-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wfom/rH6N5a2hyyoDzDQvINVYTrYlsXsAReQc2aBmwg6vFJPDw9j7vXYCXD0AVhN obR22bY6NYEL4s+xLd+IyQ== 0000741612-96-000011.txt : 19960320 0000741612-96-000011.hdr.sgml : 19960320 ACCESSION NUMBER: 0000741612-96-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960319 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEXAS NEW MEXICO POWER CO CENTRAL INDEX KEY: 0000022767 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 750204070 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 002-97230 FILM NUMBER: 96536056 BUSINESS ADDRESS: STREET 1: 4100 INTERNATIONAL PLZ STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 BUSINESS PHONE: 8177310099 MAIL ADDRESS: STREET 1: 4100 INTERNATIONAL PLAZA STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 FORMER COMPANY: FORMER CONFORMED NAME: COMMUNITY PUBLIC SERVICE CO DATE OF NAME CHANGE: 19810617 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TNP ENTERPRISES INC CENTRAL INDEX KEY: 0000741612 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 751907501 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08847 FILM NUMBER: 96536057 BUSINESS ADDRESS: STREET 1: 4100 INTERNATIONAL PLZ STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 BUSINESS PHONE: 8177310099 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ----------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (X) COMBINED ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to TNP ENTERPRISES, INC. (Exact name of registrant as specified in its charter) Texas 4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113 Commission File - --------- ------------------------ --------------- (State of (Address and zip code of Number: 1-8847 incorporation) principal executive offices) Telephone number, including area code: 817-731-0099 75-1907501 (I.R.S. employer identification no.) Securities registered pursuant to Section 12(b) of the Act: Shares Outstanding Name of each exchange Title of each class on January 31, 1996 on which registered - --------------------- ------------------- --------------------- Common stock, no par value 10,920,060 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes \X\ No \ \ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. \ \ The aggregate market value of TNP Enterprises, Inc. common stock held by nonaffiliates on January 31, 1996, was $223,755,700, based on the common stock's closing price on the New York Stock Exchange on the same date of $20.63 per share. - ------------------------------------------------------------------------------- TEXAS-NEW MEXICO POWER COMPANY (Exact name of registrant as specified in its charter) Texas 4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113 Commission File - --------- ------------------------ --------------- (State of (Address and zip code of Number:2-97230 incorporation) principal executive offices) Telephone number, including area code: 817-731-0099 75-0204070 (I.R.S. employer identification no.) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Name of each exchange Title of each class on which registered - ------------------- ------------------------ First mortgage bonds: Series M, 8.7% due 2006; Series R, 10.0% due 2017; Series S, 9.625% due 2019; Series T, 11.25% due 1997; and Series U, 9.25% due 2000 None Secured debentures: 12.5% due 1999; Series A, 10.75% due 2003 None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes \X\ No \ \ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. \X\ TNP Enterprises, Inc. holds all 10,705 outstanding common shares of Texas-New Mexico Power Company. DOCUMENTS INCORPORATED BY REFERENCE Document Part Where Incorporated Proxy Statement for 1996 Annual Meeting of Holders of TNP Enterprises, Inc. Common Stock III TNP ENTERPRISES INC. AND SUBSIDIARIES TEXAS NEW-MEXICO POWER COMPANY AND SUBSIDIARIES Combined Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1995 This combined annual report on Form 10-K is filed separately by TNP Enterprises, Inc. and Texas-New Mexico Power Company. Information contained in this report relating to Texas-New Mexico Power Company is filed by TNP Enterprises, Inc. and separately by Texas-New Mexico Power Company on its own behalf. Texas-New Mexico Power Company makes no representation as to information relating to TNP Enterprises, Inc. or to any other affiliate or subsidiary of TNP Enterprises, Inc., except as it may relate to Texas-New Mexico Power Company.
TABLE OF CONTENTS Glossary of Terms......................................................... 3 Part I Item 1. BUSINESS........................................................ 4 Introduction.................................................... 4 TNP's Service Areas............................................. 4 Seasonality of Business......................................... 5 Sources of Energy............................................... 5 Government Regulation........................................... 6 Employees and Executive Officers................................ 6 Item 2. PROPERTIES...................................................... 7 Administrative and Service Facilities........................... 7 Generating Facilities........................................... 7 Transmission and Distribution Facilities........................ 7 Item 3. LEGAL PROCEEDINGS............................................... 8 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 8 Part II Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................. 8 Item 6. SELECTED FINANCIAL DATA......................................... 9 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................. 11 Competitive Conditions.......................................... 11 Results of Operations........................................... 12 Liquidity and Capital Resources................................. 15 Other Matters................................................... 15 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 16 TNP Enterprises, Inc. and Subsidiaries.......................... 18 Texas-New Mexico Power Company and Subsidiaries................. 23 Notes to Consolidated Financial Statements...................... 28 Selected Quarterly Consolidated Financial Data.................. 39 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............................. 39 Part III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 40 Directors....................................................... 40 Executive Officers.............................................. 40 Item 11. EXECUTIVE COMPENSATION.......................................... 40 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.. 40 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 40 Part IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.. 40
Page 1 TNP ENTERPRISES INC. AND SUBSIDIARIES TEXAS NEW-MEXICO POWER COMPANY AND SUBSIDIARIES Combined Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1995 Glossary of Terms As used in this combined report, the following abbreviations, acronyms, or capitalized terms have the meanings set forth below:
Abbreviation, Acronym, or Capitalized Term Meaning - ------------------------------------------------------------------------------------------------ AFUDC .......................................... Allowance for borrowed funds used during construction Bond Indenture.................................. Document pursuant to which FMBs are issued DAT............................................. Deferred accounting treatment EPA............................................. Environmental Protection Agency EWG............................................. Exempt Wholesale Generator EPS............................................. Earnings (loss) per share of common stock FASB............................................ Financial Accounting Standards Board FERC............................................ Federal Energy Regulatory Commission FMB(s).......................................... One or more First Mortgage Bonds issued by TNP GWH............................................. Gigawatt-Hours IRS............................................. Internal Revenue Service ITC............................................. Investment Tax Credits KWH............................................. Kilowatt-Hours MW.............................................. Megawatts MWH............................................. Megawatt-Hours New Credit Facility............................. Revolving credit facility from syndicate of lenders represented by Chemical Bank, effective November 3, 1995 NMPUC........................................... New Mexico Public Utility Commission Note(s)......................................... One or more Notes to Consolidated Financial Statements PPM............................................. PPM America, Inc. PUCT............................................ Public Utility Commission of Texas SPS............................................. Southwestern Public Service Company SFAS............................................ Statement of Financial Accounting Standards Rights Plan..................................... Shareholder Rights Plan adopted by TNPE TEP............................................. Tucson Electric Power Company TGC............................................. Texas Generating Company, a wholly owned subsidiary of TNP TGC II.......................................... Texas Generating Company II, a wholly owned subsidiary of TNP TNP One......................................... A two-unit, lignite-fueled, circulating fluidized-bed generating plant located in Robertson County, Texas TNP............................................. Texas-New Mexico Power Company, a wholly owned subsidiary of TNPE TNPE............................................ TNP Enterprises, Inc. Tri-State....................................... Tri-State Generation and Transmission Association TU.............................................. Texas Utilities Electric Company Unit 1.......................................... The first completed electric generating unit of TNP One Unit 2.......................................... The second completed electric generating unit of TNP One
Page 2 PART I Item 1. BUSINESS. Introduction TNPE was organized as a holding company in 1983 and currently transacts business through its subsidiary, TNP. TNP is a public utility engaged in generating, purchasing, transmitting, distributing, and selling electricity to customers in Texas and New Mexico. TNP's original predecessor was organized in 1925. TNP has two subsidiaries, TGC and TGC II, both of which were organized to facilitate TNP's acquisitions of TNP One, Unit 1 and Unit 2 in 1990 and 1991, respectively. TNPE, TNP, TGC, and TGC II are all Texas corporations. Their executive offices are located at 4100 International Plaza, P.O. Box 2943, Fort Worth, Texas 76113 and their telephone number is (817) 731-0099. Unless otherwise indicated, all financial information in this report is presented on a consolidated basis. TNP's Service Areas TNP provides electric service to 84 Texas and New Mexico municipalities and adjacent rural areas with more than 213,000 customers. TNP's service areas are organized into three operating regions: the South-Western Region, the North-Central Region, and the New Mexico Region. South-Western Region The South-Western Region includes the area along the Texas Gulf Coast between Houston and Galveston. The oil and petrochemical industries, agricultural industry, and general commercial activity in the Houston area support the economy of this area. This region also includes the area in far west Texas between Midland and El Paso. The economy in this area is based primarily on oil and gas production, agriculture, and food processing. North-Central Region The North-Central Region extends from Lewisville, Texas, which is north of Dallas-Fort Worth International Airport, to municipalities along the Red River. TNP provides electric service to a variety of commercial, agricultural, and petroleum industry customers in this area. This region also includes municipalities and communities south and west of Fort Worth. This area's economy depends largely on agriculture and, to a lesser extent, tourism and oil production. The North-Central Region previously included service territory in a portion of the Texas Panhandle that TNP sold in September 1995. Information about the sale is set forth in Note 3, which is incorporated here by reference. New Mexico Region The New Mexico Region includes areas in southwest and south-central New Mexico. This region's economy is primarily dependent upon mining and agriculture. Copper mines are the major industrial customers in this region. TNP's sales in all regions are primarily to retail customers. Revenues contributed by each operating region and its percentage of total operating revenues in 1995, 1994, and 1993, respectively, are set forth in the following table. No single customer accounted for more than 10% of operating revenues during the years presented in the table.
Operating Revenues ($000's) Region 1995 1994 1993 - -------- ------------------- ------------------ -------------------- South-Western $ 278,791 57.4% $ 269,194 56.3% $ 262,979 55.4% North-Central 137,521 28.3 132,595 27.8 131,725 27.8 New Mexico 69,511 14.3 76,200 15.9 79,538 16.8 -------- ----- ------- ----- -------- ----- Total $ 485,823 100.0% $ 477,989 100.0% $ 474,242 100.0% ======== ===== ======= ===== ======== =====
Page 4 Franchises and Certificates of Public Convenience and Necessity TNP holds 82 franchises with terms ranging from 20 to 50 years and two franchises with indefinite terms from the 84 municipalities to which it provides electric service. These franchises will expire on various dates from 1996 to 2039. Three Texas franchises, comprising 21% of total company revenues, are scheduled to expire in 1996, 1998, and 1999. However, Texas law does not require an electric utility to execute a franchise agreement with a Texas municipality to be entitled to provide or continue to provide electrical service within the municipality. A franchise agreement documents the mutually agreeable terms under which the service will be provided. TNP intends to negotiate and execute new or amended franchise agreements to be effective before existing franchises expire. TNP also holds PUCT certificates of public convenience and necessity covering all Texas areas that TNP serves. These certificates include terms that are customary in the public utility industry. TNP generally has not been required to have certificates of public convenience and necessity to provide electric power in New Mexico. Seasonality of Business TNP experiences increased sales and operating revenues during the summer months as a result of increased air conditioner usage in hot weather. In 1995, approximately 40% of annual revenues were recorded in June, July, August, and September. Sources of Energy TNP generates electricity at TNP One. TNP One, which has 300 MW of capacity, provided approximately 25% of TNP's total firm power requirements during 1995. Power generated at TNP One is transmitted over TNP's own transmission lines to other utilities' transmission systems for delivery to TNP's Texas service area systems. To maintain a reliable power supply for its customers and to coordinate interconnected operations, TNP is a member of the Electric Reliability Council of Texas, the Inland Power Pool, and the New Mexico Power Pool. TNP purchases the remainder of its electricity from various suppliers with diversified fuel sources. The availability and cost of purchased energy to TNP is subject to changes in supplier costs, regulations and laws, fuel costs, and other factors. TNP is pursuing various opportunities to reduce purchased power costs. The following table sets forth certain information concerning TNP's sources of electric energy in 1995.
Year Contract Percent of Expires Energy Provided TEXAS - --------- Generation TNP One.................................... - 44% Purchased Power TU(1)...................................... 1999 29 Clear Lake Cogeneration L.P................ 2004 19 Other...................................... Various 8 --- Total 100% === NEW MEXICO - ---------- Purchased Power TEP(2)..................................... 1995 35% Public Service Co. of New Mexico(3)........ 2006 26 El Paso Electric Co.(3).................... 2002 21 SPS(3)..................................... 2001 11 Other...................................... Various 7 ---- Total 100% (1) TNP has notified TU of its intent to cease purchasing full requirements power and energy effective January 1, 1999, as described in Note 12. (2) TNP purchased economy energy from TEP pursuant to a temporary arrangement that expired in August 1995. Subsequently, TNP entered into a firm supply contract with TEP that expires at the end of 1996. (3) Supplier may not terminate service to TNP without FERC authorization.
Management believes that current supply arrangements and available capacities on the wholesale market are adequate to satisfy TNP's foreseeable power requirements. Page 5 Recovering Purchased Power and Fuel Costs Purchased power is recovered from TNP customers through power cost recovery adjustment clauses authorized by the PUCT and NMPUC. These clauses enable TNP to recover this significant component of operating expenses within two months of billing by its suppliers. Fuel costs are recovered from TNP's Texas customers through a fixed fuel recovery factor approved by the PUCT. The fixed fuel recovery factor is described at Item 7, "Pass-Through Expenses--Fuel," which is incorporated here by reference. Government Regulation TNP is subject to PUCT and NMPUC regulation. Some of its activities, such as issuing securities, are also subject to FERC regulation. Recent regulatory developments are changing competitive conditions in the electric utility industry. These changes are discussed in Item 7, "Competitive Conditions," which is incorporated here by reference. In addition to regulation as a utility, TNP's facilities are regulated by the EPA and Texas and New Mexico environmental agencies. TNP One uses environmentally superior circulating fluidized bed technology that eliminates the need for expensive scrubbers. TNP was allotted sufficient emission allowances to comply with the Clean Air Act of 1990 through the year 2000. During 1995, 1994, and 1993, TNP incurred expenses related to air, water, and solid waste pollution abatement (including ash removal) of approximately $5.5 million, $5.9 million, and $4.3 million, respectively. Employees And Executive Officers At December 31, 1995, TNP had 858 employees. TNP's employees are not represented by a union or covered by a collective bargaining agreement. Management believes TNP's relations with its employees are good. Executive officers of TNPE and TNP, who are elected annually by the respective boards of directors and serve at the discretion of the boards, are as follows:
Name Age Position with TNPE Kevern R. Joyce 49 Chairman, President, & Chief Executive Officer Manjit S. Cheema 41 Vice President & Chief Financial Officer Ralph Johnson 52 Vice President Michael D. Blanchard 45 Corporate Secretary & General Counsel Patrick L. Bridges 37 Treasurer Name Age Position with TNP Kevern R. Joyce 49 Chairman, President, & Chief Executive Officer Jack V. Chambers, Jr. 46 Senior Vice President & Chief Customer Officer Manjit S. Cheema 41 Vice President & Chief Financial Officer Dennis R. Cash 42 Vice President - Human Resources Allan B. Davis 58 Vice President & Regional Customer Officer Larry W. Dillon 41 Vice President & Regional Customer Officer W. Douglas Hobbs 52 Vice President & Regional Customer Officer Ralph Johnson 52 Vice President - Power Resources John A. Montgomery 34 Vice President - Marketing & Communications Michael D. Blanchard 45 Corporate Secretary & General Counsel Patrick L. Bridges 37 Treasurer Melissa D. Davis 38 Controller
Kevern R. Joyce joined TNPE and TNP in April 1994. He became Chairman in April 1995. From 1992 until April 1994, Mr. Joyce served as Senior Vice President and Chief Operating Officer of TEP, and from 1990 to 1992, he was Vice President - Rates and Conservation. Manjit S. Cheema joined TNP in June 1994. He was also Treasurer of TNP from June 1994 until September 1995. In December 1994, he became Vice President & Chief Financial Officer of TNPE and TNP. From March 1990 until he joined TNPE and TNP, Mr. Cheema was Assistant Treasurer and Manager of Financial Planning and Budgeting for TEP. Page 6 Jack V. Chambers has served as Senior Vice President and Chief Customer Officer of TNP since 1994. He was TNP's Sector Vice President - Revenue Production from 1990 to 1994. Ralph Johnson joined TNP and TNPE in February 1995. From March 1991 until he joined TNP and TNPE, Mr. Johnson was Assistant General Manager for Tri-State in Denver, Colorado, which sells power to rural electric cooperatives. From January 1991 to March 1991, he was a consultant to the General Manager at Tri-State. Mr. Johnson managed electric power generation and transmission functions. Michael D. Blanchard has been Corporate Secretary and General Counsel of TNP and TNPE since 1987. Patrick L. Bridges was appointed Treasurer of TNPE and TNP in September 1995. He served as TNP's Director Finance from 1994 to September 1995, Assistant Treasurer from 1993 to September 1995, Manager - Revenue Accounting during 1993, and Manager - Forecasting from 1990 to 1993. Dennis R. Cash has served TNP as Vice President - Human Resources since 1994. From 1990 until 1994 he was General Manager - or Manager - Human Resources. Allan B. Davis has been a TNP Vice President and Regional Customer Officer since 1994. From 1991 to 1994, he was TNP's Vice President - Chief Engineer, Chief Engineer, or Assistant Chief Engineer. Larry W. Dillon has been a TNP Vice President and Regional Customer Officer since 1994. From 1993 to 1994, he was TNP's Vice President - Operations. He was TNP's Division Manager from 1990 to 1993. W. Douglas Hobbs became a TNP Vice President and Regional Customer Officer in 1994. He served as TNP One Plant Manager from April 1992 to 1994. From 1989 until February 1992, Mr. Hobbs was Project Manager with Fluor Corporation, where he worked on international/domestic projects involving developing and implementing education, maintenance, and operating programs for utility and industrial organizations. John A. Montgomery joined TNP in December 1995. From February 1994 until he joined TNP, he served as Director of Marketing and Regional Marketing Director of Greyhound Lines, Inc., a bus transportation company. From August 1990 to February 1994, Mr. Montgomery was President of Viva Brands International, Inc., a tropical fruit beverage company that he founded. Melissa D. Davis was appointed TNP's Controller in September 1995. From 1994 to September 1995, she was Director - Financial Accounting and Assistant Controller of TNP. She served as Division Accounting Manager from 1991 to 1994. Item 2. PROPERTIES. Substantially all of TNP's real and personal property secures its FMBs. Substantially all of TNP's real and personal property in Texas secures its revolving credit facility and debentures. TNP's long-term debt is described in Note 9. Administrative and Service Facilities TNPE's and TNP's corporate headquarters are located in an office building in Fort Worth, Texas. Space in this building is leased through 2003. TNP owns or leases local offices in 37 of the municipalities that it serves. TNP owns 14 construction/service centers in Texas and New Mexico. Generating Facilities TNP One generates power for TNP's Texas service areas and operates as a base load facility. Transmission and Distribution Facilities Management believes that TNP's transmission and distribution facilities are of sufficient capacity to serve existing customers adequately and to be extended and expanded to serve customer growth for the foreseeable future. These facilities primarily consist of overhead and underground lines, substations, transformers, and meters. TNP generally constructs its transmission and distribution facilities on easements or public rights of way and not on real property held in fee simple. Page 7 Item 3. LEGAL PROCEEDINGS. The information set forth in Notes 3, 5, and 12 regarding regulatory and legal matters is incorporated here by reference. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders in the fourth quarter of 1995. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. TNPE's common stock is traded on the New York Stock Exchange under the symbol "TNP." The high and low sales prices of, and the amount of dividends declared and paid on, TNPE's common stock during each quarter in 1995 and 1994 were as follows:
TNPE MARKET PRICE RANGE DIVIDENDS 1995 1994 PAID -------------- ---------------- --------- QUARTER HIGH LOW HIGH LOW 1995 1994 - ------- ---- --- ---- --- ---- ---- First $16 0/0 $14 5/8 $18 5/8 $16 5/8 $ 0.20 $ 0.41 Second 16 3/4 15 0/0 17 3/8 14 5/8 0.20 0.41 Third 17 3/4 16 0/0 15 5/8 13 1/4 0.20 0.20 Fourth 19 1/8 17 1/2 15 3/8 13 5/8 0.22 0.20 ---- ---- Total $ 0.82 $ 1.22 ==== ====
As of January 31, 1996, there were approximately 6,300 record holders of TNPE common stock. TNPE holds all 10,705 outstanding common shares of TNP. During 1995 and 1994, TNP paid common dividends to TNPE as follows:
TNP DIVIDENDS PAID ($000'S) QUARTER 1995 1994 First $ - $ 4,400 Second - 4,400 Third - - Fourth 2,400 2,200 ----- ------- Total $ 2,400 $ 11,000 ===== =======
Page 8 Item 6. SELECTED FINANCIAL DATA. The following table sets forth selected financial data of TNPE and TNP for 1991 through 1995. For information on changes in net earnings (loss) and EPS from 1993 through 1995, see Item 7, which is incorporated here by reference. Information on changes from 1991 to 1992 is contained in footnotes to the following table.
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (In thousands except per share amounts and percentages) TNP ENTERPRISES, INC. Consolidated results Operating revenues..........................$ 485,823 $ 477,989 $ 474,242 $ 443,827 $ 441,343 Net earnings (loss)(1)......................$ 41,505 $ (17,441) $ 11,605 $ 10,930 $ 19,533 Total assets(2)...............................$ 1,030,433 $ 1,054,488 $ 1,086,938 $ 1,182,707 $1,122,591 Cash flows Construction expenditures...................$ 28,689 $ 29,038 $ 26,360 $ 22,410 $ 42,536 Cash internally generated as a percentage of construction expenditures (3).......... 274% 105% 123% 213% 101% Common shares outstanding Weighted average............................ 10,901 10,750 10,641 8,545 8,275 End of year................................. 10,920 10,866 10,696 10,598 8,318 Per share of common stock Earnings (loss) (1).........................$ 3.75 $ (1.70) $ 1.01 $ 1.17 $ 2.23 Cash dividends declared.....................$ 0.82 $ 1.22 $ 1.63 $ 1.63 $ 1.63 Book value..................................$ 19.91 $ 17.01 $ 19.97 $ 20.62 $ 21.45 Capitalization Common shareholders' equity.................$ 217,457 184,869 213,627 218,535 178,388 Preferred stock............................. 3,600 8,680 9,560 10,440 11,320 Long-term debt, less current maturities (4). 611,925 682,832 678,994 742,087 525,060 ------- ------- ------- ------- ------- Total capitalization......................$ 832,982 $ 876,381 $ 902,181 $ 971,062 $ 714,768 ======= ======= ======= ======= ======= Capitalization ratios Common shareholders' equity.................. 26.1% 21.1% 23.7% 22.5% 25.0% Preferred stock.............................. 0.4 1.0 1.1 1.1 1.6 Long-term debt, less current maturities...... 73.5 77.9 75.2 76.4 73.4 ------ ----- ----- ----- ----- Total capitalization....................... 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== TEXAS-NEW MEXICO POWER COMPANY Consolidated results Operating revenues..........................$ 485,823 $ 477,989 $ 474,242 $ 443,827 $ 441,343 Net earnings (loss) (1).....................$ 41,809 $ (16,634) $ 11,523 $ 10,845 $ 19,840 Total assets(2)...............................$ 1,024,943 $ 1,043,178 $ 1,076,820 $ 1,156,567 $1,111,281 Cash flows (same as TNPE) Capitalization Common shareholder's equity.................$ 224,351 $ 185,777 $ 214,184 $ 205,875 $ 171,393 Preferred stock............................. 3,600 8,680 9,560 10,440 11,320 Long-term debt, less current maturities(4).. 611,925 682,832 678,994 742,087 525,060 ------- ------- ------- ------- ------- Total capitalization......................$ 839,876 $ 877,289 $ 902,738 $ 958,402 $ 707,773 ======= ======= ======= ======= ======= Capitalization ratios Common shareholder's equity................. 26.7% 21.2% 23.7% 21.5% 24.2% Preferred stock............................. 0.4 1.0 1.1 1.1 1.6 Long-term debt, less current maturities..... 72.9 77.8 75.2 77.4 74.2 ------- ------ ------ ------ ------ Total capitalization...................... 100.0% 100.0% 100.0% 100.0% 100.0% ======= ====== ====== ====== ====== (1) TNPE's and TNP's 1995 earnings before cumulative effect of change in accounting were $33,060 and $33,364, respectively. TNPE's 1995 EPS before cumulative effect of change in accounting was $2.98. (2) Total assets for 1994 and 1993 were reclassified to conform to the 1995 method of presentation. (3) Cash internally generated is defined as cash generated from operations less cash dividends. The increase in cash internally generated as a percentage of construction expenditures in 1992 resulted from rate increases late in 1991. The decrease from 1992 to 1993 resulted from an $18 million refund to customers in 1993 for amounts collected over bonded rates relating to the 1991 rate increase. (4) The increase in long-term debt in 1992 resulted primarily from the issuance of debt securities to satisfy current maturities of long-term debt and unsecured notes payable.
Page 9
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- UTILITY STATISTICS Operating revenues (in thousands): Residential................................... $ 200,455 $ 194,933 $ 193,484 $ 175,885 $ 176,651 Commercial.................................... 148,908 141,886 138,680 128,550 119,745 Industrial.................................... 113,728 122,714 124,474 121,027 128,356 Other......................................... 22,732 18,456 17,604 18,365 16,591 -------- ------- -------- -------- ------- Total....................................... $ 485,823 $ 477,989 $ 474,242 $ 443,827 $ 441,343 ======== ======= ======== ======== ======= Sales (MWH): Residential.................................. 2,141,553 2,085,621 2,047,360 1,947,593 2,017,349 Commercial................................... 1,681,130 1,618,840 1,567,083 1,499,927 1,485,211 Industrial................................... 2,704,159 2,652,844 2,567,552 2,508,837 2,798,369 Other........................................ 113,985 114,190 104,882 109,954 115,406 ---------- ---------- ---------- ---------- --------- Total...................................... 6,640,827 6,471,495 6,286,877 6,066,311 6,416,335 ========== ========== ========== ========== ========= Number of customers (at year-end): Residential................................... 183,863 185,364 181,298 178,154 174,859 Commercial.................................... 29,361 30,624 30,235 30,359 30,300 Industrial.................................... 136 142 141 155 160 Other......................................... 244 237 237 229 230 -------- ------- -------- -------- ------- Total....................................... 213,604 216,367 211,911 208,897 205,549 ======== ======= ======== ======== ======= Revenue statistics: Average annual use per residential customer (KWH)............................. 11,476 11,354 11,362 11,003 11,584 Average annual revenue per residential customer (dollars)......................... 1,074 1,061 1,067 987 1,010 Average revenue per KWH sold - residential (cents)................. 9.36 9.35 9.45 9.03 8.76 Average revenue per KWH sold - total sales (cents)................. 7.32 7.39 7.54 7.32 6.88 Net generation and purchases (MWH): Generated.................................... 2,351,000 2,336,830 2,363,493 2,247,664 1,337,366 Purchased.................................... 4,612,186 4,472,306 4,385,697 4,261,129 5,452,132 ---------- ---------- ---------- ---------- --------- Total(5)................................... 6,963,186 6,809,136 6,749,190 6,508,793 6,789,498 ========== ========== ========== ========== ========= Average cost per KWH purchased (cents).......... 3.87 4.35 4.56 4.09 3.98 Employees (year-end)............................ 858 894 1,051 1,086 1,104 (5) The difference between total sources and total sales represents TNP internal use and line losses. Also, increase in MWH generation and the related decrease in MWH purchased in 1992 resulted from the full calendar year utilization of TNP One Unit 2 that became commercially operational in October 1991.
Page 10 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Competitive Conditions Historical Condition Historically, TNP has operated with little direct competition throughout most of its service territory. TNP is the only electric utility issued a certificate of public convenience and necessity to serve customers in most of its Texas service areas. In New Mexico, TNP holds exclusive franchise agreements with the municipalities and adjacent areas that it serves. TNP expects competitive conditions in the electric utility industry to change significantly, as discussed below. Regulatory Changes Federal. In March 1995, FERC proposed comprehensive regulatory changes to facilitate development of a competitive wholesale electric power market. FERC's notice of proposed rulemaking, commonly referred to as the "Mega-NOPR," will require all FERC regulated public utilities to offer nondiscriminatory, open access tariffs to all wholesale sellers and purchasers of electric energy in interstate commerce. Utilities that own transmission facilities will be required to provide all wholesale purchasers and sellers of electric energy full service transmission arrangements comparable in quality and cost to transmission services that the owner charges its own customers. No such requirement currently exists. These utilities will also be required to provide all actual and potential transmission users access to real time information on the transmission capabilities of its network. Currently, this information is treated as proprietary. FERC is expected to adopt the Mega-NOPR by mid 1996. FERC's proposal stems from the Energy Policy Act of 1992, in which, among other things, Congress authorized FERC to relieve various discriminatory practices in the electric utility industry. This legislation eliminated many anticompetitive restrictions on owning and operating nonutility power producers, or EWGs. It also mandated increased transmission access for wholesale suppliers in interstate commerce. State. Many states are also considering regulatory changes to increase competition in the electric utility industry and lower consumer prices. The PUCT recently passed a wholesale transmission access rule to lower costs for a third party to transport electricity through a utility's transmission network. During 1995, the PUCT considered proposals to enable retail customers to choose among suppliers, a practice commonly referred to as "retail wheeling," but took no action. The New Mexico legislature has currently rejected retail wheeling proposals. However, the NMPUC is conducting a study to determine the feasibility of "managed competition," which resembles retail wheeling. The largest impediment to retail wheeling centers on how to account for the potential financial impairment of utility assets, or "stranded costs," as the industry evolves from a regulated to a competitive environment. Generating facilities are most at risk of impairment because they will be most exposed to competition from an increasing number of power producers. TNP believes that transmission and distribution facilities are less vulnerable to impairment considerations because they will continue to be regulated. Industry Response The regulatory changes described above are resulting in competition in generating and supplying electricity and contributing to a "buyers" market for wholesale power. Electric utilities are responding by attempting to reduce operating costs and adopting strategies to protect current markets and identify opportunities for customer growth. This has been achieved through a combination of mergers, internal restructuring, "unbundling of services," and the creation of power marketers. Services are "unbundled" when a fully integrated utility reorganizes into separate companies or divisions, each specializing in a specific service such as generation, transmission and distribution, and marketing. Power marketers actively search for buyers of excess generated electricity. Although the electric utility industry is evolving into an increasingly competitive, market-dominated environment, the transition toward federal and state deregulation is currently proceeding independently and TNP cannot predict when the transition will be completed. However, the transition is expected to result in a growing number of competing power suppliers and declining customer prices. Impact on TNP The inability to recover stranded costs could adversely impact TNPE's and TNP's financial condition. TNP is considering various alternatives to address its potential for stranded costs. Although final resolution and magnitude of the issue is uncertain, management anticipates that shareholders and customers will share the financial burden of stranded costs. Page 11 Assuming satisfactory resolution of the stranded costs issue, TNP believes that current competitive developments on the wholesale market ultimately will benefit TNP and its customers. Because TNP purchases much of its power, TNP can take advantage of the lower transmission prices, additional market flexibility, and new options in obtaining purchased power. TNP's competitive position has been strengthened with the PUCT open access to transmission rule. TNP currently has no significant wholesale power sales but expects to position itself to take advantage of opportunities to serve additional wholesale customers as they arise. Management believes TNP's revenue growth opportunities are in an increased customer base and new services. TNP established a marketing division in December 1995 to pursue these opportunities. TNP believes its market niche is in smaller to medium sized communities. Only two of the 84 communities in TNP's service area have populations in excess of 50,000. While some larger, fully integrated utilities are closing offices in smaller towns and consolidating in major population centers, TNP opened two additional small-town offices in 1995. Results of Operations Overall Results Earnings applicable to common stock were $40.8 million for 1995, the second highest earnings in TNPE's history. This was an increase of $59.0 million as compared to a loss applicable to common stock of $18.2 million for 1994. Management believes the initiatives taken in 1994 - adopting a strategic plan, rate settlements, reorganization - set the framework for the earnings increase in 1995. Excluding the one-time items discussed below, 1995 earnings were $19.9 million, an $11.9 million improvement over 1994 earnings of $8.0 million. The $11.9 million improvement resulted primarily from base revenue increases, but also from increased GWH sales, cost containment of operating expenses, and lower interest charges. One-time items, net of taxes, in 1995 consisted of the cumulative effect of the change in accounting for unbilled revenues of $8.4 million, gain on sale of the Texas Panhandle properties of $9.5 million, and recognition of deferred revenues related to a favorable IRS private letter ruling of $3.0 million. One-time items, net of taxes, in 1994 consisted of the recognition of regulatory disallowances of $20.5 million and reorganization costs of $5.7 million. Additional information concerning these one-time items is set forth in Notes 2, 3, 4, 5, and 6, which are incorporated here by reference. Earnings applicable to common stock before one-time items in 1994 were $2.7 million less than in 1993. This decrease resulted from increases in interest charges and labor/benefits expenses partially offset by increased base revenue and decreased income taxes. The following table sets forth results of operations for 1995, 1994, and 1993 and the impact of one-time items:
1995 1994 1993 ------------------ ------------------- ----------- Amount EPS Amount EPS Amount EPS (In thousands except per share amounts) Earnings applicable to common stock before one-time items.................. $ 19,908 $ 1.83 $ 7,997 $ 0.74 $ 10,726 $ 1.01 ------- ----- -------- ----- ------- ---- One-time items, net of income taxes: Cumulative effect of change in accounting.... 8,445 0.77 - - - - Gain on sale of Texas Panhandle properties... 9,479 0.87 - - - - Recognition of deferred revenues............. 3,018 0.28 - - - - Reorganization costs......................... - - (5,723) (0.53) - - Regulatory disallowances..................... - - (20,505) (1.91) - - ------- ----- -------- ----- ------- --- Total one-time items, net................. 20,942 1.92 (26,228) (2.44) - - ------- ---- ------- ----- ------- --- Earnings (loss) applicable to common stock.............................. $ 40,850 $ 3.75 $ (18,231) $ (1.70) $ 10,726 $ 1.01 ====== ===== ======= ===== ======= ====
Page 12 Operating Revenues The following table summarizes the components of operating revenues (in thousands). One-time items are identified separately to enhance comparability of annual operating revenues.
Increase (Decrease) 1995 1994 1993 `95 v. `94 `94 v. `93 -------- --------- --------- ---------- ---------- Operating revenues $ 485,823 $ 477,989 $ 474,242 $ 7,834 $ 3,747 Effect of change in unbilled revenues 212 - - 212 - Effect of recognizing deferred revenue from private letter ruling (4,128) - - (4,128) - ------- ------- -------- ------- ----- Subtotal 481,907 477,989 474,242 3,918 3,747 ------- ------- -------- ------- ------ Less pass-through items: Purchased power 178,465 194,595 200,183 (16,130) (5,588) Fuel 44,828 43,024 41,099 1,804 1,925 Standby power 5,610 5,894 6,474 (284) (580) ------- ------- -------- ------- ------ Total pass-through items 228,903 243,513 247,756 (14,610) (4,243) ------- ------- ------- ------- ------ Base revenues-billed $ 253,004 $ 234,476 $ 226,486 $ 18,528 $ 7,990 ======= ======= ======== ======= ======
Pass-through items are the portion of operating revenues that recover from customers the costs of purchased power, fuel, and standby power. These items affect customer rates but do not affect operating income. Annual variances are discussed under "Results of Operations--Operating Expenses." Excluding the effects of one-time items, 1995 base revenues exceeded 1994 base revenues by $18.5 million. The increase is primarily due to rate increases in both Texas ($17.5 million annualized) and New Mexico ($0.4 million annualized) resulting from settlement agreements in October and May of 1994, respectively. Increased sales also contributed to the base revenue increase. Sales of 6,641 GWH in 1995 represented a 2.6% improvement over prior year sales and contributed $5.1 million to the increase in 1995 base revenues. The increase in sales resulted from increased consumption by all customer classes, and is attributed to warmer weather and customer growth. The increases for each customer class are residential (2.7%), commercial (3.9%), and industrial (1.9%). Excluding the reduction in customers from the sale of the Texas Panhandle properties, total customers increased by 2.1%. Base revenues in 1994 exceeded the 1993 amount by $8.0 million. This increase is also attributable to the 1994 settlement agreements, as well as to higher customer usage (2.9% overall KWH sales increase) from increases in the number of residential and commercial customers. In 1995, 85.7% of TNP's revenues were generated in Texas. Pursuant to a rate case settlement approved by the PUCT in October 1994, TNP may not increase its base rates in Texas prior to March 1999 except in certain extraordinary circumstances. Additional information about the settlement is set forth in Note 5. TNP currently has no plans to file for a rate increase in New Mexico in the near term. TNP is aggressively pursuing arrangements with industrial customers that benefit both the customer and TNP. One industrial customer has switched from self-generation and is expected to increase annual sales by 430 GWH and provide $2.4 million of additional base revenues beginning in mid 1996. TNP is actively negotiating with another major industrial customer providing annual revenues of $26.7 million in 1995 ($9.4 million in base revenues). This customer is constructing a 300-MW cogeneration plant, the first phase of which is expected to commence operations in 1998. TNP is negotiating with the customer to continue providing electrical services to the customer. If TNP is successful, revenues from this customer are expected to be at lower profit margins. Operating Expenses Operating expenses for 1995 were $2.0 million lower than in 1994, excluding the $8.8 million reorganization costs in 1994. The decrease is primarily due to lower pass-through expenses of $14.6 million and labor/benefits expenses of $1.0 million offset by increased income tax expense of $13.6 million. Operating expenses for 1994, excluding reorganization costs, decreased by $4.8 million as compared to 1993. This decrease is primarily due to lower pass-through expenses of $4.2 million and income tax expense of $5.5 million partially offset by increases in labor/benefits expenses of $2.3 million. Page 13 Pass-Through Expenses Pass-through expenses consist of purchased power, fuel, and standby power. The overall decreases are primarily due to lower costs of purchased power offset by increased fuel expense. Purchased Power. Purchased power in 1995 and 1994 decreased $16.1 million and $5.6 million, respectively, as compared to the corresponding prior years. Purchases for Texas service areas were shifted to lower cost suppliers for 1995 supplemental summer peaking capacity. This arrangement became effective May 1, 1995, and is expected to result in annualized cost savings of $7.0 million. During 1995, TNP actively intervened in a Texas rate case of a major supplier and is benefiting with annualized cost savings of $10.5 million. Purchases for New Mexico service areas were also shifted to lower cost suppliers beginning mid 1994 and continuing in 1995. TNP's customers directly benefit from these cost reductions as these expenses are recovered through adjustment clauses. Purchased power costs represent TNP's largest operating expense. In 1995, TU was TNP's largest supplier of purchased power in Texas and is TNP's highest price supplier. As described in Note 12, TNP has notified TU of its intent to cease purchasing full requirements power and energy effective January 1, 1999. In July 1995, TNP issued requests for proposals for purchased power resources during 1996 through 2004 to replace the power currently provided by TU. Fuel. Fuel expense in 1995 and 1994 increased $1.8 million and $1.9 million, excluding amounts of nonpass-through fuel expenditures, respectively, as compared to the corresponding prior years. Fuel expense is directly related to an increased fixed fuel recovery factor approved by the PUCT in connection with the 1994 Texas rate case settlement. The majority of TNP's fuel expense is recovered in revenues and any difference from actual costs is deferred until a new factor is established under a fuel factor reconciliation hearing. The current fixed fuel factor was established to recover current expense as well as any under-recovered fuel. The under-recovered amount at December 31, 1995, was $9.3 million. Also, contributing to the recovery of under-recovered fuel is a 20% reduction in the cost of lignite coal or $7.6 million annually. Additional information about the cost of coal is set forth in Note 12. In management's opinion, the current fixed fuel factor along with the fuel cost reduction should enable the recovery of under-recovered fuel costs by the second half of 1997. Originally, the recovery of under-recovered fuel costs was expected by the second half of 1996; however, increased standby purchases in connection with outages at TNP One and increased economy sales, to which the fixed fuel factor does not apply, have delayed the recovery of under-recovered fuel costs. Economy sales were higher because of the increasing number of renegotiated contracts with industrial customers. Labor/Benefits Expenses Other operating expense was $1.0 million lower in 1995 than in 1994. Payroll and payroll related items decreased $7.2 million, primarily as a result of the 1994 reorganization. Offsetting these savings were the costs of employee incentive compensation plans adopted in 1995, increases in customer collection costs, outsourcing, outside services, wage and salary increases, and other administrative expenses. Labor/benefits expenses increased $2.3 million from 1993 to 1994. Labor increased $1.2 million due to a 3% general wage increase implemented in January 1994, the first such adjustment since 1991. TNP also restored employer matching contributions to the 401(k) thrift plan in July 1994. Matching contributions had been discontinued since January 1, 1993. Interest Charges The $1.3 million decrease in 1995 interest charges resulted from reduced long-term debt levels and decreased interest rates associated with the New Credit Facility. Contributing to reduced debt levels were the retirement of $29.2 million of Series T FMBs in October 1995 with proceeds from the sale of the Texas panhandle properties and lower average borrowings under TNP's credit facilities. Increased profitability during 1995 as previously discussed at "Results of Operations--Overall Results" enabled TNP to reduce its average borrowings under the its credit facilities. Interest charges are expected to decrease during 1996 for three reasons. First, management expects to use available cash flow to reduce borrowings under the New Credit Facility in 1996. Second, TNP will experience a full year effect of the $29.2 million Series T FMBs retirement ($3.3 million annually). Third, the reduced interest rate margin associated with the New Credit Facility will contribute to lower interest charges. Annual interest charges during 1994 increased by $7.3 million as compared to 1993. The increase resulted from the issuance of $270.0 million of debt during September 1993 which replaced debt with lower interest rates. Issuing these securities enabled TNP to extend maturities and utilize prepayment/subsequent reborrowing provisions of the remaining debt outstanding under its previous credit facilities, which were used to finance TNP's acquisition of TNP One. Page 14 Liquidity and Capital Resources Sources of Liquidity As discussed in Note 9, TNP entered into the New Credit Facility on November 3, 1995, amending its previous credit facilities. TNP's improved cash flow from operations resulted in significant reductions in outstanding principal balances associated with its credit facilities. As of December 31, 1995, the unused commitment under the New Credit Facility was $107 million. TNP can borrow only $57 million of the unused commitment unless it pledges FMBs equal in principal amount to total New Credit Facility borrowings over $100 million. Capital Resources Both TNPE's and TNP's capital structure improved during 1995 as TNP was able to reduce debt levels due to the sale of the Texas Panhandle properties (see Note 3) and the significant earnings improvement described at "Results of Operations--Overall Results." The equity portion of TNPE's capital structure increased from 21.1% at December 31, 1994, to 26.1% at December 31, 1995. Conversely, the long-term debt ratio decreased from 77.9% to 73.5% for the same period. TNP experienced similar results with its capital ratios. TNP also retired $5.1 million of preferred stock during 1995. TNP's capital requirements through 2000 are projected to be as follows (amounts in millions):
1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- FMB and secured debenture maturities (see Note 9) $ 1.1 $ 101.9 $ 1.1 $ 131.1 $ 110.1 Capital expenditures 32.3 30.5 31.8 33.2 34.9 ----- ------ ----- ----- ----- Total capital requirements $ 33.4 $ 132.4 $ 32.9 $ 164.3 $ 145.0 ===== ====== ===== ===== =====
At the end of 1995 the outstanding balance under the New Credit Facility was $43 million, which will be due in 2000. The New Credit Facility provides greater financial flexibility to TNP. In addition to lower interest rate margins, the New Credit Facility is available to retire other outstanding long-term debt. TNP believes that cash flow from operations and periodic borrowings under the New Credit Facility will be sufficient to meet working capital requirements and fund planned capital requirements through 1996. TNP expects to use the New Credit Facility to redeem maturing debt in 1997. Borrowings under the New Credit Facility may be supplemented, however, by issuing other long-term debt or a capital contribution from the proceeds of a TNPE common stock sale. Other Matters In March 1995, FASB issued SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 requires that long-lived assets and certain intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In October 1995, FASB issued SFAS 123, "Accounting for Stock-Based Compensation." SFAS 123 permits companies to retain the current approach set forth in APB Opinion 25, "Accounting for Stock Issued to Employees," for recognizing stock-based compensation. However, companies are encouraged to adopt a new accounting method based on estimated fair values. Companies that do not follow the new fair value based method will be required to provide expanded disclosures in their 1996 financial statements. Management believes that adopting SFAS 121 and SFAS 123 in 1996 will not have a material effect on TNPE's and TNP's consolidated financial position or results of operations. Page 15 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Independent Auditors' Report The Board of Directors and Shareholders TNP Enterprises, Inc.: We have audited the consolidated financial statements of TNP Enterprises, Inc. and subsidiaries as listed in the accompanying index at Part IV. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TNP Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for operating revenues in 1995. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. As discussed in Note 7, the Company also adopted the provisions of the Financial Accounting Standards Board's SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions in 1993. KPMG Peat Marwick LLP Fort Worth, Texas February 6, 1996 Page 16 Independent Auditors' Report The Board of Directors Texas-New Mexico Power Company: We have audited the consolidated financial statements of Texas-New Mexico Power Company (a wholly owned subsidiary of TNP Enterprises, Inc.) and subsidiaries as listed in the accompanying index at Part IV. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Texas-New Mexico Power Company and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for operating revenues in 1995. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. As discussed in Note 7, the Company also adopted the provisions of the Financial Accounting Standards Board's SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions in 1993. KPMG Peat Marwick LLP Fort Worth, Texas February 6, 1996 Page 17
TNP ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Years Ended December 31, 1995 1995 1994 1993 ---- ---- ---- (In thousands except per share amounts) OPERATING REVENUES (Notes 2, 4, and 5)................................... $ 485,823 $ 477,989 $ 474,242 --------- ------- ------- OPERATING EXPENSES: Purchased power....................................................... 178,465 194,595 200,183 Fuel.................................................................. 48,898 46,988 44,348 Other operating and general expenses.................................. 71,311 72,472 69,406 Maintenance........................................................... 11,522 11,966 11,460 Reorganization costs (Note 6)......................................... - 8,782 - Depreciation of utility plant......................................... 37,850 36,782 36,015 Taxes other than income taxes......................................... 28,865 29,651 30,296 Income taxes (Note 8)................................................. 12,317 (1,238) 4,294 -------- -------- -------- Total operating expenses........................................... 389,228 399,998 396,002 -------- -------- -------- NET OPERATING INCOME..................................................... 96,595 77,991 78,240 -------- -------- -------- OTHER INCOME (LOSS): Gain on sale of Texas Panhandle properties (Note 3)................... 14,583 - - Recognition of regulatory disallowances (Note 5)...................... - (31,546) - Other income and deductions, net ..................................... 1,245 1,057 1,972 Income taxes (Note 8)................................................. (5,403) 10,305 (666) -------- -------- -------- Other income (loss), net of taxes.................................. 10,425 (20,184) 1,306 -------- -------- -------- EARNINGS BEFORE INTEREST CHARGES AND CHANGE IN ACCOUNTING........................................... 107,020 57,807 79,546 -------- -------- -------- INTEREST CHARGES: Interest on long-term debt............................................ 70,544 71,568 63,833 Other interest and amortization of debt-related costs................. 3,416 3,680 4,108 -------- -------- -------- Total interest charges............................................. 73,960 75,248 67,941 -------- -------- -------- EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING............................................ 33,060 (17,441) 11,605 Cumulative effect of change in accounting for unbilled revenues, net of taxes (Note 2).............................. 8,445 - - -------- -------- ------- NET EARNINGS (LOSS)...................................................... 41,505 (17,441) 11,605 Dividends on preferred stock............................................. 655 790 879 -------- -------- -------- EARNINGS (LOSS) APPLICABLE TO COMMON STOCK............................... $ 40,850 $ (18,231) $ 10,726 ======== ======== ======== EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Earnings (loss) before cumulative effect of change in accounting...... $ 2.98 $ (1.70) $ 1.01 Cumulative effect of change in accounting for unbilled revenues....... 0.77 - - -------- -------- ------- Earnings (loss) per share............................................. $ 3.75 $ (1.70) $ 1.01 ======== ======= ======== DIVIDENDS PER SHARE...................................................... $ 0.82 $ 1.22 $ 1.63 ======== ======= ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............................... 10,901 10,750 10,641 ======== ======== ======== PRO FORMA AMOUNTS ASSUMING RETROACTIVE APPLICATION OF CHANGE IN ACCOUNTING: Earnings (loss) applicable to common stock............................ $ 32,405 $ (16,884) $ 11,724 Earnings (loss) per share............................................. $ 2.98 $ (1.57) $ 1.10
See accompanying Notes to Consolidated Financial Statements. Page 18
TNP ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Years Ended December 31, 1995 1995 1994 1993 ---- ---- ---- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers..........................................$ 481,470 $ 475,462 $ 460,463 Purchased power....................................................... (172,486) (193,366) (195,063) Fuel costs paid....................................................... (44,781) (46,537) (46,049) Cash paid for payroll and to other suppliers.......................... (76,735) (85,912) (76,254) Interest paid, net of amounts capitalized............................. (68,484) (76,402) (59,028) Income taxes paid..................................................... (1,095) 365 (3,263) Other taxes paid, net of amounts capitalized.......................... (30,556) (30,323) (30,344) Other operating cash receipts and payments, net....................... 1,043 1,014 236 --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES................................. 88,376 44,301 50,698 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant, net of capitalized depreciation and interest............................ (28,689) (29,038) (26,360) Net proceeds from sale of Texas Panhandle properties.................. 29,009 - - Purchases of temporary investments.................................... - (5,590) - Maturities of temporary investments................................... 5,590 - - --------- --------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES....................... 5,910 (34,628) (26,360) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid on preferred and common stocks......................... (9,616) (13,823) (18,223) Issuances: Common stock....................................................... 856 2,502 1,701 Borrowings under revolving credit facility......................... 77,000 188,500 - First mortgage bonds............................................... - - 240,000 Deferred expenses associated with financings....................... (2,096) - (8,940) Redemptions: Preferred stock.................................................... (5,080) (880) (880) Repayments under revolving credit facility......................... (119,272) (182,028) (280,700) First mortgage bonds............................................... (30,270) (1,070) (31,658) --------- --------- --------- NET CASH USED IN FINANCING ACTIVITIES..................................... (88,478) (6,799) (98,700) --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS................................... 5,808 2,874 (74,362) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................ 15,297 12,423 86,785 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR..................................$ 21,105 $ 15,297 $ 12,423 ========= ========= ========= RECONCILIATION OF NET EARNINGS (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net earnings (loss)...................................................$ 41,505 $ (17,441) $ 11,605 Adjustments to reconcile net earnings (loss) to net cash provided: Cumulative effect of change in accounting, net of taxes............ (8,445) - - Gain on sale of Texas Panhandle properties................................ (14,583) - - Depreciation of utility plant...................................... 37,850 36,782 36,015 Amortization of debt-related costs and other deferred charges...... 4,952 5,495 4,939 Allowance for borrowed funds used during construction.............. (162) (275) (303) Deferred income taxes (excluding the change in accounting)......... 5,256 (10,915) 5,534 Investment tax credits............................................. 1,679 (1,436) (953) Reorganization costs............................................... - 6,858 - Recognition of regulatory disallowances............................ - 31,546 - Cash flows impacted by changes in current assets and liabilities: Deferred purchased power and fuel costs............................ 5,997 (107) 2,584 Accrued interest................................................... 2,289 (4,422) 7,246 Accrued taxes...................................................... 8,483 (1,108) (2,130) Revenues subject to refund......................................... (4,782) 1,382 (14,115) Purchased power costs subject to refund............................ 5,688 - - Changes in other current assets and liabilities.................... 3,138 (1,387) 972 Other, net............................................................ (489) (671) (696) --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................................$ 88,376 $ 44,301 $ 50,698 ========= ========= =========
See accompanying Notes to Consolidated Financial Statements. Page 19
TNP ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995, and 1994 1995 1994 ---- ---- (In thousands) ASSETS UTILITY PLANT (Notes 3, 5, and 9): Electric plant................................................................... $ 1,193,538 $ 1,192,277 Construction work in progress.................................................... 3,334 3,816 --------- ---------- Total...................................................................... 1,196,872 1,196,093 Less accumulated depreciation.................................................... 252,868 228,820 --------- ---------- Net utility plant.......................................................... 944,004 967,273 --------- ---------- NONUTILITY PROPERTY, at cost........................................................ 1,156 1,308 CURRENT ASSETS: Cash and cash equivalents........................................................ 21,105 15,297 Temporary investments............................................................ - 5,590 Customer receivables (Note 2).................................................... 15,569 3,832 Inventories, at the lower of average cost or market: Fuel.......................................................................... 492 1,157 Materials and supplies........................................................ 7,287 7,527 Deferred purchased power and fuel costs.......................................... 9,261 15,258 Accumulated deferred income taxes (Note 8)....................................... 144 2,702 Other current assets............................................................. 960 1,817 --------- ---------- Total current assets....................................................... 54,818 53,180 --------- ---------- DEFERRED CHARGES.................................................................... 30,455 32,727 --------- ---------- $ 1,030,433 $ 1,054,488 ========= ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION (See Consolidated Statements of Capitalization): Common shareholders' equity (Note 11)............................................ $ 217,457 $ 184,869 Preferred stock (Note 10)........................................................ 3,600 8,680 Long-term debt, less current maturities (Note 9)................................. 611,925 682,832 --------- ---------- Total capitalization....................................................... 832,982 876,381 --------- ---------- CURRENT LIABILITIES: Current maturities of long-term debt (Note 9).................................... 1,070 2,670 Accounts payable................................................................. 22,040 21,951 Accrued interest................................................................. 13,982 11,693 Accrued taxes.................................................................... 26,205 17,722 Customers' deposits.............................................................. 2,493 3,973 Revenues subject to refund (Note 4).............................................. - 4,782 Purchased power costs subject to refund.......................................... 5,688 - Other current liabilities........................................................ 12,472 10,621 --------- ---------- Total current liabilities.................................................. 83,950 73,412 --------- ---------- REGULATORY TAX LIABILITIES.......................................................... 26,826 30,003 ACCUMULATED DEFERRED INCOME TAXES (Note 8).......................................... 57,381 46,960 ACCUMULATED DEFERRED INVESTMENT TAX CREDITS (Note 8)................................ 18,592 16,912 DEFERRED CREDITS (Note 7)........................................................... 10,702 10,820 COMMITMENTS AND CONTINGENCIES (Notes 1, 3, 5, 8, and 12) $ 1,030,433 $ 1,054,488 ========= ==========
See accompanying Notes to Consolidated Financial Statements. Page 20
TNP ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1995, and 1994 1995 1994 ---- ---- (In thousands) COMMON SHAREHOLDERS' EQUITY (Note 11): Common stock with no par value per share. Authorized shares: 50,000,000 Outstanding shares: 10,920,060 in 1995 and 10,866,441 in 1994........................ $ 134,973 $ 134,117 Retained earnings....................................................................... 82,484 50,752 -------- -------- Total common shareholders' equity $ 217,457 $ 184,869 ======== ======== PREFERRED STOCK (Note 10): Preferred stock with no par value. Authorized shares: 5,000,000 Outstanding shares: None Redeemable cumulative preferred stock of TNP with $100 par value. Authorized shares: 1,000,000 Redemption price at option of TNP Outstanding shares 1995 1994 1995 1994 Series B 4.65% $100.00 $100.00 22,800 24,000................ $ 2,280 $ 2,400 Series C 4.75 100.00 100.00 13,200 13,800................ 1,320 1,380 Series D 11.00 - 101.04 - 2,000................ - 200 Series E 11.00 - 101.04 - 1,000................ - 100 Series F 11.00 - 101.04 - 2,000................ - 200 Series G 11.88 - 106.43 - 44,000................ - 4,400 -------- ------- -------- -------- Total redeemable cumulative preferred stock 36,000 86,800 $ 3,600 $ 8,680 ======== ======= ======== ======== LONG-TERM DEBT (Note 9): FIRST MORTGAGE BONDS: Series L 10.50% due 2000.................................................... $ 9,600 $ 9,720 Series M 8.70 due 2006.................................................... 8,200 8,300 Series R 10.00 due 2017.................................................... 62,400 63,050 Series S 9.63 due 2019.................................................... 19,600 19,800 Series T 11.25 due 1997.................................................... 100,800 130,000 Series U 9.25 due 2000.................................................... 100,000 100,000 -------- -------- Total first mortgage bonds 300,600 330,870 Unamortized discount........................................................... (605) (640) -------- -------- Total first mortgage bonds, net 299,995 330,230 -------- -------- SECURED DEBENTURES: 12.50% due 1999...................................................................... 130,000 130,000 Series A 10.75% due 2003............................................................. 140,000 140,000 -------- -------- Total secured debentures 270,000 270,000 -------- -------- REVOLVING CREDIT FACILITY............................................................... 43,000 85,272 -------- -------- Total long-term debt 612,995 685,502 Less current maturities......................................................... (1,070) (2,670) -------- -------- Total long-term debt, less current maturities $ 611,925 $ 682,832 ======== ======== TOTAL CAPITALIZATION $ 832,982 $ 876,381 ======== ========
See accompanying Notes to Consolidated Financial Statements. Page 21
TNP ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY AND REDEEMABLE CUMULATIVE PREFERRED STOCK Three Years Ended December 31, 1995 Common Shareholders' Equity Redeemable -------------------------------------------------- Cumulative Common Stock Retained Preferred Shares Amount Earnings Total Stock ------ ------ -------- ----- --------- (In thousands) ---------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993: Balance at December 31, 1992............................. 10,598 $ 129,914 $ 88,621 $ 218,535 $ 10,440 Net earnings............................................. - - 11,605 11,605 - Dividends on preferred stock............................. - - (879) (879) - Dividends on common stock - $1.63 per share.............. - - (17,344) (17,344) - Sale of common stock..................................... 98 1,701 - 1,701 - Purchase and retirement of preferred stock............... - - 9 9 (880) ------- -------- -------- ------- -------- Balance at December 31, 1993 10,696 131,615 82,012 213,627 9,560 YEAR ENDED DECEMBER 31, 1994: Net loss................................................. - - (17,441) (17,441) - Dividends on preferred stock............................. - - (790) (790) - Dividends on common stock - $1.22 per share.............. - - (13,046) (13,046) - Sale of common stock..................................... 170 2,502 - 2,502 - Purchase and retirement of preferred stock............... - - 17 17 (880) ------- -------- -------- ------- -------- Balance at December 31, 1994 10,866 134,117 50,752 184,869 8,680 YEAR ENDED DECEMBER 31, 1995: Net earnings............................................. - - 41,505 41,505 - Dividends on preferred stock............................. - - (655) (655) - Dividends on common stock - $ 0.82 per share............. - - (8,938) (8,938) - Sale of common stock..................................... 54 856 - 856 - Purchase and retirement of preferred stock (Note 10)..... - - (180) (180) (5,080) ------- -------- -------- ------- -------- Balance at December 31, 1995 10,920 $ 134,973 $ 82,484 $ 217,457 $ 3,600 ======= ======== ======== ======= ========
See accompanying Notes to Consolidated Financial Statements. Page 22
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of TNP Enterprises, Inc.) CONSOLIDATED STATEMENTS OF OPERATIONS Three Years Ended December 31, 1995 1995 1994 1993 ---- ---- ---- (In thousands) OPERATING REVENUES (Notes 2, 4, and 5)............................... $ 485,823 $ 477,989 $ 474,242 -------- -------- -------- OPERATING EXPENSES: Purchased power................................................... 178,465 194,595 200,183 Fuel.............................................................. 48,898 46,988 44,348 Other operating and general expenses.............................. 71,311 72,472 69,406 Maintenance....................................................... 11,522 11,966 11,460 Reorganization costs (Note 6)..................................... - 8,782 - Depreciation of utility plant..................................... 37,850 36,782 36,015 Taxes other than income taxes..................................... 28,865 29,651 30,296 Income taxes (Note 8)............................................. 12,317 (1,238) 4,294 -------- -------- -------- Total operating expenses....................................... 389,228 399,998 396,002 -------- -------- -------- NET OPERATING INCOME................................................. 96,595 77,991 78,240 -------- -------- -------- OTHER INCOME (LOSS): Gain on sale of Texas Panhandle properties (Note 3)............... 14,583 - - Recognition of regulatory disallowances (Note 5).................. - (31,546) - Other income and deductions, net ................................. 1,470 1,475 1,846 Income taxes (Note 8)............................................. (5,324) 10,694 (622) -------- -------- -------- Other income (loss), net of taxes.............................. 10,729 (19,377) 1,224 -------- -------- -------- EARNINGS BEFORE INTEREST CHARGES AND CHANGE IN ACCOUNTING....................................... 107,324 58,614 79,464 -------- -------- -------- INTEREST CHARGES Interest on long-term debt........................................ 70,544 71,568 63,833 Other interest and amortization of debt-related costs............. 3,416 3,680 4,108 -------- -------- -------- Total interest charges......................................... 73,960 75,248 67,941 -------- -------- -------- EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING........................................ 33,364 (16,634) 11,523 Cumulative effect of change in accounting for unbilled revenues, net of taxes (Note 2)...................... 8,445 - - -------- -------- ------- NET EARNINGS (LOSS).................................................. 41,809 (16,634) 11,523 Dividends on preferred stock......................................... 655 790 879 -------- -------- -------- EARNINGS (LOSS) APPLICABLE TO COMMON STOCK........................... $ 41,154 $ (17,424) $ 10,644 ======== ======== ======== PRO FORMA EARNINGS (LOSS) APPLICABLE TO COMMON STOCK ASSUMING RETROACTIVE..................... APPLICATION OF CHANGE IN ACCOUNTING............................ $ 32,709 $ (16,077) $ 11,642 ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. Page 23
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of TNP Enterprises, Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS Three Years Ended December 31, 1995 1995 1994 1993 ---- ---- ---- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers..........................................$ 481,470 $ 475,462 $ 460,463 Purchased power....................................................... (172,486) (193,366) (195,063) Fuel costs paid....................................................... (44,781) (46,537) (46,049) Cash paid for payroll and to other suppliers.......................... (76,793) (86,632) (79,583) Interest paid, net of amounts capitalized............................. (68,484) (76,402) (59,028) Income taxes paid..................................................... (1,199) (1,215) (2,388) Other taxes paid, net of amounts capitalized.......................... (30,054) (29,906) (29,888) Other operating cash receipts and payments, net....................... 639 1,442 1,532 --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES................................. 88,312 42,846 49,996 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant, net of capitalized depreciation and interest (28,689) (29,038) (26,360) Net proceeds from sale of Texas Panhandle properties.................. 29,009 - - --------- --------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES....................... 320 (29,038) (26,360) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid on preferred and common stocks......................... (3,078) (11,794) (18,223) Issuances: Borrowings under revolving credit facility......................... 77,000 188,500 - First mortgage bonds............................................... - - 240,000 Deferred expenses associated with financings....................... (2,096) - (8,940) Equity contribution received from TNPE............................. - - 15,000 Redemptions: Preferred stock.................................................... (5,080) (880) (880) Repayments under revolving credit facility......................... (119,272) (182,028) (280,700) First mortgage bonds............................................... (30,270) (1,070) (31,658) --------- --------- --------- NET CASH USED IN FINANCING ACTIVITIES..................................... (82,796) (7,272) (85,401) --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS................................... 5,836 6,536 (61,765) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................ 8,614 2,078 63,843 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR..................................$ 14,450 $ 8,614 $ 2,078 ========= ========= ========= RECONCILIATION OF NET EARNINGS (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net earnings (loss)...................................................$ 41,809 $ (16,634) $ 11,523 Adjustments to reconcile net earnings (loss) to net cash provided: Cumulative effect of change in accounting, net of taxes............ (8,445) - - Gain on sale of Texas Panhandle properties......................... (14,583) - - Depreciation of utility plant...................................... 37,850 36,782 36,015 Amortization of debt-related costs and other deferred charges...... 4,952 5,495 4,939 Allowance for borrowed funds used during construction.............. (162) (275) (303) Deferred income taxes (excluding the change in accounting)......... 5,132 (10,920) 5,515 Investment tax credits............................................. 1,691 (1,374) (959) Reorganization costs............................................... - 6,858 - Recognition of regulatory disallowances............................ - 31,546 - Cash flows impacted by changes in current assets and liabilities: Deferred purchased power and fuel costs............................ 5,997 (107) 2,584 Accrued interest................................................... 2,289 (4,422) 7,246 Accrued taxes...................................................... 8,432 (1,108) (2,130) Revenues subject to refund......................................... (4,782) 1,382 (14,115) Purchased power costs subject to refund............................ 5,688 - - Changes in other current assets and liabilities.................... 3,174 (3,103) 4,174 Other, net............................................................ (730) (1,274) (4,493) --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................................$ 88,312 $ 42,846 $ 49,996 ========= ========= =========
See accompanying Notes to Consolidated Financial Statements. Page 24
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of TNP Enterprises, Inc.) CONSOLIDATED BALANCE SHEETS December 31, 1995, and 1994 1995 1994 ---- ---- (In thousands) ASSETS UTILITY PLANT (Notes 3, 5, and 9): Electric plant................................................................... $ 1,193,538 $ 1,192,277 Construction work in progress.................................................... 3,334 3,816 --------- ---------- Total...................................................................... 1,196,872 1,196,093 Less accumulated depreciation.................................................... 252,868 228,820 --------- ---------- Net utility plant.......................................................... 944,004 967,273 --------- ---------- NONUTILITY PROPERTY, at cost........................................................ 175 183 CURRENT ASSETS: Cash and cash equivalents........................................................ 14,450 8,614 Customer receivables (Note 2).................................................... 15,569 3,832 Inventories, at the lower of average cost or market: Fuel.......................................................................... 492 1,157 Materials and supplies........................................................ 7,287 7,527 Deferred purchased power and fuel costs.......................................... 9,261 15,258 Accumulated deferred income taxes (Note 8)....................................... 144 2,702 Other current assets............................................................. 1,274 1,958 --------- ---------- Total current assets....................................................... 48,477 41,048 --------- ---------- DEFERRED CHARGES.................................................................... 32,287 34,674 --------- ---------- $ 1,024,943 $ 1,043,178 ========= ========== CAPITALIZATION AND LIABILITIES CAPITALIZATION (See Consolidated Statements of Capitalization): Common shareholder's equity (Note 11)............................................ $ 224,351 $ 185,777 Redeemable cumulative preferred stock (Note 10).................................. 3,600 8,680 Long-term debt, less current maturities (Note 9)................................. 611,925 682,832 --------- ---------- Total capitalization....................................................... 839,876 877,289 --------- ---------- CURRENT LIABILITIES: Current maturities of long-term debt (Note 9).................................... 1,070 2,670 Accounts payable................................................................. 22,040 21,951 Accrued interest................................................................. 13,982 11,693 Accrued taxes.................................................................... 25,330 16,898 Customers' deposits.............................................................. 2,493 3,973 Revenues subject to refund (Note 4).............................................. - 4,782 Purchased power costs subject to refund.......................................... 5,688 - Other current liabilities........................................................ 12,472 10,622 --------- ---------- Total current liabilities.................................................. 83,075 72,589 --------- ---------- REGULATORY TAX LIABILITIES.......................................................... 26,826 30,003 ACCUMULATED DEFERRED INCOME TAXES (Note 8).......................................... 47,066 36,769 ACCUMULATED DEFERRED INVESTMENT TAX CREDITS (Note 8)................................ 17,398 15,708 DEFERRED CREDITS (Note 7)........................................................... 10,702 10,820 COMMITMENTS AND CONTINGENCIES (Notes 1, 3, 5, 8, and 12) $ 1,024,943 $ 1,043,178 ========= ==========
See accompanying Notes to Consolidated Financial Statements. Page 25
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of TNP Enterprises, Inc.) CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1995, and 1994 1995 1994 ---- ---- (In thousands) COMMON SHAREHOLDER'S EQUITY (Note 11): Common stock, $10 par value per share. Authorized shares: 12,000,000 Outstanding shares: 10,705........................................................... $ 107 $ 107 Capital in excess of par value.......................................................... 174,931 175,111 Retained earnings....................................................................... 49,313 10,559 -------- -------- Total common shareholder's equity $ 224,351 $ 185,777 ======== ======== REDEEMABLE CUMULATIVE PREFERRED STOCK (Note 10): Redeemable cumulative preferred stock, $100 par value. Authorized shares: 1,000,000 Redemption price at option of TNP Outstanding shares 1995 1994 1995 1994 Series B 4.65% $100.00 $100.00 22,800 24,000................ $ 2,280 $ 2,400 Series C 4.75 100.00 100.00 13,200 13,800................ 1,320 1,380 Series D 11.00 - 101.04 - 2,000................ - 200 Series E 11.00 - 101.04 - 1,000................ - 100 Series F 11.00 - 101.04 - 2,000................ - 200 Series G 11.88 - 106.43 - 44,000................ - 4,400 -------- ------- -------- -------- Total redeemable cumulative preferred stock 36,000 86,800 $ 3,600 $ 8,680 ======== ======= ======== ======== LONG-TERM DEBT (Note 9): FIRST MORTGAGE BONDS: Series L 10.50% due 2000.................................................... $ 9,600 $ 9,720 Series M 8.70 due 2006.................................................... 8,200 8,300 Series R 10.00 due 2017.................................................... 62,400 63,050 Series S 9.63 due 2019.................................................... 19,600 19,800 Series T 11.25 due 1997.................................................... 100,800 130,000 Series U 9.25 due 2000.................................................... 100,000 100,000 -------- -------- Total first mortgage bonds 300,600 330,870 Unamortized discount........................................................... (605) (640) -------- -------- Total first mortgage bonds, net 299,995 330,230 -------- -------- SECURED DEBENTURES: 12.50% due 1999...................................................................... 130,000 130,000 Series A 10.75% due 2003............................................................. 140,000 140,000 -------- -------- Total secured debentures 270,000 270,000 -------- --------- REVOLVING CREDIT FACILITY............................................................... 43,000 85,272 -------- --------- Total long-term debt 612,995 685,502 Less current maturities......................................................... (1,070) (2,670) -------- --------- Total long-term debt, less current maturities $ 611,925 $ 682,832 ======== ======== TOTAL CAPITALIZATION $ 839,876 $ 877,289 ======= =======
See accompanying Notes to Consolidated Financial Statements. Page 26
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES (a wholly owned subsidiary of TNP Enterprises, Inc.) CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY AND REDEEMABLE CUMULATIVE PREFERRED STOCK Three Years Ended December 31, 1995 Common Shareholder's Equity ------------------------------------------------------ Redeemable Capital in Cumulative Common Stock Excess of Retained Preferred Shares Amount Par Value Earnings Total Stock ------ ------ --------- -------- ----- ---------- (In thousands) -------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993: Balance at December 31, 1992........................... 10,705 $ 107 $ 160,085 $ 45,683 $ 205,875 $ 10,440 Net earnings........................................... - - - 11,523 11,523 - Dividends on preferred stock........................... - - - (879) (879) - Dividends on common stock.............................. - - - (17,344) (17,344) - Equity contribution from TNPE.......................... - - 15,000 - 15,000 - Purchase and retirement of preferred stock............. - - 9 - 9 (880) ------ --- ------- ------- -------- -------- Balance at December 31, 1993 10,705 107 175,094 38,983 214,184 9,560 YEAR ENDED DECEMBER 31, 1994: Net loss............................................... - - - (16,634) (16,634) - Dividends on preferred stock........................... - - - (790) (790) - Dividends on common stock.............................. - - - (11,000) (11,000) - Purchase and retirement of preferred stock............. - - 17 - 17 (880) ------ --- ------- ------- -------- -------- Balance at December 31, 1994 10,705 107 175,111 10,559 185,777 8,680 YEAR ENDED DECEMBER 31, 1995: Net earnings........................................... - - - 41,809 41,809 - Dividends on preferred stock........................... - - - (655) (655) - Dividends on common stock.............................. - - - (2,400) (2,400) - Purchase and retirement of preferred stock (Note 10)... - - (180) - (180) (5,080) ------ --- ------- ------- -------- -------- Balance at December 31, 1995 10,705 $ 107 $ 174,931 $ 49,313 $ 224,351 $ 3,600 ====== === ======= ======= ======== ========
See accompanying Notes to Consolidated Financial Statements. Page 27 TNP ENTERPRISES, INC. AND SUBSIDIARIES TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements Three Years Ended December 31, 1995 (1) Summary of Significant Accounting Policies General Information The consolidated financial statements of TNPE and subsidiaries include the accounts of TNPE and its wholly owned subsidiaries, TNP, Bayport Cogeneration, Inc., and TNP Operating Company. The consolidated financial statements of TNP and subsidiaries include the accounts of TNP and its wholly owned subsidiaries, TGC and TGC II. All intercompany transactions and balances have been eliminated in consolidation. TNP is TNPE's principal operating subsidiary. TNP is a public utility engaged in generating, purchasing, transmitting, distributing, and selling electricity in Texas and New Mexico. TNP is subject to PUCT and NMPUC regulation. Some of TNP's activities, including the issuance of securities, are subject to FERC regulation and its accounting records are maintained in accordance with FERC's Uniform System of Accounts. The use of estimates is required to prepare TNPE's and TNP's consolidated financial statements in conformity with generally accepted accounting principles. Management believes that estimates are essential and will not materially differ from actual results. Certain 1994 and 1993 amounts have been reclassified to conform to the 1995 method of presentation. Accounting for the Effects of Regulation Electric utilities operate in a highly regulated environment. TNPE's and TNP's consolidated financial statements reflect the application of certain accounting standards, including SFAS 71, "Accounting for the Effects of Certain Types of Regulation," which provide for recognition of the economic effects of rate regulation. Included among these effects are the recognition of regulatory assets and liabilities. Regulatory assets represent revenues associated with certain costs that are expected to be recovered from customers in future rates. Regulatory liabilities are costs previously collected from customers and other amounts that are refundable in future rates. The following table summarizes TNPE's and TNP's regulatory assets and liabilities as of December 31, 1995, and 1994.
