EXECUTION COPY


                                  $100,000,000

                       REVOLVING CREDIT FACILITY AGREEMENT

                         Dated as of September 10, 1996

                                      among

                         TEXAS-NEW MEXICO POWER COMPANY,

                            THE LENDERS PARTY HERETO,

                       THE FIRST NATIONAL BANK OF CHICAGO,
                  as Administrative Agent and Collateral Agent

                                       and

                       THE FIRST NATIONAL BANK OF CHICAGO
                       and UNION BANK OF CALIFORNIA, N.A.,
                                  as Co-Agents





<PAGE>








                                TABLE OF CONTENTS
<TABLE>

         Section                                                                             Page


         ARTICLE I
                                   DEFINITIONS

         <S>                                                                                    <C>
         1.01.    Defined Terms.................................................................
         1.02.    Terms Generally...............................................................
         1.03.    Computations of Time Periods..................................................

         ARTICLE II
                                   THE CREDITS

         2.01.    Commitments...................................................................
         2.02.    Loans.........................................................................
         2.03.    Borrowing Procedure...........................................................
         2.04.    Evidence of Debt; Repayment of Loans..........................................
         2.05.    Fees..........................................................................
         2.06.    Interest on Loans.............................................................
         2.07.    Default Interest..............................................................
         2.08.    Alternate Rate of Interest....................................................
         2.09.    Termination and Reduction of Commitments......................................
         2.10.    Prepayment....................................................................
         2.11.    Reserve Requirements; Change in Circumstances.................................
         2.12.    Change in Legality............................................................
         2.13.    Indemnity.....................................................................
         2.14.    Pro Rata Treatment............................................................
         2.15.    Sharing of Setoffs............................................................
         2.16.    Payments......................................................................
         2.17.    Taxes.........................................................................
         2.18.    Assignment    of     Commitments     Under    Certain
                  Circumstances;  Duty to Mitigate..............................................

         ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

         3.01.    Organization; Powers..........................................................
         3.02.    Authorization.................................................................
         3.03.    Enforceability................................................................
         3.04.    Governmental Approvals........................................................
         3.05.    Financial Statements..........................................................
         3.06.    No Material Adverse Change....................................................
         3.07.    Title to Properties; Possession Under Leases..................................
         3.08.    Subsidiaries..................................................................
         3.09.    Litigation; Compliance with Laws..............................................
         3.10.    Agreements....................................................................
         3.11.    Federal Reserve Regulations...................................................
         3.12.    Investment   Company  Act;   Public  Utility  Holding
                  Company  Act..................................................................
         3.13.    Use of Proceeds...............................................................
         3.14.    Tax Returns...................................................................
         3.15.    No Material Misstatements.....................................................
         3.16.    Employee Benefit Plans........................................................
         3.17.    Environmental Matters.........................................................
         3.18.    Insurance.....................................................................
         3.19.    Bond Agreement................................................................
         3.20.    Labor Matters.................................................................
         3.21.    Solvency......................................................................
         33.22.   Force Majeure Event...........................................................
         3.23.    First Mortgage Bonds..........................................................

         ARTICLE IV
                              CONDITIONS PRECEDENT

         4.01.    Conditions Precedent to Effectiveness of the
                  Commitments...................................................................
         4.02.    Conditions Precedent for Certain Borrowings...................................
         4.03.    Conditions Precedent to All Borrowings........................................
         4.04.    Reliance on Certificates......................................................

         ARTICLE V
                              AFFIRMATIVE COVENANTS

         5.01.    Existence; Businesses and Properties..........................................
         5.02.    Insurance.....................................................................
         5.03.    Obligations and Taxes.........................................................
         5.04.    Financial Statements, Reports, etc............................................
         5.05.    Litigation and Other Notices..................................................
         5.06.    Employee Benefits.............................................................
         5.07.    Maintaining   Records;   Access  to  Properties   and
                  Inspections...................................................................
         5.08.    Use of Proceeds...............................................................
         5.09.    Compliance with Laws and Environmental Laws...................................
         5.10.    Preparation of Environmental Reports..........................................
         5.11.    Further Assurances............................................................
         5.12.    Performance and Continuation of TNP Bond Indenture............................

         ARTICLE VI
                               NEGATIVE COVENANTS

         6.01.    Indebtedness..................................................................
         6.02.    Liens.........................................................................
         6.03.    Sale and Lease-Back Transactions..............................................
         6.04.    Investments, Loans and Advances...............................................
         6.05.    Mergers,   Consolidations,   Sales  of   Assets   and
                  Acquisitions..................................................................
         6.06.    Dividends   and   Distributions;    Restrictions   on
                  Ability of Subsidiaries to Pay Dividends......................................
         6.07.    Transactions with Affiliates..................................................
         6.08.    Business of Borrower and Subsidiaries.........................................
         6.09.    Additional Generating Facilities..............................................
         6.10.    Interest Coverage Ratio.......................................................
         6.11.    Debt to Capitalization Ratio..................................................
         6.12.    Capital Expenditures..........................................................

         ARTICLE VII
                                         EVENTS OF DEFAULT......................................

         ARTICLE VIII
                          THE ADMINISTRATIVE AGENT AND
                                       THE COLLATERAL AGENT.....................................

         ARTICLE IX
                                  MISCELLANEOUS

         9.01.    Notices.......................................................................
         9.02.    Survival of Agreement.........................................................
         9.03.    Binding Effect................................................................
         9.04.    Successors and Assigns........................................................
         9.05.    Expenses; Indemnity...........................................................
         9.06.    Right of Setoff...............................................................
         9.07.    Applicable Law................................................................
         9.08.    Waivers; Amendment............................................................
         9.09.    Interest Rate Limitation......................................................
         9.10.    Entire Agreement..............................................................
         9.11.    Waiver of Jury Trial..........................................................
         9.12.    Severability..................................................................
         9.13.    Counterparts..................................................................
         9.14.    Headings......................................................................
         9.15.    Jurisdiction; Consent to Service of Process...................................
         9.16.    Confidentiality...............................................................
         9.17.    Release of Collateral.........................................................


Schedules
<S>                                                                                              <C>

Schedule 2.01     Commitments of the Lenders
Schedule 3.06     Changes
Schedule 3.08     Subsidiaries
Schedule 3.09     Litigation
Schedule 3.17     Environmental Matters
Schedule 3.18     Insurance
Schedule 3.23     First Mortgage Bonds
Schedule 6.01     Intercompany Indebtedness
Schedule 6.02     Existing Liens
Schedule 7(o)     Series T


Exhibits

Exhibit A         .........Form of Administrative Questionnaire
Exhibit B         .........Form of Assignment and Acceptance
Exhibit C         .........Form of Borrowing Request
Exhibit D         .........Form of Note
Exhibit E         .........Form of Bond Agreement
Exhibit F-1                Form  of  Opinion   of  Haynes  and  Boone,   L.L.P.,
                           counsel for the Borrower
Exhibit F-2                Form of  Opinion of  Michael  D.  Blanchard,  General
                           Counsel of the Borrower
Exhibit F-3                Form of  Opinion  of  Winstead,  Sechrest  &  Minick,
                           P.C., Texas counsel for the Administrative Agent
Exhibit F-4                Form of  Opinion  of Rubin,  Katz,  Salazar,  Alley &
                           Rouse,   New  Mexico   regulatory   counsel  for  the
                           Borrower
Exhibit F-5                Form of Opinion of McDermott,  Will & Emery,  counsel
                           for the Administrative Agent
</TABLE>



         CREDIT  AGREEMENT,  dated as of  September  10, 1996,  among  TEXAS-NEW
MEXICO POWER COMPANY,  a Texas  corporation  (the  "Borrower"),  the Lenders (as
defined in Article I), THE FIRST  NATIONAL  BANK OF CHICAGO,  as  administrative
agent (in such capacity, the "Administrative Agent") and as collateral agent (in
such capacity,  the "Collateral Agent") for the Lenders,  and THE FIRST NATIONAL
BANK  OF  CHICAGO  and  UNION  BANK  OF  CALIFORNIA,  N.A.,  as  Co-Agents  (the
"Co-Agents").


                             PRELIMINARY STATEMENTS

         The Borrower has  requested the Lenders to extend credit in the form of
Loans (such term and each other  capitalized  term used but not  defined  herein
having the  meaning  given to it in Article I) at any time and from time to time
prior  to the  Maturity  Date,  in an  aggregate  principal  amount  at any time
outstanding not in excess of  $100,000,000.  The proceeds of the Loans are to be
used solely (i) to repurchase  and retire First  Mortgage Bonds Series L (10-1/2
percent  due March 1, 2000),  Series M (8.70  percent  due  September  1, 2006),
Series R (10  percent  due July 1,  2017),  Series S (9-5/8  percent due July 1,
2019),  Series U (9-1/4  percent due  September  15,  2000) and  (subject to the
receipt  by  the  Administrative  Agent  of  certified  copies  of  satisfactory
resolutions of the Board of Directors of the Borrower)  Series T (11-1/4 percent
due January  15,  1997)  previously  issued by the  Borrower  and (ii) for other
general corporate purposes.

         The Lenders  are  willing to extend such credit to the  Borrower on the
terms and subject to the conditions set forth herein.  Accordingly,  the parties
hereto agree as follows:

                                    ARTICLE I


                                   DEFINITIONS


     SECTION 1.01. Defined Terms As used in this Agreement,  the following terms
shall have the meanings specified below:

                  "ABR   Borrowing"   shall  mean  a  Borrowing   comprised   of
         ABR Loans.

                  "ABR Loan"  shall  mean any Loan  bearing  interest  at a rate
         determined by reference to the Alternate  Base Rate in accordance  with
         the provisions of Article II.

                  "Administrative  Questionnaire"  shall mean an  Administrative
         Questionnaire in the form of Exhibit A.

                  "Affiliate"  shall mean, when used with respect to a specified
         person, another person that directly, or indirectly through one or more
         intermediaries, Controls or is Controlled by or is under common Control
         with the person specified.

                  "Agents"  shall  have the  meaning  assigned  to such  term in
         subsection (a) of Article VIII.

                  "Aggregate Credit Exposure" shall mean the aggregate amount of
         the Lenders' Credit Exposures.

                  "Alternate  Base  Rate"  shall  mean,  for any day, a rate per
         annum (rounded  upwards,  if necessary,  to the next 1/16 of 1 percent)
         equal to the greater of (a) the  Corporate  Base Rate in effect on such
         day and (b) the Federal Funds Effective Rate in effect on such day plus
         1/2 of 1 percent. If for any reason the Administrative Agent shall have
         determined  (which  determination  shall be conclusive  absent manifest
         error) that it is unable to ascertain the Federal Funds  Effective Rate
         for  any   reason,   including   the   inability   or  failure  of  the
         Administrative Agent to obtain sufficient quotations in accordance with
         the terms of the definition  thereof,  the Alternate Base Rate shall be
         determined  without  regard to clause  (b) of the  preceding  sentence,
         until the circumstances  giving rise to such inability no longer exist.
         Any change in the Alternate  Base Rate due to a change in the Corporate
         Base Rate or the Federal Funds Effective Rate shall be effective on the
         effective date of such change in the Corporate Base Rate or the Federal
         Funds  Effective  Rate,  respectively.  The term  "Corporate Base Rate"
         shall mean a rate of  interest  per annum equal to the  corporate  base
         rate of interest  announced  by the  Administrative  Agent from time to
         time;  each change in the Corporate Base Rate shall be effective on the
         date such change is announced  as being  effective.  The term  "Federal
         Funds Effective Rate" shall mean, for any day, the weighted  average of
         the rates on overnight  federal funds  transactions with members of the
         Federal Reserve System arranged by federal funds brokers,  as published
         on the next succeeding  Business Day by the Federal Reserve Bank of New
         York,  or,  if such  rate  is not so  published  for any day  that is a
         Business  Day,  the  average  of the  quotations  for the day for  such
         transactions  received by the  Administrative  Agent from three federal
         funds brokers of recognized standing selected by it.

                  "Applicable  Percentage" shall mean, for any day, with respect
         to any Eurodollar  Loan or ABR Loan, as the case may be, the applicable
         percentage  set forth below under the  caption  "Eurodollar  Spread" or
         "ABR Spread",  respectively,  based upon the ratings by any two of S&P,
         Moody's and D&P applicable on such date to the First Mortgage Bonds:
<TABLE>

           ============================================= -------------------- ====================
                                                                                      ABR
                                                         Eurodollar                 Spread
                                                               Spread
           --------------------------------------------- -------------------- --------------------
           Category 1

<S>                                                         <C>                  <C>
           BBB- or higher by S&P or D&P                     0.75 percent         0.00 percent
           Baa3 or higher by Moody's
           --------------------------------------------- -------------------- --------------------
           Category 2

           BB+ by S&P or D&P                                1.25 percent          0.25 percent
           Ba1 by Moody's
           --------------------------------------------- -------------------- --------------------
           Category 3

           BB by S&P or D&P                                 1.45 percent         0.45 percent
           Ba2 by Moody's
           --------------------------------------------- -------------------- --------------------
           Category 4

           BB- by S&P or D&P                                1.80 percent         0.80 percent
           Ba3 by Moody's
           --------------------------------------------- -------------------- --------------------
           Category 5

           B+ by S&P or D&P                                 2.25 percent         1.25 percent
           B1 by Moody's
           --------------------------------------------- -------------------- --------------------
           Category 6

           B or below by S&P or D&P                         2.50 percent         1.50 percent
           B2 or below by Moody's
           --------------------------------------------- -------------------- --------------------
</TABLE>


                  For  purposes of the  foregoing,  (i) if  Moody's,  S&P or D&P
         shall not have in effect a rating for the First  Mortgage  Bonds (other
         than by reason of the circumstances referred to in the last sentence of
         this  definition),  then  such  rating  agency  shall be deemed to have
         established a rating in Category 6; (ii) if the ratings  established or
         deemed to have been  established by Moody's,  S&P and D&P for the First
         Mortgage  Bonds  shall fall  within  three  different  Categories,  the
         Applicable  Percentage  shall  be  based  on the  middle  of the  three
         Categories;  and (iii) if the rating established by Moody's, S&P or D&P
         for the First  Mortgage  Bonds shall be changed (other than as a result
         of a change in the rating system of Moody's,  S&P or D&P),  such change
         shall be effective as of the date on which it is first announced by the
         applicable  rating  agency.  Each change in the  Applicable  Percentage
         shall apply during the period  commencing on the effective date of such
         change and ending on the date immediately  preceding the effective date
         of the next such change.  If the rating  system of Moody's,  S&P or D&P
         shall  change,  or if any such rating  agency  shall cease to be in the
         business of rating  corporate  debt  obligations,  the Borrower and the
         Lenders  shall  negotiate  in good  faith to amend this  definition  to
         reflect such changed rating system or the  non-availability  of ratings
         from such rating  agency and,  pending  the  effectiveness  of any such
         amendment,  the Applicable  Percentage shall be determined by reference
         to the  rating  most  recently  in  effect  prior  to  such  change  or
         cessation.

                  "Assignment  and  Acceptance"  shall  mean an  assignment  and
         acceptance  entered into by a Lender and an  assignee,  and accepted by
         the  Administrative  Agent, in the form of Exhibit B or such other form
         as shall be approved by the Administrative Agent.

                  "Board"  shall  mean the  Board of  Governors  of the  Federal
         Reserve System of the United States of America.

                  "Bond Agreement" shall mean the Bond Agreement,  substantially
         in the form of Exhibit E, between the Borrower and the Collateral Agent
         for the benefit of the Lenders.

                  "Borrowing"  shall mean a group of Loans of a single Type made
         by the  Lenders  on a single  date  and as to  which a single  Interest
         Period is in effect.

                  "Borrowing  Request"  shall mean a request by the  Borrower in
         accordance with the terms of Section 2.03 and substantially in the form
         of Exhibit C.

                  "Business  Day"  shall  mean any day  other  than a  Saturday,
         Sunday or day on which banks in Chicago,  Illinois  are  authorized  or
         required  by law  to  close;  provided,  however,  that  when  used  in
         connection  with a Eurodollar  Loan, the term "Business Day" shall also
         exclude  any day on which  banks  are not open for  dealings  in dollar
         deposits in the London interbank market.

                  "Capital  Expenditures" shall mean expenditures related to the
         acquisition  of plant and  equipment  (including,  without  limitation,
         capitalized  interest and start-up  expenses  related to such plant and
         equipment) that are capitalized in accordance with GAAP.

                  "Capital   Lease   Obligations"   of  any  person  shall  mean
         obligations of such person to pay rent or other amounts under any lease
         of (or other  arrangement  conveying the right to use) real or personal
         property,  or a combination thereof,  which obligations are required to
         be classified and accounted for as capital leases on a balance sheet of
         such person under GAAP, and the amount of such obligations shall be the
         capitalized amount thereof determined in accordance with GAAP.

                  "Change  in  Control"  shall  mean an  event  or the last of a
         series of events by which:

                                            (i) any  person  or  group  (as such
                           term is used  in  Sections  13(d)  and  14(d)  of the
                           Securities  Exchange  Act of 1934,  as  amended  (the
                           "Exchange Act"), and the rules and regulations of the
                           Securities and Exchange  Commission  relating to such
                           sections, as amended from time to time) is or becomes
                           the "beneficial owner" (as defined in Rules 13d-3 and
                           13d-5 under the  Exchange  Act,  except that a person
                           shall be deemed to have "beneficial ownership" of all
                           shares that any such person has the right to acquire,
                           whether such right is exercisable immediately or only
                           after the passage of time),  directly or  indirectly,
                           of more than 40 percent of the total  voting power of
                           all outstanding common stock of TNP Enterprises;

                                            (ii) the Borrower  consolidates with
                           or merges into another  corporation  and the Borrower
                           is not the surviving entity, or the Borrower conveys,
                           transfers or leases  substantially all of its assets,
                           or TNP Enterprises  shall cease to own 100 percent of
                           the common stock of the Borrower; or

                                            (iii)   during   any  period  of  24
                           consecutive  months,  whether  commencing  before  or
                           after  the date  hereof,  but  ending on or after the
                           date hereof:

                      (a) individuals who at the beginning
                          of such 24-month period were
                          directors of TNP Enterprises,
                                                and

                         (b) any new directors who were
                           elected or recommended for
                            election to the board of
                         directors of TNP Enterprises by
                        a vote of at least a majority of
                           the directors then still in
                        office who either were directors
                          at the beginning of such 24-
                         month period or whose election
                        was previously so approved or so
                           recommended, cease for any
                         reason to constitute a majority
                        of the board of directors of TNP
                                  Enterprises.

                           "Chemical  Bank  Agreement"  shall  have the  meaning
                  assigned to such term in the definition of "Existing  Facility
                  Documents" herein.

                  "Closing  Date"  shall  mean  the  date on  which  each of the
         conditions  precedent  enumerated  in  Section  4.01  shall  have  been
         fulfilled  to  the  satisfaction  of  the  Administrative   Agent,  the
         Co-Agents and the Lenders.  All  transactions  contemplated  by Section
         4.01 shall take place on or before September 30, 1996 at the offices of
         McDermott,  Will & Emery, 227 West Monroe Street,  Suite 4400, Chicago,
         Illinois 60606, at 10:00 A.M.  (Chicago,  Illinois time), or such other
         place or time as the parties hereto may mutually agree.

                  "Code"  shall  mean the  Internal  Revenue  Code of  1986,  as
         amended from time to time.

                  "Collateral"  shall  mean all of the  "Collateral"  as defined
         in the Bond Agreement.

                  "Commitment"  shall mean,  with  respect to each  Lender,  the
         commitment  of such  Lender  to make  Loans  hereunder  as set forth on
         Schedule 2.01 or in the  Assignment  and  Acceptance  pursuant to which
         such Lender assumed its Commitment,  as applicable,  as the same may be
         (i) reduced  from time to time  pursuant to Section 2.09 or pursuant to
         Section 2.18 and (ii) reduced or increased  from time to time  pursuant
         to assignments by or to such Lender pursuant to Section 9.04.

                  "Commitment  Fee" shall have the meaning assigned to such term
         in Section 2.05.

                  "Consolidated  EBIT" shall mean,  with respect to the Borrower
         and its consolidated Subsidiaries for any period, operating revenues of
         the Borrower  and its  consolidated  Subsidiaries  for such period less
         operating  expenses of the Borrower and its consolidated  Subsidiaries,
         but before the deduction  therefrom of any applicable  interest charges
         and income  taxes for such period,  all  determined  on a  consolidated
         basis in  accordance  with GAAP.  For the purposes of this  definition,
         EBIT shall be calculated  before any reduction for any write-down after
         the date  hereof in the book  value of assets  of the  Borrower  or its
         Subsidiaries  resulting  from any  statute or any rule,  regulation  or
         order of the PUCT.

                  "Consolidated  Interest  Expense"  shall  mean  the  aggregate
         Interest Expense of the Borrower and the Subsidiaries,  determined on a
         consolidated basis in accordance with GAAP.

                  "Consolidated  Total  Indebtedness"  shall mean the  aggregate
         Indebtedness of the Borrower and the  Subsidiaries of the sort referred
         to in clause (a) of the definition of  "Indebtedness",  determined on a
         consolidated basis in accordance with GAAP.

                  "Control" shall mean the  possession,  directly or indirectly,
         of the  power to direct or cause the  direction  of the  management  or
         policies  of  a  person,   whether  through  the  ownership  of  voting
         securities,   by  contract  or   otherwise,   and   "Controlling"   and
         "Controlled" shall have meanings correlative thereto.

                  "Credit  Exposure"  shall mean,  with respect to any Lender at
         any  time,  the  aggregate   principal  amount  at  such  time  of  all
         outstanding Loans of such Lender.

                  "Cumulative Net Income  Available for Common  Dividends" shall
         mean, for any period,  the sum of all consolidated net income available
         for  common  dividends  as  reflected  in the  Borrower's  consolidated
         statements of operations for such period.

                  "D&P"  shall  mean  Duff &  Phelps,  Inc.,  or  any  successor
         thereto.

                  "Default"  shall mean any event or condition that upon notice,
         lapse of time or both would constitute an Event of Default.

                  "Dividend"  shall  mean,  with  respect  to  any  person,  any
         dividend on any shares of the common, preferred or preference stock, or
         any other class of stock or equity capital, of such person or any other
         distribution in respect thereof (other than dividends payable solely in
         shares of such  stock) and any  payments  on  account of the  purchase,
         redemption or other  retirement of any of such person's common stock or
         any other class of stock or equity capital,  or any warrants or options
         therefor,  whether  in  cash  or  in  property  or  in  obligations  or
         securities.

                  "dollars"  or "$"  shall  mean  lawful  money  of  the  United
         States of America.

                  "environment"  shall  mean  ambient  air,  surface  water  and
         groundwater  (including  potable water,  navigable water and wetlands),
         the land surface or  subsurface  strata,  the workplace or as otherwise
         defined in any Environmental Law.

                  "Environmental  Claim"  shall  mean  any  written  accusation,
         allegation,  notice of violation, claim, demand, order, directive, cost
         recovery  action or other  cause of action  by,  or on behalf  of,  any
         Governmental  Authority  or  any  person  for  damages,  injunctive  or
         equitable  relief,  personal  injury  (including  sickness,  disease or
         death),  Remedial Action costs, tangible or intangible property damage,
         natural resource damages,  nuisance,  pollution,  any adverse effect on
         the  environment  caused  by any  Hazardous  Material,  or  for  fines,
         penalties  or  restrictions,  resulting  from or  based  upon:  (a) the
         existence,  or the  continuation  of the  existence,  of a  release  of
         Hazardous  Materials  (including  sudden or  non-sudden,  accidental or
         non-accidental  releases);  (b) exposure to any Hazardous Material; (c)
         the presence,  use,  handling,  transportation,  storage,  treatment or
         disposal of any  Hazardous  Material;  or (d) the  violation or alleged
         violation of any Environmental Law or Environmental Permit.

                  "Environmental  Law" shall mean any and all applicable present
         and future  treaties,  laws,  rules,  regulations,  codes,  ordinances,
         orders, decrees, judgments,  injunctions, notices or binding agreements
         issued,  promulgated  or entered  into by any  Governmental  Authority,
         relating in any way to the environment,  preservation or reclamation of
         natural resources, the management, release or threatened release of any
         Hazardous  Material  or to health and  safety  matters,  including  the
         Comprehensive Environmental Response, Compensation and Liability Act of
         1980, as amended by the Superfund Amendments and Reauthorization Act of
         1986, 42 U.S.C. Section Section 9601 et seq. (collectively,  "CERCLA"),
         the Solid Waste  Disposal Act, as amended by the Resource  Conservation
         and Recovery Act of 1976 and Hazardous and Solid Amendments of 1984, 42
         U.S.C.  Section  Section  6901 et seq.,  the  Federal  Water  Pollution
         Control  Act,  as  amended  by the Clean  Water Act of 1977,  33 U.S.C.
         Section Section 1251 et seq., the Clean Air Act of 1970, as amended, 42
         U.S.C.  Section Section 7401 et seq., the Toxic Substances  Control Act
         of 1976,  15 U.S.C.  Section  Section  2601 et seq.,  the  Occupational
         Safety and Health Act of 1970, as amended,  29 U.S.C.  Section  Section
         651 et seq., the Emergency Planning and Community  Right-to-Know Act of
         1986, 42 U.S.C.  Section Section 11001 et seq., the Safe Drinking Water
         Act of 1974, as amended, 42 U.S.C.  Section Section 300(f) et seq., the
         Hazardous Materials  Transportation Act, 49 U.S.C. Section Section 1801
         et seq.,  and any similar or  implementing  state or local law, and all
         amendments or regulations promulgated thereunder.

                  "Environmental  Permit"  shall  mean  any  permit,   approval,
         authorization,  certificate,  license,  variance,  filing or permission
         required  by  or  from  any  Governmental  Authority  pursuant  to  any
         Environmental Law.

                  "Equity  Capital" shall mean, as of any date of  determination
         thereof, the sum of the following for the Borrower and its Subsidiaries
         determined on a consolidated basis (without  duplication) in accordance
         with GAAP:

                                            (a)      the   amount   of   capital
                           stock (including,  without limitation,  preferred and
                           preference stock), plus

                                            (b)      the amount of  surplus  and
                           retained  earnings  (or,  in the case of a surplus or
                           retained earnings  deficit,  minus the amount of such
                           deficit), plus

                                            (c)      the  amount  of  any  other
                           items of an equity capital nature, minus

                                            (d)       the  sum of  (x) the  cost
                           of treasury shares plus (y) goodwill.

         For the purposes of this definition, the sum shall be calculated before
         any  reduction  for any  write-down  after the date  hereof in the book
         value of the assets of the Borrower or its Subsidiaries  resulting from
         any  statute or any rule,  regulation  or order of the PUCT;  provided,
         that  the  excess  of any  such  write-downs  over  $10,000,000  in the
         aggregate during the term of this Agreement shall be taken into account
         in determining Equity Capital.

                  "ERISA" shall mean the Employee Retirement Income Security Act
         of 1974, as the same may be amended from time to time.

                  "ERISA Affiliate" shall mean any trade or business (whether or
         not  incorporated)  that,  together with the Borrower,  is treated as a
         single  employer under Section 414(b) or (c) of the Code, or solely for
         purposes  of  Section  302 of ERISA and  Section  412 of the  Code,  is
         treated as a single employer under Section 414 of the Code.

                  "ERISA  Event"  shall  mean  (a) any  "reportable  event",  as
         defined in Section 4043 of ERISA or the regulations  issued thereunder,
         with  respect to a Plan;  (b) the  adoption of any  amendment to a Plan
         that would  require  the  provision  of  security  pursuant  to Section
         401(a)(29) of the Code or Section 307 of ERISA;  (c) the existence with
         respect to any Plan of an "accumulated  funding deficiency" (as defined
         in  Section  412 of the Code or Section  302 of ERISA),  whether or not
         waived;  (d) the  filing  pursuant  to  Section  412(d)  of the Code or
         Section 303(d) of ERISA of an  application  for a waiver of the minimum
         funding  standard with respect to any Plan;  (e) the  incurrence of any
         liability  under Title IV of ERISA with respect to the  termination  of
         any Plan or the withdrawal or partial withdrawal of the Borrower or any
         of its ERISA  Affiliates from any Plan or  Multiemployer  Plan; (f) the
         receipt by the Borrower or any ERISA  Affiliate from the PBGC or a plan
         administrator  of any notice relating to the intention to terminate any
         Plan or Plans or to appoint a trustee to administer  any Plan;  (g) the
         receipt by the Borrower or any ERISA Affiliate of any notice concerning
         the  imposition  of  Withdrawal  Liability  or a  determination  that a
         Multiemployer   Plan  is,  or  is  expected  to  be,  insolvent  or  in
         reorganization,  within  the  meaning  of  Title IV of  ERISA;  (h) the
         occurrence  of a  "prohibited  transaction"  with  respect to which the
         Borrower or any of its Subsidiaries is a "disqualified  person" (within
         the meaning of Section  4975 of the Code) or with  respect to which the
         Borrower or any such Subsidiary could otherwise be liable;  and (i) any
         other event or condition with respect to a Plan or  Multiemployer  Plan
         that  could  reasonably  be  expected  to  result in  liability  of the
         Borrower.

                  "Eurodollar  Borrowing"  shall mean a Borrowing  comprised  of
         Eurodollar Loans.

                  "Eurodollar  Loan" shall mean any Loan  bearing  interest at a
         rate  determined by reference to the LIBO Rate in  accordance  with the
         provisions of Article II.

                  "Event of  Default"  shall have the  meaning  assigned to such
         term in Article VII.

                  "Existing  Facility  Documents"  shall  mean (i) that  certain
         Revolving Credit Facility  Agreement,  dated as of November 3, 1995, as
         amended or otherwise  modified  from time to time,  among the Borrower,
         Chemical Bank, as  Administrative  Agent and Collateral  Agent, and The
         Bank of New York,  CIBC,  Inc.,  NationsBank  of Texas,  N.A. and Union
         Bank, as Co-Agents (the "Chemical Bank  Agreement")  and (ii) the "Loan
         Documents" (as defined in the Chemical Bank Agreement).

                  "Fee Letter"  shall have the meaning  assigned to that term in
         Section 2.05(c).

                  "Financial  Officer" of any  corporation  shall mean the chief
         financial  officer,   principal   accounting   officer,   treasurer  or
         controller of such corporation.

                  "First  Mortgage  Bonds" shall mean the first  mortgage  bonds
         issued by the Borrower pursuant to the TNP Bond Indenture.

                  "GAAP" shall mean United States generally accepted  accounting
         principles  applied on a consistent basis, but giving effect to changes
         in such accounting principles as provided in Section 1.02.

                  "Governmental  Authority" shall mean any Federal, state, local
         or foreign court or governmental agency, authority,  instrumentality or
         regulatory body.

                  "Guarantee"  of or by any person  shall  mean any  obligation,
         contingent  or  otherwise,  of such person  guaranteeing  or having the
         economic  effect of guaranteeing  any  Indebtedness of any other person
         (the "primary obligor") in any manner,  whether directly or indirectly,
         and including any obligation of such person, direct or indirect, (a) to
         purchase or pay (or advance or supply funds for the purchase or payment
         of) such Indebtedness or to purchase (or to advance or supply funds for
         the purchase of) any security for the payment of such Indebtedness, (b)
         to purchase or lease  property,  securities or services for the purpose
         of  assuring  the owner of such  Indebtedness  of the  payment  of such
         Indebtedness or (c) to maintain working capital,  equity capital or any
         other financial statement condition or liquidity of the primary obligor
         so as to enable the primary obligor to pay such Indebtedness; provided,
         however,  that the term Guarantee  shall not include  endorsements  for
         collection or deposit in the ordinary course of business.

                  "Indebtedness" of any person shall mean, without  duplication,
         (a)  all  obligations  of  such  person  for  borrowed  money,  (b) all
         obligations  of such person with respect to deposits or advances of any
         kind,  (c)  all   obligations  of  such  person   evidenced  by  bonds,
         debentures,  notes or similar instruments,  (d) all obligations of such
         person  upon which  interest  charges  are  customarily  paid,  (e) all
         obligations  of such  person  under  conditional  sale or  other  title
         retention  agreements  relating to property or assets purchased by such
         person,  (f) all  obligations  of such person  issued or assumed as the
         deferred  purchase  price of  property  or  services  (excluding  trade
         accounts  payable and  accrued  obligations  incurred  in the  ordinary
         course of business),  (g) all Indebtedness of others secured by (or for
         which the holder of such Indebtedness has an existing right, contingent
         or otherwise,  to be secured by) any Lien on property owned or acquired
         by such person,  whether or not the  obligations  secured  thereby have
         been  assumed,  (h) all  Guarantees by such person of  Indebtedness  of
         others,  (i) all Capital  Lease  Obligations  of such  person,  (j) all
         obligations  of such  person in respect  of  Interest  Rate  Protection
         Agreements,  foreign currency exchange  agreements or other interest or
         exchange  rate hedging  arrangements  and (k) all  obligations  of such
         person as an account party in respect of letters of credit and bankers'
         acceptances.

                  "Interest Expense" shall mean, with respect to any person, for
         any  period,  the sum of the  following:  (a) all  interest  expense in
         respect of  Indebtedness  of such person during such period (whether or
         not actually paid during such period) plus (b) the net amounts  payable
         (or minus the net amounts receivable) by such person under any Interest
         Rate Protection  Agreement  during such period (whether or not actually
         paid or received during such period).

                  "Interest  Payment Date" shall mean, with respect to any Loan,
         the last day of the  Interest  Period  applicable  to the  Borrowing of
         which such Loan is a part and,  in the case of a  Eurodollar  Borrowing
         with an Interest Period of more than three months'  duration,  each day
         that would have been an Interest  Payment Date had successive  Interest
         Periods of three months'  duration been  applicable to such  Borrowing,
         and, in  addition,  the date of any  prepayment  of such  Borrowing  or
         refinancing of such Borrowing with a Borrowing of a different Type.

                  "Interest   Period"  shall  mean  (a)  as  to  any  Eurodollar
         Borrowing,  the period  commencing  on the date of such  Borrowing  and
         ending  on the  numerically  corresponding  day  (or,  if  there  is no
         numerically  corresponding  day, on the last day) in the calendar month
         that is 1, 2, 3 or 6 months thereafter,  as the Borrower may elect, and
         (b) as to any ABR Borrowing,  the period commencing on the date of such
         Borrowing  and  ending  on  the  earliest  to  occur  of (i)  the  next
         succeeding  March 31, June 30,  September  30 or December  31, (ii) the
         Maturity  Date  and  (iii)  the  date  such  Borrowing  is  prepaid  in
         accordance with Section 2.10; provided,  however,  that if any Interest
         Period  would end on a day other than a  Business  Day,  such  Interest
         Period shall be extended to the next succeeding Business Day unless, in
         the case of a Eurodollar  Borrowing only, such next succeeding Business
         Day would fall in the next calendar  month, in which case such Interest
         Period shall end on the next  preceding  Business Day.  Interest  shall
         accrue from and  including  the first day of an Interest  Period to but
         excluding the last day of such Interest Period.

                  "Interest Rate Protection  Agreement" shall mean any agreement
         providing  for an interest rate swap,  cap or collar,  or for any other
         financial  arrangement  designed  to protect  against  fluctuations  in
         interest rates.

                  "Lenders" shall mean (a) the financial  institutions listed on
         Schedule  2.01  (other  than any such  financial  institution  that has
         ceased to be a party hereto  pursuant to an Assignment and  Acceptance)
         and (b) any  financial  institution  that  has  become  a party  hereto
         pursuant to an Assignment and Acceptance.

                  "LIBO  Rate"  shall mean,  for each  Interest  Period for each
         Eurodollar Loan made as part of the same Eurodollar Borrowing, the rate
         (rounded upwards, if necessary, to the next 1/16 of 1 percent) at which
         dollar  deposits   approximately  equal  in  principal  amount  to  the
         Administrative  Agent's portion of such Eurodollar Loan made as part of
         such  Eurodollar  Borrowing  and  for a  maturity  comparable  to  such
         Interest  Period are  offered  to the  principal  London  office of the
         Administrative  Agent in  immediately  available  funds  in the  London
         interbank market at approximately 11:00 A.M., London time, two Business
         Days prior to the commencement of such Interest Period.

