Article 1

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

Article 3

THE UNITS

Article 6

REMEDIES

Article 7

THE PURCHASE CONTRACT AGENT

Article 8

SUPPLEMENTAL AGREEMENTS

Article 9

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

Article 10

COVENANTS

AWARD DETERMINATION

Award Eligibility Level

EPS Threshold Target = $1.55

EPS = $1.55 to $1.74

EPS Optimal Target = $1.74

PNM Electric Sales

TNMP Electric Sales *

PNM Gas Throughput

First Choice Electric Sales *

TNMP Electric Sales *

First Choice Electric Sales *

Departure of Chief Financial Officer

PNM Electric Sales

TNMP Electric Sales *

PNM Gas Throughput

First Choice Electric Sales *

TNMP Electric Sales *

First Choice Electric Sales *

Departure of Chief Financial Officer

(a) Each Restricted Senior Note shall bear the following legend:

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Accounting Policies and Responsibility for Financial Statements

In the opinion of the management of PNM Resources, Inc. and Subsidiaries ("PNMR" or the "Company"), the accompanying unaudited interim consolidated financial statements reflect all normal and recurring accruals and adjustments which are necessary to present fairly the Company's financial position at September 30, 2005 and December 31, 2004, the consolidated results of its operations and comprehensive income for the three and nine months ended September 30, 2005 and 2004 and the consolidated statements of cash flows for the nine months ended September 30, 2005 and 2004. These consolidated financial statements are unaudited, and certain information and note disclosures normally included in the Company's annual consolidated financial statements have been condensed or omitted, as permitted under the applicable rules and regulations. The Company's three primary subsidiaries are Public Service Company of New Mexico and Subsidiary ("PNM"), Texas-New Mexico Power Company and Subsidiaries ("TNMP") and First Choice Power, L.P. and Subsidiaries ("First Choice"). Readers of these financial statements should refer to PNMR's, PNM's and TNMP's audited consolidated financial statements and notes thereto for the year ended December 31, 2004 that are included in the respective Annual Reports on Form 10-K for the year ended December 31, 2004. In addition, readers should refer to PNMR's Current Report on Form 8-K filed on September 26, 2005 that conformed its presentation of segment information in the 2004 Annual Report on Form 10-K to reflect its revised segment presentation (see Note 3). The results of operations presented in the accompanying financial statements are not necessarily representative of operations for an entire year.

TNP Acquisition

As discussed in Note 2, on June 6, 2005, PNMR completed the previously announced acquisition of TNP Enterprises, Inc. ("TNP") effective at 8:00 AM Central Daylight Time. Prior to the consummation of the acquisition, TNP was a privately owned holding company based in Fort Worth, Texas. TNP's principal subsidiaries are TNMP, a regulated utility operating in Texas and New Mexico, and First Choice, a certified retail electric provider operating in Texas.

The acquisition was accounted for using the purchase method of accounting. Under this method, the purchase price was allocated to the fair market value of the assets acquired and the liabilities assumed. The excess purchase price over the fair value of the assets acquired and the liabilities assumed was allocated to goodwill at TNMP and goodwill and other intangible assets at First Choice. As a result, TNMP and First Choice have recorded purchase accounting fair value adjustments to their respective assets and liabilities, including deferred assets, regulatory assets and pension and postretirement liabilities. At the date of acquisition, the excess of the purchase price over net assets acquired was allocated preliminarily to goodwill in the amount of $482.8 million and other intangible assets in the amount of $63.1 million. During the third quarter of 2005, an adjustment of $9.9 million was recorded to goodwill and the balance in goodwill at September 30, 2005 was $492.7 million. PNMR is in the process of completing

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

valuations of acquired property and intangible assets; therefore, the allocation of the purchase price to the acquired net assets is subject to adjustment.

TNP's largest subsidiary, TNMP, is a regulated utility; therefore, the valuations of the majority of the assets and liabilities were determined within the context of SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," and did not change significantly.

The purchase accounting entries are reflected on PNMR's financial statements as of the purchase date. PNMR "pushed down" the effects of purchase accounting to the financial statements of TNMP and First Choice. Accordingly, TNMP's post-acquisition financial statements reflect a new basis of accounting, and separate financial statements are presented for pre-acquisition and post-acquisition periods, separated by a heavy black line.

Goodwill and Other Intangible Assets

The excess purchase price over the fair value of the assets acquired and the liabilities assumed by PNMR for its June 6, 2005 acquisition of TNP was allocated to goodwill and other intangible assets. Under the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), PNMR does not amortize goodwill. Certain intangible assets are amortized over their estimated useful lives. Goodwill and intangible assets are evaluated for impairment at least annually, on December 31, or more frequently if events and circumstances indicate that the goodwill or other intangible assets might be impaired.

Of the $63.1 million of acquired intangible assets, $53.2 million was assigned to the trade name "First Choice." The trade name has an indefinite useful life; therefore, no amortization will be recognized, but the asset will be evaluated for impairment each reporting period. The other $9.9 million intangible asset was assigned to the First Choice customer list. The useful life of the customer list is estimated to be approximately eight years; therefore the asset will be amortized on a straight-line basis over an eight-year period.

As part of the acquisition of TNP, PNMR determined the fair value of a First Choice contractual obligation to purchase power. In comparing the pricing terms of the contractual obligation against the forward price of electricity in the relevant market, First Choice concluded that the contract was above market. In accordance with SFAS No. 141, as amended, "Business Combinations" ("SFAS 141"), at June 6, 2005, the contract was recorded at fair value and a deferred liability of $3.8 million was recorded that will be amortized as a reduction in cost of energy over the contract life, or approximately three years. The amortization matches the difference between the forward price curve and the contractual obligation for each month in accordance with the contract as of the acquisition date.

PNMR also determined the fair value of a First Choice contractual obligation to sell power to certain commercial and industrial customers. This contractual obligation was fair valued in accordance with SFAS 141. The valuation was based on the difference between the

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

current market rates charged by First Choice for these customers compared to the contractual rate embedded in the customer agreement. As a result of the analysis, First Choice determined that its rates for these contractual customers are below market rates and at June 6, 2005, recorded a deferred liability of $3.5 million that will be amortized into revenues over the contract life, or approximately three years. The amortization matches the difference between the retail market rate and the contractual obligation for each month as of the date of acquisition.

Presentation

The Notes to 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 clearly indicated as such.

PNMR was established as a holding company in 2001. On December 30, 2004, PNMR became a registered holding company under PUHCA. As a result of the requirement to register as a holding company, PNMR created PNMR Services Company, a wholly-owned services company, which began operation on January 1, 2005, subject to final approval of a services company application filed with the SEC in January 2005.

PNMR performed substantially all of the corporate activities of PNM from 2001 to 2004. These activities were billed to PNM on a cost basis and were allocated to the business units. The service functions previously performed by PNMR were assumed by PNMR Services Company effective January 1, 2005.

Until June 6, 2005, TNMP provided First Choice and TNP with corporate support services, including accounting, finance, information services, legal and human resources, under a shared services agreement with First Choice dated March 1, 2001 and a similar agreement with TNP dated June 6, 1997. These services were billed at TNMP's cost and, in return, TNP and First Choice compensated TNMP for the services provided. These agreements were in effect through June 6, 2005 when they were replaced by a new shared services arrangement with PNMR Services Company.

Effective with the close of the acquisition of TNP on June 6, 2005, all TNMP employees who were providing corporate support to TNP and First Choice became employees of PNMR Services Company. PNMR Services Company provides corporate services to all of PNMR's business units, including PNM, Avistar, Inc., TNP, TNMP and First Choice per shared services agreements. These services are billed at cost on a monthly basis and allocated to the business units.

Certain amounts in the 2004 Consolidated Financial Statements and Notes thereto for PNMR, PNM and TNMP have been reclassified to conform to the 2005 financial statement presentation. Specifically, certain amounts in the 2004 Consolidated Financial Statements and

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Notes thereto of TNMP have been reclassified to conform to PNMR's presentation for comparability.

In addition, in the PNMR and TNMP Consolidated Statements of Cash Flows for the nine months ended September 30, 2005, PNMR and TNMP present the classification of changes in restricted cash balances as an investing activity. PNMR and TNMP presented such changes as an operating activity prior to the quarter ended June 30, 2005. In the accompanying PNMR and TNMP Consolidated Statements of Cash Flows for the nine months ended September 30, 2004, the changes in these cash balances were reclassified to be consistent with the 2005 presentation. This reclassification resulted in a $1.5 million increase to PNMR investing cash flows and a corresponding decrease to PNMR operating cash flows from the amounts previously reported. This reclassification resulted in less than a $0.1 million increase to TNMP investing cash flows and a corresponding decrease to TNMP operating cash flows from the amounts previously reported.

PNMR

Stock Based Compensation

The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Compensation cost for stock options, if any, is measured as the excess of the quoted market price of PNMR's stock at the date of grant over the exercise price of the granted stock option. Restricted stock is recorded as compensation cost over the requisite vesting periods based on the market value on the date of grant.

At September 30, 2005, PNMR had three stock-based employee compensation plans. Stock options continue to be granted under only two of the plans. Had compensation expense for PNMR's stock options been recognized based on the fair value on the grant date under the methodology prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the effect on PNMR's pro forma net earnings and pro forma diluted earnings per share would be as follows (in thousands, except per share data):

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2005	2004	2005	2004

Net earnings	$28,483	$27,417	$60,533	$69,044
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects	(303)	(704)	(996)	(2,111)
Pro forma net earnings	$28,180	$26,713	$59,537	$66,933

Earnings per share:
Basic - as reported	$ 0.41	$ 0.45	$ 0.93	$ 1.14

Basic - pro forma	$ 0.41	$ 0.44	$ 0.92	$ 1.11

Diluted - as reported	$ 0.41	$ 0.45	$ 0.92	$ 1.13

Diluted - pro forma	$ 0.41	$ 0.44	$ 0.91	$ 1.09

SFAS No. 123 (revised 2004), "Share Based Payment" ("SFAS 123R"), supersedes APB 25. SFAS 123R requires the recognition of compensation expense, over the requisite service period, in an amount equal to the fair value of share-based payments granted to employees. The fair value of the share-based payments, excluding liability awards, is computed at the date of grant and will not be remeasured. The fair value of liability awards will be remeasured at each reporting date through the settlement date with the change in fair value recognized as compensation expense over that period. SFAS 123R applies to all transactions involving the issuance, by a company, of its own equity in exchange for goods or services. SFAS 123R does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS 123 as originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." SFAS 123R will be effective for PNMR beginning January 1, 2006. For options issued on or prior to December 31, 2005, PNMR expects that the effect of SFAS 123R on PNMR's results of operations will not be materially different from the pro forma amounts presented in the table above for the applicable time period. PNMR anticipates that the calculation of the fair value of any options issued after December 31, 2005

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

will not be materially different from the fair value estimated in the pro forma amounts presented in the table above.

PNM

Decommissioning Costs

Accounting for decommissioning costs for nuclear and fossil-fuel generation involves significant estimates related to costs to be incurred many years in the future after plant closure. Changes in these estimates could significantly impact the Company's financial position, results of operations and cash flows. PNM owns and leases nuclear and fossil-fuel facilities that are within and outside of its retail service areas. PNM adopted the accounting requirements of SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), on January 1, 2003. Under SFAS 143, PNM is only required to recognize and measure decommissioning liabilities for tangible long-lived assets for which a legal obligation exists. Adoption of the statement changed the method of accounting for both nuclear generation decommissioning and fossil-fuel generation decommissioning. Nuclear decommissioning costs are based on site-specific estimates of the costs for removing all radioactive and other structures at the site. PVNGS Unit 3 is excluded from PNM's retail rates while PVNGS Units 1 and 2 are included. PNM collects a provision for ultimate decommissioning of PVNGS Units 1 and 2 in its rates and recognizes a corresponding expense and liability for these amounts. Fossil-fuel decommissioning costs are also approved by the NMPRC as a component of PNM's depreciation rates. PNM believes that it will continue to be able to collect in rates for its legal asset retirement obligations for nuclear and fossil-fuel generation activities included in the ratemaking process.

In addition, PNM has a contractual obligation with the PVNGS participants to fund separately the nuclear decommissioning cost at a level in excess of what PNM has identified as its legal asset retirement obligation under SFAS 143. The contractual funding obligation is based on a site-specific estimate prepared by a third party. PNM's most recent site-specific estimates for nuclear decommissioning costs were developed in 2004, using 2004 cost factors, and are based on prompt dismantlement decommissioning, reflecting the costs of removal discussed above, with such removal occurring shortly after operating license expiration. PNM's share of the contractual funding obligation through the end of the licensing terms is approximately $216.7 million (measured in 2004 dollars). The estimates are subject to change based on a variety of factors, including cost escalation, changes in technology applicable to nuclear decommissioning and changes in federal, state or local regulations. The operating licenses for PVNGS Units 1, 2 and 3 will expire in 2025, 2026, and 2027, respectively. PNM does not have a similar contractual funding obligation related to its fossil-fuel plants.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

TNMP

Extraordinary Item

In the second quarter of 2004, TNMP recorded a loss of $97.8 million related to the PUCT true-up proceeding regarding TNMP's stranded costs. 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. The PUCT decision established $128.4 million as TNMP's stranded costs and allowed TNMP to recover $87.3 million of the $266.5 million that TNMP requested for its true-up balance. This decision resulted in a loss of $155.2 million before tax ($97.8 million after tax). TNMP recorded the $97.8 million after tax loss as an extraordinary item in accordance with the requirements of SFAS No. 101, "Regulated Enterprises - Accounting for the Discontinuance of the Application of FASB Statement No. 71."

(2) TNP Acquisition

On June 6, 2005, PNMR acquired all of the outstanding common shares of TNP, including its principal subsidiaries, TNMP and First Choice. The results of TNP's operations have been included in the consolidated financial statements of PNMR from that date. PNMR acquired TNP in order to complement its existing New Mexico electric operations and to expand into the retail and wholesale markets in Texas.

The aggregate purchase price was $1,277 million, including a payment to the previous owner of $175.0 million consisting of $87.6 million of cash and common stock valued at $87.4 million. In addition, the aggregate purchase price included $1,034 million of TNP debt and preferred stock and incurred transaction and other costs of $67.7 million. The value of the 4,326,337 common shares issued was determined based on $20.20 per common share as provided for in the Stock Purchase Agreement. The purchase price was based on an estimated purchase price in accordance with the Stock Purchase Agreement, dated as of July 24, 2004 by and between PNMR and SW Acquisition. PNMR is in the process of completing valuations of acquired property and intangible assets; thus, the allocation of the purchase price is subject to adjustment and will be finalized within one year of the acquisition.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

SW Acquisition's breaches of contract including its early termination of the negotiation period provided for in the Stock Purchase Agreement and its breach of the provisions in the Stock Purchase Agreement regarding alternate dispute resolution. PNMR also filed a motion to compel arbitration consistent with the Stock Purchase Agreement and a motion for a preliminary injunction that would force SW Acquisition to choose an accountant to resolve the purchase price dispute. The court has scheduled a hearing on the motion to compel arbitration for November 2005. PNMR believes the SW Acquisition petition is without merit and intends to vigorously defend itself and otherwise protect its rights under the Stock Purchase Agreement.

The following unaudited pro forma financial information presents a summary of PNMR's consolidated results of operations for the three and nine months ended September 30, 2005 and 2004 assuming the acquisition of TNP had been completed as of January 1, 2004, including adjustments, which are based upon preliminary estimates, to reflect the allocation of the purchase price to the acquired net assets. The pro forma financial information does not include synergy savings that may result from the business combination and is not necessarily indicative of the results of operations if the acquisition had been effective as of these dates.

	For the Three Months Ended		For the Nine Months Ended
	September 30,		September 30,
	2005	2004	2005	2004
	(In thousands)
Operating revenues	$ 597,117	$ 593,341	$1,654,807	$1,723,530
Operating expenses	$ 546,255	$ 526,066	$1,520,815	$1,557,614
Earnings before extraordinary item	$ 27,710	$ 50,129	$ 66,142	$ 109,080
Net earnings	$ 27,710	$ 50,129	$ 66,142	$ 11,244
Net earnings per common share
before extraordinary item:
Basic	$ 0.40	$ 0.73	$ 0.96	$ 1.59
Diluted	$ 0.40	$ 0.71	$ 0.95	$ 1.57
Net earnings per common share:
Basic	$ 0.40	$ 0.73	$ 0.96	$ 0.16
Diluted	$ 0.40	$ 0.71	$ 0.95	$ 0.16

(3) Segment Information

PNMR is an investor-owned holding company of energy and energy related businesses. Its three primary subsidiaries are PNM, TNMP and First Choice. PNM is an integrated public utility with regulated operations primarily engaged in the generation, transmission and distribution of electricity, transmission, distribution and sale of natural gas within New Mexico, and unregulated operations primarily focused on the sale and marketing of electricity in the Western United States. TNMP is a regulated utility operating in Texas and New Mexico. In

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Texas, TNMP provides regulated transmission and distribution services. In New Mexico, TNMP provides integrated electric services that include the transmission, distribution, purchase and sale of electricity to its New Mexico customers. First Choice is a competitive retail electric provider operating in Texas. In addition, PNMR provides energy and technology related services through its wholly owned subsidiary, Avistar, Inc.

The following segment presentation is based on the methodology that the Company's management uses for making operating decisions and assessing performance of its various business activities. The following presentation reports operating results without regard to the effect of accounting or regulatory changes and similar non-recurring items not related to normal operations. A reconciliation from the segment presentation to the GAAP financial statements is provided.

In conjunction with the TNP acquisition, management changed its business segment reporting. As it currently operates, PNMR's principal businesses include regulated operations and unregulated operations. Regulated Operations include the segments PNM Electric, TNMP Electric and PNM Gas. Unregulated Operations include the segments PNM Wholesale and First Choice. Company management has combined two segments previously reported separately, Transmission and Electric, to form one reportable segment, PNM Electric. The prior year amounts have been conformed to reflect this change for comparison purposes. As required by SEC regulations, PNMR filed a Current Report on Form 8-K on September 26, 2005 that conformed its presentation of segment information in the 2004 Annual Report on Form 10-K to reflect the revised segment presentation.

REGULATED OPERATIONS

PNM Electric

PNM Electric is an integrated electric utility that consists of the generation, transmission and distribution of electricity for retail electric customers in New Mexico and the sale of transmission to third parties as well as to PNM Wholesale and TNMP. PNM Electric provides retail electric service to a large area of north central New Mexico, including the cities of Albuquerque and Santa Fe, and certain other areas of New Mexico. Customer rates for retail electric service are set by the NMPRC based on the provisions of the Global Electric Agreement (see Note 9). PNM Electric owns or leases transmission lines, interconnected with other utilities in New Mexico, and south and east into Texas, west into Arizona, and north into Colorado and Utah.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

TNMP Electric

TNMP Electric consists of the operations of TNMP. TNMP is a regulated utility operating in Texas and New Mexico. In Texas, TNMP provides regulated transmission and distribution services under the provisions of TECA, the legislation that established retail competition in Texas (Senate Bill 7). In New Mexico, TNMP provides integrated electricity services that include the transmission, distribution, purchase and sale of electricity to its New Mexico customers as well as transmission to third parties and to PNM. TNMP's Texas and New Mexico operations are subject to traditional cost-of-service regulation.

PNM Gas

PNM Gas distributes natural gas to most of the major communities in New Mexico, including two of New Mexico's three largest metropolitan areas, Albuquerque and Santa Fe. 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 distribution customers. As a result, increases or decreases in gas revenues resulting from wholesale gas price fluctuations do not impact PNMR's or PNM's consolidated gross margin or earnings.

UNREGULATED OPERATIONS

PNM Wholesale

PNM Wholesale consists of the generation and sale of electricity into the wholesale market based on two product lines that include long-term contracts and short-term sales. The source of these sales is supply created by selling the unused capacity of jurisdictional assets as well as the capacity of the Company's wholesale plants excluded from retail rates. Both regulated and unregulated generation is jointly dispatched in order to improve reliability, provide the most economic power to retail customers, and maximize profits on any wholesale transactions.

Long-term contracts include sales to firm-requirements and other wholesale customers with multi-year arrangements. Short-term sales generally include transactions entered into for up to two years. They also include spot market, hour ahead, day ahead, week ahead and forward market opportunities in which PNM Wholesale utilizes its asset backed strategy. Also included in short-term sales are sales of any excess generation not required to fulfill PNM Electric's retail load and contractual commitments. Short-term sales also cover the revenue credit to retail customers as specified in the Global Electric Agreement. PNM Wholesale also sells transmission services to TNMP.

In addition, adjustments related to EITF Issue 03-11, "Reporting Realized Gains and Losses on Derivative Instruments that are subject to FASB statement No. 133 and Not Held for Trading Purposes," are included in Corporate and Other. These accounting pronouncements require a net presentation of trading gains and losses and realized gains and losses for certain non-

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

trading derivatives. Management evaluates PNM Wholesale operations on a gross presentation basis due to its primarily net asset-backed marketing strategy and the importance it places on the Company's ability to repurchase and remarket previously sold capacity.

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. First Choice performs all activities in Texas with Texas retail customers, including acquiring new retail customers, setting up retail accounts, handling customer inquiries and complaints, and acting as a liaison between the transmission and distribution companies and retail customers. First Choice was organized in 2000 to act as TNMP's affiliated retail electric provider, as required by TECA, the legislation that established retail competition in Texas (also known as Senate Bill 7).

CORPORATE AND OTHER

On December 30, 2004, PNMR became a registered holding company under PUHCA. As a result of the requirement to register as a holding company, PNMR created PNMR Services Company, a services company, which began operation on January 1, 2005, subject to final approval of a services company application filed with the SEC in January 2005. The comprehensive energy legislation enacted in August 2005 resulted in the repeal of PUHCA on a delayed basis. PNMR is in the process of evaluating the effects of that repeal, along with the other provisions of the legislation. (See Note 9.)

PNMR provides energy and technology related services through its wholly owned subsidiary, Avistar, Inc., and those results are included in the Corporate and Other segment.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

PNMR Segment Information

Summarized financial information for PNMR by business segment for the three months ended September 30, 2005 is as follows (in thousands):

	Regulated			Unregulated
Segments of Business	PNM	TNMP	PNM	PNM	First	Corporate
	Electric	Electric	Gas	Wholesale	Choice	& Other		Consolidated
2005:
Operating revenues:	$ 161,258	$ 49,373	$ 78,258	$168,384	$155,479	$(15,635)	(a)	$597,117
Intersegment revenues	1,687	22,068	429	11,471	-	(35,655)		-
Total revenues	162,945	71,441	78,687	179,855	155,479	(51,290)		597,117
Less: Cost of energy	57,958	25,764	53,512	156,024	120,751	(51,146)	(a)	362,863
Intersegment energy
Transfer	(7,205)	-	-	7,205	-	-		-
Gross margin	112,192	45,677	25,175	16,626	34,728	(144)		234,254
Operating expenses	66,441	17,958	25,778	11,581	11,800	1,292	(b)	134,850
Depreciation and
amortization	17,276	7,814	5,630	3,667	480	1,980		36,847
Income taxes	7,998	4,476	(3,595)	(1,027)	7,826	(3,432)	(b,d)	12,246
Operating income	20,477	15,429	(2,638)	2,405	14,622	16		50,311

Interest Income	7,103	660	938	1,322	612	125		10,760
Other
income/(deductions)	1,111	2,070	(131)	376	(36)	(4,140)	(c)	(750)
Other income taxes	(3,252)	(1,093)	(319)	(672)	(208)	1,851		(3,693)
Interest charges	(8,273)	(7,250)	(2,848)	(3,971)	(434)	(5,369)	(d)	(28,145)
Segment net income (loss)	$ 17,166	$ 9,816	$ (4,998)	$ (540)	$ 14,556	$ (7,517)		$ 28,483

Total assets at
September 30, 2005	$1,811,181	$1,252,071	$634,161	$430,385	$281,693	$727,068		$5,136,559
Goodwill	$ -	$ 457,109	$ -	$ -	$ 35,584	$ -		$ 492,693
Gross property additions	$ 22,627	$ 10,986	$ 9,422	$ 2,909	$ 98	$ 15,112		$ 61,154

(a) Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $16.0 million are reclassified to a net margin basis in accordance with GAAP.

(b) Includes TNP acquisition related costs of $4.6 million in operating expenses and an income tax benefit of $1.8 million in income taxes.

(d) Includes TNP debt refinancing costs of $0.4 million in interest charges and an income tax benefit of $0.1 million in income taxes.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Summarized financial information for PNMR by business segment for the three months ended September 30, 2004 is as follows (in thousands):

	Regulated			Unregulated
Segments of Business	PNM	TNMP	PNM	PNM	First	Corporate
	Electric	Electric	Gas	Wholesale	Choice	& Other		Consolidated
2004:
Operating revenues:	$ 150,961	$ -	$ 72,880	$ 184,239	$ -	$ (23,327)	(a)	$ 384,753
Intersegment revenues	1,452	-	650	-	-	-		2,102
Total revenues	152,413	-	73,530	184,239	-	(23,327)		386,855
Less: Cost of energy	50,675	-	48,127	151,514	-	(23,467)	(a)	226,849
Intersegment energy					-
Transfer	(9,838)	-	-	9,838	-	-		-
Gross margin	111,576	-	25,403	22,887	-	140		160,006
Operating expenses	60,652	-	22,460	9,898	-	1,195		94,205
Depreciation and
amortization	12,568	-	4,574	3,077	-	1,583		21,802
Income taxes	11,757	-	(1,740)	2,582	-	(815)		11,784
Operating income	26,599	-	109	7,330	-	(1,823)		32,215

Interest Income	7,155	-	203	1,366	-	546		9,270
Other
Income/(deductions)	429	-	4	366	-	331		1,130
Other income taxes	(3,003)	-	(82)	(686)	-	853		(2,918)
Interest charges	(8,659)	-	(2,765)	(3,391)	-	2,535		(12,280)
Segment net income (loss)	$ 22,521	$ -	$ (2,531)	$ 4,985	$ -	$ 2,442		$ 27,417

Total assets at
December 31, 2004	$1,764,032	$ -	$ 512,538	$ 430,493	$ -	$780,572		$ 3,487,635
Gross property additions	$ 17,319	$ -	$ 7,357	$ 1,850	$ -	$ 3,695		$ 30,221

(a) Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $23.5 million are reclassified to a net margin basis in accordance with GAAP.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Summarized financial information for PNMR by business segment for the nine months ended September 30, 2005 is as follows (in thousands):

	Regulated			Unregulated
Segments of Business	PNM	TNMP		PNM	First	Corporate
	Electric	Electric*	PNM Gas	Wholesale	Choice*	& Other		Consolidated
2005:
Operating revenues:	$ 431,063	$ 62,057	$325,752	$439,661	$198,510	$ (55,277)	(a)	$1,401,766
Intersegment revenues	4,845	28,619	605	14,480	-	(20,031)		28,518
Total revenues	435,908	90,676	326,357	454,141	198,510	(75,308)		1,430,284
Less: Cost of energy	150,359	32,466	221,239	364,989	154,834	(75,355)	(a)	848,532
Intersegment energy
Transfer	(24,740)	-	-	24,740	-	-		-
Gross margin	310,289	58,210	105,118	64,412	43,676	47		581,752
Operating expenses	195,017	23,044	74,082	33,549	14,997	12,050	(b)	352,739
Depreciation and
amortization	52,329	9,899	16,802	11,695	585	5,549		96,859
Income taxes	14,868	5,694	2,200	2,848	9,846	(10,680)	(b,d)	24,776
Operating income	48,075	19,573	12,034	16,320	18,248	(6,872)		107,378

Interest Income	20,791	747	2,181	3,969	773	3,221		31,682
Other
income/(deductions)	2,141	2,695	333	1,714	(51)	(12,923)	(c)	(6,091)
Other income taxes	(9,079)	(1,364)	(995)	(2,250)	(259)	4,200	(c)	(9,747)
Interest charges	(25,387)	(9,206)	(8,677)	(11,974)	(462)	(6,983)	(d)	(62,689)
Segment net income (loss)	$ 36,541	$ 12,445	$ 4,876	$ 7,779	$ 18,249	$ (19,357)		$ 60,533

Total assets at
September 30, 2005	$1,811,181	$1,252,071	$634,161	$430,385	$281,693	$ 727,068		$5,136,559
Goodwill	$ -	$ 457,109	$ -	$ -	$ 35,584	$ -		$ 492,693
Gross property additions	$ 63,342	$ 12,671	$ 28,143	$ 7,078	$ 144	$ 29,725		$ 141,103

(a) Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $27.6 million are reclassified to a net margin basis in accordance with GAAP.

(b) Includes TNP acquisition related costs of $9.1 million and regulatory costs associated with the NMPRC's approval of the acquisition of $2.3 million in operating expenses and an income tax benefit of $4.5 million in income taxes.

(c) Includes TNP debt refinancing costs of $2.4 million and a write-off of software costs of $4.5 million in other income/(deductions) and an income tax benefit of $1.8 million in other income taxes.

(d) Includes TNP debt refinancing costs of $4.5 million in interest charges and an income tax benefit of $2.0 million in income taxes.

* Includes results from June 6 through September 30, 2005.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Summarized financial information for PNMR by business segment for the nine months ended September 30, 2004 is as follows (in thousands):

	Regulated			Unregulated
Segments of Business	PNM	TNMP	PNM	PNM	First	Corporate
	Electric	Electric	Gas	Wholesale	Choice	& Other		Consolidated
2004:
Operating revenues:	$ 417,702	$ -	$ 329,226	$ 475,414	$ -	$ (33,051)	(a)	$1,189,291
Intersegment revenues	4,275	-	1,064	-	-	-		5,339
Total revenues	421,977	-	330,290	475,414	-	(33,051)		1,194,630
Less: Cost of energy	141,547	-	228,925	366,887	-	(33,497)	(a)	703,862
Intersegment energy
Transfer	(34,175)	-	-	34,175	-	-		-
Gross margin	314,605	-	101,365	74,352	-	446		490,768
Operating expenses	191,891	-	72,178	33,036	-	1,679		298,784
Depreciation and
amortization	45,936	-	14,041	10,585	-	3,808		74,370
Income taxes	20,086	-	2,734	8,137	-	(1,356)		29,601
Operating income	56,692	-	12,412	22,594	-	(3,685)		88,013

Interest Income	21,235	-	1,361	4,104	-	1,335		28,035
Other
income/(deductions)	701	-	(78)	1,085	-	(1,444)		264
Other income taxes	(8,685)	-	(508)	(2,055)	-	2,144		(9,104)
Interest charges	(26,042)	-	(8,241)	(10,177)	-	6,296		(38,164)
Segment net income	$ 43,901	$ -	$ 4,946	$ 15,551	$ -	$ 4,646		$ 69,044

Total assets at
December 31, 2004	$1,764,032	$ -	$ 512,538	$ 430,493	$ -	$780,572		$3,487,635
Gross property additions	$ 57,479	$ -	$ 21,346	$ 6,575	$ -	$ 6,551		$ 91,951

(a) Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $33.6 million are reclassified to a net margin basis in accordance with GAAP.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

PNM Segment Information

Summarized financial information for PNM by business segment for the three months ended September 30, 2005 is as follows (in thousands):

Segments of Business	PNM	PNM	PNM
	Electric	Gas	Wholesale	Other		Consolidated
2005:
Operating revenues:	$ 161,258	$ 78,258	$168,384	$(15,965)	(a)	$ 391,935
Intersegment revenues	1,687	429	11,471	(1,990)		11,597
Total revenues	162,945	78,687	179,855	(17,955)		403,532
Less: Cost of energy	57,958	53,512	156,024	(17,834)	(a)	249,660
Intersegment energy
Transfer	(7,205)	-	7,205	-		-
Gross margin	112,192	25,175	16,626	(121)		153,872
Operating expenses	66,441	25,778	11,581	1,824	(b)	105,624
Depreciation and
amortization	17,276	5,630	3,667	833		27,406
Income taxes	7,998	(3,595)	(1,027)	(943)	(b)	2,433
Operating income	20,477	(2,638)	2,405	(1,835)		18,409

Interest Income	7,103	938	1,322	334		9,697
Other income/(deductions)	1,111	(131)	376	(202)		1,154
Other income taxes	(3,252)	(319)	(672)	256		(3,987)
Interest charges	(8,273)	(2,848)	(3,971)	953		(14,139)
Segment net income (loss)	$ 17,166	$ (4,998)	$ (540)	$ (494)		$ 11,134

Total assets at
September 30, 2005	$1,811,181	$634,161	$430,385	$580,880		$3,456,607
Gross property additions	$ 22,627	$ 9,422	$ 2,909	$ (4,514)		$ 30,444

(a) Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $16.0 million are reclassified to a net margin basis in accordance with GAAP.

(b) Includes TNP acquisition related costs of $2.5 million in operating expenses and an income tax benefit of $1.0 million in income taxes.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Summarized financial information for PNM by business segment for the three months ended September 30, 2004 is as follows (in thousands):

Segments of Business	PNM	PNM	PNM
	Electric	Gas	Wholesale	Other		Consolidated
2004:
Operating revenues:	$ 150,961	$ 72,880	$ 184,239	$ (23,505)	(a)	$ 384,575
Intersegment revenues	1,452	650	-	-		2,102
Total revenues	152,413	73,530	184,239	(23,505)		386,677
Less: Cost of energy	50,675	48,127	151,514	(23,505)	(a)	226,811
Intersegment energy
Transfer	(9,838)	-	9,838	-		-
Gross margin	111,576	25,403	22,887	-		159,866
Operating expenses	60,652	22,460	9,898	59		93,069
Depreciation and
amortization	12,568	4,574	3,077	938		21,157
Income taxes	11,757	(1,740)	2,582	(525)		12,074
Operating income	26,599	109	7,330	(472)		33,566

Interest Income	7,155	203	1,366	506		9,230
Other income/(deductions)	429	4	366	(143)		656
Other income taxes	(3,003)	(82)	(686)	1,056		(2,715)
Interest charges	(8,659)	(2,765)	(3,391)	1,626		(13,189)
Segment net income (loss)	$ 22,521	$ (2,531)	$ 4,985	$ 2,573		$ 27,548

Total assets at
December 31, 2004	$1,764,032	$ 512,538	$ 430,493	$686,667		$3,393,730
Gross property additions	$ 17,319	$ 7,357	$ 1,850	$ 4,446		$ 30,972

(a) Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $23.5 million are reclassified to a net margin basis in accordance with GAAP.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Summarized financial information for PNM by business segment for the nine months ended September 30, 2005 is as follows (in thousands):

Segments of Business	PNM	PNM	PNM
	Electric	Gas	Wholesale	Other		Consolidated
2005:
Operating revenues:	$ 431,063	$325,752	$439,661	$(30,942)	(a)	$1,165,534
Intersegment revenues	4,845	605	14,480	(1,990)		17,940
Total revenues	435,908	326,357	454,141	(32,932)		1,183,474
Less: Cost of energy	150,359	221,239	364,989	(32,811)	(a)	703,776
Intersegment energy
Transfer	(24,740)	-	24,740	-		-
Gross margin	310,289	105,118	64,412	(121)		479,698
Operating expenses	195,017	74,082	33,549	5,028	(b)	307,676
Depreciation and
amortization	52,329	16,802	11,695	2,489		83,315
Income taxes	14,868	2,200	2,848	(2,458)	(b)	17,458
Operating income	48,075	12,034	16,320	(5,180)		71,249

Interest Income	20,791	2,181	3,969	1,059		28,000
Other income/(deductions)	2,141	333	1,714	(5,066)	(c)	(878)
Other income taxes	(9,079)	(995)	(2,250)	2,335	(c)	(9,989)
Interest charges	(25,387)	(8,677)	(11,974)	5,142		(40,896)
Segment net income (loss)	$ 36,541	$ 4,876	$ 7,779	$ (1,710)		$ 47,486

Total assets at
September 30, 2005	$1,811,181	$634,161	$430,385	$580,880		$3,456,607
Gross property additions	$ 63,342	$ 28,143	$ 7,078	$ (8,231)		$ 90,332

(a) Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $27.6 million are reclassified to a net margin basis in accordance with GAAP.

(b) Includes TNP acquisition related costs of $3.6 million and regulatory costs associated with the NMPRC's approval of the acquisition of $2.3 million in operating expenses and an income tax benefit of $2.3 million in income taxes.

(c) Includes a write-off of software costs of $4.5 million in other income/(deductions) and an income tax benefit of $1.8 million in other income taxes.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Summarized financial information for PNM by business segment for the nine months ended September 30, 2004 is as follows (in thousands):

Segments of Business	PNM	PNM	PNM
	Electric	Gas	Wholesale	Other		Consolidated
2004:
Operating revenues:	$ 417,702	$ 329,226	$ 475,414	$(33,608)	(a)	$1,188,734
Intersegment revenues	4,275	1,064	-	-		5,339
Total revenues	421,977	330,290	475,414	(33,608)		1,194,073
Less: Cost of energy	141,547	228,925	366,887	(33,608)	(a)	703,751
Intersegment energy
Transfer	(34,175)	-	34,175	-		-
Gross margin	314,605	101,365	74,352	-		490,322
Operating expenses	191,891	72,178	33,036	149		297,254
Depreciation and
amortization	45,936	14,041	10,585	2,035		72,597
Income taxes	20,086	2,734	8,137	(862)		30,095
Operating income	56,692	12,412	22,594	(1,322)		90,376

Interest Income	21,235	1,361	4,104	1,046		27,746
Other income/(deductions)	701	(78)	1,085	333		2,041
Other income taxes	(8,685)	(508)	(2,055)	1,555		(9,693)
Interest charges	(26,042)	(8,241)	(10,177)	4,686		(39,774)
Segment net income (loss)	$ 43,901	$ 4,946	$ 15,551	$ 6,298		$ 70,696

Total assets at
December 31, 2004	$1,764,032	$ 512,538	$ 430,493	$686,667		$3,393,730
Gross property additions	$ 57,479	$ 21,346	$ 6,575	$ 6,070		$ 91,470

(a) Reflects EITF 03-11 impact, under which wholesale revenues and the associated cost of energy of $33.6 million are reclassified to a net margin basis in accordance with GAAP.

TNMP

TNMP operates in only one reportable segment; therefore tabular presentation of segment data is not required.

(4) Fair Value of Financial Instruments

PNMR and PNM

Interest Rate Management

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company may enter into agreements for derivative instruments, including options and swaps, to manage risks related to changes in interest rates. At the inception of any such transaction, the Company documents relationships between the hedging instruments and the items being hedged. This documentation includes the strategy that supports executing the specific transaction. See Note 6 for details regarding interest rate swaps PNMR has entered into.

