Exhibit 10.9
 
SUPPLEMENTAL EMPLOYEE RETIREMENT AGREEMENT
 
FOR
 
JEFFRY E. STERBA
 
Effective as of March 22, 2000, Public Service Company of New Mexico (“PNM”) and
Jeffry E. Sterba (“Employee”) entered into the Supplemental Employee Retirement
Agreement for Jeffry E. Sterba (the “Agreement”).  Effective as of approximately
December 31, 2001, PNM Resources, Inc. (“PNM Resources” or “Company”) became the
corporate parent of PNM.  Employee became employed by PNM Resources on or about
December 31, 2001.  Effective January 1, 2005, Employee became employed by PNMR
Services Company (“Services”), which also is a subsidiary of PNM Resources.  PNM
Resources and Services assumed the obligations to pay any benefits accruing to
Employee during periods while Employee was employed by PNM Resources or Services
and PNM Resources assumed all of the administrative responsibilities imposed
upon the “Company” pursuant to this Agreement.
 
By the adoption of this Agreement, PNM, PNM Resources, Services and Employee
amend and restate the Agreement in its entirety.  The purposes of this amendment
and restatement are to clarify certain provisions of the Agreement, coordinate
this Agreement with recent changes in various benefit plans sponsored by Company
and to comply with the requirements of Section 409A of the Internal Revenue Code
of 1986 (the “Code”) or an exception thereto.  Section 409A became applicable to
the Agreement as of January 1, 2005.  From January 1, 2005 through the Effective
Date, this Agreement has been and shall be operated in good faith compliance
with Section 409A or an exception thereto.  This amended and restated Agreement
is effective as of January 1, 2009 (the “Effective Date”).
 
1.     Supplemental Retirement Benefits.  Company agrees to pay Employee the
Supplemental Retirement Benefit described in this Section 1.  The Supplemental
Retirement Benefit shall be a monthly benefit payable for Employee’s life equal
to the difference between (a) the monthly retirement benefit that would be
payable to Employee under the PNM Resources, Inc. Employees’ Retirement Plan
(the “Retirement Plan”) if Employee were credited with a total of thirty (30)
years of Credited Service as of February 28, 2005, calculated in accordance with
Section 2, and (b) the monthly benefit deemed payable to Employee under the
Retirement Plan without such additional service, calculated in accordance with
Section 3.
 
2.     Calculation of Supplemental Retirement Benefit.  The Supplemental
Retirement Benefit provided for in Section 1 of this Agreement shall be
calculated based upon the Retirement Plan in effect on February 28, 2000, after
taking into account the additional service described in Section 1 above.  The
monthly benefit that would be payable to Employee under the Retirement Plan for
purposes of clause (a) of Section 1 shall be calculated disregarding limitations
imposed by Sections 401(a)(17) and 415 of the Code and similar regulatory
limitations.  Employee shall not be credited with more than thirty (30) years of
Credited Service (considering Employee’s actual Credited Service under the
Retirement Plan and the additional Credited Service granted pursuant to
Section 1).
 

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3.     Calculation of Retirement Plan Benefit, No Duplication of Benefits.  For
purposes of calculating the amount of the Supplemental Retirement Benefit due
pursuant to Section 1, the benefits deemed payable under the Retirement Plan for
purposes of clause (b) of Section 1 shall be calculated as follows:
 
(a)     The commencement date for the payment of such benefits shall be deemed
to be the later of:  (1) the earliest date Employee could have begun receiving
benefits under the Retirement Plan or (2) the date Employee commences receiving
benefits under this Agreement;
 
(b)     The benefit shall be assumed to be payable in the form of a single life
annuity;
 
(c)     The calculation shall be based upon the Retirement Plan in effect on the
date such benefits are deemed to have commenced and Employee’s actual Average
Earnings as provided for in the Retirement Plan, using the highest salary for
three consecutive years prior to January 1, 1998, the effective date that the
Retirement Plan was frozen; and
 
(d)     The calculation shall be based on Employee’s actual Credited Service,
calculated in accordance with the provisions of the Retirement Plan.
 
4.     Payment due to Disability.  In the event Employee becomes Disabled prior
to commencing to receive benefits under this Agreement, he shall be entitled to
receive the Supplemental Retirement Benefit provided by Section 1, payable in
accordance with Section 8.
 
5.     Payment upon Death.
 
(a)     Death Following Commencement of Benefit.  If Employee dies following
commencement of benefits under this Agreement, whether any benefits will be paid
in the future will be determined in accordance with the benefit option elected
by Employee pursuant to Section 8.
 
