unprecedented disruption in the current credit markets has had a significant adverse impact on a number of financial institutions, which has resulted in certain institutions being restructured or formulating plans to be acquired by other financial institutions. This includes some financial institutions that are lenders under the PNMR Facility and the PNM Facility, which are described below and in the 2007 Annual Reports on Form 10-K, as well as the Term Loan Agreement described below. Other than as described below, this has not impacted these credit agreements to date and the Company does not anticipate it will have a significant impact on the PNMR Facility and the PNM Facility, which expire in 2012, or the Term Loan Agreement over their respective terms.

LBB was a lender under the PNMR Facility and the PNM Facility. LBH, the parent of LBB, has filed for bankruptcy protection. Subsequent to the bankruptcy filing by LBH, LBB declined to fund a borrowing request under the PNMR Facility amounting to $5.3 million. The PNMR Facility and the PNM Facility agreements contain procedures for substituting another financial institution to take the place of any lender who defaults under the agreements. A replacement bank has taken the place of LBB under the PNM Facility, but as of October 30, 2008, no arrangement has been made to replace LBB under the PNMR Facility. LBB’s commitment amounts to 5.33% of the PNMR Facility. PNMR does not believe the LBH bankruptcy will have a significant impact on the liquidity provided by the PNMR Facility.

LBCS, another subsidiary of LBH, has also declared bankruptcy and was a counterparty to various energy transactions with First Choice and EnergyCo. First Choice had no receivables from LBCS, but as a result of the bankruptcy, First Choice terminated these contracts effective September 24, 2008 and recognized a $3.9 million loss as settled purchase power contracts. The $3.9 million loss consisted of $2.2 million previously recorded in earnings as unrealized losses on economic hedges and $1.7 million of power purchases under normal contracts not previously recorded in earnings. These power supply contracts have since been replaced with other counterparties and are expected to substantially offset the $3.9 million loss in future months. EnergyCo did have a receivable from LBCS, which was written off at September 30, 2008. PNMR’s equity share of the write off was $0.6 million. The




(Unaudited)

Weighted- Average

Nonvested Restricted Grant -Date PNMR Common Stock Shares Fair Value

Nonvested at beginning of period 169,750 $ 26.09 Granted 129,250 $ 11.50 Vested (89,365 ) $ 24.65 Forfeited (5,005 ) $ 26.44 Nonvested at end of period 204,630 $ 17.46

(7) Financing

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bankruptcy of LBCS is not expected to have a significant impact on future operations of the Company. Financing Activities

On March 7, 2008, TNMP entered into a $150 million short-term bank loan agreement with two lenders. TNMP borrowed $150 million under this agreement on April 9, 2008 and used the proceeds to redeem the remaining $148.9 million of its 6.125% senior unsecured notes prior to the maturity date of June 1, 2008. The $150 million borrowing under this agreement was repaid in October 2008, through borrowing $150 million under the TNMP Facility described under Short-term Debt below.

On May 5, 2008, PNM entered into a $300 million unsecured delayed draw term loan facility (as amended, the “Term Loan Agreement”) with Merrill Lynch Bank USA, Morgan Stanley Senior Funding, Inc. and Wachovia Bank, National Association, as initial lenders. The Term Loan Agreement allowed PNM, at its option, to borrow, on no more than two occasions, up to $300 million at any time prior to 45 days before April 30, 2009. In the event of a downgrade in senior unsecured debt credit ratings of PNM, PNM may be required to borrow money under the Term Loan Agreement. Borrowings must be repaid on April 30, 2009, or 45 days before that date if PNM makes no optional borrowings under the Term Loan Agreement. PNM must pay interest and fees from time to time based upon its then-current senior unsecured debt credit ratings. The Term Loan Agreement is to be used for general corporate purposes. Borrowings under the Term Loan Agreement are conditioned on the ability of PNM to make certain representations. The Term Loan Agreement includes customary covenants, including requirements to maintain a maximum consolidated debt-to-consolidated capitalization ratio and a minimum consolidated earnings before interest, income taxes, depreciation and amortization to consolidated interest expense ratio. The Term Loan Agreement provides that if PNM receives net cash proceeds from the sale of certain debt securities or the sale of assets, the amount of the commitments under the Term Loan Agreement may be reduced. As described below, on May 13, 2008, PNM completed the offering of $350 million aggregate principal amount of senior unsecured notes. On May 28, 2008, PNM was notified that the lenders under the Term Loan Agreement had reduced their commitments to $150 million. The Term Loan Agreement provides that upon the closing of the sale of PNM Gas described in Note 2, any amounts outstanding under the Term Loan Agreement must be repaid and remaining commitments for borrowings would be terminated. No borrowings have been made under the Term Loan Agreement.

On May 8, 2008, PNM entered into a $100 million unsecured letter of credit facility pursuant to a reimbursement agreement (as amended, the “Reimbursement Agreement”) with Deutsche Bank AG and Royal Bank of Canada, as lenders. The Reimbursement Agreement allows PNM to obtain, from time to time, standby letters of credit up to the aggregate amount of $100 million at any time prior to April 30, 2009. The letter of credit and commitment fees will vary depending upon the then-current senior unsecured debt credit rating for PNM. The Reimbursement Agreement will be used for general corporate purposes, including supporting margin requirements under hedging agreements. Letter of credit issuances under the Reimbursement Agreement are conditioned on the ability of PNM to make certain customary representations. The Reimbursement Agreement includes customary covenants, including requirements to maintain a maximum consolidated debt-to-consolidated capitalization ratio and a minimum consolidated earnings before interest, income taxes, depreciation and amortization to consolidated interest expense ratio. No letters of credit have been issued under this arrangement.

On May 13, 2008, PNM issued $350 million aggregate principal amount of senior unsecured notes. The notes pay interest semi-annually at a rate of 7.95% per year, payable on May 15 and November 15 of each year, beginning November 15, 2008, and mature on May 15, 2018.

On October 31, 2008, TNMP entered into a $100 million term loan credit agreement with two lenders (the “TNMP Bridge Facility”) to provide an additional source of funds that would be available in order to repay TNMP’s $167.7 million of senior unsecured notes that mature January 15, 2009. The TNMP Bridge Facility allows for other lenders to be added to bring the total amount up to a maximum of $150 million and TNMP is in discussions with several other potential lenders to obtain commitments to fill out the facility. The TNMP Bridge Facility provides for




42

a single draw of funds after January 1, 2009 and through January 15, 2009 solely for the purpose of repaying TNMP’s senior unsecured notes maturing January 15, 2009. Any amount drawn will be due March 30, 2009 and the facility will expire if funds are not drawn by January 15, 2009. In the event the facility is not expanded to $150 million, there is no obligation for the lenders to fund unless PNMR agrees to provide funds to bring the total to $150 million. The TNMP Bridge Facility includes customary covenants, including requirements to maintain a maximum consolidated debt-to-consolidated capitalization ratio.

PNM had $300.0 million aggregate principal amount of senior unsecured notes that matured in September 2008. PNM repaid these notes by utilizing cash on hand and borrowing $240.0 million under the PNM Facility.

PNMR previously issued 4,945,000 6.75% publicly held equity-linked units. Each of these equity-linked units consisted of a purchase contract and a 5.0% undivided beneficial ownership interest in one of PNMR’s senior notes with a stated amount of $1,000, which corresponded to a $50.00 stated amount of PNMR’s senior notes. The senior notes were scheduled to mature in May 2010 (subject to the remarketing described below) and bore interest at a rate of 4.8% per year. The purchase contracts entitled their holders to contract adjustment payments of 1.95% per year on the stated amount of $50.00. Each purchase contract contained a mandatory obligation for the holder to purchase, and PNMR to sell, at a purchase price of $50.00 in cash, shares of PNMR’s common stock on or before May 16, 2008. Generally, the number of shares each holder of the equity-linked units was obligated to purchase depended on the average closing price per share of PNMR’s common stock over a 20-day trading period ending on the third trading day immediately preceding May 16, 2008, with an adjusted maximum price of $32.08 per share and minimum price of $26.29 per share. In accordance with the terms of the equity-linked units, the senior note components were remarketed on May 16, 2008. The proceeds from the remarketed senior notes amounted to $247.3 million and were utilized by the holders of the equity-linked units to satisfy their obligations to purchase 9,403,412 shares of PNMR’s common stock for the same aggregate amount on May 16, 2008. In connection with the remarketing, PNMR sold an additional $102.7 million of senior notes with the same terms for a total offering of $350.0 million. The senior notes pay interest semi-annually at a rate of 9.25% per year, payable on May 15 and November 15 of each year, beginning November 15, 2008, and mature on May 15, 2015.

PNMR also has outstanding 4,000,000 privately held 6.625% equity-linked units. Each of these equity-linked units consists of a purchase contract and a 2.5% undivided beneficial ownership interest in one of PNMR’s senior notes with a stated amount of $1,000, which corresponds to a $25.00 stated amount of PNMR’s senior notes. The ownership interest in the senior notes is pledged to secure the holder’s obligation to purchase PNMR common or preferred stock under the related purchase contract. The $100.0 million aggregate principal amount of senior notes are scheduled to mature in August 2010 (subject to the remarketing described below) and bear interest at the annual rate of 5.1%. The purchase contracts entitle the holder to quarterly contract adjustment payments of 1.525% per year on the stated amount of $25.00. Each purchase contract contains a mandatory obligation for the holder to purchase, and PNMR to sell, at a purchase price of $25.00 in cash, shares of PNMR’s common stock (or PNMR preferred stock in a ratio of one preferred share for each 10 shares of common stock) aggregating $100.0 million on November 17, 2008. Generally, the number of shares the holder is obligated to purchase depends on the average closing price per share of PNMR’s common stock over a 20-day trading period ending on the third trading day immediately preceding November 16, 2008, with a maximum price of $25.12 per share and minimum price of $20.93 per share. Based on recent prices of PNMR common stock, 4,778,000 shares of PNMR common stock would be issuable upon satisfaction of the purchase contracts. The agreement under which the privately held equity-linked units were originally issued also provides that the holder could choose to receive 477,800 shares of a new series of PNMR preferred stock with the terms described below, or a combination of common stock and preferred stock. The holder has notified PNMR that it intends to receive PNMR preferred stock. The PNMR preferred stock will be convertible into PNMR common stock in a ratio of 10 shares of common stock for each share of preferred stock. The PNMR preferred stock will be entitled to receive dividends equivalent to any dividends paid on PNMR common stock as if the preferred stock had been converted into common stock. The PNMR preferred stock will be entitled to vote on all matters voted upon by common stockholders, except for the election of the Board. PNMR’s Board has adopted a resolution establishing a new series of PNMR convertible preferred stock that satisfies these conditions and submitted such resolution to the NMPRC on October 27, 2008. Beginning on November 7, 2008, PNMR and the remarketing agents will attempt to remarket the senior notes. If the remarketing is successful, the




43

interest rate on the senior notes will change to a rate selected by the remarketing agents, and the maturity of the senior notes may be extended to a date selected by PNMR subject to certain conditions. In addition, PNMR may purchase up to $90.0 million principal amount of the notes in the remarketing, which notes would be cancelled thereby reducing the amount of notes outstanding. If the remarketing of the senior notes is not successful on the final remarketing date of November 12, 2008, the maturity and interest rate of the senior notes will not change and the holder of the equity-linked units will have the option of putting its senior notes to PNMR to satisfy its obligations under the purchase contracts. Because of the current turmoil in the credit markets, PNMR can provide no assurance that the remarketing of the senior notes will be successful. Short-term Debt

PNMR and PNM have revolving credit facilities for borrowings up to $600 million under the PNMR Facility and $400 million under the PNM Facility that primarily expire in 2012. PNMR and PNM also have local lines of credit amounting to $10.0 million and $8.5 million. PNMR and PNM have commercial paper programs under which they may issue up to $400 million and $300 million of commercial paper although these commercial paper programs are currently suspended and no commercial paper has been issued since March 11, 2008. The revolving credit facilities serve as support for the commercial paper programs. Operationally, this means the aggregate borrowings under the commercial paper program and the revolving credit facility for each of PNMR and PNM cannot exceed the maximum amount of the revolving credit facility for that entity.

On May 15, 2008, TNMP entered into a credit agreement with eight lenders for the TNMP Facility, which matures on May 13, 2009. The TNMP Facility provides TNMP with a revolving credit facility for up to $200 million. In connection with entering into the TNMP Facility, TNMP withdrew as a borrower under the PNMR Facility and is no longer a party under the PNMR Facility. There were no borrowings under the TNMP Facility through September 30, 2008.

At September 30, 2008, the weighted average interest rate was 4.41% for the PNMR Facility, 3.53% for the PNM Facility, and 3.24% for the TNMP short-term bank loan. Short-term debt outstanding consists of:




September 30, December 31, Short-term Debt 2008 2007

(In thousands) PNM

Commercial paper $ - $ - Revolving credit facility 340,000 321,000 Delayed draw term loan facility - - Local lines of credit - -

Total PNM 340,000 321,000 TNMP

Short-term bank loan 150,000 - Revolving credit facility - -

Total TNMP 150,000 - PNMR

Commercial paper - - Revolving credit facility 288,667 343,500 Local lines of credit - 1,400

Total PNMR 288,667 344,900 Total PNM, TNMP and PNMR $ 778,667 $ 665,900

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At October 30, 2008, PNMR, PNM, and TNMP had $209.0 million, $42.0 million, and $48.5 million of availability under their respective revolving credit facilities and local lines of credit, including reductions of availability due to outstanding letters of credit. In addition, PNM had availability of $150 million under the Term Loan Agreement and $100 million under the Reimbursement Agreement. TNMP also had availability of $50 million under its intercompany borrowing agreement with PNMR. The TNMP Bridge Facility entered into on October 31, 2008 is not reflected in the above, since borrowings on it can only be made after January 1, 2009 and through January 15, 2009. Total availability at October 30, 2008 was $292.0 million for PNM and, on a consolidated basis, $549.5 million for PNMR. Such availability includes $14.5 million that represents the unfunded portion of the PNMR Facility attributable to LBB. At October 30, 2008, PNMR, PNM, and TNMP had cash and cash equivalents of $147.4 million, $79.5 million, and $8.4 million.

PNMR entered into three fixed-to-floating interest rate swaps with an aggregate notional principal amount of $150.0 million, which matured on September 15, 2008. Under these swaps, PNMR received a 4.40% fixed interest payment on the notional principal amount on a semi-annual basis and paid a floating rate equal to the six month LIBOR plus 58.15 basis points (0.5815%). The floating rate was 6.09% at December 31, 2007 and was reset to 3.28% on March 17, 2008. The swaps were accounted for as fair-value hedges. Stockholders’ Equity

See Financing Activities above for information on PNMR common stock issued in connection with its publicly held equity-linked units. PNMR offers new shares of PNMR common stock through the PNMR Direct Plan and an equity distribution agreement. The equity distribution agreement is currently suspended. For the nine months ended September 30, 2008, PNMR sold 165,374 shares of its common stock through the PNMR Direct Plan and its dividend reinvestment plan for net proceeds of $2.2 million. PNMR also issued 70,834 shares of its common stock for $0.8 million through its ESPP during the nine months ended September 30, 2008.

PNMR and its subsidiaries maintain qualified defined benefit pension plans, postretirement benefit plans providing medical and dental benefits, and executive retirement programs

(“PNM Plans” and “TNMP Plans”). PNMR maintains the legal obligation for the benefits owed to participants under these plans.

Readers should refer to Note 12 of Notes to the Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K for additional information on these plans.

The Company periodically makes payments to trust funds designed to accumulate funds for the payment of pension and other postretirement benefits under the PNM Plans and TNMP Plans based on actuarial studies performed as of the beginning of each year. As set forth in Note 12 of Notes to the Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K, the Company targets 57.5% of the pension trust funds and 70% of the other postretirement benefits trust funds to be invested in marketable equity securities. There has been a significant decline in the general price levels of marketable equity securities in 2008, particularly in September and October. The impacts of these declines will not be quantified until the next actuarial valuation as of January 1, 2009. However, it is likely that increased levels of funding will be required and additional amounts will be recorded as expense.




(8) Pension and Other Postretirement Benefit Plans

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PNM Plans

The following tables present the components of the PNM Plans’ net periodic benefit cost (income):

PNM does not anticipate making any contributions to the pension plan trust during 2008. For the three months ended September 30, 2008 and 2007, PNM contributed $1.0 million and

$1.5 million to trusts for other postretirement benefits and $3.9 million and $4.6 million for the nine months ended September 30, 2008 and 2007. PNM expects to make contributions totaling $4.9 million during the year ended December 31, 2008 to the trust for other postretirement benefits. Disbursements under the executive retirement program, which are funded by the Company and considered to be contributions to the plan, were $0.4 million in the three months ended September 30, 2008 and 2007, $1.1 million and $1.2 million in the nine months ended September 30, 2008 and 2007, and are expected to total $1.5 million during 2008.




Three Months Ended September 30, Pension Plan Other Postretirement Benefits Executive Retirement Program 2008 2007 2008 2007 2008 2007 (In thousands)

Components of Net Periodic Benefit Cost (Income) Service cost $ - $ 36 $ 178 $ 632 $ 14 $ 14 Interest cost 8,317 7,953 2,086 1,928 284 272 Expected long-term return on assets (10,336 ) (10,195 ) (1,532 ) (1,464 ) - - Amortization of net loss 481 972 1,204 1,461 13 24 Amortization of prior service cost 79 79 (1,422 ) (1,422 ) 3 3 Net periodic benefit cost (income) $ (1,459 ) $ (1,155 ) $ 514 $ 1,135 $ 314 $ 313

Nine Months Ended September 30, Pension Plan Other Postretirement Benefits Executive Retirement Program 2008 2007 2008 2007 2008 2007 (In thousands)

Components of Net Periodic Benefit Cost (Income) Service cost $ - $ 108 $ 535 $ 1,897 $ 42 $ 42 Interest cost 24,951 23,858 6,258 5,784 852 816 Expected long-term return on assets (31,009 ) (30,585 ) (4,597 ) (4,393 ) - - Amortization of net loss 1,443 2,917 3,612 4,382 39 70 Amortization of prior service cost 238 238 (4,265 ) (4,265 ) 10 10 Net periodic benefit cost (income) $ (4,377 ) $ (3,464 ) $ 1,543 $ 3,405 $ 943 $ 938

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TNMP Plans

The following tables present the components of the TNMP Plans’ net periodic benefit cost (income):

TNMP does not anticipate making any contributions to the pension trust during 2008. For the three months ended September 30, 2008 and 2007, TNMP made less than $0.1 million

and $0.1 million contributions to the trust for other postretirement benefit and made $0.3 million and $0.4 million for the nine months ended September 30, 2008 and 2007. TNMP expects to make contributions totaling $0.4 million during the year ended December 31, 2008 to the trust for other postretirement benefits. Disbursements under the executive retirement program, which are funded by the Company and considered to be contributions to the plan, were less than $0.1 million in the three months and nine months ended September 30, 2008 and 2007, $0.1 million in the nine months ended September 30, 2008 and 2007, and are expected to total $0.2 million during 2008.




Three Months Ended September 30, Pension Plan Other Postretirement Benefits Executive Retirement Program 2008 2007 2008 2007 2008 2007 (In thousands) Components of Net Periodic Benefit Cost (Income)

Service cost $ - $ - $ 71 $ 98 $ - $ - Interest cost 1,061 1,057 179 165 19 19 Expected long-term return on assets (1,659 ) (1,710 ) (122 ) (114 ) - - Amortization of net gain (36 ) (2 ) (68 ) (39 ) - - Amortization of prior service cost - - 15 15 - - Net Periodic Benefit Cost (Income) $ (634 ) $ (655 ) $ 75 $ 125 $ 19 $ 19

Nine Months Ended September 30, Pension Plan Other Postretirement Benefits Executive Retirement Program 2008 2007 2008 2007 2008 2007 (In thousands) Components of Net Periodic Benefit Cost (Income)

Service cost $ - $ - $ 213 $ 295 $ - $ - Interest cost 3,182 3,171 536 496 57 57 Expected long-term return on assets (4,976 ) (5,130 ) (365 ) (342 ) - - Amortization of net gain (109 ) (5 ) (203 ) (117 ) - - Amortization of prior service cost - - 45 45 - - Net Periodic Benefit Cost (Income) $ (1,903 ) $ (1,964 ) $ 226 $ 377 $ 57 $ 57

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Overview

There are various claims and lawsuits pending against the Company. The Company is also subject to federal, state and local environmental laws and regulations, and is currently

participating in the investigation and remediation of numerous sites. In addition, the Company periodically enters into financial commitments in connection with its business operations. It is not possible at this time for the Company to determine fully the effect of all litigation and other legal proceedings on its results of operations or financial position. It is the Company’s policy to accrue for expected costs in accordance with SFAS 5, when it is probable that a liability has been incurred and the amount of expected costs of these items to be incurred is reasonably estimable. These estimates include costs for external counsel and other professional fees. The Company is also involved in various legal proceedings in the normal course of its business. The associated legal costs for these routine matters are accrued when the legal expenses are incurred. The Company does not expect that any known lawsuits, environmental costs and commitments will have a material adverse effect on its financial condition, results of operations or cash flows, although the outcome of litigation, investigations and other legal proceedings is inherently uncertain.

Commitments and Contingencies Related to the Environment Renewable Portfolio Standard

The Renewable Energy Act of 2004 was enacted to encourage the development of renewable energy in New Mexico. The act establishes a mandatory renewable energy portfolio standard requiring a utility to acquire a renewable energy portfolio equal to 5% of retail electric sales by January 1, 2006 and, as amended effective July 1, 2007, increasing to 10% by 2011, 15% by 2015 and 20% by 2020. The NMPRC requires renewable energy portfolios to be “fully diversified” beginning in 2011 when no less than 20% of the renewable portfolio requirement must be met by wind energy, no less than 20% by solar energy, no less than 10% by other renewable technologies, and no less than 1.5% by distributed generation. The act provides for streamlined proceedings for approval of utilities’ renewable energy procurement plans, assures utilities recovery of costs incurred consistent with approved procurement plans and requires the NMPRC to establish a reasonable cost threshold for the procurement of renewable resources to prevent excessive costs being added to rates. The NMPRC has established a reasonable cost threshold that began at 1 percent of all customers’ aggregated overall annual electric charges, increasing by 0.2 percent annually until 2011, at which time it will be 2 percent, and then increasing by 0.25 percent annually until reaching 3 percent in 2015.

On July 1, 2008, PNM filed its annual renewable energy procurement plan for 2009. Costs incurred under a NMPRC-approved plan are authorized to be included for recovery in a future rate proceeding. PNM requested: (1) approval to continue its program for purchasing RECs from customers with photovoltaic (“PV”) distributed generation systems sized no larger than 10 kW at a price of $0.13 per REC per kWh generated, which was initially approved in December 2005, beyond the currently authorized budget and cost recovery in order to avoid a suspension of the program that would otherwise be necessary by early 2010; (2) approval to implement a program to acquire RECs from customers with PV systems sized greater than 10 kW and up to 1 MW at a price of $0.13 per REC per kWh generated and for cost recovery; and (3) approval to supplement the plan to seek approval of any new projects that result from two requests for proposals (“RFPs”) that PNM has recently issued for renewable resources. One of the RFPs was jointly issued with three other electric providers for a concentrated solar power project using solar parabolic trough technology that would be located in New Mexico. The second RFP was for renewable energy in general. PNM’s filing also reported on PNM's termination of the biomass project described below and indicated that PNM may need additional resources to meet the renewable energy portfolio standard requirement for 2010 and the diversity requirements for 2011. Protests to PNM’s procurement plan filed with the NMPRC assert that the plan should offer larger incentives for PV systems and that the incentives should be “front-loaded.” A hearing on PNM’s procurement plan was held on October 29, 2008 and an order on PNM’s filing is anticipated by year-end 2008.




(9) Commitments and Contingencies

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The Clean Air Act Regional Haze

On April 22, 1999, the EPA announced final regional haze rules. These regulations required states to submit state implementation plans (“SIPs”) by December 2007 to demonstrate “reasonable progress” towards achieving natural visibility conditions in certain “Class I Areas,” including several on the Colorado Plateau. SIPs are required to consider and potentially apply BART for certain older major stationary sources.

In 2005, the EPA issued the final rule addressing regional haze and guidelines for BART determinations. The rule calls for all states to establish goals and emission reduction strategies for improving visibility in these areas. In October 2006, the EPA issued the final BART alternatives rule which made revisions to the 2005 regional haze rules. In particular, the alternatives rule defines how an SO 2 emissions trading program developed by the Western Regional Air Partnership, a voluntary organization of western states, tribes and federal agencies, can be used by western states. New Mexico will be participating in the SO 2 program, which is a trading program that will be implemented if SO 2 reduction milestones, which are still being developed, are not met.

The NMED had requested a BART analysis for nitrogen oxides and particulates be done for each of the four units at SJGS. PNM submitted the analysis to the NMED in early June 2007. Based on the results of the BART analysis, PNM did not recommend that any additional pollution control equipment be installed on any of the SJGS units beyond that which is being installed. PNM believes the controls being installed constitute BART. The NMED is presently reviewing the analysis. Potentially, additional nitrogen oxide emission reductions could be required. The nature and cost of compliance with these potential requirements cannot be determined at this time.

In addition, EPA Region 9 requested APS to perform a BART analysis for Four Corners. APS completed the analysis and submitted it to the EPA on January 30, 2008. The EPA will now review the submission and determine what constitutes BART for Four Corners. APS’ recommendations include the installation of certain pollution control equipment that it believes constitutes BART. Once APS receives the EPA’s final determination, Four Corners will have five years to complete the installation of the equipment and to achieve the emission limits established by EPA Region 9. Until the EPA makes a final determination on this matter, the Company cannot accurately estimate the expenditures that may be required. As a result, PNM’s current environmental expenditure estimates do not include amounts for Four Corners BART expenditures.

While the Company continues to monitor these matters, at the present time the Company cannot predict whether the agencies will agree with either PNM’s or APS’ BART recommendations or, if the agencies disagree with those recommendations for SJGS or Four Corners, the nature of the BART controls the agencies may ultimately mandate and the resulting financial or operational impact. New Source Review Rules

In 2003, the EPA issued a rule clarifying what constitutes routine maintenance, repair, and replacement of damaged or worn equipment, subject to safeguards to assure consistency with the Clean Air Act. In March 2006, a panel of the U.S. Court of Appeals for the District of Columbia Circuit vacated this rule. The action by the court did not eliminate the NSR exclusion for routine maintenance, repair, and replacement work nor did the decision rule on what activities are physical changes. The EPA’s authority to write a rule based on the current NSPS hourly emission increase test remains in place, although the U.S. Supreme Court agreed to hear an appeal of the U.S. Circuit Court of Appeals for the Fourth Circuit ruling in favor of Duke Energy Corporation with respect to the hourly emission increase test being the appropriate method for calculating an emissions increase for PSD purposes. On April 2, 2007, the U.S. Supreme Court issued its decision. In a unanimous decision, the U.S. Supreme Court vacated the decision of the Fourth Circuit and remanded for further proceedings consistent with the U.S. Supreme Court’s opinion. The decision precludes the use of an increase in the maximum hourly emission rate for determining an emissions increase for PSD purposes. The decision did not preclude the EPA from promulgating a regulation




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allowing an emission increase test for PSD purposes to be based on an increase in the maximum hourly emission rate. The EPA has announced that it will proceed with revision of the NSR rules to specify that only activities that increase an emitting unit’s hourly rate of emissions trigger a major modification. The Company is unable to determine the impact of this matter on its results of operations and financial position. Citizen Suit Under the Clean Air Act

PNM reached an impasse with the Grand Canyon Trust and Sierra Club (“Plaintiffs”) and with the NMED with respect to certain matters under a consent decree of May 10, 2005. As a result, PNM filed petitions with the U.S. District Court for the District of New Mexico on October 6 and 12, 2006, seeking a determination that PNM had complied with the consent decree with respect to the matters at issue. The controversies related to PNM’s reports on NOX controls and demisters at SJGS. PNM reached an agreement with the Plaintiffs and the NMED concerning these issues which was set forth in a stipulated order entered by the court approving the settlement on December 27, 2006.

The consent decree includes a provision whereby stipulated penalties are assessed for non-compliance with specified emissions limits. Stipulated penalty amounts are placed in escrow on a quarterly basis pending review of SJGS’s emissions performance for each quarter. As of September 30, 2008, PNM’s share of the total amount of stipulated penalties was $3.4 million of which $3.2 million had been deposited into the escrow account and the remaining amount was deposited subsequently. By letter dated March 20, 2007, the NMED and Plaintiffs requested information concerning PNM’s calculation of potential stipulated penalty amounts and the amounts held in escrow. PNM submitted its response to NMED on May 23, 2007. To date, the NMED has taken no further action with respect to the requested information. Navajo Nation Environmental Issues

Four Corners is located on the Navajo Reservation and is held under an easement granted by the federal government as well as a lease from the Navajo Nation. APS is the Four Corners operating agent and PNM owns a 13.0% ownership interest in Units 4 and 5 of Four Corners.

The Navajo Acts, enacted in 1995, purport to give the Navajo Nation EPA authority to promulgate regulations covering air quality, drinking water, and pesticide activities, including those activities that occur at Four Corners. In October 1995, the Four Corners participants filed a lawsuit in the District Court of the Navajo Nation, Window Rock District, challenging the applicability of the Navajo Acts as to Four Corners. The District Court stayed these proceedings pursuant to a request by the parties and the parties are seeking to negotiate a settlement.

In 2000, the Navajo Tribal Council approved operating permit regulations under the Navajo Nation Air Pollution Prevention and Control Act. The Four Corners participants believe that the regulations fail to recognize that the Navajo Nation did not intend to assert jurisdiction over Four Corners. Each of the Four Corners participants filed a petition with the Navajo Nation Supreme Court for review of the operating permit regulations. Those proceedings have been stayed, pending the outcome of the settlement negotiations mentioned above.

In May 2005, APS and the Navajo Nation signed a Voluntary Compliance Agreement which would resolve the dispute regarding the Air Pollution Prevention and Control Act portion of the lawsuit for the term of the Voluntary Compliance Agreement. On March 21, 2006, the EPA determined that the Navajo Nation was eligible for “treatment as a state” for the purpose of entering into a supplemental delegation agreement with the EPA to administer the Clean Air Act Title V, Part 71 federal permit program over Four Corners. The EPA entered into the supplemental delegation agreement with the Navajo Nation on the same day. Because the EPA’s approval was consistent with the requirements of the Voluntary Compliance Agreement, SRP and APS sought and obtained dismissal of the pending litigation in the Navajo Nation Supreme Court, as well as the pending litigation in the Navajo Nation District Court to the extent the claims relate to the Clean Air Act. The agreement does not address or resolve any dispute relating to other Navajo Acts.




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The Company cannot currently predict the outcome of these matters. Four Corners Federal Implementation Plan Litigation

On April 30, 2007, the EPA adopted a source specific FIP to set air quality standards at Four Corners. The FIP essentially federalizes the requirements contained in the New Mexico State Implementation Plan, which Four Corners has historically followed. The FIP also includes a requirement to maintain and enhance dust suppression methods. On July 2, 2007, APS, the plant operator, filed a petition for review in the U.S. District Court of Appeals for the Tenth Circuit seeking revisions to the FIP to clarify certain requirements and allow operational flexibility. The Sierra Club has intervened in this action. On July 6, 2007, the Sierra Club and other parties filed a petition for review with the same court challenging the FIP’s compliance with the Clean Air Act and APS has intervened in their action. In APS’ lawsuit, APS challenges two key provisions of the FIP: a 20% opacity limit on certain fugitive dust emissions, which the EPA filed a motion to remand and vacate in early December 2007, and a 20% stack opacity limit on Units 4 and 5. Briefing in this case is now complete and oral argument occurred in May 2008. APS anticipates that the court will issue its opinion before the end of 2008. Although the Company cannot predict the outcome or the timing of these matters, the Company does not believe that they will have a material adverse impact on the Company’s financial position, results of operations or cash flows. Santa Fe Generating Station

PNM and the NMED conducted investigations of gasoline and chlorinated solvent groundwater contamination detected beneath the site of the former Santa Fe Generating Station to determine the source of the contamination pursuant to a 1992 settlement agreement between PNM and the NMED.

PNM believes that the data compiled indicates observed groundwater contamination originated from off-site sources. However, in 2003, PNM elected to enter into a fifth amendment to the 1992 Settlement Agreement with the NMED to avoid a prolonged legal dispute, whereby PNM agreed to supplement remediation facilities by installing an additional extraction well and two new monitoring wells to address remaining gasoline contamination in the groundwater at and in the vicinity of the site. These wells were completed in 2004. PNM will continue to operate the remediation facilities until the groundwater meets applicable federal standards or until such time as the NMED determines that additional remediation is not required, whichever is earlier. The City of Santa Fe, the NMED and PNM entered into an amended Memorandum of Understanding relating to the continued operation of the well and the remediation facilities called for under the latest amended Settlement Agreement. The well continues to operate and meets federal drinking water standards. PNM is not able to assess the duration of this project.

PNM has been verbally informed that the Superfund Oversight Section of the NMED is conducting an investigation into the chlorinated solvent contamination in the vicinity of the site of the former Santa Fe Generating Station. The investigation will study possible sources for the chlorinated solvents in the groundwater. In December 2007, PNM provided certain groundwater data at the request of the NMED. The NMED investigation is ongoing. Coal Combustion Waste Disposal

SJCC currently disposes of coal combustion products consisting of fly ash, bottom ash, and gypsum from SJGS in the surface mine pits adjacent to the plant. The Office of Surface Mining is in the process of developing revisions to the Surface Mining Control and Reclamation Act (“SMCRA”) Title IV and V that would specifically address the placement of coal combustion products (“CCPs”) in surface mines. PNM understands that these revisions do not represent a major overhaul of the SMCRA regulations and will continue to support the mine placement of CCPs. PNM does not expect the proposed regulations to be published before the end of 2008.

EPA is currently working on a Notice of Data Availability (“NODA”) on the placement of CCPs in surface




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impoundments and landfill. The NODA allows additional data and information to be collected and could cause EPA to revisit its current regulations on the disposal of CCPs in surface impoundments or landfill. PNM cannot predict the outcome of this matter but does not believe currently that it will have a material adverse impact on its results of operations or financial position, because the majority of the CCPs from SJGS are placed in the mine and not surface impoundments or landfills.

In June, the U.S. House of Representatives Subcommittee on Energy and Mineral Resources conducted an oversight hearing on how the federal government should address the health and environmental risks of CCPs. This is the first of a number of hearings the subcommittee will hold. PNM cannot predict the outcome of these hearings but does not believe additional regulations will result. Gila River Indian Reservation Superfund Site

By letter dated April 25, 2008, the EPA informed PNM that it may be a PRP in the Gila River Indian Reservation Superfund Site in Maricopa County, Arizona. PNM, along with SRP, APS and EPE, owns a parcel of property on which a transmission pole and a portion of a transmission line are located. The property abuts the Gila River Indian Community boundary and, at one time, may have been part of an airfield where crop dusting took place. Currently, the EPA is only seeking payment from PNM and other PRPs for past cleanup-related costs involving contamination from the crop dusting. Based upon the total amount of cleanup costs reported by the EPA in its letter to PNM, the resolution of this matter is not expected to have a material adverse impact on PNM’s financial position, results of operations, or cash flows.

Other Commitments and Contingencies PVNGS Liability and Insurance Matters

The PVNGS participants have insurance for public liability resulting from nuclear energy hazards to the full limit of liability under federal law. This potential liability is covered by primary liability insurance provided by commercial insurance carriers in the amount of $300 million and the balance by an industry-wide retrospective assessment program. If losses at any nuclear power plant covered by the program exceed the accumulated funds, PNM could be assessed retrospective premium adjustments. The maximum assessment per reactor under the program for each nuclear incident is $117.5 million, subject to an annual limit of $17.5 million per incident, to be periodically adjusted for inflation. Based on PNM’s 10.2% interest in the three PVNGS units, PNM’s maximum potential assessment per incident for all three units is $36.0 million, with an annual payment limitation of $5.4 million.

The PVNGS participants maintain “all risk” (including nuclear hazards) insurance for property damage to, and decontamination of, property at PVNGS in the aggregate amount of $2.75 billion, a substantial portion of which must first be applied to stabilization and decontamination. The participants have also secured insurance against portions of any increased cost of generation or purchased power and business interruption resulting from a sudden and unforeseen accidental outage of any of the three units. The property damage, decontamination, and replacement power coverages are provided by Nuclear Electric Insurance Limited (“NEIL”). PNM is subject to retrospective assessments under all NEIL policies if NEIL’s losses in any policy year exceed accumulated funds. The maximum amount of retrospective assessments PNM could incur under the current NEIL policies totals $7.3 million. The insurance coverage discussed in this and the previous paragraph is subject to policy conditions and exclusions. NRC Matters

In October 2006, the NRC conducted an inspection of the PVNGS emergency diesel generators after a PVNGS Unit 3 generator started but did not provide electrical output during routine inspections on July 25 and September 22, 2006. On February 22, 2007, the NRC issued a “white” finding (low to moderate safety significance) for this matter. Under the NRC’s Action Matrix, this finding, coupled with a previous NRC “yellow” finding




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relating to a 2004 matter involving PVNGS’ safety injection systems, resulted in PVNGS Unit 3 being placed in the “multiple/repetitive degraded cornerstone” column of the NRC’s Action Matrix (“Column 4”), which has resulted in an enhanced NRC inspection regime. Although only PVNGS Unit 3 is in NRC’s Column 4, in order to adequately assess the need for improvements, APS management has been conducting site-wide assessments of equipment and operations.

Preliminary work in support of the NRC’s enhanced inspection regime took place throughout the summer of 2007. On June 21, 2007, the NRC issued an initial confirmatory action letter confirming APS’ commitments regarding specific actions APS will take to improve PVNGS’ performance. From October 1, 2007, through November 2, 2007, a team of NRC inspectors performed on-site in-depth inspections of PVNGS equipment and operations. The NRC’s inspection results were presented at a public meeting on December 19, 2007, and documented in an NRC letter to APS dated February 1, 2008. The inspection report indicated that the facility is being operated safely but also identified certain performance deficiencies. On December 31, 2007, APS submitted its improvement plan to the NRC, which addresses issues identified by APS management during its site-wide assessments of equipment and operations that occurred during 2007. The NRC reviewed the adequacy of this improvement plan and issued a revised confirmatory action letter on February 15, 2008 that outlines the actions APS must take in order for the NRC to return the PVNGS site to the NRC’s routine inspection and assessment process. This revised confirmatory action letter was anticipated as part of the NRC’s inspection procedure. On March 31, 2008, APS submitted to the NRC a revision to its improvement plan to address issues raised by the NRC in its inspection report. The NRC will continue to provide increased oversight at PVNGS until the facility demonstrates sustained performance improvement. APS continues to cooperate fully with the NRC throughout this process. San Juan River Adjudication

In 1975, the State of New Mexico filed an action entitled “State of New Mexico v. United States, et al.”, in the District Court of San Juan County, New Mexico, to adjudicate all water rights in the San Juan River Stream System. The Company was made a defendant in the litigation in 1976. The action is expected to adjudicate water rights used at Four Corners and at SJGS. In 2005, the Navajo Nation and various parties announced a settlement of the Nation’s reserved surface water rights. Congressional legislation as well as other approvals will be required to implement the settlement. The Company cannot determine the effect, if any, of any water rights adjudication on the present arrangements for water at SJGS and Four Corners. It is PNM’s understanding that final resolution of the case cannot be expected for several years. PNM is unable to predict the ultimate outcome of this matter. Conflicts at San Juan Mine Involving Oil and Gas Leaseholders

SJCC, through leases with the federal government and the State of New Mexico, owns coal interests with respect to the San Juan underground mine. Certain gas producers have leases in the area of the underground coal mine and have asserted claims against SJCC that its coal mining activities are interfering with gas production. SJCC has reached settlement with several gas leaseholders and has other potential claimants. PNM cannot predict the outcome of any future disputes between SJCC and other gas leaseholders. Republic Savings Bank Litigation

In 1992, Meadows Resources, Inc., an inactive subsidiary of PNMR, and its subsidiaries (“Plaintiffs”) filed suit against the Federal government in the United States Court of Claims, alleging breach of contract arising from the seizure of Republic Savings Bank (“RSB”). RSB was seized and liquidated after the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”) prohibited certain accounting practices authorized by contracts with the Federal government. The Federal government filed a counterclaim alleging breach of obligation to maintain RSB’s net worth and moved to dismiss Meadows’ claims for lack of standing.




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Discovery was completed in 1999 and Plaintiffs filed a motion for summary judgment in December 1999 on the issue of liability and on the issue of damages. The Federal government

filed a cross motion for summary judgment and opposed Plaintiffs’ motion.

On January 25, 2008, the judge in this matter entered his opinion granting the Federal government’s motion to dismiss Meadows for lack of standing, denying the Federal government’s motion for summary judgment and granting the remaining Plaintiffs’ motion for summary judgment on the issues of liability and damages, awarding the remaining Plaintiffs damages in the amount of $14.9 million. The Court determined that Plaintiffs should receive restitution damages in the amount of $17 million for the initial cash contribution into RSB, reduced by the Federal government’s contribution of $3 million and enhanced by the $0.9 million profit received by the FDIC upon selling the business of RSB. Meadows received payment from the FDIC in October 2004 in the amount of $0.3 million, representing the final distribution of the receivership. This payment reduces the amount of damages owed to $14.6 million.

The matter is currently pending before the U. S. Court of Appeals for the Federal Circuit on appeal by the Federal government and cross-appeal by the Plaintiffs. The Company is unable to predict the ultimate outcome of this litigation as both parties have rights to seek rehearing and appeal. Western United States Wholesale Power Market

Various circumstances, including electric power supply shortages, weather conditions, gas supply costs, transmission constraints and alleged market manipulation by certain sellers, resulted in the well-publicized California energy crisis and in the bankruptcy filings of the Cal PX and of PG&E. As a result of the conditions in the western market, the FERC and other federal and state governmental authorities initiated investigations, litigation and other proceedings relevant to the Company and other sellers. The more significant of these in relation to the Company are summarized below. California Refund Proceeding

SDG&E filed a complaint with the FERC in 2000 against sellers into the California wholesale electric market. In 2002, the FERC ALJ issued the Proposed Findings on California Refund Liability, in which it determined that the Cal ISO and Cal PX had, for the most part, correctly calculated the amounts of the potential refunds owed by most sellers and identified approximations for the amount of refunds due. In 2003, the FERC issued an order substantially adopting the findings from the ALJ’s 2002 decision, but requiring a change to the formula used to calculate refunds, which had the effect of increasing the refund amounts owed by most sellers. In August 2005, the FERC issued an order setting out the process by which sellers into the Cal ISO and Cal PX markets could make cost recovery filings pursuant to the FERC’s prior orders that indicated sellers would get the opportunity to submit evidence demonstrating that the refund methodology creates a revenue shortfall for their transactions during the refund period (October 2, 2000 through June 20, 2001). Included in PNM’s submittal were objections to the limited amount of time the FERC allowed for sellers to complete their respective submittals, and the FERC’s arbitrary decision to allow only marketers, and not load serving entities such as PNM, to include a return component in their cost filings. PNM participated with certain other sellers to request rehearing of these issues before the FERC. In September 2005, PNM made its cost recovery filing identifying its costs associated with sales into the Cal ISO and Cal PX markets during the refund period. In January 2006, the FERC issued its order on the cost recovery filings, acting on 23 filings that were made by multiple sellers. The FERC accepted that portion of PNM’s filing submitted as prescribed by the FERC’s August 2005 order, but rejected the alternative filings that included a return component for PNM as a load serving entity. The effect of the FERC’s order is that PNM’s allowed cost offset against its refund liability is zero. In February 2006, PNM filed a petition for rehearing requesting FERC to reconsider its order and allow PNM to include a return on equity, which is still pending before FERC. In November 2007, FERC issued an order denying other rehearing petitions regarding the cost recovery calculation methodology, including the appropriateness of earning a return by load serving entities. This was not an order on PNM’s specific rehearing request. However, to preserve its rights to appeal the issues, PNM filed an appeal in the Ninth Circuit Court of




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Appeals on these cost recovery rehearing orders. While PNM believes it has meritorious legal arguments, the Company cannot predict the outcome of this cost recovery proceeding at this time.

As previously reported, there have been a number of additional appeals pending before the U.S. Court of Appeals for the Ninth Circuit with regard to FERC’s orders issued in the various California market refund dockets and PNM has participated in various appeals as one of the members of the Competitive Sellers Group. The Ninth Circuit has held a number of mediation conferences in which PNM has participated, regarding these and the multiple other appeals pending before it, to assess the opportunities for settlement. In September 2006, a mediation conference was convened at the California Public Utilities Commission to assess the potential settlement of the refund proceedings. The conference was attended by, among others, PNM, the other buyers and sellers, FERC personnel, a settlement judge and mediator from the Ninth Circuit. Representatives of PNM continue to attend and participate in the mediation and case management sessions being hosted by the Ninth Circuit. The most recent one was held in September 2008. In December 2007, the Ninth Circuit issued its mandate in the Lockyer v. FERC case and allowed the appellate process to continue in other pending appeals. As a result, various petitions for rehearing of the court’s prior decisions have been filed in the Ninth Circuit. PNM participated with a group of sellers in a petition for rehearing in the CPUC v. FERC appeal. The petitions for rehearing are currently pending before the Ninth Circuit.

As a result of the Ninth Circuit issuance of the mandate in the Lockyer v. FERC case, the case was formally remanded back to FERC. See California Attorney General Complaint below.

The Company cannot predict the ultimate outcome of FERC proceedings that may result from the decisions in these appeals, or whether PNM will be ultimately directed to make any additional future refunds as the result of these court decisions, or whether settlement will be reached in the case. Pacific Northwest Refund Proceeding

Puget Sound Energy, Inc. filed a complaint at FERC alleging that spot market prices in the Pacific Northwest wholesale electric market were unjust and unreasonable. In 2003, FERC issued an order recommending that no refunds should be ordered. Several parties in the proceeding filed requests for rehearing and FERC denied rehearing and reaffirmed its prior ruling that refunds were not appropriate for spot market sales in the Pacific Northwest during the first half of 2001. The Port of Seattle then filed an appeal of the FERC’s order denying rehearing in the Ninth Circuit. As a participant in the proceedings before FERC, PNM also participated in the appeal proceedings. Oral argument in the case was held in January 2007. In August 2007, the Ninth Circuit issued its decision on appeal and determined that FERC erred in excluding certain purchases in the Pacific Northwest spot markets from consideration in the Pacific Northwest refund proceeding, and that FERC should have taken into account evidence of manipulation in the California spot markets that was presented after the original evidentiary proceeding. The court remanded the case to FERC to reconsider its decision to deny refunds, in light of the evidence of market manipulation and the various recent Ninth Circuit decisions, but did not require FERC to order refunds. In September 2007, the Ninth Circuit extended the time period for filing petitions for rehearing on their decision until November 16, 2007. At the conclusion of the time-out period, several parties filed petitions for rehearing of the Ninth Circuit’s decision. PNM did not participate in any of the petitions for rehearing but continues to monitor the appeal. The Company is unable to predict the ultimate outcome of this appeal. FERC Gaming Partnerships Order

In 2003, in the Gaming Partnerships Order, FERC asserted that certain entities, including PNM, acted in concert with Enron Corporation and other market participants to engage in activities that constitute gaming and/or anomalous market behavior in violation of the Cal ISO and Cal PX tariffs during 2000 and 2001. In 2003, PNM filed its responses to the Gaming Partnerships Order indicating that it did not engage in the alleged partnerships, alliances or other arrangements.




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In 2004, FERC issued an order granting the FERC staff’ s motion to dismiss seven of the thirteen PNM customers on grounds that there was no evidence to conclude that these

companies used their commercial relationship with PNM to game the Cal ISO and Cal PX markets. FERC approved the settlements entered into by two of the thirteen PNM customers and dismissed another of PNM’s customers from the proceeding. Of the three remaining PNM customers in the docket, the FERC staff entered into settlement agreements with two of them. In 2004, the FERC staff filed a motion to dismiss PNM from the docket and to enter into a settlement of certain parking and lending transactions. The staff’s motion stated that after investigation and review there was no evidence that PNM engaged in a gaming practice that violated either the Cal ISO or Cal PX tariffs. However, PNM entered into a settlement of certain matters outside the scope of the docket related to historic parking and lending transactions, under which PNM agreed not to provide parking and lending services prospectively without first meeting certain requirements agreed to with the FERC staff. Additionally, PNM agreed to pay $1.0 million in settlement to FERC to obtain satisfaction of all issues related to any potential liability stemming from the provision of parking and lending services historically. In July 2005, FERC issued its order granting the staff’s motion to dismiss PNM from the Gaming Partnerships docket. In its order, FERC found that PNM did not engage in prohibited gaming practices as defined in the FERC’s Gaming Partnership Order and also approved the settlement on the parking and lending services. FERC also denied the California parties’ request to keep the docket open as to PNM and terminated the PNM docket. Subsequently, the California parties filed their petition for rehearing at FERC objecting to FERC’s dismissal of PNM from the Gaming Partnership investigation and objecting to the settlement reached with the FERC staff. The petition for rehearing is pending before FERC and PNM cannot predict the ultimate outcome of the rehearing petition. In August 2005, Enron, the final of the original 13 PNM customers, entered into a settlement agreement with the FERC staff, the California parties and others that was contested by several parties. In November 2005, FERC issued an order approving the joint offer of settlement. Various parties either objected to the settlement or otherwise sought efforts to stay or overturn FERC’s order. In January 2007, the Enron matter went to hearing on certain contested matters. In June 2007, the FERC administrative law judge issued its initial decision, which has no impact on PNM. In October 2007, Enron entered a settlement with the final parties litigating against them and filed the settlement at FERC, which is still pending before FERC.

In November 2007, FERC staff initiated a settlement proceeding designed to determine how the proceeds from the penalty amounts that have been and will be paid should be allocated among participants in the Cal PX and Cal ISO markets (Phase II Distribution proceedings). PNM has participated in several settlement conferences regarding proposed allocations of these funds. In August 2008, an allocation settlement was reached and filed at FERC. PNM is a signatory to the settlement and would receive an allocated share of the penalty amounts. In September 2008, the Northern California Power Authority (“NCPA”) filed an objection to the settlement at FERC. PNM joined a group of sellers and filed an answer to NCPA’s objection, as did other parties to the settlement. The allocation settlement is now pending before FERC. PNM cannot predict the ultimate outcome of this proceeding. California Power Exchange and Pacific Gas and Electric Bankruptcies

In 2001, SCE and the major purchasers of power from the Cal ISO and Cal PX defaulted on payments due to the Cal ISO for power purchased from the Cal PX in 2000. These defaults caused the Cal PX to seek bankruptcy protection. PG&E subsequently also sought bankruptcy protection. PNM has filed its proofs of claims in the Cal PX and PG&E bankruptcy proceedings. Amounts due to PNM from the Cal ISO or Cal PX for power sold to them in 2000 and 2001 total $7.9 million. Both the PG&E and Cal PX bankruptcy cases have confirmed plans of reorganization in which the claims of various creditors have been specially classified and are waiting a final determination by FERC before the claims are actually paid. The PG&E bankruptcy case has an escrow account and the Cal PX bankruptcy has established a settlement account, both of which are awaiting final determination by FERC setting the level of claims and allocating the funds. California Attorney General Complaint

In 2002, the California Attorney General filed a complaint with FERC against numerous sellers, including PNM, regarding prices for wholesale electric sales into the Cal ISO and Cal PX markets and to the California Department of Water Resources. In 2002, FERC entered an order denying the California Attorney General’s request




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to initiate a refund proceeding, but directed sellers, including PNM, to comply with additional reporting requirements with regard to certain wholesale power transactions. The California Attorney General filed a petition for review in the Ninth Circuit. The Ninth Circuit issued a decision in September 2004 upholding the FERC’s authority to establish the market-based rate framework under the Federal Power Act, but held that FERC violated its administrative discretion by declining to investigate whether it should order refunds from sellers who failed to provide transaction-specific reports to FERC as required by its rules. The Ninth Circuit determined that FERC has the authority to order refunds for these transactions if it elects to do so and remanded the case back to FERC for further proceedings, including a determination as to whether additional refunds are appropriate. In October 2004, PNM joined the group of competitive Sellers and filed a petition for rehearing at the Ninth Circuit. In July 2006, the Ninth Circuit denied rehearing. In December 2006, PNM joined a group of sellers in filing a petition for writ of certiorari in the U.S. Supreme Court challenging the decision by the Ninth Circuit. On June 18, 2007, the U.S. Supreme Court denied the Petition for Certiorari filed by various competitive sellers, including PNM. In November 2007, the Ninth Circuit’s time-out period expired and in December 2007, the Ninth Circuit issued its mandate remanding the case back to FERC.

Upon remand to FERC, numerous parties filed motions at FERC regarding the appropriate procedures to occur on remand for the disposition of the case. In March 2008, FERC issued its order on remand indicating that it will establish trial type hearings to determine if specific sellers’ violation of FERC’s quarterly reporting requirements led to an unjust and unreasonable rate for these sellers in Cal ISO and Cal Px markets during the 2000-2001 time period. The order required sellers to submit revised quarterly reports to FERC for review. PNM filed its quarterly sales transaction reports per FERC’s order. The order also established settlement procedures for the matters. In April 2008, FERC issued a clarification order in which it clarified certain matters in the remand order. An initial settlement conference in the remand proceedings was held in April 2008. PNM participated in these settlement proceedings. Subsequently, several parties filed petitions for rehearing of FERC’s orders. PNM participated with the other members of the Competitive Sellers Group to respond to the petitions for rehearing. In September 2008, FERC staff issued its preliminary analysis indicated they had reviewed the quarterly transaction reports filed by the sellers and made preliminary conclusions. Specifically as to PNM, the FERC staff determined that PNM had no violations in its quarterly report filings. The California parties then made a filing at FERC in which they claimed FERC staff made use of the wrong standard in completing their review, and as such, came to the wrong conclusions. FERC then issued its order on rehearing in October 2008 in which it affirmed its view of reviewing the nexus between reporting violations and the ability to mask the existence of market power in their sales transactions. Subsequently, in October 2008, the California parties filed an appeal of these FERC orders to the Ninth Circuit Court of Appeals. The Company cannot predict the ultimate outcome of the proceeding, or whether PNM will be ultimately directed to make any additional refunds as the result of the decision. California Antitrust Litigation

In May 2005, the California Attorney General filed a lawsuit in California state court against PNM, PowerEx, and the Colorado River Commission alleging that PNM and PowerEx conspired to engage in unfair trade practices involving overcharges for electricity in violation of California state antitrust laws. In June 2005, the lawsuit was removed to Federal Court. In April 2006, the Federal District Court issued its decision denying the California Attorney General’s motion to remand the case back to the state court, and granted PNM’s and PowerEx’s motions to dismiss the case. The California Attorney General has appealed the case to the Ninth Circuit. Briefs were filed in the case by the parties, and oral argument was held in March 2008. In April 2008, by memorandum opinion, the Ninth Circuit affirmed the District Court’s dismissal of the complaint. No petition for rehearing of the decision was filed by the California Attorney General. As such, the Ninth Circuit’s decision became final and the case is now over as to PNM. Regional Transmission Issues

In February 2007, FERC issued Order 890 setting out the new OATT rule, which became effective in May 2007. Order 890 addressed several elements of transmission service, including: (1) requiring greater consistency




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and transparency in calculating available transfer capacity for transmission; (2) requiring transparent transmission planning and customer access to transmission plans; (3) reform of rollover rights; and (4) clarification of various ambiguities in transmission rights under the new OATT. Order 890 also required numerous compliance filings to be made by transmission providers. Order 890 also attempted to clarify certain elements of transmission service utilized for network generation resources, but still left uncertain the transmission used for such resources that pre-dated transmission open access. PNM filed a petition for rehearing seeking clarification of this issue in regards to one such generation resource that PNM has under contract. Numerous other entities also filed petitions for rehearing and/or clarification. Additionally, a number of entities, including EEI, requested extensions of time for making several of the compliance filings due under the order issued in the NOPR. In December 2007, FERC issued its order on rehearing and clarified and revised some aspects of its initial order and rule designated as Order 890-A. FERC did not specifically rule on the request PNM filed for clarification on transmission used for network generation resources. The order reiterated its general rule on this topic, which had no impact on PNM operations. In January 2008, multiple parties filed requests for rehearing of Order 890-A. PNM did not join any of these rehearing requests. The Company cannot predict the outcome of the final rule. As of October 15, 2008, the Company has completed the FERC compliance filings required by Order 890. Biomass Project

PNM entered into a 20-year contract for the purchase of 32 MW of capacity from a renewable biomass power generation facility in central New Mexico that was scheduled to commence in 2009. The purchase power agreement was contingent upon the satisfaction of certain conditions precedent as outlined in the purchase power agreement. The contract contained several conditions including obtaining permits, completion of financial closing by April 2, 2007 and the start of construction by July 2, 2007. The biomass project owner was unable to complete the financial closing on April 2, 2007 or to start construction by July 2, 2007. As a result, PNM delivered a remediable event of default letter to the biomass project owner. The operator declared a force majeure over failure to obtain an air permit. The air permit was subsequently approved on October 2, 2007.

The biomass project owner filed an application in August 2007 for a renewable energy production tax credit in connection with the project. The project owner’s application was initially denied, on grounds that the owner had not demonstrated the project was a qualifying facility for the credit because it had not shown there was a sufficient amount of wood fuel under contract. The project owner filed an appeal and ultimately obtained the production tax credit. PNM expected the biomass facility to begin commercial operations in late 2009 or early 2010, provided adequate financing was obtained by June 1, 2008. However, financing was not obtained by that date, and PNM notified the owner on June 12, 2008, of the immediate termination of the agreement. On June 23, 2008, the owner advised PNM that it disputed the basis for the termination, but the owner took no subsequent action to submit the matter to arbitration within the time period specified in the agreement. PNM is unable to predict the outcome of this matter.

PNMR Price-to-Beat Base Rate Reset

Based on the terms of the Texas stipulation related to the acquisition of TNP, First Choice made a filing to reset its price-to-beat base rates in December 2005. First Choice’s price-to-beat base rate case was consolidated with TNMP’s 60-day rate review (see “60-Day Rate Review” below). First Choice requested that the PUCT recognize in its new price-to-beat base rates the TNMP rate reduction and the synergy savings credit provided for in the TNP acquisition stipulation. In May 2006, TNMP, First Choice, the PUCT staff and other parties filed a non-unanimous settlement agreement (“NUS”). On July 20, 2006, the ALJ reopened the record to accept argument concerning the provisions for accumulated deferred federal income taxes and the carrying charges on stranded costs. Subsequently, on August 24, 2006, the ALJ issued a Proposal For Decision urging the PUCT to reject the NUS. After the parties




(10) Regulatory and Rate Matters

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filed exceptions to the Proposal For Decision, the PUCT unanimously rejected the ALJ’s proposal and approved the NUS on November 2, 2006. The PUCT made First Choice’s new price-to-beat base rates effective on December 1, 2006, as First Choice had requested. As price-to-beat rates expired on December 31, 2006, the approved rates are no longer applicable. In January 2007, TNMP’s 60-Day Rate Review proceeding and the underlying NUS were appealed by various Texas cities to a Texas district court. TNMP and First Choice have intervened and will defend the PUCT’s Final Order approving the NUS. First Choice Request for ERCOT Alternative Dispute Resolution

On June 30, 2008, First Choice filed a request for alternative dispute resolution with ERCOT alleging that ERCOT incorrectly applied its protocols with respect to congestion management during the first quarter of 2008. First Choice requests that ERCOT resolve the dispute by restating certain elements of its first quarter 2008 congestion management data and by refunding to First Choice allegedly overstated congestion management charges. The amount at issue in First Choice’s claim can only be determined by running ERCOT market models with corrected inputs but First Choice believes that the amount is significant. ERCOT protocols provide that ERCOT will notify potentially impacted market participants and subsequently consider the merits of First Choice’s allegations. The Company is unable to predict the outcome of this matter. PNM Gas Rate Case

On May 30, 2006, PNM filed a general gas rate case that asked the NMPRC to approve an increase in the service fees charged to its 481,000 natural gas customers, including the set monthly fee, the charge tied to monthly usage, and miscellaneous on-demand service fees. Those fees are separate from the cost of gas charged to customers, which would not be affected by the fee increase. The petition requested an increase in base gas service rates of $22.6 million and an increase in miscellaneous on-demand service rates of $0.2 million. The request was designed to provide PNM’s gas utility an opportunity to earn an 11 percent return on equity, which is consistent with the average return allowed ten comparable natural gas utilities. The petition also requested approval of a line item that provides a true-up mechanism for operational costs when system-wide gas consumption is lower or higher than what is designed in the rates. On June 29, 2007 the NMPRC unanimously approved an increase in annual revenues of approximately $9 million for PNM. The NMPRC based the new rates on a revenue requirement needed to earn a 9.53 percent return on equity. The NMPRC did not approve PNM’s request for the true-up mechanism for operational costs based on system-wide gas consumption. PNM and the AG filed appeals with the New Mexico Supreme Court. The AG’s appeal seeks reversal of the NMPRC decision on one issue – weather normalization. PNM’s appeal seeks reversal of the NMPRC determination of the required return on equity and on four cost-of-service accounting issues. If PNM’s appeal is successful in all respects and the AG’s appeal is unsuccessful, PNM’s authorized annual revenue would increase by about $10 million. If PNM’s appeal is unsuccessful in all respects and the AG’s appeal is upheld, PNM’s annual revenues would decrease by $6.8 million. On August 20, 2008, a stipulation intended to resolve all issues in the NMPRC case relating to PNM’s gas assets sale and service abandonment was filed by PNM, the AG, the NMPRC staff, the IBEW, and NMGC. As part of that stipulation, upon approval by the NMPRC, PNM and the AG will move to dismiss their respective gas rate case appeals. PNM is unable to predict whether the stipulation will be approved and, if it is not approved, the outcome of these appeals. 2007 Electric Rate Case

On February 21, 2007, PNM filed a general electric rate case requesting the NMPRC approve an increase in service fees to all of PNM’s retail customers except those formerly served by TNMP. The request was designed to provide PNM’s electric utility an opportunity to earn a 10.75 percent return on equity. The application also requested authorization to implement a FPPAC through which changes in the cost of fuel and purchased power, above or below the costs included in base rates, will be passed through to customers on a monthly basis. Hearings were held in December 2007. At the hearing PNM adjusted its revenue increase request to $76.9 million. On April




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24, 2008, the NMPRC issued a final order in the case that resulted in a revenue increase of $34.4 million. The rate increase provides for a 10.1percent return on equity. New rates reflecting the $34.4 million increase were effective for bills rendered on and after May 1, 2008. In its final order, the NMPRC disallowed recovery of costs associated with the RECs used to meet the New Mexico Renewable Energy Portfolio Standards that were being deferred as regulatory assets, but did allow PNM the opportunity to seek recovery in the next rate case if it can demonstrate that it incurred an actual incremental cost for its compliance with the RPS. The NMPRC also ruled that recovery of coal mine decommissioning costs should be capped at $100 million. The order results in PNM being unable to assert it is probable, as defined under GAAP, that the costs previously deferred on PNM’s balance sheet will be recoverable through future rates charged to its customers. Accordingly, as of March 31, 2008, PNM recorded regulatory disallowances for pre-tax write offs of $19.6 million for coal mining decommissioning costs and $10.6 million for deferred REC costs. PNM is evaluating whether it will be successful in meeting the criteria set forth by the NMPRC. PNM has appealed the NMPRC’s treatment of coal mine decommissioning and the RECs to the New Mexico Supreme Court. If the appeal is successful or if PNM is successful in demonstrating that these costs are recoverable through future rate proceedings, the costs will be restored to PNM’s balance sheet. The Company is unable to predict the outcome of this matter. Emergency FPPAC

On March 20, 2008, PNM and the IBEW, filed a joint motion in the general electric rate case requesting NMPRC authorization to implement an Emergency FPPAC on an interim basis. The motion requested immediate authority to implement an Emergency FPPAC for a period of 24 months or until the effective date of new rates in PNM’ s next rate case, whichever is earlier.

On May 22, 2008, the NMPRC issued a final order that approved the Emergency FPPAC with certain modifications relating to power plant performance and the treatment of revenue from SO 2 allowances. The Emergency FPPAC permits PNM to recover its actual fuel and purchased power costs up to $0.024972 per kWh, which is an increase of $0.008979 per kWh above the fuel costs included in base rates. PNM is unable to predict if actual fuel and purchased power costs will exceed the cap during the period the Emergency FPPAC is in effect. PNM implemented the Emergency FPPAC as modified on June 2, 2008 and expects to recover $58 million to $62 million annually. Motions for rehearing were filed by NMPRC staff and intervenors on June 12, 2008 and June 23, 2008. PNM filed timely responses to these motions. The NMPRC denied the motions for rehearing on July 8, 2008. The Albuquerque Bernalillo County Water Utility Authority and the New Mexico Industrial Energy Consumers Inc. filed notices of appeal to the New Mexico Supreme Court, which seek to have vacated the NMPRC order approving the Emergency FPPAC. The appeals have been consolidated and PNM has been granted party status. PNM is unable to predict the final outcome of these appeals. Sky Blue Investigation

On July 17, 2008, the NMPRC issued an order that initiated an investigation into whether the addition of the fuel adjustment surcharge, approved by the NMPRC in PNM’s Emergency FPPAC proceeding, to PNM’s voluntary renewable energy program known as “Sky Blue” is just and reasonable. The order directed PNM to respond to several questions including whether an adjustment should be made to remove some or all or the fuel adjustment surcharge and whether any such adjustment should be applied retroactively. In its response, PNM recommended a decrease in the rate but retention of the fuel adjustment surcharge. PNM stated that the adjustment should be applied prospectively only. If the NMPRC determined that PNM’s proposed adjustment should be applied retroactively to the date of the initiation of the charge, PNM could be required to provide a credit or refund to customers of approximately $0.1million per month from June 2, 2008. A hearing is scheduled for November 19, 2008. PNM is unable to predict the outcome of this proceeding.




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2008 Electric Rate Case

On September 22, 2008, PNM filed a general rate case requesting the NMPRC to approve an increase in electric service rates to all PNM retail customers except those formerly served by TNMP. The proposed rates are designed to increase annual operating revenue by $123.3 million, based on a March 31, 2008 test period and calculating base fuel costs using a projection of costs for the 12 months ending March 31, 2009. PNM has also proposed a FPPAC in the general form authorized by the NMPRC, but with PNM retaining 25% of off-system sales margins and crediting 75% against fuel and purchased power costs. On September 30, 2008, the NMPRC ordered that PNM‘s proposed rates be suspended for a period of nine months from October 22, 2008 and appointed a hearing examiner to conduct a hearing and otherwise preside over the case. PNM is unable to predict the outcome of this proceeding.

In anticipation of the 2008 electric rate case, on September 10, 2008, a stipulation (the “Resource Stipulation”) executed by PNM, the NMPRC staff, the AG and the Coalition for Clean Affordable Energy, and later joined by the New Mexico Industrial Energy Consumers Inc., was filed with the NMPRC. If approved by the NMPRC, the Resource Stipulation would resolve all issues in the proceedings regarding Valencia, PNM’ s proposed acquisition of an ownership interest in Unit 2 of PVNGS currently being leased, the application to own and operate Lordsburg and its interest in Luna as NMPRC jurisdictional assets and to recover their costs in retail rates. As to Valencia, the Resource Stipulation provides that upon its approval by the NMPRC costs incurred under the Valencia PPA would be recovered through PNM’s Emergency FPPAC until new base rates go into effect as a result of PNM’s 2008 electric rate case. The Resource Stipulation further provides that PNM will seek prior NMPRC approval of future long-term PPAs. The NMPRC has approved consolidating these three proceedings for the purpose of considering approval of the Resource Stipulation and to expedite such consideration. Hearings are scheduled to begin on March 30, 2009. The Company is unable to predict whether the NMPRC will approve the Resource Stipulation or the ultimate outcome of these proceedings if it does not.

Additional information concerning these proceedings is discussed below.

Valencia

On April 18, 2007, PNM entered into a PPA to purchase all of the electric capacity and energy from Valencia, a natural gas-fired power plant near Albuquerque, New Mexico. An unaffiliated entity built, owns and operates the facility while PNM will be the sole purchaser of the electricity generated. The Valencia facility began commercial operation on May 30, 2008. For financial accounting purposes PNM consolidates the plant under FIN 46R since PNM absorbs the majority of the variability in the cash flows of the plant. See Note 16.

On May 31, 2007, the office of the AG and the staff of the NMPRC filed a petition for formal review requesting the NMPRC investigate the Valencia PPA and related transactions to determine, among other things, whether the transactions were prudent, appropriate and consistent with NMPRC rules, and to establish the ratemaking treatment of the PPA. In its response to the petition, filed July 11, 2007, PNM described the terms of the agreement and process used to select this resource, stated that an investigation was not warranted and joined in the staff and AG’s request for determination of the ratemaking treatment for the agreement. On November 6, 2007, the NMPRC issued an order, which appointed a hearing examiner and directed her to consider the issues raised in the petition and the response, including whether PNM’s actions in entering into the PPA and in reporting that transaction to the NMPRC were consistent with statute and NMPRC rules.

PVNGS Unit 2 Lease Interest Transfer

On June 29, 2007, a wholly-owned subsidiary of PNMR purchased 100% of a trust, which owns a 2.26% undivided interest, representing 29.8 MW, in PVNGS Unit 2 and a 0.76% undivided interest in certain PVNGS common facilities, as well as a lease under which such facilities are leased to PNM. In January 2008, PNM filed an application at the NMPRC seeking approval to acquire the beneficial ownership interest in the trust from the PNMR




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subsidiary. PNM requested recovery of the costs of acquiring the Unit 2 interest through inclusion in its electric rates. The filing also requested certain variances from NMPRC filing and reporting requirements normally required for general diversification filings. The Resource Stipulation states that PNM’s allocated share of the acquisition cost, less depreciation and accumulated deferred income taxes through August 31, 2008, shall be added to rate base and recovered in rates to be established in PNM’s 2008 electric rate case. The lease shall be collapsed for ratemaking purposes and the rent portion of the lease payment that would otherwise have flowed to PNM shall be removed from rates. The Resource Stipulation also allows approximately $4.3 million of carrying charges incurred from July 1, 2008 to be included in rates set in the 2008 electric rate case.

In April 2008, PNM also filed an application at FERC seeking FERC approval of the proposed acquisition of the PVNGS Unit 2 interest. FERC established a comment date in early May 2008, and no comments or interventions were filed in the docket. On June 30, 2008, FERC issued its order approving the transfer of the PVNGS Unit 2 interest to PNM.

Luna and Lordsburg

On September 12, 2008, PNM filed an application to include in jurisdictional rates its one-third ownership share of Luna and its ownership of Lordsburg. Luna consists of a gas-fired combined cycle station with a total capacity of 570 MW located in Luna County, New Mexico. The plant was constructed in 2005-2006 and achieved commercial operation in 2006. Lordsburg is a peaking generator located in Hidalgo County, New Mexico and has a total generation capacity of 80 MW. Lordsburg was constructed and achieved commercial operation in 2002. Currently, PNM holds its ownership share of Luna and Lordsburg as merchant plant assets, which are not included in jurisdictional rates. The Resource Stipulation approves the inclusion of Luna and Lordsburg costs in base rates to be set in PNM’s 2008 electric rate case at the net book value less accumulated deferred income taxes as of August 31, 2008. Complaint Against Southwestern Public Service Company

In September 2005, PNM filed a complaint under the Federal Power Act against SPS. PNM believes that through its fuel cost adjustment clause, SPS has been overcharging PNM for deliveries of energy. PNM requested that the FERC investigate these charges for the period 2001 through 2004, and going forward. PNM had previously intervened in the Golden Spread Electric Coop complaint case against SPS for the same matter. Fuel cost charges for 2005 and 2006 are being addressed as part of the finding in the Golden Spread fuel charge adjustment clause case pending before the FERC, in which PNM is an intervenor. The hearing was held in that case and in May 2006, the ALJ issued an initial decision in that proceeding recommending that SPS make refunds to customers, including PNM, for misapplication of charges in its fuel cost adjustment clause. The parties in that proceeding filed their exceptions to the initial decision. PNM’s complaint also alleges that SPS’ demand charge rates for interruptible power sales are excessive and requested that FERC set a refund effective date of September 13, 2005 for these rates. Settlement conferences were held before a FERC settlement judge throughout the first quarter of 2006. Upon the failure of the parties to reach a settlement, the judge recommended the case proceed to hearing.

Additionally, in November 2005, SPS filed an electric rate case proposing to unbundle and raise rates charged to customers effective July 2006. PNM intervened in the case and objected to the proposed rate increase. In September 2006, PNM and SPS filed a settlement agreement at FERC in which PNM settled certain limited issues in the complaint proceeding, as well as in the SPS rate case. On October 10, 2006, interested parties and FERC staff filed comments on the proposed settlement. Only one party opposed the settlement, which was supported or not opposed by the remaining active parties and the FERC staff. On October 19, 2006, PNM, SPS and FERC staff each filed reply comments contending that opposition to the limited settlement was without merit. The Settlement Judge and the ALJ have certified the contested partial settlement and sent it to FERC for final approval. The limited settlement must be approved by FERC before it may be effective. The settlement has no impact on the initial decision of the ALJ in the fuel cost adjustment clause case or the pending petitions for rehearing in that docket. In September 2008, FERC issued its order approving the settlement between PNM and SPS.




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In July 2007, the FERC open meeting agenda indicated the Golden Spread complaint case initial decision was on the docket for consideration by the FERC. SPS and Golden Spread filed a motion to delay the FERC action on the initial decision to provide additional opportunity for the parties to reach settlement. PNM filed its opposition to the motion requesting the FERC to proceed to issue an order on the initial decision. However, FERC removed the Golden Spread item from its agenda. In September 2007, FERC open meeting agenda again indicated the Golden Spread complaint case initial decision was on the docket for consideration by the FERC. SPS and Golden Spread filed a motion to defer FERC action on the initial decision to provide yet additional time for them to reach settlement. PNM and another intervenor in the case filed their opposition to the motion requesting the FERC to proceed to issue an order on the initial decision of the ALJ. However, FERC removed the Golden Spread item from its open meeting agenda and did not issue an order on the initial decision . In November 2007, SPS again filed a motion at FERC to defer action on the Golden Spread case alleging it was close to settlement with Golden Spread. The motion was unopposed and granted. In December 2007, SPS, Golden Spread and Occidental Petroleum filed a settlement at FERC. The settling parties recognized the need for FERC to rule on the ALJ’s recommended decision in the Golden Spread complaint case. PNM did not oppose the settlement.

In April 2008, FERC issued its order in the Golden Spread complaint case and affirmed in part and reversed in part the ALJ’s initial decision. FERC affirmed the decision of the ALJ that SPS violated its tariffs, and did not overturn the ALJ’s decision requiring SPS to make refunds. However, FERC did truncate the refund period to the period beginning January 1, 2005. Additionally, there was no identification of the amount of refunds owed to PNM in the order. In a separate order issued on the same day, FERC approved the SPS-Golden Spread settlement entered in the case. PNM filed a petition for rehearing of FERC’s order, as did other entities, including SPS, which are still pending before FERC. PNM cannot predict the final outcome of the case at FERC.

On March 11, 2008, PNM filed its application at the NMPRC seeking regulatory approval for the sale of the gas utility assets and approval for the abandonment of its natural gas utility

service in New Mexico. In a separate application filed simultaneously at the NMPRC, NMGC requested approval to purchase PNM Gas’s utility assets, requested the issuance of a Certificate of Convenience and Necessity to operate the gas utility and provide natural gas utility service in New Mexico, and for various other regulatory approvals. On August 20, 2008, the NMPRC staff, the AG, the IBEW, PNM and NMGC filed a stipulation indicating the filing parties have agreed to a resolution of the issues in the proceeding. A hearing took place before the NMPRC in September 2008. A schedule has been established, but the NMPRC has not announced any decisions. Pending all approvals, a closing date for the sale of PNM Gas is expected late in 2008 or early in 2009. PNM is unable to predict the outcome of the case.

On October 16, 2007, the NMPRC opened a NOI that may lead to establishing simple and consistent rules for the implementation of FPPACs for all investor-owned utilities

and electric cooperatives in New Mexico. The investor-owned utilities and electric cooperatives were asked to respond to a series of questions; the responses will be discussed at a future workshop. The NMPRC staff was directed to make a filing dealing with the need for consistency of the fuel clauses, streamlining, and whether a single methodology would be beneficial and should be applied to all of the utilities. PNM filed its comments on December 3, 2007. No further proceedings have been scheduled at this time. NMPRC Rulemaking on Disincentives to Energy Efficiency Programs

On January 29, 2008, the NMPRC issued a NOI to identify disincentives in utility expenditures on energy efficiency and measures to mitigate those disincentives, including specific ratemaking alternatives. In a procedural order issued April 1, 2008, the NMPRC determined that the proceeding should be conducted as a rulemaking and




Gas Utility Assets Sale and Service Abandonment

NMPRC Inquiry on Fuel and Purchased Power Adjustment Clauses

63

appointed a Hearing Examiner to conduct workshops as part of the process. Workshops have begun and could continue at least through November 2008. A revised rule is expected to be approved by mid-year 2009. Investigation Into Executive Compensation

On December 11, 2007, the NMPRC issued an order docketing an investigation into whether the level of compensation paid to executives by investor-owned New Mexico utilities is reasonable and prudent. The order required all such utilities to submit certain information and documents by January 11, 2008. PNM made the required filing. No further proceedings are scheduled at this time. TNMP TNMP True-Up Proceeding

The purpose of the true-up proceeding was to quantify and reconcile the amount of stranded costs that TNMP may recover from its transmission and distribution customers. A 2004 PUCT decision established $87.3 million as TNMP’s stranded costs. As discussed below, the Texas Supreme Court is considering reviewing this decision.

In July 2005, the PUCT issued a final order confirming the calculation of carrying costs and the amount of stranded costs allowed for recovery. TNMP and other parties appealed the July PUCT order. On July 24, 2006, the district court in Austin, Texas affirmed the PUCT order. TNMP appealed that decision to the Texas Third Court of Appeals in Austin, Texas. On January 31, 2008, the Court of Appeals affirmed the District Court and PUCT decisions. TNMP and other parties have filed a request with the Texas Supreme Court to review the Court of Appeals decision. The Texas Supreme Court is still considering the petitions for review filed by various parties. Briefs were filed on October 22, 2008 and reply briefs are due in November 2008. TNMP is unable to predict if the Texas Supreme Court will review the decision or the ultimate outcome of this matter. Interest Rate for Calculating Carrying Charges on TNMP’s Stranded Cost

The PUCT approved an amendment to the true-up rule at its June 29, 2006 open meeting. The amendment will result in a lower interest rate that TNMP is allowed to collect on the unsecuritized true-up balance through a CTC. The PUCT concluded that the correct rate at which a utility should accrue carrying costs through a CTC is the weighted average of an adjusted form of its marginal cost of debt and its unadjusted historical cost of debt, with the weighting based on the utility’ s most recently authorized capital structure. The new rate will affect TNMP by lowering the previously approved carrying cost rate of 10.93%. This change in carrying charges will affect the rates set in TNMP’s stranded cost filing. The rule went into effect on July 20, 2006, and TNMP made its compliance filing. Because the PUCT staff disagreed with TNMP’s calculation of the carrying cost rate, the matter was referred to SOAH for a hearing on the merits. The parties filed and submitted testimony. Initial briefs were filed on April 6, 2007 with reply briefs filed on April 16, 2007. On June 18, 2007, the ALJ issued a proposed order approving a carrying cost rate of 8.06%. As this calculation differs from TNMP’s methodology and result, TNMP filed exceptions on July 2, 2007. At the July 20, 2007 open meeting, the PUCT unanimously rejected the proposed order regarding the calculation of TNMP’s on-going carrying cost rate for the CTC. The PUCT approved the 8.31% rate proposed by TNMP and the PUCT staff. The PUCT issued a final order. Various municipal intervenors (“Cities”) appealed the PUCT’s order to the District Court in Austin, Texas. TNMP intervened to defend the PUCT’s decision. The parties filed briefs and the District Court heard the matter on July 11, 2008. The District Court affirmed the PUCT’s decision. The District Court’s decision was appealed to the Texas 3 rd Court of Appeals by Cities. Cities’ appellant’s brief was filed on September 22, 2008. TNMP and the PUCT filed responsive briefs on October 22, 2008. TNMP has requested an oral hearing, which has not been scheduled. TNMP is unable to predict the ultimate outcome of this matter.

Following the revision of the interest rate on TNMP’s carrying charge, TNMP filed a compliance tariff to implement the new 8.31% rate. TNMP’s filing proposed to put the new rates into effect on February 1, 2008.