1995 1994 ---- ---- (In thousands) Regulatory Assets: Deferred purchased power and fuel costs $ 9,261 $ 15,258 Deferred charges: Losses on reaquired debt 4,810 5,034 Rate case expenses 4,454 5,817 DAT 4,287 4,418 Other 792 437 ------ ------ Total $ 23,604 $ 30,964 ====== ====== Regulatory Liabilities: Income tax related $ 26,826 $ 30,003 Purchased power costs subject to refund 5,688 - ------ ----- Total $ 32,514 $ 30,003 ====== ======
Federal and state legislators and regulatory authorities have adopted or are considering a number of changes that are significantly impacting competitive conditions in the electric utility industry, such as the creation of independent power producers, wholesale transmission access, and retail wheeling. If recovery of costs through rates becomes uncertain or unlikely, whether due to legislative or regulatory changes, competition, or otherwise, accounting standards such as SFAS 71 may no longer apply to TNPE and TNP. As a result, TNPE and TNP could be required to write off all or a portion of their regulatory assets and liabilities. Moreover, to the extent that future rates are insufficient to recover costs, additional write downs could be required. Management of TNPE and TNP are currently unable to predict the ultimate outcome of changes in the electric utility industry and whether the outcome will have a significant effect on their consolidated financial position and results of operations. However, based upon current regulatory conditions in the states in which TNP operates, management believes it probable that TNPE and TNP will continue, for the foreseeable future, to recover from ratepayers the regulatory assets included in the table above. Page 28 Utility Plant Utility plant is stated at the historical cost of construction which includes labor, materials, indirect charges for such items as engineering and administrative costs, and AFUDC. Property repairs and replacement of minor items are charged to operating expenses; major replacements and improvements are capitalized to utility plant. AFUDC is a noncash item designed to enable a utility to capitalize interest costs during periods of construction. Established regulatory practices enable TNP to recover these costs from ratepayers. The composite rates used for AFUDC were 8.0%, 8.8%, and 7.5% in 1995, 1994, and 1993, respectively. The costs of depreciable units of plant retired or disposed of in the normal course of business are eliminated from utility plant accounts and such costs plus removal expenses less salvage are charged to accumulated depreciation. When complete operating units are disposed of, appropriate adjustments are made to accumulated depreciation, and the resulting gains or losses, if any, are recognized. Depreciation is provided on a straight-line method based on the estimated lives of the properties as indicated by periodic depreciation studies. A portion of depreciation of transportation equipment used in construction is charged to utility plant accounts in accordance with the equipment's use. Depreciation as a percentage of average depreciable cost was 3.3%, 3.1%, and 3.0% in 1995, 1994, and 1993, respectively. Cash Equivalents All highly liquid debt instruments with maturities of three months or less when purchased are considered cash equivalents. Temporary Investments Temporary investments are recorded at amortized cost, adjusted for amortized or accreted premiums or discounts, as management has the ability and intent to hold these securities until maturity. These securities are federal debt obligations that mature within one year. Customer Receivables and Operating Revenues Effective January 1, 1995, TNP changed its method of accounting for operating revenues from cycle billing to the accrual method as described in Note 2. Unbilled revenues represent the estimated amount customers will be charged for service received, but not yet billed, as of the end of each month. Previously these revenues were recognized as operating revenues in the following month. TNP sells customer receivables to an unaffiliated company on a nonrecourse basis. Purchased Power and Fuel Costs Electric rates include estimates of purchased power and fuel costs incurred by TNP in purchasing or generating electricity. Differences between amounts collected and allowable costs are recorded either as purchased power subject to refund or deferred purchased power and fuel costs in accordance with regulatory ratemaking policy. Deferred Charges Expenses incurred in issuing long-term debt and related discount and premium are amortized on a straight-line basis over the lives of the respective issues. Included in deferred charges are other assets that are expected to benefit future periods and certain costs that are deferred for rate making purposes and amortized over periods allowed by regulatory authorities. Income Taxes In 1993, TNPE and TNP implemented SFAS 109, "Accounting for Income Taxes" on a prospective basis. SFAS 109 required a change from the deferred method to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted tax rates to differences between the financial statement amounts and the tax bases of existing assets and liabilities. SFAS 109 required TNP to recognize deferred income taxes for: - the reduction in depreciable tax bases due to ITC, - ITC accounted for under the deferred method, - prior flow-through rate making treatment of certain income tax benefits, and - the effects of federal income tax rate changes. Page 29 SFAS 109 permits regulated enterprises to recognize adjustments resulting from the adoption of SFAS 109 as regulatory assets or liabilities if such amounts are probable of being recovered from or returned to customers through future rates. Accordingly, TNP recorded regulatory and deferred tax assets and liabilities as a result of the adoption of SFAS 109. The implementation of SFAS 109 in 1993 did not have a significant effect on results of operations. ITC amounts utilized in the federal income tax return are deferred and amortized to earnings ratably over the estimated service lives of the related assets. TNPE files a consolidated federal income tax return that includes the consolidated operations of TNP and its subsidiaries. The amounts of income taxes recognized in TNP's accompanying consolidated financial statements were computed as if TNP and its subsidiaries filed a separate consolidated federal income tax return. Fair Values of Financial Instruments Fair values of cash equivalents, temporary investments, and customer receivables approximated the carrying amounts because of the short maturities of those instruments. The estimated fair values of long-term debt and preferred stock were based on quoted market prices of the same or similar issues. The estimated fair values of long-term debt and preferred stock were as follows:
December 31, 1995 December 31, 1994 Carrying Amount Fair Values Carrying Amount Fair Values --------------- ----------- --------------- ----------- (In thousands) Long-term debt $ 612,995 $ 643,000 $ 685,502 $ 674,000 Preferred stock 3,600 1,600 8,680 5,900
Earnings (Loss) Per Share EPS is computed for each year based upon the weighted average common shares outstanding. Net earnings (loss) is adjusted for preferred dividend requirements. The effect on EPS of the incentive compensation plans was not significant as discussed in Note 7. Common Stock At December 31, 1995, 306,223 shares of TNPE's common stock were reserved for issuance to TNP's 401(k) plan. Additionally, 646,957 shares of TNPE's common stock were reserved for subsequent issuance under other stock compensation or shareholder plans. Shareholder Rights Plan TNPE has a Rights Plan that is designed to protect TNPE's shareholders from coercive takeover tactics and inadequate or unfair takeover bids. The Rights Plan provides for the distribution of one right for each share of TNPE's common stock currently outstanding or issued until the close of business on November 4, 1998. Upon the occurrence of certain events, each right entitles a shareholder to elect to purchase one share of common stock at $45 per share or, under certain circumstances, shares of common stock at half the then-current market price or to receive TNPE common stock or other securities having an aggregate value equal to the excess of (i) the value of the common stock or other securities on the date the rights are exercised over (ii) the cash payment that would have been payable upon exercise of the rights if cash payment had been elected. Until certain triggering events occur, the rights will trade together with TNPE's common stock and separate rights certificates will not be issued. Among the triggering events are the acquisition by a person or group of 10% or more of TNPE's outstanding common stock or the commencement of a tender or exchange offer that, upon consummation, would result in a person or group of persons owning 15% or more of TNPE's outstanding common stock. The rights expire November 4, 1998, unless earlier redeemed or exchanged by TNPE, and have had no effect on EPS. (2) Change in Accounting for Unbilled Revenues Effective January 1, 1995, TNP changed its method of accounting for operating revenues from cycle billing to the accrual method. This change resulted in the recognition of $12,993,000 of additional revenues ($8,445,000, net of taxes, or $0.77 per share). Accruing unbilled revenues more closely matches revenues and expenses and more closely conforms to common utility industry practice. At December 31, 1995, the accrual for unbilled revenues was $12,781,000. Page 30 (3) Sale of Texas Panhandle Properties TNP completed the $29.2 million sale of its Texas Panhandle properties to SPS on September 15, 1995, and recognized a net of tax gain of $9.5 million, or $0.87 per share of TNPE common stock. The sale was consummated pursuant to the sale agreement between TNP and SPS in connection with the Texas rate case settlement discussed in Note 5. The Panhandle properties comprised a relatively small portion of TNP's business. The book value of the Panhandle properties sold was $14.3 million. Revenues from the properties for 1995 through the closing date were $7.4 million with corresponding sales of 76.3 GWH to 7,350 customers. The proceeds received from SPS were deposited directly with Bank of America, Illinois, as Trustee and $29.2 million of Series T FMBs were redeemed in accordance with the indenture governing TNP's FMBs. On October 16, 1995, the Trustee paid the proceeds to the holders of the FMBs that were called. In January 1996, TNP filed a class action lawsuit against John Hancock Mutual Life Insurance Company, a Series T bondholder. TNP seeks confirmation that its redemption of Series T FMBs with proceeds from the Panhandle sale was within its rights under the indenture governing the FMBs. TNP also seeks attorneys' fees. TNP's lawsuit originally was filed in Texas state court in September 1995 against PPM, which claimed to be a bondholder and threatened to take legal action against TNP over the redemption. On PPM's motion, the original lawsuit was removed to the United States District Court, Northern District of Texas, Fort Worth Division (No. 495-CV-738-A). PPM filed a counterclaim seeking declarations that the Series T partial redemption breached the indenture governing the FMBs and that TNP cannot redeem Series T FMBs prior to maturity under circumstances like the Panhandle sale. PPM sought an injunction barring future redemptions under such circumstances. PPM also claimed that TNP violated the antifraud provisions of the Texas Securities Act and Section10(b) of the Securities Exchange Act of 1934 and restrictions of the Trust Indenture Act of 1939 on impairing bondholder rights. PPM sought alleged actual and punitive damages of approximately $6.0 million and attorneys' fees. Because PPM was not a bondholder, it was dismissed from the lawsuit and, on PPM's motion, Jackson National Life Insurance Company was substituted as defendant. Management believes that the substitute defendant's counterclaims are without merit and is vigorously contesting the claims. In management's opinion, the ultimate disposition of this matter will not have a material adverse effect on TNPE's and TNP's consolidated financial position or results of operations. (4) Revenues Subject to Refund During the third quarter of 1995, the IRS issued TNP a favorable private letter ruling that enabled TNP to recognize additional revenues and accrued interest of $4.9 million that previously had been deferred. This resulted in a one-time after-tax earnings increase of $3.0 million, or $0.28 per share of TNPE common stock. The revenues recognized were collected from October 1991 through October 1994, as a result of a Texas rate case filed in 1991. The PUCT allowed TNP to collect additional annualized revenues of $1.6 million pending the resolution of the regulatory tax treatment of disallowed utility plant. Recognition of these revenues was conditioned upon TNP obtaining the ruling from the IRS. The private letter ruling does not affect revenues related to electricity sales on and after October 2, 1994, when the new rates in the most recent Texas rate case settlement were implemented. (5) Regulatory Matters Texas Rate Case Settlement On October 6, 1994, the PUCT approved a unanimous settlement among the parties in TNP's 1994 retail rate application. The rate case settlement provides for an increase in annualized revenues in Texas of $17.5 million, or 4.5%, which TNP implemented on October 2, 1994. The settlement resolved all outstanding court appeals in connection with TNP's two previous rate cases and required TNP to write off $31.5 million ($35.0 million of the original cost of TNP One). TNP recognized the write-off in the second quarter of 1994, which resulted in an after-tax charge of approximately $20.5 million, or $1.91 per share of TNPE common stock. The settlement also required TNP to sell its Texas Panhandle properties, subject to certain conditions. The rate case settlement includes a moratorium restricting TNP from applying for rate increases in Texas until March 31, 1999, subject to certain conditions. These conditions do not allow TNP to apply for any base rate increase under any circumstances prior to March 31, 1997, but would allow an application for increased rates to be filed after that time if certain force majeure events (as defined in the agreement) occur during the moratorium. Page 31 Other Regulatory Matters In a 1990 PUCT application, TNP was granted DAT for certain operating and interest costs relating to the construction of Unit 1 of TNP One. The unamortized balances of these costs were $4.3 million and $4.4 million as of December 31, 1995, and 1994, respectively. Certain cities have filed an appeal in district court contesting the DAT. Management does not expect the ultimate disposition of this matter to have a material adverse effect on TNP's and TNPE's consolidated financial position or results of operations. (6) Reorganization During the fourth quarter of 1994, TNP reduced company-wide staffing levels by 140 positions, or 14% of the workforce, as a result of work elimination reviews by employee teams. The goals of the teams were to streamline operations and reduce future costs. The staffing reductions were accomplished primarily through early retirements and involuntary terminations. The aggregate costs impacting TNP's 1994 operations were $8,782,000 ($5,723,000, net of taxes, or $0.53 per share of TNPE common stock). (7) Employee Benefit Plans Pension Plan TNP has a defined benefit pension plan covering substantially all of its employees. Benefits are based on an employee's years of service and compensation. TNP's funding policy is to contribute the minimum amount required by federal funding standards. The following table sets forth the plan's funded status and amounts recognized in the consolidated balance sheets at December 31, 1995, and 1994.
1995 1994 ---- ---- (In thousands) Actuarial present value of benefit obligations: Vested benefit obligation $ 59,393 $ 45,845 Unvested benefit obligation 4,383 4,212 ------- ------- Accumulated benefit obligation $ 63,776 $ 50,057 ======= ======= Projected benefit obligation $ 67,752 $ 60,000 Unrecognized net asset 107 131 Unrecognized prior service cost 2,536 2,746 Unrecognized net gain from past experience 11,357 10,533 ------- ------- 81,752 73,410 Plan assets (principally marketable securities) at estimated fair value 75,037 66,338 ------- ------- Accrued pension costs (included in deferred credits in the consolidated balance sheets) $ 6,715 $ 7,072 ======= =======
Net pension costs were comprised of the following components as determined using the projected unit credit actuarial method:
1995 1994 1993 ---- ---- ---- (In thousands) Service cost $ 1,071 $ 1,763 $ 1,472 Interest cost on projected benefit obligation 4,762 4,179 4,191 Adjustment for actual return on plan assets (13,797) 260 (6,126) Effect of reorganization costs, net - 3,537 - Net amortization and deferral 7,607 (6,238) 300 ------- ------- ------- Net pension costs $ (357) $ 3,501 $ (163) ======= ======= =======
Assumptions used in accounting for the pension plan as of December 31, 1995, and 1994 were as follows:
1995 1994 ---- ---- Discount rates 7.3% 8.5% Rates of increase in compensation levels 4.0% 5.5% Expected long-term rate of return on assets 9.5% 9.5%
Page 32 Postretirement Benefit Plan TNP sponsors a health care plan that provides postretirement medical and death benefits to retirees who satisfied minimum age and service requirements during employment. In 1993, TNP adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS 106 requires an employer to recognize the costs of postretirement benefits on the accrual basis during the periods that employees render service to earn the benefits. Prior to 1993, the costs of these benefits were expensed on a "pay-as-you-go" basis. TNP has been permitted to recover through rates the additional costs resulting from the adoption of SFAS 106. TNP established a trust fund dedicated to paying these postretirement benefits. The following table sets forth the plan's funded status and amounts recognized in the consolidated balance sheets at December 31, 1995, and 1994.
1995 1994 ---- ---- (In thousands) Accumulated postretirement benefit obligation: Retirees and dependents $ 14,229 $ 15,936 Active employees 4,093 7,192 -------- -------- Total benefits earned 18,322 23,128 Plan assets (principally marketable securities) at estimated fair value 5,710 4,026 -------- -------- Accumulated postretirement benefit obligation in excess of plan assets 12,612 19,102 Unrecognized transition obligation (14,579) (15,436) Unrecognized net gain from past experience 5,603 - -------- ------- Accrued postretirement benefit costs (included in deferred credits in the consolidated balance sheets) $ 3,636 $ 3,666 ======== ========
Net postretirement benefit costs were comprised of the following components:
1995 1994 1993 ---- ---- ---- (In thousands) Service cost $ 374 $ 738 $ 508 Interest cost on postretirement benefit obligation 1,265 1,642 1,510 Reduction for actual return on plan assets (956) (59) - Effect of reorganization costs, net - 2,945 - Net amortization and deferral 1,145 784 934 ------ ----- ----- Net postretirement benefit costs $ 1,828 $ 6,050 $ 2,952 ====== ===== =====
The transition obligation is being amortized over a 20-year period that began in 1993. The assumed health care cost trend rate used to measure the expected cost of benefits was 6.0% for 1995 and is assumed to trend downward slightly each year to 4.3% for 2003 and thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995, by $2.3 million and the aggregate of the service and interest cost components of net postretirement benefit cost for 1995 by $279,000. Additional assumptions used in accounting for the postretirement benefit plan as of December 31, 1995, and 1994, were as follows:
1995 1994 ---- ---- Discount rates 7.3% 8.5% Expected rate of return on assets (net of taxes) 6.0% 6.0%
Incentive Plans TNPE and TNP established several incentive compensation plans in 1995. All employees participate in one or more of these plans. Incentive compensation is based on meeting key financial and operational performance goals such as EPS, operations and maintenance costs per KWH, and system reliability measures. Results of operations at December 31, 1995, include costs for the various cash and equity plans of $2.0 million. Page 33 Other Employee Benefits TNP has a 401(k) plan designed to enhance the other retirement plans available to its employees. Employees may invest their contributions in fixed income securities, mutual funds, or TNPE common stock. TNP's contributions are used to purchase TNPE common stock, which employees may later convert into investments in other investment options. TNP dedicated a portion of its matching contribution to meeting certain performance goals during 1995. Based on achievement of 1995 financial performance goals, TNP contributed $653,000 to the 401(k) plan. TNP's total contributions to the 401(k) plan were approximately $1,746,000 in 1995, $753,000 in 1994, and none in 1993. Plan assets included 1,474,982 shares and 1,721,553 shares of TNPE common stock as of December 31, 1995, and 1994, respectively. TNP has employment contracts with certain members of management and other key personnel. The contracts provide for lump sum compensation payments and other rights in the event of termination of employment or other adverse treatment of such persons following a "change in control" of TNPE or TNP. Such event is defined to include, among other things, substantial changes in the corporate structure, ownership, or board of directors of either entity. An excess benefit plan has been provided for certain key personnel and retired employees. The excess benefit plan is partially provided under an insurance policy arrangement for benefits that generally would have been provided by the pension and thrift plans except for federal limitations. (8) Income Taxes
Components of income taxes were as follows: TNPE TNP ---------------------------------- ------------------ 1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- (In thousands) Taxes on net operating income: Federal - current $ 3,108 $ (253) $ (356) $ 3,108 $ (253) $ (356) State - current 507 55 94 507 55 94 Federal - deferred 6,700 (13) 5,515 6,700 (13) 5,515 ITC adjustments 2,002 (1,027) (959) 2,002 (1,027) (959) ------ -------- ------ ------ -------- ----- 12,317 (1,238) 4,294 12,317 (1,238) 4,294 ------ -------- ------ ------ -------- ----- Taxes on other income (loss): Federal - current 7,170 1,006 641 7,203 560 622 Federal - deferred (1,444) (10,902) 19 (1,568) (10,907) - ITC adjustments (323) (409) 6 (311) (347) - ------ -------- ------ ------ -------- ---- 5,403 (10,305) 666 5,324 (10,694) 622 ------ -------- ------ ------ -------- ----- Taxes on cumulative effect of change in accounting, federal-deferred (Note 2) 4,548 - - 4,548 - - ------ -------- ------ ------ -------- ---- Total income taxes $ 22,268 $ (11,543) $ 4,960 $ 22,189 $ (11,932) $ 4,916 ====== ======== ====== ====== ======== =====
Page 34 The amounts for total income taxes differ from the amounts computed by applying the appropriate federal income tax rate to earnings (loss) before income taxes for the following reasons:
TNPE TNP --------------------------------- ----------------- 1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- (In thousands) Tax at statutory tax rate $ 17,595 $ (9,873) $ 5,601 $ 17,674 $ (9,731) $ 5,557 Amortization of accumulated deferred ITC (1,079) (1,055) (1,048) (1,079) (1,055) (1,048) Amortization of excess deferred taxes (160) (183) (142) (318) (183) (142) State income taxes 507 55 94 507 55 94 ITC related to disallowances (312) (347) - (312) (347) - Taxes on cumulative effect of change in accounting, federal- deferred (Note 2) 4,548 - - 4,548 - - Other, net 1,169 (140) 455 1,169 (671) 455 ------- -------- ------- ------ -------- ------ Actual income taxes $ 22,268 $ (11,543) $ 4,960 $ 22,189 $ (11,932) $ 4,916 ======= ======== ======= ====== ======== ======
The tax effects of temporary differences that gave rise to significant portions of net current and net noncurrent deferred income taxes as of December 31, 1995, and 1994, are presented below.
TNPE TNP -------------------------- ---------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In thousands) Current deferred income taxes: Deferred tax assets: Unbilled revenues $ 2,413 $ 6,264 $ 2,413 $ 6,264 Revenues subject to refund - 1,404 - 1,404 Other 264 222 264 222 --------- --------- --------- --------- 2,677 7,890 2,677 7,890 Deferred tax liability: Deferred purchased power and fuel costs (2,533) (5,188) (2,533) (5,188) --------- --------- --------- --------- Current deferred income taxes, net $ 144 $ 2,702 $ 144 $ 2,702 ========= ========= ========= ========= Noncurrent deferred income taxes: Deferred tax assets: Minimum tax credit carryforwards $ 22,365 $ 10,086 $ 27,317 $ 14,993 Federal regular tax net operating loss carryforwards 4,240 17,662 9,604 23,104 ITC carryforwards 14,399 17,469 15,591 18,672 Regulatory related items 17,921 18,291 17,921 18,291 Accrued employee benefit costs 3,323 3,355 3,323 3,355 Other 1,900 2,149 707 788 --------- --------- --------- --------- 64,148 69,012 74,463 79,203 --------- --------- --------- --------- Deferred tax liabilities: Utility plant, principally due to depreciation and basis differences (114,446) (108,094) (114,446) (108,094) Deferred charges (4,743) (5,344) (4,743) (5,344) Regulatory related items (2,340) (2,534) (2,340) (2,534) Other - - - - --------- --------- --------- -------- (121,529) (115,972) (121,529) (115,972) --------- --------- --------- --------- Noncurrent deferred income taxes, net $ (57,381) $ (46,960) $ (47,066) $ (36,769) ========= ========= ========= =========
Page 35 Federal tax carryforwards as of December 31, 1995, were as follows:
TNPE TNP (In thousands) Net operating loss Amount $ 12,115 $ 27,440 Expiration period 2009 2009 Minimum tax credits Amount $ 22,365 $ 27,317 Expiration period None None Investment tax credit Amount $ 14,399 $ 15,591 Expiration period 2005 2005
In 1991, TNPE received an IRS private letter ruling confirming that Unit 1 generating plant was property eligible for ITC. In connection with an audit of TNPE's 1990 and 1991 consolidated federal income tax returns, the IRS revenue agent recommended, in March 1995, that the private letter ruling concerning the TNP One generating plant's eligibility for ITC be revoked retroactively. Management believes that TNP's claim for ITC is valid and is contesting the agent's recommendation. Of the $22.5 million of ITC at issue, TNPE and its subsidiaries have utilized $5.2 million in the consolidated tax returns through 1994 and expect to utilize $2.9 million in the 1995 consolidated tax returns. TNP's portion is $4.0 million and $2.9 million, respectively. However, through 1995, TNPE and TNP have only recognized $1.1 million of the ITC in results of operations since 1990. (9) Long-Term Debt First Mortgage Bonds FMBs issued under the Bond Indenture are secured by substantially all utility plant owned directly by TNP. The Bond Indenture restricts cash dividend payments on TNP common stock as discussed in Note 11. The Bond Indenture also prohibits issuing additional FMBs unless net earnings available for fixed charges are at least twice the annual interest charges on bonded indebtedness, as defined. Under this test, as of December 31, 1995, approximately $208.0 million of additional FMBs could be issued, assuming an interest rate of 9.0%. In addition, TNP may only issue FMBs for 60% of available additions, as defined in the Bond Indenture. At December 31, 1995, TNP could not issue any significant amount of FMBs pursuant to this test. Secured Debentures TNP's Series A, 10.75% secured debentures and 12.5% secured debentures are secured with a first lien on a portion of Unit 1. The 12.5% secured debentures are also secured by a first lien on a portion of Unit 2. TNP's secured debenture holders are also secured by second liens on substantially all utility plant in Texas owned directly by TNP. The secured debentures also contain restrictions on dividends and asset dispositions. Revolving Credit Facility TNP entered into a New Credit Facility effective November 3, 1995. The New Credit Facility provides for a total commitment of $150 million and replaced borrowings under the credit facilities used to acquire TNP One. The interest rate margins under the New Credit Facility were 0.875% lower in 1995 than those under the previous credit facilities. In addition, interest rate margins under the previous credit facilities were scheduled to increase automatically each year while those under the New Credit Facility will decrease as the ratings on TNP's FMBs improve. Collateral securing the New Credit Facility is generally a first lien on a portion of TNP One, a second lien on TNP's first mortgage bond trust estate located in Texas, and a pledge of $30 million of FMBs that do not bear interest except upon default under the New Credit Facility. This collateral secures borrowings up to $100 million. Before increasing borrowings above $100 million, TNP must pledge additional FMBs (noninterest bearing except upon default) in an amount equal to the borrowings over $100 million. As of December 31, 1995, TNP had outstanding borrowings of $43 million under the New Credit Facility. The New Credit Facility not only resulted in lower interest rate margins, but also will provide TNP with additional financing flexibility. The previous credit facilities' commitment was scheduled to reduce by approximately $36.9 million annually over four years beginning December 31, 1995. The New Credit Facility commitment will reduce to $125 million on November 3, 1998, and to $100 million on November 3, 1999, and will expire on November 3, 2000. TNP also has the ability to draw on the New Credit Facility to redeem other outstanding debt. Page 36 During 1995, interest rates on borrowings under TNP's credit facilities ranged from 7.63% to 11.38%. The average borrowing rates under TNP's credit facilities were 8.92% and 9.27% for 1995 and 1994, respectively. Under specified conditions, TNP's credit facilities restrict the payment of cash dividends on TNP common stock. The credit facilities also prohibit the sale, lease, transfer, or other disposition of assets other than in the ordinary course of business. Maturities As of December 31, 1995, FMB and secured debenture maturities and sinking fund requirements for the five years following 1995 are as follows:
Secured Total FMBs and Year FMBs Debentures Secured Debentures (In thousands) 1996 $ 1,070 $ - $ 1,070 1997 101,870 - 101,870 1998 1,070 - 1,070 1999 1,070 130,000 131,070 2000 110,070 - 110,070
At the end of 1995, $43 million was outstanding under the New Credit Facility, which matures in 2000. TNP anticipates that borrowings under the New Credit Facility will fluctuate up to $150 million over this period. (10) Redeemable Cumulative Preferred Stock If TNP liquidates voluntarily or involuntarily, holders of preferred stock have preferences equal to amounts payable on redemption or par, respectively, plus accrued dividends. During 1995, TNP partially retired Series B and C, and completely retired series D, E, F, and G, with a combined par value of $5.1 million. TNP's charter provides that additional shares of preferred stock may not be issued unless certain tests are met. As of December 31, 1995, no additional preferred stock could be issued. (11) Common Stock Dividends TNP --- The Bond Indenture prohibits TNP from paying cash dividends on its common stock (which is wholly owned by TNPE) unless unrestricted retained earnings are available. The restriction became operative during 1994 due to the recognition of $35.0 million of regulatory disallowances as discussed in Note 5 and temporarily precluded TNP from paying cash dividends. Unrestricted retained earnings became available again at March 31, 1995, and continued to be available during the remainder of 1995. As of December 31, 1995, $30.6 million of unrestricted retained earnings were available for dividends. TNPE ---- The dividend restriction at TNP did not preclude TNPE from paying quarterly cash dividends to its shareholders during 1994 and 1995. TNPE increased its quarterly dividend from $0.20 to $0.22 per share, beginning with quarterly dividends paid on December 15, 1995. TNPE had reduced the quarterly dividend by 51% from $0.41 to $0.20 per share beginning with the third quarter of 1994 due to TNP's restriction and other factors such as the relatively low common equity of TNPE's capital structure and industry considerations. (12) Commitments and Contingencies Fuel Supply Agreement TNP successfully negotiated a 20% reduction in the cost of lignite provided by Walnut Creek Mining Company effective January 1, 1995, for the life of TNP One. Walnut Creek Mining Company is jointly owned by Phillips Coal Company and Peter Kiewit Sons', Inc. Initially, the reduction will be used to offset the accumulated under-recovery of fuel costs which aggregated $9.3 million and $15.3 million as of December 31, 1995, and 1994, respectively. Page 37 Wholesale Purchased Power Agreements TNP purchases a significant portion of its electric requirements from various wholesale suppliers. These contracts are scheduled to expire in various years through 2010. TNP has notified TU of its intent to cease purchasing full requirements power and energy effective January 1, 1999. In addition, in July 1995 TNP filed proceedings with the PUCT and in a Texas state district court to declare TNP's wholesale purchased power agreement with TU null and void. TNP asserts that the terms of the agreement are against public policy and violate Texas law. TNP requests a declaration that provisions in the TU agreement prohibiting TNP from disclosing the agreement's terms and filing the agreement for regulatory review are against public policy and violate Texas law. Pursuant to an order issued by the state district court, TNP's action is being held in abeyance until such time as TNP's PUCT action is resolved. In February 1996, an administrative law judge recommended that the PUCT conclude that most of TNP's complaints about the TU agreements lack merit. The judge did recommend, however, that the agreement's prohibitions on disclosure and regulatory review are void. TNP expects the PUCT action to be determined by mid 1996. In 1995, TU supplied approximately 36% of TNP's Texas capacity and 29% of its Texas energy requirements. Management expects that, as a result of the developing competition within the wholesale power market, TNP will enter into new arrangements for such capacity and energy on terms that are more favorable for its customers. During July 1995, TNP issued requests for proposals for purchased power resources during 1996 through 2004 to replace power currently purchased from TU. Legal Actions TNP is involved in various claims and other legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on TNP's and TNPE's consolidated financial position or results of operations. Page 38 TNP ENTERPRISES, INC. AND SUBSIDIARIES Selected Quarterly Consolidated Financial Data The following selected quarterly consolidated financial data for TNPE is unaudited, and, in the opinion of the TNPE's management, is a fair summary of the results of operations for such periods:
March 31 June 30 Sept. 30 Dec. 31 -------- ------- -------- ------- (In thousands except per share amounts) 1995 - ---- Operating revenues........................................ $ 105,647 $ 121,237 $ 151,586 $ 107,353 Net operating income...................................... 17,044 25,100 35,147 19,304 Net earnings.............................................. 6,124 6,131 26,728 2,522 Earnings applicable to common stock....................... 5,936 5,951 26,576 2,387 Earnings per share of common stock........................ 0.55 0.54 2.44 0.22 Dividends per share of common stock....................... $ 0.20 $ 0.20 $ 0.20 $ 0.22 Weighted average common shares outstanding................ 10,877 10,901 10,909 10,915 1994 - ---- Operating revenues........................................ $ 107,599 $ 111,046 $ 149,864 $ 109,480 Net operating income...................................... 15,704 17,622 30,984 13,681 Net earnings (loss)....................................... (2,884) (21,654) 11,921 (4,824) Earnings (loss) applicable to common stock................ (3,095) (21,855) 11,732 (5,013) Earnings (loss) per share of common stock................. (0.29) (2.04) 1.09 (0.47) Dividends per share of common stock....................... $ 0.41 $ 0.41 $ 0.20 $ 0.20 Weighted average common shares outstanding................ 10,702 10,725 10,752 10,822
Generally, the variations between quarters reflect the seasonal fluctuations of TNP's business. In addition, the results above are impacted by one-time items. These items, net of taxes, are as follows: - change in accounting for unbilled revenues of $8.4 million in first quarter of 1995 (Note 2) - gain on sale of Texas Panhandle properties of $9.5 million in third quarter of 1995 (Note 3) - recognition of previously deferred revenues of $3.0 million during the third quarter of 1995 (Note 4) - regulatory disallowances of $20.5 million in second quarter of 1994 (Note 5) - reorganization costs of $5.7 million in fourth quarter of 1994 (Note 6) The changes in dividend payments commencing with the third quarter of 1994 and the fourth quarter of 1995 are explained at Note 11. The annual variations between 1995 and 1994 are addressed at Item 7, "Managements' Discussion and Analysis of Financial Condition and Results of Operations." Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. Page 39 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Directors The information required by this item is incorporated by reference to "Election of Directors" and "Security Ownership of Management and Certain Beneficial Owners" in the proxy statement relating to the 1996 Annual Meeting of Holders of TNPE Common Stock. Executive Officers The information set forth under "Employees and Executives" in Part I is incorporated here by reference. Item 11. EXECUTIVE COMPENSATION.* Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.* Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.* * The information required by Items 11, 12, and 13 is incorporated by reference to "Compensation of Directors and Executive Officers" and "Security Ownership of Management and Certain Beneficial Owners" in the proxy statement relating to the 1996 Annual Meeting of Holders of TNPE Common Stock. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following financial statements are filed as part of this report:
Page Independent Auditors' Reports...................................................................... 16 TNPE Consolidated Statements of Operations, Three Years Ended December 31, 1995......................... 18 Consolidated Statements of Cash Flows, Three Years Ended December 31, 1995......................... 19 Consolidated Balance Sheets, December 31, 1995, and 1994........................................... 20 Consolidated Statements of Capitalization, December 31, 1995, and 1994............................. 21 Consolidated Statements of Common Shareholders' Equity and Redeemable Cumulative Preferred Stock, Three Years Ended December 31, 1995................... 22 TNP Consolidated Statements of Operations, Three Years Ended December 31, 1995......................... 23 Consolidated Statements of Cash Flows, Three Years Ended December 31, 1995......................... 24 Consolidated Balance Sheets, December 31, 1995, and 1994........................................... 25 Consolidated Statements of Capitalization, December 31, 1995, and 1994............................. 26 Consolidated Statements of Common Shareholder's Equity and Redeemable Cumulative Preferred Stock, Three Years Ended December 31, 1995................... 27 Notes to Consolidated Financial Statements......................................................... 28 Selected Quarterly Consolidated Financial Data - TNPE.............................................. 39
(b) No reports on Form 8-K were filed during the last quarter of 1995. (c) The Exhibit Index on pages 42-47 is incorporated here by reference. (d) All financial statement schedules are omitted, as the required information is not applicable or the information is presented in the consolidated financial statements or related Notes. Page 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. TNP ENTERPRISES, INC. Date: March 7, 1996 By: \s\ M. S. Cheema ----------------------------------- Manjit S. Cheema, Vice President & Chief Financial Officer TEXAS-NEW MEXICO POWER COMPANY Date: March 7, 1996 By: \s\ M. S. Cheema ----------------------------------- Manjit S. Cheema, Vice President & Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrants and in the capacities and on the dates indicated.
Title Date By \s\ Kevern R. Joyce Chairman, President, & Chief Executive Officer 3/7/96 -------------------------------- ------ Kevern R. Joyce By \s\ M. S. Cheema Vice President & Chief Financial Officer 3/7/96 -------------------------------- ------ Manjit S. Cheema By \s\ Melissa D. Davis Controller of TNP & Chief Accounting 3/7/96 -------------------------------- ------ Melissa D. Davis Officer of TNPE By \s\ R. Denny Alexander Director 3/7/96 -------------------------------- ------ R. Denny Alexander By \s\ Cass O. Edwards, II Director 3/7/96 -------------------------------- ------ C. O. Edwards, II By \s\ John A. Fanning Director 3/7/96 -------------------------------- ------ John A. Fanning By \s\ Sidney M. Gutierrez Director 3/7/96 -------------------------------- ------ Sidney M. Gutierrez By \s\ Harris L. Kempner, Jr. Director 3/7/96 -------------------------------- ------ Harris L. Kempner, Jr. By \s\ Dwight R. Spurlock Director 3/7/96 -------------------------------- ------ Dwight R. Spurlock By \s\ Dr. Carol D. Smith Surles Director 3/7/96 -------------------------------- ------ Dr. Carol D. Smith Surles By \s\ Dennis H. Withers Director 3/7/96 -------------------------------- ------ Dennis H. Withers
Page 41
EXHIBIT INDEX Exhibits filed with this report are denoted by "*." Exhibit No. Description TNPE incorporates the following exhibits by reference to the exhibits and filings noted in parenthesis. 3(a) - Articles of Incorporation and Amendments through March 6, 1984 (Exhibit 3(a) to TNPE 1984 Form S-14, File No. 2-89800). 3(b) - Amendment to Articles of Incorporation filed September 25, 1984 (Exhibit 3(b) to TNPE 1984 Form 10-K, File No. 1-8847). 3(c) - Amendment to Articles of Incorporation filed August 29, 1985 (Exhibit 3(a) to TNPE 1985 Form 10-K, File No. 1-8847). 3(d) - Amendment to Articles of Incorporation filed June 2, 1986 (Exhibit 3(a) to TNPE 1986 Form 10-K, File No. 1-8847). 3(e) - Amendment to Articles of Incorporation filed May 10, 1988 (Exhibit 3(e) to TNPE 1988 Form 10-K, File No. 1-8847). 3(f) - Amendment to Articles of Incorporation filed May 10, 1988 (Exhibit 3(f) to TNPE 1988 Form 10-K, File No. 1-8847). 3(g) - Amendment to Articles of Incorporation filed December 27, 1988 (Exhibit 3(g) to TNPE 1988 Form 10-K, File No. 1-8847). 3(h) - Bylaws, as amended (Exhibit 3(h) to joint 1994 Form 10-K, File Nos. 1-8847 and 2-97230). 4(u) - Rights Agreement and Form of Right Certificate, as amended, effective November 13, 1990 (Exhibit 2.1 to TNPE Form 8-A, File No. 1-8847). *23 - Independent Auditors' Consent - KPMG Peat Marwick LLP. *27 - Financial Data Schedule for TNPE. TNP incorporates the following exhibits by reference to the exhibits and filings noted in parenthesis. *3(i) - Restated Articles of Incorporation. 3(ii) - Bylaws, as amended November 15, 1994 (Exhibit 3(hh) to joint 1994 Form 10-K, File Nos. 1-8847 and 2-97230). *27 - Financial Data Schedule for TNP. TNPE and TNP incorporate the following exhibits by reference to the exhibits and filings noted in parenthesis. 4(a) - Indenture of Mortgage and Deed of Trust dated as of November 1, 1944 (Exhibit 2(d) to Community Public Service Co. ("CPS") 1978 Form S-7, File No. 2-61323). 4(b) - Seventh Supplemental Indenture dated as of May 1, 1963 (Exhibit 2(k) to CPS Form S-7, File No. 2-61323). 4(c) - Eighth Supplemental Indenture dated as of July 1, 1963 (Exhibit 2(1), to CPS Form S-7, File No. 2-61323). 4(d) - Ninth Supplemental Indenture dated as of August 1, 1965 (Exhibit 2(m), to CPS Form S-7, File No. 2-61323). 4(e) - Tenth Supplemental Indenture dated as of May 1, 1966 (Exhibit 2(n), to CPS Form S-7, File No. 2-61323). 4(f) - Eleventh Supplemental Indenture dated as of October 1, 1969 (Exhibit 2(o), to CPS Form S-7, File No. 2-61323). 4(g) - Twelfth Supplemental Indenture dated as of May 1, 1971 (Exhibit 2(p), to CPS Form S-7, File No. 2-61323). 4(h) - Thirteenth Supplemental Indenture dated as of July 1, 1974 (Exhibit 2(q), to CPS Form S-7, File No. 2-61323). 4(i) - Fourteenth Supplemental Indenture dated as of March 1, 1975 (Exhibit 2(r), to CPS Form S-7, File No. 2-61323). 4(j) - Fifteenth Supplemental Indenture dated as of September 1, 1976 (Exhibit 2(e), File No. 2-57034). 4(k) - Sixteenth Supplemental Indenture dated as of November 1, 1981 (Exhibit 4(x), File No. 2-74332). 4(l) - Seventeenth Supplemental Indenture dated as of December 1, 1982 (Exhibit 4(cc), File No. 2-80407). Page 42 4(m) - Eighteenth Supplemental Indenture dated as of September 1, 1983 (Exhibit (a) to Form 10-Q of TNP for the quarter ended September 30, 1983, File No. 1-4756). 4(n) - Nineteenth Supplemental Indenture dated as of May 1, 1985 (Exhibit 4(v), File No. 2-97230). 4(o) - Twentieth Supplemental Indenture dated as of July 1, 1987 (Exhibit 4(o) to Form 10-K of TNP for the year ended December 31, 1987, File No. 2-97230). 4(p) - Twenty-First Supplemental Indenture dated as of July 1, 1989 (Exhibit 4(p) to Form 10-Q of TNP for the quarter ended June 30, 1989, File No. 2-97230). 4(q) - Twenty-Second Supplemental Indenture dated as of January 15, 1992 (Exhibit 4(q) to Form 10-K of TNP for the year ended December 31, 1991, File No. 2-97230). 4(r) - Twenty-Third Supplemental Indenture dated as of September 15, 1993 (Exhibit 4(r) to Form 10-K of TNP for the year ended December 31, 1993, File No. 2-97230). *4(s) - Twenty-Fourth Supplemental Indenture dated as of November 3, 1995. 4(t) - Indenture and Security Agreement for 12 1/2% Secured Debentures dated as of January 15, 1992 (Exhibit 4(r) to TNP 1991 Form 10-K, File No. 2-97230). 4(u) - Indenture and Security Agreement for 10 3/4% Secured Debentures dated as of September 15, 1993 (Exhibit 4(t) to TNP 1993 Form 10-K, File No. 2-97230). Contracts Relating to TNP One 10(a) - Fuel Supply Agreement, dated November 18, 1987, between Phillips Coal Company and TNP (Exhibit 10(j) to TNP 1987 Form 10-K, File No. 2-97230). 10(a)1 - Amendment No. 1, dated as of April 1, 1988, to Fuel Supply Agreement dated November 18, 1987, between Phillips Coal Company and TNP (Exhibit 10(a)1 to Joint 1994 Form 10-K, File Nos. 1-8847 and 2-97230). 10(a)2 - Amendment No. 2, dated as of November 29, 1994, between Walnut Creek Mining Company and TNP, to Fuel Supply Agreement dated November 18, 1987, between Phillips Coal Company and TNP, (Exhibit 10(a)2 to joint 1994 Form 10-K, File Nos. 1-8847 and 2-97230). 10(b) - Unit 1 First Amended and Restated Project Loan and Credit Agreement, dated as of January 8, 1992 (the "Unit 1 Credit Agreement"), among TNP, TGC, certain banks (the "Unit 1 Banks") and Chase Manhattan Bank (National Association), as Agent for the Unit 1 Banks (the "Unit 1 Agent"), (Exhibit 10(c) to TNP 1991 Form 10-K , File No. 2-97230). 10(b)1 - Participation Agreement, dated as of January 8, 1992, among certain banks, Participants, and the Unit 1 Agent (Exhibit 10(c)1 to TNP 1991 Form 10-K, File No. 2-97230). 10(b)2 - Amendment No. 1, dated as of September 21, 1993, to the Unit 1 Credit Agreement (Exhibit 10(b)2 to TNP 1993 Form 10-K , File No. 2-97230). 10(c) - Assignment and Security Agreement, dated as of January 8, 1992, among TGC and the Unit 1 Agent (Exhibit 10(d) to TNP 1991 Form 10-K , File No. 2-97230). 10(d) - Amended and Restated Subordination Agreement, dated as of October 1, 1988, among TNP, Continental Illinois National Bank and Trust Company of Chicago and the Unit 1 Agent(Exhibit 10(uu) to TNP 1988 Form 10-K, File No. 2-97230). 10(e) - Unit 1 Mortgage and Deed of Trust, dated as of December 1, 1987, (Exhibit 10(ee) to TNP 1987 Form 10-K , File No. 2-97230). 10(e)1 - Supplemental Unit 1 Mortgage and Deed of Trust executed on January 27, 1992, (Exhibit 10(g)4 to TNP 1991 Form 10-K , File No. 2-97230). 10(e)2 - First TGC Modification and Extension Agreement, dated as of January 24, 1992, among the Unit 1 Banks, the Unit 1 Agent, TNP, and TGC (Exhibit 10(g)1 to TNP 1991 Form 10-K, File No. 2-97230). 10(e)3 - Second TGC Modification and Extension Agreement, dated as of January 27, 1992, among the Unit 1 Banks, the Unit 1 Agent, TNP, and TGC (Exhibit 10(g)2 to TNP 1991 Form 10-K, File No. 2-97230). 10(e)4 - Third TGC Modification and Extension Agreement, dated as of January 27, 1992, among the Unit 1 Banks, the Unit 1 Agent, TNP, and TGC (Exhibit 10(g)3 to TNP 1991 Form 10-K, File No. 2-97230). Page 43 10(e)5 - Fourth TGC Modification and Extension Agreement, dated as of September 29, 1993, among the Unit 1 Banks, the Unit 1 Agent, TNP, and TGC (Exhibit 10(f)5 to TNP 1993 Form 10-K, File No. 2-97230). 10(e)6 - Fifth TGC Modification and Extension Agreement, dated as of September 29, 1993, among the Unit 1 Banks, the Unit 1 Agent, TNP, and TGC (Exhibit 10(f)6 to TNP 1993 Form 10-K, File No. 2-97230). 10(f) - Indemnity Agreement, dated December 1, 1987, by Westinghouse, CE and Zachry, (Exhibit 10(ff) to TNP 1987 Form 10-K, File No. 2-97230). 10(g) - Unit 1 Second Lien Mortgage and Deed of Trust dated as of December 1, 1987, (Exhibit 10(jj) to TNP 1987 Form 10-K, File No. 2-97230). 10(g)1 - Correction Second Lien Mortgage and Deed of Trust, dated as of December 1, 1987, (Exhibit 10(vv) to TNP 1988 Form 10-K, File No. 2-97230). 10(g)2 - Second Lien Mortgage and Deed of Trust Modification, Extension and Amendment Agreement, dated as of January 8, 1992 (Exhibit 10(i)2 to TNP 1991 Form 10-K, File No. 2-97230). 10(g)3 - TNP Second Lien Mortgage Modification No. 2, dated as of September 21, 1993 (Exhibit 10(h)3 to TNP 1993 Form 10-K, File No. 2-97230). 10(h) - Agreement for Conveyance and Partial Release of Liens, dated as of December 1, 1987, by PFC and the Unit 1 Agent (Exhibit 10(kk) to TNP 1987 Form 10-K, File No. 2-97230). 10(i) - Inducement and Consent Agreement, dated as of June 15, 1988, among Phillips Coal Company, Kiewit Texas Mining Company, TNP, Phillips Petroleum Company, and Peter Kiewit Son's, Inc. (Exhibit 10(nn) to TNP 1988 Form 10-K, File No. 2-97230). 10(j) - Assumption Agreement, dated as of October 1, 1988, by TGC, in favor of certain banks, the Unit 1 Agent, and the Depositary, as defined therein (Exhibit 10(ww) to TNP 1988 Form 10-K, File No. 2-97230). 10(k) - Guaranty, dated as of October 1, 1988, by TNP of TGC obligations under Unit 1 Credit Agreement (Exhibit 10(xx) to TNP 1988 Form 10-K of TNP, File No. 2-97230). 10(l) - First Amended and Restated Facility Purchase Agreement, dated as of January 8, 1992, between TNP and TGC (Exhibit 10(n) to TNP 1991 Form 10-K, 1991, File No. 2-97230). 10(m) - Operating Agreement, dated as of October 1, 1988, between TNP and TGC (Exhibit 10(zz) to TNP 1988 Form 10-K, File No. 2-97230). 10(n) - Unit 2 First Amended and Restated Project Loan and Credit Agreement, dated as of January 8, 1992 (the "Unit 2 Credit Agreement"), among TNP, TGC II, certain banks (the "Unit 2 Banks") and The Chase Manhattan Bank (National Association), as Agent for the Unit 2 Banks (the "Unit 2 Agent") (Exhibit 10(q) to TNP 1991 Form 10-K, File No. 2-97230). 10(n)1 - Amendment No. 1, dated as of September 21, 1993, to the Unit 2 Credit Agreement (Exhibit 10(o)1 to TNP 1993 Form 10-K, File No. 2-97230). 10(o) - Assignment and Security Agreement, dated as of January 8, 1992, among TGC II and the Unit 2 Agent (Exhibit 10(r) to TNP 1991 Form 10-K, File No. 2-97230). 10(p) - Assignment and Security Agreement, dated as of October 1, 1988, by TNP to the Unit 2 Agent (Exhibit 10(jjj) to TNP 1988 Form 10-K, File No. 2-97230). 10(q) - Subordination Agreement, dated as of October 1, 1988, among TNP, Continental Illinois National Bank and Trust Company of Chicago, and the Unit 2 Agent (Exhibit 10(mmm) to TNP 1988 Form 10-K, File No. 2-97230). 10(r) - Unit 2 Mortgage and Deed of Trust dated as of October 1, 1988 (Exhibit 10(uuu) to TNP 1988 Form 10-K, File No. 2-97230). 10(r)1 - First TGC II Modification and Extension Agreement, dated as of January 24, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNP, and TGC II (Exhibit 10(u)1 to TNP 1991 Form 10-K, File No. 2-97230). 10(r)2 - Second TGC II Modification and Extension Agreement, dated as of January 27, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNP and TGC II (Exhibit 10(u)2 to TNP 1991 Form 10-K, File No. 2-97230). 10(r)3 - Third TGC II Modification and Extension Agreement, dated as of January 27, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNP, and TGC II (Exhibit 10(u)3 to TNP 1991 Form 10-K, File No. 2-97230). Page 44 10(r)4 - Fourth TGC II Modification and Extension Agreement, dated as of September 29, 1993, among the Unit 2 Banks, the Unit 2 Agent, TNP, and TGC II (Exhibit 10(s)4 to TNP 1993 Form 10-K, File No. 2-97230). 10(r)5 - Fifth TGC II Modification and Extension Agreement, dated as of June 15, 1994, among the Unit 2 Banks, the Unit 2 Agent, TNP, and TGC II (Exhibit 10(s)5 to TNP Form 10-Q for quarter ended June 30, 1994, File No. 2-97230). 10(s) - Release and Waiver of Liens and Indemnity Agreement, dated October 1, 1988, by Westinghouse, CE, and Zachry (Exhibit 10(vvv) to TNP 1988 Form 10-K, File No. 2-97230). 10(t) - Second Lien Mortgage and Deed of Trust, dated as of October 1, 1988, (Exhibit 10(www) to TNP 1988 Form 10-K, File No. 2-97230). 10(t)1 - Second Lien Mortgage and Deed of Trust Modification, Extension and Amendment Agreement, dated as of January 8, 1992, (Exhibit 10(w)1 to TNP 1991 Form 10-K, File No. 2-97230). 10(t)2 - TNP Second Lien Mortgage Modification No. 2, dated as of September 21, 1993, (Exhibit 10(u)2 to TNP 1993 Form 10-K, File No. 2-97230). 10(u) - Intercreditor and Nondisturbance Agreement, dated as of October 1, 1988, among PFC, Texas PFC, Inc., TNP, certain creditors, as defined therein, and the Collateral Agent, as defined therein (Exhibit 10(xxx) to TNP 1988 Form 10-K, File No. 2-97230). 10(u)1 - Amendment No. 1, dated as of January 8, 1992, to Intercreditor and Nondisturbance Agreement, (Exhibit 10(x)1 to TNP 1991 Form 10-K, File No. 2-97230). 10(u)2 - Amendment No. 2, dated as of September 21, 1993, to Intercreditor and Nondisturbance Agreement, (Exhibit 10(v)2 to TNP 1993 Form 10-K of TNP, File No. 2-97230). 10(v) - Grant of Reciprocal Easements and Declaration of Covenants Running with the Land, dated October 1, 1988, between PFC and Texas PFC, Inc. (Exhibit 10(yyy) to TNP 1988 Form 10-K, File No. 2-97230). 10(w) - Non-Partition Agreement, dated as of May 30, 1990, among TNP, TGC, and the Unit 1 Agent (Exhibit 10(ss) to TNP 1990 Form 10-K of TNP, File No. 2-97230). 10(x) - Assumption Agreement, dated as of May 31, 1991, by TGC II in favor of certain banks, the Unit 2 Agent, and the Depositary, as defined therein (Exhibit 10(kkk) to Amendment No. 1 to File No. 33-41903). 10(y) - Guaranty, dated as of May 31, 1991, by TNP, for TGC II obligations under the Unit 2 Credit Agreement (Exhibit 10(lll) to Amendment No. 1 to File No. 33-41903). 10(z) - First Amended and Restated Facility Purchase Agreement, dated as of January 8, 1992, between TNP, and TGC II (Exhibit 10(dd) to TNP 1991 Form 10-K, File No. 2-97230). 10(z)1 - Amendment No. 1 to the Unit 2 First Amended and Restated Facility Purchase Agreement, dated as of September 21, 1993, between TNP and TGC II (Exhibit 10(aa)1 to TNP 1993 Form 10-K, File No. 2-97230). 10(aa) - Operating Agreement, dated as of May 31, 1991, between TNP and TGC II (Exhibit 10(nnn) to Amendment No. 1 to File No. 33-41903). 10(bb) - Non-Partition Agreement, dated as of May 31, 1991, among TNP, TGC II, and the Unit 2 Agent (Exhibit 10(ppp) to Amendment No. 1 to File No. 33-41903). Contracts Relating to TNP One *10(cc) - Revolving Credit Facility Agreement, dated as of November 3, 1995, among TNP, certain lenders, and Chemical Bank, as Administrative Agent and Collateral Agent. *10(cc)1- Form of Guarantee and Pledge Agreement, dated as of November 3, 1995, between TGC II, and Chemical Bank, as collateral agent (Exhibit D to Revolving Credit Facility Agreement). *10(cc)2- Form of Bond Agreement, dated as of November 3, 1995, between TNP and Chemical Bank, as Collateral Agent (Exhibit E to Revolving Credit Facility Agreement). *10(cc)3- Form of Note Pledge Agreement, dated as of November 3, 1995, between TNP and Chemical Bank, as collateral agent (Exhibit F to Revolving Credit Facility Agreement). Page 45 *10(cc)4- Form of Sixth TGC II Modification and Extension Agreement, dated as of November 3, 1995, among the Unit 2 Banks, The Chase Manhattan Bank, as agent, TNP, and TGC II (Exhibit H to the Revolving Credit Facility Agreement). *10(cc)5- Form of Second Lien Mortgage and Deed of Trust Modification, Extension and Amendment Agreement No. 3, dated as of November 3, 1995 (Exhibit I to the Revolving Credit Facility Agreement). *10(cc)6- Form of Assignment and Amendment Agreement, dated as of November 3, 1995, among TNP, TGC II, and Chemical Bank, as administrative agent and collateral agent (Exhibit J to the Revolving Credit Facility Agreement). *10(cc)7- Form of Assignment of TGC II Mortgage Lien, dated as of November 3, 1995, by The Chase Manhattan Bank as agent to Chemical Bank (Exhibit K to the Revolving Credit Facility Agreement). *10(cc)8- Form of Collateral Transfer of Notes, Rights and Interests, dated as of November 3, 1995, between TNP and Chemical Bank, as Administrative Agent and as Collateral Agent (Exhibit L to the Revolving Credit Facility Agreement). *10(cc)9- Form of Assignment of Second Lien Mortgage and Deed of Trust, dated as of November 3, 1995, between the Chase Manhattan Bank, as Agent, and Chemical Bank, as agent (Exhibit M to the Revolving Credit Facility Agreement). *10(cc)10- Form of Collateral Transfer of Notes, Rights and Interests, dated as of November 3, 1995, between TNP and Chemical Bank, as Administrative Agent and as Collateral Agent (Exhibit N to the Revolving Credit Facility Agreement). *10(cc)11- Form of Amendment No. 1, dated as of November 3, 1995, to the Assignment and Security Agreement between TNP, and The Chase Manhattan Bank, as agent (Exhibit O to the Revolving Credit Agreement). Power Supply Contracts 10(dd) - Contract dated May 12, 1976, between TNP and Houston Lighting & Power Company (Exhibit 5(a), File No. 2-69353). 10(dd)1- Amendment, dated January 4, 1989, to contract between TNP and Houston Lighting & Power Company (Exhibit 10(cccc) to TNP 1988 Form 10-K). 10(ee) - Amended and Restated Agreement for Electric Service dated May 14, 1990, between TNP and Texas Utilities Electric Company (Exhibit 10(vv) to TNP 1990 Form 10-K, File No. 2-97230). 10(ee)1- Amendment, dated April 19, 1993, to Amended and Restated Agreement for Electric Service, between TNP and Texas Utilities Electric Company (Exhibit 10(ii)1 to 1993 Form S-2, Registration Statement, File No. 33-66232). 10(ff) - Contract dated June 11, 1984 between TNP and SPS (Exhibit 10(d) of Form 8 applicable to TNP 1986 Form 10-K, File No. 2-97230). 10(gg) - Contract dated April 27, 1977, between TNP and West Texas Utilities Company, as amended (Exhibit 10(e) of Form 8 applicable to TNP 1986 Form 10-K, File No. 2-97230). 10(hh) - Contract dated April 29, 1987, between TNP and El Paso Electric Company (Exhibit 10(f) of Form 8 applicable to TNP 1986 Form 10-K, File No. 2-97230). 10(ii) - Amended and Restated Contract for Electric Service, dated April 29, 1988, between TNP and Public Service Company of New Mexico (Exhibit 10(zz)3 to Amendment No. 1 to File No. 33-41903). 10(jj) - Contract dated December 8, 1981, between TNP and SPS as amended (Exhibit 10(h) of Form 8 applicable to TNP 1986 Form 10-K, File No. 2-97230). 10(jj)1- Amendment, dated December 12, 1988, to contract between TNP and SPS (Exhibit 10(llll) to TNP 1988 Form 10-K, File No. 2-97230). 10(jj)2- Amendment, dated December 12, 1990, to contract between TNP and SPS (Exhibit 19(t) to TNP 1990 Form 10-K, File No. 2-97230). 10(kk) - Contract dated August 31, 1983, between TNP and Capitol Cogeneration Company, Ltd. (Exhibit 10(i) of Form 8 applicable to TNP 1986 Form 10-K, File No. 2-97230). 10(kk)1- Agreement Substituting a Party, dated May 3, 1988, among Capitol Cogeneration Company, Ltd., Clear Lake Cogeneration Limited Partnership and TNP (Exhibit 10(nnnn) to TNP 1988 Form 10-K, File No. 2-97230). 10(kk)2- Letter Agreements, dated May 30, 1990, and August 28, 1991, between Clear Lake Cogeneration Limited Partnership and TNP (Exhibit 10(oo)2 to TNP 1992 Form 10-K, File No. 2-97230). Page 46 10(kk)3- Notice of Extension Letter, dated August 31, 1992, between Clear Lake Cogeneration Limited Partnership and TNP (Exhibit 10(oo)3 to TNP 1992 Form 10-K, File No. 2-97230). 10(kk)4- Scheduling Agreement, dated September 15, 1992, between Clear Lake Cogeneration Limited Partnership and TNP (Exhibit 10(oo)4 to TNP 1992 Form 10-K, File No. 2-97230). 10(ll) - Interconnection Agreement between TNP and Plains Electric Generation and Transmission Cooperative, Inc. dated July 19, 1984 (Exhibit 10(j) of Form 8 applicable to TNP 1986 Form 10-K, File No. 2-97230). 10(mm) - Interchange Agreement between TNP and El Paso Electric Company dated April 29, 1987 (Exhibit 10(l) of Form 8 applicable to TNP 1986 Form 10-K, File No. 2-97230). 10(nn)1- Amendment No. 1, dated November 21, 1994, to Interchange Agreement between TNP and El Paso Electric Company (Exhibit 10(nn)1 to joint 1994 Form 10-K, File Nos. 1-8847 and 2-97230). 10(oo) - DC Terminal Participation Agreement between TNP and El Paso Electric Company dated December 8, 1981 as amended (Exhibit 10(m) of Form 8 applicable to TNP 1986 Form 10-K, File No. 2-97230). 10(pp) - 1996 Firm Capacity & Energy Sale Agreement between TNP and TEP dated, as of January 1, 1996 (Exhibit 10(pp) to joint 1994 Form 10-K, File Nos. 1-8847 and 2-97230). Management Contracts *10(qq) - Form of TNP Executive Agreement for Severance Compensation Upon Change in Control and schedule of substantially identical agreements. 10(rr) - Agreement between Kevern Joyce and TNPE and TNP, executed March 25, 1994 (Exhibit 10(tt) to TNP 1994 Form 10-Q, File No. 2-97230). *10(ss) - Form of TNPE Incentive Compensation Award Agreement and schedule of substantially identical agreements. *21 - Subsidiaries of the Registrants.