(b)     Death Prior to Commencement of Benefits.  If Employee dies prior to
commencement of benefits under this Agreement, the benefit payable under this
Agreement shall equal the difference between (1) the benefit (i.e., the
qualified pre-retirement survivor annuity) that would be payable under the
Retirement Plan if Employee’s accrued benefit under the Retirement Plan was
equal to the benefit calculated in accordance with Section 2 and (2) the benefit
actually payable under the Retirement Plan upon Employee’s death (i.e., the
qualified pre-retirement survivor annuity).  If, at the time of Employee’s
death, he is not survived by either a spouse or Dependent Child, no benefit
shall be payable pursuant to this paragraph.  Payment to the surviving spouse or
Dependent Child shall commence as of the first day of the month following the
date of Employee’s death.
 
6.     Severance Benefits.  In the event Employee is terminated or
Constructively Terminated by Company for any reason other than Cause or as a
result of a Change in Control, Employee shall receive the following severance
pay in lieu of the severance pay provided pursuant to Section 4.3(a) of the PNM
Resources, Inc. Non-Union Severance Pay Plan (the “Severance Plan”), as it may
be amended from time to time:
 
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One cash lump sum payment equal to sixteen (16) months of Employee’s Base
Salary, with no additional cost of living, promotion, merit or other increases,
plus one (1) additional week of Base Salary for each Year of Service.
 
If, due to an amendment of the Severance Plan or otherwise, the amount of the
severance pay due pursuant to the Severance Plan, as it may be amended or
replaced, is greater than the severance pay provided by this Section 6, Employee
shall receive the severance pay due pursuant to the Severance Plan in lieu of
the severance pay due pursuant to this Section.  For purposes of this Section 6,
the Years of Service taken into account in calculating Employee’s severance pay
shall be deemed to include the years of Credited Service granted to Employee
under this Agreement.
 
Payments due pursuant to this Section 6 shall be made at the time specified in
the Severance Plan.
 
This Section 6 is intended to supplement the Severance Plan.  In addition to
receiving the severance pay called for by this Section 6 and all of the benefits
provided by all of the remaining sections of this Agreement, the Employee also
shall be entitled to receive any benefits (other than severance pay) to which he
may become entitled under the Severance Plan.  In the event of a termination for
any reason other than Cause, Employee is entitled to receive payments either
pursuant to this Section 6 or payments and other benefits due under the
Retention Plan, whichever is applicable.
 
7.     Eligibility for Retiree Health Benefits.  The applicable premium amount
for benefits under the PNM Resources, Inc. Comprehensive Retiree Health Plan, or
its successor, will be determined by including the Credited Service granted
under this Agreement.  Notwithstanding the preceding sentence, in the event
Employee is terminated by Company for Cause, unless otherwise determined by the
Human Resources and Compensation Committee of the Board of Directors of PNM
Resources or its successor (the “Committee”), all Credited Service granted under
this Agreement shall be disregarded for purposes of calculating the applicable
premium amount.  Employee acknowledges that the difference between the standard
applicable premium under the Retiree Health Plan and the reduced premiums called
for by this Section will be treated as taxable compensation to Employee.
 
8.     Form, Timing and Amount of Benefit.  All payments shall be made in
accordance with this Section.
 
(a)     Payment of Supplemental Retirement Benefit.  Prior to the amendment and
restatement of this Agreement, payments of the Supplemental Retirement Benefit
provided by Section 1 to Employee were to be made “upon his retirement
eligibility and election.”  Effective as of January 1, 2009, that provision is
no longer permissible under the final regulations issued pursuant to
Section 409A of the Code.  By the adoption of this amended and restated
Agreement, Employee and Company agree and Employee elects to have payments of
the Supplemental Retirement Benefit made in accordance with this Section 8(a),
unless Employee elects otherwise as described in Section 8(a)(1) or (2).  The
provisions of this Section 8(a) are
 
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intended to be a new payment election in accordance with the transition relief
provided by Notice 2006-79 and Notice 2007-86.
 