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Intervenors asserted objections to the compliance filing. PUCT staff urged that the PUCT make the new rate effective as of December 27, 2007 when the PUCT’s order establishing the correct rate became final. In response to intervenors, the ALJ suspended TNMP’s February 1, 2008 rate implementation pending a hearing. Following a hearing, the ALJ issued a proposal for decision on September 12, 2008 finding that the rate should be implemented as of December 27, 2007. The proposal for decision was submitted to the PUCT. At the October 8, 2008 meeting, the PUCT commissioners orally indicated that the effective date should be retroactive to July 20, 2006. The PUCT issued a written order on October 22, 2008. TNMP will file its request for rehearing within the specified 20 days and if unsuccessful in the rehearing process will appeal the ruling through the court system. While there is inherent uncertainty in this type of proceeding, TNMP believes it will ultimately be successful in overturning any ruling that the effective date should be prior to December 27, 2007. 60-Day Rate Review

In November 2005, TNMP made its required 60-day rate review filing. TNMP’s case establishes a CTC for recovery of the true-up balance. As noted above, TNMP’s 60-day rate review, along with First Choice’s price-to-beat rate reset filing, were consolidated. See “Price-To-Beat Base Rate Reset” above. On November 2, 2006, the PUCT issued an order which would allow TNMP to begin collecting its true-up balance, which includes carrying charges, over a 14 year period. The order also allows TNMP to collect expenses associated with several cases over a three-year period. The PUCT allowed TNMP to begin collecting its CTC and its rate case expenses on December 1, 2006. In January 2007, this proceeding was appealed by various Texas cities to the district court in Austin, Texas. TNMP and First Choice have intervened and will defend the PUCT’s Final Order in this proceeding. 2008 Rate Case

On August 29, 2008, TNMP filed with the PUCT for an $8.7 million increase in revenues. If approved, new rates would go into effect in September 2009. In its request, TNMP also asked for permission to implement a catastrophe reserve fund similar to those approved for other transmission and distribution companies in Texas. Catastrophe funds help pay for a utility system’s recovery from natural disasters and acts of terrorism. Once the rate case is finalized by the PUCT, TNMP may update its transmission rates annually to reflect changes in its invested capital. Updated rates would reflect the addition and retirement of transmission facilities, including appropriate depreciation, federal income tax and other associated taxes, and the approved rate of return on such facilities. On October 10, 2008, the PUCT issued a preliminary order permitting TNMP to file supplemental testimony on costs caused by Hurricane Ike. These costs may be included in rates or captured as a regulatory asset for review and approval in a subsequent proceeding. TNMP is unable to predict the outcome of this matter.

In January 2007, PNMR and ECJV, a wholly owned subsidiary of Cascade, created EnergyCo to serve expanding U.S. markets throughout the Southwest, Texas and the West. PNMR

and ECJV each have a 50 percent ownership interest in EnergyCo, a limited liability company. See Note 22 of the Notes to Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K. PNMR has no commitments or guarantees with respect to EnergyCo. Summarized financial information for EnergyCo is as follows:




(11) EnergyCo

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Results of Operations

(1) Represents the Texas Margin Tax, which is considered an income tax.

Financial Position

SFAS 141 requires that EnergyCo individually value each asset and liability received in the Altura and Altura Cogen Power Plant transactions and initially record them on its balance

sheet at the determined fair value. For both transactions, this accounting results in a significant amount of amortization since the acquired contracts’ pricing terms differ significantly from fair value at the date of acquisition and emission allowances, while acquired from government programs without future cost to EnergyCo, have historically had significant market value. During the three months and nine months ended September 30, 2008, EnergyCo recorded amortization of contracts acquired of $6.2 million and $7.1 million, which is recorded in operating revenues, and amortization of emission allowances of $4.2 million and $9.5 million, which is recorded in cost of sales.




Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 (In thousands)

Operating revenues $ 414,106 $ 100,463 $ 892,646 $ 114,828 Cost of sales 357,825 56,419 814,922 60,979

Gross margin 56,281 44,044 77,724 53,849 Non-fuel operations and maintenance expenses 7,614 4,065 17,217 4,865 Administrative and general expenses 6,075 6,353 19,876 10,000 Impairment of intangible assets - - 21,795 - Write off of emission allowances 31,739 - 31,739 - Depreciation and amortization expense 7,659 5,790 22,886 7,318 Interest expense 3,662 6,978 15,019 7,796 Taxes other than income tax 1,772 1,861 9,040 2,865 Other (income) and deductions 4 (217 ) (702 ) (260 ) Earnings (loss) before income taxes (2,244 ) 19,214 (59,146 ) 21,265 Income taxes (benefit) (1) 64 399 (229 ) 399

Net earnings (loss) $ (2,308 ) $ 18,815 $ (58,917 ) $ 20,866

50 percent of net earnings (loss) $ (1,154 ) $ 9,408 $ (29,459 ) $ 10,433 Amortization of basis difference in EnergyCo (331 ) 1,148 368 1,733

PNMR equity in net earnings (loss) of EnergyCo $ (1,485 ) $ 10,556 $ (29,091 ) $ 12,166

September 30,

2008 December 31,

2007 (In thousands)

Current assets $ 174,645 $ 119,255 Net property, plant and equipment 933,426 853,492 Deferred assets 221,697 297,197 Total assets 1,329,768 1,269,944

Current liabilities 158,747 88,812 Long-term debt 700,778 650,778 Other long-term liabilities 15,129 34,344 Total liabilities 874,654 773,934

Owners’ equity $ 455,114 $ 496,010

50 percent of owners’ equity $ 227,557 $ 248,005 Unamortized PNMR basis difference in EnergyCo 183 89

PNMR equity investment in EnergyCo $ 227,740 $ 248,094

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In July 2008, a federal appeals court ruling by the U.S. Court of Appeals for the District of Columbia Circuit Court invalidated CAIR. This ruling appears to remove the need for emissions allowance credits under the CAIR program. EnergyCo has inventory of emissions allowances from the purchase of the Altura Cogen plant and contribution of the Twin Oaks plant. As of September 30, 2008, EnergyCo recorded a pre-tax write off of $31.7 million for all inventory under the CAIR program. EnergyCo has $117.6 million in inventory for other emission allowances not related to the CAIR program.

The contribution of Altura created a basis difference between PNMR’s recorded investment in EnergyCo and 50 percent of EnergyCo’s equity. While the portion of the basis difference related to contract amortization will only continue through 2010, other basis differences, including a difference related to emission allowances, will continue to exist through the life of the Altura plant. For the three months and nine months ended September 30, 2008, the basis difference adjustment detailed above relates mainly to contract amortization with insignificant offsets related to the other minor basis difference components.

EnergyCo has a hedging program that covers a multi-year period. The level of hedging at any given time varies depending on current market conditions and other factors. Economic hedges that do not qualify for or are not designated as cash flow hedges or normal purchases/sales under SFAS 133 are derivative instruments that are required to be marked to market. Changes in the fair value of economic hedges resulted in an increase in net earnings of $28.3 million in the three months ended September 30, 2008 and a reduction of net earnings of $10.7 million in the nine months ended September 30, 2008 as a result of higher power prices. Due to the extreme market volatility experienced in the first quarter in the ERCOT market, EnergyCo made the decision to exit the speculative trading business and close out the speculative trading positions. In May 2008, EnergyCo closed out all remaining speculative positions. EnergyCo recognized speculative trading losses of $2.4 million in the first quarter of 2008 and less than $0.1 million in the second and third quarters combined. No additional costs are expected related to speculative trading.

The assets of Altura transferred to EnergyCo included the development rights for a possible 600-megawatt expansion of the Twin Oaks plant, which was classified as an intangible asset. EnergyCo made a strategic decision not to pursue the Twin Oaks expansion at this time and, in the three months ended June 30, 2008, wrote off the development rights as an impairment of intangible assets amounting to $21.8 million.

PNMR, PNM, TNMP, and EnergyCo are considered related parties as defined in SFAS 57. PNMR Services Company provides corporate services to PNMR, its subsidiaries, and

EnergyCo. Additional information concerning the Company’s related party transactions is contained in Note 20 of the Notes to Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K.

See Note 11 for information concerning EnergyCo. The table below summarizes the nature and amount of other related party transactions of PNMR, PNM and TNMP:




(12) Related Party Transactions

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* PNM shared services include billings to PNM Gas of $5.7 million and $7.0 million for the three months ended and $17.4 million and $23.7 million for the nine months ended September 30, 2008 and 2007.

Note 21 of Notes to Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K contains information regarding recently issued accounting pronouncements that

could have a material impact on the Company. See Note 4 regarding the implementation of SFAS 157, SFAS 159, FSP FIN 39-1, and FSP FAS 157-3. SFAS 161 – Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133

In March 2008, the FASB released SFAS 161, which is effective for years beginning after November 15, 2008 and changes the disclosure requirements for derivative instruments and hedging instruments. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operation, and cash flows. The Company is currently reviewing the requirements of SFAS 161 and will implement the required disclosures no later than January 1, 2009. SFAS 162 – The Hierarchy of Generally Accepted Accounting Principles

The current GAAP hierarchy, as set forth in the American Institute of Certified Public Accountants Statement on Auditing Standards No. 69, has been criticized because (1) it is directed to the auditor rather than the entity, (2) it is complex, and (3) it ranks FASB Statements of Financial Accounting Concepts, which are subject to the same level of due process as FASB Statements of Financial Accounting Standards, below industry practices that are widely recognized as generally accepted but that are not subject to due process. The Board concluded that the GAAP




Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 (In thousands) Transmission, distribution and related services billings:

PNM to TNMP $ - $ - $ - $ 126 TNMP to PNMR 15,232 21,057 44,550 55,444

Shared services billings from PNMR to:

PNM* $ 32,108 $ 21,350 $ 102,845 $ 70,945 TNMP 7,420 3,888 21,881 14,006

Services billings from PNMR to EnergyCo $ 2,130 $ 4,580 $ 9,354 $ 7,994 Income tax sharing payments from:

PNMR to PNM $ - $ - $ 1,855 $ - PNMR to TNMP - - 858 -

Capital expenditure billings from PNMR to:

PNM $ - $ - $ - $ 99 TNMP - - - 18 EnergyCo 140 - 2,783 -

Interest payments:

TNMP to PNMR $ 13 $ 396 $ 130 $ 987

(13) New Accounting Pronouncements

68

hierarchy should reside in the accounting literature established by the FASB and issued SFAS 162 to achieve that result. This statement is effective November 15, 2008. The Company has reviewed the impact of SFAS 162 and does not believe it will result in a change in current practice.

As discussed in Note 2, PNM entered into an agreement to sell its gas operations, which comprise the PNM Gas segment. Under GAAP, the assets and liabilities of PNM Gas are

considered to be held-for-sale beginning December 31, 2007 and presented as discontinued operations on the accompanying balance sheets. The PNM Gas results of operations are excluded from continuing operations and presented as discontinued operations on the statements of earnings. Prior periods have been recast to be consistent with this presentation. In accordance with SFAS 144, no depreciation is recorded on assets held for sale in 2008. Summarized financial information for PNM Gas is as follows:





(14) Discontinued Operations

Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 (In thousands) Operating revenues $ 63,301 $ 59,527 $ 379,325 $ 351,097 Cost of energy 37,498 33,975 263,244 240,751

Gross margin 25,803 25,552 116,081 110,346 Operating expenses 22,852 21,815 67,286 68,905 Depreciation and amortization - 5,273 - 16,347

Operating income (loss) 2,951 (1,536 ) 48,795 25,094 Other income (deductions) 614 2 2,057 627 Net interest charges (3,383 ) (3,869 ) (9,931 ) (9,713 )

Segment earnings (loss) before income taxes 182 (5,403 ) 40,921 16,008 Income taxes (benefit) 820 (2,139 ) 16,299 6,337

Segment earnings (loss) $ (638 ) $ (3,264 ) $ 24,622 $ 9,671

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Financial Position

PNM’s cost-of-gas revenues collected from sales-service customers are recovered in accordance with NMPRC regulations through the PGAC and represent a pass-through of the cost of natural gas to the customer. The NMPRC has approved an agreement regarding the hedging strategy of PNM and the implementation of a price management fund program which includes a continuous monthly balancing account with a carrying charge.

PNM Gas uses call options and financial swaps to facilitate the hedge strategy. PNM Gas also enters into physical gas contracts to meet the needs of its retail sales-service customers. Costs and gains and losses for these instruments are deferred and recovered through the PGAC with no income statement effect. At September 30, 2008, PNM Gas had $14.5 million of current assets, including $14.1 million related to the PGAC that is recorded as a regulatory asset, and $14.1 million of current liabilities related to these instruments. At December 31, 2007, PNM Gas had $7.1 million of current assets and current liabilities related to these instruments. At September 30, 2008, substantially all PNM Gas derivative assets, exclusive of the PGAC regulatory asset, were valued using Level 2 inputs and $2.4 million of the derivative liabilities were valued using Level 2 inputs and $11.7 million were valued using Level 3 inputs as defined in SFAS 157.

As discussed in Note 24 of the Notes to Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K, the Company has undertaken a business improvement process

that includes a comprehensive cost structure analysis of its operations and a benchmarking analysis to similar-sized utilities. The Company is now in the process of implementing a series of initiatives designed to manage future operational costs, maintain financial





ASSETS Cash and cash equivalents $ 26 $ 28 Accounts receivable and unbilled revenues, net 29,076 89,699 Regulatory and other current assets 44,352 30,334 Total current assets 73,454 120,061 Gas plant in service 766,117 743,664 Accumulated depreciation and amortization (240,426 ) (245,741 ) Construction work in progress 21,689 22,411 Net utility utility plant 547,380 520,334 Regulatory and other assets 5,130 6,205

$ 625,964 $ 646,600

LIABILITIES AND EQUITY

Accounts payable and accrued expenses $ 10,512 $ 68,458 Regulatory and other current liabilities 35,470 27,545 Total current liabilities 45,982 96,003 Regulatory liabilities 74,551 72,727 Deferred credits and other liabilities 15,526 17,121 Total deferred credits and other liabilities 90,077 89,848 Equity 489,905 460,749

$ 625,964 $ 646,600

(15) Business Improvement Plan

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strength and strengthen its regulated utilities. The multi-phase process includes a business improvement plan to streamline internal processes and reduce the Company’s work force. The utility-related process enhancements are designed to improve and centralize business functions.

The Company has existing plans providing severance benefits to employees who are involuntarily terminated due to elimination of their positions. Under SFAS 112, the severance

benefits payable under the Company’s existing plans should be recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. The Company regularly assesses the status of the business improvement plan process and the positions that are probable of being eliminated as determined at that time. During the three months and nine months ended September 30, 2008, PNMR recorded pre-tax severance benefits payable of $1.3 million and $1.8 million and other costs, primarily consulting fees, related to the business improvement plan of $2.5 million and $5.7 million. Substantially all of these costs were recorded at PNMR. PNMR recorded pre-tax severance benefits payable of $12.3 million, of which $6.9 million was recorded by PNM and $0.3 million was recorded by TNMP, and other costs related to the business improvement plan of $0.3 million during the three and nine months ended September 30, 2007. As additional phases of the business improvement plan are developed, the associated costs will be analyzed and recorded.

Information regarding the Company’s assessment of potential variable interest entities is contained in Note 9 of Notes to the Consolidated Financial Statements in the 2007 Annual

Reports on Form 10-K.

On April 18, 2007, PNM entered into a PPA to purchase all of the electric capacity and energy from Valencia, a natural gas-fired power plant near Albuquerque, New Mexico. Valencia became operational on May 30, 2008. A third-party built, owns and operates the facility while PNM is the sole purchaser of the electricity generated. The total construction cost for the facility was $90.0 million. The term of the PPA is for 20 years beginning June 1, 2008, with the full output of the plant estimated to be 145 MW. During the term of the PPA, PNM has the option to purchase and own up to 50% of the plant or the variable interest entity. PNM estimates that the plant will typically operate during peak periods of energy demand in summer (less than 18% of the time on an annual basis).

PNM has evaluated the accounting treatment of this arrangement and concluded that the third party entity that owns Valencia is a variable interest entity and that PNM is the primary beneficiary of the entity under FIN 46R since PNM will absorb the majority of the variability in the cash flows of the plant. As the primary beneficiary, PNM has consolidated the entity in its financial statements beginning on the commercial operations date. Accordingly, the assets, liabilities, operating expenses, and cash flows of Valencia are included in the consolidated financial statements of PNM although PNM has no legal ownership interest or voting control of the variable interest entity. The owner’s equity and net income of Valencia are considered attributable to minority interest. PNM did not consolidate the variable interest entity prior to May 30, 2008 since PNM had no financial risk.

Summarized financial information for Valencia since May 30, 2008 is as follows:





(16) Variable Interest Entities

Three months ended May 30, 2008 to September 30, 2008 September 30, 2008 (In thousands) Operating revenues $ 4,641 $ 6,058 Operating expenses (1,190 ) (1,381 ) Interest expense - ( 225 ) Income attributable to minority interest $ 3,451 $ 4,452

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Financial Position

Under the provisions of SFAS 142, the Company evaluates its goodwill and non-amortizing intangible assets for impairment annually at the reporting unit level or more frequently if

circumstances indicate that the goodwill or intangible assets may be impaired. The goodwill and other intangible assets were recorded upon PNMR’s acquisition of TNP and were pushed down to the businesses acquired. In connection with the transfer of TNMP’s New Mexico operations to PNM, $102.8 million of goodwill was transferred to PNM.

The Company performed its annual testing of these assets as of April 1, 2008. Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of long-term growth rates for the business and determination of appropriate weighted average cost of capital for each reporting unit. Changes in these estimates and assumptions could materially affect the determination of fair value and the conclusion of impairment for each reporting unit.

The market capitalization of PNMR’s common stock has been significantly below book value during 2008, which is an indicator that intangible assets may be impaired. In addition, changes in the ERCOT market in which First Choice operates have significantly impacted its results of operations. The first step of the impairment test for goodwill requires that the Company compare the fair value of each reporting unit with its carrying value, including goodwill. For non-amortizing intangibles, the Company compares the fair value of the intangible asset to its recorded value. As a result of this analysis, the Company concluded there was an indication of impairment in the reporting units having goodwill and that the First Choice trade name was impaired. This conclusion requires the Company to perform the second step of the SFAS 142 impairment analysis, determining the amount of goodwill impairment to be recorded. The amount is calculated by comparing the implied fair value of the goodwill to its carrying amount. This exercise requires the Company to allocate the fair value determined in step one to the individual assets and liabilities of the reporting unit. Any remaining fair value would be the implied fair value of goodwill on the testing date. To the extent the recorded amount of goodwill of a reporting unit exceeds the implied fair value determined in step two, an impairment loss is reflected in results of operations. Although the impairments of goodwill have no income tax effects, the impairment of the First Choice trade name does have an income tax effect.




September 30,

2008 (In thousands) Current assets $ 7,300 Net property, plant and equipment 89,716 Total assets 97,016 Current liabilities 1,067 Owners’ equity – minority interest $ 95,949

(17) Impairment of Goodwill and Other Intangible Assets

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Because of the timing and complexity of the calculations required in the second step of the impairment analysis related to First Choice, preliminary estimates of impairment were recorded as of June 30, 2008 amounting to $43.2 million for goodwill and $7.4 million for the First Choice trade name. During the third quarter of 2008, the Company finalized this analysis and additional amounts were recorded. The impairments do not impact the Company’s cash flows. A summary of goodwill and non-amortizing intangible assets and pre-tax impairments recorded in the nine months ended September 30, 2008 is as follows:




Balance Balance before after Impairment Impairment Impairment (In thousands)

Goodwill: First Choice $ 131,768 $ 82,310 $ 49,458 PNM 102,775 51,632 51,143 TNMP 261,121 226,665 34,456

Total PNMR $ 495,664 $ 360,607 135,057

Other intangible assets - First Choice trade name $ 68,774 $ 59,746 9,028

Total impairment $ 144,085

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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations for PNMR is presented on a combined basis, including certain information

applicable to PNM and TNMP. The MD&A for PNM and TNMP is presented as permitted by Form 10-Q General Instruction H (2). For discussion purposes, this report will use the term “Company” when discussing matters of common applicability to PNMR, PNM and TNMP. A reference to a “Note” in this Item 2 refers to the accompanying Notes to Condensed Consolidated Financial Statements (Unaudited) included in Item 1, unless otherwise specified. Certain of the tables below may not visually add due to rounding.

The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto. Trends and contingencies of a material nature are discussed to the extent known. Refer also to Disclosure Regarding Forward Looking Statements in Item 2 and to Part II, Item 1A. Risk Factors.

MD&A FOR PNMR

BUSINESS AND STRATEGY Overview

The overall strategy of PNMR is to concentrate business efforts on its core regulated and unregulated electric businesses. PNMR intends to focus on its regulated electric business by selling its gas operations, which is expected to close late in 2008 or early in 2009 . PNMR expects to use the net after-tax proceeds to retire debt, fund future electric capital expenditures and for other corporate purposes. The growth of the unregulated electric business is expected from the further development of EnergyCo. The strategic growth of EnergyCo was initiated with PNMR’s contribution of Altura on June 1, 2007 and continued with EnergyCo’s acquisition of the Altura Cogen Power Plant in August 2007 and with EnergyCo’s ongoing joint development project for the Cedar Bayou IV Generating Station with NRG Energy, Inc.

On August 11, 2008, PNMR announced that it had decided to pursue strategic alternatives for First Choice. PNMR also stated that it remained committed to the Texas market structure and believed in the First Choice business model. Since then, global economic conditions have deteriorated dramatically encompassing the U.S. residential housing market, and global and domestic equity and credit markets. The tightening of the credit markets coupled with extreme volatility in commodity markets has had a direct, negative impact on several of First Choice’s competitors in the ERCOT retail market resulting in, on the one hand, profitable growth opportunities for First Choice, but on the other hand, an increased risk in executing strategic transactions in the retail sector. A number of qualified parties indicated their interest in pursuing a transaction with First Choice, validating its business model and strategic value, but at this point, management has determined that retaining First Choice provides better long term value for PNMR shareholders.

The focus on the electric businesses also includes environmental sustainability efforts. These efforts are comprised of various components including environmental upgrades, energy efficiency leadership, solar generating site and technology feasibility, purchasing power from renewable resources, and climate change leadership. The investment in environmental sustainability is expected to result in future emission reductions as well as other long-term benefits for the Company.

The recent and unprecedented disruption in the current credit markets has had a significant adverse impact on a number of financial institutions. As discussed in Note 7, several of the financial institutions that the Company deals with have been impacted. However, at this point in time, the Company’s liquidity has not been materially impacted by the current credit environment and management does not expect that it will be materially impacted in the near future. We will continue to closely monitor our liquidity and the credit markets. In addition, there has been a significant decline in the level of prices of marketable equity securities, including those held in trusts maintained for future payments of benefits under pension and retiree medical plans. The stock market decline will likely result in increased levels of funding and expense applicable to these trusts.

Hurricane Ike, which struck the Texas Gulf Coast on September 13, 2008, caused extensive damage to the city of Galveston and the surrounding communities. Storm-related outages lowered TNMP sales volumes, decreasing revenues, margins, and earnings. In addition, TNMP estimates power restoration costs to be in the range of $25 million to $30 million. As a provider of regulated transmission and distribution services under the provisions of TECA, TNMP expects to

ITEM 2. MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AN D RESULTS OF OPERATIONS

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recover prudently incurred storm-related restoration costs in accordance with applicable regulatory and legal principles. First Choice was negatively impacted due to reduced sales volumes and the sale of excess power at prices that were lower than purchased prices. The storm only caused minor damage to EnergyCo’s facilities, but EnergyCo was impacted because of lost power sales opportunities and depressed market prices.

Another initiative of PNMR is the separation of its merchant operations from PNM, which is being accomplished in several steps. In June, 2008, PNMR completed the sale of certain wholesale power, natural gas and transmission contracts as an initial step in separating its merchant plant activities from PNM. In addition, Luna and Lordsburg are required to be separated by January 1, 2010 under an existing NMPRC regulatory order. As discussed in Note 10, in its 2008 electric rate case, PNM has proposed that Luna and Lordsburg be recovered through jurisdictional rates subject to regulation by the NMPRC. If the NMPRC does not approve this request, these units may be sold or placed in another PNMR subsidiary. PVNGS Unit 3, which is not subject to the separation order, can remain in PNM. In April 2008, PNM entered into three separate contracts for the sale of capacity and energy related to its entire ownership interest in PVNGS Unit 3, which is 135 MW. Under two of the contracts, PNM sells 90 MW of firm capacity and energy. Under the remaining contract, PNM sells 45 MW of unit contingent capacity and energy. The term of the contracts is May 1, 2008 through December 31, 2010. Under the two firm contracts, the two buyers made prepayments of $40.6 million and $30.0 million. The prepayments have been recorded as deferred revenue and are being amortized over the life of the contracts.

Critical to PNMR’s success for the foreseeable future is the financial health of PNM, PNMR’s largest subsidiary. In 2007, PNM filed for new electric rates designed to increase operating revenues $76.9 million on an annual basis. In addition, PNM asked for reinstatement of its FPPAC, which it voluntarily relinquished in 1994 under dramatically different circumstances. As discussed in Note 10, on April 24, 2008, the NMPRC issued a final order in the case resulting in a revenue increase of $34.4 million and new rates reflecting the increase were effective for bills rendered on and after May 1, 2008. In its final order, the NMPRC disallowed recovery of costs associated with the PNM’s RECs that are being deferred as regulatory assets and to cap the recovery of coal mine decommissioning costs at $100 million. PNM recorded pre-tax write-offs in the first quarter of 2008 of $19.6 million related to the coal mine decommissioning and $10.6 million for REC costs deferred through March 31, 2008. PNM has appealed the NMPRC treatment of coal mine decommissioning and the RECs to the New Mexico Supreme Court. The Company is unable to predict the outcome of this matter. As a result of PNM’s filing of the Emergency FPPAC described below, the NMPRC determined that it was unnecessary to address the merits of the FPPAC proposed in PNM’s original case.

On March 20, 2008, PNM, together with the IBEW, filed a joint motion to implement an Emergency FPPAC. The motion requested immediate authority to implement an Emergency FPPAC for a period of 24 months or until the effective date of new rates in PNM’s next rate case, whichever is earlier. On May 22, 2008, the NMPRC issued a final order that approved the Emergency FPPAC with certain modifications relating to power plant performance and the treatment of revenue from SO 2 allowances. The Emergency FPPAC permits PNM to recover its actual fuel and purchased power costs up to $0.024972 per kWh, which is an increase of $0.008979 per kWh above the fuel costs included in base rates. PNM is unable to predict if actual fuel and purchased power costs will exceed the cap during the period the Emergency FPPAC is in effect. PNM implemented the Emergency FPPAC as modified on June 2, 2008 and expects to recover $58 million to $62 million annually. The Albuquerque Bernalillo County Water Utility Authority and the New Mexico Industrial Energy Consumers Inc. filed notices of appeal to the New Mexico Supreme Court, which seek to have vacated the NMPRC order approving the Emergency FPPAC. The appeals have been consolidated and PNM has been granted party status. PNM is unable to predict the final outcome of these appeals.

On September 22, 2008, PNM filed a general rate case requesting the NMPRC to approve an increase in electric service rates to all PNM retail customers except those formerly served by TNMP. The proposed rates are designed to increase annual operating revenue by $123.3 million, based on a March 31, 2008 ending test period and calculating base fuel costs using a projection of costs for the 12 months ending March 31, 2009. PNM has also proposed a FPPAC adjustment clause in the general form authorized by the NMPRC, but with PNM retaining 25% of off-system sales revenue and crediting 75% against fuel and purchased power costs. As discussed in Note 10, the rate case requests that rates allow PNM to recover costs related to the Valencia PPA and its ownership in Luna and Lordsburg. In addition, PNM requests approval for the acquisition and recovery of cost for a portion of PVNGS Unit 2 that is currently leased from another subsidiary of PNMR. The NMPRC ordered that PNM‘s proposed rates be suspended for a period of nine months from October 22, 2008. PNM is unable to predict the final outcome of this matter.

On August 29, 2008, TNMP filed with the PUCT for an $8.7 million increase in revenues. If approved, new rates would go into effect in September 2009. In its request, TNMP also asked for permission to implement a catastrophe reserve fund similar to those approved for other transmission and distribution companies in Texas. Catastrophe funds help

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pay for a utility system’s recovery from natural disasters and acts of terrorism. Once the rate case is finalized by the PUCT, TNMP may update its transmission rates annually to reflect changes in its invested capital. On October 10, 2008, the PUCT issued a preliminary order permitting TNMP to file supplemental testimony on costs caused by Hurricane Ike. These costs may be included in rates or captured as a regulatory asset for review and approval in a subsequent proceeding. TNMP is unable to predict the outcome of this matter. EnergyCo

EnergyCo was formed with ECJV as an unregulated energy company that will serve expanding U.S. markets throughout the Southwest, Texas and the West. ECJV is a wholly owned subsidiary of Cascade, which is a large PNMR shareholder. PNMR and ECJV each have a 50 percent ownership interest in EnergyCo, a limited liability company.

PNMR’s strategy for unregulated operations is focused on some of the nation’s growing power markets. PNMR intends to capitalize on the growth opportunities in these markets through its participation and ownership in EnergyCo. EnergyCo’s anticipated business activities will consist of:

On June 1, 2007, PNMR contributed its ownership of Altura to EnergyCo at fair market value of $549.6 million, as adjusted to reflect changes in working capital. ECJV made a cash

contribution to EnergyCo equal to 50% of the contribution amount and EnergyCo distributed that cash to PNMR. EnergyCo has entered into a bank credit facility for working capital and other corporate purposes. In August 2007, EnergyCo completed the acquisition of Altura Cogen and announced plans to co-develop the Cedar Bayou IV Generating Station, substantial portions of which are financed through EnergyCo’s credit facility. In addition to purchasing energy-related assets, EnergyCo could continue to grow by PNMR contributing existing unregulated assets and ECJV, in turn, matching those contributions with cash contributions, but any such contributions would be at the option of PNMR and ECJV. Dividends on Common Stock

On August 11, 2008, the Board declared a regular quarterly dividend on common stock of $0.125 per share, which represents a reduction of 46 percent from the previous quarter. PNMR’s indicated annual dividend rate is $0.50 per share. The Board took this action to improve the Company’s liquidity and set a new foundation for long-term value creation. The reduction also better aligns PNMR’s dividend yield with industry averages. On September 16, 2008, the Board declared another regular quarterly dividend on common stock of $0.125 per share. Business Improvement Plan

The Company has undertaken a business improvement process that includes a comprehensive cost structure analysis of its operations and a benchmarking analysis to similar-sized

utilities. The Company is now in the process of implementing a series of initiatives designed to manage future operational costs, maintain financial strength and strengthen its regulated utilities. The multi-phase process includes a business improvement plan to streamline internal processes and reduce operating costs. The utility-related process enhancements are designed to improve business functions. For the three months and nine months ended September 30, 2008, PNMR recorded pre-tax expenses of $3.8 million and $7.5 million for costs of the business improvement plan, primarily consulting and severance-related costs. PNMR recorded pre-tax severance benefits payable of $12.3 million and other costs related to the business improvement plan of $0.3 million during the three and nine months ended September 30, 2007. As additional phases of the business improvement plan are developed, the associated costs will be analyzed and recorded as specified by GAAP.

• Competitive retail energy sales • Development, ownership, and active management of diverse generation fleet • Wholesale marketing to capture the extrinsic value of the generating fleet • Multi-year hedging program to minimize price volatility and maximize cash flow predictability

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RESULTS OF OPERATIONS Executive Summary

A summary of PNMR’s net earnings (loss) is as follows:

The components of the changes in earnings (loss) from continuing operations by segment are:

Detailed information regarding the changes in earnings (loss) from continuing and discontinued operations is included in the segment information below. The changes in the number of

common and common equivalent shares are primarily due to shares of common stock issued in May 2008 under the publicly held equity-linked units (See Note 7) offset by a reduced number of dilutive shares due to changes in the quoted market price of PNMR common stock.

As discussed in Note 17, the Company performs its annual assessment of its goodwill and non-amortizing intangible assets as of April 1 of each year. The 2008 assessment indicates that goodwill and the First Choice trade name have been impaired. In addition, EnergyCo has made a strategic decision not to pursue the Twin Oaks expansion at this time and has written off its development rights as an impairment. After-tax impairment losses totaling $140.3 million, including PNMR’s equity in the EnergyCo impairment, were recorded in the three months ended June 30, 2008. During the third quarter of 2008, the Company finalized the First Choice impairment analysis and recorded additional after-tax impairment losses totaling $7.3 million. The impairment analysis is based on operating results expected to occur in the future. If the anticipated future results are not achieved, the Company may be required to perform additional assessments that could result in further impairment write-offs.

The impairments of goodwill amounting to $135.1 million have no income tax impacts. However, the impairment of the First Choice trade name amounting to $9.0 million and PNMR’s equity in the EnergyCo impairment amounting to $10.9 million do have income tax impacts. The absence of income tax benefits on the goodwill impairments has a significant impact on the effective tax rates of the Company in 2008. In 2007, PNMR had favorable tax decisions regarding previously unrecognized tax benefits, including a settlement with the IRS, that had a $16.0 million positive impact on income taxes, which reduced the effective tax rate.

Three Months Ended September 30, Nine Months Ended September 30, 2008 2007 Change 2008 2007 Change (In millions, except earnings per share)

Earnings (loss) from continuing operations $ (4.8 ) $ 11.6 $ (16.5 ) $ (222.2 ) $ 48.6 $ (270.8 ) Earnings from discontinued operations, net of

income taxes (0.6 ) (3.3 ) 2.7 24.6 9.7 15.0 Net earnings (loss) $ (5.5 ) $ 8.4 $ (13.9 ) $ (197.6 ) $ 58.3 $ (255.9 )

Average common and common equivalent shares outstanding 86.4 77.6 8.8 81.7 78.2 3.5

Earnings (loss) from continuing operations per diluted share $ (0.06 ) $ 0.15 $ (0.21 ) $ (2.72 ) $ 0.62 $ (3.34 )

Net earnings (loss) per diluted share $ (0.06 ) $ 0.11 $ (0.17 ) $ (2.42 ) $ 0.75 $ (3.17 )

Three Months

Ended Nine Months

Ended

September 30,

2008 September 30,

2008 (In millions) PNM Electric $ 14.4 $ (74.6 ) TNMP Electric (2.1 ) (32.3 ) Altura - (6.0 ) First Choice (19.2 ) (116.0 ) Corporate and Other (2.2 ) (16.9 ) EnergyCo (7.3 ) (24.9 )

Net change $ (16.5 ) $ (270.8 )

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Segment Information

The following discussion is based on the segment methodology that PNMR’s management uses for making operating decisions and assessing performance of its various business activities. See Note 3 for more information on PNMR’s operating segments. PNM Electric

The table below summarizes operating results for PNM Electric:

The table below summarizes the significant changes to operating revenues, gross margin, earnings before income taxes and segment earnings:

Three Months Ended September 30, Nine Months Ended September 30, 2008 2007 Change % 2008 2007 Change % (Dollars in millions)

Total operating revenues $ 356.4 $ 360.5 $ (4.1 ) (1.1 ) $ 995.1 $ 901.1 $ 94.0 10.4 Cost of energy 194.5 229.2 (34.7 ) (15.1 ) 577.8 517.8 60.0 11.6 Gross margin 161.9 131.2 30.7 23.4 417.4 383.4 34.0 8.9 Other operating expenses 92.9 110.2 (17.3 ) (15.7 ) 366.7 288.1 78.6 27.3 Depreciation and amortization 21.7 20.7 1.0 4.8 63.5 62.2 1.3 2.1 Operating income (loss) 47.4 0.3 47.1 15,700.0 (12.8 ) 33.1 (45.9 ) (138.7 )

Interest income 7.2 10.5 (3.3 ) (31.4 ) 18.2 25.4 (7.2 ) (28.3 ) Other income (deductions) (8.8 ) 4.1 (12.9 ) (314.6 ) (16.5 ) 6.7 (23.2 ) (346.3 ) Net interest charges (20.3 ) (13.0 ) (7.3 ) 56.2 (52.0 ) (38.9 ) (13.1 ) 33.7

Earnings (loss) before income

taxes 25.5 1.9 23.6 1,242.1 (63.2 ) 26.2 (89.4 ) (341.2 ) Income taxes (benefit) 9.5 0.4 9.1 2,275.0 (5.1 ) 9.6 (14.7 ) (153.1 )

Preferred stock dividend requirements 0.1 0.1 - - 0.4 0.4 - - Segment earnings (loss) $ 15.8 $ 1.4 $ 14.4 1,028.6 $ (58.4 ) $ 16.2 $ (74.6 ) (460.5 )

Three Months Ended September 30, 2008 Nine Months Ended September 30, 2008

Earnings

(Loss) Earnings

(Loss) Before Segment Before Segment Total Gross Income Earnings Total Gross Income Earnings Revenues Margin Taxes (Loss) Revenues Margin Taxes (Loss) (In millions) Increased rate recovery including Emergency FPPAC $ 44.1 $ 44.1 $ 44.1 $ 26.6 $ 56.0 $ 56.0 $ 56.0 $ 33.8 Customer growth/usage (8.3 ) (1.3 ) (1.3 ) (0.8 ) (1.1 ) 0.6 0.6 0.4 Generation and purchased power cost increases - (17.6 ) (17.6 ) (10.6 ) - (26.9 ) (26.9 ) (16.3 ) Regulated plant availability 11.5 2.8 (1.3 ) (0.8 ) 20.8 (10.5 ) (29.5 ) (17.8 ) Sales of SO 2 allowances - - - - (13.2 ) (13.2 ) (13.2 ) (8.0 ) Unregulated margins (61.8 ) 5.5 5.5 3.3 (32.3 ) 8.3 8.3 5.0 Gain on sale of merchant portfolio - - - - 5.1 5.1 5.1 3.1 Net unrealized economic hedges 16.8 (6.9 ) (6.9 ) (4.2 ) 58.0 10.5 10.5 6.3 Operational costs - - (6.3 ) (3.8 ) - - (8.5 ) (5.1 ) NDT - - (9.5 ) (5.7 ) - - (16.4 ) (9.9 ) Regulatory disallowances - - - - - - (30.2 ) (18.2 ) Afton impairment - - 19.5 11.8 - - 17.5 10.6 Impairment of goodwill - - - - - - (51.1 ) (51.1 ) Other (6.4 ) 4.1 (2.6 ) (1.4 ) 0.7 4.1 (11.6 ) (7.4 )

Total increase (decrease) $ (4.1 ) $ 30.7 $ 23.6 $ 14.4 $ 94.0 $ 34.0 $ (89.4 ) $ (74.6 )

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The following table shows PNM Electric operating revenues by customer class, including intersegment revenues and average number of customers:

The following table shows PNM Electric GWh sales by customer class:

On May 1, 2008, PNM Electric implemented a $34.4 million base rate increase approved by the NMPRC. The rate increase provides for a 10.1 percent return on equity. Additionally,

the NMPRC approved the implementation of an Emergency FPPAC effective June 2, 2008, which is projected to allow PNM Electric to recover an additional $58 to $62 million of actual fuel and purchased power costs annually above amounts collected through base rates. See Note 10. The base rate increase resulted in a $22.7 million and $32.2 million increase to revenues and gross margin in the three and nine months ended September 30, 2008. The Emergency FPPAC resulted in a $21.4 million and $23.8 million increase to revenues and gross margin in the second quarter of 2008 when compared to the second quarter of 2007, reflecting the net amount of fuel and purchased power costs used to serve retail loads that were recovered in addition to amounts recovered through base rates.

For the three and nine months ended September 30, an increase in the average retail customer count was more than offset by lower per-customer usage due to weather and conservation efforts and the reduced operations of a major industrial customer, reducing sales volumes and decreasing revenues. This was mostly offset by the reduction of fuel and purchased power costs to serve these volumes. For the nine months ended September 30, the net increase in margin is a result of increased sales volumes from higher-rate customers and decreased sales volumes from lower-rate customers, primarily due to the reduced operations of a major industrial customer.

For the three and nine months ended September 30, generation prices and purchased power costs were significantly higher due to increased coal costs and market prices. In the third quarter, the increase in rate recovery discussed above reflects recovery of these additional costs.

For the three months ended September 30, increased net generation from regulated power plants increased system sales revenues, gross margin and segment earnings, as increased generation from the addition of Afton and increased availability at PVNGS was partially offset by reduced generation at SJGS resulting from planned outages at Units 1 and 3. For the nine months ended September 30, impacts include first quarter planned outages at SJGS Unit 3 and Four Corners Unit 5, along with the extension of a planned outage for environmental upgrades at SJGS Unit 4 and a planned refueling outage at PVNGS Unit 3, reducing off-system sales revenues, gross margins and segment earnings. During the three and nine months ended September 30, O&M costs related to regulated plant performance increased as a result of an increase in the maintenance work performed during the outages, the addition of Afton and an increase in costs for labor, materials and


Residential $ 89.3 $ 78.0 $ 11.3 14.5 $ 227.1 $ 204.2 $ 22.9 11.2 Commercial 98.9 85.7 13.2 15.4 248.0 223.6 24.4 10.9 Industrial 27.3 25.7 1.6 6.2 78.4 74.9 3.5 4.7 Transmission 7.7 7.2 0.5 6.9 19.2 20.4 (1.2 ) (5.9 ) Other retail 11.5 9.5 2.0 21.1 27.2 23.8 3.4 14.3 Wholesale long-term sales 43.7 50.5 (6.8 ) (13.5 ) 126.3 112.4 13.9 12.4 Wholesale short-term sales 78.0 103.9 (25.9 ) (24.9 ) 268.9 241.8 27.1 11.2

$ 356.4 $ 360.5 $ (4.1 ) (1.1 ) $ 995.1 $ 901.1 $ 94.0 10.4

Average retail customers (thousands) 495.6 490.0 5.6 1.1 494.7 488.3 6.4 1.3

Three Months Ended September 30, Nine Months Ended September 30, 2008 2007 Change % 2008 2007 Change % (Gigawatt hours)

Residential 898.8 945.9 (47.1 ) (5.0 ) 2,474.7 2,471.5 3.2 0.1 Commercial 1,142.6 1,181.3 (38.7 ) (3.3 ) 3,069.2 3,050.9 18.3 0.6 Industrial 408.1 488.6 (80.5 ) (16.5 ) 1,260.4 1,453.1 (192.7 ) (13.3 ) Other retail 80.6 79.9 0.7 0.9 211.4 199.7 11.7 5.9 Wholesale long-term sales 740.5 867.8 (127.3 ) (14.7 ) 2,167.7 2,042.5 125.2 6.1 Wholesale short-term sales 764.7 1,601.8 (837.1 ) (52.3 ) 2,883.9 4,055.7 (1,171.8 ) (28.9 )

4,035.3 5,165.3 (1,130.0 ) (21.9 ) 12,067.3 13,273.4 (1,206.1 ) (9.1 )

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supplies.

A decrease in the sales of SO 2 allowances reduced revenues, gross margin and segment earnings.

For the three months and nine months ended September 30, unregulated margins increased over prior year levels due to increased availability and more favorable pricing terms under the forward sales agreement at PVNGS, combined with higher price spreads on market transactions. Unregulated sales volumes and revenues decreased substantially due to the sale of merchant portfolio sales contracts and the reduction of other market sales, but this decrease was offset by a corresponding reduction in costs for these transactions.

A gain on the sale of the merchant portfolio in June 2008 increased revenues, gross margin and segment earnings. PNM’s merchant portfolio included certain wholesale power, natural gas and transmission contracts that represent a significant portion of the wholesale activity portfolio of PNM Electric and include several long-term sales and purchase power agreements. See Note 4.

Changes in net unrealized mark-to-market gains and losses on economic hedges were driven by increased gas and electric price movements during the three and nine months ended September 30, 2008 when compared to the changes in the three and nine months ended September 30, 2007.

Operational costs include costs for materials and supplies, self-insurance, depreciation, interest, shared services, employee labor, pension and benefits. Increased costs in the third quarter included interest on higher debt balances at higher rates, along with transaction fees associated with the refinancing of debt. This increase, combined with an increase in incentive-based compensation, was partially offset by cost savings resulting from the business improvement plan.

Income related to NDT assets includes realized gains and losses, interest and dividend income and any associated fees and taxes, along with other than temporary impairment losses recognized in accordance with SFAS 115. This income totaled a loss of $4.9 million in the three months ended September 30, 2008 and a loss of $9.2 million for the nine months ending September 30, 2008, compared to a gain of $4.6 million in the three months ended September 30, 2007 and $7.2 million for the nine months ending September 30, 2007.

Regulatory disallowances resulting from the NMPRC’s rate order dated April 24, 2008 include write-offs of $10.6 million for deferred costs of RECs and $19.6 million for coal mine decommissioning costs.

In 2007, the impairment of Afton increased operating expenses, as the cost of construction exceeded the amount allowed by a NMPRC rate order. An impairment of goodwill amounting to $51.1 million was recorded in the three months ended June 30, 2008 as a result of the annual impairment assessment (See Note 17). TNMP Electric

The table below summarizes the operating results for TNMP Electric:


Total operating revenues $ 51.1 $ 52.7 $ (1.6 ) (3.0 ) $ 140.4 $ 137.1 $ 3.3 2.4 Cost of energy 8.4 7.5 0.9 12.0 24.2 21.9 2.3 10.5 Gross margin 42.7 45.1 (2.4 ) (5.3 ) 116.3 115.2 1.1 1.0 Other operating expenses 17.3 17.0 0.3 1.8 84.7 53.4 31.3 58.6 Depreciation and amortization 9.9 7.1 2.8 39.4 27.0 21.1 5.9 28.0 Operating income (loss) 15.5 21.1 (5.6 ) (26.5 ) 4.5 40.7 (36.2 ) (88.9 ) Interest income - - - - - 0.9 (0.9 ) (100.0 ) Other income (deductions) 1.7 0.4 1.3 325.0 2.7 1.3 1.4 107.7 Net interest charges (4.2 ) (5.8 ) 1.6 (27.6 ) (13.6 ) (19.7 ) 6.1 (31.0 )

Earnings (loss) before income taxes 13.0 15.7 (2.7 ) (17.2 ) (6.3 ) 23.2 (29.6 ) (127.2 )

Income taxes 4.9 5.5 (0.6 ) (10.9 ) 10.6 7.8 2.8 35.9 Segment earnings (loss) $ 8.1 $ 10.2 $ (2.1 ) (20.6 ) $ (16.9 ) $ 15.4 $ (32.3 ) (209.7 )

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The table below summarizes the significant changes to operating revenues, gross margin, earnings before income taxes and segment earnings:

The following table shows TNMP Electric operating revenues by customer class, including intersegment revenues, and average number of customers:

The following table shows TNMP Electric GWh sales by customer class:

In the third quarter, milder temperatures and customer conservation more than offset an increases in the average customer count. In the first and second quarters, the increase in the

average customer count more than offset milder temperatures, resulting in increases in sales volumes. On a year-to-date basis, the increase in sales volumes and higher


Earnings

(Loss) Earnings

(Loss) Before Segment Before Segment Total Gross Income Earnings Total Gross Income Earnings Revenues Margin Taxes (Loss) Revenues Margin Taxes (Loss) (In millions) Customer growth/usage $ (0.5 ) $ (0.5 ) $ (0.5 ) $ (0.3 ) $ 2.4 $ 2.4 $ 2.4 $ 1.6 Hurricane Ike margin impact (1.6 ) (1.6 ) (1.6 ) (1.0 ) (1.6 ) (1.6 ) (1.6 ) (1.0 ) PUCT order - - (2.7 ) (1.8 ) 1.0 1.0 (4.4 ) (2.9 ) Synergy savings credits - - - - - - 1.6 1.0 Financing costs - - 1.3 0.8 - - 5.1 3.3 Operational costs - - (0.3 ) (0.2 ) - - 1.0 0.7 Impairment of goodwill - - - - - - (34.5 ) (34.5 ) Other 0.5 (0.3 ) 1.1 0.4 1.5 (0.7 ) 0.8 (0.5 )

Total increase $ (1.6 ) $ (2.4 ) $ (2.7 ) $ (2.1 ) $ 3.3 $ 1.1 $ (29.6 ) $ (32.3 )


Residential $ 22.3 $ 23.4 $ (1.1 ) (4.7 ) $ 55.4 $ 53.8 $ 1.6 3.0 Commercial 18.0 19.2 (1.2 ) (6.3 ) 53.5 52.9 0.6 1.1 Industrial 3.5 2.1 1.4 66.7 10.0 5.6 4.4 78.6 Other 7.3 8.0 (0.7 ) (8.8 ) 21.5 24.8 (3.3 ) (13.3 )

$ 51.1 $ 52.7 $ (1.6 ) (3.0 ) $ 140.4 $ 137.1 $ 3.3 2.4

Average customers (thousands (1) ) 230.3 226.8 3.5 1.5 229.0 225.8 3.2 1.4

(1) Under TECA, customers of TNMP Electric in Texas have the ability to choose First Choice or any other REP to provide energy. The average customers reported above include (in thousands) 111.0 and 135.3 and customers of TNMP Electric for the three months ended September 30, 2008 and 2007 and 118.3 and 139.4 customers for the nine months ended September 30, 2008 and 2007 who have chosen First Choice as their REP. These customers are also included in the First Choice segment.

Three Months Ended September 30, Nine Months Ended September 30, 2008 2007 Change % 2008 2007 Change %

(Gigawatt hours (1) ) Residential 811.3 860.4 (49.1 ) (5.7 ) 1,987.2 1,978.7 8.5 0.4 Commercial 618.6 664.8 (46.2 ) (6.9 ) 1,679.5 1,687.6 (8.1 ) (0.5 ) Industrial 482.9 543.7 (60.8 ) (11.2 ) 1,542.5 1,424.9 117.6 8.3 Other 28.8 26.4 2.4 9.1 81.5 74.5 7.0 9.4

1,941.6 2,095.3 (153.7 ) (7.3 ) 5,290.7 5,165.7 125.0 2.4

(1) The GWh sales reported above include 467.2 and 651.4 GWhs for the three months ended September 30, 2008 and 2007 and 1,295.2 and 1,611.7 GWhs for the nine months ended September 30, 2008 and 2007 used by customers of TNMP Electric, who have chosen First Choice as their REP. These GWhs are also included below in the First Choice segment.

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service fees approved by the PUCT increased operating revenues and gross margin. Hurricane Ike, which struck the Gulf Coast in September 2008, reduced sales volumes, revenues and gross margin. A decrease in the carrying cost rate on stranded costs resulted in a decrease to net earnings. See Note 10.

Credits from synergy savings related to the acquisition of TNMP operations by PNMR were returned to customers from July 2005 through June 2007, as ordered by the PUCT. The completion of the return of these savings in 2007 resulted in increased 2008 earnings.

Third quarter 2008 segment earnings also benefited from lower interest charges resulting from a $100 million long-term debt reduction in the second quarter of 2007 and the refinancing of $148.9 million of debt in the second quarter of 2008.

An impairment of goodwill amounting to $34.5 million was recorded in the three months ended June 30, 2008 as a result of the annual impairment assessment (See Note 17).

Operational costs include costs for materials and supplies, self-insurance, depreciation, shared services, employee labor, pension and benefits. Increased shared service and incentive-based compensation costs in the third quarter were more than offset by savings during the first six months of 2008, primarily resulting from the business improvement plan. PNM Gas

The table below summarizes the operating results for PNM Gas, which is classified as discontinued operations in the Condensed Consolidated Statements of Earnings (Loss):

The table below summarizes the significant changes to operating revenues, gross margin, earnings (loss) before income taxes and segment earnings:


Total operating revenues $ 63.3 $ 59.5 $ 3.8 6.4 $ 379.3 $ 351.1 $ 28.2 8.0 Cost of energy 37.5 34.0 3.5 10.3 263.2 240.8 22.4 9.3 Gross margin 25.8 25.6 0.2 0.8 116.1 110.3 5.8 5.3 Other operating expenses 22.9 21.8 1.1 5.0 67.3 68.9 (1.6 ) (2.3 ) Depreciation and amortization - 5.3 (5.3 ) (100.0 ) - 16.3 (16.3 ) (100.0 ) Operating income 3.0 (1.5 ) 4.5 (300.0 ) 48.8 25.1 23.7 94.4 Interest income 0.6 (0.1 ) 0.7 (700.0 ) 1.9 0.4 1.5 375.0 Other income (deductions) 0.1 0.1 - - 0.2 0.3 (0.1 ) (33.3 ) Net interest charges (3.4 ) (3.9 ) 0.5 (12.8 ) (9.9 ) (9.7 ) (0.2 ) 2.1

Earnings (loss) before income taxes 0.2 (5.4 ) 5.6 (103.7 ) 40.9 16.0 24.9 155.6

Income taxes 0.8 (2.1 ) 2.9 (138.1 ) 16.3 6.3 10.0 158.7 Segment earnings (loss) $ (0.6 ) $ (3.3 ) $ 2.7 (81.8 ) $ 24.6 $ 9.7 $ 14.9 153.6


Earnings

(Loss) Earnings

(Loss) Before Segment Before Segment Total Gross Income Earnings Total Gross Income Earnings Revenues Margin Taxes (Loss) Revenues Margin Taxes (Loss) (In millions) Retail gas prices $ 14.7 $ - $ - $ - $ 15.4 $ - $ - $ - Rate increase - - - - 5.1 5.1 5.1 3.1 Customer growth/usage (1.9 ) (0.2 ) (0.2 ) (0.1 ) 13.1 1.8 1.8 1.1 Off-system activities (9.7 ) (0.4 ) (0.4 ) (0.2 ) (4.4 ) (0.2 ) (0.2 ) (0.1 ) Operational costs - - - - - - 2.4 1.4 Discontinuation of depreciation on assets - - 5.4 3.3 - - 16.0 9.7 Other 0.7 0.8 0.8 (0.3 ) (1.0 ) (0.9 ) (0.2 ) (0.3 )

Total increase (decrease) $ 3.8 $ 0.2 $ 5.6 $ 2.7 $ 28.2 $ 5.8 $ 24.9 $ 14.9

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The following table shows PNM Gas operating revenues by customer class included in earnings from discontinued operations within the presentation of Condensed Consolidated

Statements of Earnings (Loss) and average number of customers:

The following table shows PNM Gas throughput by customer class:

Due to the pending sale of the PNM Gas business, the Company is reporting this segment as discontinued operations as required under GAAP. See Note 14. Certain corporate items

that historically were allocated to the PNM Gas segment cannot be included as discontinued operations and were reassigned to PNM Electric for previously reported periods. These items include officer compensation, depreciation on common utility and shared-service assets, and postage costs. The after-tax amount of costs reassigned in the three and nine months ended September 30, 2007 totaled $2.5 million and $8.0 million. Beginning in 2008, these costs were reallocated among all PNMR business segments.

PNM Gas purchases natural gas in the open market and resells it at no profit to its sales-service customers. As a result, increases or decreases in gas revenues driven by gas costs do not impact the gross margin or operating income of PNM Gas. Increases or decreases to gross margin caused by changes in sales-service volumes represent margin earned on the delivery of gas to customers based on regulated rates.

On June 29, 2007, the NMPRC unanimously approved an increase in annual revenues of approximately $9 million for PNM Gas, which included a 9.53 percent return on equity. See Note 10. Implementation of this rate increase resulted in an increase to revenues and gross margin in 2008.

In the first and second quarters, customer growth resulted in increased operating revenues and gross margin. This was partially offset by weather impacts, as temperatures across the service area were colder than normal levels early in the year, particularly in January, but were milder than temperatures experienced during the first quarter of 2007. In the third quarter, reduced customer usage due to weather and conservation efforts more than offset the increase in customer growth, resulting in decreased operating revenues and gross margin.

Revenues from off-system activity increased during the first and second quarters due to increased gas prices, which were largely offset by increases in costs for the transactions. In the second quarter of 2008, increased activity resulted in a slight increase to margin, which more than offset the slight decrease experienced in the first quarter due to reduced activity. In the third quarter, decreased gas prices resulted in reduced revenues from off-system activity, and decreased activity also


Residential $ 39.5 $ 31.4 $ 8.1 25.8 $ 255.4 $ 232.1 $ 23.3 10.0 Commercial 14.1 10.4 3.7 35.6 77.8 71.0 6.8 9.6 Industrial 0.6 0.5 0.1 20.0 2.8 1.5 1.3 86.7 Transportation (1) 2.5 2.5 - - 12.3 10.9 1.4 12.8 Other 6.6 14.7 (8.1 ) (55.1 ) 31.0 35.6 (4.6 ) (12.9 )

$ 63.3 $ 59.5 $ 3.8 6.4 $ 379.3 $ 351.1 $ 28.2 8.0

Average customers (thousands) 494.4 489.9 4.5 0.9 496.3 490.8 5.5 1.1

(1) Customer-owned gas.

Three Months Ended September 30, Nine Months Ended September 30, 2008 2007 Change % 2008 2007 Change % (Thousands of Decatherms)

Residential 2,170.6 2,244.2 (73.6 ) (3.3 ) 20,205.7 20,015.1 190.6 1.0 Commercial 1,059.9 1,138.3 (78.4 ) (6.9 ) 7,131.2 7,287.7 (156.5 ) (2.1 ) Industrial 52.2 65.0 (12.8 ) (19.7 ) 280.1 178.3 101.8 57.1 Transportation (1) 8,175.2 9,784.0 (1,608.8 ) (16.4 ) 28,744.5 30,733.0 (1,988.5 ) (6.5 ) Other 348.1 1,773.7 (1,425.6 ) (80.4 ) 2,338.1 3,598.7 (1,260.6 ) (35.0 )

11,806.0 15,005.2 (3,199.2 ) (21.3 ) 58,699.6 61,812.8 (3,113.2 ) (5.0 )

(1) Customer-owned gas.

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resulted in a decrease to margin.

Operational costs include costs for materials and supplies, self-insurance, shared services, employee labor, pension and benefits. In the third quarter, cost savings resulting from the business improvement plan offset increases in incentive-based compensation costs. On a year-to-date basis, these cost savings more than offset increases in costs.

Due to the pending sale of the gas business, the assets held for sale have not been depreciated in accordance with SFAS 144. If PNM Gas was not treated as discontinued operations, depreciation of $5.4 million and $16.1 million would have been recorded in the three and nine months ended September 30, 2008. Altura

Effective June 1, 2007, PNMR contributed Altura, including the Twin Oaks business, to EnergyCo. See Note 2. Accordingly, Altura’s results of operations are included in PNMR for the nine months ended September 30, 2007, but not in 2008. First Choice

The table below summarizes the operating results for First Choice:

The following table summarizes the significant changes to operating revenues, gross margin, earnings (loss) before income taxes, and segment earnings (loss):


Total operating revenues $ 215.0 $ 177.7 $ 37.3 21.0 $ 461.4 $ 463.3 $ (1.9 ) (0.4 ) Cost of energy 206.0 159.2 46.8 29.4 469.3 395.9 73.4 18.5 Gross margin 9.1 18.5 (9.4 ) (50.8 ) (7.9 ) 67.4 (75.3 ) (111.7 ) Other operating expenses 30.5 13.6 16.9 124.3 118.8 41.7 77.1 184.9 Depreciation and amortization 0.6 0.5 0.1 20.0 1.7 1.4 0.3 21.4 Operating income (loss) (22.1 ) 4.5 (26.6 ) (591.1 ) (128.4 ) 24.3 (152.7 ) (628.4 ) Interest income 0.4 0.5 (0.1 ) (20.0 ) 1.3 1.5 (0.2 ) (13.3 ) Other income (deductions) 0.2 0.1 0.1 - 0.1 0.1 - - Net interest charges (1.8 ) (0.6 ) (1.2 ) 200.0 (2.5 ) (1.8 ) (0.7 ) 38.9

Earnings (loss) before income taxes (23.3 ) 4.4 (27.7 ) (629.5 ) (129.4 ) 24.1 (153.5 ) (636.9 ) Income taxes (benefit) (6.8 ) 1.7 (8.5 ) (500.0 ) (28.4 ) 9.1 (37.5 ) (412.1 ) Segment earnings (loss) $ (16.5 ) $ 2.7 $ (19.2 ) (711.1 ) $ (101.0 ) $ 15.0 $ (116.0 ) (773.3 )


Earnings

(Loss) Earnings

(Loss) Before Segment Before Segment Total Gross Income Earnings Total Gross Income Earnings Revenues Margin Taxes (Loss) Revenues Margin Taxes (Loss) (In millions) Customer growth/usage $ (19.0 ) $ (2.1 ) $ (2.1 ) $ (1.3 ) $ (25.0 ) $ (8.2 ) $ (8.2 ) $ (5.3 ) Hurricane Ike (4.2 ) (3.3 ) (3.3 ) (2.1 ) (4.2 ) (3.3 ) (3.3 ) (2.1 ) Retail margins 54.2 3.3 3.3 2.1 69.7 (16.9 ) (16.9 ) (11.0 ) LBCS bankruptcy - (3.9 ) (3.9 ) (2.5 ) - (3.9 ) (3.9 ) (2.5 ) Trading margin 5.7 5.7 5.7 3.7 (41.6 ) (41.6 ) (41.6 ) (26.8 ) Unrealized economic hedges 0.6 (9.1 ) (9.1 ) (5.9 ) (0.8 ) (1.4 ) (1.4 ) (0.9 ) Bad debt expense - - (6.4 ) (4.2 ) - - (11.0 ) (7.2 ) Other operational costs - - (2.6 ) (1.7 ) - - (7.6 ) (4.9 )

Impairment of goodwill and other intangible assets - - (7.9 ) (7.3 ) - - (58.5 ) (55.3 )

Other - - (1.4 ) - - - (1.1 ) - Total increase (decrease) $ 37.3 $ (9.4 ) $ (27.7 ) $ (19.2 ) $ (1.9 ) $ (75.3 ) $ (153.5 ) $ (116.0 )

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The following table shows First Choice operating revenues by customer class, including intersegment revenues, and actual number of customers:

The following table shows First Choice GWh electric sales by customer class:

For the third quarter and year-to-date 2008, a decrease in customers and lower MWh sales decreased segment earnings compared to 2007. An increase in the average retail sales price

over 2007 levels, largely related to higher purchased power costs, resulted in increased sales revenues. Other revenues increased retail margins as a result of higher discretionary fees in 2008. However, the impact of Hurricane Ike resulted in additional lower sales and selling excess power at prices lower than purchased prices, which resulted in lower segment earnings for the quarter. In addition, First Choice had forward purchase power contracts with LBCS through March 2009. As a result of LBCS’s recent bankruptcy, First Choice terminated their contracts with LBCS effective September 24, 2008 and recognized a $3.9 million loss as settled purchase power contracts. The $3.9 million loss consisted of $2.2 million previously recorded in earnings as unrealized losses on economic hedges and $1.7 million of power purchases under normal contracts not previously recorded in earnings. These power supply contracts have since been replaced with other counterparties and are expected to substantially offset the $3.9 million loss in future months. Recognizing this forward loss in the third quarter, in addition to cumulative higher purchase power costs resulted in lower average retail margins versus last year. A delay in implementing price increases on fixed price term customer renewals, coupled with contractual limitations on monthly price increases for floating rate customers, prevented First Choice from recouping the dramatic increase in purchase power costs in the second quarter. The customer renewal process has since been automated and contractual limitations on monthly price increases have been significantly changed to reduce First Choice’s exposure to future price volatility. Year-to-date losses on unrealized economic hedges represent unrealized fair value estimates related to forward energy contracts and are not necessarily indicative of the amounts that will be realized upon settlement.

For the nine months ended September 30, a decrease in trading margins from a $7.3 million loss in 2007 to a $48.9 million loss in 2008 resulted in an after-tax $26.8 million decrease in segment earnings. The losses were primarily the result of a series of speculative forward trades that arbitraged basis differentials among certain ERCOT delivery zones. Because of continued market volatility and the concern that the forward basis market would continue to deteriorate, First Choice decided to end any further speculative trading. First Choice had flattened some of its speculative positions with


Residential $ 144.9 $ 124.1 $ 20.8 16.8 $ 331.3 $ 298.1 $ 33.2 11.1 Mass-market 16.7 16.2 0.5 3.1 46.3 50.5 (4.2 ) (8.3 ) Mid-market 42.7 40.5 2.2 5.4 116.1 109.5 6.6 6.0 Trading gains (losses) 0.1 (5.7 ) 5.8 (101.8 ) (48.9 ) (7.3 ) (41.6 ) 569.9 Other 10.6 2.6 8.0 307.7 16.6 12.5 4.1 32.8

$ 215.0 $ 177.7 $ 37.3 21.0 $ 461.4 $ 463.3 $ (1.9 ) (0.4 )

Actual customers (thousands) (1,2) 233.8 258.6 (24.8 ) (9.6 ) 233.8 258.6 (24.8 ) (9.6 )

(1) See note above in the TNMP Electric segment discussion about the impact of TECA.

(2) Due to the competitive nature of First Choice’s business, actual customer count at September 30 is presented in the table above as a more representative business indicator than average customers.

Three Months Ended September 30, Nine Months Ended September 30, 2008 2007 Change % 2008 2007 Change %

(Gigawatt hours) (1) Residential 772.9 886.5 (113.6 ) (12.8 ) 2,045.8 2,139.5 (93.7 ) (4.4 ) Mass-market 73.1 101.3 (28.2 ) (27.8 ) 236.1 312.7 (76.6 ) (24.5 ) Mid-market 340.8 348.9 (8.1 ) (2.3 ) 924.1 944.5 (20.4 ) (2.2 ) Other 2.7 11.3 (8.6 ) (76.1 ) 12.5 21.6 (9.1 ) (42.1 )

1,189.5 1,348.0 (158.5 ) (11.8 ) 3,218.5 3,418.3 (199.8 ) (5.8 )

(1) See note above in the TNMP Electric segment discussion about the impact of TECA.

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LBCS contracts. Due to their bankruptcy, some of the First Choice’s speculative exposure was re-opened. The speculative portion of the LBCS contracts was a loss position of $3.3 million. However, these contracts were subsequently replaced with other counterparties resulting in no material net change in First Choice’s future position. Of the speculative trading losses, $7.8 million has not cash settled at September 30, 2008. The majority of these positions will cash settle before December 31, 2008. No significant additional costs are expected related to speculative trading.

Year-to-date 2008, impairments of goodwill of $49.5 million and the First Choice trade name of $9.0 million pre-tax (aggregating $55.3 million after-tax) were recorded as a result of the annual impairment assessment (See Note 17).

Other operational costs include costs for customer acquisition and service, as well as shared services, employee labor, pension, and benefits. Increased operational costs including higher bad debt expense resulted in a decrease to segment earnings for both the third quarter and year-to-date 2008. Unfavorable operating costs were driven largely by an increase in bad debt expense as a result of residual billing system conversion issues, increased customer churn, and higher average bills. Corporate and Other

The following table summarizes the significant changes to operating revenues, gross margin, earnings (loss) before income taxes, and segment earnings (loss):

The Corporate and Other segment includes consolidation eliminations of revenue and expense between TNMP and First Choice. In 2007, PNMR incurred costs associated with

formation of EnergyCo as well as a loss on the contribution of Altura to EnergyCo. Corporate and Other results also include earnings associated with EnergyCo. Further explanation of equity in earnings of EnergyCo is shown below. Corporate and Other also includes costs to achieve savings such as severances and consulting costs associated with the business improvement plan to reduce costs and improve processes in future years. In addition, costs incurred in 2008 associated with the planned divestiture of the gas business are included in the Corporate and Other segment. Increased financing charges in 2008 resulted from remarketing of the debt component of equity-linked units at a higher interest rate, offset partially by lower short-term borrowings and lower short-term interest rates. In 2007 the Corporate and Other segment includes favorable tax decisions regarding previously unrecognized tax benefits, including a settlement with the IRS that had a $16.0 million non-recurring impact on income taxes. In addition, there was a true up in property taxes in 2007 related to Twin Oaks for periods prior to its contribution to EnergyCo.


Earnings

(Loss) Earnings

(Loss) Before Segment Before Segment Total Gross Income Earnings Total Gross Income Earnings Revenues Margin Taxes (Loss) Revenues Margin Taxes (Loss) (In millions) Intercompany eliminations $ 5.8 $ - $ - $ - $ 9.9 $ - $ - $ - EnergyCo formation costs - - - - - - 4.2 2.5 Loss on contribution of Altura - - - - - - 7.0 4.2 Equity in earnings of EnergyCo - - (12.1 ) (7.3 ) - - (41.3 ) (24.9 ) Business improvement plan - - 2.1 1.3 - - (2.0 ) (1.2 ) Divestiture related costs - - (4.1 ) (2.5 ) - - (4.5 ) (2.7 ) Financing - - (1.1 ) (0.7 ) - - (3.7 ) (2.2 ) Effects of settlement with IRS - - - - - - (4.7 ) (18.8 ) Altura property tax true up - - (2.1 ) (1.3 ) - - (2.1 ) (1.3 ) Other (0.3 ) (0.2 ) 0.3 1.0 (0.6 ) (0.4 ) 4.4 2.6

Total increase (decrease) $ 5.5 $ (0.2 ) $ (17.0 ) $ (9.5 ) $ 9.3 $ (0.4 ) $ (42.7 ) $ (41.8 )

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EnergyCo

The table below summarizes the operating results for EnergyCo:

PNMR evaluates the results of operation of EnergyCo on an earnings before interest, income taxes, depreciation, and amortization (“EBITDA”) basis. In this evaluation of EnergyCo,

PNMR also excludes purchase accounting amortization recorded in accordance with SFAS 141, speculative trading and mark to market on forward economic hedges.

SFAS 141 requires that EnergyCo individually value each asset and liability received in the Altura and Altura Cogen Power Plant transactions and initially record them on its balance sheet at the determined fair value. For both transactions, this accounting results in a significant amount of amortization since the acquired contracts’ pricing terms differ significantly from fair value at the date of acquisition and emission allowances, while acquired from government programs without future cost to EnergyCo, have historically had significant market value. During the three months and nine months ended September 30, 2008, EnergyCo recorded amortization of contracts acquired of $6.2 million and $7.1 million, which is recorded in operating revenues, and amortization of emission allowances of $4.2 million and $9.5 million, which is recorded in cost of sales.

In July 2008, a federal appeals court ruling by the U.S. Court of Appeals for the District of Columbia Circuit Court invalidated CAIR. This ruling appears to remove the need for emissions allowance credits under the CAIR program. EnergyCo has inventory of emissions allowances from the purchase of the Altura Cogen plant and contribution of the Twin Oaks plant. As of September 30, 2008, EnergyCo recorded a pre-tax write off of $31.7 million for all inventory under the CAIR program. EnergyCo has $117.6 million in inventory for other emission allowances not related to the CAIR program.

The contribution of Altura created a basis difference between PNMR’s recorded investment in EnergyCo and 50 percent of EnergyCo’s equity. While the portion of the basis difference related to contract amortization will only continue through 2010, other basis differences, including a difference related to emission allowances, will continue to exist through the life of the Altura plant. For the three months and nine months ended September 30, 2008, the basis difference adjustment detailed above relates mainly to contract amortization with insignificant offsets related to the other minor basis difference components.

EnergyCo has a hedging program that covers a multi-year period. The level of hedging at any given time varies depending on current market conditions and other factors. Economic hedges that do not qualify for or are not designated as cash flow hedges or normal purchases/sales under SFAS 133 are derivative instruments that are required to be marked to market. Changes in the fair value of economic hedges resulted in an increase in net earnings of $28.3 million in the three months ended September 30, 2008 and a reduction of net earnings of $10.7 million in the nine months ended September 30, 2008 as a result of higher power prices. Due to the extreme market volatility experienced in the first quarter of 2008 in the ERCOT market, EnergyCo made the decision to exit the speculative trading business and close out the speculative

Three Months Ended September 30, Nine Months Ended September 30, 2008 2007 Change 2008 2007 Change (In millions)

Total operating revenues $ 414.1 $ 100.5 $ 313.6 $ 892.6 $ 114.8 $ 777.8 Cost of energy 357.8 56.4 301.4 814.9 61.0 753.9 Gross margin 56.3 44.0 12.3 77.7 53.8 23.9 Other operating expenses 47.2 12.2 35.0 99.7 17.7 82.0 Depreciation and amortization 7.7 5.8 1.9 22.9 7.3 15.6 Operating income (loss) 1.4 26.0 (24.6 ) (44.8 ) 28.8 (73.6 ) Other income (deductions) - 0.2 (0.2 ) 0.7 0.3 0.4 Net interest charges (3.7 ) (7.0 ) 3.3 (15.0 ) (7.8 ) (7.2 )

Earnings (loss) before income taxes (2.2 ) 19.2 (21.4 ) (59.1 ) 21.3 (80.4 ) Income tax (benefit) on margin 0.1 0.4 (0.3 ) (0.2 ) 0.4 (0.6 ) Net earnings (loss) $ (2.3 ) $ 18.8 $ (21.1 ) $ (58.9 ) $ 20.9 $ (79.8 )

50 percent of net earnings (loss) $ (1.2 ) $ 9.4 $ (10.6 ) $ (29.5 ) $ 10.4 $ (39.9 )

Plus amortization of basis difference in EnergyCo (0.3 ) 1.1 (1.4 ) 0.4 1.7 (1.3 )

PNMR Equity in net earnings (loss) of EnergyCo $ (1.5 ) $ 10.6 $ (12.1 ) $ (29.1 ) $ 12.2 $ (41.3 )

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trading positions. In May 2008, EnergyCo closed out all remaining speculative positions. EnergyCo recognized speculative trading losses of $2.4 million in the first quarter of 2008 and less than $0.1 million in the second and third quarters of 2008 combined. No additional costs are expected related to speculative trading.

Results of operations for EnergyCo for the three months ended September 2008 primarily include the operations of Altura and Altura Cogen operating stations. Altura was contributed to EnergyCo on June 1, 2007 and EnergyCo acquired Altura Cogen on August 1, 2007. Both generation stations continue to have strong performance in 2008, with Altura Cogen’s availability exceeding that of the same period in 2007. In addition, Altura’s availability earned additional capacity payments in 2008 not earned in the same period last year. Since primary operations of EnergyCo did not commence until the contribution of Altura, the earnings for the nine months ended September 30, 2007 only reflect start-up costs, four months of Altura operations and two months of Altura Cogen operations.

The assets of Altura transferred to EnergyCo included the development rights for a possible 600-megawatt expansion of the Twin Oaks plant, which was classified as an intangible asset. EnergyCo made a strategic decision not to pursue the Twin Oaks expansion at this time and wrote off the development rights as an impairment of intangible assets amounting to $21.8 million in the second quarter of 2008.

LIQUIDITY AND CAPITAL RESOURCES Statements of Cash Flows

The changes in PNMR’s cash flows for the nine months ended September 30, 2008 compared to 2007 are summarized as follows:

The change in PNMR’s cash flows from operating activities reflects lower earnings after adjustments to reconcile to cash flows from operations due primarily to results of operations at

First Choice as well as increased margin calls due to an increase in commodity prices at First Choice. The decrease in operating cash flows is partially offset by settlements in 2007 of 2006 TNMP liabilities to REPs related to retail competition in Texas as ordered under TECA and payments in 2007 of 2006 incentive based compensation accruals .

The change in cash flows from investing activities reflects net distributions from EnergyCo in 2007 related to the contribution of Altura, partially offset by less cash used at PNM for utility plant additions in 2008 compared to 2007 when the expansion of the Afton plant, the purchase of assets underlying a portion of PNVGS leased by PNM, and corporate software upgrades impacted cash flows.

The change in cash flows from financing activities reflects the issuance of common stock by PNMR in connection with the settlement of equity purchase obligations of the holders of publicly held equity-linked units and the issuance of long-term debt by PNMR and PNM, partially offset by the redemption of long-term debt by PNM. In addition, PNMR had increased short-term borrowings in 2008. At TNMP, the redemption of long-term debt was offset by new short-term borrowings. Cash flows from financing activities continued to fund construction expenditures as well as strengthen the Company’s liquidity position. Capital Requirements

Total capital requirements consist of construction expenditures and cash dividend requirements for both common and preferred stock. The main focus of PNMR’s current construction program is upgrading generation resources, including pollution control equipment, upgrading and expanding the electric and gas transmission and distribution systems, and purchasing nuclear fuel. On August 11, 2008, the Board declared the regular quarterly dividend on

Nine Months Ended September 30, 2008 2007 Change (In millions) Net cash flows from operating activities $ 64.1 $ 127.0 $ (62.9 ) Net cash flows from investing activities (209.9 ) 19.3 (229.2 ) Net cash flows from financing activities 395.2 (252.9 ) 648.1

Net change in cash and cash equivalents $ 249.4 $ (106.7 ) $ 356.0

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common stock of $0.125 per share, which represents a reduction of 46 percent from the previous quarter. PNMR’s indicated annual dividend rate is $0.50 per share. The Board took this action to improve the Company’s liquidity and set a new foundation for long-term value creation. The reduction also better aligns PNMR’s dividend yield with industry averages. The Board also declared a regular quarterly dividend on common stock of $0.125 per share on September 16, 2008. Projections, including amounts expended through September 30, 2008, for total capital requirements for 2008 are $414.4 million, including construction expenditures of $356.6 million. Total capital requirements for the years 2008-2012 are projected to be $1,983.6 million, including construction expenditures of $1,741.4 million. This projection includes $81.0 million for the SJGS environmental project to install low NOX combustion control and mercury reduction technologies, as well as equipment to increase SO 2 controls. These estimates are under continuing review and subject to on-going adjustment, as well as to Board review and approval.

During the first nine months of 2008, the Company utilized cash from the debt arrangements described above, cash generated from operations and cash on hand, as well as its liquidity arrangements, to meet its capital requirements and construction expenditures. During the nine months ended September 30, 2008, PNM also received $6.6 million from draws under its $20 million of pollution control revenue bonds issued by the City of Farmington, New Mexico.

TNMP has $167.7 million in senior unsecured notes that mature in January 2009, PNM has $36.0 million of PCRBs that will be remarketed in July 2009, and PNMR has $100.0 million in the debt component of its privately held equity-linked units that currently are scheduled to mature in 2010, but as discussed below, the debt component of the equity-linked units will be remarketed in 2008 and the maturity may be extended if the remarketing is successful. PNMR and its subsidiaries have no other long-term debt that comes due prior to 2016, except for $13.2 million that is due in installments through 2013.

As discussed in Note 22 of Notes to Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K, EnergyCo purchased an electric generating plant in August 2007 for $477.9 million, after working capital adjustments, for which PNMR and ECJV each made a cash contribution to EnergyCo of $42.5 million. In addition, EnergyCo has announced an agreement for the co-development of an additional generating unit for which its share of the construction costs is anticipated to be approximately $215 million, including financing costs. To the extent EnergyCo’s credit facility should be insufficient to finance the current project or additional projects, PNMR and ECJV may, at their option, provide additional funds to EnergyCo. Likewise, if EnergyCo undertakes additional projects, which require funds that would exceed the capacity of its current credit facility and EnergyCo is unable to obtain additional financing capabilities, PNMR and ECJV may be asked to provide additional funding, but such funding would be at the option of PNMR and ECJV. PNMR is unable to predict if additional funding will be required or, if required, the amount or timing of additional funds that would be provided to EnergyCo. Financing Activities

On March 7, 2008, TNMP entered into a $150 million short-term loan agreement with two lenders. On April 9, 2008, TNMP borrowed $150.0 million under this agreement and used the proceeds to redeem the remaining $148.9 million of its 6.125% senior unsecured notes prior to the maturity date of June 1, 2008. The $150.0 million borrowing under this agreement was repaid in October 2008, through borrowing under the TNMP Facility.

On May 5, 2008, PNM entered into the Term Loan Agreement that matures April 30, 2009 in an aggregate principal amount of up to $300.0 million, which capacity was reduced to $150.0 million on May 28, 2008. On May 8, 2008, PNM entered into the $100.0 million Reimbursement Agreement , which allows PNM to obtain standby letters of credit up to the aggregate amount of $100.0 million at any time prior to April 30, 2009. No borrowings have been made and no letters of credit have been issued under these arrangements.

As described in Note 7, in May 2008, PNM issued $350.0 million of senior unsecured notes and PNMR remarketed the senior unsecured notes component of its publicly held equity-linked units. The proceeds from the remarketed senior notes amounted to $247.3 million and were utilized by the holders of the equity-linked units to satisfy their obligations to purchase 9,403,412 shares of PNMR’s common stock for the same aggregate amount on May 16, 2008. In connection with the remarketing, PNMR issued an additional $102.7 million of new senior unsecured notes for an aggregate offering of $350.0 million.

On October 31, 2008, TNMP entered into the $100 million TNMP Bridge Facility to provide an additional source of funds that would be available in order to repay TNMP’s $167.7 million of senior unsecured notes that mature January 15, 2009. The TNMP Bridge Facility allows for other lenders to be added to bring the total amount up to a maximum of $150

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million and TNMP is in discussions with several other potential lenders to obtain commitments to fill out the facility. The TNMP Bridge Facility provides for a single draw of funds after January 1, 2009 and through January 15, 2009 solely for the purpose of repaying TNMP’s senior unsecured notes maturing January 15, 2009. Any amount drawn will be due March 30, 2009 and the facility will expire if funds are not drawn by January 15, 2009. In the event the facility is not expanded to $150 million, there is no obligation for the lenders to fund unless PNMR agrees to provide funds to bring the total to $150 million. The TNMP Bridge Facility includes customary covenants, including requirements to maintain a maximum consolidated debt-to-consolidated capitalization ratio.