                  "Lien"  shall  mean,  with  respect  to  any  asset,  (a)  any
         mortgage, deed of trust, lien, pledge, encumbrance,  charge or security
         interest in or on such asset,  (b) the interest of a vendor or a lessor
         under any conditional sale agreement,  capital lease or title retention
         agreement  (or  any  financing  lease  having  substantially  the  same
         economic effect as any of the foregoing) relating to such asset and (c)
         in the case of securities,  any purchase option,  call or similar right
         of a third party with respect to such securities.

                  "Loan  Documents"  shall mean this Agreement,  the Notes,  the
         Bond Agreement and the Supplemental Indenture.

                  "Loans"  shall  mean  the  loans  made by the  Lenders  to the
         Borrower pursuant to Section 2.01. Each Loan shall be a Eurodollar Loan
         or an ABR Loan.

                  "Margin Stock" shall have the meaning assigned to such term in
         Regulation U.

                  "Material Adverse Effect" shall mean (a) a materially  adverse
         effect on the business,  assets, operations or condition,  financial or
         otherwise,  of the Borrower and the Subsidiaries  taken as a whole, (b)
         material  impairment  of the ability of the  Borrower to perform any of
         its  obligations  under any Loan  Document  to which it is or will be a
         party or (c) material impairment of the rights of or benefits available
         to the Lenders under any Loan Document.

                  "Maturity Date" shall mean August 31, 2001.

                  "Moody's" shall mean Moody's  Investors  Service,  Inc, or any
         successor thereto.

                  "Multiemployer  Plan"  shall  mean  a  multiemployer  plan  as
         defined in Section 4001(a)(3) of ERISA.

                  "New First Mortgage Bonds" shall have the meaning  assigned to
         such term in the definition of "1996 Regulatory Orders" herein.

                  "1996  NMPUC  Order"  shall  mean the  Final  Order  Approving
         Recommended  Decision  of the  New  Mexico  Public  Utility  Commission
         issued on August 19, 1996 in Case No. 2712.

                  "1996  Regulatory  Orders" shall mean the 1996 NMPUC Order and
         the letter order, dated July 19, 1996, of the Federal Energy Regulatory
         Commission in Docket No. ES96-35-000  authorizing the Borrower to issue
         First Mortgage Bonds in an aggregate principal amount not less than the
         aggregate amount of the  Commitments,  which First Mortgage Bonds shall
         be  issued  in the  name of the  Collateral  Agent to  provide  for the
         payment of all  obligations  of the  Borrower  to the  Lenders  and the
         Agents under this  Agreement  and to provide the Lenders and the Agents
         with the  benefits of the  security  provided  for such First  Mortgage
         Bonds (the "New First Mortgage Bonds").

                  "Note" shall mean a promissory note of the Borrower payable to
         the order of a Lender, in substantially the form of Exhibit D.

                  "Obligations"   shall   mean  all   obligations   defined   as
         "Obligations" in the Bond Agreement.

                  "PBGC"  shall mean the Pension  Benefit  Guaranty  Corporation
         referred to and defined in ERISA.

                  "Permitted Investments" shall mean:

                                            (a)   direct   obligations   of,  or
                           obligations  the  principal  of and interest on which
                           are unconditionally  guaranteed by, the United States
                           of America  (or by any  agency  thereof to the extent
                           such  obligations  are  backed by the full  faith and
                           credit of the United States of America), in each case
                           maturing within one year from the date of acquisition
                           thereof;

                                            (b) investments in commercial  paper
                           maturing within 270 days from the date of acquisition
                           thereof and having, at such date of acquisition,  the
                           highest  credit  rating  obtainable  from S&P or from
                           Moody's;

                                            (c)  investments in  certificates of
                           deposit,   banker's  acceptances  and  time  deposits
                           maturing within one year from the date of acquisition
                           thereof  issued or guaranteed by or placed with,  and
                           money market deposit  accounts  issued or offered by,
                           any domestic  office of any commercial bank organized
                           under the laws of the United States of America or any
                           State  thereof  which  has  a  combined  capital  and
                           surplus  and  undivided  profits  of  not  less  than
                           $250,000,000;

                                            (d)    deposits    not     exceeding
                           $2,000,000  in the  aggregate  with,  or  investments
                           issued by or  guaranteed  by (and  backed by the full
                           faith and  credit of the United  States of  America),
                           any domestic  office of a commercial  bank  organized
                           under the laws of the United States of America or any
                           State  thereof  which  has  a  combined  capital  and
                           surplus   and   undivided   profits   of  less   than
                           $250,000,000 but not less than $30,000,000; and

                                            (e)      other            investment
                           instruments  approved  in  writing  by  the  Required
                           Lenders.

                  "person" shall mean any natural person, corporation,  business
         trust, joint venture, association,  company, limited liability company,
         partnership  or  government,  or any  agency or  political  subdivision
         thereof.

                  "Plan"  shall mean any  employee  pension  benefit plan (other
         than a  Multiemployer  Plan)  subject to the  provisions of Title IV of
         ERISA  or  Section  412 of the Code or  Section  307 of  ERISA,  and in
         respect of which the  Borrower or any ERISA  Affiliate  is (or, if such
         plan were  terminated,  would under  Section 4069 of ERISA be deemed to
         be) an "employer" as defined in Section 3(5) of ERISA.

                  "Properties"  shall have the meaning  assigned to such term in
         Section 3.17(a).

                  "PUCT" shall mean the Public  Utility  Commission of the State
         of Texas or any successor thereto.

                  "Quarterly Dates" shall mean the last day of each March, June,
         September and December, the first of which Quarterly Dates shall be the
         first such date after the date any Loan is made,  provided that, if any
         such date is not a Business Day, the relevant  Quarterly  Date shall be
         the next succeeding Business Day.

                  "Register"  shall have the  meaning  assigned  to such term in
         Section 9.04(d).

                  "Regulation  G" shall mean  Regulation  G of the Board as from
         time to time in effect and all  official  rulings  and  interpretations
         thereunder or thereof.

                  "Regulation  U" shall mean  Regulation  U of the Board as from
         time to time in effect and all  official  rulings  and  interpretations
         thereunder or thereof.

                  "Regulation  X" shall mean  Regulation  X of the Board as from
         time to time in effect and all  official  rulings  and  interpretations
         thereunder or thereof.

                  "Release  Conditions"  shall have the meaning assigned to such
         term in Section 9.17(a).

                  "Release Date" shall have the meaning assigned to such term in
         Section 9.17(a).

                  "Required  Lenders"  shall mean, at any time,  Lenders  having
         Loans and unused  Commitments  representing  at least 66-2/3 percent of
         the sum of all Loans outstanding and unused Commitments at such time.

                  "Responsible  Officer"  of  any  corporation  shall  mean  any
         executive  officer or  Financial  Officer of such  corporation  and any
         other  officer  or  similar  official   thereof   responsible  for  the
         administration  of the  obligations  of such  corporation in respect of
         this Agreement.

                  "S&P" shall mean Standard & Poor's  Ratings  Group, a division
         of McGraw-Hill, Inc., or any successor thereto.

                  "subsidiary"  shall mean,  with respect to any person  (herein
         referred to as the "parent"),  any  corporation,  partnership,  limited
         liability  company,  association or other business  entity (a) of which
         securities  or other  ownership  interests  representing  more  than 50
         percent of the equity or more than 50  percent of the  ordinary  voting
         power or more than 50 percent of the general partnership interests are,
         at the time any determination is being made, owned, controlled or held,
         or (b)  that  is,  at the time  any  determination  is made,  otherwise
         Controlled,  by the parent or one or more subsidiaries of the parent or
         by the parent and one or more subsidiaries of the parent.

                  "Subsidiary" shall mean any subsidiary of the Borrower.

                  "Supplemental   Indenture"   shall   mean   the   Twenty-Fifth
         Supplemental  Indenture,  dated as of September  10, 1996,  between the
         Borrower and First Trust of Illinois, National Association, as Trustee,
         which  supplements the TNP Bond Indenture and provides for the issuance
         from time to time of New First Mortgage Bonds in an aggregate principal
         amount of up to $100,000,000.

                  "TGC"   shall  mean   Texas   Generating   Company,   a  Texas
         corporation,  all of whose  common stock is on the date hereof owned by
         the Borrower.

                  "TGC II"  shall  mean  Texas  Generating  Company  II, a Texas
         corporation,  all of whose  common stock is on the date hereof owned by
         the Borrower.

                  "TNP Bond Indenture"  shall mean the Indenture of Mortgage and
         Deed of Trust,  dated as of November 1, 1944,  between Community Public
         Service  Company  (predecessor  to the  Borrower)  and the Trustee,  as
         amended and supplemented by supplemental indentures.

                  "TNP  Enterprises"  shall mean TNP Enterprises,  Inc., a Texas
         corporation.

                  "Total  Capitalization" shall mean, as of any date, the sum of
         Equity  Capital and the aggregate  amount of  Indebtedness  of the sort
         referred  to  in  clause  (a)  of  the  definition  of   "Indebtedness"
         (including the current portion of such  Indebtedness),  in each case of
         the Borrower and its Subsidiaries, determined on a consolidated basis.

                  "Total  Commitment"  shall mean,  at any time,  the  aggregate
         amount of the Commitments, as in effect at such time.

                  "Transactions"  shall have the  meaning  assigned to such term
         in Section 3.02.

                  "Trustee"  shall  mean  First  Trust  of  Illinois,   National
         Association  (successor  to City  National  Bank and Trust  Company  of
         Chicago), as trustee under the TNP Bond Indenture.

                  "Type",  when used in respect of any Loan or Borrowing,  shall
         refer to the Rate by reference to which interest on such Loan or on the
         Loans comprising such Borrowing is determined. For purposes hereof, the
         term "Rate" shall include the LIBO Rate and the Alternate Base Rate.

                  "wholly-owned   subsidiary"   of  any  person   shall  mean  a
         subsidiary of such person of which  securities  (except for  directors'
         qualifying  shares)  or  other  ownership  interests  representing  100
         percent of the equity or 100 percent of the  ordinary  voting  power or
         100 percent of the general  partnership  interests are, at the time any
         determination is being made,  owned,  controlled or held by such person
         or one or more  wholly-owned  subsidiaries  of such  person  or by such
         person and one or more wholly-owned subsidiaries of such person.

                  "Withdrawal Liability" shall mean liability to a Multiemployer
         Plan  as a  result  of a  complete  or  partial  withdrawal  from  such
         Multiemployer  Plan,  as such terms are defined in Part I of Subtitle E
         of Title IV of ERISA.

     SECTION 1.02.  Terms  Generally The definitions in Section 1.01 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require,  any pronoun  shall  include the  corresponding  masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be  followed by the phrase  "without  limitation".  All  references
herein to Articles,  Sections, Exhibits and Schedules shall be deemed references
to Articles  and Sections of, and  Exhibits  and  Schedules  to, this  Agreement
unless the context shall otherwise require. Whenever definitions in Section 1.01
or other  capitalized terms contained in this Agreement are defined by reference
to defined terms in the Chemical Bank  Agreement,  and such defined terms in the
Chemical Bank Agreement contain  capitalized terms not otherwise defined herein,
such  capitalized  terms shall have the  meanings  assigned to such terms in the
Chemical Bank Agreement.  Except as otherwise expressly provided herein, (a) any
reference in this  Agreement to any Loan  Document  shall mean such  document as
amended, restated,  supplemented or otherwise modified from time to time and (b)
all terms of an accounting or financial  nature shall be construed in accordance
with  GAAP,  as in effect  from  time to time;  provided,  however,  that if the
Borrower notifies the Administrative Agent that the Borrower wishes to amend any
covenant in Article VI or any related  definition to eliminate the effect of any
change in GAAP  occurring  after the date of this  Agreement on the operation of
such  covenant (or if the  Administrative  Agent  notifies the Borrower that the
Required  Lenders wish to amend  Article VI or any related  definition  for such
purpose),  then the Borrower's compliance with such covenant shall be determined
on the basis of GAAP in effect  immediately  before the relevant  change in GAAP
became  effective,  until either such notice is  withdrawn  or such  covenant is
amended in a manner satisfactory to the Borrower and the Required Lenders.

         SECTION  1.03.  Computation  of  Time  Periods3.  Computation  of  Time
Periods.  Unless  otherwise  indicated,  each  reference in this  Agreement to a
specific  time  of  day  is a  reference  to  Chicago,  Illinois  time.  In  the
computation of periods of time under this  Agreement,  any period of a specified
number of days or months shall be computed by  including  the first day or month
occurring  during such period and excluding  the last such day or month.  In the
case of a period  of time  "from"  a  specified  date  "to" or  "until"  a later
specified  date,  the word "from" means "from and  including" and the words "to"
and "until" each means "to but excluding".


                                   ARTICLE II
                                   THE CREDITS

     SECTION 2.01.  Commitments  Subject to the terms and conditions and relying
upon the  representations  and warranties  herein set forth, each Lender agrees,
severally and not jointly,  to make Loans to the Borrower,  at any time and from
time to time on or after the date hereof,  and until the earlier of the Maturity
Date and the termination of the Commitment of such Lender in accordance with the
terms hereof, in an aggregate principal amount at any time outstanding that will
not result in such Lender's Credit Exposure exceeding its Commitment. Within the
limits set forth in the preceding sentence and subject to the terms,  conditions
and  limitations  set forth herein,  the Borrower may borrow,  pay or prepay and
reborrow Loans.

         SECTION 2.02.  Loans2.  Loans. (a) Each Loan shall be made as part of a
Borrowing  consisting of Loans made by the Lenders  ratably in  accordance  with
their respective Commitments;  provided, however, that the failure of any Lender
to make any Loan shall not in itself  relieve any other Lender of its obligation
to lend  hereunder  (it  being  understood,  however,  that no  Lender  shall be
responsible  for the failure of any other Lender to make any Loan required to be
made by such other Lender).  The Loans  comprising any Borrowing  shall be in an
aggregate  principal  amount that is (i) an integral  multiple of $1,000,000 and
not less than $5,000,000 or (ii) equal to the remaining available balance of the
Commitments.

         (b)  Subject  to  Sections  2.08  and  2.12,  each  Borrowing  shall be
comprised  entirely of ABR Loans or Eurodollar Loans as the Borrower may request
pursuant to Section 2.03. Each Lender may at its option make any Eurodollar Loan
by causing any  domestic or foreign  branch or  Affiliate of such Lender to make
such Loan;  provided,  that any  exercise  of such  option  shall not affect the
obligation  of the Borrower to repay such Loan in  accordance  with the terms of
the applicable Note and this Agreement.  Borrowings of more than one Type may be
outstanding at the same time; provided,  however, that the Borrower shall not be
entitled to request any Borrowing  that, if made,  would result in more than six
Eurodollar  Borrowings  outstanding  hereunder at any time.  For purposes of the
foregoing,  Borrowings having different Interest Periods,  regardless of whether
they commence on the same date, shall be considered separate Borrowings.

         (c) Each Lender  shall make each Loan to be made by it hereunder on the
proposed date thereof by wire transfer of  immediately  available  funds to such
account in Chicago, Illinois as the Administrative Agent may designate not later
than 11:00 A.M. on such date, and the  Administrative  Agent shall by 12:00 noon
credit the  amounts so  received  to an account  with the  Administrative  Agent
designated by the Borrower in the applicable  Borrowing  Request,  which account
must be in the name of the Borrower,  or, if a Borrowing shall not occur on such
date because any condition  precedent  herein specified shall not have been met,
return the amounts so received to the respective Lenders.

         (d) Unless the  Administrative  Agent shall have received notice from a
Lender  prior  to the  date of any  Borrowing  that  such  Lender  will not make
available to the  Administrative  Agent such Lender's portion of such Borrowing,
the  Administrative  Agent may assume  that such  Lender  has made such  portion
available  to the  Administrative  Agent  on  the  date  of  such  Borrowing  in
accordance  with  subsection  (c) above and the  Administrative  Agent  may,  in
reliance  upon such  assumption,  make  available to the Borrower on such date a
corresponding  amount.  If the  Administrative  Agent  shall  have so made funds
available, then, to the extent that such Lender shall not have made such portion
available to the  Administrative  Agent, such Lender and the Borrower  severally
agree  to  repay  to  the   Administrative   Agent   forthwith  on  demand  such
corresponding  amount together with interest thereon, for each day from the date
such  amount is made  available  to the  Borrower  until the date such amount is
repaid  to the  Administrative  Agent  at (i) in the case of the  Borrower,  the
interest rate applicable at the time to the Loans  comprising such Borrowing and
(ii) in the case of such Lender, a rate determined by the  Administrative  Agent
to  represent  its cost of overnight or  short-term  funds (which  determination
shall be conclusive  absent manifest  error).  If such Lender shall repay to the
Administrative  Agent such  corresponding  amount,  such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this Agreement.

         (e) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request any Borrowing if the Interest Period  requested
with respect thereto would end after the Maturity Date.

         (f) The  Borrower  may  refinance  all or any part of a Borrowing  with
another  Borrowing,  subject to the conditions and limitations set forth in this
Agreement.  Any  Borrowing or part thereof so  refinanced  shall be deemed to be
repaid or prepaid in accordance with the applicable provisions of this Agreement
with the proceeds of the new Borrowing,  and the proceeds of such new Borrowing,
to the extent they do not exceed the  principal  amount of the  Borrowing  being
refinanced, shall not be transferred as contemplated by subsection (c) above.

     SECTION  2.03.  Borrowing  Procedure In order to request a  Borrowing,  the
Borrower  shall hand  deliver or  telecopy  to the  Administrative  Agent a duly
completed  Borrowing  Request  (or  shall  notify  the  Administrative  Agent by
telephone of the information  contained in such a Borrowing Request, with a copy
of such  Borrowing  Request to be delivered or telecopied to the  Administrative
Agent promptly after such notice) (a) in the case of a Eurodollar Borrowing, not
later than 11:00 A.M. three Business Days before a proposed  Borrowing,  and (b)
in the case of an ABR  Borrowing,  not later than 12:00  noon one  Business  Day
before a proposed Borrowing. Each Borrowing Request shall be irrevocable,  shall
be signed  by or on behalf of the  Borrower  and  shall  specify  the  following
information:  (i)  whether  the  Borrowing  then  being  requested  is  to  be a
Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Borrowing (which
shall be a Business Day),  (iii) the number and location of the account to which
funds are to be  disbursed  (which shall be an account  that  complies  with the
requirements of Section 2.02(c)); (iv) the amount of such Borrowing;  and (v) if
such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect
thereto; provided,  however, that, notwithstanding any contrary specification in
any  Borrowing  Request,   each  requested   Borrowing  shall  comply  with  the
requirements  set  forth  in  Section  2.02.  If no  election  as to the Type of
Borrowing is specified in any such notice, then the requested Borrowing shall be
an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing
is  specified  in any such  notice,  then the  Borrower  shall be deemed to have
selected an Interest Period of one month's duration.  The  Administrative  Agent
shall  promptly  advise the Lenders of any notice given pursuant to this Section
2.03 (and the contents  thereof),  and of each Lender's portion of the requested
Borrowing.

         If the  Borrower  shall  not have  delivered  a  Borrowing  Request  in
accordance  with this Section 2.03 prior to the end of the Interest  Period then
in effect for any Borrowing and  requesting  that such  Borrowing be refinanced,
then the Borrower  shall  (unless the  Borrower has notified the  Administrative
Agent,  not less than  three  Business  Days  prior to the end of such  Interest
Period,  that such Borrowing is to be repaid at the end of such Interest Period)
be deemed to have delivered a Borrowing  Request  requesting that such Borrowing
be refinanced with a new Borrowing of equivalent  amount, and such new Borrowing
shall be an ABR Borrowing.

     SECTION 2.04. Evidence of Debt;  Repayment of Loans (a) The Borrower hereby
unconditionally  promises to pay to the Administrative Agent, for the account of
each Lender, the principal amount of each Loan on the earlier of the last day of
the Interest Period applicable thereto and the Maturity Date.

         (b) Each Lender shall maintain in accordance with its usual practice an
account or accounts  evidencing the  indebtedness of the Borrower to such Lender
resulting  from each Loan made by such Lender from time to time,  including  the
amounts of principal  and interest  payable and paid to such Lender from time to
time under this Agreement.

         (c) The Administrative  Agent shall maintain accounts in which it shall
record  (i) the amount of each Loan made  hereunder,  the Type  thereof  and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and  payable or to become due and payable  from the  Borrower to each Lender
hereunder and (iii) the amount of any sum received by the  Administrative  Agent
hereunder from the Borrower and each Lender's share thereof.

         (d) The entries made in the accounts maintained pursuant to subsections
(b) and (c) above shall be prima facie  evidence of the existence and amounts of
the obligations  therein recorded;  provided,  however,  that the failure of any
Lender  or the  Administrative  Agent to  maintain  such  accounts  or any error
therein shall not in any manner affect the  obligations of the Borrower to repay
the Loans in accordance with their terms.

     SECTION 2.05. Fees (a) The Borrower  agrees to pay to each Lender,  through
the  Administrative  Agent, on each Quarterly Date and on each date on which the
Commitment of such Lender shall expire or be terminated  as provided  herein,  a
commitment  fee (a  "Commitment  Fee")  equal to 0.375  percent per annum on the
average  daily  unused  amount  of the  Commitment  of such  Lender  during  the
preceding  quarter (or other  period  commencing  with the date hereof or ending
with the Maturity Date or the date on which the Commitments of such Lender shall
expire or be terminated).  All Commitment Fees shall be computed on the basis of
the actual number of days elapsed in a year of 360 days.  The Commitment Fee due
to each  Lender  shall  commence to accrue on the date hereof and shall cease to
accrue on the date on which the Commitment of such Lender shall be terminated as
provided herein.

           All  Commitment  Fees shall be paid on the dates due, in  immediately
available funds, to the Administrative Agent for distribution among the Lenders.
Once  paid,  none  of  the  Commitment  Fees  shall  be  refundable   under  any
circumstances.

         (b) The  Borrower  agrees  to pay to the  Administrative  Agent for the
account of each Lender whose Commitment equals or exceeds $15,000,000 an upfront
fee equal to 0.20 percent of the amount of such Lender's Commitment, such fee to
be payable in immediately available funds on the Closing Date.

         (c) In addition to the fees  provided  for in  subsections  (a) and (b)
above,  the  Borrower  shall pay such other fees as provided for in that certain
letter  agreement  between the Borrower  and the  Co-Agents  (the "Fee  Letter")
entered into separately herefrom and dated the date hereof.

     SECTION  2.06.  Interest on Loans (a) Subject to the  provisions of Section
2.07, the Loans  comprising each ABR Borrowing shall bear interest  (computed on
the basis of the actual  number of days  elapsed over a year of 365 or 366 days,
as the case may be, when the  Alternate  Base Rate is determined by reference to
the  Corporate  Base Rate and over a year of 360 days at all  other  times) at a
rate per annum equal to the Alternate Base Rate plus the  Applicable  Percentage
in effect from time to time.

         (b) Subject to the  provisions  of Section 2.07,  the Loans  comprising
each  Eurodollar  Borrowing  shall bear  interest  (computed on the basis of the
actual number of days elapsed over a year of 360 days) at a rate per annum equal
to the LIBO Rate for the Interest  Period in effect for such  Borrowing plus the
Applicable Percentage in effect from time to time.

           Interest on each Loan shall be payable on the Interest  Payment Dates
applicable  to such Loan except as  otherwise  provided in this  Agreement.  The
applicable  Alternate  Base  Rate or LIBO Rate for each  Interest  Period or day
within  an  Interest  Period,  as the case may be,  shall be  determined  by the
Administrative Agent, and such determination shall be conclusive absent manifest
error.

     SECTION 2.07. Default Interest If the Borrower shall default in the payment
of the  principal  of or interest on any Loan or any other  amount  becoming due
hereunder,  by acceleration or otherwise,  or under any other Loan Document, the
Borrower shall on demand from time to time pay interest, to the extent permitted
by law, on such  defaulted  amount to but excluding  the date of actual  payment
(after as well as before judgment) at a rate per annum (computed on the basis of
the actual  number of days elapsed  over a year of 365 or 366 days,  as the case
may be, when  determined by reference to the Corporate Base Rate and over a year
of 360 days at all other times)  equal at all times to the sum of the  Alternate
Base Rate plus the Applicable Percentage plus 2.00 percent per annum.

     SECTION  2.08.  Alternate  Rate  of  Interest  In the  event,  and on  each
occasion,  that on the day two Business  Days prior to the  commencement  of any
Interest  Period for a  Eurodollar  Borrowing  the  Administrative  Agent or the
Required  Lenders shall have  determined  that dollar  deposits in the principal
amounts of the Loans  comprising  such Borrowing are not generally  available in
the London interbank market, or that the rates at which such dollar deposits are
being offered will not  adequately  and fairly reflect the cost to any Lender of
making or maintaining its Eurodollar Loan during such Interest  Period,  or that
reasonable means do not exist for ascertaining the LIBO Rate, the Administrative
Agent shall, as soon as practicable thereafter,  give written or telecopy notice
of such determination to the Borrower and the Lenders.  In the event of any such
determination,  until the  Administrative  Agent shall have advised the Borrower
and the  Lenders  that the  circumstances  giving  rise to such notice no longer
exist,  any  request by the  Borrower  for a  Eurodollar  Borrowing  pursuant to
Section  2.03  shall  be  deemed  to be a  request  for an ABR  Borrowing.  Each
determination  by the  Administrative  Agent or the Required  Lenders  hereunder
shall be conclusive absent manifest error.

         SECTION   2.09.    Termination    and   Reduction   of    Commitments9.
Termination   and  Reduction  of   Commitments.   (a)  The   Commitments   shall
automatically terminate on the Maturity Date.

         (b) Upon at least three  Business  Days' prior  irrevocable  written or
telecopy  notice to the  Administrative  Agent,  the Borrower may at any time in
whole,  or from  time  to time in  part,  permanently  reduce  the  Commitments;
provided,  however,  that (i) each partial reduction of the Commitments shall be
in an integral  multiple of $1,000,000 and in a minimum amount of $5,000,000 and
(ii) the Total  Commitment  shall not be reduced to an amount  that is less than
the Aggregate Credit Exposure at the time.

         (c) In the event a Change in Control shall have occurred,  the Borrower
shall so notify the  Administrative  Agent and the Lenders and, in the event the
Required  Lenders  shall so elect in a notice  delivered  to the  Borrower,  the
Commitments  shall  permanently  terminate on the date  specified in such notice
(which  date shall be not fewer than five  Business  Days after the  delivery of
such notice to the Borrower).

         (d) Each reduction in the  Commitments  hereunder shall be made ratably
among the Lenders in accordance with their respective Commitments.  The Borrower
shall pay to the  Administrative  Agent for the account of the  Lenders,  on the
date of each termination or reduction,  the Commitment Fees on the amount of the
Commitments  so terminated or reduced  accrued to but excluding the date of such
termination or reduction.

     SECTION 2.10. Prepayment. (a) The Borrower shall have the right at any time
and from  time to time to prepay  any  Borrowing,  in whole or in part,  upon at
least three Business Days' prior written or telecopy notice (or telephone notice
promptly  confirmed by written or telecopy notice) to the  Administrative  Agent
before 11:00 A.M.; provided,  however,  that each partial prepayment shall be in
an  amount  that  is an  integral  multiple  of  $1,000,000  and not  less  than
$2,000,000.

         (b) In the event of any  termination  of all the  Commitments  (whether
mandatory or optional),  the Borrower shall repay or prepay all its  outstanding
Borrowings  on the  date  of  such  termination.  In the  event  of any  partial
reduction of the  Commitments  (whether  mandatory or optional),  then (i) at or
prior to the effective date of such reduction,  the  Administrative  Agent shall
notify the  Borrower  and the Lenders of the  Aggregate  Credit  Exposure  after
giving effect thereto and (ii) if the Aggregate Credit Exposure would exceed the
Total Commitment after giving effect to such reduction, then the Borrower shall,
on the  date  of  such  reduction,  repay  or  prepay  Borrowings  in an  amount
sufficient to eliminate such excess.

         (c) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid,  shall be
irrevocable and shall commit the Borrower to prepay such Borrowing by the amount
stated therein on the date stated therein.  All  prepayments  under this Section
2.10 shall be subject to Section 2.13 but otherwise  without premium or penalty.
All prepayments under this Section 2.10 shall be accompanied by accrued interest
on the principal amount being prepaid to the date of payment.

     SECTION  2.11.   Reserve   Requirements;   Change  in  Circumstances.   (a)
Notwithstanding any other provision of this Agreement, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation or
administration   thereof  by  any  Governmental   Authority   charged  with  the
interpretation  or  administration  thereof  (whether or not having the force of
law)  shall  change  the basis of  taxation  of  payments  to any  Lender of the
principal  of or  interest  on any  Eurodollar  Loan made by such  Lender or any
Commitment  Fees or other  amounts  payable  hereunder  (other  than  changes in
respect  of taxes  imposed  on the  overall  net  income  of such  Lender by the
jurisdiction  in which such Lender has its principal  office or by any political
subdivision  or  taxing  authority  therein),  or shall  impose,  modify or deem
applicable any reserve,  special deposit or similar  requirement  against assets
of,  deposits  with or for the  account of or credit  extended  by any Lender or
shall impose on such Lender or the London  interbank  market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender, and the result
of any of the  foregoing  shall be to increase the cost to such Lender of making
or maintaining  any Eurodollar  Loan or to reduce the amount of any sum received
or  receivable  by such  Lender  hereunder  (whether of  principal,  interest or
otherwise) by an amount deemed by such Lender to be material,  then the Borrower
will pay to such Lender upon  demand such  additional  amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.

         (b) If any Lender shall have  determined  that the  adoption  after the
date hereof of any law,  rule,  regulation,  agreement  or  guideline  regarding
capital  adequacy,  or any change  after the date hereof in any such law,  rule,
regulation,   agreement  or  guideline  (whether  such  law,  rule,  regulation,
agreement  or  guideline  has  been  adopted)  or  in  the   interpretation   or
administration   thereof  by  any  Governmental   Authority   charged  with  the
interpretation  or administration  thereof,  or compliance by any Lender (or any
lending office of such Lender) or any Lender's  holding company with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any Governmental  Authority has or would have the effect of reducing the rate
of return on such Lender's  capital or on the capital of such  Lender's  holding
company,  if any, as a consequence  of this  Agreement or the Loans made by such
Lender  pursuant hereto to a level below that which such Lender or such Lender's
holding company could have achieved but for such applicability, adoption, change
or compliance (taking into consideration such Lender's policies and the policies
of such Lender's holding company with respect to capital  adequacy) by an amount
deemed by such Lender to be material,  then from time to time the Borrower shall
pay to such Lender such  additional  amount or amounts as will  compensate  such
Lender or such Lender's holding company for any such reduction suffered.

         (c) A  certificate  of a Lender  setting  forth the  amount or  amounts
necessary  to  compensate  such Lender or its holding  company as  specified  in
subsection (a) or (b) above,  and setting forth in reasonable  detail the manner
in which such amount or amounts shall have been  determined,  shall be delivered
to the Borrower and shall be  conclusive  absent  manifest  error.  The Borrower
shall pay such Lender the amount shown as due on any such certificate  delivered
by it within 10 days after its receipt of the same.

         (d) Except as provided in Section 2.18(c), failure or delay on the part
of any Lender to demand  compensation  for any  increased  costs or reduction in
amounts  received or  receivable  or  reduction  in return on capital  shall not
constitute  a waiver of such  Lender's  right to demand such  compensation.  The
protection of this Section 2.11 shall be available to each Lender  regardless of
any possible  contention of the invalidity or  inapplicability of the law, rule,
regulation,  agreement,  guideline or other change or condition  that shall have
occurred or been imposed.

     SECTION 2.12. Change in Legality.  (a)  Notwithstanding any other provision
of  this  Agreement,  if,  after  the  date  hereof,  any  change  in any law or
regulation  or in  the  interpretation  thereof  by any  Governmental  Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar  Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrower and to the Administrative Agent:

                           (i) such Lender may  declare  that  Eurodollar  Loans
         will not thereafter (for the duration of such  unlawfulness) be made by
         such Lender hereunder, whereupon any request for a Eurodollar Borrowing
         shall,  as to such  Lender  only,  be deemed a request for an ABR Loan,
         unless such declaration shall be subsequently withdrawn; and

                           (ii) such  Lender may  require  that all  outstanding
         Eurodollar  Loans made by it be converted to ABR Loans,  in which event
         all such Eurodollar Loans shall be automatically converted to ABR Loans
         as of the effective  date of such notice as provided in subsection  (b)
         below.

In the event that any Lender shall  exercise its rights under clause (i) or (ii)
above,  all payments and prepayments of principal that would otherwise have been
applied to repay the  Eurodollar  Loans that would have been made by such Lender
or the  converted  Eurodollar  Loans of such Lender shall  instead be applied to
repay  the ABR Loans  made by such  Lender  in lieu of,  or  resulting  from the
conversion of, such Eurodollar Loans.

         (b) For purposes of this Section  2.12, a notice to the Borrower by any
Lender  shall be effective as to each  Eurodollar  Loan made by such Lender,  if
lawful,  on the last day of the Interest  Period  currently  applicable  to such
Eurodollar  Loan;  in all other cases such notice shall be effective on the date
of receipt by the Borrower.

     SECTION 2.13.  Indemnity.  The Borrower shall indemnify each Lender against
any loss or expense  that such Lender may sustain or incur as a  consequence  of
(a) any event, other than a default by such Lender or the  Administrative  Agent
in the  performance  of its  obligations  hereunder,  which  results in (i) such
Lender  receiving  or being  deemed to  receive  any  amount on  account  of the
principal  of any  Eurodollar  Loan prior to the end of the  Interest  Period in
effect  therefor or (ii) any Eurodollar Loan to be made by such Lender not being
made after notice of such Loan shall have been given by the  Borrower  hereunder
(any of the  events  referred  to in this  clause (a) being  called a  "Breakage
Event") or (b) any default in the making of any payment or  prepayment  required
to be made hereunder. In the case of any Breakage Event, such loss shall include
an amount equal to the excess,  as reasonably  determined by such Lender, of (x)
its cost of obtaining  funds for the Eurodollar Loan that is the subject of such
Breakage  Event for the period from the date of such Breakage  Event to the last
day of the  Interest  Period in effect (or that  would have been in effect)  for
such Loan over (y) the amount of  interest  likely to be realized by such Lender
in  redeploying  the funds  released or not utilized by reason of such  Breakage
Event for such period.  A certificate  of any Lender setting forth any amount or
amounts,  and setting forth in reasonable detail the manner in which such amount
or amounts shall have been determined,  which such Lender is entitled to receive
pursuant to this  Section  2.13 shall be  delivered to the Borrower and shall be
conclusive absent manifest error.

     SECTION 2.14.  Pro Rata  Treatment.  Except as required under Section 2.12,
each Borrowing,  each payment or prepayment of principal of any Borrowing,  each
payment of interest on the Loans,  each payment of the Commitment  Fees and each
refinancing of any Borrowing with a Borrowing of any Type shall be allocated pro
rata among the Lenders in accordance with their  respective  Commitments (or, if
such Commitments  shall have expired or been terminated,  in accordance with the
respective  principal  amounts of their outstanding  Loans).  Each Lender agrees
that in computing such Lender's  portion of any Borrowing to be made  hereunder,
the Administrative Agent may, in its discretion,  round each Lender's percentage
of such Borrowing to the next higher or lower whole dollar amount.