As a general rule, Employee will commence receiving the Supplemental Retirement
Benefit provided by Section 1 within thirty (30) days following Employee’s
Separation from Service.  If Employee is a “Specified Employee” at the time of
his Separation from Service, however, payments will commence on the first day of
the seventh month following Employee’s Separation from Service.  Any payments
that would have been paid during the first six months following Employee’s
Separation from Service shall be paid on the first day of the seventh month with
interest at the Citibank prime rate as determined as of the date of the
payment.  If Citibank no longer publishes a prime rate, interest shall be paid
at the short-term “applicable federal rate” (within the meaning of
Section 1274(d) of the Code), plus 2 percentage points, determined as of the
date of the payment.  The six-month delay for a Specified Employee does not
apply if Employee dies or becomes Disabled prior to his Separation from
Service.  Notwithstanding the foregoing, by completing an election form in
accordance with Section 8(a)(1), Employee may elect to delay commencement of
benefit payments to a later date.  The Supplemental Retirement Benefit may be
paid in the form of any annuity form available under the Retirement Plan at the
time payments are to begin.  All annuity forms shall be actuarially equivalent
to the single life annuity form of payment otherwise payable pursuant to
Sections 1 and 3.  Employee shall be permitted to select among the available
annuities at any time up to thirty (30) days before the first payment is
due.  Employee also may change any previous annuity election at any time up to
thirty (30) days before the first payment is due.  If no selection is made, the
payments will be made in the form of a single life annuity.
 
(1)     2008 Election Form.  On or before December 31, 2008, Employee may elect
to defer the payment of the supplemental retirement benefit payable pursuant to
Section 1 until the later of Employee’s Separation from Service or a specified
date that qualifies as a specific time or fixed schedule pursuant to Treas. Reg.
§ 1.409A-3(i)(1).  The election must be made on a form provided by Company and
must be signed by Employee and delivered to Company on or before December 31,
2008.  Employee may change his election regarding the commencement of his
payments pursuant to this Section 8(a)(1) by filing a new form with Company
prior to December 31, 2008.  After December 31, 2008, Employee may change his
election regarding the commencement of his payments only in accordance with
Section 8(a)(2).  If a revised election is not honored because it was not timely
filed, distributions shall be made pursuant to the most recent valid election
filed by Employee.  If Employee makes an election pursuant to this
Section 8(a)(1), the election will apply only if Employee’s benefit payments
commence in 2009 or later.  If, pursuant to the terms of this Agreement as in
effect prior to the adoption of this restated Agreement, Employee’s benefit
payments are to commence in 2008, any election made by Employee pursuant to this
paragraph (1) shall be void and the amounts payable to Employee shall be paid at
the time and in the manner described in the Agreement as in effect prior to this
restatement.
 
(2)     Changes in Time of Distribution.  An election that is made after
December 31, 2008 that changes the time of payment elected by Employee will be
honored only if the following requirements are met:
 
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(i)     The new form will not take effect until at least twelve (12) months
after the date on which the new form is filed with Company;
 
(ii)     If Employee elects to have the payment made on a fixed time or date,
the election may not be made less than twelve (12) months prior to the date of
the first scheduled payment; and
 
(iii)     In the case of an election related to a payment not related to
Employee’s Disability or death, the first payment with respect to which the
election is made must be deferred for a period of not less than five (5) years
from the date such payment would otherwise be made.
 
The provisions of this paragraph are intended to comply with
Section 409A(a)(4)(C) of the Code and shall be interpreted in a manner
consistent with the requirements of such section and any regulations, rulings or
other guidance issued pursuant thereto.
 
(b)     Payment of Severance Benefits.  The Severance Benefits, if any, due
pursuant to Section 6 are intended to comply with the short-term deferral
exception to Section 409A as defined in Treas. Reg. § 1.409A-1(b)(4).  As such,
the Severance Benefits payable pursuant to Section 6 will be paid within ten
(10) business days following Employee’s Separation from Service.
 
(c)     Payment of Retiree Health Benefits.  To ensure compliance with
Section 409A, Company will assure that the Retiree Health Benefits provided by
Section 7 are payable at a specified time or pursuant to a fixed schedule within
the meaning of Treas. Reg. § 1-409A-3(i)(1)(iv).  In order to ensure compliance
with this provision of the regulations, the Retiree Health Benefits reimbursed
in one taxable year will not affect the benefits eligible for reimbursement by
the Company in a different taxable year.  All reimbursements of the benefits
must be made no later than December 31 of the calendar year following the
calendar year in which the expense was incurred.  Employee may not elect to
receive cash or any other benefit in lieu of the benefits provided by the
Agreement.
 
(d)     Payment Disputes.  If a payment is not made due to a dispute with
respect to such payment, the payment may be delayed in accordance with Treas.
Reg. § 1.409A-3(g).
 
