Document:

exh103_093007.htm

    
      

    

     

    EXHIBIT
      10.3

    

     

    PNM
      Resources, Inc.

    Non-Union
      Severance Pay Plan

     

    (Effective
      August 1, 2007)

    

     

    
      
              

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    PNM
      RESOURCES, INC.

    NON-UNION
      SEVERANCE PAY PLAN

     

     

    INTRODUCTION

     

    Effective
      January 1, 2002, Public Service Company of New Mexico (“PNM”) adopted the
      Public Service Company of New Mexico Benefits My Way Plan (the “BMW
      Plan”).  Effective November 27, 2002, sponsorship of the Plan was
      transferred from PNM to PNM Resources, Inc. (“PNM Resources”) and the Plan was
      renamed the “PNM Resources, Inc. Benefits My Way Plan.”  The BMW Plan
      consisted of a number of component programs including Program 12, Non-Union
      Severance Pay Program (the “Non-Union Severance Program”).

     

    Effective
      as of January 1, 2004, PNM Resources amended and restated the BMW Plan to divide
      it into a number of separate plans that replace the component programs in effect
      on December 31, 2003.  As part of the amendment and restatement,
      the PNM Resources, Inc. Non-Union Severance Pay Plan (the “Plan”) was created as
      a successor plan to the Non-Union Severance Program.  By execution of
      this document, PNM Resources hereby amends and restates the Plan in its
      entirety, effective as of August 1, 2007 (the “Effective Date”).  This
      amended and restated Plan document applies only to a Participant (1) who
      receives a Notice of Impaction on or after the Effective Date and (2) who incurs
      a Separation from Service on or after the Effective Date.

     

    ARTICLE
      I

    PURPOSE

     

    1.1    
      General.  The purpose of the Plan is to provide
      severance benefits to eligible Participants.  The Plan provides three
      forms of severance benefits:  (a) Regular Severance Benefits; (b)
      Enhanced Severance Benefits; and (c) Officer Group Severance
      Benefits.

     

    
      ARTICLE
        II

    

    DEFINITIONS

     

    2.1    
      Definitions.  When a word or phrase appears in the
      Plan with the initial letter capitalized, and the word or phrase does not
      commence a sentence, the word or phrase shall generally be a term defined in
      this Article II or in the Introduction.  The following words and
      phrases used in the Plan with the initial letter capitalized shall have the
      meanings set forth below, unless a clearly different meaning is required by
      the
      context in which the word or phrase is used or the word or phrase is defined
      for
      a limited purpose elsewhere in the Plan document:

     

    (a)    
      “Affiliate” means (1) any
      member of a “controlled group of corporations” (within the meaning of Section
      414(b) of the Code as modified by Section 415(h) of the Code) that includes
      PNM
      Resources as a member of the group; and (2) any member of a group of trades
      or
      businesses under common control (within the meaning of Section 414(c) of the
      Code as modified by Section 415(h) of the Code) that includes PNM Resources
      as a
      member of the group.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “50%
      Affiliate” means any of the following:  (1) an entity that would be a
      member of a “controlled group of corporations” (within the meaning of Section
      414(b) of the Code as modified by Section 415(h) of the Code) that includes
      the
      Company as a member of the group if for purposes of applying Section 1563(a)(1),
      (2) or (3) of the Code for determining the members of a controlled group of
      corporations under Section 414(b) of the Code, the language “at least 50
      percent” is used instead of “at least 80 percent” each place it appears in
      Section 1563(a)(1), (2) and (3); and (2) an entity that would be a member of
      a
      group of trades or businesses under common control (within the meaning of
      Section 414(c) of the Code) that includes the Company as a member of the group
      if for purposes of applying Treas. Reg. § 1.414(c)-2 for purposes of
      determining the members of a group of trades or businesses (whether or not
      incorporated) that are under common control for purposes of Section 414(c)
      of
      the Code, the language “at least 50 percent” is used instead of “at least 80
      percent” each place it appears in Treas. Reg. § 1.414(c)-2.

     

    (b)    
      “Base Salary” means the annual rate of base earnings of a
      Participant immediately preceding his or her Separation from
      Service:

     

    (1)    
      exclusive of overtime pay, bonuses, commission, payments for accrued
      vacations or other special payments; and

     

    (2)    
      before any deductions, including, but not limited to, any federal,
      state or other taxes, and salary reduction amounts contributed to benefit plans
      or programs.

     

    (c)    
      “Benefits Department” means
      the organizational unit of PNMR Services Company with responsibility for
      administering benefit programs sponsored by PNM Resources and its
      Affiliates.

     

    (d)    
      “Board” means the Board of
      Directors of PNM Resources.

     

    (e)    
      “Cause” means, for purposes of
      termination of a Participant’s employment:

     

    (1)    
      The willful and continued failure of a Participant to substantially
      perform his or her duties with the Company after written demand for substantial
      performance is delivered to the Participant which specifically identifies the
      manner in which the Participant has not substantially performed his or her
      duties;

     

    (2)    
      The willful failure to report to work for more than thirty (30) days;
      or

     

    (3)    
      The willful engaging by the Participant in conduct which is
      demonstrably and materially injurious to PNM Resources or any Affiliate,
      monetarily or otherwise, including acts of fraud, misappropriation, violence
      or
      embezzlement for personal gain at the expense of PNM Resources or any Affiliate,
      conviction of a felony, or conviction of a misdemeanor involving immoral
      acts.

     

    Cause
      shall not be deemed to exist on the basis of clauses (1) or (2) if the
      failure results from such Participant’s incapacity due to verifiable physical or
      Mental Illness substantiated by appropriate medical evidence.  An act,
      or failure to act, by a Participant shall not be deemed “willful” if done or
      omitted to be done by the Participant in good faith and with a reasonable belief
      that his or her action was in the best interests of the Company.

     

    
      
        
        

      

      
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    (f)    
      “Code” means the Internal
      Revenue Code of 1986, as amended.

     

    (g)    
      “Committee” means the PNM
      Resources’ Benefits Governance Committee.

     

    (h)  “Company”
      means, collectively, PNM Resources or any Affiliate of PNM Resources that is
      authorized by the Board to adopt the Plan and which has adopted the Plan
      pursuant to Article IX (Adoption by Affiliates).

     

    (i)    
      “Effective Date” means August
      1, 2007.

     

    (j)    
      “Employee” means a common law
      employee who is a full-time employee of the Company scheduled to work at least
      thirty-two (32) hours per week, or a regular part-time or job share employee
      scheduled to work at least twenty (20) hours per week.  Examples of
      individuals who are not “Employees” of the Company for this purpose
      include:  (1) consultants; (2) leased employees or workers; (3)
      individuals providing services to the Company pursuant to a contract with a
      third party; (4) temporary employees or workers; (5) independent contractors;
      (6) employees of independent contractors; (7) interns; and (8) co-op
      employees.