     SECTION  2.15.  Sharing of Setoffs.  Each  Lender  agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower or pursuant to a secured claim under Section 506 of Title 11 of the
United  States Code or other  security or interest  arising from, or in lieu of,
such secured  claim,  received by such Lender under any  applicable  bankruptcy,
insolvency  or other  similar law or  otherwise,  or by any other means,  obtain
payment  (voluntary or  involuntary) in respect of any Loan or Loans as a result
of which the unpaid principal portion of its Loans shall be proportionately less
than the unpaid principal  portion of the Loans of any other Lender, it shall be
deemed  simultaneously  to have  purchased from such other Lender at face value,
and  shall  promptly  pay to  such  other  Lender  the  purchase  price  for,  a
participation  in the Loans of such other Lender,  so that the aggregate  unpaid
principal  amount of the Loans and  participation  in Loans held by each  Lender
shall be in the same proportion to the aggregate  unpaid principal amount of all
Loans  then  outstanding  as the  principal  amount of its  Loans  prior to such
exercise  of banker's  lien,  setoff or  counterclaim  or other event was to the
principal  amount of all Loans  outstanding  prior to such  exercise of banker's
lien, setoff or counterclaim or other event; provided, however, that if any such
purchase or purchases or adjustments shall be made pursuant to this Section 2.15
and the payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or  adjustments  shall be rescinded to the extent of such  recovery
and the purchase price or prices or adjustment  restored without  interest.  The
Borrower  expressly  consents to the foregoing  arrangements and agrees that any
Lender  holding a  participation  in a Loan deemed to have been so purchased may
exercise  any and all  rights of  banker's  lien,  setoff or  counterclaim  with
respect to any and all moneys  owing by the  Borrower  to such  Lender by reason
thereof as fully as if such Lender had made a Loan  directly to the  Borrower in
the amount of such participation.

     SECTION 2.16. Payments. (a) The Borrower shall make each payment (including
principal  of or  interest  on any  Borrowing  or any  Commitment  Fees or other
amounts)  hereunder  and under any other Loan Document not later than 12:00 noon
on the date when due in immediately available dollars,  without setoff,  defense
or counterclaim.  Each such payment shall be made to the Administrative Agent at
its address referred to in Section 9.01.

         (b)  Whenever  any payment  (including  principal of or interest on any
Borrowing or any Commitment Fees or other amounts)  hereunder or under any other
Loan Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding  Business Day, and
such  extension  of time shall in such case be  included in the  computation  of
interest or Commitment Fees, if applicable.

     SECTION  2.17.  Taxes.  (a) Any and all  payments  by or on  behalf  of the
Borrower  hereunder  and  under  any  other  Loan  Document  shall be  made,  in
accordance  with Section 2.16,  free and clear of and without  deduction for any
and all  current  or future  taxes,  levies,  imposts,  deductions,  charges  or
withholdings,  and all liabilities  with respect  thereto,  excluding (i) income
taxes  imposed on the net income of the  Administrative  Agent or any Lender (or
any transferee or assignee thereof,  including a participation  holder (any such
entity a  "Transferee"))  and (ii) franchise  taxes imposed on the net income of
the  Administrative  Agent or any  Lender (or  Transferee),  in each case by the
jurisdiction under the laws of which the Administrative Agent or such Lender (or
Transferee)  is  organized  or  any  political  subdivision  thereof  (all  such
nonexcluded  taxes,  levies,  imposts,  deductions,  charges,  withholdings  and
liabilities,  collectively  or  individually,  being  called  "Taxes").  If  the
Borrower  shall be  required  to deduct  any Taxes from or in respect of any sum
payable hereunder or under any other Loan Document to the  Administrative  Agent
or any Lender (or any Transferee), (x) the sum payable shall be increased by the
amount (an  "additional  amount")  necessary  so that after  making all required
deductions  (including  deductions  applicable to additional  sums payable under
this Section 2.17) the Administrative  Agent or such Lender (or Transferee),  as
the case may be, shall receive an amount equal to the sum it would have received
had no such  deductions  been made, (y) the Borrower shall make such  deductions
and (z) the  Borrower  shall  pay  the  full  amount  deducted  to the  relevant
Governmental Authority in accordance with applicable law.

         (b)  In  addition,   the  Borrower   agrees  to  pay  to  the  relevant
Governmental  Authority in accordance  with applicable law any current or future
stamp or  documentary  taxes or any other excise or property  taxes,  charges or
similar  levies that arise from any payment  made  hereunder  or under any other
Loan Document or from the execution,  delivery or registration  of, or otherwise
with respect to, this Agreement or any other Loan Document ("Other Taxes").

         (c) The  Borrower  will  indemnify  the  Administrative  Agent and each
Lender (or  Transferee) for the full amount of Taxes and Other Taxes paid by the
Administrative Agent or such Lender (or Transferee), as the case may be, and any
liability  (including  penalties,  interest and expenses  (including  reasonable
attorney's  fees and  expenses))  arising  therefrom  or with  respect  thereto,
whether or not such Taxes or Other Taxes were  correctly or legally  asserted by
the relevant  Governmental  Authority.  A  certificate  as to the amount of such
payment or liability, and setting forth in reasonable detail the manner in which
such  payment  or  liability  shall  have  been  determined,   prepared  by  the
Administrative Agent or a Lender (or Transferee), or the Administrative Agent on
its behalf,  absent manifest error,  shall be final,  conclusive and binding for
all purposes.  Such indemnification  shall be made within 30 days after the date
the  Administrative  Agent or any  Lender (or  Transferee),  as the case may be,
makes written demand therefor.

         (d) If the Administrative  Agent or a Lender (or Transferee) receives a
refund  in  respect  of any  Taxes  or  Other  Taxes  as to  which  it has  been
indemnified  by the  Borrower  or with  respect to which the  Borrower  has paid
additional  amounts  pursuant to this Section 2.17 and no Event of Default shall
have occurred and be  continuing,  it shall within 30 days from the date of such
receipt  pay over  such  refund  to the  Borrower  (but  only to the  extent  of
indemnity  payments made, or additional amounts paid, by the Borrower under this
Section  2.17 with  respect  to the  Taxes or Other  Taxes  giving  rise to such
refund),  net of all out-of-pocket  expenses of the Administrative Agent or such
Lender (or  Transferee)  and without  interest  (other than interest paid by the
relevant Governmental Authority with respect to such refund); provided, however,
that the Borrower,  upon the request of the Administrative  Agent or such Lender
(or  Transferee),  shall  repay  the  amount  paid  over to the  Borrower  (plus
penalties, interest or other charges) to the Administrative Agent or such Lender
(or  Transferee)  in the  event  the  Administrative  Agent or such  Lender  (or
Transferee) is required to repay such refund to such Governmental Authority.

         (e) As soon as  practicable  after the date of any  payment of Taxes or
Other Taxes by the Borrower to the relevant Governmental Authority, the Borrower
will deliver to the Administrative  Agent, at its address referred to in Section
9.01, the original or a certified copy of a receipt issued by such  Governmental
Authority evidencing payment thereof.

         (f) Each Lender (or  Transferee)  that is organized under the laws of a
jurisdiction  other than the United States, any State thereof or the District of
Columbia  (a  "Non-U.S.   Lender")   shall  deliver  to  the  Borrower  and  the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S.  Lender claiming exemption
from U.S.  Federal  withholding  tax under Section  871(h) or 881(c) of the Code
with respect to payments of "portfolio interest",  a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S.  Lender delivers a
Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10-percent  shareholder (within
the meaning of Section  871(h)(3)(B)  of the Code) of the  Borrower and is not a
controlled  foreign  corporation  related to the Borrower (within the meaning of
Section  864(d)(4) of the Code)),  properly  completed and duly executed by such
Non-U.S.  Lender  claiming  complete  exemption  from,  or reduced rate of, U.S.
Federal withholding tax on payments by the Borrower under this Agreement and the
other Loan Documents.  Such forms shall be delivered by each Non-U.S.  Lender on
or before the date it becomes a party to this  Agreement  (or,  in the case of a
Transferee  that  is  a  participation  holder,  on  or  before  the  date  such
participation holder becomes a Transferee  hereunder) and on or before the date,
if any, that such  Non-U.S.  Lender  changes its  applicable  lending  office by
designating a different  lending office (a "New Lending  Office").  In addition,
each Non-U.S.  Lender shall deliver such forms promptly upon the obsolescence or
invalidity  of  any  form   previously   delivered  by  such  Non-U.S.   Lender.
Notwithstanding  any other provision of this Section 2.17(f), a Non-U.S.  Lender
shall not be required to deliver any form pursuant to this Section  2.17(f) that
such Non-U.S. Lender is not legally able to deliver.

         (g) The Borrower shall not be required to indemnify any Non-U.S. Lender
or to pay any additional  amounts to any Non-U.S.  Lender,  in respect of United
States  Federal  withholding  tax pursuant to subsection (a) or (c) above to the
extent that (i) the obligation to withhold amounts with respect to United States
Federal withholding tax existed on the date such Non-U.S.  Lender became a party
to this  Agreement  (or,  in the case of a  Transferee  that is a  participation
holder, on the date such participation holder became a Transferee hereunder) or,
with respect to payments to a New Lending Office, the date such Non-U.S.  Lender
designated  such New Lending Office with respect to a Loan;  provided,  however,
that this  subsection  (g) shall not apply (x) to any  Transferee or New Lending
Office  that  becomes  a  Transferee  or New  Lending  Office  as a result of an
assignment,  participation,  transfer or designation  made at the request of the
Borrower and (y) to the extent the indemnity  payment or additional  amounts any
Transferee,  or any  Lender,  acting  through  a New  Lending  Office,  would be
entitled to receive  (without  regard to this  subsection (g)) do not exceed the
indemnity  payment or additional  amounts that the person making the assignment,
participation or transfer to such  Transferee,  or Lender making the designation
of such New Lending  Office,  would have been entitled to receive in the absence
of  such  assignment,  participation,  transfer  or  designation,  or  (ii)  the
obligation  to pay such  additional  amounts  would  not have  arisen  but for a
failure by such Non-U.S.  Lender to comply with the provisions of subsection (f)
above.

         (h) Nothing contained in this Section 2.17 shall require any Lender (or
any  Transferee)  or the  Administrative  Agent to make available any of its tax
returns  (or  any  other  information  that  it  deems  to  be  confidential  or
proprietary).

     SECTION 2.18. Assignment of Commitments Under Certain  Circumstances;  Duty
to  Mitigate.  (a) In the  event  that (i) any  Lender  delivers  a  certificate
requesting  compensation  pursuant to Section 2.11,  (ii) any Lender  delivers a
notice  described in Section  2.12, or (iii) the Borrower is required to pay any
additional amount to any Lender or any Governmental  Authority on account of any
Lender  pursuant to Section  2.17,  the  Borrower  may, at its sole  expense and
effort (including with respect to the processing and recordation fee referred to
in Section 9.04(b)),  upon notice to such Lender and the  Administrative  Agent,
require such Lender to transfer and assign, without recourse (in accordance with
and  subject  to  the  restrictions  contained  in  Section  9.04),  all  of its
interests, rights and obligations under this Agreement to an assignee that shall
assume such assigned  obligations  (which assignee may be another  Lender,  if a
Lender accepts such  assignment);  provided,  that (x) such assignment shall not
conflict  with  any law,  rule or  regulation  or  order  of any  court or other
Governmental Authority having jurisdiction, (y) the Borrower shall have received
the prior written consent of the  Administrative  Agent, which consent shall not
unreasonably be withheld,  and (z) the Borrower or such assignee shall have paid
to the affected Lender in immediately available funds an amount equal to the sum
of the  principal  of and  interest  accrued to the date of such  payment on the
outstanding  Loans of such Lender  plus all  Commitment  Fees and other  amounts
accrued for the account of such Lender  hereunder  (including  any amounts under
Section 2.11 and Section  2.13);  provided  further  that,  if prior to any such
transfer  and  assignment  the  circumstances  or event  that  resulted  in such
Lender's claim for compensation  under Section 2.11 or notice under Section 2.12
or the amounts paid pursuant to Section 2.17, as the case may be, cease to cause
such  Lender to suffer  increased  costs or  reductions  in amounts  received or
receivable or reduction in return on capital,  or cease to have the consequences
specified in Section  2.12,  or cease to result in amounts  being  payable under
Section  2.17,  as the case may be (including as a result of any action taken by
such Lender pursuant to subsection (b) below), or if such Lender shall waive its
right to claim  further  compensation  under  Section  2.11 in  respect  of such
circumstances  or event or shall withdraw its notice under Section 2.12 or shall
waive its right to  further  payments  under  Section  2.17 in  respect  of such
circumstances  or  event,  as the  case  may be,  then  such  Lender  shall  not
thereafter be required to make any such transfer and assignment hereunder.

         (b) If (i) any Lender shall  request  compensation  under Section 2.11,
(ii) any Lender  shall  deliver a notice  described in Section 2.12 or (iii) the
Borrower  shall be  required to pay any  additional  amount to any Lender or any
Governmental Authority on account of any Lender,  pursuant to Section 2.17, then
such Lender shall use reasonable efforts (which shall not require such Lender to
incur an unreimbursed loss or unreimbursed cost or expense or otherwise take any
action   inconsistent   with  its  internal  policies  or  legal  or  regulatory
restrictions  or  suffer  any   disadvantage  or  burden  deemed  by  it  to  be
significant)  (x) to file any  certificate or document  reasonably  requested in
writing by the  Borrower or (y) to assign its rights and  delegate  and transfer
its obligations hereunder to another of its offices,  branches or affiliates, if
such filing or assignment would reduce its claims for compensation under Section
2.11 or enable it to  withdraw  its notice  pursuant  to  Section  2.12 or would
reduce  amounts  payable  pursuant to Section  2.17,  as the case may be, in the
future.  The Borrower  hereby  agrees to pay all  reasonable  costs and expenses
incurred  by any  Lender  in  connection  with any such  filing  or  assignment,
delegation and transfer.

         (c)  Notwithstanding  any other provision of this Agreement,  no Lender
shall be entitled to compensation  under Section 2.11 or 2.13, or to the payment
of any additional  amount under Section 2.17, for any costs incurred or imposed,
reductions suffered or amounts withheld on or with respect to any date unless it
shall have notified the Borrower that it will request such  compensation  or the
payment of such additional amount not later than 180 days after the later of (i)
such date and (ii) the date on which such Lender shall have become aware of such
costs or reductions or such withholding.


                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

         The Borrower  represents and warrants to the Administrative  Agent, the
Collateral Agent and each of the Lenders that:

     SECTION  3.01.   Organization;   Powers.  The  Borrower  and  each  of  the
Subsidiaries (i) is a corporation  duly organized,  validly existing and in good
standing under the laws of the  jurisdiction of its  organization,  (ii) has all
requisite power and authority to own its property and assets and to carry on its
business as now conducted and as proposed to be conducted, (iii) is qualified to
do  business  in, and is in good  standing  in,  every  jurisdiction  where such
qualification  is  required,  except  where the failure so to qualify  could not
reasonably  be expected  to result in a Material  Adverse  Effect,  (iv) has the
corporate  power and authority to execute,  deliver and perform its  obligations
under  each of the  Loan  Documents  and  each  other  agreement  or  instrument
contemplated  hereby to which it is or will be a party  and,  in the case of the
Borrower, to borrow hereunder.

     SECTION 3.02. Authorization. The execution, delivery and performance by the
Borrower  of  each of the  Loan  Documents,  the  Borrowings  hereunder  and the
issuance  and the  pledge of the New First  Mortgage  Bonds  (collectively,  the
"Transactions") (a) have been duly authorized by all requisite corporate and, if
required,  stockholder  action and (b) will not (i) violate (A) any provision of
law,  statute,  rule  or  regulation,  or of  the  certificate  or  articles  of
incorporation or other constitutive  documents or by-laws of the Borrower or any
Subsidiary,  (B) any order of any Governmental Authority or (C) any provision of
any indenture  (including  the TNP Bond  Indenture),  agreement  (including  the
Chemical  Bank  Agreement)  or other  instrument  to which the  Borrower  or any
Subsidiary is a party or by which any of them or any of their property is or may
be bound,  except to the extent  that such  violation  could not  reasonably  be
expected  to result in a Material  Adverse  Effect,  (ii) be in  conflict  with,
result in a breach of or  constitute  (alone or with  notice or lapse of time or
both) a default under, or give rise to any right to accelerate or to require the
prepayment, repurchase or redemption of any obligation under any such indenture,
agreement or other  instrument  or (iii) result in the creation or imposition of
any Lien upon or with  respect to any  property or assets now owned or hereafter
acquired by the Borrower or any Subsidiary.

     SECTION 3.03. Enforceability. This Agreement and each of the Loan Documents
to which the  Borrower is a party has been duly  executed  and  delivered by the
Borrower and constitutes a legal,  valid and binding  obligation of the Borrower
enforceable  against the Borrower in accordance  with its terms,  subject to the
qualification,  however,  that the enforcement of the rights and remedies herein
and  therein  is  subject  to  bankruptcy  and  other  similar  laws of  general
application  affecting  rights and remedies of creditors and the  application of
general  principles of equity  (regardless of whether considered in a proceeding
in equity or law).

     SECTION 3.04.  Governmental  Approvals.  No action, consent or approval of,
registration or filing with or any other action by any Governmental Authority is
or will be  required  in  connection  with  the  Transactions,  except  for such
(including the 1996 Regulatory  Orders) as have been duly made or obtained,  are
in full force and  effect,  and  (subject  to the  following  sentence)  are not
subject to appeal,  reconsideration  or other  review.  Although  the period for
rehearing or appeal with respect to the 1996 NMPUC Order will not elapse  until,
at the latest,  the 80th day after the issuance of the 1996 NMPUC Order,  except
for the  Borrower  there are no  intervenors  or other  Persons  who would  have
standing to appeal or request  rehearing of the 1996 NMPUC Order. All applicable
periods  of time for  review,  rehearing  or  appeal  with  respect  to the 1996
Regulatory Orders (other than the 1996 NMPUC Order) have expired.

     SECTION 3.05. Financial  Statements.  The Borrower has heretofore furnished
to the Lenders its  consolidated  balance sheet and statement of operations  and
cash flow (i) as of and for the fiscal year ended December 31, 1995,  audited by
and  accompanied  by the opinion of KPMG Peat  Marwick LLP,  independent  public
accountants,  and (ii) as of and for the  fiscal  quarter  and the three  months
ended March 31, 1996,  certified by its chief financial officer.  Such financial
statements present fairly the financial  condition and results of operations and
cash flows of the Borrower and its  consolidated  Subsidiaries  as of such dates
and for such periods.  Such balance  sheets and the notes  thereto  disclose all
material liabilities, direct or contingent, of the Borrower and its consolidated
Subsidiaries as of the dates thereof. Such financial statements were prepared in
accordance with GAAP.

     SECTION 3.06. No Material  Adverse Change.  Except as set forth on Schedule
3.06,  there  has been no  material  adverse  change,  and no event  that  could
reasonably be expected to result in a material adverse change,  in the business,
assets, operations, condition, financial or otherwise, or material agreements of
the Borrower and the Subsidiaries, taken as a whole, since December 31, 1995.

     SECTION  3.07.  Title  to  Properties;  Possession  Under  Leases.  (a) The
Borrower and each of the Subsidiaries has good and commercially acceptable title
to, or valid  leasehold  interests in, all its material  properties  and assets,
except  for minor  defects in title that do not  interfere  with its  ability to
conduct its business as currently  conducted or to utilize such  properties  and
assets for their intended purposes.  All such material properties and assets are
free and clear of Liens, other than Liens expressly permitted by Section 6.02.

         (b) The Borrower  and each of the  Subsidiaries  has complied  with all
obligations under all material leases to which it is a party and all such leases
are in full force and effect.  The Borrower and each of the Subsidiaries  enjoys
peaceful and undisturbed possession under all such material leases.

     SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Closing Date
a list of all Subsidiaries and the percentage ownership interest of the Borrower
therein.  The shares of capital stock or other ownership  interests so indicated
on  Schedule  3.08  are  fully  paid  and  non-assessable  and are  owned by the
Borrower, directly or indirectly, free and clear of all Liens.

     SECTION 3.09. Litigation;  Compliance with Laws. (a) Except as set forth on
Schedule  3.09,  there are not any actions,  suits or  proceedings  at law or in
equity  or by or  before  any  Governmental  Authority  now  pending  or, to the
knowledge of the Borrower,  threatened  against or affecting the Borrower or any
Subsidiary  or any  business,  property  or rights of any such  person  (i) that
involve  any Loan  Document or the  Transactions  or (ii) as to which there is a
reasonable  possibility  of an  adverse  determination  and that,  if  adversely
determined,  could reasonably be expected,  individually or in the aggregate, to
result in a Material Adverse Effect.

         (b) None of the  Borrower  or any of the  Subsidiaries  or any of their
respective  material  properties  or assets  is in  violation  of,  nor will the
continued  operation  of their  material  properties  and  assets  as  currently
conducted  violate,  any  law,  rule  or  regulation,  or  any  judgment,  writ,
injunction,  decree or order of any Governmental Authority, where such violation
or default could reasonably be expected to result in a Material Adverse Effect.

     SECTION  3.10.  Agreements.  (a)  Neither  the  Borrower  nor  any  of  the
Subsidiaries  is a party  to any  agreement  or  instrument  or  subject  to any
corporate  restriction  that has  resulted  or could  reasonably  be expected to
result in a Material Adverse Effect.

         (b) Neither the Borrower nor any of the  Subsidiaries  is in default in
any manner under any provision of any indenture or other agreement or instrument
evidencing Indebtedness,  or any other material agreement or instrument to which
it is a party or by which it or any of its  properties  or assets  are or may be
bound,  where such default could  reasonably be expected to result in a Material
Adverse Effect.

     SECTION 3.11. Federal Reserve Regulations. (a) Neither the Borrower nor any
of  the  Subsidiaries  is  engaged  principally,  or as  one  of  its  important
activities,  in the  business of  extending  credit for the purpose of buying or
carrying Margin Stock.

         (b) No part of the proceeds of any Loan will be used,  whether directly
or indirectly,  and whether immediately,  incidentally or ultimately,  to buy or
carry any Margin Stock or for any purpose  that entails a violation  of, or that
is inconsistent with, the provisions of the Regulations of the Board,  including
Regulation G, U or X.

     SECTION 3.12.  Investment  Company Act; Public Utility Holding Company Act.
Neither the Borrower nor any  Subsidiary is an  "investment  company" as defined
in, or subject to  regulation  under,  the  Investment  Company Act of 1940,  as
amended. The Borrower is exempt from regulation under the Public Utility Holding
Company Act of 1935, as amended, other than under Section 9(a)(2) thereof.

     SECTION  3.13.  Use of Proceeds.  The Borrower will use the proceeds of the
Loans only for the purposes  specified  in the  Preliminary  Statements  to this
Agreement.

     SECTION 3.14. Tax Returns.  Each of the Borrower and the  Subsidiaries  has
filed or caused to be filed all Federal, state, local and foreign tax returns or
materials  required  to have been  filed by it and has paid or caused to be paid
all taxes due and payable by it and all assessments received by it, except taxes
that are being contested in good faith by appropriate  proceedings and for which
the  Borrower  or such  Subsidiary,  as  applicable,  has set aside on its books
adequate reserves in accordance with GAAP.

     SECTION 3.15. No Material Misstatements. No information,  report, financial
statement,  exhibit or schedule furnished by or on behalf of the Borrower to the
Administrative  Agent or any Lender in connection  with the  negotiation  of any
Loan  Document or included  therein or  delivered  pursuant  thereto  contained,
contains or will contain any material misstatement of fact or omitted,  omits or
will omit to state any material fact necessary to make the  statements  therein,
in the light of the  circumstances  under which they were,  are or will be made,
not misleading.

     SECTION 3.16.  Employee  Benefit Plans.  Each of the Borrower and its ERISA
Affiliates  is in  compliance  in all  material  respects  with  the  applicable
provisions   of  ERISA  and  the  Code  and  the   regulations   and   published
interpretations  thereunder.  No  ERISA  Event  has  occurred  or is  reasonably
expected to occur that,  when taken  together  with all other such ERISA Events,
could reasonably be expected to result in material  liability of the Borrower or
any of its ERISA Affiliates.  The present value of all benefit liabilities under
each Plan (based on those assumptions used to fund such Plan) did not, as of the
last annual valuation date applicable  thereto,  exceed by more than $20,000,000
the fair market value of the assets of such Plan,  and the present  value of all
benefit liabilities of all underfunded Plans (based on those assumptions used to
fund each such Plan) did not, as of the last annual  valuation dates  applicable
thereto,  exceed by more than $20,000,000 the fair market value of the assets of
all such underfunded Plans.

     SECTION 3.17. Environmental Matters. Except as set forth in Schedule 3.17:

         (a)  The  properties   owned  or  operated  by  the  Borrower  and  the
Subsidiaries  (the  "Properties")  do not contain  any  Hazardous  Materials  in
amounts or concentrations which (i) constitute, or have constituted, a violation
of, or (ii)  could  give rise to  liability  under,  Environmental  Laws,  which
violations and liabilities, in the aggregate, could result in a Material Adverse
Effect;

         (b)  The  Properties  and  all  operations  of  the  Borrower  and  the
Subsidiaries  are  in  compliance,  and in the  last  ten  years  have  been  in
compliance,  with all Environmental Laws and all necessary Environmental Permits
have  been  obtained  and  are  in  effect,  except  to  the  extent  that  such
non-compliance  or failure to obtain any necessary  permits,  in the  aggregate,
could not result in a Material Adverse Effect;

         (c) There have been no releases  or  threatened  releases of  Hazardous
Materials at, from or under the  Properties or otherwise in connection  with the
operations  of the Borrower or the  Subsidiaries,  which  releases or threatened
releases, in the aggregate, could result in a Material Adverse Effect;

         (d) Neither the Borrower nor any of the  Subsidiaries  has received any
notice  of an  Environmental  Claim in  connection  with the  Properties  or the
operations  of the  Borrower  or the  Subsidiaries  or with regard to any person
whose liabilities for environmental matters the Borrower or the Subsidiaries has
retained or assumed, in whole or in part, contractually,  by operation of law or
otherwise,  which, in the aggregate,  could result in a Material Adverse Effect,
nor do the  Borrower or the  Subsidiaries  have reason to believe  that any such
notice will be received or is being threatened;

         (e) Hazardous  Materials have not been transported from the Properties,
nor have Hazardous Materials been generated,  treated, stored or disposed of at,
on or under any of the  Properties in a manner that could give rise to liability
under any Environmental Law, nor have the Borrower or the Subsidiaries  retained
or assumed any liability,  contractually, by operation of law or otherwise, with
respect  to  the  generation,   treatment,  storage  or  disposal  of  Hazardous
Materials, which transportation,  generation, treatment, storage or disposal, or
retained or assumed  liabilities,  in the aggregate,  could result in a Material
Adverse Effect.

     SECTION  3.18.  Insurance.  Schedule  3.18 sets forth a true,  complete and
correct  description  of all  insurance  maintained  by the  Borrower  or by the
Borrower for its  Subsidiaries as of the date hereof and the Closing Date. As of
each such date, such insurance is in full force and effect and all premiums have
been duly paid. The Borrower and its Subsidiaries have insurance in such amounts
and  covering  such  risks and  liabilities  as are in  accordance  with  normal
industry practice.

     SECTION 3.19. Bond Agreement.  The Bond Agreement is effective to create in
favor of the Collateral Agent, for the ratable benefit of the Lenders,  a legal,
valid and enforceable  security interest in all right, title and interest of the
Borrower  in the  Collateral  and,  when  the  Collateral  is  delivered  to the
Collateral  Agent,  the Bond Agreement shall  constitute a fully perfected first
priority Lien on, and security interest in, all right, title and interest of the
Borrower thereunder in such Collateral, in each case prior and superior in right
to any other person.

     SECTION 3.20.  Labor  Matters.  As of the date hereof and the Closing Date,
there  are no  strikes,  lockouts  or  slowdowns  against  the  Borrower  or any
Subsidiary pending or, to the knowledge of the Borrower,  threatened.  The hours
worked by and payments  made to  employees of the Borrower and the  Subsidiaries
have  not  been in  violation  of the  Fair  Labor  Standards  Act or any  other
applicable  Federal,  state,  local or foreign  law dealing  with such  matters,
except to the extent such violations  could not reasonably be expected to result
in a  Material  Adverse  Effect.  All  payments  due  from the  Borrower  or any
Subsidiary,  or for  which any claim may be made  against  the  Borrower  or any
Subsidiary,  on account of wages and employee  health and welfare  insurance and
other  benefits,  have been paid or accrued as a  liability  on the books of the
Borrower or such  Subsidiary,  except to the extent the failure to pay or accrue
such  liabilities  could not  reasonably  be  expected  to result in a  Material
Adverse Effect.  The consummation of the Transactions  will not give rise to any
right of  termination or right of  renegotiation  on the part of any union under
any collective  bargaining  agreement to which the Borrower or any Subsidiary is
bound.

     SECTION 3.21. Solvency.  Immediately prior to and after the consummation of
the  Transactions to occur on the Closing Date, (i) the fair market value of the
assets of the Borrower and its Subsidiaries on a consolidated  basis will exceed
their debts and  liabilities,  subordinated,  contingent or otherwise;  (ii) the
present fair saleable  value of the assets of the Borrower and its  Subsidiaries
on a consolidated basis will be greater than the amount that will be required to
pay the probable liability on their debts and other  liabilities,  subordinated,
contingent or otherwise, as such debts and other liabilities become absolute and
matured; (iii) the Borrower and its Subsidiaries on a consolidated basis will be
able to pay their debts and liabilities,  subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured; and (iv) the Borrower
and its Subsidiaries on a consolidated  basis will not have  unreasonably  small
capital  with which to conduct  the  business  in which they are engaged as such
business is now conducted and is proposed to be conducted  following the Closing
Date.

     SECTION 3.22. Force Majeure Event. No fire, explosion,  accident,  drought,
storm,  hail,  earthquake,  embargo,  act of God or of the public enemy or other
casualty (except for such  circumstances,  if any, that is covered by insurance,
which  coverage has been  confirmed  and not  disputed by the relevant  insurer)
affecting  the  properties,  business  or  operations  of  the  Borrower  or any
Subsidiary  has  occurred  that  could  reasonably  be  expected  to result in a
Material Adverse Effect.

     SECTION  3.23.  First  Mortgage  Bonds.  The  Borrower  has  good  title to
substantially all the properties  referred to in the granting clauses of the TNP
Bond Indenture as being subject to the Lien thereof and now owned by it, subject
only to the conditions and exceptions set forth in the TNP Bond Indenture,  none
of which  materially  impairs the use of the  property  affected  thereby in the
operation  of the  business  of the  Borrower.  The TNP Bond  Indenture  and all
appropriate financing statements have been duly filed and recorded in all places
where such filing or recording is necessary for the  perfection or  preservation
of the Lien of the TNP Bond  Indenture.  The TNP Bond  Indenture  constitutes  a
valid and direct  first  priority  Lien upon all of the property of the Borrower
referred to in the first  sentence of this  Section  3.23,  subject  only to the
conditions and exceptions set forth in Schedule 3.23, and all property  acquired
by the Borrower hereafter, other than property excepted from the Lien of the TNP
Bond Indenture,  will become subject to the Lien thereof upon  acquisition.  The
TNP Bond Indenture  conforms to the  requirements  of the Trust Indenture Act of
1939, as amended.

                                   ARTICLE IV
                              CONDITIONS PRECEDENT

     SECTION 4.01. Conditions Precedent to Effectiveness of the Commitments. The
Commitments  of the  Lenders  to make  Loans  under  Article II shall not become
effective until the following conditions precedent have been fulfilled:

                  (a)  The   Administrative   Agent  shall  have   received  the
         following,  each dated the Closing  Date  (unless  otherwise  specified
         below), in form and substance  satisfactory to the Administrative Agent
         and the Lenders and (except for the Notes) in sufficient copies for the
         Administrative Agent and each Lender:

                           (i)      This   Agreement,   duly   executed  by  the
                  Borrower,  the  Administrative  Agent,  the  Co-Agents and the
                  Lenders.

                           (ii) A Note, payable to the order of each Lender then
                  party hereto, duly executed by the Borrower.

                           (iii)  A  copy  of the  certificate  or  articles  of
                  incorporation,   including  all  amendments  thereto,  of  the
                  Borrower,  certified  as of a recent date by the  Secretary of
                  State of the State of Texas,  and a certificate as to the good
                  standing  of  the  Borrower  as of a  recent  date  from  such
                  Secretary  of State  and from  the  Secretary  of State of the
                  State of New Mexico.

                           (iv) A  certificate  of the Secretary or an Assistant
                  Secretary of the Borrower certifying (A) that attached thereto
                  is a true and complete  copy of the by-laws of the Borrower as
                  in effect on the  Closing  Date and at all times  since a date
                  prior to the date of the  resolutions  described in clause (B)
                  below,  (B) that attached  thereto is a true and complete copy
                  of  resolutions  duly adopted by the Board of Directors of the
                  Borrower  authorizing the execution,  delivery and performance
                  of the Loan Documents to which the Borrower is a party and the
                  Transactions,   and  that  such   resolutions  have  not  been
                  modified,  rescinded  or  amended  and are in full  force  and
                  effect,  (C) that the certificate or articles of incorporation
                  of the Borrower  have not been  amended  since the date of the
                  last  amendment  thereto  shown  on the  certificate  of  good
                  standing furnished pursuant to paragraph (iii) above, (D) that
                  attached   thereto  are  true  and  complete   copies  of  the
                  applications  filed by the  Borrower  for the 1996  Regulatory
                  Orders  and  of  all  approvals,  authorizations,   orders  or
                  consents  of,  or  notices  to  or  registrations   with,  any
                  Governmental  Authority (including the 1996 Regulatory Orders)
                  required for the Borrower to execute,  deliver and perform its
                  obligations under this Agreement and the other Loan Documents,
                  and (E) as to the  incumbency  and specimen  signature of each
                  officer  executing  any Loan  Document  or any other  document
                  delivered in  connection  herewith on behalf of the  Borrower,
                  together with a certificate of another officer of the Borrower
                  as to the incumbency  and specimen  signature of the Secretary
                  or Assistant  Secretary  executing the  certificate  delivered
                  pursuant to this paragraph (iv).

                           (v)  A  copy  of  the  TNP  Bond  Indenture  and  all
                  supplemental  indentures  thereto  (including the Supplemental
                  Indenture),   certified  by  the  Secretary  or  an  Assistant
                  Secretary of the  Borrower as being true and  complete  copies
                  thereof,  in  full  force  and  effect  and  not  having  been
                  modified, rescinded or revoked.

                           (vi)     The  Fee  Letter,   duly   executed  by  the
                  Borrower.

                           (vii)    The Bond  Agreement,  duly  executed  by the
                  Borrower.

                           (viii)   The  Supplemental  Indenture,  duly executed
                  by the Borrower and the Trustee.

                           (ix) A certificate  of a duly  authorized  officer of
                  the Trustee  certifying  the names and true  signatures of the
                  officers of the Trustee  authorized  to sign the  Supplemental
                  Indenture  and any  other  documents  to be  delivered  by the
                  Trustee hereunder or thereunder.

                           (x) Favorable opinions of (A) Haynes & Boone, L.L.P.,
                  counsel for the Borrower, substantially in the form of Exhibit
                  F-1,  (B)  Michael  D.  Blanchard,   General  Counsel  of  the
                  Borrower,  substantially  in the  form  of  Exhibit  F-2,  (C)
                  Winstead,  Sechrest  & Minick,  P.C.,  Texas  counsel  for the
                  Administrative  Agent,  substantially  in the form of  Exhibit
                  F-3,  (D)  Rubin,  Katz,  Salazar,  Alley & Rouse,  New Mexico
                  regulatory counsel for the Borrower, substantially in the form
                  of Exhibit F-4, and (E) McDermott,  Will & Emery,  counsel for
                  the Administrative Agent, substantially in the form of Exhibit
                  F-5.

                           (xi) A  certificate  of a  Financial  Officer  of the
                  Borrower  as  to  the   solvency  of  the   Borrower  and  its
                  Subsidiaries  on a  consolidated  basis after giving effect to
                  the transactions contemplated hereby.

                           (xii) Such other  opinions,  certificates,  approvals
                  and   documents  as  any  Lender  or  its   counsel,   or  the
                  Administrative Agent or its counsel, may reasonably request.