As discussed in Note 7, PNMR’s privately held equity-linked units contain mandatory obligations under which the holders are required to purchase for cash, $100.0 million of PNMR common or preferred stock in November 2008. The equity-linked units also provide that, prior to settlement of those purchase obligations, the $100.0 million aggregate principal amount of senior notes that are components of the equity-linked units, which are scheduled to mature in 2010, will be remarketed beginning November 7, 2008. The maturity date of the senior notes may be extended in the remarketing and the interest rate will be reset to a level designed to achieve a successful remarketing of the notes. If the remarketing is successful, PNMR will receive $100.0 million in cash for its equity securities and the debt will continue to mature in 2010, or such later date established in the remarketing. In addition, PNMR may purchase up to $90.0 million principal amount of the notes in the remarketing, which notes would be cancelled thereby reducing the amount of notes outstanding. If the remarketing is not successful on the final remarketing date of November 12, 2008, the holder of the equity-linked units may satisfy its obligations to purchase PNMR equity securities by tendering the debt to PNMR instead of paying cash for the equity securities, the equity securities will be issued, and the debt will be cancelled without requiring payment in cash by PNMR. As discussed below, the credit ratings of PNMR’s debt were downgraded in April and May of 2008. There has also been an overall deterioration of the credit markets in general. Because of the current turmoil in the credit markets, PNMR can provide no assurance that the remarketing will be successful.

As discussed in Note 2, on January 12, 2008, PNM reached a definitive agreement to sell its natural gas operations, which comprise the PNM Gas segment, for $620 million in cash, subject to regulatory approval by the NMPRC and other conditions. The parties may terminate the agreement under certain circumstances. PNMR expects to use the net after-tax proceeds of this transaction to retire debt, fund future electric capital expenditures and for other corporate purposes.

In addition to cash that may be received from the issuance of equity securities during the settlement of PNMR’s privately held equity-linked units, the sale of PNM Gas, and its internal cash generation, the Company anticipates that it will be necessary to obtain additional long-term financing in the form of debt refinancing, new debt issuances, and/or new equity in order to fund its capital requirements and the repayment of senior unsecured notes during the 2008-2012 period.

PNMR has an effective universal shelf registration statement for the issuance of debt securities, common stock, preferred stock, purchase contracts, purchase contract units and warrants. As of October 30, 2008, PNMR had approximately $150.0 million of remaining unissued securities under this universal shelf registration statement. In addition, in August 2006, PNMR filed a new automatically effective shelf registration statement with the SEC for common stock and in April 2008, PNMR filed a new automatically effective shelf registration statement for debt securities. These new registration statements can be amended at any time to include additional securities of PNMR. As a result, these new shelf registration statements have unlimited availability, subject to certain restrictions and limitations.

PNMR offers new shares of PNMR common stock through the PNMR Direct Plan and an equity distribution agreement. The equity distribution agreement is currently suspended. From January 1, 2008 through October 30, 2008, PNMR had sold a total of 185,499 shares of its common stock through the PNMR Direct Plan for net proceeds of $2.4 million.

In April 2008, PNM filed a new shelf registration statement for the issuance of $750 million of senior unsecured notes that was declared effective on April 29, 2008. As of October 30 , 2008, PNM had $600.0 million of remaining unissued securities registered under this and a prior shelf registration statement.

At October 30, 2008, the Company had short-term debt outstanding of $778.7 million. In addition, the Company has scheduled maturities of long-term debt aggregating $205.6 million prior to September 30, 2009. The Company is exploring financial alternatives to meet these obligations. Although accessing the capital markets at the current time could be difficult as well as costly, the Company currently believes that its internal cash generation, existing credit arrangements, and access to public and private capital markets in the longer term will provide sufficient resources to meet the Company’s capital requirements and retire or refinance its senior unsecured notes at maturity. To cover the difference in the amounts and timing of cash generation and cash requirements, the Company intends to use short-term borrowings under its current and future liquidity arrangements. However, if the current market difficulties continue for an extended period of time or

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worsen, the Company may not be able to access the capital markets or renew credit facilities when they expire. In such event, the Company would seek to improve cash flows by reducing capital expenditures and would consider seeking authorization for the issuance of first mortgage bonds in order to improve access to the capital markets, as well as any other alternatives that may remedy the situation at that time.

The Company’s ability, if required, to access the capital markets at a reasonable cost and to provide for other capital needs is largely dependent upon its ability to earn a fair return on equity, its results of operations, its credit ratings, its ability to obtain required regulatory approvals and conditions in the financial markets.

On April 18, 2008, S&P lowered the credit ratings for PNMR, PNM, and TNMP and placed them on credit watch for possible additional downgrades. On May 6, 2008, S&P again lowered the credit ratings for PNMR, PNM, and TNMP and the outlook was changed to stable for all entities. On April 25, 2008, Moody’s lowered the credit ratings for PNMR and PNM and continued a review for possible downgrade, while reaffirming TNMP’s ratings with a negative outlook. On May 23, 2008, Moody’s changed the outlook for PNMR and PNM from rating under review for possible downgrade to negative. The ratings actions have increased borrowing costs for PNMR and PNM and could increase future borrowing costs for PNMR, PNM, and TNMP. In addition, certain contractual arrangements require that the Company obtain commercial insurance for risks that were previously self-insured. On October 2, 2008, Fitch Ratings announced credit ratings for PNMR, PNM, and TNMP. As of October 30 , 2008, ratings on the Company’s securities were as follows:

* Not applicable

Investors are cautioned that a security rating is not a recommendation to buy, sell or hold securities, that it is subject to revision or withdrawal at any time by the assigning rating

organization, and that each rating should be evaluated independently of any other rating. Liquidity

The Company’s principal liquidity arrangements include the PNMR Facility and the PNM Facility, both of which primarily expire in 2012, and the TNMP Facility, which expires in May 2009. These facilities provide short-term borrowing capacity and also allow letters of credit to be issued, which reduce the available capacity under the facilities. Both PNMR and PNM also have lines of credit with local financial institutions.

PNMR has a commercial paper program under which it may issue commercial paper for up to 270 days and PNM has a commercial paper program under which it may issue commercial paper for up to 365 days although these commercial paper programs are currently suspended and no commercial paper has been issued since March 11, 2008. The commercial paper is unsecured and the proceeds are used for short-term cash management needs. The PNMR Facility and the PNM Facility serve as support for the outstanding commercial paper. Operationally, this means the aggregate borrowings under the commercial paper program and the revolving credit facility for each of PNMR and PNM cannot exceed the maximum amount of that entity’s revolving credit facility.

PNMR PNM TNMP S&P

Senior unsecured notes BB- BB+ BB+ Commercial paper B-2 B-2 * Preferred stock * B *

Moody’s Senior unsecured notes Ba2 Baa3 Baa3 Commercial paper NP P-3 * Preferred stock * Ba2 *

Fitch Ratings Senior unsecured notes BB BB+ BBB- Secured PCRBs * BBB- * Short-term borrowings BB BB+ BBB- Preferred stock * BB *

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A summary of these arrangements as of October 30, 2008 is as follows:

The above tables exclude short-term debt of Valencia, which at September 30, 2008 was zero. See Note 16. The TNMP Bridge Facility entered into on October 31, 2008 is not

reflected in the above, since borrowings on it can only be made after January 1, 2009 and through January 15, 2009. The remaining availability under the revolving credit facilities varies based on a number of factors, including the timing of collections of accounts receivables and payments for construction and operating expenditures. The above financing capacity and availability includes $14.5 million that represents the unfunded portion of the PNMR facility attributable to LBB.

As discussed in BUSINESS AND STRATEGY – Overview above and in Note 7, the recent disruption in the current credit markets has had a significant adverse impact on a number of financial institutions and several of the financial institutions that the Company deals with have been impacted. However, at this point in time, the Company’s liquidity has not been materially impacted by the current credit environment and management does not expect that it will be materially impacted in the near-future. Off-Balance Sheet Arrangements

PNMR’s off-balance sheet arrangements include PNM’s operating lease obligations for PVNGS Units 1 and 2, the EIP transmission line, and the entire output of Delta, a gas-fired generating plant. These arrangements help ensure PNM the availability of lower-cost generation needed to serve customers. In addition, PNMR issued both public and private equity-linked units in 2005, each of which consisted of a debt component and a purchase contract for PNMR’s equity securities. The purchase contracts are forward transactions in the equity securities of PNMR that are not considered derivatives. The debt component of the publicly held equity-linked units was remarketed in May 2008 and common stock was issued in exchange for cash received from the purchase contract component thereby ending that off-balance sheet

PNMR PNM TNMP PNMR Separate Separate Separate Consolidated (In millions) Financing Capacity:

Revolving credit facility $ 600.0 $ 400.0 $ 200.0 $ 1,200.0 Local lines of credit 10.0 8.5 - 18.5 Delayed draw term loan facility - 150.0 - 150.0 Letter of credit facility - 100.0 - 100.0

Total financing capacity $ 610.0 $ 658.5 $ 200.0 $ 1,468.5

Commercial paper program maximum $ 400.0 $ 300.0 $ - $ 700.0

Amounts outstanding as of October 30, 2008:

Commercial paper program $ - $ - $ - $ - Revolving credit facility 288.7 340.0 150.0 778.7 Local lines of credit - - - - Delayed draw term loan facility - - - - Total short-term debt outstanding 288.7 340.0 150.0 778.7

Letters of credit 112.3 26.5 1.5 140.3

Total short term-debt and letters of credit $ 401.0 $ 366.5 $ 151.5 $ 919.0

Remaining availability as of October 30, 2008 $ 209.0 $ 292.0 $ 48.5 $ 549.5

Cash and cash equivalents as of October 30, 2008 $ 147.4 $ 79.5 $ 8.4 $ 235.3

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arrangement. See Note 7. See MD&A – Off-Balance Sheet Arrangements and Notes 6 and 7 of Notes to Consolidated Financial Statements in the 2007 Annual Reports on Form 10-K. Commitments and Contractual Obligations

PNMR, PNM and TNMP have contractual obligations for long-term debt, operating leases, purchase obligations and certain other long-term liabilities that were summarized in a table of contractual obligations in the Current Report on Form 8-K filed March 14, 2008.

PNMR entered into a five-year contract on July 1, 2008 for the outsourcing of certain data processing services. This contract has a five-year base period of performance and three one-year options. The base contract requires payments aggregating $20.9 million over the five-year term. Contingent Provisions of Certain Obligations

As discussed in the 2007 Annual Reports on Form 10-K, PNMR, PNM and TNMP have a number of debt obligations and other contractual commitments that contain contingent provisions. Some of these, if triggered, could affect the liquidity of the Company. The contingent provisions include contractual increases in the interest rate charged on certain of the Company’s short-term debt obligations in the event of a downgrade in credit ratings and the requirement to provide security under certain contractual agreements. Based on additional credit facilities entered into by PNM and TNMP in May 2008, the Company believes its financing arrangements are sufficient to meet the requirements of the contingent provisions. Capital Structure

The capitalization tables below include the current maturities of long-term debt, but do not include operating lease obligations as debt.

OTHER ISSUES FACING THE COMPANY

Climate Change Issues

In May 2007, the U.S. Supreme Court held that the EPA had the authority to regulate greenhouse gas emissions (“GHG”) under the Clean Air Act. This decision, coupled with an increased focus in Congress on legislation to address climate change, has heightened the importance of this issue for the energy industry. Although there continues to be debate over the details and best design for state and federal programs, increased state and federal legislative and regulatory

September 30, December 31, 2008 2007

PNMR Common equity 50.4 % 50.0 % Preferred stock of subsidiary 0.3 % 0.3 % Long-term debt 49.3 % 49.7 %

Total capitalization 100.0 % 100.0 %

PNM Common equity 55.7 % 57.8 % Preferred stock 0.5 % 0.5 % Long-term debt 43.8 % 41.7 %


TNMP Common equity 71.3 % 57.8 % Long-term debt 28.7 % 42.2 %


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activities calling for regulation of GHG indicate that climate change protection legislation and/or regulation is likely in the future. On July 30, 2008, EPA published the Greenhouse Gas Advanced Notice of Proposed Rulemaking (ANPR). The ANPR represents EPA’s next step in responding to the Supreme Court case. Although the ANPR identified, but did not choose among, options for GHG regulation, it enabled EPA to achieve meaningful progress on a foundation for future regulation of GHG. In addition, several legislative initiatives are under consideration in Congress that would regulate GHG. While it appears unlikely that legislation will be adopted or regulation completed in 2008, the Company expects GHG to be regulated in the near- to medium-term.

In 2006 the Company became a founding member of the United States Climate Action Partnership (“USCAP”), a coalition currently consisting of 35 businesses and national environmental organizations calling on the federal government to enact national legislation to reduce GHG at the earliest practicable date. In January 2007, after almost a year’s effort, USCAP released A Call To Action , a landmark set of principles and recommendations outlining a policy framework for federal climate protection legislation. As a member of USCAP, the Company believes that a mandatory, economy-wide, market-driven approach that includes a cap and trade program, combined with other complementary state and federal policies, is the most cost effective and environmentally efficient means of slowing, stopping and reversing GHG. The Company intends to continue working with USCAP, government agencies, and Congress to advocate for federal action to address this challenging environmental issue that is closely linked with the U.S. economy, energy supply, and energy security.

Pursuant to New Mexico law, each utility must submit an integrated resource plan every three years to evaluate renewable energy, energy efficiency, load management, distributed generation and conventional supply-side resources on a consistent and comparable basis. The integrated resource plan is required to take into consideration risk and uncertainty of fuel supply, price volatility and costs of anticipated environmental regulations when evaluating resources options to meet supply needs of the Company’s customers. The NMPRC issued an order in June 2007, requiring that New Mexico utilities factor a standardized cost of carbon emissions into their integrated resource plans using prices ranging between $8 and $40 per metric ton of CO 2 emitted and escalating these costs by 2.5% per year. Under the NMPRC order, each utility must analyze these standardized prices as projected operating costs with respect to years 2010 and thereafter. Reflecting the developing nature of this issue, the NMPRC order states that these prices may be changed in the future to account for additional information or changed circumstances. The Company is required, however, to use these prices for purposes of its integrated resource plan, and the prices may not reflect the costs that it ultimately will incur. The Company’s integrated resource plan was filed with the NMPRC on September 16, 2008. The analysis showed that incorporation of the NMPRC required carbon emissions costs did not significantly change the dispatch of existing facilities nor the resource decisions of future facilities over the next 20 years. Much higher carbon emissions costs than assumed in the analysis are necessary to impact the dispatch of existing resources or future resource decisions. The primary consequence of carbon emissions costs was an increase to generation portfolio costs.

In 2007 five western states (Arizona, California, New Mexico, Oregon and Washington) entered into an accord, called the Western Regional Climate Action Initiative (the “WCI”), to reduce GHG from automobiles and certain industries, including utilities. Since then, Montana, Utah, British Columbia, Manitoba, Ontario, and Quebec have joined as partners in the WCI. The WCI released design recommendations for elements of a regional cap and trade program on September 23, 2008. Under these recommendations, GHG from the electricity sector and fossil fuel consumption of the industrial and commercial sectors will be capped at then current levels and subject to regulation starting in 2012. Over time, producers will be required to reduce their emissions of GHG. At this point the WCI blueprint represents a recommended set of principles and guidelines. Implementation of the design elements will fall to each state and province. In New Mexico, this will require new legislation and/or rulemaking. The Company expects to participate in the legislative and rulemaking process in New Mexico and will not be able to fully assess the implications of New Mexico regulation of GHG until the legislative and rulemaking processes have progressed significantly.

The regulation of GHG is expected to have a material impact on the utility industry both in terms of increased costs associated with fossil fuels and increased opportunities associated

with fuels other than fossil fuels, but it is premature to attempt to quantify the possible costs and other implications of these impacts on the Company. Other Matters

See Notes 9 and 10 herein and Notes 16, 17 and 18 in the 2007 Annual Reports on Form 10-K for a discussion of commitments and contingencies, rate and regulatory matters and environmental issues facing the Company.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires Company management to select and apply accounting policies that best provide the framework to report the

results of operations and financial position for PNMR, PNM, and TNMP. The selection and application of those policies requires management to make difficult, subjective and/or complex judgments concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. As a result, there exists the likelihood that materially different amounts would be reported under different conditions or using different assumptions.

As of September 30, 2008, there have been no significant changes with regard to the critical accounting policies disclosed in PNMR’s, PNM’s, and TNMP’s Annual Reports on Forms 10-K for the year ended December 31, 2007. The policies disclosed included the accounting for unbilled revenues, regulatory accounting, impairments, decommissioning costs, derivatives, pension and other postretirement benefits, accounting for contingencies, income taxes, and market risk.

MD&A FOR PNM

RESULTS OF OPERATIONS

PNM’s continuing operations are presented in the PNM Electric segment and is identical to the segment presented above in Results of Operations for PNMR. PNM’s discontinued operations are presented in the PNM Gas segment, which is identical to the total earnings from discontinued operations, net of income taxes, shown on the Condensed Consolidated Statements of Earnings for both PNM and PNMR. See Note 14.

MD&A FOR TNMP

RESULTS OF OPERATIONS

TNMP operates in only one reportable segment, TNMP Electric, as presented above in Results of Operations for PNMR.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

Statements made in this filing that relate to future events or PNMR’s, PNM’s, or TNMP’s expectations, projections, estimates, intentions, goals, targets and strategies, are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and estimates and PNMR, PNM, and TNMP assume no obligation to update this information.

Because actual results may differ materially from those expressed or implied by these forward-looking statements, PNMR, PNM, and TNMP caution readers not to place undue reliance on these statements. PNMR’s, PNM’s, and TNMP’s business, financial condition, cash flow and operating results are influenced by many factors, which are often beyond their control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. These factors include:

● Conditions affecting the Company’s ability to access the financial markets or EnergyCo’s access to additional debt financing following the utilization of its existing credit facility, including actions by ratings agencies affecting the Company’s credit ratings, the economic downturn, and current turmoil in the credit markets,

● State and federal regulatory and legislative decisions and actions, including the PNM and TNMP electric rate cases filed in 2008, ● The risk that the closing of the pending sale of the PNM natural gas utility may not occur due to regulatory or other reasons, ● The performance of generating units and transmission systems, including PVNGS, SJGS, Four Corners, and EnergyCo generating units, and transmission systems, ● The risk that EnergyCo is unable to identify and implement profitable acquisitions , including development of the Cedar Bayou IV Generating Station, or that PNMR and ECJV will

not agree to make additional capital contributions to EnergyCo, ● The potential unavailability of cash from PNMR’s subsidiaries or EnergyCo due to regulatory, statutory or contractual restrictions, ● The impacts of the decline in the values of marketable equity securities on the trust funds maintained to provide

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Any material changes to risk factors occurring after the filing of PNMR’s, PNM’s, or TNMP’s 2007 Annual Report on Form 10-K are disclosed in Item 1A, Risk Factors, in Part II of this Form 10-Q.

For information about the risks associated with the use of derivative financial instruments see Item 3. “Quantitative and Qualitative Disclosures About Market Risk.”

SECURITIES ACT DISCLAIMER

Certain securities described in this report have not been registered under the Securities Act of 1933, as amended, or any state securities laws and may not be reoffered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act of 1933 and applicable state securities laws. This Form 10-Q does not constitute an offer to sell or the solicitation of an offer to buy any securities. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES A BOUT MARKET RISK

PNMR controls the scope of its various forms of risk through a comprehensive set of policies and procedures and oversight by senior level management and the Board. The Board’s

Finance Committee sets the risk limit parameters. The RMC, comprised of corporate and business segment officers and other managers, oversees all of the risk management activities, which include commodity price, credit, equity, interest rate and business risks. The RMC has oversight for the ongoing evaluation of the adequacy of the risk control organization and policies. PNMR has a risk control organization, headed by the Vice President - Treasurer, which is assigned responsibility for establishing and enforcing the policies, procedures and limits and evaluating the risks inherent in proposed transactions, on an enterprise-wide basis.

The RMC’s responsibilities specifically include: establishment of a general policy regarding risk exposure levels and activities in each of the business segments; authority to approve the types of instruments traded; authority to establish a general policy regarding counterparty exposure and limits; authorization and delegation of transaction limits; review and

● pension and other postretirement benefits, including the levels of funding and expense, ● The outcome of any appeals of the PUCT order in the stranded cost true-up proceeding, ● The ability of First Choice to attract and retain customers, ● Changes in ERCOT protocols, ● Changes in the cost of power acquired by First Choice, ● Collections experience, ● Insurance coverage available for claims made in litigation, ● Fluctuations in interest rates, ● Weather, ● Water supply, ● Changes in fuel costs, ● The risk that PNM Electric may incur fuel and purchased power costs that exceed the cap allowed under its Emergency FPPAC, ● Availability of fuel supplies, ● The effectiveness of risk management and commodity risk transactions, ● Seasonality and other changes in supply and demand in the market for electric power, ● Variability of wholesale power prices and natural gas prices, ● Volatility and liquidity in the wholesale power markets and the natural gas markets, ● Uncertainty regarding the ongoing validity of government programs for emission allowances, ● Changes in the competitive environment in the electric and natural gas industries, ● The ability to secure long-term power sales, ● The risk that the Company and its subsidiaries and EnergyCo may have to commit to substantial capital investments and additional operating costs to comply with new environmental

control requirements including possible future requirements to address concerns about global climate change, ● The risks associated with completion of generation, including pollution control equipment at SJGS, and the EnergyCo Cedar Bayou IV Generating Station, transmission, distribution,

and other projects, including construction delays and unanticipated cost overruns, ● The outcome of legal proceedings, including pending appeals of PNM’s electric and gas rate cases and the Emergency FPPAC, ● Changes in applicable accounting principles, and

● The performance of state, regional, and national economies.

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approval of controls and procedures; review and approval of models and assumptions used to calculate mark-to-market and risk exposure; authority to approve and open brokerage and counterparty accounts; review of hedging and risk activities; and quarterly reporting to the Board and its Finance Committee on these activities.

The RMC also proposes risk limits, such as VaR and EaR, to the Finance Committee. The Finance Committee ultimately sets the risk limits.

It is the responsibility of each business segment to create its own control procedures and policies within the parameters established by the Finance Committee. The RMC reviews and approves these policies, which are created with the assistance of the Corporate Controller, Director of Internal Audit and the Vice President - Treasurer. Each business segment’s policies address the following controls: authorized risk exposure limits; authorized instruments and markets; authorized personnel; policies on segregation of duties; policies on mark-to-market accounting; responsibilities for deal capture; confirmation procedures; responsibilities for reporting results; statement on the role of derivative transactions; and limits on individual transaction size (nominal value).

To the extent an open position exists, fluctuating commodity prices can impact financial results and financial position, either favorably or unfavorably. As a result, the Company cannot predict with certainty the impact that its risk management decisions may have on its businesses, operating results or financial position. Accounting for Derivatives

Under derivative accounting and related rules for energy contracts, the Company accounts for its various derivative instruments for the purchase and sale of energy based on the Company’s intent. Energy contracts that meet the definition of a derivative under SFAS 133 and do not qualify for the normal sales and purchases exception are recorded on the balance sheet at fair value at each period end. The changes in fair value are recognized in earnings unless specific hedge accounting criteria are met. Should an energy transaction qualify as a cash flow hedge under SFAS 133, fair value changes are recognized on the balance sheet with a corresponding entry in other comprehensive income to the extent the transaction is an effective hedge. The amounts in accumulated other comprehensive income are recognized in results of operations when the hedged transaction settles and impacts earnings. Derivatives that meet the normal sales and purchases exception within SFAS 133 are not marked to market but rather recorded in results of operations when the underlying transaction settles. The contracts recorded at fair value that do not qualify for hedge accounting are classified as trading transactions or economic hedges. Trading transactions are defined as derivative instruments that are either speculative and expose the Company to market risk or transactions that lock in margin with no forward market risk and are not economic hedges. Economic hedges are defined as derivative instruments, including long-term power agreements, used to hedge generation assets, purchase power costs, and customer load requirements. Commodity Risk

Marketing and procurement of energy often involve market risks associated with managing energy commodities and establishing open positions in the energy markets, primarily on a short-term basis. These risks fall into three different categories: price and volume volatility, credit risk of counterparties, and adequacy of the control environment. The Company’s operations subject to market risk routinely enter into various derivative instruments such as forward contracts, option agreements and price basis swap agreements to hedge price and volume risk on their purchase and sale commitments, fuel requirements and to enhance returns and minimize the risk of market fluctuations.

PNM’s unregulated operations, including long-term contracts and short-term sales, are managed primarily through a net asset-backed marketing strategy, whereby PNM’s aggregate net open forward contract position is covered by its forecasted excess generation capabilities or market purchases. PNM would be exposed to market risk if its generation capabilities were to be disrupted or if its retail load requirements were to be greater than anticipated. If all or a portion of the net open contract position were required to be covered as a result of the aforementioned unexpected situations, commitments would have to be met through market purchases. Additionally, PNM’s regulated generation capacity is inadequate to meet retail load requirements during certain peak times and PNM must rely on market purchases to meet these requirements. As such, except to the extent costs are recoverable through the Emergency FPPAC, PNM is exposed to risks related to fluctuations in the market price of energy that could impact the sales price or purchase price of energy. In 2008, PNM ended speculative trading.

First Choice is responsible for energy supply related to the sale of electricity to retail customers in Texas. TECA contains no provisions for the specific recovery of fuel and purchased power costs. The rates charged to First Choice

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customers are negotiated with each customer. As a result, changes in purchased power costs will affect First Choice’s operating results. First Choice is exposed to market risk to the extent that its retail rates or cost of supply fluctuates with market prices. Additionally, fluctuations in First Choice retail load requirements greater than anticipated may subject First Choice to market risk. First Choice’s basic strategy is to minimize its exposure to fluctuations in market energy prices by matching fixed price sales contracts with supply instruments designed to preserve targeted margins. As discussed in the results of operations for First Choice, in 2008 First Choice ended speculative trading.

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on current market quotes as available and are supplemented by modeling techniques and assumptions made by the Company to the extent quoted market prices or volatilities are not available. External pricing input availability varies based on commodity location, market liquidity, and term of the agreement. The Company regularly assesses the validity and availability of pricing data of its derivative transactions. Although management uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique.

Effective January 1, 2008, the Company determines the fair market values of its instruments based on the fair value hierarchy established in SFAS 157, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Multiple sources of broker data are referenced to triangulate reasonable ranges of values and to facilitate validation of Level 2 and Level 3 commodity transactions.

The following table shows the net fair value of mark-to-market energy contracts included in PNMR’s Condensed Consolidated Balance Sheet. See Note 4 for additional information.

September 30, 2008

Trading Economic Hedges Total

(In thousands) Mark-to-market energy contracts:

Current asset $ 50,635 $ 14,111 $ 64,746 Long-term asset 7,388 4,083 11,471 Total mark-to-market assets 58,023 18,194 76,217 Current liability (65,082 ) (19,997 ) (85,079 ) Long-term liability (6,404 ) (69 ) (6,473 ) Total mark-to-market liabilities (71,486 ) (20,066 ) (91,552 )

Net fair value of mark-to-market energy contracts $ (13,463 ) $ (1,872 ) $ (15,335 )

December 31, 2007


(In thousands) Mark-to-market energy contracts:

Current asset $ 32,451 $ 15,060 $ 47,511 Long-term asset 8,335 37,359 45,694 Total mark-to-market assets 40,786 52,419 93,205 Current liability (34,753 ) (17,991 ) (52,744 ) Long-term liability (7,610 ) (47,564 ) (55,174 ) Total mark-to-market liabilities (42,363 ) (65,555 ) (107,918 )

Net fair value of mark-to-market energy contracts $ (1,577 ) $ (13,136 ) $ (14,713 )

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PNMR has elected not to offset the fair value amounts of derivative instruments under master netting arrangements or with the cash collateral associated with its derivative positions as elected under FSP FIN 39-1.

The following table details the changes in the net asset or liability balance sheet position from one period to the next for mark to market energy transactions:

The following table provides the maturity of the net assets (liabilities) of PNMR, giving an indication of when these mark-to-market amounts will settle and generate (use) cash. The

following values were determined using broker quotes and option models:

Fair Value of mark-to-market instruments at September 30, 2008

September 30, 2008


(In thousands) Sources of fair value gain (loss):

Fair value at beginning of year $ (1,577 ) $ (13,136 ) $ (14,713 ) Adoption of SFAS 157 - 17,253 17,253 Adjusted beginning fair value (1,577 ) 4,117 2,540 Amount realized on contracts delivered during period 37,539 12,985 50,524 Changes in fair value (45,048 ) (18,338 ) (63,386 ) Net change recorded as mark-to-market (7,509 ) (5,353 ) (12,862 )

Unearned/prepaid option premiums (4,377 ) (636 ) (5,013 )

Net fair value at end of period $ (13,463 ) $ (1,872 ) $ (15,335 )

September 30, 2007


(In thousands) Sources of fair value gain (loss):

Fair value at beginning of year $ 926 $ 2,540 $ 3,466 Amount realized on contracts delivered during period 6,683 6,270 12,953 Changes in valuation techniques 301 (4,410) (4,109) Changes in fair value (8,206 ) (16,256 ) (24,462 )

Net change recorded as mark-to-market (1,222) (14,396) (15,618) Net fair value at end of period $ (296 ) $ (11,856 ) $ (12,152 )

Less than 1 year 1-3 Years 4+ Years Total (In thousands)

Trading $ (14,447 ) $ 984 $ - $ (13,463 ) Economic hedges (5,886 ) 2,858 1,156 (1,872 ) Total $ (20,333 ) $ 3,842 $ 1,156 $ (15,335 )

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The net change in fair value on PNMR’s commodity derivative instruments designated as hedging instruments is summarized as follows:

As of September 30, 2008, PNMR had $0.6 million of net derivative assets and liabilities measured using Level 3 inputs (as defined in SFAS 157). The fair value of these net Level 3

transactions is less than 1% of PNMR’s total fair value net asset and liability positions. For the nine months ended September 30, 2008, changes in PNMR’s Level 3 transactions were primarily related to the June 2008 $15.7 million sale of PNM’s wholesale contracts. Risk Management Activities

PNM measures the market risk of its long-term contracts and wholesale activities using a VaR calculation to maintain total exposure within management-prescribed limits. The VaR calculation reports the possible market loss for the respective transactions. This calculation is based on the transaction’s fair market value on the reporting date. Accordingly, the VaR calculation is not a measure of the potential accounting mark-to-market loss. PNM utilizes the Monte Carlo simulation model of VaR. The Monte Carlo model utilizes a random generated simulation based on historical volatility to generate portfolio values. The quantitative risk information, however, is limited by the parameters established in creating the model. The instruments being evaluated may trigger a potential loss in excess of calculated amounts if changes in commodity prices exceed the confidence level of the model used. The VaR methodology employs the following critical parameters: volatility estimates, market values of open positions, appropriate market-oriented holding periods and seasonally adjusted correlation estimates. The VaR calculation considers PNM’s forward position for the next eighteen months. PNM uses a holding period of three days as the estimate of the length of time that will be needed to liquidate the positions. The volatility and the correlation estimates measure the impact of adverse price movements both at an individual position level as well as at the total portfolio level. The two-tailed confidence level established is 99%. For example, if VaR is calculated at $10.0 million, it is estimated that in 990 out of 1000 market simulations the pre-tax gain or loss in liquidating the portfolio would not exceed $10.0 million in the three days that it would take to liquidate the portfolio.

PNM measures VaR for all transactions that are not directly asset related and have economic risk. For the nine months ended September 30, 2008, the average VaR amount for these transactions was $0.3 million with high and low VaR amounts for the period of $0.9 million and zero. The VaR amount for these transactions at September 30, 2008 was less than $0.1 million. For the nine months ended September 30, 2007, the average VaR amount for these transactions was $1.3 million with high and low VaR amounts for the period of $2.8 million and $0.2 million. The total VaR amount for these transactions at September 30, 2007 was $0.2 million.

First Choice measures the market risk of its activities using an EaR calculation to maintain PNMR’s total exposure within management-prescribed limits. Because of its obligation to serve customers, First Choice must take certain contracts to settlement. Accordingly, a measure that evaluates the settlement of First Choice’s positions against earnings provides management with a useful tool to manage its portfolio. First Choice uses a held-to-maturity VaR calculation to approximate EaR. The calculation utilizes the same Monte Carlo simulation approach described above at a 95% confidence level and includes the retail load and supply portfolios. Management believes the VaR results are a reasonable approximation of the potential variability of earnings against forecasted earnings. The quantitative risk information, however, is limited by the parameters established in creating the model. The instruments being evaluated may trigger a potential loss in excess of calculated amounts if changes in commodity prices exceed the confidence level of the model used. The EaR calculation considers First Choice’s forward position for the next twelve months and holds each position to settlement. The volatility and the correlation estimates measure the impact of adverse price movements both at an individual position level as well as at the total portfolio level. For example, if EaR is calculated at $10.0 million, it is

Nine Months Ended September 30, 2008 2007 Type of Derivative Hedge Instruments (In thousands) Change in fair value of energy contracts $ 29,520 $ (31,970 ) Change in fair value of swaps and futures (1,110 ) 4,924 Change in the fair value of options (747 ) (193 ) Net change in fair value $ 27,663 $ (27,239 )

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estimated that in 950 out of 1000 market scenarios calculated by the model the losses against the Company’s forecasted earnings over the next twelve months would not exceed $10.0 million.

For the nine months ended September 30, 2008, the average EaR amount was $18.1 million, with high and low EaR amounts for the period of $44.3 million and $6.1 million. The total EaR amount at September 30, 2008 was $6.5 million. For the nine months ended September 30, 2007, the average EaR amount for these transactions was $14.9 million, with high and low EaR amounts for the period of $27.1 million and $5.7 million. The total EaR amount for these transactions at September 30, 2007 was $18.8 million.

In addition, First Choice utilizes two VaR measures to manage its market risk. The first VaR limit is based on the same total portfolio approach as the EaR measure; however, the VaR measure is intended to capture the effects of changes in market prices over a 10-day holding period. This holding period is considered appropriate given the nature of First Choice’s supply portfolio and the constraints faced by First Choice in the ERCOT market. The calculation utilizes the same Monte Carlo simulation approach described above at a 95% confidence level. The VaR amount for these transactions was $1.2 million at September 30, 2008. For the nine months ended September 30, 2008, the high, low and average mark-to-market VaR amounts were $12.1 million, $1.1 million and $4.6 million. The VaR amount for these transactions was $1.3 million at September 30, 2007. For the nine months ended September 30, 2007, the high, low and average mark-to-market VaR amounts were $6.2 million, $1.3 million and $3.9 million.

The second VaR limit was established for First Choice transactions that are subject to mark-to-market accounting as defined by SFAS 133 . This calculation captures the effect of changes in market prices over a 3-day holding period and utilizes the same Monte Carlo simulation approach described above at a 95% confidence level. The VaR amount for these transactions was less than $0.1 million at September 30, 2008. For the nine months ended September 30, 2008, the high, low and average mark-to-market VaR amounts were $3.5 million, less than $0.1 million and $0.7 million. The VaR amount for these transactions was $0.8 million at September 30, 2007. For the nine months ended September 30, 2007, the high, low and average mark-to-market VaR amounts were $4.4 million, $0.1 million and $1.6 million.

The Company's risk measures are regularly monitored by the Company's RMC. The RMC has put in place procedures to ensure that increases in risk measures that exceed the prescribed limits are reviewed and, if deemed necessary, acted upon to reduce exposures. As discussed in Results of Operations, First Choice experienced speculative pre-tax trading losses of $47.1 million in the first quarter of 2008. These transactions triggered exceedences of the EaR limit and the 10-day VaR limit. These occurrences resulted in numerous meetings between the RMC and First Choice management and ultimately the decision to exit the basis transactions and speculative trading.

The VaR and EaR limits represent an estimate of the potential gains or losses that could be recognized on the Company’s portfolios, subject to market risk, given current volatility in the market, and are not necessarily indicative of actual results that may occur, since actual future gains and losses will differ from those estimated. Actual gains and losses may differ due to actual fluctuations in market prices, operating exposures, and the timing thereof, as well as changes to the underlying portfolios during the year. Credit Risk

The Company manages credit for energy commodities on a consolidated basis and uses a credit management process to assess and monitor the financial conditions of counterparties. Credit exposure is regularly monitored by the RMC. The RMC has put procedures in place to ensure that increases in credit risk measures that exceed the prescribed limits are reviewed and, if deemed necessary, acted upon to reduce exposures.

The following table provides information related to PNMR’s credit exposure as of September 30, 2008. The table further delineates that exposure by the credit worthiness (credit rating) of the counterparties and provides guidance as to the concentration of credit risk to individual counterparties PNMR may have.

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PNMR

Schedule of Credit Risk Exposure September 30, 2008

The following table provides an indication of the maturity of credit risk by credit ratings of the counterparties.

September 30, 2008

The Company provides for losses due to market and credit risk. Credit risk for PNMR's largest counterparty as of September 30, 2008 and December 31, 2007 was $62.3 million and

$77.2 million. Interest Rate Risk

The remarketing of PNMR’s senior notes issued as part of the equity-linked units sold in October 2005 will begin on November 7, 2008. The maturity date may be extended in the remarketing and the interest rate will be reset to a level designed to achieve a successful remarketing of the notes. If the remarketing of the debt is not successful, the maturity and interest rate of the debt will not change and holders of the equity-linked units will have the option of putting the senior

Net (b) Number Exposure Net of of Credit Counter Counter- Risk -parties parties Rating (a) Exposure >10% >10% (Dollars in thousands) External ratings:

Investment grade $ 138,480 3 $ 102,795 Non-investment grade 2,885 - -

Internal ratings: Investment grade 2,705 - - Non-investment grade 266 - - Total $ 144,336 $ 102,795

(a) The Rating included in “Investment Grade” is for counterparties with a minimum S&P rating of BBB- or Moody's rating of Baa3. If the counterparty has provided a guarantee by a higher rated entity (e.g., its parent), determination is based on the rating of its guarantor. The category “Internal Ratings - Investment Grade” includes those counterparties that are internally rated as investment grade in accordance with the guidelines established in the Company’s credit policy.

(b) The Net Credit Risk Exposure is the net credit exposure from operations. This includes long-term contracts, forward sales and short-term sales. The exposure captures the net amounts from receivables/payables for realized transactions, delivered and unbilled revenues, and mark-to-market gains/losses (pursuant to contract terms). Exposures are offset according to legally enforceable netting arrangements and reduced by credit collateral. Credit collateral includes cash deposits, letters of credit and performance bonds received from counterparties. Amounts are presented before those reserves that are determined on a portfolio basis.

PNMR Maturity of Credit Risk Exposure

Greater Total Less than than Net Rating 2 Years 2-5 Years 5 Years Exposure (In thousands) External ratings:

Investment grade $ 133,463 $ 4,279 $ 738 $ 138,480 Non-investment grade 2,885 - - 2,885

Internal ratings: Investment grade 2,705 - - 2,705 Non-investment grade 266 - - 266 Total $ 139,319 $ 4,279 $ 738 $ 144,336

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notes to PNMR to satisfy their obligations under the purchase contracts. The credit ratings of PNMR’s debt were recently downgraded and there has been an overall deterioration of the credit markets in general. Although there can be no assurance, PNMR believes the remarketing will be successful.

PNMR has long-term debt which subjects it to the risk of loss associated with movements in market interest rates. The majority of PNMR’s long-term debt is fixed-rate debt, and therefore, does not expose PNMR’s earnings to a major risk of loss due to adverse changes in market interest rates. However, the fair value of all long-term debt instruments would increase by approximately 2.7%, if interest rates were to decline by 50 basis points from their levels at September 30, 2008. In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if PNM were to reacquire all or a portion of its debt instruments in the open market prior to their maturity.

The securities held by PNM in the NDT and in trusts for pension and other post-employment benefits had an estimated fair value of $578.0 million at September 30, 2008, of which 27.9% were fixed-rate debt securities that subject PNM to risk of loss of fair value with movements in market interest rates. If rates were to increase by 50 basis points from their levels at September 30, 2008, the decrease in the fair value of the fixed-rate securities would be 3.3%, or $5.3 million. PNM does not currently recover or return through rates any losses or gains on these securities. The securities held by TNMP in trusts for pension and other post-employment benefits had an estimated fair value of $70.5 million at September 30, 2008, of which 22.2% were fixed-rate debt securities that subject TNMP to risk of loss of fair value with movements in market interest rates. If rates were to increase by 50 basis points from their levels at September 30, 2008, the decrease in the fair value of the fixed-rate securities would be 3.9%, or $0.6 million. PNM, therefore, is at risk for shortfalls in its funding of its obligations due to investment losses, included those from the equity market and alternatives investment risks discussed below. Equity Market Risk

The NDT and trusts established for PNM’s pension and post-employment benefits hold certain equity securities at September 30, 2008. These equity securities also expose PNM to losses in fair value. Equity securities comprised 53.3% of the securities held by the various trusts as of September 30, 2008. PNM does not recover or earn a return through rates on any losses or gains on these equity securities. The trusts established for TNMP’s pension and post-employment benefits hold certain equity securities. These equity securities also expose TNMP to losses in fair value. Equity securities comprised 47.8% of the securities held by the trusts as of September 30, 2008. TNMP does not recover or earn a return through rates on any losses or gains on these equity securities. There has been a significant decline in the general price levels of marketable equity securities in 2008, particularly in September and October. The impacts of these declines will not be quantified until the next valuations are performed. However, it is likely that increased levels of funding will be required and additional amounts will be recorded as expense. Alternatives Investment Risk

The Company has a target of investing 20% of its pension assets in the alternatives asset class. This includes real estate, private equity, and hedge funds. The private equity and hedge fund investments are limited partner structures that are multi-manager multi-strategy funds. This investment approach gives broad diversification and minimizes risk compared to a direct investment in any one component of the funds. The general partner oversees the selection and monitoring of the underlying managers. The Company’s Corporate Investment Committee, assisted by its investment consultant, monitors the performance of the funds and general partner’s investment process. There is risk associated with these funds due to the nature of the strategies and techniques and the use of investments that do not have readily determinable fair value. The valuation of the alternative asset class has also been impacted by the significant decline in the general price levels of marketable equity securities. ITEM 4. CONTROLS AND PROCEDURES

PNMR Disclosure of controls and procedures

PNMR maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of its disclosure controls and procedures as of the end of the period covered by this report conducted by management, with the participation of the Chief Executive and Chief

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Financial Officer, the Chief Executive and Chief Financial Officer believe that these controls and procedures are effective to ensure that PNMR meets the requirements of SEC Regulation 13A, Rule 13a-15(e) and Rule 15d-15(e). Changes in internal controls

There have been no changes in PNMR’s internal controls over financial reporting for the quarter ended September 30, 2008, that have materially affected, or are reasonably likely to materially affect, PNMR’s internal control over financial reporting, except:

PNM

Disclosure of controls and procedures

PNM maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of its disclosure controls and procedures as of the end of the period covered by this report conducted by management, with the participation of the Chief Executive and Chief Financial Officer, the Chief Executive and Chief Financial Officer believe that these controls and procedures are effective to ensure that PNM meets the requirements of SEC Regulation 13A, Rule 13a-15(e) and Rule 15d-15(e). Changes in internal controls

There have been no changes in PNM’s internal controls over financial reporting for the quarter ended September 30, 2008, that have materially affected, or are reasonably likely to materially affect, PNM’s internal control over financial reporting, except:

TNMP Disclosure of controls and procedures

TNMP maintains disclosure controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Based on an evaluation of its disclosure controls and procedures as of the end of the period covered by this report conducted by management, with the participation of the Chief Executive and Chief Financial Officer, the Chief Executive and Chief Financial Officer believe that these controls and procedures are effective to ensure that TNMP meets the requirements of SEC Regulation 13A, Rule 13a-15(e) and Rule 15d-15(e). Changes in internal controls

There have been no changes in TNMP’s internal controls over financial reporting for the quarter ended September 30, 2008, that have materially affected, or are reasonably likely to materially affect, TNMP’s internal control over financial reporting, except:

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In addition, see Notes 9 and 10 in the Notes to Condensed Consolidated Financial Statements for information related to the following matters, for PNMR, PNM and TNMP, incorporated in this item by reference.

● PNMR outsourced information technology backup and recovery and support services to a third party. ● PNMR outsourced customer remittance process functions to a third party.

● PNM outsourced information technology backup and recovery and support services to a third party. ● PNM outsourced customer remittance process functions to a third party.

• • • • TNMP outsourced information technology backup and recovery and support services to a third party.

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ITEM 1A. RISK FACTORS

Any failure to meet our debt obligations could harm our business, financial condition and results of operations.

As of October 30, 2008, the Company had consolidated short-term debt outstanding of $778.7 million. In addition, as of October 30, 2008, the Company had scheduled maturities of long-term debt aggregating $205.6 million due prior to October 30, 2009, including PNM’s $36.0 million aggregate principal amount of 4.0% senior unsecured notes PCRBs, due July 1, 2009 and TNMP’s $167.7 million aggregate principal amount of 6.25% senior unsecured notes due January 15, 2009.

PNMR has $100.0 million aggregate principal amount of 5.1% senior unsecured notes due August 16, 2010. PNMR is obligated to remarket these notes beginning November 7, 2008, and if PNMR cannot remarket the notes, the holder of the notes has the right to put the notes to us on November 17, 2008 to satisfy its obligations under the related purchase contracts to purchase PNMR equity securities from us and we will not receive the $100 million of cash we would have otherwise received for the issuance PNMR equity securities. If PNMR does successfully remarket the notes, it intends to purchase and cancel up to $90 million of the notes, and will have approximately $10 million in cash remaining after the purchase of such notes and the sale of the equity securities, which it expects to use to pay down outstanding borrowings under its revolving credit facility.

The Company is exploring financial alternatives to meet these obligations and currently believes that internal cash generation, credit arrangements, and access to the public and private capital markets will provide sufficient resources to meet capital requirements and retire or refinance the debt described above at maturity. To cover the difference in the amounts and timing of cash generation and cash requirements, the Company intends to use short-term borrowings under current liquidity arrangements.

The credit ratings for the debt of PNMR, PNM, and TNMP were recently downgraded and in some instances are below investment grade. There has also been an overall deterioration of the credit markets in general. If our cash flow and capital resources are insufficient to fund our debt obligations, we may be forced to sell assets, seek additional equity or debt capital or restructure our debt. In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely result in a further reduction of our credit rating, which could harm our ability to incur additional indebtedness on acceptable terms and would result in an increase in the interest rates applicable under our credit facilities. Our cash flow and capital resources may be insufficient to pay interest and principal on our debt in the future, including payments on the notes. If that should occur, our capital raising or debt restructuring measures may be unsuccessful or inadequate to meet our scheduled debt service obligations, which could cause us to default on our obligations and further impair our liquidity. Impacts of Current Economic Conditions

There is currently a downturn in economic conditions worldwide that has varying degrees of impact on the areas in which the Company operates. In the event of a prolonged recession there may an overall reduction in the level of economic activity that might result in uncertainty regarding energy prices and declines in consumption, which could adversely affect future revenues, earnings and growth. Current economic conditions also impact capital and commodity markets. There currently exists what has been characterized as a “credit crisis” in the United States. The uncertainty and instability of the financial markets may affect the Company’s ability to raise capital as well as increase the cost of additional capital.

• Citizen Suit Under the Clean Air Act • Navajo Nation Environmental Issues • Four Corners Federal Implementation Plan Litigation • Santa Fe Generating Station • Legal Proceedings discussed under the caption, “Western United States Wholesale Power Market” • TNMP True-Up Proceeding • San Juan River Adjudication • Gila River Indian Reservation Superfund Site

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Downturns in economic activity in certain areas could impact our customers, including lower levels of income and increased unemployment. These factors may cause customers to be unable to pay their bills on time, which could impact our cash flows, and increase bad debt expense, which will impact results of operations.

Economic conditions also impact the supply of commodities and materials needed to construct or acquire utility assets, including concrete, copper, steel, and aluminum, as well as the availability of construction labor. The cost of those items is also affected by economic conditions and could increase significantly over forecasted amounts.

The Company targets 57.5% of its pension trust funds and 70% of its trust funds for other postretirement benefits to be invested in marketable equity securities. There has been a significant decline in the general price levels of marketable equity securities in 2008, particularly in September and October. The impacts of these declines will not be quantified until the next actuarial valuation as of January 1, 2009, but it is likely that increased levels of funding will be required and additional amounts will be recorded as expense.

Except as stated above, as of the date of this report, there have been no material changes with regard to the Risk Factors disclosed in PNMR’s, PNM’s, and TNMP’s Annual Reports on Form 10-K for the year ended December 31, 2007.

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ITEM 6. EXHIBITS

4.1 PNMR Amended and Restated Purchase Contract Agreement, dated as of August 4, 2008, between PNMR and U.S. Bank National Association, as purchase contract agent

4.2 PNMR Amended and Restated Pledge Agreement, dated as of August 4, 2008, between PNMR and U.S. Bank National Association 4.3 PNMR Supplemental Indenture No.2, dated as of August 4, 2008 between PNMR and U.S. Bank National Association, as trustee 4.4 PNMR Letter Agreement, dated as of August 4, 2008, among PNMR, Citigroup Global Markets Inc, and U.S. Bank National Association,

amending and supplementing the Remarketing Agreement dated as of October 7, 2005 10.1** PNMR PNM Resources, Inc. Officer Retention Plan executed September 2, 2008 10.2** PNMR Second Amendment to the PNM Resources, Inc. Executive Spending Account executed August 28, 2008 10.3** PNMR Supplemental Employee Retirement Agreement for Patrick T. Ortiz executed October 21, 2008 12.1 PNMR Ratio of Earnings to Fixed Charges 12.2 PNM Ratio of Earnings to Fixed Charges 12.3 PNM Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 31.1 PNMR Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 PNMR Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.3 PNM Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.4 PNM Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.5 TNMP Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.6 TNMP Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 PNMR Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 PNMR Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.3 PNM Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.4 PNM Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.5 TNMP Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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** Designates each management contract or compensatory plan or arrangement required to be identified.

32.6 TNMP Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

PNM RESOURCES, INC. PUBLIC SERVICE COMPANY OF NEW MEXICO

TEXAS-NEW MEXICO POWER COMPANY (Registrants) Date: November 5, 2008 /s/ Thomas G. Sategna Thomas G. Sategna Vice President and Corporate Controller (Officer duly authorized to sign this report)

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EXHIBIT 4.1

EXECUTION COPY

PNM RESOURCES, INC.

and

U.S. BANK NATIONAL ASSOCIATION, as Purchase Contract Agent

AMENDED AND RESTATED PURCHASE CONTRACT AGREEMENT

Dated as of August 4, 2008

Table of Contents

ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICA TION

ARTICLE 2

CERTIFICATE FORMS

ARTICLE 3 THE UNITS

ARTICLE 4

THE SENIOR NOTES AND APPLICABLE OWNERSHIP INTERESTS IN THE

TREASURY PORTFOLIO

Page Section 1.01. Definitions 1 Section 1.02. Compliance Certificates and Opinions 11 Section 1.03. Form of Documents Delivered to Purchase Contract Agent 11 Section 1.04. Acts of Holders; Record Dates 12 Section 1.05. Notices 12 Section 1.06. Notice to Holders; Waiver 13 Section 1.07. Effect of Headings and Table of Contents 14 Section 1.08. Successors and Assigns 14 Section 1.09. Separability Clause 14 Section 1.10. Benefits of Agreement 14 Section 1.11. Governing Law 14 Section 1.12. Legal Holidays 14 Section 1.13. Counterparts 14 Section 1.14. Inspection of Agreement 14 Section 1.15. Appointment of Financial Institution as Agent for the Company 14 Section 1.16. No Waiver 15

Section 2.01. Forms of Certificates Generally 15 Section 2.02. Form of Purchase Contract Agent’s Certificate of Authentication 15

Section 3.01. Amount; Form and Denominations 15 Section 3.02. Rights and Obligations Evidenced by the Certificates 15 Section 3.03. Execution, Authentication, Delivery and Dating 16 Section 3.04. Temporary Certificates 16 Section 3.05. Registration; Registration of Transfer and Exchange 17 Section 3.06. Form of Private Placement Legends 18 Section 3.07. Notices to Holders 19 Section 3.08. Intentionally Omitted 19 Section 3.09. Definitive Certificates 19 Section 3.10. Mutilated, Destroyed, Lost and Stolen Certificates 19 Section 3.11. Persons Deemed Owners 20 Section 3.12. Cancellation 20 Section 3.13. Creation of Treasury Units by Substitution of Treasury Securities 21 Section 3.14. Recreation of Corporate Units 22 Section 3.15. Transfer of Collateral upon Occurrence of Termination Event 23 Section 3.16. No Consent to Assumption 24

Section 4.01. Interest Payments; Rights to Interest Payments Preserved 24

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ARTICLE 5

THE PURCHASE CONTRACTS

ARTICLE 6 REMEDIES

ARTICLE 7

THE PURCHASE CONTRACT AGENT

ARTICLE 853

SUPPLEMENTAL AGREEMENTS

Section 4.02. Notice and Voting 24 Section 4.03. Special Event Redemption 25

Section 5.01. Purchase of Shares of Common Stock 26 Section 5.02. Remarketing; Payment of Purchase Price 28 Section 5.03. Issuance of Shares of Common Stock 31 Section 5.04. Adjustment of each Fixed Settlement Rate 32 Section 5.05. Notice of Adjustments and Certain Other Events 40 Section 5.06. Termination Event; Notice 41 Section 5.07. Early Settlement 41 Section 5.08. Election to Receive Preferred Stock in Lieu of Common Stock 43 Section 5.09. No Fractional Shares 43 Section 5.10. Charges and Taxes 43 Section 5.11. Contract Adjustment Payments 44

Section 6.01. Unconditional Right of Holders to Receive Contract Adjustment Payments and to Purchase Shares of Common Stock or Preferred Stock 47 Section 6.02. Restoration of Rights and Remedies 48 Section 6.03. Rights and Remedies Cumulative 48 Section 6.04. Delay or Omission Not Waiver 48 Section 6.05. Undertaking for Costs 48 Section 6.06. Waiver of Stay or Extension Laws 48

Section 7.01. Certain Duties and Responsibilities 48 Section 7.02. Notice of Default 49 Section 7.03. Certain Rights of Purchase Contract Agent 49 Section 7.04. Not Responsible for Recitals or Issuance of Units 50 Section 7.05. May Hold Units 51 Section 7.06. Money Held in Custody 51 Section 7.07. Compensation and Reimbursement 51 Section 7.08. Corporate Purchase Contract Agent Required, Eligibility 51 Section 7.09. Resignation and Removal; Appointment of Successor 52 Section 7.10. Acceptance of Appointment by Successor 53 Section 7.11. Merger, Conversion, Consolidation or Succession to Business 53 Section 7.12. Preservation of Information; Communications to Holders 53 Section 7.13. No Obligations of Purchase Contract Agent 53 Section 7.14. Tax Compliance 54

Section 8.01. Supplemental Agreements Without Consent of Holders 54 Section 8.02. Supplemental Agreements with Consent of Holders 54 Section 8.03. Execution of Supplemental Agreements 55 Section 8.04. Effect of Supplemental Agreements 55

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ARTICLE 9

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEAS E

ARTICLE 10 COVENANTS

EXHIBITS

Exhibit A - Form of Corporate Unit Certificate Exhibit B - Form of Treasury Unit Certificate Exhibit C - Instruction to Purchase Contract Agent Exhibit D - Notice from Purchase Contract Agent to Holders Exhibit E - Notice to Settle by Cash Exhibit F - Notice from Purchase Contract Agent to Collateral Agent Exhibit G - Notice to Settle by Cash Upon Failed Final Remarketing

Section 8.05. Reference to Supplemental Agreements 56

Section 9.01. Covenant Not to Consolidate, Merge, Convey, Transfer or Lease Property Except under Certain Conditions 56 Section 9.02. Rights and Duties of Successor Corporation 56 Section 9.03. Officers’ Certificate and Opinion of Counsel Given to Purchase Contract Agent 56

Section 10.01. Performance Under Purchase Contracts 57 Section 10.02. Maintenance of Office or Agency 57 Section 10.03. Company to Reserve Common Stock and Preferred Stock 57 Section 10.04. Covenants as to Common Stock and Preferred Stock 57 Section 10.05. Statements of Officers of the Company as to Default 57 Section 10.06. ERISA 58 Section 10.07. Tax Treatment 58

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AMENDED AND RESTATED PURCHASE CONTRACT AGREEMENT , dated as of August 4, 2008, between PNM RESOURCES, INC. , a New Mexico corporation (the “Company” ), and U.S. BANK NATIONAL ASSOCIATION , a national banking association, acting as purchase contract agent for the Holders of Units (as defined herein) from time to time (the “Purchase Contract Agent” ).

RECITALS

The Company and the Purchase Contract Agent are parties to a Purchase Contract Agreement, dated as of October 7, 2005 (the “Original Agreement” ), relating to the Units. Section 8.02 of the Original Agreement provides that, with the consent of the Holders of the Outstanding Units voting together as one class, by Act of said Holders delivered to the Company and the Purchase Contract Agent, the Company, when duly authorized, and the Purchase Contract Agent may enter into an agreement or agreements supplemental to the Original Agreement for the purpose of modifying in any manner the terms of the Purchase Contracts, or the provisions of the Original Agreement or the rights of the Holders in respect of the Units. The Company proposes to amend the Original Agreement by amending and restating the Original Agreement in its entirety as provided herein (the “Amendment”) in order to (i) delay the Initial Remarketing Date (as defined in the Original Agreement), (ii) permit efforts at Remarketing to occur on each of three, rather than two, Business Days and (iii) provide for certain other changes to the Original Agreement. The Company has solicited the consent of the Holders of Outstanding Units to the Amendment and has received from and delivered to the Purchase Contract Agent, in accordance with Section 8.02 of the Original Agreement, Acts of the Holders of all of the Outstanding Units. The Company hereby requests that the Purchase Contract Agent join with the Company in the execution and delivery of this Amended and Restated Agreement.

For and in consideration of the premises, it is mutually agreed as follows:

ARTICLE 1

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICA TION Section 1.01. Definitions . For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

(a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular, and nouns and pronouns of the masculine gender include the feminine and neuter genders;

(b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States;

(c) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section, Exhibit or other subdivision; and

(d) the following terms have the meanings given to them in this Section 1.01(d) :

“Accounting Event” has the meaning set forth in the Supplemental Indenture.

“Act” has the meaning, with respect to any Holder, set forth in Section 1.04(a) .

“Adjusted Applicable Market Value” has the meaning set forth in Section 5.01(a) .

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

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“Agreement” means this amended and restated instrument as originally executed or as it may from time to time be supplemented or amended by one or more agreements supplemental hereto entered into pursuant to the applicable provisions hereof.

“Amendment” has the meaning set forth in the first recital hereof.

“Applicable Market Value” has the meaning set forth in Section 5.01(a) .

“Applicable Ownership Interest” shall mean, with respect to a Corporate Unit and any Treasury Portfolio contained in a Corporate Unit, (i) a 1/40, or 2.5%, undivided beneficial ownership interest in $1,000 face amount of U.S. treasury securities (or principal or interest strips thereof) included in such Treasury Portfolio that mature on or prior to November 15, 2008 and (ii) for each scheduled Payment Date on the Senior Notes that occurs after the Special Event Redemption Date to and including the Purchase Contract Settlement Date, in the case of a Special Event Redemption, an equitable percentage (such percentage to be calculated in a manner that is internally consistent with the other calculations used in the transaction) undivided beneficial ownership interest in $1,000 face amount of U.S. treasury securities (or principal or interest strips thereof) included in such Treasury Portfolio that mature on or prior to the business day immediately preceding such scheduled Payment Date.

“Applicable Principal Amount” means the aggregate principal amount of the Senior Notes that are components of Corporate Units.

“Applicants” has the meaning set forth in Section 7.12(b) .

“Bankruptcy Code” means Title 11 of the United States Code, or any other law of the United States that from time to time provides a uniform system of bankruptcy laws.

“Board of Directors” means the board of directors of the Company or a duly authorized committee of that board.

“Board Resolution” means one or more resolutions of the Board of Directors, a copy of which has been certified by the Secretary or an Assistant Secretary of the Company, to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to the Purchase Contract Agent.

“Business Day” or “business day” means any day other than a Saturday or Sunday or any other day on which banking institutions and trust companies in New York City, New York are permitted or required by applicable law to remain closed or a day on which the Indenture Trustee or the Collateral Agent is closed for business.

“Cash Merger” has the meaning set forth in Section 5.04(b)(ii) .

“Cash Merger Early Settlement” has the meaning set forth in Section 5.04(b)(ii) .

“Cash Merger Early Settlement Date” has the meaning set forth in Section 5.04(b)(ii) .

“Cash Settlement” has the meaning set forth in Section 5.02(b)(i) .

“Certificate” means a Corporate Units Certificate or a Treasury Units Certificate.

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“Closing Price” has the meaning set forth in Section 5.01(a) .

“Code” means the Internal Revenue Code of 1986, as amended.

“Collateral” has the meaning set forth in Section 1.01(e) of the Pledge Agreement.

“Collateral Account” has the meaning set forth in Section 1.01(e) of the Pledge Agreement.

“Collateral Agent” means U.S. Bank National Association, as Collateral Agent under the Pledge Agreement until a successor Collateral Agent shall have become such pursuant to the applicable provisions of the Pledge Agreement, and thereafter “Collateral Agent” shall mean the Person who is then the Collateral Agent thereunder.

“Collateral Substitution” means (i) with respect to a Corporate Unit, (x) the substitution for the Pledged Senior Note included in such Corporate Unit by Treasury Securities or portions thereof in an aggregate principal amount at maturity equal to the aggregate principal amount of such Pledged Senior Note, or (y) the substitution for the Pledged Applicable Ownership Interest in the Treasury Portfolio included in such Corporate Unit by Treasury Securities or portions thereof in an amount equal to such Pledged Applicable Ownership Interest in the Treasury Portfolio, or (ii) with respect to a Treasury Unit, (x) the substitution for the Pledged Treasury Securities included in such Treasury Unit (if the Applicable Ownership Interest in the Treasury Portfolio has not replaced the Senior Note as a component of the Corporate Unit) by Senior Notes in an aggregate principal amount equal to the aggregate principal amount at stated maturity of the Pledged Treasury Securities, or (y) the substitution for the Pledged Treasury Securities included in such Treasury Unit (if the Applicable Ownership Interest in the Treasury Portfolio has replaced the Senior Note as a component of the Corporate Unit) by the appropriate Applicable Ownership Interest in the Treasury Portfolio.

“Common Stock” means the common stock, no par value, of the Company.

“Company” means the Person named as the “Company” in the first paragraph of this Agreement until a successor shall have become such pursuant to the applicable provision of this Agreement, and thereafter “Company” shall mean such successor.

“Constituent Person” has the meaning set forth in Section 5.04(b)(i) .

“Contract Adjustment Payments” means the payments payable by the Company on the Payment Dates in respect of each Purchase Contract, at a rate per year of 1.525% of the Stated Amount per Purchase Contract.

“Corporate Trust Office” means the office of the Purchase Contract Agent at which, at any particular time, its corporate trust business shall be principally administered, which office at the date hereof is located at 100 Wall Street, Suite 1600, New York, New York 10005.

“Corporate Unit” means the collective rights and obligations of a Holder of a Corporate Units Certificate in respect of a 1/40 undivided beneficial interest in a Senior Note or an appropriate Applicable Ownership Interest in the Treasury Portfolio, as the case may be, subject in each case (except for the appropriate Applicable Ownership Interest specified in clause (ii) of the definition of such term) to the Pledge thereof, and the related Purchase Contract.

“Corporate Units Certificate” means a certificate evidencing the rights and obligations of a Holder in respect of the number of Corporate Units specified on such certificate.

“Current Market Price” means, in respect of a share of Common Stock on any date of determination, the average of the daily Closing Prices for the 5 consecutive Trading Days ending the earlier of the day in question and the day before the “ex date” with respect to the issuance or distribution requiring such computation. For purposes of

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this definition, the term “ex date,” when used with respect to any issuance or distribution, shall mean the first date on which Common Stock trades regular way on such exchange or in such market without the right to receive such issuance or distribution.

“Custodial Agent” means U.S. Bank National Association, as Custodial Agent under the Pledge Agreement until a successor Custodial Agent shall have become such pursuant to the applicable provisions of the Pledge Agreement, and thereafter “Custodial Agent” shall mean the Person who is then the Custodial Agent thereunder.

“Definitive Certificate” means a Certificate that evidences all or part of the Units and is registered in the name of a Holder or a nominee thereof.

“Distributed Property” has the meaning set forth in Section 5.04(a) .

“Dividend Threshold Amount” has the meaning set forth in Section 5.04(a) .

“Early Settlement” has the meaning set forth in Section 5.07(a) .

“Early Settlement Amount” has the meaning set forth in Section 5.07(b) .

“Early Settlement Date” has the meaning set forth in Section 5.07(b) .

“Early Settlement Rate” has the meaning set forth in Section 5.07(c) .

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Exchange Act” means the Securities Exchange Act of 1934 and any statute successor thereto, in each case as amended from time to time, and the rules and regulations promulgated thereunder.

“Exchange Property” has the meaning set forth in Section 5.04(b) .

“Ex-Dividend Date” has the meaning set forth in Section 5.04(a) .

“Expiration Date” has the meaning set forth in Section 1.04(e) .

“Expiration Time” has the meaning set forth in Section 5.04(a)(vi) .

“Extended Maturity Date” has the meaning set forth in Section 5.02(a) .

“Failed Final Remarketing” has the meaning set forth in Section 5.02(a) .

“Failed Remarketing” has the meaning set forth in Section 5.02(a) .

“Final Remarketing Date” means the third Business Day immediately preceding the Purchase Contract Settlement Date.

“Fixed Settlement Rate” means each of the Maximum Share Number and the Minimum Share Number.

“Holder” means, with respect to a Unit, the Person in whose name the Unit evidenced by a Certificate is registered in the Security Register.

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“Indemnitees” has the meaning set forth in Section 7.07(c) .

“Indenture” means the Indenture, dated as of October 7, 2005, between the Company and the Indenture Trustee (including any provisions of the TIA that are deemed incorporated therein), as supplemented by the Supplemental Indenture, pursuant to which the Senior Notes were originally issued, and as further supplemented by the Supplemental Indenture No. 2.

“Indenture Trustee” means U.S. Bank National Association, as trustee under the Indenture, or any successor thereto.

“Initial Remarketing Date” means the fifth Business Day immediately preceding the Purchase Contract Settlement Date.

“Issuer Order” or “Issuer Request” means a written order or request signed in the name of the Company by (i) either its Chief Executive Officer, its President or one of its Vice Presidents, and (ii) either its Corporate Secretary or one of its Assistant Corporate Secretaries or its Treasurer or one of its Assistant Treasurers, and delivered to the Purchase Contract Agent.

“Maximum Share Number” has the meaning set forth in Section 5.01(a)(iii) .

“Minimum Share Number” has the meaning set forth in Section 5.01(a)(i) .

“non-electing share” has the meaning set forth in Section 5.04(b)(i) .

“NYSE” has the meaning set forth in Section 5.01(a) .

“Officers’ Certificate” means a certificate signed by (i) either the Company’s Chief Executive Officer, its President or one of its Vice Presidents, and (ii) either the Company’s Corporate Secretary or one of its Assistant Corporate Secretaries or its Treasurer or one of its Assistant Treasurers, and delivered to the Purchase Contract Agent.

“Opinion of Counsel” means a written opinion of counsel, who may be counsel to the Company (and who may be an employee of the Company), and who shall be reasonably acceptable to the Purchase Contract Agent. An Opinion of Counsel may rely on certificates as to matters of fact.

“Original Agreement” has the meaning set forth in the first recital hereof.

“Outstanding Units” means, with respect to any Unit and as of the date of determination, all Units evidenced by Certificates theretofore authenticated, executed and delivered under this Agreement, except:

(i) if a Termination Event has occurred, (x) Corporate Units for which the underlying Senior Notes or Applicable Ownership Interests in the Treasury Portfolio have been theretofore deposited with the Purchase Contract Agent in trust for the Holders of such Corporate Units and (y) Treasury Units;

(ii) Units evidenced by Certificates theretofore cancelled by the Purchase Contract Agent or delivered to the Purchase Contract Agent for cancellation or deemed cancelled pursuant to the provisions of this Agreement; and

(iii) Units evidenced by Certificates in exchange for or in lieu of which other Certificates have been authenticated, executed on behalf of the Holder and delivered pursuant to this Agreement, other than any such Certificate in respect of which there shall have been presented to the

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Purchase Contract Agent proof satisfactory to it that such Certificate is held by a protected purchaser in whose hands the Units evidenced by such Certificate are valid obligations of the Company;

provided , however , that in determining whether the Holders of the requisite number of the Units have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Units owned by the Company or any Affiliate of the Company shall be disregarded and deemed not to be Outstanding Units, except that, in determining whether the Purchase Contract Agent shall be authorized and protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Units that a Responsible Officer of the Purchase Contract Agent actually knows to be so owned shall be so disregarded. Units so owned that have been pledged in good faith may be regarded as Outstanding Units if the pledgee establishes to the satisfaction of the Purchase Contract Agent the pledgee’s right so to act with respect to such Units and that the pledgee is not the Company or any Affiliate of the Company.

“Payment Date” means each February 16, May 16, August 16 and November 16 of each year, commencing February 16, 2006.

“Permitted Investments” has the meaning set forth in Section 1.01(e) of the Pledge Agreement.

“Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or any agency or political subdivision thereof or any other entity of whatever nature.

“Plan” means an employee benefit plan that is subject to ERISA, a plan or individual retirement account that is subject to Section 4975 of the Code or any entity whose assets are considered assets of any such plan.

“Pledge” means the pledge under the Pledge Agreement of the Senior Notes, the Treasury Securities or the appropriate Applicable Ownership Interest (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, in each case constituting a part of the Units (it being understood that the appropriate Applicable Ownership Interest (as specified in clause (ii) of the definition of such term) in the Treasury Portfolio shall not be subject to the Pledge).

“Pledge Agreement” means the Amended and Restated Pledge Agreement, dated as of August 4, 2008, among the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent, on its own behalf and as attorney-in-fact for the Holders from time to time of the Units, as amended from time to time.

“Pledged Applicable Ownership Interests” has the meaning set forth in Section 1.01(e) of the Pledge Agreement.

“Pledged Senior Notes” has the meaning set forth in Section 1.01(e) of the Pledge Agreement.

“Pledged Treasury Securities” has the meaning set forth in Section 1.01(e) of the Pledge Agreement.

“Predecessor Certificate” means a Predecessor Corporate Units Certificate or a Predecessor Treasury Units Certificate.

“Predecessor Corporate Units Certificate” of any particular Corporate Units Certificate means every previous Corporate Units Certificate evidencing all or a portion of the rights and obligations of the Company and the Holder under the Corporate Units evidenced thereby; and, for the purposes of this definition, any Corporate Units Certificate authenticated and delivered under Section 3.10 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Corporate Units Certificate shall be deemed to evidence the same rights and obligations of the Company and the Holder as the mutilated, destroyed, lost or stolen Corporate Units Certificate.

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“Predecessor Treasury Units Certificate” of any particular Treasury Units Certificate means every previous Treasury Units Certificate evidencing all or a portion of the rights and obligations of the Company and the Holder under the Treasury Units evidenced thereby; and, for the purposes of this definition, any Treasury Units Certificate authenticated and delivered under Section 3.10 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Treasury Units Certificate shall be deemed to evidence the same rights and obligations of the Company and the Holder as the mutilated, destroyed, lost or stolen Treasury Units Certificate.

“Preferred Stock” means shares of Preferred Stock of the Company created by the Statement of Resolutions, convertible into shares of Common Stock as provided in the Statement of Resolutions.

“Primary Treasury Dealer” shall mean a primary U.S. government securities dealer.

“Private Placement Legend” shall have the meaning set forth in Section 3.06(b) .

“Proceeds” has the meaning set forth in Section 1.01(e) of the Pledge Agreement.

“Prospectus” means the prospectus relating to the delivery of shares or any securities in connection with an Early Settlement pursuant to Section 5.07 or a Cash Merger Early Settlement of Purchase Contracts pursuant to Section 5.04(b)(ii) , in the form in which first filed, or transmitted for filing, with the Securities and Exchange Commission after the effective date of the Registration Statement pursuant to Rule 424(b) under the Securities Act, including the documents incorporated by reference therein as of the date of such Prospectus.

“Purchase Contract” means, with respect to any Unit, the contract forming a part of such Unit and obligating the Company to (i) sell, and the Holder of such Unit to purchase, shares of Common Stock or Preferred Stock, as applicable, and (ii) pay the Holder thereof Contract Adjustment Payments, in each case on the terms and subject to the conditions set forth in Article 5 hereof.

“Purchase Contract Agent” means the Person named as the “Purchase Contract Agent” in the first paragraph of this Agreement until a successor Purchase Contract Agent shall have become such pursuant to the applicable provisions of this Agreement, and thereafter “Purchase Contract Agent” shall mean such Person or any subsequent successor who is appointed pursuant to this Agreement.

“Purchase Contract Settlement Date” means November 16, 2008.

“Purchase Contract Settlement Fund” has the meaning set forth in Section 5.03 .

“Purchase Price” has the meaning set forth in Section 5.01(a) .

“Purchased Shares” has the meaning set forth in Section 5.04(a)(vi) .

“Put Right” has the meaning set forth in Section 8.05 of the Supplemental Indenture.

“Quotation Agent” means any Primary Treasury Dealer selected by the Company.

“Record Date” for any distribution and Contract Adjustment Payment payable on any Payment Date means, as to any Certificate, the first business day of the calendar month in which the relevant Payment Date falls; provided that the Company may, at its option, select any other day as the Record Date for any Payment Date so long as such Record Date selected is more than one Business Day but less than 60 Business Days prior to such Payment Date.

“Redemption Amount” has the meaning set forth in Section 1.02(e) of the Supplemental Indenture.

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“Redemption Price” has the meaning set forth in Section 1.02(e) of the Supplemental Indenture.

“Reference Dealer” means a dealer engaged in trading of convertible securities.

“Reference Price” has the meaning set forth in Section 5.01(a)(ii) .

“Registration Statement” means a registration statement under the Securities Act prepared by the Company covering, inter alia, the delivery by the Company of any securities in connection with an Early Settlement on the Early Settlement Date or a Cash Merger Early Settlement of Purchase Contracts on the Cash Merger Early Settlement Date under Section 5.04(b)(ii) , including all exhibits thereto and the documents incorporated by reference in the prospectus contained in such registration statement, and any post-effective amendments thereto.

“Remarketing” means the remarketing of the Senior Notes by the Remarketing Agent pursuant to the Remarketing Agreement.

“Remarketing Agent” has the meaning set forth in the Remarketing Agreement.

“Remarketing Agreement” means the Remarketing Agreement, dated as of October 7, 2005, as amended and supplemented by a letter agreement, dated as of August 4, 2008, among the Company, the Remarketing Agent, and the Purchase Contract Agent, as amended from time to time.

“Remarketing Date” means the Initial Remarketing Date, the Second Remarketing Date or the Final Remarketing Date.

“Remarketing Fee” has the meaning set forth in Section 4 of the Remarketing Agreement.

“Remarketing Price” has the meaning set forth in Section 5.02(a) .

“Reorganization Event” has the meaning set forth in Section 5.04(b)(i) .

“Resale Restriction Termination Date” means, for any Restricted Unit (or beneficial interest therein), one-year (or such other period specified in Rule 144 (or any successor provision)) from the date of issuance.

“Reset Rate” has the meaning set forth in Section 1.02(e) of the Supplemental Indenture.

“Responsible Officer” shall mean, when used with respect to the Purchase Contact Agent, any officer within the corporate trust department of the Purchase Contract Agent, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Purchase Contract Agent who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person’s knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Purchase Contract Agreement.

“Restricted Unit” means any Unit (or beneficial interest therein) until such time as:

(i) such Unit (or beneficial interest therein) has been transferred pursuant to a Registration Statement

(ii) the Resale Restriction Termination Date therefor has passed; or

(iii) the Private Placement Legend therefor has otherwise been removed pursuant to Section 3.05 .

“ Rights ” has the meaning set forth in Section 5.04(a) .

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“ Rule 144 ” means Rule 144 under the Securities Act (or any successor rule).

“ Rule 144A ” means Rule 144A under the Securities Act (or any successor rule).

“Second Remarketing Date” means the fourth Business Day immediately preceding the Purchase Contract Settlement Date.

“Securities Act” means the Securities Act of 1933 and any statute successor thereto, in each case as amended from time to time, and the rules and regulations promulgated thereunder.

“Securities Intermediary” means U.S. Bank National Association, as Securities Intermediary under the Pledge Agreement until a successor Securities Intermediary shall have become such pursuant to the applicable provisions of the Pledge Agreement, and thereafter “Securities Intermediary” shall mean such successor or any subsequent successor who is appointed pursuant to the Pledge Agreement.

“Security Register” and “Security Registrar” have the respective meanings set forth in Section 3.05 .

“Senior Indebtedness” means indebtedness of any kind of the Company unless the instrument under which such indebtedness is incurred expressly provides that it is on a parity in right of payment with or subordinate in right of payment to the Contract Adjustment Payments.

“Senior Notes” means the series of notes designated the senior notes due 2010 to be issued by the Company under the Indenture.

“Separate Senior Notes” means Senior Notes that are no longer a component of Corporate Units.

“Separate Senior Notes Purchase Price” means the amount in cash equal to the product of the Remarketing Price multiplied by the number of Separate Senior Notes remarketed in the Remarketing.

“Settlement Rate” has the meaning set forth in Section 5.01(a) .

“Special Event” has the meaning set forth in Section 1.02(e) of the Supplemental Indenture.

“Special Event Redemption” means the redemption of the Senior Notes pursuant to the Indenture following the occurrence of a Special Event.

“Special Event Redemption Date” means the date upon which a Special Event Redemption is scheduled to occur pursuant to the Indenture.

“Stated Amount” means, with respect to any one Corporate Unit or Treasury Unit, $25, and, with respect to any one Senior Note, $1,000.

“ Statement of Resolutions ” means the Statement of Resolutions Establishing a Series of Preferred Stock of PNM Resources, Inc. adopted by the Board of Directors of the Company on September 28, 2004, to be filed by the Company with the New Mexico Public Regulation Commission prior to the Purchase Contract Settlement Date.

“Successful Remarketing” has the meaning set forth in Section 5.02(a) .

“Supplemental Indenture” means the Supplemental Indenture, dated as of October 7, 2005, between the Company and the Indenture Trustee.

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“Supplemental Indenture No. 2” means the Supplemental Indenture No. 2, dated as of the date hereof, between the Company and the Indenture Trustee.

“Tax Event” has the meaning set forth in Section 1.02(e) of the Supplemental Indenture.

“Termination Date” means the date, if any, on which a Termination Event occurs.

“Termination Event” means the occurrence of any of the following events:

(i) at any time on or prior to the Purchase Contract Settlement Date, a judgment, decree or court order shall have been entered granting relief under the Bankruptcy Code, adjudicating the Company to be insolvent, or approving as properly filed a petition seeking reorganization or liquidation of the Company or any other similar applicable federal or state law and if such judgment, decree or order shall have been entered more than 60 days prior to the Purchase Contract Settlement Date, such decree or order shall have continued undischarged and unstayed for a period of 60 days;

(ii) at any time on or prior to the Purchase Contract Settlement Date, a judgment, decree or court order for the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the Company or of its property, or for the termination or liquidation of its affairs, shall have been entered and if such judgment, decree or order shall have been entered more than 60 days prior to the Purchase Contract Settlement Date, such judgment, decree or order shall have continued undischarged and unstayed for a period of 60 days; or

(iii) at any time on or prior to the Purchase Contract Settlement Date, the Company shall file a petition for relief under the Bankruptcy Code, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization or liquidation under the Bankruptcy Code or any other similar applicable federal or state law, or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it or of its property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due.

“Threshold Appreciation Price” has the meaning set forth in Section 5.01(a) .

“TIA” means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation.

“Trading Day” has the meaning set forth in Section 5.01(a) .

“Treasury Portfolio” means a portfolio of (1) U.S. treasury securities (or principal or interest strips thereof) that mature on or prior to November 15, 2008 in an aggregate amount at maturity equal to the Applicable Principal Amount, and, (2) in the case of a Special Event Redemption, for each scheduled Payment Date that occurs after the Special Event Redemption Date to and including the Purchase Contract Settlement Date, U.S. treasury securities (or principal or interest strips thereof) that mature on or prior to the Business Day immediately preceding such scheduled Payment Date in an aggregate amount at maturity equal to the aggregate interest payment (assuming no reset of the interest rate) that would have been due on such scheduled Payment Date on the Applicable Principal Amount.

“Treasury Portfolio Purchase Price” means the lowest aggregate ask-side price quoted by a Primary Treasury Dealer to the Quotation Agent between 9:00 a.m. and 11:00 a.m. (New York City time) on the third Business Day immediately preceding the Special Event Redemption Date for the purchase of the applicable Treasury Portfolio for settlement on the Special Event Redemption Date.

“Treasury Securities” means zero-coupon U.S. treasury securities that mature on November 15, 2008 (CUSIP No. 912828EC0).

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“Treasury Unit” means, following the substitution of Treasury Securities for Pledged Senior Notes or the Pledged Applicable Ownership Interest in the Treasury Portfolio as collateral to

secure a Holder’s obligations under the Purchase Contract, the collective rights and obligations of a Holder of a Treasury Units Certificate in respect of such Treasury Securities, subject to the Pledge thereof, and the related Purchase Contract.