     

    (k)    
      “Enhanced Severance Benefits”
      means the benefits described in Section 4.2 (Enhanced Severance
      Benefits).

     

    (l)    
      “ERISA” means the Employee
      Retirement Income Security Act of 1974, as amended.

     

    (m)    
      “Health Plan” means the PNM
      Resources, Inc. Comprehensive Health Plan as it may be amended or restated
      from
      time to time or any successor plan or plans that provide the benefits currently
      provided under such plan.

     

    (n)    
      “Impaction” means the
      elimination of a Participant’s position by the Company, as approved by the
      President of the Company or his or her authorized designee, followed by the
      Company giving a Notice of Impaction to the Participant and the Participant’s
      subsequent Separation from Service due to the Participant’s termination of
      employment by the Company.

     

    (o)    
      “Management Group” means any
      Participant who is salary grade P15 or higher at the time of
      Impaction.

     

    (p)    
      “Mental Illness” means any
      disorder, other than a disorder induced by alcohol or drug abuse, which impairs
      the behavior, emotional reaction or thought process of a person.

     

     

    
      
        
        

      

      
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    (q)    
      “Notice of Impaction” means a
      written notice issued by the Company, at its sole discretion, to the Participant
      stating that his or her position with the Company has been selected for
      Impaction.

     

    (r)    
      “Officer Group” means
      Employees who are officers of the Company and are in salary grades H18 or higher
      at the time of Impaction.

     

    (s)    
      “Officer Group Severance
      Benefits” means the benefits described in Section
      4.3 (Officer Group Severance Benefits).

     

    (t)    
      “Participant” means any
      Employee who has satisfied the eligibility requirement for participation in
      the
      Plan as set forth in Section 3.1 (Participation).

     

    (u)    
      “Plan” means the PNM
      Resources, Inc. Non-Union Severance Pay Plan, as set forth in this document
      and
      as it may be amended from time to time.

     

    (v)    
      “Plan Year” means a twelve
      (12) month period commencing on each January 1 and ending on each following
      December 31.

     

    (w)    
      “PNM Resources” means PNM
      Resources, Inc.  As used in the Plan, “PNM Resources” also means any
      successor in interest to PNM Resources resulting from merger, consolidation,
      or
      transfer of substantially all of PNM Resources’ assets.

     

    (x)    
      “Regular Severance Benefits”
      means the benefits described in Section 4.1 (Regular Severance
      Benefits).

     

    (y)    
      “Release Agreement” means the
      Employment Termination and Release Agreement to be executed by a Participant
      in
      order to be eligible for and receive Enhanced Severance Benefits pursuant to
      Section 4.2 (Enhanced Severance Benefits) or Officer Group Severance
      Benefits pursuant to Section 4.3 (Officer Group Severance
      Benefits).  The Release Agreement shall be prepared only by the
      Company.

     

    (z)    
      “Separation from Service” means the termination of a
      Participant’s employment with the Company and all Affiliates and 50% Affiliates
      due to death, retirement or other reasons.  The Participant’s
      employment relationship is treated as continuing while the Participant is on
      military leave, sick leave, or other bona fide leave of absence (if the period
      of such leave does not exceed six months, or if longer, so long as the
      Participant’s right to reemployment with the Company or an Affiliate is provided
      either by statute or contract).  If the Participant’s period of leave
      exceeds six months and the Participant’s right to reemployment is not provided
      either by statute or by contract, the employment relationship is deemed to
      terminate on the first day immediately following the expiration of such
      six-month period.  Whether a termination of employment has occurred
      will be determined based on all of the facts and circumstances and in accordance
      with regulations issued by the United States Treasury Department pursuant to
      Section 409A of the Code.

     

    (aa)    
      “Year of Service” means a
      twelve (12) month period during which an Employee performs services for the
      Company, counting each month as one-twelfth (1/12th) of a year if the Employee
      was employed by the Company on any day of that calendar month.  If the
      Employee’s employment with the Company includes a break in employment, then only
      the Years of Service in the last period of employment will be considered Years
      of Service.

     

     

    
      
        
        

      

      
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    Any
      Employee who was employed by TNP Enterprises, Inc. or its subsidiaries on the
      closing date of the transaction pursuant to which PNM Resources acquired all
      of
      the outstanding stock of TNP Enterprises, Inc. and who immediately after the
      closing date of the transaction was employed by the PNM Resources, TNP
      Enterprises or the Affiliates of either shall receive credit for all service
      with TNP Enterprises, Inc., Texas-New Mexico Power Company, First Choice Power,
      Inc. or any other TNP Enterprises, Inc. subsidiary as if such service were
      performed for the Company.  Such service will be credited on a
      reasonably uniform basis for all such Employees.

     

    Any
      Employee who was employed by Twin Oaks Power LP and its affiliates on the
      closing date of the transaction pursuant to which Altura Power, L.P. acquired
      certain assets of Twin Oaks Power LP and its affiliates and who immediately
      after the closing date of the transaction was employed by the Company shall
      receive credit for all service with Twin Oaks Power LP and its affiliates as
      if
      such service were performed for the Company.  Such service will be
      credited on a reasonably uniform basis for all such employees.

     

    Persons
      employed in the service of EnergyCo, LLC or its affiliates immediately before
      becoming an employee of the Company shall receive credit for all service with
      EnergyCo, LLC or its affiliates as if such service were performed for the
      Company.  Service will be credited on a reasonably uniform
      basis.

     

    2.2    
      Special Purpose Definitions.  Additional definitions
      of terms that have limited application may be set forth in the Section or
      Sections to which they apply.

     

    2.3    
      Construction.  The masculine gender, when appearing in
      the Plan, shall include the feminine gender (and vice versa), and the singular
      shall include the plural, unless the Plan clearly states to the
      contrary.  Headings and subheadings are for the purpose of reference
      only and are not to be considered in the construction of the Plan.  If
      any provision of the Plan is determined to be for any reason invalid or
      unenforceable, the remaining provisions shall continue in full force and
      effect.  All of the provisions of the Plan shall be construed and
      enforced according to the laws of the State of New Mexico and shall be
      administered according to the laws of such state, except as otherwise required
      by ERISA, the Code, or other applicable Federal law.

     

    ARTICLE
      III

    ELIGIBILITY

     

    3.1    
      Participation.  An Employee will become a Participant
      in the Plan as of the day on which the Employee completes six months of
      service.  If an Employee terminates employment prior to completing six
      months of service, the Employee shall not become a Participant and shall not
      be
      entitled to receive any benefits under this Plan.