PNMR

Cash Management

Until October 2005, when the program was discontinued, PNMR had a cash management program that included a preferred stock dividend capture strategy and various absolute return strategies that had the objective of achieving returns higher than that associated with passive cash management plans and with bond-like volatility. PNMR's initial investment in its cash management program was $10.0 million and an additional $2.0 million was invested in February 2005. As of September 30, 2005 and December 31, 2004, the balance, included in other current assets, for this investment, including profits and interest, was $10.1 million and $10.6 million, respectively.

PNMR determined that one of its investments under this program, Wood River, had experienced a loss in market value. At September 30, 2005, PNMR wrote down the value of its investment in Wood River to zero and incurred a loss of approximately $3.6 million for the three and nine months ended September 30, 2005.

First Choice Natural Gas Contracts

During July 2005, First Choice began entering into various gas contracts. These contracts are marked to market in accordance with GAAP. The change in mark-to-market valuation is recognized in earnings each period and is recorded in operating revenues and cost of energy, as applicable. None of these contracts settled during the third quarter of 2005. As of September 30, 2005, First Choice had a net mark-to-market asset (gain) of $1.5 million recorded in operating revenues for these contracts.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

First Choice Energy Contracts

During July 2005, First Choice also began entering into various forward physical contracts for the purchase and sale of electricity with the intent of optimizing market opportunities. These contracts, which are derivatives, do not qualify for normal purchase and sale designation pursuant to GAAP, and are marked to market. None of these contracts settled during the third quarter of 2005. As of September 30, 2005, First Choice had a net mark-to-market liability (loss) of $0.7 million recorded in operating revenues for these contracts.

First Choice Natural Gas Hedges

First Choice also enters into natural gas transactions to hedge the variable component of certain heat-rate based power products used to serve customer load. These products are priced based on gas to power conversion rates using the spot price for natural gas . The hedges are effective in offsetting future cash flow volatility caused by increases in natural gas prices. The fair value of the natural gas hedges as of September 30, 2005, was an asset of $29.1 million, which is recorded on PNMR's balance sheet as a current asset. There was no hedge ineffectiveness on these transactions. For the three and nine months ended September 30, 2005, (after June 6, 2005) First Choice's cost of energy includes gains of $9.0 million related to the settlement of natural gas hedges.

PNM

Retail Natural Gas Contracts

The NMPRC has authorized PNM to hedge certain portions of natural gas supply contracts to protect PNM's natural gas customers from the risk of adverse price fluctuations in the natural gas market. Hedge gains and losses are recoverable through PNM's PGAC if deemed prudently incurred by the NMPRC. As a result, earnings are not affected by gains or losses generated by these instruments.

PNM purchased $2.8 million and $6.8 million of natural gas options during the third quarter and first nine months of 2005, respectively, to protect its natural gas customers from the risk of rising prices during the 2005-2006 heating season. At September 30, 2005, PNM had $6.8 million included in other current assets on its balance sheet for the purchase of gas options that essentially cap the amount PNM would pay for each volume of gas subject to the options during the winter heating season. These options will be amortized as cost of energy on PNM's income statement beginning in October 2005. PNM expects to recover its option premiums as a component of the PGAC during the months of October 2005 through February 2006. PNM does not expect to purchase additional gas options in 2005.

PNM entered into fixed-for-float financial transactions to hedge a portion of its winter gas purchase portfolio. PNM has hedged 10.9 million MMBTUs utilizing the fixed-for-float strategy for the next two winter heating seasons.

Wholesale Electricity Contracts

PNM Wholesale has entered into various forward physical contracts for the purchase and sale of electricity with the intent to optimize its net generation position. These contracts, which are derivatives, do not qualify for normal purchase and sale designation pursuant to GAAP, and are marked to market.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

For the three months ended September 30, 2005, PNM Wholesale settled derivative forward contracts for the sale of electricity that generated $64.5 million of electric revenues by delivering 1.0 million MWh. For the three months ended September 30, 2005, PNM Wholesale settled derivative forward contracts for the purchase of electricity of $80.5 million or 1.2 million MWh to support these contractual sales and other open market sales opportunities.

For the nine months ended September 30, 2005, PNM Wholesale settled derivative forward contracts for the sale of electricity that generated $143.9 million of electric revenues by delivering 2.6 million MWh. For the nine months ended September 30, 2005, PNM Wholesale settled derivative forward contracts for the purchase of electricity of $144.7 million or 2.5 million MWh to support these contractual sales and other open market sales opportunities.

For the three months ended September 30, 2004, PNM Wholesale settled derivative forward contracts for the sale of electricity that generated $76.1 million of electric revenues by delivering 1.3 million MWh. For the three months ended September 30, 2004, PNM Wholesale settled derivative forward contracts for the purchase of electricity of $64.8 million or 1.1 million MWh to support these contractual sales and other open market sales opportunities.

For the nine months ended September 30, 2004, PNM Wholesale settled derivative forward contracts for the sale of electricity that generated $148.7 million of electric revenues by delivering 2.8 million MWh. For the nine months ended September 30, 2004, PNM Wholesale settled derivative forward contracts for the purchase of electricity of $133.1 million or 2.6 million MWh to support these contractual sales and other open market sales opportunities.

As of September 30, 2005, PNM Wholesale had open derivative forward contract positions to buy $40.6 million and to sell $59.5 million of electricity. At September 30, 2005, PNM Wholesale had a gross mark-to-market gain (asset position) on these derivative forward contracts of $12.6 million and a gross mark-to-market loss (liability position) of $12.9 million, recorded in other assets and liabilities, respectively. The change in mark-to-market valuation is recognized in earnings each period and is recorded in operating revenues and cost of energy, as applicable.

PNM Wholesale also entered into forward physical contracts for the sale of PNM's electric capacity in excess of its retail and wholesale firm requirement needs, including reserves. In addition, PNM Wholesale entered into forward physical contracts for the purchase of retail needs, including reserves, when resource shortfalls exist. PNM Wholesale generally accounts for these as normal sales and purchases as defined by SFAS 133. From time to time PNM Wholesale makes forward purchases to serve its retail needs when the cost of purchased power is less than the incremental cost of its generation. At September 30, 2005, PNM Wholesale had open forward positions classified as normal sales of electricity of $123.7 million and normal purchases of electricity of $42.9 million, which will be reflected in the financial statements upon physical delivery.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The operations of PNM Wholesale, including both firm commitments and other wholesale sale activities, are managed primarily through a net asset-backed strategy, whereby PNM Wholesale's aggregate net open position is covered by its own excess generation capabilities. PNM Wholesale is exposed to market risk if its generation capabilities were disrupted or if its retail load requirements were greater than anticipated. If PNM Wholesale were required to cover all or a portion of its net open contract position, it would have to meet its commitments through market purchases.

PNM Wholesale is exposed to credit risk in the event of non-performance or non-payment by counterparties of its financial and physical derivative instruments. PNM Wholesale uses a credit management process to assess and monitor the financial conditions of counterparties. PNM Wholesale's credit risk with its largest counterparty as of September 30, 2005 and December 31, 2004 was $21.3 million and $26.2 million, respectively.

Wholesale Gas Contracts

PNM Wholesale enters into various fixed-for-float price swaps to manage the price risk of certain forward sales of power. These contracts, along with the underlying power sales, are marked to market in accordance with GAAP.

As of September 30, 2005, PNM Wholesale had open derivative forward contract positions to sell $24.9 million of natural gas. At September 30, 2005, PNM Wholesale had a gross mark-to-market gain (asset position) on these derivative forward contracts of $11.6 million and a gross mark-to-market loss (liability position) of $9.6 million, recorded in other current assets and liabilities, respectively. The change in mark-to-market valuation is recognized in earnings each period and is recorded in operating revenues and cost of energy as applicable.

TNMP

Normal Purchases and Sales

In the normal course of business, TNMP enters into commodity contracts, which include components for additional purchases or sales of electricity, in order to meet customer requirements. Criteria by which option-type and forward contracts for electricity can qualify for the normal purchase and sales exception has been defined by SFAS 133. In accordance with these GAAP pronouncements, management has determined that its contracts for electricity qualify for the normal purchases and sales exception. Accordingly, TNMP does not account for its electricity contracts as derivatives.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(5) Earnings Per Share

In accordance with SFAS No. 128, "Earnings per Share" ("SFAS 128"), dual presentation of basic and diluted earnings per share has been presented in PNMR's Consolidated Statements of Earnings. The following reconciliation illustrates the impact on the share amounts of potential common shares and the earnings per share amounts:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2005	2004	2005	2004
Basic:

Net Earnings	$28,483	$ 27,417	$60,533	$ 69,044

Average Number of Common
Shares Outstanding	68,742	60,422	64,972	60,405

Net Earnings per Share of
Common Stock (Basic)	$ 0.41	$ 0.45	$ 0.93	$ 1.14

Diluted:

Net Earnings	$28,483	$ 27,417	$60,533	$ 69,044

Average Number of Common
Shares Outstanding	68,742	60,422	64,972	60,405
Dilutive Effect of Common Stock
Equivalents (a)	791	824	797	804
Average Common and Common
Equivalent Shares Outstanding	69,533	61,246	65,769	61,209

Net Earnings per Share of Common
Stock (Diluted)	$ 0.41	$ 0.45	$ 0.92	$ 1.13

(a) Excludes the effect of average anti-dilutive common stock equivalents related to out-of-the-money options of zero and 6,725 for the three months and 62,095 and 707,734 for the nine months ended September 30, 2005 and 2004, respectively.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(6) Capitalization

PNMR

Revolving and Other Credit Facilities

In August 2005, PNMR completed arrangements to expand the size, extend the maturity and modify certain terms and conditions of its previous unsecured revolving credit facility and executed an amended and restated credit agreement (the "PNMR Facility"). The PNMR Facility expands the size of its previous revolving credit facility from $400.0 million to $600.0 million. Under the PNMR Facility, the borrowing availability of First Choice was increased from $100.0 million to $300.0 million to support First Choice's future business activities. The PNMR Facility has an expiration date of August 15, 2010 and includes two one-year extension options that are subject to approval by a majority of the lenders. At September 30, 2005, there were no outstanding borrowings under the PNMR Facility.

At September 30, 2005, PNMR also had $15.0 million in local lines of credit. There were no outstanding borrowings under the local lines of credit at September 30, 2005.

In June 2005, PNMR established a commercial paper program under which it may issue up to $400.0 million in commercial paper for up to 270 days. The commercial paper is unsecured and the proceeds are used for short-term cash management needs. The PNMR Facility serves as a backstop for the outstanding commercial paper. At September 30, 2005, there were $356.9 million of commercial paper borrowings outstanding under this program.

At September 30, 2005, First Choice had up to $300.0 million of borrowing capacity under the PNMR Facility. Any borrowings made by First Choice under this sublimit are guaranteed by PNMR. At September 30, 2005, First Choice had no borrowings outstanding under the PNMR Facility; however, First Choice had $103.9 million of letters of credit outstanding, which reduces the available capacity under the PNMR Facility. TNMP is also a borrower under the PNMR Facility, see "TNMP" detail below.

Financing Activities

PNMR has a universal shelf registration statement filed with the SEC for the issuance of debt securities and equity securities, preferred stock, purchase contracts, purchase contract units and warrants. As of September 30, 2005, PNMR had approximately $400.9 million of remaining unissued securities under this registration statement.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

through September 15, 2008. The initial floating rate was 1.91% and will be reset every six months. The floating rate was reset on September 15, 2005, to 4.60%. The swap is accounted for as a fair-value hedge with a negative fair-market value (liability position) of approximately $3.2 million as of September 30, 2005.

During October 2004, PNMR entered into two forward starting floating-to-fixed rate interest rate swaps with an aggregate notional principal amount of $100.0 million. These swaps became effective August 1, 2005 and terminate November 15, 2009. Under these swaps, PNMR receives a floating rate equal to the three month LIBOR rate on the notional principal amount and pays a fixed interest rate of 3.975% on the notional principal amount on a quarterly basis. The initial floating rate was set on August 1, 2005, at 3.693% and will be reset every three months.

From November 2004 through June 30, 2005, the swaps were accounted for as a cash flow hedge against borrowings under a five-year $400.0 million PNMR revolving credit agreement dated November 15, 2004. The PNMR Facility replaced the November 2004 credit agreement in August 2005. Effective June 30, 2005, the swaps were de-designated as cash flow hedges due to a change in the underlying borrowings being hedged from the November 2004 credit agreement at the inception of the hedge to commercial paper. The mark-to-market change in the fair value of theses swaps was subsequently recognized on PNMR's income statement. At September 30, 2005, the increase in fair value related to these swaps was $2.1 million. Of this increase, $0.3 million was recorded in accumulated other comprehensive income on PNMR's balance sheet and $1.8 million was recognized in other income on PNMR's income statement for the three and nine months ended September 30, 2005.

Cascade Transaction

In October 2005, PNMR completed a private offering of 4,000,000 equity-linked securities at 6.625% to Cascade. PNMR received $100.0 million in proceeds from this transaction and there were no underwriting discounts or commissions. PNMR used the proceeds to repay short-term borrowings.

Each equity unit 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 initially pledged to secure Cascade's obligation to purchase PNMR common stock under the related purchase contract. The senior notes are scheduled to mature in August 2010 (subject to the remarketing described below) and bear interest initially at the annual rate of 5.1%. The purchase contracts entitle Cascade to quarterly contract adjustment payments of 1.525% per year on the stated amount of $25.00.

Each purchase contract obligates Cascade to purchase, and PNMR to sell, at a purchase price of $25.00 in cash, shares of PNMR's common stock on or before November 16, 2008 (the

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

"Purchase Contract Settlement Date"). Generally, the number of shares Cascade 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 the Purchase Contract Settlement Date, subject to anti-dilution adjustments. If the average closing price for the 20-day trading period is equal to or greater than approximately $25.116 per share, the settlement rate will be 0.9954 shares of common stock. If the average closing price for the trading period is less than approximately $25.116 per share but greater than $20.93 per share, the settlement rate is equal to $25.00 divided by the average closing price of PNMR's common stock for the trading period. If the average closing price for the trading period is less than or equal to $20.93 per share, the settlement rate will be 1.1945 shares of common stock. Cascade has the option to settle its obligations under the purchase contracts at any time on or prior to the fifth business day immediately preceding the Purchase Contract Settlement Date. Prior to the Purchase Contract Settlement Date, the senior notes will be remarketed. If the remarketing is successful, the interest rate on the senior notes may change to a rate selected by the remarketing agent, and the maturity of the senior notes may be extended to a date selected by PNMR. If the remarketing of the senior notes is not successful, the maturity and interest rate of the senior notes will not change and holders of the equity units will have the option of putting their senior notes to PNMR to satisfy their obligations under the purchase contracts.

The purchase contracts are forward transactions in PNMR's common stock. The final accounting for this transaction is under review and will be finalized during the fourth quarter of 2005.

Before the issuance of common stock upon settlement of the purchase contracts, the equity units will be reflected in diluted earnings per share calculations using the treasury stock method as defined by SFAS 128. Under this method, the number of shares of common stock used in calculating diluted earnings per share (based on the settlement formula applied at the end of the reporting period) is deemed to be increased by the excess, if any, of the number of shares that would be issued upon settlement of the purchase contracts less the number of shares that could be purchased by PNMR in the market at the average market price during the period using the proceeds to be received upon settlement. Therefore, dilution will occur for periods when the average market price of PNMR's common stock for the reporting period is above approximately $25.116, and will potentially occur when the average price of PNMR's common stock for the 20-day trading period preceding the end of the reporting period is lower than the average price of PNMR's common stock for the full reporting period. As the transaction was entered into in October 2005, there was no dilution effect for the three and nine months ended September 30, 2005.

Common Stock and Equity Unit Offerings

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2005, PNMR completed a public offering of 4,945,000 equity units at 6.75% yielding net proceeds after fees of $239.6 million.

In conjunction with the acquisition of TNP, on June 6, 2005, PNMR made an equity investment of approximately $110.5 million in TNP, which TNP used to repay in full amounts owing under TNP's credit agreement. In addition, pursuant to PNMR's acquisition of TNP, PNMR agreed to provide funds to TNP to enable TNP to redeem (a) TNP's 14.5% Senior Redeemable Preferred Stock, Series C, (b) TNP's 14.5% Senior Redeemable Preferred Stock, Series D (collectively, "Preferred Stock"), and (c) TNP's 10.25% Senior Subordinated Notes due 2010, Series B ("Senior Notes"). On July 6, 2005, TNP redeemed the Preferred Stock by tendering $224.6 million to the holders of the Preferred Stock and redeemed the Senior Notes by tendering $296.5 million to holders of the Senior Notes. In order to fund a portion of the cost of redemption of TNP's Preferred Stock and Senior Notes, PNMR issued $370.0 million of commercial paper short-term notes under the PNMR commercial paper program. The balance of the funds necessary for the redemption came from other cash available to PNMR and the total redemption amount was an equity investment by PNMR in TNP.

Dividends

In July 2005, the Board of PNMR approved an 8.0% increase in PNMR's common stock dividend for an indicated annual rate of $0.80 per share. On July 19, 2005 and September 27, 2005, the Board of PNMR declared dividends on common stock of $0.20 per share to PNMR shareholders of record as of August 1, 2005 and November 1, 2005, respectively.

PNM

Revolving and Other Credit Facilities

In August 2005, PNM entered into a new $400.0 million unsecured credit agreement (the "PNM Facility") to replace its existing $300.0 million facility. The PNM Facility is for a one-year term and expires August 17, 2006. Upon receiving approval by the NMPRC, it is expected that the term will be extended through August 17, 2010. The PNM Facility also includes two one-year extension options, subject to regulatory approval and approval by a majority of the lenders. In connection with entering into the new PNM Facility, PNM simultaneously terminated the previously existing $300.0 million facility, which would otherwise have terminated on November 21, 2006. Many of the same lenders were parties to the prior agreement. The terms and conditions of the new PNM Facility are generally similar to, or improvements over, the terms and conditions in the terminated agreement. At the time the previous credit facility was terminated, there was no balance on the facility and there were no fees or penalties related to the termination.

At September 30, 2005, PNM also had $23.5 million in local lines of credit and a $20.0 million borrowing arrangement with PNMR. There were no outstanding borrowings under the

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

PNM Facility, the local lines of credit or the borrowing arrangement with PNMR at September 30, 2005; however, $4.8 million of letters of credit were outstanding, which reduces the available capacity under the PNM Facility.

At September 30, 2005, PNM also had an AR Securitization program in place with a maximum borrowing capacity of $70.0 million. There were no amounts borrowed against the AR Securitization program at September 30, 2005.

PNM has a commercial paper program under which PNM may issue up to $300.0 million in commercial paper for up to 365 days. The commercial paper is unsecured and the proceeds are used for short-term cash management needs. The PNM Facility serves as a backstop for the outstanding commercial paper. As of September 30, 2005, PNM had $114 million in commercial paper outstanding.

Financing Activities

Dividends

In June 2005, the Board of PNM declared a dividend of $80.0 million that was paid to PNMR in July 2005.

TNMP

Revolving and Other Credit Facilities

In June 2005, TNMP filed an application with the NMPRC to become a borrower and issue notes of up to $100.0 million under the PNMR Facility. In July 2005, the NMPRC issued an order approving the application, SEC approval was received in September 2005 and TNMP was added as a borrower under the PNMR Facility in September 2005. Any borrowings made by TNMP under this sublimit are not guaranteed by PNMR. At September 30, 2005, TNMP had no outstanding borrowings under the PNMR Facility.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Financing Activities

In June 2003, TNMP issued $250.0 million of 6.125% senior notes due in 2008. In May 2003, TNMP executed a $250.0 million Treasury rate lock transaction designed to manage interest rate risk associated with the issuance of the senior notes. TNMP paid $4.2 million upon the issuance of senior notes in June 2003 to settle the rate lock. Through the date of the acquisition, the cost of the rate lock was recorded in accumulated other comprehensive income and was being amortized to interest expense over the life of the senior notes. In conjunction with the acquisition of TNP by PNMR on June 6, 2005, the balance for the rate lock remaining in accumulated other comprehensive income was recorded at fair market value as of the date of acquisition in accordance with SFAS 141. The fair market value was determined to be zero and the balance of $1.7 million was charged to goodwill.

In September 2005, as part of the TNP acquisition financing, TNMP redeemed 1,090 shares of its privately held stock held by TNP at the book value of $56,888.91 per share, for a total of $62.0 million. TNP subsequently paid a cash dividend of $62.0 million to PNMR.

(7) Pension and Other Postretirement Benefit Plans

PNMR and its subsidiaries maintain a qualified defined benefit pension plan that was frozen in late 1997 with regard to new participants, a plan providing medical and dental benefits to eligible retirees, and an executive retirement program. PNMR maintains the legal obligation for the benefits owed to participants under these plans (the "PNM Plans"). TNMP also maintains a qualified defined benefit pension plan covering substantially all of its employees, a plan providing medical and death benefits to eligible retirees and an executive retirement program (the "TNMP Plans").

Participants in the PNM Plans currently include eligible employees and retirees of PNMR and other subsidiaries of PNMR. Participants in the TNMP Plans include eligible employees and retirees of TNMP, First Choice and other subsidiaries of TNP.

The total net periodic benefit cost or income from the PNM Plans, in addition to the net periodic benefit cost from the TNMP Plans from the date of PNMR's acquisition of TNP, or June 6, 2005 through September 30, 2005 is included in the consolidated statement of earnings of PNMR. The TNMP Plan amounts included in the results of PNMR are as follows: pension plan income of approximately $0.2 million, other postretirement benefit expense of approximately $0.2 million and executive retirement plan expense of less than $0.1 million.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

PNM Plans

The following table shows the net periodic benefit cost or income of the PNM Plans.

	Three Months Ended September 30,
	Pension Plan		Other Post-Retirement Benefits		Executive Retirement Program
	2005	2004	2005	2004	2005	2004
			(In thousands)
Components of Net Periodic
Benefit Cost/(Income)
Service cost	$ 477	$ 759	$ 718	$ 513	$ 16	$ 26
Interest cost	7,567	7,552	1,717	1,555	295	309
Expected return on assets	(10,042)	(9,709)	(1,329)	(1,232)	-	-
Transition obligation	-	-	-	454	-	-
Prior service cost amortization	79	79	(1,495)	(4,703)	34	38
Net loss amortization	892	888	1,549	1,271	43	33
Net Periodic Benefit Cost/(Income)	$ (1,027)	$ (431)	$ 1,160	$ (2,142)	$ 388	$ 406

	Nine Months Ended September 30,
	Pension Plan		Other Post-Retirement Benefits		Executive Retirement Program
	2005	2004	2005	2004	2005	2004
			(In thousands)
Components of Net Periodic
Benefit Cost/(Income)
Service cost	$ 1,431	$ 2,929	$ 2,008	$ 1,715	$ 48	$ 77
Interest cost	22,701	22,232	5,013	5,207	885	929
Expected return on assets	(30,126)	(29,395)	(3,965)	(3,696)	-	-
Transition obligation	-	-	-	1,363	-	-
Prior service cost amortization	237	237	(4,899)	(6,803)	102	113
Net loss amortization	2,676	3,203	4,529	3,739	129	99
Net Periodic Benefit Cost/(Income)	$ (3,081)	$ (794)	$ 2,686	$ 1,525	$ 1,164	$ 1,218

For the three months ended September 30, 2005 and 2004, PNM contributed approximately $1.5 million each period to trusts for other postretirement benefits. For the nine months ended September 30, 2005 and 2004, PNM contributed approximately $4.6 million each period to trusts for other postretirement benefits. PNM expects to make additional contributions during the remainder of 2005 totaling $1.5 million to trusts for other postretirement benefits. PNM does not anticipate making any contributions to the pension plan during 2005.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 introduced a prescription drug benefit under Medicare, named Medicare Part D. In July 2005, the Company's Board approved a resolution amending its retiree health care plan in response to Medicare Part D, effective January 1, 2006, to reimburse retirees for their Medicare Part D premium up to $35.00 per month. The effect of this change was to increase expenses by $0.4 million for the third quarter of 2005. It is expected to increase expenses approximately $1.0 million for 2005. The fair market value of the postretirement benefit obligation was actuarially determined using a measurement date of August 1, 2005 and a discount rate of 5.50%, revised from 6.00% at December 31, 2004, based on the average yield of high quality investments. The weighted average expected rate of return on plan assets was 9.0%. There is no change to the on-going measurement date of the PNM other postretirement benefit plan; it will remain December 31.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

TNMP Plans

The following table shows the net periodic benefit cost of the TNMP Plans.

	Three Months Ended September 30,
	Pension Plan		Other Post-Retirement Benefits		Executive Retirement Program
	2005	2004	2005	2004	2005	2004
			(In thousands)
Components of Net Periodic
Benefit Cost/(Income)
Service cost	$ 583	$ 469	$ 125	$ 104	$ -	$ 54
Interest cost	1,077	1,147	162	199	19	50
Expected return on assets	(1,791)	(1,573)	(104)	(88)	-	(25)
Transition obligation	-	-	-	81	-	-
Prior service cost amortization	-	(29)	-	-	-	(21)
Net loss amortization	-	-	-	-	-	39
Net Periodic Benefit Cost/(Income)	$ (131)	$ 14	$ 183	$ 296	$ 19	$ 97

	Nine Months Ended September 30,
	Pension Plan		Other Post-Retirement Benefits		Executive Retirement Program
	2005	2004	2005	2004	2005	2004
			(In thousands)
Components of Net Periodic
Benefit Cost
Service cost	$ 1,618	$ 1,407	$ 360	$ 308	$ 40	$ 161
Interest cost	3,297	3,442	496	509	103	149
Expected return on assets	(4,751)	(4,529)	(273)	(236)	-	-
Transition obligation	-	-	136	243	-	-
Prior service cost amortization	(49)	(87)	-	-	(35)	(63)
Net loss amortization	-	-	-	-	45	118
Net Periodic Benefit Cost	$ 115	$ 233	$ 719	$ 824	$ 153	$ 365

For the three months ended September 30, 2005 and 2004, TNMP contributed approximately $0.3 million per period to trusts for the other postretirement benefits. For the nine months ended September 30, 2005 and 2004, TNMP contributed approximately $0.7 million each period to trusts for the other postretirement benefits. TNMP expects to make additional contributions during the remainder of 2005 totaling $0.3 million to trusts for other postretirement benefits. TNMP does not anticipate making any contributions to the pension plan during 2005.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

In conjunction with the acquisition of TNP by PNMR on June 6, 2005, the benefit obligations for the TNMP Plans were recorded at the fair market value as of the date of acquisition in accordance with SFAS 141 and as a result, PNMR recorded an additional pension and postretirement liability of $5.5 million which increased goodwill. The fair market value of the obligations was actuarially determined using a measurement date of June 6, 2005 and a discount rate of 5.25%, revised from 5.75% at December 31, 2004, based on the average yield of high quality investments. The weighted average expected rate of return on plan assets was 9.0% for the pension and executive retirement plans and 6.9% for the other postretirement plans. There is no change to the on-going measurement date of the TNMP Plans; it will remain December 31.

(8) Commitments and Contingencies

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 consolidated financial statements. However, the Company has recorded a liability where the litigation effects can be reasonably estimated and where an outcome is considered probable. The Company does not expect that any known lawsuits, environmental costs and commitments will have a material adverse effect on its financial condition or results of operations, although the outcome of litigation, investigations and other legal proceedings is inherently uncertain.

The Company is involved in various legal proceedings in the normal course of its business. The associated legal costs for these legal matters are accrued when incurred. It is also the Company's policy to accrue for legal costs expected to be incurred in connection with SFAS No. 5, "Accounting for Contingencies" ("SFAS 5"), legal matters when it is probable that a SFAS 5 liability has been incurred and the amount of expected legal costs to be incurred is reasonably estimable. These estimates include costs for external counsel and other professional fees.

PNMR

Tax Refund Litigation

In November 2004, the United States Department of Justice filed a complaint against the Company in federal court, alleging that approximately $4.2 million of income tax refunds claimed and received for the 1998 and 1999 tax years were erroneously paid. The complaint sought return of that refund amount, plus interest, a 10% surcharge and costs. The Company filed an answer in response to the complaint denying all the material allegations.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The suit arose from refunds granted in connection with the 1998 and 1999 tax years. The refunds were claimed on amended returns filed in September 2002 and were paid by the IRS in November and December 2002. The government's complaint alleged that the Company did not correctly elect to deduct research and experimental expenses, and that certain costs did not qualify as research and experimental. Therefore, the government asserted that the Company is not entitled to the refunds. In July 2005, the Company settled with the DOJ. A joint stipulation of dismissal with prejudice was filed with the court in July 2005.

PNM

PVNGS Liability and Insurance Matters

The PVNGS participants have financial protection 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 $300.0 million and the balance by an industry‑wide retrospective assessment program. If losses at any nuclear power plant covered by the programs exceed the primary liability insurance limit, PNM could be assessed retrospective adjustments. The maximum assessment per reactor under the program for each nuclear incident is approximately $101.0 million. The retrospective assessment was subject to an annual limit of $10.0 million per reactor per incident that was increased to $15.0 million as described below under "Price-Anderson Act Renewal." Based upon PNM's 10.2% interest in the three PVNGS units, PNM's maximum potential assessment per incident for all three units is approximately $31.0 million, with an annual payment limitation of approximately $4.5 million based on the annual limit per reactor per incident of $15.0 million as discussed above. If the funds provided by this retrospective assessment program prove to be insufficient, Congress could impose revenue-raising measures on the nuclear industry to pay claims.

Price-Anderson Act Renewal

The Energy Policy Act of 2005 (see "Energy Policy Act" below in Note 9) extends the Price-Anderson Act for 20 years. The Price-Anderson Act provides for immediate, no-fault insurance coverage for the public in case of a nuclear reactor accident. It requires nuclear plant operators to purchase all the private insurance available to them (currently $300.0 million) to serve as a primary level of coverage. If this amount is insufficient to cover claims arising from an accident, companies are required to contribute to a fund that provides a secondary level of coverage. The Energy Policy Act of 2005 raises the maximum required fee at the secondary level from $63.0 million to $95.8 million per reactor, which is already reflected in the $101.0 million maximum assessment discussed under "PVNGS Liability and Insurance Matters" above, which includes a provision for legal costs, and raises the annual secondary level payout from $10.0 million to $15.0 million per reactor, adjusting the payout for inflation in the future.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Water Supply

Because of New Mexico's arid climate and current drought conditions, there is a growing concern in New Mexico about the use of water for power plants. The availability of sufficient water supplies to meet all the needs of the state, including growth, is a major issue. The Company has secured water rights in connection with the Afton, Luna and Lordsburg plants and water availability does not appear to be an issue for these plants at this time.

The Four Corners region of New Mexico, in which SJGS and Four Corners are located, experienced drought conditions during 2002 through 2004 that could have affected the water supply for the Company's generation plants. In future years, if adequate precipitation is not received in the watershed that supplies the Four Corners region, the plants could be impacted. Consequently, PNM, APS and BHP Billiton have undertaken activities to secure additional water supplies for SJGS, Four Corners and related mines. The USBR was requested to approve two supplemental contracts, one with the Jicarilla Apache Nation, PNM, and BHP Billiton for the SJGS and a second contract with the Jicarilla Apache Nation, APS and BHP Billiton for Four Corners, for a one-year term ending December 31, 2005. Approvals for the agreement have been obtained. PNM has also entered into a voluntary shortage sharing agreement with tribes and other water users in the San Juan Basin for a one-year term ending December 31, 2005. Approvals for the agreement have been obtained. Similar agreements were entered into in 2003 and 2004. PNM is also in discussion for a supplemental contract and shortage sharing agreement for 2006. Although the Company does not believe that its operations will be materially affected by the drought conditions at this time, it cannot forecast the weather situation or its ramifications, or how regulations and legislation may impact the Company's situation in the future, should the shortages occur in the future.

Conflicts at San Juan Mine Involving Oil and Gas Leaseholders

The 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. Western Gas has filed an appeal to the IBLA to contest a recent decision by BLM to allow SJCC to mine within a less restrictive distance of the existing gas wells. The Company understands that SJCC has reached a settlement in principle with Western Gas for certain wells in the mine area and that the IBLA proceeding will be dismissed. The Western settlement however, does not resolve all of Western's potential claims in the larger San Juan underground mine area. SJCC has also reached a settlement with another gas leaseholder, Burlington Resources for certain wells in the mine area. The Company cannot predict the outcome of any future disputes between SJCC and Western Gas or other gas leaseholders.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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% ownership interest in Units 4 and 5 of Four Corners.

In July 1995, the Navajo Nation enacted the Navajo Acts. The Navajo Acts 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. On October 17, 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 has stayed these proceedings pursuant to a request by the parties. In May 2005, APS and the Navajo Nation signed a Voluntary Compliance Agreement which would resolve the dispute regarding the air pollution and control acts portion of the lawsuit for the term of the Voluntary Compliance Agreement. Provided that the EPA acts consistent with the Voluntary Compliance Agreement, including delegating Clean Air Act authority to the Navajo Nation, APS will dismiss the pending claims related to the Clean Air Act.

In February 1998, the EPA issued regulations identifying those Clean Air Act provisions for which it is appropriate to treat Native American tribes in the same manner as states. The EPA has announced that it has not yet determined whether the Clean Air Act would supersede pre-existing binding agreements between the Navajo Nation and the Four Corners participants that could limit the Navajo Nation's environmental regulatory authority over Four Corners. The Company believes that the Clean Air Act does not supersede these pre-existing agreements. The Company cannot currently predict the outcome of this matter.

In April 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. In July 2000, each of the Four Corners participants filed a petition with the Navajo Supreme Court for review of the operating permit regulations. Those proceedings have been stayed, pending the settlement negotiations mentioned above. The Company cannot currently predict the outcome of this matter.

New Source Review Rules

In November 1999, the DOJ, at the request of the EPA, filed complaints against seven companies, alleging that the companies over the past 25 years had made modifications to their plants in violation of the NSR requirements and in some cases the NSPS regulations, which could result in the requirement to make costly environmental additions to older power plants. Whether or not the EPA will ultimately prevail is uncertain at this time. There have been a number of decisions regarding the pending enforcement cases against the seven companies, and some cases have been settled. Some of the decisions have ruled in favor of the EPA and others have ruled in favor of the companies. The two most recent decisions, the Alabama Power

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Company decision and the Fourth Circuit Court of Appeals decision in the Duke Energy case, accepted the legal theories advanced by the companies. In October 2005, the EPA proposed changes to its NSR permitting program for electric generating units. This proposal would establish a new emissions test for NSR based on the current NSPS hourly emission increase test. The EPA indicated in the proposal that the Fourth Circuit Court of Appeals decision in the Duke Energy case is one of the reasons for proposing these changes. At the same time the EPA announced the proposed changes, it also issued a memorandum to the EPA regions reporting that the agency's strategy to reduce emissions from coal-fired power sector is working primarily through the Clean Air Interstate Rule and the regional haze rule, and that it is time to refocus the EPA's enforcement efforts on other areas.

No complaint has been filed against PNM by the EPA, and the Company believes that all of the RMRR work undertaken at its power plants was and continues to be in accordance with the requirements of NSR and NSPS. However, in October 2000, the NMED made an information request of PNM, advising PNM that the NMED was in the process of assisting the EPA in the EPA's nationwide effort of verifying that changes made at the country's utilities have not inadvertently triggered a modification under the Clean Air Act's PSD policies. PNM has responded to the NMED information request. In June 2002, PNM received another information request from the NMED for a list of capital projects budgeted or completed in 2001 or 2002. PNM has responded to the additional NMED information request.

In December 2002, the EPA promulgated certain long-awaited revisions to the NSR rules, along with proposals to revise the RMRR exclusion contained in the regulations. In August 2003, the EPA issued its rule regarding RMRR, clarifying what constitutes RMRR of damaged or worn equipment, subject to safeguards to assure consistency with the Clean Air Act. It provides that replacements of equipment are routine only if the new equipment is (i) identical or functionally equivalent to the equipment being replaced; (ii) does not cost more than 20% of the replacement value of the unit of which the equipment is a part; (iii) does not change the basic design parameters of the unit; and (iv) does not cause the unit to exceed any of its permitted emissions limits. Legal challenges to the RMRR rule have been filed by several states; other states have intervened in support of the rule. How such challenges will ultimately be resolved cannot be predicted but an appellate court order has stayed the effect of the RMRR rule pending the outcome of the litigation. Also in late 2003 and early 2004, several groups filed petitions requesting the EPA to reconsider several aspects of the RMRR rule. In June 2005, the EPA published its decision in response to the petitions for reconsideration. EPA rejected all of the petitioner's requests and reaffirmed the RMRR rule. The Company is unable to determine the impact of this matter.

The Clean Air Act

In July 1999, the EPA published its final regional haze regulations and in May 2004, the EPA proposed revisions to the regulations and proposed guidelines for best available retrofit technology. The purpose of the regional haze regulations is to address regional haze visibility

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impairment in the 156 Class 1 areas in the nation, which consist of national parks, wilderness areas and other similar areas. The final rule calls for all states to establish goals and emission reduction strategies for improving visibility in all the Class 1 areas. These rules were litigated, and in 2002 portions of the rule were vacated and remanded. In early 2005, the United States Court of Appeals for the District of Columbia Circuit found that the EPA's Western Regional Air Partnership Annex regulation, an optional alternative approach for western states, was illegal. In June 2005, the EPA issued the Clean Air Visibility Rule. This rule addressed the issues that were vacated and remanded in 2002. The EPA issued a proposed rule in the summer of 2005 to address the Western Regional Air Partnership Annex rule that had been successfully challenged in the United States Court of Appeals for the District of Columbia Circuit. The proposed rule addresses alternative strategies to accomplish the requirements of the regional haze rule.

The Company cannot predict at this time what the impact of the implementation of the regional haze rule will be on the Company's coal-fired power plant operations. Potentially, additional sulfur dioxide emission reductions and nitrogen oxide emission reductions could be required. The nature and cost of compliance with these potential requirements cannot be determined at this time. However, the Company does not anticipate any material adverse impact on its financial condition or results of operations.

Citizen Suit Under the Clean Air Act

The GCT filed a citizen suit in federal district court in New Mexico against PNM (but not against the other SJGS co-owners) in May 2002. The suit alleged two violations of the Clean Air Act and related regulations and permits. First, GCT argued that the plant had violated the federal PSD rules, as well as the corresponding provisions of the New Mexico Administrative Code, at SJGS Units 3 and 4. Second, GCT alleged that the plant had "regularly violated" the 20% opacity limit contained in SJGS's operating permit and set forth in federal and state regulations at Units 1, 3 and 4. The lawsuit sought penalties as well as injunctive and declaratory relief. PNM denied the material allegations in the complaint.