“Treasury Units Certificate” means a certificate evidencing the rights and obligations of a Holder in respect of the number of Treasury Units specified on such certificate.

“Trigger Event” has the meaning set forth in Section 5.04(a).

“Unit” means a Corporate Unit or a Treasury Unit, as the case may be.

“Vice President” means any vice president, whether or not designated by a number or a word or words added before or after the title “Vice President.”

Section 1.02. Compliance Certificates and Opinions . Except as otherwise expressly provided by this Agreement, upon any application or request by the Company to the Purchase Contract Agent to take any action in accordance with any provision of this Agreement, the Company shall furnish to the Purchase Contract Agent an Officers’ Certificate stating that all conditions precedent, if any, provided for in this Agreement relating to the proposed action have been complied with and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Agreement relating to such particular application or request, no additional certificate or opinion need be furnished.

Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Agreement (other than the Officers’ Certificate provided for in Section 10.05 ) shall include:

(i) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;

(ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(iii) a statement that, in the opinion of each such individual, he or she has made such examination or investigation as is necessary to enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(iv) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.

Section 1.03. Form of Documents Delivered to Purchase Contract Agent . In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which its certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

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Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Agreement, they may, but need not, be consolidated and form one instrument.

Section 1.04. Acts of Holders; Record Dates . (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Agreement to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Purchase Contract Agent and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Agreement and (subject to Section 7.01 ) conclusive in favor of the Purchase Contract Agent and the Company, if made in the manner provided in this Section.

(b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner that the Purchase Contract Agent deems sufficient.

(c) The ownership of Units shall be proved by the Security Register.

(d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Unit shall bind every future Holder of the same Unit and the Holder of every Certificate evidencing such Unit issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Purchase Contract Agent or the Company in reliance thereon, whether or not notation of such action is made upon such Certificate.

(e) The Company may set any date as a record date for the purpose of determining the Holders of Outstanding Units entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Agreement to be given, made or taken by Holders of Units. If any record date is set pursuant to this paragraph, the Holders of the Outstanding Corporate Units and the Outstanding Treasury Units, as the case may be, on such record date, and no other Holders, shall be entitled to take the relevant action with respect to the Corporate Units or the Treasury Units, as the case may be, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken prior to or on the applicable Expiration Date by Holders of the requisite number of Outstanding Units on such record date. Nothing contained in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and be of no effect), and nothing contained in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite number of Outstanding Units on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Purchase Contract Agent in writing and to each Holder of Units in the manner set forth in Section 1.06 .

With respect to any record date set pursuant to this Section 1.04(e) , the Company may designate any date as the “Expiration Date” and from time to time may change the Expiration Date to any earlier or later day; provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the Purchase Contract Agent in writing, and to each Holder of Units in the manner set forth in Section 1.06 , prior to or on the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the Company shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date.

Section 1.05. Notices . Any notice or communication is duly given if in writing and delivered in Person or mailed by first-class mail (registered or certified, return receipt requested), telecopier (with receipt

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confirmed) or overnight air courier guaranteeing next day delivery, to the others’ address; provided that notice shall be deemed given to the Purchase Contract Agent only upon receipt thereof:

If to the Purchase Contract Agent:

U.S. Bank National Association 100 Wall Street, Suite 1600 New York, New York 10005 Attention: Corporate Trust Administration Telephone: (212) 361-2505 Telecopy: (212) 809-4993

If to the Company:

PNM Resources, Inc. Alvarado Square MS-2704 Albuquerque, New Mexico 87158 Attention: Treasurer Telephone: (505) 241-2700 Telecopy: (505) 241-2369

If to the Collateral Agent:


If to the Indenture Trustee:


The Purchase Contract Agent shall send to the Indenture Trustee at the telecopier number set forth above a copy of any notices in the form of Exhibits C, D, E, F or G it sends or receives.

Section 1.06. Notice to Holders; Waiver . Where this Agreement provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at its address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed to any particular Holder, shall affect the sufficiency of such notice with respect to other Holders. Where this Agreement provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Purchase Contract Agent, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by

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mail, then such notification as shall be made with the approval of the Purchase Contract Agent shall constitute a sufficient notification for every purpose hereunder.

Section 1.07. Effect of Headings and Table of Contents . The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 1.08. Successors and Assigns . All covenants and agreements in this Agreement by the Company and the Purchase Contract Agent shall bind their respective successors and assigns, whether so expressed or not.

Section 1.09. Separability Clause . In case any provision in this Agreement or in the Units shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof and thereof shall not in any way be affected or impaired thereby.

Section 1.10. Benefits of Agreement . Nothing contained in this Agreement or in the Units, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and, to the extent provided hereby, the Holders, any benefits or any legal or equitable right, remedy or claim under this Agreement. The Holders from time to time shall be beneficiaries of this Agreement and shall be bound by all of the terms and conditions hereof and of the Units evidenced by their Certificates by their acceptance of delivery of such Certificates.

Section 1.11. Governing Law . This Agreement and the Units shall be governed by, and construed in accordance with, the laws of the State of New York.

Section 1.12. Legal Holidays . In any case where any Payment Date shall not be a Business Day (notwithstanding any other provision of this Agreement or the Units), Contract Adjustment Payments or other distributions shall not be paid on such date, but Contract Adjustment Payments or such other distributions shall be paid on the next succeeding Business Day with the same force and effect as if made on such Payment Date, provided that if such Business Day is in the next succeeding calendar year, then payment of the Contract Adjustment Payments or other distributions will be made on the Business Day immediately preceding such Business Day. No interest shall accrue or be payable by the Company or to any Holder for the period from and after any such Payment Date.

In any case where the Purchase Contract Settlement Date or any Early Settlement Date or Cash Merger Early Settlement Date shall not be a Business Day (notwithstanding any other provision of this Agreement or the Units), Purchase Contracts shall not be performed and Early Settlement and Cash Merger Early Settlement shall not be effected on such date and Remarketing of Senior Notes shall not settle on such date, but Purchase Contracts shall be performed or Early Settlement or Cash Merger Early Settlement shall be effected or remarketed Senior Notes shall be settled, as applicable, on the next succeeding Business Day with the same force and effect as if made on such Purchase Contract Settlement Date, Early Settlement Date or Cash Merger Early Settlement Date, as applicable.

Section 1.13. Counterparts . This Agreement may be executed in any number of counterparts by the parties hereto on separate counterparts, each of which, when so executed and delivered, shall be deemed an original, but all such counterparts shall together constitute one and the same instrument.

Section 1.14. Inspection of Agreement . A copy of this Agreement shall be available at all reasonable times during normal business hours at the Corporate Trust Office for inspection by any Holder.

Section 1.15. Appointment of Financial Institution as Agent for the Company . The Company may appoint a financial institution (which may be the Collateral Agent) to act as its agent in performing its obligations and in accepting and enforcing performance of the obligations of the Purchase Contract Agent and the Holders, under this Agreement and the Purchase Contracts, by giving notice of such appointment in the manner provided in Section 1.05 hereof.

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Any such appointment shall not relieve the Company in any way from its obligations hereunder.

Section 1.16. No Waiver . No failure on the part of the Company, the Purchase Contract Agent, the Collateral Agent, the Securities Intermediary or any of their respective agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Company, the Collateral Agent, the Securities Intermediary or any of their respective agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law.

ARTICLE 2

CERTIFICATE FORMS

Section 2.01. Forms of Certificates Generally . The Certificates (including the form of Purchase Contract forming part of each Unit evidenced thereby) shall be in substantially the form set forth in Exhibit A hereto (in the case of Certificates evidencing Corporate Units) or Exhibit B hereto (in the case of Certificates evidencing Treasury Units), with such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as may be required by the rules of any securities exchange on which the Units are listed or any depositary therefor, or as may, consistently herewith, be determined by the officers of the Company executing such Certificates, as evidenced by their execution of the Certificates.

The definitive Certificates shall be produced in any manner as determined by the officers of the Company executing the Units evidenced by such Certificates, consistent with the provisions of this Agreement, as evidenced by their execution thereof.

Section 2.02. Form of Purchase Contract Agent’s Certificate of Authentication . The form of the Purchase Contract Agent’s certificate of authentication of the Units shall be in substantially the form set forth on the form of the applicable Certificates.

ARTICLE 3

THE UNITS

Section 3.01. Amount; Form and Denominations . The aggregate number of Units evidenced by Certificates authenticated, executed on behalf of the Holders and delivered hereunder is limited to 4,000,000, except for Certificates authenticated, executed and delivered upon registration of transfer of, in exchange for, or in lieu of, other Certificates pursuant to Section 3.04 , 3.05 , 3.10 , 3.13 , 3.14 or 8.05 .

The Certificates shall be issuable only in registered form and only in denominations of a single Corporate Unit or Treasury Unit and any integral multiple thereof.

Section 3.02. Rights and Obligations Evidenced by the Certificates . Each Corporate Units Certificate shall evidence the number of Corporate Units specified therein, with each such Corporate Unit representing (1) the ownership by the Holder thereof of a 1/40 undivided beneficial interest in a Senior Note or the Applicable Ownership Interest in the Treasury Portfolio, as the case may be, subject to the Pledge of such Senior Note or the Applicable Ownership Interest (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, by such Holder pursuant to the Pledge Agreement, and (2) the rights and obligations of the Holder thereof and the Company under one Purchase Contract. The Purchase Contract Agent is hereby authorized, as attorney-in-fact for, and on behalf of, the Holder of each Corporate Unit, to pledge, pursuant to the Pledge Agreement, the Senior Note and the Applicable Ownership Interest (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, if any, forming a part of such Corporate Unit, to the Collateral Agent for the benefit of the Company, and to grant to the Collateral Agent, for the benefit of the Company, a security interest in the right, title and interest of such Holder in such Senior Note and the Applicable Ownership Interest (as specified in

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clause (i) of the definition of such term) in the Treasury Portfolio, if any, to secure the obligation of the Holder under each Purchase Contract to purchase shares of Common Stock or Preferred Stock, as applicable.

Upon the formation of a Treasury Unit pursuant to Section 3.13 , each Treasury Unit Certificate shall evidence the number of Treasury Units specified therein, with each such Treasury Unit representing (1) the ownership by the Holder thereof of a 1/40 undivided beneficial interest in a Treasury Security with a principal amount at maturity equal to $1,000, subject to the Pledge of such interest by such Holder pursuant to the Pledge Agreement, and (2) the rights and obligations of the Holder thereof and the Company under one Purchase Contract. The Purchase Contract Agent is hereby authorized, as attorney-in-fact for, and on behalf of, the Holder of each Treasury Unit, to pledge, pursuant to the Pledge Agreement, such Holder’s interest in the Treasury Security forming a part of such Treasury Unit to the Collateral Agent, for the benefit of the Company, and to grant to the Collateral Agent, for the benefit of the Company, a security interest in the right, title and interest of such Holder in such Treasury Security to secure the obligation of the Holder under each Purchase Contract to purchase shares of Common Stock or Preferred Stock, as applicable.

Prior to the purchase of shares of Common Stock or Preferred Stock, as applicable, under each Purchase Contract, such Purchase Contract shall not entitle the Holder of a Unit to any of the rights of a holder of shares of Common Stock or Preferred Stock, as applicable, including, without limitation, the right to vote or receive any dividends or other payments or to consent or to receive notice as a shareholder in respect of the meetings of shareholders or for the election of directors of the Company or for any other matter, or any other rights whatsoever as a shareholder of the Company.

Section 3.03. Execution, Authentication, Delivery and Dating . Subject to the provisions of Sections 3.13 and 3.14 hereof, upon the execution and delivery of this Agreement, and at any time and from time to time thereafter, the Company may deliver Certificates executed by the Company to the Purchase Contract Agent for authentication, execution on behalf of the Holders and delivery, together with its Issuer Order for authentication of such Certificates, and the Purchase Contract Agent in accordance with such Issuer Order shall authenticate, execute on behalf of the Holders and deliver such Certificates.

The Certificates shall be executed on behalf of the Company by its Chairman of the Board of Directors, its Chief Executive Officer, its President, its Chief Financial Officer, its Treasurer or one of its Vice Presidents. The signature of any of these officers on the Certificates may be manual or facsimile.

Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Certificates or did not hold such offices at the date of such Certificates.

No Purchase Contract evidenced by a Certificate shall be valid until such Certificate has been executed on behalf of the Holder by the manual signature of an authorized officer of the Purchase Contract Agent, as such Holder’s attorney-in-fact. Such signature by an authorized officer of the Purchase Contract Agent shall be conclusive evidence that the Holder of such Certificate has entered into the Purchase Contracts evidenced by such Certificate.

Each Certificate shall be dated the date of its authentication.

No Certificate shall be entitled to any benefit under this Agreement or be valid or obligatory for any purpose unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by an authorized officer of the Purchase Contract Agent by manual signature, and such certificate upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder.

Section 3.04. Temporary Certificates . Pending the preparation of definitive Certificates, the Company shall execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall authenticate,

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execute on behalf of the Holders, and deliver, in lieu of such definitive Certificates, temporary Certificates that are in substantially the form set forth in Exhibit A or Exhibit B hereto, as the case may be, with such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as may be required by the rules of any securities exchange on which the Corporate Units or Treasury Units, as the case may be, are listed, or as may, consistently herewith, be determined by the officers of the Company executing such Certificates, as evidenced by their execution of the Certificates.

If temporary Certificates are issued, the Company will cause definitive Certificates to be prepared without unreasonable delay. After the preparation of definitive Certificates, the temporary Certificates shall be exchangeable for definitive Certificates upon surrender of the temporary Certificates at the Corporate Trust Office, at the expense of the Company and without charge to the Holder. Upon surrender for cancellation of any one or more temporary Certificates, the Company shall execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall authenticate, execute on behalf of the Holder, and deliver in exchange therefor, one or more definitive Certificates of like tenor and denominations and evidencing a like number of Units as the temporary Certificate or Certificates so surrendered. Until so exchanged, the temporary Certificates shall in all respects evidence the same benefits and the same obligations with respect to the Units evidenced thereby as definitive Certificates.

Section 3.05. Registration; Registration of Transfer and Exchange . The Purchase Contract Agent shall keep at the Corporate Trust Office a register (the “ Security Register ”) in which, subject to such reasonable regulations as it may prescribe, the Purchase Contract Agent shall provide for the registration of Certificates and of transfers of Certificates (the Purchase Contract Agent, in such capacity, the “ Security Registrar ”). The Security Registrar shall record separately the registration and transfer of the Certificates evidencing Corporate Units and Treasury Units.

Upon surrender for registration of transfer of any Certificate at the Corporate Trust Office, the Company shall execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall authenticate, execute on behalf of the designated transferee or transferees, and deliver, in the name of the designated transferee or transferees, one or more new Certificates of any authorized denominations, like tenor, and evidencing a like number of Corporate Units or Treasury Units, as the case may be.

At the option of the Holder, Certificates may be exchanged for other Certificates, of any authorized denominations and evidencing a like number of Corporate Units or Treasury Units, as the case may be, upon surrender of the Certificates to be exchanged at the Corporate Trust Office. Whenever any Certificates are so surrendered for exchange, the Company shall execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall authenticate, execute on behalf of the Holder, and deliver the Certificates that the Holder making the exchange is entitled to receive.

All Certificates issued upon any registration of transfer or exchange of a Certificate shall evidence the ownership of the same number of Corporate Units or Treasury Units, as the case may be, and be entitled to the same benefits and subject to the same obligations under this Agreement as the Corporate Units or Treasury Units, as the case may be, evidenced by the Certificate surrendered upon such registration of transfer or exchange.

Every Certificate presented or surrendered for registration of transfer or exchange shall (if so required by the Purchase Contract Agent) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Purchase Contract Agent duly executed, by the Holder thereof or its attorney duly authorized in writing.

No service charge shall be made for any registration of transfer or exchange of a Certificate, but the Company and the Purchase Contract Agent may require payment from the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Certificates, other than any exchanges pursuant to Sections 3.04 , 3.06 and 8.05 not involving any transfer.

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Any transfer of Restricted Units shall be made only upon receipt by the Purchase Contract Agent of such opinions of counsel, certificates and/or other information reasonably required by and satisfactory to it in order to ensure compliance with the Securities Act or in accordance with the terms of the following paragraph.

Upon the transfer, exchange or replacement of Units not bearing a Private Placement Legend, the Purchase Contract Agent shall exchange such Units for Units that do not bear a Private Placement Legend. Upon the transfer, exchange or replacement of Units bearing a Private Placement Legend, the Purchase Contract Agent shall deliver only Units that bear a Private Placement Legend unless:

(i) such Units are transferred pursuant to a Registration Statement;

(ii) such Units are transferred pursuant to Rule 144 upon delivery to the Purchase Contract Agent of a certificate of the transferor in a form that may be agreed to between the Company and the Purchase Contract Agent and an Opinion of Counsel reasonably satisfactory to the Purchase Contract Agent and the Company;

(iii) such Units are transferred, replaced or exchanged after the Resale Restriction Termination Date therefor; or

(iv) in connection with such transfer, exchange or replacement, the Purchase Contract Agent and the Company shall have received an Opinion of Counsel and other evidence reasonably satisfactory to it to the effect that neither such Private Placement Legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act.

The Private Placement Legend on any Unit shall be removed at the request of the Holder on or after the Resale Restriction Termination Date therefor. The Company shall deliver to the Purchase Contract Agent an Officers’ Certificate promptly upon effectiveness, withdrawal or suspension of any Registration Statement.

Notwithstanding the foregoing, the Company shall not be obligated to execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall not be obligated to authenticate, execute on behalf of the Holder and deliver any Certificate in exchange for any other Certificate presented or surrendered for registration of transfer or for exchange on or after the Business Day immediately preceding the earliest to occur of any Early Settlement Date with respect to such Certificate, any Cash Merger Early Settlement Date with respect to such Certificate, the Purchase Contract Settlement Date or the Termination Date. In lieu of delivery of a new Certificate, upon satisfaction of the applicable conditions specified above in this Section and receipt of appropriate registration or transfer instructions from such Holder, the Purchase Contract Agent shall:

(i) if the Purchase Contract Settlement Date (including upon any Cash Settlement) or an Early Settlement Date or a Cash Merger Early Settlement Date with respect to such other Certificate has occurred, deliver the shares of Common Stock or Preferred Stock, as applicable, issuable in respect of the Purchase Contracts forming a part of the Units evidenced by such other Certificate; or

(ii) if a Termination Event shall have occurred prior to the Purchase Contract Settlement Date, transfer the Senior Notes, the Treasury Securities, or the appropriate Applicable Ownership Interest in the Treasury Portfolio, as the case may be, evidenced thereby, in each case subject to the applicable conditions and in accordance with the applicable provisions of Section 3.15 and Article 5 hereof.

Section 3.06. Form of Private Placement Legends . (a) Each Restricted Unit shall bear the following legend:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT” ), AND MAY NOT BE SOLD OR OTHERWISE

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TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF ANY OF THESE SECURITIES IS HEREBY NOTIFIED THAT THE SELLER OF ANY OF THESE SECURITIES MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT ACQUIRING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A (IF AVAILABLE), (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (3) TO AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a) OF REGULATION D UNDER THE SECURITIES ACT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (IF AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.

IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE PURCHASE CONTRACT AGENT SUCH OPINIONS OF COUNSEL, CERTIFICATES AND/OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE IN FORM REASONABLY SATISFACTORY TO IT AS PROVIDED FOR IN THE INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS AS PROVIDED FOR IN THE INDENTURE.

(b) Each Restricted Unit shall bear the private placement legends specified therefor in Section 3.06(a) on the face thereof (together, the “ Private Placement Legend ”).

Section 3.07. Notices to Holders . Whenever a notice or other communication to the Holders is required to be given under this Agreement, the Company or the Company’s agent shall give such notices and communications to the Holders.

Section 3.08. Intentionally Omitted .

Section 3.09. Definitive Certificates . The Certificates, on original issuance, will be issued in the form of one or more Definitive Certificates, to be delivered to the Holders. Each such Definitive Certificate shall initially be registered on the books and records of the Company in the name of the Holder to whom it is issued, or such Holder’s nominee.

Section 3.10. Mutilated, Destroyed, Lost and Stolen Certificates . If any mutilated Certificate is surrendered to the Purchase Contract Agent, the Company shall execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall authenticate, execute on behalf of the Holder, and deliver in exchange therefor, a new Certificate, evidencing the same number of Corporate Units or Treasury Units, as the case may be, and bearing a Certificate number not contemporaneously outstanding.

If there shall be delivered to the Company and the Purchase Contract Agent (i) evidence to their satisfaction of the destruction, loss or theft of any Certificate, and (ii) such security or indemnity as may be required by them to hold each of them and any agent of any of them harmless, then, in the absence of notice to the Company or the Purchase Contract Agent that such Certificate has been acquired by a protected purchaser, the Company shall execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall authenticate, execute on behalf of the Holder, and deliver to the Holder, in lieu of any such destroyed, lost or stolen Certificate, a new Certificate, evidencing the same number of Corporate Units or Treasury Units, as the case may be, and bearing a Certificate number not contemporaneously outstanding.

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Notwithstanding the foregoing, the Company shall not be obligated to execute and deliver to the Purchase Contract Agent, and the Purchase Contract Agent shall not be obligated to authenticate, execute on behalf of the Holder, and deliver to the Holder, a Certificate on or after the Business Day immediately preceding the earliest of any Early Settlement Date with respect to such lost or mutilated Certificate, any Cash Merger Early Settlement Date with respect to such lost or mutilated Certificate, the Purchase Contract Settlement Date or the Termination Date. In lieu of delivery of a new Certificate, upon satisfaction of the applicable conditions specified above in this Section and receipt of appropriate registration or transfer instructions from such Holder, the Purchase Contract Agent shall:

(i) if the Purchase Contract Settlement Date or Early Settlement Date or Cash Merger Early Settlement Date with respect to such lost, stolen, destroyed or mutilated Certificate has occurred, deliver the shares of Common Stock or Preferred Stock, as applicable, issuable in respect of the Purchase Contracts forming a part of the Units evidenced by such Certificate; or

(ii) if a Cash Settlement with respect to such lost or mutilated Certificate or if a Termination Event shall have occurred prior to the Purchase Contract Settlement Date, transfer the Senior Notes, the Treasury Securities or the appropriate Applicable Ownership Interest (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, evidenced thereby, in each case subject to the applicable conditions and in accordance with the applicable provisions of Section 3.15 and Article 5 hereof.

Upon the issuance of any new Certificate under this Section, the Company and the Purchase Contract Agent may require the payment by the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other fees and expenses (including, without limitation, the fees and expenses of the Purchase Contract Agent) connected therewith.

Every new Certificate issued pursuant to this Section in lieu of any destroyed, lost or stolen Certificate shall constitute an original additional contractual obligation of the Company and of the Holder in respect of the Units evidenced thereby, whether or not the destroyed, lost or stolen Certificate (and the Units evidenced thereby) shall be at any time enforceable by anyone, and shall be entitled to all the benefits and be subject to all the obligations of this Agreement equally and proportionately with any and all other Certificates delivered hereunder.

The provisions of this Section are exclusive and shall preclude, to the extent lawful, all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Certificates.

Section 3.11. Persons Deemed Owners . Prior to due presentment of a Certificate for registration of transfer, the Company and the Purchase Contract Agent, and any agent of the Company or the Purchase Contract Agent, may treat the Person in whose name such Certificate is registered as the owner of the Units evidenced thereby for purposes of (subject to any applicable record date) any payment or distribution on the Senior Notes or on the Applicable Ownership Interests (as specified in clause (ii) of the definition of such term) in the Treasury Portfolio (if any), as applicable, payment of Contract Adjustment Payments and performance of the Purchase Contracts and for all other purposes whatsoever in connection with such Units, whether or not such payment, distribution, or performance shall be overdue and notwithstanding any notice to the contrary, and neither the Company nor the Purchase Contract Agent, nor any agent of the Company or the Purchase Contract Agent, shall be affected by notice to the contrary.

Section 3.12. Cancellation . All Certificates surrendered for delivery of shares of Common Stock or Preferred Stock, as applicable, on or after the Purchase Contract Settlement Date or upon the transfer of Senior Notes, or for delivery of Senior Notes, the appropriate Applicable Ownership Interest in the Treasury Portfolio or Treasury Securities, as the case may be, after the occurrence of a Termination Event or pursuant to a Cash Settlement, an Early Settlement or a Cash Merger Early Settlement, or upon the registration of transfer or exchange of a Unit, or a Collateral Substitution or the recreation of Corporate Units shall, if surrendered to any Person other than the Purchase Contract Agent, be delivered to the Purchase Contract Agent along with appropriate written instructions regarding the cancellation thereof and, if not already cancelled, shall be promptly cancelled by it. The Company may at any time deliver to the Purchase Contract Agent for cancellation any Certificates previously

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authenticated, executed and delivered hereunder that the Company may have acquired in any manner whatsoever, and all Certificates so delivered shall, upon an Issuer Order, be promptly cancelled by the Purchase Contract Agent. No Certificates shall be authenticated, executed on behalf of the Holder and delivered in lieu of or in exchange for any Certificates cancelled as provided in this Section, except as expressly permitted by this Agreement. All cancelled Certificates held by the Purchase Contract Agent shall be disposed of in accordance with its customary practices.

If the Company or any Affiliate of the Company shall acquire any Certificate, such acquisition shall not operate as a cancellation of such Certificate unless and until such Certificate is delivered to the Purchase Contract Agent cancelled or for cancellation.

Section 3.13. Creation of Treasury Units by Substitution of Treasury Securities . Unless the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, and subject to the conditions set forth in this Agreement, a Holder may, at any time from and after the date of this Agreement and on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date, effect a Collateral Substitution and separate the Pledged Senior Notes from the related Purchase Contracts in respect of all or a portion of such Holder’s Corporate Units by substituting for such Pledged Senior Notes, Treasury Securities or portions thereof in an aggregate principal amount at maturity equal to the aggregate principal amount of such Pledged Senior Notes; provided that Holders may make Collateral Substitutions only in integral multiples of 40 Corporate Units. To effect such substitution, the Holder must:

Upon receipt of the Treasury Securities described in clause (1) above and the instruction described in clause (2) above, in accordance with the terms of the Pledge Agreement, the Collateral Agent will cause the Securities Intermediary to effect the release of such Pledged Senior Notes from the Pledge and the transfer of such Senior Notes to the Purchase Contract Agent on behalf of the Holder free and clear of the Company’s security interest therein. Upon receipt of such Senior Notes, the Purchase Contract Agent shall promptly:

(i) cancel the related Corporate Units;

(ii) transfer the Senior Notes to the Holder (such Senior Notes shall be tradable as a separate security, independent of the resulting Treasury Units); and

(iii) authenticate, execute on behalf of such Holder and deliver Treasury Units in the form of a Treasury Units Certificate executed by the Company in accordance with Section 3.03 evidencing the same number of Purchase Contracts as were evidenced by the cancelled Corporate Units.

Holders who elect to separate the Senior Notes from the related Purchase Contracts and to substitute Treasury Securities for such Senior Notes shall be responsible for any fees or expenses (including, without limitation, fees and expenses payable to the Collateral Agent for its services as Collateral Agent) in respect of the substitution, and neither the Company nor the Purchase Contract Agent shall be responsible for any such fees or expenses.

(1) deposit with the Securities Intermediary Treasury Securities having an aggregate principal amount at maturity equal to the aggregate principal amount of the Senior Notes comprising part of all such Corporate Units; and

(2) transfer the related Corporate Units to the Purchase Contract Agent accompanied by a notice to the Purchase Contract Agent, substantially in the form of Exhibit C hereto, (i) stating that the Holder has deposited the relevant amount of Treasury Securities with the Securities Intermediary for credit to the Collateral Account and (ii) instructing the Purchase Contract Agent to instruct the Collateral Agent to release the Pledged Senior Notes underlying such Corporate Units, whereupon the Purchase Contract Agent shall promptly provide an instruction to such effect to the Collateral Agent, substantially in the form of Exhibit A to the Pledge Agreement.

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If the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units and subject to the conditions set forth in this Agreement, a Holder may, at any time on or prior to the second Business Day immediately preceding the Purchase Contract Settlement Date, substitute Treasury Securities for the Applicable Ownership Interests in the Treasury Portfolio included in such Corporate Units, but only in integral multiples of 4,000 Corporate Units. In such an event, the Holder shall transfer Treasury Securities having an aggregate principal amount at maturity equal to the aggregate Stated Amount of the Purchase Contracts underlying such Corporate Units to the Securities Intermediary, and the Purchase Contract Agent shall instruct the Collateral Agent to release the Pledge of and transfer to the Holder the appropriate Applicable Ownership Interests in the Treasury Portfolio in the manner set forth above.

In the event a Holder making a Collateral Substitution pursuant to this Section 3.13 fails to deliver Corporate Units Certificates to the Purchase Contract Agent after depositing Treasury Securities with the Securities Intermediary, any distributions on the Senior Notes or Applicable Ownership Interest in the Treasury Portfolio constituting a part of such Corporate Units shall be held in the name of the Purchase Contract Agent or its nominee in trust for the benefit of such Holder, until such Corporate Units are so transferred or the Corporate Units Certificate is so delivered, as the case may be, or, such Holder provides evidence satisfactory to the Company and the Purchase Contract Agent that such Corporate Units Certificate has been destroyed, lost or stolen, together with any indemnity that may be required by the Purchase Contract Agent and the Company.

Except as described in Section 5.02 or in this Section 3.13 or in connection with a Cash Settlement, an Early Settlement, a Cash Merger Early Settlement or a Termination Event, for so long as the Purchase Contract underlying a Corporate Unit remains in effect, such Corporate Units shall not be separable into its constituent parts, and the rights and obligations of the Holder in respect of the Senior Notes or Applicable Ownership Interests in the Treasury Portfolio, as the case may be, and the Purchase Contract comprising such Corporate Units may be acquired, and may be transferred and exchanged, only as a Corporate Unit.

Section 3.14. Recreation of Corporate Units . Unless the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, and subject to the conditions set forth in this Agreement, a Holder of Treasury Units may recreate Corporate Units at any time on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date; provided that Holders of Treasury Units may only recreate Corporate Units in integral multiples of 40 Treasury Units. To recreate Corporate Units, the Holder must:

(1) transfer to the Securities Intermediary Senior Notes having an aggregate principal amount equal to the aggregate principal amount at stated maturity of the Pledged Treasury Securities comprising part of the Treasury Units; and

(2) transfer the related Treasury Units to the Purchase Contract Agent accompanied by a notice to the Purchase Contract Agent, substantially in the form of Exhibit C hereto, (i) stating that the Holder has transferred the relevant amount of Senior Notes to the Securities Intermediary for deposit in the Collateral Account and (ii) instructing the Purchase Contract Agent to instruct the Collateral Agent to release the Pledged Treasury Securities underlying such Treasury Units, whereupon the Purchase Contract Agent shall promptly provide an instruction to such effect to the Collateral Agent, substantially in the form of Exhibit C to the Pledge Agreement.

Upon receipt of the Senior Notes described in clause (1) above and the instruction described in clause (2) above, in accordance with the terms of the Pledge Agreement, the Collateral Agent will cause the Securities Intermediary to effect the release of the Pledged Treasury Securities having a corresponding aggregate principal amount at maturity from the Pledge and the transfer thereof to the Purchase Contract Agent on behalf of the Holder free and clear of the Company’s security interest therein. Upon receipt of such Treasury Securities, the Purchase Contract Agent shall promptly:

(i) cancel the related Treasury Units;

(ii) transfer the Treasury Securities to the Holder; and

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(iii) authenticate, execute on behalf of such Holder and deliver Corporate Units in the form of a Corporate Units Certificate executed by the Company in accordance with Section 3.03 evidencing the same number of Purchase Contracts as were evidenced by the cancelled Treasury Units.

Holders who elect to recreate Corporate Units shall be responsible for any fees or expenses (including, without limitation, fees and expenses payable to the Collateral Agent for its services as Collateral Agent) in respect of the recreation, and neither the Company nor the Purchase Contract Agent shall be responsible for any such fees or expenses.

If the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, a Holder of Treasury Units may at any time on or prior to the second Business Day immediately preceding the Purchase Contract Settlement Date substitute the Applicable Ownership Interests in the Treasury Portfolio for Treasury Securities, but only in multiples of 4,000 Treasury Units.

In such an event, the Holder shall transfer the appropriate Applicable Ownership Interests in the Treasury Portfolio to the Collateral Agent, and the Purchase Contract Agent shall instruct the Collateral Agent to release the Pledge of and transfer to the Holder Treasury Securities in the manner set forth above.

Except as provided in Section 5.02 or in this Section 3.14 or in connection with a Cash Settlement, an Early Settlement, a Cash Merger Early Settlement or a Termination Event, for so long as the Purchase Contract underlying a Treasury Unit remains in effect, such Treasury Unit shall not be separable into its constituent parts and the rights and obligations of the Holder of such Treasury Unit in respect of the 1/40 of a Treasury Security and the Purchase Contract comprising such Treasury Unit may be acquired, and may be transferred and exchanged, only as a Treasury Unit.

Section 3.15. Transfer of Collateral upon Occurrence of Termination Event . Upon the occurrence of a Termination Event and the transfer to the Purchase Contract Agent of the Senior Notes, the appropriate Applicable Ownership Interests in the Treasury Portfolio or the Treasury Securities, as the case may be, underlying the Corporate Units and the Treasury Units, as the case may be, pursuant to the terms of the Pledge Agreement, the Purchase Contract Agent shall request transfer instructions with respect to such Senior Notes, the appropriate Applicable Ownership Interests in the Treasury Portfolio or Treasury Securities, as the case may be, from each Holder by written request, substantially in the form of Exhibit D hereto, mailed to such Holder at its address as it appears in the Security Register.

Upon delivery of a Corporate Units Certificate or Treasury Units Certificate to the Purchase Contract Agent with such transfer instructions, the Purchase Contract Agent shall transfer the Senior Notes, the appropriate Applicable Ownership Interests in the Treasury Portfolio or Treasury Securities, as the case may be, underlying such Corporate Units or Treasury Units, as the case may be, to such Holder by appropriate procedures, in accordance with such instructions. In the event a Holder of Corporate Units or Treasury Units fails to effect such transfer or delivery, the Senior Notes, the appropriate Applicable Ownership Interests in the Treasury Portfolio or Treasury Securities, as the case may be, underlying such Corporate Units or Treasury Units, as the case may be, and any distributions thereon, shall be held in the name of the Purchase Contract Agent or its nominee in trust for the benefit of such Holder, until the earlier to occur of:

(i) the transfer of such Corporate Units or Treasury Units or surrender of the Corporate Units Certificate or Treasury Units Certificate or the receipt by the Company and the Purchase Contract Agent from such Holder of satisfactory evidence that such Corporate Units Certificate or Treasury Units Certificate has been destroyed, lost or stolen, together with any indemnity that may be required by the Purchase Contract Agent and the Company; and

(ii) the expiration of the time period specified in the abandoned property laws of the relevant State in which the Purchase Contract Agent holds such property.

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Section 3.16. No Consent to Assumption . Each Holder of a Unit, by acceptance thereof, shall be deemed expressly to have withheld any consent to the assumption under Section 365 of the Bankruptcy Code or otherwise, of the Purchase Contract by the Company or its trustee, receiver, liquidator or a person or entity performing similar functions in the event that the Company becomes the debtor under the Bankruptcy Code or subject to other similar state or Federal law providing for reorganization or liquidation.

ARTICLE 4

THE SENIOR NOTES AND APPLICABLE OWNERSHIP INTERESTS IN THE TREASURY PORTFOLIO

Section 4.01. Interest Payments; Rights to Interest Payments Preserved . Any payment on any Senior Note or on the appropriate Applicable Ownership Interests (as specified in clause (ii) of the definition of such term) in the Treasury Portfolio, as the case may be, which is paid on any Payment Date shall, subject to receipt thereof by the Purchase Contract Agent from the Company (in the case of a Senior Note that is held in the name of the Purchase Contract Agent) or from the Collateral Agent as provided by the terms of the Pledge Agreement (in the case of Applicable Ownership Interests or a Senior Note that is held in the name of the Collateral Agent), be paid by the Purchase Contract Agent to the Person in whose name the Corporate Units Certificate (or one or more Predecessor Corporate Units Certificates) of which such Senior Note or the appropriate Applicable Ownership Interests in the Treasury Portfolio, as the case may be, forms a part is registered at the close of business on the Record Date for such Payment Date.

Each Corporate Units Certificate evidencing Senior Notes or the appropriate Applicable Ownership Interests in the Treasury Portfolio delivered under this Agreement upon registration of transfer of or in exchange for or in lieu of any other Corporate Units Certificate shall carry the right to accrued and unpaid interest or distributions, and to accrue interest or distributions, which were carried by the Senior Notes or the appropriate Applicable Ownership Interests in the Treasury Portfolio underlying such other Corporate Units Certificate.

In the case of any Corporate Unit with respect to which (A) Cash Settlement of the underlying Purchase Contract is properly effected pursuant to Section 5.02(b) or 5.02(c) hereof, (B) Early Settlement of the underlying Purchase Contract is properly effected pursuant to Section 5.07 hereof, (C) Cash Merger Early Settlement of the underlying Purchase Contract is properly effected pursuant to Section 5.04(b)(ii) hereof or (D) a Collateral Substitution is properly effected pursuant to Section 3.13 , in each case on a date that is after any Record Date and prior to or on the next succeeding Payment Date, interest on the Senior Notes or distributions on the appropriate Applicable Ownership Interests in the Treasury Portfolio, as the case may be, underlying such Corporate Unit otherwise payable on such Payment Date shall be payable on such Payment Date notwithstanding such Cash Settlement, Early Settlement, Cash Merger Early Settlement or Collateral Substitution, and such payment or distributions shall, subject to receipt thereof by the Purchase Contract Agent, be payable to the Person in whose name the Corporate Units Certificate (or one or more Predecessor Corporate Units Certificates) was registered at the close of business on the Record Date.

Except as otherwise expressly provided in the immediately preceding paragraph, in the case of any Corporate Units with respect to which Cash Settlement, Early Settlement or Cash Merger Early Settlement of the underlying Purchase Contract is properly effected, or with respect to which a Collateral Substitution has been effected, payments on the related Senior Notes or distributions on the appropriate Applicable Ownership Interests in the Treasury Portfolio, as the case may be, that would otherwise be payable or made after the Purchase Contract Settlement Date, Early Settlement Date, Cash Merger Early Settlement Date or the date of the Collateral Substitution, as the case may be, shall not be payable hereunder to the Holder of such Corporate Units; provided , however , that to the extent that such Holder continues to hold Separate Senior Notes or Applicable Ownership Interest in the Treasury Portfolio that formerly comprised a part of such Holder’s Corporate Units, such Holder shall be entitled to receive interest on such Separate Senior Notes or distributions on the Applicable Ownership Interests in the Treasury Portfolio.

Section 4.02. Notice and Voting . Under the terms of the Pledge Agreement, the Purchase Contract Agent will be entitled to exercise the voting and any other consensual rights pertaining to the Pledged Senior Notes,

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but only to the extent instructed in writing by the Holders as described below. Upon receipt of notice of any meeting at which holders of Senior Notes are entitled to vote or upon any solicitation of consents, waivers or proxies of holders of Senior Notes, the Purchase Contract Agent shall, as soon as practicable thereafter, mail, first class, postage pre-paid, to the Holders of Corporate Units a notice:

(i) containing such information as is contained in the notice or solicitation;

(ii) stating that each Holder on the record date set by the Purchase Contract Agent therefor (which, to the extent possible, shall be the same date as the record date for determining the holders of Senior Notes, as the case may be, entitled to vote) shall be entitled to instruct the Purchase Contract Agent as to the exercise of the voting rights pertaining to such Senior Notes underlying their Corporate Units; and

(iii) stating the manner in which such instructions may be given. Upon the written request of the Holders of Corporate Units on such record date received by the Purchase Contract Agent at least six days prior to such meeting, the Purchase Contract Agent shall endeavor insofar as practicable to vote or cause to be voted, in accordance with the instructions set forth in such requests, the maximum number of Senior Notes, as the case may be, as to which any particular voting instructions are received. In the absence of specific instructions from the Holder of a Corporate Unit, the Purchase Contract Agent shall abstain from voting the Senior Notes underlying such Corporate Unit. The Company hereby agrees, if applicable, to solicit Holders of Corporate Units to timely instruct the Purchase Contract Agent in order to enable the Purchase Contract Agent to vote such Senior Notes.

The Holders of Corporate Units and Treasury Units shall have no voting or other rights in respect of Common Stock or Preferred Stock, as applicable.

Section 4.03. Special Event Redemption . (a) If the Company elects to redeem the Senior Notes on any Payment Date following the occurrence of a Special Event as permitted by the Indenture, it shall notify the Collateral Agent in writing that a Special Event has occurred and that it intends to redeem the Senior Notes on the Special Event Redemption Date. On the Special Event Redemption Date, the Collateral Agent shall surrender the Pledged Senior Notes to the Indenture Trustee against delivery of an amount equal to the aggregate Redemption Price for such Pledged Senior Notes. Thereafter, pursuant to the terms of the Pledge Agreement, the Collateral Agent shall cause the Securities Intermediary to apply an amount equal to the aggregate Redemption Amount of such funds to purchase on behalf of the Holders of Corporate Units the Treasury Portfolio and promptly remit the remaining portion of such funds to the Purchase Contract Agent for payment to the Holders of such Corporate Units.

(b) Upon the occurrence of a Special Event Redemption, (i) the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio will be substituted as Collateral for the Pledged Senior Notes and will be held by the Collateral Agent in accordance with the terms of the Pledge Agreement to secure the obligation of each Holder of a Corporate Unit to purchase Common Stock or Preferred Stock, as applicable, of the Company under the Purchase Contract constituting a part of such Corporate Unit, (ii) the Applicable Ownership Interests (as specified in clause (ii) of the definition of such term) in the Treasury Portfolio will be transferred to the Purchase Contract Agent for the benefit of the Holders of such Corporate Units, (iii) the Holders of Corporate Units and the Collateral Agent shall have such security interest rights and obligations with respect to such Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio as the Holders of Corporate Units and the Collateral Agent had in respect of the Senior Notes, as the case may be, subject to the Pledge thereof as provided in the Pledge Agreement, (iv) any reference herein or in the Certificates to the Senior Notes shall be deemed to be a reference to such Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio and (v) any reference herein or in the Certificates to interest on the Senior Notes shall be deemed to be a reference to corresponding distributions on such Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio. The Company may cause to be made in any Corporate Units Certificates thereafter to be issued such change in phraseology and form (but not in substance) as may be appropriate to reflect

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the substitution of the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio for Senior Notes as Collateral.

(c) The Holders of Separate Senior Notes shall directly receive the Redemption Price for the Separate Senior Notes in accordance with the terms of the Indenture.

ARTICLE 5

THE PURCHASE CONTRACTS

Section 5.01. Purchase of Shares of Common Stock . (a) Each Purchase Contract shall obligate the Holder of the related Units to purchase, and the Company to sell, on the Purchase Contract Settlement Date at a price equal to $25 (the “ Purchase Price ”), a number of newly issued shares of Common Stock (subject to Sections 5.08 and 5.09 ) equal to the Settlement Rate (as defined below) unless an Early Settlement, a Cash Merger Early Settlement or a Termination Event with respect to the Unit of which such Purchase Contract is a part shall have occurred. The “ Settlement Rate ” is equal to:

(i) if the Adjusted Applicable Market Value (as defined below) is greater than or equal to $25.116 (the “ Threshold Appreciation Price ”), 0.9954 shares of Common Stock per Purchase Contract (such number of shares, as adjusted from time to time pursuant to Section 5.04 , the “ Minimum Share Number ”);

(ii) if the Adjusted Applicable Market Value is less than the Threshold Appreciation Price but greater than $20.93 (the “ Reference Price ”), the number of shares of Common Stock per Purchase Contract having a value equal to the Stated Amount divided by the Applicable Market Value; and

(iii) if the Adjusted Applicable Market Value is less than or equal to the Reference Price, 1.1945 shares of Common Stock per Purchase Contract (such number of shares, as adjusted from time to time pursuant to Section 5.04 , the “ Maximum Share Number ”);

in each case rounded upward or downward to the nearest 1/10,000th of a share.

The “Adjusted Applicable Market Value” means (i) prior to any adjustment pursuant to paragraph (i), (ii), (iii), (iv), (v), (vi), (vii) or (x) of Section 5.04(a) , the Applicable Market Value, and (ii) at the time of and after any adjustment of the Fixed Settlement Rate pursuant to paragraph (i), (ii), (iii), (iv), (v), (vi), (vii) or (x) of Section 5.04(a) , the Applicable Market Value multiplied by a fraction of which the numerator shall be the Fixed Settlement Rate immediately after such adjustment pursuant to paragraph (i), (ii), (iii), (iv), (v), (vi), (vii) or (x) of Section 5.04(a) and the denominator shall be the Fixed Settlement Rate immediately prior to such adjustment; provided , however , that if such adjustment to the Fixed Settlement Rate is required to be made pursuant to the occurrence of any of the events contemplated by paragraph (i), (ii), (iii), (iv), (v), (vi), (vii) or (x) of Section 5.04(a) during the period taken into consideration for determining the Applicable Market Value, appropriate and customary adjustments shall be made to the Fixed Settlement Rate.

The “Applicable Market Value” means the average of the Closing Price per share of Common Stock on each of the 20 consecutive Trading Days ending on the third Trading Day immediately preceding the Purchase Contract Settlement Date.

The “Closing Price” per share of Common Stock on any date of determination means:

(i) the closing sale price as of the close of the principal trading session (or, if no closing price is reported, the last reported sale price) per share on the New York Stock Exchange, Inc. (the “NYSE” ) on such date;

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(ii) if the Common Stock is not listed for trading on the NYSE on any such date, the closing sale price (or, if no closing price is reported, the last reported sale price) per

share as reported in the composite transactions for the principal United States national or regional securities exchange on which the Common Stock is so listed;

(iii) if the Common Stock is not so listed on a United States national or regional securities exchange, the last quoted bid price for the Common Stock in the over-the-counter market as reported by the National Quotation Bureau or similar organization; or

(iv) if the bid price referred to in clause (iii) is not available, the market value of Common Stock on such date as determined by a nationally recognized independent investment banking firm retained by the Company for purposes of determining the Closing Price.

A “Trading Day” means a day on which the Common Stock (1) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (2) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock.

(b) Each Holder of a Corporate Unit or a Treasury Unit, by its acceptance of such Unit:

(i) irrevocably authorizes the Purchase Contract Agent to enter into and perform the related Purchase Contract on its behalf as its attorney-in-fact (including, without limitation, the execution of Certificates on behalf of such Holder);

(ii) agrees to be bound by the terms and provisions thereof;

(iii) covenants and agrees to perform its obligations under such Purchase Contract for so long as such Holder remains a Holder of a Corporate Unit or a Treasury Unit;

(iv) consents to the provisions hereof;

(v) irrevocably authorizes the Purchase Contract Agent to enter into and perform this Agreement and the Pledge Agreement on its behalf and in its name as its attorney-in-fact;

(vi) consents to, and agrees to be bound by, the Pledge of such Holder’s right, title and interest in and to the Collateral Account, including the Senior Notes and the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio or the Treasury Securities pursuant to the Pledge Agreement; and

(vii) for United States federal, state and local income and franchise tax purposes, agrees to (A) treat an acquisition of the Corporate Units as an acquisition of the Senior Notes and Purchase Contracts constituting the Corporate Units and (B) treat itself as the owner of the applicable interest in the Collateral Account, including the Senior Notes and the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term) or the Treasury Securities,

provided that upon a Termination Event, the rights of the Holder of such Units under the Purchase Contract may be enforced without regard to any other rights or obligations.

(c) Each Holder of a Corporate Unit or a Treasury Unit, by its acceptance thereof, further covenants and agrees that to the extent and in the manner provided in Section 5.02 hereof and the provisions of the Pledge Agreement, but subject to the terms thereof, Proceeds of the Senior Notes, the Treasury Securities or the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as applicable, on the Purchase Contract Settlement Date, shall be paid by the Collateral Agent to the Company in

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satisfaction of such Holder’s obligations under such Purchase Contract and such Holder shall acquire no right, title or interest in such Proceeds.

(d) Upon registration of transfer of a Certificate, the transferee shall be bound (without the necessity of any other action on the part of such transferee) by the terms of this Agreement, the Purchase Contracts underlying such Certificate and the Pledge Agreement and the transferor shall be released from the obligations under this Agreement, the Purchase Contracts underlying the Certificate so transferred and the Pledge Agreement. The Company covenants and agrees, and each Holder of a Certificate, by its acceptance thereof, likewise covenants and agrees, to be bound by the provisions of this paragraph.

Section 5.02. Remarketing; Payment of Purchase Price . (a) Unless a Special Event Redemption, an Early Settlement or a Cash Merger Early Settlement has occurred prior to the Initial Remarketing Date, the Company shall engage the Remarketing Agent pursuant to the Remarketing Agreement for Remarketing the Senior Notes. By 12:00 noon (New York City time) on the Business Day immediately preceding the Initial Remarketing Date, the Collateral Agent shall notify the Remarketing Agent of the aggregate principal amount of Pledged Senior Notes, and the Custodial Agent shall notify the Remarketing Agent of the aggregate principal amount of Separate Senior Notes (if any) that are to be remarketed pursuant to clause (i) below. Upon receipt of such notice from the Collateral Agent and Custodial Agent, the Remarketing Agent will, on the Initial Remarketing Date, use its commercially reasonable efforts to remarket (based on the Reset Rate) such Pledged Senior Notes and Separate Senior Notes on such date at a price (the “ Remarketing Price ”) equal to 100% of the aggregate principal amount of such Pledged Senior Notes and Separate Senior Notes being remarketed, as provided in the Remarketing Agreement, for settlement on the Purchase Contract Settlement Date.

(i) Prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date, but no earlier than the Payment Date immediately preceding such date, Holders of Separate Senior Notes may elect to have their Separate Senior Notes remarketed in all Remarketings under the Remarketing Agreement by delivering their Separate Senior Notes, along with a notice of such election, substantially in the form of Exhibit F to the Pledge Agreement, to the Custodial Agent. The Custodial Agent shall hold the Separate Senior Notes in an account separate from the Collateral Account in which the Pledged Senior Notes (as defined in the Pledge Agreement) shall be held. Holders of Separate Senior Notes electing to have their Separate Senior Notes remarketed will also have the right to withdraw that election by written notice to the Custodial Agent, substantially in the form of Exhibit G to the Pledge Agreement, on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date (after which time, such election shall become an irrevocable election to have such Separate Senior Notes remarketed in all Remarketings), upon which notice the Custodial Agent shall return such Separate Senior Notes to such Holder. By 12:00 noon (New York City time) on the sixth Business Day immediately preceding the Purchase Contract Settlement Date, the Custodial Agent shall notify the Remarketing Agent of the aggregate principal amount of the Separate Senior Notes to be remarketed.

(ii) Not later than seven calendar days nor more than 15 calendar days prior to the Initial Remarketing Date, the Company shall notify Holders holding Units and Separate Senior Notes of the procedures to be followed in the Remarketings, including in the case of a Failed Final Remarketing the procedures to be followed to exercise Put Rights.

(iii) The Company agrees to use its reasonable best efforts to ensure that, if required by applicable law, a registration statement with regard to the full amount of the Senior Notes to be remarketed in each Remarketing shall be effective with the Securities and Exchange Commission in a form that will enable the Remarketing Agent to rely on it in connection with each such Remarketing.

(iv) The Company shall cause a notice of a Failed Final Remarketing to be posted (with a copy of such notice to be provided to the Purchase Contract Agent) on the Business Day immediately following such Failed Final Remarketing on the Company’s website.

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If, in spite of using its commercially reasonable efforts, the Remarketing Agent cannot remarket such Pledged Senior Notes and such Separate Senior Notes at the Remarketing Price (other than to the Company) for any reason, or the Remarketing has not occurred because a condition precedent to the Remarketing has not been fulfilled (in each case, a “ Failed Remarketing ”) on the Initial Remarketing Date, the Remarketing Agent shall, on the Second Remarketing Date, use its commercially reasonable efforts to remarket such Pledged Senior Notes and such Separate Senior Notes at the Remarketing Price for settlement on the Purchase Contract Settlement Date. If, in spite of the Remarketing Agent’s commercially reasonable efforts, a Failed Remarketing shall have occurred on the Second Remarketing Date, the Remarketing Agent shall, on the Final Remarketing Date, use its commercially reasonable efforts to remarket such Pledged Senior Notes and such Separate Senior Notes at the Remarketing Price for settlement on the Purchase Contract Settlement Date.

If the Remarketing Agent is able to remarket such Pledged Senior Notes and such Separate Senior Notes (if any) at the Remarketing Price in any Remarketing (to parties other than the Company) in accordance with the Remarketing Agreement (a “ Successful Remarketing ”), the Collateral Agent shall, in accordance with the Pledge Agreement, cause the Securities Intermediary to transfer the Pledged Senior Notes upon confirmation of deposit by the Remarketing Agent of the proceeds of such Successful Remarketing in the Collateral Account. The proceeds from the Remarketing remitted to the Collateral Agent shall be applied to satisfy in full the obligations of such Holders of Corporate Units to pay the Purchase Price for the shares of Common Stock under the related Purchase Contracts on the Purchase Contract Settlement Date. Any proceeds in excess of those required to pay the Purchase Price will be remitted to the Purchase Contract Agent for payment to the Holders of the related Corporate Units. With respect to Separate Senior Notes, upon a Successful Remarketing, any proceeds of the Remarketing attributable to the Separate Senior Notes will be remitted to the Custodial Agent for payment to the holders of Separate Senior Notes and the Custodial Agent will cause the separate Senior Notes to be transferred to the Remarketing Agent.

On the Purchase Contract Settlement Date, the Company shall pay the Remarketing Fee to the Remarketing Agent in accordance with the Remarketing Agreement.

In the event of a Successful Remarketing, the Maturity Date may be extended to a date selected by the Company to a date that is two or three years from the date on which the Reset Rate is set. Such extended maturity date (the “Extended Maturity Date” ), if any, will be specified in the remarketing announcement and will become effective on the date on which the Reset Rate is set.

If, in spite of the Remarketing Agent using its commercially reasonable efforts, the Remarketing on the Final Remarketing Date is a Failed Remarketing (a “ Failed Final Remarketing ” ), as of the Purchase Contract Settlement Date, each Holder of any Pledged Senior Notes, unless such Holder has elected Cash Settlement and delivered cash in accordance with Section 5.02(c), shall be deemed to have exercised such Holder’s Put Right with respect to such Senior Notes and to have elected to have a portion of the Proceeds of the Put Right set-off against such Holder’s obligation to pay the aggregate Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, to be issued under the related Purchase Contracts in full satisfaction of such Holders’ obligations under such Purchase Contracts. Following such set-off, each such Holder’s obligations to pay the Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, will be deemed to be satisfied in full, and the Collateral Agent shall cause the Securities Intermediary to release the Pledged Senior Notes from the Collateral Account and shall promptly transfer the Pledged Senior Notes to the Company. Thereafter, the Collateral Agent shall promptly remit the remaining portion of the Proceeds of the Holder’s exercise of the Put Right in excess of the aggregate Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, to be issued under such Purchase Contracts to the Purchase Contract Agent for payment to the Holder of the Corporate Units to which such Senior Notes relate.

As soon as practicable after 5:00 p.m. (New York city time) on the Business Day preceding the Purchase Contract Settlement Date, the Collateral Agent, based on cash payment received by the Collateral Agent pursuant to Section 5.02(c)(ii) hereof, shall promptly notify the Purchase Contract Agent and the Indenture Trustee of the aggregate principal amount of Senior Notes pursuant to which a Put Right has been automatically exercised pursuant to this Section 5.02(a) .

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(b) (i) Unless a Special Event Redemption, an Early Settlement or a Cash Merger Early Settlement has occurred prior to the seventh Business Day immediately preceding the Purchase Contract Settlement Date, each Holder of Corporate Units shall have the right to satisfy such Holder’s obligations under the Purchase Contract on the Purchase Contract Settlement Date in cash by notifying the Purchase Contract Agent by use of a notice in substantially the form of Exhibit E hereto of its intention to pay in cash (“ Cash Settlement ”) on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date. Promptly following 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date, the Purchase Contract Agent shall notify the Collateral Agent and the Indenture Trustee by written notice substantially in the form of Exhibit F to this Agreement of the receipt of such notices from Holders intending to make a Cash Settlement.

(ii) A Holder of a Corporate Unit who has so notified the Purchase Contract Agent of its intention to effect a Cash Settlement shall pay the Purchase Price to the Collateral Agent for deposit in the Collateral Account on or prior to 11:00 a.m. (New York City time) on the sixth Business Day immediately preceding the Purchase Contract Settlement Date, in lawful money of the United States by certified or cashiers’ check or wire transfer of immediately available funds payable to or upon the order of the Securities Intermediary. Any cash so received shall be invested promptly by the Securities Intermediary in Permitted Investments and paid to the Company on the Purchase Contract Settlement Date in settlement of the Purchase Contracts in accordance with the terms of this Agreement and the Pledge Agreement. Any funds received by the Securities Intermediary in respect of the investment earnings from such Permitted Investments in excess of the Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, to be purchased by such Holder shall be distributed to the Purchase Contract Agent when received for payment to the Holder.

(iii) If a Holder of a Corporate Unit does not notify the Purchase Contract Agent of its intention to make a Cash Settlement in accordance with Section 5.02(b)(i) above, or does notify the Purchase Contract Agent in accordance with Section 5.02(b)(i) above but fails to make such payment as required by Section 5.02(b)(ii) above, such Holder shall be deemed to have consented to the disposition of the Pledged Senior Notes pursuant to any Remarketing as described in paragraph Section 5.02(a) above.

(iv) By 12:00 noon (New York City time) on the sixth Business Day preceding the Purchase Contract Settlement Date, the Collateral Agent, based on cash payments received by the Collateral Agent pursuant to Section 5.02(b)(ii) hereof, shall promptly notify the Purchase Contract Agent and the Indenture Trustee of the aggregate principal amount of Senior Notes to be tendered for remarketing in the Remarketings in a notice pursuant to the terms of the Pledge Agreement.

(c) (i) Each Holder of a Corporate Unit who intends to effect a Cash Settlement of the underlying Purchase Contract following a Failed Final Remarketing shall so notify the Purchase Contract Agent by use of a notice in substantially the form of Exhibit G hereto prior to 5:00 p.m. (New York City time) on the second Business Day immediately preceding the Purchase Contract Settlement Date. Promptly following 5:00 p.m. (New York City time) on the second Business Day immediately preceding the Purchase Contract Settlement Date, the Purchase Contract Agent shall notify the Collateral Agent and the Indenture Trustee of the receipt of such notices from Holders intending to make a Cash Settlement.

(ii) A Holder of a Corporate Unit who has so notified the Purchase Contract Agent of its intention to effect a Cash Settlement shall pay the Purchase Price to the Collateral Agent for deposit in the Collateral Account prior to 5:00 p.m. (New York City time) on the Business Day immediately preceding the Purchase Contract Settlement Date, in lawful money of the United States by certified or cashiers' check or wire transfer, in each case in immediately available funds payable to or upon the order of the Securities Intermediary. Any cash so received shall be invested promptly by the Securities Intermediary in Permitted Investments and paid to the Company on the Purchase Contract Settlement Date in settlement of the Purchase Contracts in accordance with the terms of this Agreement and the Pledge Agreement. Any funds received by the Securities Intermediary in respect of the investment earnings from such Permitted Investments in excess of the Purchase Price for the shares of Common Stock to be

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purchased by such Holder shall be distributed to the Purchase Contract Agent when received for payment to the Holder.

(iii) If a Holder of a Corporate Unit does not notify the Purchase Contract Agent of its intention to make a Cash Settlement in accordance with Section 5.02(b)(i) or 5.02(c)(i) above, or does notify the Purchase Contract Agent in accordance with Section 5.02(b)(i) or 5.02(c)(i) above but fails to make such payment as required by Section 5.02(b)(ii) or 5.02(c)(ii) above, respectively, such Holder shall be deemed to have automatically exercised such Holder's Put Right following a Failed Final Remarketing as described in Section 5.02(a) above.

(d) [Intentionally omitted].

(e) [Intentionally omitted.]

(f) [Intentionally omitted.]

(g) Any distribution to Holders of any payments described above shall be payable at the office of the Purchase Contract Agent in New York City maintained for that purpose or, at the option of the Holder, by check mailed to the address of the Person entitled thereto at such address as it appears on the Security Register.

(h) Upon Cash Settlement of any Purchase Contract:

(i) the Collateral Agent will in accordance with the terms of the Pledge Agreement cause the Pledged Senior Notes or, the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, underlying the relevant Units to be released from the Pledge, free and clear of any security interest of the Company, and transferred to the Purchase Contract Agent for delivery to the Holder thereof or its designee as soon as reasonably practicable; and

(ii) subject to the receipt thereof, the Purchase Contract Agent shall, by appropriate procedures, in accordance with written instructions provided by the Holder thereof, transfer such Senior Notes, or the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be (or, if no such instructions are given to the Purchase Contract Agent by the Holder, the Purchase Contract Agent shall hold such Senior Notes, or the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, and any interest payment thereon, in the name of the Purchase Contract Agent or its nominee in trust for the benefit of such Holder until the expiration of the time period specified in the abandoned property laws of the relevant state where such property is held).

(i) The obligations of the Holders to pay the Purchase Price are non-recourse obligations and, except to the extent satisfied by Early Settlement, Cash Merger Early Settlement or Cash Settlement, are payable solely out of the proceeds of any Collateral pledged to secure the obligations of the Holders, and in no event will Holders be liable for any deficiency between the Proceeds of the disposition of Collateral and the Purchase Price.

(j) The Company shall not be obligated to issue any shares of Common Stock or Preferred Stock, as applicable, in respect of a Purchase Contract or deliver any certificates thereof to the Holder of the related Units unless the Company shall have received payment for the Common Stock or Preferred Stock, as applicable, to be purchased thereunder in the manner herein set forth.

Section 5.03. Issuance of Shares of Common Stock . (a) Unless a Termination Event, an Early Settlement or a Cash Merger Early Settlement shall have occurred, subject to Sections 5.04(b)(ii) and 5.08 , on the Purchase Contract Settlement Date upon receipt of the aggregate Purchase Price payable on all Outstanding Units,

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the Company shall issue and deposit with the Purchase Contract Agent, for the benefit of the Holders of the Outstanding Units, one or more certificates representing newly issued shares of Common Stock registered in the name of the Purchase Contract Agent (or its nominee) as custodian for the Holders (such certificates for shares of Common Stock, together with any dividends or distributions for which a record date and payment date for such dividend or distribution has occurred after the Purchase Contract Settlement Date, being hereinafter referred to as the “Purchase Contract Settlement Fund” ) to which the Holders are entitled hereunder.

Subject to the foregoing, upon surrender of a Certificate to the Purchase Contract Agent on or after the Purchase Contract Settlement Date, Early Settlement Date or Cash Merger Early Settlement Date, as the case may be, together with settlement instructions thereon duly completed and executed, the Holder of such Certificate shall be entitled to receive forthwith in exchange therefor a certificate representing that number of newly issued whole shares of Common Stock which such Holder is entitled to receive pursuant to the provisions of this Article 5 (after taking into account all Units then held by such Holder), together with cash in lieu of fractional shares as provided in Section 5.09 and any dividends or distributions with respect to such shares constituting part of the Purchase Contract Settlement Fund, but without any interest thereon, and the Certificate so surrendered shall forthwith be cancelled. Such shares shall be registered in the name of the Holder or the Holder’s designee as specified in the settlement instructions provided by the Holder to the Purchase Contract Agent. If any shares of Common Stock issued in respect of a Purchase Contract are to be registered to a Person other than the Person in whose name the Certificate evidencing such Purchase Contract is registered, no such registration shall be made unless the Person requesting such registration has paid any transfer and other taxes required by reason of such registration in a name other than that of the registered Holder of the Certificate evidencing such Purchase Contract or has established to the satisfaction of the Company that such tax either has been paid or is not payable.

(b) In the event that a Holder should have made an election pursuant to Section 5.08 , this Section 5.03 shall as to such Holder apply to shares of Preferred Stock in lieu of shares of Common Stock.

Section 5.04. Adjustment of each Fixed Settlement Rate . (a) Adjustments for Dividends, Distributions, Stock Splits, Etc.

(i) In case the Company shall pay or make a dividend or other distribution on Common Stock in Common Stock, each Fixed Settlement Rate in effect at the close of business on the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be increased by dividing each Fixed Settlement Rate by a fraction of which:

(A) the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination; and

(B) the denominator shall be the sum of the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the total number of shares constituting such dividend or other distribution,

such increase in each Fixed Settlement Rate to become effective immediately at the opening of business on the Business Day following the date fixed for such determination. For the purposes of this paragraph (i), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include any shares issuable in respect of any scrip certificates issued in lieu of fractions of shares of Common Stock. The Company agrees that it shall not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company.

(ii) In case the Company shall issue rights, warrants or options, other than pursuant to any dividend reinvestment plans or share purchase plans (that are not available on an equivalent basis to holders of Units upon settlement of the Purchase Contracts), to all holders of its Common Stock entitling them, for a period expiring within 45 days after the record date for the determination of shareholders entitled to receive such rights, warrants or options, to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price per share of Common Stock on the date of

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announcement of such issuance, each Fixed Settlement Rate in effect at the close of business on the date of such announcement shall be increased by dividing such Fixed Settlement Rate by a fraction of which:

(A) the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date of such announcement plus the number of shares of Common Stock that the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase in the manner described in this Section 5.04(a)(ii) would purchase at the Current Market Price on the date of such announcement; and

(B) the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date of such announcement plus the number of shares of Common Stock so offered for subscription or purchase,

such increase in each Fixed Settlement Rate to become effective immediately after the opening of business on the Business Day following the date of such announcement. The Company agrees that it shall notify the Purchase Contract Agent if any issuance of such rights, warrants or options is cancelled or not completed following the announcement thereof and each Fixed Settlement Rate shall thereupon immediately be readjusted to the Fixed Settlement Rate that would then be in effect if such issuance had not been declared. For the purposes of this clause (ii), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include any shares issuable in respect of any scrip certificates issued in lieu of fractions of shares of Common Stock. The Company agrees that it shall not issue any such rights, warrants or options in respect of shares of Common Stock held in the treasury of the Company.

(iii) In case outstanding shares of Common Stock shall be subdivided or split into a greater number of shares of Common Stock, each Fixed Settlement Rate in effect at the close of business on the day preceding the day upon which such subdivision or split becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, each Fixed Settlement Rate in effect at the close of business on the day preceding the day upon which such combination becomes effective shall be proportionately decreased, such increase or decrease, as the case may be, to become effective immediately at the opening of business on the Business Day following the day upon which such subdivision, split or combination becomes effective.

(iv) (w) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness or assets (including shares of capital stock, securities, cash and property but excluding any rights, warrants or options referred to in Section 5.04(a)(ii) above, or any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in Section 5.04(a)(i) above) (any of the foregoing hereinafter in this Section 5.04(a)(iv) called the “ Distributed Property ”), each Fixed Settlement Rate in effect at the close of business on the date fixed for the determination of shareholders entitled to receive such distribution shall be adjusted by dividing each Fixed Settlement Rate by a fraction of which:

(A) the numerator shall be the Current Market Price per share of Common Stock on the date fixed for such determination less the then fair market value of the portion of the assets or evidences of indebtedness so distributed applicable to one share of Common Stock (as determined by the Board of Directors, whose determination shall be conclusive and the basis for which shall be described in a Board Resolution); and

(B) the denominator shall be such Current Market Price per share of Common Stock,

such adjustment to each Fixed Settlement Rate to become effective at the opening of business on the Business Day following the date fixed for the determination of shareholders entitled to receive such

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distribution; provided that if the fair market value of the Distributed Property applicable to one share of Common Stock is equal to or greater than the Current Market Price on the date fixed for the determination of stockholders entitled to receive such distribution, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon settlement the amount of Distributed Property such Holder would have received had such Holder settled each Purchase Contract on the date fixed for such determination as if the Purchase Contract Settlement Date were such date fixed for such determination. In any case in which this Section 5.04(a)(iv) is applicable, Section 5.04(a)(ii) shall not be applicable. In the event that such dividend or distribution is not so paid or made, each Fixed Settlement Rate shall again be adjusted to be the Fixed Settlement Rate that would then be in effect if such dividend or distribution had not been declared.

(x) Notwithstanding the foregoing, if the Distributed Property distributed by the Company to all holders of its Common Stock consist of capital stock of, or similar equity interests in, a Subsidiary or other business unit of the Company, clause (w) above shall not apply and instead each Fixed Settlement Rate shall be increased so that each Fixed Settlement Rate shall be equal to the rate determined by multiplying each such rate in effect immediately prior to the close of business on the record date with respect to such distribution by a fraction of which,

(A) the numerator shall be the sum of (A) the average of the Closing Prices of the Common Stock for the ten (10) consecutive Trading Days commencing on and including the fifth Trading Day after the date on which “ex-dividend trading” commences for such dividend or distribution on the NYSE, the Nasdaq Stock Market or such other national or regional exchange or market on which such securities are then listed or quoted (the “ Ex-Dividend Date ”) plus (B) the average Closing Prices of the securities distributed in respect of each share of Common Stock for the ten (10) consecutive Trading Days commencing on and including the fifth Trading Day after the Ex-Dividend Date; and

(B) the denominator shall be the average of the Closing Prices of the Common Stock for the ten (10) consecutive Trading Days commencing on and including the fifth Trading Day after the Ex-Dividend Date,

such adjustment to each Fixed Settlement Rate to become effective immediately prior to the opening of business on the Business Day following the record date with respect to such distribution. In any case in which this paragraph (x) is applicable, Section 5.04(a)(i) , Section 5.04(a)(ii) and paragraph (w) of this Section 5.04(a)(iv) shall not be applicable.

(y) Notwithstanding anything to the contrary contained in this Section 5.04(a) , rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company’s capital stock (either initially or under certain circumstances), which rights, options or warrants, until the occurrence of a specified event or events (“ Trigger Event ”) (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section 5.04(a) (and no adjustment to each Fixed Settlement Rate under this Section 5.04(a) will be required) until the occurrence of the earliest Trigger Event, whereupon such rights, options and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to each Fixed Settlement Rate shall be made under this Section 5.04(a)(iv) . In addition, in the event of any distribution of rights, options or warrants, or any Trigger Event with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to each Fixed Settlement Rate under this Section 5.04(a) was made, (1) in the case of any such rights, options or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, each Fixed Settlement Rate shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights, options or warrants (assuming such holder had retained such rights, options or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such

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rights, options or warrants that shall have expired or been terminated without exercise by any holders thereof, each Fixed Settlement Rate shall be readjusted as if such rights, options and warrants had not been issued.

(z) For purposes of this Section 5.04(a)(iv) and Section 5.04(a)(i) and Section 5.04(a)(ii) , any dividend or distribution to which this Section 5.02(a)(iv) is applicable that also includes shares of Common Stock, or rights, options or warrants to subscribe for or purchase shares of Common Stock (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights, options or warrants (and any Fixed Settlement Rate adjustment required by this Section 5.04(a)(iv) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights, options or warrants (and any further Fixed Settlement Rate adjustment required by Section 5.04(a)(i) and Section 5.04(a)(ii) with respect to such dividend or distribution shall then be made), except (A) the record date of such dividend or distribution shall be deemed to be “the date fixed for the determination of shareholders entitled to receive such dividend or other distribution”, “the date fixed for the determination of shareholders entitled to receive such rights, options or warrants” and “the date fixed for such determination” within the meaning of Section 5.04(a)(i) and Section 5.04(a)(ii) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed “outstanding at the close of business on the date fixed for the determination of shareholders entitled to receive such dividend or other distribution” or “outstanding at the close of business on the date fixed for such determination” within the meaning of Section 5.04(a)(i) .

(v) In case the Company or any of its subsidiaries shall make any dividend or distribution consisting exclusively of cash to all holders of outstanding shares of Common Stock (excluding any cash dividend or distribution on Common Stock to the extent that the aggregate cash dividend per share of Common Stock in any fiscal quarter does not exceed $0.40 (the “ Dividend Threshold Amount ”), then each Fixed Settlement Rate will be adjusted by dividing each Fixed Settlement Rate in effect immediately prior to the close of business on the record date with respect to such dividend or distribution by a fraction of which,

(A) the numerator is the Current Market Price on the date fixed for the determination of stockholders entitled to receive such distribution, less the amount per share of Common Stock of such dividend or distribution in excess of the Dividend Threshold Amount; and

(B) the denominator is such Current Market Price, such adjustment to each Fixed Settlement Rate to be effective immediately prior to the opening of business on the Business Day following the date fixed for the determination of stockholders entitled to receive such distribution; provided that if an adjustment is required to be made under this clause as a result of a distribution that is not a regular quarterly dividend, the Dividend Threshold Amount will be deemed to be zero; and provided further that if the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the date fixed for the determination of stockholders entitled to receive such distribution, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon settlement the amount of cash such Holder would have received had such Holder settled each Purchase Contract on the date fixed for such determination as if the Purchase Contract Settlement Date were such date fixed for such determination. The Dividend Threshold Amount is subject to adjustment from time to time in a manner inversely proportional to any adjustment made to each Fixed Settlement Rate under this Section 5.04 ; provided that no adjustment will be made to the Dividend Threshold Amount for any adjustment made pursuant to this clause (v).

(vi) In case a tender or exchange offer made by the Company or any subsidiary of the Company for all or any portion of the Common Stock shall expire and such tender or exchange offer (as amended upon the expiration thereof) shall require the payment to stockholders of consideration per share of Common Stock having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) that as of the last

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time (the “ Expiration Time ”) tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended) exceeds the Closing Price of a share of Common Stock on the Trading Day next succeeding the Expiration Time, each Fixed Settlement Rate shall be increased so that the same shall equal the rate determined by dividing such Fixed Settlement Rate in effect immediately prior to the Expiration Time by a fraction,

(A) the numerator of which shall be equal to the product of (x) the Current Market Price of a share of Common Stock as of the Expiration Time and (y) the number of shares of Common Stock outstanding (including any shares accepted in terms of the tender or exchange offer, such shares being referred to as the “Purchased Shares” ) at the Expiration Time less the fair market value (determined by the Board of Directors as aforesaid) of the aggregate consideration payable to stockholders for all Purchased Shares, and

(B) the denominator of which shall be the product of (x) the number of shares of Common Stock outstanding at the Expiration Time less any Purchased Shares and (y) the Current Market Price of a share of Common Stock at the Expiration Time,

such adjustment to become effective immediately prior to the opening of business on the day following the Expiration Time. If the Company is obligated to purchase shares pursuant to any such tender or exchange offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, each Fixed Settlement Rate shall again be adjusted to be the Fixed Settlement Rate that would then be in effect if such tender or exchange offer had not been made.

(vii) The reclassification of Common Stock into securities including securities other than Common Stock (other than any reclassification upon a Reorganization Event to which Section 5.04(b) applies) shall be deemed to involve:

(A) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be “the date fixed for the determination of shareholders entitled to receive such distribution” and the “date fixed for such determination” within the meaning of paragraph (iv) of this Section 5.04(a) ); and

(B) a subdivision, split or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be “the day upon which such subdivision or split becomes effective” or “the day upon which such combination becomes effective”, as the case may be, and “the day upon which such subdivision, split or combination becomes effective” within the meaning of this Section 5.04(a)(vii) ).

(viii) All adjustments to each Fixed Settlement Rate shall be calculated to the nearest 1/10,000th of a share of Common Stock (or if there is not a nearest 1/10,000th of a share, to the next lower 1/10,000th of a share). If any adjustments are made to each Fixed Settlement Rate pursuant to this Section 5.04(a) , an adjustment shall also be made to the Applicable Market Value solely to determine which of clauses (i), (ii) or (iii) of the definition of Settlement Rate in Section 5.01(a) will apply on the Purchase Contract Settlement Date or any Cash Merger Early Settlement Date. Such adjustment shall be made by multiplying the Applicable Market Value by the Adjustment Factor. The “Adjustment Factor” means, initially, a fraction the numerator of which shall be the Maximum Settlement Rate immediately after the first adjustment to each Fixed Settlement Rate pursuant to this Section 5.04(a) and the denominator of which shall be the Maximum Settlement Rate immediately prior to such adjustment. Each time an adjustment is required to be made to each Fixed Settlement Rate pursuant to this Section 5.04(a) , the Adjustment Factor shall be multiplied by a fraction the numerator of which shall be the Maximum Settlement Rate immediately after such adjustment to each Fixed Settlement Rate pursuant to this Section 5.04(a) and the denominator of which shall be the Maximum Settlement Rate immediately prior to such

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adjustment. Notwithstanding the foregoing, if any adjustment to each Fixed Settlement Rate is required to be made pursuant to the occurrence of any of the events contemplated by this Section 5.04(a) during the period taken into consideration for determining the Applicable Market Value, the 20 individual Closing Prices used to determine the Applicable Market Value shall be adjusted rather than the Applicable Market Value and the Applicable Market Value shall be determined by (A) multiplying the Closing Prices for Trading Days prior to such adjustment to each Fixed Settlement Rate by the Adjustment Factor in effect prior to such adjustment, (B) multiplying the Closing Prices for Trading Days following such adjustment by the Adjustment Factor reflecting such adjustment, and (C) dividing the sum of all such adjusted Closing Prices by 20.

(ix) The Company may, but shall not be required to, make such increases in each Fixed Settlement Rate, in addition to those required by this Section 5.04(a) , as the Board of Directors considers to be advisable. The Company may make such a discretionary adjustment only if it makes the same proportionate adjustment to each Fixed Settlement Rate. No adjustment in the Fixed Settlement Rate shall be required unless such adjustment would require an increase or decrease of at least one percent; provided, however , that any such minor adjustments that are not required to be made shall be carried forward and taken into account in any subsequent adjustment, and provided further that any such adjustment of less than one percent that has not been made shall be made (x) upon the end of the Company’s fiscal year and (y) upon the Purchase Contract Settlement Date.

(x) If the Company hereafter adopts any stockholder rights plan involving the issuance of preference share purchase rights or other similar rights (the “ Rights ”) to all holders of the Common Stock, a Holder shall be entitled to receive upon settlement of any Purchase Contract, in addition to the shares of Common Stock issuable upon settlement of such Purchase Contract, the related Rights for the Common Stock, unless such Rights under the future stockholder rights plan have separated from the Common Stock at the time of conversion, in which case each Fixed Settlement Rate shall be adjusted as provided in Section 5.04(a)(iv) on the date such Rights separate from the Common Stock.

(b) Adjustment for Consolidation, Merger or Other Reorganization Event .

(i) In the event of:

(A) any consolidation or merger of the Company with or into another Person (other than a merger or consolidation in which the Company is the continuing corporation and in which the shares of Common Stock outstanding immediately prior to the merger or consolidation are not exchanged for cash, securities or other property of the Company or another corporation);

(B) any sale, transfer, lease or conveyance to another Person of the property of the Company as an entirety or substantially as an entirety;

(C) any statutory share exchange of the Company with another Person (other than in connection with a merger or acquisition); or

(D) any liquidation, dissolution or termination of the Company other than as a result of or after the occurrence of a Termination Event (any event described in clauses (A), (B), (C) and (D), a “ Reorganization Event ”),

each Holder will receive, in lieu of shares of Common Stock, on the Purchase Contract Settlement Date or any Early Settlement Date with respect to each Purchase Contract forming a part thereof, the kind and amount of securities, cash and other property receivable upon such Reorganization Event (without any interest thereon, and without any right to dividends or distribution thereon if such dividends or distributions have a record date that is prior to the Purchase Contract Settlement Date) by a Holder of one share of Common Stock (the “ Exchange Property ”), multiplied by the applicable Settlement Rate. The kind and amount of Exchange Property will be determined

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assuming such holder of one Share of Common Stock is not a Person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be (any such Person, a “ Constituent Person ”), or an Affiliate of a Constituent Person to the extent such Reorganization Event provides for different treatment of Common Stock held by Affiliates of the Company and non-affiliates and such Holder failed to exercise its rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such Reorganization Event ( provided that if the kind or amount of securities, cash and other property receivable upon such Reorganization Event is not the same for each share of Common Stock held immediately prior to such Reorganization Event by a Person other than a Constituent Person or an Affiliate thereof and in respect of which rights of election shall not have been exercised (“ non-electing share ”), then for the purpose of this Section 5.04(b)(i) the kind and amount of securities, cash and other property receivable upon such Reorganization Event shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares).

For purposes of determining the applicable Settlement Rate under this Section 5.04(b)(i) and Section 5.04(b)(ii) , the term “Applicable Market Value” shall be deemed to refer to the “Applicable Market Value” of the Exchange Property, and such value shall be determined (A) with respect to any publicly traded securities that compose all or part of the Exchange Property, based on the Closing Price of such securities, (B) in the case of any cash that composes all or part of the Exchange Property, based on the amount of such cash and (C) in the case of any other property that composes all or part of the Exchange Property, based on the value of such property, as determined by a nationally recognized independent investment banking firm retained by the Company for this purpose; provided that prior to the separation of the Rights or any similar stockholder rights from the Common Stock, such Rights or similar stockholder rights shall be deemed to have no value. For the purposes of this paragraph only, the term “Closing Price” shall be deemed to refer to the closing sale price, last quoted bid price or mid-point of the last bid and ask prices, as the case may be, of any publicly traded securities that comprise all or part of the Exchange Property and the term “Trading Day” shall be deemed to refer to any publicly traded securities that comprise all or part of the Exchange Property.