(e)     Ban on Acceleration or Deferral.  Under no circumstances may the time or
schedule of any payment made or benefit provided pursuant to this Agreement be
accelerated or subject to a further deferral except as otherwise permitted or
required pursuant to regulations and other guidance issued pursuant to
Section 409A of the Code.
 
(f)     Distributions Treated as Made Upon a Designated Event.  If Company fails
to make any payment, either intentionally or unintentionally, within the time
period specified in this Agreement, but the payment is made within the same
calendar year, such distribution will be treated as made within the time period
specified in this Agreement pursuant to Treas. Reg. § 1.409A-3(d).
 
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9.     No Assignment.  This Agreement shall inure only to the benefit of
Employee (or Employee’s spouse or Dependent Child in the case of death) and
Employee’s estate or heirs and may not be assigned, transferred, pledged or
hypothecated in any way by Employee or Employee’s spouse, Dependent Child,
personal representative, heir, distributee, or other person claiming under
Employee and shall not be subject to execution, attachment or similar process.
 
10.   Source of Payments of Benefits.  This Agreement is a non-qualified,
unfunded and unsecured deferred compensation arrangement.  All benefits owing
under this Agreement shall be paid out of the general corporate funds of
Company, Services or PNM which are subject to the claims of creditors, or out of
any trust Company, Services or PNM shall establish or authorize; provided that
all assets paid into any such trust shall at all times prior to actual payment
to Employee or his beneficiaries remain subject to the claims of the general
creditors of Company, Services or PNM.  Neither Employee, his designated
beneficiaries, his estate nor his heirs shall (a) have any right, title or
interest whatsoever in, or claim to, preferred or otherwise, any particular
assets of Company, Services or PNM or any trust that Company, Services or PNM
may establish or designate to aid in providing the payment described in this
Agreement; or (b) acquire any interest greater than that of an unsecured
creditor in any assets of Company, Services or PNM.
 
If a Change in Control occurs, Employee may request that the Company, Services
or PNM sufficiently fund the Public Service Company of New Mexico and Paragon
Resources, Inc., Deferred Compensation Trust Agreement and/or any successor
trust established by Company, Services or PNM (collectively the “Rabbi Trust”)
to provide in full for any benefits accrued under this Agreement as of the date
of the occurrence of the Change in Control.  If Employee’s request is
accompanied by an opinion of counsel acceptable to Company that the funding of
the Rabbi Trust will not result in violation of, or the immediate taxation of
Employee pursuant to, Section 409A of the Code, Company, Services or PNM shall
fund the Rabbi Trust as requested.
 
11.    Administrator.  This Agreement shall be administered by the Committee.
 
12.    Definitions.  For purposes of this Agreement, the following words and
phrases shall have the meanings set forth below, unless a clearly different
meaning is required by the context in which the word or phrase is used.
 
(a)     Average Earnings.  Average Earnings shall have the meaning set forth in
the Retirement Plan, as it may be amended from time to time.
 
(b)     Cause.  Cause shall have the meaning set forth in the PNM Resources,
Inc. Officer Retention Plan, as it may be amended from time to time.
 
(c)     Change in Control.  Change in Control shall have the meaning set forth
in the PNM Resources, Inc. Officer Retention Plan, as it may be amended from
time to time.
 
(d)     Constructive Termination.  During 2008, Constructive Termination shall
have the meaning set forth in the prior version of the Agreement that was
entered into on March 22, 2000.  Effective as of January 1, 2009, “Constructive
Termination” means a
 
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termination of employment within two (2) years following the occurrence of one
or more of the following circumstances without Employee’s express consent:
 
(1)     a material diminution in Employee’s base compensation;
 
(2)     a material diminution in Employee’s authority, duties or
responsibilities;
 
(3)     a material change in the geographic location of Employee’s principal
office; or
 
(4)     any other action or inaction that constitutes a material breach by the
Company of this Agreement.
 
Employee must provide written notice to Company of the existence of the
Constructive Termination condition described in paragraphs (i)-(iii) above
within ninety (90) days of the initial existence of the condition.
 
Notwithstanding anything to the contrary, an event described in paragraphs
(i)-(iii) above will not constitute Constructive Termination if, within thirty
(30) days after Employee gives Company notice of the occurrence or existence of
an event that Employee believe constitutes Constructive Termination, Company has
fully corrected such event.
 
(e)     Credited Service.  Credited Service shall have the meaning set forth in
the Retirement Plan, as it may be amended from time to time.
 