By letter dated April 29, 2004, GCT provided a notice of intent to sue as a jurisdictional prerequisite to filing another citizens' suit under the Clean Air Act. The notice of intent contained allegations that PNM continued to violate the applicable opacity standard for SJGS Units 1, 3 and 4 following the filing of the suit above, that PNM violated its duty to operate SJGS in a manner consistent with good air pollution control practices for minimizing pollution and that PNM failed to properly report emissions deviations and certify compliance with applicable air emissions standards.

By order of the court, PNM and GCT entered into settlement discussions. The discussions were expanded to include the NMED to address the "Excess Emission Reports" disclosed below. In March 2005, PNM entered into a consent decree with the NMED and GCT which was approved by the court in May 2005. Under the terms of the consent decree, PNM

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and other plant owners will invest more than $200.0 million in new pollution control technology. The capital costs of the technology are currently estimated to be at least $140.0 million, with an additional $70.0 to $80.0 million estimated for operating and maintenance costs over the next 10 years. PNM is continuing to work with its consultants and project engineers to refine the costs so that the consent decree is complied with in the most economical, efficient and effective manner. PNM's portion of costs will be approximately 47% of the total capital and operating costs. In addition, the consent decree provides that stipulated penalties are payable to the NMED if SJGS emissions exceed specified quarterly averages over the course of a calendar year. PNM cannot predict the specific amount of potential liability for any stipulated penalties until the end of 2005. The consent decree resolves the foregoing lawsuit, the notice of intent, and certain threatened air quality claims by the NMED (see "Excess Emissions Reports" below). PNM plans to file for an air permit with the NMED prior to starting construction on certain new equipment required by the consent decree. The issue of the plaintiffs' attorney fees and costs has been resolved.

Four Corners Air Emissions

The GCT, Sierra Club and National Parks Conservation Association, petitioned the EPA to issue a FIP and a final Title V operating permit to regulate air emissions from Four Corners. The FIP has been pending at the EPA since 1999, and the petition seeks to speed up the process of issuance. The Company is unable to predict the outcome of this proceeding, but does not anticipate any material adverse impact on PNMR's or PNM's financial condition or results of operations. APS is the operator of Four Corners, and PNM will continue to monitor developments in this proceeding.

Excess Emissions Reports

As required by law, whenever there are excess emissions from SJGS, due to such causes as start-up, shutdown, upset, breakdown or certain other conditions, PNM makes filings with the NMED. For several years, PNM had been in discussions with NMED concerning excess emissions reports for the period after January 1997. In May 2004, the NMED issued a "draft" compliance order that included allegations that SJGS violated certain applicable air quality limitations. This matter was resolved in conjunction with the GCT settlement described above under "Citizen Suit Under the Clean Air Act."

Archaeological Site Disturbance

PNM hired Great Southwestern to conduct certain climb and tighten activities on a number of electric transmission lines in New Mexico during 2001. Those lines traverse a combination of federal, state, tribal and private properties in New Mexico. In late May 2002, the USFS notified PNM that apparent disturbances to archeological sites had been discovered in and around the rights-of-way for PNM's transmission lines in the Carson National Forest in

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New Mexico. Great Southwestern had performed climb and tighten activities on those transmission lines.

PNM confirmed the existence of the disturbances, as well as disturbances associated with certain arroyos that may raise issues under the Clean Water Act. PNM contracted for an archeological assessment and a proposed remediation plan with respect to the disturbances and has provided the assessment to the USFS and the federal Bureau of Land Management. The Santa Fe National Forest issued a notice of non-compliance to PNM for alleged non-compliance with the terms and conditions of PNM's special use authorization relating to maintenance of PNM's power lines on USFS land.

In June 2004, PNM and Great Southwestern entered into a letter agreement with the NNHPD for a survey of potential impacts on Navajo Nation land to determine if disturbed cultural resources exist. Under the terms of the June 2004 letter agreement, the NNHPD agreed to release all claims against PNM and Great Southwestern for any impacts on Navajo Nation land arising from the climb and tighten project. PNM provided survey reports to the NNHPD that were accepted by the Navajo Nation in October 2005 and the Company was notified that the NNHPD has determined that damage resulting from the climb and tighten project was minimal and a treatment plan will not be necessary. The NNHPD and the Navajo Nation Division of Natural Resources are of the opinion that PNM has complied fully with the stipulations set forth in the June 2004 letter, and as such, NNHPD requires no further work from PNM or Great Southwestern.

Santa Fe Generating Station

PNM and the NMED conducted investigations of gasoline and chlorinated solvent groundwater contamination detected beneath PNM's former Santa Fe Generating Station site 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 August 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. PNM will continue to operate the remediation facilities until the groundwater is cleaned up to 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.

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In September 2003, PNM was verbally informed that the Superfund Oversight Section of the NMED is conducting an investigation into the chlorinated solvent contamination in the vicinity of the former Santa Fe Generating Station site. The investigation will study possible sources for the chlorinated solvents in the groundwater. The NMED investigation is ongoing.

Natural Gas Royalties Qui Tam Litigation

In 1999, a complaint was served alleging violations of the False Claims Act by PNM and its subsidiaries, Gathering Company and Processing Company (collectively, the "Company" for purposes of this discussion), by purportedly failing to properly measure natural gas from Federal and tribal properties in New Mexico, and consequently, underpaying royalties owed to the Federal government. A private relator is pursuing the lawsuit. The complaint was served after the DOJ declined to intervene to pursue the lawsuit. The complaint seeks actual damages, treble damages, costs and attorneys fees, among other relief.

The Company is currently participating with other defendants in a motion to dismiss on the ground that the relator does not meet certain jurisdictional requirements for bringing suit under the False Claims Act. In May 2005, a Special Master issued a report that recommended to the court that several defendants, including the Company, be dismissed from the case on this ground. The relator has objected to the Special Master's recommendation regarding the Company. The Chief Judge of the federal district court for the District of Wyoming will hear and rule on the objection. The Company is vigorously defending this lawsuit. If the Special Master's recommendation regarding dismissal of the Company on jurisdictional grounds is not sustained, the Company is unable to estimate the potential liability, if any, or to predict the ultimate outcome of this lawsuit.

Asbestos Cases

PNM was named in 2003 as one of a number of defendants in 21 personal injury lawsuits relating to alleged exposure to asbestos. All of these cases involve claims of individuals, or their descendents, who worked for contractors building, or working at, PNM power plants. Some of the claims relate to construction activities during the 1950s and 1960s, while other claims generally allege exposure during the last 30 years. PNM has never manufactured, sold or distributed products containing asbestos. PNM has been dismissed with prejudice from all but two of the remaining cases. PNM was insured by a number of different insurance policies during the time period at issue in these cases. Although the Company is unable to fully predict the outcome of this litigation, the Company believes that these legal proceedings will not have a material impact on its financial condition.

SESCO Matter

In October 2003, the TCEQ requested information from PNM concerning any involvement that PNM had with SESCO, a former electrical equipment repair and sales company located in San Angelo, Texas. PNM was informed that the TCEQ and the EPA claim to have identified contamination of the soil and groundwater at the site.

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TCEQ is conducting a site investigation of a SESCO facility pursuant to the Texas Solid Waste Act and the SESCO site has been referred to the Superfund Site Discovery and Assessment Program. The primary concern appears to be polychlorinated biphenyls in soil and groundwater on and adjacent to the site. The TCEQ is conducting the site investigation to determine what remediation activities are required at the SESCO site and to identify potentially responsible parties. In January 2004, PNM submitted its preliminary response to the TCEQ request for information. The response states that PNM previously had a requirements contract with SESCO for the repair of electric transformers. It appears that a number of transformers were sent to SESCO for repair. In addition, it appears that PNM sold a number of retired transformers to SESCO. An informational meeting took place in Austin, Texas in April 2004 where the status of the SESCO site and the possible establishment of a potentially responsible parties' committee was discussed. In February 2005, PNM agreed to participate in the potentially responsible parties' committee known as the "Working Group". PNM is voluntarily participating with the others in the investigation and may participate in any required remediation at the SESCO facility. Common counsel was recently hired to represent the common interests of the members of the Working Group. The Working Group's investigation into persons and entities that sent transformers and other equipment to SESCO is ongoing. In addition, the Working Group sent a request for proposal for an environmental contractor to perform a remedial investigation and assessment study for the SESCO site and is currently reviewing responses. PNM is still investigating its role in the matter, and is unable to predict the outcome at this time. As discussed below, TNMP is also involved in the SESCO matter.

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. PNM and SJCC have been participating in various sessions sponsored by EPA to consider rulemaking for the disposal of coal combustion products. The rulemaking would be pursuant to the Bevill Amendment of the Resource Conservation and Recovery Act. PNM cannot predict the outcome of this matter but does not believe currently that it will have a material adverse impact on the financial condition of the Company or its operations.

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. However, since the third quarter of 2001, conditions in the Western wholesale power market have changed substantially because of regulatory actions, conservation measures, the construction of additional generation, a decline in daily natural gas prices relative to levels reached during the California energy crisis and regional economic conditions.

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As a result of the foregoing 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 and other California buyers filed a complaint with the FERC in 2000 against sellers into the California wholesale electric market. Hearings were held in September 2002, and the ALJ issued the "Proposed Findings on California Refund Liability" in December 2002, in which it was determined that the Cal ISO had, for the most part, correctly calculated the amounts of the potential refunds owed by sellers. The ALJ identified what were termed "ballpark" figures for the amount of refunds due under the order in an appendix to the proposed findings document. Pursuant to the FERC's order, PNM filed, in conjunction with the competitive supplier group, initial comments in January 2003 to the ALJ's preliminary findings addressing errors the Company believes the ALJ made in the proposed findings, and filed reply comments in February 2003.

Prior to the December 2002 ALJ decision, the Ninth Circuit ordered the FERC to allow the parties in the case to provide additional evidence regarding alleged market manipulation by sellers. Several California parties submitted additional evidence in March 2003 to support their position that virtually all market participants, including PNM, either engaged in specific market manipulation strategies or facilitated such strategies. PNM maintains that it did not engage in improper wholesale activities, and filed reply evidence in March 2003, denying the allegations against it.

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during the refund period. 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 other competitive 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 California Cal ISO and Cal PX markets during the refund period. PNM's cost recovery filing is still pending before FERC. In addition, the Company has engaged in discussions with California parties based upon a template provided by FERC, but is unable to predict whether settlement will be reached.

In September 2004, the Ninth Circuit issued its decision in one of the lead appellate cases addressing the FERC's refund order. The Ninth Circuit upheld the FERC's authority to establish the market-based rate framework under the Federal Power Act, but held that the FERC violated its administrative discretion by declining to investigate whether it should order refunds from sellers who failed to provide transaction-specific reports to the FERC as required by its rules. The Ninth Circuit determined that the FERC has the authority to order refunds for these transactions if it elects to do so and remanded the case to the FERC for further proceedings, including a determination as to whether additional refunds are appropriate. PNM participated with other competitive sellers requesting rehearing by the Ninth Circuit, which is still pending. Additional appeals are still pending before the Ninth Circuit, including CPUC vs FERC, a case addressing the scope of market transactions subject to refund. PNM has participated in this appeal as one of the members of the competitive sellers group. The Company cannot predict the ultimate outcome of any FERC proceeding that may result from these appeals, or whether PNM will be ultimately directed to make any additional future refunds as the result of the decision; however, the Company has recorded a reserve for this contingency.

Pacific Northwest Refund Proceeding

In addition to the California refund proceedings, Puget Sound Energy, Inc. filed a complaint at the FERC alleging that spot market prices in the Pacific Northwest wholesale electric market were unjust and unreasonable. In September 2001, the ALJ issued a recommended decision and declined to order refunds associated with wholesale electric sales in the Pacific Northwest. In a ruling similar to the one issued in the California refund proceeding, the FERC allowed additional discovery to take place and the submission of additional evidence in the case in March 2003. In June 2003, the FERC issued an order terminating the proceeding and adopting the ALJ's recommendation that no refunds should be ordered. Several parties in the proceeding filed requests for rehearing and in November 2003, the 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. In November 2003, the Port of Seattle filed an appeal of the FERC's order denying rehearing in the Ninth Circuit, which is still pending. As a participant in the proceedings before the FERC, PNM is also participating in the appeal proceedings. The Ninth Circuit had originally scheduled oral arguments in the appeal for

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September 2005, but subsequently continued the oral argument after moving the case to a different panel of judges than those originally assigned. The Company is unable to predict the ultimate outcome of this appeal, or whether PNM will ultimately be directed to make any refunds.

FERC Show Cause Orders

The FERC initiated a market manipulation investigation, partially in response to the bankruptcy filing of the Enron Corporation and to allegations that Enron Corporation may have engaged in manipulation of portions of the Western wholesale power market. In connection with that investigation, all sellers into Western electric and gas markets were required to submit data regarding short-term transactions in 2000-2001. In March 2003, the FERC staff issued its final report, which addressed various types of conduct that the FERC staff believed may have violated market monitoring protocols in the Cal ISO and Cal PX tariffs. Based on the final report, the FERC issued orders to certain companies, including Enron Corporation, requiring them to show cause why the FERC should not revoke their authorizations to sell electricity at market-based rates. In addition, the FERC staff recommended that the FERC issue orders requiring certain entities to show cause why they should not be required to disgorge profits associated with conduct deemed to violate the Cal ISO and Cal PX tariffs, or be subject to other remedial action.

In June 2003, the FERC issued two separate orders to show cause against PNM and over sixty other companies. In the first order, the Gaming Practices Order, the FERC asserted that certain entities, including PNM, appeared to have participated in activities that constitute gaming and/or anomalous market behavior in violation of the Cal ISO and Cal PX tariffs during the period January 1, 2000 to June 20, 2001. Specifically, PNM is alleged to have engaged in a practice termed "False Import," which the FERC defined as the practice of exporting power generated by California and then reimporting it into California in order to avoid price caps on energy generated in California. These allegations are based primarily on an initial Cal ISO report and the additional evidentiary submission by California parties. The Cal ISO was ordered to submit additional information on which the entities subject to the Show Cause Order should respond. For PNM, the potential disgorgement for alleged "False Import" transactions covers the period May 1, 2000 to October 1, 2000. After review of the additional Cal ISO data and consultation with PNM, the FERC trial staff filed a motion to dismiss PNM from the case in August 2003. In September 2003, the California parties filed their objection to the dismissal of PNM from the case. In January 2004, the FERC issued an order granting trial staff's motion to dismiss PNM from the Gaming Practices docket on grounds that the FERC staff's investigation did not reveal that PNM engaged in the practice of "False Import." As a result, the Company has been dismissed from the Gaming Practices proceedings.

In the second order to show cause, the Gaming Partnerships Order, the 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

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in violation of the Cal ISO and Cal PX tariffs during the period January 1, 2000 to June 20, 2001. Specifically, PNM is alleged to have entered into "partnerships, alliances or other arrangements" with thirteen of its customers that allegedly may have been used as market manipulation schemes. The precise basis for certain of the FERC's allegations is not clear from the Gaming Partnerships Order, although it appears that most arise out of PNM's provision of "parking and lending" services to the identified companies. The potential remedies include disgorgement of unjust profits, as well as non-monetary remedies such as revocation of a seller's market-based rate authority.

In September 2003, PNM filed its responses to the Gaming Partnerships Order indicating that it did not engage in the alleged "partnerships, alliances or other arrangements" with the alleged parties. In October 2003, PNM filed testimony and exhibits in the case reasserting its response previously filed. In January 2004, the 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. In February 2004, the FERC staff and the California parties filed testimony in the case. The FERC staff did not identify any improper conduct by PNM. The California parties alleged that PNM provided false information regarding parking transactions that allowed other parties to game the California market. In March 2004, the 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 May 2004, the Chief ALJ issued an order suspending the procedural schedule in the docket pursuant to the California parties' request to enable the parties to engage in settlement discussions of all matters related to the "California energy crisis." In September 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 either engaged in a gaming practice that violated the Cal ISO or Cal PX tariffs by directly transacting through the Cal ISO or Cal PX markets, or shared any unjust profits earned by PNM's customers that may have engaged in gaming practices. Additionally, 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 the FERC to obtain satisfaction of all issues related to any potential liability stemming from the provision of such services historically. In October 2004, the California parties filed their opposition to the motion to dismiss and settlement. Both PNM and the FERC staff made filings in which they vigorously supported the motion to dismiss PNM from the docket and the settlement reached with the FERC staff. In July 2005, the FERC issued its order granting the staff's motion to dismiss PNM from the Gaming Partnerships docket. In its order, the FERC agreed with its trial staff's assessment of the record in the case and found that PNM did not engage in prohibited gaming practices as defined in the FERC's Gaming Partnership Order during the relevant time period. The FERC also approved the settlement on the parking and lending services, finding that the

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settlement covered matters that were beyond the scope of matters set for hearing as part of the Gaming Partnerships Order. The FERC also denied the California parties' request to keep the docket open as to PNM and terminated the PNM docket. In August 2005, as anticipated, the California parties filed their petition for rehearing at the FERC objecting to the 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.

California Power Exchange and Pacific Gas and Electric Bankruptcies

In January and February 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 approximately $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 the 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 a determination by the FERC setting the level of claims and allocating the funds.

California Attorney General Complaint

In March 2002, the California Attorney General filed a complaint with the FERC against numerous sellers regarding prices for wholesale electric sales into the Cal ISO and Cal PX markets and to the California Department of Water Resources. PNM was among the sellers identified in this complaint and filed its answer and motion to intervene. In its answer, PNM defended its pricing and challenged the theory of liability underlying the California Attorney General's complaint. In May 2002, the FERC entered an order denying the California Attorney General's request to initiate a refund proceeding, but directed sellers, including PNM, to comply with additional reporting requirements with regard to certain wholesale power transactions. PNM has made filings required by the May 2002 order. The California Attorney General filed a petition for review in the Ninth Circuit. PNM intervened in the Ninth Circuit appeal and participated as a party in that proceeding. As noted above, in September 2004, the Ninth Circuit issued its decision upholding the FERC's authority to establish the market-based rate framework under the Federal Power Act, but held that the FERC violated its administrative discretion by declining to investigate whether it should order refunds from sellers who failed to provide transaction-specific reports to the FERC as required by its rules. The Ninth Circuit determined that the FERC has the authority to order refunds for these transactions if it elects to do so and remanded the case back to the FERC for further proceedings, including a determination as to whether additional refunds are appropriate. PNM participated with other competitive sellers requesting rehearing en banc by the Ninth Circuit, which is still pending.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company cannot predict the ultimate outcome of the FERC proceeding on remand, or whether PNM will be ultimately directed to make any additional refunds as the result of the decision.

California Antitrust Litigation

Several class action lawsuits have been filed in California state courts against electric generators and marketers, alleging that the defendants violated the law by manipulating the market to grossly inflate electricity prices. Named defendants in these lawsuits include Duke Energy Corporation and related entities along with other named sellers into the California market and numerous other unidentified defendants. Certain of these lawsuits were consolidated for hearing in state court in San Diego, California. In May 2002, the named defendants served a cross-claim on PNM. Duke Energy Corporation also cross-claimed against many of the other sellers into California. Duke Energy Corporation asked for declaratory relief and for indemnification for any damages that might ultimately be imposed on it. Several defendants removed the case to federal court in California. The federal judge has entered an order remanding the matter to state court, but the effect of that ruling has been stayed pending appeal. PNM has joined with other cross-defendants in motions to dismiss the cross-claim. In September 2005, PNM received an indication that Duke Energy Corporation intends to dismiss all cross-complaints against other sellers once its maximum liability is confirmed by final approval of its settlement in the class action lawsuits. The Company believes it has meritorious defenses to the cross-complaints filed against it, but cannot predict if settlement will result in dismissal of the cross-complaints or the outcome of this matter should the settlement not be approved.

In May 2005, the California Attorney General filed a lawsuit against PNM, PowerEx, a Canadian energy trading company, and the Colorado River Commission, in California state court alleging that PNM and PowerEx conspired to engage in unfair trade practices involving overcharges for electricity in violation of California state antitrust laws. The lawsuit claims that California customers were overcharged over a billion dollars and requests the court to award actual and treble damages. In June 2005, PowerEx filed a Notice of Removal that served to remove the lawsuit to the Federal District Court for the Eastern District of California. Both PNM and PowerEx filed motions to dismiss the lawsuit in June 2005, on grounds that the California Attorney General's lawsuit is preempted by federal law and even as to the allegations under California state law, failed to state a claim for which relief can be granted. PNM and PowerEx rely upon legal precedent in the Ninth Circuit holding that state antitrust claims asserting unlawful wholesale power prices under the Federal Power Act are preempted and a complainant's only remedy lies in FERC proceedings. Such proceedings are already currently pending at the FERC and the California Attorney General is already heavily involved in these proceedings. The Company's motion to dismiss is still pending as well as the California Attorney General's motion to remand the case back to state court, which both PNM and PowerEx have opposed. The Company cannot predict the outcome of this litigation, or whether the Company will be required to make any refunds or pay damages as a result of this litigation.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Block Forward Agreement Litigation

In February 2002, PNM was served with a declaratory relief complaint filed by the State of California in California state court. The state's declaratory relief complaint seeks a determination that the state is not liable for its commandeering of certain energy contracts known as "Block Forward Agreements". The Block Forward Agreements were a form of futures contracts for the purchase of electricity at below-market prices and served as security for payment by PG&E and SCE for their electricity purchases through the Cal PX. When PG&E and SCE defaulted on payment obligations incurred through the Cal PX, the Cal PX moved to liquidate the Block Forward Agreements to satisfy in part the obligations owed by PG&E and SCE. Before the Cal PX could liquidate the Block Forward Agreements, the State of California commandeered them for its own purposes. In March 2001, PNM and other similarly situated sellers of electricity through the Cal PX filed claims for damages with the California Victims Compensation and Government Claims Board (the "Victims Claims Board" for purposes of this discussion) on the theory that the state, by commandeering the Block Forward Agreements, had deprived them of security to which they were entitled under the terms of the Cal PX's tariff. The Victims Claims Board denied PNM 's claim in March 2002. PNM filed a complaint against the State of California in California state court in September 2002, seeking damages for the state's commandeering of the Block Forward Agreements and requesting judicial coordination with the state's declaratory relief action filed in February 2002 on the basis that the two actions raise essentially the same issues. The California state court judge delayed establishing a procedural schedule for the case pending a determination of the Cal PX's status in the litigation. The judge has since held that the Cal PX could represent the interests of Cal PX participants in the litigation. In March 2004, both the Cal PX and the State of California filed demurrers against each other's actions, alleging each other's actions failed to state a cause of action and that the issues raised in the other's case were identical to the issues raised in their own cases. In a hearing held in April 2004, the judge determined not to rule on the demurrers until the specific market participants named in the declaratory action proceeding affirmatively determined whether they would agree to be bound by any judgment reached in the Cal PX complaint action. As a result of the judge's order issued in May 2004, the various parties in the case were presented with a proposed stipulation under which the sellers would agree that the Cal PX would represent their interest in the proceedings, the sellers would agree to be bound by any judgment in the case, the sellers would dismiss their complaints against the State of California, and in turn, the State of California would dismiss its cross-complaints against the sellers, and the Cal PX would amend its complaint to indicate that it is bringing the lawsuit on behalf of the sellers. PNM agreed with the stipulation and executed the stipulation agreement. The Company cannot predict the outcome of the litigation involving the Cal PX and the State of California, or whether PNM will be awarded any damages as a result of the litigation.

In separate proceedings before the FERC involving the collection of costs associated with the Cal PX wind-up activities, the subject of the Block Forward Agreement litigation has become an element of the ongoing settlement discussions. If the terms of the settlement are accepted by the parties in the wind-up costs proceedings, California market participants,

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

including PNM, will have the option to opt-in to voluntarily agree to continue funding on a going-forward basis the expenses associated with the block forward agreement litigation. Alternatively, market participants could agree to take an assignment of the Cal PX's claim and they could then continue to prosecute the claim with the condition that any recovery that may ultimately be achieved would be deposited into a FERC account for distribution as the FERC deems appropriate. In the event that none of the parties opt-in to fund the litigation or no assignment of the claim is made, then the Cal PX must dismiss the claim with prejudice. The parties to the Cal PX wind-up costs proceedings at the FERC did include, as part of the settlement terms, the opt-in provisions for purposes of funding the Block Forward Agreement litigation and filed the settlement proposal containing such provisions in September 2005. In October 2005, the FERC issued its order accepting the Cal PX wind-up settlement, including the provisions setting out the opt-in settlement provisions for the Block Forward Agreement.

Wholesale Power Marketing Antitrust Suit

In June 2004, PNM received notice that PNM has been included in a list of 56 defendants that have been sued by the City of Tacoma Department of Public Utilities in federal district court in the State of Washington. PNM has been listed in a class of defendants referred to as the "Trading Defendants", who allegedly engaged in buying, selling and marketing power in California and other locations in the Western United States. The complaint alleges the Trading Defendants acted in concert among themselves and with "Non-Defendant Trading Co-Conspirators" that were engaged in conduct that amounted to market manipulations, which the complaint defines as a pattern of activities that had the purpose and effect of creating the impression that the demand for power was higher, the supply of power was lower, or both, than was in fact the case. The complaint identified specific conduct that allegedly amounted to market manipulations, including the submission of false information and misrepresentation regarding load schedules, bids, power supply, transmission congestion, source and destination of energy, the supply and provision of energy and ancillary services. The complaint alleged the activities of the Trading Defendants, along with "Generator Defendants", who are defined as generators who generated power for sale into California and other Western markets, and the co-conspirators, resulted in substantially increased prices for energy in the Pacific Northwest spot market in excess of what otherwise would have been the price absent such unlawful acts, in violation of antitrust laws. The complaint asserted damages in excess of $175.0 million from the multiple defendants. There have been three recent Ninth Circuit decisions that, collectively, appear to make Plaintiffs' case more difficult to prevail. As a result, PNM joined a motion to dismiss the City of Tacoma Department of Public Utilities complaint given Ninth Circuit precedent. In a decision issued in February 2005, the district court judge in the case granted defendants' motion to dismiss. As a result, the antitrust lawsuit against PNM filed by the City of Tacoma Department of Public Utilities was dismissed. In March 2005, the City of Tacoma Department of Public Utilities filed an appeal in the Ninth Circuit contesting the district court's decision to dismiss the complaint. PNM participated in the appeal in support of the dismissal and joined in defendants' brief filed in the Ninth Circuit, as well as a motion for summary affirmance. The appeal and defendants' motion for summary affirmance of the district court is

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

pending before the Ninth Circuit and the Company cannot predict the outcome of this appeal, or whether PNM will be required to make any refunds or pay damages as a result of this litigation.

FERC Rule Making

Over the past several years, the FERC has issued numerous rules that have impacted the wholesale energy business. The FERC is attempting to remedy what it sees as undue discrimination in the provision of interstate transmission services and to ensure just and reasonable rates for electric energy within and among regional power markets.

In addition, the FERC has issued final rules that have an impact on the wholesale energy business and participants in the wholesale energy markets, including PNM. In August 2003, the FERC issued Order 2003, which requires electric utilities that own or control electric transmission facilities to set out standard procedures and a standard agreement for interconnecting generators larger than 20 MW, and to make such revisions as necessary to its OATT to comply with the requirements of the new rule. PNM made its initial compliance filing in January 2004 and, in September 2004, PNM received notice that its revised tariff filing was accepted by the FERC. In December 2004, the FERC issued Order 2003-B, which provided additional clarification on certain matters and required additional modifications to the pro forma tariff. PNM joined an industry group requesting rehearing of Order 2003-B, and also separately filed its petition for rehearing of Order 2003-B, both of which are still pending before the FERC. In February 2005, PNM made its compliance filing pursuant to Order 2003-B. In March 2005, PNM received notice that its compliance filing was accepted by FERC. In July 2005 the FERC issued Order 2003-C, in which it affirmed, with certain clarifications, the fundamentals in the FERC Order 2003-B, and denied PNM's petition for rehearing. In addition, in May 2005, the FERC issued a rulemaking, designated as Order 2006, in which it established the requirement for public utilities to amend their OATTs to include the FERC's standardized procedures for interconnecting small generators, no larger than 20 MW. Order 2006 states that the OATTs of all non-independent transmission providers are deemed revised to include the procedures and no formal OATT amendment will be required until compliance is due in the FERC's rulemaking on electronic tariff filings, which is still pending.

In April 2004, the FERC announced the establishment of a new interim two-pronged market power screen to be applied in market based rate cases. In May 2004, the FERC issued procedural orders in pending market based rate application/renewal cases, including PNM's case, requiring the use of the new two-pronged interim screen and requiring PNM to make its revised market based rate filing by August 2004. In July 2004, the FERC issued an order affirming its interim two-pronged market screen test. PNM filed its triennial market power screen analyses in August 2004 utilizing the new two-pronged interim screen as required by the FERC's order. In its filing, PNM noted that, although fewer in nature due to recent system improvements, it continued to face transmission constraints in Northern New Mexico and would continue to abide by the cost-based rate limitation on transmission service during times

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

of transmission constraints for the Northern New Mexico market. PNM also noted that for the EPE control area, PNM's wholesale market share screen was slightly above 20% during two seasons. In October 2004, PNM made a supplemental filing utilizing more detailed load and generation data contained in EPE's market power screen filing, which resulted in PNM having a revised wholesale market share result below 20% for all seasons. In December 2004, the FERC issued its order in PNM's market based rate filing finding that the FERC is initiating a proceeding to determine if PNM's mitigation measure in Northern New Mexico is sufficiently adequate to prevent the exercise of market power. The FERC's order also required additional explanation of PNM's revised wholesale market share calculation. PNM filed a petition for rehearing contesting the FERC's findings regarding the EPE control area, and arguing that PNM lacks generation market power in Northern New Mexico given the transmission access available to transmission customers in that market and the pre-existing mitigation measure that FERC previously approved in 1996. The FERC also established that rates reviewed under this proceeding for transactions completed in these two markets would be subject to refund effective March 6, 2005. The Company is currently reviewing alternatives for resolution of the issues with the FERC. It is unclear whether resolution will include a requirement for refunds.

In February 2005, PNM made its compliance filing, in which the Company's expert presented various revised screen analyses for the EPE control area and concluded that the FERC should continue to permit PNM to make sales at market-based rates in that control area. The analyses showed that the screen failures disappear when the input data reflect the realities of economic and physical conditions in the Southern New Mexico market. PNM was of the view that the screen failure scenarios do not warrant the conclusion that PNM possesses generation market power in EPE's control area.

PNM's expert further concluded that the FERC should continue to permit PNM to make sales at market-based rates in PNM's Northern New Mexico control area, subject to the existing mitigation provision contained in PNM's market-based sales tariff. PNM's expert concluded that PNM does not have the potential to exercise generation market power because customers enjoy access to robust markets during the hours that concerned the FERC, and given that the pre-existing mitigation would prevent any exercise of generation market power in the event of transmission constraints. PNM's expert also concluded that, if the FERC determines that PNM should not be permitted to sell at market-based rates in its Northern New Mexico control area, the FERC nevertheless should permit PNM to sell at market-based rates at San Juan because San Juan is outside the transmission constraint path. In March 2005, EPE filed a motion in the proceeding expressing concern that PNM may have market power in the Southern New Mexico market and requesting the FERC to impose a price mitigation mechanism for PNM sales to EPE in Southern New Mexico. PNM filed its response contesting EPE's claim that PNM has market power in the Southern New Mexico market and opposing EPE's proposed mitigation measure. PNM, in April 2005, also filed a motion for appointment of a settlement judge in an effort to reach resolution on the issues pending in the proceeding.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

In April 2005, the FERC issued an Order denying PNM's petition for rehearing regarding the FERC's finding that the existing mitigation measure for the Northern New Mexico control area was insufficient; rejecting PNM's February 2005 compliance filing as to both the Northern and Southern New Mexico control areas and requiring PNM to submit a compliance filing containing one of the alternatives listed in the Order; and denying PNM's motion for assignment of a settlement judge. The FERC's Order also clarified that market based sales made at SJGS are sales made within PNM's Northern control area and are subject to these proceedings. Also, in June 2005, PNM filed a petition for judicial review of the FERC's December 2004 and April 2005 orders in the United States Court of Appeals for the District of Columbia Circuit. In its appeal, PNM requests the court to review the legality of the FERC's orders. In July 2005, PNM made its compliance filing at the FERC. The filing indicated that, as a result of the completion of its analysis pursuant to the FERC's order, PNM did show failures in its own control area, but did not show failures in the EPE control area, with the exception of one measure. The Company maintained its position that when the historical data is considered, it is clear that PNM does not possess generation market power in either the PNM or EPE control area destination markets and it should maintain its market-based sales authority in those markets. In the event the FERC does not so find, PNM also proposed mitigation measures in both the PNM and EPE control area destination markets that will be applicable during the limited time periods when the failures occurred. EPE filed comments in response to PNM's filing in August 2005, to which PNM filed a subsequent reply. EPE then proceeded to file an objection to PNM's response in September 2005. The Company cannot predict the outcome of the additional FERC proceedings on the Company's financial position or results of operations; however, should the FERC determine that PNM has generation market power in these two markets, PNM could continue to make sales at cost-based or otherwise mitigated rates and thus not have future revenues subject to refund in this matter. The Company also cannot predict the outcome of the court appeal of the FERC's prior orders.

In July 2005, the FERC issued an order terminating its proceeding on standard market design, stating that since issuance of the standard market design notice of proposed rulemaking, the electric industry has made significant progress in the development of voluntary RTOs/ISOs which has allowed interested parties, through region-specific proceedings, to shape the development of independent entities to reflect the needs of each particular region. In September 2005, the FERC issued a Notice of Inquiry on Preventing Undue Discrimination and Preference in Transmission Services seeking information from the industry regarding the provisions of the OATT for possible revision in a future rulemaking. The Company intends to monitor and participate in this FERC Notice of Inquiry, as well as the future rulemakings arising out of the matters addressed in this docket.

TNMP

SESCO Matter

As discussed above in the PNM "SESCO Matter," in October 2003, the TCEQ notified approximately 50 companies, including TNMP, that releases of hazardous substances had been

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

documented from a site owned and operated by SESCO. TNMP purchased transformers from the vendor and also sent some transformers to the vendor for repair and/or disposal. The owner and operator of the site have filed for bankruptcy and the site is under the control of the bankruptcy trustee. In August 2004, 15 of the companies identified by TCEQ as potentially responsible parties, including TNMP, formed the initial Working Group to manage the remediation efforts and determine the allocation of responsibility among the potentially responsible parties. Common counsel was recently hired to represent the common interests of the members of the Working Group. The Working Group's investigation into persons and entities that sent transformers and other equipment to SESCO is ongoing. In addition, the Working Group sent a request for proposal for an environmental contractor to perform a remedial investigation and assessment study for the SESCO site and is currently reviewing responses. TNMP is still investigating its role in the matter, and is unable to predict the outcome at this time.

TNMP True-Up Proceeding

In July 2004, the PUCT issued its first order in TNMP's stranded cost 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. The PUCT decision established $128.4 million as TNMP's stranded costs and allowed TNMP to recover $87.3 million of the $266.5 million that TNMP requested for its true-up balance.

In August 2004, TNMP filed a motion for rehearing of the PUCT decision. In October 2004, the PUCT denied all of TNMP's motions for rehearing except for an issue related to a June 2004 Texas Supreme Court ruling that addressed recovery of carrying charges on recoverable stranded costs back to January 1, 2002, the date that competition began in Texas.

In March 2005, the PUCT administrative law judge issued a proposal for decision on the remanded interest issue. The decision recommended that TNMP be allowed recovery of $41.7 million of carrying charges on stranded costs for the period January 1, 2002 through July 21, 2004, and was consistent with amounts recorded by TNMP. In accordance with provisions within SFAS No. 92, "Regulated Enterprises - Accounting for Phase-In Plans" ("SFAS 92"), TNMP recorded $27.2 million of carrying charges to the income statement for the period January 1, 2002 through July 21, 2004, in the fourth quarter of 2004. TNMP was limited in its recognition for income statement purposes to only the debt related portion of the carrying charges, and TNMP was prohibited from income statement recognition of the equity portion of the carrying charges until the actual receipt of those amounts from customers.

In April 2005, the PUCT announced its decision that TNMP will be allowed to recover interest at a lower rate than the administrative law judge adopted. The lower rate results in $39.2 million of carrying costs on stranded costs for the period January 1, 2002 through July 21, 2004. The PUCT rejected the administrative law judge proposal that TNMP be allowed to utilize the weighted average cost of debt inherent in its 2000 Unbundled Cost of Service filing.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Instead, the PUCT utilized TNMP's actual weighted average cost of debt as of December 31, 2001. Accordingly, TNMP reduced the carrying costs for income statement recognition for the period January 1, 2002 through July 21, 2004 by $4.1 million, and reduced the total carrying charges for income statement recognition for the period January 1, 2002 through December 31, 2004 by $4.7 million during the first quarter of 2005. TNMP's accrual for 2005 carrying charges is also based on the PUCT ruling. As of September 30, 2005, the accrual was $55.8 million and the equity portion of the carrying charges on stranded costs that TNMP was prohibited from recognition through the income statement until actual receipt from customers totaled $23.8 million.

In July 2005, the PUCT confirmed TNMP's calculation of the carrying costs on stranded costs in a written order. TNMP and other parties have filed petitions for judicial review of the July PUCT order.

(9) Regulatory and Rate Matters

PNMR

Energy Policy Act

In September 2005, President George W. Bush signed the Energy Policy Act of 2005 into law. Implementation of various portions of the law requires the issuance of rules by the FERC. The FERC has initiated a number of rulemakings, among them a proposed rulemaking to implement the reliability provisions of the Energy Policy Act of 2005; a proposed rulemaking to revise the criteria for what will be considered a new cogeneration qualifying facility under PURPA; a notice of proposed rulemaking to implement the PUHCA repeal provisions; a proposed rulemaking implementing the market manipulation prohibition; and a proposed rulemaking to implement the merger review provisions. In addition the FERC has asked for comments on whether or not it should use its Federal Power Act authority to impose additional restrictions regarding public utility holding company systems. Additional rulemakings are expected. The Company will continue to monitor, and participate in as appropriate, the FERC and other proceedings involving implementation of Energy Policy Act of 2005, in order to assess the implications of the new law and rules on its operations.

Retail Competition

As discussed in Note 1, the Texas electricity market has been open to retail competition since January 1, 2002. In accordance with Senate Bill 7, TNMP provides transmission and distribution services at regulated rates to various retail electric providers that, in turn, provide retail electric service within TNMP's Texas service area. First Choice, TNMP's affiliated retail electric provider, performs activities related to the sale of electricity to retail customers in Texas.