Page 47 SUBSIDIARIES OF THE REGISTRANTS Exhibit 21
Name State of Incorporation TNPE - ---- Texas-New Mexico Power Company Texas Bayport Cogeneration, Inc. Texas TNP Operating Company Texas TNP - --- Texas Generating Company Texas Texas Generating Company II Texas
TNP ENTERPRISES, INC. AND SUBSIDIARIES Exhibit 23 -------------------------------------- Independent Auditors' Consent The Board of Directors TNP Enterprises, Inc.: We consent to incorporation by reference in the Registration Statement (No. 2-93266) on Form S-3 and in the Registration Statements (Nos. 2-93265 and 33-58897) on Form S-8 of TNP Enterprises, Inc. of our report dated February 6, 1996, relating to the consolidated balance sheets and statements of capitalization of TNP Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, common shareholders' equity and redeemable cumulative preferred stock, and cash flows for each of the years in the three-year period ended December 31, 1995, which report appears in the December 31, 1995, annual report on Form 10-K of TNP Enterprises, Inc. Our report refers to a change in the method of accounting for operating revenues in 1995 and changes in the methods of accounting for income taxes and postretirement benefits in 1993. KPMG Peat Marwick LLP Fort Worth, Texas March 15, 1996 EX-3 2 RESTATED ARTICLES OF INCORPORATION OF TEXAS-NEW MEXICO POWER COMPANY 1. Pursuant to the provisions of Article 4.07 of the Texas Business Corporation Act, Texas-New Mexico Power Company hereby adopts Restated Articles of Incorporation, which accurately state the Articles of Incorporation and all amendments thereto that are in effect to date and such Restated Articles of Incorporation contain no change in any provision thereof. 2. The Articles of Incorporation and all amendments and supplements thereto are hereby superseded by the following Restated Articles of Incorporation, which accurately state the text thereof: ARTICLE ONE The name of the corporation is TEXAS-NEW MEXICO POWER COMPANY. ARTICLE TWO The period of its duration is perpetual. ARTICLE THREE The purpose for which the corporation is organized is the transaction of any or all lawful business for which corporations may be incorporated under the Texas Business Corporation Act. ARTICLE FOUR The total number of shares of Capital Stock which the corporation is authorized to issue is thirteen million (13,000,000), of which Capital Stock twelve million (12,000,000) shares of the par value of Ten Dollars (10.00) per share shall be Common Stock and of which one million (1,000,000) shares of the par value of One Hundred Dollars ($100.00) per share shall be Preferred Stock. The designations, preferences, limitations and relative rights in respect of the shares of each class of Capital Stock of the corporation, and the authority granted to the Board of Directors to fix by resolution or resolutions any thereof which shall not be fixed herein, are as follows: SECTION (1) - DEFINITIONS 1.01.The term "Preferred Stock" shall mean all or any shares of any series of Preferred Stock described in Section (2) of this Article Four. 1.02.The term "Parity Stock" shall mean stock of any class other than the Preferred Stock with respect to which dividends and amounts payable upon any liquidation, dissolution or winding up of the corporation shall be payable on a parity with and in proportion to the respective amounts payable in respect of the Preferred Stock, notwithstanding that such Parity Stock may have other terms and provisions varying from those of the Preferred Stock. 1.03.The term "Junior Stock" shall mean the Common Stock and stock of any other class ranking junior to the Preferred Stock and Parity Stock in respect of dividends and amounts payable upon any liquidation, dissolution or winding up of the corporation. 1.04.The term "accrued dividends" shall mean, in respect of each share of stock, that amount which shall be equal to simple interest upon the par value at the annual dividend rate fixed for such share and no more, from and including the date upon which dividends on such share became cumulative and (i) up to but not including the date fixed for payment in liquidation, dissolution or winding up or for redemption, or (ii) up to and including the last day of any period for which such accrued dividends are to be determined, less the aggregate amount of all dividends theretofore paid or declared and set apart for payment thereon. Computation of accrued dividends in respect of any portion of a quarterly dividend period shall be by the 360-day method of computing interest. 1.05.The term "gross income available for payment of interest charges" shall mean the total operating revenues and other income net of the corporation, less all proper deductions for operating expenses, taxes (including income, excess profits and other taxes based on or measured by income or undistributed earnings or income), and other appropriate items, including provision for maintenance, and provision for retirements, depreciation and obsolescence (but in no event less than the minimum provisions required by the terms of any indenture or agreement securing any outstanding indebtedness of the corporation), but excluding any charges on account of interest on indebtedness outstanding and any credits or charges for amortization of debt premium, discount and expense, all to be determined in accordance with sound accounting practice. In determining such "gross income available for payment of interest charges," no deduction, credit or adjustment shall be made on account of (1) profits or losses from sales of property carried in plant or investment accounts of the corporation, or from the reacquisition of any securities of the corporation, or (2) charges for the elimination or amortization of utility plant adjustment or acquisition accounts or other intangibles; and income, excess profits and other taxes based on or measured by income or undistributed earnings or income shall be appropriately adjusted to reflect the effect of the exclusion of such items. 1.06.The term "net income of the corporation available for dividends" shall mean the "gross income available for payment of interest charges," as defined and determined above under Section 1.05, less the sum of charges for interest on indebtedness and less charges or plus credits for amortization of debt premium, discount and expense, and other appropriate items, determined in accordance with sound accounting practice. In determining "net income of the corporation available for dividends" no deduction, credit or adjustment shall be made on account of (1) expenses in connection with the issuance (except charges or credits for amortization of debt premium, discount and expense), redemption or retirement of any securities issued by the corporation, including any amount paid in excess of the principal amount or par or stated value of securities redeemed or retired, or, in the event such redemption or retirement is effected with the proceeds of the sale of other securities of the corporation, interest or dividends on the securities redeemed or retired from the date on which the funds required for such redemption or retirement are deposited in trust for such purpose to date of redemption or retirement, (2) profits or losses from the sales of property carried in plant or investment accounts of the corporation, or from the reacquisition of any securities of the corporation, (3) charges for the elimination or amortization of utility plant adjustment or acquisition accounts or other intangibles, or (4) any earned surplus adjustment (including tax adjustments) applicable to any period of this corporation's predecessor corporation, Community Public Service Company, a Delaware corporation, prior to January 1, 1963; and income, excess profits and other taxes based on or measured by income or undistributed earnings or income shall be appropriately adjusted to reflect the effect of the exclusion of such items. 1.07.The term "net income of the corporation available for dividends on Junior Stock" shall mean "net income of the corporation available for dividends," as defined above, less all accrued dividends and all dividends paid on outstanding Preferred Stock and Parity Stock and on any class of stock ranking as to dividends prior to such Preferred Stock or Parity Stock. 1.08 The term "sound accounting practice" shall mean recognized principles of accounting practice followed by electric utility companies or required by any applicable rules, regulations or orders of any public regulatory authority having Jurisdiction over the accounts of the corporation, provided that the corporation may, at the time, contest or controvert in good faith the validity or applicability to the corporation of any such rule, regulation or order and thereby suspend the effect thereof until such contest or controversy has been terminated. SECTION (2) - PREFERRED STOCK 2.01.Issue in Series. The shares of Preferred Stock may be divided and issued from time to time in one or more series, with such distinguishing characteristics, including designations, preferences, limitations and relative rights, as are hereinafter provided in this Article Four and otherwise as permitted by law. All shares of Preferred Stock of any particular series shall be identical except as to the date or dates from which dividends thereon shall become cumulative as provided in Section 2.02. The authorized but unissued shares of Preferred Stock may be divided by number from time to time into and issued in designated series, and the shares of each series of Preferred Stock so designated shall provide for dividends at such rates, and shall be subject to redemption at such price or prices and at such time or times, as shall be provided in the resolution or resolutions of the Board of Directors providing for the issuance of such stock, full authority for such purpose being granted to and vested in the Board of Directors. The resolution or resolutions of the Board of Directors of the corporation dividing the number of shares of authorized but unissued Preferred Stock, and designating the series and fixing the relative rights and preferences thereof shall (a) designate the series to which Preferred Stock shall belong and fix the number of shares thereof, (b) fix the dividend rate therefor and fix the date from which dividends on the shares of such series initially issued shall be cumulative, (c) state at what times the Preferred Stock of such series shall be redeemable and the redemption price or prices payable thereon in the event of redemption; and may, in a manner not inconsistent with the provisions of this Article Four and insofar as permitted by applicable provisions of law, (i) provide for a sinking fund for the purchase or redemption or a purchase fund for the purchase of shares of such series and the terms and provisions governing the operation of any such fund, (ii) impose conditions or restrictions upon the creation of indebtedness of the corporation or upon the issue of additional Preferred Stock or other stock ranking equally therewith or prior thereto as to dividends or assets, (iii) impose conditions or restrictions upon the payment of dividends upon, or the making of other distributions to, or the acquisition of, Junior Stock, (iv) grant to the holders of the Preferred Stock of such series the right to convert such stock into shares of Junior Stock, and (v) grant such other special rights to, or impose other conditions or restrictions upon, the holders of shares of such series as the Board of Directors may determine; the term "fixed for such series" and similar terms shall mean stated and expressed in this Article Four, or in any amendment to these Restated Articles of Incorporation, or in a resolution or resolutions adopted by the Board of Directors providing for the issue of Preferred Stock of the series referred to. 2.02.Dividends. Out of the assets of the corporation legally available for dividends the holders of the Preferred Stock shall be entitled to receive, but only when and as declared by the Board of Directors, dividends at the rate per annum fixed for each series and no more. Dividends declared shall be payable quarterly on March 15, June 15, September 15 and December 15 in each year, to Preferred stockholders of record on such date, not more than fifty (50) days and not less than ten (10) days prior to each such payment date, as may be determined by the Board of Directors. Dividends on the shares of Preferred Stock of any series initially issued shall be cumulative from and including a date fixed for such series at the time of the initial establishment or designation of a series and on any additional shares of the same series from and including the first day of the quarterly dividend period in which such additional shares shall be issued. Each share of Preferred Stock shall rank on a parity with each other share of Preferred Stock, irrespective of series, with respect to dividends at the respective rates fixed for such series, and no dividends shall be paid or declared on the Preferred Stock of any series or Parity Stock unless at the same time a dividend in like proportion, ratably, to the accrued dividends on the Preferred Stock of each series outstanding shall be paid or declared and set apart for payment on each series of Preferred Stock then outstanding. The amount of any deficiency for past dividend periods may be paid or declared, and set apart at any time without reference to any quarterly dividend payment date. Accrued dividends on Preferred Stock shall not bear interest. 2.03.Liquidation Rights. In the event of any involuntary liquidation, dissolution or winding up of the corporation, the holders of each series of Preferred Stock shall be entitled to receive, for each share thereof, the par value thereof, together with accrued dividends, or, in case such liquidation, dissolution or winding up shall have been voluntary, an amount per share equal to the then applicable current redemption price fixed for such series, before any distribution of the assets shall be made to the holders of shares of any class of Junior Stock; but the holders of Preferred Stock of such series shall be entitled to no further participation in such distribution. In the event that the assets of the corporation available for distribution to holders of Preferred Stock shall not be sufficient to make the full payment herein required, such assets shall be distributed to the holders of the shares of respective series of Preferred Stock ratably in proportion to the amounts payable on each share thereof, including accrued dividends. A consolidation or merger of the corporation or sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the corporation shall not be deemed a dissolution, liquidation or winding up of the corporation within the meaning of this Section 2.03. 2.04.Redemption and Repurchase Provisions. (A) Preferred Stock of each series shall be subject to redemption, in whole or in part, at the redemption prices fixed for such series in such amount, at such place and by such method, which, if in part, shall be by lot, as shall from time to time be determined by resolution of the Board of Directors. Notice of the proposed redemption of any shares of any series of Preferred Stock shall be given the corporation by mailing a copy of such notice, at least twenty (20) days but not more than fifty (50) days prior to the date fixed for such redemption, to the holders of record of such shares to be redeemed, at their respective addresses then appearing on the books of the corporation. On or after the date specified in such notice, each holder of shares of Preferred Stock called for redemption as aforesaid, shall be entitled to receive therefor the redemption price thereof, upon presentation and surrender at any place designated in such notice of the certificates for such shares of Preferred Stock held by him. On and after the date fixed for redemption, if notice is given as aforesaid, and unless default is made by the corporation in providing moneys for payment of the redemption price, alI dividends on the shares called for redemption shall cease to accrue, and on and after such redemption date, unless default be made as aforesaid, or on and after the date of earlier deposit by the corporation with a bank or trust company doing business in the City of Fort Worth, Texas, or any bank or trust company in the City of New York, New York, duly appointed and acting as transfer agent for this corporation in either case having a capital and surplus of at least $3,000,000.00 in trust for the benefit of the holders of the shares of the Preferred Stock of such series so called for redemption, of all funds necessary for redemption as aforesaid (provided in the latter case that there shall have been mailed as aforesaid to holders of record of shares to be redeemed, a notice of the redemption thereof or that the corporation shall have executed and delivered to the Transfer Agent for the Preferred Stock or to the bank or trust company with which such deposit is made an instrument irrevocably authorizing it to mail such notice at the corporation's expense) all rights of the holders of the shares called for redemption as stockholders of the corporation, except only the right to receive the redemption price, shall cease and determine. Any funds so deposited which shall remain unclaimed by the holders of such Preferred Stock at the end of six (6) years after the redemption date, together with any interest thereon which shall have been allowed by the bank or trust company with which such deposit shall have been made, shall be paid by it to the corporation, free of any trust, and thereafter such holders shall look only to the corporation therefor. Shares of Preferred Stock redeemed as aforesaid shall be restored to the status of authorized but unissued shares. (B) Except as otherwise herein provided or prohibited by law, the corporation may also from time to time purchase shares of Preferred Stock of any series for any sinking or purchase fund and otherwise at not exceeding the then current redemption prices applicable to redemptions for the sinking fund for such series or otherwise, as the case may be, including accrued dividends thereon to the date of purchase, plus customary brokerage commissions. Shares of Preferred Stock of any series so purchased not used to satisfy sinking or purchase fund obligations may in the discretion of the Board of Directors be reissued or otherwise disposed of from time to time to the extent permitted by law. C) If and so long as there are dividends in arrears on any shares of Preferred Stock of any series or Parity Stock or a default exists in any sinking or purchase fund obligation provided for the benefit of any series of Preferred Stock, the corporation shall not redeem any shares of any series of Preferred Stock or Parity Stock, unless in connection therewith all the outstanding Preferred Stock of all series is redeemed, or purchase any shares of any series of Preferred Stock or Parity Stock unless an offer to purchase on a comparable basis is made to the holders of all the Preferred Stock then outstanding. (D) The corporation will not permit any subsidiary corporation to purchase any shares of stock of any class of the corporation. 2.05.Restrictions on Corporate Action. (A) So long as any Preferred Stock is outstanding, the corporation shall not, (1) without the consent (given by vote in person or by proxy at a meeting called for the purpose) of the holders of at least two-thirds, or (2) without the consent (given in writing without a meeting) of all the holders, of the aggregate number of shares of all series of Preferred Stock (treated as one class) then outstanding - (I) Create, authorize or increase the authorized amount of any shares of any class of stock other than Preferred Stock, Parity Stock or Junior Stock or any obligation or security convertible into stock other than Preferred Stock, Parity Stock or Junior Stock, or (ii) Amend, change or repeal any of the express terms of the Preferred Stock outstanding in any manner prejudicial to the holders thereof, except that, if such amendment, change or repeal is prejudicial to the holders of less than all series of Preferred Stock, the consent of only the holders of two-thirds of the aggregate number of shares of the series thereof so affected shall be required, or (iii) Issue any shares of Preferred Stock in addition to the shares issued or presently to be issued or issue any Parity Stock unless, after giving effect to the issue of such additional shares, (a) the net income of the corporation available for dividends for the period of twelve (12) consecutive calendar months within the fifteen (15) calendar months immediately preceding the calendar month within which such additional shares of stock are to be issued shall have been at least two and one-half (2 1/2) times the aggregate annual dividend requirements upon the entire amount to be outstanding (upon the issuance of such additional shares of Preferred Stock or such Parity Stock) of' Preferred Stock and Parity Stock and of any stocks of the corporation of any class ranking as to dividends prior to the Preferred Stock or Parity Stock; (b) the gross income available for payment of interest charges for a period of twelve (12) consecutive calendar months within the fifteen (15) calendar months immediately preceding the calendar month within which such additional shares of stock are to be issued, shall have been at least one and one-half (1 1/2) times the sum of (1) the aggregate annual interest charges on all the indebtedness of the corporation then outstanding, and (2) the aggregate annual dividend requirements upon the entire amount to be outstanding of Preferred Stock and Parity Stock and of any stocks of the corporation of any class ranking as to dividends prior to the Preferred Stock or Parity Stock; and (c) the aggregate of the capital of the corporation applicable to all Junior Stock, plus the capital surplus and the earned surplus of the corporation, determined in accordance with sound accounting practice, shall be not less than the aggregate payable upon involuntary liquidation, dissolution or winding up of the corporation to the holders of the entire amount to be outstanding of Preferred Stock and Parity Stock and of any stocks of the corporation of any class ranking as to assets prior to the Preferred Stock. In the foregoing computations, there shall be excluded (a) all indebtedness and all shares of stock to be retired in connection with the issue of such additional shares, and (b) all interest charges on all indebtedness and dividend requirements on all shares of stock to be retired in connection with the issue of such additional shares. The net earnings of any property acquired by the corporation during or after the period for which income is computed, or of any property which is to be acquired in connection with the issuance of any such additional shares, if capable of being separately determined or estimated, may be included on a pro forma basis (including a pro forma increase in income, excess profits and other taxes based on or measured by income or undistributed earnings or income) in the foregoing computations; and if within or after the period for which income is computed any substantial portion of the properties of the corporation shall have been disposed of, the net earnings of such property, if capable of being separately determined or estimated, shall be excluded on a pro forma basis (including a pro forma decrease in income, excess profits and other taxes based on or measured by income, or undistributed earnings or income) in the foregoing computations for a period prior to the date of such disposition. (B) So long as any Preferred Stock is outstanding, the corporation shall not, (1) without the consent (given by vote in person or proxy at a meeting called for the purpose) of the holders of a majority or (2) without the consent (given in writing without a meeting) of all the holders, of the aggregate number of shares of all series of Preferred Stock (treated as one class) then outstanding, issue, assume or create unsecured securities (the words "unsecured securities," as used in this paragraph being deemed to mean notes, debentures or other securities representing unsecured indebtedness other than indebtedness maturing by its terms in one year or less from the date of its creation and not renewable or extendible at the option of the corporation for a period of more than one year from the date of its creation) for any purpose, except to refund outstanding unsecured securities of such character, theretofore issued or assumed, if thereby the aggregate principal amount of such unsecured securities would exceed twenty percent (20%) of the sum of (1) the total principal amount of all bonds or other securities representing secured indebtedness of the corporation then to be outstanding, and (2) the capital represented by stocks of the corporation and the earned and capital surplus of the corporation, determined in accordance with sound accounting practice; provided, however, that any unsecured securities theretofore issued under any authorization of holders of Preferred Stock given pursuant hereto (and any securities to refund the same) shall not be considered in determining the amount of other unsecured securities which may be issued, assumed or created within the aforesaid twenty percent (20%) limitation. (C) So long as any Preferred Stock is outstanding, the corporation shall not, (1) without the consent (given by vote in person or by proxy at a meeting called for the purpose) of the holders of at least four-fifths, or (2) without the consent (given in writing without a meeting) of all the holders of the aggregate number of shares of all series of Preferred Stock (treated as one class) then outstanding - (I) merge or consolidate with or into any other corporation or corporations, provided that the provisions of this clause (i) shall not apply to a purchase or other acquisition by the corporation of franchises or assets of another corporation in any manner which does not involve a merger or consolidation; or (ii) sell, lease or otherwise dispose of all or substantially all of its property. No consent of the holders of the shares of any series of Preferred Stock in respect of action hereinabove set forth in subparagraphs (A), (B) or (C) shall be required if irrevocable provision is contemporaneously made for the redemption of all shares of such series of Preferred Stock at the time outstanding, or provision is made that the proposed action shall not be effective unless irrevocable provision is made for the prompt purchase, redemption or retirement of all shares of such series of Preferred Stock at the time outstanding. 2.06.Voting Rights. The holders of Preferred Stock shall not be entitled to vote except: (a) as provided above under Section 2.05; (b) as may from time to time be required by the laws of Texas; and (c) voting separately as a class for the election of the smallest number of directors necessary to constitute a majority of the Board of Directors whenever and as often as dividends payable on any series of Preferred Stock outstanding shall be in arrears in an amount equivalent to or exceeding six (6) quarterly dividends, which right may be exercised at any annual meeting and at any special meeting of stockholders called for the purpose of electing directors, until such time as arrears in dividends on the Preferred Stock and the current dividend thereon shall have been paid or declared and a sum sufficient for the payment thereof set apart, whereupon all voting rights given by this clause (c) shall be divested from the Preferred Stock (subject, however, to being at any time or from time to time similarly revived and divested). So long as holders of the Preferred Stock shall have the right to elect directors under the terms of the foregoing clause (c), the holders of the Common Stock, voting separately as a class, shall, subject to the voting rights of any other class of stock, be entitled to elect the remaining directors. Whenever, under the provisions of the foregoing clause (c) the right of holders of the Preferred Stock, if any, to elect directors shall accrue or shall terminate, the Board of Directors shall, within ten (10) days after delivery to the corporation at its principal office of a request or requests to such effect signed by the holders of at least five percent (5%) of the outstanding shares of any class of stock entitled to vote, call a special meeting, in accordance with the Bylaws of the corporation, of the holders of the class or classes of stock of the corporation entitled to vote, to be held within sixty (60) days from the delivery of such request, for the purpose of electing a full Board of Directors to serve until the next annual meeting and until their respective successors shall be elected and shall qualify; provided, however, that if the annual meeting of stockholders for the election of directors is to be held within eighty (80) days after the delivery of such request, the Board of Directors need not act thereon. If, at any special meeting called as aforesaid or at any annual meeting of stockholders after accrual or termination of the right of holders of the Preferred Stock to elect directors as in the foregoing clause (c) provided, any director shall not be re-elected, his term of office shall end upon the election and qualification of his successor, notwithstanding that the term for which such director was originally elected shall not at the time have expired. If, during any interval between annual meetings of stockholders for the election of directors while holders of the Preferred Stock shall be entitled to elect any director pursuant to the foregoing clause (c), the number of directors in office who have been elected by the holders of the Preferred Stock (voting as a class) or by the holders of the Common Stock (voting as a class), as the case may be, shall become less than the total number of directors subject to election by holders of shares of such class, whether by reason of the resignation, death or removal of any director or directors, or an increase in the total number of directors, the vacancy or vacancies shall be filled (1) by the remaining directors or director, if any, then in office who either were or was elected by the votes of shares of such class or succeeded to a vacancy originally filled by the votes of shares of such class or (2) if there is no such director remaining in office, at a special meeting of holders of shares of such class called by the President of the corporation to be held within sixty (60) days after there shall have been delivered to the corporation at its principal office a request or requests signed by the holders of at least five percent (5%) of the outstanding shares of such class; provided, however, that such request need not be so acted upon if delivered less than eighty (80) days before the date fixed for the annual meeting of stockholders for the election of directors. Any director may be removed from office for cause by vote of the holders of a majority of the shares of the class of stock which voted for his election (or for his predecessor in case such director was elected by directors). A special meeting of holders of shares of any class may be called by a majority vote of the Board of Directors or by the President for the purpose of removing a director in accordance with the provisions of the preceding sentence, and shall be called to be held within sixty (60) days after there shall have been delivered to the corporation at its principal office a request or requests to such effect signed by holders of at least five percent (5%) of the outstanding shares of the class entitled to vote with respect to the removal of any such director; provided, however, that such request need not be so acted upon if delivered less than eighty (80) days before the date fixed for the annual meeting of stockholders for the election of directors. The holders of a majority of the shares of a class of stock entitled under this Section 2.06 to vote for the election or removal of directors or the filling of any vacancy however created in the Board of Directors, present in person or represented by proxy at a meeting called for the purpose of voting on any such action, shall constitute a quorum for such purpose without regard to the presence or absence at the meeting of the holders of any other class of stock not entitled under this Section 2.06 to vote in respect thereto. A lesser interest of the class entitled to vote from time to time may adjourn any meeting for such purpose, and the same shall be held as adjourned without further notice. When a quorum is present, the vote of the holders of a majority of the shares of such quorum shall govern each such election, removal or filling of a vacancy in respect of which such class is entitled to vote. Preferred Stockholders shall not be entitled to receive notice of any meeting of holders of any class of stock at which they are not entitled to vote. Each holder of Preferred Stock, as to all matters in respect of which such stock has voting power, is entitled to one vote for each share of stock standing in his name. Cumulative voting shall not be allowed, but each holder of Preferred Stock, at any election of directors at which such Preferred Stock has voting power, shall be entitled to cast that number of votes equal to the number of shares of Preferred Stock owned by him for as many directors as there are to be elected. 2.07.Restriction on Dividends. So long as any shares of Preferred Stock shall be outstanding, the corporation shall not declare or pay or set apart any dividends on any shares of Junior Stock (other than dividends payable in shares of Junior Stock), or make any other distribution on shares of Junior Stock, or make any expenditures for the purchase, redemption or other retirement for a consideration of shares of Junior Stock (other than in exchange for other shares of Junior Stock),.unless accrued dividends on all shares of all series of Preferred Stock outstanding for all past quarterly dividend periods shall have been paid or declared and set apart and the full dividend for the then current quarterly dividend period shall have been or concurrently shall be paid or declared and set apart, or if the corporation shall be in default of the sinking or purchase fund obligation provided for any series of Preferred Stock. 2.08.Relative Rights and Preferences of Outstanding Series of Preferred Stock. The relative rights and preferences of each of the outstanding series of Preferred Stock which are not set forth elsewhere in this Article Four are as follows: (A) 4.65% Cumulative Preferred Stock, Series B (22,800 shares), and 4.75% Cumulative Preferred Stock, Series C (13,200 shares). 1. The Preferred Stock of each of said series shall be designated, respectively, "4.65% Cumulative Preferred Stock, Series B" (herein called "Series B Preferred Stock"), and "4.75% Cumulative Preferred Stock, Series C" (herein called "Series C Preferred Stock"). 2(a). Series B Preferred Stock. The fixed dividend rate of the shares of Series B Preferred Stock is 4.65% per share per annum and such dividends are cumulative from the date of issue of the shares of such series initially issued and on any additional shares of the same series from and including the first day of the quarterly dividend period in which such additional shares shall be issued, with the first quarterly dividend payable September 15, 1963; the fixed redemption prices on the shares of such series are $106.50 per share if redeemed prior to September 15, 1966; $105.00 per share if redeemed on September 15, 1966 or thereafter and prior to September 15, 1969; $103.50 per share if redeemed on September 15, 1969 or thereafter and prior to September 15, 1972 ; $102.00 per share if redeemed on September 15, 1972 or thereafter and prior to September 15, 1972 or thereafter and prior to September 15, 1975; $101.00 per share if redeemed on September 15, 1975 or thereafter and prior to September 15, 1978; and $100.00 per share if redeemed on September 15, 1978 or thereafter; together with all accrued dividends thereon (as such phrase is defined for the purposes of Article Four of the Restated Articles of Incorporation of the corporation). The fixed liquidation price for the shares of such series is One Hundred Dollars ($100) per share, together with all accrued dividends thereon (as such phrase is so defined), in the event of involuntary liquidation and the applicable current redemption price in the event of voluntary liquidation, all as more fully prescribed by the provisions of Paragraph 2.03 of Article Four of the Restated Articles of Incorporation of the corporation. 2(b). Series C Preferred Stock. The fixed dividend rate on the shares of Series C Preferred Stock is 4.75% per share per annum and such dividends are cumulative from the date of issue of the shares of such series initially issued and on any additional shares of the same series from and including the first day of the quarterly dividend period in which such additional shares shall be issued, with the first quarterly dividend payable September 15, 1965; the fixed redemption prices on the shares of such series are $105.75 per share if redeemed prior to September 15, 1968; $104.60 per share if redeemed on September 15, 1968 or thereafter and prior to September 15, 1971; $103.45 per share if redeemed on September 15, 1971 or thereafter and prior to September 15, 1974; $102.30 per share if redeemed on September 15, 1974 or thereafter and prior to September 15, 1977; $101.15 per share if redeemed on September 15, 1977 or thereafter and prior to September 15, 1980; and $100.00 per share if redeemed on September 15, 1980 or thereafter; together with all accrued dividends thereon (as such phrase is defined for the purposes of Article Four of the Restated Articles of Incorporation of the corporation). The fixed liquidation price for the shares of such series is One Hundred Dollars ($100) per share, together with all accrued dividends thereon (as such phrase is so defined), in the event of involuntary liquidation and the applicable current redemption price in the event of voluntary liquidation, all as more fully prescribed by the provisions of Section 2.03 of Article Four of the Restated Articles of Incorporation of the corporation. 3. The corporation (unless prevented from so doing by any applicable restriction of law) will in each year, so long as any shares of the Series B or Series C Preferred Stock are outstanding, make offers (hereinafter in this Paragraph 3 called a Purchase Offer) to the holders of shares of the Series B and/or Series C Preferred Stock to purchase on October 1 in each such year, at the prices at which the same may be offered to the corporation up to but not exceeding a price of $100 per share and accrued dividends, a number of shares of said series equal to 2% of the maximum number of shares of each of the Series B and Series C Preferred Stock outstanding at any one time prior to August 15 of such year, all as hereinafter provided in this Paragraph 3. The Transfer Agent for the Series B and Series C Preferred Stock shall, at least 30 days prior to October 1 of each such year, mail to the holders of record of shares of each of the said Series as at the day prior to the mailing date, a notice, in the name of the corporation, that the corporation will on October I of that year, accept offers to sell the number of shares required to be covered by the Purchase Offers at the prices at which shares are offered to the corporation up to but not exceeding a price of $100 per share and accrued dividends thereon. The Transfer Agent shall on October 1, on behalf of the corporation, accept offers to sell shares of the Series B and Series C Preferred Stock received by it up to the full number of shares covered by the Purchase Offer upon such basis as will result in the lowest aggregate cost to the corporation. To that end, the Transfer Agent shall accept offers at the same prices on a pro rata basis with respect to each series, as nearly as may be. In case any person whose offer is accepted shall thereafter fail to make good such offer, said Transfer Agent shall, to the extent practicable, within 30 days after October 1, accept in lieu thereof, the best offer or offers, if any, theretofore made and not theretofore accepted. On or prior to October 1 in each year, the corporation shall deposit with said Transfer Agent cash sufficient to purchase the shares of each of said Series, if any, which have been accepted for purchase pursuant to the Purchase Offer made in such year and thereafter shall deposit any additional funds required to carry out the Purchase Offer for such year. The Transfer Agent shall return to the corporation any funds deposited with it and not applied to the purchase of shares of the Series B or Series C Preferred Stock pursuant to the Purchase Offer for such year. If in any year the full purchase obligation of the corporation shall not have been satisfied by the making and carrying out of the Purchase Offer, any deficiency in the satisfaction of such purchase obligation shall be made good, in the manner hereinafter in this paragraph set forth, before any dividends shall be declared or paid upon or set apart for any shares of Common Stock or any shares of any class of stock ranking junior to the Preferred Stock or any sums applied to the purchase, redemption or other retirement of the Common Stock or any shares of any class of stock ranking junior to the Preferred Stock. Any such deficiency may be made good at any time by the making and carrying out of a Special Purchase Offer covering the number of shares of the Series B or Series C Preferred Stock as to which such deficiency exists and, to that end, the corporation shall file with the Transfer Agent a certificate, signed by the President or a Vice President, specifying a date, not less than 45 days after the date of filing thereof, on which offers to sell shares of the Series B or Series C Preferred Stock will be accepted. Such Special Purchase Offer shall otherwise be made and carried out on thirty days' notice and in the same manner as hereinabove provided for Purchase Offers to be carried out on October 1. The Purchase Offer in any year shall be deemed to have been completed and satisfied if the corporation shall have complied with the provisions of this Paragraph 3 notwithstanding that the total number of shares purchased by it shall have been less than the total number of shares covered by the corporation's Purchase Offer for that year because too few offers to sell were received by it. Shares of the Series B and Series C Preferred Stock purchased pursuant to any Purchase Offer or Special Purchase Offer shall be canceled and shall not be reissued as shares of the same Series. The provisions of this Paragraph 3 in so far as the same relate to purchases of outstanding shares of each of said Series, are subject to the applicable provisions of Section (2) of Article Four of the Restated Articles of Incorporation of the corporation. 4. The shares of the Series B Preferred Stock and Series C Preferred Stock are not convertible. 5. So long as any shares of the Series B or Series C Preferred Stock shall be outstanding, the corporation shall not declare or pay or set apart any dividends on any shares of Junior Stock (other than dividends payable in shares of Junior Stock) or make any other distribution on any shares of Junior Stock, or make any expenditures for the purchase, redemption or other retirement for a consideration of shares of Junior Stock (other than in exchange for other shares of Junior Stock or from the proceeds of any sale of such stock received not more than six (6) months prior to such retirement), if the aggregate amount of all such dividends, distributions and expenditures of the corporation after December 31, 1962, would exceed the aggregate amount of the net income of such corporation available for dividends on Junior Stock accumulated after December 31, 1962, plus $1,500,000, and then only within the limits set forth in Section 3.01 of Article Four of the Restated Articles of Incorporation of the corporation. For the purposes of this paragraph, references to the "corporation" shall mean both the corporation and its predecessor, Community Public Service Company, a Delaware corporation. SECTION (3) THE COMMON STOCK 3.01.Dividends. Out of any assets of the corporation legally available for dividends remaining after full cumulative dividends upon any shares of Preferred Stock or of any other class of stock ranking as to dividends ahead of the Common Stock of the corporation then outstanding shall have been paid or declared and set apart for all past quarterly dividend periods and for the current quarterly dividend period, then and not otherwise, dividends may be paid upon the Common Stock to the exclusion of the Preferred Stock and of any such other class of stock. 3.02.Distribution of Assets. In the event of any liquidation, dissolution or winding up of the corporation, after there shall have been paid to or set aside for the holders of all series of Preferred Stock and of any other class of stock ranking as to assets ahead of the Common Stock the full preferential amounts, including accrued dividends, to which they are respectively entitled, the holders of the Common Stock shall be entitled to receive, pro rata, all the remaining assets of the corporation available for distribution to its stockholders. The Board of Directors, by vote of a majority of the members thereof, may distribute in kind to the holders of the Common Stock such remaining assets of the corporation or may sell, transfer or otherwise dispose of all or any of the remaining property and assets of the corporation to any other corporation and receive payment therefor wholly or partly in cash and/or in stock and/or in obligations of such corporation, and may sell all or any part of the consideration received therefor or distribute the same and/or the balance thereof in kind to the holders of the Common Stock. 3.03.Voting Rights. Subject to the votinq riqhts expressly conferred upon the Preferred Stock by Section (2) of this Article Four and by law and the voting rights of any other class of stock, the holders of the Common Stock shall exclusively possess full voting power for the election of directors and for all other purposes and shall be entitled to one vote for each share of Common Stock held of record. Cumulative voting shall not be allowed, but each holder of Common Stock, at any election of directors at which such Common Stock has voting power, shall be entitled to cast that number of votes equal to the number of shares of Common Stock owned by him for as many directors as there are to be elected. SECTION (4) - MISCELLANEOUS 4.01.Preemptive Rights. No holder of stock of any class of the corporation shall have any right, as such holder, to purchase or subscribe for any stock of any class of the corporation now or hereafter authorized or any securities convertible into, or carrying or evidencing any right or option to purchase, stock of any class now or hereafter authorized which the corporation may at any time issue, but any and all such stock, securities, rights and/or options may be issued and disposed of by the Board of Directors to such persons and for such lawful consideration and on such terms as the Board of Directors in its discretion may determine, without first offering the same or any thereof to the stockholders of the corporation. 4.02.Stock Fully Paid. All shares of capital stock, whether heretofore issued or hereafter issued for a lawful consideration fixed by the Board of Directors, including, without limitation, issuance of stock dividends, shall, when the full lawfuI consideration fixed by the Board of Directors has been paid, or when so issued as a stock dividend, be deemed fully paid stock and not liable to any further call or assessment thereon, and the holders of such shares shall not be liable for any further payment thereon. 4.03.Unissued Shares. Any of the unissued shares of capital stock of the corporation may be issued from time to time in such amount and manner, including, without limitation, in distribution as stock dividends, and for such lawful consideration as the Board of Directors may determine. ARTICLE FIVE The Bylaws of the corporation may be altered, amended or repealed at any regular or special meeting of the directors at which a quorum is present by the affirmative vote of a majority of those present at such meeting, provided notice of the proposed alteration, amendment or repeal is contained in the notice of such meeting. ARTICLE SIX The corporation has heretofore complied with the requirements of law as to the initial minimum capital requirements without which it could not commence business under the Texas Business Corporation Act. ARTICLE SEVEN The post office address of its registered office is 4100 International Plaza, P.O. Box 2943, Fort Worth, Texas 76113, and the name of its registered agent at such address is M.D. Blanchard. ARTICLE EIGHT The number of directors presently constituting the Board of Directors of the corporation is nine, and the names and addresses of the persons now serving as directors are as follows: R. Denny Alexander Fort Worth, Texas Cass O. Edwards II Fort Worth, Texas John A. Fanning Fort Worth, Texas Sidney M. Gutierrez Corrales, New Mexico Harris L. Kempner, Jr. Galveston, Texas Kevern R. Joyce Fort Worth, Texas Dwight R. Spurlock Texas City, Texas Dr. Carol D. Surles Denton, Texas Dennis H. Withers Mansfield, Texas ARTICLE NINE To the full extent allowed pursuant to the Texas Miscellaneous Corporation Laws Act as it now exists or as it may be amended or recodified from time to time, directors shall not be personally liable to the Corporation or its shareholders for monetary damages for any act or omission in the director's capacity as a director except for liability for: 1. a breach of the director's duty of loyalty to the corporation or its shareholders or members; 2. an act or omission not in good faith or that involves intentional misconduct or a knowing violation of the law; 3. a transaction from which a director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director's office; 4. an act or omission for which the liability of a director is expressly provided for by statute; 5. an act related to an unlawful stock repurchase or payment of a dividend. TEXAS-NEW MEXICO POWER COMPANY Date: March, 15, 1996 By:_________________________________ Michael D. Blanchard, Secretary EX-4 3 This Instrument Contains After-Acquired Property Provisions This Instrument Grants a Security Interest by a Utility Texas-New Mexico Power Company (Formerly Community Public Service Company) To Bank of America Illinois Trustee. ----------------------- Twenty-Fourth Supplemental Indenture Dated as of November 3, 1995 -------------------- Supplemental to and Modifying Indenture to Mortgage and Deed of Trust Dated as of November 1, 1944 (as supplemented and modified) This Instrument Contains After-Acquired Property Provisions. ------------------ This Instrument Grants a Security Interest by a Utility. ------------------ This is a Security Agreement granting a Security Interest in Chattels including Chattels affixed to Realty as well as a Mortgage upon Real Estate and Other Property THIS TWENTY-FOURTH SUPPLEMENTAL INDENTURE, dated as of November 3, 1995, between Texas-New Mexico Power Company (formerly Community Public Services Company), as debtor, a Texas corporation (hereinafter sometimes called the "Company"), whose mailing address and address of its principal place of business is 4100 International Plaza, P.O. Box 2943, Fort Worth, Texas 76113, party of the first part, and Bank of America Illinois, a banking corporation organized under the laws of Illinois (hereinafter sometimes called the "Trustee"), (which was formerly known, at various times, as Continental Bank, a banking corporation organized under the laws of Illinois, Continental Bank, National Association, and Continental Illinois National Bank and Trust Company of Chicago (sometimes referred to as "Predecessor Trustee")), as Trustee and Secured Party, and having its principal place of business and mailing address at 231 South LaSalle Street, Chicago, Illinois 60697, party of the second part: WHEREAS, Community Public Service Company, a Delaware corporation (hereinafter sometimes called the "Predecessor Company"), has heretofore executed and delivered to the City National Bank and Trust Company of Chicago (hereinafter sometimes called the "Old Trustee"), an Indenture of Mortgage and Deed of Trust dated as of November 1, 1944 (hereinafter sometimes called the "Original Indenture"), to secure as provided therein, its bonds (in the Original Indenture and herein called the "Bonds") to be designated generally as its "First Mortgage Bonds" and to be issued in one or more series as provided in the Original Indenture; and WHEREAS, the Predecessor Company has heretofore executed and delivered to the Old Trustee six indentures supplemental to the Original Indenture, which supplemental indentures were dated as of March 1, 1947, January 1, 1949, January 1, 1952, March 1, 1954, June 1, 1957 and June 1, 1961, respectively; and WHEREAS, simultaneously with the merger of the Predecessor Company into the Company, the Company has heretofore executed and delivered a Seventh Supplemental Indenture, dated as of May 1, 1963, to Continental Illinois National Bank and Trust Company of Chicago (into which on September 1, 1961, the Old Trustee was merged) as Trustee; and WHEREAS, the Company has heretofore executed and delivered to the Predecessor Trustee an Eighth Supplemental Indenture dated as of July 1, 1963; a Ninth Supplemental Indenture dated as of August 1, 1965; a Tenth Supplemental Indenture dated as of May 1, 1966; an Eleventh Supplemental Indenture dated as of October 1, 1969; a Twelfth Supplemental Indenture dated as of May 1, 1971; a Thirteenth Supplemental Indenture dated as of July 1, 1974; a Fourteenth Supplemental Indenture dated as of March 1, 1975; a Fifteenth Supplemental Indenture dated as of September 1, 1976; a Sixteenth Supplemental Indenture dated as of November 1, 1981; a Seventeenth Supplemental Indenture dated as of December 1, 1982; an Eighteenth Supplemental Indenture dated as of September 1, 1983; a Nineteenth Supplemental Indenture dated as of May 1, 1985; a Twentieth Supplemental Indenture dated as of July 1, 1987; a Twenty-First Supplemental Indenture dated as of July 1, 1989; a Twenty-Second Supplemental Indenture dated as of January 15, 1992; and a Twenty-Third Supplemental Indenture dated as of September 15, 1993; and WHEREAS, pursuant to the Original Indenture, as heretofore supplemented and modified, there have been executed, authenticated, delivered and issued and there are now outstanding First Mortgage Bonds of series and in principal amounts as follows:
Title Issued Outstanding Series L, 10 1/2due 2000 $ 12,000,000 $ 9,600,000 Series M, 8.70% due 2006 $ 10,000,000 $ 8,200,000 Series R, 10% due 2017 $ 65,000,000 $ 62,400,000 Series S, 9% due 2019 $ 20,000,000 $ 19,600,000 Series T, 11 1/4% due 1997 $130,000,000 $100,800,000 Series U, 9 1/4% due 2000 $100,000,000 $100,000,000
and WHEREAS, Continental Illinois National Bank and Trust Company of Chicago changed its name to Continental Bank, National Association, effective December 12, 1988; Continental Bank, National Association changed its name to Continental Bank, effective June 29, 1994; and Continental Bank changed its name to Bank of America Illinois effective September 1, 1994; and WHEREAS, it is provided in the Original Indenture, among other things, that the Company and the Trustee may, and when so required by the Original Indenture shall, enter into such indentures supplemental thereto as may or shall by them be deemed necessary or desirable and which shall thereafter form a part thereof for the purposes, among others, of (a) subjecting to the lien of the Original Indenture additional property acquired by the Company, (b) providing for the creation of any new series of Bonds, designating the series to be created and specifying the form and provisions of the Bonds of such series, (c) providing for a sinking, amortization, improvement or other analogous fund for the benefit of all or any of the Bonds of any one or more series, of such character and of such amount and upon such terms and conditions as shall be contained in such supplemental indenture; and (d) providing for modifications in the Original Indenture, subject to certain conditions; and WHEREAS, the Company is entering into that certain Revolving Credit Facility Agreement (the "Credit Agreement"), dated as of November 3, 1995 (as the same may be amended from time to time, the "Credit Agreement"), among the Company, certain lenders (the "Lenders") and Chemical Bank, a New York banking corporation ("Chemical") as agent for the Lenders; and WHEREAS, the Credit Agreement requires, as a condition precedent to the effectiveness of the Credit Agreement and the initial borrowing thereunder, that the Company issue a new series of First Mortgage Bonds to Chemical, as collateral agent (the "Collateral Agent") for the Lenders under a Bond Agreement, dated as of November 3, 1995 (the "Bond Agreement"), in an aggregate principal amount of $30,000,000 to secure the payment when due of the Obligations (as defined in the Bond Agreement); and WHEREAS, the agreements of the parties to the Credit Agreement constitute consideration for the issuance of such First Mortgage Bonds to the Collateral Agent; and WHEREAS, the Company, as required by the Credit Agreement, proposes to create under the Original Indenture a new issue of First Mortgage Bonds, to be designated as First Mortgage Bonds, Series V (the "Bonds of Series V") to be due on November 3, 2000, in an aggregate principal amount of $30,000,000 and proposes to issue the same initially upon the execution of this Twenty-Fourth Supplemental Indenture; and WHEREAS, it is the intent of the Company and the Lenders that as long as the Collateral Agent or any successor Collateral Agent remains as registered owner of the Bonds of Series V, there be no duplication in the obligations paid by the Company under the Credit Agreement and the Bonds of Series V, but the payments, if any, of principal of or interest on the Bonds of Series V be applied to payment of the Obligations and that the benefits and security of the lien of the Original Indenture, as supplemented and amended, be extended to the Obligations by means of the pledge of the Bonds of Series V to the Lenders; and WHEREAS, the Company is required to execute this Twenty-Fourth Supplemental Indenture and hereby requests the Trustee to join in this Twenty-Fourth Supplemental Indenture for the purpose, among others, of creating and describing the terms of the Bonds of Series V (the Original Indenture as heretofore supplemented and modified and as supplemented and modified by this Twenty-Fourth Supplemental Indenture being herein sometimes called the "Indenture"); and WHEREAS, all acts and proceedings required by law and by the Restated Articles of Incorporation and By-Laws of the Company necessary to make the Bonds of Series V, when executed by the Company, authenticated and delivered by the Trustee and duly issued, the valid, binding and legal obligations of the Company, and to constitute the Indenture a valid and binding mortgage for the security of all of the Bonds in accordance with its and their terms, have been done and taken; and the execution and delivery of this Twenty-Fourth Supplemental Indenture have been in all respects duly authorized. NOW, THEREFORE, THIS TWENTY-FOURTH SUPPLEMENTAL INDENTURE, WITNESSETH, that, in order to secure the payment of the principal of, premium, if any, and interest on all Bonds at any time issued and outstanding under the Indenture, according to their tenor, purport and effect, and to secure the performance and observance of all the covenants and conditions contained in said Bonds and in the Indenture, and to declare the terms and conditions upon and subject to which the Bonds of Series V are and are to be issued and secured, and for the purpose of confirming the lien of the Original Indenture, as heretofore supplemented and modified, and for and in consideration of the premises and of the mutual covenants contained in the Indenture and of the purchase and acceptance of the Bonds of Series V by the holders thereof, and of the sum of $1 to the Company paid by the Trustee at or before the ensealing and delivery hereof, and for other valuable considerations, the receipt whereof is hereby acknowledged, the Company has executed and delivered this Twenty-Fourth Supplemental Indenture, and by these presents does grant, bargain, sell, convey, assign, transfer, mortgage, pledge, hypothecate, set over and confirm unto the Trustee, the following property, rights, privileges and franchises, to wit: CLAUSE I. Without in any way limiting anything in Article Six hereof or hereinafter described, all and singular the lands, real estate, chattels real, interests in lands, leaseholds, ways, rights-of-way, easements, servitudes, permits and licenses, lands under water, riparian rights, franchises, privileges, gas or electric generating plants, natural gas plants, gas storage plants and facilities, gas or electric transmission and distribution systems, gas gathering systems and tap lines, and all apparatus and equipment appertaining thereto, offices, buildings, warehouses and other structures, machine shops, tools, materials and supplies and all property of any nature appertaining to any of the plants, systems, business or operations of the Company, whether or not affixed to the realty, used in the operation of any of the premises or plants or systems or otherwise, which are now owned or which may hereafter be owned or acquired by the Company, other than Excepted Property as defined in the Granting Clauses of the Original Indenture. CLAUSE II. All corporate, Federal, state, municipal and other permits, consents, licenses, bridge licenses, bridge rights, river permits, franchises, grants, privileges and immunities of every kind and description, now belonging to or which may hereafter be owned, held, possessed or enjoyed by the Company (other than Excepted Property as defined in the Granting Clauses of the Original Indenture) and all renewals, extensions, enlargements and modifications of any of them. CLAUSE III. Also all other property, real, personal or mixed, tangible or intangible (other than Excepted Property as defined in the Granting Clauses of the Original Indenture) of every kind, character and description and wheresoever situated, whether or not useful in the generation, manufacture, production, transportation, distribution or sale of gas or electricity, now owned or which may hereafter be acquired by the Company, it being the intention hereof that all property, rights and franchises acquired by the Company after the date hereof (other than Excepted Property as defined in the Granting Clauses of the Original Indenture) shall be as fully embraced within and subjected to the lien hereof as if such property were now owned by the Company and were specifically described herein and conveyed hereby. CLAUSE IV. Together with all and singular the plants, buildings, improvements, additions, tenements, hereditaments, easements, rights, privileges, licenses and franchises and all other appurtenances whatsoever belonging or in anywise appertaining to any of the property hereby mortgaged or pledged, or intended so to be, or any part thereof, and the reversion and reversions, remainder and remainders, and the rents, revenues, issues, earnings, income, products and profits thereof, and of every part and parcel thereof, and all the estate, right, title, interest, property, claim and demand of every nature whatsoever of the Company at law, in equity or otherwise howsoever, in, of and to such property and every part and parcel thereof. CLAUSE V. Also any and all property, real, personal, or mixed (including Excepted Property as defined in the Granting Clauses of the Original Indenture), that may, from time to time hereafter, by delivery or by writing of any kind, for the purpose hereof be in anywise subjected to the lien hereof or be expressly conveyed, mortgaged, assigned, transferred, deposited and/or pledged by the Company or by anyone in its behalf or with its consent, to and with the Trustee, which is hereby authorized to receive the same at any and all times as and for additional security and also, when and as in the Indenture provided, as substituted security hereunder, to the extent permitted by law. Such conveyance, mortgage, assignment, transfer, deposit and/or pledge or other creation of lien by the Company or by anyone in its behalf or with its consent of or upon any property as and for additional security may be made subject to any reservations, limitations, conditions and provisions which shall be set forth in an instrument or agreement in writing executed by the Company or the person or corporation conveying, assigning, mortgaging, transferring, depositing and/or pledging the same and/or by the Trustee, respecting the use, management and disposition of the property so conveyed, assigned, mortgaged, transferred, deposited and/or pledged, or the proceeds thereof. EXCEPTED PROPERTY There is, however, expressly excepted and excluded from the lien and operation of the Indenture all property specifically excepted under the heading "Excepted Property" of the Granting Clauses of the Original Indenture and all property released or otherwise disposed of pursuant to the provisions of Article Seven of the Original Indenture. The Company may, however, pursuant to the provisions of Granting Clause V above, subject to the lien and operation of the Indenture, all or any part of the Excepted Property as defined in the Granting Clauses of the Original Indenture. TO HAVE AND TO HOLD the Trust Estate (as defined in Paragraph A of Section 1.06 of the Original Indenture) and all and singular the lands, properties, estates, rights, franchises, privileges and appurtenances hereby mortgaged, conveyed, pledged or assigned, or intended so to be, together with all the appurtenances thereto appertaining, unto the Trustee and its successors and assigns, forever: SUBJECT, HOWEVER, to Permitted Encumbrances as defined in Paragraph G of Section 1.07 of the Original Indenture; and, with respect to any property which the Company may hereafter acquire, to all terms, conditions, agreements, covenants, exceptions and reservations expressed or provided in the deeds or other instruments, respectively, under and by virtue of which the Company shall hereafter acquire the same and to any liens thereon existing, and to any liens for unpaid portions of the purchase money placed thereon, at the time of such acquisitions; BUT IN TRUST, NEVERTHELESS, for the equal and proportionate use, benefit, security and protection of those who from time to time shall hold the Bonds and coupons authenticated and delivered under the Indenture and duly issued by the Company, without any discrimination, preference or priority of any one Bond or coupon over any other by reason of priority in the time of issue, sale or negotiation thereof or otherwise, except as provided in Section 10.02 of the Original Indenture, so that, subject to said Section 10.02 of the Original Indenture, each and all of said Bonds and coupons shall have the same right, lien and privilege under the Original Indenture, as heretofore supplemented and as supplemented by this Twenty-Fourth Supplemental Indenture, and shall be equally secured thereby and hereby and shall have the same proportionate interest and share in the Trust Estate, with the same effect as if all of the Bonds and coupons had been issued, sold and negotiated simultaneously on the date of the delivery hereof; and in trust for enforcing payment of the principal of the Bonds and of the premium, if any, and interest thereon, according to the tenor, purport and effect of the Bonds and coupons and of the Indenture, and for enforcing the terms, provisions, covenants and stipulations in the Indenture and in the Bonds set forth; UPON CONDITION that, until the happening of an Event of Default (as defined in Section 14.01 of the Original Indenture), the Company shall be suffered and permitted to possess, use and enjoy the Trust Estate, except money, securities and other personal property pledged or deposited with or required to be pledged or deposited with the Trustee under the Indenture, and to receive and use the rents, revenues, issues, earnings, income, products and profits therefrom: ARTICLE ONE BONDS OF SERIES V AND CERTAIN PROVISIONS RELATING THERETO. SECTION 1.01. Terms of Bonds of Series V. There shall be, and hereby is, created a new series of Bonds, known as and entitled "First Mortgage Bonds, Series V, due 2000" (herein referred to as the "Bonds of Series V"), and the form thereof shall be substantially as hereinafter set forth in Section 1.02 hereof. The principal amount of the Bonds of Series V shall not be limited except as provided in Section 2.01 of the Original Indenture (as amended by Section 1.01 of the Thirteenth Supplemental Indenture dated as of July 1, 1974) and except as may be provided in any indenture supplemental thereto. The definitive Bonds of Series V shall be issued only as registered Bonds without coupons of the denomination of $1,000 or any multiple thereof, and of such respective amounts of each of said denominations as may be executed by the Company and delivered to the Trustee for authentication and delivery. The Bonds of Series V shall be registered in the name of Chemical Bank, as Collateral Agent for the Lenders a party to the Credit Agreement among the Company, the Lenders and Chemical Bank, as administrative agent and as collateral agent for the Lenders (in such capacity, the "Collateral Agent"). The Bonds of Series V are to be issued to the Collateral Agent to secure the payment when due of the Obligations (as defined in the Bond Agreement), including, without limitation, the Loans (as defined in the Credit Agreement). The Bonds of Series V are to be dated November 3, 1995, are to be issued in the aggregated principal amount of $30,000,000 and are to mature on the Maturity Date (as defined in the Credit Agreement). The Bonds of Series V shall bear interest of 0% per annum; provided, however, that in the event that an Event of Default (as defined in the Credit Agreement and hereinafter defined as a "Credit Agreement Default") shall have occurred and be continuing or shall have resulted in an exercise of remedies pursuant to Section VII of the Credit Agreement, the Bonds of Series V shall bear interest at a rate per annum equal to the prime rate of Chemical Bank in effect from day to day plus two percent, from the date ("Interest Accrual Date") of a Credit Agreement Default until (i) that date as of which the Collateral Agent shall have informed the Company that the Credit Agreement Default been cured, or (ii) in the event that the Collateral Agent or any successor agent shall no longer be the registered owner of the Bonds of Series V, the Maturity Date and thereafter until the principal amount of the Bonds of Series V has been paid in full. Interest due on the Bonds of Series V shall be payable on the 15th day of May and the 15th day of November of each year commencing on the first interest payment date following an Interest Accrual Date. The obligation of the Company to make payments with respect to the principal of and interest on the Bonds of Series V shall be, provided that the Collateral Agent or any successor Collateral Agent shall be the registered owner of the Bonds of Series V, fully satisfied and discharged to the extent that, at any time that any such payment shall be due, the Company shall have paid fully the then due principal of and interest on the Loans and no Credit Agreement Default exists. Provided, however, to the fullest extent possible to secure the principal and interest outstanding from time to time under the Credit Agreement, the principal amount of the Bonds of Series V and interest thereon accruing from time to time will remain outstanding to secure future advances under the Credit Agreement. The Trustee may conclusively presume that no payments with respect to the principal of or interest on the Bonds of Series V are due unless and until the Trustee shall have received a written certificate from the Collateral Agent or successor Collateral Agent signed by an authorized officer of the Collateral Agent or such successor Collateral Agent, certifying that a Credit Agreement Default has occurred and is continuing and specifying the Interest Accrual Date and such other matters, if any, as shall be pertinent to the payment of principal of and/or interest on the Bonds of Series V. Thereafter, the Trustee may conclusively presume that principal and interest payments on the Bonds of Series V are due and payable in accordance with the terms of the Indenture, unless and until the Trustee shall have received a certificate certifying the date on which the Credit Agreement Default shall have been cured and that payments with respect to principal of and interest on the Bonds of Series V are no longer due and payable. The Trustee may rely and shall be fully protected in acting upon any such certificate and shall have no duty with respect to the matters specified in any such certificate other than to make it available for inspection by the Company. Upon the satisfaction of the conditions precedent contained in Section 9.17 of the Credit Agreement, the Bonds of Series V shall be surrendered to the Company and the Company's obligations thereunder shall be discharged and deemed satisfied; provided, however, that in the event that the Collateral Agent or any successor Collateral Agent shall no longer be the registered owner of the Bonds of Series V, this paragraph shall thereafter be of no force or effect. The definitive Bonds of Series V may be issued in the form of Bonds engraved, printed, lithographed on steel engraved borders or typed on safety paper. The person in whose name any Bond of Series V is registered at the close of business on any record date (as hereinbelow defined) with respect to any interest payment date shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such Bond of Series V upon any transfer or exchange thereof (including any exchange effected as an incident to a partial redemption thereof) subsequent to the record date and prior to such interest payment date, except that, if and to the extent that the Company shall default in the payment of the interest due on such interest payment date, then the registered holders of Bonds of Series V on such record date shall have no further right to or claim in respect of such defaulted interest as such registered holders on such record date, and the persons entitled to receive payment of any defaulted interest thereafter payable or paid on any Bonds of Series V shall be the registered holders of such Bonds of Series V on the record date for payment of such defaulted interest. The term "record date" as used in this Section 1.01, and in the form of the Bonds of Series V, with respect to any interest payment date applicable to the Bonds of Series V, shall mean the May 1 next preceding a May 15 interest payment date or the November 1 next preceding a November 15 interest payment date, as the case may be (or the preceding business day if a holiday or other day on which the office of the Trustee is closed), or such record date established for defaulted interest as hereinafter provided. In case of failure by the Company, to pay any interest when due, the claim for such interest shall be deemed to have been transferred by transfer of any Bond of Series V registered on the books of the Company and the Company, by not less than 10 days' written notice to bondholders, may fix a subsequent record date for determination of holders entitled to payment of such interest. Such provision for establishment of a subsequent record date, however, shall in no way affect the rights of bondholders or of the Trustee consequent on any default. Except as provided in this Section 1.01, every Bond of Series V shall be dated as provided in Section 2.05 of the Original Indenture. However, so long as there is no existing default in the payment of interest on the Bonds of Series V, all Bonds of Series V authenticated by the Trustee between the record date for any interest payment date and such interest payment date shall be dated such interest payment date; provided, however, that if the Company shall default in the interest due on such interest payment date, then any such Bond of Series V shall bear interest from the May 15 or November 15, as the case may be, to which interest has been paid, unless such interest payment date is May 15, 1996, in which case from November 3, 1995. Subject to the provisions of Section 2.11 of the Original Indenture, all definitive Bonds of Series V, upon surrender at the principal office of the Trustee, shall be exchangeable for other Bonds of Series V of a different denomination or denominations, as requested by the holder surrendering the same. The Company shall execute, and the Trustee shall authenticate and deliver, Bonds of Series V whenever the same shall be required for any such exchange. Notwithstanding the provisions of Section 2.11 of the Original Indenture no charge shall be made for any exchange of Bonds of Series V for other Bonds of Series V of different authorized denominations or for any transfer of Bonds of Series V, except that the Company at its option may require the payment of a sum sufficient to reimburse it for any stamp tax or other governmental charge incident thereto. The Trustee hereunder shall, by virtue of its office as such Trustee, be a paying agent of the Company for the purpose of the payment of the principal of and premium, if any, and interest on the Bonds of Series V and the registrar and transfer agent of the Company for the purpose of registering and transferring Bonds of Series V. Neither the Company nor the Trustee shall be required to make transfers or exchanges of Bonds of Series V for a period of ten days next preceding the mailing of notice of redemption of Bonds of Series V to be redeemed and neither the Company nor the Trustee shall be required to make transfers or exchanges of any Bonds of Series V designated in whole for redemption or that part of any Bond of Series V designated in part for redemption. SECTION 1.02. Form of Bonds of Series V. The Bonds of Series V shall be in substantially the following form: [FORM OF BOND OF SERIES V] No. V TEXAS NEW-MEXICO POWER COMPANY First Mortgage Bond, Series V, Due 2000 Due November 3, 2000 Texas-New Mexico Power Company, a Texas corporation (hereinafter called the "Company"), for value received, hereby promises to pay to Chemical Bank, a New York banking corporation, as agent under the Credit Agreement hereinafter described, or registered assigns, Thirty Million Dollars ($30,000,000), on the Maturity Date (as defined in the Credit Agreement hereinafter defined), and to pay interest thereon as provided below. The principal of and interest on this Bond are payable at the principal corporate trust office of Bank of America Illinois, a banking corporation organized under the laws of Illinois (the "Trustee"), or its successor in trust under the Indenture (as hereinafter defined), in the City of Chicago, Illinois, in any coin or currency of the United States of America which at the time of payment shall be legal tender for payment of public and private debts. The Bonds of Series V have been issued to Chemical Bank, as Collateral Agent for the lenders (the "Lenders") party to the Credit Agreement (hereinafter defined), to partially secure the payment when due of the Obligations (as defined in that certain Bond Agreement dated November 3, 1995, by the Company in favor of Chemical Bank as Collateral Agent for the Lenders), including, without limitation, the Loans (as defined in the Credit Agreement) made by the Lenders, which Loans were made pursuant to that certain Credit Agreement dated as of November 3, 1995 (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit Agreement"), among the Company, the Lenders and Chemical Bank, as Administrative Agent and as Collateral Agent for the Lenders (the "Collateral Agent') which provides for a revolving credit facility (the "Credit Facility"). This Bond shall bear interest of 0% per annum; provided, however, that in the event that an Event of Default (as defined in the Credit Agreement and hereinafter defined as a "Credit Agreement Default") shall have occurred and be continuing or shall have resulted in an exercise of remedies pursuant to Section VII of the Credit Agreement, this Bond shall bear interest at a rate per annum equal to the prime rate of Chemical Bank in effect from day to day plus two percent, from the date ("Interest Accrual Date"), of any such Credit Agreement Default until (i) the date as of which the Collateral Agent shall have informed the Company that the Credit Agreement Default has been cured (the "Cure Date") or, (ii) in the event that the Collateral Agent or any successor agent shall no longer be the registered owner of this Bond, the Maturity Date and thereafter until the principal amount of this Bond has been paid in full. Interest due on this Bond shall be payable on the 15th day of May and 15th day of November of each year commencing on the first interest payment date following an Interest Accrual Date and continuing through the Cure Date or Maturity Date, as applicable. The obligation of the Company to make payments with respect to the principal of and interest on the Bonds of Series V shall be, provided that the Collateral Agent or any successor Collateral Agent shall be the registered owner of the Bonds of Series V, fully satisfied and discharged to the extent that, at any time that any such payment shall be due, the Company shall have paid fully the then due principal of and interest on the Loans and no Credit Agreement Default exists. Provided, however, to the fullest extent possible to secure the principal and interest outstanding on the amount of the Credit Facility available from time to time under the Credit Agreement, the principal amount of the Bonds of Series V and interest thereon accruing from time to time will remain outstanding to secure future advances under the Credit Agreement. The Trustee may conclusively presume that no payments with respect to the principal of or interest on the Bonds of Series V are due unless and until the Trustee shall have received a written certificate from the Collateral Agent or successor agent signed by an authorized officer of the Collateral Agent or such successor agent, certifying that a Credit Agreement Default has occurred and is continuing and specifying the Interest Accrual Date and such other matters, if any, as shall be pertinent to the payment of principal of and/or interest on the Bonds of Series V. Thereafter, the Trustee may conclusively presume that principal and interest payments on the Bonds of Series V are due and payable in accordance with the terms of the Indenture unless and until the Trustee shall have received a certificate, certifying the date on which the Credit Agreement Default shall have been cured and that payments with respect to principal of and interest on the Bonds of Series V are no longer due and payable. The Trustee may rely and shall be fully protected in acting upon any such certificate and shall have no duty with respect to the matters specified in any such certificate other than to make it available for inspection by the Company. Upon the satisfaction of the conditions precedent contained in Section 9.17 of the Credit Agreement, this Bond shall be surrendered to the Company and the Company's obligations hereunder shall be discharged and deemed satisfied; provided, however, that in the event that the Collateral Agent or any successor Collateral Agent shall no longer be the registered owner of this Bond, this paragraph shall thereafter be of no force or effect. The principal hereof and interest hereon shall be payable, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, at the principal office of the Trustee under the Indenture mentioned on the reverse hereof. This Bond shall not become or be valid or obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee. The provisions of this Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, TEXAS-NEW MEXICO POWER COMPANY has caused this Bond to be executed in its corporate name by the manual or facsimile signature of its President or one of its Vice Presidents and its corporate seal to be impressed or imprinted hereon, attested by the manual or facsimile signature of its Secretary or one of its Assistant Secretaries, and this Bond to be dated TEXAS-NEW MEXICO POWER COMPANY, By:\s\ Kevern R. Joyce President Attest: Secretary (Seal) [FORM OF REVERSE OF BOND OF SERIES V] This Bond is one of an authorized issue of Bonds of the Company known as its "First Mortgage Bonds," limited as provided in the Indenture hereinafter mentioned, issued and to be issued in one or more series under, and all equally and ratably secured (except as any sinking, amortization, improvement, renewal, replacement or other analogous fund established under the Indenture hereinafter mentioned, may afford additional security for the Bonds of any particular series) by an Indenture of Mortgage and Deed of Trust dated as of November 1, 1944, executed to City National Bank and Trust Company of Chicago, as to which Continental Illinois National Bank and Trust Company of Chicago (which later changed its name to Continental Bank, National Association, then to Continental Bank, a banking corporation organized under the laws of Illinois, and then to Bank of America Illinois, a banking corporation organized under the laws of Illinois), was successor by merger, as Trustee, as supplemented by twenty-three supplemental indentures thereto, including the Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth, Eighteenth, Nineteenth, Twentieth, Twenty-First, Twenty-Second and Twenty-Third Supplemental Indentures which also modified the Original Indenture and the Twenty-Fourth Supplemental Indenture dated as of November 3, 1995 (said Indenture of Mortgage and Deed of Trust, as so supplemented and modified, being herein called the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the properties mortgaged and pledged, the nature and extent of the security, the rights of the holders of the Bonds and the appurtenant coupons and of the Trustee and of the Company in respect of such security, and the terms and conditions upon which the Bonds are and are to be secured. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than seventy-five per cent in principal amount of the Bonds (exclusive of Bonds disqualified by reason of the Company's interest therein) at the time outstanding, including, if more than one series of Bonds shall be at the time outstanding, not less than sixty per cent in principal amount of each series affected, to execute supplemental indentures amending the Indenture; provided, however, that no such supplemental indenture shall extend the fixed maturity of this Bond or reduce the rate or extend the time of payment of interest hereon or reduce the amount of the principal hereof or reduce any premium payable on the redemption hereof, without the consent of the holder hereof. As provided in the Indenture, the Bonds are issuable in series which may vary as in the Indenture provided or permitted. This Bond is one of a series entitled "First Mortgage Bonds, Series V, due 2000" (hereinafter called the "Bonds of Series V"). Bonds of this series may, upon surrender thereof at the principal office of the Trustee, be exchanged for several Bonds of the same series for a like aggregate principal amount in authorized denominations; and several Bonds of this series, registered in the same name, may, upon surrender thereof at said principal office of the Trustee, be exchanged for one Bond of the same series for a like aggregate principal amount in an authorized denomination. This Bond may be transferred at any time following the occurrence of a Credit Agreement Default, at said principal office of the Trustee by surrendering this Bond for cancellation, accompanied by a written instrument of transfer, in form approved by the Company, duly executed by the registered owner hereof or by an attorney duly authorized in writing, and thereupon the Company shall execute in the name of the transferee or transferees, and the Trustee shall authenticate and deliver, in exchange therefor a new Bond of the same series for a like aggregate principal amount in authorized denominations. No charge shall be made for any exchange of Bonds of this series for other Bonds of different authorized denominations or for any transfer of this Bond, except that the Company at its option may require the payment of a sum sufficient to reimburse it for any stamp tax or other governmental charge incidental thereto. The Company and the Trustee may deem and treat the person in whose name this Bond shall be registered as the absolute owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Bond shall be overdue; and all such payments shall be valid and effectual to satisfy and discharge the liability upon this Bond to the extent of the sum or sums so paid. If either an event of default as defined in the Indenture or a Credit Agreement Default shall occur, the principal of all the Bonds of Series V may become or be declared due and payable upon the conditions and in the manner and with the effect in the Indenture and Credit Agreement provided. The Bonds of Series V are subject to redemption at any time prior to their maturity, as a whole or from time to time in part, after the date on which the Collateral Agent or any successor agent shall no longer be the registered owner of this Bond, at the option of the Company and in the instances provided in the Indenture with the proceeds of property subject to the lien thereof, upon payment of the principal amount thereof together in any case with accrued interest to the redemption date; upon notice given by first class mail, postage prepaid, as provided in the Twenty-Fourth Supplemental Indenture to the holders of record of each Bond affected not less than thirty days nor more than sixty days prior to the redemption date and subject to all other conditions and provisions of the Indenture. If this Bond or any portion hereof (One Thousand Dollars or a multiple thereof) be called for redemption and payment be duly provided therefor as specified in the Indenture, interest shall cease to accrue on this Bond or such portion hereof on the date fixed for such redemption. Upon any partial redemption of this Bond, this Bond may, at the option of the registered owner, be either (i) surrendered at said principal office of the Trustee in exchange for one or more new Bonds of the same series (but only in authorized denominations), for the principal amount of the unredeemed portion of this Bond, or (ii) submitted at said principal office of the Trustee for notation hereon of the payment of the portion of the principal hereof so called for redemption. The Twenty-Fourth Supplemental Indenture provides that in the event of any default in payment of the interest due on any interest payment date, such interest shall not be payable to the holder of the bond on the original record date but shall be paid to the registered holder of such bond on the subsequent record date established for payment of such defaulted interest. No recourse shall be had for the payment of the principal of or the interest on this Bond or for any claim based hereon or otherwise in respect hereof or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty, or otherwise, all such liability being by the acceptance hereof and as part of the consideration for the issue hereof expressly waived and released, as provided in the Indenture; provided, however, that nothing herein or in the Indenture contained shall be taken to prevent recourse to and the enforcement of the liability, if any, of any shareholder or any stockholder or subscriber to capital stock upon or in respect of shares of capital stock not fully paid. ARTICLE TWO REDEMPTION PROVISIONS FOR BONDS OF SERIES V SECTION 2.01 The Bonds of Series V shall be subject to redemption at any time prior to maturity, as a whole or from time to time in part after the date on which the Collateral Agent or any successor agent shall no longer be the registered owner of the Bonds of Series V, together with interest accrued thereon to the redemption date, upon no less than 30 days' nor more than 60 days' notice given in the manner provided in Article Eleven of the Original Indenture. The place where Bonds of Series V shall be surrendered for payment of the redemption price shall be the place at which the Bonds of Series V are payable by their terms. ARTICLE THREE. AMOUNT OF BONDS OUTSTANDING The aggregate principal amount of Bonds of the Company outstanding and presently to be issued and outstanding under the provisions of, and secured by the Indenture, will be $330,600,000 consisting of $9,600,000 principal amount of First Mortgage Bonds, Series L, 10 1//2% due 2000, due March 1, 2000, now outstanding; $8,200,000 principal amount of First Mortgage Bonds, Series M, 8.70% due 2006, due September 1, 2006, now outstanding; $62,400,000 principal amount of First Mortgage Bonds, Series R, 10% due 2017, due July 1, 2017, now outstanding; $19,600,000 principal amount of First Mortgage Bonds, Series S, 9 5/8% due 2019, due July 1, 2019, now outstanding; $100,800,000 principal amount of First Mortgage Bonds, Series T, 11 1/4% due 1997, due January 15, 1997, now outstanding; $100,000,000 principal amount of First Mortgage Bonds, Series U, 9 1/4% due 2000, due September 15, 2000, and $30,000,000 principal amount of First Mortgage Bonds, Series V, due 2000, due November 3, 2000, to be issued pursuant to Article Four of the Original Indenture upon the execution and delivery of this Twenty-Fourth Supplemental Indenture. Additional Bonds of Series M, R, S, T, U and V and of subsequent series created after the execution and delivery of this Twenty-Fourth Supplemental Indenture, may, from time to time, be authenticated, delivered and issued pursuant to the terms of the Indenture. ARTICLE FOUR. ADDITIONAL COVENANTS OF COMPANY The Company covenants and agrees with the Trustee, for the benefit of the Trustee and all the present and future holders of the Bonds and of the coupons, that the Company will pay the principal of, premium, if any, and interest on all Bonds issued or to be issued and secured by the Indenture, as well as all Bonds which may be hereafter issued in exchange or substitution therefor, and will perform and fulfill all of the terms, covenants and conditions of the Original Indenture, with respect to the additional Bonds to be issued under the Indenture. ARTICLE FIVE. MISCELLANEOUS This instrument is executed and shall be construed as an indenture supplemental to the Original Indenture as heretofore supplemented and shall form a part thereof, and the Original Indenture as heretofore supplemented is hereby confirmed. The recitals in this Twenty-Fourth Supplemental Indenture are made by the Company only and not by the Trustee; and all of the provisions contained in the Original Indenture in respect of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect hereof as fully and with like effect as if set forth herein in full. Although this Twenty-Fourth Supplemental Indenture is dated for convenience and for the purpose of reference as of November 3, 1995, the actual date or dates of execution thereof by the Company and the Trustee are as indicated by their respective acknowledgments hereto annexed. In order to facilitate the recording or filing of this Twenty-Fourth Supplemental Indenture, the same may be simultaneously executed in several counterparts, each of which shall be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. ARTICLE SIX FIRST Electric Transmission Systems All electric transmission lines acquired by the Company since the execution and delivery of the Twenty-Third Supplemental Indenture, dated as of September 15, 1993, to the Original Indenture, including towers, poles, pole lines, wires, switch racks, switchboards, insulators and other appliances and equipment and all other property forming a part thereof or pertaining thereto, and all service lines extending therefrom; together with all real property, rights of way, easements, permits, privileges, franchises and rights over or relating to the construction, maintenance or operation thereof, through, over, under, or upon any private property or in the public streets or highways within as well as without the corporate limits of any municipal corporation including without limitation, those situate as follows: A. State of New Mexico 1. Grant County (a) Install a 69 KV, gang operated air break switch on the Bullfrog Substation tap off of the MD#1 to Cobre Mine 69 KV line. (b) Install a 69 KV metering position for Cobre Mine. This includes CT's, PT's, metering equipment, cabinet, and wood platform structure. (c) Purchase and install transfer trip scheme equipment in the Turquoise Substation. 2. Hidalgo County (a) Purchase and install a second 345-115 KV auto-transformer at the Hidalgo Substation. This includes the transformer pad and a short section of 115 KV bus inside the substation. (b) Purchase and install transfer trip scheme equipment in the Hidalgo Substation. B. State of Texas 1. Bosque County (a) Install concrete overhead guy pole for new 69 KV single pole transmission line out of Clifton #2 69/22 KV Substation. (b) Change out a 75' pole on 69 KV line from Clifton to Meridian. (c) Replace 10 poles in the 69 KV line from Walnut Springs to Clifton. 2. Clay County Install air flow spoilers on 16 spans of 69 KV line. 3. Clifton Construct 2822' 69 KV single pole transmission line - Clifton #2 69/22 KV Substation. 4. Fannin County Install 69 KV air switch and pole for Trenton transmission line. 5. La Marque Replace static wire on 3 lines. 6. Lewisville (a) Purchase and install three concrete poles between Highlands and West Stations. (b) Purchase 138 KV easement from E Systems from Lakepointe to FM 3040. (c) Purchase transmission easement from E Systems for 138 KV line. (d) Design, survey, and plan 138 KV transmission line, Lakepointe and TI. (e) Purchase material and construct 138 KV transmission line, Lakepointe and TI Substation. 7. Pecos County Purchase and install arresters on the Sanderson 69 KV line. Replace 69 KV tangent structures; replace crossarm assemblies on existing single pole 69 KV tangent structures; replace bolted type jumpers at six-two pole 69 KV double deadend structures; replace 69 KV switch structure with a single pole 69 KV tangent structure. 8. Reeves County Purchase and install a 138 KV airbreak switch at the Worsham Field Station. 9. Terrell County Replace 69 KV tangent structures. Replace crossarm assemblies on 69 KV tangent structures; purchase and install arresters at selected locations. 10. Texas City (a) Purchase right-of-way 138-4A, 4B, 138-19 line. (b) Replace static wire on 4 lines. (c) Replace static wire -- line 69G. (d) Build with metering and equipment, interconnect UCC Cogen to Apache Substation. 11. West Columbia Purchase and install Digital Fault Record. SECOND Substations All the substations and the switching stations acquired by the Company since the execution and delivery of the Twenty-Third Supplemental Indenture, dated as of September 15, 1993, to the Original Indenture for transforming, distributing or otherwise regulating electric current at any of its plants, together with all buildings, transformers, wires, insulators, appliances, equipment and all other property, real or personal, forming a part of or pertaining to or used, occupied or enjoyed in connection with any of such substations and switching stations, including without limitation, those situate as follows: A. State of New Mexico Silver City Purchase and install bus differential relays (Westinghouse type KAB) for a differential protection scheme on the Silver City 69-12 KV Substation bus. B. State of Texas 1. Bosque County (a) Install conduit and wiring from TU fence to control house in Walnut Springs 66 KV Station. (b) Build circuit getaway from OCR 22-820 out of Handley Substation. (c) Purchase necessary equipment and convert RV recloser to remote control at Walnut Springs Substation. 2. Clifton Replace 3750 KVA 66/22 KV transformer in Clifton #2 66/22 KV Substation. 3. Collin County Purchase and install SCADA RTU for Climax Substation. 4. Coryell County Install 1108' of pasture fence around Coryell County Switching Station Site. 5. Denton County Purchase and install 3750 KVA transformer and fuses at Pilot Point Substation. 6. Erath County Purchase and install new recording voltmeter in Thurber 66/22/12.5 KV Substation. 7. Franklin County Purchase and install SCADA RTU for Talco West Substation. 8. Gatesville (a) Purchase and install replacement transformer cooling fan in Gatesville #1 66/4 KV Substation. (b) Purchase and install 69 KV 600A gas circuit breaker in Coryell County 66 KV Station. (c) Install three-300 KVAR Capacitor banks in TDC - Hilltop 22/4 KV Substation. (d) Purchase necessary equipment to install new conduit system from control house to 69 KV breaker in Coryell County Substation. 9. Glen Rose Purchase and install replacement transformer cooling fan in Glen Rose 66/4 KV Substation. 10. Hamilton Purchase and install three transformer cooling fans for Hamilton City 66/22 KV Station. 11. Hamilton County (a) Install two down guys on 69 KV line between the Hamilton Co 66/22 KV Station to Hamilton City #1 66/22 KV Station. (b) Purchase and install WVE recloser, recloser bypass switches, and necessary equipment to construct an additional circuit out of Hamilton County Substation. (c) Purchase and install equipment to convert two OCR's to remote controlled in Hamilton County Substation. (d) Construct circuit getaway for OCR 24-015 for Hamilton County Substation. 12. Hill County (a) Purchase and install two type WVE OCR's in Hill County Substation. (b) Install mini-RTU, wiring and phone line for supervisory control in Hill County Substation. (c) Purchase and install steel fuse and arresters support structure, three SMD-2B fuses and three arresters in Hill County Substation. 13. Lamar County (a) Purchase and install SCADA RTU for Deport Substation. (b) Install CCW/CCVAR meter at Minter Substation. 14. League City (a) Finish building South Shore substation. (b) Purchased and installed equipment -- 138/12.5 South Shore Harbour purchased and installed 2nd transformer. (c) Upgrade Dispatch Center. 15. Leonard Install metering on existing portable substation transformer. 16. Lewisville (a) Purchase and install 25/33/42/47 MVA 138-7.5 KV transformer with arresters for Lewisville West Station. (b) Install 25/37/42 MVA 138-7.5 KV transformer in north position at TI Station. (c) Purchase four 138 KV SF6 circuit breakers for TI Substation. (d) Purchase new remote interrogation unit for SCADA operations. (e) Purchase and install 2 SCADA RTU's for TU Flower Mound POD's. (f) Purchase and install 25/33/42 MVA transformer and arresters at West Station. (g) Purchase and install 12.5 KV 200A, 41 switches, and bus in West Station. (h) Purchase and install two reverse power relays for TI Substation. (i) Replace failed PT at Lakepointe Substation. (j) Construct transformer foundation for spare transformer at West Substation. (k) Purchase 25/37/42 MVA power trans- former for TI Substation backup. (l) Purchase and install relay panels and gas breaker at TI Substation. (m) Purchase and install relay panel at Lakepointe Substation. 17. Montague County Repair transmission line hit by tornado. 18. Pecos County (a) Install RV Recloser in the Belding Substation. (b) Install 7500 KVA 3 phase transformer at Airport Substation. 19. Pecos (a) Purchase and install SPS 69 KV 1200 AMP SF6 circuit breaker; install 3 each 69 KV arresters at Pecos Main Substation. (b) Purchase oil circuit recloser type KWE-7, 14.4 KV 560a, 10 KA type ME4C electronic control, a substation mounting frame and additional miscellaneous accessories for the Pecos Main Substation. (c) Rewind, transportation and handing costs of Allis-Chalmers 7500 KVA 66/12.5 KV substation transformer for Airport Substation. 20. Red River County Purchase and install SCADA RTU for Red River Substation. 21. Reeves County (a) Purchase and install a 138 KV airbreak switch on the Pecos side of the IH20 to Wickett 69 KV line at the Worsham Field Substation. (b) Purchase oil circuit recloser, type KWE 7, 14.4 KV, 465A 10KA, with type ME4C electronic control. Purchase oil circuit recloser substation mounting frame and additional miscellaneous accessories at the Worsham Field Substation. 22. Trenton Replace bank at Trenton Substation with 3750 KVA 69 KV transformer and 4 KV regulators from Farmersville Station. 23. Whitney (a) Install three 100 amp voltage regulators in the Whitney 66/22 KV Substation. (b) Purchase and install WVE recloser for Whitney 66/22 KV Substation. 24. Ward County Purchase oil circuit recloser, substation mounting frame and additional miscellaneous accessories. Purchase and install oil circuit recloser at Cochise Substation. 25. Young County (a) Purchase and install transformer cooling fan in Olney 69/12.5 KV Substation. (b) Purchase and install ABB reclosing relay on OCR #1431 at Olney Station. THIRD Franchises All and singular, the corporate, federal, state, municipal and other franchises, permits, consents, licenses, grants, immunities, privileges, and rights acquired by the Company since the execution and delivery of the Twenty-Third Supplemental Indenture dated as of September 15, 1993, to the Original Indenture, and now held by the Company for the construction, maintenance, and operation of electric light, heat, and power plants and systems; for the construction, maintenance; as well as all franchises, grants, immunities, privileges, and rights of the Company used or useful in the operation of the Trust Estate, including all and singular the franchises, grants, immunities, privileges, and rights of the Company granted by the governing authorities of the cities and towns enumerated in the schedule below, and by all other municipalities or political subdivisions, and all renewals, extensions, and modifications of said franchises, grants, privileges, and rights, or any of them, including: A. State of New Mexico Municipality Expiration Date Dona Ana County November 1, 2019 B. State of Texas Municipality Expiration Date Texas City Extended to March 31, 1999 IN WITNESS WHEREOF, TEXAS-NEW MEXICO POWER COMPANY has caused this Twenty-Fourth Supplemental Indenture to be signed in its corporate name by its President or a Vice President and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary, and, in token of its acceptance of the trust created hereby, Bank of America Illinois, a banking corporation organized under the laws of Illinois, has caused this Twenty-Fourth Supplemental Indenture to be signed in its corporate name by one of its Vice Presidents and its corporate seal to be hereunto affixed and attested by one of its Trust Officers, all as of the day and year first above written. TEXAS-NEW MEXICO POWER COMPANY, (Corporate Seal) By: M. S. Cheema Vice President Attest: B. Jan Adkins Assistant Secretary BANK OF AMERICA ILLINOIS, banking corporation organized under the laws of Illinois, as Trustee (CORPORATE SEAL) By: John W. Porter Vice President Attest: Trust Officer STATE OF TEXAS SS. SS. ss.: COUNTY OF TARRANT SS. On this ____ day of November, 1995, before me, , Notary Public in and for the County and State aforesaid, personally appeared M. S. Cheema, to me personally known, and known to me to be the person whose name is subscribed to the foregoing instrument and known to me to be Vice President of TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, who being by me duly sworn, did say that he resides in Weatherford, Texas, that he is Vice President of said TEXAS-NEW MEXICO POWER COMPANY and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its Board of Directors; and said M. S. Cheema acknowledged said instrument to be the free act and deed of said corporation, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed and as the act of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office this ____ day of November, 1995. (NOTARIAL SEAL) STATE OF ILLINOIS SS. SS. ss.: COUNTY OF COOK SS. On this ____ day of November, 1995, before me, , Notary Public in and for the County and State aforesaid, personally appeared JOHN W. PORTER, to me personally known, and known to me to be the person whose name is subscribed to the foregoing instrument and known to me to be a Vice President of Bank of America Illinois, a banking corporation organized under the laws of Illinois, who, being by me duly sworn, did say that he resides in Chicago, Illinois; that he is a Vice President of said Bank of America Illinois, and that the seal affixed to said instrument is the corporate seal of said banking corporation, and that said instrument was signed and sealed in behalf of said association by authority of its Board of Directors; and said JOHN W. PORTER, acknowledged said instrument to be the free act and deed of said association, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed and as the act of said association. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office this ____ day of November, 1995. (NOTARIAL SEAL) STATE OF TEXAS SS. SS. ss.: COUNTY OF TARRANT SS. M. S. Cheema, being duly sworn, deposes and says: 1. That he is Vice President of TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, one of the corporations described in, and which executed the foregoing instrument, and is one of the officers who executed the foregoing instrument in behalf of TEXAS-NEW MEXICO POWER COMPANY. 2. That TEXAS-NEW MEXICO POWER COMPANY, one of the corporations which executed the aforementioned instrument, is a corporation engaged in the States of Texas and New Mexico in the generation, purchase, transmission, distribution and sale of electricity to the public and, consequently, is a utility as described in Section 35.01, Texas Business and Commerce Code, Revised Civil Statutes of Texas. Subscribed and sworn to before me this ____ day of November, 1995. (NOTARIAL SEAL) F-0050641.04 EX-10 4 ======================================================================== REVOLVING CREDIT FACILITY AGREEMENT Dated as of November 3, 1995 among TEXAS-NEW MEXICO POWER COMPANY, THE LENDERS PARTY HERETO, CHEMICAL BANK, as Administrative Agent and as Collateral Agent, and THE BANK OF NEW YORK, CIBC, INC., NATIONSBANK OF TEXAS, N.A. and UNION BANK, as Co-Agents =======================================================================