     

    3.2    
      Benefits Due to Impaction Only.  This Plan provides
      benefits only if a Participant is Impacted.  As provided in
      Section 2.1(n) (Definitions – Impaction), a Participant will be
      considered to be “Impacted” (and entitled to receive benefits) only if all of
      the following conditions exist:

     

     

    
      
        
        

      

      
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    (a)    
      The Participant’s position is eliminated by the Company;

     

    (b)    
      The Company issues a Notice of Impaction to the Participant stating
      that his or her position has been selected for Impaction; and

     

    (c)    
      The Participant incurs a Separation from Service due to the
      Participant’s termination of employment by the Company.  If a
      Participant’s position is eliminated, but the Participant is not actually
      terminated by the Company (for example, due to a transfer to another position),
      the Participant is not entitled to receive benefits.  Similarly, if a
      Participant’s duties change, but the Participant is not actually terminated by
      the Company, the Participant is not entitled to receive benefits.  If
      a Participant’s employment is terminated by the Company, but the Participant’s
      position is not eliminated, the Participant is not entitled to receive benefits
      under this Plan.

     

    3.3    
      Eligibility for Regular Severance Benefits.  To be
      eligible for Regular Severance Benefits, a Participant must (a) be Impacted
      and
      (b) not be ineligible to receive benefits under Section 3.7 (Certain
      Employees Ineligible for Benefits).

     

    3.4    
      Eligibility for Enhanced Severance Benefits.  In order
      to be eligible for Enhanced Severance Benefits, a Participant must (a) satisfy
      all of the requirements for Regular Severance Benefits as provided in Section
      3.3 (Eligibility for Regular Severance Benefits) and (b) sign and
      deliver a Release Agreement pursuant to Section 3.6 (Release
      Agreement) below.

     

    3.5    
      Eligibility for Officer Group Severance Benefits.  In
      order to be eligible for Officer Group Severance Benefits, a Participant must
      (a) satisfy the requirements of Section 3.2 (Benefits Due to Impaction
      Only) other than Section 3.2(b) (relating to receipt of a Notice of
      Impaction), (b) not be ineligible to receive benefits under Section 3.7
      (Certain Employees Ineligible for Benefits), and (c) sign and deliver a
      Release Agreement pursuant to Section 3.6 (Release Agreement)
      below.

     

    3.6    
      Release Agreement.  The Release Agreement required by
      Section 4.2 (Enhanced Severance Benefits) and 4.3 (Officer Group
      Severance Benefits) shall comply with the requirements of this
      Section.

     

    (a)    
      General.  The Release Agreement shall contain such
      terms and conditions as are satisfactory to the Company, including, but not
      limited to, the release of any and all claims that the Participant may then
      have, as of the signing of such release, against the Company, its employees,
      officers and directors. The Participant generally shall have up to forty-five
      (45) unpaid days following the date the Release Agreement is given to the
      Participant to sign and return the Release Agreement to the
      Company.

     

    (b)    
      Revocation of the Release Agreement.  Within seven (7)
      calendar days after delivery of the Release Agreement to the Company by the
      Participant, the Participant shall be entitled to revoke the Release Agreement
      by returning the signed copy or counterpart original of the Release Agreement
      to
      the Company.  The returned Release Agreement shall include the
      Participant’s written signature in a space provided thereon, indicating his or
      her decision to revoke the Release Agreement.

     

    
      
        
        

      

      
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    (c)    
      Impact of Revocation.  The revocation of a previously
      signed and delivered Release Agreement pursuant to the above shall be deemed
      to
      constitute an irrevocable election by the Participant to have declined the
      election of Enhanced Severance Benefits and Officer Group Severance
      Benefits.  If an Officer Group Participant revokes an executed Release
      Agreement, the Officer Group Participant may receive the Regular Severance
      Benefits described in Section 4.1 (Regular Severance Benefits), provided
      the Participant (1) satisfies the requirements of Section 3.2 (Benefits Due
      to Impaction Only) other than Section 3.2(b) (relating to receipt of a
      Notice of Impaction), and (2) is not ineligible to receive benefits under
      Section 3.7 (Certain Employees Ineligible for Benefits).

     

    3.7    
      Certain Employees Ineligible for Benefits.  The
      following Employees shall be ineligible to receive Regular, Enhanced, or Officer
      Group Severance Benefits under this Plan:

     

    (a)    
      Employees whose terms and conditions of employment are subject to
      collective bargaining;

     

    (b)    
      Employees whose employment with the Company is terminated for
      Cause;

     

    (c)    
      Employees who voluntarily resign from employment with the
      Company;

     

    (d)    
      Employees whose employment with the Company is terminated due to a
      sale
      of the Company or a portion of the Company if the Employee is offered a position
      with the acquiror (regardless of whether the position is “comparable” to the
      Participant’s current position with the Company), regardless of whether the
      Participant accepts or declines such offer of employment; or

     

    (e)    
      Employees who do not terminate employment with the Company and all
      of
      its Affiliates and 50% Affiliates.

     

    ARTICLE
      IV

    BENEFITS

     

    4.1    
      Regular Severance Benefits.  Participants satisfying
      the eligibility requirements set forth in Section 3.3 (Eligibility for
      Regular Severance Benefits) shall be entitled to the following
      benefits:

     

    (a)    
      Severance Pay.  Severance pay shall be in a lump-sum
      amount equal to four (4) weeks of Base Salary.

     

    (b)    
      Medical, Dental and Vision Coverage.  Medical, dental
      and vision coverage under the Health Plan, as the Participant had elected prior
      to the Participant’s Separation from Service, shall be provided for the three
      (3) months immediately following the Participant’s Separation from Service with
      the cost of such coverage to be shared by the Company and the Participant on
      the
      same basis as in effect prior to the Participant’s Separation from
      Service.  Participant contributions that were required for
      participation in the Health Plan will continue to be required during the three
      (3) month continuation period.  No Participant may elect to receive
      cash or any other allowance in lieu of medical, dental or vision coverage under
      the Health Plan.

     

    
      
        
        

      

      
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    (c)    
      COBRA Continuation Coverage.  Continuation of coverage
      under the Health Plan pursuant to Section 4980B of the Code will become
      effective upon completion of the three (3) month period.

     

    (d)    
      Life Insurance.  Term life insurance coverage in the
      face amount of Ten Thousand Dollars ($10,000) will be Company-paid for the
      three
      (3) month period following the Participant’s Separation from
      Service.

