Document:

Exhibit 10.5

    
      

    

    Exhibit
      10.5

    LONG-TERM
      PERFORMANCE CASH PROGRAM 

    

    

    INTRODUCTION

    

    PNM
      Resources, Inc. (the “Company”) has adopted the PNM Resources, Inc. Long-Term
      Performance Cash Plan (the “Plan”). Under the Plan, the Board Governance and
      Human Resources Committee1(the
      “Committee”) of the Company’s Board of Directors has the power to issue
      Performance Cash awards (the “Awards”) to eligible participants. The Plan sets
      forth the general guidelines pursuant to which Performance Cash will be awarded.
      

    

    The
      following describes the objectives of the Program, its various elements, and
      how
      the Program is intended to function. 

    

    PROGRAM
      OBJECTIVES

    

    Through
      grants of Awards, the Program is designed to motivate and retain participants
      by
      rewarding them for their contributions towards the Company’s achievement of
      superior financial performance measured by comparison to an industry index.
      

    

    EFFECTIVE
      DATES

    

    The
      Program is effective for the period from January 1, 2004 until the performance
      period ending December 31, 2010 or until the Committee so designates, whichever
      is earlier. The Committee reserves the right to adjust, amend or suspend the
      Program in its discretion.

     

    ADMINISTRATION

    

    The
      Program will be administered by the Committee. The Committee will have the
      sole
      authority and discretion to interpret the Program, approve Awards and perform
      all other duties necessary to administer the Program. The Committee’s
      interpretation of the Program, any Awards granted under the Program, any
      Agreement issued under the Program, and all decisions and determinations by
      the
      Committee with respect to the Program are final, binding, and conclusive on
      all
      parties.

    

    ELIGIBILITY

    

    As
      a
      general matter, all Officers of the Company and its affiliates shall participate
      the Program, but the Committee retains discretion to select eligible
      participants from among employees of the Company and its
      affiliates.

     

    
      

      
        1 
          Now known as the Human Resources and Compensation
          Committee

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    PROGRAM
      DESCRIPTION

    

    
      	·  	
              Overview

            

    

    

    Awards
      may be issued to participants when the Company’s Total Shareholder Return (TSR)
      is at the 40th
      percentile or above of companies in the S&P Midcap 400 Utility Index for
      each Performance Period. A target award is set for each participant level (the
      “Target”). Participants may earn a minimum of 0% to a maximum of 200% of the
      Target award.

     

    
      	·  	
              Award
                Opportunity

            

    

    

    Award
      amounts are based on the Company’s TSR performance relative to companies in the
      S&P Midcap 400 Utility Index for each Performance Period. Results will be
      interpolated between the established targets below to reward for incremental
      performance. The Target Award for each award level are as follows:

     

    
      	
               Award
                Level

            	 Target
              Award
	
               Chair,
                President and CEO   

            	 $287,000
	
               Executive
                Vice Presidents

            	 $88,000
	
               Senior
                Vice Presidents

            	 $50,000
	
               Vice
                Presidents 

            	 $21,000

    

     

    Awards
      are paid for PNM Resources, Inc. TSR performance relative to companies in the
      S&P Midcap 400 Utility Index as follows:

     

    
      	
               Performance

            	 Award
	
               85th
                percentile
                and above

            	 200% of target award
	
               55th
                percentile

            	 100% of target award
	
               40th
                percentile

            	 50% of target award
	
               Less
                than 40th
                percentile

            	 0%

    

    
       

    

    Note:
      Participants that are hired after the start date of a Performance Period will
      be
      eligible for a pro-rata award.

    

    
      	·  	
              TSR
                Calculation

            

    

    

    TSR
      will
      be calculated by using the average stock price including dividends over the
      first 30 days and the last 30 days of the Performance Period. 

    

    
      	·  	
              Performance
                Period

            

    

    

    The
      “Performance Period” will be a three-year period beginning with the 2004
      calendar year. A new Performance Period will begin each year thereafter. Thus,
      the Performance Periods will overlap. Note:
      A
      reduced
      measurement period will be used to pay partial awards for 2004 and 2005 during
      the first Performance Period. See explanation under “Award Frequency”.