TABLE OF CONTENTS Article Section Page I. DEFINITIONS 1.1 Defined Terms 1 1.2 Terms Generally 17 II. THE CREDITS 2.1 Commitments 17 2.2 Loans 18 2.3 Borrowing Procedure 19 2.4 Evidence of Debt; Repayment of Loans 19 2.5 Commitment Fees 20 2.6 Interest on Loans 20 2.7 Default Interest 21 2.8 Alternate Rate of Interest 21 2.9 Termination and Reduction of Commitments 21 2.10 Prepayment 22 2.11 Reserve Requirements; Change in Circumstances 22 2.12 Change in Legality 23 2.13 Indemnity 24 2.14 Pro Rata Treatment 24 2.15 Sharing of Setoffs 25 2.16 Payments 25 2.17 Taxes 25 2.18 Assignment of Commitments Under Certain Circumstances; Duty to Mitigate 27 2.19 The Replacement Loan 29 III. REPRESENTATIONS AND WARRANTIES 3.1 Organization; Powers 29 3.2 Authorization 29 3.3 Enforceability 30 3.4 Government Approvals 30 3.5 Financial Statements 30 3.6 No Material Adverse Change 30 3.7 Title to Properties; Possession Under Leases 30 3.8 Subsidiaries 31 3.9 Litigation; Compliance with Laws 31 3.10 Agreements 31 3.11 Federal Reserve Regulations 31 3.12 Investment Company Act; Public Utility Holding Company Act 32 3.13 Use of Proceeds 32 3.14 Tax Returns 32 3.15 No Material Misstatements 32 3.16 Employee Benefit Plans 32 3.17 Environmental Matters 32 3.18 Insurance 33 3.19 Pledge Agreements 33 3.20 Labor Matters 33 3.21 Solvency 34 3.22 Existing Facility Agreement Representations 34 IV. CONDITIONS PRECEDENT TO LENDING 4.1 All Borrowings 34 4.2 First Borrowing 35 4.3 Borrowings in Excess of $100,000,000 38 V. AFFIRMATIVE COVENANTS 5.1 Existence; Businesses and Properties 39 5.2 Insurance 39 5.3 Obligations and Taxes 39 5.4 Financial Statements, Reports, etc. 40 5.5 Litigation and Other Notices 41 5.6 Employee Benefits 41 5.7 Maintaining Records; Access to Properties and Inspections 41 5.8 Use of Proceeds 41 5.9 Compliance with Laws and Environmental Laws 41 5.10 Preparation of Environmental Reports 42 5.11 Further Assurances 42 5.12 Maintenance; Ownership of Guarantor Capital Stock 42 5.13 Performance and Continuation of Certain Documents 42 VI. NEGATIVE COVENANTS 6.1 Indebtedness 43 6.2 Liens 43 6.3 Sale and Lease-Back Transactions 44 6.4 Investments, Loans and Advances 44 6.5 Mergers, Consolidations; Sales of Assets and Acquisitions 45 6.6 Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends 45 6.7 Transactions with Affiliates 46 6.8 Business of Borrower and Subsidiaries 46 6.9 Additional Generating Facilities 46 6.10 Amendment or Modification of Certain Agreements; Pledged Notes 46 6.11 Interest Coverage Ratio 47 6.12 Debt to Capitalization Ratio 47 6.13 Capital Expenditures 47 VII. EVENTS OF DEFAULT 47 VIII. THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT 50 IX. MISCELLANEOUS 9.1 Notices 52 9.2 Survival of Agreement 53 9.3 Binding Effect 53 9.4 Successors and Assigns 53 9.5 Expenses; Indemnity 55 9.6 Right of Setoff 56 9.7 Applicable Law 56 9.8 Waivers; Amendment 56 9.9 Interest Rate Limitation 57 9.10 Entire Agreement 57 9.11 Waiver of Jury Trial 57 9.12 Severability 58 9.13 Counterparts 58 9.14 Headings 58 9.15 Jurisdiction; Consent to Service of Process 58 9.16 Confidentiality 59 9.17 Release of Collateral 59 9.18 Representations of Lenders 60 Schedule 2.1 Commitments Schedule 3.6 Changes Schedule 3.8 Subsidiaries Schedule 3.9 Litigation Schedule 3.17 Environmental Matters Schedule 3.18 Insurance Schedule 6.1 Intercompany Indebtedness Schedule 6.2 Existing Liens Exhibit A Form of Administrative Questionnaire Exhibit B Form of Assignment and Acceptance Exhibit C Form of Borrowing Request Exhibit D Form of TGC II Guarantee and Pledge Agreement Exhibit E Form of Bond Agreement Exhibit F Form of Note Pledge Agreement Exhibit G-1 Form of Opinion of Haynes and Boone, L.L.P. Exhibit G-1-A Form of Opinion of Michael Blanchard, General Counsel of Borrower and Guarantor Exhibit G-2 Form of Opinion of Snell, Banowsky & Trent Exhibit G-3 Form of Opinion of Rubin, Katz, Salazar, Alley & Rouse Exhibit H Form of Sixth TGC II Mortgage Modification and Extension Agreement Exhibit I Form of TNP Second Lien Mortgage Modification No.3 Exhibit J Form of Assignment and Amendment Agreement Exhibit K Form of Assignment of TGC II Mortgage Lien Exhibit L Form of Collateral Transfer of Notes, Rights and Interests Exhibit M Form of Assignment of TNP Second Lien Mortgage Exhibit N Form of Collateral Transfer of Notes, Rights and Interests Exhibit O Form of Amendment No. 1 to the TNP Security Agreement
CREDIT AGREEMENT dated as of November 3, 1995, among TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation (the "Borrower"), the Lenders (as defined in Article I), CHEMICAL BANK, a New York banking corporation, as administrative agent (in such capacity, the "Administrative Agent") and as collateral agent (in such capacity, the "Collateral Agent") for the Lenders and THE BANK OF NEW YORK, CIBC, INC., NATIONSBANK OF TEXAS, N.A. and UNION BANK, as Co-Agents (the "Co-Agents") The Borrower has requested the Lenders to extend credit in the form of Loans (such term and each other capitalized term used but not defined herein having the meaning given it in Article I) at any time and from time to time prior to the Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $150,000,000. The proceeds of the Loans are to be used solely to purchase loans outstanding under the Existing Facility Agreement and, directly or indirectly, to repay existing Indebtedness of the Borrower and for general corporate purposes. The Lenders are willing to extend such credit to the Borrower on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE I. DEFINITIONS SECTION 1.1. Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below: "ABR Borrowing" shall mean a Borrowing comprised of ABR Loans. "ABR Loan" shall mean any Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "Additional Bonds" shall have the meaning assigned to such term in Section 4.3. "Administrative Questionnaire" shall mean an Administrative Questionnaire in the form of Exhibit A. "Affiliate" shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified. "Aggregate Credit Exposure" shall mean the aggregate amount of the Lenders' Credit Exposures. "Alternate Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% or (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the preceding sentence, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. The term "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective. The term "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate. The term "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "Applicable Percentage" shall mean, for any day, with respect to any Eurodollar Loan or ABR Loan, or with respect to the Commitment Fees, as the case may be, the applicable percentage set forth below under the caption "Eurodollar Spread", "ABR Spread" or "Fee Percentage", respectively, based upon the ratings by S&P and Moody's applicable on such date to the Index Debt:
Eurodollar ABR Fee Spread Spread Percentage Category 1 BBB- or higher by S&P Baa3 or higher by Moody's 0.8750% 0.0000% 0.2500% Category 2 BB+ by S&P Ba1 by Moody's 1.3750% 0.3750% 0.3125% Category 3 BB by S&P Ba2 by Moody's 1.6250% 0.6250% 0.3750% Category 4 BB- by S&P Ba3 by Moody's 1.8750% 0.8750% 0.3750% Category 5 B+ by S&P B1 by Moody's 2.2500% 1.2500% 0.5000% Category 6 B or below by S&P B2 or below by Moody's 2.5000% 1.5000% 0.5000%
For purposes of the foregoing, (i) if either Moody's or S&P shall not have in effect a rating for the Index Debt (other than by reason of the circumstances referred to in the last sentence of this definition), then such rating agency shall be deemed to have established a rating in Category 6; (ii) if the ratings established or deemed to have been established by Moody's and S&P for the Index Debt shall fall within different Categories, the Applicable Percentage shall be based on the inferior (or numerically higher) of the two Categories; and (iii) if the rating established by Moody's or S&P for the Index Debt shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Percentage shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the non-availability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Percentage shall be determined by reference to the rating most recently in effect prior to such change or cessation. "Assessment Rate" shall mean for any date the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Administrative Agent as the then current net annual assessment rate that will be employed in determining amounts payable by the Administrative Agent to the Federal Deposit Insurance Corporation (or any successor thereto) for insurance by such Corporation (or such successor) of time deposits made in dollars at the Administrative Agent's domestic offices. "Assignment Agreement" shall mean the Assignment and Amendment Agreement substantially in the form of Exhibit J dated the date hereof, among the Borrower, the Guarantor, the Existing Facility Banks, the Existing Facility Agent, the Existing Facility Collateral Agent, the Administrative Agent and the Collateral Agent. "Assignment and Acceptance" shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Administrative Agent, in the form of Exhibit B or such other form as shall be approved by the Administrative Agent. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States of America. "Bond Agreement" shall mean the Bond Agreement substantially in the form of Exhibit E, between the Borrower and the Collateral Agent for the benefit of the Lenders. "Bonds" shall mean the $30,000,000 principal amount of non-redeemable First Mortgage Bonds issued by the Borrower to the Collateral Agent for the benefit of the Lenders pursuant to the Bond Agreement. "Bond Total" shall mean the aggregate principal amount of Bonds and Additional Bonds issued to and held by the Collateral Agent pursuant to the Bond Agreement. "Borrowing" shall mean a group of Loans of a single Type made by the Lenders on a single date and as to which a single Interest Period is in effect. "Borrowing Request" shall mean a request by the Borrower in accordance with the terms of Section 2.3 and substantially in the form of Exhibit C. "Business Day" shall mean any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Expenditures" shall mean expenditures related to the acquisition of plant and equipment (including, without limitation, capitalized interest and start-up expenses related to such plant and equipment) which are capitalized in accordance with GAAP. "Capital Lease Obligations" of any person shall mean obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" shall mean an event or the last of a series of events by which (i) any person or group (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations of the Securities and Exchange Commission relating to such sections, as amended from time to time), is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership " of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 40% of the total voting power of all outstanding common stock of TNP Enterprises; (ii) the Borrower consolidates with or merges into another corporation and the Borrower is not the surviving entity, or the Borrower conveys, transfers or leases substantially all of its assets, or TNP Enterprises shall cease to own 100% of the common stock of the Borrower; or (iii) during any period of 24 consecutive months, whether commencing before or after the date hereof, but ending on or after the date hereof, (a) individuals who at the beginning of such 24-month period were directors of TNP Enterprises, and (b) any new directors who were elected or recommended for election to the board of directors of TNP Enterprises by a vote of at least a majority of the directors then still in office who either were directors at the beginning of such 24-month period or whose election was previously so approved or so recommended, cease for any reason to constitute a majority of the board of directors of TNP Enterprises. "Chase" shall mean The Chase Manhattan Bank (National Association). "Closing Date" shall mean the date of the first Borrowing hereunder. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collateral" shall mean all the "Collateral" as defined in the Pledge Agreements. "Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Loans hereunder as set forth on Schedule 2.1 or in the Assignment and Acceptance pursuant to which such Lender assumed its Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.9 or pursuant to Section 2.18 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.4. "Commitment Fee" shall have the meaning assigned to such term in Section 2.5. "Confidential Information Memorandum" shall mean the Confidential Information Memorandum of the Borrower dated August 1995. "Consolidated EBIT" shall mean with respect to the Borrower and its consolidated Subsidiaries for any period, operating revenues of the Borrower and its consolidated Subsidiaries for such period less operating expenses of the Borrower and its consolidated Subsidiaries, but before the deduction therefrom of any applicable interest charges and income taxes for such period, all determined on a consolidated basis in accordance with GAAP. For the purposes of this definition, EBIT shall be calculated before any reduction for any write down after the date hereof in the book value of assets of the Borrower or its Subsidiaries resulting from any statute or any rule, regulation or order of the PUCT. "Consolidated Interest Expense" shall mean the aggregate Interest Expense of the Borrower and the Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Consolidated Total Indebtedness" shall mean the aggregate Indebtedness of the Borrower and the Subsidiaries of the sort referred to in clause (a) of the definition of "Indebtedness", determined on a consolidated basis in accordance with GAAP. "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and "Controlling" and "Controlled" shall have meanings correlative thereto. "Credit Exposure" shall mean, with respect to any Lender at any time, the aggregate principal amount at such time of all outstanding Loans of such Lender. "Cumulative Net Income Available for Common Dividends " shall mean for any period the sum of all consolidated net income available for common dividends as reflected in the Borrower's consolidated statements of operations for such period. "Debenture Trustees" shall mean the First Debenture Trustee and any Subsequent Debenture Trustee, and "Debenture Trustee" shall mean any of them. "Default" shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default. "Dividend" shall mean, with respect to any person, any dividend on any shares of the common, preferred or preference stock, or any other class of stock or equity capital, of such person or any other distribution in respect thereof (other than dividends payable solely in shares of such stock) and any payments on account of the purchase, redemption or other retirement of any of such person's common stock or any other class of stock or equity capital, or any warrants or options therefor, whether in cash or in property or in obligations or securities. "dollars" or "$" shall mean lawful money of the United States of America. "environment" shall mean ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, the workplace or as otherwise defined in any Environmental Law. "Environmental Claim" shall mean any written accusation, allegation, notice of violation, claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Remedial Action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the environment caused by any Hazardous Material, or for fines, penalties or restrictions, resulting from or based upon: (a) the existence, or the continuation of the existence, of a release of Hazardous Materials (including sudden or non-sudden, accidental or non-accidental releases); (b) exposure to any Hazardous Material; (c) the presence, use, handling, transportation, storage, treatment or disposal of any Hazardous Material; or (d) the violation or alleged violation of any Environmental Law or Environmental Permit. "Environmental Law" shall mean any and all applicable present and future treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. Section 9601 et seq. (collectively "CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Amendments of 1984, 42 U.S.C. Section 6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. Section 1251 et seq., the Clean Air Act of 1970, as amended 42 U.S.C. Section 7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. Section 2601 et seq., the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq., the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. Section 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., and any similar or implementing state or local law, and all amendments or regulations promulgated thereunder. "Environmental Permit" shall mean any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law. "Equity Capital" shall mean, as of any date of determination thereof, the sum of the following for the Borrower and its Subsidiaries determined on a consolidated basis (without duplication) in accordance with GAAP: (a) the amount of capital stock (including, without limitation, preferred and preference stock), plus (b) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit), plus (c) the amount of any other items of an equity capital nature, minus (d) the sum of (x) the cost of treasury shares plus (y) goodwill. For the purposes of this definition, the sum shall be calculated before any reduction for any write down after the date hereof in the book value of the assets of the Borrower or its Subsidiaries resulting from any statute or any rule, regulation or order of the PUCT; provided, that the excess of any such write-downs over $10,000,000 in the aggregate during the term of this Agreement shall be taken into account in determining Equity Capital. "Equity Issuance" shall mean any issuance or sale by any person of any shares of capital stock or other equity securities of such person, or any obligations convertible into or exchangeable for, or giving any person a right, option or warrant to acquire, such securities or such convertible or exchangeable obligations. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" shall mean (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA with respect to the termination of any Plan or the withdrawal or partial withdrawal of the Borrower or any of its ERISA Affiliates from any Plan or Multiemployer Plan; (f) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g) the receipt by the Borrower or any ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with respect to which the Borrower or any of its Subsidiaries is a "disqualified person" (within the meaning of Section 4975 of the Code) or with respect to which the Borrower or any such Subsidiary could otherwise be liable; and (i) any other event or condition with respect to a Plan or Multiemployer Plan that could reasonably be expected to result in liability of the Borrower. "Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar Loans. "Eurodollar Loan" shall mean any Loan bearing interest at a rate determined by reference to the LIBO Rate in accordance with the provisions of Article II. "Event of Default" shall have the meaning assigned to such term in Article VII. "Existing Facility Agent" shall mean the "Agent" referred to in the Existing Facility Agreement. "Existing Facility Agreement" shall mean the Unit 2 First Amended and Restated Project Loan and Credit Agreement dated January 8, 1992, as amended and in effect immediately prior to the date hereof, among the Borrower, the Guarantor, the Existing Facility Banks, the Existing Facility Collateral Agent and the Existing Facility Agent. "Existing Facility Amendment No. 1" shall mean the First Amendment to the Existing Facility Agreement dated as of September 21, 1993. "Existing Facility Banks" shall mean the banks party to the Existing Facility Agreement. "Existing Facility Collateral" shall have the meaning assigned to the term "Collateral" in the Existing Facility Agreement. "Existing Facility Collateral Agent" shall mean the "Collateral Agent" referred to in the Existing Facility Agreement. "Existing Facility Common Collateral" shall have the meaning assigned to the term "Common Collateral" in the Intercreditor Agreement. "Existing Facility Documents" shall mean, collectively, the Existing Facility Agreement, the Existing Facility Project Documents and the Existing Facility Security Documents. "Existing Facility Project Documents" shall have the meaning assigned to the term "Project Documents" in the Existing Facility Agreement. "Existing Facility Secured Parties" shall have the meaning assigned to the term "Secured Parties" in the Existing Facility Agreement. "Existing Facility Security Documents" shall mean the "Security Documents" and the "First Amendment Security Documents", as such terms are defined in the Existing Facility Agreement. "Facility Purchase Agreement" shall mean the Unit 2 First Amended and Restated Facility Purchase Agreement, among the Borrower and the Guarantor dated as of January 8, 1992, as amended from time to time. "Financial Officer" of any corporation shall mean the chief financial officer, principal accounting officer, treasurer or controller of such corporation. "First Commitment Reduction Date" shall mean November 3, 1998. "First Debenture Trustee" shall mean IBJ, as trustee under, or any successor trustee under, the First Secured Debenture Indenture. "First Mortgage Bonds" shall mean the first mortgage bonds issued by the Borrower pursuant to the TNP Bond Indenture. "First Secured Debenture Indenture" shall mean the Indenture and Security Agreement dated as of January 15, 1992 between the Borrower and IBJ, as trustee, as the same may from time to time be amended, modified or supplemented or its provisions waived. "First Secured Debentures" shall mean the debentures, due January 15, 1999, issued by the Borrower on January 27, 1992 under the First Secured Debenture Indenture. "GAAP" shall mean United States generally accepted accounting principles applied on a consistent basis, but giving effect to changes in such accounting principles as provided in Section 1.2. "Governmental Authority" shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "Guarantee" of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Guarantor" shall mean Texas Generating Company II, a Texas corporation. "IBJ" shall mean IBJ Schroder Bank & Trust Company. "Indebtedness" of any person shall mean, without duplication, (a) all obligations of such person for borrowed money, (b) all obligations of such person with respect to deposits or advances of any kind, (c) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (d) all obligations of such person upon which interest charges are customarily paid, (e) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (f) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business), (g) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (h) all Guarantees by such person of Indebtedness of others, (i) all Capital Lease Obligations of such person, (j) all obligations of such person in respect of Interest Rate Protection Agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements and (k) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances. "Index Debt" shall mean the First Mortgage Bonds. "Intercreditor Agreement" shall mean the Intercreditor and Non-disturbance Agreement dated as of October 1, 1988, as amended from time to time, among the Borrower, the Guarantor (as successor in interest to TPFC), the banks party thereto and Chase, in its several capacities as the Existing Facility Collateral Agent and the Unit 1 Credit Agent and the Unit 2 Credit Agent (each as defined therein). "Interest Expense" shall mean with respect to any person, for any period, the sum of the following: (a) all interest expense in respect of indebtedness during such period (whether or not actually paid during such period) plus (b) the net amounts payable (or minus the net amounts receivable) under any Interest Rate Protection Agreement during such period (whether or not actually paid or received during such period). "Interest Payment Date" shall mean, with respect to any Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months' duration been applicable to such Borrowing, and, in addition, the date of any prepayment of such Borrowing or refinancing of such Borrowing with a Borrowing of a different Type. "Interest Period" shall mean (a) as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect (except that as to Eurodollar Borrowings made on the Closing Date or within three Business Days thereafter, the Borrower may request an Interest Period of any duration not fewer than 7 days and not more than 6 months) and (b) as to any ABR Borrowing, the period commencing on the date of such Borrowing and ending on the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) the Maturity Date and (iii) the date such Borrowing is prepaid in accordance with Section 2.10; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Interest Rate Protection Agreement" shall mean any agreement providing for an interest rate swap, cap or collar, or for any other financial arrangement designed to protect against fluctuations in interest rates. "Lenders" shall mean (a) the financial institutions listed on Schedule 2.1 (other than any such financial institution that has ceased to be a party hereto pursuant to an Assignment and Acceptance) and (b) any financial institution that has become a party hereto pursuant to an Assignment and Acceptance. "LIBO Rate" shall mean, with respect to any Eurodollar Borrowing, the rate (rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits approximately equal in principal amount to, the Administrative Agent's portion of such Eurodollar Borrowing and for a maturity comparable to such Interest Period are offered to the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" shall mean this Agreement, the Assignment Agreement, the Pledge Agreements, Amendment No. 1 to the TNP Security Agreement (as defined in the Existing Facility Agreement) substantially in the form of Exhibit O and any promissory notes that may be issued pursuant to Section 9.4(h). "Loan Parties" shall mean the Borrower and the Guarantor. "Loans" shall mean the loans made by the Lenders to the Borrower pursuant to Section 2.1. Each Loan shall be a Eurodollar Loan or an ABR Loan. "Margin Stock" shall have the meaning assigned to such term in Regulation U. "Material Adverse Effect" shall mean (a) a materially adverse effect on the business, assets, operations or condition, financial or otherwise, of the Borrower and the Subsidiaries taken as a whole or the Borrower and the Guarantor on a combined basis, (b) material impairment of the ability of the Borrower or any other Loan Party to perform any of its obligations under any Loan Document to which it is or will be a party or (c) material impairment of the rights of or benefits available to the Lenders under any Loan Document. "Maturity Date" shall mean November 3, 2000. "Moody's" shall mean Moody's Investors Service, Inc. "Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds" shall mean with respect to any Equity Issuance or any issuance of debt securities, cash proceeds net of underwriting commissions or placement fees and expenses directly incurred in connection therewith. "Note Pledge Agreement" shall mean the Note Pledge Agreement, substantially in the form of Exhibit F, between the Borrower and the Collateral Agent for the benefit of the Lenders. "Obligations" shall mean all obligations defined as "Obligations" in the TGC II Guarantee and Pledge Agreement and in the Pledge Agreements. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA. "Permitted Investments" shall mean: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within one year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $250,000,000; (d) deposits not exceeding $2,000,000 in the aggregate with, or investments issued by or guaranteed by (and backed by the full faith and credit of the United States of America), any domestic office of a commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of less than $250,000,000 but not less than $30,000,000; and (e) other investment instruments approved in writing by the Required Lenders. "person" shall mean any natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. "Plan" shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 307 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreements" shall mean the Bond Agreement, the Note Pledge Agreement and the TGC II Guarantee and Pledge Agreement and each of the agreements and other instruments executed and delivered pursuant to either of them or pursuant to Section 5.11. "Pledged Notes" shall mean the notes issued under the Existing Facility Agreement and held immediately prior to the Closing Date by the Existing Facility Banks and purchased and pledged by the Borrower to the Collateral Agent for the benefit of the Lenders pursuant to the Note Pledge Agreement. "Project" shall mean, collectively, Unit 2 and the Site. "PUCT" shall mean the Public Utility Commission of the State of Texas or any successor thereto. "Quarterly Dates" shall mean the last day of each March, June, September and December, the first of which Quarterly Dates shall be the first such date after the date any Loan is made, provided that, if any such date is not a Business Day, the relevant Quarterly Date shall be the next succeeding Business Day. "Register" shall have the meaning assigned to such term in Section 9.4(d). "Regulation G" shall mean Regulation G of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation U" shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation X" shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Release Conditions" shall have the meaning assigned to such term in Section 9.17(a). "Release Date" shall have the meaning assigned to such term in Section 9.17(a). "Release of Collateral" shall have the meaning assigned to such term in Section 9.17(a). "Replacement Loan" shall have the meaning assigned to such term in Section 2.19. "Replacement Note" shall have the meaning assigned to such term in Section 2.19. "Replacement Note Holder" shall have the meaning assigned to such term in the Existing Facility Agreement. "Replacement Note Maturity Date" shall mean January 15, 1999. "Required Lenders" shall mean, at any time, Lenders having Loans and unused Commitments representing at least 66-2/3% of the sum of all Loans outstanding and unused Commitments at such time. "Responsible Officer" of any corporation shall mean any executive officer or Financial Officer of such corporation and any other officer or similar official thereof responsible for the administration of the obligations of such corporation in respect of this Agreement. "S&P" shall mean Standard & Poor's Ratings Service, a division of McGraw-Hill, Inc. "Second Commitment Reduction Date" shall mean November 3, 1999. "Secured Debenture Indentures" shall mean the First Secured Debenture Indenture and any Subsequent Secured Debenture Indentures, and "Secured Debenture Indenture" shall mean any of them. "Secured Debentures" shall mean the First Secured Debentures and any Subsequent Secured Debentures (which may include subsequent series of debentures issued under any indenture supplemental to any Subsequent Secured Debenture Indenture), and may refer to the Secured Debentures of any one or more such series, as the context may require. "Site" shall have the meaning assigned thereto in the TGC II Mortgage. "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority to which the Administrative Agent is subject, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subsequent Debenture Trustee" shall mean the trustee under any Subsequent Secured Debenture Indenture. "Subsequent Secured Debenture Indenture" shall mean any indenture or agreement, other than the First Secured Debenture Indenture, which provides for the issuance of and sets out the terms and conditions of any Indebtedness of the Borrower which is secured by the Replacement Note pursuant to and in accordance with Section 2.19, whether or not said agreement shall be denominated an "indenture" and whether or not said debt shall be denominated "debentures," in each case, as the same may from time to time be amended, modified or supplemented or its provisions waived. "Subsequent Secured Debentures" shall mean any Indebtedness of the Borrower, other than the First Secured Debentures, which is secured by the Replacement Note in accordance with Section 2.19, whether or not said debt shall be denominated "debentures". Said term may refer to Subsequent Secured Debentures of any one or more such series, as the context may require. "subsidiary" shall mean, with respect to any person (herein referred to as the "parent"), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held, or (b) that is, at the time any determination is made, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" shall mean any subsidiary of the Borrower. "Supplemental Bond Indenture" shall mean the Twenty-Fourth Supplemental Indenture dated as of November 3, 1995 between the Borrower and Bank of America Illinois, as trustee. "TGC" shall mean Texas Generating Company, a Texas corporation. "TGC II" shall mean Texas Generating Company II, a Texas corporation. "TGC II Guarantee and Pledge Agreement" shall mean the Guarantee and Pledge Agreement, substantially in the form of Exhibit D, made by the Guarantor in favor of the Collateral Agent for the benefit of the Lenders. "TGC II Mortgage" shall mean the Mortgage and Deed of Trust (with Security Agreement and UCC Financing Statement for Fixture Filing) dated to be effective as of October 1, 1988 by TPFC in favor of Donald H. Snell as mortgage trustee, recorded in Volume 521 at Page 601 of the Public Records of Robertson County, Texas, as amended or modified from time to time. "TGC II Mortgage Trust Estate" shall have the meaning ascribed to the term Mortgage Trust Estate as defined in the TGC II Mortgage, as the same may be reduced from time to time pursuant to the Facility Purchase Agreement. "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. "TNP" shall mean the Borrower. "TNP Bond Indenture" shall mean the Indenture of Mortgage and Deed of Trust, dated as of November 1, 1944, between Community Public Service Company (predecessor to the Borrower) and City National Bank and Trust Company of Chicago (predecessor to Bank of America Illinois), as Trustee, as amended and supplemented by supplemental indentures. "TNP Enterprises" shall mean TNP Enterprises, Inc., a Texas corporation. "TNP Second Lien Mortgage" shall have the meaning assigned to such term in the Existing Facility Agreement, as amended by any modification to such Mortgage. "Total Capitalization" shall mean, as of any date, the sum of Equity Capital and the aggregate amount of Indebtedness of the sort referred to in clause (a) of the definition of "Indebtedness" (including the current portion of such Indebtedness), in each case of the Borrower and its Subsidiaries, determined on a consolidated basis. "Total Commitment" shall mean, at any time, the aggregate amount of the Commitments, as in effect at such time. "TPFC" shall mean Texas PFC, Inc. "Transactions" shall have the meaning assigned to such term in Section 3.2. "Type", when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, the term "Rate" shall include the LIBO Rate and the Alternate Base Rate. "Unit 1" shall have the meaning assigned to such term in the Existing Facility Agreement. "Unit 1 Credit Agreement" shall have the meaning assigned to such term in the Existing Facility ----------------------- Agreement. "Unit 2" shall have the meaning assigned to such term in the Existing Facility Agreement. "wholly owned subsidiary" of any person shall mean a subsidiary of such person of which securities (except for directors' qualifying shares) or other ownership interests representing 100% of the equity or 100% of the ordinary voting power or 100% of the general partnership interests are, at the time any determination is being made, owned, controlled or held by such person or one or more wholly owned subsidiaries of such person or by such person and one or more wholly owned subsidiaries of such person. "Withdrawal Liability" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.2. Terms Generally. The definitions in Section 1.1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Whenever definitions in Section 1.1 are defined by reference to defined terms in the Existing Facility Agreement, and such defined terms in the Existing Facility Agreement contain capitalized terms not otherwise defined herein, such capitalized terms shall have the meanings assigned to such terms in the Existing Facility Agreement. Except as otherwise expressly provided herein, (a) any reference in this Agreement to any Loan Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time and (b) all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article VI or any related definition to eliminate the effect of any change in GAAP occurring after the date of this Agreement on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Article VI or any related definition for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders. ARTICLE II. THE CREDITS SECTION 2.1. Commitments. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, to make Loans to the Borrower, at any time and from time to time on or after the date hereof, and until the earlier of the Maturity Date and the termination of the Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount at any time outstanding that will not result in such Lender's Credit Exposure exceeding its Commitment. Within the limits set forth in the preceding sentence and subject to the terms, conditions and limitations set forth herein, the Borrower may borrow, pay or prepay and reborrow Loans. SECTION 2.2. Loans. (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Commitments; provided, however, that the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). The Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) an integral multiple of $1,000,000 and not less than $2,000,000 or (ii) equal to the remaining available balance of the applicable Commitments. (b) Subject to Sections 2.8 and 2.12, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request pursuant to Section 2.3. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Borrower shall not be entitled to request any Borrowing that, if made, would result in more than six Eurodollar Borrowings outstanding hereunder at any time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings. (c) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account in New York City as the Administrative Agent may designate not later than 11:00 a.m., New York City time, and the Administrative Agent shall by 12:00 (noon), New York City time, credit the amounts so received to an account with the Administrative Agent designated by the Borrower in the applicable Borrowing Request, which account must be in the name of the Borrower or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with paragraph (c) above and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If the Administrative Agent shall have so made funds available then, to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent at (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, a rate determined by the Administrative Agent to represent its cost of overnight or short-term funds (which determination shall be conclusive absent manifest error). If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender's Loan as part of such Borrowing for purposes of this Agreement. (e) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. (f) The Borrower may refinance all or any part of a Borrowing with another Borrowing, subject to the conditions and limitations set forth in this Agreement. Any Borrowing or part thereof so refinanced shall be deemed to be repaid or prepaid in accordance with the applicable provisions of this Agreement with the proceeds of the new Borrowing, and the proceeds of such new Borrowing, to the extent they do not exceed the principal amount of the Borrowing being refinanced, shall not be transferred as contemplated by paragraph (c) above. SECTION 2.3. Borrowing Procedure. In order to request a Borrowing, the Borrower shall hand deliver or telecopy to the Administrative Agent a duly completed Borrowing Request (or shall notify the Administrative Agent by telephone of the information contained in such a Borrowing Request, with a copy of such Borrowing Request to be delivered or telecopied to the Administrative Agent promptly after such notice) (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before a proposed Borrowing, and (b) in the case of an ABR Borrowing, not later than 12:00 noon, New York City time, one Business Day before a proposed Borrowing. Each Borrowing Request shall be irrevocable, shall be signed by or on behalf of the Borrower and shall specify the following information: (i) whether the Borrowing then being requested is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Borrowing (which shall be a Business Day), (iii) the number and location of the account to which funds are to be disbursed (which shall be an account that complies with the requirements of Section 2.2(c)); (iv) the amount of such Borrowing; and (v) if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto; provided, however, that, notwithstanding any contrary specification in any Borrowing Request, each requested Borrowing shall comply with the requirements set forth in Section 2.2. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall promptly advise the Lenders of any notice given pursuant to this Section 2.3 (and the contents thereof), and of each Lender's portion of the requested Borrowing. If the Borrower shall not have delivered a Borrowing Request in accordance with this Section 2.3 prior to the end of the Interest Period then in effect for any Borrowing and requesting that such Borrowing be refinanced, then the Borrower shall (unless the Borrower has notified the Administrative Agent, not less than three Business Days prior to the end of such Interest Period, that such Borrowing is to be repaid at the end of such Interest Period) be deemed to have delivered a Borrowing Request requesting that such Borrowing be refinanced with a new Borrowing of equivalent amount, and such new Borrowing shall be an ABR Borrowing. SECTION 2.4. Evidence of Debt; Repayment of Loans. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent, for the account of each Lender, the principal amount of each Loan on the earlier of the last day of the Interest Period applicable thereto and the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower or the Guarantor and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraphs (b) and (c) above shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrower to repay the Loans in accordance with their terms. (e) Notwithstanding any other provision of this Agreement, in the event any Lender shall request and receive a promissory note payable to such Lender and its registered assigns, the interests represented by such note shall at all times (including after any assignment of all or part of such interests pursuant to Section 9.4) be represented by one or more promissory notes payable to the payee named therein or its registered assigns. SECTION 2.5. Commitment Fees. The Borrower agrees to pay to each Lender, through the Administrative Agent, on each Quarterly Date and on each date on which the Commitment of such Lender shall expire or be terminated as provided herein, a commitment fee (a "Commitment Fee") equal to the Applicable Percentage per annum in effect from time to time on the average daily unused amount of the Commitment of such Lender during the preceding quarter (or other period commencing with the date hereof or ending with the Maturity Date or the date on which the Commitments of such Lender shall expire or be terminated). All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Commitment Fee due to each Lender shall commence to accrue on the date hereof and shall cease to accrue on the date on which the Commitment of such Lender shall be terminated as provided herein. All Commitment Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution among the Lenders. Once paid, none of the Commitment Fees shall be refundable under any circumstances. SECTION 2.6. Interest on Loans. (a) Subject to the provisions of Section 2.7, the Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when the Alternate Base Rate is determined by reference to the Prime Rate and over a year of 360 days at all other times) at a rate per annum equal to the Alternate Base Rate plus the Applicable Percentage in effect from time to time. (b) Subject to the provisions of Section 2.7, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Percentage in effect from time to time. Interest on each Loan shall be payable on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. The applicable Alternate Base Rate or LIBO Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.7. Default Interest. If the Borrower shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, by acceleration or otherwise, or under any other Loan Document, the Borrower shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount to but excluding the date of actual payment (after as well as before judgment) at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when determined by reference to the Prime Rate and over a year of 360 days at all other times) equal to the sum of the Alternate Base Rate plus the Applicable Percentage plus 2.00%. SECTION 2.8. Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing the Administrative Agent or the Required Lenders shall have determined that dollar deposits in the principal amounts of the Loans comprising such Borrowing are not generally available in the London interbank market, or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to any Lender of making or maintaining its Eurodollar Loan during such Interest Period, or that reasonable means do not exist for ascertaining the LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter, give written or telecopy notice of such determination to the Borrower and the Lenders. In the event of any such determination, until the Administrative Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, any request by the Borrower for a Eurodollar Borrowing pursuant to Section 2.3 shall be deemed to be a request for an ABR Borrowing. Each determination by the Administrative Agent or the Required Lenders hereunder shall be conclusive absent manifest error. SECTION 2.9. Termination and Reduction of Commitments. (a) The Commitments shall automatically terminate on the Maturity Date. (b) The Total Commitment shall be reduced automatically to $125,000,000 on the First Commitment Reduction Date and to $100,000,000 on the Second Commitment Reduction Date (unless, in each case, it shall already have been reduced below such amount prior to such Commitment Reduction Date). (c) On each date upon which the Borrower receives the proceeds from any Equity Issuance (including any proceeds of an Equity Issuance by TNP Enterprises) (or within 6 months after the date of such Equity Issuance if the Borrower certifies to the Administrative Agent that clause (i) or (ii) below is expected to apply to such proceeds), the Borrower shall permanently reduce the Total Commitment in an amount equal to 100% of the Net Cash Proceeds of such Equity Issuance or, in the case of any Equity Issuance by TNP Enterprises, the amount of cash proceeds received by the Borrower therefrom; provided, that such reduction will not be required to the extent such proceeds: (i) result from an Equity Issuance by TNP Enterprises of its common stock and are applied within 6 months from the date of such Equity Issuance (A) to make acquisitions permitted under Sections 6.4 and 6.5, (B) to prepay or repay Indebtedness of the sort described in clause (a) of the definition of "Indebtedness" of the Borrower or the Guarantor or (C) to pay at maturity (but not prepay) Indebtedness of such sort of TGC; or (ii) result from an Equity Issuance by the Borrower of preferred stock and are applied within 6 months from the date of such Equity Issuance (A) to make acquisitions permitted under Sections 6.4 and 6.5, (B) to refinance outstanding preferred stock with new preferred stock which shall not be redeemable mandatorily or at the option of the holder thereof (other than in the event of a Change of Control) prior to the Maturity Date, (C) to prepay or repay Indebtedness of the sort described in clause (a) of the definition of "Indebtedness" of the Borrower or the Guarantor or (D) to repay at maturity (but not prepay) Indebtedness of such sort of TGC. (d) Upon at least three Business Days' prior irrevocable written or telecopy notice to the Administrative Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Commitments; provided, however, that (i) each partial reduction of the Commitments shall be in an integral multiple of $1,000,000 and in a minimum amount of $5,000,000 and (ii) the Total Commitment shall not be reduced to an amount that is less than the Aggregate Credit Exposure at the time. (e) In the event a Change in Control shall have occurred, the Borrower shall so notify the Administrative Agent and the Lenders and, in the event the Required Lenders shall so elect in a notice delivered to the Borrower, the Commitments shall permanently terminate on a date specified in such notice (which date shall be not fewer than five Business Days after the delivery of such notice to the Borrower). (f) Each reduction in the Commitments hereunder shall be made ratably among the Lenders in accordance with their respective Commitments. The Borrower shall pay to the Administrative Agent for the account of the applicable Lenders, on the date of each termination or reduction, the Commitment Fees on the amount of the Commitments so terminated or reduced accrued to but excluding the date of such termination or reduction. SECTION 2.10. Prepayment. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, upon at least three Business Days' prior written or telecopy notice (or telephone notice promptly confirmed by written or telecopy notice) to the Administrative Agent before 11:00 a.m., New York City time; provided, however, that each partial prepayment shall be in an amount that is an integral multiple of $1,000,000 and not less than $2,000,000. (b) In the event of any termination of all the Commitments (whether mandatory or optional), the Borrower shall repay or prepay all its outstanding Borrowings on the date of such termination. In the event of any partial reduction of the Commitments (whether mandatory or optional), then (i) at or prior to the effective date of such reduction or termination, the Administrative Agent shall notify the Borrower and the Lenders of the Aggregate Credit Exposure after giving effect thereto and (ii) if the Aggregate Credit Exposure would exceed the Total Commitment after giving effect to such reduction or termination, then the Borrower shall, on the date of such reduction or termination, repay or prepay Borrowings in an amount sufficient to eliminate such excess. (c) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such Borrowing by the amount stated therein on the date stated therein. All prepayments under this Section 2.10 shall be subject to Section 2.13 but otherwise without premium or penalty. All prepayments under this Section 2.10 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment. SECTION 2.11. Reserve Requirements; Change in Circumstances. (a) Notwithstanding any other provision of this Agreement, if after the date of this Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of payments to any Lender of the principal of or interest on any Eurodollar Loan made by such Lender or any Commitment Fees or other amounts payable hereunder (other than changes in respect of taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or by any political subdivision or taxing authority therein), or shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by any Lender or shall impose on such Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender, and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise) by an amount deemed by such Lender to be material, then the Borrower will pay to such Lender upon demand such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender shall have determined that the adoption after the date hereof of any law, rule, regulation, agreement or guideline regarding capital adequacy, or any change after the date hereof in any such law, rule, regulation, agreement or guideline (whether such law, rule, regulation, agreement or guideline has been adopted) or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or compliance by any Lender (or any lending office of such Lender) or any Lender's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any Governmental Authority has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender pursuant hereto to a level below that which such Lender or such Lender's holding company could have achieved but for such applicability, adoption, change or compliance (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company as specified in paragraph (a) or (b) above, and setting forth in reasonable detail the manner in which such amount or amounts shall have been determined, shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate delivered by it within 10 days after its receipt of the same. (d) Except as provided in Section 2.18(c), failure or delay on the part of any Lender to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital shall not constitute a waiver of such Lender's right to demand such compensation. The protection of this Section shall be available to each Lender regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, agreement, guideline or other change or condition that shall have occurred or been imposed. SECTION 2.12. Change in Legality. (a) Notwithstanding any other provision of this Agreement, if, after the date hereof, any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Administrative Agent: (i) such Lender may declare that Eurodollar Loans will not thereafter (for the duration of such unlawfulness) be made by such Lender hereunder, whereupon any request for a Eurodollar Borrowing shall, as to such Lender only, be deemed a request for an ABR Loan, unless such declaration shall be subsequently withdrawn; and (ii) such Lender may require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans as of the effective date of such notice as provided in paragraph (b) below. In the event any Lender shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal that would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans. (b) For purposes of this Section 2.12, a notice to the Borrower by any Lender shall be effective as to each Eurodollar Loan made by such Lender, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower. SECTION 2.13. Indemnity. The Borrower shall indemnify each Lender against any loss or expense that such Lender may sustain or incur as a consequence of (a) any event, other than a default by such Lender or the Administrative Agent in the performance of its obligations hereunder, which results in (i) such Lender receiving or being deemed to receive any amount on account of the principal of any Eurodollar Loan prior to the end of the Interest Period in effect therefor or (ii) any Eurodollar Loan to be made by such Lender not being made after notice of such Loan shall have been given by the Borrower hereunder (any of the events referred to in this clause (a) being called a "Breakage Event") or (b) any default in the making of any payment or prepayment required to be made hereunder. In the case of any Breakage Event, such loss shall include an amount equal to the excess, as reasonably determined by such Lender, of (i) its cost of obtaining funds for the Eurodollar Loan that is the subject of such Breakage Event for the period from the date of such Breakage Event to the last day of the Interest Period in effect (or that would have been in effect) for such Loan over (ii) the amount of interest likely to be realized by such Lender in redeploying the funds released or not utilized by reason of such Breakage Event for such period. A certificate of any Lender setting forth any amount or amounts, and setting forth in reasonable detail the manner in which such amount or amounts shall have been determined, which such Lender is entitled to receive pursuant to this Section 2.13 shall be delivered to the Borrower and shall be conclusive absent manifest error. SECTION 2.14. Pro Rata Treatment. Except as required under Section 2.12, each Borrowing, each payment or prepayment of principal of any Borrowing, each payment of interest on the Loans, each payment of the Commitment Fees, each reduction of the Commitments and each refinancing of any Borrowing with a Borrowing of any Type shall be allocated pro rata among the Lenders in accordance with their respective applicable Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Loans). Each Lender agrees that in computing such Lender's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Lender's percentage of such Borrowing to the next higher or lower whole dollar amount. SECTION 2.15. Sharing of Setoffs. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Borrower or any other Loan Party, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Loan or Loans as a result of which the unpaid principal portion of its Loans shall be proportionately less than the unpaid principal portion of the Loans of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Loans of such other Lender, so that the aggregate unpaid principal amount of the Loans and participation in Loans held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Loans then outstanding as the principal amount of its Loans prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Loans outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.15 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. The Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in a Loan deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower to such Lender by reason thereof as fully as if such Lender had made a Loan directly to the Borrower in the amount of such participation. SECTION 2.16. Payments. (a) The Borrower shall make each payment (including principal of or interest on any Borrowing or any Commitment Fees or other amounts) hereunder and under any other Loan Document not later than 12:00 (noon), New York City time, on the date when due in immediately available dollars, without setoff, defense or counterclaim. Each such payment shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York. (b) Whenever any payment (including principal of or interest on any Borrowing or any Commitment Fees or other amounts) hereunder or under any other Loan Document shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Commitment Fees, if applicable. SECTION 2.17. Taxes. (a) Any and all payments by or on behalf of the Borrower or any Loan Party hereunder and under any other Loan Document shall be made, in accordance with Section 2.16, free and clear of and without deduction for any and all current or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding (i) income taxes imposed on the net income of the Administrative Agent or any Lender (or any transferee or assignee thereof, including a participation holder (any such entity a "Transferee")) and (ii) franchise taxes imposed on the net income of the Administrative Agent or any Lender (or Transferee), in each case by the jurisdiction under the laws of which the Administrative Agent or such Lender (or Transferee) is organized or any political subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities, collectively or individually, being called "Taxes"). If the Borrower or any Loan Party shall be required to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to the Administrative Agent or any Lender (or any Transferee), (i) the sum payable shall be increased by the amount (an "additional amount") necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.17) the Administrative Agent or such Lender (or Transferee), as the case may be, shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower or such Loan Party shall make such deductions and (iii) the Borrower or such Loan Party shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay to the relevant Governmental Authority in accordance with applicable law any current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under any other Loan Document or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document ("Other Taxes"). (c) The Borrower will indemnify the Administrative Agent and each Lender (or Transferee) for the full amount of Taxes and Other Taxes paid by the Administrative Agent or such Lender (or Transferee), as the case may be, and any liability (including penalties, interest and expenses (including reasonable attorney's fees and expenses)) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability, and setting forth in reasonable detail the manner in which such payment or liability shall have been determined, prepared by the Administrative Agent or a Lender (or Transferee), or the Administrative Agent on its behalf, absent manifest error, shall be final, conclusive and binding for all purposes. Such indemnification shall be made within 30 days after the date the Administrative Agent or any Lender (or Transferee), as the case may be, makes written demand therefor. (d) If the Administrative Agent or a Lender (or Transferee) receives a refund in respect of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower or any other Loan Party has paid additional amounts pursuant to this Section 2.17 and no Event of Default shall have occurred and be continuing, it shall within 30 days from the date of such receipt pay over such refund to the Borrower or such other Loan Party (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower or such other Loan Party under this Section 2.17 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent or such Lender (or Transferee) and without interest (other than interest paid by the relevant Governmental Authority with respect to such refund); provided, however, that the Borrower or such other Loan Party, upon the request of the Administrative Agent or such Lender (or Transferee), shall repay the amount paid over to the Borrower or such other Loan Party (plus penalties, interest or other charges) to the Administrative Agent or such Lender (or Transferee) in the event the Administrative Agent or such Lender (or Transferee) is required to repay such refund to such Governmental Authority. (e) As soon as practicable after the date of any payment of Taxes or Other Taxes by the Borrower or any other Loan Party to the relevant Governmental Authority, the Borrower or such other Loan Party will deliver to the Administrative Agent, at its address referred to in Section 9.1, the original or a certified copy of a receipt issued by such Governmental Authority evidencing payment thereof. (f) Each Lender (or Transferee) that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the Administrative Agent two copies of either United States Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a "New Lending Office"). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Notwithstanding any other provision of this Section 2.17(f), a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section 2.17(f) that such Non-U.S. Lender is not legally able to deliver. (g) The Borrower shall not be required to indemnify any Non-U.S. Lender or to pay any additional amounts to any Non-U.S. Lender, in respect of United States Federal withholding tax pursuant to paragraph (a) or (c) above to the extent that (i) the obligation to withhold amounts with respect to United States Federal withholding tax existed on the date such Non-U.S. Lender became a party to this Agreement (or, in the case of a Transferee that is a participation holder, on the date such participation holder became a Transferee hereunder) or, with respect to payments to a New Lending Office, the date such Non-U.S. Lender designated such New Lending Office with respect to a Loan; provided, however, that this paragraph (g) shall not apply (x) to any Transferee or New Lending Office that becomes a Transferee or New Lending Office as a result of an assignment, participation, transfer or designation made at the request of the Borrower and (y) to the extent the indemnity payment or additional amounts any Transferee, or any Lender (or Transferee), acting through a New Lending Office, would be entitled to receive (without regard to this paragraph (g)) do not exceed the indemnity payment or additional amounts that the person making the assignment, participation or transfer to such Transferee, or Lender (or Transferee) making the designation of such New Lending Office, would have been entitled to receive in the absence of such assignment, participation, transfer or designation or (ii) the obligation to pay such additional amounts would not have arisen but for a failure by such Non-U.S. Lender to comply with the provisions of paragraph (g) above. (h) Nothing contained in this Section 2.17 shall require any Lender (or any Transferee) or the Administrative Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary). SECTION 2.18. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate. (a) In the event (i) any Lender delivers a certificate requesting compensation pursuant to Section 2.11, (ii) any Lender delivers a notice described in Section 2.12 or (iii) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority on account of any Lender pursuant to Section 2.17, the Borrower may, at its sole expense and effort (including with respect to the processing and recordation fee referred to in Section 9.4(b)), upon notice to such Lender and the Administrative Agent, require such Lender to transfer and assign, without recourse (in accordance with and subject to the restrictions contained in Section 9.4), all of its interests, rights and obligations under this Agreement to an assignee that shall assume such assigned obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (x) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority having jurisdiction, (y) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, and (z) the Borrower or such assignee shall have paid to the affected Lender in immediately available funds an amount equal to the sum of the principal of and interest accrued to the date of such payment on the outstanding Loans of such Lender plus all Commitment Fees and other amounts accrued for the account of such Lender hereunder (including any amounts under Section 2.11 and Section 2.13); provided further that, if prior to any such transfer and assignment the circumstances or event that resulted in such Lender's claim for compensation under Section 2.11 or notice under Section 2.12 or the amounts paid pursuant to Section 2.17, as the case may be, cease to cause such Lender to suffer increased costs or reductions in amounts received or receivable or reduction in return on capital, or cease to have the consequences specified in Section 2.12, or cease to result in amounts being payable under Section 2.17, as the case may be (including as a result of any action taken by such Lender pursuant to paragraph (b) below), or if such Lender shall waive its right to claim further compensation under Section 2.11 in respect of such circumstances or event or shall withdraw its notice under Section 2.12 or shall waive its right to further payments under Section 2.17 in respect of such circumstances or event, as the case may be, then such Lender shall not thereafter be required to make any such transfer and assignment hereunder. (b) If (i) any Lender shall request compensation under Section 2.11, (ii) any Lender shall deliver a notice described in Section 2.12 or (iii) the Borrower shall be required to pay any additional amount to any Lender or any Governmental Authority on account of any Lender, pursuant to Section 2.17, then such Lender shall use reasonable efforts (which shall not require such Lender to incur an unreimbursed loss or unreimbursed cost or expense or otherwise take any action inconsistent with its internal policies or legal or regulatory restrictions or suffer any disadvantage or burden deemed by it to be significant) (x) to file any certificate or document reasonably requested in writing by the Borrower or (y) to assign its rights and delegate and transfer its obligations hereunder to another of its offices, branches or affiliates, if such filing or assignment would reduce its claims for compensation under Section 2.11 or enable it to withdraw its notice pursuant to Section 2.12 or would reduce amounts payable pursuant to Section 2.17, as the case may be, in the future. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such filing or assignment, delegation and transfer. (c) Notwithstanding any other provision of this Agreement, no Lender shall be entitled to compensation under Section 2.11 or 2.13, or to the payment of any additional amount under Section 2.17, for any costs incurred or imposed, reductions suffered or amounts withheld on or with respect to any date unless it shall have notified the Borrower that it will request such compensation or the payment of such additional amount not later than 180 days after the later of (i) such date and (ii) the date on which such Lender shall have become aware of such costs or reductions or such withholding. SECTION 2.19. The Replacement Loan. (a) On January 27, 1992, the Borrower purchased pro rata from the Existing Facility Banks $65,000,000 of the loans outstanding under the Existing Facility Agreement. Automatically upon their purchase by the Borrower, such loans were converted into a replacement loan (the "Replacement Loan"), evidenced by a replacement note (the "Replacement Note"), that was secured by the Existing Facility Collateral, pari passu with the other loans under the Existing Facility Agreement, pursuant to the Existing Facility Security Documents. Simultaneously with the conversion, the Replacement Note was pledged to the First Debenture Trustee as security for First Secured Debentures, the proceeds of which were used by the Borrower to purchase the loans under the Existing Facility Agreement. As a result of such pledge, the First Secured Debentures indirectly share pari passu in the Existing Facility Collateral. (b) Subject to the limitations set forth in Section 6.1(c), the Borrower shall have the right (i) to issue Subsequent Secured Debentures to refinance the First Secured Debentures (or previously issued Subsequent Secured Debentures) so long as such Subsequent Secured Debentures are secured only by the Replacement Note, and (ii) to issue Subsequent Secured Debentures if the Commitments are terminated and the Loans and other Obligations are paid in full at the time of such issuance. (c) Without limiting any other provision of this Agreement, the Borrower, the Guarantor and any Debenture Trustee shall have the right to extend the maturity date of the Replacement Loan (and to make any such conforming changes to the Replacement Note), in accordance with the terms of the applicable Secured Debenture Indenture and the Replacement Loan, so as to facilitate the refinancing of any Secured Debentures. Neither the Borrower nor the Guarantor shall borrow additional Replacement Loans or issue additional Replacement Notes, as such terms are defined in the Existing Facility Agreement. ARTICLE III. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Administrative Agent, the Collateral Agent and each of the Lenders that: SECTION 3.1. Organization; Powers. The Borrower and each of the Subsidiaries (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where the failure so to qualify could not reasonably be expected to result in a Material Adverse Effect, (d) has the corporate power and authority to execute, deliver and perform its obligations under each of the Loan Documents, the Existing Facility Project Documents and the Existing Facility Security Documents (including any amendments thereto to be entered into in connection with the transactions contemplated hereby) and each other agreement or instrument contemplated hereby to which it is or will be a party and, in the case of the Borrower, to borrow hereunder. SECTION 3.2. Authorization. The execution, delivery and performance by each Loan Party of each of the Loan Documents, the Existing Facility Project Documents and the Existing Facility Security Documents to which such Loan Party is a party, including any amendments thereto to be entered into in connection with the transactions contemplated hereby, the borrowings hereunder, the advance by the Guarantor to the Borrower provided for in Section 4.2(h) and the issuance and the pledge of the Pledged Bonds (collectively, the "Transactions") (a) have been duly authorized by all requisite corporate and, if required, stockholder action and (b) will not (i) violate (A) any provision of law, statute, rule or regulation, or of the certificate or articles of incorporation or other constitutive documents or by-laws of the Borrower or any Subsidiary, (B) any order of any Governmental Authority or (C) any provision of any indenture (including the TNP Bond Indenture and the First Secured Debenture Indenture), agreement (including the Existing Facility Agreement) or other instrument to which the Borrower or any Subsidiary is a party or by which any of them or any of their property is or may be bound, except to the extent that such violation could not reasonably be expected to result in a Material Adverse Effect, (ii) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under, or give rise to any right to accelerate or to require the prepayment, repurchase or redemption of any obligation under any such indenture, agreement or other instrument or (iii) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by the Borrower or any Subsidiary (other than any Lien created under the Existing Facility Security Documents or the Pledge Agreements). SECTION 3.3. Enforceability. This Agreement has been duly executed and delivered by the Borrower and constitutes, and each other Loan Document and each amendment to the Existing Facility Project Documents or the Existing Facility Security Documents being entered into in connection with the transactions contemplated hereby, when executed and delivered by each Loan Party thereto, will constitute, a legal, valid and binding obligation of such Loan Party enforceable against such Loan Party in accordance with its terms. SECTION 3.4. Governmental Approvals. No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required in connection with the Transactions, except for (a) the filing of Uniform Commercial Code financing statements and (b) such as have been made or obtained and are in full force and effect. SECTION 3.5. Financial Statements. The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statement of operations and cash flow (a) as of and for the fiscal year ended December 31, 1994, audited by and accompanied by the opinion of KPMG Peat Marwick LLP, independent public accountants, and (b) as of and for the fiscal quarter and the six months ended June 30, 1995, certified by its chief financial officer. Such financial statements present fairly the financial condition and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods. Such balance sheets and the notes thereto disclose all material liabilities, direct or contingent, of the Borrower and its consolidated Subsidiaries as of the dates thereof. Such financial statements were prepared in accordance with GAAP. SECTION 3.6. No Material Adverse Change. Except as set forth on Schedule 3.6, there has been no material adverse change, and no event that could reasonably be expected to result in a material adverse change, in the business, assets, operations, condition, financial or otherwise, or material agreements of the Borrower and the Subsidiaries, taken as a whole, since December 31, 1994. SECTION 3.7. Title to Properties; Possession Under Leases. (a) The Borrower and each of the Subsidiaries has good and commercially acceptable title to, or valid leasehold interests in, all its material properties and assets including all of the Collateral, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens, other than Liens expressly permitted by Section 6.2. (b) The Borrower and each of the Subsidiaries has complied with all obligations under all material leases to which it is a party and all such leases are in full force and effect. The Borrower and each of the Subsidiaries enjoys peaceful and undisturbed possession under all such material leases. SECTION 3.8. Subsidiaries. Schedule 3.8 sets forth as of the Closing Date a list of all Subsidiaries and the percentage ownership interest of the Borrower therein. The shares of capital stock or other ownership interests so indicated on Schedule 3.8 are fully paid and non-assessable and are owned by the Borrower, directly or indirectly, free and clear of all Liens. SECTION 3.9. Litigation; Compliance with Laws. (a) Except as set forth on Schedule 3.9, there are not any actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Subsidiary or any business, property or rights of any such person (i) that involve any Loan Document or the Transactions or (ii) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect. (b) None of the Borrower or any of the Subsidiaries or any of their respective material properties or assets is in violation of, nor will the continued operation of their material properties and assets as currently conducted violate, any law, rule or regulation, or any judgment, writ, injunction, decree or order of any Governmental Authority, where such violation or default could reasonably be expected to result in a Material Adverse Effect. SECTION 3.10. Agreements. (a) Neither the Borrower nor any of the Subsidiaries is a party to any agreement or instrument or subject to any corporate restriction that has resulted or could reasonably be expected to result in a Material Adverse Effect. (b) Neither the Borrower nor any of the Subsidiaries is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default could reasonably be expected to result in a Material Adverse Effect. (c) The Borrower has furnished to the Administrative Agent a true and complete copy of each Existing Facility Project Document and each Existing Facility Security Document (including all amendments thereto and exhibits, schedules and disclosure letters referred to therein or delivered pursuant thereto, if any). Except as permitted pursuant to Section 10.05 or 10.11 of the Existing Facility Agreement none of the Existing Facility Project Documents or the Existing Facility Security Documents to which the Borrower or the Guarantor is a party has been amended, modified or terminated, and all of such Existing Facility Project Documents and Existing Facility Security Documents are in full force and effect. SECTION 3.11. Federal Reserve Regulations. (a) Neither the Borrower nor any of the Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock. (b) No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, to buy or carry any Margin Stock or for any purpose that entails a violation of, or that is inconsistent with, the provisions of the Regulations of the Board, including Regulation G, U or X. SECTION 3.12. Investment Company Act; Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary is an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940. TNP is exempt from regulation under the Public Utility Holding Company Act of 1935, as amended, other than under Section 9(a)(2) thereof. SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of the Loans only for the purposes specified in the preamble to this Agreement. SECTION 3.14. Tax Returns. Each of the Borrower and the Subsidiaries has filed or caused to be filed all Federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP. SECTION 3.15. No Material Misstatements. None of (a) the Confidential Information Memorandum or (b) any other information, report, financial statement, exhibit or schedule furnished by or on behalf of the Borrower or the Guarantor to the Administrative Agent or any Lender in connection with the negotiation of any Loan Document or included therein or delivered pursuant thereto contained, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were, are or will be made, not misleading. SECTION 3.16. Employee Benefit Plans. Each of the Borrower and its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, could reasonably be expected to result in material liability of the Borrower or any of its ERISA Affiliates. The present value of all benefit liabilities under each Plan (based on those assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed by more than $20,000,000 the fair market value of the assets of such Plan, and the present value of all benefit liabilities of all underfunded Plans (based on those assumptions used to fund each such Plan) did not, as of the last annual valuation dates applicable thereto, exceed by more than $20,000,000 the fair market value of the assets of all such underfunded Plans. SECTION 3.17. Environmental Matters. Except as set forth in Schedule 3.17: (a) The properties owned or operated by the Borrower and the Subsidiaries (the "Properties") do not contain any Hazardous Materials in amounts or concentrations which (i) constitute, or have constituted, a violation of, or (ii) could give rise to liability under, Environmental Laws, which violations and liabilities, in the aggregate, could result in a Material Adverse Effect; (b) The Properties and all operations of the Borrower and the Subsidiaries are in compliance, and in the last ten years have been in compliance, with all Environmental Laws and all necessary Environmental Permits have been obtained and are in effect, except to the extent that such non-compliance or failure to obtain any necessary permits, in the aggregate, could not result in a Material Adverse Effect; (c) There have been no releases or threatened releases of Hazardous Materials at, from or under the Properties or otherwise in connection with the operations of the Borrower or the Subsidiaries, which releases or threatened releases, in the aggregate, could result in a Material Adverse Effect; (d) Neither the Borrower nor any of the Subsidiaries has received any notice of an Environmental Claim in connection with the Properties or the operations of the Borrower or the Subsidiaries or with regard to any person whose liabilities for environmental matters the Borrower or the Subsidiaries has retained or assumed, in whole or in part, contractually, by operation of law or otherwise, which, in the aggregate, could result in a Material Adverse Effect, nor do the Borrower or the Subsidiaries have reason to believe that any such notice will be received or is being threatened; (e) Hazardous Materials have not been transported from the Properties, nor have Hazardous Materials been generated, treated, stored or disposed of at, on or under any of the Properties in a manner that could give rise to liability under any Environmental Law, nor have the Borrower or the Subsidiaries retained or assumed any liability, contractually, by operation of law or otherwise, with respect to the generation, treatment, storage or disposal of Hazardous Materials, which transportation, generation, treatment, storage or disposal, or retained or assumed liabilities, in the aggregate, could result in a Material Adverse Effect. SECTION 3.18. Insurance. Schedule 3.18 sets forth a true, complete and correct description of all insurance maintained by the Borrower or by the Borrower for its Subsidiaries as of the date hereof and the Closing Date. As of each such date, such insurance is in full force and effect and all premiums have been duly paid. The Borrower and its Subsidiaries have insurance in such amounts and covering such risks and liabilities as are in accordance with normal industry practice. SECTION 3.19. Pledge Agreements. Each of the Pledge Agreements is effective to create in favor of the Collateral Agent, for the ratable benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral (as defined in such Pledge Agreement) and, when the Collateral is delivered to the Collateral Agent, the Pledge Agreement shall constitute a fully perfected first priority Lien on, and security interest in, all right, title and interest of the pledgor thereunder in such Collateral, in each case prior and superior in right to any other person. SECTION 3.20. Labor Matters. As of the date hereof and the Closing Date, there are no strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending or, to the knowledge of the Borrower, threatened. The hours worked by and payments made to employees of the Borrower and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters, except to the extent such violations could not reasonably be expected to result in a Material Adverse Effect. All payments due from the Borrower or any Subsidiary, or for which any claim may be made against the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or such Subsidiary, except to the extent the failure to pay or accrue such liabilities could not reasonably be expected to result in a Material Adverse Effect. The consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any Subsidiary is bound. SECTION 3.21. Solvency. (a) Immediately prior to and after the consummation of the Transactions to occur on the Closing Date, (i) the fair market value of the assets of the Borrower and its Subsidiaries on a consolidated basis will exceed their debts and liabilities, subordinated, contingent or otherwise; (ii) the present fair saleable value of the assets of the Borrower and its Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay the probable liability on their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Borrower and its Subsidiaries on a consolidated basis will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Borrower and its Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the business in which they are engaged as such business is now conducted and is proposed to be conducted following the Closing Date. SECTION 3.22. Existing Facility Agreement Representations. The representations and warranties of the Borrower and the Guarantor set forth in the Existing Facility Agreement, the Existing Facility Project Documents and the Existing Facility Security Documents were when made and remain at and as of the present, true and correct, except to the extent such