                  (b) All legal matters  incident to the  Transactions  shall be
         satisfactory  to the Lenders and their counsel,  to the  Administrative
         Agent and to McDermott,  Will & Emery,  counsel for the  Administrative
         Agent.

                  (c)  The   following   statements   shall   be  true  and  the
         Administrative  Agent shall have received a certificate  of a Financial
         Officer of the Borrower, dated as of the Closing Date and in sufficient
         copies for the  Administrative  Agent and each of the Lenders,  stating
         that:

                           (i) The  representations  and warranties set forth in
                  Article III hereof and in Section 2 of the Bond  Agreement are
                  true and  correct in all  material  respects  on and as of the
                  Closing  Date with the same effect as though made on and as of
                  such date.

                           (ii)     No  Event  of   Default   or   Default   has
                  occurred and is continuing.

                  (d) The  Transactions  and the delivery of New First  Mortgage
         Bonds pursuant  hereto and the Bond Agreement  shall have been approved
         or  exempted by all  Governmental  Authorities  to the extent  required
         under  applicable law, and all such approvals or exemptions,  including
         any conditions  imposed thereby,  shall be satisfactory in all respects
         to the  Lenders.  No action  shall have been taken by any  Governmental
         Authority  which restrains or prevents or seeks to restrain or prevent,
         or imposes or seeks to impose materially  adverse  conditions upon, any
         of the Transactions.

                  (e) Except as set forth in  Schedule  3.09,  no action,  suit,
         investigation, litigation or other proceeding at law or in equity or by
         or before any court or other Governmental  Authority shall exist or, in
         the case of litigation by a Governmental Authority, be threatened, with
         respect to any of the Transactions that would in the reasonable opinion
         of the  Lenders be likely to  restrain,  prevent  or impose  burdensome
         conditions  to any of the  Transactions,  or to  result  in a  Material
         Adverse Effect.

                  (f) All  aspects of the  structure  and  documentation  of the
         Transactions  and all  corporate and other  proceedings  taken or to be
         taken in connection  therewith and all documents incidental thereto, in
         each case to the extent not  otherwise  provided  for herein,  shall be
         reasonably  satisfactory in form and substance to the Lenders and their
         counsel,  to the Administrative  Agent and to McDermott,  Will & Emery,
         counsel  to the  Administrative  Agent,  and  the  Lenders  shall  have
         received  copies of all such  documents  as the Lenders may  reasonably
         request.

                  (g) The  Administrative  Agent  shall have  received  all fees
         payable  pursuant to Section 2.05 to the extent due and payable and all
         other  amounts  due  and  payable  on or  prior  to the  Closing  Date,
         including,  to the  extent  invoiced,  reimbursement  or payment of all
         out-of-pocket  expenses  required  to be  reimbursed  or  paid  by  the
         Borrower hereunder or under any other Loan Document.

                  (h)      The  Closing  Date shall have  occurred  on or before
         September 30, 1996.

     SECTION 4.02.  Conditions Precedent for Certain Borrowings.  The obligation
of each Lender to make a Loan on the date of any  Borrowing  (other than (i) any
Borrowing  in which  Loans  are  refinanced  with new Loans as  contemplated  by
Section 2.02(f) and (ii) any Borrowing  that,  after giving effect to such Loan,
would not  cause the  outstanding  principal  amount of the Loans to exceed  the
aggregate  outstanding  principal amount of New First Mortgage Bonds theretofore
issued and  registered  in the name of the  Collateral  Agent  pursuant  to this
Section 4.02) shall be subject to the  fulfillment  of the following  conditions
precedent:

                  (a)  The   Administrative   Agent  shall  have   received  the
         following, each dated the date of such Borrowing, in form and substance
         satisfactory  to the  Administrative  Agent and the Lenders and (except
         for  the  New  First  Mortgage  Bonds)  in  sufficient  copies  for the
         Administrative Agent and each Lender:

                           (i)  New  First   Mortgage   Bonds  in  an  aggregate
                  principal  amount  equal  to the  amount  of  such  Borrowing,
                  registered in the name of the Collateral Agent.

                           (ii) A certificate  of a duly  authorized  officer of
                  the Trustee  certifying  (A) the names and true  signatures of
                  the officers of the Trustee  authorized  to sign any documents
                  to be delivered by the Trustee hereunder or under the TNP Bond
                  Indenture  in  connection  with the issuance of such New First
                  Mortgage Bonds and (B) that such New First Mortgage Bonds have
                  been  authenticated and are  "outstanding"  under the TNP Bond
                  Indenture.

                           (iii) Copies of all certificates,  opinions (on which
                  the Administrative  Agent, the Collateral Agent, the Co-Agents
                  and the Lenders  shall be  expressly  entitled  to rely),  and
                  other  documents  delivered  by the  Borrower  to the  Trustee
                  pursuant  to Article  Four,  Article  Five or Article  Six, as
                  applicable,  of the TNP Bond Indenture in connection  with the
                  issuance and  authentication of such New First Mortgage Bonds,
                  certified by the  Secretary  or an Assistant  Secretary of the
                  Borrower.

                           (iv) A  favorable  opinion of  Michael D.  Blanchard,
                  General Counsel of the Borrower,  covering such matters as the
                  Administrative Agent shall reasonably request.

                           (v)      Such    other    opinions,     certificates,
                  approvals and  documents as any Lender or its counsel,  or the
                  Administrative Agent or its counsel, may reasonably request.

                  (b) All legal  matters  incident  to the  issuance of such New
         First  Mortgage  Bonds shall be  satisfactory  to the Lenders and their
         counsel,  to the Administrative  Agent and to McDermott,  Will & Emery,
         counsel for the Administrative Agent.

                  (c)  The   following   statements   shall   be  true  and  the
         Administrative  Agent shall have received a certificate  of a Financial
         Officer of the Borrower,  dated as of the date of such Borrowing and in
         sufficient copies for the Administrative Agent and each of the Lenders,
         stating that:

                           (i) The New First Mortgage Bonds  delivered  pursuant
                  to Section  4.02(a) (A) have been duly  authorized,  executed,
                  authenticated and issued; (B) are the legal, valid and binding
                  obligations  of the Borrower  enforceable  in accordance  with
                  their terms and  entitled to the  benefits and security of the
                  First Mortgage Bonds outstanding under the TNP Bond Indenture,
                  (C) are not in  default,  and (D) have been  delivered  to the
                  Collateral  Agent  pursuant  to  the  terms  of the  TNP  Bond
                  Indenture (including the Supplemental  Indenture) and the Bond
                  Agreement.

                           (ii) The  Collateral  is free and  clear of any Lien,
                  except  for  the  security   interests  created  by  the  Bond
                  Agreement and the Supplemental Indenture.

                           (iii) Such New First  Mortgage Bonds are not required
                  to be registered under the Securities Act of 1933, as amended.

                           (iv) The (A) resolutions of the Board of Directors of
                  the  Borrower,  (B)  approvals,   authorizations,   orders  or
                  consents  of,  or  notices  to  or  registrations   with,  any
                  Governmental  Authority,  and (C) incumbency  certificate  and
                  specimen  signatures  of  certain  officers  of the  Borrower,
                  delivered by the Borrower pursuant to Section  4.01(a)(iv)(B),
                  (D) and (E), respectively,  have not been modified,  rescinded
                  or  amended  and are in full force and effect on and as of the
                  date of  such  Borrowing,  and  such  resolutions,  approvals,
                  authorizations,  orders, consents,  notices and registrations,
                  if any,  are  sufficient  for the  issuance  of such New First
                  Mortgage Bonds.

                  (d) The issuance of such New First  Mortgage  Bonds shall have
         been approved or exempted by all Governmental Authorities to the extent
         required  under  applicable  law, and all such approvals or exemptions,
         including any conditions imposed thereby,  shall be satisfactory in all
         respects  to the  Lenders.  No  action  shall  have  been  taken by any
         Governmental Authority which restrains or prevents or seeks to restrain
         or prevent, or imposes or seeks to impose materially adverse conditions
         upon, the issuance of such New First Mortgage Bonds.

                  (e) Except as set forth in  Schedule  3.09,  no action,  suit,
         investigation, litigation or other proceeding at law or in equity or by
         or before any court or other Governmental  Authority shall exist or, in
         the case of litigation by a Governmental Authority, be threatened, with
         respect to any of the Transactions that would in the reasonable opinion
         of the  Lenders be likely to  restrain,  prevent  or impose  burdensome
         conditions  to any of the  Transactions,  or to  result  in a  Material
         Adverse Effect.

                  (f) All aspects of the structure and documentation of such New
         First Mortgage Bonds and all corporate and other  proceedings  taken or
         to be  taken  in  connection  therewith  and all  documents  incidental
         thereto,  in each case to the extent not otherwise provided for herein,
         shall be reasonably  satisfactory  in form and substance to the Lenders
         and their counsel, to the Administrative Agent and to McDermott, Will &
         Emery, counsel to the Administrative  Agent, and the Lenders shall have
         received  copies of all such  documents  as the Lenders may  reasonably
         request.

     SECTION 4.03.  Conditions Precedent to All Borrowings.  On the date of each
Borrowing, including each Borrowing in which Loans are refinanced with new Loans
as contemplated by Section 2.02(f):

                  (a) The  Administrative  Agent shall have received a notice of
         such  Borrowing  as required by Section 2.03 (or such notice shall have
         been deemed given in accordance with Section 2.03).

                  (b) The  representations  and  warranties set forth in Article
         III and in Section 2 of the Bond Agreement shall be true and correct in
         all material  respects on and as of the date of such Borrowing with the
         same effect as though made on and as of such date, except to the extent
         such  representations  and  warranties  expressly  relate to an earlier
         date.

                  (c) The Borrower shall be in compliance with all the terms and
         provisions set forth herein and in each other Loan Document on its part
         to be observed or performed,  and at the time of and immediately  after
         giving effect to such  Borrowing,  no Event of Default or Default shall
         have occurred and be continuing.

                  (d)  Immediately  prior to and  after  giving  effect  to such
         Borrowing,  (i) the fair market value of the assets of the Borrower and
         its  Subsidiaries  on a consolidated  basis will exceed their debts and
         liabilities,  subordinated,  contingent or otherwise;  (ii) the present
         fair saleable value of the assets of the Borrower and its  Subsidiaries
         on a  consolidated  basis will be greater  than the amount that will be
         required  to pay the  probable  liability  on  their  debts  and  other
         liabilities,  subordinated,  contingent or otherwise, as such debts and
         other liabilities  become absolute and matured;  (iii) the Borrower and
         its  Subsidiaries  on a  consolidated  basis  will be able to pay their
         debts and liabilities,  subordinated,  contingent or otherwise, as such
         debts  and  liabilities  become  absolute  and  matured;  and  (iv) the
         Borrower and its  Subsidiaries  on a  consolidated  basis will not have
         unreasonably  small capital with which to conduct the business in which
         they are engaged as such  business is now  conducted and is proposed to
         be conducted following the date of such Borrowing.

Each Borrowing  shall be deemed to constitute a  representation  and warranty by
the  Borrower  on the date of such  Borrowing  as to the  matters  specified  in
paragraphs (b), (c) and (d) of this Section 4.03.

         SECTION 4.04. Reliance on Certificates. The Lenders, the Administrative
Agent and the Collateral Agent shall be entitled to rely  conclusively  upon the
certificates  delivered  from time to time by officers of the Borrower as to the
names,  incumbency,  authority and  signatures of the  respective  persons named
therein  until such time as the  Administrative  Agent may receive a replacement
certificate,  in form acceptable to the Administrative Agent, from a Responsible
Officer of the  Borrower,  setting  forth the names and true  signatures  of the
officers of the Borrower thereafter authorized to act on behalf of the Borrower.


                                    ARTICLE V
                              AFFIRMATIVE COVENANTS

         The Borrower covenants and agrees with each Lender that so long as this
Agreement shall remain in effect and until the Commitments  have been terminated
and the  principal of and  interest on each Loan,  all  Commitment  Fees and all
other fees,  expenses or amounts payable under any Loan Document shall have been
paid in full,  unless the Required  Lenders shall otherwise  consent in writing,
the Borrower will, and will cause each of the Subsidiaries to:

     SECTION 5.01. Existence;  Businesses and Properties.  (a) Do or cause to be
done all things  necessary to preserve,  renew and keep in full force and effect
its legal existence, except as otherwise expressly permitted under Section 6.05.

         (b) Do or cause to be done all things  necessary  to obtain,  preserve,
renew, extend and keep in full force and effect the rights,  licenses,  permits,
franchises,  authorizations,  patents,  copyrights,  trademarks  and trade names
material to the conduct of its  business;  maintain and operate such business in
substantially the manner in which it is presently conducted and operated; comply
in all material  respects  with all  applicable  laws,  rules,  regulations  and
decrees  and  orders of any  Governmental  Authority,  whether  now in effect or
hereafter enacted;  and at all times maintain and preserve all property material
to the conduct of such business and keep such  property in good repair,  working
order and condition and from time to time make, or cause to be made, all needful
and proper repairs, renewals,  additions,  improvements and replacements thereto
necessary in order that the business  carried on in connection  therewith may be
properly conducted at all times.

     SECTION 5.02.  Insurance.  Keep its insurable properties adequately insured
at all times by financially  sound and reputable  insurers;  maintain such other
insurance, to such extent and against such risks, including fire and other risks
insured against by extended coverage, as is customary with companies in the same
or similar  businesses  operating  in the same or similar  locations,  including
public  liability  insurance  against  claims  for  personal  injury or death or
property  damage  occurring upon, in, about or in connection with the use of any
properties  owned,  occupied  or  controlled  by it;  and  maintain  such  other
insurance as may be required by law.

     SECTION  5.03.  Obligations  and  Taxes.  Pay its  Indebtedness  and  other
obligations  promptly and in  accordance  with their terms and pay and discharge
promptly  when due all taxes,  assessments  and  governmental  charges or levies
imposed  upon it or upon its income or  profits  or in respect of its  property,
before the same shall  become  delinquent  or in default,  as well as all lawful
claims for labor,  materials and supplies or otherwise  that,  if unpaid,  might
give rise to a Lien upon such properties or any part thereof; provided, however,
that such payment and  discharge  shall not be required with respect to any such
tax, assessment,  charge, levy or claim set forth in Schedule 3.09 or so long as
the validity or amount  thereof shall be contested in good faith by  appropriate
proceedings and the Borrower shall have set aside on its books adequate reserves
with  respect  thereto in  accordance  with GAAP and such  contest  operates  to
suspend collection of the contested  obligation,  tax,  assessment or charge and
enforcement of a Lien.

     SECTION  5.04.  Financial  Statements,  Reports,  etc.  In the  case of the
Borrower, furnish to the Administrative Agent and each Lender:

                           (a)  within  100 days  after  the end of each  fiscal
         year,  a  balance   sheet  and  related   statements   of   operations,
         stockholders'  equity and cash flows showing the financial condition of
         the Borrower and its  Subsidiaries  on a  consolidated  basis as of the
         close of such fiscal year and the results of operations of the Borrower
         and its  Subsidiaries  on a  consolidated  basis during such year,  all
         audited  by  KPMG  Peat  Marwick  LLP  or  other   independent   public
         accountants  of  recognized   national   standing   acceptable  to  the
         Administrative  Agent and accompanied by an opinion of such accountants
         (which shall not be  qualified  in any material  respect) to the effect
         that such financial  statements fairly present the financial  condition
         and results of  operations  of the Borrower and its  Subsidiaries  on a
         consolidated basis, in accordance with GAAP;

                           (b) within 50 days after the end of each of the first
         three fiscal  quarters of each fiscal year, a balance sheet and related
         statements of operations,  stockholders'  equity and cash flows showing
         the  financial  condition  of the Borrower  and its  Subsidiaries  on a
         consolidated  basis as of the  close  of such  fiscal  quarter  and the
         results  of  operations  of the  Borrower  and  its  Subsidiaries  on a
         consolidated  basis  during  such fiscal  quarter and the then  elapsed
         portion of the  fiscal  year,  all  certified  by one of its  Financial
         Officers as fairly  presenting  the financial  condition and results of
         operations  of the  Borrower  and its  Subsidiaries  on a  consolidated
         basis,  in  accordance  with  GAAP,  subject to normal  year-end  audit
         adjustments;

                           (c)  concurrently  with  any  delivery  of  financial
         statements  under  paragraph  (a)  or (b)  above,  a  certificate  of a
         Financial  Officer of the  Borrower  and,  in the case of any  delivery
         under  paragraph  (a)  above,  the  accounting  firm  opining  on  such
         statements  (which  certificate,  when furnished by an accounting firm,
         may be limited to accounting  matters and disclaim  responsibility  for
         legal  interpretations)  (i) certifying  that in making the examination
         necessary for their  opinion,  they  obtained no  knowledge,  except as
         specifically  stated,  that an Event of Default or Default has occurred
         or, if such an Event of Default or Default has occurred, specifying the
         nature and extent thereof and any  corrective  action that the Borrower
         has taken or proposed  to take with  respect  thereto and (ii)  setting
         forth   computations   in  reasonable   detail   satisfactory   to  the
         Administrative  Agent  demonstrating   compliance  with  the  covenants
         contained in Sections 6.10 and 6.11;

                           (d)   promptly   after  the  same   become   publicly
         available,  copies of all periodic and other reports,  proxy statements
         and other  materials  filed by the Borrower or any Subsidiary  with the
         Securities  and  Exchange  Commission,  or any  Governmental  Authority
         succeeding to any or all of the functions of said  Commission,  or with
         any national securities  exchange,  or distributed to its shareholders,
         as the case may be; and

                           (e)   promptly,   from  time  to  time,   such  other
         information  regarding the operations,  business  affairs and financial
         condition of the Borrower or any  Subsidiary,  or  compliance  with the
         terms of any Loan Document,  as the Administrative  Agent or any Lender
         may reasonably request.

     SECTION 5.05.  Litigation and Other Notices.  Furnish to the Administrative
Agent and each Lender prompt written notice of the following:

                           (a)      any   Event   of   Default    or    Default,
         specifying  the nature and extent  thereof  and the  corrective  action
         (if any) taken or proposed to be taken with respect thereto;

                           (b) the filing or  commencement  of, or any threat or
         notice of intention of any person to file or commence, any action, suit
         or  proceeding,  whether  at  law  or in  equity  or by or  before  any
         Governmental  Authority,  against the Borrower or any Affiliate thereof
         that could  reasonably  be  expected  to result in a  Material  Adverse
         Effect;

                           (c)      any change in the  ratings  assigned by S&P,
         D&P or Moody's to the First Mortgage Bonds; and

                           (d)      any  development  that has  resulted  in, or
         could reasonably be expected to result in, a Material Adverse Effect.

     SECTION 5.06.  Employee Benefits.  (a) Comply in all material respects with
the  applicable  provisions  of  ERISA  and  the  Code  and (b)  furnish  to the
Administrative  Agent as soon as possible after, and in any event within 10 days
after any  Responsible  Officer of the Borrower or any ERISA  Affiliate knows or
has reason to know that,  any ERISA Event has occurred  that,  alone or together
with any other ERISA Event,  could reasonably be expected to result in liability
of the  Borrower in an  aggregate  amount  exceeding  $20,000,000  or  requiring
payments exceeding $5,000,000 in any year, a statement of a Financial Officer of
the Borrower  setting  forth  details as to such ERISA Event and the action,  if
any, that the Borrower proposes to take with respect thereto.

     SECTION 5.07.  Maintaining  Records;  Access to Properties and Inspections.
Keep proper books of record and account in which full,  true and correct entries
in conformity with GAAP and all requirements of law are made of all dealings and
transactions in relation to its business and activities.  The Borrower will, and
will cause each of its Subsidiaries to, permit any representatives designated by
the  Administrative  Agent or any  Lender to visit  and  inspect  the  financial
records and the properties of the Borrower or any Subsidiary at reasonable times
and as often as  reasonably  requested  and to make  extracts from and copies of
such  financial  records,  and  permit  any  representatives  designated  by the
Administrative  Agent  or any  Lender  to  discuss  the  affairs,  finances  and
condition  of the  Borrower  or any  Subsidiary  with the  officers  thereof and
independent accountants therefor.

     SECTION 5.08.  Use of Proceeds.  Use the proceeds of the Loans only for the
purposes set forth in the Preliminary Statements to this Agreement.

     SECTION 5.09.  Compliance with Laws and  Environmental  Laws.  Comply,  and
cause all lessees and other persons  occupying its Properties to comply,  in all
material  respects with all laws,  rules,  regulations and orders,  and with all
Environmental  Laws and Environmental  Permits  applicable to its operations and
Properties,  except in each case to the extent that  failure to so comply  could
not reasonably be expected to result in a Material  Adverse  Effect;  obtain and
renew all  material  Environmental  Permits  necessary  for its  operations  and
Properties;  and conduct any Remedial  Action in accordance  with  Environmental
Laws; provided,  however,  that neither the Borrower nor any of the Subsidiaries
shall be  required  to  undertake  any  Remedial  Action to the extent  that its
obligation to do so is being  contested in good faith and by proper  proceedings
and  appropriate  reserves in  accordance  with GAAP are being  maintained  with
respect to such circumstances.

     SECTION 5.10.  Preparation of Environmental Reports. If a Default caused by
reason  of a  breach  of  Section  3.17  or  5.09  shall  have  occurred  and be
continuing,  at the request of the Required  Lenders through the  Administrative
Agent,  provide to the Lenders within 60 days after such request, at the expense
of the Borrower, an environmental site assessment report for the Properties that
are the subject of such Default  prepared by an  environmental  consulting  firm
acceptable to the Administrative Agent and indicating the presence or absence of
Hazardous  Materials and the estimated cost of any compliance or Remedial Action
in connection with such Properties.

     SECTION 5.11.  Further  Assurances.  Execute any and all further documents,
financing  statements,  agreements and instruments,  and take all further action
(including filing Uniform  Commercial Code and other financing  statements) that
may be  required  under  applicable  law,  or that  the  Required  Lenders,  the
Administrative Agent or the Collateral Agent may reasonably request, in order to
effectuate the  transactions  contemplated by the Loan Documents and in order to
grant,  preserve,  protect and perfect the  validity  and first  priority of the
security interests created or intended to be created by the Bond Agreement.  The
Borrower  agrees  to  provide  such  evidence  as  the  Collateral  Agent  shall
reasonably  request  as to the  perfection  and  priority  status  of each  such
security interest and Lien.

     SECTION 5.12.  Performance and Continuation of TNP Bond Indenture.  Perform
and  observe  all of its  covenants  and  agreements  contained  in the TNP Bond
Indenture (including all supplemental  indentures thereto), and maintain the TNP
Bond Indenture in full force and effect in accordance with its terms.


                                   ARTICLE VI
                               NEGATIVE COVENANTS

         The Borrower  covenants  and agrees with each Lender  that,  so long as
this  Agreement  shall  remain in effect  and  until the  Commitments  have been
terminated and the principal of and interest on each Loan,  all Commitment  Fees
and all other fees,  expenses or amounts  payable  under any Loan  Document have
been paid in full,  unless  the  Required  Lenders  shall  otherwise  consent in
writing,  the  Borrower  will  not,  and will not  cause  or  permit  any of the
Subsidiaries to:

     SECTION 6.01.  Indebtedness.  Incur, create,  assume or permit to exist any
Indebtedness, except:

                  (a)  Indebtedness  incurred  hereunder,  under any other  Loan
         Document,  under the Existing Facility Documents or under the "Existing
         Facility Documents" (as defined in the Chemical Bank Agreement);

                  (b)      accounts  payable  owed by the Borrower to TGC or TGC
         II,  to the  extent  incurred  and  paid  in  the  ordinary  course  of
         business;

                  (c)  Secured  Debentures  (as  defined  in the  Chemical  Bank
         Agreement);  provided,  however, that the aggregate principal amount of
         Secured   Debentures   outstanding   at  any  time   shall  not  exceed
         $270,000,000;

                  (d)  First  Mortgage  Bonds;   provided,   however,  that  the
         aggregate  principal amount of First Mortgage Bonds  outstanding at any
         time  (including any New First Mortgage Bonds) shall not exceed the sum
         of (i)  $360,000,000  and (ii) the aggregate  amount by which the Total
         Commitment  has  been  reduced  subsequent  to the  Closing  Date;  and
         provided  further,  however,  that  the  limitations  of the  foregoing
         proviso to this clause (d) shall not apply (A) so long as the aggregate
         principal amount of the New First Mortgage Bonds is equal to or greater
         than the Total Commitment or (B) after the Release Conditions have been
         satisfied  and the  Release  Date has  occurred  as provided in Section
         9.17;

                  (e)      intercompany  Indebtedness  owed to the  Borrower  on
         the Closing Date and listed on Schedule 6.01;

                  (f)  Indebtedness  in  respect  of  Interest  Rate  Protection
         Agreements  to the extent such  agreements  are used to hedge  interest
         rate risk in respect of outstanding  floating rate Indebtedness and not
         for speculative purposes;

                  (g)      Indebtedness   of  TGC   under   the  Unit  1  Credit
         Agreement (as defined in the Chemical Bank Agreement);

                  (h)      customer   advances  and  security  deposits  in  the
         ordinary course of business; and

                  (i)  additional   Indebtedness  not  exceeding  $2,000,000  in
         aggregate  principal amount  outstanding at any time with local banking
         institutions.

     SECTION 6.02. Liens.  Create,  incur, assume or permit to exist any Lien on
any  property or assets  (including  capital  stock or other  securities  of any
Subsidiary  or other  person)  now owned or  hereafter  acquired by it or on any
income or revenues or rights in respect of any thereof, except:

                  (a)  Liens on  property  or  assets  of the  Borrower  and its
         Subsidiaries  existing  on the date  hereof  and set forth in  Schedule
         6.02;  provided,  that such Liens shall  secure only those  obligations
         that they secure on the date hereof;

                  (b)      any Lien created under the Loan Documents;

                  (c)      Liens arising under any trust  indenture  pursuant to
         which the Borrower issues First Mortgage Bonds;

                  (d)      Liens  expressly  permitted  under the Chemical  Bank
         Agreement;

                  (e)      Liens   arising    under   the   Secured    Debenture
         Indentures   (as  defined  in  the  Chemical   Bank   Agreement),   and
         refinancings thereof;

                  (f)      in the case of TGC, Liens  expressly  permitted under
         the  Unit  1  Credit   Agreement  (as  defined  in  the  Chemical  Bank
         Agreement); and

                  (g)      sales  of  accounts  receivable  consistent  with the
         Borrower's past practices.

     SECTION 6.03. Sale and Lease-Back Transactions. Enter into any arrangement,
directly or  indirectly,  with any person  whereby it shall sell or transfer any
property, real or personal, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property or other property
which it intends to use for  substantially  the same  purpose or purposes as the
property being sold or transferred.

     SECTION 6.04.  Investments,  Loans and Advances.  Purchase, hold or acquire
any capital stock,  evidences of  indebtedness  or other  securities of, make or
permit  to exist  any  loans or  advances  to,  or make or  permit  to exist any
investment or any other interest in, any other person, except:

                  (a)      investments  by the  Borrower  existing  on the  date
         hereof in the  capital  stock of the  Subsidiaries  or  resulting  from
         acquisitions made in accordance with Section 6.05;

                  (b)      intercompany  Indebtedness  permitted  under  Section
         6.01(e);

                  (c)      investments   accepted   by  the   Borrower   or  any
         Subsidiary  in the  ordinary  course  of  business  from  customers  in
         satisfaction of indebtedness of such customers;

                  (d)      Permitted Investments;

                  (e)      investments,   loans  and  advances  that  shall  not
         exceed  $1,000,000  in the  aggregate  outstanding  at any time made in
         the ordinary course of business;

                  (f) loans and  advances to  Affiliates  of the  Borrower in an
         aggregate  amount at any time  outstanding not to exceed (i) $5,000,000
         less (ii) any amount outstanding under clause (e) above; and

                  (g)      key  personnel  life  insurance the proceeds of which
         are intended to fund the excess benefit plan.

     SECTION 6.05.  Mergers,  Consolidations,  Sales of Assets and Acquisitions.
(a) Merge into or consolidate with any other person,  or permit any other person
to merge into or  consolidate  with it, or sell,  transfer,  lease or  otherwise
dispose  of (in one  transaction  or in a  series  of  transactions)  all or any
substantial part of its assets (whether now owned or hereafter  acquired) or any
capital stock of any Subsidiary, or purchase, lease or otherwise acquire (in one
transaction  or a series of  transactions)  all or any  substantial  part of the
assets of any other person,  except that (i) the Borrower and any Subsidiary may
purchase  and sell  inventory  in the  ordinary  course  of  business,  (ii) the
Borrower and any  Subsidiary may permit any assets to be taken for any public or
quasi-public use under any governmental law, ordinance or regulation or by right
of  eminent  domain  and to be sold  under  threat  of  condemnation;  (iii) the
Borrower may sell accounts receivable  consistent with its past practices;  (iv)
the Borrower and its Subsidiaries may make acquisitions (in one transaction or a
series of  transactions)  of assets or capital  stock of  another  person not to
exceed  $25,000,000  in  the  aggregate;  and  (v) if at the  time  thereof  and
immediately  after giving  effect  thereto no Event of Default or Default  shall
have occurred and be continuing (A) any wholly-owned  Subsidiary (other than TGC
and TGC II) may merge into the Borrower in a  transaction  in which the Borrower
is the surviving  corporation,  (B) any wholly-owned  Subsidiary (other than TGC
and TGC II) may merge into or consolidate with any other wholly-owned Subsidiary
in a transaction in which the surviving entity is a wholly-owned  Subsidiary and
no person  other than the  Borrower or a  wholly-owned  Subsidiary  receives any
consideration, and (C) the Borrower or any Subsidiary may sell assets which when
taken  together  with  any  other  assets  sold  by the  Borrower  or any of its
Subsidiaries  during the same period have an aggregate  book value not exceeding
(x)  $10,000,000  in any  consecutive  twelve-month  period and (y)  $25,000,000
during the period commencing on the Closing Date and ending upon the termination
of the Commitments and payment in full of all outstanding Loans.

         (b) In the case of TGC II,  purchase or acquire  any assets  other than
(i) assets  reasonably  required for the maintenance or operation of the Project
(as defined in the Chemical Bank  Agreement) and (ii) supplies  purchased in the
ordinary course of business.

     SECTION  6.06.  Dividends  and  Distributions;  Restrictions  on Ability of
Subsidiaries to Pay Dividends.  (a) Declare or pay, directly or indirectly,  any
dividend or make any other  distribution (by reduction of capital or otherwise),
whether in cash, property,  securities or a combination thereof, with respect to
any shares of its  capital  stock or directly or  indirectly  redeem,  purchase,
retire or otherwise  acquire for value (or permit any  Subsidiary to purchase or
acquire)  any shares of any class of its  capital  stock or set aside any amount
for any such purpose; provided, however, that (i) any Subsidiary may declare and
pay dividends or make other distributions to the Borrower, (ii) the Borrower may
declare and pay cash dividends on its common stock to its  shareholder if (A) no
Event of  Default  shall  have  occurred  and be  continuing  (or  would  result
therefrom)  and (B) such  declaration  or payment would not cause the sum of all
Dividends  declared  or paid on common  stock by the  Borrower  during  the most
recently ended  twenty-four month period (or shorter period, as the case may be)
commencing  not earlier than September 30, 1995 and ending on the Quarterly Date
next  preceding  the date of any  proposed  declaration  or  payment  to  exceed
Cumulative Net Income Available For Common Dividends for such period,  (iii) the
Borrower  may declare and pay cash  dividends on its  preferred  stock (A) if no
Event of Default  specified in paragraph  (b), (c) or (d) of Article VII (if, in
the case of paragraph (d), such Event of Default relates to a default in Section
6.10 or 6. 11) shall have occurred and be continuing (or would result therefrom)
and (B) if any other Event of Default shall have occurred and be continuing  (or
would result therefrom), the Borrower shall have requested in writing permission
to continue  declaring and paying such dividends and the Required  Lenders shall
have  delivered to the  Borrower  such  authorization  and (iv) the Borrower may
redeem its preferred stock (A) pursuant to mandatory redemption  requirements in
effect on the date  hereof or (B) with the  proceeds of  newly-issued  preferred
stock  that will not be  redeemable  mandatorily  or at the option of any holder
thereof  (other than in the event of a Change in Control)  prior to the Maturity
Date.

         (b)  Permit  any  Subsidiary,  directly  or  indirectly,  to  create or
otherwise  cause or suffer  to exist or  become  effective  any  encumbrance  or
restriction  on the ability of any such  Subsidiary  to (i) pay any dividends or
make any other  distributions on its capital stock or any other interest or (ii)
make or repay  any  loans or  advances  to the  Borrower  or the  parent of such
Subsidiary  except  encumbrances  and  restrictions  existing on the date hereof
under this  Agreement,  the  Chemical  Bank  Agreement,  the  Existing  Facility
Agreement  (as defined in the  Chemical  Bank  Agreement)  and the Unit 1 Credit
Agreement (as defined in the Chemical Bank Agreement).

     SECTION 6.07.  Transactions with Affiliates.  Sell or transfer any property
or assets to, or purchase or acquire any property or assets  from,  or otherwise
engage in any other  transactions  with, any of its Affiliates,  except that the
Borrower or any  Subsidiary may engage in any of the foregoing  transactions  in
the ordinary  course of business at prices and on terms and  conditions not less
favorable  to the  Borrower  or such  Subsidiary  than could be  obtained  on an
arm's-length  basis from unrelated  third parties;  provided,  that this Section
6.07 shall not apply to (i) any transactions expressly permitted or contemplated
by the Chemical Bank  Agreement,  (ii) the sale of power to Affiliates and (iii)
the payment of Dividends to TNP Enterprises as permitted by this Agreement.

     SECTION 6.08. Business of Borrower and Subsidiaries.  Engage at any time in
any business or business activity other than the business currently conducted by
it and business activities reasonably incidental thereto.

     SECTION  6.09.  Additional  Generating   Facilities.   Create,  acquire  or
construct any additional generating facilities or generating assets.

     SECTION 6.10. Interest Coverage Ratio. Permit the ratio of (i) Consolidated
EBIT to (ii)  Consolidated  Interest  Expense for any period of four consecutive
fiscal  quarters  ending on any Quarterly Date during any period set forth below
to be less than the ratio set forth opposite such period:

                  Period                                               Ratio

         Closing Date through June 30, 1997                             1.30

         July 1, 1997 through June 30, 1998                             1.30

         Thereafter                                                     1.50

     SECTION  6.11.  Debt to  Capitalization  Ratio.  Permit  the  ratio  of (i)
Consolidated  Total  Indebtedness  to (ii)  Total  Capitalization  (the "Debt to
Capitalization  Ratio") at any time  during any period set forth below to exceed
the ratio set forth opposite such period: Period Ratio Closing Date through June
30, 1997 0.75 July 1, 1997  through June 30, 1998 0.72 July 1, 1998 through June
30, 1999 0.68 Thereafter 0.65

         SECTION  6.     12.   Capital  Expenditures.  Make
Capital  Expenditures in excess of $40,000,000 during any fiscal year; provided,
that any portion of such  $40,000,000 not used in any fiscal year may be carried
over into and used in the next  fiscal year but not any  subsequent  fiscal year
(it being  understood that for purposes of computing the amount  permitted to be
carried over, the $40,000,000  applicable to each fiscal year shall be deemed to
be used prior to the use of any applicable carryover).