On June 1, 2004, several changes to customer protection rules in Texas became effective. Of the changes, the rules related to disconnection for non-payment and the required amount of

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

a customer deposit is having the greatest impact on First Choice. The new rule for disconnection for non-payment states that if a customer does not make a payment or payment arrangement until after the final due date specified in the disconnect notice, the retail electric provider is allowed to disconnect the customer. The previous rule only allowed the retail electric provider to terminate service and transfer the customer to the retail electric provider that was affiliated with the customer's transmission and distribution service provider, or to the provider of last resort for non-payment. The new rule for the required amount of deposit states that the deposit shall not exceed the greater of one-fifth of the estimated annual billing or the sum of the next two month's estimated billings. The previous rule stated that the deposit could not exceed the greater of one-sixth of the estimated annual billing or the sum of the next two month's estimated billings.

First Choice is responsible for energy supply related to the sale of electricity to retail customers in Texas. Senate Bill 7 contains no provisions for the specific recovery of fuel and purchased power costs, although First Choice can request that the PUCT change the price-to-beat fuel factor twice a year to recognize changes in natural gas prices. The rates charged to new customers acquired by First Choice outside of TNMP's service territory are not regulated by the PUCT, but are negotiated with each customer. As a result, changes in fuel and purchased power costs will affect First Choice's operating results.

Price-to-Beat Fuel Factor

At its final open meeting for October 2005, the PUCT approved First Choice's request to increase its price-to-beat fuel factor. First Choice estimates that the increase in the price-to-beat fuel factor will increase 2005 revenues by approximately $9.4 million, based on an increase in the fuel factor of 41.33% from October 29 through December 31, 2005. The price-to-beat fuel factor will automatically increase again to 45.15% on January 1, 2006.

If natural gas markets decline from current levels, First Choice will file a request to reset its price-to-beat fuel factor shortly before the PUCT issues an order in TNMP's 60-day rate review case. Resulting rates will be effective within 30 days of a final order in TNMP's 60-day rate review.

Price-to-Beat Base Rate Reset

First Choice is required to make a filing to reset its price-to-beat base rates no later than 30 days after TNMP files its 60-day rate review. First Choice will file its price-to-beat base rate case in early December 2005. First Choice's resulting rates will take effect no later than 30 days following a final order on TNMP's 60-day rate review. First Choice will request 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 acquisition stipulation.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Energy Agreement

In 2003, First Choice and Constellation executed a power supply agreement that resulted in Constellation being the primary supplier of power for First Choice's customers through the end of 2007. Additionally, Constellation has agreed to supply power in certain transactions under the agreement beyond the date when that commitment expires.

In 2004, FCPSP, a bankruptcy remote entity, was created pursuant to the agreement with Constellation to hold all customer contracts, wholesale power contracts, and certain natural gas contracts previously held by First Choice. Constellation received a lien against the assets of FCPSP to cover the settlement exposure and the mark-to-market exposure rather than requiring FCPSP to post alternate collateral for the purchase of power supply. In addition, FCPSP is restricted by covenants that limit the size of FCPSP's unhedged market positions and require that sales by FCPSP retain a positive retail margin. The agreement does not, however, permit Constellation to demand additional collateral irrespective of its credit exposure under the agreement. If, however, a change in electricity or gas forward prices increases Constellation's credit exposure to FCPSP beyond a limit based on Constellation's liens in cash and accounts receivable, Constellation will have no obligation to supply additional power to customers of FCPSP unless FCPSP provides letters of credit or other collateral acceptable to Constellation, and FCPSP will be constrained in its ability to sign up additional customers until that credit shortfall is corrected.

FCPSP may terminate the agreement upon 30 days' prior written notice to Constellation for any reason, but the agreement and all liens securing the agreement remain in effect with respect to transactions entered into prior to the termination until both parties have fulfilled all of their obligations with respect to such transactions or such transactions have been terminated for default or reasons related to regulatory changes.

PNM

Global Electric Agreement

The Global Electric Agreement was signed in 2003. The Global Electric Agreement provided for the repeal of a majority of the Restructuring Act, a fixed rate path, procedures for PNM's participation in unregulated generating plant activities and other regulatory issues. In accordance with this rate path, PNM reduced its retail rates by 2.5% in September 2005. The rate path is effective through December 31, 2007, at which time rates are subject to review by the NMPRC. As a result of the repeal of the Restructuring Act, PNM re-applied the accounting requirements of SFAS 71, as amended, "Accounting for the Effects of Certain Types of Regulation," to its regulated generation activities.

Transmission Rate Case

In March 2005, PNM filed a notice with the FERC to increase its wholesale electric transmission revenues by approximately $7.8 million annually. If approved, the rate increase would apply to all of PNM's wholesale electric transmission service customers, which includes other utilities, electric co-operatives and entities that use PNM's transmission system to transmit power at the wholesale level. The proposed rate increase would not impact PNM's retail customers. In May 2005, the FERC issued an order in the case suspending the new rates for the standard five-month period and made the new rates effective November 1, 2005, subject to refund. Additionally, pursuant to the FERC's order, a settlement judge was assigned to the case and an initial settlement conference was held in July 2005. PNM has been engaged in providing information requested by the parties in an effort to facilitate settlement in the case. Additional settlement discussions have been held with FERC staff and the parties to the proceeding. An additional conference in front of the FERC settlement judge has been scheduled for November 2005. The Company is unable to predict the outcome of the rate proceeding or if the parties will be able to reach a settlement in the case.

Complaint Against Southwestern Public Service Company

In September 2005, PNM filed a complaint under the Federal Power Act against Southwestern Public Service Company. PNM believes that through its fuel charge adjustment clause, Southwestern Public Service Company has been overcharging PNM for deliveries of energy under three contracts, and continues to do so. PNM requested that the FERC investigate Southwestern Public Service Company's charges for the period 2001 through 2004. Charges for 2005 are being addressed in a separate case currently pending before the FERC, in which PNM is an intervenor in the case. PNM's complaint also alleges that Southwestern Public Service Company's rates for interruptible power sales are excessive and requested that the FERC set a refund effective date of September 13, 2005 for these rates. PNM cannot predict the outcome of this complaint at the FERC.

TNMP

60-Day Rate Review

TNMP is required to make a 60-day rate review filing by November 5, 2005. TNMP's case will establish a competition transition charge for recovery of the true-up balance. TNMP's competition transition charge will take effect no later than 30 days following a final order on TNMP's 60-day rate review.

Final Fuel Reconciliation

In January 2004, the PUCT issued an order that disallowed $15.7 million of fuel and energy related purchased power costs that TNMP incurred in 2000 and 2001, prior to retail

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

competition. TNMP recorded the $10.1 million net of tax effect of the disallowance in the fourth quarter of 2003, and subsequently appealed the PUCT decision to the district court. In June 2005, the District Court affirmed the PUCT order, effectively denying TNMP's appeal.

(10) Variable Interest Entities

PNMR and PNM

FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" (Revised December 2003) ("FIN 46R"), became effective January 1, 2004 for those entities considered to be special purpose entities, and March 31, 2004 for others. Under the model for consolidation promulgated by FIN 46R, a PPA may qualify as a variable interest if its terms expose the purchaser to variability in supply or operating costs and the contract is for a significant portion of the entity's generating capacity. PNMR evaluated its PPAs under the provisions of FIN 46R and determined that one purchase contract entered into prior to December 31, 2003 qualifies as a variable interest. PNMR was unable to obtain the necessary information needed to determine if PNMR was the primary beneficiary and if consolidation was needed despite efforts including a formal written request to the operator of the entity supplying power under the PPA. The operator cited legal and competitive reasons for refusing to provide the information.

This variable interest PPA is a contract to purchase 132 MW of capacity and energy expiring in June 2020. The contract contains a fixed capacity charge, a fixed O&M charge, and a variable energy charge that subjects PNM to the changes in the cost of fuel and O&M. For the three months ended September 30, 2005 and 2004, the capacity and O&M charge was $1.8 million and $1.8 million, respectively, and the energy charges were $0.2 million and $0.4 million, respectively. For the nine months ended September 30, 2005 and 2004, the capacity and O&M charge was $5.1 million and $4.4 million, respectively, and the energy charges were $0.8 million and $0.8 million, respectively. The contract is for the full output of a specific gas generating plant and is currently accounted for as an operating lease by PNM. Under this contract PNM is exposed to changes in the costs to produce energy and operate the plant.

PNMR also has interests in other variable interest entities created before January 31, 2003, for which PNMR is not the primary beneficiary. These arrangements include PNMR's investment in a limited partnership and certain PNM leases. The aggregate maximum loss exposure at September 30, 2005 that PNMR could be required to record in its income statement as a result of these arrangements totals approximately $5.3 million. The creditors of these variable interest entities do not have recourse to the general credit of PNMR in excess of the aggregate maximum loss exposure.

(11) Related Party Transactions

PNMR, PNM and TNMP are considered related parties as defined in SFAS No. 57, "Related Party Disclosures." Since TNMP became a related party effective on the date of PNMR's

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

acquisition of TNP, the reported amounts for TNMP reflect the period from June 6, 2005 through September 30, 2005.

PNMR Services Company provides corporate services to PNMR and its subsidiaries including PNM, Avistar, Inc., TNP, TNMP and First Choice per shared services agreements. These services are billed at cost on a monthly basis and allocated to the subsidiaries.

PNM and TNMP have engaged in, and may in the future engage in, affiliate transactions in the normal course of business. These transactions primarily consist of power and transmission purchases by TNMP from PNM. Transactions between affiliates are reported separately on their financial statements, but are eliminated in the consolidation of PNMR's financial statements.

PNMR and PNM

Pursuant to agreement, PNM has issued a promissory note for $20.0 million to PNMR payable on or before September 30, 2006. Under the agreement, PNM agrees to pay all applicable interest on the outstanding balance at the interest rates provided in the agreement. As of September 30, 2005 there is no outstanding balance on the promissory note.

PNM sells electricity and energy-scheduling services to TNMP under a long-term wholesale power contract. PNM also sells transmission services to TNMP and TNMP provides transmission services to PNM under an agreement.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The tables below describe the nature and amount of transactions PNM has with PNMR and TNMP. Since TNMP became a related party effective on the date of PNMR's acquisition of TNP, the reported amounts for TNMP reflect the period from June 6, 2005 through September 30, 2005.

	Three Months			Nine Months
	Ended September 30,			Ended September 30,
		2005	2004		2005	2004
PNMR Transactions With PNM			(In thousands)
Shared services billings from PNMR to PNM		$30,076	$24,702		$81,321	$82,020
Shared services receivable/payable as of
September 30, 2005		$ 9,528	$ -		$ 9,528	$ -
Shared services receivable/payable as of
December 31, 2004		$ -	$31,875		$ -	$31,875

PNM Transactions with TNMP
Electricity and energy scheduling service
billings from PNM to TNMP		$11,043	$ -		$13,947	$ -
Electricity and energy scheduling services
receivable as of September 30, 2005		$13,947	$ -		$13,947	$ -

Transmission billings from PNM to TNMP		$ 554	$ -		$ 694	$ -
Transmission charges receivable as of
September 30, 2005		$ 694	$ -		$ 694	$ -

Transmission billings to PNM from TNMP		$ 90	$ -		$ 101	$ -
Transmission charges payable as of
September 30, 2005		$ 101	$ -		$ 101	$ -

TNMP

TNMP purchases all the electricity for its New Mexico customers' needs (except for one major customer) and energy-scheduling services under the long-term wholesale power contract with PNM described above. TNMP also purchases transmission services from PNM in New Mexico. Additionally, TNMP provides transmission services to PNM in New Mexico.

PNM RESOURCES, INC. AND SUBSIDIARIES
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and Results of Operations for PNMR, PNM and TNMP is presented both on a combined basis as applicable, and on a separate basis. For discussion purposes, this report will use the term "Company" when discussing matters of common applicability to PNMR, PNM and TNMP. Discussions regarding specific contractual obligations generally reference the company that is legally obligated. In the case of contractual obligations of PNM and TNMP, these obligations are consolidated with PNMR and its subsidiaries under GAAP.

The Company is positioned as a merchant utility, primarily operating as a regulated energy service provider. The Company is engaged in the sale and marketing of electricity in the competitive wholesale energy marketplace. In addition, through First Choice, the Company is a retail electric provider in Texas under legislation that established retail competition. As a utility, PNM has an obligation to serve its customers under the jurisdiction of the NMPRC while TNMP operates under the jurisdiction of the PUCT in Texas and the NMPRC in New Mexico.

In conjunction with the TNP acquisition, management changed its business segment reporting. As it currently operates, PNMR's principal businesses include regulated operations and unregulated operations.As required by SEC regulations, PNMR filed a Current Report on Form 8-K on September 26, 2005 that conformed its presentation of segment information in the 2004 Annual Report on Form 10-K to reflect the revised segment presentation.

Regulated Operations

The regulated operations strategy is directed at supplying reasonably priced and reliable energy to retail customers through customer-driven operational excellence, high quality customer service, cost efficient processes, and improved overall organizational performance.

PNM Electric

PNM Electric is an integrated electric utility that consists of generation, transmission and distribution of electricity for retail electric customers in New Mexico and transmission of sales to third parties as well as to PNM Wholesale and TNMP. PNM Electric provides retail electric service to a large area of north central New Mexico, including the cities of Albuquerque and Santa Fe, and certain other areas of New Mexico. Customer rates for retail electric service are set by the NMPRC based on the provisions of the Global Electric Agreement. (See Note 9 - "Regulatory and Rate Matters - Global Electric Agreement," in the Notes to Consolidated Financial Statements.) PNM Electric owns or leases transmission lines, interconnected with other utilities in New Mexico, south and east into Texas, west into Arizona, and north into Colorado and Utah.

PNM Gas

PNM Gas distributes natural gas to most of the major communities in New Mexico, including two of New Mexico's three largest metropolitan areas, Albuquerque and Santa Fe. The customer base for PNM Gas includes both sales-service customers and transportation-service customers. PNM Gas operates under a purchase gas adjustment clause that allows it to purchase natural gas in the open market and resell it at cost to its distribution customers. As a

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

result, increases or decreases in gas revenues resulting from wholesale gas price fluctuations do not impact PNMR's or PNM's consolidated gross margin or earnings.

TNMP Electric

TNMP Electric is a regulated utility operating in Texas and New Mexico. In Texas, TNMP provides regulated transmission and distribution services under TECA. In New Mexico, TNMP provides integrated electric services that include the transmission, distribution, purchase and sale of electricity to its New Mexico customers as well as transmission to third parties and to PNM. TNMP's Texas and New Mexico operations are subject to traditional cost of service regulation.

Unregulated Operations

PNM Wholesale

PNM Wholesale is engaged in the generation and sale of electricity into the wholesale market based on two product lines that include long-term contracts and short-term sales. PNM Wholesale also sells transmission services to TNMP. The source of these sales is supply created by selling the unused capacity of jurisdictional assets as well as the capacity of PNM's wholesale plants excluded from retail rates. Both regulated and unregulated generation is jointly dispatched in order to improve reliability, provide the most economic power to retail customers and maximize profits on any wholesale transactions. The strategy utilized by the Company calls for net asset-backed energy sales supported by long-term contracts into the wholesale market, whereby the Company's aggregate net open forward electric sales position, including short-term sales and long-term contracts, is covered by its forecasted excess generation capacity. Management actively monitors the net asset-backed sales by the use of stringent risk management policies. The Company's future growth plans call for approximately 75% of its new generation portfolio to be committed through long-term contracts as required by the Global Electric Agreement. Growth will be dependent on market development and on the Company's ability to generate funds for the future expansion. The Company will continue to operate in the wholesale market and seek reasonably priced asset additions. Expansion of the Company's generating portfolio will depend on the Company's ability to acquire favorably priced assets at strategic locations and to secure long-term commitments for the purchase of power from the acquired plant capacity.

First Choice

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Corporate and Other

PNMR was established as the holding company in 2001. On December 30, 2004, PNMR became a registered holding company under PUHCA. PNMR also created a new subsidiary called PNMR Services Company, which began operating on January 1, 2005, subject to final approval of a services company application filed with the SEC in January 2005.

The comprehensive energy legislation enacted in August 2005, will result in the repeal of PUHCA on a delayed basis. PNMR is in the process of evaluating the effects of that repeal, along with the other provisions of the legislation.

PNMR performed substantially all of the corporate activities of PNM from 2001 to 2004. These activities were billed to PNM on a cost basis to the extent they were for the corporate management of PNM and were allocated to the business units. The services functions previously performed by PNMR were assumed by PNMR Services Company effective January 1, 2005.

TNMP provided First Choice and TNP with corporate support services under a shared services agreement with First Choice and a similar agreement with TNP. These services were billed at TNMP's cost and, in return, TNP and First Choice compensated TNMP for the use of the services. These agreements were in effect through June 6, 2005 when they were replaced by a new service arrangement.

Effective with the acquisition of TNP on June 6, 2005, (see Note 2 - "TNP Acquisition," in the Notes to the Consolidated Financial Statements) all TNMP employees who were providing corporate support to TNP and First Choice became employees of PNMR Services Company. PNMR Services Company provides corporate services to PNMR and its subsidiaries including PNM, Avistar, Inc., TNP, TNMP and First Choice based on shared services agreements. These services are billed at cost on a monthly basis and are allocated to PNMR and its subsidiaries.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes contained herein. Trends and contingencies of a material nature are discussed to the extent known. Refer to "Disclosure Regarding Forward Looking Statements" and "Risk Factors" at the end of this Item 2.

COMPETITIVE STRATEGY

The Company's vision is to "Build America's Best Merchant Utility." To achieve this objective, management intends to:

Grow Regulated and Unregulated Operations. The Company intends to grow both its retail and wholesale business by expanding its current operations and by acquiring additional value-enhancing assets. As evidenced by the Luna and TNP acquisitions, the Company intends to continue to grow its revenues by expanding its geographic coverage in the Southwest, a region which not only exhibits rapid customer and load growth, but which the Company knows well. The Company plans to focus on best practices in integrating its acquisitions to create a stronger presence in the Southwest market. The Company also intends to increase its presence in the

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Southwest market by buying additional generating resources and selling power from those resources through long-term contracts. In October 2005, PNM entered into a 150 MW long-term sale contract with APS that begins in June 2007. In addition, the Company expects that the acquisition of First Choice as part of the TNP acquisition will provide a solid foundation for entry into the competitive retail market in Texas. In addition, PNMR intends to continue to provide energy and technology related services through its wholly owned subsidiary, Avistar, Inc.

Acquire Additional Generating Assets in the Southwest Region. The Company intends to enhance and diversify its presence in the Southwest region through the acquisition of quality generation assets to serve the Company's retail and wholesale load while maintaining diversity of fuel mix. The Company plans to increase long-term sales contracts in tandem with increases in its generation capacity. The Company expects to do this through the addition of gas-fired generation plants and the acquisition of coal-fired facilities, the acquisition or development of renewable or clean technology resources and/or the use of long-term purchase contracts for power. As in the past, the Company intends to continue a disciplined approach to any acquisition, to match acquisitions to demand and to hedge capacity with long-term contracts.

Maintain Prudent Cost Controls. Management maintains cost control procedures for PNMR and its subsidiaries.

Continue to Improve Credit Strength and Reduce Cost of Capital. A high priority and long-term commitment is to maintain the Company's investment grade rating in any type of regulatory, natural gas or electricity price scenario. The Company believes TNP offers an opportunity to derive additional value through the stronger credit profile of the combined entity. In addition, the Company expects lower TNP financing costs, through the refinancing of TNP's relatively high-cost capital. In conjunction with the acquisition of TNP, on June 6, 2005, PNMR made an equity investment of approximately $110.5 million in TNP, which TNP used to repay in full amounts owing under TNP's credit agreement. In addition, in July 2005, PNMR provided funds to TNP to enable TNP to redeem its preferred stock and senior notes. See "Financing Activities - PNMR" below in "Liquidity and Capital Resources" for further details of this transaction.

Commitment to Corporate Citizenship. The Company is committed to its guiding principle, "Do the Right Thing." This commitment serves as the cornerstone of the Company's ethics and compliance efforts and underscores its effort to ensure that dealings with customers, employees, shareholders and business partners are above reproach. This is evidenced by the Company's environmental sustainability program with aggressive five-year goals for reducing water usage, improving air quality, reducing waste streams and becoming a leader in the development of renewable energy.

ACQUISITION

Acquisition of TNP. On June 6, 2005, PNMR acquired all of the outstanding common shares of TNP, including its principal subsidiaries, TNMP and First Choice. The results of TNP's operations have been included in the consolidated financial statements of PNMR from that date.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNMR acquired TNP in order to complement its existing New Mexico electric operations and to expand into the retail and wholesale markets in Texas.

The aggregate purchase price was $1,277 million, including a payment to the previous owner of $175.0 million consisting of $87.6 million of cash and common stock valued at $87.4 million. In addition, the aggregate purchase price included $1,034 million of TNP debt and preferred stock and incurred transaction and other costs of $67.7 million. The value of the 4,326,337 common shares issued was determined based on $20.20 per common share as provided for in the Stock Purchase Agreement. The purchase price was based on an estimated purchase price in accordance with the Stock Purchase Agreement, dated as of July 24, 2004 by and between PNMR and SW Acquisition. PNMR obtained, or is in the process of obtaining, valuations of acquired property and intangible assets; thus, the allocation of the purchase price is subject to adjustment and will be finalized within one year of the acquisition.

Pursuant to the Stock Purchase Agreement, PNMR provided SW Acquisition its proposed final purchase price, reflecting a reduction from the estimated purchase price of approximately $37 million. SW Acquisition has objected to PNMR's proposed final purchase price. There is a mechanism established in the Stock Purchase Agreement for resolving disputes regarding the final purchase price. However, in August 2005, SW Acquisition filed a petition against PNMR in Texas state district court, in which SW Acquisition alleged, among other things, that PNMR had breached the Stock Purchase Agreement. The petition seeks a declaration of the parties' rights and duties under the Stock Purchase Agreement, including the final purchase price, and also seeks damages in an unspecified amount. In September 2005, PNMR filed an answer to the petition generally denying SW Acquisition's claims and a counterclaim seeking damages for SW Acquisition's breaches of contract including its early termination of the negotiation period provided for in the Stock Purchase Agreement and its breach of the provisions in the Stock Purchase Agreement regarding alternate dispute resolution. PNMR also filed a motion to compel arbitration consistent with the Stock Purchase Agreement and a motion for a preliminary injunction that would force SW Acquisition to choose an accountant to resolve the purchase price dispute. The court has scheduled a hearing on the motion to compel arbitration for November 2005. PNMR believes the SW Acquisition petition is without merit and intends to vigorously defend itself and otherwise protect its rights under the Stock Purchase Agreement. See Note 2 - "TNP Acquisition," in the Notes to Consolidated Financial Statements.

Reference is made to the Current Reports on Forms 8-K/A filed by PNMR on August 2, and September 27, 2005, in connection with the acquisition of TNP. The August 2 Form 8-K/A incorporates by reference the audited and unaudited financial statements of TNP required by Form 8-K Item 9.01 (a) and the August 2 and September 27 Forms 8-K/A include the pro forma financial information required by Form 8-K Item 9.01 (b).

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERALL OUTLOOK

The Company experienced lower than expected earnings growth in the first nine months of 2005 primarily due to unexpected plant outages, the extension of planned outages, the acceleration of a scheduled outage and other non-recurring charges for refinancing and TNP acquisition integration costs. The Company expects to incur lower plant operating costs and recover a portion of the reduction in revenue related to the accelerated outage schedule in the fourth quarter of 2005 when the SJGS Unit 4 planned outage would otherwise have occurred. In addition, the Company expects to experience added earnings growth resulting from the acquisition of TNP.

The Company expects that the TNP acquisition will be accretive to earnings in the first full year of operation after the transaction is completed. This expectation is based on certain assumptions, including assumptions related to interest rates and market prices for power, among other things. In recent months, the market price of natural gas across the United States has increased significantly, due to a hot 2005 summer, which led to more demand from natural gas-fired power plants, as well as due to the hurricanes in the Gulf Coast region of the United States. The Company cannot predict what impact the increase in market prices for natural gas will have on its future results of operations; however the Company does anticipate an increase in O&M costs, primarily related to bad debts, due to the increases in gas prices.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2005
Compared to Three Months Ended September 30, 2004

PNMR

PNMR's net earnings for the three months ended September 30, 2005 were $28.5 million or $0.41 per diluted share of common stock, compared to $27.4 million or $0.45 per diluted share of common stock in the three months ended September 30, 2004. The decrease in earnings per share was driven primarily by acquisition related costs and other non-recurring charges of $3.4 million, net of income taxes, which consisted of acquisition integration costs of $2.6 million and TNP debt refinancing costs of $0.8 million. In addition, PNM experienced below normal levels of plant performance due to unexpected plant outages and the extension of planned plant outages, which reduced the amount of electricity PNM sold in the wholesale market and forced PNM to purchase power to meet jurisdictional and contractual wholesale needs. In addition, the margin on fixed-price contracts decreased, as increases in purchased power prices that were driven by increasing fuel prices were not able to be passed on to customers with fixed sales prices. These decreases to net earnings were partially offset by the addition of TNP operations for the three months ended September 30, 2005.

The following discussion is based on the methodology that management uses for making operating decisions and assessing performance of its various business activities. See Note 3 - "Segment Information," in the Notes to the Consolidated Financial Statements for additional information regarding these results and the consolidated financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition, adjustments related to EITF Issue 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not Held for Trading Purposes," are excluded. This accounting pronouncement requires a net presentation of realized gains and losses for certain non-trading derivatives. Management evaluates PNM Wholesale on a gross presentation basis due to its primarily net-asset-backed marketing strategy and the importance it places on PNM's ability to repurchase and remarket previously sold capacity.

Corporate costs, income taxes and non-operating items are discussed on a consolidated basis for PNMR and are in conformity with the presentation in the PNMR consolidated financial statements.

Regulated Operations

PNM Electric

The table below sets forth the operating results for PNM Electric.

	Three Months Ended
	September 30,
	2005	2004	Variance
	(In thousands)
Operating revenues	$ 162,945	$ 152,413	$ 10,532
Less: Cost of energy	57,958	50,675	7,283
Intersegment energy transfer	(7,205)	(9,838)	2,633
Gross margin	112,192	111,576	616
Energy production costs	28,563	26,100	2,463
Transmission and distribution O&M	8,340	7,981	359
Customer related expense	5,552	4,532	1,020
Administrative and general	1,046	1,537	(491)
Total non-fuel O&M	43,501	40,150	3,351
Corporate allocation	17,913	15,358	2,555
Depreciation and amortization	17,276	12,568	4,708
Taxes other than income taxes	5,027	5,144	(117)
Income taxes	7,998	11,757	(3,759)
Total non-fuel operating expenses	91,715	84,977	6,738
Operating income	$ 20,477	$ 26,599	$ (6,122)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows electric revenues by customer class and average customers:

PNM Electric Revenues

	Three Months Ended
	September 30,
	2005	2004	Variance
	(In thousands, except customers)
Residential	$ 61,580	$ 55,615	$ 5,965
Commercial	73,090	70,594	2,496
Industrial	16,054	15,964	90
Transmission	6,287	4,490	1,797
Other	5,934	5,750	184
	$162,945	$152,413	$10,532

Average customers	419,195	408,225	10,970

The following table shows electric sales by customer class:

	Three Months Ended
	September 30,
	2005	2004	Variance
	(Megawatt hours)
Residential	754,103	675,228	78,875
Commercial	1,022,049	980,115	41,934
Industrial	333,781	330,392	3,389
Other	81,480	77,969	3,511
	2,191,413	2,063,704	127,709

Operating revenues increased $10.5 million, or 6.9%, from the prior year quarter. Retail electricity sales increased 6.2%, to 2.19 million MWh in the third quarter of 2005 compared to 2.06 million MWh in the third quarter of 2004. Customer growth was 2.7% quarter over quarter and a 3.4% increase in weather normalized retail electric load growth resulted in a $5.5 million increase in revenues. Warmer weather in the third quarter of 2005 compared to 2004 contributed $4.3 million to the increase in revenues. Cycle-weighted Cooling Degree Days for Albuquerque, New Mexico increased approximately 20.2%, to 1,158 during the third quarter of 2005 compared to 963 during the third quarter of 2004. In addition, increased transmission revenues, primarily from point-to-point customers, increased revenues $1.8 million. These increases were offset slightly by a 2.5% electric rate reduction effective September 1, 2005 that decreased revenues $1.0 million.

The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, increased $0.6 million, or 0.6%, over the prior year quarter due to the retail revenue growth discussed above offset by the higher related costs to serve the increased load, increased plant outage costs and higher purchase power contract prices.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Total non-fuel O&M expenses increased $3.4 million, or 8.3%, over the prior year quarter primarily due to increased energy production costs. Energy production costs increased $2.5 million, or 9.4% due primarily to plant outages during the third quarter of 2005 at SJGS, PVNGS and Four Corners that increased costs $0.9 million, $0.4 million and $0.2 million, respectively, and higher general plant maintenance and other costs of $0.6 million. Transmission and distribution O&M increased $0.4 million, or 4.5%, primarily due to higher fleet-related expenses during the third quarter of 2005 than during the third quarter of 2004. Customer related expense increased $1.0 million, or 22.5%, primarily due to increased consulting fees related to FERC proceedings. Administrative and general expenses decreased $0.5 million, or 31.9%, primarily due to lower benefit costs at SJGS, PVNGS and Four Corners of $0.7 million, partially offset by increased legal costs of $0.2 million for routine business matters.

Depreciation and amortization increased $4.7 million, or 37.5%, over the prior year quarter due to asset and software additions placed in service in December 2004 and the first nine months of 2005. The Company expects depreciation to continue to increase in the future as a result of increased investment in new information technology platforms.

TNMP Electric

PNMR acquired TNP on June 6, 2005, and results in this section are presented from the acquisition date forward only, comparable results from 2004 are not presented. For the three months ended September 30, 2005, the TNMP Electric segment increased PNMR revenues by $71.4 million.

The table below sets forth the operating results for TNMP Electric.

Three Months Ended
September 30, 2005
(In thousands)
Operating revenues	$71,441
Less: Cost of energy	25,764
Gross margin	45,677
Transmission and distribution O&M	5,671
Customer related expense	1,433
Administrative and general	522
Total non-fuel O&M	7,626
Corporate allocation	3,735
Depreciation and amortization	7,814
Taxes other than income taxes	6,597
Income taxes	4,476
Total non-fuel operating expenses	30,248
Operating income	$15,429

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows electric revenues by customer class and average customers:

TNMP Electric Revenues

Three Months Ended
September 30, 2005
(In thousands, except customers)
Residential	$28,637
General Services	9,150
Primary/Economy/Transmission	10,809
Secondary	13,323
Municipal/Lighting	2,346
Other	7,176
	$71,441

Average customers *	259,168

* Under TECA, customers of TNMP in Texas have the ability to choose First Choice or any other REP to provide energy; however, TNMP delivers energy to customers within TNMP's service area regardless of the REP chosen. Therefore TNMP earns revenue for that delivery and First Choice earns revenue on the usage of that energy by its customers. The average customers reported above include approximately 155,679 customers of TNMP who have chosen First Choice as their REP. These customers are also included below in the First Choice segment. For PNMR consolidated reporting purposes, these customers are included only once in the consolidated customer count.

The following table shows electric sales by customer class:

Three Months Ended
September 30, 2005
(Megawatt hours)
Residential	953,947
General Services	69,010
Primary/Economy/Transmission	537,464
Secondary	578,609
Municipal/Lighting	39,238
	2,178,268

* Under TECA, customers of TNMP in Texas have the ability to choose First Choice or any other REP to provide energy; however, TNMP delivers energy to customers within TNMP's service area regardless of the REP chosen. Therefore, TNMP earns revenue for that delivery and First Choice earns revenue on the usage of that energy by its customers. The megawatt hours reported above include approximately 856,839 megawatt hours used by customers of TNMP who have chosen First Choice as their REP. These megawatt hours are also included below in the First Choice segment.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNM Gas

The table below sets forth the operating results for PNM Gas.

	Three Months Ended
	September 30,
	2005	2004	Variance
	(In thousands)
Operating revenues	$ 78,687	$ 73,530	$ 5,157
Less: Cost of energy	53,512	48,127	5,385
Gross margin	25,175	25,403	(228)
Energy production costs	630	663	(33)
Transmission and distribution O&M	7,254	6,750	504
Customer related expense	5,183	5,267	(84)
Administrative and general	398	171	227
Total non-fuel O&M	13,465	12,851	614
Corporate allocation	10,315	8,088	2,227
Depreciation and amortization	5,630	4,574	1,056
Taxes other than income taxes	1,998	1,521	477
Income taxes	(3,595)	(1,740)	(1,855)
Total non-fuel operating expenses	27,813	25,294	2,519
Operating income/(loss)	$ (2,638)	$ 109	$ (2,747)

The following table shows gas revenues by customer and average customers:

PNM Gas Revenues

	Three Months Ended
	September 30,
	2005	2004	Variance
	(In thousands, except customers)
Residential	$ 34,202	$ 29,170	$ 5,032
Commercial	12,232	10,595	1,637
Industrial	598	287	311
Transportation*	3,076	3,650	(574)
Other	28,579	29,828	(1,249)
	$ 78,687	$ 73,530	$ 5,157

Average customers	469,947	459,461	10,486

* Customer owned gas.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows gas throughput by customer class:

	Three Months Ended
	September 30,
	2005	2004	Variance
	(Thousands of decatherms)
Residential	2,266	2,257	9
Commercial	1,230	1,319	(89)
Industrial	82	41	41
Transportation*	10,334	14,907	(4,573)
Other	2,849	4,566	(1,717)
	16,761	23,090	(6,329)

*Customer-owned gas.

Operating revenues increased $5.2 million, or 7.0%, over the prior year quarter. Residential and commercial revenues increased $5.0 million and $1.6 million, respectively, primarily due to average customer growth of 2.3%. These increases were partially offset by total gas sales volumes, which decreased 27.4% primarily due to decreased off-system transportation volume, which is included in the $0.6 million change in transportation revenues. In addition, other revenue decreased $1.2 million primarily due to a decrease in off-system gas sales.

The gross margin, or operating revenues minus cost of energy sold, decreased $0.2 million, or 0.9%, over the prior year quarter. This decrease was due mainly to the decrease in transportation volumes noted above.

Transmission and distribution O&M increased $0.5 million, or 7.5%, over the prior year quarter primarily due to increased outside services contracts for process improvement initiatives.

Depreciation and amortization increased $1.1 million, or 23.1%, over the prior year quarter primarily due to asset and software additions placed in service in December 2004 and the first nine months in 2005. The Company expects depreciation to continue to increase in the future as a result of increased investment in new information technology platforms.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unregulated Operations

PNM Wholesale

The table below sets forth the operating results for PNM Wholesale.

	Three Months Ended
	September 30,
	2005	2004	Variance
	(In thousands)
Operating revenues	$ 179,855	$ 184,239	$ (4,384)
Less: Cost of energy	156,024	151,514	4,510
Intersegment energy transfer	7,205	9,838	(2,633)
Gross margin	16,626	22,887	(6,261)
Energy production costs	7,335	6,972	363
Transmission and distribution O&M	15	24	(9)
Customer related expense	334	(91)	425
Administrative and general	1,813	1,128	685
Total non-fuel O&M	9,497	8,033	1,464
Corporate allocation	1,196	1,006	190
Depreciation and amortization	3,667	3,077	590
Taxes other than income taxes	888	859	29
Income taxes	(1,027)	2,582	(3,609)
Total non-fuel operating expenses	14,221	15,557	(1,336)
Operating income	$ 2,405	$ 7,330	$ (4,925)

The following table shows revenues by customer class:

PNM Wholesale Revenues

	Three Months Ended
	September 30,
	2005	2004	Variance
	(In thousands)
Long-term contracts*	$ 39,866	$ 41,600	$ (1,734)
Short-term sales *	139,989	142,639	(2,650)
	$179,855	$184,239	$ (4,384)

*Includes mark-to-market gains/(losses).

100

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows sales by customer class:

PNM Wholesale Sales

	Three Months Ended
	September 30,
	2005	2004	Variance
	(Megawatt hours)
Long-term contracts	651,178	783,582	(132,404)
Short-term sales	2,300,775	2,764,755	(463,980)
	2,951,953	3,548,337	(596,384)

Operating revenues decreased $4.4 million, or 2.4%, from the prior year quarter. This decrease in wholesale electric sales primarily reflects lower sales volumes resulting from below normal levels of plant performance, combined with increasing retail load. PNM Wholesale sold 2.95 million MWh of electricity for the three months ended September 30, 2005 compared to 3.55 million MWh for the same period in 2004, a decrease of 16.8%. This decrease was partially offset by average wholesale sales prices, which increased 20.2% over the prior year period. Revenues from long-term contracts decreased $1.7 million, or 4.2%, from 2004 due primarily to the expiration of a customer contract, partially offset by customer load growth and higher index-based prices on existing contracts. Short-term sales decreased $2.7 million, or 1.9%, compared to the third quarter of 2004 due to decreased volumes caused by a reduction in plant availability and increased retail load, partially offset by an increase in sales prices.

The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, decreased $6.3 million, or 27.4%, from the prior year quarter. Decreased plant availability reduced the availability of less expensive excess energy for sale in the wholesale market. In addition, higher purchase power contract prices further reduced the margin earned on fixed sales-price contracts. Long-term sales margin increased $0.6 million due to increased customer growth and higher index-based prices on existing contracts, partially offset by the expiration of a long-term contract. Short-term margin decreased $6.9 million primarily resulting from lower plant availability and increased purchase power prices. PNM Wholesale's mark-to-market position increased to a $1.2 million loss in 2005 from a $3.2 million loss in 2004.

Total non-fuel O&M increased $1.5 million, or 18.2%, from the prior year quarter. Energy production costs increased $0.4 million primarily due to higher plant maintenance costs in 2005 compared to 2004, resulting from the plant outages. Customer-related expense increased $0.4 million in the third quarter of 2005 primarily due to a third quarter 2004 reduction of incentive plan costs compared to no such reduction during the third quarter of 2005. Administration and general expense increased $0.7 million, primarily due to a customer billing settlement. Depreciation and amortization expenses increased $0.6 million due to the addition of new technology platforms that were placed in service in December 2004 and the first nine months in 2005. The Company expects depreciation to continue to increase in the future as a result of this increased investment in new technology platforms.

101

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

First Choice

PNMR acquired TNP on June 6, 2005. Results in this section are presented from the acquisition date forward only, comparable results from 2004 are not presented. For the three months ended September 30, 2005, the First Choice segment increased PNMR revenues by $155.5 million.

The table below sets forth the operating results for First Choice.