In the event of such a Reorganization Event, the Person formed by such consolidation, merger or exchange or the Person that acquires the assets of the Company or, in the event of a liquidation, dissolution or termination of the Company, the Company or a liquidating trust created in connection therewith, shall execute and deliver to the Purchase Contract Agent an agreement supplemental hereto providing that each Holder of an Outstanding Unit shall have the rights provided by this Section 5.04(b)(i) . Such supplemental agreement shall provide for adjustments which, for events subsequent to the effective date of such supplemental agreement, shall be, in the sole judgment of the parties executing such agreement, as nearly equivalent as may be practicable to the adjustments provided for in this Section 5.04 . The above provisions of this Section 5.04 shall similarly apply to successive Reorganization Events.

(ii) Prior to the Purchase Contract Settlement Date, in the event of a consolidation or merger of the Company with or into another Person, or any merger of another Person into the Company (other than a merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock), in each case in which 30% or more of the total consideration paid to the Company’s shareholders consists of cash or cash equivalents (a “ Cash Merger ”), then a Holder of a Unit may settle (“ Cash Merger Early Settlement ”) its Purchase Contract, upon the conditions set forth below, at the Settlement Rate in effect immediately prior to the closing of the Cash Merger; provided that no Cash Merger Early Settlement will be permitted pursuant to this Section 5.04(b)(ii) unless, at the time such Cash Merger Early Settlement is effected, there is an effective Registration Statement with respect to any securities to be issued and delivered in connection with such Cash Merger Early Settlement, if such a Registration Statement is required (in the view of counsel, which need not be in the form of a written opinion, for the Company) under the Securities Act. If such a Registration Statement is so required, the Company covenants and agrees to use its commercially reasonable efforts to (x) have in effect a Registration Statement covering any securities to be delivered in respect of the Purchase Contracts being settled and (y) provide a Prospectus in connection therewith, in each case in a form that may be used in connection with such Cash Merger Early Settlement. If a Holder elects a Cash Merger Early Settlement of some or all of its Purchase Contracts, such Holder shall be entitled to receive, on the Cash Merger Early Settlement Date, the aggregate amount of any accrued and unpaid Contract Adjustment Payments, with

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respect to such Purchase Contracts (except when the Cash Merger Early Settlement Date falls after any Record Date and prior to the next succeeding Payment Date, in which case Contract Adjustment Payments shall be payable to the Person in whose name a Certificate is registered at the close of business on such Record Date relating to the next succeeding Payment Date). The Company shall pay such amount as a credit against the amount otherwise payable by such Holder to effect such Cash Merger Early Settlement.

Within five Business Days of the completion of a Cash Merger, the Company shall provide written notice to Holders of such completion of a Cash Merger, which shall specify the deadline for submitting the notice to settle early in cash pursuant to this Section 5.04(b)(ii) , the date on which such Cash Merger Early Settlement shall occur (which date shall be at least ten days after the date of such written notice by the Company, but which shall in no event be later than the earlier of 20 days after the date of such written notice by the Company and the seventh Business Day immediately preceding the Purchase Contract Settlement Date) (the “ Cash Merger Early Settlement Date ”), the applicable Settlement Rate and the amount (per share of Common Stock) of cash, securities and other consideration receivable by the Holder, including the amount of Contract Adjustment Payments receivable, upon settlement.

Corporate Units Holders (unless Applicable Ownership Interests in the Treasury Portfolio have replaced Applicable Ownership Interests in Senior Notes as a component of the Corporate Units) and Treasury Units Holders may only effect Cash Merger Early Settlement pursuant to this Section 5.04(b)(ii) in integral multiples of 40 Corporate Units or Treasury Units, as the case may be. If Applicable Ownership Interests in the Treasury Portfolio have replaced Applicable Ownership Interests in Senior Notes as a component of the Corporate Units, Corporate Units Holders may only effect Cash Merger Early Settlement pursuant to this Section 5.04(b)(ii) in multiples of 4,000 Corporate Units. Other than the provisions relating to timing of notice and settlement, which shall be as set forth in the immediately preceding paragraph, the provisions of Section 5.01 shall apply with respect to a Cash Merger Early Settlement pursuant to this Section 5.04(b)(ii) .

In order to exercise the right to effect Cash Merger Early Settlement with respect to any Purchase Contracts, the Holder of the Certificate evidencing Units shall deliver, no later than 5:00 p.m. (New York City time) on the third Business Day immediately preceding the Cash Merger Early Settlement Date, such Certificate to the Purchase Contract Agent at the Corporate Trust Office duly endorsed for transfer to the Company or in blank with the form of Election to Settle Early on the reverse thereof duly completed and accompanied by payment (payable to the Company in immediately available funds) in an amount equal to the result of:

(i) the product of (A) the Stated Amount times (B) the number of Purchase Contracts with respect to which the Holder has elected to effect Cash Merger Early Settlement, less

(ii) the amount of any accrued and unpaid Contract Adjustment Payments (except when the Cash Merger Early Settlement Date falls after any Record Date and prior to the next succeeding Payment Date).

Upon receipt of such Certificate and payment of such funds, the Purchase Contract Agent shall pay the Company from such funds the related Purchase Price pursuant to the terms of the related Purchase Contracts, and notify the Collateral Agent that all the conditions necessary for a Cash Merger Early Settlement by a Holder have been satisfied pursuant to which the Purchase Contract Agent has received from such Holder, and paid to the Company as confirmed in writing by the Company, the related Purchase Price.

Upon receipt by the Collateral Agent of the notice from the Purchase Contract Agent set forth in the immediately preceding paragraph, the Collateral Agent shall release from the Pledge, (1) the Senior Notes underlying the Pledged Applicable Ownership Interests in Senior Notes or the Pledged Applicable Ownership Interests in the Treasury Portfolio, in the case of a Holder of Corporate Units or (2) the Pledged Treasury Securities, in the case of a Holder of Treasury Units, in each case with a Value equal to the product of (x) the Stated Amount and (y) the number of Purchase Contracts as to which such Holder has elected to effect Cash Merger Early Settlement, and shall instruct the Securities Intermediary to Transfer all such Pledged Applicable Ownership Interests in the Treasury Portfolio or Senior Notes underlying Pledged Applicable Ownership Interests in Senior

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Notes or Pledged Treasury Securities, as the case may be, to the Purchase Contract Agent for distribution to such Holder, in each case free and clear of the Pledge created hereby.

If a Holder properly effects an effective Cash Merger Early Settlement in accordance with the provisions of this Section 5.04(b)(ii) , the Company will deliver (or will cause the Collateral Agent to deliver) to the Holder on the Cash Merger Early Settlement Date:

(A) the kind and amount of securities, cash and other property receivable upon such Cash Merger by a Holder of the number of shares of Common Stock issuable on account of each Purchase Contract (regardless of any choice by a Holder pursuant to Section 5.08 to receive Preferred Stock in lieu of Common Stock) if the Purchase Contract Settlement Date had occurred immediately prior to such Cash Merger (based on the Settlement Rate in effect at such time), assuming such Holder of Common Stock is not a Constituent Person or an Affiliate of a Constituent Person to the extent such Cash Merger provides for different treatment of Common Stock held by Affiliates of the Company and non-affiliates and such Holder failed to exercise its rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such Cash Merger ( provided that if the kind or amount of securities, cash and other property receivable upon such Cash Merger is not the same for each non-electing share, then for the purpose of this Section 5.04(b)(ii) , the kind and amount of securities, cash and other property receivable upon such Cash Merger by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). For the avoidance of doubt, for the purposes of determining the Applicable Market Value (in connection with determining the appropriate Settlement Rate to be applied in the foregoing sentence), the date of the closing of the Cash Merger shall be deemed to be the Purchase Contract Settlement Date;

(B) the Senior Notes, the Applicable Ownership Interests in the Treasury Portfolio or Treasury Securities, as the case may be, related to the Purchase Contracts with respect to which the Holder is effecting a Cash Merger Early Settlement; and

(C) if so required under the Securities Act, a Prospectus as contemplated by this Section 5.04(b)(ii) .

The Corporate Units or the Treasury Units of the Holders who do not elect Cash Merger Early Settlement in accordance with the foregoing will continue to remain outstanding and be subject to settlement on the Purchase Contract Settlement Date in accordance with the terms hereof.

(c) All calculations and determinations pursuant to this Section 5.04 shall be made by the Company or its agent and the Purchase Contract Agent shall have no responsibility with respect to this Agreement.

Section 5.05. Notice of Adjustments and Certain Other Events . (a) Whenever the Fixed Settlement Rate is adjusted as provided under Section 5.04(a) , or the Settlement Rate is adjusted under Section 5.04(b) , the Company shall within 10 Business Days following the occurrence of an event that requires such adjustment (or if the Company is not aware of such occurrence, as soon as reasonably practicable after becoming so aware):

(i) compute the adjusted Fixed Settlement Rate or Settlement Rate, as the case may be, in accordance with Section 5.04 and prepare and transmit to the Purchase Contract Agent an Officers’ Certificate setting forth the Fixed Settlement Rate or Settlement Rate, as the case may be, the method of calculation thereof in reasonable detail, and the facts requiring such adjustment and upon which such adjustment is based; and

(ii) provide a written notice to the Holders of the Units of the occurrence of such event and a statement in reasonable detail setting forth the method by which the adjustment to the Fixed Settlement Rate or Settlement Rate, as the case may be, was determined and setting forth the adjusted Fixed Settlement Rate or Settlement Rate, as the case may be.

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(b) The Purchase Contract Agent shall not at any time be under any duty or responsibility to any Holder of Units to determine whether any facts exist which may require

any adjustment of the Fixed Settlement Rate or Settlement Rate, as the case may be, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed in making the same. The Purchase Contract Agent shall be fully authorized and protected in relying on any Officers’ Certificate delivered pursuant to Section 5.05(a)(i) and any adjustment contained therein and the Purchase Contract Agent shall not be deemed to have knowledge of any adjustment unless and until it has received such certificate. The Purchase Contract Agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock or Preferred Stock, as applicable, or of any securities or property, which may at the time be issued or delivered with respect to any Purchase Contract; and the Purchase Contract Agent makes no representation with respect thereto. The Purchase Contract Agent shall not be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or Preferred Stock, as applicable, pursuant to a Purchase Contract or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article.

Section 5.06. Termination Event; Notice . The Purchase Contracts and all obligations and rights of the Company and the Holders thereunder, including, without limitation, the rights of the Holders to receive and the obligation of the Company to pay any Contract Adjustment Payments (including any accrued and unpaid Contract Adjustment Payments), if the Company shall have such obligation, and the rights and obligations of Holders to purchase Common Stock or Preferred Stock, as applicable, shall immediately and automatically terminate, without the necessity of any notice or action by any Holder, the Purchase Contract Agent or the Company, if, prior to or on the Purchase Contract Settlement Date, a Termination Event shall have occurred.

Upon and after the occurrence of a Termination Event, the Units shall thereafter represent the right to receive the Senior Notes, the Treasury Securities or the appropriate Applicable Ownership Interests in the Treasury Portfolio, as the case may be, forming part of such Units, in accordance with the provisions of Section 5.04 of the Pledge Agreement. Upon the occurrence of a Termination Event, the Company shall promptly but in no event later than two Business Days thereafter give written notice to the Purchase Contract Agent, the Collateral Agent and the Holders, at their addresses as they appear in the Security Register.

Section 5.07. Early Settlement . (a) Subject to and upon compliance with the provisions of this Section 5.07 , at the option of the Holder thereof, Purchase Contracts underlying Units having an aggregated Stated Amount equal to $1,000 or an integral multiple thereof may be settled early ( “Early Settlement” ) at any time on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date; provided that no Early Settlement will be permitted pursuant to this Section 5.07 unless, at the time such Early Settlement is effected, there is an effective Registration Statement with respect to any securities to be issued and delivered in connection with such Early Settlement, if such a Registration Statement is required (in the view of counsel, which need not be in the form of a written opinion, for the Company) under the Securities Act. If such a Registration Statement is so required, the Company covenants and agrees to use reasonable best efforts to (i) have in effect a Registration Statement covering any securities to be delivered in respect of the Purchase Contracts being settled and (ii) provide a Prospectus in connection therewith, in each case in a form that may be used in connection with such Early Settlement.

(b) In order to exercise the right to effect Early Settlement with respect to any Purchase Contracts, the Holder of the Certificate evidencing Units shall deliver, at any time prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date, such Certificate to the Purchase Contract Agent at the Corporate Trust Office duly endorsed for transfer to the Company or in blank with the form of Election to Settle Early on the reverse thereof duly completed and accompanied by payment (payable to the Company in immediately available funds) in an amount (the “Early Settlement Amount” ) equal to the sum of:

(i) the product of (A) the Stated Amount times (B) the number of Purchase Contracts with respect to which the Holder has elected to effect Early Settlement, plus

(ii) if such delivery is made with respect to any Purchase Contracts during the period from the close of business on any Record Date next preceding any Payment Date to the

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opening of business on such Payment Date, an amount equal to the Contract Adjustment Payments payable on such Payment Date with respect to such Purchase Contracts.

Except as provided in the immediately preceding sentence, no payment shall be made upon Early Settlement of any Purchase Contract on account of any Contract Adjustment Payments accrued on such Purchase Contract or on account of any dividends on the Common Stock or Preferred Stock, as applicable, issued upon such Early Settlement. If the foregoing requirements are first satisfied with respect to Purchase Contracts underlying any Units on or prior to 5:00 p.m. (New York City time) on a Business Day, such day shall be the “Early Settlement Date” with respect to such Units and if such requirements are first satisfied after 5:00 p.m. (New York City time) on a Business Day or on a day that is not a Business Day, the “Early Settlement Date” with respect to such Units shall be the next succeeding Business Day.

Upon the receipt of such Certificate and Early Settlement Amount from the Holder, the Purchase Contract Agent shall pay to the Company such Early Settlement Amount, the receipt of which payment the Company shall confirm in writing. The Purchase Contract Agent shall then, in accordance with Section 5.06 of the Pledge Agreement, notify the Collateral Agent that (A) such Holder has elected to effect an Early Settlement, which notice shall set forth the number of such Purchase Contracts as to which such Holder has elected to effect Early Settlement, (B) the Purchase Contract Agent has received from such Holder, and paid to the Company as confirmed in writing by the Company, the related Early Settlement Amount and (C) all conditions to such Early Settlement have been satisfied.

Holders of Treasury Units may only effect Early Settlement pursuant to this Section 5.07 in integral multiples of 40 Treasury Units. If the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, Corporate Units Holders may only effect Early Settlement pursuant to this Section 5.07 in integral multiples of 4,000 Corporate Units.

Upon Early Settlement of the Purchase Contracts, the rights of the Holders to receive and the obligation of the Company to pay any Contract Adjustment Payments (including any accrued and unpaid Contract Adjustment Payments) with respect to such Purchase Contracts shall immediately and automatically terminate.

(c) Upon Early Settlement of Purchase Contracts by a Holder of the related Units, the Company shall issue, and the Holder shall be entitled to receive, 0.9954 newly issued shares of Common Stock, or 0.09954 newly issued shares of Preferred Stock, as applicable, as adjusted in the same manner and the same time as the Settlement Rate is adjusted (the “Early Settlement Rate” ).

(d) No later than the third Business Day after the applicable Early Settlement Date, the Company shall cause:

(i) the shares of Common Stock or Preferred Stock, as applicable, issuable upon Early Settlement of Purchase Contracts to be issued and delivered, together with payment in lieu of any fraction of a share, as provided in Section 5.09 ; and

(ii) the related Pledged Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio (as specified in clause (i) of the definition of such term), as applicable, in the case of Corporate Units, or the related Pledged Treasury Securities, in the case of Treasury Units, to be released from the Pledge by the Collateral Agent, free and clear of the Company’s security interest therein, and transferred, in each case, to the Purchase Contract Agent for delivery to the Holder thereof or its designee.

(e) Upon Early Settlement of any Purchase Contracts, and subject to receipt of shares of Common Stock or Preferred Stock, as applicable, from the Company and the Senior Notes, the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio or Treasury Securities, as the case may be, from the Securities Intermediary, as applicable, the Purchase Contract Agent shall, in accordance with the instructions provided by the Holder thereof on the applicable form of Election to Settle Early on the reverse of the Certificate evidencing the related Units:

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(i) transfer to the Holder the Senior Notes, the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio or

Treasury Securities, as the case may be, forming a part of such Units,

(ii) deliver to the Holder a certificate or certificates for the full number of shares of Common Stock or Preferred Stock, as applicable, issuable upon such Early Settlement, together with payment in lieu of any fraction of a share, as provided in Section 5.09 , and

(iii) if so required under the Securities Act, deliver a Prospectus for the shares of Common Stock or Preferred Stock, as applicable, issuable upon such Early Settlement as contemplated by (a).

(f) In the event that Early Settlement is effected with respect to Purchase Contracts underlying less than all the Units evidenced by a Certificate, upon such Early Settlement the Company shall execute and the Purchase Contract Agent shall execute on behalf of the Holder, authenticate and deliver to the Holder thereof, at the expense of the Company, a Certificate evidencing the Units as to which Early Settlement was not effected.

(g) A Holder of a Unit who effects Early Settlement may elect to have the Senior Notes no longer a part of a Corporate Unit remarketed in accordance with the provisions of Section 5.02 .

Section 5.08. Election to Receive Preferred Stock in Lieu of Common Stock . At any time prior to the Purchase Contract Settlement Date, any Holder may elect that its obligation to purchase, and the Company’s related obligation to issue and sell to it, Common Stock pursuant to the terms of this Article 5 be converted into obligations to purchase, issue and sell Preferred Stock, by delivering written notice of such election to the Purchase Contract Agent and the Company. Upon such election, such Holder shall become obligated to purchase, and the Company shall become obligated to issue and sell to it, one-tenth of a share of Preferred Stock for each share of Common Stock that such Holder would otherwise be obligated to purchase, and the Company would be obligated to issue and sell, pursuant to this Article 5 . Any such election can be terminated by delivering subsequent written notice of such termination to the Purchase Contract Agent and the Company prior to the Purchase Contract Settlement Date.

At any time prior to the Purchase Contract Settlement Date, Holders of not less than a majority of the Outstanding Units may, by delivering written notice to the Company, request the Company to amend the Statement of Resolutions to delete clause (3) of Section D of Article I thereof, and upon such request, the Statement of Resolutions shall be so amended.

Section 5.09. No Fractional Shares . No fractional shares or scrip representing fractional shares of Common Stock or Preferred Stock, as applicable, shall be issued or delivered upon settlement on the Purchase Contract Settlement Date, or upon Early Settlement or Cash Merger Early Settlement of any Purchase Contracts. If Certificates evidencing more than one Purchase Contract shall be surrendered for settlement at one time by the same Holder, the number of full shares of Common Stock or Preferred Stock, as applicable, that shall be delivered upon settlement shall be computed on the basis of the aggregate number of Purchase Contracts evidenced by the Certificates so surrendered. Instead of any fractional share of Common Stock or Preferred Stock, as applicable, that would otherwise be deliverable upon settlement of any Purchase Contracts on the Purchase Contract Settlement Date, or upon Early Settlement or Cash Merger Early Settlement, the Company, through the Purchase Contract Agent, shall make a cash payment in respect of such fractional interest in an amount equal to the percentage of such fractional share times the Applicable Market Value calculated as if the date of such settlement were the Purchase Contract Settlement Date. The Company shall provide the Purchase Contract Agent from time to time with sufficient funds to permit the Purchase Contract Agent to make all cash payments required by this Section 5.09 in a timely manner.

Section 5.10. Charges and Taxes . The Company will pay all stock transfer and similar taxes attributable to the initial issuance and delivery of the shares of Common Stock or Preferred Stock, as applicable, pursuant to the Purchase Contracts; provided, however , that the Company shall not be required to pay any such tax

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or taxes which may be payable in respect of any exchange of or substitution for a Certificate evidencing a Unit or any issuance of a share of Common Stock or Preferred Stock, as applicable, in a name other than that of the registered Holder of a Certificate surrendered in respect of the Units evidenced thereby, other than in the name of the Purchase Contract Agent, as custodian for such Holder, and the Company shall not be required to issue or deliver such share certificates or Certificates unless or until the Person or Persons requesting the transfer or issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

Section 5.11. Contract Adjustment Payments . (a) Subject to Section 5.11(d) , the Company shall pay, on each Payment Date, the Contract Adjustment Payments payable in respect of each Purchase Contract to the Person in whose name a Certificate is registered at the close of business on the Record Date relating to such Payment Date. The Contract Adjustment Payments will be payable at the office of the Purchase Contract Agent in the Borough of Manhattan, New York City maintained for that purpose. The Contract Adjustment Payments will be payable, at the option of the Company, by check mailed to the address of the Person entitled thereto at such Person’s address as it appears on the Security Register, or by wire transfer to the account designated by such Person by a prior written notice to the Purchase Contract Agent. If any date on which Contract Adjustment Payments are to be made is not a Business Day, then payment of the Contract Adjustment Payments payable on such date will be made on the next succeeding day that is a Business Day (and without any interest in respect of such delay). Contract Adjustment Payments payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. The Contract Adjustment Payments will accrue from October 7, 2005.

(b) Upon the occurrence of a Termination Event, the Company’s obligation to pay future Contract Adjustment Payments (including any accrued Contract Adjustment Payments) shall cease.

(c) Each Certificate delivered under this Agreement upon registration of transfer of or in exchange for or in lieu of (including as a result of a Collateral Substitution or the recreation of Corporate Units) any other Certificate shall carry the right to accrued and unpaid Contract Adjustment Payments, which right was carried by the Purchase Contracts underlying such other Certificates.

(d) In the case of any Unit with respect to which Early Settlement or Cash Merger Early Settlement of the underlying Purchase Contract is effected on a date that is after any Record Date and prior to or on the next succeeding Payment Date, Contract Adjustment Payments otherwise payable on such Payment Date shall be payable on such Payment Date notwithstanding such Early Settlement or Cash Merger Early Settlement, and such Contract Adjustment Payments shall be paid to the Person in whose name the Certificate evidencing such Unit is registered at the close of business on such Record Date. Except as otherwise expressly provided in the immediately preceding sentence, and the right to receive accrued and unpaid Contract Adjustment Payments as set forth in Section 5.04(b)(ii) , in the case of any Unit with respect to which Early Settlement or Cash Merger Early Settlement of the underlying Purchase Contract is effected, Contract Adjustment Payments that would otherwise be payable after the Early Settlement or Cash Merger Early Settlement Date with respect to such Purchase Contract shall not be payable.

(e) The Company’s obligations with respect to Contract Adjustment Payments, if any, will be subordinated and junior in right of payment to the Company’s obligations under any Senior Indebtedness.

(f) In the event (x) of any payment by, or distribution of assets of, the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution, winding-up, liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, or (y) subject to the provisions of Section 5.11(h) below, that (i) a default shall have occurred and be continuing with respect to the payment of principal, interest or any other monetary amounts due and payable on any Senior Indebtedness and such default shall have continued beyond the period of grace, if any, specified in the instrument evidencing such Senior Indebtedness (and the Purchase Contract Agent shall have received written notice thereof from the Company or one or more holders of Senior Indebtedness or their representative or representatives or the trustee or trustees under any indenture pursuant to which any such Senior Indebtedness may have been issued), or (ii) the maturity of any Senior Indebtedness shall have been accelerated because of a default in respect of such Senior Indebtedness (and the Purchase Contract Agent shall have received written notice thereof from the

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Company or one or more holders of Senior Indebtedness or their representative or representatives or the trustee or trustees under any indenture pursuant to which any such Senior Indebtedness may have been issued), then:

(i) the holders of all Senior Indebtedness shall first be entitled to receive, in the case of clause (x) above, payment of all amounts due or to become due upon all Senior Indebtedness and, in the case of subclauses (i) and (ii) of clause (y) above, payment of all amounts due thereon, or provision shall be made for such payment in money or money’s worth, before the Holders of any of the Units are entitled to receive any Contract Adjustment Payments on the Purchase Contracts underlying the Units;

(ii) any payment by, or distribution of assets of, the Company of any kind or character, whether in cash, property or securities, to which the Holders of any of the Units would be entitled except for the provisions of Section 5.11(e) through (q) , including any such payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of such Contract Adjustment Payments on the Purchase Contracts underlying the Units, shall be paid or delivered by the Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the representative or representatives of the holders of Senior Indebtedness or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of such Senior Indebtedness held or represented by each, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid after giving effect to any concurrent payment or distribution (or provision therefor) to the holders of such Senior Indebtedness, before any payment or distribution is made of such Contract Adjustment Payments to the Holders of such Units; and

(iii) in the event that, notwithstanding the foregoing, any payment by, or distribution of assets of, the Company of any kind or character, whether in cash, property or securities, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of Contract Adjustment Payments on the Purchase Contracts underlying the Units, shall be received by the Purchase Contract Agent or the Holders of any of the Units when such payment or distribution is prohibited pursuant to Section 5.11(e) through (q) , such payment or distribution shall be paid over to the representative or representatives of the holders of Senior Indebtedness or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any such Senior Indebtedness may have been issued, ratably as aforesaid, for application to the payment of all Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution (or provision therefor) to the holders of such Senior Indebtedness.

(g) For purposes of Section 5.11(e) through (q) , the words “cash, property or securities” shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other Person provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in Section 5.11(e) through (q) with respect to such Contract Adjustment Payments on the Units to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the indebtedness or guarantee of indebtedness, as the case may be, that constitutes Senior Indebtedness is assumed by the Person, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of the Senior Indebtedness are not, without the consent of each such holder adversely affected thereby, altered by such reorganization or readjustment;

(h) Any failure by the Company to make any payment on or perform any other obligation under Senior Indebtedness, other than any indebtedness incurred by the Company or assumed or guaranteed, directly or indirectly, by the Company for money borrowed (or any deferral, renewal, extension or refunding thereof) or any indebtedness or obligation as to which the provisions of Section 5.11(e) through (q) shall have been waived by the Company in the instrument or instruments by which the Company incurred, assumed, guaranteed or otherwise created such indebtedness or obligation, shall not be deemed a default or event of default if (i) the Company shall be disputing its obligation to make such payment or perform such obligation and (ii) either (A) no final judgment relating to such dispute shall have been issued against the Company which is in full force and effect and is not

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subject to further review, including a judgment that has become final by reason of the expiration of the time within which a party may seek further appeal or review, and (B) in the event a judgment that is subject to further review or appeal has been issued, the Company shall in good faith be prosecuting an appeal or other proceeding for review and a stay of execution shall have been obtained pending such appeal or review.

(i) Subject to the irrevocable payment in full of all Senior Indebtedness, the Holders of the Units shall be subrogated (equally and ratably with the holders of all obligations of the Company which by their express terms are subordinated to Senior Indebtedness of the Company to the same extent as payment of the Contract Adjustment Payments in respect of the Purchase Contracts underlying the Units is subordinated and which are entitled to like rights of subrogation) to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until all such Contract Adjustment Payments owing on the Units shall be paid in full, and as between the Company, its creditors other than holders of such Senior Indebtedness and the Holders, no such payment or distribution made to the holders of Senior Indebtedness by virtue of Section 5.11(e) through (q) that otherwise would have been made to the Holders shall be deemed to be a payment by the Company on account of such Senior Indebtedness, it being understood that the provisions of Section 5.11(e) through (q) are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand.

(j) Nothing contained in Section 5.11(e) through (q) or elsewhere in this Agreement or in the Units is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Indebtedness and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders such Contract Adjustment Payments on the Units as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of Senior Indebtedness, nor shall anything herein or therein prevent the Purchase Contract Agent or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Agreement, subject to the rights, if any, under Section 5.11(e) through (q) , of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy.

(k) Upon payment or distribution of assets of the Company referred to in Section 5.11(e) through (q) , the Purchase Contract Agent and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any such dissolution, winding up, liquidation or reorganization proceeding affecting the affairs of the Company is pending or upon a certificate of the trustee in bankruptcy, receiver, assignee for the benefit of creditors, liquidating trustee or Purchase Contract Agent or other person making any payment or distribution, delivered to the Purchase Contract Agent or to the Holders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 5.11(e) through (q) .

(l) The Purchase Contract Agent shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee or representative on behalf of such holder) to establish that such notice has been given by a holder of Senior Indebtedness or a trustee or representative on behalf of any such holder or holders. In the event that the Purchase Contract Agent determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to Section 5.11(e) through (q) , the Purchase Contract Agent may request such Person to furnish evidence to the reasonable satisfaction of the Purchase Contract Agent as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under Section 5.11(e) through (q) , and, if such evidence is not furnished, the Purchase Contract Agent may defer payment to such Person pending judicial determination as to the right of such Person to receive such payment.

(m) Nothing contained in Section 5.11(e) through (q) shall affect the obligations of the Company to make, or prevent the Company from making, payment of the Contract Adjustment Payments, except as otherwise provided in this Section 5.11(e) through (q) .

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(n) Each Holder of Units, by its acceptance thereof, authorizes and directs the Purchase Contract Agent on its behalf to take such action as may be necessary or appropriate

to effectuate the subordination provided in Section 5.11(e) through (q) and appoints the Purchase Contract Agent its attorney-in-fact, as the case may be, for any and all such purposes.

(o) The Company shall give prompt written notice to the Purchase Contract Agent of any fact known to the Company that would prohibit the making of any payment of moneys to or by the Purchase Contract Agent in respect of the Units pursuant to the provisions of this Section. Notwithstanding the provisions of Section 5.11(e) through (q) or any other provisions of this Agreement, the Purchase Contract Agent shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of moneys to or by the Purchase Contract Agent, or the taking of any other action by the Purchase Contract Agent, unless and until the Purchase Contract Agent shall have received written notice thereof mailed or delivered to the Purchase Contract Agent at its Institutional Trust Services department from the Company, any Holder, or the holder or representative of any Senior Indebtedness; provided that if at least two Business Days prior to the date upon which by the terms hereof any such moneys may become payable for any purpose, the Purchase Contract Agent shall not have received with respect to such moneys the notice provided for in this Section, then, anything herein contained to the contrary notwithstanding, the Purchase Contract Agent shall have full power and authority to receive such moneys and to apply the same to the purpose for which they were received and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to or on or after such date.

(p) The Purchase Contract Agent in its individual capacity shall be entitled to all the rights set forth in this Section with respect to any Senior Indebtedness at the time held by it, to the same extent as any other holder of Senior Indebtedness and nothing in this Agreement shall deprive the Purchase Contract Agent of any of its rights as such holder.

(q) No right of any present or future holder of any Senior Indebtedness to enforce the subordination herein shall at any time or in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any noncompliance by the Company with the terms, provisions and covenants of this Agreement, regardless of any knowledge thereof which any such holder may have or be otherwise charged with.

(r) Nothing in this Section 5.11 shall apply to claims of, or payments to, the Purchase Contract Agent under or pursuant to Section 7.07 .

(s) With respect to the holders of Senior Indebtedness, (i) the duties and obligations of the Purchase Contract Agent shall be determined solely by the express provisions of this Agreement; (ii) the Purchase Contract Agent shall not be liable to any such holders if it shall, acting in good faith, mistakenly pay over or distribute to the Holders or to the Company or any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Section 5.11 or otherwise; (iii) no implied covenants or obligations shall be read into this Agreement against the Purchase Contract Agent; and (iv) the Purchase Contract Agent shall not be deemed to be a fiduciary as to such holders.

ARTICLE 6

REMEDIES

Section 6.01. Unconditional Right of Holders to Receive Contract Adjustment Payments and to Purchase Shares of Common Stock or Preferred Stock . Each Holder of a Unit shall have the right, which is absolute and unconditional, (i) subject to Article 5 , to receive each Contract Adjustment Payment with respect to the Purchase Contract comprising part of such Unit on the respective Payment Date for such Unit and (ii) except upon and following a Termination Event, to purchase shares of Common Stock or Preferred Stock, as applicable, pursuant to such Purchase Contract and, in each such case, to institute suit for the enforcement of any such right to receive Contract Adjustment Payments and the right to purchase shares of Common Stock or Preferred Stock, as applicable, and such rights shall not be impaired without the consent of such Holder.

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Section 6.02. Restoration of Rights and Remedies . If any Holder has instituted any proceeding to enforce any right or remedy under this Agreement and such proceeding has been

discontinued or abandoned for any reason, or has been determined adversely to such Holder, then and in every such case, subject to any determination in such proceeding, the Company and such Holder shall be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of such Holder shall continue as though no such proceeding had been instituted.

Section 6.03. Rights and Remedies Cumulative . Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Certificates in the last paragraph of Section 3.10 , no right or remedy herein conferred upon or reserved to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

Section 6.04. Delay or Omission Not Waiver . No delay or omission of any Holder to exercise any right upon a default or remedy upon a default shall impair any such right or remedy or constitute a waiver of any such right. Every right and remedy given by this Article or by law to the Holders may be exercised from time to time, and as often as may be deemed expedient, by such Holders.

Section 6.05. Undertaking for Costs . All parties to this Agreement agree, and each Holder of a Unit, by its acceptance of such Unit shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Agreement, or in any suit against the Purchase Contract Agent for any action taken, suffered or omitted by it as Purchase Contract Agent, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees and costs against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided that the provisions of this Section shall not apply to any suit instituted by the Purchase Contract Agent, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% of the Outstanding Units, or to any suit instituted by any Holder for the enforcement of interest on any Senior Notes or Contract Adjustment Payments on or after the respective Payment Date therefor in respect of any Unit held by such Holder, or for enforcement of the right to purchase shares of Common Stock or Preferred Stock, as applicable, under the Purchase Contracts constituting part of any Unit held by such Holder.

Section 6.06. Waiver of Stay or Extension Laws . The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Agreement; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Purchase Contract Agent or the Holders, but will suffer and permit the execution of every such power as though no such law had been enacted.

ARTICLE 7

THE PURCHASE CONTRACT AGENT

Section 7.01. Certain Duties and Responsibilities . (a) The Purchase Contract Agent:

(i) undertakes to perform, with respect to the Units, such duties and only such duties as are specifically set forth to be performed by it in this Agreement, the Pledge Agreement and the Remarketing Agreement and no implied covenants or obligations shall be read into this Agreement, the Pledge Agreement or the Remarketing Agreement against the Purchase Contract Agent; and

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(ii) in the absence of bad faith or gross negligence on its part, may, with respect to the Units, conclusively rely, as to the truth of the statements and the correctness

of the opinions expressed therein, upon certificates or opinions furnished to the Purchase Contract Agent and conforming to the requirements of this Agreement or the Pledge Agreement or the Remarketing Agreement, as applicable, but in the case of any certificates or opinions which by any provision hereof are specifically required to be furnished to the Purchase Contract Agent, the Purchase Contract Agent shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Agreement, the Pledge Agreement or the Remarketing Agreement, as applicable (but need not confirm or investigate the accuracy of the mathematical calculations or other facts stated therein).

(b) No provision of this Agreement, the Pledge Agreement or the Remarketing Agreement shall be construed to relieve the Purchase Contract Agent from liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that:

(i) this subsection shall not be construed to limit the effect of subsection (a) of this Section;

(ii) the Purchase Contract Agent shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be conclusively determined by a court of competent jurisdiction that the Purchase Contract Agent was grossly negligent in ascertaining the pertinent facts; and

(iii) no provision of this Agreement or the Pledge Agreement or the Remarketing Agreement shall require the Purchase Contract Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

(c) Whether or not therein expressly so provided, every provision of this Agreement, the Pledge Agreement and the Remarketing Agreement relating to the conduct or affecting the liability of or affording protection to the Purchase Contract Agent shall be subject to the provisions of this Section.

(d) The Purchase Contract Agent is authorized to execute and deliver the Pledge Agreement and the Remarketing Agreement in its capacity as Purchase Contract Agent.

Section 7.02. Notice of Default . Within 30 days after the occurrence of any default by the Company hereunder of which a Responsible Officer of the Purchase Contract Agent has actual knowledge, the Purchase Contract Agent shall transmit by mail to the Company and the Holders of Units, as their names and addresses appear in the Security Register, notice of such default hereunder, unless such default shall have been cured or waived.

Section 7.03. Certain Rights of Purchase Contract Agent . Subject to the provisions of Section 7.01 :

(a) the Purchase Contract Agent may, in the absence of bad faith, conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, Senior Note, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;

(b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by an Officers’ Certificate, Issuer Order or Issuer Request, and any resolution of the Board of Directors of the Company may be sufficiently evidenced by a Board Resolution;

(c) whenever in the administration of this Agreement, the Pledge Agreement or the Remarketing Agreement the Purchase Contract Agent shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting to take any action hereunder, the Purchase Contract Agent (unless other

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evidence be herein specifically prescribed in this Agreement) may, in the absence of bad faith on its part, conclusively rely upon an Officers’ Certificate of the Company;

(d) the Purchase Contract Agent may consult with counsel of its selection appointed with due care by it hereunder and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;

(e) the Purchase Contract Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Purchase Contract Agent, in its discretion, may make reasonable further inquiry or investigation into such facts or matters related to the execution, delivery and performance of the Purchase Contracts as it may see fit, and, if the Purchase Contract Agent shall determine to make such further inquiry or investigation, it shall be entitled to examine the relevant books, records and premises of the Company, personally or by agent or attorney;

(f) the Purchase Contract Agent may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees or an Affiliate and the Purchase Contract Agent shall not be responsible for any misconduct or negligence on the part of any agent, attorney, custodian or nominee or an Affiliate appointed with due care by it hereunder;

(g) the Purchase Contract Agent shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement at the request or direction of any of the Holders pursuant to this Agreement, unless such Holders shall have offered to the Purchase Contract Agent security or indemnity reasonably satisfactory to the Purchase Contract Agent against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;

(h) the Purchase Contract Agent shall not be liable for any action taken, suffered, or omitted to be taken by it in the absence of bad faith or gross negligence by it;

(i) the Purchase Contract Agent shall not be deemed to have notice of any default hereunder unless a Responsible Officer of the Purchase Contract Agent has actual knowledge thereof or unless written notice of any event that is in fact such a default is received by the Purchase Contract Agent at the Corporate Trust Office of the Purchase Contract Agent, and such notice references the Units and this Agreement;

(j) the Purchase Contract Agent may request that the Company deliver an Officers’ Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Agreement, which Officers’ Certificate may be signed by any person authorized to sign an Officers’ Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded;

(k) the rights, privileges, protections, immunities and benefits given to the Purchase Contract Agent, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Purchase Contract Agent in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder; and

(l) the Purchase Contract Agent shall not be required to initiate or conduct any litigation or collection proceedings hereunder and shall have no responsibilities with respect to any default hereunder except as expressly set forth herein.

Section 7.04. Not Responsible for Recitals or Issuance of Units . The recitals contained herein, in the Pledge Agreement, the Remarketing Agreement and in the Certificates shall be taken as the statements of the Company, and the Purchase Contract Agent assumes no responsibility for their accuracy or validity. The Purchase Contract Agent makes no representations as to the validity or sufficiency of either this Agreement or

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of the Units, or of the Pledge Agreement or the Pledge or the Collateral and shall have no responsibility for perfecting or maintaining the perfection of any security interest in the Collateral. The Purchase Contract Agent shall not be accountable for the use or application by the Company of the proceeds in respect of the Purchase Contracts.

Section 7.05. May Hold Units . Any Security Registrar or any other agent of the Company, or the Purchase Contract Agent and its Affiliates, in their individual or any other capacity, may become the owner or pledgee of Units and may otherwise deal with the Company, the Collateral Agent or any other Person with the same rights it would have if it were not Security Registrar or such other agent, or the Purchase Contract Agent. The Company may become the owner or pledgee of Units.

Section 7.06. Money Held in Custody . Money held by the Purchase Contract Agent in custody hereunder need not be segregated from the Purchase Contract Agent’s other funds except to the extent required by law or provided herein. The Purchase Contract Agent shall be under no obligation to invest or pay interest on any money received by it hereunder except as otherwise provided hereunder or agreed in writing with the Company.

Section 7.07. Compensation and Reimbursement . The Company agrees:

(a) to pay to the Purchase Contract Agent compensation for all services rendered by it hereunder, under the Pledge Agreement and under the Remarketing Agreement as the Company and the Purchase Contract Agent shall from time to time agree in writing;

(b) except as otherwise expressly provided for herein, to reimburse the Purchase Contract Agent upon its request for all reasonable expenses, disbursements and advances incurred or made by the Purchase Contract Agent in accordance with any provision of this Agreement, the Pledge Agreement and the Remarketing Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel) in connection with the negotiation, preparation, execution and delivery and performance of this Agreement, the Pledge Agreement and the Remarketing Agreement and any modification, supplement or waiver of any of the terms thereof, except any such expense, disbursement or advance as may be attributable to its gross negligence, willful misconduct or bad faith; and

(c) to indemnify the Purchase Contract Agent and any predecessor Purchase Contract Agent (and each of its directors, officers, agents and employees (collectively, the “ Indemnitees ”) for, and to hold it harmless against, any loss, claim, damage, fine, penalty, liability or expense (including reasonable fees and expenses of counsel) incurred without gross negligence, willful misconduct or bad faith on its part, arising out of or in connection with the acceptance or administration of its duties hereunder and under the Pledge Agreement and the Remarketing Agreement, including the Indemnitees’ reasonable costs and expenses of defending themselves against any claim (whether asserted by the Company, a Holder or any other person) or liability in connection with the exercise or performance of any of the Purchase Contract Agent’s powers or duties hereunder or thereunder.

The provisions of this Section shall survive the resignation and removal of the Purchase Contract Agent and the termination of this Agreement.

Section 7.08. Corporate Purchase Contract Agent Required, Eligibility . There shall at all times be a Purchase Contract Agent hereunder which shall be a Person organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having (or being a member of a bank holding company having) a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority and having a corporate trust office in the Borough of Manhattan, New York City, if there be such a Person in the Borough of Manhattan, New York City, qualified and eligible under this Article and willing to act on reasonable terms. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Purchase Contract Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

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Section 7.09. Resignation and Removal; Appointment of Successor . (a) No resignation or removal of the Purchase Contract Agent and no appointment of a successor Purchase Contract Agent pursuant to this Article shall become effective until the acceptance of appointment by the successor Purchase Contract Agent in accordance with the applicable requirements of Section 7.10 .

(b) The Purchase Contract Agent may resign at any time by giving written notice thereof to the Company 60 days prior to the effective date of such resignation. If the instrument of acceptance by a successor Purchase Contract Agent required by Section 7.10 shall not have been delivered to the Purchase Contract Agent within 30 days after the giving of such notice of resignation, the resigning Purchase Contract Agent may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Purchase Contract Agent.

(c) The Purchase Contract Agent may be removed at any time by Act of the Holders of at least a majority in number of the Outstanding Units delivered to the Purchase Contract Agent and the Company. If the instrument of acceptance by a successor Purchase Contract Agent required by Section 7.10 shall not have been delivered to the Purchase Contract Agent within 30 days after such Act, the Purchase Contract Agent being removed may petition any court of competent jurisdiction for the appointment at the expense of the Company of a successor Purchase Contract Agent.

(d) If at any time:

(i) the Purchase Contract Agent fails to comply with Section 310(b) of the TIA, as if the Purchase Contract Agent were an indenture trustee under an indenture qualified under the TIA, and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Unit for at least six months;

(ii) the Purchase Contract Agent shall cease to be eligible under Section 7.08 and shall fail to resign after written request therefor by the Company or by any such Holder; or

(iii) the Purchase Contract Agent shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Purchase Contract Agent or of its property shall be appointed or any public officer shall take charge or control of the Purchase Contract Agent or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,

then, in any such case, (i) the Company by a Board Resolution may remove the Purchase Contract Agent, or (ii) any Holder who has been a bona fide Holder of a Unit for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Purchase Contract Agent and the appointment of a successor Purchase Contract Agent.

(e) If the Purchase Contract Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Purchase Contract Agent for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Purchase Contract Agent and shall comply with the applicable requirements of Section 7.10 . If no successor Purchase Contract Agent shall have been so appointed by the Company and accepted appointment in the manner required by Section 7.10 , any Holder who has been a bona fide Holder of a Unit for at least six months, on behalf of itself and all others similarly situated, or the Purchase Contract Agent may petition at the expense of the Company any court of competent jurisdiction for the appointment of a successor Purchase Contract Agent.

(f) The Company shall give, or shall cause such successor Purchase Contract Agent to give, notice of each resignation and each removal of the Purchase Contract Agent and each appointment of a successor Purchase Contract Agent by mailing written notice of such event by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the applicable Security Register. Each notice shall include the name of the successor Purchase Contract Agent and the address of its Corporate Trust Office.

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Section 7.10. Acceptance of Appointment by Successor . (a) In case of the appointment hereunder of a successor Purchase Contract Agent, every such successor Purchase Contract

Agent so appointed shall execute, acknowledge and deliver to the Company and to the retiring Purchase Contract Agent an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Purchase Contract Agent shall become effective and such successor Purchase Contract Agent, without any further act, deed or conveyance, shall become vested with all the rights, powers, agencies and duties of the retiring Purchase Contract Agent; but, on the request of the Company or the successor Purchase Contract Agent, such retiring Purchase Contract Agent shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Purchase Contract Agent all the rights, powers and trusts of the retiring Purchase Contract Agent and duly assign, transfer and deliver to such successor Purchase Contract Agent all property and money held by such retiring Purchase Contract Agent hereunder.

(b) Upon request of any such successor Purchase Contract Agent, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Purchase Contract Agent all such rights, powers and agencies referred to in subsection (a) of this Section.

(c) No successor Purchase Contract Agent shall accept its appointment unless at the time of such acceptance such successor Purchase Contract Agent shall be qualified and eligible under this Article.

Section 7.11. Merger, Conversion, Consolidation or Succession to Business . Any Person into which the Purchase Contract Agent may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Purchase Contract Agent shall be a party, or any Person succeeding to all or substantially all the corporate trust business of the Purchase Contract Agent, shall be the successor of the Purchase Contract Agent hereunder, provided that such Person shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Certificates shall have been authenticated and executed on behalf of the Holders, but not delivered, by the Purchase Contract Agent then in office, any successor by merger, conversion or consolidation to such Purchase Contract Agent may adopt such authentication and execution and deliver the Certificates so authenticated and executed with the same effect as if such successor Purchase Contract Agent had itself authenticated and executed such Units.

Section 7.12. Preservation of Information; Communications to Holders . (a) The Purchase Contract Agent shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders received by the Purchase Contract Agent in its capacity as Security Registrar.

(b) If three or more Holders (herein referred to as “Applicants” ) apply in writing to the Purchase Contract Agent, and furnish to the Purchase Contract Agent reasonable proof that each such applicant has owned a Unit for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders with respect to their rights under this Agreement or under the Units and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Purchase Contract Agent shall mail to all the Holders copies of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Purchase Contract Agent of the materials to be mailed and of payment, or provision for the payment, of the reasonable expenses of such mailing.

Section 7.13. No Obligations of Purchase Contract Agent . Except to the extent otherwise expressly provided in this Agreement, the Purchase Contract Agent assumes no obligations and shall not be subject to any liability under this Agreement, the Pledge Agreement, the Remarketing Agreement or any Purchase Contract in respect of the obligations of the Holder of any Unit thereunder. The Company agrees, and each Holder of a Certificate, by its acceptance thereof, shall be deemed to have agreed, that the Purchase Contract Agent’s execution of the Certificates on behalf of the Holders shall be solely as agent and attorney-in-fact for the Holders, and that the Purchase Contract Agent shall have no obligation to perform such Purchase Contracts on behalf of the Holders, except to the extent expressly provided in Article 5 hereof. Anything contained in this Agreement to the contrary notwithstanding, in no event shall the Purchase Contract Agent or its officers, directors, employees or agents be liable under this Agreement, the Pledge Agreement or the Remarketing Agreement to any third party for indirect,

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incidental, special, punitive, or consequential loss or damage of any kind whatsoever, including lost profits, whether or not the likelihood of such loss or damage was known to the Purchase Contract Agent and regardless of the form of action.

Section 7.14. Tax Compliance . (a) The Purchase Contract Agent, on its own behalf and on behalf of the Company, will comply with all applicable certification, information reporting and withholding (including “backup” withholding) requirements imposed by applicable tax laws, regulations or administrative practice with respect to (i) any payments made with respect to the Units or (ii) the issuance, delivery, holding, transfer, redemption or exercise of rights under the Units. Such compliance shall include, without limitation, the preparation and timely filing of required returns and the timely payment of all amounts required to be withheld to the appropriate taxing authority or its designated agent.

(b) The Purchase Contract Agent shall comply in accordance with the terms hereof with any reasonable written direction received from the Company with respect to the execution or certification of any required documentation and the application of such requirements to particular payments or Holders or in other particular circumstances, and may for purposes of this Agreement conclusively rely on any such direction in accordance with the provisions of Section 7.01(a) hereof.

(c) The Purchase Contract Agent shall maintain all appropriate records documenting compliance with such requirements, and shall make such records available, on written request, to the Company or its authorized representative within a reasonable period of time after receipt of such request.

ARTICLE 8

SUPPLEMENTAL AGREEMENTS

Section 8.01. Supplemental Agreements Without Consent of Holders . Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Purchase Contract Agent, at any time and from time to time, may enter into one or more agreements supplemental hereto, in form satisfactory to the Company and the Purchase Contract Agent, to:

(a) evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Certificates;

(b) add to the covenants of the Company for the benefit of the Holders, or surrender any right or power herein conferred upon the Company;

(c) evidence and provide for the acceptance of appointment hereunder by a successor Purchase Contract Agent;

(d) make provision with respect to the rights of Holders pursuant to the requirements of Section 5.04(b) ;

(e) except as provided for in Section 5.04 , cure any ambiguity (or formal defect) or correct or supplement any provisions herein which may be inconsistent with any other provisions herein; or

(f) make any other provisions with respect to such matters or questions arising under this Agreement, provided that such action shall not adversely affect the interests of the Holders in any material respect.

Section 8.02. Supplemental Agreements with Consent of Holders . With the consent of the Holders of not less than a majority of the Outstanding Units voting together as one class, including without limitation the consent of the Holders obtained in connection with a tender or an exchange offer, by Act of said Holders delivered to the Company and the Purchase Contract Agent, the Company, when duly authorized, and the Purchase Contract

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Agent may enter into an agreement or agreements supplemental hereto for the purpose of modifying in any manner the terms of the Purchase Contracts, or the provisions of this Agreement or the rights of the Holders in respect of the Units; provided , however , that, except as contemplated herein, no such supplemental agreement shall, without the unanimous consent of the Holders of each outstanding Purchase Contract affected thereby,

(a) change any Payment Date;

(b) change the amount or the type of Collateral required to be Pledged to secure a Holder’s obligations under the Purchase Contract, unless such change is not adverse to the Holders, impair the right of the Holder of any Purchase Contract to receive distributions on the related Collateral or otherwise adversely affect the Holder’s rights in or to such Collateral or adversely alter the rights in or to such Collateral;

(c) reduce any Contract Adjustment Payments or change any place where, or the coin or currency in which, any Contract Adjustment Payment is payable;

(d) impair the right to institute suit for the enforcement of any Purchase Contract or any Contract Adjustment Payments;

(e) reduce the number of shares of Common Stock or Preferred Stock, as applicable, or the amount of any other property to be purchased pursuant to any Purchase Contract, increase the price to purchase shares of Common Stock or Preferred Stock, as applicable, or any other property upon settlement of any Purchase Contract or change the Purchase Contract Settlement Date or the right to Early Settlement or Cash Merger Early Settlement or otherwise adversely affect the Holder’s rights under the Purchase Contract; or

(f) reduce the percentage of the outstanding Purchase Contracts the consent of whose Holders is required for any modification or amendment to the provisions of this Agreement, the Purchase Contracts or the Pledge Agreement; provided that if any amendment or proposal referred to above would adversely affect only the Corporate Units or the Treasury Units, then only the affected class of Holders as of the record date for the Holders entitled to vote thereon will be entitled to vote on such amendment or proposal, and such amendment or proposal shall not be effective except with the consent of Holders of not less than a majority of such class; and provided , further , that the unanimous consent of the Holders of each outstanding Purchase Contract of such class affected thereby shall be required to approve any amendment or proposal specified in clauses (a) through (f) above.

It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental agreement, but it shall be sufficient if such Act shall approve the substance thereof.

Section 8.03. Execution of Supplemental Agreements . In executing, or accepting the additional agencies created by, any supplemental agreement permitted by this Article or the modifications thereby of the agencies created by this Agreement, the Purchase Contract Agent shall be provided, and (subject to Section 7.01 ) shall be fully authorized and protected in relying upon, an Officers’ Certificate and an Opinion of Counsel stating that the execution of such supplemental agreement is authorized or permitted by this Agreement and that any and all conditions precedent to the execution and delivery of such supplemental agreement have been satisfied. The Purchase Contract Agent may, but shall not be obligated to, enter into any such supplemental agreement which affects the Purchase Contract Agent’s own rights, duties or immunities under this Agreement or otherwise.

Section 8.04. Effect of Supplemental Agreements . Upon the execution of any supplemental agreement under this Article, this Agreement shall be modified in accordance therewith, and such supplemental agreement shall form a part of this Agreement for all purposes; and every Holder of Certificates theretofore or thereafter authenticated, executed on behalf of the Holders and delivered hereunder, shall be bound thereby.

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Section 8.05. Reference to Supplemental Agreements . Certificates authenticated, executed on behalf of the Holders and delivered after the execution of any supplemental agreement

pursuant to this Article may, and shall if required by the Purchase Contract Agent, bear a notation in form approved by the Purchase Contract Agent as to any matter provided for in such supplemental agreement. If the Company shall so determine, new Certificates so modified as to conform, in the opinion of the Purchase Contract Agent and the Company, to any such supplemental agreement may be prepared and executed by the Company and authenticated, executed on behalf of the Holders and delivered by the Purchase Contract Agent in exchange for outstanding Certificates.

ARTICLE 9

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEAS E

Section 9.01. Covenant Not to Consolidate, Merge, Convey, Transfer or Lease Property Except under Certain Conditions . The Company covenants that it will not consolidate with, convert into, or merge with and into, any other corporation or sell, assign, transfer, lease or convey all or substantially all of its properties and assets to any Person, unless:

(a) either the Company shall be the continuing corporation, or the successor (if other than the Company) shall be a corporation organized and existing under the laws of the United States of America or a State thereof or the District of Columbia and such corporation shall expressly assume all the obligations of the Company under the Purcha se Contracts, this Agreement, the Pledge Agreement, the Indenture (including any supplement thereto), the Remarketing Agreement by one or more supplemental agreements in form reasonably satisfactory to the Purchase Contract Agent and the Collateral Agent, executed and delivered to the Purchase Contract Agent and the Collateral Agent by such corporation; and

(b) the Company or such successor corporation, as the case may be, shall not, immediately after such consolidation, conversion, merger, sale, assignment, transfer, lease or conveyance, be in default of payment obligations under the Purchase Contracts, this Agreement, the Pledge Agreement, the Indenture (including any supplement thereto) or the Remarketing Agreement or in material default in the performance of any other covenants under any of the foregoing agreements.

Section 9.02. Rights and Duties of Successor Corporation . In case of any such merger, consolidation, share exchange, sale, assignment, transfer, lease or conveyance and upon any such assumption by a successor corporation in accordance with Section 9.01 , such successor corporation shall succeed to and be substituted for the Company with the same effect as if it had been named herein as the Company. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of PNM Resources, Inc., any or all of the Certificates evidencing Units issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Purchase Contract Agent; and, upon the order of such successor corporation, instead of the Company, and subject to all the terms, conditions and limitations in this Agreement prescribed, the Purchase Contract Agent shall authenticate and execute on behalf of the Holders and deliver any Certificates which previously shall have been signed and delivered by the officers of the Company to the Purchase Contract Agent for authentication and execution, and any Certificate evidencing Units which such successor corporation thereafter shall cause to be signed and delivered to the Purchase Contract Agent for that purpose. All the Certificates issued shall in all respects have the same legal rank and benefit under this Agreement as the Certificates theretofore or thereafter issued in accordance with the terms of this Agreement as though all of such Certificates had been issued at the date of the execution hereof.

In case of any such merger, consolidation, share exchange, sale, assignment, transfer, lease or conveyance, such change in phraseology and form (but not in substance) may be made in the Certificates evidencing Units thereafter to be issued as may be appropriate.

Section 9.03. Officers’ Certificate and Opinion of Counsel Given to Purchase Contract Agent . The Purchase Contract Agent, subject to Sections 7.01 and 7.03 , shall receive an Officers’ Certificate and an Opinion of

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Counsel as conclusive evidence that any such merger, consolidation, share exchange, sale, assignment, transfer, lease or conveyance, and any such assumption, complies with the provisions of this Article and that all conditions precedent to the consummation of any such merger, consolidation, share exchange, sale, assignment, transfer, lease or conveyance have been met.

ARTICLE 10

COVENANTS

Section 10.01. Performance Under Purchase Contracts . The Company covenants and agrees for the benefit of the Holders from time to time of the Units that it will duly and punctually perform its obligations under the Purchase Contracts in accordance with the terms of the Purchase Contracts and this Agreement.

Section 10.02. Maintenance of Office or Agency . The Company will maintain in the Borough of Manhattan, New York City an office or agency where Certificates may be presented or surrendered for acquisition of shares of Common Stock or Preferred Stock, as applicable, upon settlement of the Purchase Contracts on the Purchase Contract Settlement Date or upon Early Settlement or Cash Merger Early Settlement and for transfer of Collateral upon occurrence of a Termination Event, where Certificates may be surrendered for registration of transfer or exchange, for a Collateral Substitution or recreation of Corporate Units and where notices and demands to or upon the Company in respect of the Units and this Agreement may be served. The Company will give prompt written notice to the Purchase Contract Agent of the location, and any change in the location, of such office or agency. The Company initially designates the Corporate Trust Office of the Purchase Contract Agent as such office of the Company. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Purchase Contract Agent with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office, and the Company hereby appoints the Purchase Contract Agent as its agent to receive all such presentations, surrenders, notices and demands.

The Company may also from time to time designate one or more other offices or agencies where Certificates may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided , however , that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, New York City for such purposes. The Company will give prompt written notice to the Purchase Contract Agent of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates as the place of payment for the Units the Corporate Trust Office and appoints the Purchase Contract Agent at its Corporate Trust Office as paying agent in such city.

Section 10.03. Company to Reserve Common Stock and Preferred Stock . The Company shall at all times prior to the Purchase Contract Settlement Date reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock or Preferred Stock the full number of shares of Common Stock or Preferred Stock, as applicable, issuable against tender of payment in respect of all Purchase Contracts constituting a part of the Units evidenced by Outstanding Certificates.

Section 10.04. Covenants as to Common Stock and Preferred Stock . The Company covenants that all shares of Common Stock or Preferred Stock, as applicable, which may be issued against tender of payment in respect of any Purchase Contract constituting a part of the Outstanding Units will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable.

Section 10.05. Statements of Officers of the Company as to Default . The Company will deliver to the Purchase Contract Agent, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers’ Certificate, stating whether or not to the knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions hereof, and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge.

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Section 10.06. ERISA . Each Holder from time to time of the Units that is a Plan or who used assets of a Plan to purchase Units hereby represents that either (i) no portion of the assets used by such Holder to acquire the Corporate Units constitutes assets of the Plan or (ii) the purchase or holding of the Corporate Units by such purchaser or transferee will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar violation under any applicable laws.

Section 10.07. Tax Treatment . The Company covenants and agrees, for United States federal, state and local income and franchise tax purposes, to (i) treat a Holder’s acquisition of the Corporate Units as the acquisition of the Senior Note and Purchase Contract constituting the Corporate Units and (ii) treat each Holder as the owner of the applicable interest in the Collateral Account, including the Senior Notes and Applicable Ownership Interests in the Treasury Portfolio or the Treasury Securities.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

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[SIGNATURE PAGE TO AMENDED AND RESTATED PURCHASE CONTRACT AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

PNM RESOURCES, INC.

By: /s/Terry R. Horn Terry R. Horn Vice President and Treasurer


By: /s/ Patrick J. Crowley Patrick J. Crowley Vice President

EXHIBIT A

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT” ), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF ANY OF THESE SECURITIES IS HEREBY NOTIFIED THAT THE SELLER OF ANY OF THESE SECURITIES MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.


IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE PURCHASE CONTRACT AGENT SUCH OPINIONS OF COUNSEL, CERTIFICATES AND/OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE IN FORM REASONABLY SATISFACTORY TO IT AS PROVIDED FOR IN THE INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS AS PROVIDED FOR IN THE INDENTURE.

(FORM OF FACE OF CORPORATE UNIT CERTIFICATE) No. _________ Number of Corporate Units: ___________________

PNM RESOURCES, INC. Corporate Units

This Corporate Units Certificate certifies that ___________ is the registered Holder of the number of Corporate Units set forth above. Each Corporate Unit consists of (i) either (a) a 1/40 th , or 2.5%, undivided beneficial ownership interest of the Holder in one Senior Note due 2010 (the “Senior Note” ) of PNM Resources, Inc., a New Mexico corporation (the “Company” ), subject to the Pledge of such ownership interest of a Senior Note by such Holder pursuant to the Pledge Agreement, or (b) upon the occurrence of a Special Event Redemption prior to the Purchase Contract Settlement Date, the Applicable Ownership Interests, subject to the pledge of the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio by such Holder pursuant to the Pledge Agreement, and (ii) the rights and obligations of the Holder under one Purchase Contract with the Company. All capitalized terms used herein which are defined in the Purchase Contract Agreement (as defined on the reverse hereof) have the meaning set forth therein.

Pursuant to the Pledge Agreement, the Senior Notes or the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, constituting part of each Corporate Unit evidenced hereby have been pledged to the Collateral Agent, for the benefit of the Company, to secure the obligations of the Holder under the Purchase Contract comprising part of such Corporate Unit.

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The Pledge Agreement provides that all payments of the principal amount with respect to any of the Pledged Senior Notes (as defined in the Pledge Agreement) or the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, or interest or distributions on any Pledged Senior Notes or the appropriate Applicable Ownership Interests (as specified in clause (ii) of the definition of such term) in the Treasury Portfolio, as the case may be, constituting part of the Corporate Units received by the Securities Intermediary shall be paid by wire transfer in same day funds (i) in the case of (A) interest on Pledged Senior Notes or distributions with respect to the appropriate Applicable Ownership Interests (as specified in clause (ii) of the definition of such term) in the Treasury Portfolio, as the case may be, and (B) any payments of the principal amount of any Senior Notes or with respect to the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, that have been released from the Pledge pursuant to the Pledge Agreement, to the Purchase Contract Agent to the account designated by the Purchase Contract Agent, no later than 2:00 p.m., New York City time, on the Business Day such payment is received by the Securities Intermediary ( provided that in the event such payment is received by the Securities Intermediary on a day that is not a Business Day or after 12:30 p.m., New York City time, on a Business Day, then such payment shall be made no later than 10:30 a.m., New York City time, on the next succeeding Business Day) and (ii) in the case of payments with respect to the principal amount of the Pledged Senior Notes or with respect to the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, to the Company on the Purchase Contract Settlement Date (as described herein) in accordance with the terms of the Pledge Agreement, in full satisfaction of the respective obligations of the Holders of the Corporate Units of which such Pledged Senior Notes or the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, are a part under the Purchase Contracts forming a part of such Corporate Units. Interest on the Senior Notes and distributions on the appropriate Applicable Ownership Interests (as specified in clause (ii) of the definition of such term) in the Treasury Portfolio, as the case may be, forming part of a Corporate Units evidenced hereby, which are payable quarterly in arrears on February 16, May 16, August 16, and November 16 of each year, commencing February 16, 2006 (a “Payment Date” ), shall, subject to receipt thereof by the Purchase Contract Agent from the Securities Intermediary, be paid to the Person in whose name this Corporate Units Certificate (or a Predecessor Corporate Units Certificate) is registered at the close of business on the Record Date for such Payment Date.

Each Purchase Contract evidenced hereby obligates the Holder of this Corporate Units Certificate to purchase, and the Company to sell, on November 16, 2008 (the “Purchase Contract Settlement Date” ), at a price equal to $25 (the “Purchase Price” ), a number of newly issued shares of common stock, no par value, ( “Common Stock” ) (or, under certain circumstances, one-tenth as many newly issued shares of Convertible Preferred Stock, Class A ( “Preferred Stock” )), of the Company, equal to the Settlement Rate, unless on or prior to the Purchase Contract Settlement Date there shall have occurred a Termination Event or an Early Settlement or Cash Merger Early Settlement with respect to such Purchase Contract, all as provided in the Purchase Contract Agreement and more fully described on the reverse hereof. The Purchase Price, if not paid earlier, shall be paid on the Purchase Contract Settlement Date by application of payment received in respect of the principal amount with respect to any Pledged Senior Notes pursuant to the Remarketing or the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, pledged to secure the obligations under such Purchase Contract of the Holder of the Corporate Units of which such Purchase Contract is a part.

Each Purchase Contract evidenced hereby obligates the holder to agree, for United States federal, state and local income and franchise tax purposes, to (i) treat an acquisition of the Corporate Units as an acquisition of the Senior Notes and Purchase Contracts constituting the Corporate Units and (ii) treat itself as owner of the applicable interest in the Collateral Account, including the Senior Notes and the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio.

The Company shall pay, on each Payment Date, in respect of each Purchase Contract forming part of a Corporate Unit evidenced hereby, an amount (the “Contract Adjustment Payments” ) equal to 1.525% per year of the Stated Amount. Such Contract Adjustment Payments shall be payable to the Person in whose name this Corporate Units Certificate is registered at the close of business on the Record Date for such Payment Date.

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Interest on the Senior Notes and distributions on the Applicable Ownership Interests (as specified in clause (ii) of the definition of such term) and the Contract Adjustment Payments will be payable at the office of the Purchase Contract Agent in New York City. The Contract Adjustment Payments will be payable, at the option of the Company, by check mailed to the address of the Person entitled thereto at such Person’s address as it appears on the Security Register, or by wire transfer to the account designated by such Person by a prior written notice to the Purchase Contract Agent.

Reference is hereby made to the further provisions set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the Purchase Contract Agent by manual signature, this Corporate Units Certificate shall not be entitled to any benefit under the Pledge Agreement or the Purchase Contract Agreement or be valid or obligatory for any purpose.

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IN WITNESS WHEREOF, the Company and the Holder specified above have caused this instrument to be duly executed.

PNM RESOURCES, INC.

By: Name: Title:

HOLDER SPECIFIED ABOVE (as to obligations of such Holder under the Purchase Contracts) By: U.S. BANK NATIONAL ASSOCIATION, not individually but solely as attorney-in-fact of such Holder

By: Name: Title:

Date:

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CERTIFICATE OF AUTHENTICATION OF PURCHASE CONTRACT AGENT

This is one of the Corporate Units Certificates referred to in the within mentioned Purchase Contract Agreement.

By: Name: Title:

Date:

By: U.S. BANK NATIONAL ASSOCIATION, as Purchase Contract Agent

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(FORM OF REVERSE OF CORPORATE UNIT CERTIFICATE)

Each Purchase Contract evidenced hereby is governed by an Amended and Restated Purchase Contract Agreement, dated as of August 4, 2008 (as may be supplemented from time to time, the “Purchase Contract Agreement” ), between the Company and U.S. Bank National Association, as Purchase Contract Agent (including its successors hereunder, the “Purchase Contract Agent” ), to which Purchase Contract Agreement and supplemental agreements thereto reference, is hereby made for a description of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Purchase Contract Agent, the Company, and the Holders and of the terms upon which the Corporate Units Certificates are, and are to be, executed and delivered.

Each Purchase Contract evidenced hereby obligates the Holder of this Corporate Units Certificate to purchase, and the Company to sell, on the Purchase Contract Settlement Date at a price equal to $25 (the “Purchase Price” ), a number of shares of Common Stock (subject to Sections 5.08 and 5.09 ) equal to the Settlement Rate (or under certain circumstances one-tenth as many shares of Preferred Stock), unless an Early Settlement, a Cash Merger Early Settlement or a Termination Event with respect to the Units of which such Purchase Contract is a part shall have occurred. The “Settlement Rate” is equal to:

(1) if the Adjusted Applicable Market Value (as defined below) is greater than or equal to $25.116 (the “Threshold Appreciation Price” ), 0.9954 shares of Common Stock per Purchase Contract, (such number of shares, as adjusted from time to time pursuant to Section 5.04 , the “Minimum Share Number” );

(2) if the Adjusted Applicable Market Value is less than the Threshold Appreciation Price but greater than $20.93 (the “Reference Price” ), the number of shares of Common Stock per Purchase Contract having a value equal to the Stated Amount divided by the Adjusted Applicable Market Value; and

(3) if the Adjusted Applicable Market Value is less than or equal to the Reference Price, 1.1945 shares of Common Stock per Purchase Contract, (such number of shares, as adjusted from time to time pursuant to Section 5.04 , the “Maximum Share Number” ), in each case subject to adjustment as provided in the Purchase Contract Agreement (and in each case rounded upward or downward to the nearest 1/10,000th of a share).

No fractional shares of Common Stock or Preferred Stock, as applicable, will be issued upon settlement of Purchase Contracts, as provided in Section 5.09 of the Purchase Contract Agreement.

Each Purchase Contract evidenced hereby, which is settled through Early Settlement or Cash Merger Early Settlement, shall obligate the Holder of the related Corporate Units to purchase at the Purchase Price, and the Company to sell, a number of newly issued shares of Common Stock (subject to Sections 5.08 and 5.09 ) equal to the Early Settlement Rate (in the case of an Early Settlement) or applicable Settlement Rate (in the case of a Cash Merger Early Settlement).

The “Adjusted Applicable Market Value” means (i) prior to any adjustment pursuant to paragraph (i), (ii), (iii), (iv), (v), (vi), (vii) or (x) of Section 5.04(a) of the Purchase Contract Agreement, the Applicable Market Value, and (ii) at the time of and after any adjustment of the Fixed Settlement Rate pursuant to paragraph (i), (ii), (iii), (iv), (v), (vi), (vii) or (x) of Section 5.04(a) of the Purchase Contract Agreement, the Applicable Market Value multiplied by a fraction, the numerator of which shall be the Fixed Settlement Rate immediately after such adjustment pursuant to paragraph (i), (ii), (iii), (iv), (v), (vi), (vii) or (x) of Section 5.04(a) of the Purchase Contract Agreement and the denominator of which shall be the Fixed Settlement Rate immediately prior to such adjustment; provided , however , that if such adjustment to the Fixed Settlement Rate is required to be made pursuant to the occurrence of any of the events contemplated by paragraph (i), (ii), (iii), (iv), (v), (vi), (vii) or (x) of Section 5.04(a) of the Purchase Contract Agreement during the period taken into consideration for determining the Applicable Market Value, appropriate and customary adjustments shall be made to the Fixed Settlement Rate.

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(1) the closing sale price as of the close of the principal trading session (or, if no closing price is reported, the last reported sale price) per share on the New York Stock Exchange, Inc. (the “NYSE” ) on such date;

(2) if Common Stock is not listed for trading on the NYSE on any such date, the closing sale price (or, if no closing price is reported, the last reported sale price) per share as reported in the composite transactions for the principal United States national or regional securities exchange on which Common Stock is so listed;

(3) if Common Stock is not so listed on a United States national or regional securities exchange, the last quoted bid price for the Common Stock in the over-the-counter market as reported by the National Quotation Bureau or similar organization; or

(4) if the bid price referred to above is not available, the market value of Common Stock on such date as determined by a nationally recognized independent investment banking firm retained by the Company for purposes of determining the Closing Price.

A “Trading Day” means a day on which Common Stock (1) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (2) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of Common Stock.

In accordance with the terms of the Purchase Contract Agreement, the Holder of this Corporate Units Certificate may pay the Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, purchased pursuant to each Purchase Contract evidenced hereby by effecting a Cash Settlement, an Early Settlement or, if applicable, a Cash Merger Early Settlement or from the proceeds of the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio or a Remarketing of the related Pledged Senior Notes. Unless the Treasury Portfolio has replaced the Senior Notes as a component of Corporate Units, a Holder of Corporate Units who (1) does not, on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date, notify the Purchase Contract Agent of its intention to effect a Cash Settlement, or who does so notify the Purchase Contract Agent but fails to make an effective Cash Settlement on or prior to 5:00 p.m. (New York City time) on the sixth Business Day immediately preceding the Purchase Contract Settlement Date, or (2) on or prior to 5:00 p.m. (New York City time) on the seventh Business Day prior to the Purchase Contract Settlement Date, does not make an effective Early Settlement, shall pay the Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, to be delivered under the related Purchase Contract from the proceeds of the sale of the related Pledged Senior Notes held by the Collateral Agent in the Remarketing unless the Holder has previously made a Cash Merger Early Settlement. Unless the Treasury Portfolio has replaced the Senior Notes as a component of Corporate Units, such sale will be made by the Remarketing Agent pursuant to the terms of the Remarketing Agreement. If the Treasury Portfolio has replaced the Senior Notes as a component of Corporate Units, a Holder of Corporate Units who does not notify the Purchase Contract Agent, on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date of its intention to effect a Cash Settlement shall pay the Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, to be delivered under the related Purchase Contract from the proceeds at maturity of the Applicable Ownership Interests (as defined in clause (i) of the definition of such term) in the Treasury Portfolio.

As provided in the Purchase Contract Agreement, upon the occurrence of a Failed Final Remarketing, unless a Holder of a Pledged Senior Note has notified the Purchase Contract Agent of his intent to effect a Cash Settlement of the Purchase Contract and delivered the Purchase Price to the Collateral Agent pursuant to Section 5.02(b) of the Purchase Contract Agreement, such Holder shall be deemed to have exercised such Holder’s Put

A-7

Right and to have elected to pay the Purchase Price under the Purchase Contract out of a portion of the proceeds from the Put Right in full satisfaction of such Holder’s obligations under the Purchase Contract. In the event of the Company’s failure to pay the Put Price when due, the Company shall be deemed to have netted such Holder’s obligation to pay the Company the Purchase Price under the Purchase Contracts against the Company’s obligation to pay the Put Price, in full satisfaction of such Holder’s obligation under the Purchase Contracts.

The Company shall not be obligated to issue any shares of Common Stock or Preferred Stock, as applicable, in respect of a Purchase Contract or deliver any certificates therefor to the Holder unless it shall have received payment of the aggregate Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, to be purchased thereunder in the manner set forth in the Purchase Contract Agreement.

Under the terms of the Pledge Agreement and the Purchase Contract Agreement, the Purchase Contract Agent will be entitled to exercise the voting and any other consensual rights pertaining to the Pledged Senior Notes, but only to the extent instructed in writing by the Holders. Upon receipt of notice of any meeting at which holders of Senior Notes are entitled to vote or upon any solicitation of consents, waivers or proxies of holders of Senior Notes, the Purchase Contract Agent shall, as soon as practicable thereafter, mail, first class, postage pre-paid, to the Corporate Units Holders a notice:

(1) containing such information as is contained in the notice or solicitation;

(2) stating that each Holder on the record date set by the Purchase Contract Agent therefor (which, to the extent possible, shall be the same date as the record date for determining the holders of Senior Notes, as the case may be, entitled to vote) shall be entitled to instruct the Purchase Contract Agent as to the exercise of the voting rights pertaining to the Senior Notes underlying such Holder’s Corporate Units; and

(3) stating the manner in which such instructions may be given. Upon the written request of the Corporate Units Holders on such record date received by the Purchase Contract Agent at least six days prior to such meeting, the Purchase Contract Agent shall endeavor insofar as practicable to vote or cause to be voted, in accordance with the instructions set forth in such requests, the maximum aggregate principal amount of Senior Notes, as the case may be, as to which any particular voting instructions are received. In the absence of specific instructions from the Holder of a Corporate Unit, the Purchase Contract Agent shall abstain from voting the Senior Note evidenced by such Corporate Unit. The Company hereby agrees, if applicable, to solicit Holders of Corporate Units to timely instruct the Purchase Contract Agent in order to enable the Purchase Contract Agent to vote the Senior Notes. The Holders of Corporate Units shall have no voting or other rights in respect of Common Stock or Preferred Stock, as applicable.

Upon the occurrence of a Special Event Redemption, the Collateral Agent shall surrender the Pledged Senior Notes against delivery of an amount equal to the aggregate Redemption Price of the Pledged Senior Notes and shall deposit the funds in the Collateral Account in exchange for the Pledged Senior Notes. Thereafter, pursuant to the terms of the Pledge Agreement, the Collateral Agent shall cause the Securities Intermediary to apply an amount equal to the aggregate Redemption Amount of such funds to purchase on behalf of the Holders of Corporate Units the Treasury Portfolio and promptly (a) transfer the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio to the Collateral Account to secure the obligations of each Holder of Corporate Units to purchase shares of Common Stock or Preferred Stock, as applicable, under the Purchase Contracts constituting a part of such Corporate Units, (b) transfer the Applicable Ownership Interests (as specified in clause (ii) of the definition of such term) in the Treasury Portfolio to the Purchase Contract Agent for the benefit of the Holders of such Corporate Units and (c) remit the remaining portion of such funds to the Purchase Contract Agent for payment to the Holders of such Corporate Units.

Following the occurrence of a Special Event Redemption prior to the Purchase Contract Settlement Date, the Holders of Corporate Units and the Collateral Agent shall have such security interest rights and obligations with respect to the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio as the Holder of Corporate Units and the Collateral Agent had in respect of the Senior Notes, as

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the case may be, subject to the Pledge of the Applicable Ownership Interest (as specified in clause (i) of the definition of such term) as provided in the Pledge Agreement and any reference herein to the Senior Notes shall be deemed to be a reference to such Treasury Portfolio.

The Corporate Units Certificates are issuable only in denominations of a single Corporate Unit and any integral multiple thereof. The transfer of any Corporate Units Certificate will be registered and Corporate Units Certificates may be exchanged as provided in the Purchase Contract Agreement. The Security Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents permitted by the Purchase Contract Agreement. No service charge shall be required for any such registration of transfer or exchange, but the Company and the Purchase Contract Agent may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. A Holder who elects to substitute a Treasury Security for a Senior Note, thereby creating Treasury Units, shall be responsible for any fees or expenses payable in connection therewith. Except as provided in the Purchase Contract Agreement, for so long as the Purchase Contract underlying a Corporate Units remains in effect, such Corporate Units shall not be separable into its constituent parts, and the rights and obligations of the Holder of such Corporate Units in respect of the Senior Notes and Purchase Contract constituting such Corporate Units may be transferred and exchanged only as a Corporate Unit.

Unless the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, and subject to the conditions set forth in the Purchase Contract Agreement, the Holder of Corporate Units may substitute, at any time on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date, for the Pledged Senior Notes securing such Holder’s obligations under the related Purchase Contracts, Treasury Securities in an aggregate principal amount at maturity equal to the aggregate principal amount of the Pledged Senior Notes in accordance with the terms of the Purchase Contract Agreement and the Pledge Agreement. From and after such Collateral Substitution, each Unit for which such Pledged Treasury Securities secures the Holder’s obligation under the Purchase Contract shall be referred to as a “Treasury Unit” . A Holder may make such Collateral Substitution only in integral multiples of 40 Corporate Units for 40 Treasury Units.

If the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, a Holder may, at any time on or prior to the second Business Day immediately preceding the Purchase Contract Settlement Date, substitute Treasury Securities for the Applicable Ownership Interests in the Treasury Portfolio, but only in integral multiples of 4,000 Corporate Units. In such an event, the Holder shall transfer Treasury Securities to the Collateral Agent, and the Purchase Contract Agent shall instruct the Collateral Agent to release the Pledge and transfer to the Holder the appropriate Applicable Ownership Interests in the Treasury Portfolio.

The Company shall pay, on each Payment Date, the Contract Adjustment Payments payable in respect of each Purchase Contract to the Person in whose name the Corporate Units Certificate evidencing such Purchase Contract is registered at the close of business on the Record Date for such Payment Date. Contract Adjustment Payments will be payable at the office of the Purchase Contract Agent in New York City. The Contract Adjustment Payments will be payable, at the option of the Company, by check mailed to the address of the Person entitled thereto at such Person’s address as it appears on the Security Register, or by wire transfer to the account designated by such Person by a prior written notice to the Purchase Contract Agent.

The Purchase Contracts and all obligations and rights of the Company and the Holders thereunder, including, without limitation, the rights of the Holders to receive and the obligation of the Company to pay any Contract Adjustment Payments, shall immediately and automatically terminate, without the necessity of any notice or action by any Holder, the Purchase Contract Agent or the Company, if, on or prior to the Purchase Contract Settlement Date, a Termination Event shall have occurred. Upon the occurrence of a Termination Event, the Company shall promptly but in no event later than two Business Days thereafter give written notice to the Purchase Contract Agent, the Collateral Agent and the Holders, at their addresses as they appear in the Security Register. Upon and after the occurrence of a Termination Event, the Collateral Agent shall release the Pledged Senior Notes or the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) (as defined in the Pledge Agreement) in the Treasury Portfolio, as the case may be, from the Pledge in accordance with the provisions of the Pledge Agreement. A Corporate Unit shall thereafter represent the right to receive the Senior Note or the appropriate Applicable Ownership Interests in the Treasury Portfolio forming a part of such Corporate

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Unit in accordance with the terms of, and except as set forth in, the Purchase Contract Agreement and the Pledge Agreement.