                                   ARTICLE VII
                                EVENTS OF DEFAULT

         In case of the  happening of any of the  following  events  ("Events of
Default"):

                  (a) any  representation  or warranty made or deemed made in or
         in connection  with any Loan Document or the borrowings  hereunder,  or
         any representation, warranty, statement or information contained in any
         report, certificate,  financial statement or other instrument furnished
         in connection with or pursuant to any Loan Document shall prove to have
         been false or misleading in any material  respect when so made,  deemed
         made or furnished;

                  (b) default  shall be made in the payment of any  principal of
         any Loan when and as the same shall become due and payable,  whether at
         the due date  thereof or at a date fixed for  prepayment  thereof or by
         acceleration thereof or otherwise;

                  (c) default  shall be made in the  payment of any  interest on
         any Loan or any  Commitment  Fee or any  other  amount  (other  than an
         amount  referred to in paragraph (b) above) due under any Loan Document
         when and as the same shall  become due and  payable,  and such  default
         shall continue unremedied for a period of five days;

                  (d) default shall be made in the due observance or performance
         by  the  Borrower  or any  Subsidiary  of any  covenant,  condition  or
         agreement contained in Section 5.01(a), 5.08 or 5.12 or in Article VI;

                  (e) default shall be made in the due observance or performance
         by  the  Borrower  or any  Subsidiary  of any  covenant,  condition  or
         agreement  contained in Section 5.05 and such  default  shall  continue
         unremedied for a period of 10 days;

                  (f) default shall be made in the due observance or performance
         by  the  Borrower  or any  Subsidiary  of any  covenant,  condition  or
         agreement contained in any Loan Document (other than those specified in
         paragraph  (b), (c), (d) or (e) above) and such default shall  continue
         unremedied  for a  period  of 30 days  after  notice  thereof  from the
         Administrative Agent or any Lender to the Borrower;

                  (g)      an  "Event  of  Default"   under  the  Chemical  Bank
         Agreement shall have occurred;

                  (h) the Borrower or any  Subsidiary  shall (i) fail to pay any
         principal  or  interest,  regardless  of amount,  due in respect of any
         Indebtedness in a principal  amount in excess of $5,000,000 in the case
         of the Borrower,  and $100,000 in the case of any Subsidiary,  when and
         as the same shall  become due and  payable,  or (ii) fail to observe or
         perform any other term,  covenant,  condition or agreement contained in
         any   agreement  or   instrument   evidencing  or  governing  any  such
         Indebtedness  if the effect of any  failure  referred to in this clause
         (ii)  is to  cause,  or  to  permit  the  holder  or  holders  of  such
         Indebtedness  or a trustee on its or their  behalf (with or without the
         giving  of  notice,   the  lapse  of  time  or  both)  to  cause,  such
         Indebtedness to become due prior to its stated maturity;

                  (i)  an  involuntary  proceeding  shall  be  commenced  or  an
         involuntary   petition   shall  be  filed  in  a  court  of   competent
         jurisdiction  seeking  (i)  relief in respect  of the  Borrower  or any
         Subsidiary,  or of a substantial  part of the property or assets of the
         Borrower or a Subsidiary,  under Title 11 of the United States Code, as
         now constituted or hereafter  amended,  or any other Federal,  state or
         foreign bankruptcy,  insolvency,  receivership or similar law, (ii) the
         appointment   of  a   receiver,   trustee,   custodian,   sequestrator,
         conservator  or similar  official for the Borrower or any Subsidiary or
         for a  substantial  part of the property or assets of the Borrower or a
         Subsidiary or (iii) the  winding-up or  liquidation  of the Borrower or
         any  Subsidiary;   and  such  proceeding  or  petition  shall  continue
         undismissed for 60 days or an order or decree approving or ordering any
         of the foregoing shall be entered;

                  (j) the  Borrower  or any  Subsidiary  shall  (i)  voluntarily
         commence any proceeding or file any petition seeking relief under Title
         11 of the United States Code, as now constituted or hereafter  amended,
         or  any  other  Federal,  state  or  foreign  bankruptcy,   insolvency,
         receivership  or similar law,  (ii) consent to the  institution  of, or
         fail to contest in a timely and appropriate  manner,  any proceeding or
         the filing of any  petition  described in  paragraph  (i) above,  (iii)
         apply  for  or  consent  to the  appointment  of a  receiver,  trustee,
         custodian,  sequestrator,  conservator  or  similar  official  for  the
         Borrower or any Subsidiary or for a substantial part of the property or
         assets of the Borrower or any Subsidiary, (iv) file an answer admitting
         the material  allegations  of a petition  filed  against it in any such
         proceeding, (v) make a general assignment for the benefit of creditors,
         (vi) become unable, admit in writing its inability or fail generally to
         pay its  debts as they  become  due or (vii)  take any  action  for the
         purpose of effecting any of the foregoing;

                  (k) one or more  judgments  for the  payment  of  money  in an
         aggregate  amount in excess of $7,500,000 shall be rendered against the
         Borrower,  any Subsidiary or any combination thereof and the same shall
         remain  undischarged  for a period of 30 consecutive  days during which
         execution  shall not be  effectively  stayed,  or any  action  shall be
         legally taken by a judgment  creditor to levy upon assets or properties
         of the Borrower or any Subsidiary to enforce any such judgment;

                  (l) an ERISA Event shall have occurred that, in the opinion of
         the Required  Lenders,  when taken  together  with all other such ERISA
         Events,  could  reasonably  be expected to result in  liability  of the
         Borrower  and its ERISA  Affiliates  in an aggregate  amount  exceeding
         $20,000,000 or requires payments exceeding $5,000,000 in any year;

                  (m) any security interest  purported to be created by the Bond
         Agreement  or the TNP Bond  Indenture  shall  cease to be,  or shall be
         asserted by the Borrower not to be, a valid, perfected,  first priority
         (except as otherwise  expressly  provided in this  Agreement,  the Bond
         Agreement  or  the  TNP  Bond  Indenture)   security  interest  in  the
         securities,  assets or properties covered thereby, except to the extent
         that any such loss of perfection  or priority  results from the failure
         of  the  Collateral  Agent  to  maintain   possession  of  certificates
         representing securities pledged under the Bond Agreement;

                  (n)  any of the  New  First  Mortgage  Bonds,  after  delivery
         thereof  pursuant to the terms of Section 4.02 and the Bond  Agreement,
         shall for any  reason,  except  to the  extent  permitted  by the terms
         hereof,  (i) cease to be entitled to the  benefits  and security of the
         TNP Bond  Indenture,  equally and ratably with all other First Mortgage
         Bonds outstanding under the TNP Bond Indenture,  or (ii) become subject
         to any Lien,  except for any Lien in favor of the Collateral  Agent for
         the benefit of the Lenders; or at any time the TNP Bond Indenture shall
         for any reason fail to  constitute  a valid and direct  first  priority
         Lien upon substantially all the properties  referred to in the granting
         clauses of the TNP Bond  Indenture as being subject to the Lien thereof
         and then owned by the  Borrower,  subject  only to the  conditions  and
         exceptions set forth in Schedule 3.23;

                  (o) any event of default or similar  breach under the TNP Bond
         Indenture or any  supplemental  indenture  thereto  shall have occurred
         (other than any settlement,  verdict or other adverse finding or result
         arising  from events  described  in Schedule  7(o) with  respect to the
         supplemental  indenture governing First Mortgage Bonds Series T, 11-1/4
         percent due January 15, 1997); or

                  (p) any material provision of this Agreement, the Supplemental
         Indenture,  any other Loan Document or the TNP Bond  Indenture  (except
         pursuant to the terms  thereof)  shall at any time for any reason cease
         to be valid and binding upon the  Borrower,  or shall be declared to be
         null and void,  or the  validity  or  enforceability  thereof  shall be
         contested  by  the  Borrower  or  any  Governmental  Authority,  or the
         Borrower shall deny that it has any or further  liability or obligation
         under  this  Agreement,  the  Supplemental  Indenture,  any other  Loan
         Document or the TNP Bond Indenture;

then,  and in every such event (other than an event with respect to the Borrower
described in paragraph (i) or (j) above),  and at any time thereafter during the
continuance of such event, the  Administrative  Agent may, and at the request of
the Required  Lenders shall,  by notice to the Borrower,  take any or all of the
following actions,  at the same or different times: (i) terminate  forthwith the
Commitments,  (ii) declare the Loans then  outstanding  to be forthwith  due and
payable in whole or in part, whereupon the principal of the Loans so declared to
be due and  payable,  together  with  accrued  interest  thereon  and any unpaid
accrued fees and all other  liabilities  of the Borrower  accrued  hereunder and
under any other Loan Document,  shall become forthwith due and payable,  without
presentment,  demand,  protest or any other notice of any kind, all of which are
hereby  expressly  waived by the Borrower,  anything  contained herein or in any
other  Loan  Document  to  the  contrary  notwithstanding,  (iii)  instruct  the
Collateral  Agent to (A) furnish to the Trustee  written notice of such Event of
Default  and (B)  direct  the  Trustee  to cause a  redemption  of the New First
Mortgage  Bonds  by the  Borrower  pursuant  to the  terms  of the  Supplemental
Indenture,  and (iv) direct the  Collateral  Agent to exercise in respect of the
Collateral,  in addition to other  rights and  remedies  provided  for herein or
otherwise  available to the Collateral  Agent,  all the rights and remedies of a
secured  party on default  under the  Uniform  Commercial  Code in effect in the
State of Illinois at that time;  and in any event with  respect to the  Borrower
described in paragraph (i) or (j) above,  the  Commitments  shall  automatically
terminate and the principal of the Loans then outstanding, together with accrued
interest  thereon and any unpaid  accrued fees and all other  liabilities of the
Borrower   accrued   hereunder  and  under  any  other  Loan   Document,   shall
automatically become due and payable,  without presentment,  demand,  protest or
any other notice of any kind,  all of which are hereby  expressly  waived by the
Borrower,  anything  contained  herein  or in any  other  Loan  Document  to the
contrary notwithstanding.


                                  ARTICLE VIII
                THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT

         (a)  In  order  to  expedite  the  transactions  contemplated  by  this
Agreement,  The First  National  Bank of Chicago is hereby  appointed  to act as
Administrative Agent and Collateral Agent on behalf of the Lenders (for purposes
of this Article VIII,  the  Administrative  Agent and the  Collateral  Agent are
referred to collectively as the "Agents"). Each of the Lenders and each assignee
of any such Lender hereby irrevocably authorizes the Agents to take such actions
on  behalf  of such  Lender  or  assignee  and to  exercise  such  powers as are
specifically  delegated to the Agents by the terms and provisions  hereof and of
the  other  Loan  Documents,  together  with  such  actions  and  powers  as are
reasonably  incidental  thereto.  The  Administrative  Agent is hereby expressly
authorized by the Lenders, without hereby limiting any implied authority, (i) to
receive on behalf of the Lenders all  payments of  principal  of and interest on
the Loans and all other  amounts due to the Lenders  hereunder,  and promptly to
distribute to each Lender its proper share of each payment so received;  (ii) to
give  notice on behalf of each of the  Lenders to the  Borrower  of any Event of
Default specified in this Agreement of which the Administrative Agent has actual
knowledge  acquired  in  connection  with its  agency  hereunder;  and  (iii) to
distribute to each Lender copies of all notices,  financial statements and other
materials delivered by the Borrower pursuant to this Agreement or the other Loan
Documents  as  received  by  the  Administrative  Agent.  Without  limiting  the
generality of the foregoing, the Collateral Agent is hereby expressly authorized
on behalf of the Administrative  Agent and the Lenders,  without hereby limiting
any implied authority,  to hold the Collateral on their behalf, to exercise such
rights  and  remedies,  and  take  such  actions,  as are  contemplated  by this
Agreement, the Bond Agreement and the Supplemental Indenture, and to execute any
and all documents  (including  releases)  with respect to the Collateral and the
rights of the Lenders with respect thereto, as contemplated by and in accordance
with the provisions of this Agreement and the other Loan Documents.

         (b)  None of the  Agents,  the  Co-Agents  or any of  their  respective
directors,  officers, employees or agents shall be liable as such for any action
taken or omitted by any of them  except for its or his own gross  negligence  or
wilful   misconduct,   or  be  responsible   for  any  statement,   warranty  or
representation  herein or the contents of any document  delivered in  connection
herewith,  or be required to  ascertain  or to make any inquiry  concerning  the
performance  or  observance  by the  Borrower  of any of the terms,  conditions,
covenants or agreements  contained in any Loan  Document.  None of the Agents or
any  Co-Agent  shall  be  responsible  to the  Lenders  for the  due  execution,
genuineness,  validity, enforceability or effectiveness of this Agreement or any
other Loan Document, or any related instrument or agreement. The Agents shall in
all cases be fully protected in acting, or refraining from acting, in accordance
with  written  instructions  signed  by the  Required  Lenders  and,  except  as
otherwise  specifically  provided  herein,  such  instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders. Each Agent shall,
in the  absence  of  knowledge  to the  contrary,  be  entitled  to  rely on any
instrument  or  document  believed by it in good faith to be genuine and correct
and to have been  signed or sent by the proper  person or  persons.  None of the
Agents, the Co-Agents or any of their respective directors,  officers, employees
or agents  shall  have any  responsibility  to the  Borrower  on  account of the
failure  of or  delay in  performance  or  breach  by any  Lender  of any of its
obligations  hereunder or to any Lender on account of the failure of or delay in
performance  or  breach  by any other  Lender  or the  Borrower  of any of their
respective  obligations  hereunder  or  under  any  other  Loan  Document  or in
connection  herewith  or  therewith.  Each of the Agents may execute any and all
duties hereunder by or through agents or employees and shall be entitled to rely
upon the advice of legal  counsel  selected  by it with  respect to all  matters
arising  hereunder  and shall not be liable for any action  taken or suffered in
good faith by it in accordance with the advice of such counsel.

         (c) The powers  conferred on the Collateral  Agent  hereunder and under
the other Loan  Documents  are solely to protect the  interest of the Lenders in
the  Collateral  and shall not  impose  any duty  upon it to  exercise  any such
powers.  Except for the safe custody of any Collateral in its actual  possession
and the  accounting  for moneys  actually  received by it hereunder or under the
other  Loan  Documents,  the  Collateral  Agent  shall  have  no  duty as to any
Collateral,  as  to  ascertaining  or  taking  action  with  respect  to  calls,
conversions,  exchanges,  maturities,  tenders or other matters  relative to any
Collateral,  whether  or not any  Agent,  any  Co-Agent  or any Lender has or is
deemed to have  knowledge of such matters,  or as to the taking of any necessary
steps to preserve  rights against any parties or any other rights  pertaining to
the  Collateral.  The  Collateral  Agent  shall  be  deemed  to  have  exercised
reasonable care in the custody and  preservation of any Collateral in its actual
possession if such Collateral is accorded treatment  substantially equal to that
which  the  Collateral  Agent  accords  its own  property.  The  Lenders  hereby
acknowledge  and agree that  neither  Agent  shall be under any duty to take any
discretionary  action  permitted to be taken by it pursuant to the provisions of
this  Agreement  or any other  Loan  Document  unless it shall be  requested  in
writing to do so by the Required Lenders.

         (d) Subject to the  appointment  and acceptance of a successor Agent as
provided below, either Agent may resign at any time by notifying the Lenders and
the Borrower.  Upon any such  resignation,  the Required  Lenders shall have the
right to appoint a successor  which,  unless a Default or Event of Default shall
have  occurred  and be  continuing,  shall  be  reasonably  satisfactory  to the
Borrower.  If no successor shall have been so appointed by the Required  Lenders
and shall have accepted such appointment within 30 days after the retiring Agent
gives notice of its  resignation,  then the retiring Agent may, on behalf of the
Lenders,  appoint  a  successor  Agent  which  shall be a bank with an office in
Chicago,   Illinois,   having  a  combined  capital  and  surplus  of  at  least
$500,000,000  or an  Affiliate  of any such  bank.  Upon the  acceptance  of any
appointment as Agent hereunder by a successor bank, such successor shall succeed
to and become vested with all the rights,  powers,  privileges and duties of the
retiring  Agent and the retiring  Agent shall be discharged  from its duties and
obligations hereunder.  After the Agent's resignation hereunder,  the provisions
of this Article  VIII and Section 9.05 shall  continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.

         (e) With  respect  to the Loans  made by it  hereunder,  each Agent and
Co-Agent in its individual capacity and not as Agent or Co-Agent,  respectively,
shall have the same rights and powers as any other  Lender and may  exercise the
same as though it were not an Agent or Co-Agent,  respectively,  and the Agents,
Co-Agents  and their  Affiliates  may accept  deposits  from,  lend money to and
generally  engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not an Agent or Co-Agent, respectively.

         (f) Each Lender  agrees (i) to reimburse the Agents and  Co-Agents,  on
demand,  in the amount of such Lender's pro rata share (based on its  Commitment
hereunder) of any expenses incurred for the benefit of the Lenders by the Agents
or Co-Agents,  as the case may be,  including  counsel fees and  compensation of
agents and employees paid for services  rendered on behalf of the Lenders,  that
shall not have been  reimbursed  by the Borrower and (ii) to indemnify  and hold
harmless each Agent, Co-Agent and any of their directors, officers, employees or
agents,  on demand,  in the amount of such pro rata share,  from and against any
and all liabilities,  taxes, obligations,  losses, damages, penalties,  actions,
judgments,  suits,  costs,  expenses  or  disbursements  of any  kind or  nature
whatsoever  that may be imposed on,  incurred  by or asserted  against it in its
capacity  as Agent or  Co-Agent,  as the case may be,  or  against  any of their
respective  directors,  officers,  employees or agents in any way relating to or
arising out of this  Agreement or any other Loan Document or any action taken or
omitted by it or any of them under this Agreement or any other Loan Document, to
the extent the same shall not have been  reimbursed  by the  Borrower,  provided
that no  Lender  shall  be  liable  to an  Agent,  Co-Agent  or any  such  other
indemnified  person for any portion of such  liabilities,  obligations,  losses,
damages, penalties,  actions, judgments, suits, costs, expenses or disbursements
as shall  be  determined  by a court  of  competent  jurisdiction  by final  and
nonappealable  judgment to have  resulted  from the gross  negligence  or wilful
misconduct  of  such  Agent,  Co-Agent  or any  of  their  directors,  officers,
employees or agents.

         (g) Each Lender  acknowledges  that it has,  independently  and without
reliance  upon the Agents,  the  Co-Agents or any other Lender and based on such
documents  and  information  as it has deemed  appropriate,  made its own credit
analysis  and  decision  to  enter  into  this   Agreement.   Each  Lender  also
acknowledges  that it will,  independently and without reliance upon the Agents,
the Co-Agents or any other Lender and based on such documents and information as
it shall from time to time deem appropriate,  continue to make its own decisions
in taking or not taking  action under or based upon this  Agreement or any other
Loan  Document,  any related  agreement or any document  furnished  hereunder or
thereunder.

                                   ARTICLE IX
                                  MISCELLANEOUS

     SECTION 9.01. Notices. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service,
mailed by certified or registered mail or sent by telecopy, as follows:

                  (a)      if to the Borrower,  to it at Texas-New  Mexico Power
         Company,  4100 International Plaza, Fort Worth, Texas 76109,  Attention
         of Chief Financial Officer (Telecopy No. 817.737.1343);

                  (b)      if to the  Administrative  Agent  or  the  Collateral
         Agent,  to it at its address at One First  National  Plaza,  Mail Suite
         0363,  Chicago,  Illinois  60670-0363,  Attention of Marilyn  Pelkowski
         (Telecopy No. 312.732.3055); and

                  (c) if to a Lender,  to it at its address (or telecopy number)
         set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant
         to which such Lender shall have become a party hereto.

All notices and other  communications  given to any party  hereto in  accordance
with the provisions of this Agreement  shall be deemed to have been given on the
date of receipt if  delivered by hand or  overnight  courier  service or sent by
telecopy  or on the date five  Business  Days after  dispatch  by  certified  or
registered  mail if mailed,  in each case  delivered,  sent or mailed  (properly
addressed) to such party as provided in this Section 9.01 or in accordance  with
the latest  unrevoked  direction  from such party given in accordance  with this
Section 9.01.

     SECTION  9.02.   Survival  of   Agreement.   All   covenants,   agreements,
representations   and  warranties  made  by  the  Borrower  herein  and  in  the
certificates  or other  instruments  prepared or delivered in connection with or
pursuant to this  Agreement or any other Loan  Document  shall be  considered to
have been relied upon by the Lenders and shall survive the making by the Lenders
of the Loans,  regardless of any  investigation  made by the Lenders or on their
behalf,  and shall continue in full force and effect as long as the principal of
or any accrued  interest on any Loan or any  Commitment  Fee or any other amount
payable  under this  Agreement  or any other Loan  Document is  outstanding  and
unpaid and so long as the Commitments have not been  terminated.  The provisions
of Sections 2.11,  2.13, 2.17 and 9.05 shall remain  operative and in full force
and effect  regardless  of the  expiration  of the term of this  Agreement,  the
consummation of the transactions  contemplated  hereby,  the repayment of any of
the Loans, the expiration of the Commitments, the invalidity or unenforceability
of any term or provision of this  Agreement or any other Loan  Document,  or any
investigation made by or on behalf of the  Administrative  Agent, the Collateral
Agent or any Lender.

     SECTION 9.03. Binding Effect. This Agreement shall become effective when it
shall have been executed by the Borrower and the  Administrative  Agent and when
the  Administrative  Agent shall have received  counterparts  hereof which, when
taken  together,  bear the signatures of each of the other parties  hereto,  and
thereafter  shall be binding upon and inure to the benefit of the parties hereto
and their respective permitted successors and assigns.

     SECTION 9.04. Successors and Assigns. (a) Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
permitted successors and assigns of such party; and all covenants,  promises and
agreements  by or on behalf of the  Borrower,  the  Administrative  Agent or the
Lenders that are contained in this Agreement shall bind and inure to the benefit
of their respective successors and assigns.

         (b) Each Lender may assign to one or more assignees all or a portion of
its interests,  rights and obligations under this Agreement  (including all or a
portion  of its  Commitment,  the Loans at the time  owing to it and the Note or
Notes  held by  it);  provided,  however,  that  (i)  except  in the  case of an
assignment to a Lender or an Affiliate of such Lender,  (x) the Borrower (except
if an Event of Default  shall have  occurred  and be  continuing)  must give its
prior  written  consent  to  such   assignment   (which  consent  shall  not  be
unreasonably  withheld or delayed) and (y) the amount of the  Commitment  of the
assigning  Lender  subject  to each  such  assignment  shall  not be  less  than
$5,000,000  (or,  if  less,  the  entire   remaining  amount  of  such  Lender's
Commitment),  (ii) the parties to each such assignment shall execute and deliver
to the  Administrative  Agent an  Assignment  and  Acceptance,  together  with a
processing and  recordation fee of $4,000,  and (iii) the assignee,  if it shall
not be a Lender,  shall deliver to the  Administrative  Agent an  Administrative
Questionnaire.  Upon acceptance and recording pursuant to subsection (e) of this
Section 9.04, from and after the effective date specified in each Assignment and
Acceptance,  which effective date shall be at least five Business Days after the
execution thereof,  (A) the assignee  thereunder shall be a party hereto and, to
the extent of the interest assigned by such Assignment and Acceptance,  have the
rights and  obligations  of a Lender under this  Agreement and (B) the assigning
Lender  thereunder  shall,  to the  extent  of the  interest  assigned  by  such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance  covering all or the remaining
portion of an assigning  Lender's rights and  obligations  under this Agreement,
such Lender shall cease to be a party  hereto but shall  continue to be entitled
to the  benefits  of  Sections  2.11,  2.13,  2.17 and  9.05,  as well as to any
Commitment Fees accrued for its account and not yet paid).

         (c) By executing  and  delivering  an Assignment  and  Acceptance,  the
assigning  Lender  thereunder  and the  assignee  thereunder  shall be deemed to
confirm to and agree with each other and the other  parties  hereto as  follows:
(i) such assigning  Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Commitment,  and the outstanding  balance of its Loans, in each case without
giving effect to assignments thereof which have not become effective, are as set
forth in such Assignment and Acceptance,  (ii) except as set forth in clause (i)
above,  such assigning Lender makes no representation or warranty and assumes no
responsibility  with respect to any  statements,  warranties or  representations
made in or in  connection  with  this  Agreement,  or the  execution,  legality,
validity, enforceability,  genuineness,  sufficiency or value of this Agreement,
any other Loan Document or any other instrument or document  furnished  pursuant
hereto or thereto,  or the financial condition of the Borrower or any Subsidiary
or the performance or observance by the Borrower or any Subsidiary of any of its
obligations  under  this  Agreement,  any  other  Loan  Document  or  any  other
instrument or document furnished pursuant hereto or thereto; (iii) such assignee
represents  and  warrants  that it is  legally  authorized  to enter  into  such
Assignment and  Acceptance;  (iv) such assignee  confirms that it has received a
copy of this  Agreement,  together  with  copies  of the most  recent  financial
statements referred to in Section 3.05 or delivered pursuant to Section 5.04 and
such other  documents and  information as it has deemed  appropriate to make its
own credit  analysis and decision to enter into such  Assignment and Acceptance;
(v)  such   assignee   will   independently   and  without   reliance  upon  the
Administrative  Agent, the Collateral  Agent, such assigning Lender or any other
Lender and based on such documents and information as it shall deem  appropriate
at the time,  continue to make its own credit  decisions in taking or not taking
action under this  Agreement;  (vi) such assignee  appoints and  authorizes  the
Administrative  Agent and the  Collateral  Agent to take such action as agent on
its behalf and to exercise  such powers under this  Agreement and the other Loan
Documents as are delegated to the Administrative Agent and the Collateral Agent,
respectively,  by the terms hereof and thereof, together with such powers as are
reasonably  incidental  thereto;  and (vii) such  assignee  agrees  that it will
perform in accordance with their terms all the obligations which by the terms of
this Agreement are required to be performed by it as a Lender.

         (d) The  Administrative  Agent,  acting for this purpose as an agent of
the  Borrower,  shall  maintain  at one of its  offices in the City of  Chicago,
Illinois a copy of each Assignment and Acceptance delivered to it and a register
for  the  recordation  of the  names  and  addresses  of the  Lenders,  and  the
Commitment of, and principal  amount of the Loans owing to, each Lender pursuant
to the terms  hereof  from time to time (the  "Register").  The  entries  in the
Register shall be conclusive and the Borrower,  the  Administrative  Agent,  the
Collateral Agent and the Lenders may treat each person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrower,  the Collateral  Agent and any Lender,
at any reasonable time and from time to time upon reasonable prior notice.

         (e) Upon its  receipt of a duly  completed  Assignment  and  Acceptance
executed by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee  (unless the  assignee  shall  already be a
Lender hereunder),  the processing and recordation fee referred to in subsection
(b) above,  any Note or Notes subject to such assignment  and, if required,  the
written consent of the Borrower and the Administrative Agent to such assignment,
the Administrative  Agent shall (i) accept such Assignment and Acceptance,  (ii)
record the information  contained  therein in the Register and (iii) give prompt
notice thereof to the Lenders.  No assignment  shall be effective  unless it has
been recorded in the Register as provided in this  subsection  (e).  Within five
days after the effective date specified in the  Assignment and  Acceptance,  the
Borrower,  at its own expense,  shall execute and deliver to the  Administrative
Agent in exchange for the  surrendered  Note or Notes a new Note to the order of
the assignee in an amount equal to the Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained a Commitment
hereunder, a new Note to the order of the assigning Lender in an amount equal to
the Commitment  retained by it hereunder.  Such new Note or Notes shall be in an
aggregate  principal  amount  equal to the  aggregate  principal  amount of such
surrendered Note or Notes,  shall be dated the effective date of such Assignment
and Acceptance and shall otherwise be in substantially the form of Exhibit D.

         (f)  Each  Lender  may  without  the  consent  of the  Borrower  or the
Administrative  Agent sell participations to one or more banks or other entities
in  all  or a  portion  of its  rights  and  obligations  under  this  Agreement
(including  all or a portion of its  Commitment,  the Loans  owing to it and the
Note or Notes held by it); provided, however, that (i) such Lender's obligations
under this  Agreement  shall  remain  unchanged,  (ii) such Lender  shall remain
solely  responsible  to the other  parties  hereto for the  performance  of such
obligations,  (iii) the participating  banks or other entities shall be entitled
to the benefit of the cost  protection  provisions  contained in Sections  2.11,
2.13 and 2.17 to the same extent as if they were Lenders and (iv) the  Borrower,
the  Administrative  Agent and the  Lenders  shall  continue  to deal solely and
directly  with  such  Lender  in  connection   with  such  Lender's  rights  and
obligations under this Agreement, and such Lender shall retain the sole right to
enforce the obligations of the Borrower relating to the Loans and to approve any
amendment, modification or waiver of any provision of this Agreement (other than
amendments,  modifications or waivers  decreasing any fees payable  hereunder or
the  amount of  principal  of or the rate at which  interest  is  payable on the
Loans,  extending  any  scheduled  principal  payment date or date fixed for the
payment of interest on the Loans,  increasing  or extending the  Commitments  or
releasing all or substantially all the Collateral).

         (g) Any Lender or participant may, in connection with any assignment or
participation or proposed  assignment or participation  pursuant to this Section
9.04,   disclose  to  the  assignee  or  participant  or  proposed  assignee  or
participant any information relating to the Borrower furnished to such Lender by
or on behalf of the Borrower;  provided  that,  prior to any such  disclosure of
information  designated by the Borrower as  confidential,  each such assignee or
participant  or proposed  assignee or  participant  shall  execute an  agreement
whereby  such  assignee  or  participant   shall  agree  (subject  to  customary
exceptions) to preserve the confidentiality of such confidential  information on
terms no less  restrictive  than those  applicable  to the  Lenders  pursuant to
Section 9.16.

         (h) Any Lender may at any time  assign all or any portion of its rights
under this Agreement to a Federal Reserve Bank to secure extensions of credit by
such Federal Reserve Bank to such Lender; provided that no such assignment shall
release a Lender from any of its  obligations  hereunder or substitute  any such
Bank for such Lender as a party hereto.

         (i) The  Borrower  shall not  assign or  delegate  any of its rights or
duties hereunder without the prior written consent of the  Administrative  Agent
and each Lender, and any attempted assignment without such consent shall be null
and void.

     SECTION  9.05.  Expenses;  Indemnity.  (a) The  Borrower  agrees to pay all
reasonable  out-of-pocket  expenses incurred by the Administrative Agent and the
Collateral  Agent in connection  with the  syndication of the credit  facilities
provided for herein and the preparation and administration of this Agreement and
the other Loan Documents or in connection with any amendments,  modifications or
waivers of the  provisions  hereof or thereof  (whether or not the  transactions
hereby  or  thereby  contemplated  shall  be  consummated)  or  incurred  by the
Administrative  Agent, the Collateral Agent or any Lender in connection with the
enforcement or protection of its rights in connection with this  Agreement,  the
other Loan Documents or in connection with the Loans made  hereunder,  including
the fees, charges and disbursements of counsel for the Administrative  Agent and
the  Collateral   Agent,  and,  in  connection  with  any  such  enforcement  or
protection,  the fees,  charges and  disbursements  of any other counsel for the
Administrative Agent, the Collateral Agent or any Lender.

         (b) The Borrower  agrees to indemnify  the  Administrative  Agent,  the
Collateral Agent and each Lender, each Affiliate of any of the foregoing persons
and each of their respective directors, officers, employees, agents and advisors
(each  such  person  being  called an  "Indemnitee")  against,  and to hold each
Indemnitee harmless from, any and all losses, claims,  damages,  liabilities and
related expenses,  including reasonable counsel fees, charges and disbursements,
incurred  by or  asserted  against  any  Indemnitee  arising  out of, in any way
connected  with,  or as a  result  of (i)  the  execution  or  delivery  of this
Agreement or any other Loan Document or any agreement or instrument contemplated
thereby, the performance by the parties thereto of their respective  obligations
thereunder or the consummation of the  Transactions  and the other  transactions
contemplated  thereby,  (ii) the use of the  proceeds  of the  Loans,  (iii) any
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto,  or (iv) any actual or alleged
presence or release of Hazardous  Materials on any property owned or operated by
the Borrower or any of the Subsidiaries,  or any Environmental  Claim (including
any claim under CERCLA,  as defined in the  definition of  "Environmental  Law")
related  in any way to the  Borrower  or the  Subsidiaries;  provided  that such
indemnity shall not, as to any Indemnitee,  be available to the extent that such
losses,  claims,  damages,  liabilities or related  expenses are determined by a
court of  competent  jurisdiction  by final and  nonappealable  judgment to have
resulted from the gross negligence or wilful misconduct of such Indemnitee.

         (c) The  provisions of this Section 9.05 shall remain  operative and in
full  force  and  effect  regardless  of the  expiration  of the  term  of  this
Agreement,  the  consummation  of  the  transactions  contemplated  hereby,  the
repayment of any of the Loans, the expiration of the Commitments, the invalidity
or unenforceability of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of the Administrative Agent,
the  Collateral  Agent or any Lender.  All amounts due under this  Section  9.05
shall be payable on written demand therefor.

     SECTION 9.06.  Right of Setoff.  If an Event of Default shall have occurred
and be continuing, each Lender is hereby authorized at any time and from time to
time, with the consent of the Administrative  Agent or the Required Lenders,  to
the fullest  extent  permitted by law, to set off and apply any and all deposits
(general or special, time or demand,  provisional or final) at any time held and
other  indebtedness at any time owing by such Lender to or for the credit or the
account of the Borrower  against any of and all the  obligations of the Borrower
now or hereafter  existing under this Agreement and other Loan Documents held by
such  Lender,  irrespective  of whether or not such  Lender  shall have made any
demand  under this  Agreement  or such other Loan  Document  and  although  such
obligations may be unmatured.  The rights of each Lender under this Section 9.06
are in addition to other rights and remedies  (including other rights of setoff)
which such Lender may have.

     SECTION 9.07.  Applicable  Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS (AND NOT
THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS.

     SECTION  9.08.  Waivers;   Amendment.  (a)  No  failure  or  delay  of  the
Administrative Agent, the Collateral Agent or any Lender in exercising any power
or right  hereunder or under any other Loan  Document  shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any  abandonment  or  discontinuance  of steps to enforce such a right or power,
preclude  any other or further  exercise  thereof or the  exercise  of any other
right or power.  The  rights  and  remedies  of the  Administrative  Agent,  the
Collateral  Agent and the Lenders  hereunder and under the other Loan  Documents
are  cumulative  and are not exclusive of any rights or remedies that they would
otherwise  have. No waiver of any provision of this  Agreement or any other Loan
Document or consent to any  departure  by the  Borrower  therefrom  shall in any
event be effective  unless the same shall be permitted by subsection  (b) below,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given.  No notice or demand on the Borrower in any
case shall  entitle  the  Borrower  to any other or further  notice or demand in
similar or other circumstances.

         (b) Neither this  Agreement  nor any other Loan Document may be waived,
amended or modified  except  pursuant to an agreement or  agreements  in writing
entered into by the  Borrower  and the Required  Lenders (or, in the case of the
Bond  Agreement or the  Supplemental  Indenture,  an agreement or  agreements in
writing  entered into by the Borrower or person party thereto and the Collateral
Agent,  acting  pursuant to the provisions of this Agreement or with the consent
of the Required Lenders);  provided,  however,  that no such agreement shall (i)
decrease the  principal  amount of, or extend the  maturity of or any  scheduled
principal  payment date or date for the payment of any interest on any Loan,  or
waive or excuse any such  payment or any part  thereof,  or decrease the rate of
interest on any Loan,  without the prior written consent of each Lender affected
thereby, (ii) change or extend the Commitment or decrease the Commitment Fees of
any Lender without the prior written  consent of such Lender,  or (iii) amend or
modify the provisions of Section 2.14 or 9.04(i), the provisions of this Section
9.08 or the  definition  of the term  "Required  Lenders"  or release all or any
substantial part of the Collateral other than as provided herein or in any other
Loan  Document,  without  the prior  written  consent of each  Lender;  provided
further,  that no such  agreement  shall amend,  modify or otherwise  affect the
rights or duties of the  Administrative  Agent or the Collateral Agent hereunder
or under any other  Loan  Document  without  the prior  written  consent  of the
Administrative Agent or the Collateral Agent, as the case may be.