(f)     Dependent Child.  Dependent Child shall have the meaning set forth in
the Retirement Plan, as it may be amended from time to time.
 
(g)    Disability.  Disability or Disabled means that the Employee is, by reason
of medically determinable physical or mental impairment that can be expected to
result in death or can be expected to last for a continuous period of not less
than 12 months, receiving income replacement benefits for a period of not less
than 3 months under the Company’s long term disability plan.
 
(h)    Separation from Service.  Separation from Service means either
(1) termination of Employee’s employment with Company and all Affiliates due to
death, retirement or other reasons, or (2) a permanent reduction in the level of
bona fide services Employee provides to Company to an amount that is 20% or less
of the average level of bona fide services Employee provided to Company in the
immediately proceeding 36 months, with the level of bona fide service calculated
in accordance with Treas. Reg. § 1.409A-1(h)(1)(ii).  For purposes of
determining whether a Separation from Service has occurred, the term “Affiliate”
means (1) an entity that would be a member of a “controlled group of
corporations” (within the meaning of Section 414(b) of the Code as modified by
Section 415(h) of the Code) that includes Company as a member of the group if
for purposes of applying Section 1563(a)(1), (2) or (3) of the Code for
determining the members of a controlled group of corporations under
Section 414(b) of the Code, the language “at least 50 percent” is used instead
of “at least 80 percent” each place it appears in Section 1563(a)(1), (2) and
(3) and (2) a group of trades or
 
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businesses under common control (within the meaning of Section 414(c) of the
Code) that includes Company as a member of the group if for purposes of applying
Treas. Reg. § 1.414(c)-2 for purposes of determining the members of a group of
trades or businesses (whether or not incorporated) that are under common control
for purposes of Section 414(c) of the Code, the language “at least 50 percent”
is used instead of “at least 80 percent” each place it appears in Treas. Reg.
§ 1.414(c)-2.
 
Employee’s employment relationship is treated as continuing while Employee is on
military leave, sick leave, or other bona fide leave of absence (if the period
of such leave does not exceed six months, or if longer, so long as Employee’s
right to reemployment with Company or an Affiliate is provided either by statute
or contract).  If Employee’s period of leave exceeds six months and Employee’s
right to reemployment is not provided either by statute or by contract, the
employment relationship is deemed to terminate on the first day immediately
following the expiration of such six-month period.  Whether a termination of
employment has occurred will be determined based on all of the facts and
circumstances and in accordance with regulations issued by the United States
Treasury Department pursuant to Section 409A of the Code.
 
(i)     Specified Employee.  Specified Employee means certain officers and
highly compensated employees of Company as defined in Treas. Reg.
§ 1.409A-1(i).  The identification date for determining whether Employee is a
Specified Employee during any calendar year shall be the September 1 preceding
the commencement of such year.
 
13.     Amendment or Termination.  This Agreement may be amended or terminated
only by written consent of Company and Employee.  Any amendment to this
Agreement that violates the provisions of Section 409A of the Code shall be
void.
 
14.     Controlling Law.  This Agreement shall be interpreted under the laws of
the State of New Mexico.
 
15.     Compliant Operation and Interpretation.  This Agreement shall be
operated in compliance with Section 409A or an exception thereto and each
provision of this Agreement shall be interpreted, to the extent possible, to
comply with Section 409A or to qualify for an exception thereto.
 
16.     Binding Effect.  This Agreement shall be binding upon and inure to the
benefit of any successor of PNM Resources and any such successor shall be deemed
substituted for PNM Resources under the terms of this Agreement.  As used in
this Agreement, the term “successor” shall include any person, firm, corporation
or other business entity which, at any time, whether by merger, purchase or
otherwise, acquires all or substantially all of the assets or business of PNM
Resources.
 

 
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IN WITNESS WHEREOF, the parties hereto, personally or by their authorized
representatives, have executed this Supplemental Employee Retirement Agreement
as of the date first above written.
 
PNM RESOURCES, INC.

By: /s/ Alice
A. Cobb                                                                            
 
      Its: SVP, Chief Administration
Officer                                                                              

PUBLIC SERVICE COMPANY OF NEW MEXICO

By: /s/ Alice
A. Cobb                                                                         
 
      Its: SVP, Chief Administration
Officer                                                                               

PNMR SERVICES COMPANY

By: /s/ Alice A.
Cobb                                                                        
 
      Its: SVP, Chief Administration
Officer                                                                            

By: /s/ Jeffry E.
Sterba                                                                               
Jeffry E. Sterba

 
 
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