Three Months Ended
September 30, 2005
(In thousands)
Operating revenues	$155,479
Less: Cost of energy	120,751
Gross margin	34,728
Energy production costs	-
Transmission and distribution O&M	-
Customer related expense	1,672
Administrative and general	4,647
Total non-fuel O&M	6,319
Corporate allocation	3,659
Depreciation and amortization	480
Taxes other than income taxes	1,822
Income taxes	7,826
Total non-fuel operating expenses	20,106
Operating income	$ 14,622

The following table shows electric revenues by customer class and average customers:

First Choice Electric Revenues

Three Months Ended
September 30, 2005
(In thousands, except customers)
Residential	$102,013
Mass-market	25,208
Mid-market	21,980
Other	6,278
	$155,479

Average customers *	215,376

* See note above in the TNMP Electric segment discussion about the impact of TECA.

102

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows electric sales by customer class:

Three Months Ended
September 30, 2005
(Megawatt hours)
Residential	846,683
Mass-market	205,183
Mid-market	236,604
Other	13,565
	1,302,035

* See note above in the TNMP Electric segment discussion about the impact of TECA.

Corporate and Other

Corporate Administrative and General Expenses

Corporate administrative and general expenses, which represent costs that are driven primarily by corporate-level activities, are allocated to the business segments and presented in the corporate allocation line item in the segment statements. These costs increased $12.4 million, or 49.6%, to $37.3 million for the third quarter of 2005, compared to $24.9 million for the third quarter of 2004. This increase is due to acquisition-related costs of $4.2 million, increased labor costs of $0.9 million resulting from the transfer of employees from operations to corporate, increased legal and environmental costs of $1.4 million, related in part to an environmental reserve and increased audit fees of $0.4 million.

PNMR Consolidated

Other Income and Deductions

Interest income increased $1.5 million, or 16.1%, due to short-term interest of $0.2 million related to cash received from PNMR's issuance of hybrid income term securities, interest of $1.3 million related to TNP's cash balance, which PNMR did not have in the prior year, and a $0.6 million increase related to higher PGAC balances caused by increasing gas prices. These increases were partially offset by lower interest income of $0.8 million due to pay-down of principal on the Palo Verde capital trust.

Other income increased $3.9 million due to a mark-to-market gain of $1.8 million from an interest rate swap, an increase of approximately $1.3 million in merchandising revenues, primarily from emergency assistance services (offset by the related expenses in other deductions below), and other miscellaneous income of $0.6 million.

Carrying charges on regulatory assets were $1.9 million in the three months ended September 30, 2005. This represents interest income on TNMP regulatory assets.

103

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Other deductions increased $7.3 million due to a $3.6 million loss on the Wood River investment (see Note 4 - "Fair Value of Financial Instruments," in the Notes to Consolidated Financial Statements), $1.0 million in increased expenses related in merchandising revenues (offset by the related revenues in other income above) and miscellaneous tax-related adjustments of $1.6 million.

Interest Charges

Interest charges increased $15.9 million due to interest of $3.2 million related to the hybrid income term securities issued March 30, 2005, $4.3 million of expenses related to increased commercial paper borrowings and $7.3 million related to debt from the TNP operations, which PNMR did not have in the prior year.

Income Taxes

PNMR's consolidated income tax expense was $15.9 million for the three months ended September 30, 2005, compared to $14.7 million for the three months ended September 30, 2004. The increase was due to the impact of higher pre-tax earnings. PNMR's effective income tax rates for the three months ended September 30, 2005 and 2004 were 35.45% and 34.78%, respectively.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2005
Compared to Nine Months Ended September 30, 2004

PNMR

PNMR's net earnings for the nine months ended September 30, 2005 were $60.5 million or $0.92 per diluted share of common stock compared to $69.0 million or $1.13 per diluted share of common stock in the nine months ended September 30, 2004. The decrease in earnings and earnings per share was driven primarily by acquisition related costs and other non-recurring charges of $14.5 million, net of income taxes, which consisted of acquisition integration costs of $5.4 million, TNP debt refinancing costs of $5.0 million, software write-offs of $2.7 million and the recognition of a regulatory liability of $1.4 million associated with the NMPRC's approval of the TNP acquisition. In addition, the Company experienced below normal levels of plant performance, which reduced the amount of electricity the Company sold on the wholesale market and forced the Company to purchase power to meet jurisdictional and contractual wholesale needs. In addition, the margin on fixed-price contracts decreased, as increases in purchased power contract prices that were driven by increasing fuel prices were not able to be passed on to customers with fixed sales prices. These decreases to net earnings were partially offset by the addition of the TNP operations for June 6 through September 30, 2005 and an increase in cost of service gas rates.

The following discussion is based on the methodology that management uses for making operating decisions and assessing performance of its various business activities. See Note 3 - "Segment Information," in the Notes to Consolidated Financial Statements for additional information regarding these results and the consolidated financial statements.

104

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition, adjustments related to EITF Issue 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not Held for Trading Purposes," are excluded. This accounting pronouncement requires a net presentation of realized gains and losses for certain non-trading derivatives. Management evaluates wholesale operations on a gross presentation basis due to its primarily net-asset-backed marketing strategy and the importance it places on the Company's ability to repurchase and remarket previously sold capacity.

Corporate costs, income taxes and non-operating items are discussed on a consolidated basis for PNMR and are in conformity with the presentation in the PNMR consolidated financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows electric sales by customer class:

PNM Electric Sales

	Nine Months Ended
	September 30,
	2005	2004	Variance
	(Megawatt hours)
Residential	2,014,615	1,898,537	116,078
Commercial	2,661,667	2,619,447	42,220
Industrial	967,269	959,700	7,569
Other	195,496	193,696	1,800
	5,839,047	5,671,380	167,667

Operating revenues increased $13.9 million, or 3.3%, over the prior year. Retail electricity sales increased 3.0%, to 5.84 million MWh in the first nine months of 2005 compared to 5.67 million MWh in the first nine months of 2004. Customer growth was 2.7% year over year and weather-normalized retail electric load growth was 2.6% in 2005. Average customer load growth, when normalized for the impact of weather and the leap year in 2004, increased revenues by $11.2 million. Cycle-weighted Cooling Degree Days for Albuquerque increased approximately 17.6% to 1,417 during the nine months ended September 30, 2005 compared to 1,205 during the nine months ended September 30, 2004, resulting in an increase in revenues of $3.2 million. These revenue increases were partially offset by a decrease of $1.3 million attributable to the 2004 leap year, with 2005 including one less day of revenues, and by a decrease of $1.0 million due to the 2.5% electric rate reduction effective September 1, 2005.

The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, decreased $4.3 million, or 1.4%, from the prior year due to a reduction in power plant availability due to plant outages and a related increase in purchased power requirements to serve load. In addition, an increase in purchased power contract prices on pre-existing contracts reduced the margin earned on fixed-price sales. These decreases were partially offset by the increased revenues associated with retail load growth.

Total non-fuel O&M expenses increased $6.1 million, or 4.9%, over the prior year. Energy production costs increased $3.7 million, or 4.3%, due to higher plant maintenance costs in the nine months ended September 30, 2005 compared to the same period in 2004. Plant outage costs at SJGS, Reeves and PVNGS increased costs $2.2 million, $1.7 million and $0.4 million, respectively, for the nine months ended September 30, 2005. In addition, there were higher general plant maintenance and other costs of $0.4 million compared to the nine months ended September 30, 2004. These increases were partially offset by reduced outage costs at Four Corners of $1.0 million. On March 26, 2005, a circulating water pipe ruptured and forced SJGS Unit Four to be taken offline. This unexpected three-week outage was combined with a planned minor overhaul of the same unit as the Company then accelerated the planned outage to minimize the economic impact of the shutdown. SJGS Unit Four was back online on April 17, 2005. Energy production costs increased due to this outage, however the Company expects to have lower operating costs and recover a portion of the lost revenue in the fourth quarter of 2005 when the SJGS Unit Four planned outage would otherwise have occurred.

107

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Customer related expense increased $1.1 million, or 8.1%, primarily due to increased consulting fees related to FERC proceedings. Administrative and general expenses increased $1.6 million, or 39.4%, over the prior year primarily due to increased labor costs of $0.8 million and increased legal costs of $0.5 million for routine business matters.

Depreciation and amortization increased $6.4 million, or 13.9%, over the prior year due to asset and software additions placed in service in December 2004 and the first nine months of 2005. The Company expects depreciation to continue to increase in the future as a result of increased investment in new information technology platforms.

TNMP Electric

PNMR acquired TNP on June 6, 2005, and results in this section are presented from the acquisition date forward only. For the nine months ended September 30, 2005, which includes results from June 6 through September 30, 2005, the TNMP Electric segment increased PNMR revenues by $90.7 million.

The table below sets forth the operating results for TNMP Electric.

For the Period
June 6 - September 30, 2005
(In thousands)
Operating revenues	$90,676
Less: Cost of energy	32,466
Gross margin	58,210
Transmission and distribution O&M	6,821
Customer related expense	1,735
Administrative and general	810
Total non-fuel O&M	9,366
Corporate allocation	5,196
Depreciation and amortization	9,899
Taxes other than income taxes	8,482
Income taxes	5,694
Total non-fuel operating expenses	38,637
Operating income	$19,573

108

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows electric revenues by customer class and average customers:

TNMP Electric Revenues

For the Period
June 6 - September 30, 2005
(In thousands, except customers)
Residential	$37,301
General Services	11,407
Primary/Economy/Transmission	13,404
Secondary	16,637
Municipal/Lighting	2,962
Other	8,965
	$90,676

Average customers *	258,939

* Under TECA, customers of TNMP in Texas have the ability to choose First Choice or any other REP to provide energy; however, TNMP delivers energy to customers within TNMP's service area regardless of the REP chosen. Therefore TNMP earns revenue for that delivery and First Choice earns revenue on the usage of that energy by its customers. The average customers reported above include approximately 156,213 customers of TNMP who have chosen First Choice as their REP. These customers are also included below in the First Choice segment. For PNMR consolidated reporting purposes, these customers are included only once in the consolidated customer count.

The following table shows electric sales by customer class:

For the Period
June 6 - September 30, 2005
(Megawatt hours)
Residential	1,251,919
General Services	86,350
Primary/Economy/Transmission	682,922
Secondary	726,807
Municipal/Lighting	48,688
	2,796,686

* Under TECA, customers of TNMP in Texas have the ability to choose First Choice or any other REP to provide energy; however, TNMP delivers energy to customers within TNMP's service area regardless of the REP chosen. Therefore, TNMP earns revenue for that delivery and First Choice earns revenue on the usage of that energy by its customers. The megawatt hours reported above include approximately 1,086,528 megawatt hours used by customers of TNMP who have chosen First Choice as their REP. These megawatt hours are also included below in the First Choice segment.

109

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNM Gas

The table below sets forth the operating results for PNM Gas.

	Nine Months Ended
	September 30,
	2005	2004	Variance
	(In thousands)
Operating revenues	$ 326,357	$ 330,290	$ (3,933)
Less: Cost of energy	221,239	228,925	(7,686)
Gross margin	105,118	101,365	3,753
Energy production costs	1,827	1,676	151
Transmission and distribution O&M	20,621	21,142	(521)
Customer related expense	14,496	14,132	364
Administrative and general	2,936	2,128	808
Total non-fuel O&M	39,880	39,078	802
Corporate allocation	28,198	27,554	644
Depreciation and amortization	16,802	14,041	2,761
Taxes other than income taxes	6,004	5,546	458
Income taxes	2,200	2,734	(534)
Total non-fuel operating expenses	93,084	88,953	4,131
Operating income	$ 12,034	$ 12,412	$ (378)

110

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows gas revenues by customer and average customers:

PNM Gas Revenues

	Nine Months Ended
	September 30,
	2005	2004	Variance
	(In thousands, except customers)
Residential	$ 185,821	$ 183,961	$ 1,860
Commercial	57,581	59,547	(1,966)
Industrial	1,523	1,577	(54)
Transportation*	10,193	11,593	(1,400)
Other	71,239	73,612	(2,373)
	$ 326,357	$ 330,290	$ (3,933)

Average customers	470,026	459,996	10,030

* Customer owned gas.

The following table shows gas throughput by customer class:

PNM Gas Throughput

	Nine Months Ended
	September 30,
	2005	2004	Variance
	(Thousands of decatherms)
Residential	18,970	19,605	(635)
Commercial	7,115	7,592	(477)
Industrial	212	233	(21)
Transportation*	27,586	35,641	(8,055)
Other	8,834	11,701	(2,867)
	62,717	74,772	(12,055)

*Customer-owned gas

Operating revenues decreased $3.9 million, or 1.2%, over the prior year. Warmer weather in 2005 compared to 2004 caused a $4.7 million decrease in revenues. Cycle-weighted Heating Degree Days for Albuquerque decreased approximately 2.7% in 2005 compared to 2004. In addition, total gas sales volumes decreased 16.1% primarily due to decreased off-system transportation of $1.4 million. In addition, other revenue decreased $2.4 million primarily due to a decrease in off-system gas sales and lower irrigation customer usage. These decreases were partially offset by average customer growth of 2.2%, which increased gas revenues $2.4 million, and an increase of $6.7 million due to a residential cost of service rate increase beginning in April 2004.

The gross margin, or operating revenues minus cost of energy sold, increased $3.8 million, or 3.7%, over the prior year. This increase was due mainly to customer growth and the NMPRC-approved residential rate increase, partially offset by the impact of warmer weather in 2005 compared to 2004 described above.

111

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Total non-fuel O&M expenses were largely unchanged over the prior year. Transmission and distribution O&M expense decreased $0.5 million, or 2.5%, primarily due to a transfer of employees from administrative and general. Due primarily to this transfer that increased labor costs, administrative and general expenses increased by $0.8 million. Customer related expenses increased $0.4 million, or 2.6%, due primarily to increased advertising and billing system expenses.

Depreciation and amortization increased $2.8 million, or 19.7%, over the prior year primarily due to asset and software additions placed in service in December 2004 and the first nine months of 2005. The Company expects depreciation to continue to increase in the future as a result of increased investment in new information technology platforms.

Unregulated Operations

PNM Wholesale

The table below sets forth the operating results for PNM Wholesale.

	Nine Months Ended
	September 30,
	2005	2004	Variance
	(In thousands)
Operating revenues	$454,141	$475,414	$ (21,273)
Less: Cost of energy	364,989	366,887	(1,898)
Intersegment energy transfer	24,740	34,175	(9,435)
Gross margin	64,412	74,352	(9,940)
Energy production costs	21,737	21,110	627
Transmission and distribution O&M	36	50	(14)
Customer related expense	716	797	(81)
Administrative and general	5,196	5,106	90
Total non-fuel O&M	27,685	27,063	622
Corporate allocation	3,249	3,315	(66)
Depreciation and amortization	11,695	10,585	1,110
Taxes other than income taxes	2,615	2,658	(43)
Income taxes	2,848	8,137	(5,289)
Total non-fuel operating expenses	48,092	51,758	(3,666)
Operating income	$ 16,320	$ 22,594	$ (6,274)

112

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows revenues by customer class:

PNM Wholesale Revenues

	Nine Months Ended
	September 30,
	2005	2004	Variance
	(In thousands)
Long-term contracts*	$ 115,238	$ 118,484	$ (3,246)
Short-term sales *	338,903	356,930	(18,027)
	$ 454,141	$ 475,414	$(21,273)

*Includes mark-to-market gains/(losses).

The following table shows sales by customer class:

PNM Wholesale Sales

	Nine Months Ended
	September 30,
	2005	2004	Variance
	(Megawatt hours)
Long-term contracts	1,940,063	2,216,392	(276,329)
Short-term sales	6,375,214	7,561,919	(1,186,705)
	8,315,277	9,778,311	(1,463,034)

Operating revenues decreased $21.3 million, or 4.5%, from the prior year. This decrease in wholesale electric sales primarily reflects lower sales volumes resulting from below normal levels of plant performance. PNM Wholesale sold 8.32 million MWh of electricity for the nine months ended September 30, 2005 compared to 9.78 million MWh for the same period in 2004, a decrease of 15.0%. This decrease was partially offset by average wholesale sales prices, which increased 14.4% over the prior year period. Revenues from long-term contracts decreased $3.2 million, or 2.7%, from 2004 due primarily to the expiration of a customer contract, partially offset by customer load growth, higher index-based prices on existing contracts and higher prices associated with SO2 credit sales. Short-term sales decreased $18.0 million primarily due to decreased volumes caused by a reduction in plant availability, partially offset by higher sales prices.

The gross margin, or operating revenues minus cost of energy sold and intersegment energy transfer, decreased $9.9 million, or 13.4%, from the prior year. Decreased plant availability and increased retail load decreased the availability of less expensive excess energy for sale in the wholesale market. In addition, higher purchased power contracts prices decreased the margin on fixed-price sales contracts. Long-term sales margin was relatively unchanged from the prior year due to the impacts of customer load growth and higher prices associated with SO2 credit sales that were offset by a decrease in sales volume due to the expiration of a long-term contract and increased purchased power contract prices that could not be passed through to customers based on fixed-price sales contracts. Short-term margin decreased $10.0 million primarily resulting from lower plant availability and increased retail

113

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

loads, which caused a decrease in energy available to sell on the wholesale market. PNM Wholesale's mark-to-market position fell to a $0.4 loss in 2005 from a $1.3 million gain in 2004.

Total non-fuel O&M increased $0.6 million, or 2.3%, from the prior year, due to increased energy production costs, primarily due to higher plant maintenance costs in 2005 compared to 2004, resulting from plant outages.

Depreciation and amortization increased $1.1 million, or 10.5%, over the prior year due to the addition of new technology platforms that were placed in service in December 2004 and the first nine months of 2005. The Company expects depreciation to continue to increase in the future as a result of this increased investment in new technology platforms.

First Choice

PNMR acquired TNP on June 6, 2005, and results in this section are presented from the acquisition date forward only. For the nine months ended September 30, 2005, which includes results from June 6 through September 30, 2005, the First Choice segment increased PNMR revenues by $198.5 million.

The table below sets forth the operating results for First Choice.

For the Period
June 6 - September 30, 2005
(In thousands)
Operating revenues	$198,510
Less: Cost of energy	154,834
Gross margin	43,676
Energy production costs	-
Transmission and distribution O&M	-
Customer related expense	2,138
Administrative and general	5,736
Total non-fuel O&M	7,874
Corporate allocation	4,789
Depreciation and amortization	585
Taxes other than income taxes	2,334
Income taxes	9,846
Total non-fuel operating expenses	25,428
Operating income	$ 18,248

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows electric revenues by customer class and average customers:

First Choice Electric Revenues

For the Period
June 6 - September 30, 2005
(In thousands, except customers)
Residential	$131,278
Mass-market	31,823
Mid-market	27,844
Other	7,565
	$198,510

Average customers *	215,524

* See note above in the TNMP Electric segment discussion about the impact of TECA.

The following table shows electric sales by customer class:

For the Period
June 6 - September 30, 2005
(Megawatt hours)
Residential	1,093,015
Mass-market	260,607
Mid-market	304,024
Other	16,514
	1,674,160

* See note above in the TNMP Electric segment discussion about the impact of TECA.

Corporate and Other

Corporate Administrative and General Expenses

Corporate administrative and general expenses, which represent costs that are driven primarily by corporate-level activities, are allocated to the business segments and presented in the corporate allocation line item in the segment statements. These costs increased $18.8 million, or 23.2%, over the prior year to $99.5 million. This increase is due to acquisition related costs of $9.2 million, increased labor costs of $3.1 million resulting from the transfer of employees from operations to corporate, increased legal and environmental costs of $1.2 million related to PUHCA filings, financing costs for PNMR's hybrid income term securities, an environmental reserve and tax matters, $0.9 million in increased audit fees and $0.3 million in general expenses for TNMP and First Choice operations. These increases were partially offset by lower pension and benefit costs of $1.7 million resulting from higher returns on pension investments.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNMR Consolidated

Other Income and Deductions

Interest income increased $3.6 million, or 13.0%, due to short-term interest of $1.9 million related to cash received from PNMR's issuance of hybrid income term securities, interest of $1.5 million related to TNP's cash balance, which PNMR did not have in the prior year, $0.6 million related to higher PGAC balances caused by increasing gas prices and $0.5 million from interest on amended federal income tax returns. These increases were partially offset by lower interest income of $1.5 million due to pay-down of principal on the Palo Verde capital trust.

Other income increased $6.9 million due to increased gains of $1.6 million from investments in PNMR's cash management program, a mark-to-market gain of $1.8 million from an interest rate swap, a $1.9 million increase in earnings in excess of the required amount in the PNM decommissioning trust and approximately $1.9 million in merchandising revenues, primarily from emergency assistance services (offset by the related expenses in other deductions below).

Carrying charges on regulatory assets were $2.4 million from June 6 through September 30, 2005. This represents interest income on TNMP regulatory assets from the date of acquisition.

Other deductions increased $13.3 million due to a $4.5 million write-off of software costs, a $3.6 million loss on the Wood River investment (see Note 4 - "Fair Value of Financial Instruments," in the Notes to Consolidated Financial Statements), $1.5 million increased expenses related to merchandising revenues (offset by the related revenues in other income above) and miscellaneous tax-related adjustments of $1.6 million.

Interest Charges

Interest charges increased $24.5 million, or 64.3%, due to interest and refinancing costs of $6.4 million related to the hybrid income term securities issued March 30, 2005, $4.3 million of expenses related to increased commercial paper borrowings, short-term interest costs of $1.2 million for operations and $11.3 million related to debt from the TNP operations, which PNMR did not have in the prior year.

Income Taxes

PNMR's consolidated income tax expense was $34.5 million for the nine months ended September 30, 2005, compared to $38.7 million for the nine months ended September 30, 2004. The decrease was due to the impact of lower pre-tax earnings. PNMR's effective income tax rates for the nine months ended September 30, 2005 and 2004 were 35.30% and 35.78%, respectively.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three Months Ended September 30, 2005
Compared to Three Months Ended September 30, 2004

PNM

PNM's segments are PNM Electric, PNM Gas and PNM Wholesale and are identical to the segments presented above in "Results of Operations" for PNMR. Income taxes and non-operating items are discussed on a consolidated basis for PNM and are in conformity with the presentation in PNM's consolidated financial statements.

PNM Consolidated

Other Income and Deductions

Other income increased $1.9 million, or 95.4%, due to an increase of approximately $1.3 million in merchandising revenues, primarily from emergency assistance services and other miscellaneous income of $0.6 million. Other deductions increased $1.5 million due to an increase of $1.0 million in corresponding merchandising costs, primarily from emergency assistance services and other miscellaneous expenses of $0.5 million.

Income Taxes

PNM's consolidated income tax expense was $6.4 million for the three months ended September 30, 2005, compared to $14.8 million for the three months ended September 30, 2004. The decrease was due to the impact of lower pre-tax earnings. PNM's effective income tax rates for the three months ended September 30, 2005 and 2004 were 36.30% and 34.81%, respectively. The increase in the effective tax rate was due to a decrease in permanent tax benefits.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2005
Compared to Nine Months Ended September 30, 2004

PNM

As noted previously in the third quarter presentation, PNM's segments are PNM Electric, PNM Gas and PNM Wholesale and are identical to the segments presented above in "Results of Operations" for PNMR. Income taxes and non-operating items are discussed on a consolidated basis for PNM and are in conformity with the presentation in PNM's consolidated financial statements.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNM Consolidated

Other Income and Deductions

Other income increased $3.9 million, or 74.1%, due to an increase of approximately $1.9 million in merchandising revenues, primarily from emergency assistance services and a $1.9 million increase in earnings in excess of the required amount in the PNM decommissioning trust. Other deductions increased $6.9 million due to an increase of $1.5 million in corresponding merchandising costs, primarily from emergency assistance services and the write-off of software costs of $4.5 million.

Income Taxes

PNM's consolidated income tax expense was $27.4 million for the nine months ended September 30, 2005, compared to $39.8 million for the nine months ended September 30, 2004. The decrease was due to the impact of lower pre-tax earnings. PNM's effective income tax rates for the nine months ended September 30, 2005 and 2004 were 36.44% and 35.87%, respectively.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three Months Ended September 30, 2005
Compared to Three Months Ended September 30, 2004

TNMP

TNMP operates in only one reportable segment, "TNMP Electric." See Note 3 - "Segment Information," in the Notes to Consolidated Financial Statements for additional information regarding these results and the consolidated financial statements. Results for the three months ended September 30, 2005 include the effects of purchase accounting, which are not included in the three months ended September 30, 2004.

The table below sets forth the operating results for TNMP.

	Three Months Ended
	September 30,
	2005		2004		Variance
	(In thousands)
Operating revenues:
External customers		$49,373		$44,760		$ 4,613
Intersegment revenues		22,068		29,972		(7,904)
Total revenues		71,441		74,732		(3,291)
Less: Cost of energy		25,764		25,956		(192)
Gross margin		45,677		48,776		(3,099)
Operating Expenses:
Transmission and distribution O&M		5,670		4,442		1,228
Customer related expense		1,433		1,250		183
Administrative and general		4,537		6,302		(1,765)
Total non-fuel O&M		11,640		11,994		(354)
Depreciation and amortization		7,814		7,433		381
Taxes other than income taxes		6,597		6,509		88
Income taxes		4,412		5,760		(1,348)
Total non-fuel operating expenses		30,463		31,696		(1,233)
Operating income		15,214		17,080		(1,866)
Other Income and deductions:
Carrying charges on regulatory assets		1,910		928		982
Other income		862		365		497
Other deductions		(43)		(157)		114
Other income taxes		(1,050)		(436)		(614)
Net other income and deductions		1,679		700		979
Interest Charges		7,250		6,971		279
Net Earnings		$ 9,643		$10,809		$ (1,166)

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows electric revenues by customer class and average customers:

TNMP Electric Revenues

	Three Months Ended
	September 30,
	2005	2004	Variance
	(In thousands except customers)
Residential	$28,637	$28,373	$ 264
General Services	9,150	8,357	793
Primary/Economy/Transmission	10,809	13,699	(2,890)
Secondary	13,323	14,729	(1,406)
Municipal Lighting	2,346	2,572	(226)
Other	7,176	7,002	174
	$71,441	$74,732	$(3,291)

Average customers	259,168	254,504	4,664

The following table shows electric sales by customer class:

TNMP Electric Sales

	Three Months Ended
	September 30,
	2005	2004	Variance
	(Megawatt hours)
Residential	953,947	891,676	62,271
General Services	69,010	65,469	3,541
Primary/Economy/Transmission	537,464	545,594	(8,130)
Secondary	578,609	534,053	44,556
Municipal/Lighting	39,238	37,760	1,478
	2,178,268	2,074,552	103,716

Operating revenues decreased $3.3 million, or 4.4%, from the prior year quarter. Gross margin for the three months ended September 30, 2005 decreased $3.1 million, or 6.4%, compared with the third quarter of 2004. The decrease was primarily due to a $6.8 million decrease in revenues due to a rate reduction effective May 1, 2005 that was part of the PUCT's approval of the TNP acquisition, a $0.6 million margin decrease due to the reduced operations of a major customer and a $3.0 million increase in costs of energy resulting from higher purchased power costs due to increasing gas prices. Partially offsetting these decreases were increases in revenues resulting from warm weather of $3.6 million, $3.0 million related to higher fuel-recovery, $0.7 million due to customer growth, and lower purchased power costs due to the overall decrease in volumes.

Total non-fuel operating expenses decreased $1.2 million, or 3.9%, due primarily to a decrease in non-fuel O&M of $0.4 million and a decrease of $1.3 million in income tax expense, offset by an increase of $0.4 million in depreciation and amortization expense. Administrative and general expenses decreased $1.8 million primarily due to decreased legal, environmental and regulatory expenses of $2.7 million, partially offset by increases related to synergy credits to

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

customers and general corporate expenses of $1.1 million. Transmission and distribution O&M increased $1.2 million primarily due to $0.5 million in increased expenses for the preparation and restoration efforts related to hurricane Rita and $0.5 million related to the maintenance of overhead lines in 2005. Depreciation expenses increased as a result of additions to fixed assets.

Net other income and deductions increased $1.0 million due to increased interest income calculated on stranded costs as authorized by the PUCT.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2005
Compared to Nine Months Ended September 30, 2004

TNMP

TNMP operates in only one reportable segment, "TNMP Electric." See Note 3 - "Segment Information," in the Notes to Consolidated Financial Statements for additional information regarding these results and the consolidated financial statements. Results for the nine months ended September 30, 2005 include the effects of purchase accounting, which are not included in the nine months ended September 30, 2004.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The table below sets forth the operating results for TNMP.

	Nine Months Ended
	September 30,
	2005		2004		Variance
	(In thousands)
Operating revenues:
External customers		$171,071		$201,454		$(30,383)
Intersegment revenues		32,425		-		32,425
Total revenues		203,496		201,454		2,042
Less: Cost of energy		76,351		73,601		2,750
Gross margin		127,145		127,853		(708)
Operating expenses:
Transmission and distribution O&M		15,931		14,371		1,560
Customer related expense		3,835		3,740		95
Administrative and general		15,366		18,375		(3,009)
Total non-fuel O&M		35,132		36,486		(1,354)
Depreciation and amortization		22,853		22,186		667
Taxes other than income taxes		17,710		17,700		10
Income taxes		10,592		10,454		138
Total non-fuel operating expenses		86,287		86,826		(539)
Operating income		40,858		41,027		(169)
Other income and deduction:
Carrying charges on regulatory assets		1,028		928		100
Other income		2,233		1,360		873
Other deductions		(133)		(266)		133
Other income taxes		(1,210)		(791)		(419)
Net other income and deductions		1,918		1,231		687
Interest charges		21,326		21,105		221
Net earnings before extraordinary
item		21,450		21,153		297
Extraordinary item:
Disallowance of stranded cost,
net of tax		-		(97,836)		97,836
Net earnings (loss)		$ 21,450		$ (76,683)		$98,133

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows electric revenues by customer class and average customers:

TNMP Electric Revenues

	Nine Months Ended
	September 30,
	2005	2004	Variance
	(In thousands except customers)
Residential	$ 72,136	$ 70,929	$1,207
General Services	24,390	23,048	1,342
Primary/Economy/Transmission	36,883	36,370	513
Secondary	40,482	41,590	(1,108)
Municipal/Lighting	7,237	7,529	(292)
Other	22,368	21,988	380
	$203,496	$201,454	$2,042

Average customers	257,601	253,464	4,137

The following table shows electric sales by customer class:

TNMP Electric Sales

	Nine Months Ended
	September 30,
	2005	2004	Variance
	(Megawatt hours)
Residential	2,196,448	2,080,718	115,730
General Services	184,488	179,183	5,305
Primary/Economy/Transmission	1,701,713	1,583,082	118,631
Secondary	1,477,384	1,431,244	46,140
Municipal/Lighting	112,797	108,199	4,598
	5,672,830	5,382,426	290,404

Operating revenues increased $2.0 million, or 1.0%, from the prior year. Gross margin for the nine months ended September 30, 2005 decreased by $0.7 million, or 0.6%, compared with the corresponding 2004 period. The overall decrease was primarily due to a $7.6 million decrease in revenues due to a rate reduction effective May 1, 2005 that was part of the PUCT's approval of the TNP acquisition, a $0.9 million decrease in margin due to the reduced operations of a major customer and a $2.9 million increase in costs of energy resulting from higher purchased power costs due to increasing gas prices. These decreases were offset by a $4.8 million increase in revenues due to higher sales resulting from warm weather, a $1.8 million increase in revenues due to customer growth and $3.6 million related to higher fuel-recovery.

Total non-fuel operating expenses decreased $0.5 million, or 0.6%, due primarily to a decrease in non-fuel O&M of $1.4 million offset by an increase of $0.7 million in depreciation and amortization expense. Administrative and general expenses decreased $3.0 million, primarily due to decreased legal, environmental and regulatory expenses of $4.7 million, partially offset by increases related to synergy credits to customers and general corporate expenses of $1.3 million. Transmission and distribution O&M increased $1.6 million primarily

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

due to $0.6 million in increased expenses for the preparation and restoration efforts related to hurricane Rita and $0.5 million related to the maintenance of overhead lines in 2005. Depreciation expense increased as a result of additions to fixed assets.

Net other income and deductions increased by $0.7 million due primarily to a $1.0 million increase in interest revenues resulting from higher cash balances and higher interest rates in 2005.

CRITICAL ACCOUNTING POLICIES

The Company employs certain critical accounting policies that require use of judgments and assumptions that are subject to uncertainty. The amounts reported in the consolidated interim financial statements that are related to those critical accounting policies could be different if either different judgments were made or different assumptions were used. Those critical accounting policies are discussed below.

Purchase Accounting. The acquisition of TNP was accounted for using the purchase method of accounting as prescribed in SFAS 141; accordingly, purchase accounting adjustments have been reflected in the financial statements of TNP for all periods subsequent to June 6, 2005. The business operations of TNP were not significantly changed as a result of the acquisition, and post-acquisition and pre-acquisition operating results, except as noted in the discussion, are comparable.

Goodwill and Intangible Assets. In accordance with SFAS 141, the Company has revalued the assets and liabilities acquired at their respective fair values. In accordance with SEC regulations, the difference between the purchase price and the fair value of the assets acquired and liabilities assumed is recorded by the acquired businesses. Goodwill and other intangible assets and liabilities were also recorded by the acquired businesses and are either amortized or are measured for impairment annually, on December 31, in accordance with SFAS 142.

As of September 30, 2005, there have been no other 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, 2004. The policies disclosed included the accounting for revenue recognition, regulatory assets and liabilities, asset impairment, pension plan, self-insurance, contingent liabilities and environmental issues.

LIQUIDITY AND CAPITAL RESOURCES

PNMR

At September 30, 2005, PNMR had cash and short-term investments of $144.8 million compared to $17.2 million in cash and short-term investments at December 31, 2004.

Cash provided by operating activities for the nine months ended September 30, 2005 was $170.6 million compared to $212.6 million for the nine months ended September 30, 2004. PNMR's net earnings for the nine months ended September 30, 2005 were $60.5 million, a 12.3% decrease in net earnings compared to $69.0 million in the nine months ended September 30, 2004, which contributed to the decrease in cash provided by operating activities. The decrease in earnings was driven primarily by acquisition related costs and other non-recurring charges.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition, the Company experienced below normal levels of plant performance, which reduced the amount of electricity the Company sold on the wholesale market and forced the Company to purchase power to meet jurisdictional and contractual wholesale needs. In addition, the margin on fixed-price contracts decreased, as increases in purchased power contract prices that were driven by increasing fuel prices were not able to be passed on to customers with fixed sales prices. These decreases to net earnings were partially offset by the addition of the TNP operations for June 6 through September 30, 2005 and an increase in cost of service gas rates. The decrease was offset in part by increases in cash flows from greater efficiency in management of accounts receivables, including the PGAC.

Cash used for investing activities was $84.4 million for the nine months ended September 30, 2005 compared to $79.9 million for the nine months ended September 30, 2004. Cash flows used for investing activities were higher in the current period due primarily to the cash balances acquired from TNP, net of the cash paid to acquire TNP. The increase in cash flows used for investing activities was offset by increased cash payments for utility plant additions.

Cash generated by financing activities was $41.4 million for the nine months ended September 30, 2005 compared to cash used for financing activities of $136.9 million for the nine months ended September 30, 2004. Cash generated from financing activities in 2005 increased due to the issuance of short-term debt for $380.0 million to fund a portion of the cost of redemption of TNP preferred stock and senior notes, the issuance of the equity units for $239.8 million and the issuance of common stock for $101.2 million. The increase in cash generated by financing activities was partially offset by the redemption of TNP preferred stock of $224.6 million and the repayment of long-term debt of $399.6 million, including the repayment of $296.5 million in TNP senior notes and the repayment of $110.5 million under the TNP credit agreement. Financing activities in 2004 consisted primarily of short-term debt repayments.

PNM

Cash provided by operating activities for the nine months ended September 30, 2005 was $95.0 million compared to $217.1 million for the nine months ended September 30, 2004. This decrease in cash flows was due primarily to lower year to date earnings in 2005 and reduced levels of accounts payable and increased levels of accounts receivable in 2005 as a result of higher winter season gas usage in December 2004.

Cash used for investing activities was $71.1 million for the nine months ended September 30, 2005 compared to $86.0 million for the nine months ended September 30, 2004. The decrease in cash used for investing activities was due primarily to a $12.2 million purchase of bond investments in 2004 that did not recur in 2005.

Cash used by financing activities was $27.5 million for the nine months ended September 30, 2005 compared to cash used for financing activities of $134.7 million for the nine months ended September 30, 2004. The decrease in cash used for financing activities was due primarily to cash received from short-term borrowings in 2005 of $53.6 million compared to the use of cash in 2004 of $97.7 million to repay short-term borrowings. For the nine months ended September 30, 2005, $53.6 million of cash was provided from financing activities as a result of the issuance of commercial paper primarily to fund costs related to the TNP acquisition. For the nine months ended September 30, 2004, less cash was provided from financing activities due to a decrease in securitized accounts receivable balances of $54.9 million, the repayment of a

125

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

revolving line of credit balance of $20.0 million and the repayment of commercial paper outstanding of $22.8 million. The decrease in cash flows from financing activities was offset in part by the payment of $80.0 million in dividends to PNMR.

TNMP

TNMP's cash provided by operating activities for the nine months ended September 30, 2005 was $61.3 million compared to $50.7 million for the nine months ended September 30, 2004. TNMP's cash flow from operations was $10.6 million higher in the current period than in the nine months ended September 30, 2004, due primarily to lower payments for accounts payable.

Cash used for investing activities was $35.0 million for the nine months ended September 30, 2005 compared to $33.4 million for the nine months ended September 30, 2004. Utility plant additions decreased as a result of lower capital spending in anticipation of the acquisition of TNP by PNMR.

Cash used for financing activities for the nine months ended September 30, 2005 was $62.0 million compared to cash used for financing activities for the nine months ended September 30, 2004 of $15.3 million. In the third quarter of 2005, TNMP, a wholly owned subsidiary of TNP, had a cash outlay of $62.0 million to redeem a portion of the TNMP stock held by TNP. TNMP activities in 2004 consisted primarily of short-term debt repayments and dividends paid.