     

    (e)    
      Placement Assistance.  The Company will provide the
      Participant with placement assistance for up to six (6) months following the
      Participant’s Separation from Service, either internally or through an outside
      consultant.

     

    4.2    
      Enhanced Severance Benefits.  Participants satisfying
      the eligibility requirements set forth in Section 3.4 (Eligibility for
      Enhanced Severance Benefits) shall be entitled to the following
      benefits:

     

    (a)    
      Severance Pay.  Severance pay shall be in a lump-sum
      amount equal to four (4) months of Base Salary, plus one (1) additional week
      of
      Base Salary for each Year of Service.  The Plan also provides
      additional severance pay based on a Participant’s Years of Service as
      follows:

     

    (1)    
      Additional Severance Pay for Participants with less than 10 Years of
      Service.  If a Participant has less than ten (10) Years
      of Service at the time of the Participant’s Separation from Service, the
      Participant shall receive an additional ten percent (10%) of the amount of
      severance pay provided for in the first sentence of this Section
      4.2(a).

     

    (2)    
      Additional Severance Pay for Participants with at least 10 Years of Service
      but less than 20 Years of Service.  If a Participant has
      at least ten (10) Years of Service but less than twenty (20) Years of Service
      at
      the time of the Participant’s Separation from Service, the Participant shall
      receive an additional twenty percent (20%) of the amount of severance pay
      provided for in the first sentence of this Section 4.2(a).

     

    (3)    
      Additional Severance Pay for Participants with 20 or More Years of
      Service.  If a Participant has twenty (20) or more Years
      of Service at the time of the Participant’s Separation from Service, the
      Participant shall receive an additional thirty percent (30%) of the amount
      of
      severance pay provided for in the first sentence of this Section
      4.2(a).

     

    (b)    
      Medical, Dental and Vision Coverage.  Medical, dental
      and vision coverage under the Health Plan, as the Participant had elected prior
      to the Participant’s Separation from Service, shall be provided for the six (6)
      months immediately following the Participant’s Separation from Service with the
      cost of such coverage to be shared by the Company and the Participant on the
      same basis as in effect prior to the Participant’s Separation from
      Service.  Participant contributions that were required for
      participation in the Health Plan will continue to be required during the six
      (6)
      month continuation period.  No Participant may elect to receive cash
      or any other allowance in lieu of medical, dental or vision coverage under
      the
      Health Plan.

     

    
      
        
        

      

      
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    (c)    
      COBRA Continuation Coverage.  Continuation of coverage
      under the Health Plan pursuant to Section 4980B of the Code will become
      effective upon completion of the six (6) month period.

     

    (d)    
      Life Insurance.  Term life insurance coverage in the
      face amount of Ten Thousand Dollars ($10,000) will be Company-paid for the
      six
      (6) months following the Participant’s Separation from Service.

     

    (e)    
      Placement Assistance for Employees who are not Members of the Management
      Group.  For Participants who are not members of the
      Management Group, the Company will provide the Participant with placement
      assistance for up to six (6) months following the Participant’s Separation from
      Service, either internally or through an outside consultant.

     

    (f)    
      Placement Assistance for Employees who are Members of the Management
      Group.  For Participants who are members of the
      Management Group, the Company will pay the Participant a lump sum amount equal
      to one (1) month’s Base Salary and the Company will provide the Participant with
      placement assistance for up to six (6) months following the Participant’s
      Separation from Service, either internally or through an outside
      consultant.

     

    4.3    
      Officer Group Severance Benefits.  Participants
      satisfying the eligibility requirements of Section 3.5 (Eligibility for
      Officer Group Severance Benefits) shall be entitled to receive the following
      benefits:

     

    (a)    
      Severance Pay.  Severance
      pay shall be in a lump-sum amount equal to fourteen (14) months of Base Salary
      (with no additional cost-of-living allowance, promotion, merit or other
      increases), plus one (1) additional week of Base Salary for each Year of
      Service.

     

    (b)    
      Medical, Dental and Vision Coverage.  Medical, dental
      and vision coverage under the Health Plan, as the Participant had elected prior
      to the Participant’s Separation from Service, shall be provided for the twelve
      (12) months immediately following the Participant’s Separation from Service with
      the cost of such coverage to be shared by the Company and the Participant on
      the
      same basis as in effect prior to the Participant’s Separation from Service.
      Participant contributions that were required for participation in the Health
      Plan will continue to be required during the twelve (12) month continuation
      period.  No Participant may elect to receive cash or any other
      allowance in lieu of medical, dental or vision coverage under the Health
      Plan.

     

    (c)    
      COBRA Continuation Coverage.  Continuation of coverage
      under the Health Plan pursuant to Section 4980B of the Code will become
      effective upon completion of the twelve (12) month period.

     

    (d)    
      Life insurance and Accidental Death & Dismemberment
      Insurance.  Term life insurance coverage and accidental
      death and dismemberment insurance coverage in the face amount of one (1) times
      Base Salary will be Company-paid for the twelve (12) months following the
      Participant’s Separation from Service.

     

     

    
      
        
        

      

      
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    (e)    
      Placement Assistance.  The Company will reimburse the
      Participant for his or her placement assistance expenses, up to a maximum of
      five percent (5%) of the Participant’s Base Salary.  Placement
      assistance for Participants shall include, but not be limited to, any of the
      following types of expenses:

     

    (1)    
      out-of-town travel (i.e., airfare, mileage, rental cars,
      lodging and meals;

     

    (2)    
      services for outplacement;

     

    (3)    
      resume preparation and mailing; and

     

    (4)    
      recruitment or employment agencies’ fees.

     

    Reimbursements
      pursuant to this paragraph will only be for expenses incurred within nine (9)
      months following the Participant’s Separation from Service.  Requests
      for reimbursements must be submitted within twelve (12) months following the
      Participant’s Separation from Service.

     

    4.4    
      Payment Date.  All payments shall be made in
      accordance with this Section 4.4.

     

    (a)    
      General Rule.  Notwithstanding any other provision of
      this Plan to the contrary, no payment shall be made prior to the Participant’s
      Separation from Service.  Within ten (10) business days following the
      Participant’s Separation from Service, an amount equal to the Regular Severance
      Benefits to which a Participant would be entitled pursuant to Section 4.1(a)
      (Regular Severance Benefits – Severance Pay) will be paid to the
      Participant.  The balance of severance pay, if any, due a Participant
      shall be paid within ten (10) business days following the last day on which
      a
      Participant may revoke a previously executed and timely delivered Release
      Agreement, if the Participant is to receive Enhanced Severance Benefits or
      Officer Group Severance Benefits.