     

    
 

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    
      	·  	
              Award
                Frequency

            

    

    

    In
      general, Awards will be paid upon completion of each Performance Period. This
      means that there will be awards paid at the end of each 3-year rolling
      Performance Period. Except as provided below for the first Performance Period,
      no Award will be made until the end of the Performance Period to which the
      Award
      relates. 

    

    In
      order
      to avoid having a full three-year Performance Period pass before the first
      award
      opportunity, participants will be eligible to earn a portion of a full (3-year
      Performance Period) award at the end of the 2004 and 2005 plan years. The award
      opportunity during the first three years of the plan will be as
      follows:

     

    
      	·  	
              In
                2004, participants will be eligible for an award equal to 33% of
                a full
                award based on the Company’s TSR performance for year 1 (2004) of the
                Plan. 

            

    

    
      	·  	
              In
                2005, participants will be eligible for an award equal to 33% of
                a full
                award based on the Company’s TSR performance for years 1 and 2 (2004 and
                2005) of the Plan. 

            

    

    
      	·  	
              In
                2006, participants will be eligible for an award equal to the remainder
                of
                the full award due for the first 3 years of the plan based on the
                Company’s TSR performance for years 1, 2 and 3 (2004, 2005, and 2006) of
                the Plan. This will be calculated by determining the full award for
                the
                first 3 years of the Plan, and subtracting the partial awards paid
                in 2004
                and 2005.

            

    

    

    The
      chart
      below illustrates the award schedule that will be used to phase in the plan.
Note:
      As
      stated above, participants will be eligible for partial awards in years 1,2
      and
      3 of the Plan, and will be eligible for full awards after year 4 of the
      Plan.

     

    
      

      
        	
                YEAR
                  1

                 (2004)

              	
                YEAR
                  2 

                (2005)

              	
                YEAR
                  3 

                (2006)

              	
                YEAR
                  4

                 (2007)

              	
                YEAR
                  5 

                (2008)

              
	
                 

              	 	 	 	 
	
                1-Year

                Perf.
                  Period 

              	
                Payout
                  for

                Year
                  1

              	 	 	 
	
                2-Year
                  Performance Period 

              	
                Payout
                  for Years 1& 2

              	 	 
	
                3-Year
                  Performance Period 

              	
                Payout
                  for Years 1, 2,3

              	 
	 	
                3-Year
                  Performance Period 

              	
                Payout
                  for Years 2,3,4

              

      

      
 

    

    
      	·  	
              Award
                Payouts 

            

    

    

    Awards
      will be issued to Participants in the form of cash as soon as administratively
      possible after completion of the then current Performance Period and calculation
      of the Company’s TSR performance. 

    

    
      	·  	
              Disposition
                of Awards to Employees Who Terminate
                Employment

            

    

    

    Participants
      who terminate employment due to death, disability, retirement, impaction or
      change in control shall receive receive a pro-rata award for the number of
      full
      months of service during the Performance Period. Distribution of the award
      shall
      be at the same time as payment is made to those participants who did not
      terminate service during the performance period.

    

    Awards
      will not be issued to any participant who voluntarily or involuntarily
      terminates employment prior to the end of a Performance Period for any reason
      other than those described above. 

     

    
      	·  	
              Forfeiture
                of Awards

            

    

    

    Any
      participant who terminates employment on or before the day on which awards
      are
      distributed will not be eligible for payment of a Long-Term Cash Plan
      award.

    
3Exhibit 10.6

    
      

    

    Exhibit
      10.6

    PNM
      RESOURCES, INC.

    2007
      OFFICER INCENTIVE PLAN

    

     

    INTRODUCTION

     

    This
      document serves as a comprehensive single source of information about the PNM
      Resources, Inc. Officer Incentive Plan (the “Plan”). It describes the objectives
      of the Plan, its various elements, and how they function. If you have questions
      that are not addressed by this document, please direct them to the Compensation
      Department.