Capital Requirements

PNMR

Total capital requirements include construction expenditures as well as other major capital requirements and cash dividend requirements for both common and preferred stock. The main focus of the Company's current construction program is upgrading generation resources, upgrading and expanding the electric and gas transmission and distribution systems and purchasing nuclear fuel. Projections for total capital requirements for 2005, including TNMP and First Choice, are $292.1 million with projections for construction expenditures for 2005 constituting $265.1 million of that total. Total capital requirements, including TNMP and First Choice, are projected to be $1,353 million and construction expenditures are projected to be $1,183 million for 2005-2009. These estimates are under continuing review and subject to on-going adjustment. This projection includes $49.0 million for the acquisition and construction of Luna, $49.0 million for PNM's estimated share of capital costs for new pollution control technology at SJGS (which is currently under review and may ultimately be higher) and $124.3 million for expansion at Afton. In July 2005, PNM filed with the NMPRC an application for a CCN in which PNM requested NMPRC approval to include in PNM's retail rate base in its next retail electric rate case the costs associated with the conversion of the Afton generating station from a combustion turbine to a combined cycle unit utilizing one of PNM's turbines in storage. The conversion to a combined-cycle unit, as proposed, would utilize a turbine currently in storage with a book value of $24.3 million. As part of the negotiations regarding regulatory treatment of the Afton facility, the parties also are discussing alternative equipment configurations under which the turbine in storage would not be used. If such an alternative configuration were to be agreed upon, the Company would evaluate other alternatives, including selling the unit, which could result in a write-down depending on prevailing market conditions for this type of equipment. The Company is unable to predict the outcome of the Afton CCN case.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company continues to look for appropriately priced generation acquisition and expansion opportunities to support retail electric load growth, for the continued expansion of its long-term contract business, and to supplement its natural transmission position in the Southwest and West.

During the nine months ended September 30, 2005, the Company utilized cash generated from operations and cash on hand, as well as its liquidity arrangements, to cover its capital requirements and construction expenditures. The Company anticipates that internal cash generation and current debt capacity will be sufficient to meet all of its capital requirements and construction expenditures for the years 2005 through 2009. 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.

PNM

The main focus of PNM's current construction program is upgrading generation resources, upgrading and expanding the electric and gas transmission and distribution systems and purchasing nuclear fuel. Projections for total capital requirements for 2005 are $215.5 million with projections for construction expenditures for 2005 constituting $188.5 million of that total. Total capital requirements are projected to be $1,064 million and construction expenditures are projected to be $894.3 million for the years 2005 through 2009. These estimates are under continuing review and subject to on-going adjustment.

The Company's one-third interest in the 570 megawatt Luna facility, currently under construction, has been held in a wholly-owned subsidiary, PNMR Development and Management Corporation. Company management has recently made the decision to transfer the one-third interest to PNM, which PNM will continue to develop and which PNM will use as merchant plant. The Company expects the transfer to be completed by the end of November 2005.

TNMP

The main focus of TNMP's current construction program is upgrading and expanding the electric transmission and distribution systems. Projections for total capital requirements for 2005 are $35.2 million. Total capital requirements are projected to be $227.2 million for the years 2005 through 2009. These estimates are under continuing review and subject to on-going adjustment.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity

PNMR

As of October 28, 2005, PNMR had $615.0 million of liquidity arrangements. The liquidity arrangements consist of $600.0 million from an unsecured revolving credit facility, referred to as the PNMR Facility for purposes of this discussion, and $15.0 million in local lines of credit. As of October 28, 2005, there were no amounts borrowed under the PNMR Facility or the local lines of credit.

At October 28, 2005, First Choice had up to $300.0 million of borrowing capacity under the PNMR Facility. Any borrowings made by First Choice under this sublimit are guaranteed by PNMR. At October 28, 2005, First Choice had no borrowings outstanding under the PNMR Facility; however, First Choice had $5.7 million of letters of credit outstanding, which reduces the available capacity under the PNMR Facility. TNMP is also a borrower under the PNMR Facility, see "TNMP" detail below.

PNMR has established a commercial paper program under which it may issue up to $400.0 million in commercial paper for up to 270 days. The commercial paper is unsecured and the proceeds are used for short-term cash management needs. The PNMR Facility serves as a backstop for the outstanding commercial paper. As of October 28, 2005, there were $265.7 million of borrowings outstanding under this program.

PNMR'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, obtaining required regulatory approvals and financial and wholesale market conditions. Financing flexibility is enhanced by providing a high percentage of total capital requirements from internal sources and having the ability, if necessary, to issue long-term securities and to obtain short-term credit.

PNMR's credit outlook was considered stable by S&P and Moody's as of the date of this report. The Company is committed to maintaining or improving its investment grade ratings. In March 2005, S&P and Moody's rated PNMR's senior unsecured notes issued as part of its equity unit sales (see "Financing Activities" below) BBB- and Baa3, respectively. The PNMR commercial paper program discussed above has been rated A2 by S&P and P3 by Moody's.

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.

In Texas, capacity auctions are a semi-regular event mandated by the TECA to promote liquidity in the marketplace. Under these monthly or annual auctions, formerly integrated utilities are required to auction a portion of their capacity. The process is a simultaneous, multiple round bidding auction conducted over the internet. The most recent annual auction

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

began in August 2005, but was postponed for one week in September due to a hurricane. First Choice was required to post collateral for 100% of its planned bid of $120.0 million. PNMR initially posted $18.2 million in parental guarantees and $101.8 million in letters of credit in support of First Choice. First Choice won four 25 MW baseload blocks of capacity in October 2005 and two 25 MW cyclic blocks of capacity in September 2005. Upon completion of the auction, collateral requirements for the baseload capacity decreased to 25.9% of the outstanding commitment. First Choice resold the baseload capacity almost immediately and kept the capacity products for load management purposes.

PNM

As of October 28, 2005, PNM had $493.5 million of liquidity arrangements. The liquidity arrangements consist of $400.0 million from an unsecured revolving credit facility, referred to as the PNM Facility for purposes of this discussion, $70.0 million from an AR Securitization program and $23.5 million in local lines of credit. As of October 28, 2005, there were no amounts borrowed against the PNM Facility, the AR Securitization, or the local lines of credit; however, $4.5 million of letters of credit were outstanding, which reduces the available capacity under the PNM Facility.

At October 28, 2005, PNM also had a $20.0 million borrowing arrangement with PNMR, which is not included in the $493.5 million of liquidity arrangements discussed above. As of October 28, 2005 there were no amounts outstanding under this arrangement.

PNM has a commercial paper program under which PNM may issue up to $300.0 million in commercial paper for up to 365 days. The commercial paper is unsecured and the proceeds are used for short-term cash management needs. The PNM Facility serves as a backstop for PNM's outstanding commercial paper. As of October 28, 2005, PNM had $94.1 million in commercial paper outstanding under this program.

PNM'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, obtaining required regulatory approvals and financial and wholesale market conditions. Financing flexibility is enhanced by providing a high percentage of total capital requirements from internal sources and having the ability, if necessary, to issue long-term securities and to obtain short-term credit.

PNM's credit outlook was considered stable by S&P and Moody's as of the date of this report. The Company is committed to maintaining or improving its investment grade ratings. As of September 30, 2005, S&P rated PNM's business position as six, its senior unsecured notes as BBB with a stable outlook and its preferred stock as BB+. As of September 30, 2005, Moody's rated PNM's senior unsecured notes as Baa2 and its preferred stock as Ba1. S&P has assigned its A-2 corporate credit and short-term debt ratings to PNM's rated commercial paper program. Moody's has assigned its P-2 corporate credit and short-term debt ratings to PNM's rated commercial paper program.

In June 2005, the Board of PNM declared a dividend of $80.0 million that was paid to PNMR in July 2005.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TNMP

In June 2005, TNMP filed an application with the NMPRC to become a borrower and issue notes of up to $100.0 million under the PNMR Facility. In July 2005, the NMPRC issued an order approving the application, SEC approval was received in September 2005 and TNMP was added as a borrower under the PNMR Facility in September 2005. Any borrowings made by TNMP under this sublimit are not guaranteed by PNMR. At October 28, 2005, TNMP had no outstanding borrowings under the PNMR Facility, but did have $2.0 million letters of credit outstanding, which reduces available capacity under the PNMR Facility.

TNMP'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, obtaining required regulatory approvals and financial and wholesale market conditions. Financing flexibility is enhanced by providing a high percentage of total capital requirements from internal sources and having the ability, if necessary, to issue long-term securities and to obtain short-term credit.

TNMP's credit outlook was considered stable by S&P and Moody's as of the date of this report. The Company is committed to maintaining or improving its investment grade ratings. As of September 30, 2005, S&P rated TNMP's senior unsecured notes at BBB. As of September 30, 2005, Moody's rated TNMP's senior unsecured notes at Baa3.

Contingent Provisions of Certain Obligations

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. PNMR, PNM or TNMP could be required to provide security, immediately pay outstanding obligations or be prevented from drawing on unused capacity under certain credit agreements if the contingent requirements were to be triggered. The most significant consequences resulting from these contingent requirements are detailed in the discussion below.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNMR

The committed PNMR Facility contains a "ratings trigger," for pricing purposes only. If PNMR is downgraded or upgraded by the ratings agencies, the result would be an increase or decrease in interest cost, respectively. In addition, the PNMR Facility contains a contingent requirement that requires PNMR to maintain a debt-to-capital ratio, inclusive of off-balance sheet debt, of less than 65%. If PNMR's debt-to-capital ratio, inclusive of off-balance sheet debt, were to exceed 65%, it could be required to repay all borrowings under the PNMR Facility, be prevented from drawing on the unused capacity under the PNMR Facility, and be required to provide security for all outstanding letters of credit issued under the PNMR Facility.

PNM

PNM's standard purchase agreement for the procurement of gas for its retail customers contains a contingent requirement that could require PNM to provide security for its gas purchase obligations if the seller were to reasonably believe that PNM was unable to fulfill its payment obligations under the agreement.

The master agreement for the sale of electricity in the WSPP contains a contingent requirement that could require PNM to provide security if its debt were to fall below investment grade rating. The WSPP agreement also contains a contingent requirement, commonly called a material adverse change provision, which could require PNM to provide security if a material adverse change in its financial condition or operations were to occur.

The committed PNM Facility contains a "ratings trigger," for pricing purposes only. If PNM is downgraded or upgraded by the ratings agencies, the result would be an increase or decrease in interest cost, respectively. In addition, the PNM Facility contains a contingent provision that requires PNM to maintain a debt-to-capital ratio, inclusive of off-balance sheet debt, of less than 65%. If PNM's debt-to-capital ratio, inclusive of off-balance sheet debt, were to exceed 65%, PNM could be required to repay all borrowings under the PNM Facility, be prevented from drawing on the unused capacity under the PNM Facility, and be required to provide security for all outstanding letters of credit issued under the PNM Facility.

If a contingent requirement were to be triggered under the PNM Facility resulting in an acceleration of the outstanding loans under the PNM Facility, a cross-default provision in the PVNGS leases could occur if the accelerated amount is not paid. If a cross-default provision is triggered, the lessors have the ability to accelerate their rights under the leases, including acceleration of all future lease payments.

TNMP

TNMP's borrowing availability under the committed PNMR Facility contains a "ratings trigger," for pricing purposes only. If TNMP is downgraded or upgraded by the ratings agencies, the result would be an increase or decrease in interest cost, respectively. In addition, the PNMR Facility contains a contingent requirement that requires TNMP to maintain a debt-to-capital ratio, inclusive of off-balance sheet debt, of less than 65%. If TNMP's debt-to-capital ratio, inclusive of off-balance sheet debt, were to exceed 65%, TNMP could be required to repay all borrowings under the PNMR Facility, be prevented from drawing on the unused capacity under the PNMR Facility, and be required to provide security for all outstanding letters of credit issued under the PNMR Facility.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financing Activities

PNMR

PNMR has a universal shelf registration statement filed with the SEC for the issuance of debt securities, equity securities, preferred stock, purchase contracts, purchase contract units and warrants. As of September 30, 2005, PNMR had approximately $400.9 million of remaining unissued securities under this registration statement.

PNMR has entered into three fixed-to-floating interest rate swaps with an aggregate notional principal amount of $150.0 million. Under these swaps, PNMR receives a 4.40% fixed interest payment on the notional principal amount on a semi-annual basis and pays a floating rate equal to the six month LIBOR plus 58.15 basis points (0.5815%) on the notional amount through September 15, 2008. The initial floating rate was 1.91% and will be reset every six months. The floating rate was reset on September 15, 2005, to 4.60%. The swap is accounted for as a fair-value hedge with a negative fair-market value (liability position) of approximately $3.2 million as of September 30, 2005.

During October 2004, PNMR entered into two forward starting floating-to-fixed rate interest rate swaps with an aggregate notional principal amount of $100.0 million. These swaps became effective August 1, 2005 and terminate November 15, 2009. Under these swaps, PNMR receives a floating rate equal to the three month LIBOR rate on the notional principal amount and pays a fixed interest rate of 3.97% on the notional principal amount on a quarterly basis. The initial floating rate was set on August 1, 2005, at 3.69% and will be reset every three months.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Each purchase contract obligates Cascade to purchase, and PNMR to sell, at a purchase price of $25.00 in cash, shares of PNMR's common stock on or before November 16, 2008 (the "Purchase Contract Settlement Date"). Generally, the number of shares Cascade 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 the Purchase Contract Settlement Date, subject to anti-dilution adjustments. If the average closing price for the 20-day trading period is equal to or greater than approximately $25.116 per share, the settlement rate will be 0.9954 shares of common stock. If the average closing price for the trading period is less than approximately $25.116 per share but greater than $20.93 per share, the settlement rate is equal to $25.00 divided by the average closing price of PNMR's common stock for the trading period. If the average closing price for the trading period is less than or equal to $20.93 per share, the settlement rate will be 1.1945 shares of common stock. Cascade has the option to settle its obligations under the purchase contracts at any time on or prior to the fifth business day immediately preceding the Purchase Contract Settlement Date. Prior to the Purchase Contract Settlement Date, the senior notes will be remarketed. If the remarketing is successful, the interest rate on the senior notes may change to a rate selected by the remarketing agent, and the maturity of the senior notes may be extended to a date selected by PNMR. If the remarketing of the senior notes is not successful, the maturity and interest rate of the senior notes will not change and holders of the equity units will have the option of putting their senior notes to PNMR to satisfy their obligations under the purchase contracts.

The purchase contracts are forward transactions in PNMR's common stock. The final accounting for this transaction is under review and will be finalized during the fourth quarter of 2005.

In March 2005, PNMR issued 3,910,000 shares of its common stock at $26.76 per share. PNMR received net proceeds from this offering, after deducting underwriting discounts and commissions and estimated expenses, of approximately $101.0 million. In addition, in March 2005, PNMR also completed a public offering of 4,945,000 equity units at 6.75% yielding net proceeds after fees of $239.6 million.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNM

PNM has a universal shelf registration statement filed with the SEC for the issuance of debt securities, equity securities, preferred stock, purchase contracts, purchase contract units and warrants. As of September 30, 2005, PNM had approximately $200.0 million of remaining unissued securities registered under its shelf registration statement. The amount of senior unsecured notes that may be issued is not limited by the senior unsecured notes indenture. However, debt-to-capital requirements in certain of PNM's financial instruments and regulatory agreements could ultimately limit the amount of additional debt PNM could issue.

TNMP

Depending on TNMP's future business strategy, capital needs and market conditions, TNMP could enter into additional long-term financings for the purpose of strengthening TNMP's balance sheet, funding growth and reducing its cost of capital. The Company continues to evaluate its investment and debt retirement options to optimize its financing strategy and earnings potential. The amount of senior unsecured notes that may be issued is not limited by the senior unsecured notes indenture. However, debt-to-capital requirements in certain of TNMP's financial instruments and regulatory agreements would ultimately limit the amount of additional debt TNMP would issue.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Capital Structure

PNMR

PNMR's capitalization, including current maturities of long-term debt, at September 30, 2005 and December 31, 2004 is shown below:

	September 30,	December 31,
	2005	2004

Common Equity	44.0%	52.4%
Preferred Stock	0.4%	0.6%
Long-term Debt	55.6%	47.0%
Total Capitalization	100.0%	100.0%

Total capitalization does not include as debt the present value of PNM's operating lease obligations for PVNGS Units 1 and 2, EIP and the Delta operating lease, which was approximately $172.2 million as of September 30, 2005 and $176.0 million as of December 31, 2004.

The change in PNMR's capitalization is due to the issuance of common stock and equity units in March 2005 and the acquisition of TNP on June 6, 2005. For additional information on the acquisition, refer to Note 2 - "TNP Acquisition," in the Notes to Consolidated Financial Statements. Total capitalization does not include the effect of the equity-linked securities issued to Cascade in October 2005. Refer to Note 6 - "Capitalization," in the Notes to Consolidated Financial Statements.

PNM

PNM's capitalization, including current maturities of long-term debt, at September 30, 2005 and December 31, 2004 is shown below:

	September 30,	December 31,
	2005	2004

Common Equity	50.1%	50.8%
Preferred Stock	0.6%	0.6%
Long-term Debt	49.3%	48.6%
Total Capitalization	100.0%	100.0%

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TNMP

TNMP's capitalization, including current maturities of long-term debt, at September 30, 2005 and December 31, 2004 is shown below:

	September 30,	December 31,
	2005	2004

Common Equity	59.4%	31.3%
Long-term Debt	40.6%	68.7%
Total Capitalization	100.0%	100.0%

The change in TNMP's capitalization is due to the acquisition of TNP on June 6, 2005 and the effects of purchase accounting.

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 2004 Annual Reports on Forms 10-K. At September 30, 2005, PNMR's long-term debt increased by $247.3 million due to PNMR's issuance of equity-linked securities (see "Financing Activities" section above). There have been no significant changes to PNM's or TNMP's contractual obligations from December 31, 2004.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company uses derivative financial instruments to manage risk as it relates to changes in natural gas and electric prices, changes in interest rates and, historically, adverse market changes for investments held by the Company's various trusts. The Company also uses certain derivative instruments for wholesale power marketing transactions in order to take advantage of favorable price movements and market timing activities in the wholesale power markets. The following additional information is provided.

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 PNMR 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 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 a Risk Manager, 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 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

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

and counterparty accounts; review of hedging and risk activities; and quarterly reporting to the Finance Committee and the PNMR Board on these activities.

The RMC also proposes risk limits, such as VaR and EaR, to the Finance Committee. The Finance Committee ultimately sets the Company's 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 Director of Financial Risk Management. 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.

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 on the wholesale operations.

PNM's wholesale 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. PNM is 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 PNM were required to cover all or a portion of its net open contract position as a result of the aforementioned unexpected situations, it would have to meet its commitments through market purchases. In addition, the wholesale operations utilize discrete market-based transactions to take advantage of opportunities that present themselves in the ordinary course of business. These positions are subject to market risk that is not mitigated by PNM's generation capabilities.

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. First Choice operates within a competitive marketplace; however, to the extent that it serves former TNMP customers under the provisions of the price-to-beat service, it has the ability to file with the PUCT to change the price-to-beat fuel factor twice each year, in the event of significant changes in natural gas prices. The rates charged to new

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

customers acquired by First Choice outside of TNMP's service territory are not regulated by the PUCT, but are negotiated with each customer. As a result, changes in fuel and 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. First Choice's basic strategy is to minimize its exposure to fluctuations in market energy prices by matching fixed price sales contracts with fixed price supply.

Additionally, in connection with the issuance of a final stranded cost true-up order for TNMP, the PUCT will adjust First Choice's fuel factor portion of the price-to-beat downward if natural gas prices are below the prices embedded in the then-current rates. See Note 9 - "Regulatory and Rate Matters - Retail Competition, Price-to-Beat Fuel Factor and Price-to-Beat Base Rate Reset," in the Notes to Consolidated Financial Statements.

Accounting for Derivatives

Under the derivative accounting rules and the related accounting rules for energy contracts, the Company accounts for its various financial derivative instruments for the purchase and sale of energy differently based on management's intent when entering into the contract. Energy contracts that meet the definition of a derivative under SFAS 133 and do not qualify for a normal purchase or sale designation are recorded on the balance sheet at fair market value at each period end. The changes in fair market value are recognized in earnings unless specific hedge accounting criteria are met. Should an energy transaction qualify as a hedge under SFAS 133, fair market value changes from year to year are recognized on the balance sheet with a corresponding charge to other comprehensive income. Gains or losses are recognized when the hedged transaction settles. Derivatives that meet the normal sales and purchases exceptions within SFAS 133 are not marked to market but rather recorded in results of operations when the underlying transaction settles.

PNMR

The following table shows First Choice's net fair value of mark-to-market energy contracts included in the balance sheet:

	September 30,
	2005
	(In thousands)
Mark-to-Market Energy Contracts:
Current asset	$2,109
Long-term asset	496
Total mark-to-market assets	2,605
Current liability	1,806
Total mark-to-market liabilities	1,806

Net fair value of mark-to-market energy contracts	$ 799

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The mark-to-market energy transactions represent net assets at September 30, 2005 after netting all applicable open purchase and sale contracts.

The market prices used to value First Choice mark-to-market energy transactions are based on index prices and broker quotations. Generally, market data to value these transactions is available for the next 18-month period only; the remaining time period, referred to as the illiquid period, is valued using internally developed pricing data. As a result, the Company records liquidity reserves on these contracts for market gains and losses in the illiquid period, effectively limiting the mark-to-market valuation to a rolling 18-month period. The Company regularly assesses the validity and availability of pricing data for the illiquid period of its derivative transactions and adjusts its liquidity reserves, accordingly.

The following table provides detail of changes in First Choice operations' mark-to-market energy transactions' net asset or liability balance sheet position from one period to the next:

	June 6 -
			September 30,
		2005
			(In thousands)
Sources of Fair Value Gain/(Loss):
Fair value at beginning of year		$ -

Amount realized on contracts delivered
during period		(56)

Changes in fair value		855

Net fair value at end of period		$ 799

Net change recorded as mark-to-market		$ 799

The following table provides the maturity of the net assets/(liabilities) of First Choice, giving an indication of when these mark-to-market amounts will settle and generate/(use) cash. The following values were determined using broker quotes:

Fair Value at September 30, 2005

As of September 30, 2005, a decrease in market pricing of First Choice's mark-to-market energy transactions by 10% would have resulted in a decrease in net earnings of less than 1%. Conversely, an increase in market pricing of these transactions by 10% would have resulted in an increase in net earnings of less than 1%.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNM

The following table shows PNM Wholesale's net fair value of mark-to-market energy contracts included in the balance sheet:

	September 30,	December 31,
	2005	2004
	(In thousands)
Mark-to-Market Energy Contracts:
Current asset	$ 9,288	$ 6,890
Long-term asset	14,906	316
Total mark-to-market assets	24,194	7,206
Current liability	(8,336)	(5,007)
Long-term liability	(14,165)	(126)
Total mark-to-market liabilities	(22,501)	(5,133)

Net fair value of mark-to-market energy contracts	$ 1,693	$ 2,073

The mark-to-market energy transactions represent net assets at September 30, 2005 and December 31, 2004 after netting all applicable open purchase and sale contracts.

The market prices used to value PNM Wholesale's mark-to-market energy transactions are based on index prices and broker quotations. Generally, market data to value these transactions is available for the next 18-month period only; the remaining time period, referred to as the illiquid period, is valued using internally developed pricing data. As a result, the Company records liquidity reserves on these contracts for market gains and losses in the illiquid period, effectively limiting the mark-to-market valuation to a rolling 18-month period. The Company regularly assesses the validity and availability of pricing data for the illiquid period of its derivative transactions and adjusts its liquidity reserves, accordingly.

The following table provides a detail of changes in PNM Wholesale's operations' mark-to-market energy transactions' net asset or liability balance sheet position from one period to the next:

	Nine Months Ended
	September 30,
	2005	2004
	(In thousands)
Sources of Fair Value Gain/(Loss):
Fair value at beginning of year	$ 2,073	$ 433

Changes in valuation methods	-	(227)

Amount realized on contracts delivered
during period	(1,675)	(3,118)

Changes in fair value	1,295	4,461

Net fair value at end of period	$ 1,693	$ 1,549

Net change recorded as mark-to-market	$ (380)	$ 1,343

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table provides the maturity of the net assets/(liabilities) of PNM Wholesale, giving an indication of when these mark-to-market amounts will settle and generate/(use) cash. The following values were determined using broker quotes:

Fair Value at September 30, 2005

As of September 30, 2005, a decrease in market pricing of PNM Wholesale's mark-to-market energy transactions by 10% would have resulted in a decrease in net earnings of less than 1%. Conversely, an increase in market pricing of these transactions by 10% would have resulted in an increase in net earnings of less than 1%.

TNMP

In the normal course of business, TNMP enters into commodity contracts in order to meet customer requirements. Criteria by which option-type and forward contracts for electricity can qualify for the normal purchase and sales exception has been defined by SFAS 133, as amended by SFAS No. 149, "Amendments of Statement 133 on Derivative Instruments and Hedging Activities." In accordance with these pronouncements, management has determined that TNMP's contracts for electricity qualify for the normal purchases and sales exception. Accordingly, TNMP does not account for its electricity contracts as derivatives.

Risk Management Activities

PNM's Wholesale Operations measure the market risk of its long-term contracts and wholesale activities using a VaR calculation to maintain the Company's total exposure within management-prescribed limits. The Company's 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. In 2005, the Company adopted 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 Company continues to utilize the two-tailed confidence level at 99%. VaR models are relatively sophisticated. 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 Company's VaR calculation considers the Company's forward position for the next eighteen months. The Company 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 at a 99% confidence level that if prices move against PNM's positions, the Company's 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.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In 2005, the Company revised its methodologies for calculating VaR in order to improve its ability to measure and manage risk. As a result, the Company also revised its VaR limits to be consistent with the new methodologies. As previously discussed, the Company adopted the Monte Carlo statistical simulation approach. In addition, the Company redefined the types of transactions on which it measures VaR. The total VaR is now based solely on its merchant activities and excludes all effects from the retail operations and the joint dispatch model employed by the Company. The total VaR limit established is $18.0 million. For the nine months ended September 30, 2005, the average total VaR amount was $14.6 million, with high and low VaR amounts for the period of $29.2 million and $4.0 million, respectively. The total VaR amount at September 30, 2005 was $20.0 million. In addition, the Company defined a sub-set of the total VaR that captures all transactions that are not directly asset related and have economic risk. The VaR limit established for these transactions is $5.0 million. For the nine months ended September 30, 2005, the average VaR amount for these transactions was $1.2 million, with high and low VaR amounts for the period of $3.5 million and less than $0.1 million, respectively. The VaR amount for these transactions at September 30, 2005 was $1.9 million.

In 2004, the Company utilized the variance/covariance model of VaR, which is a probabilistic model that measures the risk of loss to earnings in market sensitive instruments. The variance/covariance model relies on statistical relationships to analyze how changes in different markets can affect a portfolio of instruments with different characteristics and market exposure. For the nine months ended September 30, 2004 the Company's average total VaR amount was $13.8 million, with high and low VaR amounts for the period of $21.6 million and $5.1 million, respectively. The total VaR amount at September 30, 2004 was $13.2 million. In the prior year the Company also measured VaR for a subset of transactions that were marked-to-market in accordance with SFAS 133. The VaR limit established for these transactions was $2.0 million. For the nine months ended September 30, 2004, the average VaR amount for these transactions was $0.3 million, with high and low VaR amounts for the period of $1.1 million and $130, respectively. The total VaR amount for these transactions as reported at September 30, 2004 was $0.4 million. Because of the nature of the Monte Carlo simulation method now utilized by the Company, reporting of the 2004 VaR amounts using the Company's new approach is neither practical nor representational of the Company's management of risk in 2004.

First Choice measures the market risk of its activities using an EaR calculation to maintain the Company's total exposure within management-prescribed limits. Because of its obligation to serve, First Choice must take its obligations 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's EaR calculation reports the possible losses against forecasted earnings for its retail load and supply portfolio. This calculation is based on First Choice's forecasted earnings on the reporting date. The Company utilizes a Delta/Gamma approximation model of EaR. The Delta/Gamma model calculates a price change within a given time frame, correlation and volatility parameters for each price curve utilized in valuing the mark-to-market of each position to develop a change in value for any position. This process is repeated multiple times to calculate a standard deviation, which is used to arrive at an EaR

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amount based on a certain confidence level. The model uses the Delta/Gamma approximation to model the optionality related to price-to-beat rate resets by both the Company and the PUCT as discussed above. First Choice utilizes the one-tailed confidence level at 95%. EaR models are relatively sophisticated. 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 the Company'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 estimated at a 95% confidence level that if prices move against First Choice's positions, the losses against the Company's forecasted earnings over the next twelve months would not exceed $10.0 million.

For the three months ended September 30, 2005, the average total EaR amount was $21.6 million, with high and low EaR amounts for the period of $22.0 million and $21.0 million, respectively. The total EaR amount at September 30, 2005 was $21.9 million.

In July 2005, the Finance Committee approved new risk measures for First Choice. These measures were designed to give First Choice management flexibility to execute its strategies to reduce the risk inherent in the portfolio and to take advantage of market opportunities in a controlled and limited fashion. The Company adopted an EaR limit of $25.0 million. Upon successful execution of First Choice's strategy to mitigate risk by locking in its floating supply costs at favorable prices, these limits are expected to be lowered to match the new risk profile. In addition, the Company adopted two new VaR measures to monitor the market based mitigation strategies of First Choice management. The first VaR limit is based on the same total retail load and supply portfolio 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. This VaR limit was established at $7.5 million. The second VaR limit was established at $1.5 million for transactions that are subject to mark-to-market accounting as defined by SFAS 133 and SFAS 149. This calculation captures the effect of changes in market prices over a three day holding period and utilizes the same Monte Carlo simulation approach described above at a 95% confidence level.

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. 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.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Credit Risk

The Company is exposed to credit losses in the event of non-performance or non-payment by counterparties. The Company manages credit 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 in place procedures to ensure that increases in credit risk measures that exceed the prescribed limits are reviewed and, if deemed necessary, acted upon to reduce exposures.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table provides information related to PNM Wholsale's credit exposure as of September 30, 2005. The Company does not hold any credit collateral as of September 30, 2005. 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 PNM Wholesale may have. Also provided is an indication of the maturity of a Company's credit risk by credit ratings of the counterparties.

Schedule of PNM Wholesale Credit Risk Exposure
September 30, 2005

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

Investment grade	$66,263	3	$42,846
Non-investment grade	3,319	-	-
Internal ratings
Investment grade	122	-	-
Non-investment grade	12,048	-	-
Total	$81,752		$42,846

(a) The Rating included in "Investment Grade" are 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 to PNM from its Wholesale Operations. This includes long-term contracts, forward sales and short-term sales. The exposure captures the net amounts due to PNM 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.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNM Wholesale
Maturity of Credit Risk Exposure
As of September 30, 2005

				Total
	Less than			Net
Rating	2 Years	2-5 Years	>5 Years	Exposure
		(In thousands)

Investment grade	$53,003	$10,279	$ 2,981	$66,263
Non-investment grade	1,589	1,730	-	3,319
Internal ratings
Investment grade	122	-	-	122
Non-investment grade	12,048	-	-	12,048
Total	$66,762	$12,009	$ 2,981	$81,752

The Company provides for losses due to market and credit risk. PNM Wholesale credit risk with its largest counterparty as of September 30, 2005 and December 31, 2004 was $21.3 million and $26.2 million, respectively.

First Choice

First Choice is subject to credit risk from non-performance by its supply counterparties to the extent these contracts have a mark-to-market value in the favor of First Choice. The Constellation power supply agreement established FCPSP, a bankruptcy remote special purpose entity, to hold all of First Choice's customer contracts and wholesale power and gas contracts. Constellation received a lien on accounts receivable, customer contracts, cash, and the equity of FCPSP as security for FCPSP's performance under the power supply agreement. The provisions of this agreement severely limit FCPSP's ability to secure power from alternate sources. Additionally, the terms of the security agreement do not require Constellation to post collateral for any mark-to-market balances in FCPSP's favor. At September 30, 2005, the supply contracted with Constellation was in a favorable mark-to-market position for FCPSP. When netted against amounts owed to Constellation, this exposure was approximately $36.5 million. The Constellation power supply agreement collateral provisions will continue until the expiration of the agreement on December 31, 2007.

First Choice has continued to experience a reduction in bad debt expense from its retail customers due to reduced customer receivables resulting partially from effective disconnect policies, increased collection activity and refined consumer credit and securitization policies. Bad debt expenses for the nine months ended September 30, 2005 and 2004 were $3.2 million and $6.3 million, respectively. First Choice expects bad debt expense to increase in the fourth quarter of 2005 due primarily to the continued increase in the price of natural gas and impacts from the Gulf Coast hurricanes, including waiver of customer deposits for hurricane victims.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNM Gas Supply Hedging Activities

PNM hedges certain portions of natural gas supply contracts in order to protect its retail customers from adverse price fluctuations in the natural gas market. The financial impact of all hedge gains and losses, including the related costs of the program, is recoverable through the PGAC. As a result, earnings are not affected by gains and losses generated by these instruments.

In order to protect its natural gas customers from the risk of rising prices during the 2005-2006 heating season, in total, PNM plans to expend approximately $6.8 million in 2005 to purchase gas options that essentially cap the amount PNM would pay for each volume of gas subject to the options during the winter heating season. PNM expects to recover its option premiums as a component of the PGAC during the months of October 2005 through February 2006.

Interest Rate Risk

PNMR

PNMR's senior notes issued as part of the equity-linked securities sold in March and October 2005 will be remarketed in 2008. If the remarketing is successful, the interest rate on the senior notes may change to a rate selected by the remarketing agent, and the maturity of the senior notes may be extended to a date selected by PNMR. If the remarketing of the senior notes is not successful, the maturity and interest rate of the senior notes will not change and holders of the equity units will have the option of putting their senior notes to PNMR to satisfy their obligations under the purchase contracts.

PNM

PNM has long-term debt which subjects it to the risk of loss associated with movements in market interest rates. The majority of PNM's long-term debt is fixed-rate debt, and therefore, does not expose PNM'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 3.3%, or $33.9 million, if interest rates were to decline by 50 basis points from their levels at September 30, 2005. As of September 30, 2005, the fair value of PNM's long-term debt was approximately $1.02 billion as compared to a book value of $987.2 million. In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if PNM were to re-acquire all or a portion of its debt instruments in the open market prior to their maturity.

During the three and nine months ended September 30, 2005, PNM contributed cash of approximately $1.5 million and $4.6 million, respectively, to other post retirement benefits for plan year 2005. The securities held by the trusts had an estimated fair value of $808.5 million as of September 30, 2005, of which approximately 28% 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, 2005, the decrease in the fair value of the securities would be 2.9% or $5.5 million. PNM does not currently recover or return through rates any losses or gains on these securities. PNM, therefore, is at risk for shortfalls in its funding of its obligations due to investment losses. PNM does not believe that long-term

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

market returns over the period of funding will be less than required for PNM to meet its obligations. However, this belief is based on assumptions about future returns that are inherently uncertain.

TNMP

TNMP has long-term debt which subjects it to the risk of loss associated with movements in market interest rates. The majority of TNMP's long-term debt is fixed-rate debt, and therefore, does not expose TNMP'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 1.3%, or $5.6 million, if interest rates were to decline by 50 basis points from their levels at September 30, 2005. As of September 30, 2005, the fair value of TNMP's long-term debt was approximately $428.3 million as compared to a book value of $ 415.8 million. In general, an increase in fair value would impact earnings and cash flows to the extent not recoverable in rates if TNMP were to re-acquire all or a portion of its debt instruments in the open market prior to their maturity.

During the three and nine months ended September 30, 2005 and 2004, TNMP contributed cash of approximately $0.3 million and $0.7 million, respectively, to other postretirement benefits for plan year 2005. The securities held by the trusts had an estimated fair value of $86.6 million as of September 30, 2005, of which approximately 16.1% were invested in money market funds. TNMP does not currently recover or return through rates any losses or gains on these securities.

Equity Market Risk

PNMR

Until October 2005, when the program was discontinued, PNMR had a cash management program that included a preferred stock dividend capture strategy and various absolute return strategies that had the objective of achieving returns higher than that associated with passive cash management plans and with bond-like volatility. PNMR's initial investment in its cash management program was $10.0 million and an additional $2.0 million was invested in February 2005. As of September 30, 2005 and December 31, 2004, the balance in this investment, including profits and interest, was $10.1 million and $10.6 million, respectively.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNM

PNM contributes to trusts established to fund its share of the decommissioning costs of PVNGS and pension and other postretirement benefits. The trusts hold certain equity securities as of September 30, 2005. These equity securities also expose the Company to losses in fair value. Approximately 60% of the securities held by the various trusts were equity securities as of September 30, 2005. Similar to the debt securities held for funding decommissioning and certain pension and other postretirement costs, PNM does not recover or earn a return through rates on any losses or gains on these equity securities.

TNMP

TNMP and its subsidiaries sponsor a defined benefit pension plan covering substantially all of its employees. TNMP also sponsors a health care plan that provides post retirement medical and death benefits. Contributions are made to trusts that fund both of these employee benefits. The trusts held a certain equity mutual fund as of September 30, 2005, which exposes TNMP to losses in fair value. Approximately 22% of the assets in the retiree medical and death benefit trusts were invested in an equity index mutual fund. Approximately 63% of the assets in the pension were invested in an equity index mutual fund as of September 30, 2005.

OTHER ISSUES FACING THE COMPANY

See Note 8 - "Commitments and Contingencies," in the Notes to Consolidated Financial Statements.

NEW ACCOUNTING STANDARDS

There have been no new accounting standards that materially affected the Company this period. See Note 1 - "Accounting Policies and Responsibility for Financial Statements - Stock Based Compensation," in the Notes to Consolidated Financial Statements for discussion of SFAS No. 123 (revised 2004), "Share Based Payment."

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:

The potential unavailability of cash at TNP and its subsidiaries,
The risk that TNP and its subsidiaries will not be integrated successfully into PNMR,
The risk that the benefits of the TNP acquisition will not be fully realized or will take longer to realize than expected,
Disruption from the TNP acquisition making it more difficult to maintain relationships with customers, employees, suppliers or other third parties,
The outcome of litigation with SW Acquisition relating to the TNP acquisition,
The outcome of any appeals of the PUCT order in the stranded cost true-up proceeding or the acquisition proceeding,
The ability of First Choice to attract and retain customers,

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 (including impacts of the hurricanes in the Gulf Coast region),
Water supply,
Changes in fuel costs,
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,
Volatility in market liquidity,
Changes in the competitive environment in the electric and natural gas industries,
The performance of generating units and transmission systems,
The market for electrical generating equipment,
The ability to secure long-term power sales,
The risks associated with completion of construction of Luna, including construction delays and unanticipated cost overruns,
State and federal regulatory and legislative decisions and actions,
The outcome of legal proceedings,
Changes in applicable accounting principles,
The performance of state, regional and national economies, and
The other factors described in "Risk Factors" in this report.

See also "Quantitative and Qualitative Disclosure About Market Risk" above for information about the risks associated with PNMR's, PNM's and TNMP's use of derivative financial instruments.

SECURITIES ACT DISCLAIMER

Certain securities issued in connection with the TNP acquisition transaction and commercial paper 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 report does not constitute an offer to sell or the solicitation of an offer to buy any securities.

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RISK FACTORS

The business and financial results of PNMR, PNM and TNMP are subject to a number of risks and uncertainties, including those set forth below and under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report. This discussion incorporates potential risks for PNMR, PNM and TNMP.