Subject to and upon compliance with the provisions of the Purchase Contract Agreement, at the option of the Holder thereof, Purchase Contracts underlying Units may be settled early ( “Early Settlement” ) at any time on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date as provided in the Purchase Contract Agreement. In order to exercise the right to effect Early Settlement with respect to any Purchase Contract evidenced by this Certificate, the Holder of this Corporate Units Certificate shall deliver to the Purchase Contract Agent at the Corporate Trust Office prior to the time specified in the Purchase Contract Agreement an Election to Settle Early form set forth below duly completed and accompanied by payment in the form of immediately available funds payable to the order of the Company in an amount (the “Early Settlement Amount” ) equal to the sum of:


(ii) if such delivery is made with respect to any Purchase Contracts during the period from the close of business on any Record Date next preceding any Payment Date to the opening of business on such Payment Date, an amount equal to the Contract Adjustment Payments payable on such Payment Date with respect to such Purchase Contracts.

Upon Early Settlement of Purchase Contracts by a Holder of the related Units, the Pledged Senior Notes or Pledged Applicable Ownership Interests (as specified in clause (i) of the definition of such term) underlying such Units shall be released from the Pledge as provided in the Pledge Agreement and the Holder shall be entitled to receive a number of newly issued shares of Common Stock adjusted in the same manner and at the same time as the Settlement Rate is adjusted (the “Early Settlement Rate” ).

Upon the occurrence of a Cash Merger, a Holder of Corporate Units may effect Cash Merger Early Settlement of the Purchase Contract underlying such Corporate Units pursuant to the terms of Section 5.04(b)(ii) of the Purchase Contract Agreement. Upon Cash Merger Early Settlement of Purchase Contracts by a Holder of the related Corporate Units, the Pledged Senior Notes or Pledged Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio underlying such Corporate Units shall be released from the Pledge as provided in the Pledge Agreement.

Upon registration of transfer of this Corporate Units Certificate, the transferee shall be bound (without the necessity of any other action on the part of such transferee, except as may be required by the Purchase Contract Agent pursuant to the Purchase Contract Agreement), under the terms of the Purchase Contract Agreement and the Purchase Contracts evidenced hereby and the transferor shall be released from the obligations under the Purchase Contracts evidenced by this Corporate Units Certificate. The Company covenants and agrees, and the Holder, by its acceptance hereof, likewise covenants and agrees, to be bound by the provisions of this paragraph.

The Holder of this Corporate Units Certificate, by its acceptance hereof, irrevocably authorizes the Purchase Contract Agent to enter into and perform the related Purchase Contracts forming part of the Corporate Units evidenced hereby on its behalf as its attorney-in-fact, expressly withholds any consent to the assumption (i.e., affirmance) of the Purchase Contracts by the Company or its trustee in the event that the Company becomes the subject of a case under the Bankruptcy Code, agrees to be bound by the terms and provisions thereof, covenants and agrees to perform its obligations under such Purchase Contracts, consents to the provisions of the Purchase Contract Agreement, irrevocably authorizes the Purchase Contract Agent to enter into and perform the Purchase Contract Agreement and the Pledge Agreement on its behalf as its attorney-in-fact, and consents to, and agrees to be bound by, the Pledge of such Holder’s right, title and interest in and to the Collateral Account, including the Senior Notes or the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, underlying this Corporate Units Certificate pursuant to the Pledge Agreement. The Holder further covenants and agrees that, to the extent and in the manner provided in the Purchase Contract Agreement and the Pledge Agreement, but subject to the terms thereof, payments with respect to the

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aggregate principal amount of the Pledged Senior Notes or the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, on the Purchase Contract Settlement Date shall be paid by the Collateral Agent to the Company in satisfaction of such Holder’s obligations under such Purchase Contract and such Holder shall acquire no right, title or interest in such payments.

Subject to certain exceptions, the provisions of the Purchase Contract Agreement may be amended with the consent of the Holders of a majority of the Purchase Contracts.

The Purchase Contracts shall be governed by, and construed in accordance with, the laws of the State of New York.

Prior to due presentment of this Certificate for registration of transfer, the Company, the Purchase Contract Agent and its Affiliates and any agent of the Company or the Purchase Contract Agent may treat the Person in whose name this Corporate Units Certificate is registered as the owner of the Corporate Units evidenced hereby for the purpose of receiving payments of interest payable on the Senior Notes, receiving payments of Contract Adjustment Payments (subject to any applicable record date), performance of the Purchase Contracts and for all other purposes whatsoever, whether or not any payments in respect thereof be overdue and notwithstanding any notice to the contrary, and neither the Company, the Purchase Contract Agent nor any such agent shall be affected by notice to the contrary.

The Purchase Contracts shall not, prior to the settlement thereof, entitle the Holder to any of the rights of a holder of shares of Common Stock or Preferred Stock, as applicable.

A copy of the Purchase Contract Agreement is available for inspection at the offices of the Purchase Contract Agent.

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ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM: as tenants in common UNIF GIFT MIN ACT: ______________ Custodian _____________ (cust) (minor)

Under Uniform Gifts to Minors Act of

TENANT: as tenants by the entireties

Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto (Please insert Social Security or Taxpayer I.D. or other Identifying Number of Assignee) (Please print or type name and address including Postal Zip Code of Assignee) the within Corporate Units Certificates and all rights thereunder, hereby irrevocably constituting and appointing attorney __________________, to transfer said Corporate Units Certificates on the books of PNM Resources, Inc., with full power of substitution in the premises. Dated: Signature

NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Corporate Units Certificates in every particular, without alteration or enlargement or any change whatsoever.

Signature Guarantee:

JT TEN: as joint tenants with right of survivorship and not as tenants in common

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SETTLEMENT INSTRUCTIONS

The undersigned Holder directs that a certificate for shares of [Common Stock] [Preferred Stock] deliverable upon settlement on or after the Purchase Contract Settlement Date of the Purchase Contracts underlying the number of Corporate Units evidenced by this Corporate Units Certificate be registered in the name of, and delivered, together with a check in payment for any fractional share, to the undersigned at the address indicated below unless a different name and address have been indicated below. If shares are to be registered in the name of a Person other than the undersigned, the undersigned will pay any transfer tax payable incident thereto. Date: Signature Signature Guarantee: (if assigned to another person)

If shares are to be registered in the name of and delivered to a Person other than the Holder, please (i) print such Person’s name and address and (ii) provide a guarantee of your signature:

REGISTERED HOLDER Please print name and address of Registered Holder:

Name

Name

Address

Address

Social Security or other Taxpayer Identification Number, if any

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ELECTION TO SETTLE EARLY/CASH MERGER EARLY SETTLEMENT

The undersigned Holder of this Corporate Units Certificate hereby irrevocably exercises the option to effect [Early Settlement] [Cash Merger Early Settlement following a Cash Merger] in accordance with the terms of the Purchase Contract Agreement with respect to the Purchase Contracts underlying the number of Corporate Units evidenced by this Corporate Units Certificate specified below. The undersigned Holder directs that a certificate for shares of [Common Stock] [Preferred Stock] or other securities deliverable upon such [Early Settlement] [Cash Merger Early Settlement] be registered in the name of, and delivered, together with a check in payment for any fractional share and any Corporate Units Certificate representing any Corporate Units evidenced hereby as to which [Early Settlement] [Cash Merger Early Settlement] of the related Purchase Contracts is not effected, to the undersigned at the address indicated below unless a different name and address have been indicated below. Pledged Senior Notes or the appropriate Applicable Ownership Interests in the Treasury Portfolio, as the case may be, deliverable upon such [Early Settlement] [Cash Merger Early Settlement] will be transferred in accordance with the transfer instructions set forth below. If shares are to be registered in the name of a Person other than the undersigned, the undersigned will pay any transfer tax payable incident thereto. Dated: Signature Signature Guarantee:

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Number of Units evidenced hereby as to which [Early Settlement] [Cash Merger Early Settlement] of the related Purchase Contracts is being elected:

Transfer Instructions for Pledged Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio, as the case may be, transferable upon [Early Settlement] [Cash Merger Early Settlement] or a Termination Event:

If shares of [Common Stock] [Preferred Stock] or Corporate Units Certificates are to be registered in the name of and delivered to and Pledged Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio, as the case may be, are to be transferred to a Person other than the Holder, please print such Person’s name and address:


Name

Name

Address

Address


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EXHIBIT B

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT” ), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF ANY OF THESE SECURITIES IS HEREBY NOTIFIED THAT THE SELLER OF ANY OF THESE SECURITIES MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.


IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE PURCHASE CONTRACT AGENT SUCH OPINIONS OF COUNSEL, CERTIFICATES AND/OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE IN FORM REASONABLY SATISFACTORY TO IT AS PROVIDED FOR IN THE INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS AS PROVIDED FOR IN THE INDENTURE. (FORM OF FACE OF TREASURY UNIT CERTIFICATE) No. _______ Number of Treasury Units: ______ PNM RESOURCES, INC. Treasury Units

This Treasury Units Certificate certifies that ______________ is the registered Holder of the number of Treasury Units set forth above. Each Treasury Unit consists of (i) a 1/40 th , or 2.5%, undivided beneficial ownership interest of a Treasury Security having a principal amount at maturity equal to $1,000, subject to the Pledge of such Treasury Security by such Holder pursuant to the Pledge Agreement, and (ii) the rights and obligations of the Holder under one Purchase Contract with PNM Resources, Inc., a New Mexico corporation (the “Company” ). All capitalized terms used herein which are defined in the Purchase Contract Agreement (as defined on the reverse hereof) have the meaning set forth therein.

Pursuant to the Pledge Agreement, the Treasury Securities constituting part of each Treasury Unit evidenced hereby have been pledged to the Collateral Agent, for the benefit of the Company, to secure the obligations of the Holder under the Purchase Contract comprising part of such Treasury Unit.

Each Purchase Contract evidenced hereby obligates the Holder of this Treasury Units Certificate to purchase, and the Company, to sell, on November 16, 2008 (the “Purchase Contract Settlement Date” ), at a price equal to $25 (the “Purchase Price” ), a number of newly issued shares of common stock, no par value, ( “Common

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Stock” ) (or, under certain circumstances, one-tenth as many newly issued shares of Convertible Preferred Stock, Class A ( “Preferred Stock” )), of the Company, equal to the Settlement Rate, unless prior to or on the Purchase Contract Settlement Date there shall have occurred a Termination Event, an Early Settlement or a Cash Merger Early Settlement with respect to such Purchase Contract, all as provided in the Purchase Contract Agreement and more fully described on the reverse hereof. The Purchase Price, if not paid earlier, shall be paid on the Purchase Contract Settlement Date by application of the proceeds from the Treasury Securities at maturity pledged to secure the obligations of the Holder under such Purchase Contract of the Treasury Units of which such Purchase Contract is a part.

Each Purchase Contract evidenced hereby obligates the holder to agree, for United States federal, state and local income and franchise tax purposes, to (i) treat an acquisition of the Treasury Units as an acquisition of the Treasury Securities and Purchase Contracts constituting the Treasury Units and (ii) treat itself as owner of the applicable interest in the Collateral Account, including the Treasury Securities.

The Company shall pay, on each Payment Date, in respect of each Purchase Contract forming part of a Treasury Unit evidenced hereby, an amount (the “Contract Adjustment Payments” ) equal to 1.525% per year of the Stated Amount. Such Contract Adjustment Payments shall be payable to the Person in whose name this Treasury Units Certificate is registered at the close of business on the Record Date for such Payment Date.

Contract Adjustment Payments will be payable at the office of the Purchase Contract Agent in New York City. The Contract Adjustment Payments will be payable, at the option of the Company, by check mailed to the address of the Person entitled thereto at such Person’s address as it appears on the Security Register, or by wire transfer to the account designated by such Person by a prior written notice to the Purchase Contract Agent.

Reference is hereby made to the further provisions set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the Purchase Contract Agent by manual signature, this Treasury Units Certificate shall not be entitled to any benefit under the Pledge Agreement or the Purchase Contract Agreement or be valid or obligatory for any purpose.

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IN WITNESS WHEREOF, the Company and the Holder specified above have caused this instrument to be duly executed.

PNM RESOURCES, INC.

By: Name: Title:

HOLDER SPECIFIED ABOVE (as to obligations of such Holder under the Purchase Contracts) By: U.S. BANK NATIONAL ASSOCIATION, not individually but solely as attorney-in-fact or such Holder

By: Name: Title:

Dated:

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CERTIFICATE OF AUTHENTICATION OF PURCHASE CONTRACT AGENT

This is one of the Treasury Units referred to in the within-mentioned Purchase Contract Agreement.

By: Name: Title:

Date: _______________________


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(FORM OF REVERSE OF TREASURY UNIT CERTIFICATE)

Each Purchase Contract evidenced hereby is governed by an Amended and Restated Purchase Contract Agreement, dated as of August 4, 2008 (as may be supplemented from time to time, the “Purchase Contract Agreement” ) between the Company and U.S. Bank National Association, as Purchase Contract Agent (including its successors thereunder, herein called the “Purchase Contract Agent” ), to which the Purchase Contract Agreement and supplemental agreements thereto reference, is hereby made for a description of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Purchase Contract Agent, the Company and the Holders and of the terms upon which the Treasury Units Certificates are, and are to be, executed and delivered.

Each Purchase Contract evidenced hereby obligates the Holder of this Treasury Units Certificate to purchase, and the Company to sell, on the Purchase Contract Settlement Date at a price equal to $25 (the “Purchase Price” ) a number of newly issued shares of Common Stock (subject to Sections 5.08 and 5.09 ) equal to the Settlement Rate (or, under certain circumstances, one-tenth as many shares of Preferred Stock), unless an Early Settlement, a Cash Merger Early Settlement or a Termination Event with respect to the Units of which such Purchase Contract is a part shall have occurred. The “Settlement Rate” is equal to:

(1) if the Adjusted Applicable Market Value (as defined below) is greater than or equal to $25.116 (the “Threshold Appreciation Price” ), 0.9954 shares of Common Stock per Purchase Contract (such number of shares, as adjusted from time to time pursuant to Section 5.04 , the “Minimum Share Number” );

(2) if the Adjusted Applicable Market Value is less than the Threshold Appreciation Price but greater than $20.93 (the “Reference Price” ), the number of shares of Common Stock per Purchase Contract having a value equal to the Stated Amount divided by the Adjusted Applicable Market Value; and

(3) if the Adjusted Applicable Market Value is less than or equal to the Reference Price, 1.1945 shares of Common Stock per Purchase Contract (such number of shares, as adjusted from time to time pursuant to Section 5.04 , the “Maximum Share Number” ),

in each case subject to adjustment as provided in the Purchase Contract Agreement (and in each case rounded upward or downward to the nearest 1/10,000th of a share).

No fractional shares of Common Stock or Preferred Stock, as applicable, will be issued upon settlement of Purchase Contracts, as provided in Section 5.09 of the Purchase Contract Agreement.

Each Purchase Contract evidenced hereby, which is settled through Early Settlement or Cash Merger Early Settlement shall obligate the Holder of the related Treasury Units to purchase at the Purchase Price, and the Company to sell, a number of newly issued shares of Common Stock (subject to Sections 5.08 and 5.09 ) equal to the Early Settlement Rate (in the case of an Early Settlement) or applicable Settlement Rate (in the case of a Cash Merger Early Settlement).

The “Adjusted Applicable Market Value” means (i) prior to any adjustment pursuant to paragraph (i), (ii), (iii), (iv), (v), (vi), (vii) or (x) of Section 5.04(a) of the Purchase Contract Agreement, the Applicable Market Value, and (ii) at the time of and after any adjustment of the Fixed Settlement Rate pursuant to paragraph (i), (ii), (iii), (iv), (v), (vi), (vii) or (x) of Section 5.04(a) of the Purchase Contract Agreement, the Applicable Market Value multiplied by a fraction, the numerator of which shall be the Fixed Settlement Rate immediately after such adjustment pursuant to paragraph (i), (ii), (iii), (iv), (v), (vi), (vii) or (x) of Section 5.04(a) of the Purchase Contract Agreement and the denominator of which shall be the Fixed Settlement Rate immediately prior to such adjustment; provided , however , that if such adjustment to the Fixed Settlement Rate is required to be made pursuant to the occurrence of any of the events contemplated by paragraph (i), (ii), (iii), (iv), (v),

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(vi), (vii) or (x) of Section 5.04(a) of the Purchase Contract Agreement during the period taken into consideration for determining the Applicable Market Value, appropriate and customary adjustments shall be made to the Fixed Settlement Rate.



(1) the closing sale price as of the close of the principal trading session (or, if no closing price is reported, the last reported sale price) per share on the New York Stock Exchange, Inc. (the “NYSE” ) on such date;

(2) if Common Stock is not listed for trading on the NYSE on any such date, the closing sale price (or, if no closing price is reported, the last reported sale price) per share as reported in the composite transactions for the principal United States national or regional securities exchange on which Common Stock is so listed;

(3) if Common Stock is not so listed on a United States national or regional securities exchange, the last quoted bid price for the Common Stock in the over-the-counter market as reported by the National Quotation Bureau or similar organization; or

(4) if the bid price referred to above is not available, the market value of Common Stock on such date as determined by a nationally recognized independent investment banking firm retained by the Company for purposes of determining the Closing Price.

A “Trading Day” means a day on which Common Stock (1) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (2) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of Common Stock.

In accordance with the terms of the Purchase Contract Agreement, the Holder of this Treasury Unit shall pay the Purchase Price for the shares of the Common Stock or Preferred Stock, as applicable, purchased pursuant to each Purchase Contract evidenced hereby either by effecting an Early Settlement or, if applicable, a Cash Merger Early Settlement of each such Purchase Contract or by applying a principal amount of the Pledged Treasury Securities underlying such Holder’s Treasury Unit equal to the Stated Amount of such Purchase Contract to the purchase of the Common Stock or Preferred Stock, as applicable. A Holder of Treasury Units who (1) on or prior to 5:00 p.m. (New York City time) on the seventh Business Day prior to the Purchase Contract Settlement Date, does not make an effective Early Settlement or (2) on or prior to 5:00 p.m. (New York City time) on the seventh Business Day prior to the Purchase Contract Settlement Date, does not make an effective Cash Merger Early Settlement, shall pay the Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, to be issued under the related Purchase Contract from the proceeds of the Pledged Treasury Securities.

The Company shall not be obligated to issue any shares of Common Stock or Preferred Stock, as applicable, in respect of a Purchase Contract or deliver any certificates therefor to the Holder unless it shall have received payment of the aggregate purchase price for the shares of Common Stock or Preferred Stock, as applicable, to be purchased thereunder in the manner set forth in the Purchase Contract Agreement.

The Treasury Units Certificates are issuable only in registered form and only in denominations of a single Treasury Unit and any integral multiple thereof. The transfer of any Treasury Units Certificate will be registered and Treasury Units Certificates may be exchanged as provided in the Purchase Contract Agreement. The Security Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents permitted by the Purchase Contract Agreement. No service charge shall be required for any such registration of

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transfer or exchange, but the Company and the Purchase Contract Agent may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. A Holder who elects to substitute Senior Notes or Applicable Ownership Interests in the Treasury Portfolio, for Treasury Securities, thereby recreating Corporate Units, shall be responsible for any fees or expenses associated therewith. Except as provided in the Purchase Contract Agreement, for so long as the Purchase Contract underlying a Treasury Unit remains in effect, such Treasury Unit shall not be separable into its constituent parts, and the rights and obligations of the Holder of such Treasury Unit in respect of the Treasury Security and the Purchase Contract constituting such Treasury Unit may be transferred and exchanged only as a Treasury Unit.

Unless the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units and subject to the conditions set forth in the Purchase Contract Agreement, a Holder of Treasury Units may recreate, at any time on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date, Corporate Units by delivering to the Securities Intermediary Senior Notes with an aggregate principal amount, equal to the aggregate principal amount at maturity of the Pledged Treasury Securities in exchange for the release of such Pledged Treasury Securities in accordance with the terms of the Purchase Contract Agreement and the Pledge Agreement. From and after such substitution, the Holder’s Units shall be referred to as a “Corporate Unit” . Any such creation of Corporate Units may be effected only in multiples of 40 Treasury Units for 40 Corporate Units.

If the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, a Holder may, at any time on or prior to the second Business Day immediately preceding the Purchase Contract Settlement Date, substitute Treasury Securities for the Applicable Ownership Interests in the Treasury Portfolio, but only in integral multiples of 4,000 Treasury Units. In such an event, the Holder shall transfer Treasury Securities to the Collateral Agent, and the Purchase Contract Agent shall instruct the Collateral Agent to release the Pledge of and transfer to the Holder the appropriate Applicable Ownership Interests in the Treasury Portfolio.

The Company shall pay, on each Payment Date, the Contract Adjustment Payments payable in respect of each Purchase Contract to the Person in whose name the Treasury Units Certificate evidencing such Purchase Contract is registered at the close of business on the Record Date for such Payment Date. Contract Adjustment Payments will be payable at the office of the Purchase Contract Agent in New York City. The Contract Adjustment Payments will be payable, at the option of the Company, by check mailed to the address of the Person entitled thereto at such Person’s address as it appears on the Security Register, or by wire transfer to the account designated by such Person by a prior written notice to the Purchase Contract Agent.

The Purchase Contracts and all obligations and rights of the Company and the Holders thereunder, including, without limitation, the rights of the Holders to receive and the obligation of the Company to pay any Contract Adjustment Payments, shall immediately and automatically terminate, without the necessity of any notice or action by any Holder, the Purchase Contract Agent or the Company, if, on or prior to the Purchase Contract Settlement Date, a Termination Event shall have occurred. Upon the occurrence of a Termination Event, the Company shall promptly but in no event later than two Business Days thereafter give written notice to the Purchase Contract Agent, the Collateral Agent and the Holders, at their addresses as they appear in the Security Register. Upon and after the occurrence of a Termination Event, the Collateral Agent shall release the Pledged Treasury Securities (as defined in the Pledge Agreement) in accordance with the provisions of the Pledge Agreement. A Treasury Unit shall thereafter represent the right to receive the interest in the Treasury Security forming a part of such Treasury Unit, in accordance with the terms of and except as set forth in, the Purchase Contract Agreement and the Pledge Agreement.

Subject to and upon compliance with the provisions of the Purchase Contract Agreement, at the option of the Holder thereof, Purchase Contracts underlying Units may be settled early ( “Early Settlement” ) as provided in the Purchase Contract Agreement. In order to exercise the right to effect Early Settlement with respect to any Purchase Contract evidenced by this Certificate, the Holder of this Treasury Units Certificate shall deliver to the Purchase Contract Agent at the Corporate Trust Office an Election to Settle Early form set forth below duly completed and accompanied by payment in the form of immediately available funds payable to the order of the Company in an amount (the “Early Settlement Amount” ) equal to the sum of:

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(ii) if such delivery is made with respect to any Purchase Contracts during the period from the close of business on any Record Date next preceding any Payment Date to the opening of business on such Payment Date, an amount equal to the Contract Adjustment Payments payable on such Payment Date with respect to such Purchase Contracts.

Upon Early Settlement of Purchase Contracts by a Holder of the related Units, the Pledged Treasury Securities underlying such Units shall be released from the Pledge as provided in the Pledge Agreement and the Holder shall be entitled to receive a number of newly issued shares of Common Stock adjusted in the same manner and at the same time as the Settlement Rate is adjusted (the “Early Settlement Rate” ).

Upon the occurrence of a Cash Merger, a Holder of Treasury Units may effect Cash Merger Early Settlement of the Purchase Contract underlying such Treasury Units pursuant to the terms of Section 5.04(b)(ii) of the Purchase Contract Agreement. Upon Cash Merger Early Settlement of Purchase Contracts by a Holder of the related Treasury Units, the Pledged Treasury Securities underlying such Treasury Units shall be released from the Pledge as provided in the Pledge Agreement.

Upon registration of transfer of this Treasury Units Certificate, the transferee shall be bound (without the necessity of any other action on the part of such transferee, except as may be required by the Purchase Contract Agent pursuant to the Purchase Contract Agreement), under the terms of the Purchase Contract Agreement and the Purchase Contracts evidenced hereby and the transferor shall be released from the obligations under the Purchase Contracts evidenced by this Treasury Units Certificate. The Company covenants and agrees, and the Holder, by its acceptance hereof, likewise covenants and agrees, to be bound by the provisions of this paragraph.

The Holder of this Treasury Units Certificate, by its acceptance hereof, authorizes the Purchase Contract Agent to enter into and perform the related Purchase Contracts forming part of the Treasury Units evidenced hereby on its behalf as its attorney-in-fact, expressly withholds any consent to the assumption (i.e., affirmance) of the Purchase Contracts by the Company or its trustee in the event that the Company becomes the subject of a case under the Bankruptcy Code, agrees to be bound by the terms and provisions thereof, covenants and agrees to perform its obligations under such Purchase Contracts, consents to the provisions of the Purchase Contract Agreement, authorizes the Purchase Contract Agent to enter into and perform the Purchase Contract Agreement and the Pledge Agreement on its behalf as its attorney-in-fact, and consents to the Pledge of the Treasury Securities underlying this Treasury Units Certificate pursuant to the Pledge Agreement. The Holder further covenants and agrees, that, to the extent and in the manner provided in the Purchase Contract Agreement and the Pledge Agreement, but subject to the terms thereof, payments in respect to the aggregate principal amount of the Pledged Treasury Securities on the Purchase Contract Settlement Date shall be paid by the Collateral Agent to the Company in satisfaction of such Holder’s obligations under such Purchase Contract and such Holder shall acquire no right, title or interest in such payments.

Subject to certain exceptions, the provisions of the Purchase Contract Agreement may be amended with the consent of the Holders of a majority of the Purchase Contracts.

The Purchase Contracts shall for all purposes be governed by, and construed in accordance with, the laws of the State of New York.

Prior to due presentment of this Certificate for registration or transfer, the Company, the Purchase Contract Agent and its Affiliates and any agent of the Company or the Purchase Contract Agent may treat the Person in whose name this Treasury Units Certificate is registered as the owner of the Treasury Units evidenced hereby for the purpose of receiving payments of interest on the Treasury Securities, receiving payments of Contract Adjustment Payments (subject to any applicable record date), performance of the Purchase Contracts and for all other purposes whatsoever, whether or not any payments in respect thereof be overdue and notwithstanding any notice to the contrary, and

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neither the Company, the Purchase Contract Agent nor any such agent shall be affected by notice to the contrary.

The Purchase Contracts shall not, prior to the settlement thereof, entitle the Holder to any of the rights of a holder of shares of Common Stock or Preferred Stock, as applicable.

A copy of the Purchase Contract Agreement is available for inspection at the offices of the Purchase Contract Agent.

B-9

ABBREVIATIONS

The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM: as tenants in common UNIF GIFT MIN ACT: ______________ Custodian _____________ (cust) (minor)

Under Uniform Gifts to Minors Act of

TENANT: as tenants by the entireties

Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto (Please insert Social Security or Taxpayer I.D. or other Identifying Number of Assignee) (Please print or type name and address including Postal Zip Code of Assignee) the within Corporate Units Certificates and all rights thereunder, hereby irrevocably constituting and appointing attorney __________________, to transfer said Corporate Units Certificates on the books of PNM Resources, Inc., with full power of substitution in the premises. Dated: Signature

NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Corporate Units Certificates in every particular, without alteration or enlargement or any change whatsoever.

Signature Guarantee:

JT TEN: as joint tenants with right of survivorship and not as tenants in common

B-10

SETTLEMENT INSTRUCTIONS

The undersigned Holder directs that a certificate for shares of [Common Stock] [Preferred Stock] deliverable upon settlement on or after the Purchase Contract Settlement Date of the Purchase Contracts underlying the number of Treasury Units evidenced by this Treasury Units Certificate be registered in the name of, and delivered, together with a check in payment for any fractional share, to the undersigned at the address indicated below unless a different name and address have been indicated below. If shares are to be registered in the name of a Person other than the undersigned, the undersigned will pay any transfer tax payable incident thereto. Dated:

If shares are to be registered in the name of and delivered to a Person other than the Holder, please (i) print such Person’s name and address and (ii) provide a guarantee of your signature:


Name

Name

Address

Address


B-11

ELECTION TO SETTLE EARLY/CASH MERGER EARLY SETTLEMENT

The undersigned Holder of this Treasury Units Certificate hereby irrevocably exercises the option to effect [Early Settlement] [Cash Merger Early Settlement upon a Cash Merger] in accordance with the terms of the Purchase Contract Agreement with respect to the Purchase Contracts underlying the number of Treasury Units evidenced by this Treasury Units Certificate specified below. The option to effect [Early Settlement] [Cash Merger Early Settlement] may be exercised only with respect to Purchase Contracts underlying Treasury Units with an aggregate Stated Amount equal to $___ or an integral multiple thereof. The undersigned Holder directs that a certificate for shares of [Common Stock] [Preferred Stock] or other securities deliverable upon such [Early Settlement] [Cash Merger Early Settlement] be registered in the name of, and delivered, together with a check in payment for any fractional share and any Treasury Units Certificate representing any Treasury Units evidenced hereby as to which Cash Merger Early Settlement of the related Purchase Contracts is not effected, to the undersigned at the address indicated below unless a different name and address have been indicated below. Pledged Treasury Securities deliverable upon such [Early Settlement] [Cash Merger Early Settlement] will be transferred in accordance with the transfer instructions set forth below. If shares are to be registered in the name of a Person other than the undersigned, the undersigned will pay any transfer tax payable incident thereto. Dated: Signature Signature Guarantee:

B-12

Number of Units evidenced hereby as to which [Early Settlement] [Cash Merger Early Settlement] of the related Purchase Contracts is being elected:

Transfer Instructions for Pledged Treasury Securities Transferable upon [Early Settlement] [Cash Merger Early Settlement] or a Termination Event:

If shares of [Common Stock] [Preferred Stock] or Corporate Units Certificates are to be registered in the name of and delivered to and Pledged Senior Notes or the Applicable Ownership Interests in the Treasury Portfolio, as the case may be, are to be transferred to a Person other than the Holder, please print such Person’s name and address:


Name

Name

Address

Address


B-13

EXHIBIT C

INSTRUCTION TO PURCHASE CONTRACT AGENT

U.S. Bank National Association, as Purchase Contract Agent 100 Wall Street, Suite 1600 New York, New York 10005 Attention: Corporate Trust Administration Telephone: (212) 361-2505 Telecopy: (212) 809-4993

The undersigned Holder hereby notifies you that it has delivered to U.S. Bank National Association, as Securities Intermediary, for credit to the Collateral Account, $_____ aggregate principal amount of [Senior Notes] [Treasury Securities] in exchange for the [Pledged Senior Notes] [Pledged Treasury Securities] [Pledged Applicable Ownership Interest] held in the Collateral Account, in accordance with the Amended and Restated Pledge Agreement, dated August 4, 2008 (the “Pledge Agreement” ; unless otherwise defined herein, terms defined in the Pledge Agreement are used herein as defined therein), between you, the Company, the Collateral Agent, the Custodial Agent and the Securities Intermediary. The undersigned Holder has paid all applicable fees and expenses relating to such exchange. The undersigned Holder hereby instructs you to instruct the Collateral Agent to release to you on behalf of the undersigned Holder the [Pledged Senior Notes] [Pledged Treasury Securities] related to such [Corporate Units] [Treasury Units] [Pledged Applicable Ownership Interest]. Date: Signature Guarantee: Please print name and address of Registered Holder: Name Social Security or other Taxpayer Identification Number, if any Address

Re: [_________ Corporate Units] [_________ Treasury Units] of PNM Resources, Inc. a New Mexico corporation (the “Company” ).

C-1

EXHIBIT D

NOTICE FROM PURCHASE CONTRACT AGENT

TO HOLDERS (Transfer of Collateral upon Occurrence of a Termination Event) [HOLDER] Attention: Telecopy:

Please refer to the Amended and Restated Purchase Contract Agreement, dated as of August 4, 2008 (the “Purchase Contract Agreement” ; unless otherwise defined herein, terms defined in the Purchase Contract Agreement are used herein as defined therein), between the Company and the undersigned, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units and Treasury Units from time to time. We hereby notify you that a Termination Event has occurred and that [the Senior Notes] [Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio] [the Treasury Securities] compromising a portion of your ownership interest in ______ [Corporate Units] [Treasury Units] have been released and are being held by us for your account pending receipt of transfer instructions with respect to such [Senior Notes] [Applicable Ownership Interests] [Treasury Securities] (the “Released Securities” ). Pursuant to Section 3.15 of the Purchase Contract Agreement, we hereby request written transfer instructions with respect to the Released Securities. Upon receipt of your instructions and upon transfer to us of your [Corporate Units][Treasury Units] by delivery to us of your [Corporate Units Certificate][Treasury Units Certificate], we shall transfer the Released Securities by appropriate procedures, in accordance with your instructions. In the event you fail to effect such transfer or delivery, the Released Securities and any distributions thereon, shall be held in our name, or a nominee in trust for your benefit, until such time as such [Corporate Units][Treasury Units] are transferred or your [Corporate Units Certificate] [Treasury Units Certificate] is surrendered or satisfactory evidence is provided that such [Corporate Units Certificate][Treasury Units Certificate] has been destroyed, lost or stolen, together with any indemnification that we or the Company may require.

By:

Name:

Title: Authorized Signatory

Re: [Corporate Units] [Treasury Units] of PNM Resources, Inc., a New Mexico corporation (the “ Company” )

Date: By: U.S. Bank National Association, as the Purchase Contract Agent

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EXHIBIT E

NOTICE TO SETTLE BY CASH U.S. Bank National Association, as Purchase Contract Agent 100 Wall Street, Suite 1600 New York, New York 10005 Attention: Corporate Trust Administration Telephone: (212) 361-2505 Telecopy: (212) 809-4993

Re: Corporate Units of PNM Resources, Inc., a New Mexico corporation (the “Company” )

The undersigned Holder hereby irrevocably notifies you in accordance with Section 5.02(b) of the Amended and Restated Purchase Contract Agreement, dated as of August 4, 2008 (the “Purchase Contract Agreement” ; unless otherwise defined herein, terms defined in the Purchase Contract Agreement are used herein as defined therein), between the Company and you, as Purchase Contract Agent and as attorney-in-fact for the Holders of the Purchase Contracts, that such Holder has elected to pay to the Securities Intermediary for deposit in the Collateral Account, on or prior to 5:00 p.m. (New York City time) on the sixth Business Day immediately preceding the Purchase Contract Settlement Date (in lawful money of the United States by certified or cashiers’ check or wire transfer, in immediately available funds), $___ as the Purchase Price for the shares of [Common Stock] [Preferred Stock] issuable to such Holder by the Company with respect to Purchase Contracts on the Purchase Contract Settlement Date. The undersigned Holder hereby instructs you to notify promptly the Collateral Agent of the undersigned Holders’ election to make such Cash Settlement with respect to the Purchase Contracts related to such Holder’s Corporate Units. Date: Signature

Signature Guarantee: Please print name and address of Registered Holder:

E-1

EXHIBIT F

NOTICE FROM PURCHASE CONTRACT AGENT TO COLLATERAL AGENT AND INDENTURE TRUSTEE

(Settlement of Purchase Contract through Remarketing) U.S. Bank National Association, as Collateral Agent and Indenture Trustee 100 Wall Street, Suite 1600 New York, New York 10005 Attention: Corporate Trust Administration Telephone: (212) 361-2505 Telecopy: (212) 809-4993

Please refer to the Amended and Restated Purchase Contract Agreement, dated as of August 4, 2008 (the “Purchase Contract Agreement” ; unless otherwise defined herein, terms defined in the Purchase Contract Agreement are used herein as defined therein), between the Company and the undersigned, as Purchase Contract Agent and as attorney-in-fact for the Holders of Corporate Units from time to time.

In accordance with Section 5.02(b) of the Purchase Contract Agreement and, based on notices of [Early Settlements] [Cash Settlements] received from Holders of Corporate Units as of 5:00 p.m. (New York City time), on the seventh Business Day immediately preceding the Purchase Contract Settlement Date, we hereby notify you that an aggregate principal amount of $______ Senior Notes are to be tendered for purchase in the Remarketing.

By:

Name:

Title: Authorized Signatory

Re: Corporate Units of PNM Resources, Inc., a New Mexico corporation (the “ Company” )

Date: By: U.S. Bank National Association, as the Purchase Contract Agent

F-1

EXHIBIT G

NOTICE TO SETTLE BY CASH UPON FAILED FINAL REMARKETING U.S. Bank National Association, as Purchase Contract Agent 100 Wall Street, Suite 1600 New York, New York 10005 Attention: Corporate Trust Administration Telephone: (212) 361-2505 Telecopy: (212) 809-4993

Re: Corporate Units of PNM Resources, Inc., a New Mexico corporation (the “Company” )

The undersigned Holder hereby irrevocably notifies you in accordance with Section 5.02(c) of the Amended and Restated Purchase Contract Agreement, dated as of August 4, 2008 (the “Purchase Contract Agreement” ; unless otherwise defined herein, terms defined in the Purchase Contract Agreement are used herein as defined therein), between the Company and you, as Purchase Contract Agent and as attorney-in-fact for the Holders of the Purchase Contracts, that such Holder has elected to pay to the Securities Intermediary for deposit in the Collateral Account, on or prior to 5:00 p.m. (New York City time) on the Business Day immediately preceding the Purchase Contract Settlement Date (in lawful money of the United States by certified or cashiers’ check or wire transfer, in immediately available funds), $___ as the Purchase Price for the shares of [Common Stock] [Preferred Stock] issuable to such Holder by the Company with respect to Purchase Contracts on the Purchase Contract Settlement Date. The undersigned Holder hereby instructs you to notify promptly the Collateral Agent of the undersigned Holder’s election to make such Cash Settlement with respect to the Purchase Contracts related to such Holder’s Corporate Units. Date: Signature

Signature Guarantee: Please print name and address of Registered Holder:

G-1

EXHIBIT 4.2

EXECUTION COPY

PNM RESOURCES, INC.

and

U.S. BANK NATIONAL ASSOCIATION,

as Collateral Agent, Custodial Agent and Securities Intermediary

and


AMENDED AND RESTATED PLEDGE AGREEMENT


Table of Contents

ARTICLE 1

Definitions

ARTICLE 2

Pledge

ARTICLE 3

Distributions on Pledged Collateral

ARTICLE 4

Control

ARTICLE 5

Initial Deposit; Creation of Treasury Units and Recreation of Corporate Units

Page Section 1.01 Definitions 2

Section 2.01 Pledge 5 Section 2.02 Control 5 Section 2.03 Termination 5

Section 3.01 Income and Distributions 6 Section 3.02 Principal Payments Following Termination Event 6 Section 3.03 Principal Payments Prior to or on Purchase Contract Settlement Date 6 Section 3.04 Payments to Purchase Contract Agent 6 Section 3.05 Assets Not Properly Released 6

Section 4.01 Establishment of Collateral Account 7 Section 4.02 Treatment as Financial Assets 7 Section 4.03 Sole Control by Collateral Agent 7 Section 4.04 Securities Intermediary’s Location 7 Section 4.05 No Other Claims 7 Section 4.06 Investment and Release 8 Section 4.07 Statements and Confirmations 8 Section 4.08 Tax Allocations 8 Section 4.09 No Other Agreements 8 Section 4.10 Powers Coupled with an Interest 8 Section 4.11 Waiver of Lien; Waiver of Set-off 8

Section 5.01 Initial Deposit of Senior Notes 8 Section 5.02 Creation of Treasury Units 8

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ARTICLE 6

Voting Rights – Pledged Senior Notes

ARTICLE 7

Rights and Remedies

ARTICLE 8

Representations and Warranties; Covenants

ARTICLE 9

The Collateral Agent, The Custodial Agent and the Securities Intermediary

Section 5.03 Recreation of Corporate Units 9 Section 5.04 Termination Event 10 Section 5.05 Cash Settlement 11 Section 5.06 Early Settlement and Cash Merger Early Settlement 12 Section 5.07 Application of Proceeds in Settlement of Purchase Contracts 12 Section 5.08 Special Event Redemptions 14

Section 6.01 Voting Rights 14

Section 7.01 Rights and Remedies of the Collateral Agent 14 Section 7.02 Special Event Redemption 15 Section 7.03 Remarketing 15 Section 7.04 Intentionally Omitted 15 Section 7.05 Successful Remarketing 16 Section 7.06 Substitutions 16 Section 7.07 Legal Holidays 16

Section 8.01 Representations and Warranties 16 Section 8.02 Covenants 17

Section 9.01 Appointment, Powers and Immunities 17 Section 9.02 Instructions of the Company 18 Section 9.03 Reliance by Collateral Agent, Custodial Agent and Securities Intermediary 18 Section 9.04 Certain Rights 18 Section 9.05 Merger, Conversion, Consolidation or Succession to Business 18 Section 9.06 Rights in Other Capacities 19 Section 9.07 Non-reliance on Collateral Agent, the Custodial Agent and Securities Intermediary 19 Section 9.08 Compensation and Indemnity. The Company agrees to: 19 Section 9.09 Failure to Act 19 Section 9.10 Resignation of Collateral Agent, the Custodial Agent and Securities Intermediary 20 Section 9.11 Right to Appoint Agent or Advisor 21 Section 9.12 Survival 21

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ARTICLE 10

Amendments

ARTICLE 11

Miscellaneous

EXHIBITS Exhibit A – Instruction from Purchase Contract Agent to Collateral Agent (Creation of Treasury Units) Exhibit B – Instruction from Collateral Agent to Securities Intermediary (Creation to Treasury Units) Exhibit C – Instruction from Collateral Agent to Collateral Agent (Recreation of Corporate Units) Exhibit D – Instruction from Collateral Agent to Securities Intermediary (Recreation of Corporate Units) Exhibit E – Notice of Cash Settlement from Collateral Agent to Purchase Contract Agent Exhibit F – Instruction to Custodial Agent Regarding Remarketing Exhibit G – Instruction to Custodial Agent Regarding Withdrawal From Remarketing

Section 9.13 Exculpation 21

Section 10.01 Amendment Without Consent of Holders 21 Section 10.02 Amendment with Consent of Holders 22 Section 10.03 Execution of Amendments 22 Section 10.04 Effect of Amendments 23 Section 10.05 Reference of Amendments 23

Section 11.01 No Waiver 23 Section 11.02 Governing Law; Submission to Jurisdiction 23 Section 11.03 Notices 23 Section 11.04 Successors and Assigns 23 Section 11.05 Counterparts 23 Section 11.06 Severability 24 Section 11.07 Expenses, Etc. 24 Section 11.08 Security Interest Absolute 24

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AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of August 4, 2008, among PNM RESOURCES, INC. , a New Mexico corporation (the “Company” ), and U.S.

BANK NATIONAL ASSOCIATION , a national banking association, as collateral agent (in such capacity, together with its successors in such capacity, the “Collateral Agent” ), as custodial agent (in such capacity, together with its successors in such capacity, the “Custodial Agent” ), and as securities intermediary (as defined in Section 8-102(a)(14) of the UCC) with respect to the Collateral Account (in such capacity, together with its successors in such capacity, the “Securities Intermediary” ), and as purchase contract agent and as attorney-in-fact of the Holders from time to time of the Units (in such capacity, together with its successors in such capacity, the “Purchase Contract Agent” ) under the Purchase Contract Agreement.

RECITALS

WHEREAS, the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent are parties to a Pledge Agreement, dated as of October 7, 2005 (the “Original Agreement” ), relating to the Units.

WHEREAS, the Company and the Purchase Contract Agent are parties to the Purchase Contract Agreement, dated as of October 7, 2005 (the “ Original Purchase Contract Agreement” ), pursuant to which 4,000,000 Corporate Units have been issued and are outstanding.

WHEREAS, each Corporate Unit, at issuance, consisted of a unit comprised of (a) a stock purchase contract (a “Purchase Contract” ) pursuant to which the Holder will purchase from the Company on the Purchase Contract Settlement Date, for an amount equal to $25 (the “Stated Amount” ), a number of shares of either the Company’s Common Stock or Preferred Stock, in each case on the terms and subject to conditions set forth in the Original Purchase Contract Agreement, and (b) a 1/40, or 2.5%, beneficial ownership interest in a Senior Note.

WHEREAS, pursuant to the terms of the Original Purchase Contract Agreement and the Purchase Contracts, the Holders of the Units irrevocably authorized the Purchase Contract Agent, as attorney-in-fact of such Holders, among other things, to execute and deliver the Original Agreement on behalf of such Holders and to grant the pledge provided therein of the Collateral to secure the Obligations.

WHEREAS, the Original Purchase Contract Agreement is being amended and restated as of the date hereof pursuant to the Amended and Restated Purchase Contract Agreement, dated as of August 4, 2008 (the Original Purchase Contract Agreement, as amended pursuant to such Amended and Restated Purchase Contract Agreement, as modified and supplemented and in effect from time to time, the “Purchase Contract Agreement”) .

WHEREAS, Section 10.02 of the Original Agreement provides that, with the consent of the Holders, by Act of such Holders delivered to the Company, the Purchase Contract Agent, the Custodial Agent, the Securities Intermediary and the Collateral Agent, as the case may be, the Company, when duly authorized by a Board Resolution, the Purchase Contract Agent, the Custodial Agent, the Securities Intermediary and the Collateral Agent may amend the Original Agreement for the purpose of modifying in any manner the provisions of the Original Agreement or the rights of the Holders in respect of the Units.

WHEREAS, the Company proposes to amend the Original Agreement as herein provided (the “Amendment” ) and to effect the Amendment by amending and restating the Original Agreement in its entirety as provided herein.

WHEREAS, the Company has solicited the consent of the Holders of the outstanding Units to the Amendment and has received from the Holders and delivered to the Purchase Contract Agent, the Custodial Agent, the Securities Intermediary and the Collateral Agent, in accordance with Section 10.02 of the Original Agreement, Acts of the Holders of all of the outstanding Units.

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WHEREAS, the Company hereby requests that the Purchase Contract Agent, the Custodial Agent, the Securities Intermediary and the Collateral Agent join the Company in the execution

and delivery of this Amended and Restated Pledge Agreement.

WHEREAS, the execution and delivery of this Amended and Restated Pledge Agreement by the Company has been duly authorized by the Company by a Board Resolution.

NOW, THEREFORE, the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent agree as follows:

ARTICLE 1

Definitions

Section 1.01 Definitions . For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

(a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular, and nouns and pronouns of the masculine

gender include the feminine and neuter genders;

(b) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section, Exhibit or other subdivision;

(c) the following terms which are defined in the UCC shall have the meanings set forth therein: “certificated security,” “control,” “financial asse t,” “entitlement order,” “securities account” and “security entitlement” ;

(d) capitalized terms used herein and not defined herein have the meanings assigned to them in the Purchase Contract Agreement; and

(e) the following terms have the meanings given to them in this Section 1.01(e) :

“Agreement” means this Amended and Restated Pledge Agreement, as the same may be amended, modified or supplemented from time to time.

“Amendment” has the meaning given such term in the seventh paragraph of the recitals of this Agreement.

“Cash” means any coin or currency of the United States as at the time shall be legal tender for payment of public and private debts.

“Collateral” means the collective reference to:

(i) the Collateral Account and all investment property and other financial assets from time to time credited to the Collateral Account and all security entitlements with respect thereto, including, without limitation, (A) the Senior Notes and security entitlements relating thereto that are a component of the Corporate Units from time to time, (B) the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio that are a component of the Corporate Units from time to time, (C) any Treasury Securities and security entitlements relating thereto delivered from time to time upon creation of Treasury Units in accordance with Section 5.02 hereof and (D) payments made by Holders pursuant to Section 5.05 hereof;

2

(ii) all Proceeds of any of the foregoing (whether such Proceeds arise before or after the commencement of any proceeding under any applicable bankruptcy, insolvency or other similar law, by or against the pledgor or with respect to the pledgor); and

(iii) all powers and rights now owned or hereafter acquired under or with respect to the Collateral.

“Collateral Account” means the securities account of the Collateral Agent, maintained by the Securities Intermediary and designated “U.S. Bank National Association, as Collateral Agent of PNM Resources, Inc., as pledgee of U.S. Bank National Association, as the Purchase Contract Agent on behalf of and as attorney-in-fact for the Holders”.

“Collateral Agent” has the meaning specified in the paragraph preceding the recitals of this Agreement.

“Company” means the Person named as the “Company” in the first paragraph of this Agreement until a successor shall have become such pursuant to the applicable provisions of the Purchase Contract Agreement, and thereafter “Company” shall mean such successor.

“Custodial Agent” has the meaning specified in the paragraph preceding the recitals of this Agreement.

“Indemnitees” has the meaning given such term in Section 9.08(b) .

“Loss” or “Losses” has the meaning given such term in Section 9.08(b) .

“Obligations” means, with respect to each Holder, all obligations and liabilities of such Holder under such Holder’s Purchase Contract, the Purchase Contract Agreement and this Agreement or any other document made, delivered or given in connection herewith or therewith, in each case whether on account of principal, interest (including, without limitation, interest accruing before and after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to such Holder, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Company or the Collateral Agent or the Securities Intermediary that are required to be paid by the Holder pursuant to the terms of any of the foregoing agreements).

“Officers’ Certificate” means a certificate signed by (i) either the Company’s Chief Executive Officer, its President or one of its Vice Presidents, and (ii) either the Company’s Corporate Secretary or one of its Assistant Corporate Secretaries or its Treasurer or one of its Assistant Treasurers, and delivered to Collateral Agent, Custodial Agent, Securities Intermediary or Purchase Contract Agent, as applicable.

“Original Agreement” has the meaning given such term in the first paragraph of the recitals of this Agreement.

“Original Purchase Contract Agreement” has the meaning given such term in the second paragraph of the recitals of this Agreement.

“Permitted Investments” means any one of the following, in each case maturing on the Business Day following the date of acquisition:

(1) any evidence of indebtedness with an original maturity of 365 days or less issued, or directly and fully guaranteed or insured, by the United States of America or any agency or instrumentality thereof ( provided that the full faith and credit of the United States of America is pledged in support of the timely payment thereof or such indebtedness constitutes a general obligation of it);

3

(2) deposits, certificates of deposit or acceptances with an original maturity of 365 days or less of any institution which is a member of the Federal Reserve System having

combined capital and surplus and undivided profits of not less than $500 million at the time of deposit (and which may include the Collateral Agent);

(3) investments with an original maturity of 365 days or less of any Person that are fully and unconditionally guaranteed by a bank referred to in clause (2);

(4) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the United States of America or issued by any agency thereof and backed as to timely payment by the full faith and credit of the United States of America;

(5) investments in commercial paper, other than commercial paper issued by the Company or its Affiliates, of any corporation incorporated under the laws of the United States of America or any State thereof, which commercial paper has a rating at the time of purchase at least equal to “A-1” by Standard & Poor’s Ratings Services ( “S&P” ) or at least equal to “P-1” by Moody’s Investors Service, Inc. ( “Moody’s” ); and

(6) investments in money market funds (including, but not limited to, money market funds managed by the Collateral Agent or an affiliate of the Collateral Agent) registered under the Investment Company Act of 1940, as amended, rated in the highest applicable rating category by S&P or Moody’s.

“Person” means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof.

“Pledge” means the lien and security interest created by this Agreement.

“Pledged Applicable Ownership Interests” means the Holder’s Applicable Ownership Interests (as specified in clause (i) of the definition thereof) in the Treasury Portfolio and security entitlements with respect thereto from time to time credited to the Collateral Account and not then released from the Pledge.

“Pledged Senior Notes” means Senior Notes and security entitlements with respect thereto from time to time credited to the Collateral Account and not then released from the Pledge.

“Pledged Securities” means the Pledged Senior Notes, the Pledged Applicable Ownership Interests and the Pledged Treasury Securities, collectively.

“Pledged Treasury Securities” means Treasury Securities and security entitlements with respect thereto from time to time credited to the Collateral Account and not then released from the Pledge.

“Proceeds” has the meaning ascribed thereto in the UCC and includes, without limitation, all interest, dividends, cash, instruments, securities, financial assets and other property received, receivable or otherwise distributed upon the sale (including, without limitation, the Remarketing), exchange, collection or disposition of any financial assets from time to time held in the Collateral Account.

“Purchase Contract” has the meaning specified in the third paragraph of the recitals of this Agreement.

“Purchase Contract Agent” has the meaning specified in the paragraph preceding the recitals of this Agreement.

“Purchase Contract Agreement” has the meaning specified in the fifth paragraph of the recitals of this Agreement.

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“Purchase Contract Settlement Date” means November 16, 2008.


“Securities Intermediary” has the meaning specified in the paragraph preceding the recitals of this Agreement.

“Stated Amount” has the meaning specified in the third paragraph of the recitals of this Agreement.

“TRADES” means the Treasury/Reserve Automated Debt Entry System maintained by the Federal Reserve Bank of New York pursuant to the TRADES Regulations.

“TRADES Regulations” means the regulations of the United States Department of the Treasury, published at 31 C.F.R. Part 357, as amended from time to time. Unless otherwise defined herein, all terms defined in the TRADES Regulations are used herein as therein defined.

“Transfer” means (i) in the case of certificated securities in registered form, delivery as provided in § 8-301(a) of the UCC, endorsed to the transferee or in blank by an effective endorsement, (ii) in the case of Treasury Securities, registration of the transferee as the owner of such Treasury Securities on TRADES and (iii) in the case of security entitlements, including, without limitation, security entitlements with respect to Treasury Securities, a securities intermediary indicating by book entry that such security entitlement has been credited to the transferee’s securities account.

“Treasury Securities” means zero-coupon U.S. treasury securities that mature on November 15, 2008 (CUSIP No. 912828EC0).

“UCC” means the Uniform Commercial Code as in effect in the State of New York from time to time.

“Value” means, with respect to any item of Collateral on any date, as to (1) Cash, the face amount thereof, (2) Treasury Securities or Senior Notes, the aggregate principal amount thereof at maturity and (3) Applicable Ownership Interests (as specified in clause (i) of the definition of such term), the appropriate percentage of the aggregate principal amount at maturity of the Treasury Portfolio.

ARTICLE 2

Pledge

Section 2.01 Pledge . Each Holder, acting through the Purchase Contract Agent as such Holder’s attorney-in-fact, and the Purchase Contract Agent, acting solely as such attorney-in-

fact, hereby pledges and grants to the Collateral Agent, as agent of and for the benefit of the Company, a continuing first priority security interest in and to, and a lien upon and right of set-off against, all of such Person’s right, title and interest in and to the Collateral to secure the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Obligations. The Collateral Agent shall have all of the rights, remedies and recourses with respect to the Collateral afforded a secured party by the UCC, in addition to, and not in limitation of, the other rights, remedies and recourses afforded to the Collateral Agent by this Agreement.

Section 2.02 Control . The Collateral Agent shall have control of the Collateral Account pursuant to the provisions of Article 4 of this Agreement.

Section 2.03 Termination . As to each Holder, this Agreement and the Pledge created hereby shall terminate upon the satisfaction of such Holder’s Obligations. Upon such termination, the Collateral Agent shall, except as otherwise provided herein, instruct the Securities Intermediary to Transfer such Holder’s portion of the

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Collateral to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.

ARTICLE 3

Distributions on Pledged Collateral

Section 3.01 Income and Distributions . The Collateral Agent shall transfer all income and distributions received by the Collateral Agent on account of the Pledged Senior Notes, the

Pledged Applicable Ownership Interests or Permitted Investments from time to time held in the Collateral Account (ABA No. 789017000, Re: PNM Resources, Inc.) to the Purchase Contract Agent for distribution to the applicable Holders as provided in the Purchase Contracts or Purchase Contract Agreement.

Section 3.02 Principal Payments Following Termination Event . Following a Termination Event, the Collateral Agent shall transfer all principal payments it receives, if any, in respect of (1) the Pledged Senior Notes, (2) the Pledged Applicable Ownership Interests and (3) the Pledged Treasury Securities, to the Purchase Contract Agent for the benefit of the applicable Holders for distribution to such Holders in accordance with their respective interests, free and clear of the Pledge created hereby.

Section 3.03 Principal Payments Prior to or on Purchase Contract Settlement Date .

(a) Subject to the provisions of Sections 5.06 and 5.08 , and except as provided in Section 3.03(b) below, if no Termination Event shall have occurred, all principal payments received by the Securities Intermediary in respect of (1) the Pledged Senior Notes, (2) the Pledged Applicable Ownership Interests and (3) the Pledged Treasury Securities, shall be held and invested in Permitted Investments until the Purchase Contract Settlement Date, and transferred to the Company on the Purchase Contract Settlement Date as provided in Section 5.07 hereof. Any balance remaining in the Collateral Account shall be released from the Pledge and transferred to the Purchase Contract Agent for the benefit of the applicable Holders for distribution to such Holders in accordance with their respective interests, free and clear of the Pledge created thereby. The Company shall instruct the Collateral Agent in writing as to the type of Permitted Investments in which any payments made under this Section 3.03(a) shall be invested; provided , however , that if the Company fails to deliver such instructions by 10:30 a.m. (New York City time) on the day such payments are received by the Collateral Agent, the Collateral Agent shall invest such payments in the Permitted Investments as described in clause (6) of the definition of Permitted Investments. The Collateral Agent shall have no liability in respect of losses incurred as a result of the failure of the Company to provide timely written investment direction.

(b) All principal payments received by the Securities Intermediary in respect of (1) the Senior Notes, (2) the Applicable Ownership Interests (as specified in clause (i) of the definition thereof) in the Treasury Portfolio and (3) the Treasury Securities or security entitlements thereto, that, in each case, have been released from the Pledge pursuant hereto shall be transferred to the Purchase Contract Agent for the benefit of the applicable Holders for distribution to such Holders in accordance with their respective interests.

Section 3.04 Payments to Purchase Contract Agent . The Securities Intermediary shall use commercially reasonable efforts to deliver payments to the Purchase Contract Agent hereunder to the account designated by the Purchase Contract Agent for such purpose not later than 12:00 noon (New York City time) on the Business Day such payment is received by the Securities Intermediary; provided , however , that if such payment is received on a day that is not a Business Day or after 11:00 a.m. (New York City time) on a Business Day, then the Securities Intermediary shall use commercially reasonable efforts to deliver such payment to the Purchase Contract Agent no later than 10:30 a.m. (New York City time) on the next succeeding Business Day.

Section 3.05 Assets Not Properly Released . If the Purchase Contract Agent or any Holder shall receive any principal payments on account of financial assets credited to the Collateral Account and not released therefrom in accordance with this Agreement, the Purchase Contract Agent or such Holder shall hold the same as trustee of an express trust for the benefit of the Company and, upon receipt of an Officers’ Certificate of the Company so directing, promptly deliver the same to the Securities Intermediary for credit to the Collateral Account or to the Company for application to the Obligations of the Holders, and the Purchase Contract Agent and Holders shall

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acquire no right, title or interest in any such payments of principal amounts so received. The Purchase Contract Agent shall have no liability under this Section 3.05 unless and until it has been notified in writing that such payment was delivered to it erroneously and shall have no liability for any action taken, suffered or omitted to be taken prior to its receipt of such notice.

ARTICLE 4

Control

Section 4.01 Establishment of Collateral Account . The Securities Intermediary hereby confirms that:

(a) the Securities Intermediary has established the Collateral Account;

(b) the Collateral Account is a securities account;

(c) subject to the terms of this Agreement, the Securities Intermediary shall identify in its records the Collateral Agent as the entitlement holder entitled to exercise the rights that comprise any financial asset credited to the Collateral Account;

(d) all property delivered to the Securities Intermediary pursuant to this Agreement or the Purchase Contract Agreement, including any Applicable Ownership Interests (as specified in clause (i) of such definition) in the Treasury Portfolio and any Permitted Investments, will be credited promptly to the Collateral Account; and

(e) all securities or other property underlying any financial assets credited to the Collateral Account shall be (i) registered in the name of the Purchase Contract Agent and endorsed to the Securities Intermediary or in blank, (ii) registered in the name of the Securities Intermediary or (iii) credited to another securities account maintained in the name of the Securities Intermediary. In no case will any financial asset credited to the Collateral Account be registered in the name of the Purchase Contract Agent or any Holder or specially endorsed to the Purchase Contract Agent or any Holder unless such financial asset has been further endorsed to the Securities Intermediary or in blank.

Section 4.02 Treatment as Financial Assets . Each item of property (whether investment property, financial asset, security, instrument or cash) credited to the Collateral Account shall be treated as a financial asset.

Section 4.03 Sole Control by Collateral Agent . Except as provided in Section 6.01 , at all times prior to the termination of the Pledge, the Collateral Agent shall have sole control of the Collateral Account, and the Securities Intermediary shall take instructions and directions with respect to the Collateral Account solely from the Collateral Agent. If at any time the Securities Intermediary shall receive an entitlement order issued by the Collateral Agent and relating to the Collateral Account, the Securities Intermediary shall comply with such entitlement order without further consent by the Purchase Contract Agent or any Holder or any other Person. Except as otherwise permitted under this Agreement, until termination of the Pledge, the Securities Intermediary will not comply with any entitlement orders issued by the Purchase Contract Agent or any Holder.

Section 4.04 Securities Intermediary’s Location . The Collateral Account, and the rights and obligations of the Securities Intermediary, the Collateral Agent, the Purchase Contract Agent and the Holders with respect thereto, shall be governed by the laws of the State of New York. Regardless of any provision in any other agreement, for purposes of the UCC, New York shall be deemed to be the Securities Intermediary’s jurisdiction.

Section 4.05 No Other Claims . Except for the claims and interest of the Collateral Agent and of the Purchase Contract Agent and the Holders in the Collateral Account, the Securities Intermediary (without having conducted any investigation) does not know of any claim to, or interest in, the Collateral Account or in any financial asset credited thereto. If any Person asserts any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against the Collateral Account or in any

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financial asset carried therein, the Securities Intermediary will promptly notify the Collateral Agent and the Purchase Contract Agent.

Section 4.06 Investment and Release . All proceeds of financial assets from time to time deposited in the Collateral Account shall be invested and reinvested as provided in this Agreement. At no time prior to termination of the Pledge with respect to any particular property shall such property be released from the Collateral Account except in accordance with this Agreement or upon written instructions of the Collateral Agent.

Section 4.07 Statements and Confirmations . The Securities Intermediary will promptly send copies of all statements, confirmations and other correspondence concerning the Collateral Account and any financial assets credited thereto simultaneously to each of the Purchase Contract Agent and the Collateral Agent at their addresses for notices under this Agreement.

Section 4.08 Tax Allocations . The Purchase Contract Agent shall report all items of income, gain, expense and loss recognized in the Collateral Account, to the extent such reporting is required by law, to the Internal Revenue Service authorities in the manner required by law. Neither the Securities Intermediary nor the Collateral Agent shall have any tax reporting duties hereunder.

Section 4.09 No Other Agreements . The Securities Intermediary has not entered into, and prior to the termination of the Pledge will not enter into, any agreement with any other Person relating to the Collateral Account or any financial assets credited thereto, including, without limitation, any agreement to comply with entitlement orders of any Person other than the Collateral Agent.

Section 4.10 Powers Coupled with an Interest . The rights and powers granted in this Article 4 to the Collateral Agent have been granted in order to perfect its security interests in the Collateral Account, are powers coupled with an interest and will be affected neither by the bankruptcy of the Purchase Contract Agent or any Holder nor by the lapse of time. The obligations of the Securities Intermediary under this Article 4 shall continue in effect until the termination of the Pledge with respect to any and all Collateral.

Section 4.11 Waiver of Lien; Waiver of Set-off . The Securities Intermediary waives any security interest, lien or right to make deductions or set- offs that it may now have or hereafter acquire in or with respect to the Collateral Account, any financial asset credited thereto or any security entitlement in respect thereof. Neither the financial assets credited to the Collateral Account nor the security entitlements in respect thereof will be subject to deduction, set-off, banker’s lien or any other right in favor of any Person other than the Company.

ARTICLE 5

Initial Deposit; Creation of Treasury Units and Recreation of Corporate Units

Section 5.01 Initial Deposit of Senior Notes .

(a) Prior to or concurrently with the execution and delivery of this Agreement, the Purchase Contract Agent, on behalf of the initial Holders of the Corporate Units, shall Transfer to the Securities Intermediary, for credit to the Collateral Account, the Senior Notes or security entitlements relating thereto, and, in the case of security entitlements, the Securities Intermediary shall indicate by book-entry that a securities entitlement to such Senior Notes has been credited to the Collateral Account.

(b) The Collateral Agent may, at any time or from time to time, in its sole discretion, cause any or all securities or other property underlying any financial assets credited to the Collateral Account to be registered in the name of the Securities Intermediary, the Collateral Agent or their respective nominees; provided , however , that unless any Event of Default (as defined in the Indenture) shall have occurred and be continuing, the Collateral Agent agrees not to cause any Senior Notes to be so re-registered.

Section 5.02 Creation of Treasury Units .

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(a) Unless the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, a Holder of Corporate Units shall have the right, at any time on or

prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date, to create Treasury Units by substitution of Treasury Securities or security entitlements with respect thereto for the Pledged Senior Notes comprising a part of all or a portion of such Holder’s Corporate Units, in integral multiples of 40 Corporate Units by:

(i) transferring to the Purchase Contract Agent, for credit to the Collateral Account, Treasury Securities or security entitlements with respect thereto having a Value equal to the aggregate principal amount of the Pledged Senior Notes to be released, accompanied by a notice, substantially in the form of Exhibit C to the Purchase Contract Agreement, whereupon the Purchase Contract Agent shall deliver to the Collateral Agent a notice, substantially in the form of Exhibit A hereto, (A) stating that such Holder has notified the Purchase Contract Agent that such Holder has Transferred Treasury Securities or security entitlements with respect thereto to the Collateral Agent for credit to the Collateral Account, (B) stating the Value of the Treasury Securities or security entitlements with respect thereto Transferred by such Holder and (C) requesting that the Collateral Agent release from the Pledge the Pledged Senior Notes that are a component of such Corporate Units; and

(ii) delivering the related Corporate Units to the Purchase Contract Agent.

Upon receipt of such notice and confirmation that Treasury Securities or security entitlements with respect thereto have been credited to the Collateral Account as described in such notice, the Collateral Agent shall instruct the Securities Intermediary by a notice, substantially in the form of Exhibit B hereto, to release such Pledged Senior Notes from the Pledge by Transfer to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.

If the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units and subject to the conditions of the Purchase Contract Agreement, a Holder of Corporate Units may, at any time on or prior to the second Business Day immediately preceding the Purchase Contract Settlement Date, substitute Treasury Securities for the Applicable Ownership Interests in the Treasury Portfolio with respect to such Corporate Units, but only in multiples of 4,000 Corporate Units. In such an event, the Holder shall transfer the required amount of Treasury Securities to the Securities Intermediary, for credit to the Collateral Account, and the Purchase Contract Agent shall request the Collateral Agent to instruct the Securities Intermediary to release the Pledge of and transfer to the Holder the appropriate Applicable Ownership Interests in the Treasury Portfolio in the manner set forth above.

(b) Upon credit to the Collateral Account of Treasury Securities or security entitlements with respect thereto delivered by a Holder of Corporate Units and receipt of the related instruction from the Collateral Agent, the Securities Intermediary shall release such Pledged Senior Notes or Applicable Ownership Interest in the Treasury Portfolio, as the case may be, from the Pledge and shall promptly Transfer the same to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.

Section 5.03 Recreation of Corporate Units .

(a) Unless the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, at any time on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Purchase Contract Settlement Date, a Holder of Treasury Units shall have the right to recreate Corporate Units by substitution of Senior Notes or security entitlements with respect thereto for Pledged Treasury Securities in integral multiples of 40 Treasury Units by:

(i) transferring to the Securities Intermediary, for credit to the Collateral Account, Senior Notes or security entitlements with respect thereto having a principal amount equal to the Value of the Pledged Treasury Securities to be released, accompanied by a notice, substantially in the form of Exhibit C to the Purchase Contract Agreement, whereupon the Purchase Contract Agent shall deliver to the Collateral Agent a notice, substantially in the form of Exhibit C hereto, stating that such Holder has

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Transferred the Senior Notes or security entitlements with respect thereto to the Collateral Account for credit to the Collateral Account and requesting that the Collateral Agent release from the Pledge the Pledged Treasury Securities related to such Treasury Units; and

(ii) delivering the related Treasury Units to the Purchase Contract Agent.

Upon receipt of such notice and confirmation that Senior Notes or security entitlements with respect thereto have been credited to the Collateral Account as described in such notice, the Collateral Agent shall instruct the Securities Intermediary by a notice substantially in the form of Exhibit D hereto to release such Pledged Treasury Securities from the Pledge by Transfer to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.

If the Treasury Portfolio has replaced the Senior Notes as a component of the Corporate Units, a Holder of Treasury Units may, at any time on or prior to the second Business Day immediately preceding the Purchase Contract Settlement Date, substitute the Applicable Ownership Interests in the Treasury Portfolio for the Pledged Treasury Securities with respect to such Treasury Units, but only in multiples of 4,000 Treasury Units. In such an event, the Holder shall Transfer the required Applicable Ownership Interests in the Treasury Portfolio to the Securities Intermediary, for credit to the Collateral Account, and the Purchase Contract Agent shall request the Collateral Agent to instruct the Securities Intermediary to release and Transfer to the Holder the Pledged Treasury Securities in the manner set forth above.

(b) Upon credit to the Collateral Account of Senior Notes or security entitlements with respect thereto or Applicable Ownership Interests in the Treasury Portfolio delivered by a Holder of Treasury Units and receipt of the related instruction from the Collateral Agent, the Securities Intermediary shall release such Pledged Treasury Securities from the Pledge and shall promptly Transfer the same to the Purchase Contract Agent for distribution to such Holder, free and clear of the Pledge created hereby.

Section 5.04 Termination Event .

(a) Upon receipt by the Collateral Agent of written notice from the Company or the Purchase Contract Agent that a Termination Event has occurred, the Collateral Agent shall release all Collateral from the Pledge and shall promptly instruct the Securities Intermediary to Transfer:

(i) any Pledged Senior Notes or security entitlements with respect thereto or Pledged Applicable Ownership Interests;

(ii) any Pledged Treasury Securities; and

(iii) any payments by Holders (or the Permitted Investments of such payments) pursuant to Section 5.05 hereof, to the Purchase Contract Agent for the benefit of the Holders for distribution to such Holders, in accordance with their respective interests, free and clear of the Pledge created hereby; provided , however , if any Holder shall be entitled to receive less than $1,000 with respect to its interest in the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, the Purchase Contract Agent shall dispose of such interest for cash and deliver to such Holder cash in lieu of delivering the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio.

(b) If such Termination Event shall result from the Company’s becoming a debtor under the Bankruptcy Code, and if the Collateral Agent shall for any reason fail promptly to effectuate the release and Transfer of all Pledged Senior Notes, Pledged Applicable Ownership Interests, Pledged Treasury Securities and payments by Holders (or the Permitted Investments of such payments) pursuant to Section 5.05 and Proceeds of any of the foregoing, as the case may be, as provided by this Section 5.04 , the Purchase Contract Agent shall:

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(i) use its best efforts to obtain an opinion of a nationally recognized law firm to the effect that, notwithstanding the Company being the debtor in such a

bankruptcy case, the Collateral Agent will not be prohibited from releasing or Transferring the Collateral as provided in this Section 5.04 and shall deliver or cause to be delivered such opinion to the Collateral Agent within ten days after the occurrence of such Termination Event, and if (A) the Purchase Contract Agent shall be unable to obtain such opinion within ten days after the occurrence of such Termination Event or (B) the Collateral Agent shall continue, after delivery of such opinion, to refuse to effectuate the release and Transfer of all Pledged Senior Notes, Pledged Applicable Ownership Interests, Pledged Treasury Securities and the payments by Holders (or the Permitted Investments of such payments) pursuant to Section 5.05 hereof and Proceeds of any of the foregoing, as the case may be, as provided in this Section 5.04 , then the Purchase Contract Agent shall within fifteen days after the occurrence of such Termination Event commence an action or proceeding in the court having jurisdiction of the Company’s case under the Bankruptcy Code seeking an order requiring the Collateral Agent to effectuate the release and transfer of all Pledged Senior Notes, Pledged Applicable Ownership Interests, Pledged Treasury Securities and the payments by Holders (or the Permitted Investments of such payments) pursuant to Section 5.05 hereof and Proceeds of any of the foregoing, or as the case may be, as provided by this Section 5.04 ; or

(ii) commence an action or proceeding like that described in Section 5.04(b)(i) hereof within ten days after the occurrence of such Termination Event.

Section 5.05 Cash Settlement .

(a) Upon receipt by the Collateral Agent of (1) a notice from the Purchase Contract Agent promptly after the receipt by the Purchase Contract Agent of a notice from a Holder of Corporate Units or Treasury Units that such Holder has elected, in accordance with the procedures specified in Section 5.02(b)(i) of the Purchase Contract Agreement, to effect a Cash Settlement and (2) payment by such Holder by deposit in the Collateral Account at or prior to 11:00 a.m. (New York City time) on the sixth Business Day immediately preceding the Purchase Contract Settlement Date of the Purchase Price in lawful money of the United States by certified or cashier’s check or wire transfer of immediately available funds payable to or upon the order of the Securities Intermediary, then the Collateral Agent shall:

(i) instruct the Securities Intermediary promptly to invest any such Cash in Permitted Investments;

(ii) instruct the Securities Intermediary to release from the Pledge such Holder’s related Pledged Senior Notes or Pledged Applicable Ownership Interests, as applicable, as to which such Holder has effected a Cash Settlement pursuant to this Section 5.05(a) ; and

(iii) instruct the Securities Intermediary to Transfer all such Pledged Senior Notes, Pledged Applicable Ownership Interests or the Pledged Treasury Securities, as the case may be, to the Purchase Contract Agent for distribution to such Holder, in each case free and clear of the Pledge created hereby.

The Company shall instruct the Collateral Agent in writing as to the type of Permitted Investments in which any such Cash shall be invested; provided , however , that if the Company fails to deliver such written instructions by 10:30 a.m. (New York City time) on the day such Cash is received by the Collateral Agent or to be reinvested by the Securities Intermediary, the Collateral Agent shall instruct the Securities Intermediary to invest such Cash in the Permitted Investments described in clause (6) of the definition of Permitted Investments. In no event shall the Collateral Agent or Securities Intermediary be liable for the selection of Permitted Investments or for investment losses incurred thereon. The Collateral Agent and Securities Intermediary shall have no liability with respect to losses incurred as a result of the failure of the Company to provide timely written investment direction. Upon receipt of Proceeds upon the maturity of the Permitted Investments on the Purchase Contract Settlement Date, the Collateral Agent shall (A) instruct the Securities Intermediary to pay the portion of such Proceeds and deliver any certified or cashier’s checks received, in an aggregate amount equal to the Purchase Price, to the Company on the

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Purchase Contract Settlement Date, and (B) release any amounts in excess of the Purchase Price earned from such Permitted Investments to the Purchase Contract Agent for distribution to such Holder in accordance with the Purchase Contract Agreement.

(b) If a Holder of Corporate Units (unless the Treasury Portfolio has replaced the Senior Notes as a component of such Corporate Units) (i) fails to notify the Purchase Contract Agent of its intention to make a Cash Settlement as provided in Section 5.02(b)(i) of the Purchase Contract Agreement or (ii) does notify the Purchase Contract Agent of its intention to pay the Purchase Price in cash, but fails to make such payment as required by Section 5.02(b)(ii) of the Purchase Contract Agreement, such Holder shall be deemed to have consented to the disposition of such Holder’s Pledged Senior Notes in accordance with Section 5.02(b)(iii) of the Purchase Contract Agreement.

(c) As soon as practicable after 5:00 p.m. (New York City time) on the sixth Business Day immediately preceding the Purchase Contract Settlement Date, the Collateral Agent shall deliver to the Purchase Contract Agent a notice, substantially in the form of Exhibit E hereto, stating (i) the amount of Cash that it has received with respect to the Cash Settlement of Corporate Units, (ii) the amount of Cash that it has received with respect to the Cash Settlement of Treasury Units and (iii) the amount of Pledged Senior Notes to be remarketed in the Remarketing pursuant to Section 5.02(a) of the Purchase Contract Agreement.

(d) If there has been a Failed Final Remarketing, as soon as practicable after 5:00 p.m. (New York City time) on the Business Day immediately preceding the Purchase Contract Settlement Date, the Collateral Agent shall deliver to the Purchase Contract Agent a notice, stating (i) the amount of Cash that it has received with respect to the Cash Settlement of Corporate Units, (ii) the amount of Cash that it has received with respect to the Cash Settlement of Treasury Units and (iii) the amount of Pledged Senior Notes with respect to which an automatic deemed exercise of the Put Right has occurred pursuant to Section 5.02(a) of the Purchase Contract Agreement.

Section 5.06 Early Settlement and Cash Merger Early Settlement . Upon receipt by the Collateral Agent of a notice from the Purchase Contract Agent that a Holder of Units has elected to effect either (i) Early Settlement of its obligations under the Purchase Contracts forming a part of such Units in accordance with the terms of the Purchase Contracts and Section 5.07 of the Purchase Contract Agreement or (ii) Cash Merger Early Settlement of its obligations under the Purchase Contracts forming a part of such Units in accordance with the terms of the Purchase Contracts and Section 5.04(b)(ii) of the Purchase Contract Agreement (which notice shall set forth the number of such Purchase Contracts as to which such Holder has elected to effect Early Settlement or Cash Merger Early Settlement), and that the Purchase Contract Agent has received from such Holder, and paid to the Company as confirmed in writing by the Company, the related Purchase Price pursuant to the terms of the Purchase Contracts and the Purchase Contract Agreement and that all conditions to such Early Settlement or Cash Merger Early Settlement, as the case may be, have been satisfied, then the Collateral Agent shall release from the Pledge, (1) Pledged Senior Notes or the Pledged Applicable Ownership Interests in the case of a Holder of Corporate Units or (2) Pledged Treasury Securities, in the case of a Holder of Treasury Units, in each case with a Value equal to the product of (x) the Stated Amount times (y) the number of Purchase Contracts as to which such Holder has elected to effect Early Settlement or Cash Merger Early Settlement, and shall instruct the Securities Intermediary to Transfer all such Pledged Applicable Ownership Interests or Pledged Senior Notes or Pledged Treasury Securities, as the case may be, to the Purchase Contract Agent for distribution to such Holder, in each case free and clear of the Pledge created hereby. A Holder of Treasury Units may settle early only in integral multiples of 40 Treasury Units, and a Holder of Corporate Units, if the Treasury Portfolio has replaced the Senior Notes as a component of such Corporate Units, may settle early only in integral multiples of 4,000 Corporate Units.

Section 5.07 Application of Proceeds in Settlement of Purchase Contracts .

(a) If a Holder of Corporate Units (unless the Treasury Portfolio has replaced the Senior Notes as a component of such Corporate Units) has not elected to make an effective Cash Settlement by notifying the Purchase Contract Agent in the manner provided for in Section 5.02(b)(i) of the Purchase Contract Agreement or does notify the Purchase Contract Agent as provided in Section 5.02(b)(i) of the Purchase Contract Agreement of its intention to pay the Purchase Price in cash, but fails to make such payment as required by Section 5.02(b)(ii) of the Purchase Contract Agreement, such Holder shall be deemed to have elected to pay for the shares of Common

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Stock or Preferred Stock, as applicable, to be issued under such Purchase Contracts from the Proceeds of the Remarketing of the related Pledged Senior Notes. In the event of a Successful Remarketing, the Collateral Agent shall instruct the Securities Intermediary to Transfer the related Pledged Senior Notes to the Remarketing Agent, upon confirmation of deposit by the Remarketing Agent of the Proceeds of such Remarketing in the Collateral Account. On the Purchase Contract Settlement Date, the Collateral Agent shall, in consultation with the Purchase Contract Agent, instruct the Securities Intermediary to remit a portion of the Proceeds from such Remarketing equal to the aggregate principal amount of such Pledged Senior Notes to satisfy in full such Holder’s obligations to pay the Purchase Price to purchase the shares of Common Stock or Preferred Stock, as applicable, under the related Purchase Contracts and to remit the balance of the Proceeds from the Remarketing, if any, to the Purchase Contract Agent for distribution to such Holder.

Upon a Failed Final Remarketing, each Holder of Corporate Units (unless the Treasury Portfolio has replaced the Senior Notes represented by such Corporate Units) that has not elected to make an effective Cash Settlement by notifying the Purchase Contract Agent in the manner provided for in Section 5.02(c)(i) of the Purchase Contract Agreement or does notify the Purchase Contract Agent as provided in Section 5.02(c)(i) of the Purchase Contract Agreement of its intention to pay the Purchase Price in cash, but fails to make such payment as required by Section 5.02(c)(ii) of the Purchase Contract Agreement, shall be deemed to have exercised such Holder’s Put Right with respect to the Senior Notes that are a component of Corporate Units have elected to have a portion of the Proceeds of the Put Right set-off against such Holder’s obligation to pay the aggregate Price for the shares of Common Stock or Preferred Stock, as applicable, to be issued under the Purchase Contracts underlying such Corporate Units in full satisfaction of such Holders’ obligations under the Purchase Contracts. Following such set-off, the Holder’s obligations to pay the Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, will be deemed to be satisfied in full, and the Collateral Agent shall cause the Securities Intermediary to release the Pledged Senior Notes from the Collateral Account and shall promptly transfer the Pledged Senior Notes to the Company. Thereafter, the Collateral Agent shall promptly remit the remaining Proceeds of the Holder’s exercise of the Put Right in excess of the aggregate Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, to be issued under such Purchase Contracts to the Purchase Contract Agent for payment to the Holder of the Corporate Units to which such Senior Notes relate.