     

    (b)    
      Payment Disputes.  If a payment is not made due to a
      dispute with respect to such payment, the payment may be delayed in accordance
      with Treas. Reg. § 1.409A-3(g).

     

    (c)    
      Ban on Acceleration or Deferral.  Under no
      circumstances may the time or schedule of any payment made or benefit provided
      pursuant to this Agreement be accelerated or subject to a further deferral
      except as otherwise permitted or required pursuant to regulations and other
      guidance issued pursuant to Section 409A of the Code.

     

    (d)    
      No Elections.  No Participant has any right to make
      any election regarding the time or form of any payment due under this
      Agreement.

     

    4.5    
      Suspension of Benefits.  Medical, dental, vision, and
      life insurance and accidental death and dismemberment insurance benefits being
      received by a Participant pursuant to the terms and conditions of this Article
      IV shall terminate in the event, and at the time that, the Participant is
      subsequently rehired as an Employee of the Company.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    4.6    
      No Duplication of Benefits.  Notwithstanding anything
      herein to the contrary, the right to receive any benefits under the Plan by
      any
      Participant is specifically conditioned upon the Participant either waiving
      or
      being ineligible for any and all benefits under:

     

    (a)    
      the PNM Resources, Inc. Employee Retention Plan, as it may be amended
      or restated from time to time;

     

    (b)    
      the PNM Resources, Inc. Union Severance Pay Plan, as it may be amended
      or restated from time to time;

     

    (c)    
      the PNM Resources, Inc. Officer Retention Plan, as it may be amended
      or
      restated from time to time;

     

    (d)    
      any successor or change in control or severance benefit plans otherwise
      available to the Participant; or

     

    (e)    
      any other severance, retention or change in control plan, program
      or
      agreement sponsored by the Company.

     

    4.7    
      Effect of Rehire.  Notwithstanding any provision to
      the contrary, the Company may require a Participant to repay some or all of
      the
      benefits received under the Plan as a condition of reemployment.

     

    ARTICLE
      IV

    PLAN
      ADMINISTRATION

     

    5.1    
      Plan Administration.  The Committee shall administer
      the Plan.  The Committee shall be the “Named Fiduciary” for purposes
      of ERISA and shall have the authority to control, interpret and construe the
      Plan and manage the operations thereof.  Any such interpretation and
      construction of any provisions of the Plan by the Committee shall be
      final.  The Committee shall, in addition to the foregoing, exercise
      such other powers and perform such other duties as it may deem advisable in
      the
      administration of the Plan.  The Committee may delegate some (or all)
      of its authority hereunder to the Benefits Department.  The Committee
      also may engage agents and obtain other assistance from the Company, including
      Company counsel.  The Committee shall not be responsible for any
      action taken or not taken on the advice of legal counsel.  The
      Committee is given specific authority to allocate and revoke responsibilities
      among its members or designees.  When the Committee has allocated
      authority pursuant to the foregoing, the Committee shall not be liable for
      the
      acts or omissions of the party to whom such responsibility has been allocated,
      except to the extent provided by law.

     

    5.2    
      Claims Procedures.

     

    (a)    
      Initial Claim.  A claim for benefits under the Plan
      must be submitted to the Benefits Department.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (1)    
      Notice of Decision.  Written notice of the disposition
      of the claim shall be furnished to the claimant within a reasonable period
      of
      time, but not later than ninety (90) days after receipt of the claim by the
      Benefits Department, unless the Benefits Department determines that special
      circumstances require an extension of time for processing the
      claim.  If the Benefits Department determines that an extension is
      required, written notice (including an explanation of the special circumstances
      requiring an extension and the date by which the Benefits Department expects
      to
      render the benefits determination) shall be furnished to the claimant prior
      to
      the termination of the original ninety (90) day period.  In no event
      shall such extension exceed a period of ninety (90) days from the end of the
      initial ninety (90) day period.  If the claim is denied, the notice
      required pursuant to this Section shall set forth the following:

     

    (A)    
      The specific reason or reasons for the adverse
      determination;

     

    (B)    
      Special reference to the specific Plan provisions upon which the
      determination is based;

     

    (C)    
      A description of any additional material or information necessary
      for
      the claimant to perfect the claim and an explanation of why such material or
      information is necessary; and

     

    (D)    
      An explanation of the Plan’s appeal procedure and the time limits
      applicable to an appeal, including a statement of the claimant’s right to bring
      a civil action under Section 502(a) of ERISA.

     

    (b)    
      Appeal Procedures.  Every claimant shall have the
      right to appeal an adverse benefits determination to the Committee (including,
      but not limited to, whether the Participant’s Separation from Service was for
      Cause).  Such an appeal may be accomplished by a written notice of
      appeal filed with the Committee within sixty (60) days after receipt by the
      claimant of written notification of the adverse benefits
      determination.  Claimants shall have the opportunity to submit written
      comments, documents, records, and other information relating to the claim for
      benefits.  Claimants will be provided, upon request and free of
      charge, reasonable access to, and copies of, all documents, records and other
      information relevant to the claimant’s claim for benefits, such relevance to be
      determined in accordance with Section 5.2(c) (Claims Procedures – Definition
      of Relevant) below.  The appeal shall take into account all
      comments, documents, records, and other information submitted by claimant
      relating to the claim, without regard to whether such information was submitted
      or considered in the initial benefit determination.

     

    (1)    
      Notice of Decision.  Notice of a decision on appeal
      shall be furnished to the claimant within a reasonable period of time, but
      not
      later than sixty (60) days after receipt of the appeal by the Committee unless
      the Committee determines that special circumstances (such as the need to hold
      a
      hearing if the Committee determines that a hearing is required) require an
      extension of time for processing the claim.  If the Committee
      determines that an extension is required, written notice (including an
      explanation of the special circumstances requiring an extension and the date
      by
      which the Committee expects to render the benefits determination) shall be
      furnished to the claimant prior to the termination of the original sixty (60)
      day period.  In no event shall such extension exceed a period of sixty
      (60) days from the end of the initial sixty (60) day period.  The
      notice required by the first sentence of this Section shall be in writing,
      shall
      be set forth in a manner calculated to be understood by the claimant and, in
      the
      case of an adverse benefit determination, shall set forth the
      following:

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (A)    
      The specific reason or reasons for the adverse
      determination;

     

    (B)    
      Reference to the specific Plan provisions upon which the determination
      is based;

     

    (C)    
      A statement that the claimant is entitled to receive, upon request
      and
      free of charge, reasonable access to, and copies of, all documents, records,
      and
      other information relevant to the claimant’s claim for benefits, such relevance
      to be determined in accordance with Section 5.2(c) (Claims Procedures –
Definition of Relevant), below; and

     

    (D)    
      An explanation of the claimant’s right to bring a civil action under
      Section 502(a) of ERISA following an adverse benefit determination on
      appeal.