     

    PLAN
      OBJECTIVES

     

    The
      Plan
      is designed to motivate and reward participants for achieving and exceeding
      annual company, business unit and individual goals, and the company-wide
      earnings per share (“EPS”) goal.

     

    EFFECTIVE
      DATES

     

    The
      Plan
      is effective from January 1, 2007 through December 31, 2007 (the “Plan Year”).
      Management reserves the right, however, to adjust, amend or suspend the Plan
      at
      its discretion during the Plan Year, with the approval of the Human Resources
      and Compensation Committee (the “Committee”) of the Board of Directors (the
“Board”).

     

    ADMINISTRATION

     

    
      	·  	
              Plan
                Year Goals

            

    

     

    Individual
      goals sets (e.g. combined company, business unit, and individual) will be
      established for each Officer. After considering the recommendations of
      management, the Committee will approve the company-wide EPS goals against which
      performance will be measured for the Plan Year.

     

    
      	·  	
              Incentive
                Award Approvals and Payout
                Timing

            

    

     

    Shortly
      after the end of the Plan Year, the Committee or the Board will, in its sole
      discretion, determine the final performance results, which will be used to
      calculate awards, if any. Awards will be distributed by check to eligible
      participants following such approval. The payment, generally, will be made
      by
      March 15 following the end of the Plan Year. If it is administratively
      impractical to make the payment by March 15, the payment shall be made as soon
      as reasonably practical following March 15. The payments also may be delayed
      in
      accordance with regulations issued pursuant to Section 409A of the Internal
      Revenue Code of 1986. 

     

    
      	·  	
              Provisions
                for a Change in
                Control

            

    

     

    Pursuant
      to the PNM Resources, Inc. Officer Retention Plan, if a participant’s employment
      is terminated during a “Protection Period” (as defined in the Officer Retention
      Plan), the participant may be entitled to a pro-rata award equal to 50% of
      the
      maximum award available under this Plan as in effect during the Protection
      Period. Please refer to the Officer Retention Plan for additional
      information.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    If
      a
      participant’s employment is not terminated prior to the end of the Plan Year in
      which a “Change in Control” occurs, the participant shall receive an award for
      that Plan Year determined in accordance with the provisions of this Plan. If
      the
      Plan is modified in any way as to change the amounts paid under the Plan, the
      participant shall receive an award equal to 50% of the maximum award available
      under this Plan as in effect during the Protection Period. Please refer to
      the
      Plans for additional information. For purposes of this Plan, the term “Change in
      Control” shall mean and refer to any “change in control event” within the
      meaning of Prop. Treas. Reg. § 1.409A-3(g)(5). The payments due pursuant to this
      paragraph shall be paid at the same time as incentive awards normally are
      paid.

     

    ETHICS

     

    The
      purpose of the Plan is to fairly reward performance achievement. Any employee
      who manipulates or attempts to manipulate the Plan for personal gain at the
      expense of customers, other employees or company objectives will be subject
      to
      appropriate disciplinary action, up to and including termination of employment
      and will forfeit any bonus under the Plan.

     

    ELIGIBILITY

     

    All
      officers are eligible to participate in the Plan with the exception of the
      Vice
      Presidents and Co-Presidents for First Choice Power, who will participate in
      the
      First Choice Power, L.P. Incentive Plan or the First Choice Power, L.P. Energy
      Trading Plan. For purposes of this Plan, officer means any employee of the
      company named by the Board with the title of Chief Executive Officer, President,
      Executive Vice President, Senior Vice President or Vice President.

     

    
      	·  	
              Pro
                Rata Awards for Partial Service
                Periods

            

    

     

    Pro
      rata
      awards for the number of months actively employed at each eligibility level
      during the Plan Year will be paid to the following participants at the time
      awards are paid to all participants: (Note: Any months in which a participant
      is
      actively on the payroll for at least one day will count as a full
      month.)