(b) A Holder of a Treasury Unit or a Corporate Unit (if the Treasury Portfolio has replaced the Senior Notes as a component of such Corporate Unit) shall be deemed to have elected to pay for the shares of Common Stock or Preferred Stock, as applicable, to be issued under such Purchase Contracts from the Proceeds of the related Pledged Treasury Securities or Pledged Applicable Ownership Interests, as the case may be. Promptly, after 11:00 a.m. (New York City time) on the Business Day immediately prior to the Purchase Contract Settlement Date, the Collateral Agent shall invest the Proceeds in the Permitted Investments set forth in Clause (6) of the definition of Permitted Investments, unless prior to 10:30 a.m. on such date the Company shall otherwise instruct the Collateral Agent in writing as to the type of Permitted Investments in which any Proceeds shall be invested. In no event shall the Collateral Agent be liable for the selection of Permitted Investments or for investment losses incurred thereon. The Collateral Agent shall have no liability in respect of losses incurred as a result of the failure of the Company to provide timely written investment direction. Without receiving any instruction from any Holder, the Collateral Agent shall instruct the Securities Intermediary to remit the Proceeds of the related Pledged Treasury Securities or Pledged Applicable Ownership Interests, as the case may be, to the Company in settlement of such Purchase Contracts on the Purchase Contract Settlement Date. In the event the sum of the Proceeds from the related Pledged Treasury Securities or Pledged Applicable Ownership Interests, as the case may be, and the investment earnings from the investment in Permitted Investments exceeds the aggregate Purchase Price of the Purchase Contracts being settled thereby, the Collateral Agent shall instruct the Securities Intermediary to transfer such excess, when received, to the Purchase Contract Agent for distribution to Holders.

(c) On or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Initial Remarketing Date, but no earlier than the Payment Date immediately preceding such date, Holders of Separate Senior Notes may elect to have their Separate Senior Notes remarketed under the Remarketing Agreement, by delivering their Separate Senior Notes along with a notice of such election, substantially in the form of Exhibit F hereto, to the Collateral Agent. The Collateral Agent, acting as Custodial Agent, shall hold Separate Senior Notes in an account separate from the Collateral Account in which the Pledged Securities shall be held. Holders of Separate Senior Notes electing to have their Separate Senior Notes remarketed will also have the right to

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withdraw that election by written notice to the Collateral Agent, substantially in the form of Exhibit G hereto, on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Initial Remarketing Date, upon which notice the Custodial Agent shall return such Separate Senior Notes to such Holder. After such time, such election shall become an irrevocable election to have such Separate Senior Notes remarketed in such Remarketing.

By 12:00 noon (New York City time) on the Business Day immediately preceding the Initial Remarketing Date, the Custodial Agent shall notify the Remarketing Agent of the aggregate principal amount of the Separate Senior Notes to be remarketed. In the event of a Successful Remarketing, the Custodial Agent shall deliver all remarketed Separate Senior Notes to the Remarketing Agent and the Remarketing Agent will remit to the Custodial Agent the remaining portion of the proceeds of such Remarketing for payment to the Holders of the remarketed Separate Senior Notes, in accordance with their respective interests. In the event of a Failed Final Remarketing, the Custodial Agent will promptly return such Separate Senior Notes to the appropriate Holders.

Section 5.08 Special Event Redemption . If the Collateral Agent receives written notice that a Special Event Redemption has occurred while Senior Notes are still credited to the Collateral Account, the Collateral Agent shall apply the Redemption Amount to purchase the Treasury Portfolio, and the Collateral Agent shall credit the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio to the Collateral Account and shall transfer the Applicable Ownership Interests (as specified in clause (ii) of the definition of such term) in the Treasury Portfolio to the Purchase Contract Agent for distribution to the Holders of the Corporate Units. Upon credit to the Collateral Account of the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio having a Value equal to the aggregate principal amount of the Pledged Senior Notes, the Collateral Agent shall cause the Securities Intermediary to release the Pledged Senior Notes from the Collateral Account and shall promptly transfer the Pledged Senior Notes to the Company.

ARTICLE 6

Voting Rights - Pledged Senior Notes

Section 6.01 Voting Rights . Subject to the terms of Section 4.02 of the Purchase Contract Agreement, the Purchase Contract Agent may exercise, or refrain from exercising, any and

all voting and other consensual rights pertaining to the Pledged Senior Notes or any part thereof for any purpose not inconsistent with the terms of this Agreement and in accordance with the terms of the Purchase Contract Agreement; provided , that the Purchase Contract Agent shall not exercise or shall not refrain from exercising such right, as the case may be, if, in the reasonable judgment of the Purchase Contract Agent, such action would impair or otherwise have a material adverse effect on the value of all or any of the Pledged Senior Notes; and provided , further , that the Purchase Contract Agent shall give the Company and the Collateral Agent at least five Business Days’ prior written notice of the manner in which it intends to exercise, or its reasons for refraining from exercising, any such right. Upon receipt of any notices and other communications in respect of any Pledged Senior Notes, including notice of any meeting at which holders of the Senior Notes are entitled to vote or solicitation of consents, waivers or proxies of holders of the Senior Notes, the Collateral Agent shall use reasonable efforts to send promptly to the Purchase Contract Agent such notice or communication, and as soon as reasonably practicable after receipt of a written request therefor from the Purchase Contract Agent, execute and deliver to the Purchase Contract Agent such proxies and other instruments in respect of such Pledged Senior Notes (in form and substance satisfactory to the Collateral Agent) as are prepared by the Company and delivered to the Purchase Contract Agent with respect to the Pledged Senior Notes.

ARTICLE 7

Rights and Remedies

Section 7.01 Rights and Remedies of the Collateral Agent .

(a) In addition to the rights and remedies specified in Section 5.07 hereof or otherwise available at law or in equity, after an event of default (as specified in Section 7.01(b) below) hereunder, the Collateral Agent shall have all of the rights and remedies with respect to the Collateral of a secured party under the

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UCC (whether or not the UCC is in effect in the jurisdiction where the rights and remedies are asserted) and the TRADES Regulations and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted. Without limiting the generality of the foregoing, such remedies may include, to the extent permitted by applicable law, (1) retention of the Pledged Senior Notes, Pledged Treasury Securities or the applicable Pledged Applicable Ownership Interests in full satisfaction of the Holders’ obligations under the Purchase Contracts and the Purchase Contract Agreement or (2) sale of the Pledged Senior Notes, Pledged Treasury Securities or the applicable Pledged Applicable Ownership Interests in one or more public or private sales.

(b) Without limiting any rights or powers otherwise granted by this Agreement to the Collateral Agent, in the event the Collateral Agent is unable to make payments to the Company on account of the applicable Pledged Applicable Ownership Interests, or on account of principal payments of any Pledged Treasury Securities as provided in Article 3 hereof, in satisfaction of the Obligations of the Holder of the Units of which such applicable Pledged Applicable Ownership Interests or such Pledged Treasury Securities, as applicable, are a part under the related Purchase Contracts, the inability to make such payments shall constitute an event of default hereunder and the Collateral Agent shall have and may exercise, with reference to such Pledged Treasury Securities or Pledged Applicable Ownership Interests, as applicable, any and all of the rights and remedies available to a secured party under the UCC and the TRADES Regulations after default by a debtor, and as otherwise granted herein or under any other law.

(c) Without limiting any rights or powers otherwise granted by this Agreement to the Collateral Agent, the Collateral Agent is hereby irrevocably authorized to receive and collect all payments of (i) the principal amount of the Pledged Senior Notes, (ii) the principal amount of the Pledged Treasury Securities and (iii) the principal amount of the Pledged Applicable Ownership Interests, subject, in each case, to the provisions of Article 3 hereof, and as otherwise granted herein.

(d) The Purchase Contract Agent and each Holder of Units agrees that, from time to time, upon the written request of the Collateral Agent or the Purchase Contract Agent, such Holder shall execute and deliver such further documents and do such other acts and things as the Collateral Agent may reasonably request in order to maintain the Pledge, and the perfection and priority thereof, and to confirm the rights of the Collateral Agent hereunder. The Purchase Contract Agent shall have no liability to any Holder for executing any documents or taking any such acts requested by the Collateral Agent hereunder, except for liability for its own grossly negligent acts, its own grossly negligent failure to act or its own willful misconduct.

Section 7.02 Special Event Redemption . Upon the occurrence of a Special Event Redemption while Senior Notes are still credited to the Collateral Account, the Collateral Agent is hereby authorized to present the Pledged Senior Notes for payment as may be required by their respective terms and to direct the Indenture Trustee to remit the Redemption Price to the Securities Intermediary for credit to the Collateral Account on or prior to 12:30 p.m., New York City time on such Special Event Redemption Date, by federal funds check or wire transfer of immediately available funds. Upon receipt of such funds, the Pledged Senior Notes shall be released from the Collateral Account and promptly transferred to the Company. Upon the crediting of such funds to the Collateral Account, the Collateral Agent, at the written direction of the Company, shall instruct the Securities Intermediary to (a) apply an amount of such funds equal to the Redemption Amount to purchase the Treasury Portfolio from the Quotation Agent, (b) credit to the Collateral Account the Applicable Ownership Interests (specified in clause (i) of the definition of such term) in the Treasury Portfolio and (c) promptly remit the remaining portion of such funds, if any, to the Purchase Contract Agent for payment to the Holders of Corporate Units, in accordance with their respective interests and the Purchase Contract Agreement.

Section 7.03 Remarketing . Unless a Special Event Redemption, an Early Settlement or a Cash Merger Early Settlement has occurred prior to the Initial Remarketing Date, the Collateral Agent shall, by 12:00 noon, New York City time, on the Business Day immediately preceding the Initial Remarketing Date, without any instruction from any Holder of Corporate Units, notify the Remarketing Agent of the aggregate principal amount of Pledged Senior Notes to be remarketed.

Section 7.04 Intentionally Omitted .

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Section 7.05 Successful Remarketing . In the event of a Successful Remarketing, the Collateral Agent shall on the Purchase Contract Settlement Date, at the direction of the Company, instruct the Securities Intermediary to (i) Transfer the Pledged Senior Notes to the Remarketing Agent upon confirmation of deposit by the Remarketing Agent of the Proceeds of such Successful Remarketing in the Collateral Account and (ii) remit a portion of such Proceeds equal to the aggregate principal amount of the Pledged Senior Notes to satisfy in full the Obligations of Holders of Corporate Units to pay the Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, under the related Purchase Contracts, less the amount of any accrued and unpaid Contract Adjustment Payments payable to such Holders, and to remit the balance of such Proceeds, if any, to the Purchase Contract Agent for distribution to Holders. With respect to Separate Senior Notes, any Proceeds of such Successful Remarketing attributable to the Separate Senior Notes will be remitted to the Custodial Agent for payment to the holders of Separate Senior Notes. In the event of a Failed Final Remarketing, the Pledged Senior Notes shall be redeposited into and remain credited to the Collateral Account and Section 5.07 shall apply.

Section 7.06 Substitutions . Whenever a Holder has the right to substitute Treasury Securities, Senior Notes or security entitlements for any of them or the appropriate Applicable Ownership Interest (as defined in clause (i) of the definition of such term) in the Treasury Portfolio, as the case may be, for financial assets held in the Collateral Account, such substitution shall not constitute a novation of the security interest created hereby.

Section 7.07 Legal Holidays . In case the Purchase Contract Settlement Date shall not be a Business Day (notwithstanding any other provision of this Pledge Agreement), any Remarketing of Senior Notes shall not settle on such date and remarketed Senior Notes shall be settled on the next succeeding Business Day with the same force and effect as if made on such Purchase Contract Settlement Date, and without any adjustment of the Purchase Price.

ARTICLE 8

Representations and Warranties; Covenants

Section 8.01 Representations and Warranties . Each Holder from time to time, acting through the Purchase Contract Agent as attorney-in-fact (it being understood that the Purchase

Contract Agent shall not be liable for any representation or warranty made by or on behalf of a Holder), hereby represents and warrants to the Collateral Agent (with respect to such Holder’s interest in the Collateral), which representations and warranties shall be deemed repeated on each day a Holder Transfers Collateral, that:

(a) such Holder has the power to grant a security interest in and lien on the Collateral;

(b) such Holder is the sole beneficial owner of the Collateral and, in the case of Collateral delivered in physical form, is the sole holder of such Collateral and is the sole beneficial owner of, or has the right to Transfer, the Collateral it Transfers to the Collateral Agent for credit to the Collateral Account, free and clear of any security interest, lien, encumbrance, call, liability to pay money or other restriction other than the security interest and lien granted under Article 2 hereof;

(c) upon the Transfer of the Collateral to the Collateral Agent for credit to the Collateral Account, the Collateral Agent, for the benefit of the Company, will have a valid and perfected first priority security interest therein (assuming that any central clearing operation or any securities intermediary or other entity not within the control of the Holder involved in the Transfer of the Collateral, including the Collateral Agent and the Securities Intermediary, gives the notices and takes the action required of it hereunder and under applicable law for perfection of that interest and assuming the establishment and exercise of control pursuant to Article 4 hereof); and

(d) the execution and performance by the Holder of its obligations under this Agreement will not result in the creation of any security interest, lien or other encumbrance on the Collateral other than the security interest and lien granted under Article 2 hereof or violate any provision of any existing law or regulation applicable to it or of any mortgage, charge, pledge, indenture, contract or undertaking to which it is a party or which is binding on it or any of its assets.

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Section 8.02 Covenants . The Holders from time to time, acting through the Purchase Contract Agent as their attorney-in-fact (it being understood that the Purchase Contract Agent shall not be liable for any covenant made by or on behalf of a Holder), hereby covenant to the Collateral Agent that for so long as the Collateral remains subject to the Pledge:

(a) neither the Purchase Contract Agent nor such Holders will create or purport to create or allow to subsist any mortgage, charge, lien, pledge or any other security interest whatsoever over the Collateral or any part of it other than pursuant to this Agreement; and

(b) neither the Purchase Contract Agent nor such Holders will sell or otherwise dispose (or attempt to dispose) of the Collateral or any part of it except for the beneficial interest therein, subject to the Pledge hereunder, transferred in connection with the Transfer of the Units.

ARTICLE 9

The Collateral Agent, The Custodial Agent and The Securities Intermediary

It is hereby agreed as follows:

Section 9.01 Appointment, Powers and Immunities . The Collateral Agent, the Custodial Agent or the Securities Intermediary shall act as agent for the Company hereunder with such powers as are specifically vested in the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be, by the terms of this Agreement. The Collateral Agent, the Custodial Agent and Securities Intermediary shall:

(a) have no duties or responsibilities except those expressly set forth in this Agreement and no implied covenants or obligations shall be inferred from this Agreement against the Collateral Agent, the Custodial Agent and the Securities Intermediary, nor shall the Collateral Agent, the Custodial Agent and the Securities Intermediary be bound by the provisions of any agreement by any party hereto beyond the specific terms hereof;

(b) not be responsible for any recitals contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by it under, this Agreement, the Units or the Purchase Contract Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement (other than as against the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be), the Units, any Collateral or the Purchase Contract Agreement or any other document referred to or provided for herein or therein or for any failure by the Company or any other Person (except the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be) to perform any of its obligations hereunder or thereunder or for the perfection, priority or, except as expressly required hereby, maintenance of any security interest created hereunder;

(c) not be required to initiate or conduct any litigation or collection proceedings hereunder (except pursuant to directions furnished under Section 9.02 hereof, subject to Section 9.08 hereof);

(d) not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith or therewith, except for its own gross negligence or willful misconduct; and

(e) not be required to advise any party as to selling or retaining, or taking or refraining from taking any action with respect to, any securities or other property deposited hereunder.

Subject to the foregoing, during the term of this Agreement, the Collateral Agent, the Custodial Agent and the Securities Intermediary shall take all reasonable action in connection with the safekeeping and preservation of the Collateral hereunder as determined by industry standards.

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No provision of this Agreement shall require the Collateral Agent, Custodial Agent or the Securities Intermediary to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder. In no event shall the Collateral Agent, Custodial Agent or the Securities Intermediary be liable for any amount in excess of the Value of the Collateral.

Section 9.02 Instructions of the Company . The Company shall have the right, by one or more written instruments executed and delivered to the Collateral Agent, to direct the time, method and place of conducting any proceeding for the realization of any right or remedy available to the Collateral Agent, or of exercising any power conferred on the Collateral Agent, or to direct the taking or refraining from taking of any action authorized by this Agreement; provided , however , that (i) such direction shall not conflict with the provisions of any law or of this Agreement or involve the Collateral Agent in personal liability and (ii) the Collateral Agent shall be indemnified to its satisfaction as provided herein. Nothing contained in this Section 9.02 shall impair the right of the Collateral Agent in its discretion to take any action or omit to take any action which it deems proper and which is not inconsistent with such direction. None of the Collateral Agent, the Custodial Agent or the Securities Intermediary has any obligation or responsibility to file UCC financing statements.

Section 9.03 Reliance by Collateral Agent, Custodial Agent and Securities Intermediary . Each of the Collateral Agent, the Custodial Agent and the Securities Intermediary shall be entitled, in the absence of bad faith, to rely conclusively upon any certification, order, judgment, opinion, notice or other written communication (including, without limitation, any thereof by e-mail or similar electronic means, telecopy, telex or facsimile) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons (without being required to determine the correctness of any fact stated therein) and consult with and conclusively rely upon advice, opinions and statements of legal counsel and other experts selected by the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be. As to any matters not expressly provided for by this Agreement, the Collateral Agent, the Custodial Agent and the Securities Intermediary shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions given by the Company in accordance with this Agreement.

Section 9.04 Certain Rights .

(a) Whenever in the administration of the provisions of this Agreement the Collateral Agent, the Custodial Agent or the Securities Intermediary shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action to be taken hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of gross negligence or bad faith on the part of the Collateral Agent, the Custodial Agent or the Securities Intermediary, be deemed to be conclusively proved and established by a certificate signed by one of the Company’s officers, and delivered to the Collateral Agent, the Custodial Agent or the Securities Intermediary and such certificate, in the absence of gross negligence or bad faith on the part of the Collateral Agent, the Custodial Agent or the Securities Intermediary, shall be full warrant to the Collateral Agent, the Custodial Agent or the Securities Intermediary for any action taken, suffered or omitted by it under the provisions of this Agreement upon the faith thereof.

(b) The Collateral Agent, the Custodial Agent or the Securities Intermediary shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, entitlement order, approval or other paper or document.

Section 9.05 Merger, Conversion, Consolidation or Succession to Business . Any corporation into which the Collateral Agent, the Custodial Agent or the Securities Intermediary may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Collateral Agent, the Custodial Agent or the Securities Intermediary shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Collateral Agent, the Custodial Agent or the Securities Intermediary shall be the successor of the Collateral Agent, the Custodial Agent or the Securities Intermediary hereunder without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto except where an instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding.

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Section 9.06 Rights in Other Capacities . The Collateral Agent, the Custodial Agent and the Securities Intermediary and their affiliates may (without having to account therefor to the Company) accept deposits from, lend money to, make their investments in and generally engage in any kind of banking, trust or other business with the Purchase Contract Agent, any other Person interested herein and any Holder of Units (and any of their respective subsidiaries or affiliates) as if it were not acting as the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be, and the Collateral Agent, the Custodial Agent, the Securities Intermediary and their affiliates may accept fees and other consideration from the Purchase Contract Agent and any Holder of Units without having to account for the same to the Company; provided that each of the Securities Intermediary, the Custodial Agent and the Collateral Agent covenants and agrees with the Company that it shall not accept, receive or permit there to be created in favor of itself and shall take no affirmative action to permit there to be created in favor of any other Person, any security interest, lien or other encumbrance of any kind in or upon the Collateral other than the lien created by the Pledge.

Section 9.07 Non-reliance on Collateral Agent, the Custodial Agent and Securities Intermediary . None of the Securities Intermediary, the Custodial Agent or the Collateral Agent shall be required to keep itself informed as to the performance or observance by the Purchase Contract Agent or any Holder of Units of this Agreement, the Purchase Contract Agreement, the Units or any other document referred to or provided for herein or therein or to inspect the properties or books of the Purchase Contract Agent or any Holder of Units. None of the Collateral Agent, the Custodial Agent or the Securities Intermediary shall have any duty or responsibility to provide the Company with any credit or other information concerning the affairs, financial condition or business of the Purchase Contract Agent or any Holder of Units (or any of their respective affiliates) that may come into the possession of the Collateral Agent, the Custodial Agent or the Securities Intermediary or any of their respective affiliates.

Section 9.08 Compensation and Indemnity . The Company agrees to:

(a) pay the Collateral Agent, the Custodial Agent and the Securities Intermediary from time to time such compensation as shall be agreed in writing between the Company and the Collateral Agent, the Custodial Agent or the Securities Intermediary, as the case may be, for all services rendered by them hereunder;

(b) indemnify and hold harmless the Collateral Agent, the Custodial Agent, the Securities Intermediary and each of their respective directors, officers, agents and employees (collectively, the “Indemnitees” ), from and against any and all claims, liabilities, losses, damages, fines, penalties and expenses (including reasonable fees and expenses of counsel) and taxes (other than those based upon, determined by or measured by the income of the Collateral Agent, the Custodial Agent and Securities Intermediary) (collectively, “Losses” and individually, a “Loss” ) that may be imposed on, incurred by, or asserted against, the Indemnitees or any of them for following any instructions or other directions upon which either the Collateral Agent, the Custodial Agent or the Securities Intermediary is entitled to rely pursuant to the terms of this Agreement, provided that the Collateral Agent, the Custodial Agent or the Securities Intermediary has not acted with gross negligence or engaged in willful misconduct or bad faith with respect to the specific Loss against which indemnification is sought; and

(c) in addition to and not in limitation of paragraph (b) immediately above, indemnify and hold the Indemnitees and each of them harmless from and against any and all Losses that may be imposed on, incurred by or asserted against, the Indemnitees or any of them in connection with or arising out of the Collateral Agent’s, the Custodial Agent’s or the Securities Intermediary’s acceptance or performance of its powers and duties under this Agreement, provided that the Collateral Agent, the Custodial Agent or the Securities Intermediary has not acted with gross negligence or engaged in willful misconduct or bad faith with respect to the specific Loss against which indemnification is sought.

The provisions of this Section 9.08 and Section 11.07 shall survive the resignation or removal of the Collateral Agent, Custodial Agent or Securities Intermediary and the termination of this Agreement.

Section 9.09 Failure to Act . In the event of any ambiguity in the provisions of this Agreement or any dispute between or conflicting claims by or among the parties hereto or any other Person with respect to any funds or property deposited hereunder, then at its sole option, each of the Collateral Agent, the Custodial Agent and the Securities Intermediary shall be entitled, after prompt notice to the Company and the Purchase Contract Agent, to

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refuse to comply with any and all claims, demands or instructions with respect to such property or funds so long as such dispute or conflict shall continue, and the Collateral Agent, the Custodial Agent and the Securities Intermediary shall not be or become liable in any way to any of the parties hereto for its failure or refusal to comply with such conflicting claims, demands or instructions. The Collateral Agent, the Custodial Agent and the Securities Intermediary shall be entitled to refuse to act until either:

(a) such conflicting or adverse claims or demands shall have been finally determined by a court of competent jurisdiction or settled by agreement between the conflicting parties as evidenced in a writing satisfactory to the Collateral Agent, the Custodial Agent or the Securities Intermediary; or

(b) the Collateral Agent, the Custodial Agent or the Securities Intermediary shall have received security or an indemnity satisfactory to it sufficient to save it harmless from and against any and all loss, liability or reasonable out-of-pocket expense which it may incur by reason of its acting.

The Collateral Agent, the Custodial Agent and the Securities Intermediary may in addition elect to commence an interpleader action or seek other judicial relief or orders as the Collateral Agent, the Custodial Agent or the Securities Intermediary may deem necessary. Notwithstanding anything contained herein to the contrary, none of the Collateral Agent, the Custodial Agent or the Securities Intermediary shall be required to take any action that is in its opinion contrary to law or to the terms of this Agreement, or which would in its opinion subject it or any of its officers, employees or directors to liability.

Section 9.10 Resignation of Collateral Agent, the Custodial Agent and Securities Intermediary .

(a) Subject to the appointment and acceptance of a successor Collateral Agent, Custodial Agent or Securities Intermediary as provided below:

(i) the Collateral Agent, the Custodial Agent and the Securities Intermediary may resign at any time by giving notice thereof to the Company and the Purchase Contract Agent as attorney-in-fact for the Holders of Units;

(ii) the Collateral Agent, the Custodial Agent and the Securities Intermediary may be removed at any time by the Company; and

(ii) if the Collateral Agent, the Custodial Agent or the Securities Intermediary fails to perform any of its material obligations hereunder in any material respect for a period of not less than 20 days after receiving written notice of such failure by the Purchase Contract Agent and such failure shall be continuing, the Collateral Agent, the Custodial Agent and the Securities Intermediary may be removed by the Purchase Contract Agent, acting at the direction of the Holders of Units.

The Purchase Contract Agent shall promptly notify the Company of any removal of the Collateral Agent, the Custodial Agent or the Securities Intermediary pursuant to clause (iii) of this Section 9.10 . Upon any such resignation or removal, the Company shall have the right to appoint a successor Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, which shall not be an Affiliate of the Purchase Contract Agent. If no successor Collateral Agent, Custodial Agent or Securities Intermediary shall have been so appointed and shall have accepted such appointment within 30 days after the retiring Collateral Agent’s, Custodial Agent’s or Securities Intermediary’s giving of notice of resignation or the Company’s or the Purchase Contract Agent’s giving notice of such removal, then the retiring or removed Collateral Agent, Custodial Agent or Securities Intermediary may petition any court of competent jurisdiction, at the expense of the Company, for the appointment of a successor Collateral Agent, Custodial Agent or Securities Intermediary. The Collateral Agent, the Custodial Agent and the Securities Intermediary shall each be a bank or a national banking association which has an office (or an agency office) in New York City with a combined capital and surplus of at least $50,000,000. Upon the acceptance of any appointment as Collateral Agent, Custodial Agent or Securities Intermediary hereunder by a successor Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, such successor Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, shall thereupon succeed to and become vested with all the

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rights, powers, privileges and duties of the retiring Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, and the retiring Collateral Agent, Custodial Agent or Securities Intermediary, as the case may be, shall take all appropriate action, subject to payment of any amounts then due and payable to it hereunder, to transfer any money and property held by it hereunder (including the Collateral) to such successor. The retiring Collateral Agent, Custodial Agent or Securities Intermediary shall, upon such succession, be discharged from its duties and obligations as Collateral Agent, Custodial Agent or Securities Intermediary hereunder. After any retiring Collateral Agent’s, Custodial Agent’s or Securities Intermediary’s resignation hereunder as Collateral Agent, Custodial Agent or Securities Intermediary, the provisions of this Article 9 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Collateral Agent, Custodial Agent or Securities Intermediary. Any resignation or removal of the Collateral Agent, Custodial Agent or Securities Intermediary hereunder, at a time when such Person is acting as the Collateral Agent, Custodial Agent or Securities Intermediary, shall be deemed for all purposes of this Agreement as the simultaneous resignation or removal of the Collateral Agent, Securities Intermediary or Custodial Agent, as the case may be.

(b) Because U.S. Bank National Association is serving as the Collateral Agent hereunder and the Purchase Contract Agent under the Purchase Contract Agreement, if an event of default (other than an event of default occurring as a result of a Failed Final Remarketing) occurs hereunder or under the Purchase Contract Agreement, U.S. Bank National Association will resign as the Collateral Agent, but continue to act as the Purchase Contract Agent. A successor Collateral Agent will be appointed in accordance with the terms hereof. If any such event of default is cured or waived prior to the appointment of a successor Collateral Agent, the duty of U.S. Bank National Association to resign in respect of such event of default shall cease.

Section 9.11 Right to Appoint Agent or Advisor . The Collateral Agent shall have the right to appoint agents or advisors in connection with any of its duties hereunder, and the Collateral Agent shall not be liable for any action taken or omitted by, or in reliance upon the advice of, such agents or advisors selected in good faith. The appointment of agents pursuant to this Section 9.11 shall be subject to prior written consent of the Company, which consent shall not be unreasonably withheld.

Section 9.12 Survival . The provisions of this Article 9 shall survive termination of this Agreement and the resignation or removal of the Collateral Agent, the Custodial Agent or the Securities Intermediary.

Section 9.13 Exculpation . Anything contained in this Agreement to the contrary notwithstanding, in no event shall the Collateral Agent, the Custodial Agent or the Securities Intermediary or their officers, directors, employees or agents be liable under this Agreement to any third party for indirect, special, punitive, or consequential loss or damage of any kind whatsoever, including, but not limited to, lost profits, whether or not the likelihood of such loss or damage was known to the Collateral Agent, the Custodial Agent or the Securities Intermediary, or any of them and regardless of the form of action.

ARTICLE 10

Amendment

Section 10.01 Amendment Without Consent of Holders . Without the consent of any Holders, the Company, when duly authorized, the Collateral Agent, the Custodial Agent, the

Securities Intermediary and the Purchase Contract Agent, at any time and from time to time, may amend this Agreement, in form satisfactory to the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent, to:

(a) evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company;

(b) evidence and provide for the acceptance of appointment hereunder by a successor Collateral Agent, Custodial Agent, Securities Intermediary or Purchase Contract Agent;

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(c) add to the covenants of the Company for the benefit of the Holders, or surrender any right or power herein conferred upon the Company, provided that such covenants or

such surrender do not adversely affect the validity, perfection or priority of the Pledge created hereunder;

(d) cure any ambiguity (or formal defect), correct or supplement any provisions herein which may be inconsistent with any other such provisions herein; or

(e) make any other provisions with respect to such matters or questions arising under this Agreement, provided that such action shall not adversely affect the interests of the Holders in any material respect.

Section 10.02 Amendment with Consent of Holders . With the consent of the Holders of not less than a majority of the Purchase Contracts at the time outstanding, including without limitation the consent of the Holders obtained in connection with a tender or an exchange offer, by Act of such Holders delivered to the Company, the Purchase Contract Agent, the Custodial Agent, the Securities Intermediary and the Collateral Agent, as the case may be, the Company, when duly authorized by a Board Resolution, the Purchase Contract Agent, the Collateral Agent, the Securities Intermediary and the Collateral Agent may amend this Agreement for the purpose of modifying in any manner the provisions of this Agreement or the rights of the Holders in respect of the Units; provided , however , that no such supplemental agreement shall, without the unanimous consent of the Holders of each Outstanding Unit adversely affected thereby in any material respect:

(a) change the amount or type of Collateral underlying a Unit (except for the rights of holders of Corporate Units to substitute the Treasury Securities for the Pledged Senior Notes or the Pledged Applicable Ownership Interests, as the case may be, or the rights of Holders of Treasury Units to substitute Senior Notes or the Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio, as applicable, for the Pledged Treasury Securities), unless such change is not adverse to the Holders, does not impair the right of the Holder of any Unit to receive distributions on the underlying Collateral or otherwise adversely affect the Holder’s rights in or to such Collateral;

(b) otherwise effect any action that would require the consent of the Holder of each Outstanding Unit affected thereby pursuant to the Purchase Contract Agreement if such action were effected by a modification or amendment of the provisions of the Purchase Contract Agreement; or

(c) reduce the percentage of Purchase Contracts the consent of whose Holders is required for the modification or amendment of the provisions of this Agreement; provided that if any amendment or proposal referred to above would adversely affect only the Corporate Units or only the Treasury Units, then only the affected class of Holders as of the record date for the Holders entitled to vote thereon will be entitled to vote on such amendment or proposal, and such amendment or proposal shall not be effective except with the consent of Holders of not less than a majority of such class; provided , further , that the unanimous consent of the Holders of each outstanding Purchase Contract of such class affected thereby shall be required to approve any amendment or proposal specified in clauses (a) through (c) above.

It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such Act shall approve the substance thereof.

Section 10.03 Execution of Amendments . In executing any amendment permitted by this Article, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent shall be entitled to receive and (subject to Section 7.01 of the Purchase Contract Agreement with respect to the Purchase Contract Agent) shall be fully authorized and protected in relying upon, an Opinion of Counsel and an Officers’ Certificate stating that the execution of such amendment is authorized or permitted by this Agreement and that all conditions precedent, if any, to the execution and delivery of such amendment have been satisfied. The Collateral Agent, Custodial Agent, Securities Intermediary and Purchase Contract Agent may, but shall not be obligated to, enter into any such amendment which affects their own respective rights, duties or immunities under this Agreement or otherwise.

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Section 10.04 Effect of Amendments . Upon the execution of any amendment under this Article, this Agreement shall be modified in accordance therewith, and such amendment shall form a part of this Agreement for all purposes; and every Holder of Certificates theretofore or thereafter authenticated, executed on behalf of the Holders and delivered under the Purchase Contract Agreement shall be bound thereby.

Section 10.05 Reference of Amendments . Certificates authenticated, executed on behalf of the Holders and delivered after the execution of any amendment pursuant to this Section may, and shall if required by the Collateral Agent or the Purchase Contract Agent, bear a notation in form approved by the Purchase Contract Agent and the Collateral Agent as to any matter provided for in such amendment. If the Company shall so determine, new Certificates so modified as to conform, in the opinion of the Collateral Agent, the Purchase Contract Agent and the Company, to any such amendment may be prepared and executed by the Company and authenticated, executed on behalf of the Holders and delivered by the Purchase Contract Agent in accordance with the Purchase Contract Agreement in exchange for Certificates representing Outstanding Units.

ARTICLE 11

Miscellaneous

Section 11.01 No Waiver . No failure on the part of the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary or any of their respective agents to exercise,

and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary or any of their respective agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law.

Section 11.02 Governing Law; Submission to Jurisdiction . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. The Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Holders from time to time of the Units, acting through the Purchase Contract Agent as their attorney-in-fact, hereby submit to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Holders from time to time of the Units, acting through the Purchase Contract Agent as their attorney-in-fact, irrevocably waive, to the fullest extent permitted by applicable law, any objection that they may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

Section 11.03 Notices . All notices, requests, consents and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telecopy) delivered to the intended recipient at the “Address for Notices” specified below its name on the signature pages hereof or, as to any party, at such other address as shall be designated by such party in a notice to the other parties. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid.

Section 11.04 Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary and the Purchase Contract Agent, and the Holders from time to time of the Units, by their acceptance of the same, shall be deemed to have agreed to be bound by the provisions hereof and to have ratified the agreements of, and the grant of the Pledge hereunder by, the Purchase Contract Agent.

Section 11.05 Counterparts . This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart.

23

Section 11.06 Severability . If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.

Section 11.07 Expenses, Etc . The Company agrees to reimburse the Collateral Agent, the Custodial Agent and the Securities Intermediary for:

(a) all reasonable costs and expenses of the Collateral Agent, the Custodial Agent and the Securities Intermediary (including, without limitation, the reasonable fees and expenses of counsel to the Collateral Agent, the Custodial Agent and the Securities Intermediary), in connection with (i) the negotiation, preparation, execution and delivery or performance of this Agreement and (ii) any modification, supplement or waiver of any of the terms of this Agreement;

(b) all reasonable costs and expenses of the Collateral Agent, the Custodial Agent and the Securities Intermediary (including, without limitation, reasonable fees and expenses of counsel) in connection with (i) any enforcement or proceedings resulting or incurred in connection with causing any Holder of Units to satisfy its obligations under the Purchase Contracts forming a part of the Units and (ii) the enforcement of this Section 11.07 ;

(c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any other document referred to herein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated hereby;

(d) all reasonable fees and expenses of any agent or advisor appointed by the Collateral Agent and consented to by the Company under Section 9.11 of this Agreement; and

(e) any other out-of-pocket costs and expenses reasonably incurred by the Collateral Agent, the Custodial Agent and the Securities Intermediary in connection with the performance of their duties hereunder.

Section 11.08 Security Interest Absolute . All rights of the Collateral Agent and security interests hereunder, and all obligations of the Holders from time to time hereunder, shall be absolute and unconditional irrespective of:

(a) any lack of validity or enforceability of any provision of the Purchase Contracts or the Units or any other agreement or instrument relating thereto;

(b) any change in the time, manner or place of payment of, or any other term of, or any increase in the amount of, all or any of the obligations of Holders of the Units under the related Purchase Contracts, or any other amendment or waiver of any term of, or any consent to any departure from any requirement of, the Purchase Contract Agreement or any Purchase Contract or any other agreement or instrument relating thereto; or

(c) any other circumstance which might otherwise constitute a defense available to, or discharge of, a borrower, a guarantor or a pledgor.

Section 11.09 Notice of Special Event, Special Event Redemption and Termination Event . Upon the occurrence of a Special Event, a Special Event Redemption or a Termination Event, the Company shall deliver written notice to the Purchase Contract Agent, the Collateral Agent and the Securities Intermediary. Upon the written request of the Collateral Agent or the Securities Intermediary, the Company shall inform such party whether or not a Special Event, a Special Event Redemption or a Termination Event has occurred.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]

24

[SIGNATURE PAGE TO AMENDED AND RESTATED PLEDGE AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.

PNM RESOURCES, INC. U.S. BANK NATIONAL ASSOCIATION as Purchase Contract Agent and as attorney-in-fact of the Holders from time to time of the Units

By: /s/Terry R. Horn Terry R. Horn Vice President and Treasurer

By: /s/Patrick J. Crowley Patrick J. Crowley Vice President

Address for Notices: Address for Notices: PNM Resources, Inc. Alvarado Square MS-2704 Albuquerque, New Mexico 87158 Telephone No.: (505) 241-2700 Telecopier No.: (505) 241-2369 Attention: Treasurer

U.S. Bank National Association 100 Wall Street, Suite 1600 New York, New York 10005 Telephone No.: (212) 361-2505 Telecopier No.: (212) 809-4993 Attention: Corporate Trust Administration

U.S. BANK NATIONAL ASSOCIATION as Collateral Agent, Custodial Agent and Securities Intermediary


Address for Notices: U.S. Bank National Association 100 Wall Street, Suite 1600 New York, New York 10005 Telephone No.: (212) 361-2505 Telecopier No.: (212) 809-4993 Attention: Corporate Trust Administration

EXHIBIT A

INSTRUCTION FROM PURCHASE CONTRACT AGENT

TO COLLATERAL AGENT (Creation of Treasury Units)

U.S. Bank National Association as Purchase Contract Agent 100 Wall Street, Suite 1600 New York, New York 10005 Telephone No.: (212) 361-2505 Telecopier No.: (212) 809-4993 Attention: Corporate Trust Administration Re: ___________ Corporate Units of PNM Resources, Inc. (the “Company” )

The securities account of U.S. Bank National Association, as Collateral Agent, maintained by the Securities Intermediary and designated “U.S. Bank National Association, as Collateral Agent of PNM Resources, Inc., as pledgee of U.S. Bank National Association, as the Purchase Contract Agent on behalf of and as attorney-in-fact for the Holders” (the “Collateral Account” )

Please refer to the Amended and Restated Pledge Agreement, dated as of August 4, 2008 (the “Pledge Agreement” ), among the Company, you, as Collateral Agent, as Securities Intermediary and as Custodial Agent and the undersigned, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units from time to time. Capitalized terms used herein but not defined shall have the meaning set forth in the Pledge Agreement.

We hereby notify you in accordance with Section 5.02 of the Pledge Agreement that the holder of securities named below (the “Holder” ) has elected to substitute $___ Value of Treasury Securities or security entitlements with respect thereto in exchange for an equal Value of Pledged Senior Notes relating to _____ Corporate Units and has delivered to the undersigned a notice stating that the Holder has Transferred such Treasury Securities or security entitlements with respect thereto to the Securities Intermediary, for credit to the Collateral Account.

A-1

We hereby request that you instruct the Securities Intermediary, upon confirmation that such Treasury Securities or security entitlements thereto have been credited to the Collateral Account, to release to the undersigned an equal Value of Pledged Senior Notes in accordance with Section 5.02 of the Pledge Agreement. Date:

By:

Name: Title:

Please print name and address of Holder electing to substitute Treasury Securities or security entitlements with respect thereto for the Pledged Senior Notes: ___________________________ Name Social Security or other Taxpayer Identification Number, if any ___________________________ Address ___________________________ ___________________________

U.S. Bank National Association, as Purchase Contract Agent and as attorney-in-fact of the Holders from time to time of the Units

A-2

EXHIBIT B

INSTRUCTION FROM COLLATERAL AGENT

TO SECURITIES INTERMEDIARY (Creation of Treasury Units)

U.S. Bank National Association as Securities Intermediary 100 Wall Street, Suite 1600 New York, New York 10005 Telephone No.: (212) 361-2505 Telecopier No.: (212) 809-4993 Attention: Corporate Trust Administration Re: __________ Corporate Units of PNM Resources, Inc. (the “Company” )

The securities account of U.S. Bank National Association, as Collateral Agent, maintained by the Securities Intermediary and designated “U.S. Bank National Association, as Collateral Agent of PNM Resources, Inc. as pledgee of U.S. Bank National Association, as the Purchase Contract Agent on behalf of and as attorney-in-fact for the Holders” (the “Collateral Account” )

Please refer to the Amended and Restated Pledge Agreement, dated as of August 4, 2008 (the “Pledge Agreement” ), among the Company, you, as Collateral Agent, as Securities Intermediary and as Custodial Agent and the undersigned, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units from time to time. Capitalized terms used herein but not defined shall have the meanings set forth in the Pledge Agreement.

When you have confirmed that $ Value of Treasury Securities or security entitlements thereto has been credited to the Collateral Account by or for the benefit of _________, as Holder of Corporate Units (the “Holder” ), you are hereby instructed to release from the Collateral Account an equal Value of Pledged Senior Notes or security entitlements with respect thereto relating to Corporate Units of the Holder by Transfer to the Purchase Contract Agent. Dated:______________________

U.S. Bank National Association, as Collateral Agent

By:

Name: Title:

B-1

Please print name and address of Holder: ___________________________ Name Social Security or other Taxpayer Identification Number, if any ___________________________ Address ___________________________ ___________________________

B-2

EXHIBIT C

INSTRUCTION FROM PURCHASE CONTRACT AGENT

TO COLLATERAL AGENT (Recreation of Corporate Units)

U.S. Bank National Association as Purchase Contract Agent 100 Wall Street, Suite 1600 New York, New York 10005 Telephone No.: (212) 361-2505 Telecopier No.: (212) 809-4993 Attention: Corporate Trust Administration Re: __________ Treasury Units of PNM Resources, Inc. (the “Company” )

Please refer to the Amended and Restated Pledge Agreement, dated as of August 4, 2008 (the “Pledge Agreement” ), among the Company, you, as Collateral Agent, as Securities Intermediary, as Custodial Agent and the undersigned, as Purchase Contract Agent and as attorney-in-fact for the holders of Treasury Units from time to time. Capitalized terms used herein but not defined shall have the meaning set forth in the Pledge Agreement.

We hereby notify you in accordance with Section 5.03 of the Pledge Agreement that the holder of securities named below (the “Holder” ) has elected to substitute $__________ Value of Senior Notes or security entitlements with respect thereto in exchange for $__________ an equal Value of Pledged Treasury Securities with respect to _______ Treasury Units and has delivered to the undersigned a notice stating that the holder has Transferred such Senior Notes or security entitlements with respect thereto to the Securities Intermediary, for credit to the Collateral Account.

C-1

We hereby request that you instruct the Securities Intermediary, upon confirmation that such Senior Notes or security entitlements with respect thereto have been credited to the Collateral Account, to release to the undersigned $__________ an equal Value of Treasury Securities in accordance with Section 5.03 of the Pledge Agreement.

By: Name: Title:

Please print name and address of Holder electing to substitute Senior Notes or security entitlements with respect thereto for Pledged Treasury Securities: ___________________________ Name Social Security or other Taxpayer Identification Number, if any ___________________________ Address ___________________________ ___________________________

Dated: U.S. Bank National Association, as Purchase Contract Agent

C-2

EXHIBIT D

INSTRUCTION FROM COLLATERAL AGENT

TO SECURITIES INTERMEDIARY (Recreation of Corporate Units)

U.S. Bank National Association as Securities Intermediary 100 Wall Street, Suite 1600 New York, New York 10005 Telephone No.: (212) 361-2505 Telecopier No.: (212) 809-4993 Attention: Corporate Trust Administration Re: ____ Treasury Units of PNM Resources, Inc. (the “Company” )

The securities account of U.S. Bank National Association, as Collateral Agent, maintained by the Securities Intermediary and designated “U.S. Bank National Association, as Collateral Agent of PNM Resources, Inc., as pledgee of U.S. Bank National Association, as the Purchase Contract Agent on behalf of and as attorney-in-fact for the Holders” (the “Collateral Account” )

Please refer to the Amended and Restated Pledge Agreement, dated as of August 4, 2008 (the “Pledge Agreement” ), among the Company, you, as Securities Intermediary, Custodial Agent and Collateral Agent and U.S. Bank National Association, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units from time to time. Capitalized terms used herein but not defined shall have the meanings set forth in the Pledge Agreement.

D-1

When you have confirmed that $___________ Value of Senior Notes or security entitlements with respect thereto has been credited to the Collateral Account by or for the benefit of

_______________, as Holder of Treasury Units (the “Holder” ), you are hereby instructed to release from the Collateral Account an equal Value of Treasury Securities or security entitlements with respect thereto relating to ____ treasury Units of the Holder by Transfer to the Purchase Contract Agent.

By: Name: Title:

Please print name and address of Holder: ___________________________ Name Social Security or other Taxpayer Identification Number, if any ___________________________ Address ___________________________ ___________________________

Dated: U.S. Bank National Association, as Collateral Agent

D-2

EXHIBIT E

NOTICE OF CASH SETTLEMENT FROM COLLATERAL AGENT

TO PURCHASE CONTRACT AGENT (Cash Settlement Amounts)

U.S. Bank National Association as Purchase Contract Agent 100 Wall Street, Suite 1600 New York, New York 10005 Telephone No.: (212) 361-2505 Telecopier No.: (212) 509- 809-4993 Attention: Corporate Trust Administration Re: __________ Corporate Units of PNM Resources, Inc. (the “Company” ) __________ Treasury Units of the Company

Please refer to the Amended and Restated Pledge Agreement, dated as of August 4, 2008 (the “Pledge Agreement” ), by and among you, the Company, and U.S. Bank National Association, as Collateral Agent, Custodial Agent and Securities Intermediary. Unless otherwise defined herein, terms defined in the Pledge Agreement are used herein as defined therein.

In accordance with Section 5.05(c) of the Pledge Agreement, we hereby notify you that as of 11:00 a.m. (New York City time) on the sixth Business Day immediately preceding November 16, 2008 (the “Purchase Contract Settlement Date” ), we have received (i) $___________ in immediately available funds paid in an aggregate amount equal to the Purchase Price due to the Company on the Purchase Contract Settlement Date with respect to ___________ Corporate Units, and (ii) based on the funds received set forth in clause (i) above, an aggregate principal amount of $___________ of Pledged Senior Notes are to be tendered for remarketing in the Remarketing.

By: Name: Title:

Dated: U.S. Bank National Association, as Collateral Agent

E-1

EXHIBIT F

INSTRUCTION TO CUSTODIAL AGENT REGARDING REMARKETING

U.S. Bank National Association as Custodial Agent 100 Wall Street, Suite 1600 New York, New York 10005 Telephone No.: (212) 361-2505 Telecopier No.: (212) 809-4993 Attention: Corporate Trust Administration Re: Senior Notes Due 2010 of PNM Resources, Inc. (the “Company” )

The undersigned hereby notifies you in accordance with Section 5.07(c) of the Amended and Restated Pledge Agreement, dated as of August 4, 2008 (the “Pledge Agreement” ), among the Company, you, as Collateral Agent, Custodial Agent and Securities Intermediary and U.S. Bank National Association, as the Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units from time to time, that the undersigned elects to deliver $__________ aggregate principal amount of Separate Senior Notes for delivery to the Remarketing Agent on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Initial Remarketing Date for remarketing pursuant to Section 5.07(c) of the Pledge Agreement. The undersigned will, upon request of the Remarketing Agent, execute and deliver any additional documents deemed by the Remarketing Agent or by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Separate Senior Notes tendered hereby. Capitalized terms used herein but not defined shall have the meaning set forth in the Pledge Agreement.

The undersigned hereby instructs you, upon receipt of the Proceeds of such remarketing from the Remarketing Agent, to deliver such Proceeds to the undersigned in accordance with the instructions indicated herein under “A. Payment Instructions.” The undersigned hereby instructs you, in the event of a Failed Final Remarketing, upon receipt of the Separate Senior Notes tendered herewith from the Remarketing Agent, to deliver such Separate Senior Notes to the person(s) and the address(es) indicated herein under “B. Delivery Instructions.”

F-1

With this notice, the undersigned hereby (i) represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Separate Senior Notes tendered

hereby and that the undersigned is the record owner of any Senior Notes tendered herewith in physical form, (ii) agrees to be bound by the terms and conditions of Section 5.07(c) of the Pledge Agreement and (iii) acknowledges and agrees that after 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Remarketing Date, such election shall become an irrevocable election to have such Separate Senior Notes remarketed in the Remarketing. In the case of a Failed Remarketing, such Separate Senior Notes shall be returned to the undersigned. Dated: By:

Name:

Title:

Signature Guarantee: ___________________________ Name Social Security or other Taxpayer Identification Number, if any ___________________________ Address ___________________________ ___________________________

F-2

A. PAYMENT INSTRUCTIONS Proceeds of the remarketing should be paid by check in the name of the person(s) set forth below and mailed to the address set forth below. Name(s) (Please Print) Address (Please Print) (Zip Code) (Taxpayer Identification or Social Security Number) B. DELIVERY INSTRUCTIONS In the event of a Failed Final Remarketing, Senior Notes that are in physical form should be delivered to the person(s) set forth below and mailed to the address set forth below. Name(s) (Please Print) Address (Please Print) (Zip Code) (Tax Identification or Social Security Number)

F-3

EXHIBIT G

INSTRUCTION TO CUSTODIAL AGENT REGARDING WITHDRAWAL FROM REMARKETING

U.S. Bank National Association as Custodial Agent 100 Wall Street, Suite 1600 New York, New York 10005 Telephone No.: (212) 361-2505 Telecopier No.: (212) 809-4993 Attention: Corporate Trust Administration Re: Senior Notes due 2010 of PNM Resources, Inc. (the “Company” ) The undersigned hereby notifies you in accordance with Section 5.07(c) of the Amended and Restated Pledge Agreement, dated as of August 4, 2008 (the “Pledge Agreement” ), among the Company and you, as Collateral Agent, Custodial Agent and Securities Intermediary, and U.S. Bank National Association, as Purchase Contract Agent and as attorney-in-fact for the holders of Corporate Units from time to time, that the undersigned elects to withdraw the $__________ aggregate principal amount of Separate Senior Notes delivered to the Collateral Agent on __________, 2010 for remarketing pursuant to Section 5.07(c) of the Pledge Agreement. The undersigned hereby instructs you to return such Senior Notes to the undersigned in accordance with the undersigned’s instructions. With this notice, the undersigned hereby agrees to be bound by the terms and conditions of Section 5.07(c) of the Pledge Agreement. Capitalized terms used herein but not defined shall have the meaning set forth in the Pledge Agreement. Dated: By:

Name:

Title:

Signature Guarantee: ___________________________ Name Social Security or other Taxpayer Identification Number, if any ___________________________ Address ___________________________ ___________________________ 1748330.6

G-1

EXHIBIT 4.3

EXECUTION COPY

PNM RESOURCES, INC.

to

U.S. BANK NATIONAL ASSOCIATION,

Trustee

SUPPLEMENTAL INDENTURE NO. 2


(For Senior Notes)

TABLE OF CONTENTS

Article 1 DEFINITIONS

Article 2

CHARGES TO THE GENERAL TERMS AND CONDITIONS OF THE ORIGINAL SENIOR NOTES

Article 3

MISCELLANEOUS

Section 1.01 Relation to Base Indenture 2 Section 1.02 Definition of Terms 2

Section 2.01 Amendment of Section 1.02 of Supplemental Indenture No. 1 4 Section 2.02 Amendment of Section 2.04 of Supplemental Indenture No. 1 4 Section 2.03 Amendment of Section 2.05 of Supplemental Indenture No. 1 4 Section 2.04 Amendment of Article 8 of Supplemental Indenture No. 1 5 Section 2.05 Amendment of Exhibit A of Supplemental Indenture No. 1 10

Section 3.01 Ratification of Indenture 10 Section 3.02 Trustee not Responsible for Recitals 10 Section 3.03 New York Law to Govern 10 Section 3.04 Separability 10 Section 3.05 Counterparts 10

i

SUPPLEMENTAL INDENTURE NO. 2 , dated as of August 4, 2008 ( “Supplemental Indenture No. 2” ), between PNM RESOURCES, INC. , a corporation duly organized and

existing under the laws of the State of New Mexico (the “Company” ), having its principal office at Alvarado Square, Albuquerque, New Mexico 87158, and U.S. BANK NATIONAL ASSOCIATION , a national banking association, as Trustee (the “Trustee” ).

RECITALS OF THE COMPANY

WHEREAS , the Company has heretofore executed and delivered to the Trustee an Indenture dated as of October 7, 2005 (the “Base Indenture” ), providing for the issuance from time to time of series of the Notes (as defined in the Base Indenture).

WHEREAS , pursuant to Section 9.01(7) of the Base Indenture, the Company has heretofore executed and delivered to the Trustee a Supplemental Indenture dated as of October 7, 2005 (the “Supplemental Indenture No. 1” and, together with the Base Indenture, the “Indenture” ) to establish the form and terms of the Company’s 5.1% Senior Notes due August 16, 2010 (the “Original Senior Notes” ) as permitted by Section 3.01 of the Base Indenture.

WHEREAS , on October 7, 2005, pursuant to Section 2.01 and Section 3.01 of the Base Indenture, the Company issued $100,000,000 aggregate principal amount of the Original Senior Notes, all of which remain Outstanding on the date hereof.

WHEREAS, Section 9.02 of the Base Indenture provides that, with the consent of the Holders of the Notes of all series then Outstanding under the Indenture, considered as one class, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by or pursuant to a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental to the Base Indenture for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, the Indenture.

WHEREAS, the Company now desires to amend the Indenture in order to change the terms of the Original Senior Notes (such Original Senior Notes as so modified the “Amended Senior Notes” ).

WHEREAS, Holders of all Notes Outstanding (as such terms are defined in the Base Indenture) have heretofore consented to the changes to the Indenture and the Original Senior Notes embodied in and to be effected by this Supplemental Indenture No. 2 pursuant to Section 9.02 of the Base Indenture.

WHEREAS , the Company has requested that the Trustee execute and deliver this Supplemental Indenture No. 2, and all requirements necessary to make this Supplemental Indenture No. 2 a valid, binding and enforceable instrument in accordance with its terms, and to make the Amended Senior Notes, when executed by the Company and authenticated and delivered by the Trustee, the valid, binding and enforceable obligations of the Company, have been done and performed, and the execution and delivery of this Supplemental Indenture No. 2 has been duly authorized in all respects.

1

NOW, THEREFORE , in consideration of the covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

Article 1

DEFINITIONS

Section 1.01 Relation to Base Indenture . This Supplemental Indenture No. 2 constitutes an integral part of the Base Indenture.

Section 1.02 Definition of Terms . For all purposes of this Supplemental Indenture No. 2:

(a) Capitalized terms used herein without definition shall have the meanings specified in the Base Indenture or Supplemental Indenture No. 1, or, if not defined in the Base Indenture or Supplemental Indenture No. 1, in the Purchase Contract Agreement, the Pledge Agreement or the Remarketing Agreement, as applicable;

(b) a term defined anywhere in this Supplemental Indenture No. 2 has the same meaning throughout;

(c) the singular includes the plural and vice versa;

(d) headings are for convenience of reference only and do not affect interpretation;

(e) the following terms have the meanings given to them in this Article 1 and such meanings shall supersede and replace the meanings given them, if any, in the Base Indenture or Supplemental Indenture No. 1:

“Base Rate” means, if the Company has elected for the Reset Rate to be a floating interest rate, the applicable index rate or the method or formula for calculating an index rate chosen by the Company in connection with such election as stated in the notice provided for in Section 8.03(g) .

“Pledge Agreement” means the Amended and Restated Pledge Agreement, dated as of August 4, 2008, among the Company, U.S. Bank National Association, as Collateral Agent, Custodial Agent and Securities Intermediary, and U.S. Bank National Association, as Purchase Contract Agent and attorney-in-fact for the Holders of the Purchase Contracts, as amended from time to time.

“Purchase Contract Agreement” means the Amended and Restated Purchase Contract Agreement, dated as of August 4, 2008, between the Company and U.S. Bank National Association, as purchase contract agent, as amended from time to time.

2


“Remarketing Price” shall have the meaning set forth in Section 8.02 .

“Resale Restriction Termination Date” means, for any Restricted Senior Note (or beneficial interest therein), one year (or such other period specified in Rule 144 (or any successor provision)) from the Issuance Date.

“Reset Effective Date” means the Purchase Contract Settlement Date, in the event of a Successful Remarketing pursuant to which the Coupon Rate is reset to a Reset Rate.

“Reset Rate” means, at the option of the Company, either (i) the fixed interest rate per annum (as determined by the Remarketing Agent) or, (ii) if the Company has elected for the Reset Rate to be a floating interest rate, the sum of the Reset Spread (as determined by the Remarketing Agent) and the Base Rate, as necessary to remarket the Remarketed Senior Notes at the Remarketing Price; provided that if there are no Corporate Units outstanding and none of the Holders elect to have Separate Senior Notes held by them remarketed, or in the case of a Failed Final Remarketing, the interest rate payable on the Senior Notes will not be reset and the interest rate payable on the Senior Notes shall continue to be the Coupon Rate.

“Reset Spread” means the number of basis points necessary to be added to the Base Rate on the applicable Remarketing Date in order to remarket all of the Remarketed Senior Notes at the Remarketing Price on such Remarketing Date, as determined in accordance with Section 8.03 .

“Treasury Portfolio” means a portfolio of (1) U.S. treasury securities (or principal or interest strips thereof) that mature on or prior to November 15, 2008 in an aggregate amount at maturity equal to the Applicable Principal Amount, and, (2) in the case of a Special Event Redemption, for each scheduled Interest Payment Date that occurs after the Special Event Redemption Date to and including the Purchase Contract Settlement Date, U.S. treasury securities (or principal or interest strips thereof) that mature on or prior to the business day immediately preceding such scheduled Interest Payment Date in an aggregate amount equal to the aggregate interest payment (assuming no reset of the interest rate) that would have been due on such scheduled Interest Payment Date on the Applicable Principal Amount.

“Treasury Portfolio Purchase Price” means the lowest aggregate ask-side price quoted by a Primary Treasury Dealer to the Quotation Agent between 9:00 a.m. and 11:00 a.m., New York City time, on the third Business Day immediately preceding the Special Event Redemption Date for the purchase of the applicable Treasury Portfolio for settlement on the Special Event Redemption Date.

The terms “Supplemental Indenture No. 2,” “Company,” “Trustee,” “Indenture,” “Base Indenture” “Supplemental Inde nture No. 1,” “Original Senior Notes”

3

and “Amended Senior Notes” shall have the respective meanings set forth in the recitals to this Supplemental Indenture No. 2 and the paragraph preceding such recitals.

Article 2

CHANGES TO THE GENERAL TERMS AND CONDITIONS OF THE ORIGINAL SENIOR NOTES

Section 2.01 Amendment of Section 1.02 of Supplemental Indenture No. 1 . Supplemental Indenture No. 1 is hereby amended by deleting the definition of “Definitive

Senior Notes” from Section 1.02 thereof.

Section 2.02 Amendment of Section 2.04 of Supplemental Indenture No. 1 . Supplemental Indenture No. 1 is hereby amended by deleting Section 2.04 thereof in its entirety and replacing it with the following:

Section 2.04. Global or Definitive Senior Notes . Senior Notes that are no longer a component of the Corporate Units and are released from the Collateral Account (as defined in the Pledge Agreement) may, at the Company’s option, either be issued (i) in fully registered, global form, and initially evidenced by one or more certificates issued to Cede & Co., as nominee of The Depository Trust Company, or (ii) in certificated form .

Section 2.03 Amendment of Section 2.05 of Supplemental Indenture No. 1 . Supplemental Indenture No. 1 is hereby amended by deleting Section 2.05 thereof in its

entirety and replacing it with the following:

Section 2.05. Interest . (a) The Senior Notes will bear interest initially at the rate of 5.1% per year (the “Coupon Rate” ) from the original date of issuance through and including the earlier of (i) the Maturity Date and (ii) the day immediately preceding any Reset Effective Date. In the event of a Successful Remarketing of the Senior Notes, the Coupon Rate will be reset by the Remarketing Agent at the appropriate Reset Rate with effect from the related Reset Effective Date, as set forth under Section 8.03 . If the Coupon Rate is so reset, the Senior Notes will bear interest at the Reset Rate from time to time in effect from the related Reset Effective Date until the principal thereof and interest thereon is paid or duly made available for payment and shall bear interest, to the extent permitted by law, compounded on each Interest Payment Date, on any overdue principal and payment of interest at the Coupon Rate through and including the day immediately preceding the Reset Effective Date and at the Reset Rate from time to time in effect thereafter.

(b) Interest on the Senior Notes shall be payable quarterly in arrears on February 16, May 16, August 16 and November 16 of each year (each, an “Interest Payment Date” ), commencing November 16,

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2005, to the Person in whose name such Senior Note, or any predecessor Senior Note, is registered at the close of business on the Record Date for such Interest Payment Date. Interest on the Senior Notes shall accrue from October 7, 2005.

Notwithstanding the foregoing, in the event of a Successful Remarketing of the Senior Notes, the Company may redetermine the Interest Payment Dates and the Senior Notes will bear interest at the appropriate Reset Rate from time to time in effect from the related Reset Effective Date payable either semi-annually or quarterly, as determined by the Company.

(c) If the Reset Rate is a fixed interest rate, the amount of interest payable for any full quarterly or semi-annual period, as the case may be, will be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly or semi-annual period, as the case may be, for which interest is computed will be computed on the basis of a 30-day month and, for any period less than a month, on the basis of the actual number of days elapsed per 30-day month. In the event that any scheduled Interest Payment Date falls on a day that is not a Business Day, then payment of interest payable on such Interest Payment Date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay).

(d) Notwithstanding any other provision of the Indenture, in the event the Reset Rate is a floating interest rate, the Company may elect (i) to modify the day count conventions set forth in this Section 2.05 and (ii) to modify the definition of the term “Business Day” set forth in Section 1.02 herein.

Section 2.04 Amendment of Article 8 of Supplemental Indenture No. 1 . Supplemental Indenture No. 1 is hereby amended by deleting Article 8 thereof in its entirety and

replacing it with the following:

Article 8 REMARKETING

Section 8.01. Remarketing Procedures . (a) Unless a Special Event Redemption, an Early Settlement or a Cash Merger Early Settlement has occurred prior to the Initial Remarketing Date, the Company shall engage the Remarketing Agent pursuant to the Remarketing Agreement for the Remarketing of the Senior Notes. The Company will request, not later than seven nor more than 15 calendar days prior to the Initial Remarketing Date, that the Trustee notify the Holders of

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Separate Senior Notes, Corporate Units and Treasury Units of the procedures to be followed in the Remarketings.

(b) Each Holder of Separate Senior Notes may elect to have Separate Senior Notes held by such Holder remarketed in all Remarketings. A Holder making such an election must, pursuant to the Pledge Agreement, notify the Custodial Agent and deliver such Separate Senior Notes to the Custodial Agent on or prior to 5:00 p.m. (New York City time) on or prior to the seventh Business Day immediately preceding the Initial Remarketing Date (but no earlier than the Interest Payment Date immediately preceding the Initial Remarketing Date). Any such notice and delivery may not be conditioned upon the level at which the Reset Rate is established in the Remarketing. Any such notice and delivery may be withdrawn on or prior to 5:00 p.m. (New York City time) on the seventh Business Day immediately preceding the Initial Remarketing Date in accordance with the provisions set forth in the Pledge Agreement. Any such notice and delivery not withdrawn by such time will be irrevocable with respect to all Remarketings. Pursuant to Section 5.07(c) of the Pledge Agreement, by 12:00 noon, New York City time, on the Business Day immediately preceding the Initial Remarketing Date, the Custodial Agent, based on the notices and deliveries received by it prior to such time, shall notify the Remarketing Agent of the principal amount of Separate Senior Notes to be tendered for Remarketing and, upon a Successful Remarketing, shall cause such Separate Senior Notes to be presented to the Remarketing Agent. Under Section 5.02 of the Purchase Contract Agreement, Senior Notes that are components of Corporate Units will be deemed tendered for Remarketing and will be remarketed in accordance with the terms of the Remarketing Agreement.

(c) The right of each Holder of Senior Notes that are included in Corporate Units to have such Senior Notes, and each Holder of Separate Senior Notes to have any Separate Senior Notes (together, the “Remarketed Senior Notes” ), remarketed and sold on any Remarketing Date shall be limited to the extent that (i) the Remarketing Agent conducts a Remarketing pursuant to the terms of the Remarketing Agreement, (ii) a Special Event Redemption has not occurred prior to such Remarketing Date, (iii) the Remarketing Agent is able to find a purchaser or purchasers for Remarketed Senior Notes at the Remarketing Price and (iv) the purchaser or purchasers deliver the purchase price therefor to the Remarketing Agent as and when required.

(d) Neither the Trustee, the Company nor the Remarketing Agent shall be obligated in any case to provide funds to make payment upon tender of Senior Notes for remarketing.

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Section 8.02. Remarketing . Unless a Special Event Redemption, an Early Settlement or a Cash Merger Early Settlement has occurred prior to the Initial Remarketing Date, on the Initial Remarketing Date, the Remarketing Agent shall, pursuant and subject to the terms of the Remarketing Agreement, use commercially reasonable efforts to remarket the Remarketed Senior Notes at a price (the “Remarketing Price” ) equal to 100.00% of the aggregate principal amount of the Remarketed Senior Notes.

Section 8.03. Reset Rate and Extended Maturity Date . (a) In connection with each Remarketing, and subject to Sections 8.03(b) and 8.03(c) below, the Remarketing Agent shall determine, in consultation with the Company, the Reset Rate (with the fixed interest rate or, in the case of a floating interest rate, the Reset Spread rounded to the nearest one-thousandth (0.001) of one percent per annum) that the Remarketed Senior Notes should bear in order to have an aggregate market value equal to the Remarketing Price and that in the sole discretion of the Remarketing Agent will enable it to remarket all of the Remarketed Senior Notes at the Remarketing Price in such Remarketing.

(b) Anything herein to the contrary notwithstanding, the Remarketing Agent shall have no obligation to determine whether there is any limitation under applicable law on the Reset Rate or, if there is any such limitation, the maximum permissible Reset Rate on the Senior Notes and shall rely solely upon written notice from the Company (which the Company agrees to provide prior to the eighth Business Day before the Initial Remarketing Date) as to whether or not there is any such limitation in any applicable jurisdiction.

(c) In connection with each Remarketing, the Remarketing Agent, in consultation with the Company, may extend the Maturity Date to a date selected by the Company that is two or three years from the date on which the Reset Rate is set. Such extended maturity date (the “Extended Maturity Date” ), if any, will be specified in the Remarketing announcement and will become effective on the Reset Effective Date.

(d) In connection with each Remarketing, the Company may also elect to add any additional financial covenants as the Company may determine. Such an election would take effect, upon a Successful Remarketing, on the Reset Effective Date. In addition, as provided in Section 2.05(b) herein, upon a Successful Remarketing, the Interest Payment Dates may be redetermined to provide for payment of interest semi-annually instead of quarterly. Furthermore, as provided in Section 2.05(d) herein, upon a Successful Remarketing at a floating interest rate Reset Rate, the business day and day count conventions set forth in

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Section 2.05 herein and the definition of “Business Day” set forth in Section 1.02 herein may be modified.

(e) In the event of a Failed Final Remarketing or if no Senior Notes are included in Corporate Units and none of the Holders of the Separate Senior Notes elect to have their Senior Notes remarketed in any Remarketing, the applicable interest rate on the Senior Notes will not be reset and will continue to be the Coupon Rate and the Maturity Date will not be extended.

(f) In the event of a Successful Remarketing, as of the Reset Effective Date, the Coupon Rate shall be reset at the Reset Rate as determined by the Remarketing Agent under the Remarketing Agreement and the Maturity Date, if extended, will be extended to the Extended Maturity Date.

(g) The Company, at its option, may elect for the Reset Rate to be either a fixed interest rate (as determined by the Remarketing Agent) or a floating interest rate equal to the sum of the Reset Spread (as determined by the Remarketing Agent) and the Base Rate (as determined by the Company). The Amended Senior Notes may have such terms in addition to or in lieu of any one or more of the terms established pursuant to any of the provisions of this Supplemental Indenture No. 2 and may be in such form, in any case, as the Company may determine and as shall be set forth in an indenture supplemental to the Indenture, as supplemented and amended hereby; and the Trustee is hereby authorized and directed to join with the Company in the execution and delivery of any such supplemental indenture, such supplemental indenture, if any, to be effective as the Reset Effective Date.

Section 8.04. Failed Remarketing . (a) If, by 4:00 p.m. (New York City time) on any Remarketing Date, the Remarketing Agent is unable to remarket all of the Remarketed Senior Notes at the Remarketing Price, pursuant to the terms and conditions hereof, a Failed Remarketing shall be deemed to have occurred, and the Remarketing Agent shall so advise by telephone the Purchase Contract Agent and the Company. Whether or not there has been a Failed Remarketing will be determined in the sole reasonable discretion of the Remarketing Agent. Promptly following any Failed Final Remarketing, the Custodial Agent shall return the Separate Senior Notes to the appropriate Holders.

(b) The Company shall cause a notice of a Failed Final Remarketing to be posted on the Company’s website by the first Business Day following such Failed Final Remarketing.

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Section 8.05. Put Right . (a) Subject to paragraph (b) hereof, if there has not been a Successful Remarketing prior to the Purchase Contract Settlement Date, Holders of Separate Senior Notes and Holders of Senior Notes that are a component of Corporate Units will, subject to this Section 8.05 , have the right (the “Put Right” ) to require the Company to purchase their Senior Notes, on the Purchase Contract Settlement Date, at a price per Senior Note equal to $1,000.00 plus accrued and unpaid interest to but excluding the Purchase Contract Settlement Date (the “Put Price” ).

(b) The Put Right of Holders of Senior Notes that are part of Corporate Units will be automatically exercised unless such Holders (1) prior to 5:00 p.m., New York City time, on the second Business Day immediately preceding the Purchase Contract Settlement Date, provide written notice to the Purchase Contract Agent of their intention to settle the related Purchase Contract with separate cash, and (2) on or prior to 5:00 p.m., New York City time, on the Business Day immediately preceding the Purchase Contract Settlement Date, deliver to the Collateral Agent $25 in cash per Purchase Contract, in each case pursuant to the Purchase Contract Agreement and such Holders shall be deemed to have elected to pay the Purchase Price for the shares of Common Stock or Preferred Stock, as applicable, to be issued under the related Purchase Contract from a portion of the Proceeds of the Put Right of such Senior Notes equal to the Purchase Price in full satisfaction of such Holders’ obligations under the Purchase Contracts, and any remaining amount of the Put Price following satisfaction of the related Purchase Contract will be paid to such Holder.

(c) The Put Right of a Holder of a Separate Senior Note shall only be exercisable upon delivery of a notice to the Trustee by such Holder on or prior to 5:00 p.m., New York City time, on the second Business Day immediately preceding the Purchase Contract Settlement Date. On or prior to the Purchase Contract Settlement Date, the Company shall deposit with the Trustee immediately available funds in an amount sufficient to pay, on the Purchase Contract Settlement Date, the aggregate Put Price of all Separate Senior Notes with respect to which a Holder has exercised a Put Right. In exchange for any Separate Senior Notes surrendered pursuant to the Put Right, the Trustee shall then distribute such amount to the Holders of such Separate Senior Notes.

Section 8.06. Additional Event of Default . In addition to the events listed as Events of Default in Section 5.01 of the Base Indenture, it shall be an additional Event of Default with respect to the Senior Notes, if the Company shall not have satisfied its obligation to pay the Put Price when due with respect to any Separate Senior Note following exercise of the Put Right in accordance with Section 8.05 .

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Section 8.07 Legal Holidays . In case the Purchase Contract Settlement Date shall not be a Business Day (notwithstanding any other provision of this Indenture or of the Senior Notes), any Remarketing of Senior Notes shall not settle on such date and remarketed Senior Notes shall be settled on the next succeeding Business Day with the same force and effect as if made on such Purchase Contract Settlement Date, and without any adjustment of the Purchase Price.

Section 2.05 Amendment of Exhibit A of Supplemental Indenture No. 1 . Supplemental Indenture No. 1 is hereby amended by deleting Exhibit A thereto in its entirety

and replacing it with Exhibit A hereto.

Article 3 MISCELLANEOUS

Section 3.01 Ratification of Indenture . The Indenture, as supplemented by this Supplemental Indenture No. 2, is in all respects ratified and confirmed, and this Supplemental Indenture No. 2 shall be deemed part of the Indenture in the manner and to the extent herein and therein provided.

Section 3.02 Trustee not Responsible for Recitals . The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture No. 2.

Section 3.03 New York Law to Govern . THIS SUPPLEMENTAL INDENTURE NO. 2 AND EACH AMENDED SENIOR NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

Section 3.04 Separability . In case any one or more of the provisions contained in this Supplemental Indenture No. 2 or in the Amended Senior Notes shall for any reason be held to be invalid, illegal or unenforceable in any respect, then, to the extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provisions of this Supplemental Indenture No. 2 or of the Amended Senior Notes, but this Supplemental Indenture No. 2 and the Amended Senior Notes shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein.

Section 3.05 Counterparts . This Supplemental Indenture No. 2 may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

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[SIGNATURE PAGE TO SUPPLEMENTAL INDENTURE NO. 2]

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 2 to be duly executed, as of the day and year first written above.

PNM RESOURCES, INC.

By: /s/ Terry R. Horn Terry R. Horn, Vice President and Treasurer

U.S. BANK NATIONAL ASSOCIATION, as Trustee


EXECUTION COPY

EXHIBIT 4.4 PNM Resources, Inc.

Alvarado Square Albuquerque, NM 87158

APPOINTMENT AS SUCCESSOR REMARKETING AGENT,

AMENDMENT, CONSENT August 4, 2008

Citigroup Global Markets Inc. 388 Greenwich Street New York, New York 10013 U.S. Bank National Association 100 Wall Street, Suite 1600 New York, New York 10005 Ladies and Gentlemen:

Reference is made to the Remarketing Agreement, dated as of October 7, 2005 (the “ Remarketing Agreement ”), between PNM Resources, Inc. (the “ Company ”), Banc of America Securities LLC and U.S. Bank National Association, not individually but solely as purchase contract agent and attorney-in-fact of the holders of Purchase Contracts (as defined in the Purchase Contract Agreement, as amended and restated as of the date hereof and as further amended or supplemented from time to time (the “ Amended and Restated Purchase Contract Agreement ” )) (the “ Purchase Contract Agent and Attorney-in-Fact ”). Capitalized terms used herein, but not defined herein, have the meanings assigned to them in the Remarketing Agreement.

1. Pursuant to Section 10 of the Remarketing Agreement, on July 14, 2008 the Company gave notice to Banc of America Securities LLC of removal as remarketing agent and the Company hereby appoints Citigroup Global Markets Inc. as successor remarketing agent (the “ Remarketing Agent ”) to Banc of America Securities LLC. Citigroup Global Markets Inc. hereby accepts appointment as Remarketing Agent and hereby agrees to become a party to the Remarketing Agreement as amended or supplemented from time to time and to conduct the Remarketing in accordance with the Transaction Documents in all material respects.

2. Pursuant to Section 21 of the Remarketing Agreement, the Company, the Remarketing Agent and the Purchase Contract Agent and Attorney-in-Fact hereby agree to amend the Remarketing Agreement such that, effective as of the date hereof, the defined term “Initial Remarketing Date” shall have the meaning set forth in Section 1.01 of the Amended and Restated Purchase Contract Agreement.

3. Pursuant to Section 21 of the Remarketing Agreement, the Remarketing Agent hereby consents to the changes made as of the date hereof to the Transaction Documents by the parties thereto, including without limitation, the Remarketing procedures.

If the foregoing letter agreement correctly sets forth the understanding among the Company, Citigroup Global Markets Inc. and U.S. Bank National Association, as Purchase Contract

Agent and Attorney-in-Fact, please so indicate in the space provided below, whereupon this letter and your acceptance shall constitute a binding agreement among the parties hereto.

Very truly yours,

PNM RESOURCES, INC .

By: /s/Terry R. Horn Name: Title:

CONFIRMED AND ACCEPTED: CITIGROUP GLOBAL MARKETS INC. By: /s/Howard Hiller

Name: Howard Hiller Title: Managing Director

CONFIRMED AND ACCEPTED: U.S. BANK NATIONAL ASSOCIATION,

not individually but solely as Purchase Contract Agent and Attorney-in-Fact for the Holders of the

Purchase Contracts By: /s/Patrick J. Crowley

Name: P.J. Crowley Title: Vice President

EXHIBIT 10.1 PNM RESOURCES, INC.

OFFICER RETENTION PLAN

INTRODUCTION

Effective December 7, 1998, Public Service Company of New Mexico adopted the Public Service Company of New Mexico First Restated and Amended Executive Retention Plan (the “Plan”). By an amendment dated November 27, 2002, sponsorship of the Plan was transferred to PNM Resources, Inc. (the “PNM Resources”) and the Plan was renamed the “PNM Resources, Inc. First Restated and Amended Executive Retention Plan.” Effective as of July 13, 2003, PNM Resources amended and restated the Plan in its entirety and changed the name of the Plan to the “PNM Resources, Inc. Officer Retention Plan.” The purpose of this amendment and restatement is to satisfy the requirements of Section 409A of the Internal Revenue Code of 1986 (the “Code”). Section 409A of the Code became applicable to the Plan as of January 1, 2005. The Plan has been and shall continue to be administered in good faith compliance with the requirements of Section 409A from January 1, 2005 through December 31, 2008. By execution of this document, PNM Resources hereby amends and restates the Plan in its entirety, effective as of January 1, 2009 (the “Effective Date”).

ARTICLE I PURPOSE

1.1 General . PNM Resources considers it essential to its best interests and the best interests of its customers and stockholders to foster the continuous employment of its key

management employees. PNM Resources also recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control may exist. The possibility of a Change in Control, and the uncertainty and the questions which it may raise among employees, may result in the departure or distraction of key management employees to the detriment of PNM Resources and its ability to continue to provide efficient and reliable utility services to its customers.

PNM Resources has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of key management to their assigned duties and to facilitate recruitment of future employees without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control. PNM Resources also has concluded that one of the necessary steps is to provide competitive and fair compensation and benefits to employees terminated following a Change in Control.

The purpose of this Plan is to address these concerns for Officers of PNM Resources and its Affiliates who adopt the Plan. A separate plan, the PNM Resources, Inc. Employee Retention Plan, provides retention benefits for the remaining members of management and other employees of PNM Resources and its adopting Affiliates.

ARTICLE II

DEFINITIONS

2.1 General . When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not commence a sentence, the word or phrase shall generally be a term defined in this Section 2.1 or in the Introduction. The following words and phrases utilized in the Plan with the initial letter capitalized shall have the meanings set forth below, unless a clearly different meaning is required by the context in which the word or phrase is used:

(a) “ Affiliate ” means (1) any member of a “controlled group of corporations” (within the meaning of Section 414(b) of the Code as modified by Section 415(h) of the Code) that includes PNM Resources as a member of the group; and (2) any member of a group of trades or businesses under common control (within the meaning of Section 414(c) of the Code as modified by Section 415(h) of the Code) that includes PNM Resources as a member of the group.

“50% Affiliate” means any of the following: (1) an entity that would be a member of a “controlled group of corporations” (within the meaning of Section 414(b) of the Code as modified by Section 415(h) of the Code) that includes PNM Resources as a member of the group if for purposes of applying Section 1563(a)(1), (2) or (3) of the Code for determining the members of a controlled group of corporations under Section 414(b) of the Code, the language “at least 50 percent” is used instead of “at least 80 percent” each place it appears in Section 1563(a)(1), (2) and (3); and (2) an entity that would be a member of a group of trades or businesses under common control (within the meaning of Section 414(c) of the Code) that includes PNM Resources as a member of the group if for purposes of applying Treas. Reg. § 1.414(c)-2 for purposes of determining the members of a group of trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code, the language “at least 50 percent” is used instead of “at least 80 percent” each place it appears in Treas. Reg. § 1.414(c)-2.