representations and warranties expressly relate to an earlier date. ARTICLE IV. CONDITIONS PRECEDENT TO LENDING The obligations of the Lenders to make Loans hereunder are subject to the satisfaction of the following conditions: SECTION 4.1. All Borrowings. On the date of each Borrowing, including each Borrowing in which Loans are refinanced with new Loans as contemplated by Section 2.2(f) (each such event being called a "Credit Event"): (a) The Administrative Agent shall have received a notice of such Borrowing as required by Section 2.3 (or such notice shall have been deemed given in accordance with Section 2.3). (b) The representations and warranties set forth in Article III hereof shall be true and correct in all material respects on and as of the date of such Borrowing with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. (c) The Borrower and each other Loan Party shall be in compliance with all the terms and provisions set forth herein, in each other Loan Document, in the Existing Facility Agreement, in each Existing Facility Project Document and in each Existing Facility Security Document on its part to be observed or performed, and at the time of and immediately after such Borrowing, no Event of Default or Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date of such Borrowing as to the matters specified in paragraphs (b) and (c) of this Section 4.1. SECTION 4.2. First Borrowing. On the Closing Date: (a) The Administrative Agent shall have received, on behalf of itself and the Lenders, a written opinion of (i) Haynes and Boone, L.L.P., counsel for the Borrower and the Guarantor, substantially to the effect set forth in Exhibit G-1; (ii) Michael Blanchard, General Counsel of the Borrower and the Guarantor, substantially to the effect set forth in Exhibit G-1-A; (iii) Snell, Banowsky & Trent, Texas counsel to the Administrative Agent and the Lenders, substantially to the effect set forth in Exhibit G-2 and (iv) Rubin, Katz, Salazar, Alley & Rouse, New Mexico regulatory counsel for the Borrower and the Guarantor, substantially in the form of Exhibit G-3, in each case (A) dated the Closing Date, (B) addressed to the Administrative Agent and the Lenders, and (C) covering such other matters as the Administrative Agent shall reasonably request, and the Borrower hereby requests such counsel to deliver such opinions. (b) All legal matters incident to the Transactions shall be satisfactory to the Lenders and their counsel, to the Administrative Agent and to Cravath, Swaine & Moore, counsel for the Administrative Agent. (c) The Administrative Agent shall have received (i) a copy of the certificate or articles of incorporation, including all amendments thereto, of each Loan Party, certified as of a recent date by the Secretary of State of the state of its organization, and a certificate as to the good standing of each Loan Party as of a recent date from such Secretary of State and, in the case of the Borrower, from the Secretary of State of the State of New Mexico; (ii) a certificate of the Secretary or an Assistant Secretary of each Loan Party dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of such Loan Party as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Loan Party authorizing the execution, delivery and performance of the Loan Documents to which such Loan Party is a party and the Transactions and, in the case of the Borrower, the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate or articles of incorporation of such Loan Party have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party; (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to (ii) above; and (iv) such other documents as the Lenders or their counsel, the Administrative Agent or Cravath, Swaine & Moore, counsel for the Administrative Agent, may reasonably request. (d) The Administrative Agent shall have received a certificate, dated the Closing Date and signed by a Financial Officer of the Borrower, confirming compliance with the conditions precedent set forth in paragraphs (b) and (c) of Section 4.1. (e) The Administrative Agent shall have received all Commitment Fees and other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder or under any other Loan Document. (f) The Assignment Agreement shall have been duly executed and delivered by each of the parties thereto and shall have become effective in accordance with its terms, and the amendments to the Existing Facility Agreement and the transfer to the Collateral Agent of rights to the Existing Facility Collateral provided for therein shall have become effective. (g) The Bonds shall have been validly issued in compliance with the TNP Bond Indenture pursuant to the Supplemental Bond Indenture and registered in the name of Chemical Bank, as Collateral Agent. The Bonds (i) shall bear interest at 0% per annum unless an Event of Default shall have occurred and be continuing or shall have resulted in an exercise of remedies pursuant to Article VII, in which case they shall bear interest at Chemical Bank's prime rate plus 2% per annum, (ii) shall be nonredeemable, (iii) shall mature no earlier than the Maturity Date, (iv) shall become immediately due and payable upon any acceleration of the maturity of the Loans pursuant to Article VII, (v) shall have been authenticated and acknowledged to be "outstanding" under the TNP Bond Indenture by the trustee thereunder and (vi) shall otherwise have terms satisfactory to the Lenders and the Administrative Agent. (h) Immediately prior to the initial borrowing hereunder not less than $147,750,000 aggregate principal amount of loans shall be outstanding and held by the Existing Facility Banks under the Existing Facility. TGC II shall have transferred to the Borrower in partial satisfaction of intercompany indebtedness owed by it to the Borrower proceeds of borrowings under the Existing Facility Agreement which, together with the proceeds of the initial borrowing hereunder, are sufficient in amount to provide the funds required for the purchase by TNP from the Existing Facility Banks of the loans under the Existing Facility Agreement. The Pledged Notes, evidencing the full amount of the loans outstanding under the Existing Facility, shall have been or shall simultaneously with the initial borrowing hereunder be purchased by the Borrower pursuant to the Assignment Agreement with the proceeds of the initial borrowing hereunder and of the advance referred to in the preceding sentence and shall have been or shall simultaneously be delivered to the Borrower accompanied by duly executed instruments of transfer meeting the requirements of the Existing Facility Agreement and satisfactory to the Collateral Agent. (i) Each of the Bond Agreement and the Note Pledge Agreement shall have been duly executed by the parties thereto and delivered to the Collateral Agent and shall be in full force and effect, and all the Bonds and the Pledged Notes shall have been duly and validly pledged thereunder to the Collateral Agent for the ratable benefit of the Lenders and the Bonds and the Pledged Notes, accompanied by duly executed, undated instruments of transfer satisfactory to the Collateral Agent, shall be in the actual possession of the Collateral Agent. The TNP Security Agreement (as defined in the Existing Facility Agreement) shall have been amended pursuant to Amendment No. 1 to the TNP Security Agreement substantially in the form of Exhibit O in order to provide for a pledge by the Borrower of its rights under the Operating Agreement (as defined in the Existing Facility Agreement) to Chemical Bank, for the benefit of the Secured Parties (as defined in the Existing Facility Agreement). (j) The TGC II Guarantee and Pledge Agreement shall have been duly executed by the Guarantor and delivered to the Collateral Agent and shall be in full force and effect, and any promissory notes evidencing intercompany indebtedness shall have been duly and validly pledged thereunder to the Collateral Agent for the ratable benefit of the Lenders and shall have been delivered to and shall be in the actual possession of the Collateral Agent, together with duly executed, undated instruments of transfer satisfactory to the Collateral Agent. (k) The Administrative Agent shall have received on behalf of the Lenders a satisfactory certificate dated the Closing Date from the Borrower as to the solvency of the Borrower and its Subsidiaries on a consolidated basis after giving effect to the transactions contemplated hereby and by the Assignment Agreement. (l) The Existing Facility Project Documents and the Existing Facility Security Documents shall be in full force and effect on the Closing Date. The Existing Facility Collateral Agent, on behalf of the holders from time to time of the Pledged Notes and the Replacement Note Holder, shall have a security interest in the Existing Facility Collateral of the type and priority described in each Existing Facility Security Document, perfected to the extent contemplated by Section 2.05 or 2.18, as the case may be, of the Existing Facility Agreement. (m) The Administrative Agent shall have received, on behalf of the Lenders, duly executed copies of (i) this Agreement; (ii) the TNP Second Lien Mortgage Modification No. 3 substantially in the form of Exhibit I; (iii) the Sixth TGC II Mortgage Modification and Extension Agreement substantially in the form of Exhibit H; (iv) the Assignment of TGC II Lien substantially in the form of Exhibit K; (v) the Collateral Transfer of Notes, Rights and Interests substantially in the form of Exhibit L; (vi) the Assignment of TNP Second Mortgage Lien substantially in the form of Exhibit M and (vii) the Collateral Transfer of Notes, Rights and Interests substantially in the form of Exhibit N, each executed by each Person which is or is intended to be a party thereto. (n) The Administrative Agent shall have received, on behalf of the Lenders, (i) duly executed Financing Statements under the Uniform Commercial Code as are necessary or advisable in the judgement of the Collateral Agent to protect, preserve and maintain the priority of liens contemplated by the Existing Facility Security Documents in favor of the Collateral Agent, on behalf of the holders from time to time of the Pledged Notes and the Replacement Note Holder, (ii) Uniform Commercial Code search reports together with copies of the financing statements (or similar documents) disclosed by such search reports with respect to each of the Guarantor and the Borrower, as "debtor", confirming the absence of any Liens that are not permitted by this Agreement or the Existing Facility Agreement and (iii) all other instruments to be recorded or filed or delivered in connection with the purchases by the Borrower of the Pledged Notes on the Closing Date. (o) No Default or Event of Default under the Existing Facility Documents shall have occurred and be continuing or would occur upon the effectiveness hereof. (p) The Transactions, the continuance of the Liens created by the Existing Facility Security Documents in favor of the Collateral Agent on behalf of the holders from time to time of the Pledged Notes and the Replacement Note Holder, the pledge of the Bonds and the Additional Bonds pursuant to the Bond Agreement and the pledge of the Pledged Notes pursuant to the Note Pledge Agreement shall have been approved or exempted by all Governmental Authorities to the extent required under applicable law, and all such approvals or exemptions, including any conditions imposed thereby, shall be satisfactory in all respects to the Lenders. No action shall have been taken by any Governmental Authority which restrains or prevents or seeks to restrain or prevent, or imposes or seeks to impose materially adverse conditions upon, any of the Transactions. (q) Except as set forth in Schedule 3.9, no action, suit, investigation, litigation or other proceeding at law or in equity or by or before any court or other Governmental Authority shall exist or, in the case of litigation by a Governmental Authority, be threatened, with respect to any of the Transactions which would in the reasonable opinion of the Lenders be likely to restrain, prevent or impose burdensome conditions to any of the Transactions, or to result in a Material Adverse Effect. (r) All aspects of the structure and documentation of the Transactions and all corporate and other proceedings taken or to be taken in connection therewith and all documents incidental thereto, in each case to the extent not otherwise provided for herein, shall be reasonably satisfactory in form and substance to the Lenders and their counsel, to the Administrative Agent and to Cravath, Swaine & Moore, counsel for the Administrative Agent, and the Lenders shall have received copies of all such documents as the Lenders may reasonably request. (s) At the sole cost of the Borrower and the Guarantor, Stewart Title Guaranty Company (the "Original Title Company") shall have issued to the Administrative Agent (i) a T-3 Endorsement in accordance with Procedural Rule P-9b(2) to that certain Mortgagee Policy of Title Insurance No. M-5842-12343 dated September 29, 1993 (the "Original Mortgagee Policy") naming the Administrative Agent as the Insured and changing the effective date of the Original Mortgagee Policy to the date of said Endorsement and containing such other information reasonably requested by the Administrative Agent and (ii) a T-38 Endorsement in accordance with the provisions of Procedural Rule P-9b(3) stating that the Original Title Company will not claim that policy coverage has terminated or been reduced by reason of the execution of this Agreement or the Assignment Agreement and containing such other provisions reasonably requested by the Administrative Agent. In addition, the Guarantor, at the sole cost of the Guarantor and the Borrower, shall deliver to the Administrative Agent a title information report showing that (A) good and indefeasible title to the TGC II Mortgage Trust Estate is vested in the Guarantor, (B) the TGC II Mortgage constitutes a valid first mortgage lien on the TGC II Mortgage Trust Estate and (C) there are no intervening liens or other encumbrances which would adversely affect the priority of the liens securing the Loans or the TGC II Mortgage Trust Estate other than Permitted Liens. (t) The Collateral Agent shall have received evidence of the effectiveness of the insurance required to be maintained pursuant to Section 5.2 and the Existing Facility Documents. SECTION 4.3. Borrowings in Excess of $100,000,000. In addition to the conditions set forth in Section 4.1, the obligations of the Lenders to make Loans which, when aggregated with the principal amount of all other Loans then outstanding, would exceed $100,000,000 shall be subject to the satisfaction of the following conditions precedent: (a) The Borrower shall have issued or shall simultaneously issue to the Collateral Agent, for the benefit of the Lenders, pursuant to and in accordance with the Bond Agreement, an additional principal amount of its nonredeemable First Mortgage Bonds in the same form as, and with the same terms (including a maturity date no earlier than the Maturity Date) as, the Bonds (such additional First Mortgage Bonds being herein called the "Additional Bonds") such that the Bond Total is equal to or greater than the aggregate principal amount of Loans that would be outstanding after giving effect to such Borrowing, minus $70,000,000. (b) The Additional Bonds shall have been validly issued in compliance with the TNP Bond Indenture and registered in the name of Chemical Bank, as Collateral Agent for the Lenders, and the Collateral Agent shall have received, on behalf of the Lenders, (i) an opinion of counsel reasonably satisfactory to the Collateral Agent with respect to the issuance and pledge of such Additional Bonds, in form and substance comparable to the opinions delivered on the Closing Date with respect to the issuance and pledge of the Bonds, and (ii) the Additional Bonds; provided, that, any Borrowings in excess of $100,000,000 (and the Additional Bonds pledged pursuant to this Section 4.3) shall be in an aggregate principal amount that is an integral multiple of $1,000,000 and not less than $5,000,000. ARTICLE V. AFFIRMATIVE COVENANTS The Borrower covenants and agrees with each Lender that so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Commitment Fees and all other expenses or amounts payable under any Loan Document shall have been paid in full, unless the Required Lenders shall otherwise consent in writing, the Borrower will, and will cause each of the Subsidiaries to: SECTION 5.1. Existence; Businesses and Properties. (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.5. (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; maintain and operate such business in substantially the manner in which it is presently conducted and operated; comply in all material respects with all applicable laws, rules, regulations and decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted; and at all times maintain and preserve all property material to the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times. SECTION 5.2. Insurance. Keep its insurable properties adequately insured at all times by financially sound and reputable insurers; maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; and maintain such other insurance as may be required by law or by Section 9.17 of the Existing Facility Agreement. SECTION 5.3. Obligations and Taxes. Pay its Indebtedness and other obligations promptly and in accordance with their terms and pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise that, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim set forth in Schedule 3.9 or so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Borrower shall have set aside on its books adequate reserves with respect thereto in accordance with GAAP and such contest operates to suspend collection of the contested obligation, tax, assessment or charge and enforcement of a Lien. SECTION 5.4. Financial Statements, Reports, etc. In the case of the Borrower, the Guarantor and TGC, furnish to the Administrative Agent and each Lender: (a) within 100 days after the end of each fiscal year, a balance sheet and related statements of operations, stockholders' equity and cash flows showing the financial condition of (i) the Borrower and its Subsidiaries on a consolidated basis, (ii) the Guarantor and (iii) TGC, each as of the close of such fiscal year and the results of their respective operations during such year, all audited by KPMG Peat Marwick LLP or other independent public accountants of recognized national standing acceptable to the Administrative Agent and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such financial statements fairly present the financial condition and results of operations of (i) the Borrower and its Subsidiaries on a consolidated basis, (ii) the Guarantor and (iii) TGC, each in accordance with GAAP; (b) within 50 days after the end of each of the first three fiscal quarters of each fiscal year, a balance sheet and related statements of operations, stockholders' equity and cash flows showing the financial condition of (i) the Borrower and its Subsidiaries on a consolidated basis, (ii) the Guarantor and (iii) TGC, each as of the close of such fiscal quarter and the results of their respective operations during such fiscal quarter and the then elapsed portion of the fiscal year, all certified by one of its Financial Officers as fairly presenting the financial condition and results of operations of (i) the Borrower and its Subsidiaries on a consolidated basis, (ii) the Guarantor and (iii) TGC, each in accordance with GAAP, subject to normal year-end audit adjustments; (c) concurrently with any delivery of financial statements under paragraph (a) or (b) above, a certificate of a Financial Officer, and, in the case of any delivery under paragraph (a) above, the accounting firm opining on such statements (which certificate, when furnished by an accounting firm, may be limited to accounting matters and disclaim responsibility for legal interpretations) (i) certifying that in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, that an Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action which the Borrower has taken or proposed to take with respect thereto and (ii) setting forth computations in reasonable detail satisfactory to the Administrative Agent demonstrating compliance with the covenants contained in Sections 6.11 and 6.12; (d) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed to its shareholders, as the case may be; and (e) promptly, from time to time, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request. SECTION 5.5. Litigation and Other Notices. Furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto; (b) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, against the Borrower or any Affiliate thereof that could reasonably be expected to result in a Material Adverse Effect; (c) any change in the ratings by S&P or Moody's of the Index Debt; and (d) any development that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect. SECTION 5.6. Employee Benefits. (a) Comply in all material respects with the applicable provisions of ERISA and the Code and (b) furnish to the Administrative Agent as soon as possible after, and in any event within 10 days after any Responsible Officer of the Borrower or any ERISA Affiliate knows or has reason to know that, any ERISA Event has occurred that, alone or together with any other ERISA Event could reasonably be expected to result in liability of the Borrower in an aggregate amount exceeding $20,000,000 or requiring payments exceeding $5,000,000 in any year, a statement of a Financial Officer of the Borrower setting forth details as to such ERISA Event and the action, if any, that the Borrower proposes to take with respect thereto. SECTION 5.7. Maintaining Records; Access to Properties and Inspections. Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law are made of all dealings and transactions in relation to its business and activities. Each Loan Party will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender to visit and inspect the financial records and the properties of the Borrower or any Subsidiary at reasonable times and as often as reasonably requested and to make extracts from and copies of such financial records, and permit any representatives designated by the Administrative Agent or any Lender to discuss the affairs, finances and condition of the Borrower or any Subsidiary with the officers thereof and independent accountants therefor. SECTION 5.8. Use of Proceeds. Use the proceeds of the Loans only for the purposes set forth in the preamble to this Agreement. SECTION 5.9. Compliance with Laws and Environmental Laws. Comply, and cause all lessees and other persons occupying its Properties to comply, in all material respects with all laws, rules, regulations and orders, and with all Environmental Laws and Environmental Permits applicable to its operations and Properties, except in each case to the extent that failure to so comply could not reasonably be expected to result in a Material Adverse Effect; obtain and renew all material Environmental Permits necessary for its operations and Properties; and conduct any Remedial Action in accordance with Environmental Laws; provided, however, that neither the Borrower nor any of the Subsidiaries shall be required to undertake any Remedial Action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves in accordance with GAAP are being maintained with respect to such circumstances. SECTION 5.10. Preparation of Environmental Reports. If a Default caused by reason of a breach of Section 3.17 or 5.9 shall have occurred and be continuing, at the request of the Required Lenders through the Administrative Agent, provide to the Lenders within 60 days after such request, at the expense of the Borrower, an environmental site assessment report for the Properties which are the subject of such default prepared by an environmental consulting firm acceptable to the Administrative Agent and indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance or Remedial Action in connection with such Properties. SECTION 5.11. Further Assurances. Execute any and all further documents, financing statements, agreements and instruments, and take all further action (including filing Uniform Commercial Code and other financing statements) that may be required under applicable law, or that the Required Lenders, the Administrative Agent or the Collateral Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority of the security interests created or intended to be created by the Pledge Agreements and the Existing Facility Security Documents. The Borrower agrees to provide such evidence as the Collateral Agent shall reasonably request as to the perfection and priority status of each such security interest and Lien. Section 5.12. Maintenance; Ownership of the Guarantor Capital Stock. (a) Maintain and preserve the Project and all of its other properties necessary or useful in the proper conduct of its business, in good working order and condition, ordinary wear and tear excepted; and restore, replace or rebuild its property, or any part thereof now or hereafter damaged or destroyed by any casualty (whether or not insured against or insurable) except any such property that the Borrower determines in good faith not to be necessary to the conduct of its business. (b) In the case of the Borrower, own all of the issued and outstanding capital stock of the Guarantor free and clear of all Liens. Section 5.13. Performance and Continuation of Certain Documents. Perform and observe all of its covenants and agreements contained in the Existing Facility Agreement, any of the Existing Facility Project Documents and any of the Existing Facility Security Documents to which it or such Subsidiary is a party, take all reasonable and necessary action to prevent the termination of the Existing Facility Agreement, any such Project Document or any of the Existing Facility Security Documents in accordance with the terms thereof or otherwise, maintain the Facility Purchase Agreement in full force and effect in accordance with its terms on the date hereof, enforce each material covenant or obligation of the Existing Facility Agreement, such Project Document and such Existing Facility Security Document in accordance with its terms and take all such action to that end as from time to time may be reasonably requested by the Administrative Agent. ARTICLE VI. NEGATIVE COVENANTS The Borrower covenants and agrees with each Lender that, so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Commitment Fees and all other expenses or amounts payable under any Loan Document have been paid in full, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, and will not cause or permit any of the Subsidiaries to: SECTION 6.1. Indebtedness. Incur, create, assume or permit to exist any Indebtedness, except: (a) Indebtedness incurred hereunder or under any other Loan Document or under the Existing Facility Documents; (b) accounts payable owed by the Borrower to the Guarantor or TGC, to the extent incurred and paid in the ordinary course of business; (c) Secured Debentures; provided, however, that (i) the aggregate principal amount of Secured Debentures outstanding at any time shall not exceed $270,000,000 and (ii) no Secured Debentures shall be secured by a Lien on any asset other than the Replacement Note and replacement notes issued pursuant to the Unit 1 Credit Agreement, unless in either case, the Commitments are terminated and the Loans and other Obligations paid in full at the time any such Secured Debentures are issued; (d) First Mortgage Bonds; provided, however, that the aggregate principal amount of First Mortgage Bonds outstanding at any time (including any First Mortgage Bonds pledged pursuant to the Bond Pledge Agreement or any other agreement) shall not exceed the sum of (x) $360,000,000 and (y) the aggregate amount by which the Total Commitment has been reduced subsequent to the Closing Date; and provided further that the limitations of the foregoing proviso to this clause (d) shall not apply (i) so long as the Pledged Bond Total is equal to or greater than the Total Commitment or (ii) after the Release Conditions have been satisfied and the Release Date has occurred as provided in Section 9.17; (e) intercompany Indebtedness pledged to the Collateral Agent for the benefit of the Lenders on terms satisfactory to the Collateral Agent and intercompany Indebtedness owed to the Borrower by TNP Enterprises or TGC on the Closing Date and listed on Schedule 6.1; (f) Indebtedness in respect of interest rate swaps or other interest hedging agreements to the extent such swaps or agreements are used to hedge interest rate risk in respect of outstanding floating rate Indebtedness and not for speculative purposes; (g) Indebtedness of TGC under the Unit 1 Credit Agreement; (h) customer advances and security deposits in the ordinary course of business; and (i) additional Indebtedness not exceeding $2,000,000 in aggregate principal amount outstanding at any time with local banking institutions. SECTION 6.2. Liens. Create, incur, assume or permit to exist any Lien on any property or assets (including capital stock or other securities of any Subsidiary or other person) now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except: (a) Liens on property or assets of the Borrower and its Subsidiaries existing on the date hereof and set forth in Schedule 6.2; provided that such Liens shall secure only those obligations which they secure on the date hereof; (b) any Lien created under the Loan Documents, the Existing Facility Agreement or the Existing Facility Security Documents; (c) Liens arising under any trust indenture pursuant to which the Borrower issues First Mortgage Bonds; (d) Liens arising under the Secured Debenture Indentures (and refinancings thereof); (e) Liens expressly permitted under the Existing Facility Agreement; (f) in the case of TGC, Liens expressly permitted under the Unit 1 Credit Agreement; and (g) sales of accounts receivable consistent with the Borrower's past practices. SECTION 6.3. Sale and Lease-Back Transactions. Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred. SECTION 6.4. Investments, Loans and Advances. Purchase, hold or acquire any capital stock, evidences of indebtedness or other securities of, make or permit to exist any loans or advances to, or make or permit to exist any investment or any other interest in, any other person, except: (a) investments by the Borrower existing on the date hereof in the capital stock of the Subsidiaries or resulting from acquisitions made in accordance with Section 6.5; (b) intercompany Indebtedness permitted under Section 6.1(e); (c) investments accepted by the Borrower or any Subsidiary in the ordinary course of business from customers in satisfaction of indebtedness of such customers. (d) Permitted Investments; (e) investments, loans and advances that shall not exceed $1,000,000 in the aggregate outstanding at any time made in the ordinary course of business; and (f) key personnel life insurance the proceeds of which are intended to fund the excess benefit plan. SECTION 6.5. Mergers, Consolidations, Sales of Assets and Acquisitions. (a) Merge into or consolidate with any other person, or permit any other person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets (whether now owned or hereafter acquired) or any capital stock of any Subsidiary, or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or any substantial part of the assets of any other person, except that (i) the Borrower and any Subsidiary may purchase and sell inventory in the ordinary course of business, (ii) the Borrower and any Subsidiary may permit any assets to be taken for any public or quasi-public use under any governmental law, ordinance or regulation or by right of eminent domain and to be sold under threat of condemnation; (iii) the Borrower may sell accounts receivable consistent with its past practices; (iv) acquisitions (in one transaction or a series of transactions) of assets or capital stock of another person not to exceed $25,000,000 in the aggregate; and (v) if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing (A) any wholly owned Subsidiary (other than TGC and TGC II) may merge into the Borrower in a transaction in which the Borrower is the surviving corporation and (B) any wholly owned Subsidiary (other than TGC and TGC II) may merge into or consolidate with any other wholly owned Subsidiary in a transaction in which the surviving entity is a wholly owned Subsidiary and no person other than the Borrower or a wholly owned Subsidiary receives any consideration (C) the Borrower or any Subsidiary may sell assets which when taken together with any assets sold by the Borrower or any of its Subsidiaries during the same period have an aggregate book value not exceeding (x) $10,000,000 in any consecutive twelve month period and (y) $25,000,000 during the period commencing on the Closing Date and ending upon the termination of the Commitments and payment in full of all outstanding Loans; provided, however, that, to the extent that the proceeds of any asset sale made in reliance upon clause (a)(ii) or clause (a)(v)(C) are not used to reduce or redeem First Mortgage Bonds within 40 days after such asset sale, the Borrower shall be required to reduce the Commitments pursuant to Section 2.9 by an amount equal to the proceeds that are not so used, and shall effect such reduction immediately upon the expiration of such period; provided, that the foregoing limitation with respect to proceeds of asset sales made in reliance upon such clauses shall not apply to the first $500,000 of proceeds received during any consecutive twelve month period; provided, further that in no event shall the immediately preceding exclusion apply to more than $1,000,000 of proceeds during the period commencing on the Closing Date and ending upon the termination of the Commitments and payment in full of all outstanding Loans. (b) In the case of TGC II, purchase or acquire any assets other than (i) assets reasonably required for the maintenance or operation of the Project, and (ii) supplies purchased in the ordinary course of business. SECTION 6.6. Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends. (a) Declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any shares of its capital stock or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any Subsidiary to purchase or acquire) any shares of any class of its capital stock or set aside any amount for any such purpose; provided, however, that (i) any Subsidiary may declare and pay dividends or make other distributions to the Borrower, (ii) the Borrower may declare and pay cash dividends on its common stock to its shareholder if (A) no Event of Default shall have occurred and be continuing (or would result therefrom) and (B) such declaration or payment would not cause the sum of all Dividends declared or paid on common stock by the Borrower during the most recently ended twenty-four month period (or shorter period, as the case may be) commencing not earlier than September 30, 1995 and ending on the Quarterly Date next preceding the date of any proposed declaration or payment to exceed Cumulative Net Income Available For Common Dividends for such period, (iii) the Borrower may declare and pay cash dividends on its preferred stock if (A) no Event of Default specified in paragraph (b), (c) or (d) of Article VII (if, in the case of paragraph (d), such Event of Default relates to a default in Sections 6.11 or 6. 12) shall have occurred and be continuing (or would result therefrom) and (B) if any other Event of Default shall have occurred and be continuing (or would result therefrom), the Borrower shall have requested in writing permission to continue declaring and paying such dividends and the Required Lenders shall have delivered to the Borrower such authorization and (iv) the Borrower may redeem its preferred stock (A) pursuant to mandatory redemption requirements in effect on the date hereof or (B) with the proceeds of newly issued preferred stock which will not be redeemable mandatorily or at the option of any holder thereof (other than in the event of a Change of Control) prior to the Maturity Date. (b) Permit any Subsidiary, directly or indirectly, to create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such subsidiary to (i) pay any dividends or make any other distributions on its capital stock or any other interest or (ii) make or repay any loans or advances to the Borrower or the parent of such Subsidiary except encumbrances and restrictions existing on the date hereof under this Agreement, the Existing Facility Agreement and the Unit 1 Credit Agreement. SECTION 6.7. Transactions with Affiliates. Sell or transfer any property or assets to, or purchase or acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except that the Borrower or any Subsidiary may engage in any of the foregoing transactions in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties; provided that this Section 6.7 shall not apply to (i) any transactions expressly permitted or contemplated by the Existing Facility Project Documents or the Unit 1 Credit Agreement and the project documents described therein, (ii) the creation of subsidiaries and the entry into transactions for the purpose of financing Capital Expenditures with respect to Unit 1, (iii) the sale of power to Affiliates and (iv) the payment of Dividends to TNP Enterprises as permitted by this Agreement. SECTION 6.8. Business of Borrower and Subsidiaries. Engage at any time in any business or business activity other than the business currently conducted by it and business activities reasonably incidental thereto. SECTION 6.9. Additional Generating Facilities. Create, acquire or construct any additional generating facilities or generating assets (pursuant to the exercising of its rights under the Construction Contract or otherwise). SECTION 6.10. Amendment or Modification of Certain Agreements; Pledged Notes. (a) Enter into, consent to or permit any amendment, modification, supplement or waiver of a Secured Debenture Indenture or the Replacement Note which shall (1) shorten the stated maturity of the principal of, or any installment of interest on, any Secured Debenture then outstanding or the Replacement Note, or increase the principal amount thereof or the rate of interest thereon, (2) grant any additional collateral security for any Secured Debenture or the Replacement Note or (3) have the effect of impairing in any material respect, directly or indirectly, the rights or interests of the Lenders in the Existing Facility Collateral or the Collateral under this Agreement, or make or permit any payment or prepayment of the principal of the Replacement Note; provided, that nothing in this Section 6.10 shall prohibit (i) the pledge of the Replacement Note under the First Secured Debenture Indenture as in effect on the Closing Date and (ii) securing Subsequent Secured Debentures with the Replacement Note in accordance with Section 2.19 under Subsequent Secured Debenture Indentures. (b) Enter into, consent to or permit any amendment, modification, supplement or waiver of the Existing Facility Agreement or any of the Existing Facility Project Documents or the Existing Facility Security Documents or the Pledged Notes, or make or permit any payment or prepayment of the principal of the Pledged Notes or any prepayment of interest due or to become due thereon. SECTION 6.11. Interest Coverage Ratio. Permit the ratio of (i) Consolidated EBIT to (ii) Consolidated Interest Expense for any period of four consecutive fiscal quarters ending on any Quarterly Date during any period set forth below to be less than the ratio set forth opposite such period:
Period Ratio ------ ----- Closing Date through June 30, 1996 1.20 July 1, 1996 through June 30, 1997 1.30 July 1, 1997 through June 30, 1998 1.30 Thereafter 1.50
SECTION 6.12. Debt to Capitalization Ratio. Permit the ratio of (i) Consolidated Total Indebtedness to (ii) Total Capitalization (the "Debt to Capitalization Ratio") at any time during any period set forth below to exceed the ratio set forth opposite such period:
Period Ratio ------ ----- Closing Date through June 30, 1996 0.77 July 1, 1996 through June 30, 1997 0.75 July 1, 1997 through June 30, 1998 0.72 July 1, 1998 through June 30, 1999 0.68 Thereafter 0.65
SECTION 6.13. Capital Expenditures. Make Capital Expenditures in excess of $40,000,000 during any fiscal year; provided, that any amount of such $40,000,000 not used in any fiscal year may be carried over into and used in the next fiscal year but not any subsequent fiscal year (it being understood that for purposes of computing the amount permitted to be carried over, the $40,000,000 applicable to each fiscal year shall be deemed to be used prior to the use of any applicable carryover). ARTICLE VII. EVENTS OF DEFAULT In case of the happening of any of the following events ("Events of Default"): (a) any representation or warranty made or deemed made in or in connection with any Loan Document or Existing Facility Document or the borrowings hereunder or thereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to any Loan Document or Existing Facility Document, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished; (b) default shall be made in the payment of any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise; (c) default shall be made in the payment of any interest on any Loan or any Commitment Fee or any other amount (other than an amount referred to in (b) above) due under any Loan Document or Existing Facility Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of five days; (d) default shall be made in the due observance or performance by the Borrower or any Subsidiary of any covenant, condition or agreement contained in Section 5.1(a), 5.8, 5.12(b) or 5.13 or in Article VI; (e) default shall be made in the due observance or performance by the Borrower or any Subsidiary of any covenant, condition or agreement contained in Section 5.5 and such default shall continue unremedied for a period of 10 days; (f) default shall be made in the due observance or performance by the Borrower or any Subsidiary of any covenant, condition or agreement contained in any Loan Document (other than those specified in (b), (c) or (d) above) and such default shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent or any Lender to the Borrower; (g) default shall be made in the due observance or performance by the Borrower or any Subsidiary of any covenant, condition or agreement contained in any Existing Facility Document after giving effect to any applicable cure periods thereunder; (h) the Borrower or any Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $5,000,000 in the case of the Borrower, and $100,000, in the case of any Subsidiary, when and as the same shall become due and payable, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity; (i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Borrower or any Subsidiary, or of a substantial part of the property or assets of the Borrower or a Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of the property or assets of the Borrower or a Subsidiary or (iii) the winding-up or liquidation of the Borrower or any Subsidiary; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (j) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal, state or foreign bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in (h) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of the property or assets of the Borrower or any Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing; (k) one or more judgments for the payment of money in an aggregate amount in excess of $7,500,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any Subsidiary to enforce any such judgment; (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other such ERISA Events, could reasonably be expected to result in liability of the Borrower and its ERISA Affiliates in an aggregate amount exceeding $20,000,000 or requires payments exceeding $5,000,000 in any year; or (m) any security interest purported to be created by any Pledge Agreement, any Existing Facility Security Document or the TNP Bond Indenture shall cease to be, or shall be asserted by the Borrower or any other Loan Party not to be, a valid, perfected, first priority (except as otherwise expressly provided in this Agreement, such Pledged Agreement, such Existing Facility Security Document or the TNP Bond Indenture) security interest in the securities, assets or properties covered thereby, except to the extent that any such loss of perfection or priority results from the failure of the Collateral Agent to maintain possession of certificates representing securities pledged under either Pledge Agreement; then, and in every such event (other than an event with respect to the Borrower described in paragraph (i) or (j) above), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding; and in any event with respect to the Borrower described in paragraph (i) or (j) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in any other Loan Document to the contrary notwithstanding. Notwithstanding the foregoing, a Default (as defined in the Existing Facility Agreement) under Sections 10.01, 10.02, 10.08, 10.14, 10.17, 10.21 and 10.22 or paragraphs (g), (i) or (l) of Section 11 of the Existing Facility Agreement will not be deemed to be an Event of Default hereunder if the events or circumstances constituting such Default would not, but for such provisions of the Existing Facility Agreement, constitute or result in an Event of Default under Section 6.5, 6.6, 6.1, 6.5, 6.13, 6.6, 6.11 or 6.12 or paragraph (k), (h) or (l) of Article VII of this Agreement, respectively; it being agreed, however, that if the events and circumstances constituting such a Default shall result in a violation of any provisions of any Loan Document other than those enumerated above in this sentence, nothing in this sentence shall prevent the occurrence of an Event of Default hereunder by reason of such violation. ARTICLE VIII. THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT In order to expedite the transactions contemplated by this Agreement, Chemical Bank is hereby appointed to act as Administrative Agent and Collateral Agent on behalf of the Lenders (for purposes of this Article VIII, the Administrative Agent and the Collateral Agent are referred to collectively as the "Agents"). Each of the Lenders and each assignee of any such Lender hereby irrevocably authorizes the Agents to take such actions on behalf of such Lender or assignee and to exercise such powers as are specifically delegated to the Agents by the terms and provisions hereof and of the other Loan Documents and Existing Facility Documents, together with such actions and powers as are reasonably incidental thereto. The Administrative Agent is hereby expressly authorized by the Lenders, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders all payments of principal of and interest on the Loans and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to the Borrower of any Event of Default specified in this Agreement of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Lender copies of all notices, financial statements and other materials delivered by the Borrower or any other Loan Party pursuant to this Agreement or the other Loan Documents as received by the Administrative Agent. Without limiting the generality of the foregoing, the Collateral Agent is hereby expressly authorized to execute any and all documents (including releases) with respect to the Collateral and the rights of the Secured Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement, the other Loan Documents and the Existing Facility Documents. None of the Agents, the Co-Agents or any of their respective directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them except for its or his own gross negligence or wilful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrower or any other Loan Party of any of the terms, conditions, covenants or agreements contained in any Loan Document or Existing Facility Document. None of the Agents or any Co-Agent shall be responsible to the Lenders for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or any other Loan Document or Existing Facility Document, or any related instrument or agreement. The Agents shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders. Each Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper person or persons. None of the Agents, the Co-Agents or any of their respective directors, officers, employees or agents shall have any responsibility to the Borrower or any other Loan Party on account of the failure of or delay in performance or breach by any Lender of any of its obligations hereunder or to any Lender on account of the failure of or delay in performance or breach by any other Lender or the Borrower or any other Loan Party of any of their respective obligations hereunder or under any other Loan Document or in connection herewith or therewith. Each of the Agents may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. The Lenders hereby acknowledge that neither Agent shall be under any duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Lenders. Subject to the appointment and acceptance of a successor Agent as provided below, either Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor which, unless a Default or Event of Default shall have occurred and be continuing, shall be reasonably satisfactory to the Borrower. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations hereunder. After the Agent's resignation hereunder, the provisions of this Article and Section 9.5 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. With respect to the Loans made by it hereunder, each Agent and Co-Agent in its individual capacity and not as Agent or Co-Agent, respectively, shall have the same rights and powers as any other Lender and may exercise the same as though it were not an Agent or Co-Agent, respectively, and the Agents, Co-Agents and their Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent or Co-Agent, respectively. Each Lender agrees (a) to reimburse the Agents and Co-Agents, on demand, in the amount of their pro rata share (based on its Commitment hereunder) of any expenses incurred for the benefit of the Lenders by the Agents or Co-Agents, as the case may be, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, that shall not have been reimbursed by the Borrower and (b) to indemnify and hold harmless each Agent, Co-Agent and any of their directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against it in its capacity as Agent or Co-Agent, as the case may be, or any of them in any way relating to or arising out of this Agreement or any other Loan Document or Existing Facility Document or any action taken or omitted by it or any of them under this Agreement or any other Loan Document or Existing Facility Document, to the extent the same shall not have been reimbursed by the Borrower or any other Loan Party, provided that no Lender shall be liable to an Agent, Co-Agent or any such other indemnified person for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements as shall be determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Agent, Co-Agent or any of their directors, officers, employees or agents. Each Lender acknowledges that it has, independently and without reliance upon the Agents, the Co-Agents or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents, the Co-Agents or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Loan Document, any related agreement or any document furnished hereunder or thereunder. ARTICLE IX. MISCELLANEOUS SECTION 9.1. Notices. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it at Texas-New Mexico Power Company, 4100 International Plaza, Fort Worth, TX 76109, Attention of Chief Financial Officer (Telecopy No. 817-737-1343); (b) if to the Administrative Agent, to Chemical Bank Agency Services Corporation, Grand Central Tower, 140 East 45th Street, New York, New York 10017, Attention of Janet Belden (Telecopy No. (212) 622-0122), with a copy to Chemical Bank, at 270 Park Avenue, New York 10017, Attention of Jaimin Patel (Telecopy No. 212-270-2555); and (c) if to a Lender, to it at its address (or telecopy number) set forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender shall have become a party hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.1 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.1. SECTION 9.2. Survival of Agreement. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Lenders and shall survive the making by the Lenders of the Loans, regardless of any investigation made by the Lenders or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Commitment Fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid and so long as the Commitments have not been terminated. The provisions of Sections 2.11, 2.13, 2.17 and 9.5 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document, or any investigation made by or on behalf of the Administrative Agent, the Collateral Agent or any Lender. SECTION 9.3. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns. SECTION 9.4. Successors and Assigns. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrower, the Administrative Agent or the Lenders that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. (b) Each Lender may assign to one or more assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided, however, that (i) except in the case of an assignment to a Lender or an Affiliate of such Lender, (x) the Borrower (except if an Event of Default shall have occurred and be continuing) and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld) and (y) the amount of the Commitment of the assigning Lender subject to each such assignment shall not be less than $5,000,000 (or, if less, the entire remaining amount of such Lender's Commitment), (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $5,000 and (iii) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this Section 9.4, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.11, 2.13, 2.17 and 9.5, as well as to any Commitment Fees accrued for its account and not yet paid). (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Commitment, and the outstanding balance of its Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or Existing Facility Document or any other instrument or document furnished pursuant hereto or thereto, or the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower or any Subsidiary of any of its obligations under this Agreement, any other Loan Document or Existing Facility Document or any other instrument or document furnished pursuant hereto or thereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to in Section 3.5 or delivered pursuant to Section 5.4 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon the Administrative Agent, the Collateral Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Administrative Agent and the Collateral Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent and the Collateral Agent, respectively, by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive and the Borrower, the Administrative Agent, the Collateral Agent and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Collateral Agent and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) above and, if required, the written consent of the Borrower and the Administrative Agent to such assignment, the Administrative Agent shall (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Lenders. No assignment shall be effective unless it has been recorded in the Register as provided in this paragraph (e). (f) Each Lender may without the consent of the Borrower or the Administrative Agent sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other entities shall be entitled to the benefit of the cost protection provisions contained in Sections 2.11, 2.13 and 2.17 to the same extent as if they were Lenders and (iv) the Borrower, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to the Loans and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loans, extending any scheduled principal payment date or date fixed for the payment of interest on the Loans, increasing or extending the Commitments or releasing all or substantially all the Collateral or the Existing Facility Collateral). (g) Any Lender or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.4, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure of information designated by the Borrower as confidential, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree (subject to customary exceptions) to preserve the confidentiality of such confidential information on terms no less restrictive than those applicable to the Lenders pursuant to Section 9.16. (h) Any Lender may at any time assign all or any portion of its rights under this Agreement to a Federal Reserve Bank to secure extensions of credit by such Federal Reserve Bank to such Lender; provided that no such assignment shall release a Lender from any of its obligations hereunder or substitute any such Bank for such Lender as a party hereto. In order to facilitate such an assignment to a Federal Reserve Bank, the Borrower shall, at the request of the assigning Lender, duly execute and deliver to the assigning Lender a promissory note or notes evidencing the Loans made to the Borrower by the assigning Lender hereunder. (i) The Borrower shall not assign or delegate any of its rights or duties hereunder without the prior written consent of the Administrative Agent and each Lender, and any attempted assignment without such consent shall be null and void. SECTION 9.5. Expenses; Indemnity. (a) The Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Administrative Agent and the Collateral Agent in connection with the syndication of the credit facilities provided for herein and the preparation and administration of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof or of the Existing Facility Documents (whether or not the transactions hereby or thereby contemplated shall be consummated) or incurred by the Administrative Agent, the Collateral Agent or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement, the other Loan Documents or the Existing Facility Documents or in connection with the Loans made issued hereunder, including the fees, charges and disbursements of counsel for the Administrative Agent and the Collateral Agent, and, in connection with any such enforcement or protection, the fees, charges and disbursements of any other counsel for the Administrative Agent, the Collateral Agent or any Lender. (b) The Borrower agrees to indemnify the Administrative Agent, the Collateral Agent and each Lender, each Affiliate of any of the foregoing persons and each of their respective directors, officers, employees and agents (each such person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any other Loan Document or Existing Facility Document or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby, (ii) the use of the proceeds of the Loans, (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, or (iv) any actual or alleged presence or release of Hazardous Materials on any property owned or operated by the Borrower or any of the Subsidiaries, or any Environmental Claim (including any claim under CERCLA, as defined in the definition of "Environmental Law") related in any way to the Borrower or the Subsidiaries; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) The provisions of this Section 9.5 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the expiration of the Commitments, the invalidity or unenforceability of any term or provision of this Agreement or any other Loan Document or Existing Facility Document, or any investigation made by or on behalf of the Administrative Agent, the Collateral Agent or any Lender. All amounts due under this Section 9.5 shall be payable on written demand therefor. SECTION 9.6. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, with the consent of the Administrative Agent or the Required Lenders, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement and other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or such other Loan Document and although such obligations may be unmatured. The rights of each Lender under this Section 9.6 are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.7. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 9.8. Waivers; Amendment. (a) No failure or delay of the Administrative Agent, the Collateral Agent or any Lender in exercising any power or right hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Collateral Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or Existing Facility Document or consent to any departure by the Borrower or any other Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. (b) None of this Agreement, or any other Loan Document, or any Existing Facility Document may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders (or, in the case of any Pledge Agreement or Existing Facility Document, an agreement or agreements in writing entered into by the Borrower or other Loan Party or person party thereto and the Collateral Agent, acting pursuant to the provisions of this Agreement or with the consent of the Required Lenders); provided, however, that no such agreement shall (i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan, without the prior written consent of each Lender affected thereby, (ii) change or extend the Commitment or decrease the Commitment Fees of any Lender without the prior written consent of such Lender, or (iii) amend or modify the provisions of Section 2.14 or 9.4(i), the provisions of this Section or the definition of the term "Required Lenders" or release the Guarantee of the Guarantor or all or any substantial part of the Collateral other than as provided herein, without the prior written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or the Collateral Agent hereunder or under any other Loan Document without the prior written consent of the Administrative Agent or the Collateral Agent, as the case may be. SECTION 9.9. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section 9.9 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 9.10. Entire Agreement. This Agreement, the Fee Letter and the other Loan Documents constitute the entire contract between the parties relative to the subject matter hereof. Any other previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement and the other Loan Documents. Nothing in this Agreement or in the other Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the other Loan Documents. SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11. SECTION 9.12. Severability. In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 9.13. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 9.3. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement. SECTION 9.14. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 9.15. Jurisdiction; Consent to Service of Process. (a) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents or Existing Facility Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, the Collateral Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents or Existing Facility Documents against the Borrower or its properties in the courts of any jurisdiction. (b) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents or Existing Facility Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.16. Confidentiality. The Administrative Agent, the Collateral Agent and each of the Lenders agrees to keep confidential (and to use its best efforts to cause its respective agents and representatives to keep confidential) the Information (as defined below) and all copies thereof, extracts therefrom and analyses or other materials based thereon, except that the Administrative Agent, the Collateral Agent or any Lender shall be permitted to disclose Information (a) to such of its respective officers, directors, employees, agents, affiliates and representatives as need to know such Information, (b) to the extent requested by any regulatory authority, (c) to the extent otherwise required by applicable laws and regulations or by any subpoena or similar legal process, (d) in connection with any suit, action or proceeding relating to the enforcement of its rights hereunder or under the other Loan Documents or (e) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 9.16 or (ii) becomes available to the Administrative Agent, any Lender or the Collateral Agent on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" shall mean all financial statements, certificates, reports, agreements and information (including all analyses, compilations and studies prepared by the Administrative Agent, the Collateral Agent or any Lender based on any of the foregoing) that are received from the Borrower and related to the Borrower, any shareholder of the Borrower or any employee, customer or supplier of the Borrower, other than any of the foregoing that were available to the Administrative Agent, the Collateral Agent or any Lender on a nonconfidential basis prior to its disclosure thereto by the Borrower, and which are in the case of Information provided after the date hereof, clearly identified at the time of delivery as confidential. The provisions of this Section 9.16 shall remain operative and in full force and effect regardless of the expiration and term of this Agreement. SECTION 9.17. Release of Collateral. (a) Notwithstanding any other provision of this Agreement, the Bond Pledge Agreement or the Note Pledge Agreement, the Pledged Bonds and the Pledged Notes and all other collateral held under the Pledge Agreements shall be released from the Liens created by the Pledge Agreements, in each case without representation, warranty or recourse of any nature, on a Business Day specified by the Borrower (the "Release Date"), upon the satisfaction of the following conditions precedent (the "Release Conditions"): (i) the Borrower shall have given written notice to the Lenders and the Collateral Agent at least 10 Business Days prior to the Release Date, specifying the proposed Release Date; (ii) as of the Release Date, the First Mortgage Bonds shall be rated "BBB-" or better by S&P and "Baa3" or better by Moody's, and shall have been so rated by each of S&P and Moody's for a period of not less than 30 consecutive days; (iii) no Default or Event of Default hereunder or under the Existing Facility Agreement shall have occurred and be continuing as of the Release Date; (iv) on the Release Date, the Administrative Agent shall have received a certificate, dated the Release Date and executed on behalf of each of the Borrower and the Guarantor by a Responsible officer thereof, confirming the satisfaction of the Release Conditions set forth in clauses (ii) and (iii) above; and (v) a successor Collateral Agent (which may be the Debenture Trustee for the Secured Debentures then outstanding, if any, or its designee) shall have been appointed with respect to the Existing Facility Collateral and the Existing Facility Common Collateral, and shall have accepted such appointment, under each Existing Facility Security Document that will continue in effect after the Release Date for the benefit of the holders from time to time of the Pledged Notes and the Replacement Note Holder, and Chemical Bank shall have been released and discharged, effective on the Release Date immediately following the release of collateral provided for herein, from any and all obligations and duties under the Existing Facility Security Documents on terms and pursuant to documentation satisfactory to Chemical Bank. (b) The releases of collateral provided for in this Section 9.17 shall not release or otherwise affect the Liens granted under the Existing Facility Security Documents, which shall continue in effect for the benefit of the holders from time to time of the Pledged Notes and the Replacement Note Holder to the extent contemplated by the Existing Facility Documents. (c) Subject to the satisfaction of the conditions set forth in paragraph (a) above, on and after the Release Date, the Collateral Agent shall deliver the Pledged Bonds and the Pledged Notes to the Borrower and shall execute and deliver to the Borrower all such instruments and documents as the Borrower may reasonably request to evidence or confirm the releases of collateral provided for in this Section 9.17. (d) Without limiting the provisions of Section 9.5, the Borrower and the Guarantor shall reimburse the Collateral Agent, the Administrative Agent and the Lenders upon demand for all costs and expenses, including attorneys' fees and disbursements, incurred by any of them in connection with any action contemplated by this Section 9.17. SECTION 9.18. Representations of the Lenders. In connection with the issuance of the Bonds and their deposit with the Collateral Agent as provided in the Bond Agreement, each Lender represents and warrants to the Borrower as follows: (a) Such Lender is acquiring its interest in the Bonds for its own account with a view to holding such interest on the terms set forth in the Bond Agreement and not with a view to or in connection with any distribution or resale thereof. Such Lender is familiar with the limitations imposed by the Bond Agreement and applicable Federal and state securities laws upon the transfer or other disposition of the Bonds. (b) Such Lender has had, during the course of the transactions contemplated hereby and prior to its acquisition of its interest in the Bonds, the opportunity to ask such questions of, and receive answers from, the Borrower and to obtain such additional information with respect to the Borrower and the Bonds as it has deemed necessary in connection with its decision to acquire its interest in the Bonds (it being understood that nothing herein shall limit or qualify the Borrower's representations under Section 3.15). IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. TEXAS-NEW MEXICO POWER COMPANY, by /s/ M. S. Cheema Name: M. S. Cheema Title: Vice President CHEMICAL BANK, individually and as Administrative Agent and Collateral Agent by /s/ Jane Ritchie Name: Jane Ritchie Title: Vice President THE FIRST NATIONAL BANK OF BOSTON, by /s/ Rita M. Cahill Name: Rita M. Cahill Title: Vice President THE BANK OF MONTREAL, by /s/ Julia B. Buthman Name: Julia B. Buthman Title: Director THE BANK OF NEW YORK, individually and as Co-Agent, by /s/ Ian K. Stewart Name: Ian K. Stewart Title: Senior Vice President CIBC, INC., individually and as Co-Agent, by /s/ Robert S. Lyle Name: Robert S. Lyle Title: Vice President CREDIT LYONNAIS, NEW YORK BRANCH, by /s/ Robert Ivosevich Name: Robert Ivosevich Title: Senior Vice President NATIONSBANK OF TEXAS, N.A., individually and as Co-Agent, by /s/ Bryan L. Diers Name: Bryan L. Diers Title: Senior Vice President THE NIPPON CREDIT BANK, LTD., by /s/ James J. Pasquale Name: James J. Pasquale Title: Senior Manager UNION BANK, individually and as Co-Agent, by /s/ John M. Edmonston Name: John M. Edmonston Title: Vice President EXHIBIT A [Form of] TEXAS-NEW MEXICO POWER COMPANY ADMINISTRATIVE QUESTIONNAIRE Please accurately complete the following information and return via Telecopy to the attention of Janet Belden at Chemical Bank Agency Services Corporation as soon as possible, at Telecopy No. (212) 622-0002. - ------------------------------------------------------------------------ LENDER LEGAL NAME TO APPEAR IN DOCUMENTATION: GENERAL INFORMATION - DOMESTIC LENDING OFFICE: Institution Name: Street Address: City, State, Zip Code: GENERAL INFORMATION - EURODOLLAR LENDING OFFICE: Institution Name: Street Address: City, State, Zip Code: POST-CLOSING, ONGOING CREDIT CONTACTS/NOTIFICATION METHODS: CREDIT CONTACTS: Primary Contact: Street Address: City, State, Zip Code: Phone Number: Telecopy Number: 2 Backup Contact: Street Address: City, State, Zip Code: Phone Number: Telecopy Number: TAX WITHHOLDING: Nonresident Alien \ \ Y* \ \ N * Form 4224 Enclosed Tax ID Number _________________________ POST-CLOSING, ONGOING ADMINISTRATIVE CONTACTS/NOTIFICATION METHODS: ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, FEES, ETC. Contact: Street Address: City, State, Zip Code: Phone Number: Telecopy Number: PAYMENT INSTRUCTIONS: Name of Bank to which funds are to be transferred: Routing Transit/ABA number of Bank to which funds are to be transferred: Name of Account, if applicable: Account Number: Additional information: MAILINGS: Please specify the person to whom the Borrower should send financial and compliance information received subsequent to the closing (if different from primary credit contact): Name: Street Address: City, State, Zip Code: It is very important that all the above information be accurately completed and that this questionnaire be returned to the person specified in the introductory paragraph of this questionnaire as soon as possible. If there is someone other than yourself who should receive this questionnaire, please notify us of that person's name and telecopy number and we will telecopy a copy of the questionnaire. If you have any questions about this form, please call Janet Belden at (212) 622-0001. EXHIBIT B [FORM OF] ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit Agreement dated as of November 3, 1995 (as the same may be modified, amended, extended or restated from time to time, the "Credit Agreement"), among Texas-New Mexico Power Company (the "Borrower"), the lenders from time to time party thereto (the "Lenders") and Chemical Bank, as administrative agent for the Lenders (in such capacity, the "Administrative Agent") and collateral agent. Terms defined in the Credit Agreement are used herein with the same meanings. 1. The Assignor hereby sells and assigns, without recourse, to the Assignee, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Effective Date set forth below (but not prior to the registration of the information contained herein in the Register pursuant to Section 9.4(e) of the Credit Agreement), the interests set forth below (the "Assigned Interest") in the Assignor's rights and obligations under the Credit Agreement and the other Loan Documents, including, without limitation, the amounts and percentages set forth below of (i) the Commitments of the Assignor on the Effective Date and (ii) the Loans owing to the Assignor which are outstanding on the Effective Date. Each of the Assignor and the Assignee hereby makes and agrees to be bound by all the representations, warranties and agreements set forth in Section 9.4(c) of the Credit Agreement, a copy of which has been received by each such party. From and after the Effective Date (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the interests assigned by this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of the interests assigned by this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 2. This Assignment and Acceptance is being delivered to the Administrative Agent together with (i) if the Assignee is organized under the laws of a jurisdiction outside the United States, the forms specified in Section 2.17(f) of the Credit Agreement, duly completed and executed by such Assignee, (ii) if the Assignee is not already a Lender under the Credit Agreement, an Administrative Questionnaire in the form of Exhibit A to the Credit Agreement and (iii) a processing and recordation fee of $5,000. 3. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York. Date of Assignment: Legal Name of Assignor: Legal Name of Assignee: Assignee's Address for Notices: Effective Date of Assignment (may not be fewer than 5 Business Days after the Date of Assignment): Percentage Assigned of Commitment (set forth, to at least 8 decimals, as a percentage of the aggregate Commitments of all Lenders thereunder) Principal Amount Assigned Commitment Assigned: $ % Loans: The terms set forth above and on the reverse side hereof are hereby agreed to: Accepted: */ ______________, as Assignor CHEMICAL BANK, as administrative agent, By: __________________________ By: _________________________ Name: Name: Title: Title: _____________, as Assignee TEXAS-NEW MEXICO POWER COMPANY, By: ______________________ By: __________________________ Name: Name: Title: Title: */ To be completed to the extent consents are required under Section 9.4(b) of the Credit Agreement. EXHIBIT C FORM OF BORROWING REQUEST Chemical Bank, as Administrative Agent for the Lenders referred to below, 270 Park Avenue New York, NY 10017 Attention of Jaimin Patel [Date] Ladies and Gentlemen: The undersigned, Texas-New Mexico Power Company (the "Company"), refers to the Credit Agreement dated as of November 3, 1995 (the "Credit Agreement"), among the Company, the lenders from time to time party thereto (the "Lenders") and Chemical Bank, as administrative agent for the Lenders (in such capacity, the "Agent") and collateral agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Company hereby gives you notice pursuant to Section 2.3 of the Credit Agreement that it requests a Borrowing under the Credit Agreement, and in that connection sets forth below the terms on which such Borrowing is requested to be made: (A) Date of Borrowing (which is a Business Day) ______________________________ (B) Principal Amount of Borrowing 1/ ______________________________ (C) Interest rate basis 2/ ______________________________ (D) Interest Period and the last day thereof 3/ ______________________________ (E) Funds are requested to be disbursed to the Company's account with Chemical Bank (Account No. ). Upon acceptance of any or all of the Loans offered by the Lenders in response to this request, the Company shall be deemed to have represented and warranted that the conditions to lending specified in Sections 4.1(b) and (c) of the Credit Agreement have been satisfied. TEXAS-NEW MEXICO POWER COMPANY, by Name: Title: [Responsible Officer] 1/ Not less than $2,000 and in an integral multiple of $1,000,000, but in any event not exceeding the available Total Commitment. 2/ Specify Eurodollar borrowing or ABR Borrowing. 3/ Which shall be subject to the definition of "Interest Period" and end not later than the Maturity Date (applicaable only for Eurodollar Borrowings). EXHIBIT D GUARANTEE AND PLEDGE AGREEMENT (this "Agreement") dated as of November 3, 1995, between TEXAS GENERATING COMPANY II, a Texas corporation (the "Guarantor"), a subsidiary of TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation (the "Borrower"), and CHEMICAL BANK, a New York banking corporation, as collateral agent (the "Collateral Agent") for the Lenders (as defined in the Credit Agreement referred to below). Reference is made to the Credit Agreement dated as of November 3, 1995 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, the lenders from time to time party thereto (the "Lenders") and Chemical Bank, as administrative agent and as collateral agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Lenders have agreed to make Loans to the Borrower pursuant to, upon the terms of and subject to the conditions specified in the Credit Agreement. The Guarantor is a wholly owned Subsidiary of the Borrower and acknowledges that it will derive substantial benefit from the making of the Loans by the Lenders. The obligations of the Lenders to make Loans are conditioned on, among other things, the execution and delivery by the Guarantor of a Guarantee in the form hereof. As consideration therefor and in order to induce the Lenders to make Loans, the Guarantor is willing to enter into this Agreement. Accordingly, the parties hereto agree as follows: SECTION 1. Guarantee. The Guarantor unconditionally guarantees, as a primary obligor and not merely as a surety, the due and punctual payment and performance by the Borrower of (a) the principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (b) all other monetary obligations (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Loan Parties to the Lenders under the Loan Documents, (c) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Loan Parties under or pursuant to the Loan Documents and (d) all obligations of the Borrower under each Interest Rate Protection Agreement entered into with a Lender to protect against interest rate fluctuations with respect to Indebtedness under the Credit Agreement (the foregoing obligations described in clauses (a), (b), (c) and (d) being collectively called the "Obligations"). The Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee notwithstanding any extension or renewal of any Obligation. Anything contained in this Agreement to the contrary notwithstanding, the obligations of the Guarantor hereunder shall be limited to a maximum aggregate amount equal to the greatest amount that would not render the Guarantor's obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any provisions of applicable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of the Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of the Guarantor (a) in respect of intercompany indebtedness to the Borrower or Affiliates of the Borrower to the extent that such indebtedness would be discharged in an amount equal to the amount paid by the Guarantor hereunder and (b) under any Guarantee of senior unsecured indebtedness or Indebtedness subordinated in right of payment to the Obligations which Guarantee contains a limitation as to maximum amount similar to that set forth in this paragraph, pursuant to which the liability of such Guarantor hereunder is included in the liabilities taken into account in determining such maximum amount) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation, contribution, reimbursement, indemnity or similar rights of the Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among the Guarantor and other Affiliates of the Borrower of obligations arising under Guarantees by such parties. SECTION 2. Pledge of Intercompany Indebtedness. As security for the payment and performance in full of the Obligations, the Guarantor hereby transfers, grants, bargains, sells, conveys, hypothecates, pledges, sets over and delivers unto the Collateral Agent, for the ratable benefit of the Lenders, and grants to the Collateral Agent, for the ratable benefit of the Lenders, a security interest in, (a) all intercompany Indebtedness owed to the Guarantor including any promissory notes that may be issued to and delivered to the Guarantor or the Collateral Agent in respect thereof or in substitution or exchange for any such promissory notes and held by the Collateral Agent pursuant to the terms hereof (collectively, the "Intercompany Indebtedness"), (b) all other property which may be delivered to and held by the Collateral Agent pursuant to the terms hereof (whether described herein or not), (c) all payments of principal, interest and other amounts from time to time received, receivable or otherwise distributed in respect of the Intercompany Indebtedness or in exchange for or upon the conversion of any promissory notes evidencing the Intercompany Indebtedness, (d) all rights and privileges of the Guarantor with respect to the property referred to in clauses (a), (b) and (c) above, and (e) all proceeds of any of the foregoing (the items referred to in clauses (a) through (e) being collectively called the "Collateral"). Upon delivery to the Collateral Agent, (x) any certificates, notes or other securities now or hereafter included in the Collateral shall be accompanied by instruments of transfer satisfactory to the Collateral Agent and by such other instruments and documents as the Collateral Agent may reasonably request and (y) all other property comprising part of the Collateral shall be accompanied by proper instruments of assignment duly executed by the Guarantor and such other instruments or documents as the Collateral Agent may reasonably request. In addition to the rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to any of the Obligations, the Collateral Agent shall have all the rights and remedies of a secured party under the Uniform Commercial Code of the State of New York at that time (the "Code"), whether or not the Code applies to the affected Collateral. SECTION 3. Obligations Not Waived. To the fullest extent permitted by applicable law, the Guarantor waives presentment to, demand of payment from and protest to the Borrower of any of the Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment. To the fullest extent permitted by applicable law, the obligations of the Guarantor hereunder shall not be affected by (a) the failure of the Collateral Agent or any other Lender to assert any claim or demand or to enforce or exercise any right or remedy against the Borrower or any other guarantor of the Obligations under the provisions of the Credit Agreement, any other Loan Document or otherwise, (b) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of this Agreement, any other Loan Document, any Guarantee or any other agreement, including with respect to any other guarantor of the Obligations or (c) the failure to perfect any security interest in, or the release of, any of the security held by or on behalf of the Collateral Agent or any other Lender. SECTION 4. Security. The Guarantor authorizes the Collateral Agent and each of the other Lenders, to (a) take and hold security for the payment of this Guarantee and the Obligations and exchange, enforce, waive and release any such security, (b) following an Event of Default, apply such security and direct the order or manner of sale thereof as they in their sole discretion may determine and (c) release or substitute any one or more endorsees, other guarantors of other obligors. SECTION 5. Guarantee of Payment. The Guarantor further agrees that its guarantee constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Collateral Agent or any other Lender to any of the security held for payment of the Obligations or to any balance of any deposit account or credit on the books of the Collateral Agent or any other Lender in favor of the Borrower or any other person. SECTION 6. No Discharge or Diminishment of Guarantee. The obligations of the Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Obligations), including any claim of waiver, release, surrender, alteration or compromise of any of the Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of the Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of the Collateral Agent or any other Lender to assert any claim or demand or to enforce any remedy under the Credit Agreement, any other Loan Document or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, wilful or otherwise, in the performance of the Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of the Guarantor or that would otherwise operate as a discharge of the Guarantor as a matter of law or equity (other than the indefeasible payment in full in cash of all the Obligations). It is expressly agreed that the obligations of the Guarantor hereunder shall continue in full force and effect following, and shall not be affected by, any release of Collateral pursuant to Section 9.17 of the Credit Agreement. SECTION 7. Defenses of Borrower Waived. To the fullest extent permitted by applicable law, the Guarantor waives any defense based on or arising out of any defense of the Borrower or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower, other than the final and indefeasible payment in full in cash of the Obligations. The Collateral Agent and the other Lenders may, at their election, foreclose on any security held by one or more of them by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Obligations, make any other accommodation with the Borrower or any other guarantor or exercise any other right or remedy available to them against the Borrower or any other guarantor, without affecting or impairing in any way the liability of the Guarantor hereunder except to the extent the Obligations have been fully, finally and indefeasibly paid in cash. The Guarantor waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantor against the Borrower or any other guarantor, as the case may be, or any security. SECTION 8. Agreement to Pay; Subordination. In furtherance of the foregoing and not in limitation of any other right that the Collateral Agent or any other Lender has at law or in equity against the Guarantor by virtue hereof, upon the failure of the Borrower or any other Loan Party to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, the Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Collateral Agent or such other person or persons as shall be designated thereby in cash the amount of such unpaid Obligations. Upon payment by the Guarantor of any sums to the Collateral Agent or such other person or persons as provided above, all rights of the Guarantor against the Borrower arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Obligations. In addition, any indebtedness of the Borrower now or hereafter held by the Guarantor is hereby subordinated in right of payment to the prior payment in full of the Obligations. If any amount shall erroneously be paid to the Guarantor on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of the Borrower, such amount shall be held in trust for the benefit of the Lenders and shall forthwith be paid to the Collateral Agent to be credited against the payment of the Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents. SECTION 9. Information. The Guarantor assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks that the Guarantor assumes and incurs hereunder, and agrees that none of the Collateral Agent or the other Lenders will have any duty to advise the Guarantor of information known to it or any of them regarding such circumstances or risks. SECTION 10. Representations and Warranties. The Guarantor represents and warrants that (a) all representations and warranties relating to it contained in the Credit Agreement are true and correct and (b) by virtue of the execution and delivery by the Guarantor of this Agreement, when the filings listed in Schedule 10(b) have been made, the Collateral Agent will have a valid and first perfected lien upon and interest in the Intercompany Indebtedness as security for the payment and performance of the Obligations, prior to all other liens and encumbrances thereon and security interests therein. SECTION 11. Termination. The Guarantee made hereunder (a) shall terminate when all the Obligations have been indefeasibly paid in full and the Lenders have no further commitment to extend credit under the Credit Agreement and (b) shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by any Lender upon the bankruptcy or reorganization of the Borrower or the Guarantor or otherwise. SECTION 12. Binding Agreement; Assignments. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Guarantor that are contained in this Agreement shall bind and inure to the benefit of each party hereto and their respective successors and assigns. This Agreement shall become effective when a counterpart hereof executed on behalf of the Guarantor shall have been delivered to the Collateral Agent, and a counterpart hereof shall have been executed on behalf of the Collateral Agent, and thereafter shall be binding upon the Guarantor and the Collateral Agent and their respective successors and assigns, and shall inure to the benefit of the Guarantor, the Collateral Agent and the other Lenders, and their respective successors and assigns, except that the Guarantor shall not have the right to assign its rights or obligations hereunder or any interest herein (and any such attempted assignment shall be void). SECTION 13. Waivers; Amendment. (a) No failure or delay of the Collateral Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Collateral Agent hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Guarantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Guarantor in any case shall entitle the Guarantor to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Guarantor and the Collateral Agent, with the prior written consent of the Required Lenders (except as otherwise provided in the Credit Agreement). SECTION 14. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 15. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 9.1 of the Credit Agreement. All communications and notices hereunder to the Guarantor shall be given to it in care of the Borrower. SECTION 16. Survival of Agreement; Severability. (a) All covenants, agreements, representations and warranties made by the Guarantor herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Collateral Agent and the other Lenders and shall survive the making by the Lenders of the Loans regardless of any investigation made by the Lenders or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any other fee or amount payable under this Agreement or any other Loan Document is outstanding and unpaid and as long as the Commitments have not been terminated. (b) In the event any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 17. Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Agreement. SECTION 18. Rules of Interpretation. The rules of interpretation specified in Section 1.2 of the Credit Agreement shall be applicable to this Agreement. SECTION 19. Jurisdiction; Consent to Service of Process. (a) The Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Collateral Agent or any other Lender may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against the Guarantor or its properties in the courts of any jurisdiction. (b) The Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 15. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 20. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 20. SECTION 21. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by such Lender to or for the credit or the account of the Guarantor against any or all the obligations of the Guarantor now or hereafter existing under this Agreement and the other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations may be unmatured. The rights of each Lender under this Section 21 are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. TEXAS GENERATING COMPANY II, by ----------------------- Name: Title: CHEMICAL BANK, as Collateral Agent, by ----------------------- Name: Title: Schedule 10(b) UCC Filings Secretary of State, Texas Robertson County, Texas EXHIBIT E THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY AND WHICH CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS PURSUANT TO SUBCHAPTER 35A OF THE TEXAS BUSINESS AND COMMERCE CODE BOND AGREEMENT dated as of November 3, 1995, by TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation ("TNP"), in favor of CHEMICAL BANK, a New York banking corporation, as collateral agent for the lenders (in such capacity, the "Collateral Agent") party to the Credit Agreement dated as of November 3, 1995 (the "Credit Agreement"), among TNP, the lenders named therein (the "Lenders") and CHEMICAL BANK, as administrative agent and collateral agent for the Lenders. The Lenders have agreed to make Loans (such term and each other term used but not defined herein having the meaning assigned to it in the Credit Agreement) to the Borrower pursuant to, and subject to the terms of, the Credit Agreement. The obligations of the Lenders to make the Loans are conditioned, among other things, upon the execution and delivery by the Pledgor of a bond pledge agreement in the form hereof to secure the due and punctual payment by the Borrower of (a) the principal of and interest on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (b) all other monetary obligations of the Borrower to the Lenders under the Loan Documents and (c) all obligations of the Pledgor or any Subsidiary under any Interest Rate Protection Agreement entered into with a Lender to protect against interest rate fluctuations with respect to Indebtedness under the Credit Agreement (the foregoing obligations described in clauses (a), (b) and (c) being collectively called the "Obligations"). It is understood that TNP is the issuer of the Bonds pledged hereunder and that, accordingly, the Bonds constitute obligations, and not property, of TNP, the purpose of the arrangements provided for herein being to furnish security for the Obligations through the issuance and pledge of the Bonds as contemplated by Section 15.04 of the TNP Bond Indenture. Accordingly, the Pledgor and the Collateral Agent hereby agree as follows: SECTION 1. Pledge of Bonds. As security for the payment and performance in full of the Obligations, the Pledgor hereby transfers, grants, bargains, sells, conveys, hypothecates, pledges, sets over and delivers unto the Collateral Agent, for the ratable benefit of the Lenders, and grants to the Collateral Agent, for the ratable benefit of the Lenders, a security interest in (a) the First Mortgage Bonds listed on Schedule I hereto (the "Initial Bonds") and the certificate or certificates representing or evidencing such First Mortgage Bonds and any First Mortgage Bonds that may be delivered to the Collateral Agent pursuant to Section 4.3 of the Credit Agreement and held by the Collateral Agent pursuant to the terms hereof (the "Additional Bonds" and, together with the Initial Bonds, the "Bonds"), (b) all other property which may be delivered to and held by the Collateral Agent pursuant to the terms hereof (whether or not described herein), (c) all payments of principal, interest and other amounts from time to time received, receivable or otherwise distributed in respect of, in exchange for or upon the conversion of the securities referred to in clauses (a) and (b) above, (d) all rights and privileges of the Pledgor with respect to the securities and other property referred to in clauses (a) and (b) above, and (e) all proceeds of any of the foregoing (the items referred to in clauses (a) through (e) being collectively called the "Collateral"). Upon delivery to the Collateral Agent, (x) the Bonds and any certificates, notes or other securities now or hereafter included in the Collateral shall be accompanied by duly executed instruments of transfer satisfactory to the Collateral Agent and by such other instruments and documents as the Collateral Agent may reasonably request and (y) all other property included in the Collateral shall be accompanied by proper instruments of assignment duly executed by the Pledgor and such other instruments or documents as the Collateral Agent may reasonably request. SECTION 2. Representations, Warranties and Covenants. The Pledgor hereby represents, warrants and covenants to and with the Collateral Agent that: (a) at the time of their delivery hereunder, the Bonds will have been authorized, executed, issued, authenticated and delivered, and registered as provided in Section 3 below, in accordance with applicable law and the terms and provisions of the TNP Bond Indenture and will constitute the legal, valid and binding obligations of the Borrower, enforceable in accordance with their terms and entitled to the benefits of the TNP Bond Indenture and the Liens created thereby to the same extent as the other First Mortgage Bonds issued thereunder; (b) the Bonds delivered to and held by the Collateral Agent hereunder will at all times be outstanding for all purposes of the TNP Bond Indenture and the Collateral Agent and its successors, as holders thereof, will be entitled to all voting, consensual and other rights accruing to holders of First Mortgage Bonds issued under such Indenture; (c) the Pledgor will make no sale, assignment, pledge, hypothecation or other transfer of, or create any other security interest in, the Bonds or other Collateral; (d) the Pledgor (i) has good right and legal authority to pledge the Bonds and other Collateral to the Collateral Agent in the manner hereby done or contemplated, (ii) will defend the interest of the Collateral Agent in the Bonds and other Collateral against any and all attachments, liens, claims, encumbrances, security interests or other impediments of any nature, however arising, of all persons and (iii) will promptly turn over to the Collateral Agent in the form in which received any Collateral which shall at any time come into its possession; (e) no consent or approval of any Governmental Authority, the Trustee under the TNP Bond Indenture or any securities exchange was or is necessary for the valid issuance of the Bonds or the pledge effected hereby except such as have been obtained and are in full force and effect; (f) by virtue of the execution and delivery by the Pledgor of this Agreement, when the certificates, instruments or other documents representing or evidencing the Bonds are delivered to the Collateral Agent in accordance with this Agreement, the Collateral Agent will obtain a valid and perfected first lien upon and security interest in such Bonds and the other Collateral as security for the payment and performance of the Obligations, prior to all other liens and encumbrances thereon and security interests therein; and (g) the pledge effected hereby is effective to vest in the Collateral Agent, on behalf of the Lenders, the rights of the Collateral Agent in the Bonds and other Collateral as set forth herein. SECTION 3. Registration of Bonds; Denominations. The Bonds shall be registered on the register maintained by the Trustee under the TNP Bond Indenture in the name of the Collateral Agent or its nominee. The Collateral Agent shall have the right to exchange the certificates representing such Bonds for certificates of smaller or larger denominations to facilitate the exercise of its rights hereunder. SECTION 4. Voting and Consensual Rights, Etc. (a) Until the Collateral shall have been released as provided in Section 13, the Collateral Agent shall have and may exercise, to the exclusion of the Pledgor, all voting, consensual and other rights accruing to a holder of the Bonds, including, without limitation, (i) the right to demand and receive payments of principal and interest on the Bonds in accordance with the terms of the Bonds and the TNP Bond Indenture (ii) the right to attend or be represented by proxy at any meeting of bondholders under the TNP Bond Indenture, (iii) the right to vote the Bonds in accordance with the terms of the TNP Bond Indenture, (iv) the right to issue consents and waivers with respect to the Bonds, as a holder of First Mortgage Bonds, under or in connection with the TNP Bond Indenture, (v) the right to issue any and all instructions and requests for action to the Trustee under the TNP Bond Indenture which are permitted to a bondholder under the TNP Bond Indenture and (vi) the right to exercise all remedies provided in the TNP Bond Indenture for the benefit of the holders of First Mortgage Bonds. The Pledgor shall not amend, supplement or otherwise modify, or consent to any amendment, supplement or other modification to, the terms of the Bonds or the TNP Bond Indenture in any manner that could directly or indirectly affect the Collateral, the Lien of the TNP Bond Indenture or the rights or interests of the Lenders (other than issuances of First Mortgage Bonds permitted under Section 6.1(d) of the Credit Agreement pursuant to supplemental bond indentures), in each case except with the prior written consent of the Collateral Agent. (b) The Pledgor shall not consent to any voluntary prepayment or redemption of the Bonds without the prior written consent of the Collateral Agent, and any amounts received by or for the account of the Pledgor in respect of any such prepayment or redemption shall constitute Collateral hereunder and shall be held by the Collateral Agent for application as provided herein. SECTION 5. No Disposition. Without the prior written consent of the Collateral Agent, the Pledgor agrees that it will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, nor will it create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any of the Collateral, or any interest therein, or any proceeds thereof, except for the lien and security interest provided for by this Agreement. SECTION 6. Amendment, Modifications and Waivers with Respect to Obligations. The Pledgor hereby agrees that, without notice to or further assent by the Pledgor, any demand for payment of any of the Obligations made by the Collateral Agent or the Lenders may be rescinded by the Collateral Agent or the Lenders and any of the Obligations continued, and the Obligations, or the liability of the Pledgor or any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of setoff with respect thereto, may, from time to time, in whole or in part, be renewed, refunded, extended, amended, modified, accelerated, compromised, waived, surrendered, or released by the Collateral Agent or any Lender and the Credit Agreement and any other Loan Document or any other documents delivered in connection therewith may be amended, modified, supplemented or terminated in whole or in part, as the Lenders may deem advisable from time to time, and any collateral security at any time held by the Lenders for the payment of the Obligations may be sold, exchanged, waived, surrendered or released on terms that in the good faith judgement of the Collateral Agent are commercially reasonable in view of the applicable circumstances and in view of the limitations described in Section 12, all without notice to or the consent of the Pledgor, which will remain bound hereunder, notwithstanding any such renewal, extension, modification, acceleration, compromise, amendment, supplement, termination, sale, exchange, waiver, surrender or release. Neither the Collateral Agent nor the Lenders shall have any obligation to protect, secure, perfect or insure any other collateral security document or property subject thereto at any time held as security for the Obligations. The Pledgor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Collateral Agent or any Lender upon this Agreement, and the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Agreement, and all dealings between the Pledgor and the Collateral Agent and the Lenders shall likewise be conclusively presumed to have been had or consummated in reliance upon this Agreement. The Pledgor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Pledgor with respect to the Obligations. SECTION 7. Remedies. (a) If a Default or Event of Default shall have occurred and be continuing, the Collateral Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon the Pledgor or any other person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase, contract to sell or otherwise dispose of and deliver said Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of the Collateral Agent's offices or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk, and the Collateral Agent or any Lender shall have the right, upon any such sale or sales, public or private, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption in the Pledgor, which right or equity is hereby expressly waived or released. In addition to the rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to any of the Obligations, the Collateral Agent shall have all the rights and remedies of a secured party under the Uniform Commercial Code of the State of New York at that time (the "Code"), whether or not the Code applies to the affected Collateral. The Pledgor shall be liable for the deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations. (b) Neither the Collateral Agent nor any Lender shall be liable for failure to collect or realize upon the Obligations or any collateral security or guarantee therefor, or any part thereof, or for any delay in so doing nor shall any of them be under any obligation to take any action whatsoever with regard thereto. Although the Collateral Agent or its nominee may without notice exercise any and all rights, privileges or options pertaining to any of the Bonds as if it were the absolute owner thereof, the Collateral Agent shall have no duty to exercise any of the aforesaid rights, privileges or options, shall not be responsible for any failure to do so or delay in so doing and, in any event, may do so without liability. SECTION 8. Application of Proceeds. The cash proceeds of any sale of Collateral received by the Collateral Agent pursuant to Section 7, as well as any cash Collateral received by the Collateral Agent, shall be applied by the Collateral Agent as follows (the timing of such application to be in the sole discretion of the Collateral Agent): FIRST, to the payment of all costs and expenses incurred by the Collateral Agent in connection with any such sale or otherwise in connection with this Agreement or any of the Obligations, including, but not limited to, all court costs and the reasonable fees and expenses of its agents and legal counsel and any other costs or expenses incurred in connection with the exercise of any right or remedy hereunder; SECOND, to the payment in full of the Obligations due but unpaid at the time of such receipt, pro rata among the holders of the Obligations in accordance with the amounts of the Obligations held by them on the date of any distribution; provided that in the event no such Obligations are due and payable at such time, or to the extent the Collateral Agent receives noncash Proceeds, all cash Collateral and Proceeds shall be retained by the Collateral Agent for application against the Obligations as they become due and payable; and THIRD, to the Pledgor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. SECTION 9. Reimbursement of the Collateral Agent. The Pledgor hereby agrees to reimburse the Collateral Agent, on demand, for all reasonable out of pocket expenses incurred by the Collateral Agent in connection with the administration and enforcement of this Agreement, and agrees to indemnify the Collateral Agent and hold the Collateral Agent harmless from and against any and all liability incurred by the Collateral Agent hereunder, or in connection herewith, unless such liability shall be due to wilful misconduct or gross negligence on the part of the Collateral Agent. SECTION 10. The Collateral Agent Appointed Attorney-in-Fact. The Pledgor hereby appoints the Collateral Agent as attorney-in-fact of the Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument which the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, the Collateral Agent shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to the Pledgor representing any payment of interest or other distribution payable in respect of the Collateral or any part thereof and to give full discharge for the same. SECTION 11. No Waiver. No failure on the part of the Collateral Agent to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by the Collateral Agent preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. SECTION 12. Securities Act, etc. The Pledgor understands that compliance with the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the "Federal Securities Laws") might very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Collateral pursuant to Section 7, and might also limit the extent to which or the manner in which any subsequent transferee of any Collateral could dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Collateral pursuant to Section 7 under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect. Under applicable law, in the absence of an agreement to the contrary, the Collateral Agent might be held to have certain general duties and obligations to the Pledgor, to make some effort toward obtaining a fair price even though the Obligations may be discharged or reduced by the proceeds of a sale at a lesser price. The Pledgor clearly understands that the Collateral Agent is not to have any such general duty or obligation to the Pledgor, and the Pledgor will not in any way whatsoever attempt to hold the Collateral Agent responsible for selling all or any part of the Collateral at an inadequate price even if the Collateral Agent shall accept the first offer received or does not approach more than one possible purchaser. SECTION 13. Termination; Redelivery of Pledged Bonds. This Agreement shall terminate when (a) all the Obligations have been fully and indefeasibly paid and the Lenders have no further commitment to extend credit under the Credit Agreement or (b) the conditions to the release of the Collateral set forth in Section 9.17 of the Credit Agreement shall have been satisfied. At the request of the Pledgor following such termination, the Collateral Agent shall reconvey, reassign and deliver to the Pledgor, or to such person or persons as the Pledgor shall designate, against receipt, such of the Collateral (if any) as shall not have been applied by the Collateral Agent pursuant to the terms hereof and shall still be held by it hereunder, together with appropriate instruments of reconveyance, reassignment and release. Any such reconveyance and reassignment shall be without recourse to or representation or warranty by the Collateral Agent and at the expense of the Pledgor. SECTION 14. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 9.1 of the Credit Agreement. SECTION 15. Further Assurances. The Pledgor agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as the Collateral Agent may at any time reasonably request in connection with the administration and enforcement of this Agreement or with respect to the Collateral or any part thereof or in order better to assure and confirm unto the Collateral Agent its rights and remedies hereunder. SECTION 16. Binding Agreement; Assignments. This Agreement, and the terms, covenants and conditions hereof, shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns (including any future Lender becoming a party to the Credit Agreement and any purchaser of a participation in any of the Obligations), except that the Pledgor shall not be permitted to assign this Agreement or any interest herein or in the Collateral, or any part thereof, or otherwise convey, pledge, encumber or grant any option with respect to the Collateral, or any part thereof, or any cash or property held by the Collateral Agent as Collateral under this Agreement except as contemplated by this Agreement. SECTION 17. Survival of Agreement. All covenants and agreements made by the Pledgor herein and in the certificates or other instruments prepared or delivered in connection with this Agreement shall be considered to have been relied upon by the Collateral Agent and the Lenders and shall survive the making by the Lenders of the Loans and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any other fee or amount payable under this Agreement or, without duplication of the foregoing, under any of the other Loan Documents, or any of the other Obligations, is outstanding and unpaid and so long as this Agreement has not terminated. The representations and warranties contained in Section 2 of this Agreement shall be considered to have been relied upon by the Lenders and shall survive the making of the Loans and shall remain in full force and effect after the termination of this Agreement. SECTION 18. Provisions Severable. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid and unenforceable in whole or in part, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, and shall not in any manner affect any other clause or provision of this Agreement. SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK. SECTION 20. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. SECTION 21. Headings. Section headings used herein are for convenience only and are not to affect the construction of, or be taken into consideration in interpreting, this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Bond Pledge Agreement, or caused this Bond Pledge Agreement to be duly executed on their behalf, as of the day and year first above written. TEXAS-NEW MEXICO POWER COMPANY, by --------------------------- Name: Title: CHEMICAL BANK, as Collateral Agent, by ----------------------------- Name: Title: The undersigned hereby acknowledges receipt of a copy of the Bond Agreement dated as of November 3, 1995 by Texas-New Mexico Power Company in favor of Chemical Bank, as Collateral Agent (the "Bond Agreement"), and confirms that the Bonds pledged under the Bond Agreement on the date hereof are outstanding for all purposes of the TNP Bond Indenture. BANK OF AMERICA ILLINOIS, as Trustee under the TNP Bond Indenture, by ------------------------------- Name: Title: November __, 1995 THE STATE OF TEXAS COUNTY OF ROBERTSON This instrument was acknowledged before me on the ____ day of November, 1995, by __________ , ______________ of TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, on behalf of said corporation. ---------------------------- NOTARY PUBLIC in and for the State of TEXAS My Commission Expires: - -------------------------------------- ----------------------------- Typed or Printed Name of Notary THE STATE OF NEW YORK COUNTY OF NEW YORK This instrument was acknowledged before me on the ____ day of November,1995, by _________, ____________________ of CHEMICAL BANK, a New York banking corporation, on behalf of said corporation. --------------------------- NOTARY PUBLIC in and for the Sate of NEW YORK My Commission Expires: - -------------------------------------------- ----------------------- Typed or Printed Name of Notary EXHIBIT F THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY AND CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS PURSUANT TO SUBCHAPTER 35A OF THE TEXAS BUSINESS AND COMMERCE CODE NOTE PLEDGE AGREEMENT dated as of November 3, 1995, by TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation (the "Pledgor"), in favor of CHEMICAL BANK, a New York banking corporation, as collateral agent for the lenders (in such capacity, the "Collateral Agent") party to the Credit Agreement dated as of November 3, 1995 (the "Credit Agreement"), among the Pledgor, the lenders named therein (the "Lenders") and CHEMICAL BANK, as administrative agent and collateral agent for the Lenders. The Lenders have agreed to make Loans (such term and each other capitalized term used but not defined herein having the meaning assigned to it in the Credit Agreement) to the Borrower pursuant to, and subject to the terms of, the Credit Agreement. The obligations of the Lenders to make the Loans are conditioned, among other things, upon the execution and delivery by the Pledgor of a pledge agreement in the form hereof to secure the due and punctual payment by the Borrower of (a) the principal of and interest on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (b) all other monetary obligations of the Borrower to the Lenders under the Loan Documents and (c) all obligations of the Pledgor or any Subsidiary under any Interest Rate Protection Agreement entered into with a Lender to protect against interest rate fluctuations with respect to the Indebtedness under the Credit Agreement (the foregoing obligations described in clauses (a), (b) and (c) being collectively called the "Obligations"). Accordingly, the Pledgor and the Collateral Agent hereby agree as follows: SECTION 1. Pledge. As security for the payment and performance in full of the Obligations, the Pledgor hereby transfers, grants, bargains, sells, conveys, hypothecates, pledges, sets over and delivers unto the Collateral Agent, for the ratable benefit of the Lenders, and grants to the Collateral Agent, for the ratable benefit of the Lenders, a security interest in, (a) the promissory notes listed on Schedule I hereto and any promissory notes that may be issued and delivered to the Pledgor or the Collateral Agent pursuant to the Existing Facility Agreement in substitution or exchange therefor or otherwise (collectively, the "Notes"), (b) the Project Loans (as defined in the Existing Facility Agreement) of the Pledgor under the Existing Facility Agreement and all rights, interests and privileges of the Pledgor in, to and under such Project Loans, the Notes, the Existing Facility Agreement and the other Existing Facility Documents in so far as such rights relate to the Project Loans and all other documents, title insurance policies, financing statements or agreements executed and/or delivered evidencing and/or securing such Project Loans, (c) all other property which may be delivered to and held by the Collateral Agent pursuant to the terms hereof (whether or not described herein), (d) all intercompany Indebtedness owed to the Pledgor (other than the Replacement Note and intercompany indebtedness owed to the Pledgor by TNP Enterprises or TGC on the Closing Date or any replacement note issued pursuant to the Unit 1 Credit Agreement) including any promissory notes that may be issued to and delivered to the Pledgor or the Collateral Agent in respect thereof or in substitution or exchange for any such promissory notes, (e) all rights under the Facility Purchase Agreement, (f) all payments of principal, interest and other amounts from time to time received or receivable by the Pledgor under the Existing Facility Agreement or any other Existing Facility Document or otherwise in respect of any of the items referred to in clauses (a), (b), (c), (d) and (e) above, and (g) all proceeds of any of the foregoing (the items referred to in clauses (a) through (g) being collectively called the "Collateral"). Upon delivery to the Collateral Agent, (x) the Notes and any certificates, notes or other securities now or hereafter included in the Collateral shall be accompanied by instruments of transfer satisfactory to the Collateral Agent and by such other instruments and documents as the Collateral Agent may reasonably request and (y) all other property comprising part of the Collateral shall be accompanied by proper instruments of assignment duly executed by the Pledgor and such other instruments or documents as the Collateral Agent may reasonably request. SECTION 2. Representations, Warranties and Covenants. The Pledgor hereby represents, warrants and covenants to and with the Collateral Agent as follows: (a) at the time of their delivery hereunder, the Notes will have been authorized, executed, issued and delivered by the Guarantor in accordance with applicable law and the terms and provisions of the Existing Facility Agreement and will constitute the legal, valid and binding obligations of the Guarantor, enforceable in accordance with their terms; (b) except for the interest of the Collateral Agent therein, (i) the Notes are owned by the Pledgor free and clear of all Liens and (ii) the Pledgor will make no sale, assignment, pledge, hypothecation or other transfer of, or create any security interest in, the Notes or other Collateral; (c) the Pledgor (i) has good right and legal authority to pledge the Notes and other Collateral to the Collateral Agent in the manner hereby done or contemplated, (ii) will defend the interest of the Collateral Agent in the Notes and other Collateral against any and all attachments, liens, claims, encumbrances, security interests or other impediments of any nature, however arising, of all persons and (iii) will promptly turn over to the Collateral Agent in the form in which received any Collateral which shall at any time come into its possession ; (d) no consent or approval of any Governmental Authority, any Existing Facility Bank or the First Debenture Trustee was or is necessary to the validity of the issuance of the Notes and the pledge effected hereby; (e) by virtue of the execution and delivery by the Pledgor of this Agreement, when the Notes and any other certificates evidencing securities included in the Collateral have been delivered to the Collateral Agent in accordance with this Agreement and the filings listed in Schedule 2(e) hereto have been duly made, the Collateral Agent will have a valid and perfected first lien upon and security interest in the Collateral as security for the payment and performance of the Obligations, prior to all other liens and encumbrances thereon and security interests therein; and (f) the pledge effected hereby is effective to vest in the Collateral Agent, on behalf of the Lenders, the rights of the Collateral Agent in the Notes and other Collateral set forth herein. SECTION 3. Endorsement; Denominations. The Notes and any other certificates evidencing securities included in the Collateral shall be promptly delivered to the Collateral Agent endorsed in the name of the Collateral Agent or its nominee for the benefit of the Lenders. The Collateral Agent shall have the right to exchange the Notes for notes of smaller or larger denominations to facilitate the exercise of its rights hereunder. SECTION 4. Voting and Consensual Rights; Payments in Respect of Notes. (a) Until the Collateral shall have been released as provided in Section 13, the Collateral Agent shall have and may exercise, to the exclusion of the Pledgor, all voting, consensual and other rights of the Pledgor as an Existing Facility Bank and holder of the Notes, including, without limitation, (i) the right to demand and receive payments of principal of and interest on the Notes in accordance with the terms of the Existing Facility Agreement, (ii) the right to vote with respect to any amendment or waiver of any Existing Facility Document and the taking of any action contemplated thereby and (iii) the right to exercise all remedies provided in the Existing Facility Documents for the benefit of the Existing Facility Banks. The Pledgor will not amend, supplement or otherwise modify, or consent to any amendment, supplement or other modification to, or consent to the taking of any action under, the terms of the Existing Facility Agreement, the other Existing Facility Documents or the Notes, in each case except as provided in the Assignment Agreement or with the prior written consent of the Collateral Agent. (b) The Pledgor shall not consent to any voluntary prepayment of the principal of the Notes without the prior written consent of the Collateral Agent, and any amounts received by or for the account of the Pledgor in respect of any such prepayment shall constitute Collateral hereunder and shall be paid over to and held by the Collateral Agent for application as provided herein. SECTION 5. No Disposition. Without the prior written consent of the Collateral Agent, the Pledgor agrees that it will not sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, nor will it create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any of the Collateral, or any interest therein, or any proceeds thereof, except for the lien and security interest provided for by this Agreement. SECTION 6. Amendment, Modifications and Waivers with Respect to Obligations. The Pledgor hereby agrees that, without notice to or the consent of the Pledgor, any demand for payment of any of the Obligations made by the Collateral Agent or the Lenders may be rescinded by the Collateral Agent or the Lenders and any of the Obligations continued, and the Obligations, or the liability of the Pledgor or any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of setoff with respect thereto, may, from time to time, in whole or in part, be renewed, refunded, extended, amended, modified, accelerated, compromised, waived, surrendered, or released by the Collateral Agent or any Lender and the Existing Facility Agreement, the Existing Facility Documents, the Credit Agreement and any other Loan Document or any other documents delivered in connection therewith may be amended, modified, supplemented or terminated in whole or in part, as the Lenders may deem advisable from time to time, and any collateral security at any time held by the Lenders for the payment of the Obligations may be sold, exchanged, waived, surrendered or released, all without notice to or the consent of the Pledgor, which will remain bound hereunder, notwithstanding any such renewal, extension, modification, acceleration, compromise, amendment, supplement, termination, sale, exchange, waiver, surrender or release. Neither the Collateral Agent nor the Lenders shall have any obligation to protect, secure, perfect or insure any other collateral security document or property subject thereto at any time held as security for the Obligations. The Pledgor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Collateral Agent or any Lender upon this Agreement, and the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Agreement, and all dealings between the Pledgor and the Collateral Agent and the Lenders shall likewise be conclusively presumed to have been had or consummated in reliance upon this Agreement. The Pledgor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Pledgor with respect to the Obligations. SECTION 7. Remedies. (a) If a Default or Event of Default shall have occurred and be continuing, the Collateral Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon the Pledgor or any other person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase, contract to sell or otherwise dispose of and deliver said Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of the Collateral Agent's offices or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk, and the Collateral Agent or any Lender shall have the right, upon any such sale or sales, public or private, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption in the Pledgor, which right or equity is hereby expressly waived or released. In addition to the rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to any of the Obligations, the Collateral Agent shall have all the rights and remedies of a secured party under the Uniform Commercial Code of the State of New York at that time (the "Code"), whether or not the Code applies to the affected Collateral. The Pledgor shall be liable for the deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Obligations. (b) Neither the Collateral Agent nor any Lender shall be liable for failure to collect or realize upon the Obligations or any collateral security or guarantee therefor, or any part thereof, or for any delay in so doing nor shall any of them be under any obligation to take any action whatsoever with regard thereto. Although the Collateral Agent or its nominee may without notice exercise any and all rights, privileges or options pertaining to any of the Collateral as if it were the absolute owner thereof, the Collateral Agent shall have no duty to exercise any of the aforesaid rights, privileges or options, shall not be responsible for any failure to do so or delay in so doing and, in any event, may do so without liability. SECTION 8. Application of Proceeds. The cash proceeds of any sale of Collateral received by the Collateral Agent pursuant to Section 7, as well as any cash Collateral received by the Collateral Agent, shall be applied by the Collateral Agent as follows (the timing of such application to be in the sole discretion of the Collateral Agent): FIRST, to the payment of all costs and expenses incurred by the Collateral Agent in connection with any such sale or otherwise in connection with this Agreement or any of the Obligations, including, but not limited to, all court costs and the reasonable fees and expenses of its agents and legal counsel and any other costs or expenses incurred in connection with the exercise of any right or remedy hereunder; SECOND, to the payment in full of the Obligations due but unpaid at the time of such receipt, pro rata among the holders of the Obligations in accordance with the amounts of the Obligations held by them on the date of any distribution; provided that in the event no such Obligations are due and payable at such time, or to the extent the Collateral Agent receives noncash Proceeds, all cash Collateral and Proceeds shall be retained by the Collateral Agent for application against the Obligations as they become due and payable; and THIRD, to the Pledgor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. SECTION 9. Reimbursement of the Collateral Agent. The Pledgor hereby agrees to reimburse the Collateral Agent, on demand, for all reasonable out-of-pocket expenses incurred by the Collateral Agent in connection with the administration and enforcement of this Agreement, and agrees to indemnify the Collateral Agent and hold the Collateral Agent harmless from and against any and all liability incurred by the Collateral Agent hereunder, or in connection herewith, unless such liability shall be due to wilful misconduct or gross negligence on the part of the Collateral Agent. SECTION 10. The Collateral Agent Appointed Attorney-in-Fact. The Pledgor hereby appoints the Collateral Agent as attorney-in-fact of the Pledgor for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument which the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, the Collateral Agent shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to the Pledgor representing any payment of interest or other distribution payable in respect of the Collateral or any part thereof and to give full discharge for the same. SECTION 11. No Waiver. No failure on the part of the Collateral Agent to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by the Collateral Agent preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. SECTION 12. Securities Act, etc. The Pledgor understands that compliance with the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the "Federal Securities Laws") might very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Collateral pursuant to Section 7, and might also limit the extent to which or the manner in which any subsequent transferee of any Collateral could dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Collateral pursuant to Section 7 under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect. Under applicable law, in the absence of an agreement to the contrary, the Collateral Agent might be held to have certain general duties and obligations to the Pledgor, to make some effort toward obtaining a fair price even though the Obligations may be discharged or reduced by the proceeds of a sale at a lesser price. The Pledgor clearly understands that the Collateral Agent is not to have any such general duty or obligation to the Pledgor, and the Pledgor will not in any way whatsoever attempt to hold the Collateral Agent responsible for selling all or any part of the Collateral at an inadequate price even if the Collateral Agent shall accept the first offer received or does not approach more than one possible purchaser. SECTION 13. Termination; Redelivery of Pledged Notes. This Agreement shall terminate when (a) all the Obligations have been fully and indefeasibly paid and the Lenders have no further commitment to extend credit under the Credit Agreement or (b) the conditions to the release of the Collateral set forth in Section 9.17 of the Credit Agreement shall have been satisfied. At the request of the Pledgor following any such termination, the Collateral Agent shall reconvey, reassign and deliver to the Pledgor, or to such person or persons as the Pledgor shall designate, against receipt, such of the Collateral (if any) as shall not have been applied by the Collateral Agent pursuant to the terms hereof and shall still be held by it hereunder, together with appropriate instruments of reconveyance, reassignment and release. Any such reconveyance and reassignment shall be without recourse to or representation or warranty by the Collateral Agent and at the expense of the Pledgor. SECTION 14. Notices. All communications and notices here under shall be in writing and given as provided in Section 9.1 of the Credit Agreement. SECTION 15. Further Assurances. The Pledgor agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as the Collateral Agent may at any time reasonably request in connection with the administration and enforcement of this Agreement or with respect to the Collateral or any part thereof or in order better to assure and confirm unto the Collateral Agent its rights and remedies hereunder. SECTION 16. Binding Agreement; Assignments. This Agreement, and the terms, covenants and conditions hereof, shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns (including any future Lender becoming a party to the Credit Agreement and any purchaser of a participation in any of the Obligations), except that the Pledgor shall not be permitted to assign this Agreement or any interest herein or in the Collateral, or any part thereof, or otherwise convey, pledge, encumber or grant any option with respect to the Collateral, or any part thereof, or any cash or property held by the Collateral Agent as Collateral under this Agreement except as contemplated by this Agreement. SECTION 17. Survival of Agreement. All covenants and agreements made by the Pledgor herein and in the certificates or other instruments prepared or delivered in connection with this Agreement shall be considered to have been relied upon by the Collateral Agent and the Lenders and shall survive the making by the Lenders of the Loans and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any other fee or amount payable under this Agreement or, without duplication of the foregoing, under any of the other Loan Documents, or any of the other Obligations, is outstanding and unpaid and so long as this Agreement has not terminated in accordance with its terms. The representations and warranties contained in Section 2 of this Agreement shall be considered to have been relied upon by the Lenders and shall survive the making of the Loans and shall remain in full force and effect after the termination of this Agreement. SECTION 18. Provisions Severable. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid and unenforceable in whole or in part, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, and shall not in any manner affect any other clause or provision of this Agreement. SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK. SECTION 20. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. SECTION 21. Headings. Section headings used herein are for convenience only and are not to affect the construction of, or be taken into consideration in interpreting, this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Note Pledge Agreement, or caused this Note Pledge Agreement to be duly executed on their behalf, as of the day and year first above written. TEXAS-NEW MEXICO POWER COMPANY, by ------------------------------ Name: Title: CHEMICAL BANK, as Collateral Agent, by ------------------------------- Name: Title: The undersigned hereby (a) acknowledges receipt of a copy of the Note Pledge Agreement dated as of November 3, 1995 by Texas-New Mexico Power Company in favor of Chemical Bank, as Collateral Agent (the "Pledge Agreement") and consents to such Agreement and the pledge effected and the other transactions contemplated thereby (including the exercise of any and all remedies set forth therein) and affirms that the representations set forth in Section 2 thereof are true and correct and (b) consents to the pledge by TNP of its rights under the Facility Purchase Agreement and the Operating Agreement. TEXAS GENERATING COMPANY II, by ----------------------------------- Name: Title: November __, 1995 Chemical Bank, in its capacity as Agent under the Existing Facility Documents, acknowledges that the liens securing the Pledged Notes under such Existing Facility Documents will continue to secure such Pledged Notes following the pledge thereof to the Collateral Agent, and TNP's beneficial interests in and to such liens are also intended to be pledged pursuant to the Note Pledge Agreement (it being understood that nothing herein shall diminish the rights of the Replacement Note Holder as a secured party under the Existing Facility Documents). CHEMICAL BANK, as Agent, by --------------------------- Name: Title November __, 1995 Schedule 2(e) UCC Filings Secretary of State, Texas Robertson County, Texas STATE OF NEW YORK,) ) ss.: COUNTY OF NEW YORK,) This instrument was acknowledged before me on this __ day of November, 1995 by ___________________________________________________of CHEMICAL BANK, as Collateral Agent. ---------------------------------- NOTARY PUBLIC in and for the Stat of NEW YORK [Notarial Seal] STATE OF TEXAS,) ) ss.: COUNTY OF ROBERTSON,) This instrument was acknowledged before me on this __ day of November, 1995 by ________________________ of TEXAS GENERATING COMPANY II, a Texas corporation. --------------------------------- NOTARY PUBLIC in and for the State of TEXAS [Notarial Seal] STATE OF TEXAS,) ) ss.: COUNTY OF ROBERTSON,) This instrument was acknowledged before me on this __ day of November, 1995 by _______________________________ of TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation. ---------------------------------- NOTARY PUBLIC in and for the State of TEXAS [Notarial Seal] EXHIBIT G-1 HAYNES AND BOONE, L.L.P. ATTORNEYS AND COUNSELORS AT LAW AUSTIN DALLAS FORT WORTH 3100 NATIONSBANK PLAZA HOUSTON DALLAS, TEXAS 75202-3789 MEXICO CITY TELEPHONE 214/651-5000 SAN ANTONIO FAX 214/651-5940 WASHINGTON D.C. November 3, 1995 Chemical Bank individually and as Administrative Agent under the TNP Credit Agreement referred to below 270 Park Avenue New York, NY 10017 The Lenders from time to time under the TNP Credit Agreement The Chase Manhattan Bank (National Association), as agent under the Existing Facility Agreement referred to in the TNP Credit Agreement One Chase Manhattan Plaza New York, NY 10005 Ladies and Gentlemen: We have acted as special counsel to Texas-New Mexico Power Company, a Texas corporation ("TNP"), and Texas Generating Company II, a Texas corporation and wholly owned subsidiary of TNP ("TGC II"), in connection with the transactions contemplated by (i) the Assignment and Amendment Agreement dated as of November 3, 1995 (the "Assignment Agreement") among TNP, TGC II, the Existing Facility Banks, the Original Collateral Agent, the Original Agent, the Lenders, the Administrative Agent and the Collateral Agent (each as defined therein), (ii) the Revolving Credit Agreement dated as of November 3, 1995 (the "TNP Credit Agreement") among TNP, each of the lenders that is a signatory thereto (the "Lenders") and Chemical Bank, as administrative agent and collateral agent for the Lenders (in such capacities, the "Administrative Agent" and the "Collateral Agent", respectively, and, together, the "Agents"), (iii) the Bond Agreement dated as of November 3, 1995 (the "Bond Agreement") by TNP in favor of Chemical Bank, as Collateral Agent, (iv) the Supplemental Indenture dated as of November 3, 1995 (the "Supplemental Indenture") pursuant to which the Bonds (as defined in the Bond Agreement) have been issued, (v) the Bonds (as defined in the Bond Agreement), (vi) the Note Pledge Agreement dated as of November 3, 1995 (the "Note Pledge Agreement") by TNP in favor of the Collateral Agent, (vii) the Guarantee and Pledge Agreement dated as of November 3, 1995 (the "Guarantee Agreement") by TGC II in favor of the Collateral Agent, (viii) the Sixth TGC II Modification and Extension Agreement dated as of November 3, 1995 (the "Sixth TGC II Modification") among TGC II, TNP and the Secured Parties (as defined therein), (ix) the TNP Second Lien Mortgage Modification No. 3 dated as of November 3, 1995 (the "TNP Mortgage Modification No. 3") by TNP for the benefit of the Secured Parties (as defined therein), (x) the Assignment of TGC II Mortgage Lien dated as of November 3, 1995 (the "Assignment of TGC II Lien") by The Chase Manhattan Bank (National Association), as Agent and as Collateral Agent (each as defined therein) in favor of Chemical Bank, as agent for TNP under the Existing Facility Agreement (pursuant to the Assignment Agreement), and as agent for the Replacement Note Holder under the Existing Facility Agreement, (xi) the Collateral Transfer of Notes, Rights and Interests dated as of November 3, 1995 (the "TGC II Collateral Transfer") between TNP and the Administrative Agent and the Collateral Agent, (xii) the Assignment of TNP Second Mortgage Lien dated as of November 3, 1995 (the "Assignment of TNP Lien") by The Chase Manhattan Bank (National Association), as Agent and as Collateral Agent (each as defined therein) in favor of Chemical Bank, as agent for TNP under the Existing Facility Agreement (pursuant to the Assignment Agreement), and as agent for the Replacement Note Holder under the Existing Facility Agreement, (xiii) the Collateral Transfer of Liens, Rights and Interests dated as of November 3, 1995 (the "TNP Collateral Transfer") between TNP and the Administrative Agent and the Collateral Agent, (xiv) Amendment No. 1 to the TNP Security Agreement dated as of November 3, 1995 (the "TNP Security Amendment") and (xv) financing statements naming TNP and TGC II, as applicable, as debtor, and TNP and the Collateral Agent, as applicable, as secured party, which are to be filed in the filing offices of the Secretary of State of the State of Texas and the county clerk's office for Robertson County, Texas (such filing offices collectively referred to as the "Filing Offices" and such financing statements as the "Financing Statements") (each of the agreements, instruments and documents referred to in the foregoing clauses (i) through (xv) being collectively called the "Opinion Documents"). Unless otherwise defined herein, terms defined in the TNP Credit Agreement are used herein as therein defined. Except where the context otherwise requires, words importing the singular include the plural and vice versa. In rendering the opinions expressed below, we have examined (a) the Opinion Documents, the Existing Facility Agreement and each of the other Existing Facility Project Documents and Existing Facility Security Documents, (b) such corporate records of TNP and TGC II, agreements, instruments and documents which affect or purport to affect the obligations of TNP or TGC II under the Opinion Documents, the Existing Facility Agreement, the Existing Facility Project Documents and the Existing Facility Security Documents, and (c) the TNP Bond Indenture and such other documents as we have deemed necessary as a basis for the opinions expressed below. When relevant facts were not independently established, we have relied upon statements of government officials and upon representations made in or pursuant to the Opinion Documents and certificates of appropriate representatives of TNP or TGC II. In our examination we have assumed, with your consent (a) the genuineness of all signatures (except as relates to the execution by TNP or TGC II of any of the Opinion Documents) and the legal capacity of natural persons, (b) the authenticity of documents submitted to us as originals and the conformity with authentic original documents of all documents submitted to us as copies, (c) the full corporate (or equivalent) power, authority and legal right of each party other than TNP and TGC II to enter into and perform all agreements to which it is a party and the due authorization, execution and delivery of each Opinion Document by each such party, (d) the full corporate power, authority and legal right of TNP and TGC II to enter into and perform the TNP Security Agreement and the TGC II Security Agreement (each as defined in the Existing Facility Agreement), respectively, (e) that the Opinion Documents constitute the valid, binding and enforceable agreement of all parties thereto other than TNP and TGC II, (f) the prompt and proper recordation or filing of any Opinion Document for which recordation or filing is anticipated, (g) receipt of the consideration contemplated by the Opinion Documents and (h) the correctness and accuracy of all the facts set forth in all documents and certificates identified in this Opinion. As used in the opinions expressed herein, a "Material Adverse Effect" means our reasonable view of what would constitute a material adverse effect on (a) the validity, performance or enforceability of any Opinion Document, (b) the financial condition, operations and assets of TNP or TGC II, or (c) the ability of TNP or TGC II to fulfill its obligations under the Opinion Documents. We have been advised by officers of TNP and TGC II (and with your consent have relied on that advice) that the agreements described on Exhibit A hereto (the "Material Agreements") are the only agreements that are material to TNP or TGC II and which, if violated by the execution, delivery or performance of the Opinion Documents, would have a Material Adverse Effect on TNP's or TGC II's ability to comply with the Opinion Documents. We advise you that we have not reviewed, and have not devoted substantive attention to, any other agreements (other than those described on Exhibit A) for the purposes of rendering the opinion set forth in paragraph 2 below. Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as we have deemed necessary as a basis for the opinions expressed below, we are of the opinion that: 1. Each of TNP and TGC II is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Texas and has the necessary corporate power, authority and legal right to execute, deliver and perform each of the Opinion Documents to which it is party. 2. The execution, delivery and performance by each of TNP and TGC II of the TNP Credit Agreement, the Assignment Agreement and each other Opinion Document to which it is a party have been duly authorized by all necessary corporate action and do not (a) require any consent or approval of the shareholders of either TNP or TGC II or of the trustee under the TNP Bond Indenture or any holder of any interest in any of the bonds issued and outstanding under the TNP Bond Indenture or of the trustee under the First Secured Debenture Indenture or any holder of any of the First Secured Debentures outstanding under the First Secured Debenture Indenture, each as presently in effect, (b) violate any provision of law, rule, regulation, or any order, writ, judgment, injunction, decree, determination or award of any Governmental Authority, or any provision of the articles or by-laws of TNP or TGC II, or the TNP Bond Indenture or the First Secured Debenture Indenture, each as currently in effect, (c) result in a breach of, or constitute a default or require any consent under, any Material Agreement or (d) to our knowledge, result in or require the imposition of any Lien (other than a Lien permitted under Section 6.2 of the TNP Credit Agreement) upon or with respect to any property now owned or hereafter acquired by TNP or TGC II. 3. Each of TNP and TGC II has duly executed and delivered each of the Opinion Documents to which it is a party. 4. Each Opinion Document (other than the Financing Statements) constitutes the legal, valid and binding obligation of TNP or TGC II, as the case may be, enforceable against such party in accordance with its terms, in each case except as the enforceability thereof may be limited by (a) bankruptcy, insolvency, reorganization or moratorium or other similar laws relating to the enforcement of creditors' rights generally, (b) general principles of equity, regardless of whether enforcement of any obligations mentioned therein is sought in a proceeding at equity or at law, (c) statutory provisions of the federal Bankruptcy Code and the Uniform Fraudulent Transfer Act as adopted by the States of New York and Texas (and related court decisions) pertaining to the voidability of preferential or fraudulent transfers, conveyances and obligations, (d) the rights of the United States under the Federal Tax Lien Act of 1966, as amended, (e) applicable laws or judicial decisions which may qualify or limit certain rights, remedies or provisions contained therein but which, in our opinion, will not materially interfere with the practical realization of the benefits intended to be provided thereby except for the economic consequences of any procedural delay which may result therefrom. 5. The provisions of each of the TNP Security Agreement, the TGC II Security Agreement and the TNP Security Amendment are sufficient to create in favor of the Collateral Agent a security interest in TNP's or TGC II's, as the case may be, interest in the Collateral referred to therein and in which a security interest may be created pursuant to Article 9 of the Code. The security interests in the Collateral described in the TGC II Security Agreement were perfected by the filing of the TGC II Security Agreement, pursuant to a Notice of Utility Security Instrument, on July 26, 1991 in the office of the Secretary of State of Texas, as Instrument No. 91-00145009, to the extent that such Collateral constitutes personal property located in Texas in which a security interest may be perfected by filing under Article 9 of the Code. The security interests in the Collateral described in the TNP Security Agreement will be perfected upon the filing, in the office of the Secretary of State of Texas, of the Notice of Utility Security Instrument executed by TNP with a copy of the TNP Security Agreement attached as Exhibit A thereto to the extent that such Collateral constitutes personal property located in Texas in which a security interest may be perfected by filing under Article 9 of the Code. 6. The execution, delivery and performance by TNP or TGC II (or both) of the TNP Credit Agreement, the Assignment Agreement and each of the Opinion Documents to which it is a party has not extinguished and will not extinguish any Liens created by the Existing Facility Security Documents, diminish the priority of such Liens as existing prior to the date of this opinion, or have any similar result. 7. Except as set forth in Schedule 3.9 to the TNP Credit Agreement, there is to our knowledge no action, suit or proceeding at law or in equity or by or before any Governmental Authority now pending or threatened against or affecting either TNP or TGC II or any of their properties, rights, or assets, or the Project, which could reasonably be expected to materially and adversely affect the assets or operations of TNP or TGC II or the ability of either of them to carry out the transactions contemplated by the Opinion Documents or materially impair the value of the security granted by either of them to the Collateral Agent. 8. The Bonds have been duly issued pursuant to, and are outstanding in accordance with, the terms of the Supplemental Indenture and the TNP Bond Indenture and are entitled to the benefits of the TNP Bond Indenture (including the benefit of the Liens created thereby). The Bonds have been duly authenticated by the trustee under the TNP Bond Indenture. 9. Neither TNP nor TGC II is an "investment company" or an "investment advisor" within the meaning of the Investment Company Act of 1940, as amended. 10. The Note Pledge Agreement is effective to create in favor of the Collateral Agent, as collateral security for the Obligations (as defined in therein), a valid security interest in all of the right, title and interest of TNP in the Collateral described therein. Upon delivery to the Collateral Agent of the Pledged Notes and the filing of the Note Pledge Agreement as a utility security instrument in the office of the Secretary of State of Texas, such security interest in the Pledged Notes will be perfected. 11. The Financing Statements are in appropriate form for filing in each of the Filing Offices under the Uniform Commercial Code as adopted in the State of Texas and as effective on the date hereof (the "Code"). Upon the filing of the TNP Security Amendment as a utility security instrument in the office of the Secretary of State of Texas, the security interests in favor of the Collateral Agent for the benefit of the Lenders in the Collateral described in the TNP Security Amendment will be perfected. 12. The "Replacement Loans" as defined in and under the Unit 1 Credit Agreement do not constitute "Project Loans" thereunder. The foregoing opinions are qualified as set forth below: A. Without limiting the generality of paragraph 4(b) hereof, we note specifically that in applying such principles of equity, a court, among other things (1) might not allow acceleration of the maturity of a debt upon the occurrence of a default deemed immaterial or if a determination is made that any Lender's security has not been impaired, (2) might require any Lender to act with reasonableness and in good faith, (3) might not permit any Lender to retain certain interests in any collateral which a court might view as resulting in a forfeiture, (4) might apply its discretion in granting specific performance, injunctive relief or other equitable remedies and (5) might not enforce provisions purporting to give any Lender or any other party a power of attorney to act on TNP's, TGC II's or any other party's behalf. B. In rendering the opinion expressed in paragraph 4, we express no opinion as to the enforceability of provisions of the Opinion Documents to the extent that such provisions: (1) purport to waive or affect any rights to notices required by law or that may be required by Section 9.504 of the Code and that are not subject to waiver under Section 9.501 of the Code, (2) state that the failure or delay in exercising rights, powers, privileges or remedies under the Opinion Documents by any Lender or agent shall not operate as a waiver thereof, (3) purport to indemnify any person for (a) such person's violations of federal or state securities laws or environmental laws, or (b) any obligation to the extent such obligation arises from or is a result of any Lender's or any Agent's own negligence, (4) purport to grant to Agents or Lenders the right to offset special deposits of TNP or TGC II against any of the Obligations, (5) purport to establish or satisfy certain factual standards or conditions (e.g., standards of "commercial reasonableness" or "reasonable care" under Article 9 of the Code) in a manner not permitted by Section 9.501 of the Code, (6) purport to sever unenforceable provisions from the Opinion Documents, to the extent that the enforcement of remaining provisions would frustrate the fundamental intent of the parties to such documents; (7) provide that TNP or TGC II has waived Agents' and Lenders' duties of reasonable care and disposition of Collateral which may be imposed by Sections 9.207 and 9.504 of the Code, (8) restrict access to legal or equitable remedies, or (9) purport to waive any claim of TNP or TGC II against Agents or any Lender arising out of, or in any way related to, the Opinion Documents. We advise you that the inclusion of such provisions in the Opinion Documents does not render void or invalidate the obligations and liabilities of TNP or TGC II under other provisions of such documents. C. In rendering the opinion expressed in paragraph 4 above, we express no opinion as to the enforceability of those provisions of the Guarantee Agreement that (1) state or mean that the Guarantee Agreement shall not be impaired, adversely affected or released by any of the following (a) any action taken by Agents or any Lender in bad faith, for the purpose of or with the effect of, impairing any of Guarantor's rights of subrogation, reimbursement, contribution, indemnity or exoneration against TNP, any other guarantor or collateral for the obligations guaranteed or (b) a legal determination that the obligations guaranteed are void as a result of illegality, or (2) provide that Guarantor has waived (i) notices that may be required and that are not subject to waiver under Section 9.504 of the Code, or (ii) any duties of reasonable care and disposition of collateral that may be imposed upon Agents or Lenders by Sections 9.207 and 9.504 of the Code. We note that a guarantor, as a "debtor" for the purposes of Article 9 of the Code, may not validly waive those duties and obligations of a secured party to the "debtor" under Article 9 of the Code and as otherwise rendered nonwaivable by Sections 9.501 and 1.102 of the Code. D. No opinion is expressed herein as to (1) the status of title to any of the Collateral, (2) whether TNP and TGC II have "rights in the Collateral" as that term in used in Section 9.203 of the Code, (3) the priority of any security interests, (4) the creation or perfection of any security interest in property excluded from coverage of the Code pursuant to Sections 9.102 and 9.104 of the Code or any proceeds of any of such property, (5) the creation or perfection of liens and security interests in the Collateral insofar as the laws of a jurisdiction other than the States of New York or Texas govern the creation or perfection of such liens and security interests, or (6) the creation or perfection of liens and security interests in the Collateral that is not described in the Opinion Documents. E. We express no opinion as to the validity or enforceability of any provision contained in any of the Opinion Documents that (1) purports to preclude the amendment, waiver, release or discharge of obligations except by an instrument in writing, (2) relates to the subject matter jurisdiction of the Federal courts of the United States of America sitting in New York City to adjudicate any controversy relating to any of the Opinion Documents, (3) purports to waive or otherwise restrict or deny access to claims, causes of action or remedies that may be asserted in any suit or other proceeding, (4) allows Lenders to institute foreclosure proceedings, or to exercise any similar right, without notice to the person or entity signatory thereto or bound thereby or (5) relates to the appointment of a receiver, to the extent that appointment of a receiver is governed by applicable statutory requirements, and to the extent that such provision may not be in compliance with such requirements. F. With respect to our opinion in paragraph 2(b), we express no opinion regarding the statutes and ordinances, the administrative decisions, and the rules and regulations of counties, towns, municipalities and special political subdivisions (whether created or enabled through legislative action at the federal, state or regional level), and any judicial decisions to the extent they deal with any of the foregoing. G. With respect to the opinion set forth in paragraph 9, we express no opinion as to whether TNP or TGC II is a "special investment company" for the purposes of Rule 3a-1 promulgated pursuant to the Investment Company Act of 1940, as amended. H. With respect to indemnification of environmental liabilities, we note that although courts have generally upheld contractual indemnification agreements, see, e.g., Marmon Group, Inc. v. Rexnord, Inc., 822 F.2d 31 (7th Cir. 1987) (complaint stated cause of action under indemnity provision of sales contract), Hays v. Mobil Oil Corp., 736 F. Supp. 387, 393 (D. Mass. 1990) (indemnity clauses are permitted under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and Joslyn Manufacturing Company v. T.L. James & Company Inc., 836 F.Supp. 1264 (D. La. 1993) (in a footnote, the district court stated without discussion that indemnification provisions were enforceable under Section 107(e)(1)), several decisions have held that certain agreements do not cover statutory liability under CERCLA unless the agreement "clearly and unequivocally" expresses an intent to address such liability. See e.g., Southland Corp. v. Ashland Oil, Inc., 696 F.Supp. 994, 1000 (contract provisions did not specify in clear enough terms that the parties intended to include CERCLA statutory recovery actions in the two year cut-off of liability under the "survival" clause). One court, however, has recently interpreted Section 107(e)(1) of CERCLA to prohibit any contractual transfer of CERCLA liability between two potentially responsible parties. In Harley-Davidson, Inc. v. Minstar, Inc., 837 F.Supp. 978 (E.D. Wisc. 1993), the court held that, under appropriate principals of statutory interpretation, Section 107(e)(1) of CERCLA precludes the use of any indemnification, hold harmless or similar agreement to contractually transfer the liability of one potentially responsible party to another potentially responsible party. But see also, A.M. International, Inc. v. International Forging Equipment, 743 F.Supp. 525 (N.D. Ohio 1990), aff'd in part and rev'd in part, 982 F.2nd 989 (6th Cir., 1993). If the rule in Harley-Davidson is generally followed by other courts, indemnification for CERCLA liabilities between potentially responsible parties would not be permitted. The United States Supreme Court has not considered this issue. While we believe that the view expressed in the Joslyn case is the better interpretation of Section 107(e)(1), our opinion regarding the enforceability of the Opinion Documents (to the extent such opinion relates to the enforceability of indemnification obligations covering environmental liabilities) is subject to any subsequent definitive judicial resolution of the present conflicting views of the courts on this issue. I. We express no opinion as to the enforceability of exculpatory provisions (or their corresponding indemnity provisions) contained in the Opinion Documents which purport to exculpate or indemnify Agents or Lenders for their own tortious acts, or if Agents or Lenders should exceed their authority under the Opinion Documents. J. The qualification of any opinion or statement herein by the use of the words "to our knowledge" means that during the course of representation as described in this opinion, no information has come to the attention of the attorneys of this firm involved in the transaction evidenced by the Opinion Documents that would give such attorneys current actual knowledge of the existence of the facts so qualified. Except as set forth herein, we have not undertaken any investigation to determine the existence of such facts and no inference as to our knowledge thereof shall be drawn from the fact of our representation of any party or otherwise. K. We express no opinion as to any matters which may be, or which purport to be, governed by any law of any jurisdiction other than the federal laws of the United States of America, the laws of the State of New York and the laws of the State of Texas. L. This opinion is limited to the matters expressly set forth herein, and no opinion is implied or may be inferred beyond the matters expressly stated herein. This opinion is solely for the information of the addressees hereof, and is not to be quoted in whole or in part or otherwise referred to (except in a list of closing documents), nor is it to be filed with any governmental agency or other person without our prior written consent. Other than the addressees hereof, no one is entitled to rely on this opinion. This opinion is based on our knowledge of the law and facts as of the date hereof. We assume no duty to communicate with you with respect to any matter which comes to our attention hereafter. Very truly yours, HAYNES AND BOONE, L.L.P. HAYNES AND BOONE, L.L.P. EXHIBIT A Material Contracts Relating to TNP One 1. Fuel Supply Agreement, dated November 18, 1987, between Phillips Coal Company and TNMP (Exhibit 10(j) to Form 10-K of TNMP for the year ended December 31. 1987. File No. 2-97230). 2. Amendment No. 1, dated as of April 1, 1988, to the Fuel Supply Agreement dated November 18, 1987, between Phillips Coal Company and TNMP. 3. Amendment No. 2, dated as of November 29, 1994, between Walnut Creek Mining Company and TNMP, to the Fuel Supply Agreement dated November 18, 1987, between Phillips Coal Company and TNMP, effective as of January 1, 1995. 4. Unit I First Amended and Restated Project Loan and Credit Agreement, dated as of January 8, 1992 (the "Unit I Credit Agreement"), among TNP, Texas Generating Company ("TGC"), the banks named therein as Banks (the "Unit I Banks") and the Chase Manhattan Bank (National Association), as Agent for the Unit I Banks (the "Unit I Agent"), amending and restating the Project Loan and Credit Agreement among such parties dated as of December 1, 1987 (Exhibit 10(c) to Form 10-K of TNMP for the year ended December 31, 1991. File No. 2-97230). 5. Participation Agreement, dated as of January 8, 1992, among the banks named therein as Banks, the parties named therein as Participants and the Unit I Agent (Exhibit 10(c)1 to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230). 6. Amendment No. 1, dated as of September 21, 1993, to the Unit I Credit Agreement (Exhibit 10(b)2 to Form 10-K of TNMP for the year ended December 31, 1993, File No. 2-97230). 7. Assignment and Security Agreement, dated as of January 8, 1992, among TGC and the Unit I Agent, for the benefit of the Secured Parties, as defined in the Unit I Credit Agreement, amending and restating the Assignment and Security Agreement among such parties dated as of December 1, 1987 (Exhibit 10(d) to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230). 8. Assignment and Security Agreement, dated December 1, 1987, executed by TNMP in favor of the Unit I Agent for the benefit of the Secured Parties, as defined therein (Exhibit 10(u) to Form 10-K of TNMP for the year ended December 31, 1987, File No. 2-97230). 9. Amended and Restated Subordination Agreement, dated as of October 1, 1988, among TNMP, Continental Illinois National Bank and Trust Company of Chicago and the Unit I Agent, amending and restating the Subordination Agreement among such parties dated as HAYNES AND BOONE, L.L.P. of December 1, 1987 (Exhibit 10(uu) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). 10. Mortgage and Deed of Trust (With Security Agreement and UCC Financing Statement for Fixture Filing), dated to be effective as of December 1, 1987, and executed by Project Funding Corporation ("PFC"), as Mortgagor, to Donald H. Snell. as Mortgage Trustee. for the benefit of the Secured Parties, as defined therein (Exhibit 10(ee) to Form 10-K of TNMP for the year ended December 31, 1987, File No. 2-97230). 11. Supplemental Mortgage and Deed of Trust (With Security Agreement and UCC Financing Statement for Fixture Filing), executed by TGC, as Mortgagor, on January 27, 1992, to be effective as of December 1, 1987, to Donald H. Snell, as Mortgage Trustee, for the benefit of the Secured Parties, as defined therein (Exhibit 10(g)4 to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230). 12. First TGC Modification and Extension Agreement, dated as of January 24. 1992, among the Unit I Banks, the Unit I Agent, TNMP and TGC (Exhibit 10(g)1 to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230). 13. Second TGC Modification and Extension Agreement. dated as of January 27, 1992, among the Unit I Banks, the Unit I Agent, TNMP and TGC (Exhibit 10(g)2 to Form 10K of TNMP for the year ended December 31, 1991, File No. 2-97230). 14. Third TGC Modification and Extension Agreement, dated as of January 27, 1992, among the Unit I Banks, the Unit I Agent, TNMP and TGC (Exhibit 10(g)3 to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230). 15. Fourth TGC Modification and Extension Agreement, dated as of September 29, 1993, among the Unit 1 Banks, the Unit I Agent, TNMP and TGC (Exhibit 10(g)5 to Form 10-K of TNMP for the year ended December 31, 1993, File No. 2-97230). 16. Fifth TGC Modification and Extension Agreement, dated as of September 29, 1993, among the Unit I Banks, the Unit I Agent. TNMP and TGC (Exhibit 10(g)6 to Form 10-K of TNMP for the year ended December 31, 1993. File No. 2-97230). 17. Indemnity Agreement, made as of the 1st day of December, 1987, by Westinghouse. CE and Zachry, as Indemnitors, for the benefit of the Secured Parties. as defined therein (Exhibit 10(ff) to Form 10-K of TNMP for the year ended December 31, 1987, File No. 2-97230). 18. Second Lien Mortgage and Deed of Trust (With Security Agreement) executed by TNMP, as Mortgagor, to Donald H. Snell, as Mortgage Trustee, for the benefit of the Secured Parties, as defined therein (Exhibit 10(jj) to Form 10-K of TNMP for the year ended December 31, 1987, File No. 2-97230). -2- HAYNES AND BOONE, L.L.P. 19. Correction Second Lien Mortgage and Deed of Trust (with Security Agreement), dated as of December 1, 1987, executed by TNMP, as Mortgagor. to Donald H. Snell, as Mortgage Trustee, for the benefit of the Secured Parties. as defined therein (Exhibit 10(vv) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). 20. Second Lien Mortgage and Deed of Trust (with Security Agreement) Modification, Extension and Amendment Agreement, dated as of January 8, 1992. executed by TNMP to Donald H. Snell, as Mortgage Trustee, for the benefit of the Secured Parties, as defined therein (Exhibit 10(i)2 to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230), 21. TNP Second Lien Mortgage Modification No. 2, dated as of September 21, 1993, executed by TNMP to Donald H. Snell, as Mortgage Trustee, for the benefit of the Secured Parties, as defined therein (Exhibit 10(h)3 to Form 10-K of TNMP for the year ended December 31, 1993, File No. 2-97230). 22. Agreement for Conveyance and Partial Release of Liens, made as of the 1st day of December, 1987 by PFC and the Unit I Agent for the benefit of TNMP (Exhibit 10(kk) to Form 10-K of TNMP for the year ended December 31, 1987. File No. 2-97230). 23. Inducement and Consent Agreement, dated as of June 15, 1988, between Phillips Coal Company, Kiewit Texas Mining Company, TNMP, Phillips Petroleum Company and Peter Kiewit Son's. Inc. (Exhibit 10(nn) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). 24. Assumption Agreement, dated as of October 1, 1988, executed by TGC, in favor of the Issuing Bank, as defined therein, the Unit I Banks, the Unit I Agent and the Depositary, as defined therein (Exhibit 10(ww) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). 25. Guaranty, dated as of October 1, 1988, executed by TNMP and given in respect of the TGC obligations under the Unit I Credit Agreement, (Exhibit 10(xx) to Form 10-K of TNMP for the year ended December 31, 988, File No. 2-97230). 26. First Amended and Restated Facility Purchase Agreement, dated as of January 8, 1992, among TNMP, as the Purchaser, and TGC, as the Seller, amending and restating the Facility Purchase Agreement among such parties dated as of October 1, 1988, (Exhibit 10(n) to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230). 27. Operating Agreement, dated as of October 1, 1988, among, TNMP and TGC (Exhibit 10(zz) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). - 3 - HAYNES AND BOONE, L.L.P. 28. Unit 2 First Amended and Restated Project Loan and Credit Agreement, dated as of January 8, 1991 (the "Unit 2 Credit Agreement"), among TNMP, Texas Generating Company II ("TGC II"), the banks named therein as Banks (the "Unit 2 Banks") and The Chase Manhattan Bank (National Association), as Agent for the Unit 2 Banks (the "Unit 2 Agent"), amending and restating the Project Loan and Credit Agreement among such parties dated as of October 1, 1988 (Exhibit 10(q) to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230). 29. Amendment No. 1, dated as of September 21, 1993, to the Unit 2 Credit Agreement (Exhibit 10(o) to Form 10-K of TNMP for the year ended December 31, 1993, File No. 2-91230). 30. Assignment and Security Agreement, dated as of January 8, 1992, among, TGC II and the Unit 2 Agent, for the benefit of the Secured Parties, as defined in the Unit 2 Credit Agreement, amending and restating the Assignment and Security Agreement among such parties dated as of October 1, 1988 (Exhibit 10(r) to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230). 31. Assignment and Security Agreement, dated as of October 1, 1988, executed by TNMP in favor of the Unit 2 Agent for the benefit of the Secured Parties, as defined therein (Exhibit 10(jjj) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). 32. Subordination Agreement, dated as of October 1, 1988, among TNMP, Continental Illinois National Bank and Trust Company of Chicago and the Unit 2 Agent (Exhibit 10 (mmm) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 297230). 33. Mortgage and Deed of Trust (With Security Agreement and UCC Financing Statement for Fixture Filing), dated to be effective as of October 1, 1988, and executed by Texas PFC, Inc., as Mortgagor, to Donald H. Snell, as Mortgage Trustee. for the benefit of the Secured Parties, as defined therein (Exhibit 10(uuu) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). 34. First TGC II Modification and Extension Agreement. dated as of January 24, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNMP and TGC II (Exhibit 10(u)2 to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230). 35. Second TGC II Modification and Extension Agreement, dated as of January 27, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNMP and TGC II (Exhibit 10(u)2 to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230). -4- HAYNES AND BOONE, L.L.P. 36. Third TGC II Modification and Extension Agreement, dated as of January 27, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNMP and TGC II (Exhibit 10(u)2 to Form 10-K of TNMP for the year ended December 31, 199 1, File No. 2-97230). 37. Fourth TGC II Modification and Extension Agreement, dated as of September 29, 1992, among the Unit 2 Banks, the Unit 2 Agent, TNMP and TGC II (Exhibit 10(s)2 to Form 10-K of TNMP for the year ended December 31, 1993, File No. 2-97230). 38. Fifth TGC II Modification and Extension Agreement, dated as of June 15, 1994, among the Unit 2 Banks, the Unit 2 Agent, TNMP and TGC II (Exhibit 10(s)5 to Form 10-Q of TNMP for the quarter ended June 30, 1994, File No. 2-97230). 39. Release and Waiver of Liens and Indemnity Agreement, made effective as of the 1st day of October, 1988, by a consortium composed of Westinghouse, CE, and Zachary (Exhibit 10(vvv) to Form 10-K of TNMP for the year ended December 31. 1988. File No. 297230). 40. Second Lien Mortgage and Deed of Trust (With Security Agreement), dated as of October 1, 1988, and executed by TNMP, as Mortgagor, to Donald H. Snell, as Mortgagor Trustee, for the benefit of the Secured Parties, as defined therein (Exhibit 10(www) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). 41. Second Lien Mortgage and Deed of Trust (with Security Agreement) Modification, Extension and Amendment Agreement, dated as of January 8, 1992, executed by TNMP to Donald H. Snell, as Mortgage Trustee, for the benefit of the Secured Parties. as defined therein (Exhibit 10(w)1 to Form 10-K of TNMP for the year ended December 3 1, 1991, File No. 2-97230). 42. TNP Second Lien Mortgage Modification No. 2, dated as of September 21, 1993, executed by TNMP to Donald H. Snell, as Mortgage Trustee, for the benefit of the Secured Parties, as defined therein (Exhibit 10(u)2 to Form 10-K of TNMP for the year ended December 31, 1993. File No. 2-97230). 43. Intercreditor and Nondisturbance Agreement, dated as of October 1, 1988, among PFC, Texas PFC, Inc., TNMP, the Project Creditors, as defined therein, and the Collateral Agent, as defined therein (Exhibit 10(xxx) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). 44. Amendment #1, dated as of January 8, 1992, to the Intercreditor and Nondisturbance Agreement, dated as of October 1, 1988, among TGC, TGC II, TNMP, the Unit I Banks, the Unit 2 Banks and The Chase Manhattan Bank (National Association) in its capacity as collateral agent for the Unit I Banks and the Unit 2 Banks (Exhibit 10(x) to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230). -5- HAYNES AND BOONE, L.L.P. 45. Amendment No. 2, dated as of September 21, 1993. to the Intercreditor and Nondisturbance Agreement, among TGC, TGC II, TNMP. the Unit I Banks. the Unit 2 Banks and The Chase Manhattan Bank (National Association) in its capacity as collateral agent for the Unit I Banks and the Unit 2 Banks (Exhibit 10(v)2 to Form 10-K of TNMP for the year ended December 31, 1993, File No. 2-97230). 46. Grant of Reciprocal Easements and Declaration of Covenants Running with the Land, dated as of the 1st day of October, 1988, between PFC and Texas PFC. Inc. (Exhibit10(yyy) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). 47. Non-Partition Agreement, dated as of May 30, 1990, among, TNMP, TGC and The Chase Manhattan Bank (National Association), as Agent for the Banks which are parties to the Unit I Credit Agreement (Exhibit 10(ss) to Form 10-K of TNMP for the year ended December 31, 1990, File No. 2-97230). 48. Assumption Agreement, dated July 26, 199 1, to be effective as of May 31, 1991, by TGC II in favor of the Issuing Bank, the Unit 2 Banks, the Unit 2 Agent and the Depositary, as defined therein (Exhibit 10(kkk) to Amendment No. 1 to File No. 33-41903). 49. Guaranty, dated July 26, 1991, to be effective as of May 31, 1991, by TNMP and given in respect of the TGC II 0bligations under the Unit 2 Credit Agreement (Exhibit 10(lll) to Amendment No. 1 to File No. 33-41903). 50. First Amended and Restated Facility Purchase Agreement, dated as of January 8, 1992, among TNMP, as the Purchaser, and TGC II, as the Seller, amended and restating the Facility Purchase Agreement among such parties dated July 26, 1991, to be effective as of May 31, 1991 (Exhibit 10(dd) to Form 10-K of TNMP for the year ended December 31, 1991, File No. 2-97230). 51. Amendment No. 1 to the Unit 2 First Amended and Restated Facility Purchase Agreement, dated as of September 21, 1993, among TNMP, as the Purchaser, and TGC II, as the Seller (Exhibit 10(aa)1 to Form 10-K of TNMP for the year ended December 31, 1993, File No. 2-97230). 52. Operating Agreement, dated July 26, 1991, to be effective as of May 31, 1991, between TNMP and TGC II (Exhibit 10(nnn) to Amendment No. 1 to File No. 33-41903). 53. Non-Partition Agreement, executed July 26, 1991, to be effective as of May 31, 1991, among TNMP, TGC II and The Chase Manhattan Bank (National Association) (Exhibit 10(ppp) to Amendment No. 1 to File No. 33-41903). -6- HAYNES AND BOONE, L.L.P. Power Supply Contracts 54. Contract dated May 12, 1976 between TNMP and Houston Lighting & Power Company (Exhibit 5(a), File No. 2-9353). 55. Amendment, dated January 4, 1989, to the Contract dated May 12, 1976 between TNMP and Houston Lighting & Power Company (Exhibit 10(cccc) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-7230). 56. Contract dated May 1, 1986 between TNMP and Texas Electric Utilities Company, amended September 29, 1986, October 24, 1986 and February 21, 1987 (Exhibit 10(c) of Form 8 applicable to Form 10-K of TNMP for the year ended December 31, 1986. File No. 2-97230). 57. Amended and Restated Agreement for Electric Service dated May 14, 1990 between TNMP and Texas Utilities Electric Company (Exhibit 10(vv) to Form 10-K for the year ended December 31, 1990, File No 2-97230). 58. Amendment, dated April 19, 1993, to Amended and Restated Agreement for Electric Service, dated May 14, 1990, as Amended between TNMP and Texas Utilities Electric Company (Exhibit 10(ii)l to Form S-2 Registration Statement, filed on July 19. 1993. File No. 33-66232). 59. Contract dated June 11, 1984 between TNMP and Southwestern Public Service Company (Exhibit 10(d) of Form 8 applicable to Form 10-K of TNMP for the year ended December 31, 1986, File No. 2 -97230). 60. Contract dated April 27, 1977 between TNMP and West Texas Utilities Company amended April 14, 1982. April 19, 1983, May 18, 1984 and October 21, 1986 (Exhibit 10(e) of Form 8 applicable to Form 10-K of TNMP for the year ended December 31, 1986, File No. 2-97230). 61. Contract dated April 29, 1987 between TNMP and El Paso Electric Company (Exhibit 10(f) of Form 8 applicable to Form 10-K of TNMP for the year ended December 31, 1986, File No. 2-97230). 62. Contract dated February 28, 1974, amended May 13, 1974, November 26, 1975, August 26, 1976 and October 7, 1980 between TNMP and Public Service Company of New Mexico (Exhibit 10(g) of Form 8 applicable to Form 10-K of TNMP for the year ended December 31, 1986, File No. 2-97230). 63. Amendment, dated February 22, 1982, to the Contract dated February 28, 1974, amended May 13, 1974, November 26, 1975, August 26, 1976 and October 7, 1980 between -7- HAYNES AND BOONE, L.L.P. TNMP and Public Service Company of New Mexico (Exhibit 10(iiii) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). 64. Amendment, dated February 8, 1988, to the Contract dated February 28, 1974, amended May 13, 1974, November 26, 1975, August 26, 1976, and October 7, 1980 between TNMP and Public Service Company of New Mexico (Exhibit 10(jjjj) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). 65. Amended and Restated Contract for Electric Service, dated April 29, 1988, between TNMP and Public Service Company of New Mexico (Exhibit 10(xx)3 to Amendment No. 1 to File No. 33-41903). 66. Contract dated December 8, 1981 between TNMP and Southwestern Public Service Company amended December 12, 1984, December 2, 1985 and December 9, 1986 (Exhibit 10(h) of Form 8 applicable to Form 10-K of TNMP for the year ended December 31, 1986, File No. 2-97230). 67. Amendment, dated December 12, 1988, to the Contract dated December 8. 1981 between TNMP and Southwestern Public Service Company amended December 12, 1984, December 2, 1985 and December 19, 1986 (Exhibit 10(llll) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 2-97230). 68. Amendment, dated December 12, 1990, to the Contract dated December 8, 1981 between TNMP and Southwestern Public Service Company (Exhibit 19(t) to Form 10-K of TNMP for the year ended December 31, 1990, File No. 2-97230). 69. Contract dated August 31, 1983, between TNMP and Capitol Cogeneration Company, Ltd. (including letter agreement dated August 14, 1986) (Exhibit 10(i) of Form 8 applicable to Form 10-K of TNMP for the year ended December 31, 1986, File No. 297230). 70. Agreement Substituting a Party, dated May 3, 1988, among Capitol Cogeneration Company, Ltd., Clear Lake Cogeneration Limited Partnership and TNMP (Exhibit 10(nnnn) to Form 10-K of TNMP for the year ended December 31, 1988, File No. 297230). 71. Letter Agreements, dated May 30, 1990 and August 28, 1991, between Clear Lake Cogeneration Limited Partnership and TNMP (Exhibit 10(oo)2 to Form 10-K of TNMP for the year ended December 31, 1992, File No. 2-97230). 72. Notice of Extension Letter, dated August 31, 1992, between Clear Lake Cogeneration Limited Partnership and TNMP (Exhibit 10(oo)3 to Form 10-K of TNMP for the year ended December 31, 1992, File No. 2-97230). -8- + HAYNES AND BOONE, L.L.P. 73. Scheduling Agreement, dated September 15, 1992, between Clear Lake Cogeneration Limited Partnership and TNMP (Exhibit 10(oo)4 to Form 10-K of TNMP for the year ended December 31, 1992, File No. 2-97230). 74. Interconnection Agreement between TNMP and Plains Electric Generation and Transmission Cooperative, Inc. dated July 9, 1984, (Exhibit 100) of Form 8 applicable to Form 10-K of TNMP for the year ended December 31, 1986, File No. 2-97230). 75. Interchange Agreement between TNMP and El Paso Electric Company dated April 29, 1987, (Exhibit 10(l) of Form 8 applicable to Form 10-K of TNMP for the year ended December 31, 1986, File No. 2-97230). 76. Amendment No. 1, dated November 21, 1994, to the Interchange Agreement between TNMP and El Paso Electric Company dated April 29, 1987. 77. DC Terminal Participation Agreement between TNMP and El Paso Electric Company dated December 8, 1981 amended April 29, 1987 (Exhibit 10(m) of Form 8 applicable to Form 10-K of TNMP for the year ended December 31, 1986, File No. 2-97230). 78. 1996 Firm Capacity & Energy Sale Agreement between TNMP and TEP dated December 20, 1994, effective as of January 1, 1996. Employment Contracts 79. Texas-New Mexico Power Company Executive Agreement for Severance Compensation Upon Change in Control, executed November 11, 1993, between Sector Vice President and Chief Financial Officer and TNMP (Pursuant to Instruction 2 of Reg. 229.601(a), accompanying this document is a schedule: (i) identifying documents substantially identical to the document which have been omitted from the Exhibits; and (ii) setting forth the material details in which such omitted documents differ from the document) (Exhibit 10(pp) to Form 10-K of TNMP for the year ended December 31, 1993, File No. 2-97230). 80. Texas-New Mexico Power Company Key Employee Agreement for Severance Compensation Upon Change in Control. executed November 11, 1993, between Assistant Treasurer and TNMP (Pursuant to Instruction 2 of Reg. 229.601(a), accompanying this document is a schedule: (i) identifying documents substantially identical to the document which have been omitted from the Exhibits; and (ii) setting forth the material details in which such omitted documents differ from the document) (Exhibit 10(qq) to Form 10-K of TNMP for the year ended December 31, 1993, File No. 2-97230). - 9 - EXHIBIT G-1-A MICHAEL D. BLANCHARD ATTORNEY AT LAW 4100 INTERNATIONAL PLAZA P.O. BOX 2943 FORT WORTH, TEXAS 76113 (817) 731-0099 November 3, 1995 Chemical Bank individually and as Administrative Agent under the TNP Credit Agreement referred to below 270 Park Avenue New York, NY 10017 The Lenders from time to time under the TNP Credit Agreement The Chase Manhattan Bank (National Association), as agent under the Existing Facility Agreement referred to in the TNP Credit Agreement One Chase Manhattan Plaza New York, NY 10005 Ladies and Gentlemen: I am the general counsel of Texas-New Mexico Power Company, a Texas corporation ("TNP"), and Texas Generating Company II, a Texas corporation and wholly owned subsidiary of TNP ("TGC II"), and have served in such capacity in connection with the transactions contemplated by (i) the Assignment and Amendment Agreement dated as of November 3, 1995 (the "Assignment Agreement") among TNP, TGC II, the Existing Facility Banks, the Original Collateral Agent, the Original Agent, the Lenders, the Administrative Agent, and the Collateral Agent (each as defined therein), (ii) the Revolving Credit Agreement dated as of November 3, 1995 (the "TNP Credit Agreement") among TNP, each of the lenders that is a signatory thereto (the "Lenders"), and Chemical Bank, as administrative agent and collateral agent for the Lenders (in such capacities, the "Administrative Agent" and the "Collateral Agent", respectively), (iii) the Bond Agreement dated as of November 3, 1995 (the "Bond Agreement") by TNP in favor of Chemical Bank, as Collateral Agent, (iv) the Supplemental Indenture dated as of November 3, 1995 (the "Supplemental Indenture") pursuant to which the Bonds (as defined in the Bond Agreement) have been issued, (v) the Bonds (as defined in the Bond Agreement), (vi) the Note Pledge Agreement dated as of November 3, 1995 (the "Note Pledge Agreement") by TNP in favor of the Collateral Agent, (vii) the Guarantee and Pledge Agreement dated as of November 3, 1995 (the "Guarantee Agreement") by TGC II in favor of the Collateral Agent, (viii) the Sixth TGC II Modification and Extension Agreement dated as of November 3, 1995 (the "Sixth TGC II Modification") among TGC II, TNP, and the Secured Parties (as defined therein), (ix) the TNP Second Lien Mortgage Modification No. 3 dated as of November 3, 1995 (the "TNP Mortgage Modification No. 3") by TNP for the benefit of the Secured Parties (as defined therein), (x) the Assignment of TGC II Mortgage Lien dated as of November 3, 1995 (the "Assignment of TGC II Lien") by The Chase Manhattan Bank (National Association), as Agent and as Collateral Agent (each as defined therein) in favor of Chemical Bank, as agent for TNP under the Existing Facility (pursuant to the Assignment Agreement), and as agent for the Replacement Note Holder under the Existing Facility Agreement, (xi) the Collateral Transfer of Notes, Rights and Interests dated as of November 3, 1995 (the "TGC II Collateral Transfer") between TNP and the Administrative Agent and the Collateral Agent, (xii) the Assignment of TNP Second Mortgage Lien dated as of November 3, 1995 (the "Assignment of TNP Lien") by The Chase Manhattan Bank (National Association), as Agent and as Collateral Agent (each as defined therein) in favor of Chemical Bank, as agent for TNP under the Existing Facility (pursuant to the Assignment Agreement), and as agent for the Replacement Note Holder under the Existing Facility Agreement, (xiii) the Collateral Transfer of Notes, Rights and Interests dated as of November 3, 1995 (the "TNP Collateral Transfer") between TNP and the Administrative Agent and the Collateral Agent, (xiv) Amendment No. 1 dated as of November 3, 1995, to the TNP Security Agreement (as defined in the Existing Facility Agreement) (the "TNP Security Agreement Amendment"), and (xv) financing statements naming TNP and TGC II, as applicable, as debtor, and TNP and the Collateral Agent, as applicable, as secured party, which are to be filed in the filing offices of the Secretary of State of the State of Texas and the county clerk's office for Robertson County, Texas (such filing offices collectively referred to as the "Filing Offices" and such financing statements as the "Financing Statements") (each of the agreements, instruments, and documents referred to in the foregoing clauses (i) through (xv) being collectively called the "Opinion Documents"). Unless otherwise defined herein, terms defined in the TNP Credit Agreement are used herein as therein defined. Except where the context otherwise requires, words importing the singular include the plural and vise versa. In rendering the opinions expressed below, I have examined (a) the Opinion Documents, the Existing Facility Agreement and each of the other Existing Facility Project Documents and Existing Facility Security Documents, (b) such corporate records of TNP and TGC II, agreements, instruments, and documents which affect or purport to affect the obligations of TNP or TGC II under the Opinion Documents, the Existing Facility Agreement, the Existing Facility Project Documents, and the Existing Facility Security Documents, (c) the TNP Bond Indenture, (d) the various orders of the New Mexico Public Utility Commission and the Federal Energy Regulatory Commission related to the transactions contemplated by the Opinion Documents and such other documents as I have deemed necessary as a basis for the opinions expressed below. In my examination, except as relates to the execution by TNP or TGC II of any of the Opinion Documents, I have assumed the genuineness of all signatures and the legal capacity of natural persons, the authenticity of documents submitted to me as originals, and the conformity with authentic original documents of all documents submitted to me as copies. When relevant facts were not independently established, I have relied upon statements of government officials and upon representations made in or pursuant to the Opinion Documents and certificates of appropriate representatives of TNP or TGC II. Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as I have deemed necessary as a basis for the opinions expressed below, I am of the opinion that: 1. Each of TNP and TGC II is, and was at the time of execution of each Existing Facility Document, a corporation duly incorporated, validly existing and in good standing under the laws of the State of Texas and presently has, and had at the time of execution of each Existing Facility Document, the necessary corporate power, authority, and legal right to execute, deliver, and perform each of the Existing Facility Documents to which it is party. 2. The execution, delivery, and performance by each of TNP and TGC II of the Existing Facility Documents to which it is a party have been, and were at the time of execution of such Existing Facility Documents, duly authorized by all necessary corporate action and do not, and did not at the time of execution of such Existing Facility Documents, (a) require any consent or approval of the shareholders of either TNP or TGC II or of the trustee under the TNP Bond Indenture or any holder of any interest in any of the bonds issued and outstanding under the TNP Bond Indenture or of the First Debenture Trustee under the First Secured Debenture Indenture (except, as to the First Debenture Trustee, such consent as may have been obtained at the time of the execution of such Existing Facility Documents) or any holder of any of the First Secured Debentures outstanding under the First Secured Debenture Indenture , each as presently in effect, or as in effect at the time of execution of such Existing Facility Documents, as the case may be, (b) violate any provision of law, rule, regulation, or any order, writ, judgment, injunction, decree, determination or award of any Governmental Authority, or any provision of the articles or bylaws of TNP or TGC II, or the TNP Bond Indenture or the First Secured Debenture Indenture, each as currently in effect, or as in effect at the time of execution of such Existing Facility Documents, as the case may be, (c) result in a breach of, or constitute a default or require any consent under, any indenture or loan or credit agreement to which TNP or TGC II is a party or by which it or its properties are, or were at the time of execution of such Existing Facility Documents, as the case may be, bound or (d) result in or require the imposition of any Lien (other than a Lien permitted under Section 6.2 of the TNP Credit Agreement) upon or with respect to any property now owned, or owned at the time of execution of such Existing Facility Documents, as the case may be, or hereafter, or thereafter, as the case may be, acquired by TNP or TGC II. Neither TNP nor TGC II is, or was at the time of execution of such Existing Facility Documents, as the case may be, in breach of or in default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any agreement or instrument mentioned in the foregoing which breach or default could reasonably be expected to have a material adverse effect on its business. 3. Each of TNP and TGC II has duly executed and delivered each of the Existing Facility Documents to which it is a party. 4. All actions, consents, approval, registrations, or filings with or any other action by any Governmental authority necessary to be obtained by TNP or TGC II under applicable Texas and Federal laws and regulations (including, without limitation, those promulgated by the PUCT or the Federal Energy Regulatory Commission) in connection with (a) the due execution, delivery, and performance by each of TNP and TGC II of its obligations and the exercise of its rights under, the TNP Credit Agreement, the Assignment Agreement, each of the other Opinion Documents and each of the Existing Facility Documents and the incurrence of the indebtedness and obligations to be incurred by TNP and TGC II thereunder, and (b) the grant of the Liens created pursuant to the Existing Facility Security Documents and the Pledge Agreements, have been duly obtained or made and are in full force and effect. 