     

    (c)    
      Definition of Relevant.  For purposes of this Section,
      a document, or other information shall be considered “relevant” to the
      claimant’s claim if such document, record or other information:

     

    (1)    
      Was relied upon in making the benefit determination;

     

    (2)    
      Was submitted, considered or generated in the course of making the
      benefit determination, without regard to whether such document, record or other
      information was relied upon in making the benefit determination; or

     

    (3)    
      Demonstrates compliance with the administrative processes and
      safeguards required pursuant to this Section 5.2 on making the benefit
      determination.

     

    (d)    
      Decisions Final; Procedures Mandatory.  To the extent
      permitted by law, a decision on review or appeal shall be binding and conclusive
      upon all persons whomsoever.  To the extent permitted by law,
      completion of the claims procedures described in this Section shall be a
      mandatory precondition that must be complied with prior to commencement of
      a
      legal or equitable action in connection with the Plan by a person claiming
      rights under the Plan.  The Committee may, in its sole discretion,
      waive these procedures as a mandatory precondition to such an
      action.

     

    (e)    
      Time For Filing Legal Or Equitable Action.  Any legal
      or equitable action filed in connection with the Plan by a person claiming
      rights under the Plan must be commenced not later than the earlier
      of:  (1) the shortest applicable statute of limitations provided by
      law; or (2) two (2) years of the date the written copy of the Committee’s
      decision on review is delivered to the claimant in accordance with
      Section 5.2(b)(1) (Claims Procedures – Appeal Procedures – Notice of
      Decision).

     

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      VI

    BINDING
      AGREEMENT

     

    6.1    
      General.  Subject to the right of the Company to amend
      or terminate the Plan, and the Committee’s right to interpret the Plan, the Plan
      shall be for the benefit of and be enforceable by, a Participant’s personal or
      legal representatives, executors, administrators, successors, heirs,
      distributees, devisees and legatees.  If a Participant should die
      after satisfying the requirements for the receipt of benefits hereunder, any
      amount remaining unpaid to him or her, unless otherwise provided herein, shall
      be paid in accordance with the terms of the Plan to the Participant’s designee
      or, if there is no such designee, to the Participant’s estate.

     

    ARTICLE
      VII

    NOTICE

     

    7.1    
      General.  For the purpose of the Plan, and except as
      specifically set forth herein, notices and all other communications provided
      for
      in the Plan shall be in writing and shall be deemed to have been duly given
      when
      hand-delivered or mailed by United States certified mail, return receipt
      requested, postage prepaid, addressed to the Participant at his or her last
      known address, and to the Company at Alvarado Square, Albuquerque, New Mexico,
      87158, provided that all notices to the Company shall be directed to the
      attention of the Secretary of PNM Resources; or to such other address as either
      party may have furnished to the other in writing in accordance herewith, except
      that notice of change of address shall be effective only upon
      receipt.

     

    ARTICLE
      VIII

    AMENDMENT
      AND TERMINATION

     

    8.1    
      General.  The Plan may be amended, in whole or in
      part, or terminated at any time, by PNM Resources subject to the following
      exceptions:

     

    (a)    
      No amendment or termination of the Plan shall impair or abridge the
      obligations of the Company already incurred.

     

    (b)    
      No amendment or termination of the Plan shall affect the rights of
      a
      Participant who terminated employment before the effective date of such
      amendment or termination and who (1) received a Notice of Impaction before
      the
      Effective Date and (2) incurred a Separation from Service before the Effective
      Date.

     

    (c)    
      Notwithstanding the foregoing, the Plan may be amended at will at
      any
      time and from time to time by PNM Resources to reflect changes necessary due
      to
      revisions to, or interpretations of:  (1) ERISA; (2) the Code; or (3)
      any other provision of applicable state or federal law.

     

    (d)    
      Notwithstanding any provision of this Plan to the contrary, no
      amendment may be made if it will result in a violation of Section 409A of the
      Code and any such amendment shall at no time have any legal
      validity.

     

    

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      VIX

    ADOPTION
      BY AFFILIATES

     

    9.1    
      Adoption by Affiliates. 

     

    (a)    
      An Affiliate, by action of its board of directors, may adopt the Plan
      with respect to its Employees only with the approval of the Board.

     

    (b)    
      Except as otherwise clearly indicated by the context “Company” as used
      herein shall include each Affiliate that has adopted this Plan in accordance
      with this Section 9.1.

     

    (c)    
      By adopting the Plan, each participating Affiliate shall be deemed
      to
      have agreed to:

     

    (1)    
      Assume the obligations and liabilities imposed upon it by the Plan
      with
      respect to the its Employees;

     

    (2)    
      Comply with all of the terms and provisions of the Plan;

     

    (3)    
      Delegate to the Committee the power and responsibility to administer
      the Plan with respect to the Affiliate’s Employees;

     

    (4)    
      Delegate to PNM Resources the full power to amend or terminate the
      Plan
      with respect to the Affiliate’s Employees; and

     

    (5)    
      Be bound by any action taken by PNM Resources pursuant to the terms
      and
      provisions of the Plan, regardless of whether such action is taken with or
      without the consent of the Affiliate.

     

    (d)    
      If an Employee is transferred between Affiliates or 50% Affiliates,
      the
      Employee shall not be deemed to have terminated employment for purposes of
      this
      Plan.

     

    (e)    
      Any Affiliate that has adopted this Plan for the benefit of its
      Employees may terminate its adoption of the Plan by action of its board of
      directors and timely providing notice to PNM Resources of such
      termination.

     

    (f)    
      PNM Resources and each participating Affiliate shall bear the costs
      and
      expenses of providing benefits to their respective Employees who are
      Participants.  Such costs and expenses shall be allocated among PNM
      Resources Affiliates in accordance with agreements entered into between PNM
      Resources and any participating Affiliate, or in the absence of such an
      agreement, procedures adopted by PNM Resources.

     

    ARTICLE
      X

    MISCELLANEOUS

     

    10.1    
      Withholding.  Any payments provided for hereunder
      shall be paid subject to any applicable withholding required under federal,
      state or local law.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    10.2    
      No Right of Assignment.  Neither a Participant nor any
      person taking on behalf of a Participant may anticipate, assign or alienate
      (either by law or equity) any benefit provided under the Plan and the Company
      shall not recognize any such anticipation, assignment or
      alienation.  Furthermore, to the extent permitted by law, a benefit
      under the Plan is not subject to attachment, garnishment, levy, execution or
      other legal or equitable process.