(b) “ Base Salary ” means the Participant’s highest annual salary from the Company in effect during the Protection Period.

(c) “ Board ” or “ Board of Directors ” means the Board of Directors of PNM Resources. The Board may delegate its responsibilities in accordance with its standard practices and procedures.

(d) “ Cause ” means, for purposes of termination of a Participant’s employment:

(1) The willful and continued failure of a Participant to substantially perform his or her duties with PNM Resources or any Affiliate after written demand for substantial performance is delivered to the Participant which specifically identifies the manner in which the Participant has not substantially performed his or her duties;

(2) The willful failure to report to work for more than thirty (30) days; or

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(3) The willful engaging by the Participant in conduct which is demonstrably and materially injurious to PNM Resources or any Affiliate, monetarily or otherwise, including acts of fraud, misappropriation, violence or embezzlement for personal gain at the expense of PNM Resources or any Affiliate, conviction of a felony, or conviction of a misdemeanor involving immoral acts.

Cause shall not be deemed to exist on the basis of paragraph (1) or (2) if the failure results from such Participant’s incapacity due to verifiable physical or Mental Illness substantiated by appropriate medical evidence. After the issuance of a Notice of Termination by the Participant due to Constructive Termination, an act, or failure to act, by a Participant shall not be deemed “willful” for purposes of paragraph (1) or (2) and shall not give rise to Cause pursuant to this Section. An act, or failure to act, by a Participant shall not be deemed “willful” if done or omitted to be done by the Participant in good faith and with a reasonable belief that his or her action was in the best interests of PNM Resources and its Affiliates.

(e) “ Change in Control ” means any of the following:

(1) Any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 becoming directly or indirectly the “beneficial owner” as defined in Rule 13d-3 under the Securities Exchange Act, of securities of PNM Resources representing twenty percent (20%) or more of the combined voting power of PNM Resources’ then outstanding securities unless such person is, or shall be, a trustee or other fiduciary holding securities under an employee benefit plan of PNM Resources, or a corporation owned, directly or indirectly, by the stockholders of PNM Resources in substantially the same proportion as their ownership of stock of PNM Resources;

(2) During any period of two (2) consecutive years, excluding any period prior to the Effective Date of this Plan, the following individuals ceasing, for any reason, to constitute a majority of the Board of Directors:

(i) directors who were directors at the beginning of such period; and

(ii) any new directors whose election by the Board or nomination for election by PNM Resources’ stockholders was approved by a vote of at least two-thirds (2/3rds) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, such new directors being referred to as “Approved New Directors.”

For purposes of determining whether a Change in Control has occurred pursuant to this paragraph (2), a director designated by a person who has entered into an agreement with PNM Resources to effect a transaction described in paragraphs (1), (3) or (4) of this Section (e) shall not be considered to be an “Approved New Director.”

(3) The shareholders of PNM Resources approving a merger or consolidation of PNM Resources with another company, corporation or subsidiary that is not affiliated with PNM Resources immediately before the Change in Control; provided, however, that if the merger or consolidation would result in the voting securities of PNM Resources

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outstanding immediately prior thereto continuing to represent, either by remaining outstanding or by being converted into voting securities of the surviving entity, at least sixty percent (60%) of the combined voting power of the voting securities of PNM Resources or such surviving entity outstanding immediately after such merger or consolidation, the merger or consolidation will be disregarded; or

(4) The adoption of a plan of complete liquidation of PNM Resources or an agreement for the sale or disposition by PNM Resources of all or substantially all of PNM Resources’ assets.

Notwithstanding the foregoing, a Change in Control will not be deemed to have occurred until: (1) any required regulatory approval, including any final non-appealable regulatory order, has been obtained and (2) the transaction that would otherwise be considered a Change in Control closes.

(f) “ Class I Officer ” means all Officers with titles higher than Vice President (VP).

(g) “ Class II Officer ” means all Officers with the title Vice President (VP).

(h) “ Code ” means the Internal Revenue Code of 1986, as amended.

(i) “ Committee ” means the Benefits Governance Committee appointed by PNM Resources.

(j) “ Company ” means, collectively, PNM Resources and any Affiliate of PNM Resources that has adopted this Plan in accordance with Section 10.13 ( Adoption by Affiliates ). As used in this Plan, “Company” also means any successor to the assets of PNM Resources that assumes and agrees to perform PNM Resources’ obligations hereunder, by operation of law or otherwise.

(k) “ Constructive Termination ” means, without a Participant’s express written consent, the occurrence during the Protection Period of any of the following circumstances, subject to the exceptions and modifications noted below:

(1) A material diminution in the Participant’s Base Salary;

(2) A material diminution in the Participant’s authority, duties, or responsibilities;

(3) A material change in the geographic location of the Participant’s principal office; or

(4) Any other action or inaction that constitutes a material breach by the Company of this Plan.

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A Participant must provide a written Notice of Termination to the Company of the existence of the Constructive Termination condition described in paragraphs (1)-(4) above within ninety (90) days of the initial existence of the condition.

Notwithstanding anything to the contrary, an event described in paragraphs (1)-(4) above will not constitute Constructive Termination if, within thirty (30) days after the Participant gives the Company the Notice of Termination specifying the occurrence or existence of an event that the Participant believes constitutes Constructive Termination, the Company has fully corrected (or reversed) such event.

(l) “ Disability ” shall have the same meaning as provided in the Company’s long-term disability plan for the provision of long-term disability benefits.

(m) “ Eligible Compensation ” means the sum of the (1) Participant’s Base Salary, (2) any cash award paid as a merit increase in lieu of an increase in base salary received during the twelve (12) month period immediately preceding the Participant’s Separation from Service and (3) the “target” Officer Incentive Plan award (regardless of the award, if any, actually received under the Officer Incentive Plan). Unless otherwise stated in the Officer Incentive Plan, the “target” award is fifty percent (50%) of the Participant’s highest maximum award opportunity under the Officer Incentive Plan during the Protection Period.

(n) “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

(o) “ Health Plan ” means the PNM Resources, Inc. Comprehensive Health Plan as it may be amended or restated from time to time or any successor plan or plans that provide the benefits currently provided under such plan.

(p) “ Mental Illness ” means any disorder, other than a disorder induced by alcohol or drug abuse, which impairs the behavior, emotional reaction or thought process of a person.

(q) “ Notice of Termination ” means a notice from either the Company or a Participant, as applicable. If the termination is for Cause or based on Constructive Termination, the notice shall indicate the specific termination provision in this Plan relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant’s employment. If a Participant is providing a Notice of Termination based on Constructive Termination, the Notice of Termination must be provided to the Company’s Director – Compensation, Benefits & HRIS (or, if that title is not in use at the time, to the person holding the most comparable position) no more than ninety (90) days following the occurrence of the condition giving rise to Constructive Termination and the Notice of Termination must be given at least thirty (30) days prior to the date of the Participant’s Separation from Service. However, the Company retains its rights as an at will employer to terminate any employee at any time and for any reason.

(r) “ Officer ” means any employee of the Company (1) with the title Chief Executive Officer (CEO), Chief Administrative Officer (CAO), Executive Vice President (EVP), Senior Vice President (SVP), or Vice President (VP) or any other title that describes a position of

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higher authority than that of a Vice President and (2) who is classified and coded as an Officer pursuant to the Company’s compensation system.

(s) “ Officer Incentive Plan ” means the incentive compensation plan maintained by the Company for Officers.

(t) “ Participant ” means any Officer of the Company who has satisfied the eligibility requirements of this Plan.

(u) “ Plan ” means the PNM Resources, Inc. Officer Retention Plan, effective January 1, 2009, as amended.

(v) “ PNM Resources ” means PNM Resources, Inc. As used in the Plan, “PNM Resources” also means any successor in interest resulting from merger, consolidation, or transfer of substantially all of PNM Resources’ assets.

(w) “ Protection Period ” means the period beginning with the date on which a transaction closes, or an event occurs which results in a Change in Control and ending twenty-four (24) months thereafter.

(x) “ Separation from Service ” means either (1) the termination of a Participant’s employment with Company and all Affiliates and 50% Affiliates due to death, retirement or other reasons, or (2) a permanent reduction in the level of bona fide services the Participant provides to Company and all Affiliates and 50% Affiliates to an amount that is 20% or less of the average level of bona fide services the Participant provided to Company and all Affiliates and 50% Affiliates in the immediately proceeding 36 months, with the level of bona fide service calculated in accordance with Treas. Reg. § 1.409A-1(h)(1)(ii).

A Participant’s employment relationship is treated as continuing while a Participant is on military leave, sick leave, or other bona fide leave of absence (if the period of such leave does not exceed six months, or if longer, so long as a Participant’s right to reemployment with Company or an Affiliate or 50% Affiliate is provided either by statute or contract). If a Participant’s period of leave exceeds six months and a Participant’s right to reemployment is not provided either by statute or by contract, the employment relationship is deemed to terminate on the first day immediately following the expiration of such six-month period. Whether a termination of employment has occurred will be determined based on all of the facts and circumstances and in accordance with regulations issued by the United States Treasury Department pursuant to Section 409A of the Code.

Generally, the date of a Participant’s Separation from Service will be specified in the Notice of Termination. In the case of a termination for Cause, the date of Separation from Service shall be immediately upon receipt of the Notice of Termination. In the case of an involuntary termination of employment by the Company for any reason other than Cause, death or Disability, the date of Separation from Service shall not be less than fifteen (15) days from the date the Notice of Termination is given. In the case of Constructive Termination, the date of Separation from Service shall be not less than thirty (30) days from the date the Notice of Termination is given.

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(y) “ Specified Employee ” means certain officers and highly compensated employees of Company as defined in Treas. Reg. § 1.409A-1(i). The identification date for determining whether a Participant is a Specified Employee during any calendar year shall be the September 1 preceding the commencement of such year.

2.2 Other Defined Terms . In addition to the definitions included in Section 2.1 ( General ) and the Introduction, other terms may be defined in the primary Plan provisions to which they are applicable.

ARTICLE III TERM OF PLAN

3.1 Term of Plan . The Plan is effective as of the Effective Date and shall continue in effect until terminated by the Board, subject to the limitations on termination set forth in

Section 9.1 ( Amendment and Termination ).

3.2 Reversion to Prior Provisions of the Plan . Pursuant to Section 9.1 ( Amendment and Termination ) of the Plan document in effect prior to the Effective Date, if a Change in Control occurs within the twenty-four (24) month period following the Effective Date, the provisions of the Plan as in effect prior to the Effective Date will revive and will control with respect to determining retention benefits with respect to such Change in Control if the benefits provided by the provisions of the Plan in effect prior to the Effective Date are greater than the benefits provided under this Plan document. Notwithstanding the foregoing, as provided by Section 9.1 ( Amendment and Termination ), all changes made in order to comply with Section 409A of the Code shall remain in effect.

ARTICLE IV ELIGIBILITY FOR RETENTION BENEFITS

4.1 Eligibility to Participate . To be eligible for benefits under this Plan, an employee must be an Officer of the Company at the beginning of the Protection Period. If a

Participant’s employment with the Company terminates for any reason (whether voluntary or involuntary) before the commencement of the Protection Period, he or she shall not be eligible to receive the benefits provided by this Plan. In addition, if a Participant voluntarily terminates his or her employment during the Protection Period for reasons other than those that constitute Constructive Termination, or if a Participant dies or becomes Disabled during the Protection Period, the Participant will not be entitled to receive any benefits under this Plan.

4.2 Eligibility for Benefits .

(a) General Rule . A Participant shall be entitled to the benefits described in Article V ( Retention Benefits ) if such Participant Separates from Service during the Protection Period due to: (1) a termination of employment by the Company for any reason other than Cause, death or Disability; or (2) a termination of employment by the Participant due to Constructive Termination following the Participant’s giving of a Notice of Termination to the Company.

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(b) Exceptions . A Participant shall not be entitled to receive the retention benefits offered by the Plan even if the Participant meets the requirements of paragraph (a), in the following circumstances:

(1) If a Participant’s employment is terminated or Constructively Terminated during the Protection Period, but such Participant is re-employed by the surviving entity or the party acquiring the assets of PNM Resources in connection with the Change in Control before any payments are made in accordance with Section 5.2 ( Payment Form and Date; Section 409A Compliance Strategy ), then such Participant shall not be entitled to the benefits under this Plan.

(2) Any Participant who without express authority actively participates in advancing a Change in Control, whether on his or her own behalf or on behalf of someone else, shall not be eligible for the benefits provided by this Plan. Participants who, by virtue of their position and duties with the Company, are involved in facilitating an orderly transition to a successor company shall remain eligible to receive benefits.

(3) If a Participant’s employment is terminated or Constructively Terminated as a result of the acquisition of PNM Resources by a holding company formed in connection with a corporate restructuring initiated by PNM Resources, and the Participant is immediately re-employed by PNM Resources or any Affiliate or 50% Affiliate, then the Participant shall not be entitled to benefits under the Plan.

(4) Transfers between and within PNM Resources and Affiliates and 50% Affiliates shall not be considered to be a termination of employment or result in the payment of benefits under this Plan unless the transfer results in a Constructive Termination.

4.3 Release Agreement .

(a) General . In order to receive any retention benefits under this Plan, within the time periods described below, the Participant must sign, deliver and not revoke a Release Agreement containing such terms and conditions as are satisfactory to the Company, including, but not limited to, the release of any and all claims that the Participant may then have, as of the signing of such release, against PNM Resources or its Affiliates, employees, officers, and directors. The Participant shall generally receive the Release Agreement on the date of the Participant’s Separation from Service and in no event more than five (5) days following the date of the Participant’s Separation from Service and shall have up to forty-five (45) days following the date the Release Agreement is given to the Participant to sign and return the Release Agreement to the Company.

(b) Revocation of the Release Agreement . Within seven (7) calendar days after delivery of the Release Agreement to the Company by the Participant, the Participant shall be entitled to revoke the Release Agreement by following the revocation procedure described in the Release Agreement.

(c) Impact of Revocation . The revocation of a previously signed and delivered Release Agreement pursuant to the above paragraph shall be deemed to constitute an irrevocable forfeiture of retention benefits under the Plan.

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4.4 No Duplication of Benefits . The right to receive any benefits under this Plan by any Participant is specifically conditioned upon such Participant either waiving or being ineligible for any and all benefits under the PNM Resources, Inc. Employee Retention Plan, including any amendments thereto, or any benefits due to a Change in Control or similar event under any successor or other change in control, severance, retention or other plans or agreements otherwise available to the Participant. The Company does not intend to provide any Participant with benefits under both this Plan and benefits under any other severance, retention, change in control or other plans or agreements sponsored by the Company or any Affiliate. The Company may override this provision by expressly stating in the other change in control, severance, retention or other plan or agreement that some or all of the benefits provided by the other change in control, severance, retention or other plan or agreement are intended to supplement the benefits provided by this Plan.

ARTICLE V RETENTION BENEFITS

5.1 Retention Benefits . Participants satisfying the eligibility requirements set forth in Section 4.2 ( Eligibility for Benefits ) who sign (and do not revoke) the Release

Agreement required by Section 4.3 ( Release Agreement ) shall be entitled to the following retention benefits:

(a) Severance Pay . The Company shall pay the Participant, as a retention benefit, a lump sum amount as set forth below based upon the Participant’s highest position held with the Company during the Protection Period:

(b) Officer Incentive Plan . A Participant also shall receive a pro-rata award of the Participant’s highest target incentive under the Officer Incentive Plan as in effect

during the Protection Period, regardless of the award, if any, actually paid pursuant to the Officer Incentive Plan. Unless otherwise stated in the Officer Incentive Plan, the “target” award is 50% of the maximum award.

(c) Medical, Dental and Vision Coverage . Medical, dental and vision coverage under the Health Plan, as the Participant had elected prior to the Participant’s Separation from Service, shall be provided for a period of thirty (30) months for Class I Officers and a period of twenty-four (24) months for Class II Officers immediately following the Participant’s Separation from Service with the cost of such coverage to be shared by the Company and the Participant on the same basis as in effect prior to the Participant’s Separation from Service. Participant contributions that were required for participation in the Health Plan will continue to be required during the continuation period. No Participant may elect to receive cash or any other allowance in lieu of medical, dental or vision coverage under the Health Plan.

POSITION SEVERANCE PAY Class I Officer 3.0 times Eligible Compensation

Class II Officer 2.0 times Eligible Compensation

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(d) COBRA Continuation Coverage . Continuation of coverage under the Health Plan pursuant to Section 4980B of the Code will become effective upon the completion of the twenty-four (24) month or thirty (30) month, as applicable, period.

(e) Life and Accidental Death and Dismemberment Insurance Benefits . The Company shall provide life and accidental death and dismemberment insurance benefits substantially similar to those the Participant was receiving prior to the Notice of Termination. The life and accidental death and dismemberment insurance benefits provided by this Section shall include benefits provided pursuant to the PNM Resources, Inc. Officer Life Insurance Plan prior to the Notice of Termination. As a general rule, such coverage shall continue for a period of thirty (30) months for Class I Officers and a period of twenty-four (24) months for Class II Officers. No Participant may elect to receive cash or any other allowance in lieu of the benefits provided by this Section.

(f) Supplemental Retirement Benefits . A Participant shall receive the following supplemental retirement benefits payable in one lump sum:

(1) The cash equivalent of the difference between the following two amounts, each calculated based on the Participant’s age as of Separation from Service: (i) the present value of the early or normal retirement benefit the Participant would receive under the PNM Resources, Inc. Employees’ Retirement Plan if the Participant had continued in employment for the number of years equal to the multiplier used to determine severance pay in Section 5.1(a) ( Retention Benefits – Severance Pay ) above and then terminated employment (at a time when the Participant was, accordingly, two or three years older and had two or three more years of service, depending on whether the Participant is a Class I Officer or a Class II Officer) and began receiving benefits immediately or as soon as possible thereafter as prescribed under the PNM Resources, Inc. Employees’ Retirement Plan and (ii) the present value of the early or normal retirement benefit the Participant is actually entitled to under the PNM Resources, Inc. Employees’ Retirement Plan assuming immediate termination of employment and benefit commencement as soon as possible thereafter as prescribed under the PNM Resources, Inc. Employees’ Retirement Plan; plus

(2) The cash equivalent of Company contributions to the Participant’s Retirement Savings Plan account in the amount of seven and a half percent (7.5%) of eligible compensation (limited as provided in the Retirement Savings Plan and Section 401(a)(17)) of the Code) times the period which corresponds to the number of years equal to the multiplier used to determine severance pay in Section 5.1(a) ( Retention Benefits – Severance Pay ), above.

(g) Retiree Health Plan Credit . As of the date of the Participant’s Separation from Service, the Participant will receive a service credit for purposes of eligibility for participation in any retiree health plan sponsored by the Company and its Affiliates equal to the multiplier used to determine severance pay in Section 5.1(a) ( Retention Benefits – Severance Pay ), above. The Participant shall be responsible for any tax consequences of such additional credit.

5.2 Payment Form and Date; Section 409A Compliance Strategy . All payments shall be made in accordance with this Section 5.2.

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(a) General Rule Regarding Time of Payments . Notwithstanding any other provision of this Plan to the contrary, no payment shall be made prior to the Participant’s Separation from Service. The severance pay due pursuant to Section 5.1(a) ( Retention Benefits – Severance Pay ), the Officer Incentive Plan payment due pursuant to Section 5.1(b) ( Retention Benefits – Officer Incentive Plan ), and the supplemental retirement benefits due pursuant to Section 5.1(f) ( Retention Benefits – Supplemental Retirement Benefits ) shall be paid in a lump sum within ten (10) days following the last day on which a Participant may revoke a previously executed and timely delivered Release Agreement.

(b) Code Section 409A Compliance Strategy . Certain of the payments and benefits provided by this Plan are subject to the requirements of Section 409A of the Code. The purpose of this Section 5.2(b) is to summarize the treatment of each such payment or benefit for purposes of Section 409A and to comply, as needed, with the requirements of Section 409A.

(1) Compliance Strategy for Lump Sum Payments . The severance pay due pursuant to Section 5.1(a) ( Retention Benefits – Severance Pay ), the Officer Incentive Plan payment due pursuant to Section 5.1(b) ( Retention Benefits – Officer Incentive Plan ), and the supplemental retirement benefits due pursuant to Section 5.1(f) ( Retention Benefits – Supplemental Retirement Benefits ) will be considered to be made pursuant to the short-term deferral exception to Section 409A as described in Treas. Reg. § 1.409A-1(b)(4).

(2) Compliance Strategy for Medical, Dental and Vision Coverage . Pursuant to Section 5.1(c) ( Retention Benefits – Medical, Dental and Vision Coverage ), the Company will provide an eligible Participant with continued medical, dental and vision coverage for a period of twenty-four (24) months or thirty (30) months, as applicable. To the extent that the Company pays the cost of the Participant’s medical, dental and vision coverage throughout the first eighteen (18) month period following the Participant’s Separation from Service, such payments are exempt from Section 409A under the medical benefits reimbursement exception set forth in Treas. Reg. § 1.409A-1(b)(9)(v)(B). The Participant’s continued participation in the Company’s medical, dental and vision programs pursuant to Section 5.1(c) ( Retention Benefits – Medical, Dental and Vision Coverage ) after the period of time during which the Participant would be entitled to continuation coverage pursuant to Section 4980B of the Code if the Participant elected the coverage and paid the premiums (the “Excess Medical Benefits”) may be considered to be “deferred compensation” subject to the requirements of Section 409A of the Code. In order to assure compliance with the requirements of Section 409A and avoid adverse tax consequences to the Participant, the only Excess Medical Benefits that will be subject to reimbursement under such plans will be expenses for medical care within the meaning of Section 105(b) of the Code. In addition, all reimbursements of Excess Medical Benefits under such plans shall be made on or before the last day of the calendar year following the calendar year in which the expense was incurred and the right to reimbursement for such Excess Medical Benefits will not be subject to liquidation or exchange for another benefit.

(3) Compliance Strategy for Life and Accidental Death and Dismemberment Insurance Benefits . Pursuant to Section 5.1(e) ( Retention Benefits – Life and Accidental Death and Dismemberment Insurance Benefits ), the Company will provide an eligible Participant with continued life and accidental death and dismemberment insurance benefits for a period of twenty-four (24) months or thirty (30) months, as applicable.

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This continued insurance coverage is excepted from Section 409A pursuant to Treas. Reg. § 1.409A-1(a)(5).

(4) Compliance Strategy for Reimbursement of Legal Fees . Pursuant to Section 5.3 ( Reimbursement of Legal Fees ), the Company will provide an eligible Participant with reimbursement for reasonable legal fees and expenses incurred as a result of a Separation from Service or Constructive Termination under the terms of the Plan. The amount of legal expenses incurred in one calendar year will not affect the expenses eligible for reimbursement in any other calendar year. All expenses incurred in one calendar year must be reimbursed no later than the last day of the next calendar year. The right to reimbursement is not subject to liquidation or exchange for any other benefit.

(5) Compliance Strategy for Tax Gross-Up Payment . Pursuant to Section 5.5 ( Tax Gross-Up ), the Company will provide an eligible Participant with a tax gross-up payment in limited circumstances. The Company has concluded that the gross-up payment provided under Section 5.5 ( Tax Gross-Up ) may be subject to the requirements of Section 409A. To ensure that the payments under Section 5.5 ( Tax Gross-Up ) comply with Section 409A, the payments are payable at a specified time or pursuant to a fixed schedule within the meaning of Treas. Reg. § 1.409A-3(i)(1)(v).

(6) Delay in Payments for Specified Employees . As a general rule, a Participant will commence receiving benefits at the times provided in the Plan. If the Participant is a “Specified Employee” at the time of his Separation from Service, and the Participant is eligible for a tax gross-up payment provided by Section 5.5 ( Tax Gross-Up ), the tax gross-up payment will commence upon the later of (i) the time specified in Section 5.5 ( Tax Gross-Up ) or (ii) the first day of the seventh month following the Participant’s Separation from Service. Any payments that would have been paid during the first six months following the Participant’s Separation from Service shall be paid on the first day of the seventh month together with interest at the “applicable federal rate” (within the meaning of Section 1274(d) of the Code) (the “AFR”) for the month in which the payment is made to the Participant. The six-month delay for a Specified Employee does not apply if the Participant dies or becomes Disabled prior to his Separation from Service.

(7) Payment Disputes . If a payment is not made due to a dispute with respect to such payment, the payment may be delayed in accordance with Treas. Reg. § 1.409A-3(g).

(8) Ban on Acceleration or Deferral . Under no circumstances may the time or schedule of any payment made or benefit provided pursuant to this Plan be accelerated or subject to a further deferral except as otherwise permitted or required pursuant to regulations and other guidance issued pursuant to Section 409A of the Code.

(9) No Elections . No Participant has any right to make any election regarding the time or form of any payment due under this Plan.

(10) Distributions Treated as Made Upon a Designated Event . If the Company fails to make any payment under this Plan, either intentionally or unintentionally,

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within the time period specified in the Plan, but the payment is made within the same calendar year, such payment will be treated as made within the time period specified in the Plan pursuant to Treas. Reg. § 1.409A-3(d).

5.3 Reimbursement of Legal Fees . The Company also shall pay to a Participant who is entitled to receive benefits pursuant to Section 4.2 ( Eligibility for Benefits ) reasonable legal fees and expenses incurred as a result of a termination or Constructive Termination under the terms of this Plan (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or Constructive Termination or in seeking to obtain or enforce any right or benefit provided by this Plan or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder).

5.4 Offsetting Benefits . Benefits otherwise receivable by the Participant pursuant to Sections 5.1(c) ( Retention Benefits – Medical, Dental and Vision Coverage ) and 5.1(e) ( Retention Benefits – Life and Accidental Death and Dismemberment Insurance Benefits ) shall be forfeited to the extent comparable benefits are actually received by the Participant from another employer of the Participant during the applicable twenty-four (24) or thirty (30) month period following his or her Separation from Service. Any such benefits actually received by the Participant from another employer shall be reported by the Participant to the Company.

5.5 Tax Gross-Up .

(a) General Rule . Except as provided in Section 5.5(g) ( Tax Gross-Up – Exception ), if the “Total Payments” made to a Participant under this Plan result in an excise tax being imposed pursuant to Section 4999 of the Code, the Company will provide the Participant with a “Gross-Up Payment,” calculated in accordance with the provisions of this Section. The Gross-Up Payment provided by this Section applies only to excise taxes imposed under Section 4999 of the Code and not to excise taxes, other taxes, or additions to tax imposed under any other provision of the Code including Section 409A.

(1) Total Payments . Total Payments as used in this Section, means any payments in the nature of compensation (as defined in Code Section 280G and the regulations adopted thereunder), made pursuant to this Plan or otherwise, to or for the Participant’s benefit, the receipt of which is contingent on a “change in the ownership or effective control” of PNM Resources, or a “change in the ownership of a substantial portion of the assets” of PNM Resources (as these phrases are defined in Code Section 280G and the regulations adopted thereunder) and to which Code Section 280G applies.

(2) Gross-Up Payment . Except as otherwise noted below, the Gross-Up Payment will consist of a single lump sum payment and will be in such an amount that after the Participant has paid (1) the “total presumed federal and state taxes” and (2) the excise taxes imposed by Code Section 4999 with respect to the Gross-Up Payment (and any interest or penalties actually imposed), the Participant retains an amount of the Gross-Up Payment equal to the remaining excise taxes imposed by Code Section 4999 on the Participant’s Total Payments (calculated before the Gross-Up Payment). For purposes of calculating the Gross-Up Payment, a Participant’s actual federal and state income taxes will not be used. Instead, the Company will

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use the Participant’s “total presumed federal and state taxes.” For purposes of this Plan, a Participant’s “total presumed federal and state taxes” shall be conclusively calculated using a combined tax rate equal to the sum of the maximum marginal federal and applicable state income tax rates and the hospital insurance (or “HI”) portion of F.I.C.A. Based on the rates in effect for 2007 for a New Mexico resident, the “total presumed federal and state tax rate” is 41.75% (35% federal income tax rate plus 5.3% New Mexico state income tax rate plus 1.45% HI tax rate). The state tax rate for the Participant’s actual principal place of residence will be used and no adjustments will be made for the deduction of state taxes on the federal return, any deduction of federal taxes on a state return, the loss of itemized deductions or exemptions, or for any other purpose.

(b) Calculations . The Company, at its sole expense, will retain a “Consultant” to advise the Company with respect to the applicability of any Code Section 4999 excise tax with respect to a Participant’s Total Payments. The Consultant shall be a law firm, a certified public accounting firm, and/or a firm nationally recognized as providing executive compensation consulting services. All determinations concerning whether a Gross-Up Payment is required pursuant to Section 5.5(a) ( Tax Gross-up – General Rule ) and the amount of any Gross-Up Payment (as well as any assumptions to be used in making such determinations) shall be made by the Consultant selected pursuant to this Section. The Consultant shall provide the Participant and the Company with a written notice of the amount of the excise taxes that the Participant is required to pay and the amount of the Gross-Up Payment. The notice from the Consultant shall include any necessary calculations in support of its conclusions. All fees and expenses of the Consultant shall be borne by the Company. Except as otherwise provided in Section 5.2(b)(6) ( Payment Form and Date; Section 409A Compliance Strategy – Code Section 409A Compliance Strategy – Delay in Payments for Specified Employees ), any Gross-Up Payment shall be made by the Company within ten (10) calendar days after the mailing of such notice and in no event will the payment be made later than December 31 following the taxable year in which the Participant remits the related taxes.

(c) Determination Binding . As a general rule, the Consultant’s determination shall be binding on the Participant and the Company. The application of the excise tax rules of Code Section 4999, however, is complex and uncertain and, as a result, the Internal Revenue Service may disagree with the Consultant concerning the amount, if any, of the excise taxes that are due. If the Internal Revenue Service determines that excise taxes are due, or that the amount of the excise taxes that are due is greater than the amount determined by the Consultant, the Gross-Up Payment will be recalculated by the Consultant to reflect the actual excise taxes that the Participant is required to pay (and any related interest and penalties). Any deficiency will then be paid to the Participant by the Company within fifteen (15) calendar days of the receipt of the revised calculations from the Consultant and in no event will the payment be made later than December 31 following the taxable year in which the Participant remits the related taxes. If the Internal Revenue Service determines that the amount of excise taxes that the Participant paid exceeds the amount due, the Participant shall return the excess to the Company (along with any interest paid to the Participant on the overpayment) within thirty (30) days upon receipt from the Internal Revenue Service or other taxing authority.

(d) Right to Challenge Reserved . The Company reserves the right to challenge any excise tax determinations made by the Internal Revenue Service. If the Company

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agrees to indemnify the Participant from any taxes, interest and penalties that may be imposed upon the Participant (including any taxes, interest and penalties on the amounts paid pursuant to the Company’s indemnification agreement), the Participant must cooperate fully with the Company in connection with any such challenge. The Company shall bear all costs associated with the challenge of any determination made by the Internal Revenue Service and the Company shall control all such challenges. The additional Gross-Up Payments called for by Section 5.5(c) ( Tax Gross-Up – Determination Binding ) shall not be made until the Company has either exhausted its (or the Participant’s) rights to challenge the determination or indicated that it intends to concede or settle the excise tax determination.

(e) Notification . The Participant shall notify the Company in writing of any claim or determination by the Internal Revenue Service that, if upheld, would result in the payment of excise taxes in amounts different from the amount initially specified by the Consultant. Such notice shall be given as soon as possible but in no event later than fifteen (15) calendar days following your receipt of notice of the Internal Revenue Service’s position.

(f) Effect of Repeal or Inapplicability . If the provisions of Code Sections 280G and 4999 are repealed without succession, then this Section shall be of no further force or effect. Moreover, if the provisions of Code Sections 280G and 4999 do not apply to impose the excise tax on payments made under this Plan, then the provisions of this Section shall not apply.

(g) Exception . The Consultant selected pursuant to Section 5.5(b) ( Tax Gross-Up – Calculations ) above will calculate the Participant’s “Capped Benefit” and “Uncapped Benefit.” For this purpose, the “Uncapped Benefit” is equal to the Total Payments to which the Participant is entitled prior to the application of this Section 5.5(g). A Participant’s “Capped Benefit” is the amount to which the Participant will be entitled after application of the limitations of Section 5.5(h) ( Tax Gross-Up – Cap on Benefits ). If the Participant’s Uncapped Benefit is less than 115% of the Participant’s Capped Benefit, the Participant will not be entitled to receive the gross-up payment referred to in Section 5.5(a)(2) ( Tax Gross-up – General Rule – Gross-Up Payment ). Instead, the Participant’s Total Payments will be limited or capped in accordance with Section 5.5(h) ( Tax Gross-Up – Cap on Benefits ).

(h) Cap on Benefits . Pursuant to Section 5.5(g) ( Tax Gross-Up – Exception ) above, if the Participant’s Uncapped Benefit is less than 115% of the Participant’s Capped Benefit, one or more of the payments or benefits to which the Participant is entitled that is not subject to Section 409A of the Code shall be reduced until the Total Payments are deductible by the Company after application of Section 280G of the Code. Examples of payments or benefits that are not subject to Section 409A and are therefore subject to reduction are (1) the severance payment provided by Section 5.1(a) ( Retention Benefits – Severance Pay ), (2) the Officer Incentive Plan payment due pursuant to Section 5.1(b) ( Retention Benefits – Officer Incentive Plan ), (3) the supplemental retirement benefits due pursuant to Section 5.1(f) ( Retention Benefits – Supplemental Retirement Benefits ), and (4) the continued life and accidental death and dismemberment insurance benefits due pursuant to Section 5.1(e) ( Retention Benefits – Life and Accidental Death and Dismemberment Insurance Benefits ). For purposes of this limitation:

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(1) No portion of the Total Payments shall be taken into account which, in the opinion of the Consultant does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code;

(2) A payment shall be reduced only to the extent necessary so that the Total Payments constitute reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code or are otherwise not subject to disallowance as deductions, in the opinion of the Consultant; and

(3) The value of any non-cash benefit or any deferred payment of benefit included in the Total Payments shall be determined in accordance with Section 280G of the Code and the regulations issued thereunder.

(i) Effect of Section 3.2 on Cap on Benefits . For a period of twenty-four (24) months following the Effective Date, if a Participant’s capped benefits under this Plan are less than the benefits payable under the provisions of the Plan document in effect prior to the Effective Date, pursuant to Section 3.2 ( Reversion to Prior Provisions of the Plan ), Section 5.5(h) ( Tax Gross-Up – Cap on Benefits ) shall be disregarded. In such instance, the Participant shall be entitled to a grossed up benefit in accordance with the remaining provisions of this Section. All benefits shall be paid at such times and forms as provided in this Plan document.

5.6 Additional Benefits Under Other Plans . Additional benefits may be provided to Participants upon a Change in Control through other programs sponsored by the Company.

ARTICLE VI PLAN ADMINISTRATION

6.1 Plan Administration . The Committee shall administer the Plan. The Committee shall be the “Named Fiduciary” for purposes of ERISA and shall have the authority to

control, interpret and construe the Plan and manage the operations thereof. Any such interpretation and construction of any provisions of this Plan by the Committee shall be final. The Committee shall, in addition to the foregoing, exercise such other powers and perform such other duties as it may deem advisable in the administration of the Plan. The Committee may delegate some (or all) of its authority hereunder to the PNMR Services Company Benefits Department. The Committee also may engage agents and obtain other assistance from the Company, including Company counsel. The Committee shall not be responsible for any action taken or not taken on the advice of legal counsel. The Committee is given specific authority to allocate and revoke responsibilities among its members or designees. When the Committee has allocated authority pursuant to the foregoing, the Committee shall not be liable for the acts or omissions of the party to whom such responsibility has been allocated, except to the extent provided by law.

6.2 Claims Procedures .

(a) Initial Claim . A claim for benefits under this Plan must be submitted to the senior human resources officer of PNM Resources (the “Human Resources Officer”). If the claimant is the Human Resources Officer, a claim for benefits under this Plan must be submitted to the Chief Executive Officer of PNM Resources and the term “Human Resources Officer” as used in paragraph (1) below shall be replaced with the term “Chief Executive Officer.”

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(1) Notice of Decision . Written notice of the disposition of the claim shall be furnished to the claimant within a reasonable period of time, but not later than ninety (90) days after receipt of the claim by the Human Resources Officer, unless the Human Resources Officer determines that special circumstances require an extension of time for processing the claim. If the Human Resources Officer determines that an extension is required, written notice (including an explanation of the special circumstances requiring an extension and the date by which the Human Resources Officer expects to render the benefits determination) shall be furnished to the claimant prior to the termination of the original ninety (90) day period. In no event shall such extension exceed a period of ninety (90) days from the end of the initial ninety (90) day period. If the claim is denied, the notice required pursuant to this Section shall set forth the following:

(i) The specific reason or reasons for the adverse determination;

(ii) Special reference to the specific Plan provisions upon which the determination is based;

(iii) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(iv) An explanation of the Plan’s appeal procedure and the time limits applicable to an appeal, including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA.

(b) Appeal Procedures . Every claimant shall have the right to appeal an adverse benefits determination to the Committee (including, but not limited to, whether the Participant’s termination was for Cause). Such appeal may be accomplished by a written notice of appeal filed with the Committee within sixty (60) days after receipt by the claimant of written notification of the adverse benefits determination. Claimants shall have the opportunity to submit written comments, documents, records, and other information relating to the claim for benefits. Claimants will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claimant’s claim for benefits, such relevance to be determined in accordance with Section 6.2(c) ( Claims Procedures – Definition of Relevant ) below. The appeal shall take into account all comments, documents, records, and other information submitted by claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

(1) Notice of Decision . Notice of a decision on appeal shall be furnished to the claimant within a reasonable period of time, but not later than sixty (60) days after receipt of the appeal by the Committee unless the Committee determines that special circumstances (such as the need to hold a hearing if the Committee determines that a hearing is required) require an extension of time for processing the claim. If the Committee determines that an extension is required, written notice (including an explanation of the special circumstances requiring an extension and the date by which the Committee expects to render the benefits determination) shall be furnished to the claimant prior to the termination of the original sixty (60) day period. In no event shall such extension exceed a period of sixty (60) days from the end of the initial sixty

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(60) day period. The notice required by the first sentence of this Section shall be in writing, shall be set forth in a manner calculated to be understood by the claimant and, in the case of an adverse benefit determination, shall set forth the following:

(i) The specific reason or reasons for the adverse determination;

(ii) Reference to the specific Plan provisions upon which the determination is based;

(iii) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits, such relevance to be determined in accordance with Section 6.2(c) ( Claims Procedures – Definition of Relevant ), below; and

(iv) An explanation of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on appeal.

(c) Definition of Relevant . For purposes of this Section, a document, or other information shall be considered “relevant” to the claimant’s claim if such document, record or other information:

(1) Was relied upon in making the benefit determination;

(2) Was submitted, considered or generated in the course of making the benefit determination, without regard to whether such document, record or other information was relied upon in making the benefit determination; or

(3) Demonstrates compliance with the administrative processes and safeguards required pursuant to this Section 6.2 on making the benefit determination.

(d) Decisions Final; Procedures Mandatory . To the extent permitted by law, a decision on review or appeal shall be binding and conclusive upon all persons whomsoever. To the extent permitted by law, completion of the claims procedures described in this Section shall be a mandatory precondition that must be complied with prior to commencement of a legal or equitable action in connection with the Plan by a person claiming rights under the Plan. The Committee may, in its sole discretion, waive these procedures as a mandatory precondition to such an action.

(e) Time For Filing Legal Or Equitable Action . Any legal or equitable action filed in connection with the Plan by a person claiming rights under the Plan must be commenced not later than the earlier of: (1) the shortest applicable statute of limitations provided by law; or (2) two (2) years from the date the written copy of the Committee’s decision on review is delivered to the claimant in accordance with Section 6.2(b)(1) ( Claims Procedures – Appeal Procedures – Notice of Decision ).

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ARTICLE VII SUCCESSORS, BINDING AGREEMENT

7.1 Successors . PNM Resources will negotiate to require any independent successor to all or substantially all of the assets of PNM Resources to provide written confirmation,

within thirty (30) days of the effective date of the Change in Control, of its agreement to assume and perform the Company’s obligations pursuant to this Plan. The failure of a successor to assume and perform the Company’s obligations pursuant to the Plan shall constitute a material breach of the Plan by the Company.

7.2 Binding Agreement . Subject to the right of PNM Resources to amend or terminate this Plan, and the Committee’s right to interpret this Plan, this Plan shall be for the benefit of and be enforceable by, a Participant’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

ARTICLE VIII NOTICE

8.1 General . For the purpose of this Plan, and except as specifically set forth herein, notices and all other communications provided for in the Plan shall be in writing and shall

be deemed to have been duly given when hand-delivered or mailed by United States certified mail, return receipt requested, postage prepaid, addressed to the Participant at his or her last known address, and to the Company at Alvarado Square, Albuquerque, New Mexico, 87158, provided that all notices to the Company shall be directed to the attention of the Secretary of PNM Resources; or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

ARTICLE IX AMENDMENT AND TERMINATION

9.1 Amendment and Termination . The Plan may be amended, in whole or in part, or terminated at any time, by PNM Resources, subject to the following exceptions:

(a) No amendment or termination of this Plan shall impair or abridge the obligations of the Company already incurred.

(b) No amendment or termination of this Plan shall affect the rights of a Participant who terminated employment before the effective date of such amendment or

termination and who subsequently satisfied the eligibility provisions of this Plan.

(c) If a Change in Control occurs within twenty-four (24) months following the later of the adoption or effective date of the amendment or termination of the Plan, or during the Protection Period triggered by that Change in Control, the amendment or termination shall be disregarded and this Plan will revive and continue for the Protection Period to the extent that such amendment or termination impairs or abridges the rights or benefits of an employee of the Company who was a Participant upon the effective date of such Plan amendment or termination. Notwithstanding the foregoing, all changes made in order to comply with Section 409A of the Code shall remain in effect.

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(d) If the Protection Period has begun, the Plan shall continue and may not be terminated during the Protection Period.

(e) Notwithstanding the foregoing, the Plan may be amended at will at any time and from time to time by PNM Resources to reflect changes necessary due to revisions to, or interpretations of: (1) ERISA, as amended; (2) Sections 280G, 409A or 4999 of the Code; or (3) any other provision of applicable state or federal law.

(f) Notwithstanding any provision of this Plan to the contrary, no amendment may be made if it will result in a violation of Section 409A of the Code and any such amendment shall at no time have any legal validity.

ARTICLE X MISCELLANEOUS

10.1 Governing Law . The laws of the State of New Mexico shall govern the validity, interpretation, construction and performance of this Plan, except to the extent preempted

by federal law.

10.2 Withholding . Any payments provided for hereunder shall be paid subject to any applicable withholding required under federal, state or local law.

10.3 No Right of Assignment . Neither a Participant nor any person taking on behalf of a Participant may anticipate, assign or alienate (either by law or equity) any benefit provided under the Plan and the Company shall not recognize any such anticipation, assignment or alienation. Furthermore, to the extent permitted by law, a benefit under the Plan is not subject to attachment, garnishment, levy, execution or other legal or equitable process.

10.4 Survival of Rights . In addition to the limitations on termination of this Plan set forth in Section 9.1 ( Amendment and Termination ), any obligations of the Company to make payments that have been due to Participants who have, at the time of expiration of the Plan, satisfied the eligibility requirements pursuant to Articles IV ( Eligibility for Retention Benefits ) and V ( Retention Benefits ) above during the term hereof, shall survive the termination of this Plan.

10.5 No Employment Contract . Notwithstanding anything to the contrary contained in this Plan, by the execution of this Plan the Company does not intend to change the employment-at-will relationship with any of its employees. Instead, the Company retains its absolute right to terminate any employee at any time, for any or no reason and without notice.

10.6 Mitigation of Benefits . A Participant shall not be required to mitigate the amount of payment provided for in Article V ( Retention Benefits ) by seeking other employment or otherwise, nor, except as specifically provided in Article V ( Retention Benefits ), shall the amount of any payment or benefit provided for in Article V ( Retention Benefits ) be reduced by: (a) any compensation earned by the Participant as the result of employment by another employer; (b) by retirement benefits; or (c) offsets against any amount claimed to be owed by the Participant to the Company.

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10.7 Service of Process . The Secretary of PNM Resources shall be the agent for service of process in matters relating to this Plan.

10.8 Headings . The headings and subheadings in this Plan are inserted for convenience and reference only and are not to be used in construing this Plan or any provision hereof.

10.9 Gender and Number . Where the context so requires, words in the masculine gender shall include the feminine and neutral genders, the plural shall include the singular, and the singular shall include the plural.

10.10 ERISA Plan . This Plan shall be interpreted as, and is intended to qualify as, a severance pay plan under ERISA, and therefore does not constitute an employee pension benefit plan pursuant to Section 3(2) of ERISA.

10.11 Validity . The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect.

10.12 Compliant Operation and Interpretation . This Plan shall be operated in compliance with Section 409A or an exception thereto and each provision of this Plan shall be interpreted, to the extent possible, to comply with Section 409A or to qualify for an exception thereto.

10.13 Adoption by Affiliates .

(a) An Affiliate, by action of its board of directors, may adopt the Plan with respect to its Officers only with the approval of the Board.

(b) Except as otherwise clearly indicated by the context (such as in the definitions of Affiliate, Board, Change in Control and Committee) the term “Company” as used herein shall include each Affiliate that has adopted this Plan in accordance with this Section 10.13 but not any Affiliate that has not adopted this Plan.

(c) By adopting the Plan, the Affiliate shall be deemed to have agreed to:

(1) Assume the obligations and liabilities imposed upon it by the Plan with respect to the its Officers;

(2) Comply with all of the terms and provisions of the Plan;

(3) Delegate to the Committee the power and responsibility to administer the Plan with respect to the Affiliate’s Officers;

(4) Delegate to PNM Resources, Inc. the full power to amend or terminate the Plan with respect to the Affiliate’s Officers; and

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(5) Be bound by any action taken by PNM Resources pursuant to the terms and provisions of the Plan, regardless of whether such action is taken with or without the consent of the Affiliate.

(d) Any Affiliate that has adopted this Plan for the benefit of its Officers may terminate its adoption of the Plan by action of its board of directors and timely providing notice to PNM Resources of such termination.

(e) PNM Resources and each participating Affiliate shall bear the costs and expenses of providing benefits to their respective Officers who are Participants. Such costs and expenses shall be allocated among PNM Resources and participating Affiliates in accordance with agreements entered into between PNM Resources and any participating Affiliate, or in the absence of such an agreement, procedures adopted by PNM Resources.

IN WITNESS WHEREOF, the Company has caused this Plan document to be executed by its duly authorized representative on this 2nd day of September , 2008.

PNM RESOURCES, INC.

By: /s/ Alice A. Cobb Its: SVP, Chief Administrative Officer

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ARTICLE I PURPOSE

ARTICLE II

DEFINITIONS

ARTICLE III

TERM OF PLAN

ARTICLE IV

ELIGIBILITY FOR RETENTION BENEFITS

ARTICLE V

RETENTION BENEFITS

TABLE OF CONTENTS

Page

1.1 General 1

2.1 General 2

2.2 Other Defined Terms 7

3.1 Term of Plan 7

3.2 Reversion to Prior Provisions of the Plan 7

4.1 Eligibility to Participate 7

4.2 Eligibility for Benefits 7

4.3 Release Agreement 8

4.4 No Duplication of Benefits 9

5.1 Retention Benefits 9

5.2 Payment Form and Date; Section 409A Compliance Strategy 10

5.3 Reimbursement of Legal Fees 13

5.4 Offsetting Benefits 13

5.5 Tax Gross-Up 13

5.6 Additional Benefits Under Other Plans 16

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TABLE OF CONTENTS

(continued)

ARTICLE VI PLAN ADMINISTRATION

ARTICLE VII

SUCCESSORS, BINDING AGREEMENT

ARTICLE VIII

NOTICE

ARTICLE IX

AMENDMENT AND TERMINATION

ARTICLE X

MISCELLANEOUS

6.1 Plan Administration 16

6.2 Claims Procedures 16

7.1 Successors 19

7.2 Binding Agreement 19

8.1 General 19

9.1 Amendment and Termination 19

10.1 Governing Law 20

10.2 Withholding 20

10.3 No Right of Assignment 20

10.4 Survival of Rights 20

10.5 No Employment Contract 20

10.6 Mitigation of Benefits 20

10.7 Service of Process 21

10.8 Headings 21

10.9 Gender and Number 21

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TABLE OF CONTENTS

(continued)

10.10 ERISA Plan 21

10.11 Validity 21

10.12 Compliant Operation and Interpretation 21

10.13 A doption by Affiliates 21

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Exhibit 10.2

SECOND AMENDMENT TO THE

PNM RESOURCES, INC. EXECUTIVE SPENDING ACCOUNT PLAN

Effective as of January 1, 1980, Public Service Company of New Mexico (“PNM”) adopted the Amended and Restated Medical Reimbursement Plan of Public Service Company of New Mexico (the “MERP”). Sponsorship of the MERP was subsequently transferred from PNM to PNM Resources, Inc. (the “Company”) on November 30, 2002. Effective January 1, 2002, the Company established the Executive Spending Account (the “ESA”). Effective December 1, 2002, the Company merged the MERP with and into the ESA and named the combined program the “PNM Resources, Inc. Executive Spending Account Plan” (the “Plan”). The Plan has been amended and restated on two occasions, with the most recent restatement being effective, generally, as of January 1, 2004. The Plan was subsequently amended on one occasion. By this instrument, the Company now desires to modify the Plan to provide for the reimbursement of Covered Expenses for same-sex Spouses.

1. This Third Amendment shall be effective as of January 1, 2009.

2. This Third Amendment amends only the provisions of the Plan as set forth herein, and those provisions not expressly amended by this Third Amendment shall continue in full

force and effect. 3. The definition of “Dependent” in Article 2 ( Defined Terms ) of the Plan is hereby amended by adding the following to the end thereof: Effective January 1, 2009, a Participant’s “Dependents” shall additionally include a Participant’s same-sex Spouse.

4. The definition of “Spouse” is added to Article 2 ( Defined Terms ) of the Plan immediately following the definition of “Qualifying Event” as follows: Spouse : An individual of the opposite or same sex who is legally married to theParticipant under the laws of the jurisdiction in which the marriage wasperformed or

occurred.

5. Each place the word “spouse” is used in the Plan shall be replaced with the word “Spouse” to reflect the new definition. IN WITNESS WHEREOF, the Company has caused this Second Amendment to be executed as of this 28th day of August , 2008.

PNM RESOURCES, INC.

By: /s/ Alice A. Cobb

Its: SVP, Chief Administrative Officer

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EXHIBIT 10.3

SUPPLEMENTAL EMPLOYEE RETIREMENT AGREEMENT FOR

PATRICK T. ORTIZ

Effective as of March 14, 2000, Public Service Company of New Mexico (“PNM”) and Patrick T. Ortiz (the “Employee”) entered into the Supplemental Employee Retirement Agreement for Patrick T. Ortiz (the “Agreement”). Effective as of approximately December 31, 2001, PNM Resources, Inc. (“PNM Resources” or “Company”) became the corporate parent of PNM. Employee became employed by PNM Resources on or about December 31, 2001. Effective January 1, 2005, Employee became employed by PNMR Services Company (“Services”), which also is a subsidiary of PNM Resources.

Pursuant to Section 15 of the Agreement, PNM Resources succeeded to PNM’s obligations under the Agreement. PNM Resources and Services also assumed the obligations to pay any benefits accruing to Employee during periods while Employee was employed by PNM Resources or Services and PNM Resources assumed all of the administrative responsibilities imposed upon the “Company” pursuant to this Agreement.

By the adoption of this Agreement, PNM, PNM Resources, Services and Employee amend and restate the Agreement in its entirety. The purposes of this amendment and restatement are to clarify certain provisions of the Agreement, coordinate this Agreement with recent changes in various benefit plans sponsored by Company and to comply with the requirements of Section 409A of the Internal Revenue Code of 1986 (the “Code”) or an exception thereto. Section 409A became applicable to the Agreement as of January 1, 2005. From January 1, 2005 through the Effective Date, this Agreement has been and shall be operated in good faith compliance with Section 409A or an exception thereto. This amended and restated Agreement is effective as of January 1, 2009 (the “Effective Date”).

1. Additional Retirement Benefits .

(a) General . The Company agrees to pay Employee the supplemental retirement benefit described in this Section 1. The supplemental retirement benefit shall be a monthly benefit payable for Employee’s life equal to the difference between (1) the monthly retirement benefit that would be payable to Employee under the PNM Resources, Inc. Employees’ Retirement Plan (the “Retirement Plan”) if the Employee were credited with the additional service described below in Section 1(b) and (2) the monthly benefit deemed payable to Employee under the Retirement Plan without such additional service, calculated in accordance with Section 3 of this Agreement.

(b) Additional Service . The additional service credited to Employee for purposes of this Section shall be the following: (1) Sufficient additional Credited Service on January 1, 2000 so that Employee shall have accrued the equivalent of 10 years of Credited Service as of his Credited Service Termination Date under the Retirement Plan; and (2) the accrual of additional Credited Service beyond Employee’s Credited Service Termination Date at the rate of two years of Credited Service for each year of continuous employment for the years 2000 through 2009. For purposes of this Section 1, additional years of Credited Service shall be

determined in the same manner as if they were being credited under the Retirement Plan including, but not limited to, the rules regarding crediting partial years of service and leaves of absence.

(c) Termination for Cause . Notwithstanding anything to the contrary contained in this Section 1, in the event that the Employee is terminated by the Company for Cause, all of the additional Credited Service awarded to Employee under this Agreement shall, unless otherwise determined by the Human Resources and Compensation Committee of the Board of Directors of PNM Resources or its successor (the “Committee”), be forfeited.

(d) Definitions . The terms “Average Earnings,” “Credited Service” and “Credited Service Termination Date” as used in this Agreement shall have the meanings set forth in the Retirement Plan, as it may be amended from time to time. The terms “Cause” and “Change in Control” as used in this Agreement shall have the meanings set forth in the PNM Resources, Inc. Officer Retention Plan, as it may be amended from time to time (the “Retention Plan”).

For purposes of this Agreement, the term “Constructive Termination” means, without Employee’s express written consent, the occurrence of any of the following circumstances, subject to the exceptions and modifications noted below:

(1) A material diminution in the Employee’s base salary;

(2) A material diminution in the Employee’s authority, duties or responsibilities;

(3) A material change in the geographic location of the Employee’s principal office, including a relocation of Employee’s principal office to a location more than seventy (70) miles from Santa Fe, New Mexico; or

(4) Any other action or inaction that constitutes a material breach by Company of this Agreement.

Employee must provide a written notice of termination to the Company of the existence of a Constructive Termination condition described in paragraph (1) through (4) above within ninety (90) days of the initial existence of the condition. Notwithstanding anything to the contrary, an event described in paragraphs (1) through (4) above will not constitute Constructive Termination if, within thirty (30) days after the Employee gives the Company the notice of termination specifying the occurrence or existence of an event that the Employee believes constitutes Constructive Termination, the Company has fully corrected (or reversed) such event.

2. Calculation of Additional Retirement Benefits . The supplemental retirement benefit provided for in Section 1 of this Agreement shall be calculated based upon the Retirement Plan in effect on January 1, 2000, after taking into account the additional service described in Section 1(b). The monthly benefit that would be payable to Employee under the Retirement Plan for purposes of clause (1) of Section 1(a) shall be calculated disregarding limitations imposed by Sections 401(a)(17) and 415 of the Code and similar regulatory limitations.

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3. Calculation of Retirement Plan Benefits . For purposes of calculating the amount of the supplemental retirement benefit due pursuant to Section 1, the benefits deemed payable under the Retirement Plan for purposes of clauses (1) and (2) of Section 1(a) shall be calculated as follows:

(a) The commencement date for the payment of such benefits shall be deemed to be the later of: (1) the earliest date Employee could have begun receiving benefits under the Retirement Plan or (2) the date Employee commences receiving benefits under this Agreement;

(b) The benefit shall be assumed to be payable in the form of a single life annuity;

(c) The calculation shall be based upon the Retirement Plan in effect on the date such benefits are deemed to have commenced and Employee’s actual Average Earnings as provided for in the Retirement Plan, using the highest salary for three consecutive years prior to January 1, 1998, the effective date that the Retirement Plan was frozen; for purposes of clause (2) of Section 1(a), the calculation shall be based on Employee’s actual Credited Service, calculated in accordance with the provisions of the Retirement Plan; and

3 (d) For purposes of clause (1) of Section 1(a) and Section 1(b), Employee shall not be credited with more than 30 years of Credited Service (considering Employee’s

actual Credited Service under the Retirement Plan and the additional Credited Service granted pursuant to Section 1(b)).

4. Payment Due to Disability . In the event Employee becomes Disabled prior to commencing to receive benefits under this Agreement, he shall be entitled to receive the Supplemental Retirement Benefit provided by Section 1, payable in accordance with Section 9.

5. Payment upon Death .

(a) Death Following Commencement of Benefit . If Employee dies following commencement of benefits under this Agreement, whether any benefits will be paid in the future will be determined in accordance with the benefit option selected by Employee pursuant to Section 9.

(b) Death Prior to Commencement of Benefits . If Employee dies prior to commencement of benefits under this Agreement, the benefit payable under this Agreement shall equal the difference between (i) the benefit ( i.e. , the qualified pre-retirement survivor annuity) that would be payable under the Retirement Plan if Employee’s accrued benefit under the Retirement Plan was equal to the benefit calculated in accordance with Section 2 and (ii) the benefit actually payable under the Retirement Plan upon Employee’s death ( i.e. , the qualified pre-retirement survivor annuity). If, at the time of Employee’s death, he is not survived by either a spouse or Dependent Child, no benefit shall be payable pursuant to this paragraph. Payment to the surviving spouse or Dependent Child shall commence as of the first day of the month following the date of Employee’s death.

6. Supplemental Retention Provision . Employee participates in the PNM Resources, Inc. Officer Retention Plan (the “Retention Plan”). The Retention Plan provides Employee and other participants with a special supplemental retirement benefit based on the cash

3

equivalent of certain amounts calculated with reference to the Retirement Plan and the PNM Resources, Inc. Retirement Savings Plan. If, due to an amendment of the Retention Plan or otherwise, the value of the special supplemental retirement benefit payment provided by the Retention Plan, as it may be amended or replaced, is less than the benefit provided by Section 4 of this Agreement as in effect prior to this restatement, Employee shall be entitled to receive a lump sum cash payment equal to the difference. Employee shall not be entitled to receive any payment pursuant to this Section unless Employee is entitled to receive a payment under the Retention Plan.

The additional benefits provided by this Agreement, other than the severance benefits provided by Section 7, are intended to supplement the Retention Plan. Accordingly, Employee is entitled to receive these additional benefits in addition to the benefits provided by the Retention Plan.

7 . Severance Benefits . In the event the Employee is terminated or Constructively Terminated by the Company for any reason other than Cause or as a result of a Change in Control, Employee shall receive the following severance pay in lieu of the severance pay provided pursuant to Section 4.3(a) of the PNM Resources, Inc. Non-Union Severance Pay Plan (the “Severance Plan”), as it may be amended from time to time:

One lump sum payment equal to 14 months of the Employee’s Base Salary, with no additional cost of living, promotion, merit or other increases, plus one additional week of Base Salary for each Year of Service.

If, due to an amendment of the Severance Plan or otherwise, the amount of the severance pay due pursuant to the Severance Plan, as it may be amended or replaced, is greater than the

severance pay provided by this Section 7, Employee shall receive the severance pay due pursuant to the Severance Plan in lieu of the severance pay due pursuant to this Section 7. For purposes of this Section 7, the Years of Service taken into account in calculating the Employee’s severance pay shall be deemed to include the years of Credited Service awarded to the Employee pursuant to Section 1(b).

Payments due pursuant to this Section 7 shall be made at the time specified in the Severance Plan.

This Section 7 is intended to supplement the Severance Plan. In addition to receiving the severance pay called for by this Section 7 and all of the benefits provided by all of the remaining sections of this Agreement other than Section 6, the Employee also shall be entitled to receive any benefits (other than severance pay) to which he may become entitled under the Severance Plan. In the event of a termination for any reason other than Cause, Employee is entitled to receive payments either pursuant to this Section 7 or payments and other benefits due under the Retention Plan, whichever is applicable.

8 . Retiree Medical Benefits . The applicable premium amount for benefits under the PNM Resources, Inc. Comprehensive Retiree Health Plan, or its successor, will be determined by including the Credited Service granted under this Agreement. Notwithstanding the preceding sentence, in the event the Employee is terminated by the Company for Cause,

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unless otherwise determined by the Committee, all Credited Service granted under this Agreement shall be disregarded for purposes of calculating the applicable premium amount. Employee acknowledges that the difference between the standard applicable premium under the Retiree Health Plan and the reduced premiums called for by this Section will be treated as taxable compensation to Employee.

9. Form, Timing and Amount of Benefit . All payments shall be made in accordance with this Section. Prior to the amendment and restatement of this Agreement, payments to Employee were to be made “upon his retirement eligibility and election.” That provision is no longer permissible under the final regulations issued pursuant to Section 409A of the Code. By the adoption of this amended and restated Agreement, Employee and Company agree and Employee elects to have payments made in accordance with Section 9(a), unless Employee elects otherwise as described in Section 9(a)(1) or (2). The provisions of Section 9(a) are intended to be a new payment election in accordance with the transition relief provided by Notice 2006-79 and Notice 2007-86.

(a) Payment of Additional Retirement Benefits . As a general rule, Employee will commence receiving the supplemental retirement benefit provided by Section 1 within 30 days following the Employee’s Separation from Service. If Employee is a “Specified Employee” at the time of his Separation from Service, however, payments will commence on the first day of the seventh month following Employee’s Separation from Service. Any payments that would have been paid during the first six months following Employee’s Separation from Service shall be paid on the first day of the seventh month with interest at the Citibank prime rate as determined as of the date of the payment. If Citibank no longer publishes a prime rate, interest shall be paid at the short-term “applicable federal rate” (within the meaning of Section 1274(d) of the Code), plus 2 percentage points, determined as of the date of the payment. The six-month delay for a Specified Employee does not apply if Employee dies or becomes Disabled prior to his Separation from Service. Notwithstanding the foregoing, by completing an election form in accordance with paragraph (1), Employee may elect to delay commencement of benefit payments to a later date. The supplemental retirement benefit may be paid in the form of any annuity form available under the Retirement Plan at the time payments are to begin. All annuity forms shall be actuarially equivalent to the single life annuity form of payment otherwise payable pursuant to Section 1 and 3. The Employee shall be permitted to select among the available annuities at any time up to 30 days before the first payment is due. The Employee also may change any previous annuity election at any time up to 30 days before the first payment is due. If no selection is made, the payments will be made in the form of a single life annuity.

(1) Election Form . The Employee may elect to defer the payment of the supplemental retirement benefit payable pursuant to Section 1 until the later of the Employee’s Separation from Service or a specified date that qualifies as a specific time or fixed schedule pursuant to Treas. Reg. § 1.409A-3(i)(1). The election must be made on a form provided by the Company and must be signed by the Employee and delivered to the Company. The Employee may change his distribution election by filing a new form with the Company in accordance with Section 9(a)(2). If a revised election is not honored because it was not timely filed, distributions shall be made pursuant to the most recent valid election filed by the Employee. The election permitted by this Section 9(a)(1) must be made on or before December 31, 2008. If Employee makes his election change in 2007, the election will apply only if Employee’s benefit payments commence in 2008 or later. If Employee makes his

5

election in 2008, the election will apply only if Employee’s benefit payments commence in 2009 or later.

(2) Changes in Time of Distribution . A new election that changes the time of a payment elected by Employee will be honored only if the following requirements are met:

(i) The new form will not take effect until at least 12 months after the date on which the new form is filed with the Company;

(ii) If Employee elects to have the payment made on a fixed time or date, the election may not be made less than 12 months prior to the date of the first scheduled payment; and

(iii) In the case of an election related to a payment not related to the Employee’s Disability or death, the first payment with respect to which the election is made must be deferred for a period of not less than five years from the date such payment would otherwise be made.

The provisions of this paragraph are intended to comply with Section 409A(a)(4)(C) of the Code and shall be interpreted in a manner consistent with the requirements of such section and any regulations, rulings or other guidance issued pursuant thereto.

(b) Payment of Supplemental Retention Benefit and Severance Benefits . The supplemental retention benefit, if any, payable pursuant to Section 6 will be paid on the same date that benefits are payable under the Retention Plan. The severance benefits, if any, payable pursuant to Section 7 will be paid on the date that benefits are payable under the Severance Plan.

(c) Payment of Retiree Health Benefits . To ensure compliance with Section 409A, the Company will assure that the Retiree Health Benefits provided by Section 8 are payable at a specified time or pursuant to a fixed schedule within the meaning of Treas. Reg. § 1-409A-3(i)(1)(iv). In order to ensure compliance with this provision of the regulations, the Retiree Health Benefits reimbursed in one taxable year will not affect the benefits eligible for reimbursement by the Company in a different taxable year. All reimbursements of the benefits must be made no later than December 31 of the calendar year following the calendar year in which the expense was incurred. The Employee may not elect to receive cash or any other benefit in lieu of the benefits provided by the Agreement.

(d) Payment Disputes . If a payment is not made due to a dispute with respect to such payment, the payment may be delayed in accordance with Treas. Reg. § 1.409A-3(g).

(e) Ban on Acceleration or Deferral . Under no circumstances may the time or schedule of any payment made or benefit provided pursuant to this Agreement be accelerated or subject to a further deferral except as otherwise permitted or required pursuant to regulations and other guidance issued pursuant to Section 409A of the Code.

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(f) Distributions Treated as Made Upon a Designated Event . If the Company fails to make any payment, either intentionally or unintentionally, within the time period specified in this Agreement, but the payment is made within the same calendar year, such distribution will be treated as made within the time period specified in this Agreement pursuant to Treas. Reg. § 1.409A-3(d).

(g) Definitions . For purposes of this Agreement, the following words and phrases shall have the meanings set forth below, unless a clearly different meaning is required by the context in which the word or phrase is used.

(1) Disability . Disability or Disabled means that the Employee is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under the Company’s long-term disability plan.

(2) Separation from Service . Separation from Service means the termination of Employee’s employment with the Company and all affiliates due to death, retirement or other reasons. The Employee’s employment relationship is treated as continuing while the Employee is on military leave, sick leave, or other bona fide leave of absence (if the period of such leave does not exceed six months, or if longer, so long as the Employee’s right to reemployment with the Company or an affiliate is provided either by statute or contract). If the Employee’s period of leave exceeds six months and the Employee’s right to reemployment is not provided either by statute or by contract, the employment relationship is deemed to terminate on the first day immediately following the expiration of such six-month period. Whether a termination of employment has occurred will be determined based on all of the facts and circumstances and in accordance with regulations issued by the United States Treasury Department pursuant to Section 409A of the Code.

(3) Specified Employee . Specified Employee means certain officers and highly compensated employees of the Company as defined in Treas. Reg. § 1.409A-1(i). The identification date for determining whether Employee is a Specified Employee during any calendar year shall be the September 1 preceding the commencement of such year.

10. Designation of Beneficiary . The latest designation of beneficiary form filed by Employee under the Retirement Plan shall be deemed to be a designation of the person or fiduciary to receive any amount payable under this Agreement upon Employee’s death. If no beneficiary designation has been filed, the Employee’s spouse shall be the designated beneficiary or in the event Employee has no spouse, the Employee shall be deemed to have designated his estate as beneficiary.

11. No Assignment . This Agreement shall inure only to the benefit of Employee, Employee’s designated beneficiary, and Employee’s estate or heirs and may not be assigned, transferred, pledged or hypothecated in any way by Employee or Employee’s personal representative, heir, distributee, or other person claiming under Employee and shall not be subject to execution, attachment or similar process.

12. Source of Payments of Benefits . This Agreement is a non-qualified, unfunded

7

and unsecured deferred compensation arrangement. All benefits owing under this Agreement shall be paid out of the general corporate funds of Company, Services or PNM which are subject to the claims of creditors, or out of any trust Company, Services or PNM shall establish or authorize; provided that all assets paid into any such trust shall at all times prior to actual payment to Employee or his beneficiaries remain subject to the claims of the general creditors of Company, Services or PNM. Neither Employee, his designated beneficiaries, his estate nor his heirs shall (i) have any right, title or interest whatsoever in, or claim to, preferred or otherwise, any particular assets of Company, Services or PNM or any trust that Company, Services or PNM may establish or designate to aid in providing the payment described in this Agreement; or (ii) acquire any interest greater than that of an unsecured creditor in any assets of Company, Services or PNM.

The Company, Services and/or PNM shall sufficiently fund the Public Service Company of New Mexico and Paragon Resources, Inc. Deferred Compensation Trust Agreement and/or any successor trust established by Company, Services or PNM (the “Rabbi Trust”) to provide in full for any benefits accrued under this Agreement as of the date of the funding within sixty (60) days of the first to occur of the following:

(a) A Change in Control; or

(b) The day on which the IRS issues a definitive ruling or guidance that the funding of the Rabbi Trust upon a change in control will result in treatment as a plan failure under Section 409A of the Code.

The Company shall provide Employee thirty (30) days written notice of its intent to fund the Rabbi Trust pursuant to this Agreement under either occurrence with an explanation as to whether (a) or (b) triggered the requirement to fund to allow Employee to determine the tax implications for him of funding the Rabbi Trust. Notwithstanding the foregoing, the Rabbi Trust shall not be funded if, prior to the funding date, Employee provides written notice to the Company officer with responsibility for compensation and benefits that he waives the requirement to fund the Rabbi Trust.

13. Administrator . This Agreement shall be administered by the Committee.

14. Amendment or Termination . This Agreement may be amended or terminated only by written consent of Company and Employee. Any amendment to this Agreement that violates the provisions of Section 409A of the Code shall be void.

15. Controlling Law . This Agreement shall be interpreted under the laws of the State of New Mexico.

16. Compliant Operation and Interpretation . This Agreement shall be operated in compliance with Section 409A or an exception thereto and each provision of this Agreement shall be interpreted, to the extent possible, to comply with Section 409A or to qualify for an exception thereto.

17. Binding Effect . This Agreement shall be binding upon and inure to the benefit of any successor of PNM Resources and any such successor shall be deemed substituted for PNM Resources under the terms of this Agreement. As used in this Agreement, the term “successor”

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shall include any person, firm, corporation or other business entity which, at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the assets or business of PNM Resources.

18. Relocation . Employee may not be required to move his residence from Santa Fe, New Mexico. If Employee is required to move his residence from Santa Fe, New Mexico, Employee’s sole remedy will be to declare a Constructive Termination and to receive the benefits due as a result of a Constructive Termination.

19. Allocation of Responsibility . Employee also acknowledges that he has had the opportunity to review this Agreement with legal counsel selected by Employee and that a number of changes have been made to this Agreement at the request of Employee and/or his legal counsel. If any additional taxes are imposed on Employee by the Internal Revenue Service pursuant to Section 409A, Employee acknowledges that the responsibility for those taxes is Employee’s and that the Company shall have no obligation for any taxes imposed upon the Employee pursuant to Section 409A.

IN WITNESS WHEREOF, the parties hereto, personally or by their authorized representatives, have executed this Supplemental Employee Retirement Agreement as of the date first above written.

PNM RESOURCES, INC.

By: /s/ Alice A. Cobb Its: Senior Vice President and Chief Administrative Officer

PUBLIC SERVICE COMPANY OF NEW MEXICO


PNMR SERVICES COMPANY


By: /s/ Patrick T. Ortiz Patrick T. Ortiz

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EXHIBIT 12.1

PNM RESOURCES, INC. AND SUBSIDIARIES Ratio of Earnings to Fixed Charges

(In thousands, except ratio)

Nine Months

Ended September 30, Year Ended December 31, 2008 2007 2006 2005 2004 2003 Fixed charges, as defined by the Securities and Exchange Commission: Interest on long-term debt $ 72,622 $ 81,638 $ 84,773 $ 66,042 $ 34,488 $ 48,483 Amortization of debt premium, discount and expenses 5,227 6,566 4,729 3,962 3,036 2,990 Other interest 21,247 32,242 44,918 13,734 1,976 3,922 Estimated interest factor of lease rental charges 13,219 19,308 19,235 19,934 18,843 19,568 Interest capitalized 415 4,119 2,982 1,421 957 1,163 Preferred dividend requirements of subsidiaries 495 556 798 4,063 881 845 Total Fixed Charges $ 113,225 $ 144,429 $ 157,435 $ 109,156 $ 60,181 $ 76,971

Earnings, as defined by the Securities and Exchange Commission: Earnings from continuing operations before income taxes $ (277,421 ) $ 63,112 $ 164,018 $ 76,502 $ 107,060 $ 68,267 (Earnings) of equity investee 29,091 (7,581 ) - - - - Earnings from continuing operations before income taxes and investee earnings (248,330 ) 55,531 164,018 76,502 107,060 68,267 Fixed charges as above 113,225 144,429 157,435 109,156 60,181 76,971 Interest capitalized (415 ) (4,119 ) (2,982 ) (1,421 ) (957 ) (1,163 ) Preferred dividend requirements of subsidiaries (495 ) (556 ) (798 ) (4,063 ) (881 ) (845 ) Earnings Available for Fixed Charges $ (136,015 ) $ 195,285 $ 317,673 $ 180,174 $ 165,403 $ 143,230

Ratio of Earnings to Fixed Charges N/M * 1.35 2.02 1.65 2.75 1.86

* The ratio of earnings to fixed charges for the nine months ended September 30, 2008 is not meaningful since earnings available for fixed charges is negative. The shortfall in the earnings available for fixed charges to achieve a ratio of earnings to fixed charges of 1.00 amounted to $249.2 million for the nine months ended September 30, 2008.

EXHIBIT 12.2

PUBLIC SERVICE COMPANY OF NEW MEXICO Ratio of Earnings to Fixed Charges

(In thousands, except ratio) Nine Months Ended Year Ended December 31, September 30, 2008 2007 2006 2005 2004 2003 Fixed charges, as defined by the Securities and Exchange Commission: Interest on long-term debt $ 42,924 $ 38,534 $ 40,541 $ 39,408 $ 36,801 $ 48,067 Amortization of debt premium, discount and expenses 3,624 4,618 2,871 2,856 3,036 2,958 Other interest 5,582 9,799 3,956 1,921 1,719 3,859 Estimated interest factor of lease rental charges 11,764 16,630 16,448 16,954 16,406 17,007 Interest capitalized 264 3,738 1,946 1,054 752 909 Total Fixed Charges $ 64,158 $ 73,319 $ 65,762 $ 62,193 $ 58,714 $ 72,800

Earnings, as defined by the Securities and Exchange Commission: Earnings before income taxes $ (63,159 ) $ 34,611 $ 89,657 $ 51,034 $ 114,690 $ 74,400 Fixed charges as above 64,158 73,319 65,762 62,193 58,714 72,800 Interest capitalized (264 ) (3,738 ) (1,946 ) (1,054 ) (752 ) (909 ) Earnings Available for Fixed Charges $ 735 $ 104,192 $ 153,473 $ 112,173 $ 172,652 $ 146,291

Ratio of Earnings to Fixed Charges 0.01 * 1.42 2.33 1.80 2.94 2.01

* The shortfall in the earnings available for fixed charges to achieve a ratio of earnings to fixed charges of 1.00 amounted to $63.4 million for the nine months ended September 30, 2008.

EXHIBIT 12.3

PUBLIC SERVICE COMPANY OF NEW MEXICO Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

(In thousands, except ratio) Nine Months Ended Year Ended December 31, September 30, 2008 2007 2006 2005 2004 2003 Fixed charges, as defined by the Securities and Exchange Commission: Interest on long-term debt $ 42,924 $ 38,534 $ 40,541 $ 39,408 $ 36,801 $ 48,067 Amortization of debt premium, discount and expenses 3,624 4,618 2,871 2,856 3,036 2,958 Other interest 5,582 9,799 3,956 1,921 1,719 3,859 Estimated interest factor of lease rental charges 11,764 16,630 16,448 16,954 16,406 17,007 Interest capitalized 264 3,738 1,946 1,054 752 909 Total Fixed Charges 64,158 73,319 65,762 62,193 58,714 72,800 Preferred dividend requirements 431 781 815 746 891 859 Total Fixed Charges and Preferred Dividend Requirements $ 64,589 $ 74,100 $ 66,577 $ 62,939 $ 59,605 $ 73,659

Earnings, as defined by the Securities and Exchange Commission: Earnings before income taxes $ (63,159 ) $ 34,611 $ 89,657 $ 51,034 $ 114,690 $ 74,400 Fixed charges as above 64,158 73,319 65,762 62,193 58,714 72,800 Interest capitalized (264 ) (3,738 ) (1,946 ) (1,054 ) (752 ) (909 ) Earnings Available for Fixed Charges $ 735 $ 104,192 $ 153,473 $ 112,173 $ 172,652 $ 146,291

Ratio of Earnings to Fixed Charges and Preferred Stock Dividends 0.01 * 1.41 2.31 1.78 2.90 1.99

* The shortfall in the earnings available for fixed charges to achieve a ratio of earnings to fixed charges of 1.00 amounted to $63.9 million for the nine months ended September 30, 2008.

PNM Resources Alvarado Square Albuquerque, NM 87158 www.pnmresources.com

EXHIBIT 31.1

CERTIFICATION I, Jeffry E. Sterba, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of PNM Resources, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Date: November 5, 2008 /s/ Jeffry E. Sterba Jeffry E. Sterba Chairman and Chief Executive Officer PNM Resources, Inc.

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


EXHIBIT 31.2

CERTIFICATION I, Charles N. Eldred, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of PNM Resources, Inc.;









Date: November 5, 2008 /s/ Charles N. Eldred Charles N. Eldred Executive Vice President and Chief Financial Officer PNM Resources, Inc.

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the

registrant’ s ability to record, process, summarize and report financial information; and



EXHIBIT 31.3

CERTIFICATION I, Patricia K. Collawn, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Public Service Company of New Mexico;









Date: November 5, 2008 /s/ Patricia K. Collawn Patricia K. Collawn President and Chief Executive Officer Public Service Company of New Mexico


registrant’s ability to record, process, summarize and report financial information; and



EXHIBIT 31.4

CERTIFICATION I, Charles N. Eldred, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Public Service Company of New Mexico;









Date: November 5, 2008 /s/ Charles N. Eldred Charles N. Eldred Executive Vice President and Chief Financial Officer Public Service Company of New Mexico


registrant’ s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’ s internal control over financial reporting.


EXHIBIT 31.5

CERTIFICATION I, Patricia K. Collawn, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Texas-New Mexico Power Company;



4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:


b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Date: November 5, 2008 /s/ Patricia K. Collawn Patricia K. Collawn President and Chief Executive Officer Texas-New Mexico Power Company



EXHIBIT 31.6

CERTIFICATION I, Thomas G. Sategna, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Texas-New Mexico Power Company;



4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:


b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (each registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’ s ability to record, process, summarize and report financial information; and

Date: November 5, 2008 /s/ Thomas G. Sategna Thomas G. Sategna Vice President, Controller Texas-New Mexico Power Company



EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2008, for PNM Resources, Inc. (“Company”), as filed with the Securities and Exchange Commission on November 5, 2008 (“Report”), I, Jeffry E. Sterba, Chairman and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 5, 2008 By: /s/ Jeffry E. Sterba Jeffry E. Sterba Chairman and Chief Executive Officer PNM Resources, Inc.


EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2008, for PNM Resources, Inc. (“Company”), as filed with the Securities and Exchange Commission on November 5, 2008 (“Report”), I, Charles N. Eldred, Executive Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:



Date: November 5, 2008 By: /s/ Charles N. Eldred Charles N. Eldred Executive Vice President and Chief Financial Officer PNM Resources, Inc.


EXHIBIT 32.3

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2008, for Public Service Company of New Mexico (“Company”), as filed with the Securities and Exchange Commission on November 5, 2008 (“Report”), I, Patricia K. Collawn, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:



Date: November 5, 2008 By: /s/ Patricia K. Collawn Patricia K. Collawn President and Chief Executive Officer Public Service Company of New Mexico


EXHIBIT 32.4

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2008, for Public Service Company of New Mexico (“Company”), as filed with the Securities and Exchange Commission on November 5, 2008 (“Report”), I, Charles N. Eldred, Executive Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:



Date: November 5, 2008 By: /s/ Charles N. Eldred Charles N. Eldred Executive Vice President and Chief Financial Officer Public Service Company of New Mexico


EXHIBIT 32.5

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2008, for Texas-New Mexico Power Company (“Company”), as filed with the Securities and Exchange Commission on November 5, 2008 (“Report”), I, Patricia K. Collawn, President and Chief Executive Officer, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:



Date: November 5, 2008 By: /s/ Patricia K. Collawn Patricia K. Collawn President and Chief Executive Officer Texas-New Mexico Power Company


EXHIBIT 32.6

CERTIFICATION PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2008, for Texas-New Mexico Power Company (“Company”), as filed with the Securities and Exchange Commission on November 5, 2008 (“Report”), I, Thomas G. Sategna, Vice President, Controller of the Company, certify pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:



Date: November 5, 2008 By: /s/ Thomas G. Sategna Thomas G. Sategna Vice President, Controller Texas-New Mexico Power Company