     SECTION 9.09. Interest Rate Limitation.  Notwithstanding anything herein to
the contrary,  if at any time the interest rate applicable to any Loan, together
with all fees,  charges and other  amounts  that are treated as interest on such
Loan under applicable law (collectively the "Charges"), shall exceed the maximum
lawful rate (the "Maximum  Rate") that may be contracted  for,  charged,  taken,
received  or  reserved  by the  Lender  holding  such  Loan in  accordance  with
applicable law, the rate of interest  payable in respect of such Loan hereunder,
together with all Charges  payable in respect  thereof,  shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been  payable in  respect  of such Loan but were not  payable as a result of the
operation of this  Section 9.09 shall be cumulated  and the interest and Charges
payable to such Lender in respect of other Loans or periods  shall be  increased
(but not above the Maximum Rate therefor) until such cumulated amount,  together
with  interest  thereon  at the  Federal  Funds  Effective  Rate to the  date of
repayment, shall have been received by such Lender.

     SECTION 9.10.  Entire  Agreement.  This  Agreement,  the Fee Letter and the
other Loan Documents constitute the entire contract between the parties relative
to the subject matter hereof.  Any other  previous  agreement  among the parties
with respect to the subject  matter hereof is  superseded by this  Agreement and
the other  Loan  Documents.  Nothing  in this  Agreement  or in the  other  Loan
Documents, expressed or implied, is intended to confer upon any party other than
the parties hereto and thereto any rights, remedies,  obligations or liabilities
under or by reason of this Agreement or the other Loan Documents.

     SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT  PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION  DIRECTLY OR INDIRECTLY  ARISING OUT OF, UNDER
OR IN CONNECTION  WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN  DOCUMENTS.  EACH
PARTY  HERETO (A)  CERTIFIES  THAT NO  REPRESENTATIVE,  AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF  LITIGATION,  SEEK TO ENFORCE THE FOREGOING  WAIVER AND (B)
ACKNOWLEDGES  THAT IT AND THE OTHER  PARTIES  HERETO HAVE BEEN  INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.

     SECTION 9.12. Severability.  In the event any one or more of the provisions
contained  in this  Agreement  or in any  other  Loan  Document  should  be held
invalid,  illegal or  unenforceable in any respect,  the validity,  legality and
enforceability  of the remaining  provisions  contained herein and therein shall
not in any way be affected or impaired  thereby.  The parties shall  endeavor in
good-faith  negotiations  to  replace  the  invalid,  illegal  or  unenforceable
provisions with valid  provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.

     SECTION 9.13. Counterparts.  This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original but all of which when taken together  shall  constitute a
single  contract,  and shall  become  effective  as  provided  in Section  9.03.
Delivery  of  an  executed   signature  page  to  this  Agreement  by  facsimile
transmission  shall be as effective as delivery of a manually signed counterpart
of this Agreement.

     SECTION  9.14.  Headings.  Article  and Section  headings  and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement  and are not to  affect  the  construction  of,  or to be  taken  into
consideration in interpreting, this Agreement.

     SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) The Borrower
hereby irrevocably and unconditionally  submits, for itself and its property, to
the  nonexclusive  jurisdiction  of any Illinois State court or Federal court of
the United  States of America  sitting in Chicago,  Illinois  and any  appellate
court from any thereof,  in any action or proceeding  arising out of or relating
to this Agreement or the other Loan Documents, or for recognition or enforcement
of any  judgment,  and  each  of  the  parties  hereto  hereby  irrevocably  and
unconditionally  agrees  that  all  claims  in  respect  of any such  action  or
proceeding  may be heard and determined in such Illinois State or, to the extent
permitted by law, in such Federal court.  Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other  jurisdictions  by suit on the judgment or in any other manner
provided  by law.  Nothing  in this  Agreement  shall  affect any right that the
Administrative  Agent,  the Collateral Agent or any Lender may otherwise have to
bring any action or  proceeding  relating  to this  Agreement  or the other Loan
Documents  against  the  Borrower  or  its  properties  in  the  courts  of  any
jurisdiction.

         (b) The Borrower hereby irrevocably and unconditionally  waives, to the
fullest extent it may legally and  effectively do so, any objection which it may
now or hereafter  have to the laying of venue of any suit,  action or proceeding
arising out of or relating to this  Agreement or the other Loan Documents in any
Illinois State or Federal court.  Each of the parties hereto hereby  irrevocably
waives,  to the fullest extent  permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.

         (c) Each party to this  Agreement  irrevocably  consents  to service of
process in the manner  provided  for  notices in Section  9.01.  Nothing in this
Agreement  will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.

     SECTION 9.16.  Confidentiality.  The  Administrative  Agent, the Collateral
Agent and each of the Lenders agrees to keep  confidential  (and to use its best
efforts to cause its respective agents and representatives to keep confidential)
the Information (as defined below) and all copies  thereof,  extracts  therefrom
and analyses or other  materials based thereon,  except that the  Administrative
Agent,  the  Collateral  Agent or any  Lender  shall be  permitted  to  disclose
Information  (i) to  such  of its  respective  officers,  directors,  employees,
agents, affiliates and representatives as need to know such Information, (ii) to
the extent requested by any regulatory authority,  (iii) to the extent otherwise
required by applicable  laws and regulations or by any subpoena or similar legal
process,  (iv) in connection with any suit, action or proceeding relating to the
enforcement of its rights  hereunder or under the other Loan Documents or (v) to
the extent such  Information  (x)  becomes  publicly  available  other than as a
result  of a  breach  of this  Section  9.16  or (y)  becomes  available  to the
Administrative  Agent, any Lender or the Collateral  Agent on a  nonconfidential
basis from a source  other than the  Borrower.  For the purposes of this Section
9.16, "Information" shall mean all financial statements,  certificates, reports,
agreements and  information  (including all analyses,  compilations  and studies
prepared by the  Administrative  Agent, the Collateral Agent or any Lender based
on any of the foregoing)  that are received from the Borrower and related to the
Borrower, any shareholder of the Borrower or any employee,  customer or supplier
of the  Borrower,  other than any of the  foregoing  that were  available to the
Administrative  Agent, the Collateral  Agent or any Lender on a  nonconfidential
basis prior to its disclosure thereto by the Borrower, and which are in the case
of Information provided after the date hereof, clearly identified at the time of
delivery as  confidential.  The  provisions  of this  Section  9.16 shall remain
operative and in full force and effect  regardless of the expiration and term of
this Agreement.

     SECTION  9.17.  Release  of  Collateral.   (a)  Notwithstanding  any  other
provision of this Agreement or the Bond Agreement,  the New First Mortgage Bonds
delivered to the  Collateral  Agent pursuant to the Bond Agreement and all other
Collateral  held  under  the Bond  Agreement  shall be  released  from the Liens
created by the Bond Agreement, in each case without representation,  warranty or
recourse  of any  nature,  on a Business  Day  specified  by the  Borrower  (the
"Release  Date"),  upon the satisfaction of the following  conditions  precedent
(the "Release Conditions"):

                  (i) the  Borrower  shall  have  given  written  notice  to the
         Lenders and the Collateral Agent at least 10 Business Days prior to the
         Release Date, specifying the proposed Release Date;

                  (ii) as of the Release Date, the First Mortgage Bonds shall be
         rated  "BBB-"  or better by S&P and  "Baa3" or better by  Moody's,  and
         shall have been so rated by each of S&P and Moody's for a period of not
         less than 30 consecutive days;

                  (iii)    no Default or Event of  Default  shall have  occurred
         and be continuing as of the Release Date; and

                  (iv) on the Release Date, the Administrative  Agent shall have
         received a  certificate,  dated the Release Date and executed on behalf
         of the  Borrower  by a  Responsible  Officer  thereof,  confirming  the
         satisfaction  of the Release  Conditions  set forth in clauses (ii) and
         (iii) above.

         (b)  Subject  to  the  satisfaction  of the  conditions  set  forth  in
subsection (a) above, on and after the Release Date, the Collateral  Agent shall
deliver the New First  Mortgage  Bonds pledged  under the Bond  Agreement to the
Borrower and shall execute and deliver to the Borrower all such  instruments and
documents  as the  Borrower  may  reasonably  request to evidence or confirm the
releases of collateral provided for in this Section 9.17.

         (c) Without limiting the provisions of Section 9.05, the Borrower shall
reimburse the Collateral  Agent, the  Administrative  Agent and the Lenders upon
demand for all costs and expenses,  including attorneys' fees and disbursements,
incurred  by any of them in  connection  with any  action  contemplated  by this
Section 9.17.


<PAGE>



         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly  executed by their  respective  authorized  officers as of the day and year
first above written.


                         TEXAS-NEW MEXICO POWER COMPANY


                        By______________________________
                                      Name:
                                         Title:



<PAGE>


                                    THE   FIRST   NATIONAL   BANK  OF   CHICAGO,
                                    individually  and as  Administrative  Agent,
                                    Collateral Agent and Co-Agent


                        By______________________________
                                      Name:
                                         Title:



<PAGE>


                                    UNION    BANK    OF    CALIFORNIA,     N.A.,
                          individually and as Co-Agent


                        By______________________________
                                      Name:
                                         Title:


<PAGE>



                                    BANK OF MONTREAL


                        By______________________________
                                      Name:
                                         Title:


<PAGE>



                                    CIBC, INC.


                        By______________________________
                                      Name:
                                         Title:



<PAGE>



                        THE FIRST NATIONAL BANK OF BOSTON


                        By______________________________
                                      Name:
                                         Title:


<PAGE>



                           NATIONSBANK OF TEXAS, N.A.


                        By______________________________
                                      Name:
                                         Title:




<PAGE>


                                  Schedule 2.01
                                   Commitments



<TABLE>


                                                Contact Person
Name and Address of Lender                      and Telecopy Number                      Commitment

<S>                                             <C>                                      <C>
The First National Bank                         Mr. Michael J. Johnson                   $ 20,000,000
   of Chicago                                   Vice President
One First National Plaza                        (312) 732-3055
Mail Suite 0363
Chicago, Illinois 60670-0363

Union Bank of California, N.A.                  Mr. David Musicant                       $ 20,000,000
445 South Figueroa Street                       Vice President
15th Floor                                      (213) 236-4096
Los Angeles, CA 90071

The First National                              Mr. Michael Kane                         $ 15,000,000
Bank of Boston                                  Managing Director
100 Federal Street                              (617) 434-5388
Mailstop 01-08-82
Boston, MA 02110

Bank of Montreal                                Ms. Julia Buthman                        $ 15,000,000
700 Louisiana, Suite 4400                       Director
Houston, TX 77002                               (713) 546-9767

CIBC, Inc.                                      Mr. Robert Lyle                          $ 15,000,000
200 West Madison, Suite 2300                    Managing Director
Chicago, IL 60606                               (312) 750-0927

NationsBank of Texas, N.A.                      Mr. Bryan L. Diers                       $ 15,000,000
901 Main Street, 64th Floor                     Senior Vice President
Dallas, TX 75202                                (214) 508-3943








                                                TOTAL                                    $ 100,000,000


</TABLE>


<PAGE>




                                 SCHEDULE 3.06


                                    Changes

         During 1994,  Phillips  Petroleum's  Sweeny,  Texas refinery contracted
with CSW Energy to construct a 300-megawatt  cogeneration plant. Construction on
this plant is set to commence  in  September  1996,  and it is expected to begin
operations  in 1998.  The refinery  accounted for  approximately  $29 million of
Borrower's   1994   operating   revenues  ($9  million  in  base  revenues)  and
approximately  $26.7 of 1995 operating revenues ($9.4 million in base revenues).
Revenues  attributable  to the  refinery  may be  impacted  adversely  when  the
cogeneration  facility begins operations.  Borrower's goal is to retain Phillips
Petroleum as a customer and to lower  overall  system  operating  costs  through
negotiation  with Phillips  Petroleum and CSW Energy.  Although  Borrower cannot
predict the ultimate outcome of this process or its impact on Borrower, Borrower
and Phillips  Petroleum are discussing  arrangements  through which Borrower may
retain electric service to Phillips Petroleum.







<PAGE>



                                 SCHEDULE 3.08

       Subsidiaries and percentage ownership interest therein of Borrower



      Texas  Generating  Company - l,000 shares common stock, no par value,  100
     percent owned by Borrower

      Texas Generating Company II - l,000 shares common stock, no par value, 100
     percent owned by Borrower


<PAGE>



                                 SCHEDULE 3.09

                                   Litigation


1.  Revocation  proceedings  concerning  1991  private  letter  ruling  from the
Internal Revenue Service  confirming that Unit 1 of the TNP One generating plant
was property eligible for investment tax credit.

          2.      A.  Joseph  Burch v.  Coastal  Spray  Company  and  Texas-New
Mexico  Power  Company,  Cause No.  92CV1094,  212th  Judicial  District  Court,
Galveston  County,  Texas.  Plaintiff is claiming  property  damages to land due
to drifting of  herbicides  sprayed on  Texas-New  Mexico Power  Company  R.O.W.
adjacent  to  plaintiff's  property.  No  amount  of  damages  has been  stated.
Discovery continues.

          3.      Billie Neumann v. Coastal Spray Company and Texas-New  Mexico
Power Company,  Cause No.  92CV0998,  10th Judicial  District Court,  Galveston,
County,  Texas.  Plaintiff is claiming  property damages to land and animals due
to herbicide  spraying on  Texas-New  Mexico Power  Company  R.O.W.  adjacent to
Plaintiff's  property.   No  amount  of  damages  has  been  stated.   Discovery
continues.

4.       James P. Entrekin v. Coastal Spray Company and Texas-New  Mexico Power
Company,  Cause No. 92CV0953,  10th Judicial  District Court,  Galveston County,
Texas.  Plaintiff is claiming  property  damages to land and Arabian  horses due
to herbicide  spraying on  Texas-New  Mexico Power  Company  R.O.W.  adjacent to
Plaintiff's  property.   No  amount  of  damages  has  been  stated.   Discovery
continues.

          5.  Texas-New  Mexico Power  Company v. PPM America,  Inc. and Bank of
America-Illinois,  No.  495-CV-738-A,  in  the  United  States  District  Court,
Northern  District of Texas,  Fort Worth Division.  Declaratory  judgment action
concerning  redemption  of the  Borrower's  Series T first  mortgage  bonds with
proceeds from the sale of its Panhandle  properties under threat of condemnation
by local  municipalities.  PPM America,  Inc.  ("PPM") filed a counterclaim  (i)
seeking declarations that the Series T partial redemption breached the indenture
governing  the first  mortgage  bonds and that  Texas-New  Mexico Power  Company
cannot  redeem  Series  T  first   mortgage   bonds  prior  to  maturity   under
circumstances like the sale of the Panhandle properties;  (ii) seeking to enjoin
future redemptions under such  circumstances;  and (iii) claiming that Texas-New
Mexico Power Company  violated the antifraud  provisions of the Texas Securities
Act and Section 10(b) of the Securities Exchange Act of 1934 and restrictions of
the Trust  Indenture  Act of 1939 on  impairing  bondholder  rights.  PPM sought
alleged actual and punitive damages of approximately $6.0 million and attorneys'
fees.  Because PPM was not a bondholder,  it was dismissed from the lawsuit;  on
PPM's  motion,   Jackson  National  Life  Insurance   Company   ("Jackson")  was
substituted  as a  defendant.  Jackson has  proposed  that its  counterclaim  be
treated as a class  action on behalf of all parties who were holders of Series T
first mortgage bonds when the partial redemption was announced. Texas-New Mexico
Power Company does not believe that the case is appropriate  for class treatment
and is vigorously contesting this matter.

          See Also Schedule 3.17 For A Description  Of Certain  Litigation  That
Has Been Settled, Pending Bankruptcy Court Approval.


<PAGE>

                                 SCHEDULE 3.17

                             Environmental Matters

1.  Transformers  and  capacitors  that may  contain  polychlorinated  biphenyls
("PCBs").  Borrower does not know the concentration of PCBs, if any, in each and
every transformer and capacitor owned or operated by Borrower.  If a transformer
or capacitor  containing  dielectric fluid with a PCB concentration in excess of
50 parts per million leaks into the  environment  and thereby  contaminates  the
water or soil, then Borrower would be liable for clean up and remediation costs.
Depending upon the location and magnitude of such an occurrence, the costs could
be significant.

         In addition,  Borrower contracts with licensed companies to pick up and
transport  transformers  and  capacitors  that contain over 50 parts per million
PCBs. Borrower reasonably believes that these companies perform their service in
accordance  with  applicable  laws  and  regulations.  However,  if one of these
companies has violated an applicable law or  regulation,  then Borrower could be
held  responsible  for fines  and  damages  resulting  from  improper  handling,
transport,  storage,  treatment,  or  disposal  of the  PCB-contaminated  items.
Borrower believes that the probability of such a situation  occurring is remote.
If such an event  occurred,  however,  the fines and damages for which  Borrower
would be responsible could be significant.

2.  Remediation  at 300 Crews Way, West Columbia,  Brazoria  County,  Texas.  In
November 1995,  Borrower hired an  environmental  engineering firm to assess the
progress of the  remediation,  define the plume of  contamination,  if any,  and
recommend  alternatives  to the "pump and  treat"  technology  which had been in
place since April 1993.  Borrower has implemented a combination of two treatment
methods - vacuum  recovery and aquifer air  sparging - to expedite  remediation.
The plume of  contamination  has not been  defined and over  700,000  gallons of
contaminated water have been treated using the new remediation system.  Borrower
anticipates that remediation  efforts will continue for at least another year at
a cost of approximately $100,000.

3. Davis Utility  Hydraulics,  Inc.,  Highway 121,  Lewisville,  Denton  County,
Texas; Notice of Violation from Texas Natural Resource  Conservation  Commission
("TNRCC") and Settlement of Litigation.  In May, 1996, TNRCC approved closure of
two of the three tracts of land (herein,  "Tract 1" and "Tract 2", respectively)
that were the  subject of  litigation  between the  Company  and  landowners  in
Lewisville,   Texas.  Accordingly,   Borrower  has  plugged  and  abandoned  the
monitoring  wells on Tracts 1 and 2 in  accordance  with TNRCC  regulations  and
requirements.   The  litigation  has  been  settled,  pending  approval  by  the
bankruptcy court of the Settlement  Agreement,  which was submitted to the court
in July,  1996.  Borrower  expects  that the  bankruptcy  court will approve the
Settlement Agreement. Upon such approval, Borrower or an affiliate will purchase
Tract 1 and the third tract  ("Tract 3"),  the property  that still has operable
monitoring wells on-site,  for a total of $300,000.  Borrower will then complete
remediation  activities on Tract 3, at a cost of approximately  $50,000, and may
eventually  lease or sell  either or both  Tract 1 and  Tract 3. The  Settlement
Agreement does not obligate  Borrower to take any further action with respect to
Tract 2.

<PAGE>


                                 SCHEDULE 3.18

                        Insurance maintained by Borrower






<PAGE>


                                 SCHEDULE 3.23


         Schedule of Conditions and Exceptions to First Priority Liens

         The TNP Bond  Indenture  constitutes a valid and direct first  priority
Lien upon all of the property of the Borrower  referred to in the first sentence
of Section 3.23, subject only to:

      Permitted  Encumbrances,  as defined  in  Section  1.07(G) of the TNP Bond
     Indenture.
      Prior  Liens,  as defined in  Section  1.07(F) of the TNP Bond  Indenture.
      Liens expressly  permitted under the Existing  Facility  Documents;  Liens
      expressly permitted and defined as "Permitted Liens" in the Unit 2
     First Amended and Restated  Project Loan and Credit Agreement dated January
     8, 1992, as amended and currently in effect,  among TNP,  Texas  Generating
     Company II, a wholly owned subsidiary of TNP, and the Chase Manhattan Bank,
     N.A.
      Liens permitted under Section 6.02 of the Credit Agreement.



<PAGE>



                                 SCHEDULE 6.01

                           Intercompany Indebtedness



Intercompany Indebtedness owed to the Borrower on the Closing Date by:


Obligor                                                       Amount

TGC                                                           $50,598,884.731

TGC II                                                         58,874,548.072


<PAGE>


                                 SCHEDULE 6.02

                                     Liens

                                     NONE*




* This schedule omits liens of $100,000 or less as immaterial; provided that the
aggregate of all such liens does not exceed $750,000.


<PAGE>



                                 SCHEDULE 7(o)


         Description of Events Related to Redemption of Series T Bonds

         In September  1995,  TNP deposited  proceeds of $29.2 million  received
from the sale of its properties  located in the Texas  Panhandle (the "Panhandle
Sale") directly with Bank of America,  Illinois,  as Trustee, and redeemed $29.2
million of Series T First  Mortgage  Bonds (the  "Series T FNBs") in  accordance
with the indenture  governing  TNP's first mortgage  bonds. On October 16, 1995,
the  Trustee  paid the  proceeds  to the  holders of the Series T FNBs that were
called.

         In January 1996, TNP filed a class action lawsuit  against John Hancock
Mutual Life Insurance  Company,  a Series T bondholder.  TNP seeks  confirmation
that its  redemption of Series T FNBs with proceeds from the Panhandle  Sale was
within its rights under the indenture  governing the first mortgage  bonds.  TNP
also seeks attorneys fees.

         TNP's  lawsuit was  originally  filed in Texas state court in September
1995 against PPM America,  Inc.  ("PPM"),  which claimed to be a bondholder  and
threatened  to take  legal  action  against  TNP over the  redemption.  On PPM's
motion,  the original  lawsuit was removed to the United States  District Court,
Northern District of Texas, Fort Worth Division (No. 495-CV-738-A).  PPM filed a
counterclaim  seeking declarations that the Series T partial redemption breached
the  indenture  governing  the first  mortgage  bonds and that TNP cannot redeem
Series T FMBs prior to maturity under circumstances like the Panhandle Sale. PPM
sought an injunction  barring future redemptions under such  circumstances.  PPM
also claimed that TNP violated the antifraud  provisions of the Texas Securities
Act and Section 10(b) of the Securities Exchange Act of 1934 and restrictions of
the Trust  Indenture  Act of 1939 on  impairing  bondholder  rights.  PPM sought
alleged actual and punitive damages of approximately $6.0 million and attorneys'
fees.  Because PPM was not a bondholder,  it was dismissed from the lawsuit and,
on PPM's  motion,  Jackson  National  Life  Insurance  Company  ("Jackson")  was
substituted  as a  defendant.  Jackson has  proposed  that its  counterclaim  be
treated as a class action on behalf of all parities who were holders of Series T
FMBs at the time the partial redemption was announced. TNP does not believe that
the case is  appropriate  for  class  treatment,  and  believes  that  Jackson's
counterclaims are without merit. TNP is vigorously contesting the claims.



<PAGE>



                                    EXHIBIT A
                                    [FORM OF]

                         TEXAS-NEW MEXICO POWER COMPANY

                          ADMINISTRATIVE QUESTIONNAIRE


Please  accurately  complete the following  information  and return via telecopy
to the  attention  of Michael J. Johnson at The First  National  Bank of Chicago
as soon as possible, at Telecopy No. (312) 732-3055.



LENDER LEGAL NAME TO APPEAR IN DOCUMENTATION:

GENERAL INFORMATION - DOMESTIC LENDING OFFICE:

Institution Name:

Street Address:

City, State, Zip Code:


GENERAL INFORMATION - EURODOLLAR LENDING OFFICE:

Institution Name:

Street Address:

City, State, Zip Code:


POST-CLOSING, ONGOING CREDIT CONTACTS/NOTIFICATION METHODS:

CREDIT CONTACTS:

Primary Contact:

Street Address:

City, State, Zip Code:

Phone Number:

Telecopy Number:


Backup Contact:

Street Address:

City, State, Zip Code:

Phone Number:

Telecopy Number:


TAX WITHHOLDING:

         Nonresident Alien         Y*               N

         * Form 4224 Enclosed

         Tax ID Number  _________________________


POST-CLOSING, ONGOING ADMINISTRATIVE CONTACTS/NOTIFICATION METHODS:

ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, FEES, ETC.

Contact:

Street Address:

City, State, Zip Code:

Phone Number:

Telecopy Number:


PAYMENT INSTRUCTIONS:

Name of Bank to which funds are to be transferred:



Routing Transit/ABA number of Bank to which funds are to be transferred:



Name of Account, if applicable:



Account Number:

Additional information:




MAILINGS:

Please  specify  the  person to whom the  Borrower  should  send  financial  and
compliance  information  received  subsequent to the closing (if different  from
primary credit contact):

Name:

Street Address:

City, State, Zip Code:

It is very important that all the above information be accurately  completed and
that this  questionnaire be returned to the person specified in the introductory
paragraph of this  questionnaire as soon as possible.  If there is someone other
than yourself who should  receive this  questionnaire,  please notify us of that
person's  name  and  telecopy  number  and  we  will  telecopy  a  copy  of  the
questionnaire. If you have any questions about this form, please call Michael J.
Johnson at (312) 732-4854.


<PAGE>


                                    EXHIBIT B


                                     FORM OF
                            ASSIGNMENT AND ACCEPTANCE


                                         Dated __________ ___, 19__

         Reference is made to the Credit  Agreement,  dated as of September ___,
1996 (as the same may be modified,  amended,  extended or restated  from time to
time,  the "Credit  Agreement"),  among  Texas-New  Mexico  Power  Company  (the
"Borrower"),  the lenders from time to time party thereto (the  "Lenders"),  The
First National Bank of Chicago, as administrative  agent (in such capacity,  the
"Administrative  Agent") and  collateral  agent for the  Lenders,  and The First
National Bank of Chicago and Union Bank of California, N.A., as co-agents. Terms
defined in the Credit Agreement are used herein with the same meanings. Pursuant
to the Credit  Agreement,  _________________  (the  "Assignor") has committed to
make Loans to the Borrower,  which Loans are evidenced by a promissory note (the
"Note") issued by the Borrower to the Assignor.

         The  Assignor  and  ____________________   (the  "Assignee")  agree  as
follows:

         1. The  Assignor  hereby sells and assigns,  without  recourse,  to the
Assignee, and the Assignee hereby purchases and assumes,  without recourse, from
the Assignor,  effective as of the  Effective  Date set forth in Schedule 1 (but
not prior to the recordation of the information contained herein in the Register
pursuant to Section 9.04(e) of the Credit Agreement), the interests set forth in
Schedule 1 (the  "Assigned  Interest") in the Assignor's  interests,  rights and
obligations under the Credit Agreement and the other Loan Documents,  including,
without  limitation,  the amounts and percentages set forth in Schedule 1 of (i)
the Commitment of the Assignor on the Effective Date and (ii) the Loans owing to
the Assignor that are outstanding on the Effective Date.

         2. From and after the Effective  Date (i) the Assignee shall be a party
to and be bound by the provisions of the Credit  Agreement and, to the extent of
the interests  assigned by this Assignment and  Acceptance,  have the rights and
obligations of a Lender thereunder, including without limitation

                  (A) the  right to  receive  all  payments  in  respect  of the
         Assigned  Interest  for the period from and after the  Effective  Date,
         whether on account of principal, interest, fees, indemnities in respect
         of claims arising after the Effective Date, increased costs, additional
         amounts or otherwise,

                  (B) the right to vote and to instruct the Administrative Agent
         and the Collateral  Agent under the Credit Agreement and the other Loan
         Documents based on the Assigned Interest,

                  (C)      the right to  set-off  and to  appropriate  and apply
         deposits of the Borrower as set forth in the Credit Agreement, and

                  (D)      the right to receive notices,  requests,  demands and
         other communications,

and (ii) the Assignor  shall,  to the extent of the  interests  assigned by this
Assignment  and  Acceptance,  relinquish  its  rights and be  released  from its
obligations  under the Credit  Agreement [, but shall continue to be entitled to
the benefits of Sections 2.11, 2.13, 2.17 and 9.05 of the Credit  Agreement,  as
well as to any  Commitment  Fees accrued for its account and not yet paid].3 The
Assignor  agrees that it will promptly remit to the Assignee any amount received
by it in  respect of the  Assigned  Interest  (whether  from the  Borrower,  the
Administrative  Agent or  otherwise)  in the same funds in which such  amount is
received by the Assignor.

         3. The Assignor (i)  represents  and warrants  that it is the legal and
beneficial owner of the interest being assigned  hereunder free and clear of any
adverse claim and that its Commitment, and the outstanding balance of its Loans,
in each case without giving effect to  assignments  thereof that have not become
effective,  are as set  forth in  Schedule  1, and (ii)  except  as set forth in
clause  (i)  above,   makes  no   representation  or  warranty  and  assumes  no
responsibility  with respect to any  statements,  warranties or  representations
made in or in connection with the Credit Agreement, or the execution,  legality,
validity,  enforceability,  genuineness,  sufficiency  or  value  of the  Credit
Agreement, any other Loan Document or any other instrument or document furnished
pursuant thereto,  or the financial  condition of the Borrower or any Subsidiary
or the performance or observance by the Borrower or any Subsidiary of any of its
obligations  under the Credit  Agreement,  any other Loan  Document or any other
instrument or document furnished pursuant thereto.

         4.  The  Assignee  (i)  represents  and  warrants  that  it is  legally
authorized to enter into this Assignment and  Acceptance,  (ii) confirms that it
has received a copy of the Credit  Agreement,  together  with copies of the most
recent  financial  statements  referred to in Section  3.05 thereof or delivered
pursuant to Section 5.04 thereof and such other  documents and information as it
has deemed  appropriate  to make its own credit  analysis  and decision to enter
into this  Assignment  and  Acceptance,  (iii) will  independently  and  without
reliance upon the  Administrative  Agent, the Collateral  Agent, the Assignor or
any other Lender and based on such  documents and  information  as it shall deem
appropriate at the time,  continue to make its own credit decisions in taking or
not taking action under the Credit  Agreement,  (iv) appoints and authorizes the
Administrative  Agent and the  Collateral  Agent to take such action as agent on
its behalf and to exercise such powers under the Credit  Agreement and the other
Loan Documents as are delegated to the  Administrative  Agent and the Collateral
Agent,  respectively,  by the terms  thereof,  together  with such powers as are
reasonably incidental thereto, and (v) agrees that it will perform in accordance
with its terms all the  obligations  which by the terms of the Credit  Agreement
are required to be performed by it as a Lender.

         5.  This   Assignment  and   Acceptance  is  being   delivered  to  the
Administrative  Agent  together with (i) if the Assignee is organized  under the
laws of a jurisdiction outside the United States, the forms specified in Section
2.17(f) of the Credit  Agreement,  duly  completed and executed by the Assignee,
(ii) if the  Assignee is not  already a Lender  under the Credit  Agreement,  an
Administrative  Questionnaire  in the form of Exhibit A to the Credit  Agreement
and (iii) a processing and recordation fee of $4,000.

         6. This Assignment and Acceptance may be executed in counterparts  (and
by  different  parties  hereto on different  counterparts),  each of which shall
constitute an original but all of which when taken together  shall  constitute a
single contract.

         7.       This  Assignment  and  Acceptance  shall  be  governed  by and
construed in  accordance  with the internal  laws (and not the law of conflicts)
of the State of Illinois.

         IN WITNESS WHEREOF,  the parties hereto have caused this Assignment and
Acceptance to be executed by their respective  authorized officers as of the day
and year first above written, such execution being made on Schedule 1 hereto.


<PAGE>




                                                     Schedule 1
                                                         to
                                              Assignment and Acceptance
                                              Date ___________ __, 19__


Effective Date of Assignment:4



Percentage Assigned of

Commitment (set forth, to at

least 8 decimals, as a

percentage of the aggregate

Commitments of all Lenders
                            Principal Amount Assigned
thereunder)

Commitment Assigned:5                          $                  percent

Loans outstanding:                             $                  percent


The terms set forth above are hereby agreed to:

                           , as Assignor


By:
Name:
Title:

                           , as Assignee


By:
Name:
Title:

Assignee's Address for Notices:


<PAGE>



ACCEPTED:6

THE FIRST NATIONAL BANK OF CHICAGO,
 as Administrative Agent



By:
Name:
Title:

[TEXAS-NEW MEXICO POWER COMPANY



By:
Name:
Title:]

<PAGE>


                                    EXHIBIT C

                            FORM OF BORROWING REQUEST


The First National Bank of Chicago,
   as Administrative Agent for the
   Lenders referred to below,
One First National Plaza, Mail Suite 0363
Chicago, Illinois  60670-0363

Attention: [Name or Department]
                                     [Date]

Ladies and Gentlemen:

         The  undersigned,  Texas-New  Mexico Power  Company  (the  "Borrower"),
refers to the Credit  Agreement,  dated as of September  ___,  1996 (as amended,
modified or supplemented from time to time, the "Credit  Agreement"),  among the
Borrower, the lenders from time to time party thereto (the "Lenders"), The First
National  Bank of  Chicago,  as  administrative  agent  (in such  capacity,  the
"Administrative  Agent") and  collateral  agent for the  Lenders,  and The First
National  Bank of Chicago  and Union Bank of  California,  N.A.,  as  co-agents.
Capitalized  terms used herein and not otherwise  defined  herein shall have the
meanings  assigned to such terms in the Credit  Agreement.  The Borrower  hereby
gives you notice  pursuant  to  Section  2.03 of the  Credit  Agreement  that it
requests a Borrowing  under the Credit  Agreement,  and in that  connection sets
forth below the terms on which such Borrowing is requested to be made:

(A)  Date of Borrowing
         (which is a Business Day)          _______________________________

(B)  Principal Amount of                                   Borrowing
-------------------------------

(C)  Interest rate basis                    _______________________________

(D)  Interest Period and the last
      day thereof
-------------------------------

(E)      Funds are requested to be disbursed to the Borrower's  account with the
         Administrative Agent (Account No. ).


         Upon  acceptance  of any or all of the Loans  offered by the Lenders in
response to this request,  the Borrower shall be deemed to have  represented and
warranted that the conditions to lending  specified in Sections  4.03(b) and (c)
of the Credit Agreement have been satisfied.


                         TEXAS-NEW MEXICO POWER COMPANY




By
                                      Name:
                          Title: [Responsible Officer]



<PAGE>


                                    EXHIBIT D



                             FORM OF PROMISSORY NOTE




U.S.$                                        Dated:                , 19



           FOR VALUE RECEIVED, the undersigned,  TEXAS-NEW MEXICO POWER COMPANY,
a Texas  corporation  (the  "Borrower"),  HEREBY PROMISES TO PAY to the order of
(the "Lender") the principal sum of U.S.$[amount  of the Lender's  Commitment in
figures] or, if less,  the aggregate  principal  amount of all Loans (as defined
below) made by the Lender to the Borrower  pursuant to the Credit  Agreement (as
defined  below)  outstanding  on the  Maturity  Date (as  defined  in the Credit
Agreement).

           The Borrower  promises to pay interest on the principal amount hereof
from time to time  outstanding  from the date hereof until such principal amount
is paid in full,  at such  interest  rates,  and payable at such  times,  as are
specified in the Credit Agreement.

           Both principal and interest are payable in lawful money of the United
States of America  to The First  National  Bank of  Chicago,  as  Administrative
Agent, at the address  designated from time to time under the Credit  Agreement,
in same day funds. All Loans made by the Lender and all payments made on account
of the principal amount hereof shall be recorded by the Lender and, prior to any
transfer  hereof,  endorsed on the grid  attached  hereto  which is part of this
Promissory Note, provided that the failure to so record any such Loan or payment
shall not affect the payment  obligations of the Borrower hereunder or under the
Credit Agreement.

           This  Promissory  Note is one of the  Notes  referred  to in,  and is
entitled to the benefits of, the Credit  Agreement,  dated as of September  ___,
1996 (as  amended,  modified  or  supplemented  from time to time,  the  "Credit
Agreement",  the terms defined  therein and not otherwise  defined  herein being
used  herein as therein  defined),  among the  Borrower,  the Lender and certain
other Lenders parties thereto,  the Co-Agents,  the Administrative Agent and the
Collateral  Agent,  and the Loan Documents  referred to therein and entered into
pursuant thereto. The Credit Agreement, among other things, (i) provides for the
making of loans (the "Loans") by the Lender to the Borrower from time to time in
an aggregate  amount not to exceed the U.S. dollar amount first above mentioned,
the  indebtedness  of the Borrower  resulting from such Loans being evidenced by
this  Promissory  Note,  and (ii) contains  provisions for  acceleration  of the
maturity  hereof  upon the  happening  of  certain  stated  events  and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.