     

    10.3    
      No Employment Contract.  Notwithstanding anything to
      the contrary contained in the Plan, by the execution of the Plan, the Company
      does not intend to change the employment-at-will relationship with any of its
      employees.  Instead, the Company retains its absolute right to
      terminate any employee at any time.

     

    10.4    
      Mitigation of Benefits.  The Participant shall not be
      required to mitigate the amount of payment provided for in the Plan by seeking
      other employment or otherwise, and except as set forth in the Plan, the amount
      of any payment or benefit provided for shall not be reduced by any compensation
      earned by the Participant as the result of employment by another employer,
      or by
      retirement benefits received.

     

    10.5    
      Service of Process.  The Secretary of PNM Resources
      shall be the agent for service of process in matters relating to the
      Plan.

     

    10.6    
      ERISA Plan.  The Plan shall be interpreted as, and is
      intended to qualify as, a severance pay plan under ERISA, and therefore does
      not
      constitute an employee pension benefit plan pursuant to Section 3(2) of
      ERISA.

     

    10.7    
      Compliant Operation and Interpretation.  This Plan
      shall be operated in compliance with Section 409A or an exception thereto
      and each provision of this Plan shall be interpreted, to the extent possible,
      to
      comply with Section 409A or to qualify for an exception
      thereto.

     

    IN
      WITNESS WHEREOF, the Company has caused this Plan document to be executed by
      its
      duly authorized representative on this 30th day of
      July,
      2007.

     

    PNM
      RESOURCES, INC.

     

    By:           /s/
      Alice A.
      Cobb                                                                

     

     Its:
      SVP, Chief Administrative Officer

     

    

    
      
        
                                   

          
          

        

        
          16

          
            

          

        

        
          
          

        

      

    

     

    TABLE
      OF CONTENTS

     

     

    Page

    ARTICLE
      I

    PURPOSE

     

    
      	
              1.1

            	
              General 

            	
              1

            

    

     

    ARTICLE
      II

    DEFINITIONS

     

    
      	
              2.1

            	
              Definitions 

            	
              1

            

    

    
      	
              2.2

            	
              Special
                Purpose Definitions 

            	
              5

            

    

    
      	
              2.3

            	
              Construction 

            	
              5

            

    

     

    ARTICLE
      III

    ELIGIBILITY

     

    
      	
              3.1

            	
              Participation 

            	
              5

            

    

    
      	
              3.2

            	
              Benefits
                Due to Impaction Only 

            	
              6

            

    

    
      	
              3.3

            	
              Eligibility
                for Regular Severance Benefits 

            	
              6

            

    

    
      	
              3.4

            	
              Eligibility
                for Enhanced Severance Benefits 

            	
              6

            

    

    
      	
              3.5

            	
              Eligibility
                for Officer Group Severance Benefits 

            	
              6

            

    

    
      	
              3.6

            	
              Release
                Agreement 

            	
              6

            

    

    
      	
              3.7

            	
              Certain
                Employees Ineligible for Benefits 

            	
              7

            

    

     

    ARTICLE
      IV

    BENEFITS

     

    
      	
              4.1

            	
              Regular
                Severance Benefits 

            	
              7

            

    

    
      	
              4.2

            	
              Enhanced
                Severance Benefits 

            	
              8

            

    

    
      	
              4.3

            	
              Officer
                Group Severance Benefits 

            	
              9

            

    

    
      	
              4.4

            	
              Payment
                Date 

            	
              10

            

    

    
      	
              4.5

            	
              Suspension
                of Benefits 

            	
              11

            

    

    
      	
              4.6

            	
              No
                Duplication of Benefits 

            	
              11

            

    

    
      	
              4.7

            	
              Effect
                of Rehire 

            	
              11

            

    

     

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

     

    TABLE
      OF CONTENTS

    (continued)

     

    Page

     

    ARTICLE
      V

    PLAN
      ADMINISTRATION

     

    
      	
              5.1

            	
              Plan
                Administration 

            	
              11

            

    

    
      	
              5.2

            	
              Claims
                Procedures 

            	
              12

            

    

     

    ARTICLE
      VI

    BINDING
      AGREEMENT

     

    
      	
              6.1

            	
              General 

            	
              14

            

    

     

    ARTICLE
      VII

    NOTICE

     

    
      	
              7.1

            	
              General 

            	
              14

            

    

     

    ARTICLE
      VIII

    AMENDMENT
      AND TERMINATION

     

    
      	
              8.1

            	
              General 

            	
              14

            

    

     

    ARTICLE
      IX

    ADOPTION
      BY AFFILIATES

     

    
      	
              9.1

            	
              Adoption
                by Affiliates 

            	
              15

            

    

     

    ARTICLE
      X

    MISCELLANEOUS

     

    
      	
              10.1

            	
              Withholding 

            	
              16

            

    

    
      	
              10.2

            	
              No
                Right of Assignment 

            	
              16

            

    

    
      	
              10.3

            	
              No
                Employment Contract 

            	
              16

            

    

    
      	
              10.4

            	
              Mitigation
                of Benefits 

            	
              16

            

    

    
      	
              10.5

            	
              Service
                of Process 

            	
              16

            

    

    
      	
              10.6

            	
              ERISA
                Plan 

            	
              16

            

    

    
      	
              10.7

            	
              Compliant
                Operation and Interpretation 

            	
              16

            

    

    
       

    

    
iiexh104_093007.htm

    
      

    

    EXHIBIT
      10.4

    

    
      	 	
              August
                30, 2007

            	
              [PNM
                Resources logo] 

            

    

     

    PRIVILEGED
      AND CONFIDENTIAL

     

    Mr.
      Jeffry E. Sterba

    Chief
      Executive Officer

    PNM
      Resources, Inc.

    Alvarado
      Square, MS 2824

    Albuquerque,
      NM  87158

     

    Re:           Retention
      Bonus Agreement (the “Agreement”)

     

    Dear
      Jeff:

     

    As
      you
      are aware, we previously entered into a Retention Bonus Agreement with you
      effective as of October 31, 2003.  With this letter, we are offering
      to amend and restate the Agreement in its entirety, effective as of
      January 1, 2007, except as set forth below.

     

    The
      incentive bonus (the “Retention Bonus”) is designed to encourage you to remain a
      part of the PNM Resources, Inc. (the “Company”) for many years to
      come.  The Retention Bonus has the following terms and
      conditions:

     

    1.           Amount
      of Bonus

     

    The
      amount of the Retention Bonus will be the sum of $1,600,000.  The
      Retention Bonus will be paid out of the Company’s general assets.  It
      will not be held in trust or in a separate account.  You will not
      receive any interest on this amount.