     

    
      	-  	
              Participants
                who are newly hired during the Plan
                Year.

            

    

     

    
      	-  	
              Participants
                who are promoted, transferred or demoted during the Plan
                Year.

            

    

     

    
      	-  	
              Participants
                who are on leave of absence for any full months during the Plan
                Year.

            

    

     

    
      	-  	
              Participants
                who are impacted or leave the company due to retirement or disability
                during the Plan Year. (Note: For purposes of the Plan, “retirement” means
                termination of employment with the company and all affiliates after
                the
                employee has attained: (1) age forty-five and twenty years of service;
                (2)
                age fifty-five and ten years of service; (3) the age at which the
                early
                distribution penalty of Section 72(t) of the Internal Revenue Code
                no
                longer applies and five years of service; or (4) any age and thirty
                years
                of service.)

            

    

     

    
      	-  	
              Participants
                who die during the Plan Year, in which case the award will be paid
                to the
                spouse of a married participant or the legal representative of an
                unmarried participant.

            

    

     

    
      	·  	
              Forfeiture
                of Awards

            

    

     

    Any
      participant who terminates employment on or before awards are distributed for
      the Plan Year for any reason other than death, impaction or retirement (e.g.,
      voluntary separation, termination for performance or misconduct - even if the
      terminated participant elects to take retirement) will not be eligible for
      payment of an award.

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      	·  	
              Eligible
                Base for Incentive
                Purposes

            

    

     

    For
      the
      purpose of incentive calculations, the participant’s annual rate of pay
      effective December 31 of the Plan Year will be used unless the participant
      has
      been demoted during the Plan Year. In this event, the participant’s annual rate
      of pay may be prorated based on the period of time worked at each level.

     

    AWARD
      DETERMINATION

     

    Awards
      may be earned for performance that provides additional value to our
      shareholders. The incremental performance needed to fund awards is taken into
      consideration in establishing performance thresholds and goals under the
      Plan.

     

    
      	·  	
              Performance
                Thresholds

            

    

     

    In
      order to be eligible for incentive awards, the following performance threshold
      must be met for 2007 (Individual Award):

     

    
      	-  	
              Individual
                goal results at the “Threshold” performance level or above. If this
                performance threshold is not met, no award will be paid for the Plan
                Year.

            

    

     

    In
      order to be eligible for the award enhancement, the following performance
      threshold must be met for 2007:

     

    
      	-  	
              Company-wide
                EPS of $1.78 or more. If this performance threshold is not met, no
                award
                enhancement will be applied.

            

    

     

    
      	·  	
              Individual
                Goals Award
                Opportunity

            

    

     

    For
      the
      2007 Plan Year, individual goals award opportunities are as
      follows:

     

    
      	
              Award
                Eligibility Level

            	
              Individual
                Goal Set

            
	
              Threshold*

            	
              Stretch*

            	
              Optimal*

            
	
              Chairman,
                President, and CEO

            	
              16.0%

            	
              28.0%

            	
              40.0%

            
	 	 	 	 
	
              SVP,
                Chief Financial Officer

            	
              9.6%

            	
              16.8%

            	
              24.0%

            
	
              SVP,
                Chief Administrative Officer

            	
              8.0%

            	
              14.0%

            	
              20.0%

            
	
              All
                Other Senior Vice-Presidents

            	
              6.4%

            	
              11.2%

            	
              16.0%

            
	 	 	 	 
	
              VP,
                Corporate Controller

              VP,
                Treasurer

              VP,
                Power Production

              VP,
                CIO

              VP,
                People Services

              VP,
                Energy Supply and Marketing 

              VP,
                Corporate Strategy & Development

              VP,
                Deputy General Counsel & Corporate Secretary

            	
              5.6%

            	
              9.8%

            	
              14.0%

            
	
              All
                Other Vice-Presidents 

            	
              4.0%

            	
              7.0%

            	
              10.0%

            

    