                         TEXAS-NEW MEXICO POWER COMPANY




By
                                           Title:


<PAGE>
                                      cxiv



                         LOANS AND PAYMENTS OF PRINCIPAL


                                      Amount of
                                      Principal          Unpaid
                Amount of             Paid or            Principal    Notation
Date            Loan                  Prepaid            Balance      Made By


-------------------------------------------------------------------------------

-------------------------------------------------------------------------------

-------------------------------------------------------------------------------

-------------------------------------------------------------------------------

-------------------------------------------------------------------------------

-------------------------------------------------------------------------------













1    Consists of interest charges funded by TNP of $31,066,910.92  and reduction
     of Secured Notes Payable funded by TNP of $19,531,973.81.

2    Consists of interest charges funded by TNP of $24,327,676.37  and reduction
     of Secured Notes Payable funded by TNP of $34,546,871.70.

3    Bracketed  language to be included if the Assignment and Acceptance  covers
     all or the remaining portion of the Assignor's rights and obligations under
     the Credit Agreement.

4    May not be fewer than 5 Business Days after the date hereof.

5    Shall not be less than $5,000,000 (or, if less, the entire remaining amount
     of the Assignor's Commitment).

6    To be completed to the extent  consents are required under Section  9.04(b)
     of the Credit Agreement.

7    Not less than $[10,000,000] and in an integral multiple of $1,000,000,  but
     in any event not exceeding the available Total Commitment.

8    Specify Eurodollar Borrowing or ABR Borrowing.

9    Which shall be subject to the  definition of "Interest  Period" and end not
     later than the Maturity Date (applicable only for Eurodollar Borrowings).


<PAGE>



                                   EXHIBIT E
                             FORM OF BOND AGREEMENT
         [FORM OF BOND AGREEMENT FOUND AT EXHIBIT 10(A) OF THIS REPORT]



<PAGE>

                                  EXHIBIT F-1

                              HAYNES AND BOONE, LLP






September 10, 1996



The First National Bank of Chicago,
individually and as Administrative
Agent and Collateral Agent under the Credit
Agreement referred to below
One First National Plaza
Chicago, Illinois 60670

  The Lenders and Co-Agents from time to time parties to the Credit Agreement

  Ladies and Gentlemen:

     We have acted as special counsel to Texas-New Mexico Power Company, a Texas
corporation ("TNP"), in connection with the transactions contemplated by (i) the
Revolving  Credit  Facility  Agreement,  dated as of September  10,  1996,  (the
"Credit Agreement"),  among TNP, each of the lenders that is a signatory thereto
(the "Lenders"), The First National Bank of Chicago, as administrative agent and
collateral agent for the Lenders (in such capacities, the 'Administrative Agent"
and the  'Collateral  Agent,"  respectively),  and The  First  National  Bank of
Chicago and Union Bank -of California, N.A., as co-agents (in such capacity, the
"Co-Agents"), (ii) the Bond Agreement, dated as of September 10, 1996, by TNP in
favor of the Collateral Agent,  (iii) the Twenty-Fifth  Supplemental  Indenture,
dated as of  September  10,  1996,  between the  Borrower and The First Trust of
Illinois,  N.A.,  pursuant to which the New First  Mortgage Bonds (as defined in
the Credit  Agreement) shall be issued from time to time, and (iv) the Notes (as
defined in the Credit Agreement), (each of the foregoing agreements, instruments
and  documents  referred to in the  foregoing  clauses  (i)  through  (iv) being
collectively called the "Opinion  Documents").  Unless otherwise defined herein,
terms defined in the Credit Agreement are used herein as therein defined. Except
where the context otherwise  requires,  words importing the singular include the
plural and vice versa.

     In rendering the opinions expressed below, we have examined (a) the Opinion
Documents,  and the Existing Facility  Documents,  (b) such corporate records of
TNP, agreements, instruments and documents which affect or purport to affect the
obligations  of TNP  under  the  Opinion  Documents  and the  Existing  Facility
Documents,  and (c) the TNP Bond  Indenture and such other  documents as we have
deemed  necessary as a basis for the opinions  expressed  below.  When  relevant
facts were not  independently  established,  we have relied upon  statements  of
government officials and upon representations made in or pursuant to the Opinion
Documents and certificates of appropriate representatives of TNP.

     In our  examination we have assumed,  with your consent (a) the genuineness
of all  signatures  (except  as relates  to the  execution  by TNP of any of the
Opinion  Documents)  and  the  legal  capacity  of  natural  persons,   (b)  the
authenticity  of documents  submitted to us as originals and the conformity with
authentic original documents of all documents submitted to us as copies, (c) the
full corporate (or equivalent) power,  authority and legal I right of each party
other than TNP to enter into and perform all  agreements  to which it is a party
and the due  authorization,  execution and delivery of each Opinion  Document by
each such party, (d) that the Opinion  Documents  constitute the valid,  binding
and enforceable  agreement of all parties thereto other than TNP, (e) receipt of
the consideration  contemplated by the Opinion Documents and (f) the correctness
and  accuracy  of all the  facts  set forth in all  documents  and  certificates
identified in this Opinion.

     You have been furnished with an opinion of Michael Blanchard, Esq., general
counsel of TNP, dated the date hereof, addressing certain matters. In giving the
opinions set forth below, we have relied upon such opinion.


     As used in the opinions expressed herein, a "Material Adverse Effect" means
our reasonable  view of what would  constitute a material  adverse effect on (a)
the validity,  performance or enforceability  of any Opinion  Document,  (b) the
financial condition,  operations and assets of TNP, or (c) the ability of TNP to
fulfill its obligations under the Opinion Documents.

     We have been  advised by officers of TNP (and with your consent have relied
on that advice) that the agreements described on Exhibit A hereto (the "Material
Agreements")  are the only  agreements  that are  material to TNP and which,  if
violated by the execution,  delivery or  performance  of the Opinion  Documents,
would have a Material Adverse Effect on TNP's ability to comply with the Opinion
Documents.  We  advise  you that we have  not  reviewed,  and  have not  devoted
substantive  attention to, any other  agreements  (other than those described on
Exhibit A) for the  purposes of  rendering  the opinion set forth in paragraph 2
below.

     Based upon and subject to the  foregoing  and subject  also to the comments
and  qualifications set forth below, and having considered such questions of law
as we have deemed necessary as a basis for the opinions  expressed below, we are
of the opinion that:

1.   TNP is a  corporation  duly  incorporated,  validly  existing  and in  good
     standing  under  the  laws of the  State  of  Texas  and has the  necessary
     corporate power, authority and legal right to execute,  deliver and perform
     each of the Opinion Documents to which it is party.

2.   The execution, delivery and performance by TNP of the Credit Agreement, the
     Bond Agreement and each other Opinion Document have been duly authorized by
     all  necessary  corporate  action  and do not (a)  require  any  consent or
     approval of the  shareholders of either TNP or of the trustee under the TNP
     Bond Indenture or any holder of any interest in any of the bonds issued and
     outstanding  under the TNP Bond Indenture (b) violate any provision of law,
     rule,  regulation,  or  any  order,  writ,  judgment,  injunction,  decree,
     determination or award of any Governmental  Authority,  or any provision of
     the articles or by-laws of TNP or the TNP Bond  Indenture,  (c) result in a
     breach of, or  constitute  a default  or require  any  consent  under,  any
     Material  Agreement  or (d) to our  knowledge,  result  in or  require  the
     imposition of any Lien (other than a Lien  permitted  under Section 6.02 of
     the Credit  Agreement)  upon or with  respect to any  property now owned or
     hereafter- acquired by TNP.

3.   TNP has duly executed and delivered each of the Opinion Documents.

4.   Each Opinion Document  constitutes the legal,  valid and binding obligation
     of TNP,  enforceable  against it in accordance with its terms, in each case
     except as the  enforceability  thereof  may be limited  by (a)  bankruptcy,
     insolvency,  reorganization or moratorium or other similar laws relating to
     the enforcement of creditors' rights generally,  (b) general  principles of
     equity,  regardless of whether  enforcement  of any  obligations  mentioned
     therein  is sought in a  proceeding  at  equity  or at law,  (c)  statutory
     provisions  of the  federal  Bankruptcy  Code  and the  Uniform  Fraudulent
     Transfer  Act as adopted by the States of Illinois  and Texas (and  related
     court   decisions)   pertaining  to  the  voidability  of  preferential  or
     fraudulent  transfers,  conveyances and obligations,  (d) the rights of the
     United  States  under the  Federal Tax Lien Act of 1966,  as  amended,  (e)
     applicable  laws or judicial  decisions  which may qualify or limit certain
     rights, remedies or provisions contained therein but which, in our opinion,
     will  not  materially  interfere  with  the  practical  realization  of the
     benefits   intended  to  be  provided   thereby  except  for  the  economic
     consequences of any procedural delay which may result therefrom.

5.   Except as set forth in Schedule 3.09 to the Credit  Agreement,  there is to
     our  knowledge no action,  suit or  proceeding at law or in equity or by or
     before any  Governmental  Authority  now pending or  threatened  against or
     affecting  TNP or any of its  properties,  rights,  or assets  which  could
     reasonably  be expected to materially  and  adversely  affect the assets or
     operations of TNP or its ability to carry out the transactions contemplated
     by the Opinion  Documents  or  materially  impair the value of the security
     granted by it to the Collateral Agent.

6.   TNP is not an "investment  company" or an "investment  advisor"  within the
     meaning of the Investment Company Act of 1940, as amended.

7.   The Bond Agreement is effective to create in favor of the Collateral Agent,
     as collateral  security for the Obligations (as defined  therein),  a valid
     security  interest  in all of the right,  title and  interest of TNP in the
     Collateral described therein.  Upon delivery to the Collateral Agent of the
     New First Mortgage Bonds and the filing of the  Supplemental  Indenture and
     the Bond  Agreement as utility  security  instruments  in the office of the
     Secretary of State of Texas, such security interest will be perfected.

The foregoing opinions are qualified as set forth below:

     A.  Without  limiting the  generality  of  paragraph  4(b) hereof,  we note
specifically that in applying such principles of equity, a court, among other in
things  (1) might  not allow  acceleration  of the  maturity  of a debt upon the
occurrence of a default deemed immaterial or if a determination is made that any
Lender's  security has not been  impaired,  (2) might  require any Lender to act
with reasonableness and in good faith, (3) might not permit any Lender to retain
certain  interests in any collateral  which a court might view as resulting in a
forfeiture,  (4) might apply its  discretion in granting  specific  performance,
injunctive  relief  or  other  equitable  remedies  and (5)  might  not  enforce
provisions  purporting to give any Lender or any other party a power of attorney
to act on TNP's or any other party's behalf.

     B. In rendering the opinion expressed in paragraph 4, we express no opinion
as to the  enforceability  of provisions of the Opinion  Documents to the extent
that such  provisions:  (1)  purport  to waive or affect  any  rights to notices
required  by law or  that  may be  required  by  Section  9.504  of the  Uniform
Commercial Code as adopted in the State of Illinois and as effective on the date
hereof (the  'Code") and that are not subject to waiver under  Section  9.501 of
the Code,  (2) state that the  failure or delay in  exercising  rights,  powers,
privileges or remedies under the Opinion  Documents by any Lender or agent shall
not operate as a waiver  thereof,  (3) purport to indemnify-  any person for (a)
such persons  violations of federal or state  securities  laws or  environmental
laws, or (b,) any obligation to the extent such  obligation  arises from or is a
result of any  Lender's or any Agent's own  negligence,  (4) purport to grant to
Agents or Lenders the right to offset special deposits of TNP against any of the
Obligations,  (5) purport to establish or satisfy certain  factual  standards or
conditions (e.g., standards of 'commercial  reasonableness" or "reasonable care"
under  Article 9 of the Code) in a manner not  permitted by Section 9.501 of the
Code, (6) purport to sever unenforceable  provisions from the Opinion Documents,
to the extent that the enforcement of remaining  provisions  would frustrate the
fundamental  intent of the parties to such  documents;  (7) provide that TNP has
waived  Agents'  and  Lenders'  duties of  reasonable  care and  disposition  of
Collateral  which may be imposed by  Sections  9.207 and 9.504 of the Code,  (8)
restrict  access to legal or  equitable  remedies,  or (9)  purport to waive any
claim of TNP against  Agents or any Lender arising out of, or in any way related
to, the Opinion  Documents.  We advise you that the inclusion of such provisions
in the Opinion  Documents does not render void or invalidate the obligations and
liabilities of TNP under other provisions of such documents.

     C. No opinion is  expressed  herein as to (1) the status of title to any of
the  Collateral,  (2) whether TNP has "rights in the Collateral" as that term in
used in Section 9.203 of the Code,  (3) the priority of any security  interests,
(4) the creation or  perfection  of any security  interest in property  excluded
from  coverage of the Code  pursuant to Sections  9.102 and 9.104 of the Code or
any proceeds of any of such  property,  (5) the creation or  perfection of liens
and security  interests in the Collateral  insofar as the laws of a jurisdiction
other than the States of Illinois or Texas govern the creation or  perfection of
such liens and security interests, or (6) the creation or perfection of hens and
security  interests  in the  Collateral  that is not  described  in the  Opinion
Documents.

     D. We  express  no  opinion as to the  validity  or  enforceability  of any
provision  contained  in any of the  Opinion  Documents  that  (1)  purports  to
preclude the amendment, waiver, release or discharge of obligations except by an
instrument in writing,  (2) relates to the subject  matter  jurisdiction  of the
Federal courts of the United States of America  sitting in Chicago,  Illinois to
adjudicate  any  controversy  relating  to  any of the  Opinion  Documents,  (3)
purports to waive or  otherwise  restrict  or deny  access to claims,  causes of
action or remedies  that may be asserted  in any suit or other  proceeding,  (4)
allows Lenders to institute foreclosure proceedings,  or to exercise any similar
right, without notice to the person or entity signatory thereto or bound thereby
or (5) relates to the appointment of a receiver,  to the extent that appointment
of a receiver is  governed  by  applicable  statutory  requirements,  and to the
extent that such provision may not be in compliance with such requirements.

     E. With  respect to our opinion in  paragraph  2(b),  we express no opinion
regarding the statutes and ordinances,  the  administrative  decisions,  and the
rules and regulations of counties,  towns,  municipalities and special political
subdivisions  (whether  created or  enabled  through  legislative  action at the
federal, state or regional level), and any judicial decisions to the extent they
deal with any of the foregoing.

     F. With  respect to the  opinion  set forth in  paragraph  6, we express no
opinion as to whether TNP is a "special  situation  investment  company" for the
purposes  of Rule 3a-1  promulgated  pursuant to the  Investment  Company Act of
1940, as amended.

     G. We express no opinion as to the enforceability of exculpatory provisions
(or their corresponding indemnity provisions) contained in the Opinion Documents
which purport to exculpate or indemnify Agents or Lenders for their own tortious
acts, or if Agents or Lenders  should exceed their  authority  under the Opinion
Documents.

     H. The  qualification  of any opinion or statement herein by the use of the
words "to our  knowledge"  means that  during the  course of  representation  as
described  in this  opinion,  no  information  has come to the  attention of the
attorneys  of this firm  involved in the  transaction  evidenced  by the Opinion
Documents  that  would  give such  attorneys  current  actual  knowledge  of the
existence of the facts so  qualified.  Except as set forth  herein,  we have not
undertaken  any  investigation  to determine  the existence of such facts and no
inference  as to our  knowledge  thereof  shall  be  drawn  from the fact of our
representation of any party or otherwise.

     I. We express no opinion as to any matters  which may be, or which  purport
to be,  governed by any law of any  jurisdiction  other than the federal laws of
the United States of America,  the laws of the State of Illinois and the laws of
the State of Texas.

     J. This opinion is limited to the matters  expressly set forth herein,  and
no opinion is implied or may be  inferred  beyond the matters  expressly  stated
herein. This opinion is solely for the information of the addressees hereof, and
is not to be quoted in whole or in part or  otherwise  referred  to (except in a
list of dosing documents), nor is it to be filed with any governmental agency or
other  person  without  our prior  written  consent.  Other than the  addressees
hereof, no one is entitled to rely on this opinion. This opinion is based on our
knowledge  of the law and  facts as of the date  hereof.  We  assume  no duty to
communicate  with you with  respect to any matter  which comes to our  attention
hereafter.

                                             Very truly yours,


                                             HAYNES AND BOONE, L.L.P.








<PAGE>

                                   EXHIBIT A


Material Contracts

        1.      Fuel  Supply  Agreement,   dated  November  18,  1987,   between
                Phillips Coal Company and TNP.

        2.      Amendment No. 1, dated as of April 1, 1988, to the Fuel Supply
                Agreement dated November 18, 1987, between Phillips Coal
                Company and TNP.

        3.      Amendment No. 2, dated as of November 29, 1994,  between  Walnut
                Creek  Mining  Company  and TNP,  to the Fuel  Supply  Agreement
                dated  November  18,  1987,  between  Phillips  Coal Company and
                TNP, effective as of January 1, 1995.

        4.      Unit 1 First  Amended  and  Restated  Project  Loan  and  Credit
                Agreement,  dated as of  January  8,  1992  (the  "Unit 1 Credit
                Agreement"),  among TNP, Texas Generating  Company ("TGC"),  the
                banks  named  therein  as Banks  (the  "Unit 1  Banks")  and The
                Chase  Manhattan Bank (National  Association),  as Agent for the
                Unit 1 Banks (the "Unit 1 Agent"),  amending and  restating  the
                Project Loan and Credit  Agreement  among such parties  dated as
                of December 1, 1987.

        5.      Participation Agreement,  dated as of January 8, 1992, among the
                banks  named  therein as Banks,  the  parties  named  therein as
                Participants and the Unit 1 Agent.

        6.      Amendment  No. 1, dated as of September  21, 1993, to the Unit I
                Credit Agreement.

        7.      Assignment  and  Security  Agreement,  dated  December  1, 1987,
                executed  by TNP in favor of the Unit 1 Agent for the benefit of
                the Secured Parties, as defined therein.

          8.      Amended  and  Restated  Subordination  Agreement,  dated as of
                  October 1, 1988, among TNP, Continental Illinois National Bank
                  and Trust  Company of Chicago  and the Unit 1 Agent,  amending
                  and restating the  Subordination  Agreement among such parties
                  dated as of December 1, 1987.

          9.      First TGC  Modification and Extension  Agreement,  dated as of
                  January 24,  1992,  among the Unit 1 Banks,  the Unit 1 Agent,
                  TNP and TGC.

        10.       Second TGC Modification and Extension  Agreement,  dated as of
                  January 27,  1992,  among the Unit 1 Banks,  the Unit 1 Agent,
                  TNP and TGC.

        11.     Third TGC  Modification  and  Extension  Agreement,  dated as of
                January 27, 1992,  among the Unit 1 Banks, the Unit 1 Agent, TNP
                and TGC.

        12.     Fourth TGC  Modification  and Extension  Agreement,  dated as of
                September  29, 1993,  among the Unit I Banks,  the Unit 1 Agent,
                TNP and TGC.

        13.     Fifth TGC  Modification  and  Extension  Agreement,  dated as of
                September  29, 1993,  among the Unit 1 Banks,  the Unit 1 Agent,
                TNP and TGC.

        14.     Indemnity Agreement, made as of the 1st day of December, 1987,
                by Westinghouse, CE and Zachry, as Indemnitors, for the
                benefit of the Secured Parties, as defined therein.

        15.     Second Lien Mortgage and Deed of Trust (with Security Agreement)
                executed by TNP, as Mortgagor,  to Donald H. Snell,  as Mortgage
                Trustee,  for the benefit it of the Secured Parties,  as defined
                therein.

        16.     Correction Second Lien Mortgage and Deed of Trust (with Security
                Agreement),  dated as of December  1, 1987,  executed by TNP, as
                Mortgagor,  to Donald H. Snell,  as Mortgage  Trustee,  f or the
                benefit it of the Secured Parties, as defined therein.

        17.     Second Lien Mortgage and Deed of Trust (with Security Agreement)
                Modification,  Extension  and Amendment  Agreement,  dated as of
                January 8, 1992, executed by TNP to Donald H. Snell, as Mortgage
                Trustee,  for the  benefit of the  Secured  Parties,  as defined
                therein.

        18.     TNP Second Lien Mortgage Modification No. 2, dated as of
                September 21, 1993, executed by TNP to Donald H. Snell, as
                Mortgage Trustee, for the benefit of the Secured Parties, as
                defined therein.

        19.     Agreement for Conveyance and Partial Release of Liens, made as
                of the 1st day of December, 1987, by PFC and the Unit 1 Agent
                for the benefit of TNP.

         20.     Inducement  and Consent  Agreement,  dated as of June 15, 1988,
                 between  Phillips  Coal Company,  Kiewit Texas Mining  Company,
                 TNP, Phillips Petroleum Company and Peter Kiewit Son' s, Inc.

        21.      Guaranty,  dated as of  October 1,  1988,  executed  by TNP and
                 given in respect of the TGC obligations under the Unit 1 Credit
                 Agreement.

        22.     First Amended and Restated Facility Purchase Agreement, dated as
                of January 8, 1992, among TNP, as the Purchaser, and TGC, as the
                Seller,  amending and restating the Facility Purchase  Agreement
                among such parties dated as of October 1, 1988.

        23.     Operating Agreement, dated as of October 1, 1988, among TNP
                and TGC.

        24.     Unit 2 First Amended and Restated Project Loan and Credit
                Agreement, dated as of January 8, 1991 (the "Unit 2 Credit
                Agreement"), among TNP, Texas Generating Company II ("TGC
                II"), the banks named therein as Banks (the "Unit 2 Banks") and
                The Chase Manhattan Bank (National Association), as Agent for
                the Unit 2 Banks (the "Unit 2 Agent"), amending and restating
                the Project Loan and Credit Agreement among such parties dated
                as of October 1, 1988.

        25.     Amendment No. 1, dated as of September 21, 1993, to the Unit 2
                Credit Agreement.

        26.     Assignment and Security Agreement,  dated as of October 1, 1988,
                executed  by TNP in favor of the Unit 2 Agent for the benefit of
                the Secured Parties, as defined therein.

        27.     Subordination Agreement, dated as of October 1, 1988, among TNP,
                Continental  Illinois National Bank and Trust Company of Chicago
                and the Unit 2 Agent.

        28.     First TGC II Modification and Extension  Agreement,  dated as of
                January 24, 1992,  among the Unit 2 Banks, the Unit 2 Agent, TNP
                and TGC II.

        29.     Second TGC II Modification and Extension Agreement,  dated as of
                January 27, 1992,  among the Unit 2 Banks, the Unit 2 Agent, TNP
                and TGC II.

        30.     Third TGC II Modification and Extension  Agreement,  dated as of
                January 27, 1992,  among the Unit 2 Banks, the Unit 2 Agent, TNP
                and TGC II.

        31.     Fourth TGC II Modification and Extension Agreement,  dated as of
                September  29, 1992,  among the Unit 2 Banks,  the Unit 2 Agent,
                TNP and TGC II.

        32.     Fifth TGC II Modification and Extension  Agreement,  dated as of
                June 15, 1994, among the Unit 2 Banks, the Unit 2 Agent, TNP and
                TGC II.

        33.     Release and waiver of Liens and Indemnity Agreement, made
                effective as of the 1st day of October, 1988, by a consortium
                composed of Westinghouse, CE, and Zachry.

        34.     Second  Lien   Mortgage   and  Deed  of  Trust  (with   Security
                Agreement), dated as of October 1, 1988, and executed by TNP, as
                Mortgagor,  to Donald H.  Snell,  as Mortgage  Trustee,  for the
                benefit of the Secured Parties, as defined therein.

        35.     Second Lien Mortgage and Deed of Trust (with Security Agreement)
                Modification,  Extension  and Amendment  Agreement,  dated as of
                January 8, 1992, executed by TNP to Donald H. Snell, as Mortgage
                Trustee,  for the  benefit of the  Secured  Parties,  as defined
                therein.

        36.     TNP Second Lien Mortgage Modification No. 2, dated as of
                September 21, 1993, executed by TNP to Donald H. Snell, as
                Mortgage Trustee for the benefit of the Secured Parties, as
                defined therein.

        37.     Intercreditor and Nondisturbance Agreement,  dated as of October
                1, 1988, among PFC, Texas PFC, Inc., TNP, the Project Creditors,
                as  defined  therein,  and  the  Collateral  Agent,  as  defined
                therein.

        38.     Amendment #1, dated as of January 8, 1992, to the  Intercreditor
                and Nondisturbance Agreement, dated as of October 1, 1988, among
                TGC,  TGC II,  TNP,  the Unit I Banks,  the Unit 2 Banks and The
                Chase  Manhattan Bank (National  Association) in its capacity as
                collateral agent for the Unit
                I Banks and the Unit 2 Banks.

        39.     Amendment  No.  2,  dated  as of  September  21,  1993,  to  the
                Intercreditor and Nondisturbance  Agreement,  among TGC, TGC II,
                TNP, the Unit 1 Banks,  the Unit 2 Banks and The Chase Manhattan
                Bank (National  Association) in its capacity as collateral agent
                for the Unit 1 Banks and the Unit 2 Banks.

        40.     Non-Partition  Agreement,  dated as of May 30, 1990,  among TNP,
                TGC, and The Chase  Manhattan  Bank (National  Association),  as
                Agent  for the  Banks  which  are  parties  to the Unit I Credit
                Agreement.

        41.     Guaranty,  dated July 26,  1991,  to be  effective as of May 31,
                1991,  by TNP and  given in  respect  of the TGC II  obligations
                under the Unit 2 Credit Agreement.

        42.     First Amended and Restated Facility Purchase Agreement, dated as
                of January 8, 1992, among TNP, as the Purchaser,  and TGC II, as
                the  Seller,   amending  and  restating  the  Facility  Purchase
                Agreement  among  such  parties  dated  July  26,  1991,  to  be
                effective as of May 31, 1991.

        43.     Amendment No. 1 to the Unit 2 First Amended and Restated
                Facility Purchase Agreement, dated as of September 21, 1993,
                among TNP, as the Purchaser, and TGC II, as the Seller.

        44.     Operating Agreement, dated July 26, 1991, to be effective as
                of May 31, 1991, between TNP and TGC II.

        45.     Non-Partition Agreement, executed July 26, 1991, to be effective
                as of May 31, 1991,  among TNP,  TGC II and The Chase  Manhattan
                Bank (National Association).

        Power Supply Contracts

        46.     Contract dated May 12, 1976 between TNP and Houston Lighting &
                Power Company.

        47.     Amendment,  dated January 4, 1989, to the Contract dated May 12,
                1976 between TNP and Houston Lighting & Power Company.

        48.     Contract  dated  May 1,  1986  between  TNP and  Texas  Electric
                Utilities Company,  amended September 29, 1986, October 24, 1986
                and February 21, 1987.

        49.     Amended and Restated Agreement for Electric Service dated May
                14, 1990 between TNP and Texas Utilities Electric Company.

        50.     Amendment,  dated  April  19,  1993,  to  Amended  and  Restated
                Agreement for Electric  Service,  dated May 14, 1990, as Amended
                between TNP and Texas Utilities Electric Company.

        51.     Contract dated June 11, 1984 between TNP and Southwestern
                Public Service Company.

        52.     Contract  dated  April  27,  1977  between  TNP and  West  Texas
                Utilities  Company  amended April 14, 1982,  April 19, 1983, May
                18, 1984 and October 21, 1986.

        53.     Contract dated April 29, 1987 between TNP and El Paso Electric
                Company.

        54.     Contract dated February 28, 1974, amended May 13, 1974, November
                26,  1975,  August 26, 1976 and October 7, 1980  between TNP and
                Public Service Company of New Mexico.

       55.      Amendment,  dated  February  22,  1982,  to the  Contract  dated
                February  28,  1974,  amended May 13,  1974,  November 26, 1975,
                August  26,  1976 and  October  7, 1980  between  TNP and Public
                Service Company of New Mexico.

       56.      Amendment,  dated  February  8,  1988,  to  the  Contract  dated
                February  28,  1974,  amended May 13,  1974,  November 26, 1975,
                August 26,  1976,  and  October 7, 1980  between  TNP and Public
                Service Company of New Mexico.

        57.     Amended and Restated Contract for Electric Service, dated
                April 29, 1988, between TNP and Public Service Company of New
                Mexico.

        58.     Contract  dated  December 8, 1981  between TNP and  Southwestern
                Public Service  Company amended  December 12, 1984,  December 2,
                1985 and December 9, 1986.

        59.     Amendment,  dated  December  12,  1988,  to the  Contract  dated
                December 8, 1981  between TNP and  Southwestern  Public  Service
                Company amended December 12, 1984, December 2, 1985 and December
                19, 1986.

        60.     Amendment,  dated  December  12,  1990,  to the  Contract  dated
                December 8, 1981  between TNP and  Southwestern  Public  Service
                Company.

        61.     Contract dated August 31, 1983, between TNP and Capitol
                Cogeneration Company, Ltd. (including letter agreement dated
                August 14, 1986).

        62.     Agreement Substituting a Party, dated May 3, 1988, among
                Capitol Cogeneration Company, Ltd., Clear Lake Cogeneration
                Limited Partnership and TNP.

        63.     Letter  Agreements,  dated May 30,  1990 and  August  28,  1991,
                between Clear Lake Cogeneration Limited Partnership and TNP.

        64.     Notice of  Extension  Letter,  dated  August 31,  1992,  between
                Clear Lake Cogeneration Limited Partnership and TNP.

        65.     Scheduling  Agreement,  dated September 15, 1992,  between Clear
                Lake Cogeneration Limited Partnership and TNP.

        66.     Interconnection   Agreement  between  TNP  and  Plains  Electric
                Generation  and  Transmission  Cooperative,  Inc.  dated July 9,
                1984.

        67.     Interchange  Agreement  between TNP and El Paso Electric Company
                dated April 29, 1987.

        68.     Amendment No. 1, dated November 21, 1994 to the Interchange
                Agreement between TNP and El Paso Electric Company dated April
                29, 1987.

        69.     DC  Terminal  Participation  Agreement  between  TNP and El Paso
                Electric Company dated December 8, 1981 amended April 29, 1987.

        70.     1996 Firm Capacity & Energy Sale Agreement between TNP and TEP
                dated December 20, 1994, effective as of January 1, 1996.

        71.     Texas-New Mexico Power Company Executive Agreement for
                Severance Compensation Upon Change in Control, executed
                between the Company and each of its Executives and certain
                managers.

        72.     Revolving  Credit  Facility  Agreement,  dated as of November 3,
                1995,  among  TNP,  certain  lenders,   and  Chemical  Bank,  as
                Administrative Agent and Collateral Agent.

        73.     Guarantee and Pledge Agreement, dated as of November 3, 1995,
                between TGC II, and Chemical Bank, as collateral agent.

        74.     Bond Agreement, dated as of November 3, 1995, between TNP and
                Chemical Bank, as Collateral Agent.

        75.     Note Pledge Agreement, dated as of November 3, 1995, between
                TNP and Chemical Bank, as collateral agent.

        76.     Sixth TGC II Modification and Extension Agreement, dated as of
                November 3, 1995, among the Unit 2 Banks, The Chase Manhattan
                Bank, as agent, TNP, and TGC II.

        77.     Second Lien Mortgage and Deed of Trust Modification, Extension
                and Amendment Agreement No. 3, dated as of November 3, 1995.

        78.     Assignment  and  Amendment  Agreement,  dated as of  November 3,
                1995,  among "TNP, TGC II, and Chemical Bank, as  administrative
                agent and collateral agent.

        79.     Assignment  of TGC II  Mortgage  Lien,  dated as of  November 3,
                1995, by The Chase Manhattan Bank as agent to Chemical Bank.

        80.      Collateral Transfer of Notes, Rights and Interests, dated as of
                 November  3,  1995,   between  TNP  and   Chemical   Bank,   as
                 Administrative Agent and as Collateral Agent.

        81.     Assignment of Second Lien Mortgage and Deed of Trust, dated as
                of November 3, 1995, between The Chase Manhattan Bank, as
                Agent, and Chemical Bank, as agent.

        82.     Collateral Transfer of Notes, Rights and Interests,  dated as of
                November  3,  1995,   between   TNP  and   Chemical   Bank,   as
                Administrative Agent and as Collateral Agent.

        83.     Amendment No. 1, dated as of November 3, 1995, to the
                Assignment and Security Agreement between TNP, and The Chase
                Manhattan Bank, as agent.

        84.     Indenture and Security Agreement for 12-1/2% Secured
                Debentures dated as of January 15, 1992.

        85.     Indenture and Security Agreement for 10-3/4% Secured
                Debentures dated as of September 15, 1993.

        86.     Indenture of Mortgage and Deed of Trust dated as of November
                1, 1944, as supplemented.






<PAGE>
                                  EXHIBIT F-2

                              MICHAEL D. BLANCHARD
                                 ATTORNEY AT LAW
                            4100 International Plaza
                                  P.O. Box 2943
                             Fort Worth, Texas 76113
                                 (817) 731-0099




                                                            September 10, 1996


The First National Bank of Chicago
individually and as Administrative
Agent and Collateral Agent under the Credit
Agreement referred to below
One First National Plaza
Chicago, Illinois 60670

The Lenders and Co-Agents from time to time
parties to the Credit Agreement


Ladies and Gentlemen:

     I am the  general  counsel  of  Texas-New  Mexico  Power  Company,  a Texas
corporation  ("TNP"),  and have served in such capacity in  connection  with the
transactions contemplated by (i) the Credit Agreement, dated as of September 10,
1996  (the  "Credit  Agreement"),  among  TNP,  each  of the  lenders  that is a
signatory  thereto  (the  "Lender"),  The First  National  Bank of  Chicago,  as
administrative  agent and collateral  agent for the Lenders (in such capacities,
the "Administrative  Agent' and the "Collateral Agent",  respectively),  and The
First National Bank of Chicago and Union Bank of California,  N.A., as co-agents
(the "Co-Agent"),  (ii) the Bond Agreement,  dated as of September 10, 1996 (the
"Bond  Agreement"),  by  TNP  in  favor  of  the  Collateral  Agent,  (iii)  the
Twenty-Fifth  Supplemental  Indenture,  dated  as of  September  10,  1996  (the
"Supplemental  Indenture"),  between TNP and The First Trust of Illinois, N. A.,
pursuant  to which  the New  First  Mortgage  Bonds (as  defined  in the  Credit
Agreement)  shall be issued from time to time, and (iv) the Notes (as defined in
the  Credit  Agreement  (each  of the  agreements,  instruments,  and  documents
referred to in the foregoing clauses (i) through (iv) being collectively  called
the "Opinion  Document').  Unless otherwise defined herein, terms defined in the
Credit  Agreement are used herein as therein  defined.  Except where the context
otherwise  requires,  words  importing the singular  include the plural and vise
versa.

     In rendering the opinions  expressed below, I have examined (a) the Opinion
Documents and the Existing  Facility  Documents,  (b) such corporate  records of
TNP,  agreements,  instruments,  and documents which affect or purport to affect
the  obligations  of TNP under the Opinion  Documents and the Existing  Facility
Documents,  (c) the TNP Bond  Indenture  and (d) the  various  orders of the New
Mexico Public Utility  Commission and the Federal Energy  Regulatory  Commission
related to the transactions contemplated by the Opinion Documents and such other
documents  as I have  deemed  necessary  as a basis for the  opinions  expressed
below.  In my  examination,  except as relates to the execution by TNP of any of
the Opinion Documents,  I have assumed the genuineness of all signatures and the
legal capacity of natural persons, the authenticity of documents submitted to me
as  originals,  and the  conformity  with  authentic  original  documents of all
documents  submitted to me as copies. When relevant facts were not independently
established,  I have relied upon  statements  of  government  officials and upon
representations made in or pursuant to the Opinion Documents and certificates of
appropriate representatives of TNP.