PNMR may fail to successfully integrate acquisitions, including TNP, into its other businesses or otherwise fail to achieve the anticipated benefits of pending and future acquisitions.

As part of PNMR's growth strategy, PNMR is pursuing, and intends to continue to pursue, a disciplined acquisition strategy. While PNMR expects to identify potential synergies, cost savings, and growth opportunities prior to the acquisition and integration of acquired companies or assets, PNMR may not be able to achieve these anticipated benefits due to, among other things:

delays or difficulties in completing the integration of acquired companies or assets,
higher than expected costs or a need to allocate resources to manage unexpected operating difficulties,
diversion of the attention and resources of its management,
reliance on inaccurate assumptions in evaluating the expected benefits of a given acquisition,
inability to retain key employees or key customers of acquired companies, and
assumption of liabilities unrecognized in the due diligence process.

With respect to the TNP acquisition, PNMR cannot assure that it will be able to successfully integrate TNP with PNMR 's current businesses. The integration of TNP with PNMR 's other businesses will present significant challenges and, as a result, PNMR may not be able to operate the combined company as effectively as expected. Also, even if PNMR manages to realize greater than anticipated benefits from the integration of TNP into its business, PNMR's regulated subsidiaries may be required by their regulators to return these benefits to ratepayers. In connection with the Texas and New Mexico settlements relating to the TNP acquisition, for example, TNMP agreed to provide ratepayers in Texas and New Mexico with rate credits over various periods of time resulting from anticipated synergy savings from the acquisition. PNMR may also fail to achieve the anticipated benefits of the acquisition as quickly or as cost-effectively as anticipated or may not be able to achieve those benefits at all.

While PNMR expects that this acquisition will be accretive to earnings and cash flow in the first full year of operation after the transaction is completed, this expectation is based on important assumptions, including assumptions related to interest rates, market prices for power, its ability to achieve operational benefits from operating the companies as a unified operation and the number of First Choice and TNMP customers that PNMR will be able to retain, which may ultimately be incorrect. In addition, the agreement TNMP has entered into with the PUCT staff and others relating to the TNP acquisition includes a two-year electric rate freeze and a $13.0 million annual rate reduction in TNMP's retail delivery rates effective May 1,

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

2005, which could adversely affect profitability if costs at TNMP are not controlled. Additionally, the agreement entered into with the NMPRC staff and others provides TNMP's New Mexico electric customers with a three-phase 15% rate reduction to begin January 2006 and end December 2010. As a result, if PNMR is unable to integrate its businesses with TNP effectively or achieve the benefits anticipated, PNMR's business, financial position, results of operations and liquidity may be materially adversely affected.

PNMR, PNM and TNMP are subject to complex government regulation, which may have a negative impact on their business, financial position and results of operations.

PNMR, PNM and TNMP are subject to comprehensive regulation by several federal, state and local regulatory agencies, which significantly influences their operating environment and may affect their ability to recover costs from utility customers. In particular, the NMPRC, the PUCT, the SEC, the FERC, the NRC, the EPA, ERCOT, the NMED and the TCEQ regulate many aspects of their utility operations, including siting and construction of facilities, conditions of service, the issuance of securities, and the rates that the regulated entities can charge customers. PNMR, PNM and TNMP are required to have numerous permits, approvals and certificates from these agencies to operate their business. The rates that PNM and TNMP are allowed to charge for their retail services significantly influence PNMR's and those subsidiaries' business, financial position, results of operations and liquidity. Due to pending federal regulatory reforms, the public utility industry continues to undergo change.

The Energy Policy Act of 2005 was enacted into law in August 2005. The legislation covers many areas, including the items set forth in Note 9 - "Regulatory and Rate Matters," in the Notes to the Consolidated Financial Statements and elsewhere in this report. The Energy Policy Act of 2005 requires several rule makings by the FERC and other governmental agencies in order to implement its provisions. PNMR is in the process of evaluating the effect of the Energy Policy Act of 2005.

PNMR and its subsidiaries are unable to predict the impact on their business and operating results from the future regulatory activities of any agency that regulates them or from the implementation of the Energy Policy Act of 2005. Changes in regulations or the imposition of additional regulations may require PNMR and its regulated subsidiaries to incur additional expenses or change business operations, and therefore may have an adverse impact on PNMR's and those subsidiaries' results of operations.

PNM's retail electric rate reduction and retail electric rate freeze, and the New Mexico settlement relating to the TNP acquisition, could adversely affect its profit margin if it does not control costs.

With NMPRC approval, PNM agreed to decrease its retail electric rates by 6.5% in two phases as follows: 4% effective September 1, 2003, and an additional 2.5% effective September 1, 2005. PNM also agreed to freeze these reduced retail electric rates through December 31, 2007. PNM's costs, however, are not frozen. In addition, the TNP acquisition settlement in New Mexico provides resolution on how synergy savings will be allocated among PNM's gas and electric customers. Pursuant to the TNP acquisition stipulation in New Mexico:

PNM's 413,000 electric customers will receive rate credits totaling $4.6 million or nearly $1.84 million annually over a 30-month period beginning January 2008.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNM's 471,000 gas customers will receive $4.3 million in rate credits over five years, or $860,000 annually, beginning June 6, 2005. Thus, PNM's ability to maintain its profit margins depends upon increased demand for electricity and PNM's efforts to control costs incurred in supplying that electricity, including, in particular, its coal costs.

PNM does not have the benefit of a fuel adjustment clause for its retail electric operations that would allow it to recover increased fuel and purchased power costs from customers. Therefore, to the extent that PNM has not hedged its fuel and power costs, it is exposed to changes in fuel and power prices to the extent fuel for its electric generating facilities and power must be purchased on the open market in order for it to serve its retail electric customers. PNM anticipates being able to reduce base fuel costs as a result of its revised coal contract relating to the new underground mine serving SJGS. However, if the anticipated base fuel cost savings do not occur because of problems at the new mine or if PNM cannot control other operating expenses, the retail electric rate freeze may decrease PNM's profit margin. The retail electric rate freeze will also affect PNM's ability to earn a return or recover from its customers costs associated with investments in generation, transmission and distribution facilities since it will not be able to increase retail electric rates to recover those costs until at least after the end of the rate freeze. For example, in connection with the electric retail rate freeze stipulation, PNM agreed to invest $60.0 million per year through 2007 in gas and electric utility infrastructure, increasing to $64.0 million per year after PNM and TNMP are integrated. If future recovery of these costs ceases to be probable, PNM would be required to record a charge to earnings in the period for the portion of the costs that were determined not to be recoverable. The electric retail rate freeze stipulation does, however, allow PNM to seek a general rate adjustment for certain changes in environmental or tax laws.

PNMR and PNM are not able to predict what rate treatment PNM will receive following the expiration of the retail electric rate freeze in New Mexico. Some of the factors that influence rates are largely outside their control. In response to competitive, economic, political, legislative and/or regulatory pressures, PNM may have to agree to further rate freezes, rate refunds or rate reductions, any or all of which could have a significant adverse effect on PNMR's and PNM's business, financial position, results of operations and liquidity.

The impact from the TNP acquisition settlements could adversely affect TNMP's profit margin if TNMP does not control costs.

The TNP acquisition settlements for TNMP in Texas and New Mexico provide for the following:

a two-year electric rate freeze that includes a $13.0 million annual rate reduction in TNMP's retail delivery rates effective May 1, 2005,
a $6.0 million synergy savings credit amortized over 24 months effective after the closing of the transaction,
a three-phase rate reduction totaling 15%, beginning January 2006 and ending December 2010, provides for TNMP's electric customers in southern New Mexico. The rate reduction, which includes TNMP's annual synergy-savings allocation will lower TNMP electric rates by $9.6 million in the first year, and
maintaining PNM as the power supplier for TNMP's New Mexico needs through 2010.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition, as part of the New Mexico settlement relating to the TNP acquisition, TNMP's current fuel and purchased power adjustment clauses will be eliminated no later than March 31, 2006. Also, the New Mexico settlement requires the integration of TNMP's New Mexico assets into PNM effective January 1, 2007. The companies, however, will maintain separate rates through 2010.

PNMR and TNMP are not able to predict what rate treatment TNMP will receive following the expiration of the retail electric rate provisions in New Mexico. Some of the factors that influence rates are largely outside their control. In response to competitive, economic, political, legislative and/or regulatory pressures, TNMP may have to agree to further rate freezes, rate refunds or rate reductions, any or all of which could have a significant adverse effect on PNMR's and TNMP's business, financial position, results of operations and liquidity.

The ability of First Choice to attract and retain customers and its ability to mitigate the fluctuation in costs of energy supply could have a significant adverse effect on PNMR's business, financial position, results of operations and liquidity.

In 2002, retail competition began in Texas under the provisions of Senate Bill 7. Prior to 2002, TNMP operated as an integrated utility in Texas. In accordance with Senate Bill 7 and in compliance with a plan approved by the PUCT, TNMP separated its Texas utility operations into three components: (1) an unregulated retail sales business operated by First Choice; (2) a regulated power transmission and distribution business operated by TNMP and (3) power generation, a business which TNMP is no longer engaged in.

As a result of the acquisition of TNP, PNMR is exposed to competition in the unregulated Texas retail electricity market through First Choice, which serves customers at price-to-beat rates and customers at competitive rates. In order to compete effectively in the Texas retail electricity market, First Choice must be able to attract and retain customers on the basis of cost and service, while managing the cost of its energy supply. The ability of First Choice to compete successfully in the Texas market could have a significant effect on PNMR's business, financial position, results of operations and liquidity.

PNM is currently the subject of several regulatory proceedings and named in multiple lawsuits with respect to PNM's participation in the United States' Western energy markets.

The FERC is conducting industry-wide proceedings and investigations related to the alleged dysfunctions of the organized California market and the Pacific Northwest market during 2000 and 2001.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

California Refund Proceeding

In March 2003, the FERC issued an order substantially adopting the ALJ's findings in the December 2002 decision, but requiring a change to the formula used to calculate refunds. The FERC raised concerns that the indices for California gas prices, a major element in the refund formula, had been subject to potential manipulation and were unverifiable. The effect of this change would be to increase PNM's refund liability. In October 2003, the FERC issued its order on rehearing in which it affirmed its decision to change the gas price indices used to calculate the refund amounts. This has the effect of increasing the Company's amount of refund. The precise amounts, however, will not be certain until the Cal ISO and Cal PX recalculate the refund amounts. In a report filed by the Cal ISO in March 2005, the Cal ISO indicated that the Cal PX had concluded its recalculation of the adjustments for hourly price mitigation. The Cal ISO is waiting to receive audited fuel cost information from market participants as a result of the fuel cost proceedings currently pending at the FERC before finalizing its recalculated refund amounts. 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 their 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. 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 other competitive 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 California Cal ISO and Cal PX markets during the refund period. PNM's cost recovery filing is still pending before FERC. In addition, the Company has engaged in discussions with California parties based upon a template provided by FERC, but is unable to predict whether settlement will be reached.

In September 2004, the Ninth Circuit issued its decision in one of the lead appellate cases addressing the FERC's refund order. The Ninth Circuit upheld the FERC's authority to

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

establish the market-based rate framework under the Federal Power Act, but held that the FERC violated its administrative discretion by declining to investigate whether it should order refunds from sellers who failed to provide transaction-specific reports to the FERC as required by its rules. The Ninth Circuit determined that the FERC has the authority to order refunds for these transactions if it elects to do so and remanded the case to the FERC for further proceedings, including a determination as to whether additional refunds are appropriate. PNM participated with other competitive sellers requesting rehearing by the Ninth Circuit, which is still pending. Additional appeals are still pending before the Ninth Circuit, including CPUC vs FERC, a case addressing the scope of market transactions subject to refund. PNM has participated in this appeal as one of the members of the competitive sellers group. The Company cannot predict the ultimate outcome of any FERC proceeding that may result from these appeals, or whether PNM will be ultimately directed to make any additional future refunds as the result of the decision; however, the Company has recorded a reserve for this contingency.

Pacific Northwest Refund Proceeding

California Attorney General Complaint

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Ninth Circuit issued its decision upholding the FERC's authority to establish the market-based rate framework under the Federal Power Act, but held that the FERC violated its administrative discretion by declining to investigate whether it should order refunds from sellers who failed to provide transaction-specific reports to the FERC as required by its rules. The Ninth Circuit determined that the FERC has the authority to order refunds for these transactions if it elects to do so and remanded the case back to the FERC for further proceedings, including a determination as to whether additional refunds are appropriate. PNM participated with other competitive sellers requesting rehearing en banc by the Ninth Circuit, which is still pending. The Company cannot predict the ultimate outcome of the FERC proceeding on remand, or whether PNM will be ultimately directed to make any additional refunds as the result of the decision.

Wholesale Power Marketing Antitrust Suit

There are inherent risks in the operation of nuclear facilities, such as environmental, health and financial risks and the risk of terrorist attack.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PNM has a 10.2% undivided interest in PVNGS, with portions of its interests in Units 1 and 2 held under leases. PVNGS is subject to environmental, health and financial risks such as the ability to dispose of spent nuclear fuel, the ability to maintain adequate reserves for decommissioning, potential liabilities arising out of the operation of these facilities, and the costs of securing the facilities against possible terrorist attacks and unscheduled outages due to equipment and other problems. PNM maintains nuclear decommissioning trust funds and external insurance coverage to minimize its financial exposure to some of these risks; however, it is possible that damages could exceed the amount of insurance coverage. Although the decommissioning trust funds are designed to provide adequate funds for decommissioning at the end of the expected life of the PVNGS units, there is the risk of insufficient decommissioning trust funds in the event of early decommissioning of the units.

The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. In the event of non-compliance, the NRC has the authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. In addition, if a serious nuclear incident were to occur at PVNGS, it could materially and adversely affect PNM's and PNMR's business, financial position, results of operations and liquidity. A major incident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or licensing of any domestic nuclear unit. Each PVNGS lease describes certain events, including "Events of Loss" or "Deemed Loss Events", the occurrence of which could require PNM to, among other things, (i) pay the lessor and the equity investor, in return for the investor's interest in PVNGS, cash in the amount provided in the lease and (ii) assume debt obligations relating to the PVNGS lease. The "Events of Loss" generally relate to casualties, accidents and other events at PVNGS, which would severely, adversely affect the ability of the operating agent, APS, to operate, and the ability of PNM to earn a return on its interests in, PVNGS. The "Deemed Loss Events" consist mostly of legal and regulatory changes (such as changes in law making the sale and leaseback transactions illegal, or changes in law making the lessors liable for nuclear decommissioning obligations). PNMR and PNM believe that the probability of such "Events of Loss" or "Deemed Loss Events" occurring is remote for the following reasons: (i) to a large extent, prevention of "Events of Loss" and some "Deemed Loss Events" is within the control of the PVNGS participants, including PNMR, and the PVNGS operating agent, through the general PVNGS operational and safety oversight process and (ii) with respect to other "Deemed Loss Events," which would involve a significant change in current law and policy, they are unaware of any pending proposals or proposals being considered for introduction in Congress, or in any state legislative or regulatory body that, if adopted, would cause any of those events.

PNMR's and its electric subsidiaries' financial performance may be adversely affected if their power plants and transmission and distribution system are not successfully operated.

PNMR's and its electric subsidiaries' financial performance depends on the successful operation of their generation, transmission and distribution assets. Unscheduled or longer than expected maintenance outages, other performance problems with the electric generation assets, severe weather conditions, accidents and other catastrophic events, disruptions in the delivery of fuel and other factors could reduce its excess generation capacity and therefore limit the electric subsidiaries' ability to opportunistically sell excess power in the wholesale market. Diminished generation capacity could also result in the aggregate net open forward electric sales position being larger than forecasted generation capacity. If this were to occur, purchases

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

of electricity in the wholesale market would be required under contracts priced at the time of execution or, if in the spot market, at the then-current market price. There can be no assurance that sufficient electricity would be available at reasonable prices, or at all, if such a situation were to occur. Failures of transmission or distribution facilities may also cause interruptions in the services the electric subsidiaries provide. These potential generation, distribution and transmission problems, and any potentially related service interruptions, could result in lost revenues and additional costs.

PNMR's, PNM's and TNMP's counterparties may not meet their obligations.

PNMR and its operating subsidiaries are exposed to risk that counter parties, which owe them money, energy or other commodities or services, will not be able to perform their obligations. The possibility that certain counter parties may fail to perform their obligations has increased due to financial difficulties, in some cases brought on by improper or illegal accounting and business practices, affecting some participants in the energy industry. Should the counterparties to these arrangements fail to perform, PNMR or its affected subsidiary might be forced to honor the underlying commitment at then-current market prices. In such event, PNMR or the affected subsidiary might incur losses in addition to amounts, if any, already paid to the counter parties.

The operations of PNMR and its operating subsidiaries are subject to risks beyond their control that may reduce their revenues.

PNMR's and its operating subsidiaries' revenues are affected by the demand for electricity and natural gas. That demand can vary greatly based upon:

weather conditions, including hurricanes, seasonality and temperature extremes,
fluctuations in economic activity and growth in PNMR's service area and the Western region of the United States,
the extent of additional energy available from current or new competitors, and
the ability of First Choice to attract and retain customers.

Weather conditions will impact the revenues that PNMR and its operating subsidiaries obtain from electric wholesale sales. Very warm and very cold temperatures, especially for prolonged periods, can dramatically increase the demand for electricity for cooling and heating, respectively, as opposed to the effect of more moderate temperatures. Very warm temperatures inside the subsidiary's service territory reduce the amount of power available to sell on the wholesale market.

Drought conditions in New Mexico generally, and especially in the Four Corners region, in which the San Juan Generating Station and the Four Corners Generating Station are located, may affect the water supply for PNM's generating plants. If adequate precipitation is not received in the watershed that supplies the Four Corners areas, PNM may have to decrease generation at these plants, which would reduce PNM's ability to sell excess power on the wholesale market and reduce its revenues. As such, if the drought conditions continue or regulators or legislators take action to limit the PNM's supply of water, PNM's and PNMR's business may be adversely impacted. Although PNM has been able to maintain adequate access to water in the past, PNM cannot be certain that it will be able to do so in the future.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

An inability to raise capital could limit PNMR's ability to execute its growth strategy and finance its capital requirements, which could adversely affect PNMR's business, financial position, results of operations and liquidity.

PNMR and its operating subsidiaries rely on access to both short-term money markets and longer-term capital markets as a source of liquidity for any capital requirements not satisfied by the cash flow from our operations, which could include capital requirements for energy infrastructure investments and funding new projects. If PNMR and its operating subsidiaries are not able to access capital at competitive rates or at all, PNMR's ability to implement its growth strategy and its ability to finance capital requirements, if needed, will be limited. Market disruptions or any downgrade of PNMR's or its operating subsidiaries' credit rating may increase the cost of borrowing or adversely affect their ability to raise capital through the issuance of securities or other borrowing arrangements, which could have a material adverse effect on their business, financial position, results of operations and liquidity. These disruptions could include:

an economic downturn,
changes in capital market conditions generally,
the bankruptcy of an unrelated energy company,
increased market prices for electricity and gas,
terrorist attacks or threatened attacks on facilities of PNMR's operating subsidiaries or those of unrelated energy companies, and
deterioration in the overall health of the utility industry.

A significant reduction in the credit ratings of PNMR or its operating subsidiaries could materially and adversely affect their business, financial position, results of operations and liquidity.

PNMR, PNM and TNMP cannot be sure that any of their current ratings will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency. Any downgrade:

could increase borrowing costs, which would diminish financial results,
could require payment of a higher interest rate in future financings and the potential pool of investors and funding sources could decrease,
could increase borrowing costs under certain of existing credit facilities,
could also require the provision of additional support in the form of letters of credit or cash or other collateral to various counterparties,
could limit access to or increase the cost of access to the commercial paper market, and
below investment grade credit ratings would also require approvals from the NMPRC for new wholesale plant projects and for continuing to participate in wholesale plant projects of more than a certain dollar value and under certain conditions.

The ratings from rating agencies reflect only the views of such rating agencies and are not recommendations to buy, sell or hold our securities. Each rating should be evaluated

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

independently of any other rating. Any downgrade or withdrawal of PNMR's, PNM's or TNMP's current ratings may have an adverse effect on the market price of their outstanding debt.

Costs of environmental compliance, liabilities and litigation could exceed PNMR's and its operating subsidiaries' estimates which could adversely affect their business, financial position, results of operations and liquidity.

Compliance with federal, state and local environmental laws and regulations may result in increased capital, operating and other costs, including remediation and containment expenses and monitoring obligations. PNMR, PNM and TNMP cannot predict how they would be affected if existing environmental laws and regulations were revised, or if new environmental laws and regulations seeking to protect the environment were adopted, but any such changes could increase their financing requirements or otherwise adversely affect their business, financial position, results of operations and liquidity. Revised or additional laws and regulations could also result in additional operating restrictions on their facilities or increased compliance costs that may not be fully recoverable in rates, thereby reducing net income. For example, any future changes in the interpretation of the Clean Air Act's new source review provisions could potentially increase operating and maintenance costs substantially. Similarly, in March 2005, the EPA adopted the Clear Air Act Mercury Rule, which is intended to reduce mercury emissions from coal-fired generation plants. PNMR and PNM cannot be certain how this rule will affect them.

In addition, PNM or TNMP may be designated as a responsible party for environmental clean-up at a site identified by a regulatory body. PNMR, PNM and TNMP cannot predict with certainty the amount and timing of all future expenditures related to environmental matters because of the difficulty of estimating clean-up and compliance costs, and the possibility that changes will be made to the current environmental laws and regulations. There is also uncertainty in quantifying liabilities under environmental laws that impose joint and several liability on all potentially responsible parties. Failure to comply with environmental laws and regulations, even if caused by factors beyond PNM's or TNMP's control, may result in the assessment of civil or criminal penalties and fines.

PNMR's business, results of operations and financial position may be adversely affected if PNMR and its operating subsidiaries do not successfully compete for wholesale customers and generation plant acquisition opportunities. Wholesale plants will be exposed to price risk to the extent they must compete for the sale of energy and capacity.

The electric utility industry has experienced a substantial increase in competition at the wholesale level, caused by changes in federal law and regulatory policy. As a result of the Public Utility Regulatory Policies Act of 1978 and the Energy Policy Act of 1992, competition in the wholesale electricity market has greatly increased due to a greater participation by traditional electricity suppliers, non-utility generators, independent power producers, wholesale power marketers and brokers, and due to the trading of energy futures contracts on various commodities exchanges. In 1996, the FERC issued new rules on transmission service to facilitate competition in the wholesale market on a nationwide basis. The rules give greater flexibility and more choices to wholesale power customers. Also, in July 2002, the FERC issued a notice of proposed rulemaking (which has not yet been adopted) related to open access transmission service and standard electricity market design.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As a result of the changing regulatory environment and the relatively low barriers to entry (which include, in addition to open access transmission service, relatively low construction costs for new generating facilities), PNMR expects competition to steadily increase. This increased competition could affect load forecasts, acquisition opportunities and wholesale energy sales and related revenues. Given that during 2004, PNM's sales in the wholesale electric market accounted for approximately 62% of our total MWh sales, the impact of these changes on PNMR's and PNM's financial results could be material. The effect on their business, results of operations and financial position could vary depending on the extent to which:

PNMR and its operating subsidiaries are able to acquire additional generation to compete in the wholesale market,
new opportunities are created for the expansion of wholesale load, and
current wholesale customers elect to purchase from other suppliers after existing contracts expire.

PNM's long-term contracts to supply power expire from 2006 through 2020. PNM's ability to renew these contracts at terms comparable to those currently in place is dependent upon prevailing market conditions at the time of negotiations.

To the extent electric capacity generated by wholesale plants is not under contract to be sold or committed to serving its retail electric load, either now or in the future, the business, results of operations and financial position of PNMR and PNM will generally depend on the prices that can be obtained for energy and capacity in New Mexico and adjacent markets. Among the factors that would influence these prices, all of which are beyond PNMR's and PNM's control to a significant degree, are those described in the next risk factor.

PNMR and its operating subsidiaries may not be able to mitigate fuel and wholesale electricity pricing risks, which could result in unanticipated liabilities or increased volatility in earnings.

The business and operations of PNMR and its operating subsidiaries are subject to changes in purchased power prices and fuel costs that may cause increases in the amounts that must be paid for power supplies on the wholesale market and the cost of producing power in owned generation plants. As evidenced by the California energy crisis in 2000-2001, prices for electricity, fuel and natural gas may fluctuate substantially over relatively short periods of time and expose PNMR and its operating subsidiaries to significant commodity price risks.

Among the factors that could affect market prices for electricity and fuel are:

prevailing market prices for coal, oil, natural gas and other fuels used in PNM's generation plants, including associated transportation costs, and supplies of such commodities,
changes in the regulatory framework for the commodities markets that PNMR and its operating subsidiaries rely on for purchased power and fuel,
liquidity in the general wholesale electricity market,

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

the actions of external parties; such as the FERC or independent system operators, that may impose price limitations and other mechanisms to address some of the volatility in the United States' Western energy markets,
weather conditions impacting demand for electricity or availability of hydroelectric power or fuel supplies,
the rate of growth in electricity as a result of population changes, regional economic conditions and the implementation of conservation programs,
union and labor relations,
natural disasters, wars, embargoes and other catastrophic events, and
changes in federal and state energy and environmental laws and regulations.

PNMR and its operating subsidiaries rely on derivatives such as forward contracts, futures contracts, options and swaps to manage these risks. They attempt to manage their exposure from these activities through enforcement of established risk limits and risk management procedures. PNMR and its operating subsidiaries cannot be certain that these strategies will be successful in managing pricing risk, or that they will not result in net liabilities as a result of future volatility in these markets.

In addition, although PNMR and its operating subsidiaries routinely enter into contracts to offset positions (i.e. to hedge its exposure to the risks of demand, market effects of weather and changes in commodity prices), they do not always hedge the entire exposure of their operations from commodity price volatility. Furthermore, their ability to hedge exposure to commodity price volatility depends on liquid commodity markets. To the extent the commodity markets are illiquid, they may not be able to execute their risk management strategies, which could result in greater open positions than they would prefer at a given time. To the extent that open positions exist, fluctuating commodity prices can improve or diminish the business, financial position, results of operations and liquidity of PNMR and its operating subsidiaries.

Impairments of PNMR's, PNM's and TNMP's tangible long-lived assets could adversely affect their business, financial position, liquidity and results of operations.

PNMR, PNM and TNMP evaluate their tangible long-lived assets for impairment whenever indicators of impairment exist pursuant to SFAS 144. These potential impairment triggers would include fluctuating market conditions as a result of industry deregulation; planned and scheduled customer purchase commitments; future market penetration; fluctuating market prices resulting from factors including changing fuel costs and other economic conditions; weather patterns; and other market trends. Accounting rules require that if the sum of the undiscounted expected future cash flows from a company's asset (excluding interest charges that will be recognized as expenses when incurred) is less than the carrying value of the asset, then asset impairment must be recognized in the financial statements. The amount of impairment recognized is the difference between the fair value of the asset and the carrying value of the asset. PNMR, PNM and TNMP determined that no triggering events occurred during the period for their tangible long-lived assets.

PNM has three turbines, which are currently in storage, with a combined carrying value of approximately $79.7 million. PNM believes that it will be able to place two of the turbines in service and recover the costs of these two turbines in rates. In July 2005, PNM filed with the

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NMPRC an application for a CCN in which PNM requested NMPRC approval to include in PNM's retail rate base in its next retail electric rate case the costs associated with the conversion of the Afton generating station from a combustion turbine to a combined cycle unit utilizing one of the turbines in storage. The conversion to a combined-cycle unit, as proposed, would utilize a turbine currently in storage with a book value of $24.3 million. As part of the negotiations regarding regulatory treatment of the Afton facility, the parties also are discussing alternative equipment configurations under which the turbine in storage would not be used. If such an alternative configuration were to be agreed upon, the Company would evaluate other alternatives, including selling the unit, which could result in a write-down depending on prevailing market conditions for this type of equipment. The Company is unable to predict the outcome of the Afton CCN case.

PNMR and PNM analyzed the remaining turbine for impairment and concluded no impairment existed based on their plans for its use. The carrying amount of this turbine at September 30, 2005 was $16.6 million. PNMR and PNM expect to begin construction utilizing this turbine over the next several years. If PNMR and PNM were unable to realize these plans, PNMR and PNM would be forced to recognize a loss with respect to the carrying value of the turbine depending on prevailing market conditions. PNMR and PNM will continue to analyze the turbine for impairment in accordance with SFAS 144.

Impairments of goodwill and intangible assets of PNMR and its subsidiaries could adversely affect their business, financial position, liquidity and results of operations.

PNMR recorded $492.7 million of goodwill as a result of its acquisition of TNP. As required by SFAS 142, PNMR evaluates goodwill for impairment annually and between annual tests whenever indicators of impairment exist pursuant to SFAS 142. Impairment of goodwill exists when the carrying amount of goodwill exceeds its implied fair value. The implied value of goodwill shall be determined in the same manner as the amount of goodwill recognized in a business combination is determined.

PNMR also recorded $63.1 million of other intangible assets as a result of its acquisition of TNP. Of the $63.1 million of acquired intangible assets, $53.2 million was assigned to the trade name "First Choice". The trade name has an indefinite useful life and therefore, no amortization will be recognized until its useful life is determined to be no longer indefinite. PNMR will evaluate the remaining useful life of the First Choice trade name each reporting period as required by SFAS 142 to determine whether events or circumstances continue to support an indefinite useful life.

The remaining $ 9.9 million of acquired intangible assets was assigned to the First Choice customer list. The useful life of the customer list is estimated to be eight years and will be amortized on a straight-line basis over eight years. PNMR will evaluate the remaining useful life of the First Choice customer list each reporting period as required by SFAS 144 to determine whether events or circumstances continue to support the remaining amortization period.

Actual results could differ from estimates used to prepare PNMR's, PNM's and TNMP's financial statements.

In preparing the financial statements in accordance with GAAP, management must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues,

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

expenses and related disclosures at the date of the financial statements and during the reporting period. Some of those judgments can be subjective and complex, and actual results could differ from those estimates. For more information about these estimates and assumptions, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies."

Provisions of PNMR's organizational documents, as well as several other statutory and regulatory factors, will limit another party's ability to acquire PNMR and could deprive PNMR's shareholders of the opportunity to gain a takeover premium for shares of PNMR's common stock.

PNMR's restated articles of incorporation and by-laws include a number of provisions that may have the effect of discouraging persons from acquiring large blocks of PNMR's common stock or delaying or preventing a change in control of PNMR. The material provisions that may have such an effect include:

authorization for the PNMR Board to issue PNMR's preferred stock in series and to fix rights and preferences of the series (including, among other things, whether, and to what extent, the shares of any series will have voting rights, subject to certain limitations, and the extent of the preferences of the shares of any series with respect to dividends and other matters),
provisions classifying PNMR's Board into three classes, with the directors being elected for staggered terms,
advance notice procedures with respect to any proposal other than those adopted or recommended by PNMR's Board, and

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provisions specifying that only a majority of the Board, the chairman of the Board, the president or holders of not less than one-tenth of all of PNMR's shares entitled to vote may call a special meeting of stockholders.

Under the New Mexico Public Utility Act, NMPRC approval is required for certain transactions that may result in PNMR's change in control or exercise of control. Certain acquisitions of PNMR's outstanding voting securities would also require FERC approval under the FERC's authority resulting from the Energy Policy Act and the repeal of PUHCA. See Note 9 - "Regulatory and Rate Matters - Energy Policy Act" in the Notes to Consolidated Financial Statements for further discussion.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

See "Quantitative and Qualitative Disclosure About Market Risk" in "Item 2. Management 's Discussion and Analysis of Financial Condition and Results of Operations".

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

PNMR, PNM and TNMP each maintain 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 each of the registrants' disclosure controls and procedures as of the end of the period covered by this report conducted by the registrants' management, with the participation of the Chief Executive and Chief Financial Officers, the Chief Executive and Chief Financial Officers believe that these controls and procedures are effective to ensure that each of the registrants is able to collect, process, and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods.

Changes in Internal Controls

There have been no changes in the Company's internal controls over financial reporting for the quarter ended September 30, 2005, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

TNP Acquisition

The Company is currently undergoing a diligent effort to ensure TNP's compliance with Section 404 of the Sarbanes-Oxley Act of 2002. As integration activities occur, the Company will continue to integrate the Company's internal controls into TNP's operations. It is expected that this effort will continue during the remainder of 2005 and into 2006.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 8 - "Commitments and Contingencies," in the Notes to Consolidated Financial Statements for information related to the following matters, incorporated in this item by reference.

Tax Refund Litigation
Navajo Nation Environmental Issues
Citizen Suit Under the Clean Air Act
Excess Emissions Reports
Santa Fe Generating Station
Natural Gas Royalties Qui Tam Litigation
Asbestos Cases

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SESCO Matter (for both PNM and TNMP)
Legal Proceedings discussed under the captions "Western United States Wholesale Power Market" and "FERC Rule Making"
Wholesale Power Marketing Antitrust Suit
TNMP True-Up Proceeding

See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Acquisition" for information related to the SW Acquisition litigation, incorporated in this item by reference.

ITEM 5. OTHER EVENTS

On August 8, 2005, Mr. John Loyack, Senior Vice President and Chief Financial Officer of PNMR, resigned from that position to pursue other interests. Mr. Loyack did not resign as a result of any disagreement with the operations, policies or practices of PNMR. He continued as Chief Financial Officer through August 9, 2005, and continued as a Senior Vice President of the Company until September 1, 2005.

Pending a national search for a permanent Chief Financial Officer, the Board appointed Mr. Terry Horn to be the acting Chief Financial Officer of PNMR effective August 10, 2005, acting Chief Financial Officer of PNM effective September 12, 2005 and acting Chief Financial Officer of TNP and TNMP effective September 13, 2005. Mr. Horn was Vice President and Treasurer of PNM and PNMR since 1998 and 2001, respectively, and he became Corporate Secretary of PNMR in May 2005. Mr. Horn's title pending appointment of a permanent Chief Financial Officer is Vice President, Corporate Secretary and Acting Chief Financial Officer.

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ITEM 6. EXHIBITS

4.10	PNMR	Purchase Contract Agreement, dated as of October 7, 2005, between PNMR and U.S. Bank National Association, as purchase contract agent

4.11	PNMR	Indenture, dated as of October 7, 2005, between PNMR and U.S. Bank National Association, as trustee

4.12	PNMR	Supplemental Indenture, dated as of October 7, 2005, between PNMR and U.S. Bank National Association, as trustee

10.3	TNMP	Joinder Agreement, dated as of September 30, 2005, between TNMP, as applicant borrower and Bank of America, as administrative agent

10.4	PNMR	Third Supplement to Unit Purchase Agreement dated August 12, 2005 between PNMR and Cascade Investment, LLC

10.5	PNMR	Fourth Supplement to Unit Purchase Agreement dated September 30, 2005 between PNMR and Cascade Investment, LLC

10.30**	PNMR	PNM Resources, Inc. 2005 Officer Incentive Plan Amended (August 2, 2005)

10.31**	PNMR	Summary of Executive Paid Time Off Policy Effective January 1, 2006

12.1	PNMR	Ratio of Earnings to Fixed Charges.

12.2	PNMR	Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.

31.1	PNMR/PNM	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	PNMR/PNM	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.3	TNMP	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.4	TNMP	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	PNMR/PNM	Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	PNMR/PNM	Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.3	TNMP	Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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32.4	TNMP	Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


99.1	PNMR	Remarketing Agreement, dated as of October 7, 2005, among Banc of America Securities LLC, as remarketing agent, PNMR and U.S. Bank National Association, as purchase contract agent

99.2	PNMR	Pledge Agreement, dated as of October 7, 2005, between PNMR and U.S. Bank National Association

99.3	PNMR	Registration Rights Agreement, dated as of October 7, 2005, between PNMR and Cascade Investment, LLC

** designates each management contract or compensatory plan or arrangement required to be identified.

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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. AND SUBSIDIARIES PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
	(Registrants)


Date: November 3, 2005	/s/ Thomas G. Sategna
	Thomas G. Sategna
	Vice President and Corporate Controller
	(Officer duly authorized to sign this report)

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PURCHASE CONTRACT AGREEMENT, dated as of October 7, 2005, 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 has duly authorized the execution and delivery of this Agreement and the Certificates evidencing the Units. All things necessary to make the Purchase Contracts (as defined herein), when the Certificates (as defined herein) are executed by the Company and authenticated, executed on behalf of the Holders and delivered by the Purchase Contract Agent, as provided in this Agreement, the valid obligations of the Company, and to constitute these presents a valid agreement of the Company, in accordance with its terms, have been done. For and in consideration of the premises and the purchase of the Units by the Holders thereof, it is mutually agreed as follows:

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.

"Agreement" means this 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.

"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) (x) for the scheduled Payment Date on the Senior Notes that occurs on the Purchase Contract Settlement Date, in the case of a Successful Remarketing prior to the Final Remarketing Date, or (y) 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.

"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.

"Coupon Rate" means the percentage rate per annum at which each Senior Note will bear interest initially.

"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 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(c)(iii).

"Failed Initial Remarketing" has the meaning set forth in Section 5.02(a)(i).

"Failed Remarketing" shall mean a Failed Initial Remarketing or a Failed Final Remarketing.

"Final Remarketing" has the meaning set forth in Section 5.02(c)(i).

"Final Remarketing Date" has the meaning set forth in Section 5.02(c).

"Final Remarketing Fee" has the meaning set forth in Section 5.02(c)(ii).

"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.

"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 will be issued.

"Indenture Trustee" means U.S. Bank National Association, as trustee under the Indenture, or any successor thereto.

"Initial Remarketing" has the meaning set forth in Section 5.02(a)(i).

"Initial Remarketing Date" means the third Business Day immediately preceding August 16, 2008.

"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.

"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 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 Pledge Agreement, dated as of October 7, 2005, 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.

"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.

"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, among the Company, the Remarketing Agent, and the Purchase Contract Agent, as amended from time to time.

"Remarketing Date" means the Initial Remarketing Date or the Final Remarketing Date.

"Remarketing Fee" has the meaning set forth in Section 5.02(a)(i).

"Remarketing Per Senior Note Price" means the Treasury Portfolio Purchase Price divided by the number of Senior Notes held as components of Corporate Units and remarketed in the Initial Remarketing or the Final Remarketing, as the case may be.

"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), two years (or such other period specified in Rule 144(k)) 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).

"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).

"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 Per Senior Note Price multiplied by the number of Separate Senior Notes remarketed in the Initial 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 Final Remarketing" has the meaning set forth in Section 5.02(c)(ii).

"Successful Initial Remarketing" has the meaning set forth in Section 5.02(a)(i).

"Successful Remarketing" means a Successful Initial Remarketing or a Successful Final Remarketing.