5. The Order of the PUCT in Docket No. 6992 of 1987, authorizing TNP to construct, own, and operate the Project (with TGC II as the owner thereof as contemplated by the Existing Facility Project Documents) remains in full force and effect, is final, and is not subject to further administrative proceedings or appeal periods. To my knowledge, there is no investigation, action, suit, or proceeding pending or threatened against TNP or TGC II which seeks, or may reasonably be expected, to rescind, terminate, modify, or suspend any approval by any Governmental Authority or which may impede or delay any such approval. 6. None of the Administrative Agent, the Collateral Agent or any of the Lenders, solely by reason of any extension of loans under the TNP Credit Agreement or by reason of the execution, delivery, or performance of any of the Opinion Documents or the other Existing Facility Documents, will be or be subject to regulation as an "electric utility", "electrical corporation", "electric company", "electric utility company", an "electric utility holding company", "public service company", or "holding company" or a subsidiary or affiliate of any of the foregoing under either (i) the Federal Power Act, as amended, (ii) the Public Utility Holding Company Act of 1935, as amended, or (iii) any Texas law. 7. Neither TNP nor TGC II is subject to regulation under the Public Utility Holding Company Act of 1935, as amended, other than pursuant to Section 9(a)(2) thereof. This opinion is solely for the information of the addressees hereof, and is not to be quoted in whole or in part or otherwise referred to (except in a list of closing documents), nor is it to be filed with any governmental agency or other person without my prior written consent. Other than the addressees hereof, no one is entitled to rely on this opinion. This opinion is based on my knowledge of the law and facts as of the date hereof. I assume no duty to communicate with you with respect to any matter which comes to my attention hereafter. Very truly yours, MICHAEL D. BLANCHARD EXHIBIT G-2 SNELL, BANOWSKY & TRENT A PROFESSIONAL CORPORATION ATTORNEYS AND COUNSELORS 200 CRESCENT OURT, SUITE 1000 DALLAS, TEXAS 750201 DONALD H. SNELL (214) 871-3515 TELECOPIER (214) 871-3517 November 3, 1995 Chemical Bank individually and as Administrative Agent under the TNP Credit Agreement referred to below 270 Park Avenue New York, New York 10017 The Lenders from time to time under the TNP Credit Agreement Dear Sirs: the TNP Credit Agreement dated as of November 3, 1995 ("TNP Credit Agreement") by and among TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation ("TNP"), the Lenders, and CHEMICAL BANK, as administrative agent and collateral agent for the Lenders ("Administrative Agent" and "Collateral Agent", respectively), (ii) the Assignment and Amendment Agreement dated as of November 3, 1995 (the "Assignment Agreement") among TNP, TEXAS GENERATING COMPANY II, a Texas corporation and wholly owned subsidiary of TNP ("TGC II"), the Existing Facility Banks, the Original Collateral Agent, the Original Agent, the Lenders, the Administrative Agent and the Collateral Agent (each as defined in the Assignment Agreement), (iii) the Bond Pledge Agreement dated as of November 3, 1995 (the "Bond Pledge Agreement") by TNP in favor of the Collateral Agent, (iv) the Supplemental Indenture dated as of November 3, 1995 (the "Supplemental Indenture") pursuant to which the Pledged Bonds (as defined in the Bond Pledge Agreement) have been issued, (v) the Pledged Bonds (as defined in the Bond Pledge Agreement, (vi) the Note Pledge Agreement dated as of November 3, 1995 (the "Note Pledge Agreement") by TNP in favor of the Collateral Agent, (vii) the Guarantee and Pledge Agreement dated as of November 3, 1995 (the "Guarantee Agreement") by TGC II in favor of the Collateral Agent, (viii) the Sixth TGC II Modification and Extension Agreement dated as of November 3, 1995 (the "Sixth TGC II Modification") among TGC II, TNP and the Secured Parties (as defined therein), (ix) the Amendment No. 1 dated as of November 3, 1995 (the "TNP Security Agreement Amendment") to the TNP Security Agreement (as defined in the Existing Facility Agreement), (x) the TNP Second Lien Mortgage Modification No. 3 dated as of November 3, 1995 (the "TNP Second Lien Mortgage Modification No. 3") by TNP for the benefit of the Secured Parties (as defined therein), (xi) the Assignment of TGC II Mortgage Lien dated as of November 3, 1995 (the "Assignment of TGC II Lien") by The Chase Manhattan Bank (National Association), as Agent and as Collateral Agent (each as defined therein) in favor of Chemical Bank, as agent for TNP under the Existing Facility Agreement (pursuant to the Assignment Agreement), and as agent for the Replacement Note Holder under the Existing Facility Agreement, (xii) the Collateral Transfer of Notes, Rights and Interests dated as of November 3, 1995 (the "TNP Collateral Transfer-Robertson County") between TNP and the Administrative Agent and the Collateral Agent, (xiii) the Assignment of TNP Second Mortgage Lien dated as of November 3, 1995 (the "Assignment of TNP Lien") by The Chase Manhattan Bank (National Association), as Agent and as Collateral Agent (each as defined therein) in favor of Chemical Bank, as agent for TNP under the Existing Facility Agreement (pursuant to the Assignment Agreement), and as agent for the Replacement Note Holder under the Existing Facility Agreement, (xiv) the Collateral Transfer of Notes, Rights and Interests dated as of November 3, 1995 (the "TNP Collateral Transfer-Secretary of State") between TNP and the Administrative Agent and the Collateral Agent, and (xv) financing statements naming TNP and TGC II, as applicable, as debtor and TNP and the Collateral Agent, as applicable, as secured party, which are to be filed in the filing offices of the Secretary of State of the State of Texas and the County Clerk's Office for Robertson County, Texas (each of the foregoing agreements, instruments and documents referred to in the foregoing clauses (i) through (xiv) being collectively called the "Opinion Documents"). Unless otherwise defined herein, terms defined in the TNP Credit Agreement are used herein as therein defined. We have made such investigations regarding matters of law and examined such of the Opinion Documents, Existing Facility Project Documents and Existing Facility Security Documents as we deemed necessary or appropriate, including, but not limited to, executed counterparts of the following: Mortgage and Deed of Trust (with Security Agreement and UCC Financing Statement for Fixture Filing) ("TGC II Mortgage") dated to be effective as of October 1, 1988, executed by TPFC for the benefit of the Banks; First TGC II Modification and Extension Agreement executed by Donald H. Snell, as Mortgage Trustee, the Agent, the Collateral Agent, TGC II and TNP ("First TGC II Modification") dated as of January 24, 1992; Second TGC II Modification and Extension Agreement executed by the Agent, the Collateral Agent, TGC II and TNP ("Second TGC II Modification") dated as of January 27, 1992; Third TGC II Modification and Extension Agreement executed by the Agent, the Collateral Agent, TGC II and TNP ("Third TGC II Modification") dated as of January 27, 1992; Fourth TGC II Modification and Extension Agreement executed by the Agent, the Collateral Agent, TGC II and TNP ("Fourth TGC II Modification") dated as of September 29, 1993; Fifth TGC II Modification and Extension Agreement executed by the Agent, the Collateral Agent, TGC II and TNP ("Fifth TGC II Modification") dated as of June 15, 1994; (the First TGC II Modification, Second TGC II Modification, Third TGC II Modification, Fourth TGC II Modification and Fifth TGC II Modification are hereinafter collectively called the "TGC II Mortgage Modifications"; and the Mortgage Trust Estate defined in the TGC II Mortgage and TGC II Mortgage Modifications is hereinafter called the "TGC II Mortgage Trust Estate"). Second Lien Mortgage and Deed of Trust (with Security Agreement) ("TNP Second Lien Mortgage") dated as of October 1, 1988, executed by TNP in favor of Donald H. Snell as Mortgage Trustee for the benefit of the Secured Parties; Second Lien Mortgage and Deed of Trust (with Security Agreement) Modification, Extension and Amendment Agreement ("TNP Second Lien Mortgage Modification No. 1") dated as of January 8, 1992, executed by TNP in favor of Donald H. Snell, as mortgage trustee for the benefit of the Secured Parties; and Second Lien Mortgage and Deed of Trust (with Security Agreement) Modification, Extension and Amendment Agreement No. 2 ("TNP Second Lien Mortgage Modification No. 2" and, together with the Unit 2 TNP Second Lien Mortgage Modification No. 1, the "TNP Second Lien Mortgage Modifications"; and the Mortgage Trust Estate defined in the TNP Second Lien Mortgage and TNP Second Lien Mortgage Modifications herein called the "TNP Mortgage Trust Estate"). In stating our opinions, we have assumed the due authorization, execution and delivery of the above described documents by each party thereto, the genuineness of all signatures on all documents, and the authority of all persons signing each of the above described documents on behalf of the parties thereto, the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed or photostatic copies. Furthermore, we have assumed that the Opinion Documents described in subparagraphs (viii) through (xiv) of the first paragraph of this letter will be promptly and properly recorded in the appropriate records of Robertson County, Texas or the Office of the Secretary of State of the State of Texas, as the case may be. Based and relying solely upon the foregoing, and subject to the comments and exceptions hereinafter stated, we are of the opinion that: The TGC II Mortgage, as modified by the TGC II Mortgage Modifications, each of which has been recorded in the Public Records of Robertson County, Texas, and the TNP Second Lien Mortgage, as modified by the TNP Second Lien Mortgage Modifications, each of which has been recorded as a security instrument with the Office of the Secretary of State of the State of Texas, constitute, and the TGC II Mortgage and the TNP Second Lien Mortgage, as hereafter modified on the Closing Date (when such documents are executed and delivered in exchange for the contemplated consideration) by the Sixth TGC II Modification and the TNP Second Lien Mortgage Modification No. 3, respectively, will constitute the legal, valid and binding obligations of the parties thereto, enforceable against such parties in accordance with their respective terms and effective to create the liens they purport to create, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization or moratorium or other similar laws or equitable principles relating to the enforcement of creditors' rights generally and by general principles of equity regardless of whether enforcement of any obligation therein mentioned is sought in a proceeding in equity or at law. The Sixth TGC II Mortgage Modification is in proper form (a) for execution under the laws of the State of Texas, (b) for recording in the Public Records of Robertson County, Texas, and (c) for the extension of the Lien evidenced by the TGC II Mortgage. The provisions of the TNP Security Agreement Amendment are sufficient to create in favor of the Collateral Agent a valid security interest in TNP's interest in the Collateral referred to therein and in which a security interest may be created pursuant to Article 9 of the Texas Business and Commerce Code. The TNP Second Lien Mortgage Modification No. 3 is in proper form (a) for execution under the laws of the State of Texas, (b) for recording as a security instrument relating to the granting of a security interest by a utility with the Office of the Secretary of State of the State of Texas, and (c) for the extension of the Lien evidenced by the TNP Second Lien Mortgage. The Assignment of TGC II Lien is in proper form (a) for execution under the laws of the State of Texas, (b) for recording in the Public Records of Robertson County, Texas, and (c) for evidencing of record the assignment of all of the rights, title, interest, security interests and assignments of the Agent and Collateral Agent in and to the TGC II Mortgage and the TGC II Mortgage Trust Estate. The Assignment of TNP Lien is in proper form (a) for execution under the laws of the State of Texas, (b) for recording as a security instrument assigning a security interest by a utility with the Office of the Secretary of State of the State of Texas, and (c) for evidencing of record the assignment of all of the Agent's and Collateral Agent's right, title, interest, liens, security interests and assignments in and to the TNP Second Lien Mortgage. The TNP Collateral Transfer - Robertson County is in proper form (a) for execution under the laws of the State of Texas, (b) for recording in the Public Records of Robertson County, Texas, and (c) for evidencing of record the transfer of the Collateral by TNP to the Administrative Agent and the Collateral Agent to secure the Obligations. The Collateral Transfer - Secretary of State is in proper form (a) for execution under the laws of the State of Texas, (b) for recording as a security instrument relating to the granting of a security interest by a utility with the Office of the Secretary of State of the State of Texas, and (c) to evidence of record the transfer of the Collateral by TNP to the Administrative Agent and the Collateral Agent as security for the Obligations. The execution, delivery and performance by TNP and/or TGC II of the TNP Credit Agreement, the Assignment Agreement and each of the other Opinion Documents to which it/they are a part has not and will not adversely affect or impair the lien created by the TGC II Mortgage. None of the Administrative Agent, the Collateral Agent or any of the Lenders shall, solely as a result of the financing evidenced by the TNP Credit Agreement, or by the exercise of any rights under the Note Pledge Agreement and thereafter under the TGC II Mortgage or the TNP Second Lien Mortgage become subject to any registration or qualification requirements or any tax imposed by the State of Texas or any political subdivision thereof. In this regard, Article 1396-8.01 of the Texas Miscellaneous Corporation Laws Act, provides, in part, that "a foreign corporation shall not be considered to be conducting affairs in this State, for the purposes of this Act, by reason of carrying on in this State any one (1) or more of the following activities: ... (6) creating evidence of debt, mortgages, or liens on real or personal property ... (7) securing or collecting debts to it or enforcing any rights in property securing the same". However, if in the exercise of such rights, the Administrative Agent, the Collateral Agent or any of the Lenders take title to any of the TGC Mortgage Trust Estate, the TNP Mortgage Trust Estate and/or any other of the Collateral, then the Administrative Agent, Collateral Agent or any such Lender, as the case may be, may be required to qualify to do business in the State of Texas. We call your attention to the fact that effective September 1, 1993, Section 35.51 addressing the Rights of Parties to Choose Law Applicable to Certain Transactions (the "Texas Choice of Law Statute") was added to the Business and Commerce Code in the State of Texas. Pursuant to the Texas Choice of Law Statute, with certain limited exceptions, if the parties to a "qualified transaction" (as such term is defined in the Texas Choice of Law Statute) agree in writing that the law of a particular jurisdiction governs an issue relating to the "transaction" (as such term is defined in the Texas Choice of Law Statute), including the validity or enforceability of an agreement relating to the transaction or a provision of the agreement, and the transaction bears a reasonable relation to that jurisdiction, the law, other than conflict of laws rules, of that jurisdiction governs the issue regardless of whether the application of that law is contrary to a fundamental or public policy of the State of Texas or of any other jurisdiction. Moreover, with certain limited exceptions, if the parties to a qualified transaction agree in writing that the law of a particular jurisdiction governs the interpretation or construction of an agreement relating to the transaction or a provision of the agreement, the law, other than conflict of laws rules, of that jurisdiction governs that issue regardless of whether the transaction bears a reasonable relation to that jurisdiction. Pursuant to subsection (a) of the Texas Choice of Law Statute, a "qualified transaction" is a transaction under which a party: pays or receives, or is obligated to pay or entitled to receive, consideration with an aggregate value of at least $1,000,000.00; or lends, advances, borrows or receives, or is obligated to lend or advance or is entitled to borrow or receive, funds or credit with an aggregate value of at least $1,000,000.00. While we have been unable to locate any cases applying, enforcing, construing or interpreting the Texas Choice of Law Statute or the definition of a "qualified transaction" and consequently cannot provide an unqualified opinion with respect to the enforceability of the choice of law provisions of the Opinion Documents, we are of the opinion that a Texas state court (or a federal court applying Texas law) in a properly presented case applying Texas law should enforce the choice of law provisions of the Opinion Documents choosing and applying New York law as the law governing the Opinion Documents, to the extent the Opinion Documents provide that they are to be governed by New York law. We express no opinion as to the status of title to the TGC II Mortgage Trust Estate, the TNP Trust Estate or any of the other Collateral, or related personal property and fixtures, or as to the relative priority of the liens and security interests intended to be continued and preserved by the Sixth TGC II Modification, the TNP Security Agreement Amendment and the TNP Second Lien Mortgage Modification No. 3. Furthermore, we express no opinion as to whether activities other than those contemplated by the Opinion Documents and the Existing Facility Project Documents and Existing Facility Security Documents conducted by the Administrative Agent or any Lender in the State of Texas, if any, will constitute transacting business in the State of Texas, requiring the Administrative Agent or any such Lender to qualify as a foreign corporation in the State of Texas. For purposes of the opinions set forth hereinabove, we have assumed that: All the parties to the Opinion Documents and the Existing Facility Project Documents and Existing Facility Security Documents, are duly organized, validly existing and in good standing under the laws of their respective jurisdictions of organization and are duly qualified under such laws to engage in the transactions contemplated by such Documents. The Opinion Documents and the Existing Facility Project Documents and Existing Facility Security Documents have been duly authorized, executed and delivered by the Administrative Agent and the Lenders, to the extent required and constitute legal, valid and binding obligations of the Administrative Agent and the Lenders, enforceable against such parties in accordance with their respective terms; and that the Agent and the Lenders have the requisite corporate power and authority to perform their respective obligations under the Documents. This opinion is limited to the matters expressly set forth herein and no opinion is to be inferred or may be implied beyond the matters expressly so stated. We are licensed to practice law only in the State of Texas. The opinions expressed herein are based solely on the laws of the State of Texas, and we express no independent opinion with respect to the laws of any other state, including, but not limited to, the laws of the State of New York. This opinion is provided to you solely for your benefit. Without our prior written consent, this opinion may not be quoted in whole or in part or otherwise referred to in any report or document or furnished to any person or entity other than you or your counsel. This opinion is based on our knowledge of the law and facts as of the date hereof. We assume no duty to communicate with you with respect to any matter which comes to our attention hereafter. Respectfully submitted, SNELL, BANOWSKY & TRENT, A Professional Corporation By: ----------------------------- Donald H. Snell, For the Corporation DHS:mdc EXHIBIT G-3 RUBIN, KATZ, SALAZAR, ALLEY & ROUSE A Professional Corporation ATTORNEYS AT LAW James B. Alley, Jr.* Leonard S. Katz** Street Address: Owen C. Rouse III** 123 East Marcy, Suite 200 James S. Rubin Santa Fe, New Mexico 87501 Donald M. Salazar(degree) Mailing Address: Frank T. Herdman* Post Office Drawer 250 Serina M. Garst(degree) Santa Fe, New Mexico 87504 November 3, 1995 *Also admitted in New York Telephone (505) 982-3610 **Also admitted in Colorado Facsimile (505) 988-1286 (degree)Also admitted in California Chemical Bank individually and as Administrative Agent under the TNP Credit Agreement referred to below 270 Park Avenue New York, New York 10017 The Lenders from time time under the TNP Credit Agreement RE: TNP Credit Agreement Ladies and Gentlemen: We have acted as New Mexico counsel to Texas-New Mexico Power Company, a Texas corporation ("TNP"), since 1993. During the period 1978 to 1993, the undersigned individual also acted as New Mexico counsel to TNP as a member of a different law firm. During this period from 1978 to date, the scope of my representation has been limited to the specific matters referred to me by TNP and has included all matters before governmental or regulatory agencies of New Mexico with respect to the activities of TNP as a public utility under the New Mexico Public Utility Act and material litigation and claims against TNP in the state and federal courts in New Mexico. The files of TNP in our office contain the full and complete record of all proceedings involving TNP before the New Mexico Public Utility Commission and in any material litigation in the state and federal courts in New Mexico during this period. To our knowledge after due inquiry, we have been employed as counsel for all material matters of TNP in New Mexico for the periods described above. Insofar as the law of the State of New Mexico and the law of the United States of America, as it applies to the opinions expressed in this letter, are concerned, we have acted as special New Mexico counsel to TNP and Texas Generating Company II, a Texas corporation and wholly owned subsidiary of TNP ("TGC II"), in connection with the transactions contemplated by (i) the Assignment and Amendment Agreement dated as of November 3, 1995 (the "Assignment Agreement") among TNP, TGC II, the Existing Facility Banks, the Original Collateral Agent, the Original Agent, the Lenders, the Administrative Agent and the Collateral Agent (each as defined therein), (ii) the Revolving Credit Agreement dated as of November 3, 1995 (the "TNP Credit Agreement") among TNP, each of the lenders that is a signatory thereto (the "Lenders") and Chemical Bank, as administrative agent and collateral agent for the Lenders (in such capacities, the "Administrative Agent" and the "Collateral Agent", respectively), (iii) the Bond Pledge Agreement dated as of November 3, 1995, (the "Bond Pledge Agreement") by TNP in favor of the Collateral Agent, (iv) the Supplemental Indenture dated as of November 3, 1995 (the "Supplemental Indenture") pursuant to which the Pledged Bonds (as defined in the Bond Pledge Agreement) have been issued, (v) the Pledged Bonds (as defined in the Bond Pledge Agreement), (vi) the Note Pledge Agreement dated as of November 3, 1995 (the "Note Pledge Agreement") by TNP in favor of the Collateral Agent, (vii) the Guarantee and Pledge Agreement dated as of November 3, 1995 (the "Guarantee Agreement") by TGC II in favor of the Collateral Agent, (viii) the Sixth TGC II Modification and Extension Agreement dated as of November 3, 1995 (the "Sixth TGC II Modification") among TGC II, TNP and the Secured Parties (as defined therein ), (ix) the TNP Second Lien Mortgage Modification No. 3 dated as of November 3, 1995 (the "TNP Mortgage Modification No. 3") by TNP for the benefit of the Secured Parties (as defined therein), (x) the Assignment of TGC II Mortgage Lien dated as of November 3, 1995 (the "Assignment of TGC II Lien") by The Chase Manhattan Bank (National Association), as Agent and as Collateral Agent (each as defined therein) in favor of TNP, (xi) the Collateral Transfer of Notes, Rights and Interests dated as of November 3, 1995 (the "TNP Collateral Transfer-Robertson County") between TNP and the Administrative Agent and the Collateral Agent, (xii) the Assignment of TNP Second Mortgage Lien dated as of November 3, 1995 (the "Assignment of TNP Lien") by The Chase Manhattan Bank (National Association,), as Agent and as Collateral Agent (each as defined therein) in favor of TNP. (xiii) the Collateral Transfer of Notes, Rights and Interests dated as of November 3, 1995 (the "TNP Collateral Transfer-Secretary of State") between TNP and the Administrative Agent and the Collateral Agent, (xiv) The Amendment No. 1 to TNP Security Agreement dated as of November 3, 1995 (the "Amendment No. 1 to TNP Security Agreement"), and (xv) financing statements naming TNP and TGC II, as applicable, as debtor, and TNP and the Collateral Agent as applicable, as secured party, which are to be filed in the filing offices of the Secretary of State of the State of Texas and the county clerk's office for Robertson County, Texas (such filing offices collectively referred to as the "Filing Offices" and such financing statements as the "Financing Statements" (each of the foregoing agreements, instruments and documents referred to in the foregoing clauses (i) through (xv) being collectively called the "Opinion Documents"). Unless otherwise defined herein, terms defined in the TNP Credit Agreement are used herein as therein defined. Except where the context otherwise requires, words importing the singular include the plural and vice versa. In rendering the opinions expressed below, we have examined (a) the TNP Credit Agreement and each of the other Opinion Documents and (b) such corporate records of TNP and TGC II, agreements, instruments and documents in the files of TNP and TGC II in our office which affect or purport to affect the obligations of TNP or TGC II under the Opinion Documents, (c) the Certificate of Comparison for TNP dated October 19, 1995, issued by the State Corporation Commission of the State of New Mexico which certifies that a Certificate of Authority was issued to TNP on May 1, 1963 (collectively, the "Certificate of Comparison and Authority"), and such other documents as we have deemed necessary as a basis for the opinions expressed below. In our examination, we have assumed the genuineness of all signatures and the authenticity of documents submitted to us as originals and the conformity with authentic original documents of all documents submitted to us as copies. When relevant facts were not independently established, we have relied upon such statements of government officials expressly referred to in this letter and upon representations made in or pursuant to the Opinion Documents and certificates of appropriate representatives of TNP or TGC II. Despite any other express or implied statement in this letter, each of the opinions expressed in this letter is subject to the following further qualifications, conditions or assumptions, whether or not such opinions refer to such qualifications, conditions or assumptions: 1. As to the good standing of TNP in New Mexico, we have relied solely on the Certificate of Good Standing for TNP dated October 19, 1995, issued by the State Corporation Commission of the State of New Mexico (the "Certificate of Good Standing"); 2. As to our opinion that the State of New Mexico does not require that TGC II be authorized to transact business in New Mexico as a foreign corporation, we have relied primarily on the Certificate of TNP and TGC II dated November 3, 1995, signed by Michael D. Blanchard (the "TNP/TGC II Certificate"), but to our knowledge after due inquiry, we are aware of no facts that conflict with the factual assertions stated in the TNP/TGC II Certificate. 3. We have not made an independent inquiry into the law of any jurisdiction other than the State of New Mexico and the political subdivisions of the State of New Mexico and the United States of America, insofar as the Federal law of the United States of America applies to the opinions expressed in this letter. To the extent that matters discussed in this letter relate to or are dependent on the application of Texas law to the transactions contemplated by the Opinion Documents, to which TNP or TGC II is or is intended to be a party or to the status, power and authority of TNP or TGC II, we have relied solely on (i) the opinion letter from Haynes & Boone, addressed to you dated the date hereof, (ii) the Certificates of Comparison and Authority, (iii) the Certificate of Good Standing, and (iv) the TNP/TGC II Certificate. To the extent that matters discussed in this opinion are dependent on the application of law of any other jurisdiction, we state no opinion. 4. Each of the parties to the Opinion Documents other than TNP and TGC II, and each of the entities having an interest, directly or indirectly, in any of the parties to the Opinion Documents, is duly organized or formed, validly existing and in good standing in its respective state or nation of organization or incorporation. 5. Each of the parties to the Opinion Documents other than TNP and TGC II, and each of the entities having an interest, directly or indirectly, in any of such parties and executing the Opinion Documents on behalf of such parties, has full power, authority and legal rights under the laws of its respective state or nation of organization or incorporation to execute and deliver the Opinion Documents to which each of such entities is a party, or on behalf of any such party each of the entities executed the Opinion Documents. 6. Where the phrase "to our knowledge after due inquiry" appears, we have reviewed the Opinion Documents to which TNP or TGC II is a party and such other instruments as are specifically referred to in this letter, and we have reviewed the files of TNP and TGC II in our offices, and we have made inquiries of the appropriate officers of TNP and TGC II, but we have conducted no further independent investigation and have made no independent inquiries of others. We have also reviewed executed originals or copies, certified to our satisfaction, of such other documents, corporate records of TNP and TGC II, certificates of public officials and of corporate officers of TNP and TGC II, agreements, instruments and documents in the files of TNP and TGC II in our offices related to the matters handled by us for TNP and TGC II since 1978 and referred to above, which affect or purport to affect the obligations of TNP and TGC II under the Opinion Documents to which TNP or TGC II is a party, as we have deemed necessary for the opinions expressed in this letter. In stating these opinions, we have assumed the due authorization, execution, issuance and delivery by each party thereto, the genuineness of all signatures, and the authority of all persons signing the Opinion Documents to which TNP or TGC II is a party on behalf of the parties thereto, the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents certified to us as copies. Based on the foregoing, which includes such investigations as we have deemed necessary, and subject to the further qualifications set forth below, we are of the opinion that: 1. TNP is in good standing as a foreign corporation under the laws of the State of New Mexico and has the necessary corporate power, corporate authority and legal right in such State to make and perform the Opinion Documents to which it is or is intended to be a party. No further filing, recordation, publishing or other act is necessary in connection with the existence of TNP or the conduct of the business of TNP in the State of New Mexico. 2. TGC II does not presently conduct business in the State of New Mexico such that the State of New Mexico would require that TGC II become authorized to transact business in the State of New Mexico as a foreign corporation. 3. The making and performance by TNP and TGC II of the TNP Credit Agreement and the other Opinion Documents to which each is, or is intended to be, a party do not and will not (i) violate any provision of law, rule or regulation or, to our knowledge after due inquiry, any order, writ, judgment, injunction, decree, determination or award presently in effect in the State of New Mexico which have applicability to TNP or TGC II or the Project. 4. Except as set forth in the attached Schedule A, no approvals, consents, orders, or other actions by any governmental or regulatory agencies of the State of New Mexico are required to authorize the execution and delivery by TNP or TGC II of the TNP Credit Agreement and the other Opinion Documents nor to authorize the consummation by TNP or TGC II of the transactions contemplated by the Opinion Documents. To our knowledge after due inquiry, no investigation, action, suit or proceeding is pending or threatened against TNP or TGC II in the State of New Mexico which seeks, or may reasonably be expected, to rescind, terminate, modify or suspend any Government Approval. 5. To our knowledge after due inquiry, no action, suit or proceeding at law or in equity or by or before any governmental or regulatory authority, court, arbitral, tribunal or other body in the State of New Mexico is now pending or threatened which could reasonably be expected to materially and adversely affect the financial condition, assets, or operations of TNP or TGC II or the ability of TNP or TGC II to perform its obligations under the Opinion Documents to which TNP or TGC II is or is intended to be a party. 6. A New Mexico court, or a Federal court applying conflict of law rules of the State of New Mexico, would give effect to the choice of law provision contained in each Opinion Document to which TNP or TGC II is or is intended to be a party stating that such Opinion Document (excluding matters relating to title to property and security interests therein) is to be governed by the laws of the State of New York in the case of an Opinion Document stated to be governed by the laws of the State of New York, or in the case of an Opinion Document stated to be governed by the laws of the State of Texas, by the laws of the State of Texas. With respect to our conflict of law rules opinion, we have assumed that the principal place of business and the site of the chief executive offices of TNP and TGC II are in the State of Texas, that the principal place of business and the site of the chief executive office of Chemical Bank is in the State of New York, that the negotiations leading up to the signing of the TNP Credit Agreement and the other Opinion Documents took place in several states by telephone, telephonic transmissions and face-to-face meetings both inside and outside the State of Texas and the State of New York, but not in the State of New Mexico, that the last signature of a party to the TNP Credit Agreement and the other Opinion Documents is the last act necessary to form the agreements contemplated by the TNP Credit Agreement and the other Opinion Documents, and that the TNP Credit Agreement and the other Opinion Documents were delivered by TNP or TGC II in the State of New York. These opinions are limited to the matters expressly stated in this letter, and no opinion is inferred or may be implied beyond the matters expressly stated in this letter. These opinions are being delivered to you, as addressee at the direction of TNP with the intent that you, as addressee, rely on these opinions. This letter does not constitute a guarantee of the TNP Credit Agreement or the other Opinion Documents or any of the obligations or other matters referred to or opined upon in this letter, and by rendering the opinions as provided in this letter we are not guarantying or insuring the TNP Credit Agreement or the other Opinion Documents or any of the obligations or other matters referred to or opined upon in this letter. This opinion is solely for the internal information and assistance of the Administrative Agent, the Collateral Agent and the Lenders, as an interpretation of the law of the State of New Mexico applicable to the transactions contemplated by the Opinion Documents as of the date of this letter and may not be relied upon or quoted by anyone else for any purpose whatsoever, nor may copies be delivered to any other person or filed with any governmental agency or corporation, without our prior written consent, except that copies of this letter may be furnished to Haynes & Boone and to Cravath, Swaine & Moore, who may rely upon these opinions as if this letter were separately addressed to them. We make no undertaking to supplement this opinion if facts or circumstances come to our attention or changes in the law occur after the date of this letter which could affect this opinion. Very truly yours, RUBIN, KATZ, SALAZAR, ALLEY & ROUSE A Professional Corporation By ------------------------------------- Donald M. Salazar SCHEDULE A At the time TNP and TGC II execute the TNP Credit Amendment and other Opinion Documents (herein referred to as the Amended Class I and Class II transactions), TNP must give written notification of such Amended Class I and Class II transactions to the New Mexico Public Utility Commission ("NMPUC") within five days after such Amended Class I and Class II transactions, in accordance with the provisions of Section 62-6-19 NMSA 1978 of the New Mexico Public Utility Act and NMPUC Rule 450. After providing such written notification, Section 62-6-19 NMSA 1978 provides that in order to assure reasonable and proper utility service at fair, just and reasonable rates, the NMPUC may investigate the Amended Class I and Class II transactions to determine the reasonableness of the cost and contract conditions to TNP in such Amended Class I and Class II transactions and, if TNP fails to carry its burden to produce evidence and information as is sufficient to demonstrate that such Amended Class I and Class II transactions have resulted in reasonable cost and contract conditions to TNP, the NMPUC may issue orders consistent with the authority granted to the NMPUC under the New Mexico Public Utility Act to assure the provision of such service at such rates. EXHIBIT H [FORM OF SIXTH TGC II MODIFICATION AND EXTENSION AGREEMENT] SIXTH TGC II MODIFICATION AND EXTENSION AGREEMENT ATTENTION ROBERTSON COUNTY, TEXAS RECORDER: RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: The Chase Manhattan Bank (National Association) In care of DONALD H. SNELL Snell, Banowsky & Trent 200 Crescent Court, Suite 1000 Dallas, Texas 75201 THE STATE OF TEXAS COUNTY OF ROBERTSON SIXTH TGC II MODIFICATION AND EXTENSION AGREEMENT THIS SIXTH TGC II MODIFICATION AND EXTENSION AGREEMENT (this "Agreement") is made as of November 3, 1995, among the banks (the "Banks") which are parties to that certain Unit 2 First Amended and Restated Project Loan and Credit Agreement dated as of January 8, 1992 (the "Existing Facility Credit Agreement"), The Chase Manhattan Bank (National Association), as agent for the Banks and the Replacement Note Holder (in such capacity, together with its successors in such capacity, the "Agent") (the Banks, the Replacement Note Holder and the Agent collectively herein called the "Secured Parties"), TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation ("TNP"), and TEXAS GENERATING COMPANY II, a Texas corporation ("TGC II"), Unless otherwise defined herein, the capitalized terms used herein shall have the meanings given to those terms in the Existing Facility Agreement defined in paragraph D of the recitals. WITNESSETH: Recitals: A. Certain of the Banks, The Chase Manhattan Bank (National Association), as agent, Texas PFC, Inc., a Delaware corporation ("TPFC") and TNP entered into the Project Loan and Credit Agreement dated as of October 1, 1988 (as amended from time to time, the "Project Credit Agreement") pursuant to which the Banks made Loans, prior to the Alternative Assumption Date, to TPFC and, thereafter, to the Borrower in a maximum outstanding aggregate principal amount of TWO HUNDRED EIGHTY EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS ($288,500,000). SIXTH TGC II MODIFICATION AND EXTENSION AGREEMENT B. The Alternative Assumption Date occurred as of May 31, 1991. Certain of the obligations of TPFC under the terms of the Project Credit Agreement were assumed by the Borrower pursuant to that certain Assumption Agreement recorded in Volume 566 at Page 252 of the Public Records of Robertson County, Texas. The TGC II Mortgage Trust Estate was conveyed by TPFC to the Borrower pursuant to that certain Conveyance and Bill of Sale dated effective as of May 31, 1991, recorded in Volume 566 at Page 283 of the Public Records of Robertson County, Texas. C. The Obligations under the terms of the Project Credit Agreement were secured, in part, by the terms, provisions, liens and security interests of that certain TGC II Mortgage and Deed of Trust (with Security Agreement and UCC Financing Statement for Fixture Filing), dated as of October 1, 1988 (the "TGC II Mortgage") which was filed of record on October 4, 1988 in Volume 521 at Page 601 of the Public Records of Robertson County, Texas. The TGC II Mortgage covers certain property as more particularly described therein. D. The parties to the Project Credit Agreement entered into an agreement in principle in connection with certain amendments thereto. To implement such amendments, the parties entered into the Existing Facility Credit Agreement which was amended by the First Amendment thereto dated as of September 21, 1993 (the "First Amendment") among such parties (the Existing Facility Credit Agreement, as so amended and as further amended from time to time, the "Existing Facility Agreement"). E. TGC II conveyed a 75.75/288.5 undivided interest in the TGC II Mortgage Trust Estate to TNP pursuant to that certain Conveyance and Bill of Sale dated as of September 29, 1993 and recorded in Volume 601 at Page 164 of the Public Records of Robertson County, Texas. By the partial release of liens, recorded in Volume 601 at page 207 of the Public Records of Robertson County, Texas, and filed with the Secretary of State of the State of Texas, the Agent released from the TGC II Mortgage the undivided interest which was purchased by TNP. F. In connection with the execution of the Existing Facility Credit Agreement and the First Amendment, TNP, TGC II and the Secured Parties executed and delivered the (I) First TGC II Modification and Extension Agreement dated as of January 24, 1992 and caused it to be recorded in Volume 573 at Page 484 of the Public Records of Robertson County, Texas, (ii) the Second TGC II Modification and Extension Agreement dated as of January 27, 1992 and caused it to be recorded in Volume 573 at Page 511 of the Public Records of Robertson County, Texas, (iii) the Third TGC II Modification and Extension Agreement dated as of January 27, 1992 and caused it to be recorded in Volume 573 at Page 525 of the Public Records of Robertson County, Texas, (iv) the Fourth TGC II Modification and Extension Agreement dated as of September 29, 1993 and caused it to be recorded in Volume 601 at Page 87 of the Public Records of Robertson County, Texas and (v) the Fifth TGC II Modification and Extension Agreement dated as of June 15, 1994 and caused it to be recorded in Volume 614 at Page 224 of the Public Records of Robertson County, Texas in each case as a memorial of certain modifications of, amendments to or occurrence of events under the Existing Facility Credit Agreement and the First Amendment and to confirm the validity and priority of the liens, security interest and assignments of the TGC II Mortgage securing the Obligations. G. TNP is entering into a revolving credit facility agreement dated the date hereof (the "TNP Credit Agreement") with certain Lenders (the "Lenders") and Chemical Bank, as administrative agent and collateral agent for the Lenders. It is a condition precedent to the execution of the TNP Credit Agreement that (a) the Existing Facility Agreement be amended as described in the Assignment Agreement (as defined in the TNP Credit Agreement) and (b) the parties hereto execute and deliver to Chemical Bank this Agreement. H. TNP, TGC II and the Secured Parties have modified the terms of the Existing Facility Agreement as set forth in the Assignment Agreement and have executed, delivered and caused this Agreement to be filed of record as a memorial of the occurrence of such modifications and to confirm the validity and priority of the liens, security interests and assignments of the TGC II Mortgage securing the Obligations. I. The Agent is authorized by Section 15.01 of the Existing Facility Agreement to execute and deliver this Agreement. Agreements NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, TNP, TGC II and the Agent, on behalf of the Secured Parties, agree as follows: 1. Effectiveness of Certain Modifications to the Existing Facility Agreement in the form of the Assignment Agreement. The terms of the Existing Facility Agreement are amended and modified pursuant to the Assignment Agreement. The amendments to the Existing Facility Agreement include (I) rescheduling the amounts and dates of certain repayments, including the extension of the Final Maturity Date on the Loans payable to the Banks to the Maturity Date (as defined in the TNP Credit Agreement) and (ii) amending certain covenants (collectively, the "Subject Provisions"). As of the date hereof, the aggregate principal amount of Project Loans outstanding under the Existing Facility Agreement is $147,750,000. In addition, there remains outstanding under the Existing Facility Agreement $65,000,000 of Replacement Loans evidenced by the Replacement Note. 2. Effect of Modification. The Obligations as described in the Existing Facility Agreement arer secured by the liens, securtiy interests and assignments of the TGC II Mortgage and the other Security Documents and the First Amendment Security Documents. The validity and priority of the liens, security interests and assignments of the TGC II Mortgage shall not be extinguished, impaired, reduced, released, or adversely affected by the terms of this Agreement or the execution of the Assignment Agreement. 3. Extension of Rights and Liens. TGC II hereby extends all rights, titles, liens, security interests, assignments, powers and privileges securing the Obligaitons as described in the Existing Facility Agreement by virture of the TGC II Mortgage until all such Obligations have been paid in full and agrees that the execution of this Agreement shall in no manner impair the rights, titles liens, security interests, assignments, powers and privileges existing by virtue of the TGC II Mortgage as they are extended and modified hereby. 4. Joinder of Guarantor. TNP, as Guarantor under the TNP Guaranty, hereby (I) consents to the execution, delivery and performance by TGC II of this Agreement, the Assignment Agreement and any amendment to any Project Document, Security Document or First Amendment Security Document to which TGC II is or is intended to be a party and the consummation of the transactions contemplated hereby and thereby, (ii) agrees that the TNP Guaranty shall remain in full force and effect after giving effect to such transactions and (iii) acknowledges that there are no claims or offsets against, or defenses or counterclaims to, the TNP Guaranty. 5. Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, the successors and assigns of TNP, TGC II, and the Agent, for the benefit of the Secured Parties; provided, however, nothing contained in this Section is intended to authorize TNP or TGC II to assign any of the Obligaitons or to sell any of the TGC II aMortgage Trust Estate except in accordance with the Existing Facility Agreement and the Facility Purchase Agreement. 6. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. EXECUTED as of the date first hereinabove written. SECURED PARTIES: THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), AS AGENT, By: ---------------------------------- Title TGC II: TEXAS GENERATING COMPANY II, a Texas corporation, By: ----------------------------------- Title: The undersigned hereby consents and agrees to the foregoing pursuant to Section 1(c) of the Intercreditor Agreement as defined in the Credit Agreement. THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), AS COLLATERAL AGENT, By:__________________ Title: The undersigned is a party to this Agreement for the sole purpose of agreeing to the provisions of Section 4 to this Agreement. TNP: TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation BY: ___________________ Title: STATE OF NEW YORK COUNTY OF NEW YORK This instrument was acknowledged before me on the ____ day of November, 1995, by --------------------------- , ------------------------------- of THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent. ----------------------------- NOTARY PUBLIC in and for the State of NEW YORK My Commission Expires: - ------------------------------------------------------------------ Typed or Printed Name of Notary STATE OF NEW YORK COUNTY OF NEW YORK This instrument was acknowledged before me on the_____ day of November, 1995, by ----------------------------------------------------------------------- of THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Collateral Agent. ----------------------------------------- NOTARY PUBLIC in and for the State of NEW YORK My Commission Expires: ---------------------------------------- Typed or Printed Name of Notary STATE OF TEXAS COUNTY OF ______________ This instrument was acknowledged before me on the _______ day of November, 1995, by ------------------------------------------------------------------- of TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, on behalf of said corporation. ------------------------------------------ NOTARY PUBLIC in and for the State of TEXAS My Commission Expires: - ------------------------------------------------------------------- Typed or Printed Name of Notary STATE OF TEXAS COUNTY OF ______________ This instrument was acknowledged before me on the _______ day of November, 1995, by ------------------------------------------------------------------- of TEXAS GENERATING COMPANY II, a Texas corporation, on behalf of said corporation. ------------------------------------------ NOTARY PUBLIC in and for the State of TEXAS My Commission Expires: - ------------------------------------------------------------------- Typed or Printed Name of Notary EXHIBIT I [Form of TNP Second Lien Mortgage Modification No. 3] TNP SECOND LIEN MORTGAGE MODIFICATION NO. 3 THIS INSTRUMENT MODIFIES AND AMENDS AN INSTRUMENT WHICH GRANTED A SECURITY INTEREST BY A UTILITY AND WHICH CONTAINED AFTER-ACQUIRED PROPERTY PROVISIONS PURSUANT TO SUBCHAPTER 35A OF THE TEXAS BUSINESS AND COMMERCE CODE SECOND LIEN MORTGAGE AND DEED OF TRUST (WITH SECURITY AGREEMENT) MODIFICATION, EXTENSION AND AMENDMENT AGREEMENT NO. 3 THIS SECOND LIEN MORTGAGE AND DEED OF TRUST (WITH SECURITY AGREEMENT) MODIFICATION, EXTENSION AND AMENDMENT AGREEMENT NO. 3 ("TNP Second Lien Mortgage Modification No. 3") dated as of November 3, 1995, is executed and delivered by TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation ("Mortgagor"), having an office at 4100 International Plaza, 820 Hulen Towers, Fort Worth, Texas 76109, Attention: Chief Financial Officer, to DONALD H. SNELL, having an office at Suite 1000, 200 Crescent Court, Dallas, Texas 75201, as mortgage trustee ("Mortgage Trustee"), for the benefit of the Secured Parties, as described in the Credit Agreement (as hereinafter defined). Unless otherwise described or defined herein, all terms used in this TNP Second Lien Mortgage Modification No. 3 shall have the same meanings herein as are assigned to such terms in that certain Unit 2 Second Amended and Restated Project Loan and Credit Agreement dated as of January 8, 1992 as amended, supplemented or otherwise modified from time to time, the "Existing Facility Agreement") among Mortgagor, TEXAS GENERATING COMPANY II ("Borrower"), the banks party thereto ("Banks"), and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as agent for the Banks and the Replacement Note Holder (the "Agent"). W I T N E S S E T H: Recitals A. In connection with the Project Loan and Credit Agreement dated as of October 1, 1988 (as amended from time to time, the "Project Credit Agreement") among certain of the Banks, the Chase Manhattan Bank (National Association), as agent, the Mortgagor, and Texas PFC, Inc., a Delaware corporation, Mortgagor executed and delivered to Mortgage Trustee, for the benefit of the Secured Parties, a certain Second Lien Mortgage and Deed of Trust (with Security Agreement) ("TNP Second Lien Mortgage"), granting to Mortgage Trustee, for the benefit of the Secured Parties, a second lien against property of Mortgagor located in the State of Texas ("Second Lien Mortgage Trust Estate") and more particularly described in the TNP Indenture (as defined in the TNP Second Lien Mortgage), which TNP Second Lien Mortgage was filed with the Secretary of State of Texas on October 4, 1988, as Utility Security Instrument Number 229147. The lien created by the TNP Second Lien Mortgage is subordinate by its own terms to the lien of the TNP Bond Indenture. B. By its terms, the TNP Second Lien Mortgage excluded from the Second Lien Mortgage Trust Estate certain real property located in Robertson County, Texas (the "Property") since no portion thereof was then owned by Mortgagor. C. Pursuant to a certain Warranty Deed dated as of October 1, 1988 and recorded in Volume 521 at Page 532 of the Public Records of Robertson County, Texas, Project Funding Corporation conveyed 7.466 acres of the Property ("Unit 2 Property") to Texas TPFC, Inc. (the Property less and except the Unit 2 Property, hereinafter called the "Robertson County Property"). D. On December 27, 1990, pursuant to the Facility Purchase Agreement, Mortgagor purchased an undivided 30/345 interest in the Robertson County Property (including Unit I located thereon) which interest was conveyed to Mortgagor by that certain Conveyance and Bill of Sale recorded in Volume 556 at Page 653 of the Public Records of Robertson County, Texas. E. The Alternative Assumption Date occurred as of May 31, 1991. Effective as of that date, the Unit 2 Property was conveyed to the Borrower pursuant to a certain Conveyance and Bill of Sale dated effective May 31, 1991, recorded on July 26, 1991 in Volume 566 at Page 283 of the Public Records of Robertson County, Texas. Contemporaneously therewith, all of the Obligations under the terms of the Credit Agreement were assumed by the Borrower pursuant to a certain Assumption Agreement recorded on July 26, 1991 in Volume 566 at Page 252 of the Public Records of Robertson County, Texas. Also contemporaneously therewith, the obligations of Mortgagor under that certain Guaranty dated as of May 31, 1991 ("Guaranty") became effective and pursuant thereto, Mortgagor (sometimes hereinafter called "Guarantor") guarantees the Obligations that were assumed by the Borrower. F. On January 8, 1992, Mortgagor and the Agent, on behalf of the Secured Parties, executed that certain Second Lien Mortgage and Deed of Trust (With Security Agreement) Modification, Extension and Amendment Agreement (the "TNP Second Lien Mortgage Modification No. 1"), to among other things, further modify the TNP Second Lien Mortgage to clarify and confirm that any portion of the Trust Estate under the TNP Indenture (as defined in the TNP Second Lien Mortgage) located in Robertson County, Texas then owned or thereafter acquired by the Mortgagor would be included as a part of the Second Lien Trust Estate. G. The parties to the Project Credit Agreement entered into an agreement in principle in connection with certain amendments thereto. To implement such amendments, the parties entered into the Unit 2 First Amended and Restated Project Loan and Credit Agreement dated as of January 8, 1992 (the "Unit 2 Credit Agreement") which was amended pursuant to the First Amendment thereto dated as of September 21, 1993 (the "First Amendment") among such parties (the Unit 2 Credit Agreement, as so amended, the "Existing Facility Agreement"). H. On January 27, 1992, pursuant to the Facility Purchase Agreement (as defined in the Unit 1 Credit Agreement), Mortgagor purchased an additional undivided 45/345 interest in the Robertson County Property (including Unit 1 located thereon). I. On September 21, 1993, pursuant to the Facility Purchase Agreement (as defined in the Unit 1 Credit Agreement), Mortgagor purchased an additional undivided 65/345 interest in the Robertson County Property (including Unit 1 located thereon). J. On September 21, 1993, pursuant to the Facility Purchase Agreement, Mortgagor purchased an undivided 75.75/288.5 interest in the Unit 2 Property (including Unit 2 located thereon). K. Although all of the undivided interests described in Recitals G, H and I were subject to the liens of the TNP Second Lien Mortgage by reason of provision to that effect therein, the parties desired to reflect this fact of record. L. Mortgagor and the Agent, on behalf of the Secured Parties, have modified the TNP Second Lien Mortgage to clarify and confirm that any portion of the Robertson County Trust Estate Property owned by or acquired by the Mortgagor shall be included as a part of the Second Lien Mortgage Trust Estate. The Mortgagor and the Agent, on behalf of the Secured Parties, have executed and delivered the TNP Second Lien Mortgage Modification No. 1 dated as of January 8, 1992 and caused it to be filed with the Secretary of State of the State of Texas. M. Borrower, Mortgagor and the Agent, on behalf of the Secured Parties, agreed, as set forth in the First Amendment, to modify the terms of the Unit 2 Credit Agreement in order to permit Mortgagor and Borrower to secure Permitted Collateralized Indebtedness (as defined in the First Amendment) with the Collateral, adjust the terms of payment thereunder and to extend the dates for payments required thereby, and to make other modifications all as set forth in and subject to the terms and conditions of the Credit Agreement. In connection with the First Amendment, Borrower, Mortgagor and the Agent executed that certain Second Lien Mortgage and Deed of Trust (with Security Agreement) Modification, Extension and Amendment Agreement No. 2 (the "TNP Second Lien Mortgage Modification No. 2"; together with the TNP Second Lien Mortgage Modification No. 1, the "TNP Second Lien Mortgage Modifications") dated as of September 21, 1993 to confirm the validity and priority of the liens, security interests and assignments of the TNP Second Lien Mortgage. N. Mortgagor is entering into a revolving credit facility agreement dated the date hereof (the "TNP Credit Agreement") with certain lenders (the "Lenders") and Chemical Bank, as administrative agent and collateral agent for the Lenders. It is a condition precedent to the execution of the TNP Credit Agreement that (a) the Existing Facility Agreement be amended as described in the Assignment Agreement (as defined in the TNP Credit Agreement) and (b) the parties hereto execute and deliver this TNP Second Lien Mortgage Modification No. 3. O. Borrower, Mortgagor and the Agent, or behalf of the Secured Parties have modified the terms of the Existing Facility Agreement as set forth in the Assignment Agreement and have executed, delivered and caused this TNP Second Lien Mortgage Modification No. 3 to be filed of record as a memorial of the occurrence of such modifications and to confirm the validity and priority of the liens, security interests and assignments of the TNP Second Lien Mortgage. P. The Agent is authorized by Section 15.01 of the Existing Facility Agreement to execute and deliver this TNP Second Lien Mortgage Modification No. 3. Agreements NOW, THEREFORE, in consideration of the premises and of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of all of which are hereby acknowledged, the TNP Second Lien Mortgage, as previously modified by the TNP Second Lien Mortgage Modifications, is hereby modified and extended as follows: 1. Modification of Terms of the Existing Facility Agreement. The terms of the Existing Facility Agreement are amended and modified pursuant to the Assignment Agreement. The amendments to the Existing Facility Agreement include (i) rescheduling the amounts and dates of certain repayments, including the extension of the Final Maturity Date on the Loans payable to the Banks to the Maturity Date (as defined in the TNP Credit Agreement) and (ii) amending certain covenants (collectively, the "Subject Provisions"). As of the date hereof, the aggregate principal amount of Project Loans outstanding under the Existing Facility Agreement is $147,750,000. In addition, there remain outstanding under the Existing Facility Agreement $65,000,000 of Replacement Loans evidenced by the Replacement Note. 2. Effect of Modification. The Loans, whether evidenced by Project Notes or the Replacement Note, and all other Obligations as described in the Existing Facility Agreement are secured by the liens, security interests and assignments of the TNP Second Lien Mortgage and the other Security Documents. The validity and priority of the liens, security interests and assignments of the TNP Second Lien Mortgage shall not be extinguished, impaired, reduced, released or adversely affected by the terms of this TNP Second Lien Mortgage Modification No. 3 or the execution of the Assignment Agreement or the TNP Credit Agreement. 3. Extension of Rights and Liens. The Mortgagor hereby extends all rights, titles, liens, security interests, assignments, powers and privileges securing the Obligations as described in the Existing Facility Agreement by virtue of the TNP Second Lien Mortgage until all of such Obligations have been paid in full and agrees that the execution of this TNP Second Lien Mortgage Modification No. 3 shall in no manner impair the rights, titles, liens, security interests, assignments, powers and privileges existing by virtue of the TNP Second Lien Mortgage, as they are extended and modified hereby. 4. No Merger. Neither the Borrower nor the Mortgagor intend that there be and there shall not in any event be, a merger of any of the liens, security interests and assignments of the TNP Second Lien Mortgage with the title or interest of the Mortgagor by virtue of the assignments contained in the Assignment Agreement (as defined in the TNP Credit Agreement) and the parties expressly provide that each such interest in such liens, security interests and assignments on the one hand and title to the TNP Second Lien Mortgage, as modified, on the other, be and remain at all times separate and distinct with all such validity and priority that existed prior to the execution of the Assignment Agreement and this TNP Second Lien Mortgage Modification No. 3. 5. Joinder of Guarantor. Contemporaneously with the execution and delivery of this TNP Second Lien Mortgage Modification No. 3, and as consideration therefor, Mortgagor, as the Guarantor, hereby confirms and consents to each and every of the terms and conditions of this TNP Second Lien Mortgage Modification No. 3 and the Existing Facility Agreement, and agrees that the terms and conditions of the Guaranty are in full force and effect and unaffected by the execution by Borrower and Mortgagor of the Assignment Agreement or the TNP Credit Agreement and this TNP Second Lien Mortgage Modification No. 3, and acknowledges that there are no claims or offsets against, or defenses or counterclaims to, the Guaranty. 6. Successors and Assigns. This TNP Second Lien Mortgage Modification No. 3 shall be binding upon the successors and assigns of Mortgagor, the Secured Parties and the Collateral Agent, and shall inure to the benefit of the successors and assigns of the Secured Parties; provided, however, nothing contained in this Section 6 is intended to authorize TNP or the Borrower to assign any of the Obligations or to sell any of the Second Lien Mortgage Trust Estate except in accordance with the Existing Facility Agreement and the Facility Purchase Agreement. 7. Counterparts. This TNP Second Lien Mortgage Modification No. 3 may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto many execute this TNP Second Lien Mortgage Modification No. 3 by signing any such counterpart. EXECUTED as of the date first hereinabove written. SECURED PARTIES: THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent By:________________________________ Title: MORTGAGOR: TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation By:________________________________ Title: The undersigned hereby consents and agrees to the foregoing pursuant to Section l(c) of the Intercreditor Agreement as defined in the Existing Facility Agreement. THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Collateral Agent By: Title: STATE OF NEW YORK COUNTY OF NEW YORK This instrument was acknowledged before me on the ____ day of November, 1995, by --------------------------- , ------------------------------- of THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent. ----------------------------- NOTARY PUBLIC in and for the State of NEW YORK My Commission Expires: - ------------------------------------------------------------------ Typed or Printed Name of Notary STATE OF NEW YORK COUNTY OF NEW YORK This instrument was acknowledged before me on the_____ day of November, 1995, by ----------------------------------------------------------------------- of THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Collateral Agent. ----------------------------------------- NOTARY PUBLIC in and for the State of NEW YORK My Commission Expires: ----------------------------------------- Typed or Printed Name of Notary STATE OF TEXAS COUNTY OF ______________ This instrument was acknowledged before me on the _______ day of November, 1995, by ------------------------------------------------------------------- of TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, on behalf of said corporation. ------------------------------------------ NOTARY PUBLIC in and for the State of TEXAS My Commission Expires: - ------------------------------------------------------------------- Typed or Printed Name of Notary EXHIBIT J ASSIGNMENT AND AMENDMENT AGREEMENT dated as of November 3, 1995, among TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation ("TNP"); TEXAS GENERATING COMPANY II, a Texas corporation ("TGC II"); the financial institutions listed in Schedule I hereto in their respective capacities as parties to the Existing Facility Agreement referred to below (the "Existing Facility Banks"), including THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) ("Chase"), in its capacity as agent for the Existing Facility Banks and the Replacement Note Holder under the Existing Facility Agreement defined below (in such capacity, the "Original Agent"), including its capacity as agent for the Existing Facility Banks and the Replacement Note Holder under the Existing Facility Security Documents (as defined in the TNP Credit Agreement defined below) (hereinafter in such capacity referred to as the "Original Collateral Agent"); the lenders (the "Lenders") party to the TNP Credit Agreement, as defined below; and CHEMICAL BANK ("Chemical"), as administrative agent and collateral agent for the Lenders (in such capacities, the "Administrative Agent" and the Collateral Agent", respectively). Preliminary Statement A. Certain of the parties hereto entered into the Project Loan and Credit Agreement, dated as of October 1, 1988 (the "Unit 2 Original Credit Agreement"), by and among TNP, Texas PFC, Inc. ("TPFC"), Algemene Bank Nederland N.V., the Houston Agency, as issuing bank (the "Issuing Bank"), certain of the Existing Facility Banks (the "Prior Unit 2 Banks") and the Original Agent. The initial loans under the Unit 2 Original Credit Agreement were made on October 4, 1988. Subsequent to such date, certain of the parties hereto entered into the following amendments to the Unit 2 Original Credit Agreement: Amendment No. 1 dated as of May 1, 1989; and Amendment No. 2 dated as of May 31, 1991 (the Unit 2 Original Credit Agreement, as amended by the foregoing amendments, being called the "Unit 2 Prior Credit Agreement"). Capitalized terms used but not otherwise defined in the introductory paragraph hereof or in this Preliminary Statement shall have the meanings ascribed to such terms in Section 1.01 of the Existing Facility Agreement referred to in paragraph (G) of this Preliminary Statement. B. Certain of the parties hereto entered into the Project Loan and Credit Agreement, dated as of December 1, 1987 (the "Unit 1 Original Credit Agreement"), by and among TNP, Project Funding Corporation ("PFC"), Westpac Banking Corporation ("Westpac"), as issuing bank, the banks party thereto (the " Prior Unit 1 Banks") and Chase, as agent. The initial loans under the Unit 1 Original Credit Agreement were made on December 3, 1987. Subsequent to such date, certain of the parties to the Unit 1 Original Credit Agreement entered into the following amendments thereto: Amendment No. 1 dated as of July 1, 1988; Amendment No. 2 dated as of August 26, 1988; Amendment No. 3 dated as of October 1, 1988; Amendment No. 4 dated as of May 1, 1989; Amendment No. 5 dated as of May 30, 1990; Amendment No. 6 dated as of October 22, 1990; and the letter agreements dated September 20, 1991 and September 23, 1991 (the Unit 1 Original Credit Agreement, as amended by the foregoing amendments, being called the "Unit 1 Prior Credit Agreement" and, together with the Unit 2 Prior Credit Agreement, the "Prior Credit Agreements"). C. The Preliminary Acceptance Date occurred as of May 31, 1991, and on that date, pursuant to the terms of the TGC II Assumption Agreement, TGC II assumed certain of the obligations and liabilities of TPFC under the Unit 2 Prior Credit Agreement and the other Project Documents to which TPFC was a party. Thus, the Alternative Assumption Date occurred as of May 31, 1991, and as a result of such assumption, TPFC transferred ownership of Unit 2 to TGC II. D. On September 30, 1991, TNP canceled the commercial paper program provided for in the Unit 2 Prior Credit Agreement and requested that the Issuing Bank terminate the letter of credit supporting commercial paper notes issued thereunder. As a result, the provisions of the Unit 2 Prior Credit Agreement pertaining to the Issuing Bank and commercial paper notes have become inoperative and the Issuing Bank no longer acts as issuing bank thereunder. E. TNP, the Prior Unit 2 Banks and the Prior Unit 1 Banks entered into an agreement in principle dated as of November 7, 1991 (as modified on November 15, 1991) in connection with certain amendments to the Prior Credit Agreements for, among other things, the extension of certain scheduled repayment dates, the payment and prepayment by TGC II and the purchase by TNP of Project Loans and increases in interest rates and fees thereunder. The Prior Unit 1 Banks entered into the Unit I First Amended and Restated Project Loan and Credit Agreement dated as of January 8, 1992 (the "Unit 1 Credit Agreement") among TNP, Texas Generating Company, as successor in interest to PFC, the banks party thereto (the "Unit 1 Banks") and Chase, as agent, in order to effect the agreement in principle. Simultaneously with the execution of the Unit 1 Credit Agreement, the Prior Unit 2 Banks entered into the Unit 2 First Amended and Restated Project Loan and Credit Agreement dated as of January 8, 1992 (the "Unit 2 Credit Agreement") among TNP, TGC II, the Original Unit 2 Banks and the Original Agent. The Unit 2 Credit Agreement became effective on January 24, 1992, upon the satisfaction of the conditions precedent thereto as set out in Section 8.01 thereof. F. On January 27, 1992, TNP and TGC II satisfied the conditions in Section 8.02 of the Unit 2 Credit Agreement to cause the occurrence of the Extension Date (as defined therein). TNP issued its Series T Bonds and its First Secured Debentures Due January 15, 1999, and applied the net proceeds thereof to, among other things, purchase pro rata from the Unit 1 Banks $65,000,000 of the loans outstanding under the Unit 1 Credit Agreement and to purchase pro rata from the Original Unit 2 Banks $65,000,000 of the loans outstanding under the Unit 2 Credit Agreement. The loans acquired by TNP from the Original Unit 2 Banks were, automatically upon their purchase by TNP, converted into the First Replacement Loan, evidenced by the First Replacement Note that is secured pursuant to the Security Documents pari passu with the other Obligations under the Unit 2 Credit Agreement and the other Project Documents. The First Secured Debentures are secured by TNP's pledge of the First Replacement Note to the First Debenture Trustee (the "Replacement Note Holder") under the First Secured Debenture Indenture. As a result of the pledge of the First Replacement Note, the First Secured Debentures indirectly share pari passu in the Original Unit 2 Banks' Collateral. G. The parties to the Unit 2 Credit Agreement entered into Amendment No. 1 thereto ("Amendment No. 1") dated as of September 21, 1993 (the Unit 2 Credit Agreement, as amended by Amendment No. 1, being called the "Existing Facility Agreement") in order (i) to provide, among other things, for the extension of certain scheduled repayment dates and the prepayment by TGC II of $75,750,000 of Existing Project Loans and (ii) to facilitate TNP's or TGC II's indirectly securing certain additional debt securities with the Collateral. H. By virtue of the First Debenture Trustee Consent, the Replacement Note Holder consented to the extent required to the provisions of Amendment No. 1. I. Simultaneously with the execution of Amendment No. 1, the parties to the Unit 1 Credit Agreement entered into Amendment No. 1 thereto (as amended, the "Amended Unit 1 Credit Agreement") in order to effect amendments to the Unit 1 Credit Agreement providing, among other things, for the purchase by TNP of additional loans thereunder. J. The funds necessary for the payments and prepayments of Existing Project Loans pursuant to Amendment No. 1 and the Amended Unit 1 Credit Agreement were provided in part by the issuance by TNP of new first mortgage bonds in an aggregate principal amount of $100,000,000 under the TNP Bond Indenture and available cash. K. TNP is entering into a revolving credit agreement (the "TNP Credit Agreement") with certain lenders (the "Lenders") and Chemical Bank, as Administrative Agent and Collateral Agent for the Lenders. It is a condition precedent to the effectiveness of the TNP Credit Agreement that (a) TGC II borrow and have outstanding under the Existing Facility Agreement Project Loans in an aggregate principal amount equal to $147,750,000, (b) the Existing Facility Agreement be amended as provided herein, (c) TGC II transfer to TNP, in satisfaction of intercompany indebtedness owed by it to TNP, the proceeds of borrowings made under the Existing Facility Agreement on the Effective Date which, together with the borrowings to be made on the Effective Date pursuant to the TNP Credit Agreement, will be sufficient to provide the necessary funds for the purchase contemplated by the following clause (d), (d) TNP purchase from the Existing Facility Banks all of the Project Loans under the Existing Facility Agreement and (e) TNP pledge to Chemical Bank, as Collateral Agent, the Project Loans and all of the promissory notes evidencing the same, and all rights and interests of TNP under the Existing Facility Agreement and the other Existing Facility Documents. L. TNP has requested that the Existing Facility Banks, the Original Agent and the Original Collateral Agent assign and transfer their interests under the Existing Facility Agreement and certain related documents to TNP, the Administrative Agent and the Collateral Agent, respectively. TNP desires to purchase all Project Loans outstanding under the Existing Facility Agreement and the Administrative Agent and the Collateral Agent desire to accept the transfer of such interests. The Existing Facility Banks, the Original Agent and the Original Collateral Agent desire to effect the foregoing assignments and transfers and to be released from their obligations under the Existing Facility Agreement. M. The parties hereto desire that the guarantee of, and security interests securing, the obligations under the Existing Facility Agreement and such related documents continue to guarantee and secure obligations under the Existing Facility Agreement after the amendments described in Section 1.02 and the assignments described in Section 1.03. The parties hereto desire to effect the transactions provided for herein, all upon the terms and subject to the conditions set forth herein. Accordingly, the parties hereto hereby agree as follows: I. ASSIGNMENT AND AMENDMENT SECTION 1.01. Effective Date; Funding Memorandum. (a) The Effective Date (as defined in Article III) shall be specified by TNP as provided in paragraph (b) below and shall be a Business Day as of which all the conditions specified in Article III shall have been (or shall be) satisfied. (b) TNP shall provide written notice proposing a date as the Effective Date at least three Business Days prior thereto to the Administrative Agent, which shall send copies of such notice to the Lenders, and to the Original Agent, which shall send copies of such notice to the Existing Facility Banks. At least three Business Days prior to the Effective Date, TNP shall provide to the Original Agent and the Administrative Agent a funding memorandum (the "Funding Memorandum") setting forth (x) with respect to the Existing Facility Agreement, the amount of all outstanding Project Loans thereunder as of the Effective Date, and (y) the respective amounts to be paid to and received by the Existing Facility Banks on the Effective Date pursuant to Sections 1.05(c) and (d). SECTION 1.02. Amendments to Existing Facility Agreement. Subject to the conditions set forth in Article III, on the Effective Date, immediately prior to the consummation of the assignments referred to in Section 1.03, the Existing Facility Agreement shall be amended as follows: (a) by adding the following definitions to Section 1.01 in the appropriate alphabetical order: "Assignment and Amendment Agreement" shall mean the Assignment and Amendment Agreement substantially in the form of Exhibit J to the TNP Credit Agreement. "TNP Credit Agreement" shall mean the Revolving Credit Facility Agreement dated as of November 3, 1995 among TNP, the lenders party thereto and Chemical Bank, as Administrative Agent for the lenders, as amended, modified or otherwise supplemented from time to time. (b) by deleting from Section 1.01 the definition for the term "Final Maturity Date" and replacing it with the following: "Final Maturity Date" shall mean November 3, 2000. (c) by deleting from Section 1.01 the definition of "Available Amount". (d) by deleting subsection 4.02(b)(iii) in its entirety; (e) by amending subsection 4.05(b)(ii) by adding the following sentence at the end thereof: "Notwithstanding the foregoing, the transactions contemplated by the Assignment and Amendment Agreement and the TNP Credit Agreement, including the borrowings under this Agreement, the assignment of the Project Notes to TNP and the pledge thereof to the collateral agent for the benefit of the Lenders under the TNP Credit Agreement, shall be expressly permitted under this subsection 4.05(b)(ii), and the obligations under the TNP Credit Agreement may be indirectly secured by the Collateral as contemplated therein, and the requirements of paragraphs (c) through (i) of this Section 4.05 shall not apply to such transactions." (f) by deleting subsections 5.02(b)(i)(A), (B) and (C), subsections 5.02(b)(iv) and (vi), Section 9.33 and Section 9.34 in their entirety; (g) by amending clause (a) of Section 7.05, to insert the words "or purchase by TNP" after the words "or Conversion" and by amending subclause (i) of Section 7.05 by inserting the words "(including upon any such purchase)" after the words "the amount so paid"; (h) by deleting from Section 10.21(b) the phrase ", and for the period from January 1, 1993 until the provisions of Section 9.33 hereof have been terminated, Available Amount (including the components thereof),"; (i) by amending Section 10.08 by (i) adding a new clause (e) which shall read in its entirety as follows: "(e) any guaranty of the obligations of TNP under the TNP Credit Agreement; provided that the obligations of TGC II under any such guaranty in respect of the principal amount of (i) borrowings by TNP and (ii) payments on the Project Loans shall in no event exceed $150,000,000 in the aggregate." and (ii) relettering clause (e) as clause (f); and (j) by amending Section 10.11 by adding the following clause at the end thereof: "; provided, that, notwithstanding the foregoing, the transactions contemplated by the Assignment and Amendment Agreement and the TNP Credit Agreement shall be expressly permitted hereunder." Other than as set forth in Section 1.03, the interests, rights and obligations of TNP under the Project Documents shall be limited to those set forth in the Existing Facility Agreement, as amended hereby, and the Project Documents, the Security Documents and the First Amendment Documents, each as defined in the Existing Facility Agreement (collectively, the "Existing Facility Documents"), as amended (if applicable), and all the Existing Facility Documents shall continue in their original or amended form, as applicable, in full force and effect for the benefit of TNP and the Replacement Note Holder and all references in any thereof to the Existing Facility Agreement or to any Existing Facility Document shall be deemed references to the Existing Facility Agreement or to such Existing Facility Document, as amended hereby (if applicable), and as hereafter amended, supplemented or otherwise modified from time to time. SECTION 1.03. Assignments. (a) Subject to the conditions set forth in Article III and the payment by TNP to the Original Agent of all amounts required to be paid under Section 1.05(c), effective as of the Effective Date, (i) each of the Existing Facility Banks hereby assigns and transfers to TNP, without recourse, representation or warranty (other than as expressly set forth in Article II), all its Project Loans and all its related rights and interests under (x) the Existing Facility Agreement and (y) the Existing Facility Documents, and (ii) The Chase Manhattan Bank (National Association), in its capacities as the Original Agent and the Original Collateral Agent, respectively, hereby resigns in favor of, and assigns all its rights under the Existing Facility Agreement and the Existing Facility Documents, without recourse or warranty, to Chemical Bank, and Chemical Bank hereby accepts such assignment and agrees to serve as Agent and Collateral Agent under the Existing Facility Agreement and the Existing Facility Security Documents. The purchase price to be paid by TNP for the Project Loans and all such rights and interests to be purchased by it shall be the amount payable under Section 1.05(c). Notwithstanding the foregoing, (i) the Existing Facility Banks shall retain the exclusive right under the Existing Facility Agreement to receive and retain the payments referred to in Section 1.05(c) and (ii) the Existing Facility Banks, the Original Agent and the Original Collateral Agent shall retain on a non-exclusive basis all their rights under the Existing Facility Agreement and the Existing Facility Documents (which rights shall also be vested in TNP, the Administrative Agent and the Collateral Agent) in respect of indemnification and expense reimbursement obligations for any and all losses, damages, expenses or similar amounts which they may have sustained or incurred or may hereafter sustain or incur in connection with the transactions contemplated by the Existing Facility Agreement and the Existing Facility Documents, including under Sections 7, 13 and 14 of the Existing Facility Agreement, which shall survive the amendment of the Existing Facility Agreement. Solely for purposes of Section 7.05 of the Existing Facility Agreement, the assignments and purchases of the Project Loans on the Effective Date shall be treated as if they were prepayments of such Loans. In implementation of the foregoing, the Existing Facility Banks agree to deliver to the Original Agent, who will deliver to TNP on the Effective Date, all promissory notes issued to the Existing Facility Banks under the Existing Facility Agreement (the "Original Notes") duly endorsed to TNP and delivered to the Collateral Agent, on behalf of the Lenders, together with duly executed instruments of transfer satisfactory to TNP and the Lenders and the Collateral Agent. (b) Subject only to the effectiveness of the assignment to TNP of the Project Loans and the related rights and interests of the Existing Facility Banks pursuant to paragraph (a) above, TNP hereby assumes and agrees to perform and be bound by all the provisions of and obligations of the Existing Facility Banks under the Existing Facility Agreement and the Existing Facility Documents. Without limiting the foregoing, TNP expressly agrees with Chase, in its capacity as Collateral Agent under the Intercreditor Agreement, for the benefit of the Project Creditors (as defined in the Intercreditor Agreement), to be bound as a Project Creditor by and comply with the provisions of the Intercreditor Agreement. (c) As a result of the assignments and agreements provided for in paragraph (a) above, Chemical, as Agent and Collateral Agent under the Existing Facility Agreement and the Security Documents, will be the nominal agent of (i) TNP in its capacity as a lender and holder of Project Loans under the Existing Facility Agreement and (ii) the Replacement Note Holder in its capacity as holder of the First Replacement Note under the Existing Facility Agreement. TNP acknowledges that it is purchasing the Project Loans solely in order to pledge the same to Chemical as Collateral Agent under the Note Pledge Agreement (as defined in and pursuant to the TNP Credit Agreement) and for the benefit of Chemical and the Lenders under such Agreement, and agrees that Chemical shall have no fiduciary or other obligations to TNP in its capacity as Agent or Collateral Agent under the Existing Facility Agreement or the Security Documents, other than any obligations expressly set forth in the Note Pledge Agreement (as such term is defined in the TNP Credit Agreement). Without limiting the foregoing, TNP agrees that Chemical may take or omit to take, in its capacity as Agent and Collateral Agent, any such actions as it shall be requested to take or omit to take by the Lenders or any of them, or as it may deem to be in the best interests of the Lenders (including Chemical) or in its own best interests as Agent and Collateral Agent, regardless of the effects or potential effects of such actions or omissions upon the rights or interests of TNP, and that Chemical shall have no liability to TNP for the consequences of any such actions or omissions. Nothing in this paragraph shall in any way affect the obligations of Chemical to the Replacement Note Holder in its capacity as Agent or Collateral Agent under the Existing Facility Agreement or the Existing Facility Security Documents. (d) In connection with the assignments provided for in paragraph (a) above, Chase and Chemical hereby waive the assignment fees that would otherwise be payable under Section 16.01 of the Existing Facility Agreement. SECTION 1.04 Consents and Releases. (a) TNP and TGC II each hereby consent and agree to the transactions to be effected pursuant to Sections 1.02 and 1.03 and hereby release, effective on the Effective Date, the Existing Facility Banks from all their obligations under the Existing Facility Agreement and the Existing Facility Documents. From and after the Effective Date, the Existing Facility Banks shall have no further rights to or interest in any of the Collateral. TNP and TGC II each acknowledge that the Lenders are not assuming the obligations of the Existing Facility Banks under the Existing Facility Agreement and agree that the obligations of the Lenders shall be limited to those set forth in the TNP Credit Agreement. (b) Each of the Existing Facility Banks and the Replacement Note Holder hereby authorizes and instructs Chase in its capacities as Original Agent and Original Collateral Agent to execute and deliver (i) this Agreement, (ii) the Sixth TGC II Modification and Extension Agreement made as of November 3, 1995 among the Original Agent, the Original Collateral Agent, TNP and TGC II, (iii) the TNP Second Lien Mortgage Modification No. 3 dated as of November 3, 1995 between TNP, the Original Agent and the Original Collateral Agent, (iv) the Assignment of TGC II Mortgage Lien made as of November 3, 1995 by the Original Agent and the Original Collateral Agent to and in favor of Chemical Bank, as Agent under the Existing Facility Documents, (v) the Assignment of TNP Second Mortgage Lien made as of November 3, 1995 by the Original Agent and the Original Collateral Agent to and in favor of Chemical Bank, as Agent under the Existing Facility Documents and (vi) such other instruments, documents, certificates and agreements, and to take such other action, as may be reasonably necessary or proper to accomplish the assignments contemplated by this Agreement. SECTION 1.05. Payments. Subject to the conditions set forth in Article III hereof, on the Effective --------- Date: (a) TGC II shall transfer to TNP proceeds of borrowings under the Existing Facility Agreement which, together with the proceeds of the borrowing provided for in (b) below, will provide the necessary funds for the payments required to be made by TNP under (c) below; (b) TNP shall borrow $43,000,000.00 under the TNP Credit Agreement; (c) TNP shall pay to the Original Agent, in the manner provided in the Funding Memorandum, an amount equal to the sum of (i) the aggregate principal amount of all Project Loans outstanding under the Existing Facility Agreement (whether or not then due), (ii) all accrued and unpaid interest on all Project Loans outstanding under the Existing Facility Agreement (whether or not then due) and (iii) without limitation of Section 1.03, all fees and other amounts, including any break funding costs arising as a result of the payments provided for herein (to the extent provided in the Funding Memorandum), accrued (whether or not then due) under the Existing Facility Agreement or any Existing Facility Document and unpaid; (d) the Original Agent shall forthwith distribute the amounts received by it pursuant to paragraph (c) above to the Existing Facility Banks in the manner required under the Existing Facility Agreement; and (e) TNP shall pay to the Administrative Agent, in the manner provided in Section 2.16 of the TNP Credit Agreement for distribution to the Lenders in accordance with the TNP Credit Agreement, all fees and other amounts payable to the Lenders pursuant to Article III hereof on the Effective Date. The parties acknowledge that certain break funding costs under the Existing Facility Agreement may not have been notified to TGC II, and TGC II agrees to pay such costs in accordance with the Existing Facility Agreement. II. REPRESENTATIONS AND WARRANTIES SECTION 2.01. Representations and Warranties of Existing Facility Banks. (a) Each of the Existing Facility Banks represents and warrants, as of the Effective Date, to TNP, the Lenders, the Administrative Agent and the Collateral Agent that it is the beneficial and record owner of the Project Loans to be assigned by it as contemplated by Section 1.03, that it has not sold, transferred or created any participating interest in or lien upon such Project Loans (except participating interests which will terminate upon the assignment provided for in Section 1.03) and that the Notes being delivered by it pursuant to Article III are the only Notes evidencing such Project Loans. (b) Each of the Existing Facility Banks represents and warrants to TNP, TGC II, the Lenders and the Administrative Agent that it has the power and authority to execute, deliver and perform its obligations under this Agreement and that this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors' rights generally and by general principles of equity. SECTION 2.02. Representations and Warranties of the Administrative Agent and the Collateral Agent and Lenders. Each of the Administrative Agent, the Collateral Agent and the Lenders represents and warrants to TNP, TGC II and the Existing Facility Banks that it has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and that this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors' rights generally and by general principles of equity. SECTION 2.03. Representations and Warranties of TNP and TGC II. Each of TNP and TGC II represents and warrants to the Existing Facility Banks, the Lenders, the Administrative Agent and the Collateral Agent that (a) it has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and that this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors' rights generally and by general principles of equity, and (b) this Agreement and the consummation of the transactions contemplated hereby will not (i) violate (A) any provision of law, statute, rule or regulation, or of the certificate of incorporation or by-laws of such party, (B) any order of any governmental authority or (C) any provision of any indenture or other material agreement or other instrument to which such party is bound, (ii) result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement or instrument or (iii) result in the creation or imposition of any Lien upon or with respect to any property or assets of such party other than as contemplated hereby, by the TNP Credit Agreement or by the Existing Facility Documents. No action, consent or approval of, registration or filing with or any other action by, any governmental authority or the Replacement Note Holder, other than those that have previously been obtained and disclosed in writing to the Administrative Agent, is or will be required in connection with this Agreement and the transactions contemplated hereby. III. CONDITIONS The transactions contemplated by Sections 1.02, 1.03, 1.04 and 1.05 shall become effective only upon the satisfaction, on a single date (the "Effective Date") on or prior to November 3, 1995, of the following conditions: (a) the Administrative Agent shall have received one or more counterparts of this Agreement executed by each of the parties hereto; (b) the Existing Facility Banks shall have delivered the Original Notes, endorsed in favor of TNP, to the Original Agent, and such Original Notes shall be available for delivery as provided in Section 1.03; and (c) the TNP Credit Agreement shall have been executed and delivered by the parties thereto and shall have become effective, and each condition precedent set forth in Section 4.1 or 4.2 of the TNP Credit Agreement shall have been satisfied. IV. MISCELLANEOUS SECTION 4.01. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. SECTION 4.02. Effect of Modification. The Obligations (as defined in the Existing Facility Agreement) are secured by the liens, security interests and assignments of the TGC II Mortgage, the TNP Second Lien Mortgage and the other Security Documents and guaranteed by TNP under the TNP Guaranty. The validity and priority of the liens, security interests and assignments of the TGC II Mortgage, the TNP Second Lien Mortgage and the other Security Documents, and the validity and enforceability of the TNP Guaranty, shall not be extinguished, impaired, reduced, released, or adversely affected by the terms of this Agreement or the TNP Credit Agreement. SECTION 4.03. Extension of Rights and Liens. Each of TGC II and TNP hereby extends all rights, titles, liens, security interests, assignments, powers and privileges securing the Obligations by virtue of the TGC II Mortgage, the TNP Second Lien Mortgage and the other Security Documents, as the case may be, until all of such Obligations have been paid in full and agrees that the execution of this Agreement or the TNP Credit Agreement shall in no manner impair the rights, titles, liens, security interests, assignments, powers and privileges existing by virtue of the TGC II Mortgage, the TNP Second Lien Mortgage or the other Security Documents, as they are extended and modified hereby or by agreements and instruments executed pursuant to the terms hereof. SECTION 4.04. Joinder of Guarantor; No Merger. (a) TNP, as guarantor under the TNP Guaranty, hereby (i) consents to the execution, delivery and performance by TGC II of this Agreement and any amendment to any Project Document or Security Document to which TGC II is or is intended to be a party and the consummation of the transactions contemplated hereby and thereby, (ii) agrees that the TNP Guaranty shall remain in full force and effect after giving effect to such transactions and (iii) acknowledges that there are no claims or offsets against, or defenses or counterclaims to, the TNP Guaranty. (b) Neither TNP nor any of the other parties to this Agreement intend that there be and there shall not in any event be, a merger of any of the rights or interests of the Secured Parties under the terms of the TNP Guaranty with the rights or interests of TNP in and to the TNP Guaranty by virtue of the assignments and purchases contemplated hereby, and the parties expressly provide that such rights and interests of the Secured Parties on the one hand, and the rights and interests of TNP on the other, be and remain at all times separate and distinct with all such rights and obligations continuing to guarantee the Obligations. SECTION 4.05. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 4.06. Amendment. This Agreement may be waived, modified or amended only by a written agreement executed by TNP, TGC II, the Original Agent and the Administrative Agent. SECTION 4.07. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same agreement. Delivery of an executed counterpart of a signature page of this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 4.08. Expenses; Indemnity. (a) Each of TGC II and TNP agrees to pay all reasonable out-of-pocket expenses incurred by (i) the Administrative Agent in connection with the preparation of this Agreement, the TNP Credit Agreement and the other documents contemplated hereby and thereby (whether or not the transactions hereby or thereby contemplated shall be consummated), (ii) any Existing Facility Bank, the Original Agent, any Lender or the Administrative Agent in connection with any action which may be instituted by any Person against any of them in respect of the foregoing, or as a result of any transaction arising from the foregoing and (iii) the Administrative Agent in connection with the preparation of any amendments to or waivers or consents of or under this Agreement or the TNP Credit Agreement or other documents contemplated hereby or thereby including, without limitation, the reasonable fees and disbursements of counsel for the Administrative Agent. TNP agrees that it shall indemnify each Existing Facility Bank, the Original Agent, each Lender and the Administrative Agent from and hold such parties harmless against any documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of this Agreement. (b) Each of TGC II and TNP agrees to indemnify each Existing Facility Bank, the Original Agent, each Lender and the Administrative Agent and its directors, officers, employees and agents (each such Person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including, without limitation, reasonable counsel fees and expenses, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the preparation, execution and delivery of this Agreement, the TNP Credit Agreement and the other documents contemplated hereby or thereby, the performance by the parties hereto or thereto of their respective obligations hereunder or thereunder and the consummation of the transactions contemplated hereby or thereby or (ii) any funding or other costs incurred by the Existing Facility Banks or the Lenders in the event the Effective Date does not occur on the date proposed by TNP; provided, however, that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) The provisions of this Section 4.08 shall survive and remain operative and in full force and effect regardless of whether or not the transactions contemplated hereby are consummated or such consummation is delayed, and regardless of the amendment of the Existing Facility Agreement, the purchase of the Project Loans, the termination of this Agreement or the TNP Credit Agreement, the invalidity or unenforceability of any term or provision of this Agreement, the Existing Facility Agreement or any agreement referred to therein, the TNP Credit Agreement or any agreement referred to therein or the Original Notes, or any investigation made by or on behalf of any Indemnitee. All amounts due under this Section 4.08 shall be payable on written demand therefor accompanied by evidence in reasonable detail sufficient to identify the nature and amount of the expense so incurred. SECTION 4.09. No Novation. Neither this Agreement nor the execution, delivery or effectiveness of the TNP Credit Agreement shall extinguish the obligations for the payment of money outstanding under the Existing Facility Agreement or discharge or release the Lien or priority of any Security Document or any other security therefor. Nothing herein contained shall be construed as a substitution or novation of the obligations outstanding under the Existing Facility Agreement or instruments securing the same, which shall remain in full force and effect, except to the extent modified hereby or by instruments executed pursuant hereto. Nothing in this Agreement, the TNP Credit Agreement, or any other document contemplated hereby or thereby shall be construed as a release or other discharge of any Borrower or any Guarantor or any Pledgor or any Assignor or any Mortgagor under any Existing Facility Document from any of its obligations and liabilities as a "Borrower", "Guarantor" or "Pledgor" under the Existing Facility Agreement or the Existing Facility Documents. Each of the Existing Facility Agreement and the Existing Facility Documents shall remain in full force and effect except to any extent modified hereby or in connection herewith. Notwithstanding any provision of this Agreement or the TNP Credit Agreement, the provisions of Sections 13 and 14 of the Existing Facility Agreement, including all defined terms used therein, will continue to be effective as to all matters arising out of or in any way related to facts or events existing or occurring prior to the Effective Date. SECTION 4.10. Certain Agreements. Each of TNP and TGC II agrees that (a) for all purposes of the TNP Credit Agreement, the transactions contemplated by this Agreement shall be deemed to constitute "Transactions" as defined in the TNP Credit Agreement. It is understood and agreed by all parties hereto that in the event that the assignments provided for in Section 1.03 do not occur for any reason, then the amendments to the Existing Facility Agreement provided for herein shall be null and void. TNP and TGC II agree that any obligations of TGC II on account of interest on the Pledged Notes (as defined in the TNP Credit Agreement) shall be cancelled until the occurrence of an Event of Default (as defined in the TNP Credit Agreement) at which time and at all times thereafter such Pledged Notes shall bear interest at the rates, and payable in the manner, provided in the Existing Facility Agreement with payments to be delivered to and held by the Collateral Agent for application in accordance with the provisions of the Note Pledge Agreement (as defined in the TNP Credit Agreement). IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed and delivered as of the date first above written. TEXAS-NEW MEXICO POWER COMPANY, by /s/ Patrick L. Bridges Name: Patrick L. Bridges Title: Treasuer TEXAS GENERATING COMPANY II, by /s/ M. S. Cheema Name: M. S. Cheema Title: Vice President THE CHASE MANHATTAN BANK, N.A., individually as an Existing Facility Bank and as Original Agent and Original Collateral Agent, by /s/ Thomas L. Casey Name: Thomas L. Casey Title: Vice President CHEMICAL BANK, individually as a Lender and as Administrative Agent and Collateral Agent, by /s/ Jane Ritchie Name: Jane Ritchie Title: Vice President Existing Facility Banks ABN AMRO BANK N.V., HOUSTON AGENCY, by /s/ Michael N. Oakes Name: Michael N. Oakes Title: Vice President by /s/ M. A. Tribolet Name: M. A. Tribolet Title: Group Vice President BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, by /s/ Robert Eaton Name: Robert Eaton Title: Vice President THE BANK OF NEW YORK, by /s/ Ian K. Stewart Name: Ian K. Stewart Title: Senior Vice President THE BANK OF NOVA SCOTIA, by /s/ A. S. Norsworthy Name: A. S. Norsworthy Title: Assistant Agent CREDIT SUISSE, by /s/ David Worthington Name: David Worthington Title: Member of Senior Management by /s/ Marilou Palenzuela Name: Marilou Palenzuela Title: Member of Senior Management FLEET BANK OF MASSACHUSETTS, N.A., by /s/ Brian O'Connor Name: Brian O'Connor Title: Vice President NATIONSBANK OF TEXAS, N.A., by /s/ Bryan L. Diers Name: Bryan L. Diers Title: Senior Vice President PROSPECT STREET SENIOR PORTFOLIO, L.P., by PROSPECT STREET SENIOR LOAN CORP., Managing General Partner, by /s/ Dana E. Erikson Name: Dana E. Erikson Title: Vice President UNION BANK, by /s/ John M. Edmonston Name: John M. Edmonston Title: Vice President WESTPAC BANKING CORPORATION, by /s/ George Alexander Name: George Alexander Title: Vice President BANK AUSTRIA AKTIENGESELLSCHAFT (Succesor in Interest to Z - LNDERBANK AUSTRIA A.G.), by /s/ Mark Nolan /s/ J. Anthony Seay Name: Mark Nolan Anthony Seay Title: Assistant Vice President Vice President Voting Participants under Chase Credit Agreement CHRISTIANA BANK, by /s/ Justin F. McCarty, III Name: Justin F. McCarty, III Title: Vice President by /s/ Hans Chr. Kjelsrud Name: Hans Chr. Kjelsrud Title: Vice President THE NIPPON CREDIT BANK, LTD., by /s/ James J. Pasquale Name: James J. Pasquale Title: Senior Manager Lenders under the TNP Credit Agreement THE FIRST NATIONAL BANK OF BOSTON, by /s/ Rita M. Cahill Name: Rita M. Cahill Title: Vice President THE BANK OF MONTREAL, by /s/ Julia B. Buthman Name: Julia B. Buthman itle: Director THE BANK OF NEW YORK, by /s/ Ian K. Stewart Name: Ian K. Stewart Title: Senior Vice President CIBC, INC., by /s/ Robert S. Lyle Name: Robert S. Lyle Title: Vice President CREDIT LYONNAIS, NEW YORK BRANCH, by /s/ Robert Ivosevich Name: Robert Ivosevich Title: Senior Vice President NATIONSBANK OF TEXAS, N.A., by /s/ Bryan L. Diers Name: Bryan L. Diers Title: Senior Vice President THE NIPPON CREDIT BANK, LTD., by /s/ James J. Pasquale Name: James J. Pasquale Title: Senior Manager UNION BANK, by /s/ John M. Edmonston Name: John M. Edmonston Title: Vice President EXHIBIT K [FORM OF ASSIGNMENT OF TGC II MORTGAGE LIEN] ATTENTION: ROBERTSON COUNTY, TEXAS RECORDER RECORDING REQUESTED BY, AND WHEN RECORDED MAIL TO: Chemical Bank In care of Donald H. Snell, Esq. Snell, Banowsky & Trent 200 Crescent Court, Suite 1000 Dallas, Texas 75201 ASSIGNMENT OF TGC II MORTGAGE LIEN THE STATE OF TEXAS, ) ) ss.: COUNTY OF ROBERTSON,) THIS ASSIGNMENT OF TGC II MORTGAGE LIEN ("Assignment") is made as of November 3, 1995, by THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) as Agent for the Banks and the Replacement Note Holder (in such capacity, on behalf of the Secured Parties, together with its successors in such capacity, herein called the "Assignor") to, and in favor of CHEMICAL BANK, as agent for Texas-New Mexico Power Company ("TNP") under the Existing Facility Agreement (as defined in Paragraph A of the Recitals) (pursuant to the Assignment Agreement described in paragraph E of the Recitals), and as agent for the Replacement Note Holder under the Existing Facility Agreement (in such capacities, the "Assignee"). Unless otherwise defined herein, the capitalized terms used herein shall have the meanings given to those terms in the TNP Credit Agreement, defined in Paragraph E of the Recitals, or the Existing Facility Agreement, defined in Paragraph A of the Recitals, as applicable. WITNESSETH A. Certain of the Banks, the Chase Manhattan Bank (National Association) as Agent, TEXAS PFC, INC., a Delaware corporation ("TPFC") and TNP entered into the Project Loan and Credit Agreement dated as of October 1, 1988 (as amended and restated from time to time, the "Existing Facility Agreement") pursuant to which the Banks made Loans, prior to the Alternative Assumption Date to TPFC, and thereafter, to TEXAS GENERATING COMPANY II, a Texas corporation ("TGC II"), in a maximum outstanding aggregate principal amount of TWO HUNDRED EIGHTY-EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS ($288,500,000.00). B. The Obligations under the terms of the Existing Facility Agreement were secured, in part, by the terms, provisions, liens, security interests and assignments of that certain TGC II Mortgage and Deed of Trust (with Security Agreement and UCC Financing Statement for Fixture Filing) dated as of October 1, 1988 ("TGC II Mortgage"), which was filed of record on October 4, 1988 in Volume 521 at Page 601 of the Public Records of Robertson County, Texas. C. The Alternative Assumption Date occurred as of May 31, 1991. Certain of the obligations of TPFC under the terms of the Existing Facility Agreement were assumed by TGC II pursuant to that certain Assumption Agreement recorded in Volume 566 at Page 252 of the Public Records of Robertson County, Texas. The TGC II Mortgage Trust Estate was conveyed by TPFC to TGC II pursuant to that certain Conveyance and Bill of Sale effective as of May 31, 1991, recorded in Volume 566 at Page 283 of the Public Records of Robertson County, Texas. D. Subsequent to the execution and delivery of the TGC II Mortgage, TNP, TGC II and the Assignor executed and delivered (i) the First TGC II Modification and Extension Agreement dated as of January 24, 1992 and caused it to be recorded in Volume 573 at Page 484 of the Public Records of Robertson County, Texas, (ii) the Second TGC II Modification and Extension Agreement dated as of January 27, 1992 and caused it to be recorded in Volume 573 at Page 511 of the Public Records of Robertson County, Texas, (iii) the Third TGC II Modification and Extension Agreement dated as of January 27, 1992 and caused it to be recorded in Volume 573 at Page 525 of the Public Records of Robertson County, Texas, (iv) the Fourth TGC II Modification and Extension Agreement dated as of September 29, 1993 and caused it to be recorded in Volume 601 at Page 87 of the Public Records of Robertson County, Texas, (v) the Fifth TGC II Modification and Extension Agreement dated as of June 15, 1994 and caused it to be recorded in Volume 614 at Page 224 of the Public Records of Robertson County, Texas, in each case as a memorial of certain modifications of, amendments to or occurrences of events under the Existing Facility Agreement and to confirm the validity and priority of the liens, security interests and assignments of the TGC II Mortgage securing the Obligations. E. TNP is entering into a Revolving Credit Facility Agreement dated as of the date hereof ("TNP Credit Agreement") with certain Lenders (herein so called) and Chemical Bank, as Administrative Agent and Collateral Agent for the Lenders. It is a condition precedent to the execution of the TNP Credit Agreement that, pursuant to the Assignment Agreement (as defined in the TNP Credit Agreement), (i) the Existing Facility Agreement be further amended, (ii) all of the Project Loans be purchased by TNP and (iii) all of the related rights and interests under the Existing Facility Documents be assigned and transferred to Assignee by the Assignor pursuant to this Assignment and the Assignment Agreement, so that TNP may then pledge to Chemical Bank, as Collateral Agent, the Project Loans, including all promissory notes evidencing such Project Loans and all of TNP's interest in the Collateral, as security for TNP's obligations under the TNP Credit Agreement. F. TNP, TGC II and the Secured Parties have executed, delivered and caused that certain Sixth TGC II Modification and Extension Agreement to be filed of record as a memorial of the occurrence of such modifications and amendments set forth in the Assignment Agreement, and to confirm the validity and priority of the liens, security interests and assignments of the TGC II Mortgage securing the Obligations, and Assignor, TNP and Assignee now desire to execute, deliver and cause this Assignment to be filed of record to memorialize the Assignment of the liens, security interests and assignments of the TGC II Mortgage by the Assignor to the Assignee. Agreements NOW, THEREFORE, for and in consideration of the foregoing recitals, together with the sum of Ten Dollars ($10.00) and other good and valuable consideration, paid and delivered by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged and confessed, Assignor does hereby SELL, ASSIGN, TRANSFER, CONVEY and DELIVER unto Assignee all of the liens, security interests, assignments and all of the other rights and interests of Assignor in, to and under the TGC II Mortgage and in and to the TGC II Mortgage Trust Estate, TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns forever. IN WITNESS WHEREOF, this Assignment has been executed by Assignor in favor of Assignee effective as of the day and year first above written. ASSIGNOR: THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent and as Collateral Agent, by________________________________ Name: Title: ASSIGNEE: CHEMICAL BANK, as agent for TNP under the Existing Facility Agreement (pursuant to the Assignment Agreement), and as agent for the Replacement Note Holder under the Existing Facility Agreement, by________________________________ Name: Title: TNP: TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, by________________________________ Name: Title: STATE OF NEW YORK,) ) ss.: COUNTY OF NEW YORK,) This instrument was acknowledged before me on this __ day of November, 1995 by ________________________________ THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent and as Collateral Agent. ---------------------------------- NOTARY PUBLIC in and for the State of NEW YORK [Notarial Seal] STATE OF NEW YORK,) ) ss.: COUNTY OF NEW YORK,) This instrument was acknowledged before me on this __ day of November, 1995 by ______________________________________ of CHEMICAL BANK. -------------------------------- NOTARY PUBLIC in and for the State of NEW YORK [Notarial Seal] STATE OF TEXAS,) ) ss.: COUNTY OF ___________,) This instrument was acknowledged before me on this __ day of November, 1995 by ______________________________________ of TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation. --------------------------------- NOTARY PUBLIC in and for the State of TEXAS [Notarial Seal] EXHIBIT L COLLATERAL TRANSFER OF NOTES, RIGHTS AND INTERESTS THE STATE OF TEXAS ) ) KNOW ALL MEN BY THESE PRESENTS: COUNTY OF ROBERTSON ) THAT, TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, whose mailing address is 4100 International Plaza, Fort Worth, Texas 76109, Attention: Chief Financial Officer ("Debtor"), for a valuable and sufficient consideration paid, the receipt of which is hereby acknowledged, and as security for the herein described Obligations, hereby transfers, assigns and conveys unto CHEMICAL BANK, a New York banking corporation, as Administrative Agent and as Collateral Agent for the Lenders, whose mailing address is 270 Park Avenue, New York, New York 10017, Attention: Jaimin Patel ("Secured Party"), the Collateral as more particularly described in that certain Note Pledge Agreement dated of even date herewith by and between the Debtor and the Secured Party ("Note Pledge Agreement"). Unless otherwise defined herein, the capitalized terms used herein shall have the meanings given to those terms in the Note Pledge Agreement or in that certain Revolving Credit Facility Agreement ("Credit Agreement") of even date herewith by and between the Debtor, the Lenders and the Secured Party, as the case may be. This transfer of Collateral is made to secure (a) the principal of and interest on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (b) all other monetary obligations of the Debtor to the Lenders under the Loan Documents, and (c) all obligations of the Debtor or any Subsidiary under any Interest Rate Protection Agreement entered into with a Lender to protect against interest rate fluctuations with respect to the Indebtedness under the Credit Agreement (collectively, the "Obligations"). All of the terms and provisions of the Note Pledge Agreement are incorporated herein and made a part hereof for all purposes. THE LAW GOVERNING THIS SECURED TRANSACTION SHALL BE THE CODE AND OTHER APPLICABLE LAWS OF THE STATE OF NEW YORK. ALL TERMS USED HEREIN WHICH ARE DEFINED IN THE CODE SHALL HAVE THE SAME MEANING HEREIN AS IN THE CODE. EXECUTED as of the ____ day of November, 1995. DEBTOR: TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation By: _______________________ Name:__________________ Title:_________________ SECURED PARTY: CHEMICAL BANK, as Administrative Agent and Collateral Agent for the Lenders By: _______________________ Name:__________________ Title:_________________ THE STATE OF TEXAS ) ) COUNTY OF ________ ) BEFORE ME, the undersigned notary public, on this day personally appeared _________________________________, of TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed, and in the capacity therein stated, and as the act and deed of said corporation. GIVEN UNDER MY HAND AND SEAL OF OFFICE this ___ day of November, 1995. ---------------------------- NOTARY PUBLIC in and for the State of TEXAS My Commission Expires: THE STATE OF NEW YORK) ) COUNTY OF NEW YORK) BEFORE ME, the undersigned notary public, on this day personally appeared ______________________________________, ____________________________ of CHEMICAL BANK, as Administrative Agent and Collateral Agent for the Lenders, a ______________________, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed, and in the capacity therein stated, and as the act and deed of said corporation. GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of November, 1995. ---------------------------- NOTARY PUBLIC in and for the Sate of NEW YORK My Commission Expires: - --------------------- The undersigned hereby (a) acknowledges receipt of a copy of the Collateral Transfer of Notes, Rights and Interests dated as of November 3, 1995 by TEXAS-NEW MEXICO POWER COMPANY in favor of CHEMICAL BANK, as Administrative Agent and Collateral Agent for the Lenders ("Collateral Transfer") and consents to such Collateral Transfer effected, and the other transactions contemplated thereby (including the exercise of any and all remedies provided for therein) and (b) consents to the Collateral Transfer by Texas-New Mexico Power Company of its rights under the Facility Purchase Agreement and the Operating Agreement. TEXAS GENERATING COMPANY II, a TEXAS corporation By: _________________________ Name:____________________ Title:___________________ Date: November __, 1995 Chemical Bank, in its capacity as Agent under the Existing Facility Documents, acknowledges that the liens securing the Pledged Notes under such Existing Facility Documents will continue to secure such Pledged Notes following the pledge thereof to the Collateral Agent, and TNP's beneficial interests in and to such liens are also intended to be pledged, pursuant to the Note Pledge Agreement (it being understood that nothing herein shall diminish the rights of the Replacement Note Holder as a secured party under the Existing Facility Documents). CHEMICAL BANK, as Agent, by -------------------------------- Name: Title November __, 1995 EXHIBIT M [FORM OF ASSIGNMENT OF TNP SECOND LIEN MORTGAGE] THIS INSTRUMENT ASSIGNS AN INSTRUMENT WHICH GRANTED A SECURITY INTEREST BY A UTILITY AND WHICH CONTAINED AFTER-ACQUIRED PROPERTY PROVISIONS PURSUANT TO SUBCHAPTER 35A OF THE TEXAS BUSINESS AND COMMERCE CODE ASSIGNMENT OF SECOND LIEN MORTGAGE AND DEED OF TRUST (WITH SECURITY AGREEMENT) THIS ASSIGNMENT OF SECOND LIEN MORTGAGE AND DEED OF TRUST (WITH SECURITY AGREEMENT) ("Assignment") dated as of November 3, 1995 is entered into by and between THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) as Agent for the Banks and the Replacement Note Holder (in such capacity, on behalf of the Secured Parties, together with its successors in such capacity, herein called the "Assignor") and CHEMICAL BANK, as agent for Texas-New Mexico Power Company ("TNP") under the Existing Facility Agreement defined below (pursuant to the Assignment Agreement described in paragraph N of the Recitals), and as agent for the Replacement Note Holder under the Existing Facility Agreement (in such capacities, "Assignee"). Unless otherwise described or defined herein, all terms used in this Assignment shall have the same meanings herein as are assigned to such terms in that certain Unit 2 Second Amended and Restated Project Loan and Credit Agreement dated as of January 8, 1992 (as amended, supplemented or otherwise modified from time to time the "Existing Facility Agreement") among TNP, TEXAS GENERATING COMPANY II ("Borrower"), the Banks party thereto ("Banks") and Assignor. W I T N E S S E T H: Recitals A. In connection with the Project Loan and Credit Agreement dated as of October 1, 1988 (as amended from time to time, the "Project Credit Agreement") among certain of the Banks, the Chase Manhattan Bank (National Association), as agent, TNP, and TEXAS PFC, INC., a Delaware corporation, TNP executed and delivered to Mortgage Trustee, for the benefit of the Secured Parties, a certain Second Lien Mortgage and Deed of Trust (with Security Agreement) ("TNP Second Lien Mortgage"), granting to DONALD H. SNELL, as Mortgage Trustee ("Mortgage Trustee"), for the benefit of the Secured Parties, a second lien against property of TNP located in the State of Texas ("Second Lien Mortgage Trust Estate") and more particularly described in the TNP Indenture (as defined in the TNP Second Lien Mortgage), which TNP Second Lien Mortgage was filed with the Secretary of State of the State of Texas on October 4, 1988, as Utility Security Instrument Number 229147. The lien created by the TNP Second Lien Mortgage is subordinate by its own terms to the lien of the TNP Bond Indenture. B. By its terms, the TNP Second Lien Mortgage excluded from the Second Lien Mortgage Trust Estate certain real property located in Robertson County, Texas (the "Property") since no portion thereof was then owned by TNP. C. Pursuant to a certain Warranty Deed dated as of October 1, 1988 and recorded in Volume 521 at Page 532 of the Public Records of Robertson County, Texas, Project Funding Corporation conveyed 7,466 acres of the Property ("Unit 2 Property") to TEXAS TPFC, INC. (the Property less and except the Unit 2 Property, hereinafter called the "Robertson County Property"). D. On December 27, 1990, pursuant to the Facility Purchase Agreement, TNP purchased an undivided 30/345 interest in the Robertson County Property (including Unit 1 located thereon) which interest was conveyed to Assignee by that certain Conveyance and Bill of Sale recorded in Volume 556 at Page 653 of the Public Records of Robertson County, Texas. E. The Alternative Assumption Date occurred as of May 31, 1991. Effective as of that date, the Unit 2 Property was conveyed to the Borrower pursuant to a certain Conveyance and Bill of Sale dated effective May 31, 1991, recorded on July 26, 1991 in Volume 566 at Page 283 of the Public Records of Robertson County, Texas. Contemporaneously therewith, all of the Obligations under the terms of the Project Credit Agreement were assumed by the Borrower pursuant to a certain Assumption Agreement recorded on July 26, 1991 in Volume 566 at Page 252 of the Public Records of Robertson County, Texas. Also contemporaneously therewith, the obligations of TNP under that certain Guaranty dated as of May 31, 1991 ("Guaranty") became effective and pursuant thereto, TNP (sometimes hereinafter called "Guarantor") guarantees the Obligations that were assumed by the Borrower. F. On January 8, 1992, TNP and the Agent, on behalf of Secured Parties, executed that certain Second Lien Mortgage and Deed of Trust (with Security Agreement) Modification, Extension and Amendment Agreement (the "TNP Second Lien Mortgage Modification No. 1"), to among other things, further modify the TNP Second Lien Mortgage to clarify and confirm that any portion of the Trust Estate under the TNP Indenture (as defined in the TNP Second Lien Mortgage) located in Robertson County, Texas then owned or thereafter acquired by TNP would be included as a part of the Second Lien Trust Estate. G. The parties to the Project Credit Agreement entered into an agreement in principle in connection with certain amendments thereto. To implement such amendments, the parties entered into the Unit 2 First Amended and Restated Project Loan and Credit Agreement dated as of January 8, 1992 (the "Unit 2 Credit Agreement") which was amended pursuant to the First Amendment thereto dated as of September 21, 1993 (the "First Amendment") among such parties (the Unit 2 Credit Agreement, as so amended, the "Existing Facility Agreement"). H. On January 27, 1992, pursuant to the Facility Purchase Agreement (as defined in the Unit 1 Credit Agreement), TNP purchased an additional undivided 45/345 interest in the Robertson County, Property (including Unit 1 located thereon). I. On September 21, 1993, pursuant to the Facility Purchase Agreement (as defined in the Unit 1 Credit Agreement), TNP purchased an additional undivided 65/345 interest in the Robertson County Property (including Unit 1 located thereon). J. On September 21, 1993, pursuant to the Facility Purchase Agreement, TNP purchased an undivided 75.75/288.5 interest in the Unit 2 Property (including Unit 2 located thereon).\ K. Although all of the undivided interests described in Recitals G, H and I were subject to the liens of the TNP Second Lien Mortgage by reason of provision to that effect therein, the parties desired to reflect this fact of record. L. TNP and the Agent, on behalf of the Secured Parties, have modified the TNP Second Lien Mortgage to clarify and confirm that any portion of the Robertson County Trust Estate Property owned by or acquired by TNP shall be included as a part of the Second Lien Mortgage Trust Estate. TNP and the Agent, on behalf of the Secured Parties, executed and delivered the TNP Second Lien Mortgage Modification No. 1 dated as of January 8, 1992 and caused it to be filed with the Secretary of State of the State of Texas. M. Borrower, TNP and the Agent, on behalf of the Secured Parties, agreed, as set forth in the First Amendment, to modify the terms of the Unit 2 Credit Agreement in order to permit TNP and Borrower to secure Permitted Collateralized Indebtedness (as defined in the First Amendment) with the Collateral, adjust the terms of payment thereunder and to extend the dates for payments required thereby, and to make other modifications all as set forth in and subject to the terms and conditions of the Existing Facility Agreement. In connection with the First Amendment, Borrower, TNP and the Agent executed that certain Second Lien Mortgage and Deed of Trust (with Security Agreement) Modification, Extension and Amendment Agreement No. 2 (the "TNP Second Lien Mortgage Modification No. 2"); together with the TNP Second Lien Mortgage Modification No. 1, the "TNP Second Lien Mortgage Modification") dated as of September 21, 1993 to confirm the validity and priority of the liens, security interests and assignments of the TNP Second Lien Mortgage. N. TNP is entering into a revolving credit facility agreement dated the date hereof (the "TNP Credit Agreement") with certain lenders (the "Lenders") and Chemical Bank, as administrative agent and collateral agent for the Lenders. It is a condition precedent to the execution of the TNP Credit Agreement that (a) the Existing Facility Agreement be amended as described in the Assignment Agreement (as defined in the TNP Credit Agreement) and (b) the parties hereto execute and deliver this Assignment. O. TNP, Assignee and the Assignor have executed, delivered and caused this Assignment to be filed of record as a memorial of the occurrence of such modifications and to confirm the assignment of the TNP Second Lien Mortgage by Assignor to Assignee and their agreement that the validity and priority of the liens, security interests and assignments of the TNP Second Lien Mortgage shall continue and remain in full force and effect. Agreements NOW, THEREFORE, in consideration of the foregoing recitals, together with the sum of Ten Dollars ($10.00) and other good and valuable consideration, paid and delivered by Assignee to Assignor, the receipt and sufficiency of which are hereby acknowledged and confessed, Assignor and Assignee hereby agree as follows: 1. Assignment. Assignor does hereby sell, assign, transfer, convey and deliver unto Assignee the TNP Second Lien Mortgage, and all of Assignor's rights, interests, liens, security interests and assignments thereunder and in and to the Second Lien Mortgage Trust Estate, TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns forever. 2. No Merger. None of TNP, Assignor or Assignee intend that there be, and there shall not in any event be, a merger of any of the liens, security interests or assignments of the TNP Second Lien Mortgage with the title or interest of TNP by virtue of the assignments contained in the Assignment Agreement or the assignment contained hereinabove, and the parties expressly provide that each such interest in such liens, security interests and assignments on the one hand, and title to the TNP Second Lien Mortgage, as modified, on the other hand, be and remain at all times separate and distinct with all such validity and priority that existed prior too the execution of the Assignment Agreement and this Assignment. 3. Successors and Assigns. This Assignment shall be binding upon the successors and assigns of the Assignor and the Assignee and shall inure to the benefit of the successors and assigns of the Assignee; provided, however, nothing contained in this Section 3 is intended to authorize TNP to assign any of the Obligations or to sell any of the Second Lien Mortgage Trust Estate except in accordance with the Existing Facility Agreement and the Facility Purchase Agreement. 4. Counterparts. This Assignment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Assignment by signing any such counterpart. EXECUTED as of the date first hereinabove written. ASSIGNOR: THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent and as Collateral Agent By:____________________________ Name: Title: ASSIGNEE: CHEMICAL BANK, as agent for TNP under the Existing Facility Agreement (pursuant to the Assignment Agreement), and as agent for the Replacement Note Holder under the Existing Facility Agreement, By:____________________________ Name: Title: TNP: TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation By:_______________________ Name: Title: THE STATE OF NEW YORK ) ) COUNTY OF NEW YORK ) This instrument was acknowledged before me on the ____ day of November, 1995, by ________________________________________ of THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent and as Collateral Agent. --------------------------------------------------------------------- NOTARY PUBLIC in and for The State of NEW YORK My Commission Expires: --------------------------------------------------------------------- Typed or Printed Name of Notary THE STATE OF NEW YORK) ) COUNTY OF NEW YORK ) This instrument was acknowledged before me on the _____ day of November, 1995, by______________________________________________ of CHEMICAL BANK, as agent for TNP and the Replacement Note Holder. --------------------------------------------------------------------- NOTARY PUBLIC in and for The State of NEW YORK My Commission Expires: --------------------------------------------------------------------- Typed or Printed Name of Notary THE STATE OF TEXAS) ) COUNTY OF ________) This instrument was acknowledged before me on the _____ day of November, 1995, by ___________________________________________ of TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, on behalf of said corporation. ------------------------------------------------------------------- NOTARY PUBLIC in and for The State of NEW YORK My Commission Expires: --------------------------------------------------------------------- Typed or Printed Name of Notary EXHIBIT N THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY AND THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS PURSUANT TO SUBCHAPTER 35A OF THE TEXAS BUSINESS AND COMMERCE CODE COLLATERAL TRANSFER OF NOTES, RIGHTS AND INTERESTS THAT, TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, whose mailing address is 4100 International Plaza, Fort Worth, Texas 76109, Attention: Chief Financial Officer ("Debtor"), for a valuable and sufficient consideration paid, the receipt of which is hereby acknowledged, and as security for the herein described Obligations, hereby transfers, assigns and conveys unto CHEMICAL BANK, a New York banking corporation, as Administrative Agent and as Collateral Agent for the Lenders, whose mailing address is 270 Park Avenue, New York, New York 10017, Attention: Jaimin Patel ("Secured Party"), the Collateral as more particularly described in that certain Note Pledge Agreement dated of even date herewith by and between the Debtor and the Secured Party ("Note Pledge Agreement"). The Collateral includes, but is not limited to, that certain Second Lien Mortgage and Deed of Trust (with Security Agreement) and all of the rights, titles, interests and liens of the beneficiary thereunder, which was filed with the Secretary of State of the State of Texas on October 4, 1988, as Utility Security Instrument No. 229147. Unless otherwise defined herein, the capitalized terms used herein shall have the meanings given to those terms in the Note Pledge Agreement or in that certain Revolving Credit Facility Agreement ("Credit Agreement") of even date herewith by and between the Debtor, the Lenders and the Secured Party, as the case may be. This transfer of Collateral is made to secure (a) the principal of and interest on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (b) all other monetary obligations of the Debtor to the Lenders under the Loan Documents, and (c) all obligations of the Debtor or any Subsidiary under any Interest Rate Protection Agreement entered into with a Lender to protect against interest rate fluctuations with respect to the Indebtedness under the Credit Agreement (collectively, the "Obligations"). All of the terms and provisions of the Note Pledge Agreement are incorporated herein and made a part hereof for all purposes. THE LAW GOVERNING THIS SECURED TRANSACTION SHALL BE THE CODE AND OTHER APPLICABLE LAWS OF THE STATE OF NEW YORK. ALL TERMS USED HEREIN WHICH ARE DEFINED IN THE CODE SHALL HAVE THE SAME MEANING HEREIN AS IN THE CODE. EXECUTED as of the______________- day of November, 1995. DEBTOR: TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation By:____________________________ Name: Title: SECURED PARTY: CHEMICAL BANK, as Administrative Agent and Collateral Agent for the Lenders By:___________________________ Name: Title: THE STATE OF TEXAS ) ) COUNTY OF ______________) BEFORE ME, the undersigned notary public, on this day personally appeared ___________________________________________________________________ of TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed, and in the capacity therein stated, and as the act and deed of said corporation. GIVEN UNDER MY HAND AND SEAL OF OFFICE this ______ day of November, 1995. -------------------------------- NOTARY PUBLIC in and for the State of TEXAS My Commission Expires: - ------------------------- THE STATE OF NEW YORK ) ) COUNTY OF NEW YORK) BEFORE ME, the undersigned notary public, on this day personally appeared ______________________________________________ of CHEMICAL BANK, as Administrative Agent and Collateral Agent for the Lenders, a ______________________ known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed, and in the capacity therein stated, and as the act and deed of said corporation. GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of November, 1995. ------------------------------- NOTARY PUBLIC in and for the State of NEW YORK My Commission Expires: - ---------------------- The undersigned hereby (a) acknowledges receipt of a copy of the Collateral Transfer of Notes, Rights and Interests dated as of November 3, 1995 by TEXAS-NEW MEXICO POWER COMPANY in favor of CHEMICAL BANK, as Administrative Agent and Collateral Agent for the Lenders ("Collateral Transfer") and consents to such Collateral Transfer effected, and the other transactions contemplated thereby (including the exercise of any and all remedies provided for therein) and (b) consents to the Collateral Transfer by Texas-New Mexico Power Company if its rights under the Facility Purchase Agreement and the Operating Agreement. TEXAS GENERATING COMPANY II, a Texas corporation By:____________________________ Name: Title: Date: November ___, 1995 Chemical Bank, in its capacity as Agent under the Existing Facility Documents, acknowledges that the liens securing the Pledged Notes under such Existing Facility Documents will continue to secure such Pledged Notes following the pledge thereof to the Collateral Agent, and TNP's beneficial interests in and to such liens are also intended to be pledged, pursuant to the Note Pledge Agreement (it being understood that nothing herein shall diminish the rights of the Replacement Note Holder as a secured party under the Existing Facility Documents). CHEMICAL BANK, as Agent, by ---------------------------- Name: Title November __, 1995 EXHIBIT O FORM OF AMENDMENT NO. 1 TO TNP SECURITY AGREEMENT THIS INSTRUMENT MODIFIES AND AMENDS AN INSTRUMENT WHICH GRANTED A SECURITY INTEREST BY A UTILITY AND WHICH CONTAINED AFTER-ACQUIRED PROPERTY PROVISIONS PURSUANT TO SUBCHAPTER 35A OF THE TEXAS BUSINESS AND COMMERCE CODE AMENDMENT NO. 1 (this "Amendment") dated as of November 3, 1995, to the Assignment and Security Agreement dated as of October 1, 1988 (as the same has been or may hereafter be amended, restated, supplemented, modified or waived from time to time, the "Security Agreement") between TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation ("TNP" or the "Assignor") and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), in its capacity as agent (the "Agent") under the Credit Agreement referred to below for the benefit of the Secured Parties (as defined in the Credit Agreement). A. Reference is made to the Unit 2 First Amended and Restated Project Loan and Credit Agreement dated as of January 8, 1992 (as amended, restated, supplemented, modified or waived from time to time, the "Credit Agreement"), among Texas Generating Company II, a Texas corporation ("TGC II"), the Assignor, the banks party thereto (the "Banks") and The Chase Manhattan Bank (National Association) as agent for the Banks and the Replacement Note Holder. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement and the Credit Agreement. C. Assignor is entering into a revolving credit agreement (the "TNP Credit Agreement") with certain lenders (the "Lenders") and Chemical Bank ("Chemical"), as Administrative Agent and Collateral Agent for the Lenders. It is a condition precedent to the effectiveness of the TNP Credit Agreement that the Assignor shall have executed this Amendment. D. In connection with execution of the TNP Credit Agreement, (i) TGC II borrowed and had outstanding under the Credit Agreement Project Loans in an aggregate principal amount equal to $147,750,000 and (ii) the Assignor, TGC II, the Banks, the Agent, the Lenders and Chemical have entered into an Assignment and Amendment Agreement (the "Assignment Agreement") pursuant to which (a) the Credit Agreement was amended as provided therein, (b) TGC II transferred to the Assignor, in satisfaction of intercompany indebtedness owed by it to by the Assignor, the proceeds of borrowings made under the Credit Agreement on the Closing Date (as defined in the TNP Credit Agreement), together with the borrowings to be made on such Closing Date pursuant to the TNP Credit Agreement, which would be sufficient to provide the necessary funds for the purchase contemplated by the following clause, (c) the Assignor purchased from the Banks all of the outstanding Project Loans (and related rights and interests) under the Credit Agreement and (d) the Original Agent and the Original Collateral Agent (each as defined in the Assignment Agreement) assigned all of their rights to Chemical (in such capacity herein called the "Successor Agent"). Accordingly, the Successor Agent and the Assignor agree as follows: SECTION 1. Grant of Security Interest. As security for the payment or performance when due of the Obligations, now existing or hereafter arising, the Assignor hereby pledges, assigns and transfers to the Agent, for the ratable benefit of the Secured Parties, and grants to the Agent for the ratable benefit of the Secured Parties, a lien on and security interest in, all of the Assignor's right, title and interest, whether now owned or hereafter acquired, in, to and under the Operating Agreement; as such agreement may be amended, supplemented or otherwise modified from time to time, including, without limitation, (a) all rights of the Assignor to receive moneys due and to become due under or pursuant to the Operating Agreement, (b) all rights of the Assignor to receive proceeds of any condemnation or taking, indemnity, warranty or guaranty with respect to the Operating Agreement, (c) all claims of the Assignor for damages arising out of or for breach of or default under the Operating Agreement and (d) subject to Section 12(i), the right of the Assignor to terminate, amend, supplement or modify the Operating Agreement, to perform thereunder and to complete performance and otherwise exercise remedies thereunder. SECTION 2. Amendment to Section 2. Section 2(a)(A) of the Security Agreement is hereby amended by (a) deleting the word "and" at the end of clause (iii), (b) adding a new clause (iv) to read in its entirety as follows: "(iv) the Operating Agreement, and ", and (c) renumbering existing clause (iv) as clause (v). SECTION 3. Amendment to Section 12. Section 12 of the Security Agreement is hereby amended by adding thereto a new paragraph (i) which shall read in its entirety as follows: "(i) if any Event of Default under the Credit Agreement or a Default or an Event of Default under and as defined in the Revolving Credit Facility Agreement dated as of November 3, 1995 among the Assignor, the lenders party thereto (the "Lenders") and Chemical Bank, as administrative agent and collateral agent for the lenders (in such capacities, the "Administrative Agent" and the "Collateral Agent", respectively) shall have occurred and be continuing, the Collateral Agent, without demand of performance or other demand, advertisement or notice of any kind to or upon the Assignor or any other person (all and each of which demands, advertisements and/or notices are hereby expressly waived), may terminate the Operating Agreement. The Collateral Agent agrees that in the event it terminates the Operating Agreement pursuant to this Section 12(i), it will negotiate in good faith with the Assignor with respect to permitting the Assignor to purchase power on market terms; provided that nothing herein shall require the Collateral Agent to take any action that in its judgment would not be in the best interests of the Lenders. SECTION 4. Representations and Warranties. Assignor represents and warrants to the Successor Agent and the other Secured Parties that (a) the representations and warranties made by Assignor in the Security Agreement are true and correct on and as of the date hereof and (b) this Amendment has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). SECTION 5. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument. This Amendment shall become effective when the Successor Agent shall have received counterparts of this Amendment that, when taken together, bear the signatures of the Assignor and the Successor Agent. SECTION 6. Full Force and Effect. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect. SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 8. Severability. In case any one or more of the provisions contained in this Amendment should be held invalid, illegal or unenforceable in any respect, neither party hereto shall be required to comply with such provision for so long as such provision is held to be invalid, illegal or unenforceable, but the validity, legality and enforceability of the remaining provisions contained herein and in the Security Agreement shall not in any way be affected or impaired. The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 9. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 15 of the Security Agreement. SECTION 10. Expenses. Assignor agrees to reimburse the Successor Agent for its reasonable out-of-pocket expenses in connection with this Amendment, including the reasonable fees, other charges and disbursements of counsel for the Successor Agent. IN WITNESS WHEREOF, Assignor and the Successor Agent have been duly executed this Amendment to the Security Agreement as of the day and year first above written. TEXAS-NEW MEXICO POWER COMPANY, by ----------------------------------- Name: Title: CHEMICAL BANK, as Successor Agent, by ----------------------------------- Name: Title: ACKNOWLEDGED AND ACCEPTED: TEXAS GENERATING COMPANY II, by --------------------------- Name: Title: THE STATE OF TEXAS ) ) COUNTY OF ROBERTSON ) This instrument was acknowledged before me on the ___ day of November, 1995, by ____________ , ________ of TEXAS-NEW MEXICO POWER COMPANY, a Texas corporation, on behalf of said corporation. ------------------------------ NOTARY PUBLIC in and for the State of TEXAS My Commission Expires: ------------------------------------------------------------------------- Typed or Printed Name of Notary THE STATE OF TEXAS ) ) COUNTY OF ROBERTSON ) This instrument was acknowledged before me on the ___ day of November, 1995, by ______________ , of TEXAS GENERATING COMPANY II, a Texas corporation, on behalf of said corporation. ----------------------------------- NOTARY PUBLIC in and for the State of TEXAS My Commission Expires: - -------------------------------------- - ----------------------------------- Typed or Printed Name of Notary THE STATE OF NEW YORK ) ) COUNTY OF NEW YORK ) This instrument was acknowledged before me on the _____ day of November,1995, by______________,_________________________ of CHEMICAL BANK, a New York banking corporation, on behalf of said corporation. --------------------------- NOTARY PUBLIC in and for the Sate of NEW YORK My Commission Expires: - --------------------------------------------------------------- Typed or Printed Name of Notary
Schedule 2.01 Commitments Name and Address of Lender Contact Person and Telecopy Number Commitment Chemical Bank 270 Park Avenue New York, NY 10017 Mr. Jaimin Patel Vice President (212) 270-2555 $ 22,000,000 Bank of Boston 100 Federal Street Mailstop 01-08-82 Boston, MA 02110 Mr. Michael Kane Managing Director (617) 434-3652 $ 14,500,000 Bank of Montreal 700 Louisiana, Suite 4400 Houston, TX 77002 Ms. Julie Buthman Vice President (713) 223-4007 $ 14,500,000 The Bank of New York One Wall Street, 19th Floor New York, NY 10286 Mr. Nathan Howard Vice President (212) 635-7923 $ 17,500,000 CIBC, Inc. 200 West Madison, Suite 2300 Chicago, IL 60606 Mr. Robert Lyle Managing Director (312) 750-0927 $ 17,500,000 Credit Lyonnais 500 North Akard, Suite 3210 Dallas, TX 75201 Ms.Karen Watson Vice President (214) 954-3312 $ 14,500,000 NationsBank of Texas, N.A. 901 Main Street, 64th Floor Dallas, TX 75202 Mr. Bryan L. Diers Senior Vice President (214) 508-3943 $ 17,500,000 The Nippon Credit Bank, Ltd 245 Park Avenue, 30th Floor. New York, NY 10167 Mr. Doron Sabag Vice President (212) 490-3895 $ 14,500,000 Union Bank 445 South Figueroa Street 15th Floor Los Angeles, CA 90071 Mr. David Musicant Assistant Vice President (213) 236-4096 $ 17,500,000 TOTAL $ 150,000,000
SCHEDULE 3.6 Changes During 1994, Phillips Petroleum's Sweeny, Texas, refinery contracted with CSW Energy to construct a 300-megawatt cogeneration plant. If constructed, this plant is expected to begin operations in 1998. The refinery accounted for approximately $29 million of Borrower's 1994 operating revenues ($9 million in base revenues). Revenues attributable to the refinery may be impacted adversely if the cogeneration facility is constructed. Borrower's goal is to retain Phillips Petroleum as a customer and to lower overall system operating costs through negotiation with Phillips Petroleum and CSW Energy. Although Borrower cannot predict the ultimate outcome of the process or its impact on Borrower, Borrower and Phillips Petroleum are discussing arrangements through which Borrower may retain electric service to Phillips Petroleum. SCHEDULE 3.8 Subsidiaries and percentage ownership interest therein of Borrower Texas Generating Company - l,000 shares common stock, no par value, 100% owned by Borrower Texas Generating Company II - l,000 shares common stock, no par value, 100% owned by Borrower SCHEDULE 3.9 1. Revocation proceedings concerning 1991 private letter ruling from the Internal Revenue Service confirming that Unit 1 of the TNP One generating plant was property eligible for investment tax credit. 2. A. Joseph Burch v. Coastal Spray Company and Texas-New Mexico Power Company, Cause No. 92CV1094, 212th Judicial District Court, Galveston County, Texas. Plaintiff is claiming property damages to land due to drifting of herbicides sprayed on Texas-New Mexico Power Company R.O.W. adjacent to plaintiff's property. No amount of damages has been stated. 3. Billie Neumann v. Coastal Spray Company and Texas-New Mexico Power Company, Cause No. 92CV0998, 10th Judicial District Court, Galveston, County, Texas. Plaintiff is claiming property damages to land and animals due to herbicide spraying on Texas-New Mexico Power Company R.O.W. adjacent to Plaintiff's property. No amount of damages has been stated. Discovery continues. 4. James P. Entrekin v. Coastal Spray Company and Texas-New Mexico Power Company, Cause No. 92CV0953, 10th Judicial District Court, Galveston County, Texas. Plaintiff is claiming property damages to land and Arabian horses due to herbicide spraying on Texas-New Mexico Power Company R.O.W. adjacent to Plaintiff's property. No amount of damages has been stated. Discovery continues. 5. Ralph Fellers v. Texas-New Mexico Power Company, *Consolidated with Davis and Hurst, Cause No. 94-30074-211, 211th Judicial District Court, Denton County, Texas. Plaintiff is claiming property damages in the amount of $160,000 due to environmental contamination of land located in Denton County, Texas. 6. H. Eugene Davis v. Texas-New Mexico Power Company, *Consolidated with Fellers and Hurst, Cause No. 94-30074-211, 211th Judicial District Court, Denton County, Texas. Plaintiff is claiming property damages due to environmental contamination of land located in Denton County, Texas. No amount of damages has been stated. 7. Harold Hurst v. Texas-New Mexico Power Company, *Consolidated with Fellers and Davis, Cause No. 94-30074-211, 211th Judicial District Court, Denton County, Texas. Plaintiff is claiming property damages due to environmental contamination of land located in Denton County, Texas. No amount of damages has been stated. 8. Texas-New Mexico Power Company v. PPM America, Inc. and Bank of America-Illinois, No. 495-CV-738-A, in the United States District Court, Northern District of Texas, Fort Worth Division. Declaratory judgment action concerning redemption of the Borrower's Series T first mortgage bonds with proceeds from the sale of its Panhandle properties under threat of condemnation by local municipalities. SEE ALSO SCHEDULE 3.17 SCHEDULE 3.17 Environmental Matters 1. Transformers and capacitors that may contain polychlorinated biphenyls ("PCBs"). Borrower does not know the concentration of PCBs, if any, in each and every transformer and capacitor owned or operated by Borrower. If a transformer or capacitor that contains dielectric fluid with a PCB concentration in excess of 50 parts per million leaks into the environment and thereby contaminates the water or soil, then Borrower would be liable for clean up and remediation costs. Depending upon the location and magnitude of such an occurrence, the costs could be significant. In addition, Borrower contracts with licensed companies to pick up and transport transformers and capacitors that contain over 50 parts per million PCBs. Borrower reasonably believes that these companies perform their service in accordance with applicable laws and regulations. However, if one of these companies has violated an applicable law or regulation, then Borrower could be held responsible for fines and damages resulting from improper handling, transport, storage, treatment, or disposal of the PCB-contaminated items. Borrower believes that the probability of such a situation occurring is remote. If such an event occurred, however, the fines and damages for which Borrower would be responsible could be significant. 2. Remediation at 300 Crews Way, West Columbia, Brazoria County, Texas. In September, 1990, Borrower hired an environmental consultant to remove two underground storage tanks at Borrower's former construction center site in West Columbia. Based on sample results from the soil and water near the tank hold area, Borrower installed 12 monitoring wells and, in April 1993, began "pump and treat" technology to treat the groundwater. To date, no significant progress toward "clean" status has been made, the "plume" of contamination has not been defined to the TNRCC's satisfaction, and Borrower has paid almost $300,000 to the consultant. Borrower recently terminated the consultant and hired an environmental engineering firm to assess the progress of the remediation, define the plume of contamination, if any, and recommend alternatives to the "pump and treat" technology. Borrower anticipates that remediation efforts will continue for at least another year at a cost of at least $100,000. Borrower cannot reasonably predict the duration or total cost of remediation efforts at this time. 3. Davis Utility Hydraulics, Inc., Highway 121, Lewisville, Denton County, Texas; Notice of Violation from Texas Natural Resource Conservation Commission ("TNRCC") and Pending Litigation. In July 1992, Borrower received a Notice of Violation from the TNRCC indicating a release of Hazardous Materials at the Borrower's former construction center location in Lewisville, Texas. Borrower immediately hired an environmental consultant to begin excavation of the allegedly contaminated area, conduct soil and water sampling, and install monitoring wells. Borrower has cooperated fully with TNRCC and has submitted to TNRCC the sample results and reports it requires. The landowners of three separate but adjacent tracts have sued Borrower in state district court in Denton County, Texas, for damages in contract and tort, and Borrower has hired outside counsel to defend these suits. To date, Borrower has spent approximately $300,000 in connection with the remediation activities at the Lewisville site. However, based on results of recent soil and water sampling, Borrower believes that it will not be liable for the landowners' claims and that the TNRCC will permit Borrower to cease its remediation efforts at the site within the next six months. SCHEDULE 3.18 Insurance maintained by Borrower SCHEDULE 3.19 Insurance maintained by Borrower EX-10 5 TEXAS-NEW MEXICO POWER COMPANY EXECUTIVE AGREEMENT FOR SEVERANCE COMPENSATION UPON CHANGE IN CONTROL This Texas-New Mexico Power Company Executive Agreement for Severance Compensation Upon Change in Control ("Agreement") dated ___________________, is by and between Texas-New Mexico Power Company ("Company") and _______________ ("Executive"). Witnesseth That: WHEREAS, the Company considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its shareholders; and WHEREAS, the Company has determined that in order to best establish and maintain such sound and vital management it is appropriate to establish certain means for reinforcing and encouraging the continued attention and dedication of the Executive as a part of the management of the Company such that they may continue their assigned duties in a proper and efficient manner without distraction because of the possibility of a Change in Control of the Company; and WHEREAS, the Executive is willing to continue to serve the Company but is concerned about the possible effects any Change in Control might have on his duties and responsibility and status as an Executive: NOW, THEREFORE, in consideration of the promises and the mutual agreements herein contained, the Company and Executive hereby enter into this Agreement setting forth the severance compensation and extended benefits which the Company agrees it will pay to the Executive if the Executive's employment with the Company terminates under the circumstances described herein: 1) Company's Right to Terminate Prior to a Change in Control of the Company as herein defined, this Agreement shall terminate if Executive shall resign or retire voluntarily, become disabled, or die. Except as provided in paragraph 3)a)(vi) hereof, this Agreement shall also terminate if Executive's employment by the Company shall be terminated, with or without Cause, as herein defined, prior to any Change in Control of the Company by action of either the Board of Directors or Chief Executive Officer of the Company, as applicable. 2) Term (a) The term of this Agreement (the "Term") shall commence as of the date of this Agreement and shall expire as of the earliest of (i) the third annual anniversary of the date hereof; provided that the Board of Directors, by resolution duly adopted, may extend the Term of this Agreement from time to time, or (ii) termination of the Executive's employment because of death, Disability, voluntary termination or retirement by the Executive for other than Good Reason, or Cause (as those terms may be herein defined); (b) Any obligation which has vested under the terms of the Agreement and remains unpaid as of the date the Agreement expires or is terminated shall survive such expiration or termination and be enforceable under the terms of the Agreement. 3) Change in Control of the Company (a) For the purposes of this Agreement, a Change in Control of the Company is defined as the occurrence of any one of the following events: (i) there shall be consummated any consolidation or merger of the Company into or with another corporation or other legal person, and as a result of such consolidation or merger less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transactions are held in the aggregate by holders of Voting Stock, as herein defined, of the Company immediately prior to such transactions; or (ii) any sale, lease, exchange or other transfer, whether in one transaction or any series of related transactions, of all or significant portions of the assets of the Company to any other corporation or other legal person, less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale, lease, exchange, or transfer is held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale, lease, exchange, or transfer; or (iii) the shareholders of the Company approve any plan for the liquidation or dissolution of the Company; or (iv) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), becomes, either directly or indirectly, the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities representing 15% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of the Company ("Voting Stock"); provided that the Trustee of the Thrift Plan shall not be deemed such a person for the purposes of this Section 3(iv); or (v) if at any time during a fiscal year a majority of the Board of Directors of the Company shall be replaced by persons who were not recommended for those positions by at least two-thirds of the directors of the Company who were directors of the Company at the beginning of the fiscal year; or (vi) the Executive's employment is terminated for other than Cause or the Executive is removed from office or position with the Company in either case following commencement by one or more representatives of the Company of discussions (authorized by the Board of Directors or Chief Executive Officer of the Company) with a third party that ultimately results in the occurrence of an event described in clauses (i), (ii), (iii), (iv), or (v) herein, regardless of whether such third party is a party to such occurrence, in which event, for the purposes of this Agreement, the date of the authorization of such discussions is deemed to be the date of the Change in Control of the Company; (b) For all purposes of this paragraph 3), the term Company, as previously defined herein, shall include TNP Enterprises, Inc., the parent of Texas-New Mexico Power Company. 4) Termination Following Change in Control of the Company (a) Termination If a Change in Control of the Company shall have occurred while the Executive is still an employee of the Company, the Executive shall be entitled to the compensation provided in paragraph 5 upon the subsequent termination of the Executive's employment with the Company by the Executive or by the Company unless such termination is the result of (i) the Executive's death, (ii) the Executive's Disability, (iii) the Executive's decision voluntarily to terminate his employment or retire, but only if Good Reason does not exist, or (iv) the Executive's termination for Cause. Notwithstanding anything in this Agreement to the contrary, termination of the Executive shall not have been for Cause if termination occurred because of (i) bad judgement or negligence on the part of the Executive unless it is demonstrable from historical events that the Executive's bad judgement or negligence shall have been of such an extensive and ongoing nature that it rendered the Executive unable adequately to perform his duties; or (ii) an act or omission believed by the Executive in good faith to have been in, or at least not opposed to, the Company's best interests. For the purposes of this paragraph a), no act, or failure to act, shall be considered "willful" unless done, or omitted to be done, by the Executive without good faith. Good faith shall be based upon a reasonable belief that the action or omission was in, or at least not opposed to, the best interests of the Company. (b) Disability For the purposes of this Agreement, Disability shall mean that the Executive is incapacitated due to physical or mental illness or injury and shall have been unable to perform his duties for the Company on a full time basis for six months and, within 30 days after written Notice of Termination is thereafter given by the Company, the Executive shall not have returned to the full time performance of his duties. (c) Cause For the purposes of this Agreement, Cause shall mean (i) the willful and continued failure by the Executive substantially to perform his duties with the Company (excluding any failure resulting from Disability), after a written demand for substantial performance is delivered to the Executive by the Chief Executive Officer of the Company setting forth the manner in which the Executive has not been substantially performing his duties and providing the Executive an opportunity to appear before the Board of Directors of the Company with counsel in order to respond to such notice; (ii) the performance by the Executive of any act or acts constituting a felony involving moral turpitude and which results or is intended to result in damage or harm to the Company, whether monetary or otherwise, or which results in or is intended to result in improper gain or personal enrichment; and (iii) violations of the Company's Personnel Policy Manual, as constituted at any time prior to a Change in Control, concerning personal conduct; provided, that the Company must follow its disciplinary procedures as set forth therein. (d) Good Reason The Executive may terminate the Executive's employment with the Company and retain his rights to benefits hereunder if Good Reason exists at any time following a Change in Control of the Company. For the purposes of this Agreement, Good Reason shall mean any of the following, unless the Executive has expressly consented in writing otherwise: (i) within six months after a Change in Control of the Company occurs, the Executive, at his discretion, determines that he will not be able to work in a harmonious and effective manner in the performance of his duties on behalf of the Company; provided that, notwithstanding anything in this Agreement to the contrary, the six month period set forth above does not commence until the satisfaction of all conditions precedent to and the closing of the transactions contemplated in paragraph 3)a) (i), (ii), (iii), (iv), or (v) of this Agreement; (ii) the Executive is assigned by the Company to a position or duties which are inconsistent with or materially different from the Executive's duties or position with the Company immediately prior to the Change in Control of the Company; (iii) the Company removes the Executive from or fails to re-elect the Executive to any positions or offices held by the Executive immediately prior to the Change in Control of the Company, unless such action is for Disability, Cause, the Executive's death or the Executive's voluntary termination or retirement if Good Reason does not exist prior to such termination or retirement; (iv) the Executive's base salary or total compensation in effect immediately prior to the Change in Control of the Company is reduced by the Company; (v) the Company fails to increase the Executive's base salary and total compensation after the Change in Control of the Company by the average percentage increase in base salary and total compensation of other persons holding similar positions and titles within the Company; (vi) any failure by the Company to continue in effect any benefit plan or arrangement, or related trust, in which the Executive is participating or in which he may participate at the time of a Change in Control of the Company. Such plans, arrangements, or related trusts (collectively "Plans"), include, but are not limited to, Texas-New Mexico Power Company's Thrift Plan for Employees and Trust Agreement ("Thrift Plan"), Texas-New Mexico Power Company's Pension Plan ("Pension Plan"), Excess Benefit Plan, group life insurance plan, medical, dental, accident and disability plans and any other plans and related trusts which might exist at the time of a Change in Control of the Company; the Company's obligation hereunder to continue in effect any benefit plan or arrangement includes the obligation to irrevocably fund such Plans to the fullest extent allowed by any applicable rules and regulations, within 90 days of the occurrence of a Change in Control of the Company, and to maintain such funding thereafter; (vii) any action taken by the Company which would adversely affect the Executive's participation in or reduce the Executive's benefits received from any Plan; (viii) any action requiring the Executive to relocate outside the county in which he was officed prior to the Change in Control of the Company, except for travel required in the performance of his duties for the Company to an extent substantially consistent with the Executive's travel obligations immediately prior to a Change in Control of the Company; (ix) any failure by the Company to provide an automobile of similar style, class and size which was provided to the Executive by the Company immediately prior to a Change in Control of the Company; (x) any failure by the Company to provide the Executive with the number of paid vacation days to which the Executive was entitled immediately prior to a Change in Control of the Company; (xi) any material breach by the Company of any provision of this Agreement following a Change in Control of the Company; (xii) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; (xiii) any purported termination by the Company not in compliance with the Notice of Termination provision in paragraph 4)e) below following a Change in Control of the Company; and (xiv) after a Change in Control of the Company, the Company gives notice to the Executive that the term of this Agreement shall not be extended as provided in paragraph 2)a)(i). (e) Notice of Termination Any termination of the Executive by the Company pursuant to paragraphs 4)b) or 4)c) for Disability or Cause shall be communicated by a Notice of Termination in substantial compliance with the provisions of paragraph 8). For the purpose of this Agreement, a Notice of Termination shall mean a written notice which shall indicate the specific provisions in this Agreement relied upon for termination of Executive's employment and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination. For the purposes of this Agreement, no purported termination by the Company shall be effective without such Notice of Termination. (f) Effective Date of Termination Any termination of the Executive for Disability or Cause pursuant to paragraphs 4)b) or 4)c) shall be effective 30 calendar days after the Notice of Termination is delivered to the Executive; provided that, in the event the termination is for Disability as set out in paragraph 4)b), the Executive has not returned to full time performance of his duties within the 30-day period. All other terminations subject to the terms of this Agreement, whether by the Company or the Executive, shall be effective immediately upon the giving of the Notice of Termination. 5) Severance Compensation upon Termination of Employment If, during the period commencing upon a Change in Control of the Company and ending two years following the satisfaction of all conditions precedent to and consummation of an event described in clauses (i), (ii), (iii), (iv), or (v) of paragraph 3), the Company shall terminate the Executive's employment for any reason other than as a result of the Executive's death or the reasons set out in paragraphs 4)b) or 4)c) in full compliance of the requirements for notice set out in paragraph 4)e) or if the Executive shall terminate his employment with the Company when Good Reason exists, then the Company shall provide for and pay to the Executive the following compensation: (a) severance pay in a lump sum, in cash, no later than the fifth calendar day following the date of termination, an amount equal to three times the annual salary as calculated by reference to the Executive's rate of pay set forth in the Company's payroll records and in effect for the Executive immediately prior to a Change in Control of the Company; (b) medical, dental, disability and life insurance and other employee benefits upon the same terms and conditions and at the same cost to the Executive that existed immediately prior to the Change in Control of the Company for the lesser of three years or until substantially similar employee benefits are available through other employment; (c) if the Executive is fifty years of age or older and has at least twenty years of service with the Company, the Company, in addition to the foregoing benefits, shall pay to the Executive, as an early retirement incentive, an amount, on a monthly basis for the remainder of his life, that is equal to what the Executive's retirement pay would be, calculated using the formula set forth in the Company's Pension Plan as supplemented by the Excess Benefit Plan based upon the base salary earned by the Executive for the necessary number of years immediately prior to the Change in Control of the Company and the number of service credits that the Executive would accumulate if he continued his employment until age 62; provided that to the extent that the Executive would be entitled to retire on the date of termination or upon his achieving an age upon which the Executive could retire pursuant to the Company's Pension Plan as supplemented by the Excess Benefit Plan, and receive payments pursuant to said Pension Plan and Excess Benefit Plan, the Company's obligation to make monthly payments shall be equal to the difference between the amount actually received by the Executive under the Pension Plan as supplemented by the Excess Benefit Plan and the amount required to be paid by the Company as set forth above; provided further that if the Executive becomes entitled to any of the benefits set forth in paragraph 5)b) as a retiree under the Company's Pension Plan on or after the date of termination, then the benefits provided under said Pension Plan and Excess Benefit Plan shall be substituted for and take the place of the benefits that the Company would otherwise be required to provide; and further provided that to the extent any payment or obligation to pay under this paragraph 5)c) is determined by the Internal Revenue Service to be subject to taxation upon the net present value of the stream of payments for which the Company is obligated to pay, then the Company shall pay to the Executive within 30 days of such determination, a lump sum equal to the amount determined by the Internal Revenue Service to be subject to taxation; (d) without limiting the generality or effect of any other provision hereof, employee benefit plan, arrangement, or related trust referred to in paragraph 4)d)(vi), the Company shall fully fund each Plan in which the Executive is a participant or is otherwise entitled to payments or benefits within 5 calendar days of the termination of the Executive's employment; (e) any excise tax payable pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), as a result of the payment of the amounts described in subparagraphs a), b), and c); and (f) any additional federal, state, or local income tax liability (calculated at the highest effective rate applicable to individuals) and excise tax liability (under Section 4999 of the Code) attributable to payments made pursuant to this paragraph 5) hereof. 6) No Obligation to Mitigate Damages; No Effect on Other Contractual Rights (a) The Company hereby acknowledges that it will be difficult, and may be impossible, for the Executive to find reasonably comparable employment following the date of termination. In addition, the Company acknowledges that its severance pay plans applicable in general to its salaried employees do not provide for mitigation, offset, or reduction of any severance payment received thereunder. Accordingly, the parties hereto expressly agree that the payment of the severance compensation by the Company to the Executive in accordance with the terms of this Agreement will be liquidated damages, and that the Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings, or other benefits from any source whatsoever create any mitigation, offset, reduction, or any other obligation on the part of the Executive hereunder or otherwise; (b) The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any benefit plan, incentive plan or securities plan, employment agreement or other contract, plan or arrangement. 7) Successor to the Company (a) The Company will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly, absolutely and unconditionally to 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 such succession or assignment had taken place. Any failure of the Company to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle the Executive to terminate the Executive's employment for Good Reason. As used in this paragraph 7, Company shall have the same meaning as hereinbefore defined and shall include any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph 7 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. If at any time during the term of this Agreement, the Executive is employed by any corporation a majority of the voting securities of which is then owned by the Company, the Company as used in paragraphs 3, 4, 5, 12, and 13 hereof shall in addition include such employer. In such event, the Company shall pay or shall cause such employer to pay any amount owed to the Executive pursuant to paragraph 5 hereof; (b) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate; (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer, or delegate this Agreement or any rights or obligations hereunder except as expressly provided in paragraph 7)a) above. Without limiting the generality of the foregoing, the Executive's right to receive payments hereunder shall not be assignable, transferable, or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by his or her will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this paragraph 7)c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred, or delegated; (d) The Company and the Executive recognize that each party will have no adequate remedy at law for breach by the other of any of the agreements contained herein and, in the event of any such breach, the Company and the Executive hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus, or other appropriate remedy to enforce performance of this Agreement. 8) Notice For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If to the Company: Texas-New Mexico Power Company 4100 International Plaza, Tower II Fort Worth, Texas 76109 If to the Executive: ================================================= or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 9) Miscellaneous No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. 10) Validity The invalidity or unenforceability of any provision or ny part of a provision of this Agreement shall not affect the validity or enforceability of the remaining provisions of this Agreement, which shall remain in full force and effect. 11) Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 12) Legal Fees and Expenses The Company is aware that the Board of Directors or a shareholder of the Company or the Company's parent may then cause or attempt to cause the Company to refuse to comply with its obligations under this Agreement, or may cause or attempt to cause the Company or the Company's parent to institute, or may institute, litigation seeking to have this Agreement declared unenforceable, or may take, or attempt to take other action to deny the Executive the benefits intended under this Agreement. In these circumstances, the purpose of this Agreement could be frustrated. It is the intent of the Company that the Executive not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Executive hereunder, nor be bound to negotiate any settlement of his rights hereunder under threat of incurring such expenses. Accordingly, if it should appear to the Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation or other legal action designed to deny, diminish or to recover from the Executive the benefits intended to be provided to the Executive hereunder, the Company irrevocably authorizes the Executive from time to time to retain counsel of his choice at the expense of the Company as provided in this paragraph 12, to represent the Executive in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, shareholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Executive entering into an attorney-client relationship with such counsel, and in that connection the Company and Executive agree that a confidential relationship shall exist between the Executive and such counsel. The Company shall pay or cause to be paid and shall be solely responsible for any and all attorneys' and related fees and expenses incurred by the Executive as a result of the Company's failure to perform this Agreement or any provision hereof or as a result of the Company or any person contesting the validity or enforceability of this Agreement or any provision hereof. Such fees and expenses shall be paid or reimbursed to the Executive by the Company on a regular, periodic basis, within thirty days following receipt by the Company of statements of such counsel in accordance with such counsel's customary practice. In no event shall the Executive be required to reimburse the Company for attorneys' fees or expenses previously paid on behalf of the Executive or reimbursed to the Executive, or for any attorneys' fees or expenses incurred by the Company in connection with any contest of validity or enforceability of this Agreement or any provisions hereof; provided, however, that any litigation by the Executive, whether as plaintiff or defendant, shall be in good faith. 13) Confidentiality The Executive shall retain in confidence any and all confidential information known to the Executive concerning the Company and its business so long as such information is not otherwise publicly disclosed. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. TEXAS-NEW MEXICO POWER COMPANY By:___________________________ Name: Kevern R. Joyce Title: Chairman, President & Chief Executive Officer By:___________________________ Name: Title: ATTEST: - ---------------------------------- Secretary SCHEDULE TO EXHIBIT 10(qq) 1996 Employees with Executive Severance Compensation Contracts Contracts Extended by Board on 11-7-95 to 12-1-96: Kevern Joyce Jack Chambers Manjit Cheema Larry Dillon Allan Davis Douglas Hobbs Mike Blanchard Randy Ownby Dennis Cash Ralph Johnson Pat Bridges Melissa Davis John Montgomery (Provided effective 12-4-95) *Monte Smith *will expire 12-1-98 EX-27 6
UT 0000741612 TNP ENTERPRISES, INC. 1,000 12-MOS DEC-31-1995 DEC-31-1995 PER-BOOK 944,004 1,156 54,818 30,455 0 1,030,433 134,973 0 82,484 217,457 0 3,600 611,925 0 0 0 1,070 0 0 0 196,381 1,030,433 485,823 12,317 376,911 389,228 96,595 10,425 107,020 73,960 41,505 655 40,850 8,938 70,544 88,376 3.75 3.75
EX-27 7
UT 0000022767 TEXAS-NEW MEXICO POWER CO. 1,000 12-MOS DEC-31-1995 DEC-31-1995 PER-BOOK 944,004 175 48,477 32,287 0 1,024,943 107 174,931 49,313 224,351 0 3,600 611,625 0 0 0 1,070 0 0 0 183,997 1,024,943 485,823 12,317 376,911 389,228 96,595 10,729 107,324 73,960 41,809 655 41,154 2,400 70,544 88,312 0 0
EX-10 8 TNP Enterprises, Inc. Incentive Compensation Award Agreement This Agreement is dated and effective as of January 1, 1996, and is between ________________________ ("Participant") and TNP Enterprises, Inc. ("Company"). RECITALS On March 6, 1995, a Committee appointed by and having full authority to act on behalf of the Board of Directors of the Company adopted the TNP Enterprises, Inc. Management Short-Term Incentive Plan (the "Management Plan") and the TNP Enterprises, Inc. Equity Incentive Plan (the "Equity Plan"), and the Equity Plan later was approved by the Company's shareholders. On February 27, 1996, the Committee established the performance goals to be achieved to earn incentive compensation under the Management Plan and the Equity Plan (collectively, the "Plans"). The Participant has been selected by the Committee to receive awards under the Plans subject to the terms of the Plans and the Participant signing this Agreement. In consideration of the Recitals and the mutual covenants and agreements below, the Participant and the Company desire to and by their respective signatures do hereby agree as follows: AGREEMENT Short-Term Awards Short-Term Cash Award: Participant is hereby awarded ____% of the control point established for Participant's salary range as of February 27, 1996, as a cash award subject to the 1996 goals for the Management Plan being met as such goals are set forth on Exhibit A attached hereto and made a part hereof for all purposes. Such award may be adjusted between 50% and 150% on a straight line basis depending upon where the performance related to each goal occurs within the range established for each goal. No award payment will be made for performance below the established minimum for each goal set forth in Exhibit A. The cash award will be paid no later than the end of the first quarter following the end of the Management Plan year. No portion of the cash award is due or payable regardless of whether any Corporate Operational Goal is met unless the minimum Corporate Financial Goal is met. Further, the Committee reserves the right to make year-end adjustments to account for any unusual or unforeseen events that impact the attainability of any goal. Short-Term Stock Award: Participant is hereby awarded ____% of the control point established for Participant's salary range as of February 27, 1996, as a stock award subject to the 1996 goals for the Equity Plan being met as such goals are set forth on Exhibit A. Such award may be adjusted between 50% and 150% on a straight line basis depending upon where the performance related to each goal occurs within the range established for each goal. No award payment will be made for performance below the established minimum for each goal set forth in Exhibit A. The stock award will be paid no later than the end of the first quarter following the end of the Equity Plan year. No portion of the stock award is due or payable regardless of whether any Corporate Operational Goal is met unless the minimum Corporate Financial Goal is met. Further, the Committee reserves the right to make year-end adjustments to account for any unusual or unforeseen events that impact the attainability of any goal. Restrictions on Sale of Stock: The short-term stock award is restricted from being sold for a two-year period following the end of _______________ (the "Restriction Period"). Any stock issued as a short-term stock award will bear a legend stating any applicable restrictions. Such stock award is rendered null and void and of no effect in the event that Participant attempts to sell such stock during the Restriction Period. Notwithstanding the foregoing, all restrictions on the sale of the stock lapse and said stock may be freely sold or transferred if during the Restriction Period one of the following should occur: a. Participant's employment is terminated for any reason other than cause. b. A Change of Control occurs as that term is defined in the Equity Plan. (Participant should be cognizant of Rule 16(b) to the extent it may apply.) Allocation of Awards: Total amounts of short-term cash and stock awards will be allocated _____% to the Corporate Financial Goal, ____% to the Corporate Operational Goals, and ____% to the Individual Performance Goal. The amounts allocated to each set of goals will be due and payable only to the extent each such goal is met as set forth in Exhibit A. The amount allocated to the Corporate Operational Goal will be further allocated to each of the established operational goals in the manner set forth on Exhibit B which is attached hereto and made a part hereof for all purposes. To the extent that any amount of the total short-term award is allocated to the Individual Performance Goal, such amount will be due and payable only to the extent the performance of the Participant, as determined by the Chief Executive Officer in his sole discretion (or, if Participant is the Chief Executive Officer, then as determined by the Compensation Committee in its sole discretion), falls within the Performance Rating range set forth in Exhibit C which is attached hereto and made a part hereof for all purposes. Long -Term Award Long-Term Stock Award: Participant is hereby awarded ____% of the control point established for Participant's salary range as of February 27, 1996, as a stock award subject to the 1996 goals for long-term awards under the Equity Plan being met as such goals are set forth on Exhibit D attached hereto and made a part hereof for all purposes. Such award may be adjusted between 50% and 150% on a straight line basis depending upon where the performance related to each goal occurs within the range established for each goal. No award payment will be made for performance below the established minimum for each goal set forth in Exhibit D. Any stock award earned will be paid no later than the end of the first quarter following the end of the 1996 long-term award Equity Plan cycle. The 1996 long-term Equity Plan cycle will be a period of three years beginning January 1, 1996. Allocation of Award: The total amount of any long-term stock award under the Equity Plan will be allocated 50% to the goal established for Total Shareholder Return in comparison to the S&P 500 and 50% to the goal established for Total Shareholder Return in comparison to the S&P Electric Utility Group. The amount allocated to each goal will be due and payable only to the extent each such goal is met as set forth in Exhibit D. General Terms Dividend Equivalents: Participant will have the right to receive, at the time any stock awards are paid, cash or shares as determined in the Committee's discretion at the time the award is paid, in an amount equal in value to the dividends declared on each share on each record date occurring during the applicable period of performance established by the Equity Plan. Proration of Awards: If a Participant's employment is terminated due to retirement, death, or disability during a plan year or the 1996 Equity Plan long-term award cycle, any award earned will be prorated based on the number of months of participation within the plan year or long-term cycle. The prorated award will be based upon performance determined at year or cycle end and will be paid at the same time as all other awards are paid under the Plans. If employment is terminated for any reason other than retirement, death, or disability, any award opportunity granted under the Plans will be forfeited, provided that the Committee may waive such forfeiture upon the Chief Executive Officer's recommendation. Valuation of Shares: Shares issued under the Equity Plan will be valued by averaging the high and low prices of the stock on the first trading day of the Equity Plan year or three-year cycle, as applicable. Shares issued as the result of the Committee's determination to pay dividends in stock will be valued as of the ex-dividend date for each dividend declaration during the Equity Plan year. Tax Treatment: Payments under the Plans are taxable to the Participant in the year of receipt. The Company will have the right to deduct any federal, state, or local taxes required by law to be withheld. In regard to any stock award made hereunder, a Participant, at Participant's option, may elect to have the Company withhold sufficient stock to pay the taxes then due on such stock award. Employment Status: This Agreement does not affect Participant's status as an employee at will and either party may terminate Participant's employment at any time with or without cause. Provisions Consistent with Plans: This Agreement will be construed consistent with the provisions of the Plans. If there is a conflict between the provisions of this Agreement and either of the Plans, the provisions of the applicable plan control. The Committee reserves the right, in its sole discretion, to interpret the terms and conditions of and to resolve any disagreements or disputes concerning any award, this Agreement, and the Plans, and its decision is binding upon all parties. Unless otherwise noted to the contrary, the definition of terms in the Plans also apply in this Agreement. Attorney Fees: If either party is required to bring a cause of action against the other to enforce the terms of this Agreement, then such party, to the extent such party is successful in such action, will be entitled to reasonable attorney fees from the other party. Governing Law: This Agreement will be governed by the laws of the State of Texas. Venue for any cause of action will be Tarrant County, Texas. TNP Enterprises, Inc. Participant: By:______________________ __________________________ EXHIBIT A GOALS FOR MANAGEMENT PLAN & EQUITY PLAN SHORT-TERM AWARDS Minimum Target Maximum CORPORATE FINANCIAL: 1. Earnings Per Share CORPORATE OPERATIONAL: 2. Customer Satisfaction 3. O&M Costs/KWH Sales (cents/KWH) 4. Equivalent Forced Outage Rate 5. Injury Frequency Ratio 6. System Reliability a. Minutes of Outage/ Customers Served b. Number of Customers Interrupted/ Customers Served EXHIBIT B Allocation of Short-Term Awards for Management Plan & Equity Plan CORPORATE OPERATIONAL: 1. Customer Satisfaction 2. O&M Costs/KWH Sales (cents/KWH) 3. Equivalent Forced Outage Rate 4. Injury Frequency Ratio 5. System Reliability a. Minutes of Outage/ Customers Served b. Number of Customers Interrupted/ Customers Served 1. Columns should total to__% and __%, respectively. 2. Note: only the appropriate % column will appear in the Exhibit for each individual. EXHIBIT C INDIVIDUAL PERFORMANCE GOALS
- ------- -------------------------------------------------------------- ---------------------------------------------- PERFORMANCE RATING INDIVIDUAL PERFORMANCE AS A % OF TARGET AWARDS - ------- -------------------------------------------------------------- ---------------------------------------------- - ------- -------------------------------------------------------------- ---------------------------------------------- 4 - Leading Edge - Performance is the very best we can expect of an employee in a given position. The employee has consistently performed far beyond expectations and has 150% demonstrated outstanding skill, knowledge and initiative in the job. This rating recognizes truly outstanding contribution to the organization, within and sometimes outside the scope of the position. The individual's job accomplishments have made significant impact on the mission of the department and company. - ------- -------------------------------------------------------------- ---------------------------------------------- - ------- -------------------------------------------------------------- ---------------------------------------------- 3 - Out in Front - The employee consistently demonstrates -------------- performance at levels which exceed position requirements. The employee can be counted on to achieve high quality results on even the most difficult and complex parts of the 125% job. The employee does advanced planning, anticipates problems, and takes appropriate action. Each work assignment or project is done thoroughly and completely. - ------- -------------------------------------------------------------- ---------------------------------------------- - ------- -------------------------------------------------------------- ---------------------------------------------- 2 - With the Pack - Performance is full, complete, and satisfactory. It is what is expected of a fully qualified and experienced person in the assigned position. This rating indicates no serious deficiency in any major element 100% of the job. The employee works with a minimum of supervision. This is a good rating; it does not imply mediocrity. - ------- -------------------------------------------------------------- ---------------------------------------------- - ------- -------------------------------------------------------------- ---------------------------------------------- 1 - Needs to Improve - Performance is generally satisfactory, but sometimes falls below an acceptable performance level. Close supervision and coaching are required particularly in areas where results have been insufficient. Some 50% improvement is necessary to meet job requirements. - ------- -------------------------------------------------------------- ---------------------------------------------- - ------- -------------------------------------------------------------- ---------------------------------------------- 0 - Doesn't Get It - Performance clearly fails to meet requirements and serious performance deficiencies exists. Immediate corrective action must be taken by the employee and supervisor to improve the performance level. An overall 0% ------- rating at this level indicates that further employment is contingent upon immediate and significant improvement. The employee should consult with his/her supervisor to discuss alternatives and actions required. - ------- -------------------------------------------------------------- ----------------------------------------------
EXHIBIT D Long-Term Stock Award Goals TNPE vs. S&P 500 (__% weighting) TNPE vs. S&P Electric Utility Index (__% weighting) SCHEDULE TO EXHIBIT 10(SS) Executives with 1995 and 1996 Incentive Compensation Award Agreements Employee Name Kevern Joyce Jack Chambers Manjit Cheema Douglas Hobbs Allan Davis Larry Dillon Ralph Johnson Dennis Cash Mike Blanchard John Montgomery Randy Ownby Larry Gunderson Kristi Cheema Mark Wilson Gary Spooner Pat Bridges Melissa Davis -----END PRIVACY-ENHANCED MESSAGE-----