     Based upon and subject to the  foregoing  and subject  also to the comments
and  qualifications set forth below, and having considered such questions of law
as I have deemed necessary as a basis for the opinions  expressed below, I am of
the opinion that:

1.   TNP is a  corporation  duly  incorporated,  validly  existing  and in  good
     standing  under  the  laws of the  State  of  Texas  and has the  necessary
     corporate  power,  authority,  and legal  right to  execute,  deliver,  and
     perform each of the Opinion Documents.

2.   The execution,  delivery,  and performance by TNP of the Opinion  Documents
     have been duly authorized by all necessary  corporate action and do not (a)
     require  any  consent  or  approval  of the  shareholders  of TNP or of the
     Trustee or any holder of any  interest in any of the First  Mortgage  Bonds
     issued and  outstanding  under the TNP Bond  Indenture,  (b.)  violate  any
     provision  of  law,  rule,  regulation,   or  any  order,  writ,  judgment,
     injunction,  decree,  determination or award of any Governmental Authority,
     or any  provision  of the  articles  or  bylaws  of TNP,  or the  TNP  Bond
     Indenture,  (c) result in a breach of, or  constitute  a default or require
     any consent under,  any indenture or loan or credit  agreement to which TNP
     is a party or by which it or its properties  are bound,  except that TNP is
     required, pursuant to the Chemical Bank Agreement, to obtain the consent of
     Required Lenders thereunder, which consent has been obtained; or (d) result
     in or require  the  creation or  imposition  of any Lien (other than a Lien
     permitted under Section 6.02 of the Credit  Agreement) upon or with respect
     to any  property  now owned or  hereafter  acquired  by TNP.  TNP is not in
     breach of or in  default  under any law,  rule,  regulation,  order,  writ,
     judgment,  injunction,  decree,  determination or award or any agreement or
     instrument  mentioned  in the  foregoing  which  breach  or  default  could
     reasonably be expected to have a Material Adverse Effect.

3.   TNP has duly executed and delivered each of the Opinion Documents.

4.   All actions,  consents,  approvals,  registrations,  or filings with or any
     other action by any Governmental  Authority necessary to be obtained by TNP
     under applicable Texas and Federal laws and regulations (including, without
     limitation,  those promulgated by the PUCT or the Federal Energy Regulatory
     Commission)  in  connection  with  (a) the  due  execution,  delivery,  and
     performance  by TNP of its  obligations,  and the  exercise  of its  rights
     under, the Credit Agreement and each of the other Opinion Documents and the
     incurrence  of the  indebtedness  and  obligations  to be  incurred  by TNP
     thereunder,  and (b) the grant of the Liens  created  pursuant  to the Bond
     Agreement and the Supplemental Indenture,  have been duly obtained or made,
     are in full force and effect and are not subject to appeal  reconsideration
     or other review.

5.   None  of the  Administrative  Agent,  the  Collateral  Agent  or any of the
     Lenders,  solely by  reason  of any  extension  of loans  under the  Credit
     Agreement or by reason of the execution, delivery, or performance of any of
     the Opinion Documents,  will be or be subject to regulation as an "electric
     utility",  "electrical corporation",  "electric company", "electric utility
     company",  "electric utility holding company", "public service company", or
     "holding  company" or a subsidiary  or  affiliate  of any of the  foregoing
     under either (i) the Federal Power Act, as amended, (ii) the Public Utility
     Holding Company Act of 1935, as amended, or (iii) any Texas law.

6.   There is no investigation,  action,  suit, or proceeding  pending or, to my
     knowledge,  threatened  against  TNP  that  seeks,  or  may  reasonable  be
     expected,  to rescind,  terminate,  modify,  or suspend any approval by any
     Governmental Authority (including,  without limitation, the 1996 Regulatory
     Orders)  obtained  by or given to TNP or that may  impede or delay any such
     approval.

7.   TNP is not subject to regulation  under the Public Utility  Holding Company
     Act of 1935, as amended, other than pursuant to Section 9(a)(2) thereof.

8.   All notices of a utility security instrument  affecting real property that,
     pursuant to Section  35.07 of the Texas  Business  and Commerce  Code,  are
     required to be recorded in the office of the county clerk of each county in
     the State of Texas in which  real  property  of TNP is  located,  have been
     filed.

     This opinion is solely for the information of the addressees hereof, and is
not to be quoted in whole or in part or otherwise  referred to (except in a fist
of closing  documents),  nor is it to be filed with any  governmental  agency or
other person without my prior written  consent,  except to the extent  otherwise
required by law.  Other than the addressees  hereof and McDermott,  Will & Emery
(who may rely upon this opinion as if this opinion were separately  addressed to
it),  no one is entitled to rely on this  opinion.  This  opinion is based on my
knowledge  of the law and  facts  as of the  date  hereof  I  assume  no duty to
communicate  with you with  respect to any matter  which  comes to my  attention
hereafter.

                                Very truly yours,



                              MICHAEL D. BLANCHARD



<PAGE>
                                  EXHIBIT F-3

                                                     WINSTEAD
                                                     SECHREST
                                                     & MINICK
                                                     A Professional Corporation



                                       September 10, 1996


The First National Bank of Chicago,
individually and as Administrative Agent
and Collateral Agent under the Credit
Agreement referred to below
One First National Plaza
Chicago, Illinois 60670

The Lenders and Co-Agents from time to time parties to the Credit Agreement

Ladies and Gentlemen:

     We have  acted as  special  Texas  counsel  to The First  National  Bank of
Chicago, as Administrative  Agent, in connection with the execution and delivery
of (i) the  Credit  Agreement,  dated as of  September  10,  1996  (the  "Credit
Agreement"),  among Texas-New Mexico Power Company, a Texas corporation ("TNP"),
each of the  lenders  that is a signatory  thereto  (the  "Lenders"),  The First
National Bank of Chicago,  as Administrative  Agent and Collateral Agent for the
Lenders,  and The First  National Bank of Chicago and Union Bank of  California,
N.A., as Co-Agents, and (ii) the Twenty-Fifth  Supplemental Indenture,  dated as
of  September  10,  1996,  between  TNP and First  Trust of  Illinois,  National
Association  (the  "Supplemental  Indenture"),  pursuant  to which the New First
Mortgage Bonds (as defined in the Credit Agreement) shall be issued from time to
time.  Terms defined in the Credit Agreement are used herein as therein defined,
except as otherwise  set forth  herein.  This opinion is being  delivered to you
pursuant to Section 4.01(a)(x)(C) of the Credit Agreement.

     We have reviewed  executed  counterparts  of (or facsimile,  photostatic or
conformed  copies of) the Credit  Agreement,  the Bond  Agreement,  the Original
Indenture  (as  defined in the  Supplemental  Indenture),  and the  Supplemental
Indenture, and have also examined such other documents, records and certificates
as we have deemed  necessary  or  appropriate  to express the opinions set forth
below.  We have also reviewed such statutes,  regulations,  rulings and judicial
decisions  of the State of Texas as we have  deemed  necessary  to  render  this
opinion.

     In rendering  this  opinion,  we have assumed,  with your consent,  without
independent verification or investigation:


     A. The legal capacity of all natural persons, the absence of duress and the
genuineness  of all  signatures on documents  submitted to us, the conformity to
executed originals of all documents submitted to us as facsimile, photostatic or
conformed copies, and the authenticity of such documents;

     B. That the parties to the TNP Bond Indenture  (including the  Supplemental
Indenture) are duly  incorporated,  chartered,  organized or formed, as the case
may be, and are validly  existing and in good  standing in the  jurisdiction  of
their incorporation, charter, organization or formation, as the case may be;

     C. That TNP is a public  utility (as defined in Section 2.0011 of the Texas
Public  Utility  Regulatory  Act of 1995) and a utility  (as  defined in Section
35.01 of the Texas  Business and Commerce  Code  ["BCC"]) and has all  requisite
corporate  power and all  governmental  licenses,  authorizations,  consents and
approvals  necessary to own,  operate and use the property (the "First  Mortgage
Property")  subject  to the  Lien  of the  TNP  Bond  Indenture  (including  the
Supplemental  Indenture) and to execute and deliver the  Supplemental  Indenture
and the New First Mortgage Bonds;

     D. That the execution, delivery and performance of the Credit Agreement and
the TNP Bond Indenture  (including the  Supplemental  Indenture)  have been duly
authorized by each of the parties thereto, that each such document has been duly
executed and delivered by each such party and constitutes  the legal,  valid and
binding  obligation  of each such  party and is  enforceable  against  each such
party, and that value has been given to TNP under the Credit Agreement;

     E. That  none of the  execution,  delivery  and  performance  by TNP of the
Credit  Agreement,  the  Bond  Agreement  and the  Supplemental  Indenture  will
conflict with or result in a breach of any  instrument,  agreement,  contract or
other document to which it is a party or by which its  properties are bound,  or
will conflict with or result in a breach of any order, writ, injunction,  decree
or demand  of any  court or  governmental  authority  affecting  it or its First
Mortgage Property.

     F.  That the  Original  Indenture  and all  supplements  thereto  up to but
excluding the  Supplemental  Indenture (the Original  Indenture as  supplemented
prior to the execution of the Supplemental Indenture being herein referred to as
the "Original  Supplemented  Indenture") were previously deposited for filing in
the  office  of the  Secretary  of State of the  State of Texas  accompanied  by
payment of the  statutory  filing fee  pursuant  to and in  compliance  with the
provisions of Section 35.02 and, as  applicable,  Section 35.08 of the TBCC and,
in connection  therewith,  notices of utility security instrument affecting real
property  were  recorded in the office of the county  clerk in each county where
real  property  covered  thereby is located  (which  includes,  inter alia,  all
counties where real property covered by the  Supplemental  Indenture is located)
pursuant to and in compliance with the provisions of Section 35.07 of the TBCC.

     G. That a Lien has previously been created and is currently in existence as
a result of the previous  execution and delivery by the parties  thereto of, and
with respect to that portion of the First Mortgage  Property  constituting  Real
Property (herein defined) and Personal  Property (herein defined)  described in,
the Original Supplemented Indenture.

     H. That a Lien has been  created and is  currently in existence as a result
of the  execution  and  delivery by the parties  thereto of, and with respect to
that  portion of the First  Mortgage  Property  constituting  Personal  Property
(herein defined) described in, the Supplemental Indenture.

     With your consent we have neither  examined nor requested an examination of
the indices or records of any court or governmental or other agency,  authority,
instrumentality or entity, nor have we made inquiry of any person or entity.

     In  connection  with these  opinions,  we do not purport to be qualified to
express legal conclusions  based on the laws of any state or jurisdiction  other
than the laws of the  State of Texas  and the  United  States  of  America  and,
accordingly,  we  express  no  opinion  as to the  laws of any  other  state  or
jurisdiction.

     Based solely and in reliance  upon the foregoing and subject to the further
qualifications hereinafter set forth, we are of the opinion that:

1.   The Supplemental  Indenture is in appropriate form for filing in the Office
     of the  Secretary  of State of the State of Texas,  and the  payment of the
     statutory filing fee and deposit for filing of the  Supplemental  Indenture
     in such office in  accordance  with the  provisions of Section 35.02 of the
     TBCC, will constitute perfection of a security interest on all of the First
     Mortgage  Property  constituting  personal property located in the State of
     Texas in which a Lien has been created by the  Supplemental  Indenture  and
     may be perfected by filing under Chapter 9 of the Uniform  Commercial  Code
     as enacted in the State of Texas (the "Personal Property"), in favor of the
     Trustee, as security for the payment of the New First Mortgage Bonds issued
     thereunder.

2.   The provisions of the  Supplemental  Indenture  governed by the laws of the
     State of Texas are  effective to create a Lien in the State of Texas on all
     of TNP's  right,  title and  interest in the portion of the First  Mortgage
     Property  described  therein  that is  real  property  (including  fixtures
     thereto) located in the State of Texas (the "Real  Property"),  in favor of
     the Trustee, as security for the payment of the New First Mortgage Bonds.

3.   The  payment  of the  statutory  filing fee and  deposit  for filing of the
     Supplemental Indenture in the Office of the Secretary of State of the State
     of Texas will be taken and held as notice to all  persons of the  existence
     of  the  Supplemental  Indenture  and  the  interest  granted  therein,  as
     security, in the Real Property described therein in favor of the Trustee as
     security for the payment of the New First Mortgage Bonds.

4.   Other  than  as  provided  in  the  assumptions  and  opinions  hereinabove
     provided,  no execution or re-recording or refiling of any other instrument
     is necessary to create (as to that portion of the First  Mortgage  Property
     constituting  Real  Property)  or preserve (as to that portion of the First
     Mortgage  Property  constituting  Real Property and Personal  Property) the
     Liens in the First  Mortgage  Property  created  by the TNP Bond  Indenture
     (including the Supplemental Indenture).

5.   None of the Agents nor any of the Lenders shall,  solely as a result of the
     financing  evidenced  by  the  Credit  Agreement,  become  subject  to  any
     registration or qualification  requirements or any tax imposed by the State
     of Texas or any  political  subdivision  thereof.  In this regard,  Article
     1396-8.01 of the Texas  Miscellaneous  Corporation  Laws Act  provides,  in
     part, that "a foreign  corporation shall not be considered to be conducting
     affairs in this State,  for the purposes of this Act, by reason of carrying
     on in this State any one (1) or more of the following activities: . . . (7)
     creating as borrower or lender, or acquiring,  indebtedness or mortgages or
     other  security  interests  in real or personal  property,  (8) securing or
     collecting debts due to it or enforcing any rights in property securing the
     same".  However,  if in the exercise of such  rights,  any of the Agents or
     Lenders takes title to any of the First Mortgage  Property and/or any other
     of the  Collateral,  then such Agent or Lender,  as the case may be, may be
     required  to qualify to do  business  in the State of Texas.  We express no
     opinion as to whether  activities  other  than  those  contemplated  by the
     Credit Agreement and the Supplemental  Indenture  conducted by any Agent or
     Lender in the State of Texas, if any, will constitute  transacting business
     in the State of Texas,  requiring  such  Agent or  Lender to  qualify  as a
     foreign corporation in the State of Texas.

         The  foregoing  opinions  are limited  by,  subject to and based on the
         following qualifications:


                           (a) We express  no opinion as to (i) TNP's  rights in
                  or title to its First Mortgage  Property,  or the existence of
                  or freedom  from any Lien  thereon  not  contemplated  by this
                  opinion, (ii) the accuracy,  completeness or legal sufficiency
                  of the  description in the TNP Bond  Indenture  (including the
                  Supplemental Indenture) of the First Mortgage Property subject
                  thereto,  or  (iii)  the  priority  of any  Lien in the  First
                  Mortgage Property.

                           (b)  The  foregoing   opinions  are  limited  by  (i)
                  bankruptcy, insolvency,  reorganization,  fraudulent transfer,
                  moratorium  and similar  federal  and state laws and  judicial
                  decisions  of general  application  relating  to the rights of
                  creditors,  and (ii) general principles of equity,  including,
                  but  not  limited  to,  the  defenses  of   unconscionability,
                  ambiguous  claim  or  right,  and  economic  duress,   whether
                  asserted in equitable or in legal actions.

                           (c) Any  security  interest  created  by the TNP Bond
                  Indenture   (including   the   Supplemental    Indenture)   in
                  after-acquired  Personal Property of TNP will not be effective
                  until  TNP  has  acquired  rights  therein;  with  respect  to
                  Personal  Property  that is  acquired  by TNP  after  the date
                  hereof,  Section 552 of the United States Bankruptcy Code will
                  limit the  extent to which  Personal  Property  acquired  by a
                  debtor  after the  commencement  of a case  under  the  United
                  States  Bankruptcy Code may be subject to a security  interest
                  arising from a security  agreement  entered into by the debtor
                  before the commencement of such case.

         These  opinions are being  issued and  delivered to you solely for your
benefit,  are intended solely for your use in connection  with the  transactions
contemplated by the Credit Agreement, and may not be filed publicly or otherwise
disclosed or relied upon by any other person (other than McDermott, Will & Emery
for purposes of its own opinion), or by you for any other purpose.

                                   Very truly yours,
                                                  WINSTEAD   SECHREST  &  MINICK
                                                  P.C.


<PAGE>
                                  EXHIBIT F-4

                       RUBIN, KATZ, SALAZAR, ALLEY & ROUSE
                                ATTORNEYS AT LAW








                                                             September 10, 1996


The First National Bank of Chicago,
individually and as Administrative
Agent and Collateral Agent under the Credit
Agreement referred to below
One First National Plaza
Chicago, Illinois 60670

The Lenders and Co-Agents from time to time parties to the Credit Agreement

         RE: TNP Credit Agreement

Ladies and Gentlemen:


     We have acted as New Mexico counsel to Texas-New  Mexico Power  Company,  a
Texas  corporation  ("TNP"),  since 1993.  During the period  1978 to 1993,  the
undersigned  individual also acted as New Mexico counsel to TNP as a member of a
different  law firm.  During  this  period  from  1978 to date,  the scope of my
representation  has been limited to the specific  matters  referred to me by TNP
and has included all matters before  governmental or regulatory  agencies of New
Mexico with respect to the  activities of TNP as a public  utility under the New
Mexico Public Utility Act and material  litigation and claims against TNP in the
state and federal  courts in New Mexico.  'Me files of TNP in our office contain
the full and complete  record of all  proceedings  involving  TNP before the New
Mexico Public Utility Commission and in any material litigation in the state and
federal  courts in New Mexico  during this period.  To our  knowledge  after due
inquiry, we have been employed as counsel for all material matters of TNP in New
Mexico for the periods described above.

     Insofar  as the law of the State of New  Mexico  and the law of the  United
States of America,  as it applies to the opinions  expressed in this letter, are
concerned, we have acted as special New Mexico counsel to TNP in connection with
the transactions contemplated by (i) the Credit Agreement, dated as of September
10, 1996 (the "TNP Credit  Agreement")  among TNP, each of the lenders that is a
signatory  thereto  (the  "Lender")The  First  National  Bank  of  Chicago,   as
administrative  agent and collateral  agent for the lenders (in such capacities,
the "Administrative  Agent" and the "Collateral Agent",  respectively),  and the
First National Bank of Chicago and Union Bank of California,  N.A., as co-agents
(in such  capacity,  the  "Co-Agents"),  (ii) the  Bond  Agreement,  dated as of
September  10,  1996,  by TNP  in  favor  of the  Collateral  Agent,  (iii)  the
Twenty-Fifth Supplemental Indenture, dated as of September 10, 1996, between the
Borrower  and The First Trust of Illinois,  NA,  pursuant to which the New first
Mortgage  Bonds (as  defined in the TNP Credit  Agreement)  shall be issued from
time to time, and (iv) the Notes (as defined in the TNP Credit  Agreement) (each
of the  foregoing  Clauses  (I)  and  documents  referred  to in d the  "Opinion
Documents").

     Unless otherwise defined herein,  terms defined in the TNP Credit Agreement
are used herein as therein defined. Except where the context otherwise requires,
words importing the singular include the plural and vice versa.

     In rendering  the opinions  expressed  below,  we have examined (a) the TNP
Credit  Agreement and each of the other Opinion  Documents,  (b) such  corporate
records of TNP, agreements, instruments and documents in the files of TNP in our
office  which  affect or  purport  to affect  the  obligations  of TNP under the
Opinion  Documents,  (c) the Certificate of Comparison for TNP dated October 19,
1995,  issued by the State  Corporation  Commission  of the State of New  Mexico
which certifies that a Certificate of Authority was issued to TNP on May 1, 1963
(collectively,  the  "Certificate  of Comparison and  Authority"),  and (d) such
other  documents  as we  have  deemed  necessary  as a basis  for  the  opinions
expressed below. In our examination,  we have assumed the genuineness of all and
the  authenticity  of documents  submitted to us as originals and the conformity
with authentic  original  documents of all documents  submitted to us as copies.
When relevant facts were not independently established, we have relied upon such
statements of government officials expressly referred to in this letter and upon
representations made in or pursuant to the Opinion Documents and certificates of
appropriate representatives of TNP.

     Despite any other express or implied statement in this letter,  each of the
opinions   expressed  'm  this  letter  is  subject  to  the  following  further
qualifications, conditions or assumptions, whether or not such opinions refer to
such qualifications, conditions or assumptions:

     (a) As to the good standing of TNP in New Mexico,  we have relied solely on
the  Certificate of Good Standing for TNP dated October 19, 1995 and valid until
March- 1, 1997, issued by the State  Corporation  Commission of the State of New
Mexico (the "Certificate of Good Standing").

     (b) We have not made  independent  inquiry into the law of any jurisdiction
other than the State of New Mexico and the political  subdivisions  of the State
of New Mexico and the United  States of  America,  insofar as the Federal law of
the United States of America  applies to the opinions  expressed in this letter.
To the extent that matters  discussed in this letter  relate to or are dependent
on the application of law of any other jurisdiction, we state no opinion.

     (c) Each of the parties to the Opinion  Documents  other than TNP, and each
of the  entities  having an  interest,  directly  or  indirectly,  in any of the
parties to the Opinion Documents,  is duly organized or formed, validly existing
and in good  standing  in its  respective  state or  nation of  organization  or
incorporation.

     (d) Each of the parties to the Opinion  Documents  other than TNP, and each
of the  entities  having an  interest,  directly or  indirectly,  in any of such
parties and executing the Opinion Documents on behalf of such parties,  has full
power,  authority  and legal  rights under the laws of its  respective  state or
nation of  organization  or  incorporation  to execute  and  deliver the Opinion
Documents to which it is a party.

     (e) Where the phrase "to our knowledge after due inquiry" appears,  we have
reviewed the Opinion  Documents and such other  documents and instruments as are
specifically  referred to in this letter,  and we have reviewed the files of TNP
in our offices,  and we have made inquiries of the appropriate  officers of TNP,
but we have  conducted  no further  independent  investigation  and have made no
independent inquiries of others.

     (f) Our opinions with respect to items 6 and 7 are  qualified,  conditioned
on and subject to provisions of the New Mexico Public  Utility Act which provide
that  abandonment or transfer of public utility  property and acquisition of the
stock of a public  utility  are  subject to  approval  by the New Mexico  Public
Utility  Commission under certain  circumstances,  as provided in the New Mexico
Public Utility Act.

     (g) Our opinions with respect to items 3 and 7 are  qualified,  conditioned
on and subject to requirements that appropriate  notices,  filings or recordings
of the  Twenty-Fifth  Supplemental  Indenture  shall be made with the New Mexico
Secretary of State and in the proper recording office of any county in the State
of New Mexico in which  property of the Company is situated,  as provided in the
New Mexico Public Utility Act.

     We have also  reviewed  executed  originals  or  copies,  certified  to our
satisfaction, of such other documents, corporate records of TNP, certificates of
public officials and of corporate officers of TNP,  agreements,  instruments and
documents in the files of TNP in our offices  related to the matters  handled by
us for TNP since 1978 and  referred to above,  which affect or purport to affect
the obligations of TNP under the Opinion Documents,  as we have deemed necessary
for the opinions expressed in this letter.

     Based on the  foregoing,  which  includes  such  investigations  as we have
deemed necessary,  and subject to the further qualifications set forth below, we
are of the opinion that:


     1. TNP is in good standing as a foreign  corporation  under the laws of the
State of New Mexico and has the necessary  corporate power,  corporate authority
and legal  right in such State to  execute,  deliver  and  perform  the  Opinion
Documents. No further filing, recordation,  publishing or other act is necessary
in connection with the existence of TNP or the conduct of the business of TNP in
the State of New Mexico.

     2.  The  execution,  delivery  and  performance  by TNP of the  TNP  Credit
Agreement  and the  other  Opinion  Documents  do not and  win not  violate  any
provision of law, rule or regulation or, to our knowledge after due inquiry, any
order, writ, judgment,  injunction,  decree, determination or award presently in
effect in the State of New Mexico which have applicability to TNP.

     3. Except for the 1996 NMPUC Order, no approvals, authorizations. consents,
orders or other  actions  by,  and no  notices  to, or  filings,  recordings  or
registrations  with any  Governmental  Authority  of the State of New Mexico are
required (i) to authorize  the  execution  and delivery by TNP of the TNP Credit
Agreement and the other Opinion Documents, (ii) to authorize the consummation by
TNP of the  transactions  contemplated  by the  Opinion  Documents,  or (iii) to
create or preserve the lien of the TNP Bond Indenture.  The 1996 NMPUC Order has
been duly  obtained,  is in full force and effect and,  subject to the following
sentence,  is not subject to appeal,  reconsideration or other review.  Although
the period for rehearing or appeal with respect to the 1996 NMPUC Order will not
elapse until,  at the latest,  the 80th day after the issuance of the 1996 NMPUC
Order,  except for TNP there are no  intervenors or other Persons who would have
standing  to  appeal  or  request  rehearing  of the 1996  NMPUC  Order.  To our
Knowledge after due inquiry,  no  investigation,  action,  suit or proceeding is
pending or threatened against TNP in the State of New Mexico which seeks, or may
reasonable be expected, to rescind,  terminate, modify or suspend the 1996 NMPUC
Order.

     4. To our knowledge after due inquiry, no action, suit or proceeding at law
or in equity or by or before any  governmental or regulatory  authority,  court,
arbitral,  tribunal  or other body in the State of New Mexico is now  pending or
threatened which could reasonably be expected to materially and adversely affect
the financial  condition,  assets, or operations of TNP or the ability of TNP to
perform its obligations under the Opinion Documents.

     5. A New Mexico court, or a Federal court applying conflict of law rules of
the  State of New  Mexico,  would  give  effect to the  choice of law  provision
contained in each Opinion  Document to which TNP is or is intended to be a party
stating  that such  Opinion  Document  (excluding  matters  relating to title to
property  and security  interests  therein) is to be governed by the laws of the
State of  Illinois in the case of an Opinion  Document  stated to be governed by
the laws of the State of Illinois,  or in the case of an Opinion Document stated
to be  governed  by the laws of the State of Texas,  by the laws of the State of
Texas.  With respect to our conflict of law rules opinion,  we have assumed that
the principal place of business and the site of the chief  executive  offices of
TNP are in the State of Texas, that the principal place of business and the site
of the chief executive office of The First National Bank of Chicago is the State
of Illinois,  that the negotiations  leading up to the signing of the TNP Credit
Agreement  and the other  Opinion  Documents  took  place in  several  states by
telephone,  telephonic  transmissions and face-to-face  meetings both inside and
outside  the State of Texas and the State of  Illinois,  but not in the State of
New Mexico,  that the last signature of a party to the TNP Credit  Agreement and
the other  Opinion  Documents is the last act  necessary to form the  agreements
contemplated  by the TNP Credit  Agreement and the other Opinion  Documents were
delivered by TNP in the State of Illinois.

     6.  None of the  Administrative  Agent the  Collateral  Agent or any of the
lenders,  solely by  reason  of any  extension  of loans  under  the TNP  Credit
Agreement or by reason of the  execution,  delivery or performance of any of the
Opinion  Documents,  will be or be subject to regulation as an "electric utility
company",  and "electric utility holding company",  "public service company,  or
"holding company" or a subsidiary or affiliate of any of the foregoing under any
New Mexico law.

     7. No consent,  approval or authorization of any Governmental  Authority in
New Mexico having jurisdiction is required for the validity of the execution and
delivery or for the  performance  by the  Administrative  Agent,  the Collateral
Agent or any Lender of, or the  consummation by the  Administrative  Agent,  the
Collateral  Agent or any  Lender of the  transactions  contemplated  by, the TNP
Credit Agreement.

     These opinions are limited to the matters  expressly stated in this letter,
and no opinion is inferred or may be implied beyond the matters expressly stated
in this letter. These opinions are being delivered to you, as addressee,  at the
direction of TNP with the intent that you, as addressee, rely on these opinions.
This letter does not  constitute a guarantee of the TNP Credit  Agreement or the
other Opinion  Documents or any of the obligations or other matters  referred to
or opined upon in this letter, and by rendering the opinions as provided in this
letter we are not guarantying or insuring the TNP Credit  Agreement or the other
Opinion  Documents or any of the  obligations  or other  matters  referred to or
opined upon in this letter. This opinion is solely for the internal  information
and assistance of the Administrative  Agent, the Collateral Agent, the Co-Agents
and the  Lenders,  as an  interpretation  of the law of the State of New  Mexico
applicable to the transactions  contemplated by the Opinion  Documents as of the
date of this  letter and may not be relied upon or quoted by anyone else for any
purpose  whatsoever,  nor may copies be  delivered  to any other person or filed
with any governmental agency or corporation,  without our prior written consent,
except  that  copies of this  letter may be  furnished  to Haynes & Boone and to
McDermott, Will & Emery, who may rely upon these opinions as if this letter were
separately  addressed to them. We make no undertaking to supplement this opinion
If facts or  circumstances  come to our  attention  or  changes in the law occur
after the date of this letter which could affect this opinion.

                                                 Very truly yours,

                                                           RUBIN, KATZ,
                                                           SALAZAR, ALLEY &
                                      ROUSE
                                                           A Professional
                                                           Corporation

                                                          Donald M.Salazar





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                                  EXHIBIT F-5

McDermott, Will & Emery



                                                             September 10, 1996



The First National Bank of Chicago,
individually and as Administrative
Agent and Collateral Agent under the Credit
Agreement referred to below
One First National Plaza
Chicago, Illinois 60670

The Lenders and Co-Agents from time to time
parties to the Credit Agreement

         Re:        Texas-New Mexico Power Company

Ladies and Gentlemen:

     We have acted as special  counsel to The First  National  Bank of  Chicago,
individually and as  Administrative  Agent, in connection with the execution and
delivery of the Credit  Agreement,  dated as of September  10, 1996 (the "Credit
Agreement"), among Texas-New Mexico Power Company, each of the Lenders from time
to time party  thereto,  The First National Bank of Chicago,  as  Administrative
Agent,  Collateral  Agent and Co-Agent,  and Union Bank of California,  N.A., as
Co-Agent.  Terms  defined in the  Credit  Agreement  are used  herein as therein
defined.

     In this connection,  we have examined  executed  counterparts of the Credit
Agreement, together with the other documents listed on Schedule A hereto.

     In our examination of the documents  referred to above, we have assumed the
authenticity of all such documents submitted to us as originals, the genuineness
of all signatures, the due authority of the parties executing such documents and
the conformity to the originals of all such documents submitted to us as copies.
We have further  assumed that you have  evaluated,  and are satisfied  with, the
creditworthiness  of the Borrower and the business and financial terms evidenced
by the Loan Documents.  We have relied, as to factual matters,  on the documents
we have examined.

     Our  opinions  expressed  below  are  limited  to the law of the  State  of
Illinois  and the  Federal law of the United  States,  and we do not express any
opinions  concerning  any other law. In addition,  we express no opinion  herein
regarding the creation or perfection of any security interest in the Collateral.

     Based upon and subject to the foregoing and upon such  investigations as we
have  deemed  necessary,  and  while we have not  independently  considered  the
matters  covered  by the  opinions  listed on  Schedule  A hereto to the  extent
necessary to enable us to express the conclusions stated therein,  we are of the
opinion  that  (a) the  Credit  Agreement  and the  Notes  are in  substantially
acceptable  legal form,  and (b) the other Loan  Documents  and the opinions and
other documents listed on Schedule A hereto are substantially  responsive to the
requirements  of the  corresponding  subsections  of Section  4.01 of the Credit
Agreement pursuant to which the same have been delivered.

                                   Very truly yours,






                                       Schedule A
                               List of Documents Examined
                         (All  terms  not  defined   herein  have  the  meanings
                         ascribed  to  them  in  the  Credit  Agreement;  unless
                         otherwise noted all documents are dated as of September
                         10, 1996.)

                  1.       Bond Agreement by and among Texas-New Mexico Power
        Company ("Borrower") and The First National Bank of Chicago, as
        Collateral Agent for the Lenders.

                  2.       Promissory Note in the principal amount of
       $20,000,000 made payable to The First National Bank of Chicago by the
       Borrower.

                  3.       Promissory Note in the principal amount of
       $20,000,000 made payable to Union Bank of California, N.A. by the
       Borrower.

                  4.       Promissory Note in the principal amount of
       $15,000,000 made payable to The First National Bank of Boston by the
       Borrower.

                  5.       Promissory Note in the principal amount of
       $15,000,000 made payable to Bank of Montreal by the Borrower.

                  6.       Promissory Note in the principal amount of
       $15,000,000 made payable to CIBC, Inc. by the Borrower.

                  7.       Promissory Note in the principal amount of
       $15,000,000 made payable to NationsBank of Texas N.A. by the Borrower.

                  8.       Twenty-Fifth Supplemental Indenture by and between
       the Borrower and First Trust of Illinois, National Association, as
       Trustee.

                  9.       UCC-1 Financing Statement listing the Borrower, as
       Debtor, and The First National Bank of Chicago as Collateral Agent, as
       Secured Party, to be filed with the Secretary of State of New Mexico.

                  10.      UCC-1 Financing Statement listing the Borrower, as
       Debtor, and The First National Bank of Chicago as Collateral Agent, as
       Secured Party, to be filed with the Secretary of State of Texas.

                  11.      Certificate of Incorporation of the Borrower issued
       and certified by the Secretary of State of Texas on August 21, 1996.

                  12.      Certificate of Good Standing of the Borrower issued
       and certified by the Secretary of State of Texas on August 21, 1996.

                  13.  Certificate  of  Good  Standing  and  Compliance  of  the
       Borrower  issued and  certified by the Chairman of the State  Corporation
       Commission of the State of New Mexico on August 21, 1996.

                  14.  Certificate of Michael D. Blanchard,  General Counsel and
       Corporate Secretary of the Borrower,  as to: (i) truth and correctness of
       the copies of. (a) by-laws of the Borrower,  (b) resolutions of the Board
       of  Directors  of the  Borrower,  (c)  1996  Regulatory  Orders  and  all
       approvals,  authorizations,  orders  or  consents  of, or  notices  to or
       registrations with, any Governmental  Authority required for the Borrower
       to  execute,  delivery  and  perform  its  obligations  under the  Credit
       Agreement and the other Loan Documents,  each attached thereto;  (ii) the
       last  amendment  date of the Borrower's  articles of  incorporation;  and
       (iii) incumbency and signatures of certain officers of the Borrower.

                  15.      Certificate of Michael D. Blanchard, General
       Counsel and Corporate Secretary Of the Borrower, as to: (i) the full
       force and effectiveness of the TNP Bond Indenture and the supplemental
       indentures thereto and (ii) the truth and correctness of the copies of
       the TNP Bond Indenture and the supplemental indentures attached thereto.

                  16. Certificate of Manjit S. Cheema, Senior Vice President and
       Chief Financial Officer of the Borrower,  as to: (i)  representations and
       warranties  contained  in  Article In of the  Credit  Agreement  and (ii)
       compliance  with the terms and provisions of the Credit  Agreement,  each
       other Loan Document and each Existing Facility Document,  and the absence
       of any Event of Default.

                  17. Certificate of Manjit S. Cheema, Senior Vice President and
       Chief Financial Officer of the Borrower,  as to: (i) fair market value of
       the assets of the  Borrower and its  Subsidiaries;  (ii) the present fair
       saleable value of the assets of the Borrower and its Subsidiaries;  (iii)
       the ability of the Borrower and its  Subsidiaries  to pay their debts and
       liabilities; and (iv) the ability of the Borrower and its Subsidiaries to
       conduct the businesses in which they are engaged.

                  18. Certificate of David S. Vick, Vice President and Assistant
       Secretary of First Trust of Illinois,  National  Association,  as to: (i)
       First  Trust  of  Illinois'  capacity  as  Trustee  under  the  TNP  Bond
       Indenture;  (ii),the First Mortgage Bonds  outstanding under the TNP Bond
       Indenture;  and  (iii)  the  incumbency  and  genuine  signatures  of the
       officers authorized to execute the Twenty-Fifth Supplemental Indenture.

                  19.    Opinion of Michael D. Blanchard, Esq., General
       Counsel for the Borrower.

                  20.    Opinion of Haynes and Boone, L.L.P., special counsel
       for the Borrower.

                  21.      Opinion of Rubin, Katz, Salazar, Alley & Rouse, New
       Mexico counsel for the Borrower.

                  22.      Opinion of Winstead, Sechrest & Minick, special
       Texas counsel for the Lenders.






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