     Note:
      Vice Presidents and Co-Presidents of First Choice Power do not participate
      in
      the Officer Incentive Plan

     

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	·  	
              Earnings
                Per Share (EPS) Award
                Enhancement

            

    

     

    For
      the
      2007 Plan Year, the EPS award enhancement opportunities are as
      follows:

     

    
      	
              EPS
                (Threshold) = $1.78

            	
              EPS
                = $1.79 to $2.02

            	
              EPS
                (Optimal) = $2.03

            
	
              Individual
                Award is enhanced with a multiplier of 1.15x

               

            	
              Individual
                Award is enhanced 1.31x to 4.85x using straight-line
                interpolation

               

            	
              Individual
                Award is enhanced a maximum of 5x

               

            

    

     

    For
      this
      Plan, EPS is defined as net income related to running the business (excluding
      certain extraordinary items or events that result in windfalls or penalties
      which are not in keeping with the spirit of the Plan) divided by the number
      of
      shares of PNM Resources, Inc. common stock outstanding.

     

    
      	·  	
              Cash
                Flow Award Modifier 

            

    

     

    The
      award
      opportunity will be modified by a cash flow measure. The cash flow measure
      is
      Funds from Operations (FFO)to Debt, which is a debt coverage ratio that is
      used
      to measure cash-based earnings compared to total debt. 

     

    The
      Cash
      Flow modifier will be calculated as a percentage of the Officer Incentive Plan
      bonus amount, and will be added or subtracted from this amount to determine
      the
      final award.

    

    Cash
      Flow
      Modifier Table: 

    

    
      	
              Level

            	
              FFO/Debt
                Result

            	
              Cash
                Flow Modifier

            
	 	
              Under
                15%

            	
              (20%)

            
	
              Threshold

            	
              15.0%

            	
              (10%)

            
	 	
              15.1%

            	
              (6.667%)

            
	 	
              15.2%

            	
              (3.33%)

            
	
              Stretch

            	
              15.3%

            	
              0

            
	 	
              15.4%

            	
              3.333%

            
	 	
              15.5%

            	
              6.667%

            
	
              Optimal

            	
              15.6%

            	
              10%

            

    

    

    
      	·  	
              Award
                Calculation

            

    

     

    Individual
      goal performance that meets or exceeds the threshold level will be eligible
      for
      an award. The amount of each participant’s award is determined by the
      participant’s eligibility level and individual goal results.

     

    Company
      EPS performance that meets or exceeds the threshold level will serve as an
      enhancement to the award paid for Individual performance. As identified in
      the
“EPS Award Enhancement” table above, the award enhancement will be a minimum of
      1.15x at the EPS threshold level, a maximum of 5.0x at the EPS optimal level,
      and interpolated between the EPS threshold and optimal levels.

     

    The
      resulting percent is multiplied by the participant’s eligible annual base salary
      to determine the amount of the participant’s award. The FFO/Debt modifier
      achievement modifies the calculated bonus depending on the level of achievement
      outlined in the table above.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    Award
      Example:
      Assume
      that overall Individual results are at the optimal performance level,
      company-wide EPS performance is $1.90 (3.0x multiplier), and the FFO/Debt is
      15.1%. A participant who is eligible for an award at the Vice-President
      eligibility level would receive an award of 30.0% of annual salary. That is,
      individual goal results at the optimal performance level resulting in an award
      of 10%. This amount then enhanced by 3.0x for EPS performance and modified
      by
      (6.667%) for the cash flow measure. Assuming the participant’s annual base
      salary at year-end is $185,000 the award would be $51,800, which is calculated
      as follows:

     

    Step
      1:
      10% (individual goal results) x 3.0 (EPS multiplier) = 30.0% 

     

    Step
      2:
      $185,000 (base salary) x 30.0% = $55,500

     

    Step
      3:
      $55,500 x 6.667% (cash flow modifier) = $3,700 

     

    Step
      4:
      $55,500 - $3,700 = $51,800 (final award)

     

     

    5

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