     

    2.           Conditions

     

    You
      will
      be eligible to receive the Retention Bonus if you continuously work for the
      Company as Chief Executive Officer (“CEO”) from the date of this Agreement until
      March 1, 2010, or upon your death or “Disability,” if earlier.

     

    3.           Early
      Termination

     

    Although
      your continuous employment is a condition that must be satisfied in order to
      receive the Retention Bonus, the Company also must reserve the right to
      terminate your employment or alter your responsibilities at any time and for
      any
      or no reason, subject to any other contractual commitments of the Company to
      you.  With that in mind, we have decided to provide you with the
      Retention Bonus even if, prior to March 1, 2010, you are terminated by the
      Company without “Cause” or if you terminate under circumstances that constitute
“Constructive Termination.”

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Jeffry
      E.
      Sterba

    August
      30, 2007

    Page
      2

     

     

    4.           Definitions

     

    The
      terms
“Cause,” “Constructive Termination” and “Disability” have the meanings set forth
      in the PNM Resources, Inc. Officer Retention Plan, as amended from time to
      time.  Effective as of January 1, 2008, however, “Constructive
      Termination” means a termination of employment within two years following the
      occurrence of one or more of the following circumstances without your express
      consent:

     

    (a)           a
      material diminution in your base compensation;

     

    (b)           a
      material diminution in your authority, duties or responsibilities;

     

    (c)           a
      material change in the geographic location of your principal office;
      or

     

    (d)           any
      other action or inaction that constitutes a material breach by the Company
      of
      this Agreement.

     

    You
      must
      provide written notice to the Company of the existence of the Constructive
      Termination condition described in paragraphs (a)-(d) above within 90 days
      of
      the initial existence of the condition.

     

    Notwithstanding
      anything to the contrary, an event described in paragraphs (a)-(d) above will
      not constitute Constructive Termination if, within 30 days after you give the
      Company notice of the occurrence or existence of an event that you believe
      constitutes Constructive Termination, the Company has fully corrected such
      event.

     

    5.           Payment
      of Bonus

     

    If
      you
      are employed by the Company on March 1, 2010, payment of the Retention
      Bonus will be made to you in two equal installments.  The first
      installment will be paid to you on March 1, 2010.  The second
      installment will be paid to you on March 1, 2011.  If you terminate
      employment prior to December 31, 2007 due to death, Disability, termination
      without Cause or Constructive Termination, the Retention Bonus will be paid
      to
      you in accordance with the terms of the Agreement as in effect prior to this
      amendment and restatement.  If you terminate employment after December
      31, 2007 and prior to March 1, 2010 due to death, Disability, termination
      without Cause or Constructive Termination, the Retention Bonus will be paid
      to
      you within thirty (30) days of your termination and in no event later than
      two
      and one-half (21⁄2) months following the end of the calendar year in which your
      termination of employment occurs.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      Jeffry
        E.
        Sterba

      August
        30, 2007

      Page
        3

       

    

     

    6.           Beneficiary
      Designation

     

    In
      the
      event of your death, payment of the Retention Bonus (or the remaining
      installment if the first installment has been paid) will be made to your
      estate.  If you prefer, you may designate a beneficiary to receive the
      Retention Bonus.  The designation must be signed, notarized and
      delivered to the Company prior to your death.

     

    You
      may
      also change a beneficiary designation.  To do so, simply follow the
      same procedures for submitting the initial designation.

     

    7.           Applicable
      Law

     

    The
      laws
      of the state of New Mexico shall govern the validity, interpretation,
      construction and performance of this Agreement.

     

    8.           Arbitration

     

    Any
      controversy or claim arising out of or relating to this Agreement shall be
      settled by mediation, and if mediation is unsuccessful binding arbitration,
      by a
      single mediator or arbitrator conducted in accordance with the then current
      rules of the American Arbitration Association, strictly in accordance with
      the
      terms of this Agreement and the substantive law of the State of New
      Mexico.  The mediation and arbitration shall be held at a time and
      place agreed to by you and the Company, or at a time and place determined by
      the
      mediator or arbitrator in the absence of an agreement.  The judgment
      and award rendered by the arbitrator may be entered and enforced in any court
      of
      competent jurisdiction.

     

    9.           Modification

     

    No
      provision of this Retention Bonus Agreement may be modified or amended unless
      agreed to in writing by both parties.

     

    10.           Successors

     

    The
      Company will require any successor (whether direct or indirect, by purchase,
      merger, consolidation or otherwise) to all or substantially all of the business
      and/or assets of the Company to expressly assume and agree to perform this
      Agreement in the same manner and to the same extent that the Company would
      be
      required to perform it if no succession had taken place.  Failure of
      the Company to obtain such assumption and agreement prior to the effective
      date
      of any such succession shall be a material breach of this
      Agreement.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      Jeffry
        E.
        Sterba

      August
        30, 2007

      Page
        4

    

     

     

    11.           Compliance
      with Section 409A

     

    (a)           Payment
      Delay.  Pursuant to Treas. Reg. § 1.409A-3(d), if
      the Company fails to make a payment due pursuant to Section 5, either
      intentionally or unintentionally, within the time period specified above, but
      the payment is made within the same calendar year, such payment will be treated
      as made within the time period specified above.  In addition, if a
      payment is not made due to a dispute with respect to such payment, the payment
      may be delayed in accordance with Treas. Reg. § 1.409A-3(g).

     

    (b)           Ban
      on Acceleration or Deferral.  Under no circumstances may
      the time or schedule of any payment made or benefit provided pursuant to this
      Agreement be accelerated or subject to a further deferral except as otherwise
      permitted or required pursuant to regulations and other guidance issued pursuant
      to Section 409A of the Code.

     

    (c)           No
      Elections.  You do not have any right to make any
      election regarding the time or form of any payment due under this
      Agreement.

     

    (d)           Compliant
      Operation and Interpretation.  This Agreement shall be
      operated in compliance with Section 409A and each provision of this
      Agreement shall be interpreted, to the extent possible, to comply with
      Section 409A.

     

    If
      you
      are in agreement with these terms, please so indicate by signing and returning
      to me the enclosed copy of this letter, which will constitute our binding
      agreement.

     

    Very
      truly yours,

     

    PNM
      RESOURCES, INC.

     

    By:           /s/
      Bonnie S.
      Reitz                                        

           Bonnie S.
      Reitz, Chair of the Human Resources

           and
      Compensation Committee

     

    Agreed:

     

    /s/
      Jeffry E.
      Sterba                                                      September 7,
      2007                                           

    Jeffry E.
      Sterba                                                                                                           
Date

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