"Supplemental Indenture" means the Supplemental Indenture 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) (x) in the case of a Successful Remarketing prior to the Final Remarketing Date, for the scheduled Payment Date on the Senior Notes that occurs on the Purchase Contract Settlement Date, 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 aggregate interest payment (assuming no reset of the interest rate) that would have been due on the Purchase Contract Settlement Date on the Applicable Principal Amount, and (y) 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) (i) in the case of a Special Event Redemption, 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, and (ii) in the case of any Successful Remarketing prior to the Final Remarketing Date, on the date of such Successful Remarketing for the purchase of the applicable Treasury Portfolio for settlement on the third Business Day immediately following the date of such Successful Remarketing.

"Treasury Securities" means zero-coupon U.S. treasury securities that mature on November 15, 2008 (CUSIP No. 912828EC0).

"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.

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.

(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 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) 509-3384

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:

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) 509-3384

If to the Indenture Trustee:

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) 509-3384

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 or F 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 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, but Purchase Contracts shall be performed or Early Settlement or Cash Merger Early Settlement shall be effected, 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.

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.

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 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, 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.

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 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.

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 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 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 fifth 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:

(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.

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.

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 fifth 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

(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.

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(e) 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, (D) a Collateral Substitution is properly effected pursuant to Section 3.13, or (E) a Successful Initial Remarketing occurs with respect to the Senior Note that is part of such Corporate Unit, 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, Collateral Substitution or Initial Remarketing, 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, 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 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;

(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 closing sale price per share as reported by the Nasdaq National Market, Inc.;

(iv) if the Common Stock is not so reported by the Nasdaq National Market, Inc., 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

(v) if the bid price referred to in clause (iv) 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 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 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 11:00 a.m. (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 (ii) below. Concurrently, the Custodial Agent will present for remarketing the Separate Senior Notes to the Remarketing Agent. Upon receipt of such notice from the Collateral Agent and Custodial Agent, and the Separate Senior Notes for remarketing from the Custodial Agent, the Remarketing Agent will, on the Initial Remarketing Date, use its commercially reasonable efforts to remarket (based on the Reset Rate) (the "Initial Remarketing") such Pledged Senior Notes and Separate Senior Notes on such date at a price of equal to approximately 100.25% (or, if the Remarketing Agent is unable to remarket the Pledged Notes and Separate Senior Notes, at a rate below 100.25% but in no event less than 100%) of the sum of the Treasury Portfolio Purchase Price plus the Separate Senior Notes Purchase Price, as provided in the Remarketing Agreement. If the Remarketing Agent is able to remarket the Pledged Senior Notes and Separate Senior Notes at a price equal to or greater than 100% of the Treasury Portfolio Purchase Price plus the Separate Senior Notes Purchase Price (a "Successful Initial 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, and the portion of the proceeds from such Successful Initial Remarketing equal to the Treasury Portfolio Purchase Price will be applied to purchase the Treasury Portfolio. The Remarketing Agent will deduct as a remarketing fee an amount equal to the lesser of (x) 25 basis points (.25%) of the sum of the Treasury Portfolio Purchase Price plus the Separate Senior Notes Purchase Price and (y) any proceeds of such Successful Remarketing in excess of the Treasury Portfolio Price plus the Separate Senior Notes Purchase Price. To the extent that such amount is less than 25 basis points of the Treasury Portfolio Purchase Price plus the Separate Senior Notes Purchase Price, the Company shall pay an amount, as an additional remarketing fee, to the Remarketing Agent equal to such shortfall (such amount, together with the amount in the previous sentence, the "Remarketing Fee"). With respect to Pledged Senior Notes upon a Successful Initial Remarketing, any proceeds of the Initial Remarketing in excess of the sum of the Treasury Portfolio Purchase Price plus the portion of the Remarketing Fee attributable to such Pledged Senior Notes will be remitted to the Purchase Contract Agent for payment to the Holders of the related Corporate Units. The Treasury Portfolio will be substituted for the Pledged Senior Notes and the appropriate Applicable Ownership Interests (as specified in clause (i) of the definition of such term) in the Treasury Portfolio will be pledged to the Collateral Agent to secure the obligation of the Holders of Corporate Units to pay the Purchase Price for the Common Stock under the related Purchase Contracts on the Purchase Contract Settlement Date. With respect to Separate Senior Notes upon a Successful Initial Remarketing, any proceeds of the Initial Remarketing in excess of the portion of the Remarketing Fee attributable to the Separate Senior Notes will be remitted to the Custodial Agent for payment to the holders of Separate Senior Notes. None of the Company, the Purchase Contract Agent, or any Holders of Corporate Units or holders of Separate Senior Notes whose Senior Notes or Separate Senior Notes are so remarketed will otherwise be responsible for the payment of any Remarketing Fee in connection therewith.

Following the occurrence of a Successful Initial Remarketing, the Holders of Corporate Units and the Collateral Agent shall have such security interests, 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,

subject to the Pledge thereof as provided in the Pledge Agreement, and 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 that term) in the Treasury Portfolio and 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 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 the substitution of such Applicable Ownership Interests (as specified in clause (i) of the definition of that term) in the Treasury Portfolio for Senior Notes as Collateral.

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 using its commercially reasonable efforts, the Remarketing Agent cannot remarket the Pledged Senior Notes and the Separate Senior Notes (if any) in the Initial Remarketing (other than to the Company) at a price not less than 100% of the sum of the Treasury Portfolio Purchase Price plus the Separate Senior Notes Purchase Price or a condition precedent set forth in the Remarketing Agreement is not fulfilled, the Initial Remarketing will be deemed to have failed (a "Failed Initial Remarketing"). Upon a Failed Initial Remarketing, the Remarketing Agent shall return the Separate Senior Notes (if any) subject to such Remarketing to the Custodial Agent.

(i) Prior to 5:00 p.m. (New York City time) on the fifth Business Day immediately preceding the applicable 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 to the Pledge Agreement, to the Custodial Agent. The Custodial Agent shall hold 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 fifth Business Day immediately preceding the applicable Remarketing Date, upon which notice the Custodial Agent shall return such Separate Senior Notes to such Holder. Promptly after 11:00 a.m. on the Business Day immediately preceding the applicable Remarketing Date, the Custodial Agent shall notify the Remarketing Agent of the aggregate principal amount of the Separate Senior Notes to be remarketed. After such time, such election shall become an irrevocable election to have such Separate Senior Notes remarketed in such Remarketing.

(ii) Not later than seven calendar days nor more than 15 calendar days prior to the applicable Remarketing Date, the Company shall notify Holders holding Units and Separate Senior Notes of the procedures to be followed in such Remarketing, 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 the Initial Remarketing or the Final Remarketing, as the case may be, 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 such Remarketing.

(iv) The Company shall cause a notice of a Failed Remarketing to be published (with a copy of such notice to be provided to the Purchase Contract Agent) on the Business Day immediately following the applicable Remarketing Date, in a daily newspaper in the English language of general circulation in the City of New York, which is expected to be The Wall Street Journal.

(b) (i) Unless a Special Event Redemption, an Early Settlement or a Cash Merger Early Settlement has occurred prior to the Final Remarketing Date, if no Successful Remarketing has occurred prior to the Final Remarketing 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 fifth Business Day immediately preceding the Purchase Contract Settlement Date. Promptly following 5:00 p.m. (New York City time) on the fifth 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 on or prior to 5:00 p.m. (New York City time) on the fourth 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)(ii) 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 the Final Remarketing as described in paragraph Section 5.02(c) below.

(iv) As soon as practicable after 5:00 p.m. (New York City time) on the fourth 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 purchase in the Remarketing in a notice pursuant to the terms of the Pledge Agreement.

(c) (i) Unless a Special Event Redemption, an Early Settlement or a Cash Merger Early Settlement has occurred prior to the Final Remarketing Date, if a Failed Initial Remarketing has occurred, the Senior Notes of such Holders of Corporate Units who have not notified the Purchase Contract Agent of their intention to effect a Cash Settlement as provided in Section 5.02(b)(i) above, or who have so notified the Purchase Contract Agent in accordance with Section 5.02(b)(i) above but have failed to make such payment as required by Section 5.02(b)(ii) above, and the Separate Senior Notes of any holder who has elected for its Separate Senior Notes to be remarketed pursuant to Section 5.02(a)(ii) will be remarketed by the Remarketing Agent (the "Final Remarketing") on the third Business Day immediately preceding the Purchase Contract Settlement Date (the "Final Remarketing Date"). In order to facilitate the Final Remarketing, the Purchase Contract Agent, based on the notices specified in Section 5.02(b)(iv), and the Collateral Agent, based on the notices specified in Section 5.02(a)(ii), shall notify the Remarketing Agent, by 11:00 a.m. (New York City time) on the Business Day immediately preceding the Final Remarketing Date, of the aggregate principal amount of Pledged Senior Notes or aggregate principal amount of Separate Senior Notes that are to be remarketed pursuant to Section 5.02(a)(ii), as the case may be, to be remarketed. Concurrently, the Custodial Agent will present for remarketing the Separate Senior Notes to the Remarketing Agent.

(ii) Upon receipt of such notice from the Purchase Contract Agent and the Collateral Agent and the Separate Senior Notes (if any) from the Custodial Agent, as set forth in clause (i) above, the Remarketing Agent shall, on the Final Remarketing Date, use its commercially reasonable efforts to remarket (based on the Reset Rate) such Pledged Senior Notes and the Separate Senior Notes on such date at a price equal to approximately 100.25% (or, if the Remarketing Agent is unable to remarket the Pledged Senior Notes and the Separate Senior Notes at such rate, at a rate below 100.25% but in no event less than 100%) of the aggregate principal amount of such Senior Notes and Separate Senior Notes being remarketed, as provided in the Remarketing Agreement. If the Remarketing Agent is able to remarket the Pledged Senior Notes and Separate Senior Notes at a price equal to or greater than 100% of the aggregate principal amount of the Pledged Senior Notes and Separate Senior Notes (if any) (a "Successful Final 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 Remarketing Agent will deduct as the remarketing fee an amount equal to the lesser of (x) 25 basis points (.25%) of the aggregate principal amount of the remarketed Pledged Senior Notes and Separate Senior Notes (if any) and (y) any proceeds of such Successful Final Remarketing in excess of the aggregate principal amount of the remarketed Pledged Senior Notes and Separate Senior Notes. To the extent that such amount is less than 25 basis points of the aggregate principal amount of the remarketed Pledged Senior Notes and Separate Senior Notes, the Company shall pay an amount, as an additional remarketing fee, equal to such shortfall (such amount, together with the amount in the previous sentence, the "Final Remarketing Fee"). The proceeds from the Remarketing remitted to the Collateral Agent shall be invested by the Collateral Agent in Permitted Investments, in accordance with the Pledge Agreement, and then 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 and the portion of the Final Remarketing Fee attributable to the Senior Notes 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 Final Remarketing, any proceeds of the Final Remarketing in excess of the portion of the Final Remarketing Fee attributable to the Separate Senior Notes will be remitted to the Custodial Agent for payment to the holders of Separate Senior Notes.

(iii) If, in spite of using its commercially reasonable efforts, the Remarketing Agent cannot remarket the Pledged Senior Notes and Separate Senior Notes (if any) in the Final Remarketing at a price not less than 100% of the aggregate principal amount of the Pledged Senior Notes and Separate Senior Notes to be remarketed in the Final Remarketing (other than to the Company) or a condition precedent set forth in the Remarketing Agreement is not fulfilled, the Final Remarketing will be deemed to have failed (a "Failed Final Remarketing").

Following 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(e)(ii) 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.

(d) As soon as practicable after 5:00 p.m. (New York City time) on the fourth 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 purchase in the Final Remarketing in a notice pursuant to the terms of the Pledge Agreement.

(e) (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 E 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 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(a)(i) above, or does notify the Purchase Contract Agent in accordance with Section 5.02(a)(i) above but fails to make such payment as required by Section 5.02(a)(ii) above, such Holder shall be deemed to have automatically exercised such Holder's Put Right following a Failed Final Remarketing as described in paragraph Section 5.02(c)(iii) above.

(f) As soon 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(e)(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 Section 5.02(c)(iii) hereof.

(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, 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 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 5.02(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 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 5.02(a)(i), Section 5.02(a)(ii) and paragraph (w) of this Section 5.02(a)(iv) shall not be applicable.

(y) Notwithstanding anything to the contrary contained in this Section 5.02(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 5.02(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 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 5.02(a)(iv) and Section 5.02(a)(i) and Section 5.02(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 5.02(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 5.02(a)(i) and Section 5.02(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 5.02(a)(i) and Section 5.02(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 5.02(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 5.02; 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 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 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 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 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 fifth 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 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

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.

(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 fifth 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 fifth 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 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:

(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 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 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 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).

(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.

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.

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.

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

(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 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 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.

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.

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, 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.

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;

(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 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.

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.

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 Purchase 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 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.

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.

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]

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, 2005

- OR -

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

For the transition period from _______________ to _________________


Commission	Name of Registrants, State of Incorporation,	I.R.S. Employer
File Number	Address and Telephone Number	Identification No.
333-32170	PNM Resources, Inc.	85-0468296
	(A New Mexico Corporation)
	Alvarado Square
	Albuquerque, New Mexico 87158
	(505) 241-2700

1-6986	Public Service Company of New Mexico	85-0019030
	(A New Mexico Corporation)
	Alvarado Square
	Albuquerque, New Mexico 87158
	(505) 241-2700

2-97230	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 the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. YES X NO

Indicate by check mark whether each Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
PNM Resources, Inc. ("PNMR") YES X NO Public Service Company of New Mexico ("PNM") YES NO X Texas-New Mexico Power Company ("TNMP") YES NO X

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

As of October 31, 2005, 68,763,951 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 31, 2005 was 39,117,799 all held by PNMR.
The total number of shares of Common Stock of TNMP outstanding as of
October 31, 2005 was 9,615 all held indirectly by PNMR.


PART II. OTHER INFORMATION:

ITEM 1. LEGAL PROCEEDINGS	167

ITEM 5. OTHER INFORMATION	168

ITEM 6. EXHIBITS	169

Signature	171

Afton...................................	Afton Generating Station
ALJ......................................	Administrative Law Judge
APB.....................................	Accounting Principles Board
APS.....................................	Arizona Public Service Company
ARO....................................	Asset Retirement Obligation
AR Securitization...............	Accounts Receivable Securitization
BLM.....................................	U.S. Department of the Interior Bureau of Land Management
Board...................................	Board of Directors
BTU.....................................	British Thermal Unit
Cal PX.................................	California Power Exchange
Cal ISO................................	California Independent System Operator
Cascade...............................	Cascade Investment, LLC
CCN....................................	Certificate of Public Convenience and Necessity
Congress.............................	United States Congress
Constellation.......................	Constellation Energy Commodities Group, Inc.
CPUC..................................	California Public Utilities Commission
Decatherm..........................	1,000,000 BTUs
Delta....................................	Delta-Person Limited Partnership
DOJ.....................................	United States Department of Justice
EaR......................................	Earnings at Risk
EIP.......................................	Eastern Interconnection Project
EITF.....................................	Emerging Issues Task Force
EPE......................................	El Paso Electric Company
EPA.....................................	United States Environmental Protection Agency
ERCOT................................	Electric Reliability Council of Texas
FASB...................................	Financial Accounting Standards Board
FCPSP.................................	First Choice Power Special Purpose, L.P.
FERC...................................	Federal Energy Regulatory Commission
First Choice.........................	First Choice Power, L. P. and Subsidiaries
FIP.......................................	Federal Implementation Plan
Four Corners.......................	Four Corners Power Plant
GAAP..................................	Generally Accepted Accounting Principles in the United
	States of America
Gathering Company..........	Sunterra Gas Gathering Company, a wholly‑owned
	subsidiary of PNM Resources, Inc.
GCT.....................................	Grand Canyon Trust
Global Electric Agreement.	Signed by PNMR and other parties in 2003; provided for a five-year rate path for New Mexico jurisdictional customers beginning in September 2003
Great Southwestern...........	Great Southwestern Construction, Inc.
IBLA.................................... IRS.......................................	Interior Board of Land Appeals United States Internal Revenue Service
Laurel Hill...........................	Laurel Hill Capital Partners
LIBOR.................................	London Interbank Offered Rate
Lordsburg...........................	Lordsburg Generating Station

Luna....................................	Luna Energy Facility
MMBTUs.............................	Million British Thermal Units
Moody's...............................	Moody's Investor Services, Inc.
MW.....................................	Megawatt
MWh...................................	Megawatt Hour
Navajo Acts........................	Navajo Nation Air Pollution Prevention and Control Act, the
	Navajo Nation Safe Drinking Water Act, and the Navajo
	Nation Pesticide Act
Ninth Circuit......................	United States Court of Appeals for the Ninth Circuit
NMED.................................	New Mexico Environment Department
NMPRC...............................	New Mexico Public Regulation Commission, successor to the
	New Mexico Public Utility Commission
NNHPD..............................	Navajo Nation Historic Preservation Department
NRC....................................	United States Nuclear Regulatory Commission
NSPS...................................	New Source Performance Standards
NSR.....................................	New Source Review
OATT..................................	Open Access Transmission Tariff
O&M...................................	Operations and Maintenance Expense
PGAC..................................	Purchased Gas Adjustment Clause
PG&E..................................	Pacific Gas and Electric Co.
PNM....................................	Public Service Company of New Mexico and Subsidiary
PNMR.................................	PNM Resources, Inc. and Subsidiaries
PPA.....................................	Power Purchase Agreement
PSA.....................................	Power Supply Agreement
PSD.....................................	Prevention of Significant Deterioration
Processing Company..........	Sunterra Gas Processing Company, a wholly‑owned
	subsidiary of PNM Resources, Inc.
PUCT..................................	Public Utility Commission of Texas
PUHCA...............................	The Public Utility Holding Company Act of 1935
PURPA................................	Public Utility Regulatory Policy Act of 1978
PVNGS................................	Palo Verde Nuclear Generating Station
Reeves.................................	Reeves Generating Station
REP......................................	Retail Electricity Provider
Restructuring Act...............	New Mexico Electric Utility Industry Restructuring Act of 1999, as amended
RMC....................................	Risk Management Committee
RMRR..................................	Routine Maintenance, Repair or Replacement
RTO.....................................	Regional Transmission Organization
SCE......................................	Southern California Edison Company
SDG&E................................	San Diego Gas and Electric Company
SEC......................................	United States Securities and Exchange Commission
Senate Bill 7........................	Legislation that established retail competition in Texas
SESCO.................................	San Angelo Electric Service Company
SFAS...................................	Statement of Financial Accounting Standards
SJCC....................................	San Juan Coal Company
SJGS.....................................	San Juan Generating Station
SO2......................................	Sulfur Dioxide

S&P.....................................	Standard and Poor's Ratings Services
SW Acquisition...................	SW Acquisition, L.P.
TCEQ..................................	Texas Commission on Environmental Quality
TECA..................................	Texas Electric Choice Act (also known as Senate Bill 7)
TNMP..................................	Texas‑New Mexico Power Company and Subsidiaries
TNP.....................................	TNP Enterprises, Inc. and Subsidiaries
Throughput........................	Volumes of gas delivered, whether or not owned by the
	Company
USBR...................................	United States Bureau of Reclamation
USFS....................................	United States Forest Service
VaR.....................................	Value at Risk
Wood River.........................	Wood River Partners, L.P.
WSPP..................................	Western Systems Power Pool

	Page No.
GLOSSARY	1

PART I. FINANCIAL INFORMATION:

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

PNM Resources, Inc. and Subsidiaries
Consolidated Statements of Earnings
Three and Nine Months Ended September 30, 2005 and 2004	4
Consolidated Balance Sheets
September 30, 2005 and December 31, 2004	5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2005 and 2004	7
Consolidated Statements of Comprehensive Income
Three and Nine Months Ended September 30, 2005 and 2004	9
Public Service Company of New Mexico and Subsidiary
Consolidated Statements of Earnings
Three and Nine Months Ended September 30, 2005 and 2004	10
Consolidated Balance Sheets
September 30, 2005 and December 31, 2004	11
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2005 and 2004	13
Consolidated Statements of Comprehensive Income
Three and Nine Months Ended September 30, 2005 and 2004	15
Texas-New Mexico Power Company and Subsidiaries
Consolidated Statements of Earnings
Three and Nine Months Ended September 30, 2005 and 2004	16
Consolidated Balance Sheets
September 30, 2005 and December 31, 2004	18
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2005 and 2004	20
Consolidated Statements of Comprehensive Income (Loss)
Three and Nine Months Ended September 30, 2005 and 2004	22
Notes to the Consolidated Financial Statements	24

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS	88

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK	167

ITEM 4. CONTROLS AND PROCEDURES	167

ITEM 1. FINANCIAL STATEMENTS

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

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2005	2004	2005	2004
	(In thousands, except per share amounts)
Operating Revenues:
Electric	$ 518,529	$ 313,147	$1,103,648	$ 863,783
Gas	78,258	73,530	325,752	330,290
Other	330	178	884	557
Total operating revenues	597,117	386,855	1,430,284	1,194,630

Operating Expenses:
Cost of energy sold	362,863	226,849	848,532	703,862
Administrative and general	59,961	37,537	153,457	120,486
Energy production costs	36,526	33,735	112,364	107,977
Depreciation and amortization	36,847	21,802	96,859	74,370
Transmission and distribution costs	21,179	14,755	50,292	44,397
Taxes, other than income taxes	17,184	8,178	36,626	25,924
Income taxes	12,246	11,784	24,776	29,601
Total operating expenses	546,806	354,640	1,322,906	1,106,617
Operating income	50,311	32,215	107,378	88,013

Other Income and Deductions:
Interest income	10,760	9,270	31,682	28,035
Other income	5,433	1,513	11,777	4,926
Carrying charges on regulatory assets	1,910	-	2,435	-
Other deductions	(7,557)	(236)	(17,567)	(4,222)
Other income taxes	(3,693)	(2,918)	(9,747)	(9,104)
Net other income and deductions	6,853	7,629	18,580	19,635

Interest Charges	28,145	12,280	62,689	38,164

Preferred Stock Dividend
Requirements	536	147	2,736	440

Net Earnings	$ 28,483	$ 27,417	$ 60,533	$ 69,044

Net Earnings per Common Share:

Basic	$ 0.41	$ 0.45	$ 0.93	$ 1.14

Diluted	$ 0.41	$ 0.45	$ 0.92	$ 1.13


Dividends Declared per Common Share	$ 0.400	$ 0.160	$ 0.585	$ 0.560

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

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

	September 30,	December 31,
	2005	2004
	(In thousands)
ASSETS
Utility Plant:
Electric plant in service	$3,269,524	$2,488,961
Gas plant in service	699,294	680,487
Common plant in service and plant held for future use	156,387	140,818
	4,125,205	3,310,266
Less accumulated depreciation and amortization	1,346,557	1,135,510
	2,778,648	2,174,756
Construction work in progress	155,042	124,381
Nuclear fuel, net of accumulated amortization of $17,669 and $16,448	28,919	25,449

Net utility plant	2,962,609	2,324,586

Other Property and Investments:
Investment in lessor notes	287,020	308,680
Other investments	162,005	139,848
Non-utility property, net of accumulated depreciation of $6 and $1,773	4,815	1,437

Total other property and investments	453,840	449,965

Current Assets:
Cash and cash equivalents	144,799	17,195
Special deposits	2,933	-
Accounts receivable, net of allowance for uncollectible accounts
of $4,077 and $1,329	119,258	96,600
Unbilled revenues	110,983	104,708
Other receivables	54,091	48,393
Inventories	45,730	41,352
Regulatory assets	14,147	3,339
Other current assets	99,218	51,967

Total current assets	591,159	363,554

Deferred charges:
Regulatory assets	427,090	217,196
Prepaid pension cost	90,417	87,336
Goodwill	492,693	-
Other intangible assets	62,718	-
Other deferred charges	56,033	44,998

Total deferred charges	1,128,951	349,530
	$5,136,559	$3,487,635

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

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine Months Ended
	September 30,
	2005	2004
	(In thousands)
Cash Flows From Operating Activities:
Net earnings	$ 60,533	$ 69,044
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization	112,000	96,837
Allowance for equity funds used during construction	(1,784)	(802)
Accumulated deferred income tax	17,330	2,056
Net unrealized (gains) losses on trading and investment contracts	380	(1,343)
Other	358	-
Changes in certain assets and liabilities:
Accounts receivable	10,236	9,936
Unbilled revenues	27,499	10,704
Accrued post-retirement benefit costs	(2,574)	(5,101)
Deferred charges	(10,326)	(2,893)
Other assets	(25,571)	17,942
Accounts payable	(3,724)	(20,083)
Accrued taxes	46,899	47,864
Accrued interest	(6,857)	1,434
Deferred credits	(15,482)	(3,132)
Other liabilities	(38,309)	(9,830)
Net cash flows from operating activities	170,608	212,633

Cash Flows From Investing Activities:
Utility plant additions	(128,578)	(83,880)
Nuclear fuel additions	(10,349)	(5,820)
Utility plant additions related to allowance for borrowed funds
used during construction and capitalized interest	(2,176)	(2,251)
Return of principal of PVNGS lessor notes	21,091	20,292
Cash acquired from purchase of TNP, net of cash paid	34,531	-
Other	1,039	(8,207)
Net cash flows from investing activities	(84,442)	(79,866)

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

PNM RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2005	2004		2005		2004
	(In thousands)

Net Earnings	$ 28,483		$ 27,417		$ 60,533	$ 69,044
Other Comprehensive Income, net of tax:

Unrealized gain (loss) on securities:
Unrealized holding gains (losses)
during the period, net of income
tax (expense) benefit of $(297),
$(205), $(1,792) and $(477)	452		313		2,733	728
Reclassification adjustment for
amounts included in net income,
net of income tax (expense)
benefit of $64, $319,
$1,819 and $701	(97)		(487)		(2,775)	(1,069)

Additional minimum pension liability
adjustment, net of income tax expense
of $(12)	-		-		-	19

Mark-to-market adjustment for
certain derivative transactions:
Change in fair market value of
designated cash flow hedges,
net of income tax (expense)
benefit of $(9,116), $290,	17,162		(442)		22,004	3,222
$(12,189) and $(2,112)
Reclassification for amounts in net
income, net of income tax
(expense) benefit of $669, $329
$682 and $261	(1,021)		(502)		(1,041)	(399)

Total Other Comprehensive Income (Loss)	16,496		(1,118)		20,921	2,501

Total Comprehensive Income	$ 44,979		$ 26,299		$ 81,454	$ 71,545

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

PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARY
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2005	2004	2005	2004
	(In thousands)

Operating Revenues:
Electric	$ 325,274	$ 313,147	$ 857,722	$ 863,783
Gas	78,258	73,530	325,752	330,290
Total operating revenues	403,532	386,677	1,183,474	1,194,073

Operating Expenses:
Cost of energy sold	249,660	226,811	703,776	703,751
Administrative and general	45,695	37,056	128,102	121,075
Energy production costs	36,484	33,735	112,364	107,977
Depreciation and amortization	27,406	21,157	83,315	72,597
Transmission and distribution costs	15,532	14,755	43,546	44,397
Taxes, other than income taxes	7,913	7,523	23,664	23,805
Income taxes	2,433	12,074	17,458	30,095
Total operating expenses	385,123	353,111	1,112,225	1,103,697
Operating income	18,409	33,566	71,249	90,376

Other Income and Deductions:
Interest income	9,697	9,230	28,000	27,746
Other income	3,963	2,028	9,222	5,297
Other deductions	(2,677)	(1,225)	(9,704)	(2,816)
Other income taxes	(3,987)	(2,715)	(9,989)	(9,693)
Net other income and deductions	6,996	7,318	17,529	20,534

Interest Charges	14,139	13,189	40,896	39,774

Net Earnings	11,266	27,695	47,882	71,136

Preferred Stock Dividend
Requirements	132	147	396	440

Net Earnings Available for
Common Stock	$ 11,134	$ 27,548	$ 47,486	$ 70,696

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

TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
A WHOLLY OWNED SUBSIDIARY OF PNM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)

	Post-Acquisition	Pre-Acquisition
	Three Months Ended
	September 30,
	2005	2004
	(In thousands)
Operating Revenues:
Electric	$71,441	$74,732
Total operating revenues	71,441	74,732

Operating Expenses:
Cost of energy sold	25,764	25,956
Administrative and general	5,970	7,552
Depreciation and amortization	7,814	7,433
Transmission and distribution costs	5,670	4,442
Taxes, other than income taxes	6,597	6,509
Income taxes	4,412	5,760
Total operating expenses	56,227	57,652
Operating income	15,214	17,080

Other Income and Deductions:
Interest income	660	128
Other income	202	237
Carrying charges on regulatory assets	1,910	928
Other deductions	(43)	(157)
Other income taxes	(1,050)	(436)
Net other income and deductions	1,679	700

Interest Charges	7,250	6,971

Net Earnings	$ 9,643	$10,809

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

		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	12
Section 1.04.	Acts of Holders; Record Dates	12
Section 1.05.	Notices	13
Section 1.06.	Notice to Holders; Waiver	14
Section 1.07.	Effect of Headings and Table of Contents	15
Section 1.08.	Successors and Assigns	15
Section 1.09.	Separability Clause	15
Section 1.10.	Benefits of Agreement	15
Section 1.11.	Governing Law	15
Section 1.12.	Legal Holidays	15
Section 1.13.	Counterparts	15
Section 1.14.	Inspection of Agreement	15
Section 1.15.	Appointment of Financial Institution as Agent for the Company	16
Section 1.16.	No Waiver	16

Section 2.01.	Forms of Certificates Generally	16
Section 2.02.	Form of Purchase Contract Agent's Certificate of Authentication	16

Section 3.01.	Amount; Form and Denominations	16
Section 3.02.	Rights and Obligations Evidenced by the Certificates	17

Section 3.03.	Execution, Authentication, Delivery and Dating	17
Section 3.04.	Temporary Certificates	18
Section 3.05.	Registration; Registration of Transfer and Exchange	18
Section 3.06.	Form of Private Placement Legends	20
Section 3.07.	Notices to Holders	21
Section 3.08.	Intentionally Omitted	21
Section 3.09.	Definitive Certificates	21
Section 3.10.	Mutilated, Destroyed, Lost and Stolen Certificates	21
Section 3.11.	Persons Deemed Owners	22
Section 3.12.	Cancellation	22
Section 3.13.	Creation of Treasury Units by Substitution of Treasury Securities	23
Section 3.14.	Recreation of Corporate Units	24
Section 3.15.	Transfer of Collateral upon Occurrence of Termination Event	25
Section 3.16.	No Consent to Assumption	26

Section 4.01.	Interest Payments; Rights to Interest Payments Preserved	26
Section 4.02.	Notice and Voting	27
Section 4.03.	Special Event Redemption	28

Section 5.01.	Purchase of Shares of Common Stock	28
Section 5.02.	Remarketing; Payment of Purchase Price	31
Section 5.03.	Issuance of Shares of Common Stock	36
Section 5.04.	Adjustment of each Fixed Settlement Rate	37
Section 5.05.	Notice of Adjustments and Certain Other Events	47
Section 5.06.	Termination Event; Notice	47
Section 5.07.	Early Settlement	48
Section 5.08.	Election to Receive Preferred Stock in Lieu of Common Stock	50

Section 5.09.	No Fractional Shares	50
Section 5.10.	Charges and Taxes	50
Section 5.11.	Contract Adjustment Payments	51

Section 6.01.	Unconditional Right of Holders to Receive Contract Adjustment Payments and to Purchase Shares of Common Stock or Preferred Stock	55
Section 6.02.	Restoration of Rights and Remedies	55
Section 6.03.	Rights and Remedies Cumulative	55
Section 6.04.	Delay or Omission Not Waiver	55
Section 6.05.	Undertaking for Costs	55
Section 6.06.	Waiver of Stay or Extension Laws	56

Section 7.01.	Certain Duties and Responsibilities	56
Section 7.02.	Notice of Default	57
Section 7.03.	Certain Rights of Purchase Contract Agent	57
Section 7.04.	Not Responsible for Recitals or Issuance of Units	58
Section 7.05.	May Hold Units	58
Section 7.06.	Money Held in Custody	59
Section 7.07.	Compensation and Reimbursement	59
Section 7.08.	Corporate Purchase Contract Agent Required, Eligibility	59
Section 7.09.	Resignation and Removal; Appointment of Successor	60
Section 7.10.	Acceptance of Appointment by Successor	61
Section 7.11.	Merger, Conversion, Consolidation or Succession to Business	61
Section 7.12.	Preservation of Information; Communications to Holders	61
Section 7.13.	No Obligations of Purchase Contract Agent	62
Section 7.14.	Tax Compliance	62

Section 8.01.	Supplemental Agreements Without Consent of Holders	62
Section 8.02.	Supplemental Agreements with Consent of Holders	63
Section 8.03.	Execution of Supplemental Agreements	64
Section 8.04.	Effect of Supplemental Agreements	64
Section 8.05.	Reference to Supplemental Agreements	64

Section 9.01.	Covenant Not to Consolidate, Merge, Convey, Transfer or Lease Property Except under Certain Conditions	64
Section 9.02.	Rights and Duties of Successor Corporation	65
Section 9.03.	Officers' Certificate and Opinion of Counsel Given to Purchase Contract Agent	65

Section 10.01.	Performance Under Purchase Contracts	65
Section 10.02.	Maintenance of Office or Agency	65
Section 10.03.	Company to Reserve Common Stock and Preferred Stock	66
Section 10.04.	Covenants as to Common Stock and Preferred Stock	66
Section 10.05.	Statements of Officers of the Company as to Default	66
Section 10.06.	ERISA	66
Section 10.07.	Tax Treatment	66

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

Maturities

Less than

1 year

1-3 Years

4+ Years

(In thousands)

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:	REGISTERED HOLDER Please print name and address of Registered Holder:
Name	Name
Address	Address



Social Security or other Taxpayer Identification Number, if any

Trust Act	Indenture Section	Indenture Section
§ 310	(a) (1)	6.09
	(a) (2)	6.09
	(a) (3)	Not Applicable
	(a) (4)	Not Applicable
	(b)	6.08
		6.10
§ 311	(a)	6.13
	(b)	6.13
§ 312	(a)	7.01
		7.02
	(b)	7.02
	(c)	7.02
§ 313	(a)	7.03
	(b)	7.03
	(c)	7.03
	(d)	7.03
§ 314	(a)	7.04
	(a) (4)	1.02
		10.04
	(b)	Not Applicable
	(c) (1)	1.02
	(c) (2)	1.02
	(c) (3)	Not Applicable
	(d)	Not Applicable
	(e)	1.02
§ 315	(a)	6.01
	(b)	6.02
	(c)	6.01
	(d)	6.01
	(e)	5.14
§ 316	(a)	5.12
		5.13
	(a) (1) (A)	5.02
		5.12
	(a) (1) (B)	5.13
	(a) (2)	Not Applicable
	(b)	5.08
	(c)	1.04
§ 317	(a) (1)	5.03
	(a) (2)	5.04
	(b)	10.03
§ 318	(a)	1.07

		Page
Section 1.01	Definitions	1
Section 1.02	Compliance Certificates and Opinions	7
Section 1.03	Form of Documents Delivered to Trustee	7
Section 1.04	Acts of Holders; Record Dates	8
Section 1.05	Notices, Etc., to Trustee and Company	10
Section 1.06	Notice to Holders; Waiver	11
Section 1.07	Conflict with Trust Indenture Act	11
Section 1.08	Effect of Headings and Table of Contents	12
Section 1.09	Successors and Assigns	12
Section 1.10	Separability Clause	12
Section 1.11	Benefits of Indenture	12
Section 1.12	Governing Law	12
Section 1.13	Legal Holidays	12
Section 1.14	Regulatory Statement	13

Section 2.01	Forms Generally	13
Section 2.02	Form of Face of Note	14
Section 2.03	Form of Reverse of Note	15
Section 2.04	Form of Legend for Global Notes	19
Section 2.05	Form of Trustee's Certificate of Authentication	19

Section 3.01	Amount Unlimited; Issuable in Series	20
Section 3.02	Denominations	23
Section 3.03	Execution, Authentication, Delivery and Dating	23
Section 3.04	Temporary Notes	25
Section 3.05	Registration, Registration of Transfer and Exchange	26
Section 3.06	Mutilated, Destroyed, Lost and Stolen Notes	28
Section 3.07	Payment of Interest; Interest Rights Preserved	28
Section 3.08	Persons Deemed Owners	30
Section 3.09	Cancellation	30
Section 3.10	Computation of Interest	30
Section 3.11	CUSIP Numbers	30
Section 3.12	Payment to Be in Proper Currency	30

Section 4.01	Satisfaction and Discharge of Indenture	31
Section 4.02	Application of Trust Money	32

Section 5.01	Events of Default	32
Section 5.02	Acceleration of Maturity; Rescission and Annulment	33
Section 5.03	Collection of Indebtedness and Suits for Enforcement by Trustee	34
Section 5.04	Trustee May File Proofs of Claim	35
Section 5.05	Trustee May Enforce Claims Without Possession of Notes	36
Section 5.06	Application of Money Collected	36
Section 5.07	Limitation on Suits	36
Section 5.08	Unconditional Right of Holders to Receive Principal, Premium and Interest	37
Section 5.09	Restoration of Rights and Remedies	37
Section 5.10	Rights and Remedies Cumulative	37
Section 5.11	Delay or Omission Not Waiver	38
Section 5.12	Control by Holders	38
Section 5.13	Waiver of Past Defaults	38
Section 5.14	Undertaking for Costs	39
Section 5.15	Waiver of Stay or Extension Laws	39

Section 6.01	Certain Duties and Responsibilities	39
Section 6.02	Notice of Defaults	41
Section 6.03	Certain Rights of Trustee	41
Section 6.04	Not Responsible for Recitals or Issuance of Notes	42
Section 6.05	May Hold Notes	42
Section 6.06	Money Held in Trust	42
Section 6.07	Compensation and Reimbursement	42
Section 6.08	Conflicting Interests	43
Section 6.09	Corporate Trustee Required; Eligibility	43
Section 6.10	Resignation and Removal; Appointment of Successor	44
Section 6.11	Acceptance of Appointment by Successor	45
Section 6.12	Merger, Conversion, Consolidation or Succession to Business	47
Section 6.13	Preferential Collection of Claims Against Company	47
Section 6.14	Appointment of Authenticating Agent	47

Section 7.01	Company to Furnish Trustee Names and Addresses of Holders	49
Section 7.02	Preservation of Information; Communications to Holders	49
Section 7.03	Reports by Trustee	50
Section 7.04	Reports by Company	50

Section 8.01	Company May Consolidate, Etc., Only on Certain Terms	50
Section 8.02	Successor Substituted	51